EX-99.1 2 exhibit99-1.htm EXHIBIT 99.1 Metalla Royalty & Streaming Ltd. : Exhibit 99.1 - Filed by newsfilecorp.com

 

 

 

 

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited - Expressed in Canadian Dollars)

 

FOR THE THREE MONTHS ENDED AUGUST 31, 2020 AND 2019

 

 

 


METALLA ROYALTY & STREAMING LTD.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited - Expressed in Canadian Dollars)

 
      As at  
      August 31,     May 31,  
  Notes   2020     2020  
ASSETS              
Current assets              
Cash   $ 8,486,134   $ 4,695,653  
Accounts receivables 3   488,026     232,042  
Prepaid expenses and other     421,617     300,638  
Total current assets     9,395,777     5,228,333  
               
Non-current assets              
Royalty, stream, and other interests 4   69,573,854     62,570,580  
Investment in Silverback 5   2,065,645     1,978,043  
Right-of-use asset     -     3,721  
Total non-current assets     71,639,499     64,552,344  
TOTAL ASSETS   $ 81,035,276   $ 69,780,677  
               
LIABILITIES AND EQUITY              
LIABILITIES              
Current liabilities              
Trade and other payables 6 $ 1,020,209   $ 1,849,326  
Total current liabilities     1,020,209     1,849,326  
               
Non-current liabilities              
Loans payable 7   4,453,913     4,595,440  
Deferred income tax liabilities 9   626,926     660,305  
Total non-current liabilities     5,080,839     5,255,745  
Total liabilities     6,101,048     7,105,071  
               
EQUITY              
Share capital 10   108,011,845     92,198,893  
Reserves     7,498,903     9,153,352  
Deficit     (40,576,520 )   (38,676,639 )
Total equity     74,934,228     62,675,606  
TOTAL LIABILITIES AND EQUITY   $ 81,035,276   $ 69,780,677  

Event after reporting date (Note 15)

These condensed interim consolidated financial statements were authorized for issuance by the Board of Directors on October 8, 2020.

Approved by the Board of Directors

"Brett Heath" Director   "Terry Krepiakevich"    Director

                                                          

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

 
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METALLA ROYALTY & STREAMING LTD.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(Unaudited - Expressed in Canadian Dollars, except for share amounts)       

 

 

      Three months ended  
      August 31,  
  Notes   2020     2019  
            (Deferred tax  
            restated) (1)  
Revenue from royalty interests 8 $ 452,387   $ -  
Revenue from stream interest 8   -     160,298  
Total revenue     452,387     160,298  
Cost of sales, excluding depletion     -     (46,628 )
Depletion on royalty and stream interests 4   (274,134 )   (35,655 )
Gross profit     178,253     78,015  
               
General and administrative expenses     (923,588 )   (740,542 )
Share-based payments 10   (685,694 )   (536,904 )
Loss from operations     (1,431,029 )   (1,199,431 )
               
Share of net income of Silverback 5   87,602     42,076  
Interest expense 7   (262,653 )   (137,858 )
Finance charges 7   (144,808 )   (336,098 )
Accretion and other expenses     (9,709 )   (11,448 )
Fair value adjustment on marketable securities     53,923     -  
Foreign exchange gain     20,912     62,614  
Loss before income taxes     (1,685,762 )   (1,580,145 )
Current income tax recovery (expense) 9   (50,065 )   731,804  
Deferred income tax recovery (expense) 9, 14   (164,054 )   384,415  
Net loss   $ (1,899,881 ) $ (463,926 )
               
Other comprehensive income (loss)              
Items that may be reclassified subsequently to profit and loss:              
  Foreign currency translation adjustment     (832,151 )   (478,669 )
Other comprehensive income (loss)     (832,151 )   (478,669 )
Total comprehensive loss   $ (2,732,032 ) $ (942,595 )
               
Earnings (loss) per share - basic and diluted   $ (0.05 ) $ (0.01 )
Weighted average number of shares outstanding - basic and diluted     36,214,370     33,322,502  

(1) For additional details on the restatement of the prior period deferred taxes see Note 14

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

 
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METALLA ROYALTY & STREAMING LTD.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited - Expressed in Canadian Dollars)

 
      Three months ended  
      August 31,  
  Notes   2020     2019  
            (Deferred tax  
CASH FLOWS FROM OPERATING ACTIVITIES           restated) (1)  
Net loss 14 $ (1,899,881 ) $ (463,926 )
Items not affecting cash:              
Share of net income of Silverback 5   (87,602 )   (42,076 )
Depletion and amortization     277,855     41,233  
Interest and accretion expense     262,653     138,186  
Finance charges     144,808     336,098  
Share-based payments     685,694     536,904  
Deferred income tax expense (recovery) 14   164,054     (384,415 )
Fair value adjustment on marketable securities     (53,923 )   -  
Unrealized foreign exchange effect     41,208     (48,925 )
      (465,134 )   113,079  
Changes in non-cash working capital items:              
Accounts receivable     (255,984 )   (35,896 )
Prepaid expenses and other     (68,979 )   -  
Trade and other payables     (829,117 )   (834,830 )
Net cash used in operating activities     (1,619,214 )   (757,647 )
               
CASH FLOWS FROM INVESTING ACTIVITIES              
Acquisitions of royalty and stream interests 4   (1,563,491 )   (542,698 )
Net cash used in investing activities     (1,563,491 )   (542,698 )
               
CASH FLOWS FROM FINANCING ACTIVITIES              
Proceeds from exercise of stock options     93,700     252,599  
Proceeds from exercise of share purchase warrants     2,270,815     267,416  
Dividend paid     -     (399,094 )
Proceeds from convertible loans facility 7   5,000,000     7,000,000  
Repayment of loan principal     -     (2,666,250 )
Interest paid     (135,415 )   (179,980 )
Finance charges paid     (144,808 )   (336,098 )
Net cash provided by financing activities     7,084,292     3,938,593  
               
Effect of exchange rate changes on cash     (111,106 )   (29,953 )
               
Changes in cash during period     3,790,481     2,608,295  
Cash, beginning of period     4,695,653     4,603,062  
Cash, end of period   $ 8,486,134   $ 7,211,357  

(1) For additional details on the restatement of the prior period deferred taxes see Note 14

Supplemental disclosure with respect to cash flows (Note 12)


METALLA ROYALTY & STREAMING LTD.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited - Expressed in Canadian Dollars, except for share amounts)

 

 

    Number of     Share                   Total  
    shares     capital     Reserves       Deficit     equity  
                (Deferred tax       (Deferred tax        
                restated)(1)       restated)(1)        
Balance as at May 31, 2019   33,138,247   $ 83,058,255   $ 7,396,376   $   (31,285,237 ) $ 59,169,394  
Acquisition of royalty and other interests   2,575     11,123     -       -     11,123  
Exercise of stock options   295,417     762,304     (509,204 )     -     253,100  
Exercise of share purchase warrants   104,949     388,029     (120,613 )     -     267,416  
Share-based payments - stock options   -     -     318,470       -     318,470  
Share-based payments - restricted share units   9,805     38,434     -       -     38,434  
Allocation of conversion feature net of taxes (Note 7)(1)   -     -     2,031,092       -     2,031,092  
Foreign currency translation adjustment   -     -     (478,669 )     -     (478,669 )
Dividend paid   -     -     -       (399,094 )   (399,094 )
Loss for the period(1)   -     -     -       (463,926 )   (463,926 )
Balance as at August 31, 2019   33,550,993     84,258,145     8,637,452       (32,148,257 )   60,747,340  

(1) For additional details on the restatement of the prior period deferred taxes see Note 14

    Number of     Share                 Total  
    shares     capital     Reserves     Deficit     equity  
Balance as at May 31, 2020   35,114,048     92,198,893     9,153,352     (38,676,639 )   62,675,606  
Acquisition of royalty and other interests (Note 4)   899,201     6,474,247     -     -     6,474,247  
Conversion on loan payable (Note 7)   1,079,136     6,407,181     (1,850,875 )   -     4,556,306  
Allocation of conversion feature net of taxes (Note 7)   -     -     909,892     -     909,892  
Exercise of stock options   36,125     144,713     (51,013 )   -     93,700  
Exercise of share purchase warrants   512,476     2,492,811     (221,996 )   -     2,270,815  
Share-based payments - stock options   -     -     538,324     -     538,324  
Share-based payments - restricted share units   75,000     294,000     (146,630 )   -     147,370  
Foreign currency translation adjustment   -     -     (832,151 )   -     (832,151 )
Loss for the period   -     -     -     (1,899,881 )   (1,899,881 )
Balance as at August 31, 2020   37,715,986   $ 108,011,845   $ 7,498,903   $ (40,576,520 ) $ 74,934,228  

 


METALLA ROYALTY & STREAMING LTD.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2020 AND 2019

(Expressed in Canadian Dollars, unless otherwise stated)

 

1. NATURE OF OPERATIONS

Metalla Royalty & Streaming Ltd. ("Metalla" or the "Company"), incorporated in Canada, is a precious metals royalty and streaming company, who engages in the acquisition and management of precious metal royalties, streams, and similar production-based interests. The Company's common shares are listed on the TSX Venture Exchange ("TSX-V") under the symbol "MTA" and on the NYSE American ("NYSE") under the symbol "MTA". The head office and principal address is 501 - 543 Granville Street, Vancouver, British Columbia, Canada.

The Company has incurred a cumulative deficit to date of $40,576,520 as at August 31, 2020 (May 31, 2020 - $38,676,639) and has had losses from operations for multiple years. Continued operations of the Company are dependent on the Company's ability to generate profitable earnings in the future, receive continued financial support, and/or complete external financing. Management expects that its cash balance, cash flows from operating activities, and available credit facilities will be sufficient to fund the operations of the Company for the next twelve months.

In December 2019, the Company completed a consolidation of its common shares on the basis of one new share for four old shares (1:4) effective December 17, 2019 and the listing of its common shares on the NYSE effective January 8, 2020. All figures have been adjusted to reflect the one for four share consolidation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

The consolidated financial statements have been prepared using accounting policies in compliance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board applicable to the preparation of interim financial statements, including IAS 34, Interim Financial Reporting. Accordingly, certain disclosures included in the annual financial statements prepared in accordance with IFRS have been condensed or omitted. These condensed interim consolidated financial statements should be read in conjunction with the Company's most recent annual consolidated financial statements for the year ended May 31, 2020.

Basis of Preparation and Measurement

These condensed interim consolidated financial statements have been prepared on a historical cost basis, except for financial instruments, which have been measured at fair value. In addition, these condensed interim consolidated financial statements have been prepared using the accrual basis of accounting except for cash flow information.

These consolidated financial statements are presented in Canadian Dollars except as otherwise indicated.

Accounting Policies

The accounting policies applied in the preparation of these condensed interim consolidated financial statements are consistent with those applied and disclosed in the Company's most recent annual consolidated financial statements for the year ended May 31, 2020.


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METALLA ROYALTY & STREAMING LTD.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2020 AND 2019

(Expressed in Canadian Dollars, unless otherwise stated)

 

3. ACCOUNTS RECEIVABLE

    As at  
    August 31,     May 31,  
    2020     2020  
Royalty and stream receivables $ 203,499   $ -  
GST and other recoverable taxes   235,240     180,943  
Other receivables   49,287     51,099  
Total accounts receivable $ 488,026   $ 232,042  

As at August 31, 2020 and May 31, 2020, the Company did not have any royalty and stream receivables that were past due. The Company's allowance for doubtful accounts as at August 31, 2020 and May 31, 2020, was $Nil.

4. ROYALTY, STREAM, AND OTHER INTERESTS

    Producing     Development     Exploration        
    assets     assets     assets     Total  
As at May 31, 2019 $ 3,617,750   $ 51,147,953   $ 1,494,680   $ 56,260,383  
Alamos royalty portfolio acquisition   -     67,455     18,888     86,343  
Fifteen Mile Stream (FMS) acquisition   -     530,067     -     530,067  
NuevaUnión acquisition   -     1,381,733     -     1,381,733  
Idaho Resources Corp. acquisition   -     -     5,761,852     5,761,852  
Other additions   -     88,702     27,972     116,674  
Depletion   (911,427 )   -     -     (911,427 )
Recoveries   -     -     (150,000 )   (150,000 )
Reclassification (Joaquin and COSE)   8,399,942     (8,399,942 )   -     -  
Currency translation adjustments   (399,420 )   -     (105,625 )   (505,045 )
As at May 31, 2020 $ 10,706,845   $ 44,815,968   $ 7,047,767   $ 62,570,580  
Wharf acquisition   8,037,738     -     -     8,037,738  
Depletion   (274,134 )   -     -     (274,134 )
Currency translation adjustments   (458,252 )   -     (302,078 )   (760,330 )
As at August 31, 2020 $ 18,012,197   $ 44,815,968   $ 6,745,689   $ 69,573,854  
                         
Historical Cost $ 25,303,538   $ 44,815,968   $ 6,745,689   $ 76,865,195  
Accumulated Depletion $ (7,291,341 ) $ -   $ -   $ (7,291,341 )

*Note: For transactions prior to the reporting period, please refer to the Company's past audited financial statements available on SEDAR at www.sedar.com.


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METALLA ROYALTY & STREAMING LTD.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2020 AND 2019

(Expressed in Canadian Dollars, unless otherwise stated)

 

4. ROYALTY, STREAM, AND OTHER INTERESTS (cont'd…)

During the three months ended August 31, 2020, the Company had the following acquisitions:

Wharf Acquisition

In June 2020, the Company closed an agreement to acquire an existing 1.0% Gross Value Return ("GVR") royalty interest on the operating Wharf Mine owned by Coeur Mining Inc from third parties. Under the terms of the agreement the third parties received cash of US$1,000,000 and 899,201 common shares (valued at $7.20 per share on June 30, 2020) as consideration for the GVR. The Company incurred $200,657 in transaction costs associated with this transaction. The Wharf mine is an open pit, heap leach operation located in the Northern Black Hills of South Dakota and has been in production since 1983, as such the Wharf GVR has been classified as a producing asset upon acquisition.

Fosterville Acquisition

In July 2020, the Company announced it had entered into an agreement with NuEnergy Gas Limited to acquire an existing 2.5% Net Smelter Return ("NSR") royalty on the northern and southern portions of Kirkland Lake Gold Ltd.'s operating Fosterville mine ("Fosterville") in Victoria, Australia, for a total consideration of AUD$2.0 million in cash and 467,730 common shares. The transaction closed after the period end on September 28, 2020. 

5. INVESTMENT IN SILVERBACK

    Three months     Year ended  
    ended     May 31,  
    August 31, 2020     2020  
Opening balance $ 1,978,043   $ 2,191,431  
Income in Silverback for the period/year   87,602     97,905  
Distribution   -     (311,293 )
Ending balance $ 2,065,645   $ 1,978,043  

The Company, through its wholly-owned subsidiary, holds a 15% interest in Silverback Ltd. ("Silverback"), which is a privately held company, whose sole business is the receipt and distribution of the net earnings of the New Luika Gold Mine ("NLGM") silver stream. Distributions to the shareholders are completed on an annual basis at minimum. Given the terms of the shareholders' agreement governing the policies over operations and distributions to shareholders, the Company's judgment is that it has significant influence over Silverback, but not control and therefore equity accounting is appropriate. Summarized financial information for the three months ended August 31, 2020 and 2019 of Silverback is as follows:

    Three months ended
August 31,
 
    2020     2019  
Current assets $ 1,387,736   $ 1,179,379  
Non-current assets   2,571,495     3,969,243  
Total assets   3,959,231     5,148,621  
Total liabilities   (218,447 )   (239,713 )
Revenue from stream interest   966,816     642,967  
Depletion   (338,616 )   (335,822 )
Net income and comprehensive income for the period $ 584,013   $ 280,507  

 


METALLA ROYALTY & STREAMING LTD.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2020 AND 2019

(Expressed in Canadian Dollars, unless otherwise stated)

 

6. TRADE AND OTHER PAYABLES

    As at  
    August 31,     May 31,  
    2020     2020  
Trade payables and accrued liabilities $ 451,161   $ 1,300,582  
Payables on acquisitions   344,923     335,045  
Lease liability   -     3,881  
Taxes payable   224,125     209,818  
Total trade and other payables $ 1,020,209   $ 1,849,326  

7. LOANS PAYABLE

    Convertible     Other        
    loan facility     loans     Total  
As at May 31, 2019 $ -   $ 2,798,975   $ 2,798,975  
Additions   7,000,000     -     7,000,000  
Allocation of conversion feature   (2,782,318 )   -     (2,782,318 )
Interest expense   844,425     69,833     914,258  
Repayments   (466,667 )   (2,799,563 )   (3,266,230 )
Currency translation adjustments   -     (69,245 )   (69,245 )
As at May 31, 2020 $ 4,595,440   $ -   $ 4,595,440  
Conversion   (4,022,337 )   -     (4,022,337 )
Additions   5,000,000     -     5,000,000  
Allocation of conversion feature   (1,246,428 )   -     (1,246,428 )
Interest expense   262,653     -     262,653  
Interest payments   (135,415 )   -     (135,415 )
As at August 31, 2020 $ 4,453,913   $ -   $ 4,453,913  

In March 2019, the Company entered into a convertible loan facility (the "Loan Facility") of $12,000,000 with Beedie Capital ("Beedie") to fund acquisitions of new royalties and streams. The Loan Facility consisted an initial advance of $7,000,000, with the remaining $5,000,000 available for subsequent advances in minimum tranches of $1,250,000. The facility carried an interest rate of 8.0% on amount advanced and 2.5% on standby funds available, with the principal repayment due on April 21, 2023. Per the Loan Facility, at the option of Beedie, principal outstanding could be converted into common shares of the Company at a conversion price of $5.56 per share.

In August 2019, the Company drew down the initial advance of $7,000,000, of which $4,217,682 was allocated to the liability portion and the residual value of $2,782,318 was allocated to the conversion feature as equity and a deferred tax liability of $751,226 related to the taxable temporary difference arising from the equity portion of the convertible loan was recognized in equity reserves. The effective interest rate on the liability was 23.5% per annum, with an expected life of four years.


METALLA ROYALTY & STREAMING LTD.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2020 AND 2019

(Expressed in Canadian Dollars, unless otherwise stated)

 

7. LOANS PAYABLE (cont'd…)

On August 6, 2020, the Company completed an amendment with Beedie on its Loan Facility (the "Loan Amendment").  As part of the Loan Amendment the following items of the Loan Facility were amended:

  • Beedie converted $6,000,000 of the $7,000,000 drawn down on the Loan Facility in 2019 at a conversion price of $5.56 per share for a total of 1,079,136 common shares of the Company.  The conversion price on the remaining $1.0 million will remain at $5.56 per share;
  • the Company drew down the remaining undrawn $5,000,000 available from the Loan Facility and the conversion price for this drawn $5,000,000 million was repriced from $5.56 to $9.90 per share;
  •  the Loan Facility was increased by an aggregate $20,000,000.  All future advances from the additional $20,000,000 will have a minimum amount of $2,500,000  and each advance will have its own conversion price based on a 20% premium to the 30-day Volume Weighted Average Price (“VWAP”) of the Company’s shares on the date of such advance;
  • if for a period of 30 consecutive trading days the 30-day VWAP is at a 50% premium above any or all of the conversion prices, the Company may elect to convert the principal amount outstanding under the Loan Facility at the respective conversion prices;
  • the standby fee on all undrawn funds available under the Loan Facility will bear an interest rate of 1.5% (previously 2.5%), the interest rate on all drawn funds will remain unchanged at 8.0%; and
  • the maturity date remains unchanged with principal payment due April 21, 2023.

Following this conversion and draw down, under the Loan Facility and the Loan Amendment (together the "Amended Loan Facility") the Company has $1,000,000 outstanding with a conversion price of $5.56, $5,000,000 outstanding with a conversion price of $9.90 per share, and has $20,000,000 million available under the Amended Loan Facility with the conversion price to be determined on the date of any future advances.

In August 2020, the Company drew down $5,000,000 from the Amended Loan Facility of which $3,753,572 was allocated to the liability portion and the residual value of $1,246,428 was allocated to the conversion feature as equity reserves. A deferred tax liability of $336,536 related to the taxable temporary difference arising from the equity portion of the convertible loan was recognized as an offset in equity reserves. The effective interest rate on the liability portion was 20.0% per annum, with an expected life of approximately three years.

In August 2020, as per the terms of the Loan Amendment, Beedie converted $6,000,000 of the initial draw-down on the Loan Facility in 2019 at a conversion price of $5.56 per share for a total of 1,079,136 common shares of the Company.  Upon conversion the Company derecognized $4,022,337 from the liability, and $2,384,844 from equity reserves and transferred $6,407,181 to share capital.  The Company also recorded a deferred income tax expense of $533,969 with an offset to equity reserves to unwind a portion of the deferred taxes that were recognized in August 2019 upon the first draw-down.

For the three months ended August 31, 2020, the Company recognized finance charges of $144,808 (2019 - $336,098) related to costs associated with the Amended Loan Facility including standby fees on the undrawn portion of the Amended Loan Facility, as well as set up and other associated costs. 


METALLA ROYALTY & STREAMING LTD.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2020 AND 2019

(Expressed in Canadian Dollars, unless otherwise stated)

 

8. REVENUE

    Three months ended  
    August 31,  
    2020     2019  
Wharf royalty $ 442,020   $ -  
Joaquin royalty   10,367     -  
Endeavor stream   -     160,298  
Total revenue $ 452,387   $ 160,298  

The Company operates in one industry and has one reportable segment, which is reviewed by the chief operating decision maker. For the three months ended May 31, 2020, the Company recognized revenue from three of its royalties and streams  as shown above.

9. INCOME TAXES

Income tax expense differs from the amount that would result from applying Canadian income tax rates to earnings before income taxes. These differences result from the following items:

    Three months ended  
    August 31,  
    2020     2019  
          (Note 14)  
Loss before income taxes $ (1,685,762 ) $ (1,580,145 )
Canadian federal and provincial income tax rates   27. 00%     27.00%  
Expected income tax expense (recovery) at statutory income tax rate   (455,156 )   (426,639 )
Difference between Canadian and foreign tax rate   (21,652 )   (9,714 )
Permanent differences   185,758     146,316  
Changes in unrecognized deferred tax assets   483,948     (774,271 )
Other adjustments   21,221     (51,911 )
Total income tax expense (recovery)   214,119     (1,116,219 )
             
Current income tax expense (recovery)   50,065     (731,804 )
Deferred income tax expense (recovery)   164,054     (384,415 )

 


METALLA ROYALTY & STREAMING LTD.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2020 AND 2019

(Expressed in Canadian Dollars, unless otherwise stated)

 

10. SHARE CAPITAL

Authorized share capital consists of an unlimited number of common shares without par value.

Issued Share Capital

As at August 31, 2020, the Company had 37,715,986 common shares issued and outstanding (May 31, 2020 - 35,114,048).

During the three months ended August 31, 2020, the Company:

  • issued 899,201 common shares for the acquisition of royalty and stream interests;
  • issued 1,079,136 common shares related to the partial conversion of the Loan Facility;
  • issued 512,476 common shares related to the exercise of share purchase warrants; and
  • issued 111,125 common shares related to the vesting of RSUs, and the exercise of stock options.

During the year ended May 31, 2020, the Company:

  • issued 359,695 common shares for the acquisition of royalty and stream interests;
  • issued 959,698 common shares related to the exercise of share purchase warrants; and
  • issued 656,408 common shares related to the vesting of RSUs, and the exercise of stock options.

Stock Options

The Company has adopted a stock option plan approved by the Company's shareholders. The maximum number of shares that may be reserved for issuance under the plan is limited to 10% of the issued common shares of the Company at any time, less the amount reserved for RSUs. The vesting terms, if any, are determined by the Company's Board of Directors at the time of the grant.

The continuity of stock options for the three months ended August 31, 2020 was as follows:

    Weighted        
    average     Number  
    exercise price     outstanding  
As at May 31, 2019 $ 2.30     2,171,873  
Granted   7.66     600,000  
Exercised   1.71     (565,603 )
Cancelled/Expired   2.32     (3,125 )
As at May 31, 2020 $ 3.91     2,203,145  
Exercised   2.59     (36,125 )
As at August 31, 2020 $ 3. 93     2,167,020  

 


METALLA ROYALTY & STREAMING LTD.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2020 AND 2019

(Expressed in Canadian Dollars, unless otherwise stated)

 

10. SHARE CAPITAL (cont'd…)

As at August 31, 2020, the weighted average remaining life of the stock options outstanding was 2.97 years (May 31, 2020 - 3.21 years). The Company's outstanding and exercisable stock options as at August 31, 2020 and their expiry dates are as follows:

      Exercise     Number     Number  
Expiry date     price     outstanding     exercisable  
July 15, 2021   $ 0.84     41,666     41,666  
November 30, 2021     1.32     116,666     116,666  
March 6, 2022     2.32     93,750     93,750  
July 31, 2022     2.16     435,250     435,250  
March 1, 2023     2.56     243,750     243,750  
September 17, 2023     2.92     326,563     229,688  
January 4, 2024     3.24     309,375     215,627  
January 15, 2025     7.66     600,000     150,000  
Total           2,167,020     1,526,397  

Share Purchase Warrants

The continuity of share purchase warrants for the three months ended August 31, 2020 was as follows:

    Weighted        
    average     Number  
    exercise price     outstanding  
As at May 31, 2019 $ 3.95     1,690,893  
Exercised   3.62     (959,698 )
As at May 31, 2020   4.39     731,195  
Exercised   4.43     (512,476 )
As at August 31, 2020 $ 4. 30     218,719  

The Company’s outstanding share purchase warrants as at August 31, 2020 and their expiry dates are as follows:

Expiry date     Exercise     Number  
    price     outstanding  
September 4, 2020 (1)   $ 4.68     179,136  
November 8, 2020     3.40     18,750  
August 30, 2021     1.80     20,833  
Total           218,719  

(1) On August 6, 2020, pursuant to the terms of the underlying agreements, the Company announced the acceleration of the expiry dates of certain warrants to September 4, 2020, in prior periods these warrants had expiry dates of December 31, 2020 and January 4, 2021.


METALLA ROYALTY & STREAMING LTD.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2020 AND 2019

(Expressed in Canadian Dollars, unless otherwise stated)

 

10. SHARE CAPITAL (cont'd…)

Restricted Share Units

The Company has adopted an RSU plan approved by the Company's shareholders. The maximum number of RSUs that may be reserved for issuance under the plan is limited to 442,701. The vesting terms, if any, are determined by the Company's Board of Directors at the time of issuance. The continuity of RSUs for the three months ended August 31, 2020 was as follows:

    Number  
    outstanding  
As at May 31, 2019   -  
Granted   171,805  
Exercised   (90,805 )
As at May 31, 2020   81,000  
Granted   205,000  
Vested   (75,000 )
As at August 31, 2020   211,000  

Share-based payments

For the three months ended August 31, 2020, in accordance with the vesting terms of the stock options granted, the Company recorded a charge to share-based payments expense of $538,324 (2019 - $318,470) with an offsetting credit to reserves.

For the three months ended August 31, 2020, in accordance with the vesting terms of the RSUs granted, the Company recorded a charge to share-based payments expense of $147,370 (2019 - $218,434) with offsetting credits of $28,918 and $118,452 (2019 - $38,434 and $180,000) to share capital and reserves, respectively.

11. RELATED PARTY TRANSACTIONS AND BALANCES

The aggregate value of transactions and outstanding balances relating to key management personnel were as follows:

    Three months ended  
    August 31,  
    2020     2019  
Salaries and fees (1) $ 146,197   $ 146,564  
Share-based payments   414,032     468,521  
  $ 560,229   $ 615,085  

(1) The services of the Chief Financial Officer ("CFO") of the Company are provided through a management services company, Seaboard Services Corp., which bills the Company for various administrative and regulatory services on a monthly basis and included within the monthly amount is the cost of the CFO which is not billed separately. For the three months ended August 31, 2020, the Company was billed $43,500 (2019 - $43,500) by the management services company and part of that amount was for the CFO services, such amount is not included in the table above.

As at August 31, 2020, the Company had $42,726 (May 31, 2020 - $590,357) due to directors and management related to salary, fees, and/or reimbursements, which have been included in accounts payable and accrued liabilities.


METALLA ROYALTY & STREAMING LTD.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2020 AND 2019

(Expressed in Canadian Dollars, unless otherwise stated)

 

12. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

Significant Non-Cash Investing and Financing Activities

During the three months ended August 31, 2020, the Company:

a) issued 1,079,136 common shares, valued at $6,407,181, for the partial conversion of the Loan Facility (Note 7);

b) issued 899,201 common shares, valued at $6,474,247, for the acquisition of the Wharf GVR (Note 4);

c) reallocated $146,630 from reserves for 75,000 RSUs that vested;

d) reallocated $51,103 from reserves for 36,125 stock options exercised; and

e) reallocated $221,996 from reserves for 512,476 share purchase warrants exercised.

During the three months ended August 31, 2019, the Company:

a) issued 2,574 common shares, valued at $11,123, for the acquisition of the Alamos NSR;

b) entered into an agreement to sell the Tower Mountain project for $150,000 (offset against pre-production royalty payable to the original owner) and a 2.0% NSR royalty interest on the property;

c) reallocated $509,204 from reserves for 295,417 stock options exercised; and

d) reallocated $120,613 from reserves for 104,949 share purchase warrants exercised.

13. FINANCIAL INSTRUMENTS

The Company classified its financial instruments as follows:

    As at  
    August 31,     May 31,  
    2020     2020  
Financial assets            
Amortized cost:            
   Cash $ 8,486,134   $ 4,695,653  
   Other receivables   49,287     51,099  
Fair value through profit or loss:            
   Royalty and stream receivables   203,499     -  
   Marketable securities   88,000     36,000  
Total financial assets $ 8,826,920   $ 4,782,752  
             
Financial liabilities            
Amortized cost:            
   Accounts payable and accrued liabilities $ 1,020,209   $ 1,635,627  
   Loans payable   4,453,913     4,595,440  
Total financial liabilities $ 5,474,122   $ 6,231,067  

 


METALLA ROYALTY & STREAMING LTD.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2020 AND 2019

(Expressed in Canadian Dollars, unless otherwise stated)

 

13. FINANCIAL INSTRUMENTS (cont'd…)

Fair value

Financial instruments recorded at fair value on the consolidated statement of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

a) Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;

b) Level 2 - Inputs other than quoted prices that are observable for assets or liabilities, either directly or indirectly; and

c) Level 3 - Inputs for assets and liabilities that are not based on observable market data.

The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A financial instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in measuring fair value.

The carrying value of cash, receivables, and accounts payable and accrued liabilities approximated their fair value because of the short-term nature of these instruments. Marketable securities are classified within Level 1 of the fair value hierarchy. Royalty, stream receivable (if any) includes provisional pricing, and final price and assay adjustments and is valued using observable market commodity forward prices and thereby classified within Level 2 of the fair value hierarchy. The fair value of the Company's loans payable is approximated by its carrying value as its interest rates are comparable to market interest rates.

Capital risk management

The Company's objectives when managing capital are to provide shareholder returns through maximization of the profitable growth of the business and to maintain a degree of financial flexibility relevant to the underlying operating and metal price risks while safeguarding the Company's ability to continue as a going concern. The capital of the Company consists of share capital. The Board of Directors does not establish a quantitative return on capital criteria for management. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. The Company may issue new shares in order to meet its financial obligations. The management of the Company believes that the capital resources of the Company as at August 31, 2020 are sufficient for its present needs for at least the next twelve months. The Company is not subject to externally imposed capital requirements.

Credit risk

Credit risk arises from cash deposits, as well as credit exposures to counterparties of outstanding receivables and committed transactions. There is no significant concentration of credit risk other than cash deposits. The Company's cash deposits are primarily held with a Canadian chartered bank. Receivables include value added tax due from the Canadian government. The carrying amount of financial assets recorded in the financial statements represents the Company's maximum exposure to credit risk. The Company believes it is not exposed to significant credit risk and overall, the Company's credit risk has not declined from the prior year.

Liquidity risk

The Company strives to maintain sufficient liquidity to meet its short-term business requirements, taking into account its anticipated cash flows from royalty interests, its holdings of cash, and its committed liabilities. The maturities of the Company's non‐current liability are disclosed in Note 7. All current liabilities are settled within one year.


METALLA ROYALTY & STREAMING LTD.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2020 AND 2019

(Expressed in Canadian Dollars, unless otherwise stated)

 

13. FINANCIAL INSTRUMENTS (cont'd…)

Currency risk

The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Company primarily operates in Canada, Australia, Argentina, and the United States and incurs expenditures in currencies other than Canadian dollars. Thereby, the Company is exposed to foreign exchange risk arising from currency exposure. The Company has not hedged its exposure to currency fluctuations. Based on the above net exposure, as at August 31, 2020, and assuming that all other variables remain constant, a 1% depreciation or appreciation of the Canadian dollar against the US dollar would result in an increase/decrease of approximately $36,000 in the Company's pre-tax income or loss.

14. PRIOR PERIOD ADJUSTMENT

In August 2019, the Company drew down an initial advance of $7,000,000 on its convertible loan facility (Note 7).  In the Company's financial statements for the three months ended August 31, 2019, the Company allocated $4,217,682 to the liability portion and the residual $2,782,318 was allocated to the conversion feature within equity reserves, however at that time no amount was recorded related to any taxable temporary differences.  While preparing the Company's annual financial statements for the twelve months ended May 31, 2020, the Company reassessed the conversion feature recorded within equity reserves.  Upon further analysis it was determined that a deferred tax liability of $751,226 related to a taxable temporary difference arising from the equity portion of the convertible loan should also be recorded in equity reserves and this amount was recorded in the Company's annual financial statements for the twelve months ended May 31, 2020.  As the $751,226 amount recorded at year-end was related to a transaction that initially took place during the three months ended August 31, 2019, the Company has decided to adjust the related prior period comparative amounts for the three months ended and as at August 31, 2019, to reflect the recognition of the deferred tax related to the convertible debenture in the period when it first occurred. As a result of this adjustment the following amounts were adjusted:

    Three months ended        
    August 31, 2019        
    Previously              
    reported     Restated        
    amount     amount     Change  
Deferred income tax recovery (expense) $ (366,811 ) $ 384,415   $ 751,226  
Net loss   (1,215,152 )   (463,926 )   751,226  

The amounts in the table above were corrected on the statement of loss and comprehensive loss, and the statement of cash flows.  In addition, the allocation of conversion feature in the statement of changes in equity changed from the previously reported amount of $2,782,318 to $2,031,092.  Net loss in the statement of changes on equity also changed consistent with the table above.

Please note all comparative amounts that changed due to the correction of the error disclosed above were changed as required and all comparative numbers disclosed within these statements reflect the above noted adjustments.


METALLA ROYALTY & STREAMING LTD.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED AUGUST 31, 2020 AND 2019

(Expressed in Canadian Dollars, unless otherwise stated)

 

15. EVENTS AFTER REPORTING DATE

Subsequent to August 31, 2020, the Company:

  • announced that it had entered into an equity distribution agreement with a syndicate of agents (collectively, the "Agents") to establish an At-The-Market equity program (the "ATM Program").  Under the ATM Program the Company may distribute up to US$20,000,000 million (or the equivalent in Canadian Dollars) in common shares of the Company (the "Offered Shares").  The Offered Shares will be sold by the Company, through the Agents, to the public from time to time, at the Company's discretion, at the prevailing market price at the time of sale;
  • announced that it had entered into a purchase and sale agreement with Morgan Stanley Capital Group Inc. to acquire an existing 27.5% price participation royalty interest on Karora Resources Inc.'s operating Higginsville Gold Operation ("Higginsville") for up to US$6,500,000 in common shares of Metalla based on the fifteen day VWAP on the NYSE prior to closing, less any royalty payments received by Morgan Stanley prior to the closing of the transaction.  The royalty is a 27.5% price participation royalty interest on the difference between the London pm fix gold price and A$1,340/oz on the first 2,500 ounces per quarter for a cumulative total of 34,000 ounces of gold.  Higginsville is a low-cost open pit gold operation in Higginsville, Western Australia.  The transaction has received the required regulatory approvals and is expected to close in the calendar fourth quarter of 2020; and

  • completed the previously announced acquisition of a 2.5% NSR royalty on Fosterville in Victoria, Australia for total consideration of AUD$2.0 million in cash and 467,730 common shares (valued at $10.83 per share on September 28, 2020) of the Company.