10-Q 1 aumn-20170630x10q.htm 10-Q aumn_Current Folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

(MARK ONE)

 

 

 

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017.

 

OR

 

[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM                 TO                 

 

COMMISSION FILE NUMBER 1-13627

 

GOLDEN MINERALS COMPANY


(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

DELAWARE

 

26-4413382

 

 

 

(STATE OR OTHER JURISDICTION OF

 

(I.R.S. EMPLOYER

INCORPORATION OR ORGANIZATION)

 

IDENTIFICATION NO.)

 

 

350 INDIANA STREET, SUITE 800

 

 

GOLDEN, COLORADO

 

80401

 

 

 

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

 

(ZIP CODE)

(303) 839-5060


(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

 

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS:    YES ☒    NO ☐

 

INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS SUBMITTED ELECTRONICALLY AND POSTED ON ITS CORPORATE WEB SITE, IF ANY, EVERY INTERACTIVE DATA FILE REQUIRED TO BE SUBMITTED AND POSTED PURSUANT TO RULE 405 OF REGULATION S-T (§232.405 OF THIS CHAPTER) DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO SUBMIT AND POST SUCH FILES):   YES ☒   NO ☐

 

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A LARGE ACCELERATED FILER, AN ACCELERATED FILER, A NON-ACCELERATED FILER, A SMALLER REPORTING COMPANY OR AN EMERGING GROWTH COMPANY. SEE DEFINITION OF “LARGE ACCELERATED FILER”, “ACCELERATED FILER”, “SMALLER REPORTING COMPANY”, AND “EMERGING GROWTH COMPANY” IN RULE 12B-2 OF THE EXCHANGE ACT.:

 

 

 

 

LARGE ACCELERATED FILER ☐

 

ACCELERATED FILER ☐

NON-ACCELERATED FILER ☐

 

SMALLER REPORTING COMPANY ☒

EMERGING GROWTH COMPANY ☐

 

IF AN EMERGING GROWTH COMPANY, INDICATE BY CHECK MARK IF THE REGISTRANT HAS ELECTED NOT TO USE THE EXTENDED TRANSITION PERIOD FOR COMPLYING WITH ANY NEW OR REVISED FINANCIAL ACCOUNTING STANDARDS PROVIDED PURSUANT TO SECTION 13(A) OF THE EXCHANGE ACT. 

 

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT):  YES ☐       NO ☒

 

INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND REPORTS REQUIRED TO BE FILED BY SECTIONS 12, 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN CONFIRMED BY A COURT:  YES ☒  NO ☐

 

AT AUGUST 8, 2017, 91,842,362 SHARES OF COMMON STOCK, $0.01 PAR VALUE PER SHARE, WERE ISSUED AND OUTSTANDING

 

 


 

GOLDEN MINERALS COMPANY

FORM 10-Q

QUARTER ENDED JUNE 30, 2017

 

INDEX

 

 

 

 

2


 

PART I. FINANCIAL INFORMATION

 

Item 1.Financial Statements

 

GOLDEN MINERALS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Expressed in United States dollars)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

    

2017

    

2016

 

 

 

(in thousands, except share data)

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents (Note 3)

 

$

2,726

 

$

2,588

 

Short-term investments (Note 3)

 

 

231

 

 

334

 

Trade receivables

 

 

473

 

 

380

 

Inventories, net (Note 5)

 

 

281

 

 

245

 

Value added tax receivable, net (Note 6)

 

 

185

 

 

 5

 

Related party receivable (Note 20)

 

 

 —

 

 

643

 

Prepaid expenses and other assets (Note 4)

 

 

650

 

 

578

 

Total current assets

 

 

4,546

 

 

4,773

 

Property, plant and equipment, net (Note 7)

 

 

8,709

 

 

9,235

 

Total assets

 

$

13,255

 

$

14,008

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable and other accrued liabilities (Note 8)

 

$

1,400

 

$

1,224

 

Other current liabilities

 

 

26

 

 

24

 

Total current liabilities

 

 

1,426

 

 

1,248

 

Asset retirement and reclamation liabilities (Note 9)

 

 

2,402

 

 

2,434

 

Warrant liability - related party (Note 11)

 

 

813

 

 

976

 

Warrant liability (Note 11)

 

 

721

 

 

922

 

Other long term liabilities

 

 

55

 

 

66

 

Total liabilities

 

 

5,417

 

 

5,646

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 18)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity (Note 13)

 

 

 

 

 

 

 

Common stock, $.01 par value, 200,000,000 and 100,000,000 shares authorized; 90,031,347 and 89,020,041 shares issued and outstanding, respectively

 

 

899

 

 

889

 

Additional paid in capital

 

 

496,194

 

 

495,455

 

Accumulated deficit

 

 

(489,207)

 

 

(488,037)

 

Accumulated other comprehensive (loss) income

 

 

(48)

 

 

55

 

Shareholders' equity

 

 

7,838

 

 

8,362

 

Total liabilities and equity

 

$

13,255

 

$

14,008

 

 

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

 

3


 

GOLDEN MINERALS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Expressed in United States dollars)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

  

2017

  

2016

  

2017

  

2016

 

 

 

(in thousands except per share data)

 

(in thousands, except per share data)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Oxide plant lease (Note 14)

 

$

1,692

 

$

1,576

 

$

3,336

 

$

3,039

 

Total revenue

 

 

1,692

 

 

1,576

 

 

3,336

 

 

3,039

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Oxide plant lease costs (Note 14)

 

 

(548)

 

 

(455)

 

 

(1,085)

 

 

(929)

 

Exploration expense

 

 

(457)

 

 

(1,162)

 

 

(991)

 

 

(1,938)

 

El Quevar project expense

 

 

(192)

 

 

(210)

 

 

(341)

 

 

(373)

 

Velardeña shutdown and care and maintenance costs

 

 

(369)

 

 

(546)

 

 

(719)

 

 

(1,133)

 

Administrative expense

 

 

(872)

 

 

(1,026)

 

 

(1,898)

 

 

(2,244)

 

Stock based compensation

 

 

(242)

 

 

(539)

 

 

(307)

 

 

(571)

 

Reclamation expense

 

 

(48)

 

 

(46)

 

 

(97)

 

 

(97)

 

Other operating income, net (Note 7)

 

 

705

 

 

205

 

 

862

 

 

244

 

Depreciation and amortization

 

 

(130)

 

 

(421)

 

 

(318)

 

 

(971)

 

Total costs and expenses

 

 

(2,153)

 

 

(4,200)

 

 

(4,894)

 

 

(8,012)

 

Loss from operations

 

 

(461)

 

 

(2,624)

 

 

(1,558)

 

 

(4,973)

 

Other income and (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense (Note 10)

 

 

 —

 

 

(72)

 

 

 —

 

 

(515)

 

Interest and other income (Note 15)

 

 

 4

 

 

32

 

 

22

 

 

35

 

Warrant derivative gain (loss) (Note 16)

 

 

425

 

 

(1,096)

 

 

363

 

 

(2,276)

 

Derivative loss (Note 16)

 

 

 —

 

 

(130)

 

 

 —

 

 

(778)

 

Gain (loss) on debt extinguishment (Note 10)

 

 

 —

 

 

13

 

 

 —

 

 

(1,653)

 

(Loss) gain on foreign currency

 

 

(3)

 

 

(38)

 

 

 3

 

 

(42)

 

Total other income (expense)

 

 

426

 

 

(1,291)

 

 

388

 

 

(5,229)

 

Loss from operations before income taxes

 

 

(35)

 

 

(3,915)

 

 

(1,170)

 

 

(10,202)

 

Income tax benefit

 

 

 —

 

 

26

 

 

 —

 

 

26

 

Net loss

 

$

(35)

 

$

(3,889)

 

$

(1,170)

 

$

(10,176)

 

Comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on securities

 

 

(51)

 

 

89

 

 

(103)

 

 

171

 

Comprehensive loss

 

$

(86)

 

$

(3,800)

 

$

(1,273)

 

$

(10,005)

 

Net loss per common share — basic

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

$

0.00

 

$

(0.05)

 

$

(0.01)

 

$

(0.14)

 

Weighted average Common Stock outstanding - basic (1)

 

 

89,618,677

 

 

82,817,778

 

 

89,485,223

 

 

74,343,257

 


(1)Potentially dilutive shares have not been included because to do so would be anti-dilutive.

 

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

 

4


 

GOLDEN MINERALS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in United States dollars)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

    

2017

    

2016

 

 

 

(in thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net cash used in operating activities (Note 17)

 

$

(1,269)

 

$

(3,774)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Proceeds from sale of assets

 

 

733

 

 

50

 

Capitalized costs and acquisitions of property, plant and equipment

 

 

 —

 

 

(20)

 

Net cash from investing activities

 

$

733

 

$

30

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

674

 

 

3,599

 

Net cash from financing activities

 

$

674

 

$

3,599

 

Net increase (decrease) in cash and cash equivalents

 

 

138

 

 

(145)

 

Cash and cash equivalents, beginning of period

 

 

2,588

 

 

4,077

 

Cash and cash equivalents, end of period

 

$

2,726

 

$

3,932

 

 

See Note 17 for supplemental cash flow information.

 

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

 

5


 

GOLDEN MINERALS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Expressed in United States dollars)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

 

 

 

 

 

Common Stock

 

Paid-in

 

Accumulated

 

Comprehensive

 

Total

 

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Income (loss)

 

Equity

 

 

 

(in thousands except share data)

 

Balance, December 31, 2015

 

53,335,333

 

$

534

 

$

484,742

 

$

(477,378)

 

$

(127)

 

$

7,771

 

Stock compensation accrued and shares issued for vested stock awards

 

317,968

 

 

 2

 

 

250

 

 

 —

 

 

 —

 

 

252

 

Shares issued on conversion of Sentient Note (Note 10)

 

27,366,740

 

 

273

 

 

6,944

 

 

 —

 

 

 —

 

 

7,217

 

Registered offering common stock, net and warrants (Note 13)

 

8,000,000

 

 

80

 

 

3,519

 

 

 —

 

 

 —

 

 

3,599

 

Unrealized gain on marketable equity securities, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

182

 

 

182

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(10,659)

 

 

 —

 

 

(10,659)

 

Balance, December 31, 2016

 

89,020,041

 

$

889

 

$

495,455

 

$

(488,037)

 

$

55

 

$

8,362

 

Stock compensation accrued

 

 —

 

 

 —

 

 

75

 

 

 —

 

 

 —

 

 

75

 

Shares issued under the at-the-market offering agreement (Note 13)

 

1,011,306

 

 

10

 

 

664

 

 

 —

 

 

 —

 

 

674

 

Unrealized loss on marketable equity securities, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(103)

 

 

(103)

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(1,170)

 

 

 —

 

 

(1,170)

 

Balance, June 30, 2017

 

90,031,347

 

$

899

 

$

496,194

 

$

(489,207)

 

$

(48)

 

$

7,838

 

 

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

 

6


 

GOLDEN MINERALS COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)

(Unaudited)

 

1.     Basis of Preparation of Financial Statements and Nature of Operations

 

Golden Minerals Company (the “Company”), a Delaware corporation, has prepared these unaudited interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). The interim condensed consolidated financial statements do not include all disclosures required by GAAP for annual financial statements, but in the opinion of management, include all adjustments necessary for a fair presentation.  Interim results are not necessarily indicative of results for a full year; accordingly, these interim financial statements should be read in conjunction with the annual financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, and filed with the SEC on February 28, 2017.

 

The Company is a mining company, holding a 100% interest in the Velardeña and Chicago precious metals mining properties and associated oxide and sulfide processing plants in Mexico (the “Velardeña Properties”).  During November 2015 the Company suspended mining and sulfide processing activities at its Velardeña Properties in order to conserve the asset until the Company is able to develop mining and processing plans that at then current prices for silver and gold indicate a sustainable positive operating margin (defined as revenues less costs of sales) or the Company is able to locate, acquire and develop alternative mineral sources that could be economically mined and transported to the Velardeña Properties for processing.  The Company has placed the mine and sulfide processing plant on care and maintenance to enable a re-start of either the mine or mill when mining and processing plans and metals prices support a cash positive outlook.  The Company incurred approximately $2.0 million in related shutdown costs for employee severance, net working capital obligations, and other shutdown expenditures during the year ended December 31, 2016 and $0.7 million in care and maintenance costs for the six months ended June 30, 2017 and expects to incur approximately $0.4 million in quarterly care and maintenance costs while mining and processing remain suspended. 

 

The Company has retained a core group of employees, most of whom have been assigned to operate the oxide plant, which is leased to a third party and not affected by the shutdown.  The oxide plant began processing material for the third party in mid-December 2015, and the Company expects to receive net cash flow under the lease of approximately $4.7 million in 2017.  During March 2017, the third party exercised its right to extend the lease through December 31, 2018. On August 2, 2017, the Company granted the third party an option to extend the lease for an additional period of up to two years ending no later than December 31, 2020 in exchange for a $1.0 million cash payment and the purchase of $1.0 million, or approximately 1.8 million shares of the Company’s common stock, issued at par at a price of $0.55 per share, based on an undiscounted 30-day volume weighted average stock price (see Note 21). The retained employees also include an exploration group and an operations and administrative group, led by a newly appointed general manager of Mexico operations to continue to advance the Company’s plans in Mexico, oversee corporate compliance activities, and to maintain and safeguard the longer term value of the Velardeña and other Mexican assets.

 

The Company remains focused on evaluating and searching for mining opportunities in North America (including Mexico) with near term prospects of mining, and particularly for properties within reasonable haulage distances of our Velardeña Properties. The Company is also reviewing strategic opportunities, focusing primarily on development or operating properties in North America, including Mexico. The Company is continuing its exploration efforts on selected properties in its portfolio of approximately 10 exploration properties located primarily in Mexico. It continues to hold its El Quevar advanced exploration property in Argentina on care and maintenance until it can fund further exploration or find a partner to further fund exploration.

 

The Company is considered an exploration stage company under the criteria set forth by the SEC as the Company has not yet demonstrated the existence of proven or probable mineral reserves, as defined by SEC Industry Guide 7, at the Velardeña Properties, or any of the Company’s other properties.  As a result, and in accordance with GAAP for exploration stage companies, all expenditures for exploration and evaluation of the Company’s properties are expensed as incurred. As such the Company’s financial statements may not be comparable to the financial statements of mining companies that do have proven and probable mineral reserves.  Such companies would typically capitalize certain development costs including infrastructure development and mining activities to access the ore. The capitalized costs would be amortized on a units-of-production basis as reserves are mined. The amortized costs are typically allocated to inventory and eventually

7


 

to cost of sales as the inventories are sold.  As the Company does not have proven and probable reserves, substantially all expenditures at the Company’s Velardeña Properties for mine construction activity, as well as costs associated with the mill facilities, and for items that do not have a readily identifiable market value apart from the mineralized material, have been expensed as incurred. Such costs are charged to cost of metals sold or project expense during the period depending on the nature of the costs. Certain of the costs may be reflected in inventories prior to the sale of the product. The term “mineralized material” as used herein, although permissible under SEC Industry Guide 7, does not indicate “reserves” by SEC standards. The Company cannot be certain that any deposits at the Velardeña Properties or any other exploration property will ever be confirmed or converted into SEC Industry Guide 7 compliant “reserves”.

 

2.     New Accounting Pronouncements

 

In July 2017, the FASB issued ASU 2017-11,  “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part 1) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Non public Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception (“ASU 2017-11”).  Part I relates to the accounting for certain financial instruments with down round features in Subtopic 815-40, which is considered in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative accounting.  An entity still is required to determine whether instruments would be classified in equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments with down round features are no longer classified as liabilities. For the Company, ASU 2017-11 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted, including in an interim period.  If adopted in an interim period, any adjustments would be reflected as of the beginning of the fiscal year that includes the interim period.  The Company currently reports the fair value of its 2012 and 2014 warrants (see Notes 11 and 13) as liabilities on the balance sheet as a result of anti-dilution clauses in the warrant agreements that could result in a resetting of the warrant exercise price and the number of warrant shares outstanding in the event the Company were to issue additional shares of its common stock in a future transaction at an offering price lower than the current exercise price of the warrants.  The Company is currently evaluating whether the scope exception under ASU 2017-11 applies to the 2012 and 2014 warrants and whether the warrants should no longer be classified as liabilities but rather in equity.  The Company had recorded a “Warrant liability” of $1.5 million on its Condensed Consolidated Balance Sheets as of June 30, 2017 and reported a “Warrant derivative gain” of $0.4 million for the six months ended June 30, 2017 on its Condensed Consolidated Statements of Operation and Comprehensive Loss. 

 

In March 2016, the FASB issued ASU 2016-08,  “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”), which clarifies principal versus agent when another party, along with the entity, is involved in providing a good or service to a customer. Topic 606, Revenue from Contracts with Customers, requires an entity to determine whether the nature of its promise is to provide that good or service to the customer (i.e., the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (i.e., the entity is an agent). For the Company, ASU 2016-08 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted. As the Company’s current accounting practices per the guidance of ASC 605 are comparable to the requirements of ASU 2016-08, the Company does not expect the adoption of this update to result in a material impact on its consolidated financial position or results of operations.

 

In February 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”), which will require lessees to recognize a right-of-use asset and a lease liability for all leases that are not short-term in nature. For a lessor, the accounting applied is also largely unchanged from previous guidance. The new rules will be effective for the Company in the first quarter of 2019. The Company does not anticipate early adoption. The Company does not expect the adoption of ASU 2016-02 to materially change the amounts related to leases that are currently recorded and therefore the Company does not expect the adoption to have a material impact on its consolidated financial position or results of operations.

 

In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”) which amended its standards related to the accounting of certain financial instruments. This amendment addresses certain aspects of recognition, measurement, presentation and disclosure. The new rules will become effective for annual and interim periods beginning after December 15, 2017. Early adoption is not permitted. We are in the process of evaluating the impact the amendment will have on our consolidated financial position and results of operations.

 

8


 

In May 2014, FASB and the International Accounting Standards Board issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In addition, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing and uncertainty of revenue that is recognized and the related cash flows. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017; early adoption is not permitted. ASU 2014-09 was originally effective December 15, 2016 but ASU 2015-14 deferred the effective date by one year.  As the Company’s current accounting practices per the guidance of ASU 2014-09 are comparable to the requirements of ASU 2014-09, the Company does not expect the adoption of this update to result in a material impact on its consolidated financial position or results of operations.

 

3.     Cash and Cash Equivalents and Short-term Investments

 

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Short-term investments include investments with maturities greater than three months, but not exceeding 12 months, or highly liquid investments with maturities greater than 12 months that the Company intends to liquidate during the next 12 months for working capital needs.

 

The Company determines the appropriate classification of its investments in equity securities at the time of acquisition and re-evaluates those classifications at each balance sheet date.  Available for sale investments are marked to market at each reporting period with changes in fair value recorded as a component of other comprehensive income (loss). If declines in fair value are deemed other than temporary, a charge is made to net income (loss) for the period.

 

The following tables summarize the Company’s short-term investments at June 30, 2017 and December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Estimated

    

Carrying

 

June 30, 2017

 

Cost

 

Fair Value

 

Value

 

 

 

 

(in thousands)

 

Investments:

 

 

 

 

 

 

 

 

 

 

Short-term:

 

 

 

 

 

 

 

 

 

 

Available for sale common stock

 

$

275

 

$

231

 

$

231

 

Total available for sale

 

 

275

 

 

231

 

 

231

 

Total short term

 

$

275

 

$

231

 

$

231

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

Short-term:

 

 

 

 

 

 

 

 

 

 

Available for sale common stock

 

$

275

 

$

334

 

$

334

 

Total available for sale

 

 

275

 

 

334

 

 

334

 

Total short term

 

$

275

 

$

334

 

$

334

 

 

The available for sale common stock consists of 7,500,000 common shares, approximately 10% of the outstanding common shares, of Golden Tag Resources, Ltd. (“Golden Tag”), a junior mining company that was a joint venture partner in the Company’s previously owned San Diego exploration property in Mexico.  The Company acquired the shares during 2015 and 2016 in transactions involving the sale of its remaining 50% interest in the San Diego property to Golden Tag.

 

Credit Risk

 

The Company invests substantially all of its excess cash with high credit-quality financial institutions or in U.S. government or debt securities.  Credit risk is the risk that a third party might fail to fulfill its performance obligations under the terms of a financial instrument. For cash and equivalents and investments, credit risk represents the carrying amount on the balance sheet. The Company mitigates credit risk for cash and equivalents and investments by placing its funds and investments with high credit-quality financial institutions, limiting the amount of exposure to each of the financial institutions, monitoring the financial condition of the financial institutions and investing only in government and corporate securities rated “investment grade” or better.  The Company invests with financial institutions that maintain a net worth of not less than $1 billion and are members in good standing of the Securities Investor Protection Corporation.

 

9


 

4.     Prepaid Expenses and Other Assets

 

Prepaid expenses and other current assets consist of the following:

 

 

 

 

 

 

 

 

 

 

    

June 30,

    

December 31,

 

 

2017

 

 

2016

 

 

 

(in thousands)

 

Prepaid insurance

 

$

308

 

$

296

 

Deferred offering costs

 

 

137

 

 

153

 

Recoupable deposits and other

 

 

205

 

 

129

 

 

 

$

650

 

$

578

 

 

The deferred offering costs are related to the ATM Program discussed in detail in Note 13.

 

 

5.     Inventories, net

 

Inventories at the Velardeña Properties at June 30, 2017 and December 31, 2016 consist of the following:

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

    

2017

    

2016

 

 

 

(in thousands)

 

Material and supplies

 

$

281

 

$

245

 

 

 

$

281

 

$

245

 

 

The material and supplies inventory at June 30, 2017 and December 31, 2016 is reduced by a $0.2 million obsolescence charge reflected in shutdown and care and maintenance costs.

 

6.     Value Added Tax Receivable, Net

 

The Company has recorded value added tax (“VAT”) paid in Mexico and related to the Velardeña Properties as a recoverable asset. Mexico law allows for certain VAT payments to be recovered through ongoing applications for refunds. At June 30, 2017, the Company has also recorded approximately $15,000 of VAT receivable as a reduction to VAT payable in Mexico, which appears in “Accounts payable and other accrued liabilities” on the Condensed Consolidated Balance Sheets.

 

Following the end of June 30, 2017, the Company received a refund of approximately $0.2 million from the government of Argentina for VAT paid in that country during 2011 and 2012. Because of uncertainties relating to collectability of the taxes the Company had recorded a full valuation allowance against the VAT receivable at the time the taxes were paid. At June 30, 2017, the Company reversed $0.2 million of the valuation allowance and recorded a VAT receivable of $0.2 million with a corresponding gain in “Other operating income” on the Condensed Consolidated Statements of Operations and Comprehensive Loss.

 

The Company has also paid VAT in Mexico as well as other countries, primarily related to exploration projects, which has been charged to expense as incurred because of the uncertainty of recoverability.

 

10


 

7.     Property, Plant and Equipment, Net

 

The components of property, plant and equipment are as follows:

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

    

2017

    

2016

 

 

 

(in thousands)

 

Mineral properties

 

$

9,352

 

$

9,352

 

Exploration properties

 

 

2,518

 

 

2,518

 

Royalty properties

 

 

200

 

 

200

 

Buildings

 

 

4,221

 

 

4,386

 

Mining equipment and machinery

 

 

16,055

 

 

16,351

 

Other furniture and equipment

 

 

952

 

 

952

 

Asset retirement cost

 

 

865

 

 

992

 

 

 

 

34,163

 

 

34,751

 

Less: Accumulated depreciation and amortization

 

 

(25,454)

 

 

(25,516)

 

 

 

$

8,709

 

$

9,235

 

 

The asset retirement cost (“ARC”) is all related to the Company’s Velardeña Properties. The decrease in the ARC during the period is related to an adjustment to the asset retirement obligation (“ARO”), as discussed below in Note 9.

 

In August 2016, the Company sold certain mining equipment consisting of two haul trucks, two scoop trams and a compressor to Minera Indé, an indirect subsidiary of Sentient, for $687,000 (see Note 20). The equipment sold was excess equipment held at the Company’s Velardeña Properties that the Company did not expect to use. The Company received $69,000 or 10% of the sales price at the closing of the sale, with the remaining $618,000 plus interest on the unpaid balance at an annual rate of 10% due in February 2017. The Company and Minera Indé amended the original equipment sale on March 31, 2017 to include the sale of an additional piece of excess equipment for $185,000 and extend the time for payment relating to the original equipment sale.  Upon execution of the amendment the Company received an additional payment of $100,000. The remaining principal and interest balance, plus additional interest on the unpaid balance at an annual rate of 10%, was amended to be due in August 2017.  The Company recorded a gain of $105,000 on the sale of the additional equipment, included in “Other operating income” in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss, equal to the gross proceeds less the remaining basis in the equipment.  On May 2, 2017, the Company received approximately $750,000 from Minera Indé as payment in full for the remaining balance due related to the equipment sale, including interest through that date.

 

In the third quarter 2016, the Company, through its wholly owned Mexican subsidiary, entered into an earn-in agreement with a 100% owned Mexican subsidiary of Electrum Global Holdings, L.P., a privately owned company (together “Electrum”), related to the Company’s Celaya exploration property in Mexico. The Company received an upfront payment of $0.2 million and Electrum has agreed to incur exploration expenditures totaling at least $0.5 million in the first year of the agreement, reduced by certain costs Electrum previously incurred on the property since December 2015 in its ongoing surface exploration program. Electrum, at its option, can elect to acquire an undivided 60% interest in a joint venture company to be formed to hold the Celaya project after incurring exploration expenditures totaling $2.5 million during the first three years of the agreement. Electrum would serve as manager of the joint venture. If we elect not to contribute to additional exploration or development expenditures after the initial earn-in period, Electrum, at its option, would have the right to earn an additional 20% interest in the Celaya project, for a total interest of 80%, by incurring an additional $2.5 million of exploration or development expenditures over a second three-year period. Following the second earn-in period we would have the right to maintain our 20% interest or our interest ultimately could be converted into a 10% net profits interest.

 

In April 2016, the Company entered into an option agreement under which Santacruz Silver Mining Ltd. (“Santacruz”) may acquire the Company’s interest in certain nonstrategic mineral claims located in the Zacatecas Mining District, Zacatecas, Mexico (the “Zacatecas Properties”) for a series of payments totaling $1.5 million. Santacruz paid the Company $0.2 million on signing the agreement, and another $0.2 million and $0.3 million in October 2016 and May 2017 respectively.  To maintain its option and acquire the Zacatecas Properties, Santacruz must pay the Company an additional $0.3 million and $0.5 million in October 2017 and April 2018 respectively.  Santacruz has the right to terminate the option agreement at any time, and the agreement will terminate if Santacruz fails to make a payment when due.

 

11


 

8.     Accounts Payable and Other Accrued Liabilities

 

The Company’s accounts payable and other accrued liabilities consist of the following:

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

 

2017

 

2016

 

 

 

(in thousands)

 

Accounts payable and accruals

 

$

287

 

$

344

 

Accrued employee compensation and benefits

 

 

1,113

 

 

880

 

 

 

$

1,400

 

$

1,224

 

 

June 30, 2017

 

Accounts payable and accruals at June 30, 2017 consist primarily of $0.1 million due to contractors and suppliers and $0.2 million related to the Company’s Velardeña Properties and corporate administrative activities, respectively.  In the case of the Velardeña Properties, amounts due also include a VAT payable that is not an offset to the VAT receivable.

 

Accrued employee compensation and benefits at June 30, 2017 consist of $0.3 million of accrued vacation payable and $0.8 million related to withholding taxes and benefits payable, of which $0.2 million is related to activities at the Velardeña Properties, and $0.6 million is related to the Key Employee Long-Term Incentive Plan (“KELTIP”) (see Note 13).

 

December 31, 2016

 

Accounts payable and accruals at December 31, 2016 are primarily related to amounts due to contractors and suppliers in the amounts of $0.1 million and $0.2 million related to the Company’s Velardeña Properties and corporate administrative activities, respectively.  In the case of the Velardeña Properties, approximately $0.1 million is related to a net VAT payable.

 

Accrued employee compensation and benefits at December 31, 2016 consist of $0.3 million of accrued vacation payable and $0.6 million related to withholding taxes and benefits payable, of which $0.2 million is related to activities at the Velardeña Properties and $0.3 million is related to the KELTIP (see Note 13).

 

9.     Asset Retirement Obligation and Reclamation Liabilities

 

The Company retained the services of a mining engineering firm to prepare a detailed closure plan for the Velardeña Properties. The plan was completed during the second quarter 2012 and indicated that the Company had an ARO and offsetting ARC of approximately $1.9 million. The estimated $3.5 million ARO and ARC that was recorded at the time of the acquisition of the Velardeña Properties was adjusted accordingly.

 

The Company will continue to accrue additional estimated ARO amounts based on an asset retirement plan as activities requiring future reclamation and remediation occur.  During the first six months of 2017, the Company recognized approximately $97,000 of accretion expense and approximately $4,000 of amortization expense related to the ARC.

 

The following table summarizes activity in the Velardeña Properties ARO:

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

    

2017

    

2016

 

 

 

(in thousands)

 

Beginning balance

 

$

2,380

 

$

2,480

 

 

 

 

 

 

 

 

 

Changes in estimates, and other

 

 

(128)

 

 

(293)

 

Accretion expense

 

 

97

 

 

50

 

Ending balance

 

$

2,349

 

$

2,237

 

 

12


 

The decreases in the ARO recorded during the 2017 and 2016 periods are the result of changes in assumptions related to inflation factors and the timing of future expenditures used in the determination of future cash flows.

 

The ARO set forth on the accompanying Condensed Consolidated Balance Sheets at June 30, 2017 and December 31, 2016 includes approximately $0.1 million of reclamation liabilities related to activities at the El Quevar project in Argentina.

 

10.     Convertible Note Payable – Related Party, Net

 

In October 2015, the Company borrowed $5.0 million from The Sentient Group, LLC (“Sentient”), the Company’s largest stockholder, pursuant to the terms of a Senior Secured Convertible Note the (“Sentient Note”) and a related loan agreement (the “Sentient Loan”), with principal and accrued interest due on October 27, 2016. In January 2016, upon approval by the Company’s stockholders, the Sentient Note became convertible, solely at Sentient's option, into shares of the Company's common stock at a price equal to the lowest of: 1) $0.289, 90 percent of the 15-day volume weighted average price ("VWAP") for the period immediately preceding the loan closing date, 2) 90 percent of the 15-day VWAP for the period immediately preceding the loan conversion date, or 3) an anti-dilution adjusted price based on the lowest price for which the Company has sold its stock following the loan closing date. The loan provided for interest at a rate of 9% per annum, compounded monthly.

 

On February 11, 2016, Sentient converted approximately $3.9 million of principal and $0.1 million of accrued interest (representing the total amount of accrued interest at the conversion date) on the Sentient Note into 23,355,000 shares of the Company's common stock at an exercise price of approximately $0.172 per share, equal to 90% of the 15-day VWAP immediately preceding the conversion date. On June 10, 2016, Sentient converted the remaining approximately $1.1 million of principal and approximately $34,000 of accrued interest (representing the total amount of accrued interest at the conversion date) into 4,011,740 shares of the Company's common stock at an exercise price of approximately $0.289 per share, equal to 90% of the 15day VWAP immediately preceding the loan’s original issue date.

 

The beneficial conversion feature of the Sentient Note represented an embedded derivative as defined by ASC 815 "Derivatives and Hedging" ("ASC 815"). ASC 815 provides that a derivative instrument's fair value must be bifurcated from the note and separately recorded on the Company's Consolidated Balance Sheet. The Company used a third party consultant to value the embedded derivative in the Sentient Note employing a Monte Carlo type probability analysis, which falls within Level 3 of the fair value hierarchy (see Note 11). For purposes of valuing the embedded derivative as of the Sentient Loan closing date, at December 31, 2015, at February 11, 2016 (first partial conversion date), and at March 31, 2016, the valuation model took into account, among other items: 1) the probability of successfully achieving stockholder approval of the Sentient Note’s conversion feature, 2) future variations in the Company’s stock price, and 3) the probability of entering into an equity transaction prior to the Sentient Loan maturity date that would lower the conversion price. It was determined that the embedded derivative had a fair value of approximately $1.1 million at October 27, 2015, the date the Company entered into the Sentient Loan.  Subsequent mark-to-market changes in the value of the derivative were recorded as income or loss in the Consolidated Statements of Operations and Comprehensive Loss.  The Sentient Note was recorded net of the bifurcated embedded derivative at October 27, 2015 with the $1.1 million difference between the face value and the recorded value of the Note representing a loan discount that was amortized to interest expense over the life of the loan using the interest rate method. 

 

The Company incurred approximately $0.3 million in legal and other costs associated with the Sentient Loan. Per the guidance of ASU 2015-03 the loan costs were presented as a reduction to the note payable on the accompanying Consolidated Balance Sheets and were amortized to interest expense over the life of the Sentient note using the interest rate method.

 

The Company adjusted the recorded value of the Sentient Loan at the first partial conversion date and at March 31, 2016 to reflect the amortization of the loan discount and loan costs, shown as “Interest expense” in the Consolidated Statements of Operations and Comprehensive Loss. For the six months ended June 30, 2016, the Company recorded a total noncash loss on debt extinguishment of $1.7 million reflecting the difference between the value of the shares issued to Sentient as a result of the February 11, 2016 conversion and the recorded value of the Sentient Loan, including related loan costs, loan discount and embedded derivative eliminated at the conversion date. The Company marked-to-market the embedded derivative at the February 11, 2016 conversion date and recorded a total derivative loss of $0.8 million for six months ended June 30, 2016 in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

 

13


 

At June 10, 2016, the Sentient Note had been fully converted and the Company had no outstanding debt at June 30, 2017 or December 31, 2016.

 

11.     Fair Value Measurements

 

Financial assets and liabilities and nonfinancial assets and liabilities are measured at fair value under a framework of a fair value hierarchy which prioritizes the inputs into valuation techniques used to measure fair value into three broad levels.  This hierarchy gives the highest priority to quoted prices (unadjusted) in active markets and the lowest priority to unobservable inputs. Further, financial assets and liabilities should be classified by level in their entirety based upon the lowest level of input that was significant to the fair value measurement. The three levels of the fair value hierarchy per ASC 820 are as follows:

 

Level 1:  Unadjusted quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.

 

Level 2:  Quoted prices in inactive markets for identical assets or liabilities, quoted prices for similar assets or liabilities in active markets, or other observable inputs either directly related to the asset or liability or derived principally from corroborated observable market data.

 

Level 3:  Unobservable inputs due to the fact that there is little or no market activity. This entails using assumptions in models which estimate what market participants would use in pricing the asset or liability.

 

The following table summarizes the Company’s financial assets and liabilities at fair value on a recurring basis at June 30, 2017 and December 31, 2016, by respective level of the fair value hierarchy:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

 

 

(in thousands)

 

At June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,726

 

$

 —

 

$

 —

 

$

2,726

 

Trade accounts receivable

 

 

469

 

 

 —

 

 

 —

 

 

469

 

Trade accounts receivable - related party

 

 

 4

 

 

 —

 

 

 —

 

 

 4

 

Short-term investments

 

 

231

 

 

 —

 

 

 —

 

 

231

 

 

 

$

3,430

 

$

 —

 

$

 —

 

$

3,430

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liability - related party

 

$

 —

 

$

 —

 

$

813

 

$

813

 

Warrant liability

 

 

 —

 

 

 —

 

 

721

 

 

721

 

 

 

$

 —

 

$

 —

 

$

1,534

 

$

1,534

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,588

 

$

 —

 

$

 —

 

$

2,588

 

Trade accounts receivable

 

 

380

 

 

 —

 

 

 —

 

 

380

 

Trade accounts receivable - related party

 

 

643

 

 

 —

 

 

 —

 

 

643

 

Short-term investments

 

 

334

 

 

 —

 

 

 —

 

 

334

 

 

 

$

3,945

 

$

 —

 

$

 —

 

$

3,945

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liability - related party

 

$

 —

 

$

 —

 

$

976

 

$

976

 

Warrant liability

 

 

 —

 

 

 —

 

 

922

 

 

922

 

 

 

$

 —

 

$

 —

 

$

1,898

 

$

1,898

 

 

The Company’s cash equivalents, comprised principally of U.S. treasury securities, are classified within Level 1 of the fair value hierarchy.

 

14


 

The Company’s trade accounts receivable are classified within Level 1 of the fair value hierarchy and are related to the lease of the oxide plant, valued per the terms of the lease rates per the plant lease agreement, and to the sale of mining equipment, based on the terms of the sales agreement.

 

The Company’s short-term investments consist of the available for sale common stock in Golden Tag and are classified within Level 1 of the fair value hierarchy (see Note 3).

 

At June 30, 2017 and December 31, 2016, the Company recorded a liability for warrants to acquire the Company’s stock as a result of anti-dilution clauses in the warrant agreements that could result in a resetting of the warrant exercise price in the event the Company were to issue additional shares of its common stock in a future transaction at a price lower than the current exercise price of the warrants (see Note 13). The Company assesses the fair value of its warrant liability at the end of each reporting period, with changes in the value recorded as “Warrant derivative (loss) gain” on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss. The valuation policies are approved by the Chief Financial Officer who reviews and approves the inputs used in the fair value calculations and the changes in fair value measurements from period to period for reasonableness. Fair value measurements are discussed with the Company’s Chief Executive Officer, as deemed appropriate. The warrant liability has been recorded at fair value as of June 30, 2017, and December 31, 2016.  At December 31, 2016, fair value was based primarily on a valuation performed by a third party expert using a Monte Carlo simulation, which falls within Level 3 of the fair value hierarchy.  The valuation model takes into account the probability that the Company could issue additional shares in a future transaction at a lower price than the current exercise price of the warrants.  At June 30, 2017, the valuation was based on a Black Scholes model using similar parameters established by the third-party expert in its valuation performed at December 31, 2016.

 

In addition to the warrant exercise prices (see Note 13) other significant inputs to the warrant valuation model at June 30, 2017 and December 31, 2016 included the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

June 30,

    

December 31,

 

 

 

2017

 

2016

 

Company's ending stock price

 

$

0.56

 

$

0.58

 

Company's stock volatility

 

 

110%

 

 

110%

 

Applicable risk free interest rate

 

 

1.39%

 

 

1.39%

 

 

An increase or decrease in the Company’s stock price, in isolation, would result in a relatively lower or higher fair value measurement respectively.  A decrease in the probability of the issuance of additional common stock at a lower price than the current warrant exercise price would result in a lower value for the warrants. The table below highlights the change in fair value of the warrant and derivative liabilities.

 

 

 

 

 

 

 

    

    

 

Fair Value Measurements

 

 

 

 

Using Significant Unobservable

 

 

 

 

Inputs (Level 3)

 

 

 

Warrant Liabilities

 

 

 

(in thousands)

 

Ending balance at December 31, 2016

 

$

1,898

 

Change in estimated fair value

 

 

(364)

 

Ending balance at June 30, 2017

 

$

1,534

 

 

Non-recurring Fair Value Measurements

 

There were no non-recurring fair value measurements at December 31, 2016 or June 30, 2017.

 

12.     Income Taxes

 

The Company accounts for income taxes in accordance with the provisions of ASC 740, “Income Taxes” (“ASC 740”), on a tax jurisdictional basis.  For the three months ended June 30, 2017 and 2016 respectively the Company did not recognize any income tax benefit or expense. The Company operates in jurisdictions that have generated ordinary losses on a year-to-date basis. However, the Company is unable to recognize a benefit for those losses, except as described in this paragraph, thus an estimated effective tax rate has not been used to report the year-to-date results.   

 

15


 

In accordance with ASC 740, the Company presents deferred tax assets net of its deferred tax liabilities on a tax jurisdictional basis on its Condensed Consolidated Balance Sheets. As of June 30, 2017 and as of December 31, 2016, the Company had no net deferred tax assets or net deferred tax liabilities reported on its balance sheet.   

 

The Company, a Delaware corporation, and its subsidiaries file tax returns in the United States and in various foreign jurisdictions. The tax rules and regulations in these countries are highly complex and subject to interpretation. The Company’s income tax returns are subject to examination by the relevant taxing authorities and in connection with such examinations, disputes can arise with the taxing authorities over the interpretation or application of certain tax rules within the country involved.  In accordance with ASC 740, the Company identifies and evaluates uncertain tax positions, and recognizes the impact of uncertain tax positions for which there is less than a more-likely-than-not probability of the position being upheld upon review by the relevant taxing authority.  Such positions are deemed to be “unrecognized tax benefits” which require additional disclosure and recognition of a liability within the financial statements. The Company had no unrecognized tax benefits at June 30, 2017 or December 31, 2016.

 

13.     Equity

 

At the Market Offering Agreement

 

In December 2016, the Company entered into an at-the-market offering agreement (the “ATM Agreement”) with H. C. Wainwright & Co., LLC (“Wainwright”), under which the Company may, from time to time, issue and sell shares of the Company’s common stock through Wainwright as sales manager in an at-the-market offering under a prospectus supplement for aggregate sales proceeds of up to $5.0 million (the “ATM Program”) or a maximum of 10 million shares.  The ATM Agreement will remain in full force and effect until the earlier of December 31, 2018, or the date that the ATM Agreement is terminated in accordance with the terms therein. Offers or sales of common shares under the ATM Program will be made only in the United States and no offers or sales of common shares under the ATM Agreement will be made in Canada. The common stock will be distributed at the market prices prevailing at the time of sale. As a result, prices of the common stock sold under the ATM Program may vary as between purchasers and during the period of distribution. The ATM Agreement provides that Wainwright will be entitled to compensation for its services at a commission rate of 2.0% of the gross sales price per share of common stock sold.  The Company reimbursed certain legal expenses of Wainwright totaling $50,000 and incurred additional accounting, legal, and regulatory costs of approximately $109,000 in connection with establishing the ATM Program.  Such costs have been deferred and will be amortized to equity as sales are completed under the ATM Program. At June 30, 2017, the unamortized costs appear on the accompanying Consolidated Balance Sheets as “Prepaid expense and other assets”

 

During the six months ended June 30, 2017 the Company sold an aggregate of approximately 1,011,000 common shares under the ATM Program at an average price of $0.70 per common share for gross proceeds of approximately $712,000. The Company paid cash commissions and other nominal transaction fees to Wainwright totaling $16,000 or 2.2% of the gross proceeds and amortized approximately $22,000 of deferred accounting, legal and regulatory costs resulting in a net amount of approximately $674,000 that has been recorded as equity in the Condensed Consolidated Balance Sheets.  During the six months ended June 30, 2017 the Company also incurred approximately $15,000 in additional accounting, legal, and regulatory costs associated with the ATM Program that were included in “General and administrative costs” in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

 

Equity Incentive Plans

 

Under the Company’s Amended and Restated 2009 Equity Incentive Plan (the “Equity Plan”) awards of the Company’s common stock may be made to officers, directors, employees, consultants and agents of the Company and its subsidiaries.  The Company recognizes stock-based compensation costs using a graded vesting attribution method whereby costs are recognized over the requisite service period for each separately vesting portion of the award.

 

16


 

The following table summarizes the status of the Company’s restricted stock grants issued under the Equity Plan at June 30, 2017 and the changes during the six months then ended:

 

 

 

 

 

 

 

 

 

    

 

    

Weighted 

 

 

 

 

 

Average Grant 

 

 

 

 

 

 Date Fair 

 

 

 

Number of 

 

 Value Per 

 

Restricted Stock Grants

 

Shares

 

 Share

 

Outstanding at December 31, 2016

 

100,000

 

$

0.63

 

Granted during the period

 

 —

 

 

 —

 

Restrictions lifted during the period

 

 —

 

 

 —

 

Forfeited during the period

 

 —

 

 

 —

 

Outstanding at June 30, 2017

 

100,000

 

$

0.63

 

 

For the six months ended June 30, 2017 the Company recognized approximately $15,000 of compensation expense related to the restricted stock grants.  The Company expects to recognize additional compensation expense related to these awards of approximately $48,000 over the next thirty months.

 

The following table summarizes the status of the Company’s stock option grants issued under the Equity Plan at June 30, 2017 and the changes during the six months then ended:

 

 

 

 

 

 

 

 

 

    

 

    

Weighted

 

 

 

 

 

Average

 

 

 

 

 

Exercise

 

 

 

Number of 

 

Price Per 

 

Equity Plan Options

 

Shares

 

Share

 

Outstanding at December 31, 2016

 

95,810

 

$

8.02

 

Granted during the period

 

 —

 

 

 —

 

Forfeited or expired during period

 

 —

 

 

 —

 

Exercised during period

 

 —

 

 

 —

 

Outstanding at June 30, 2017

 

95,810

 

$

8.02

 

Exercisable at end of period

 

95,810

 

$

8.02

 

Granted and vested

 

95,810

 

$

8.02

 

 

Also, pursuant to the Equity Plan, the Company’s Board of Directors adopted the Non-Employee Director’s Deferred Compensation and Equity Award Plan (the “Deferred Compensation Plan”).  Pursuant to the Deferred Compensation Plan the non-employee directors receive a portion of their compensation in the form of Restricted Stock Units (“RSUs”) issued under the Equity Plan. The RSUs generally vest on the first anniversary of the grant and each vested RSU entitles the director to receive one unrestricted share of common stock upon the termination of the director’s board service.

 

The following table summarizes the status of the RSU grants issued under the Deferred Compensation Plan at June 30, 2017 and the changes during the six months then ended:

 

 

 

 

 

 

 

 

    

 

    

Weighted 

 

 

 

 

Average Grant 

 

 

 

 

 Date Fair 

 

 

Number of 

 

 Value Per 

Restricted Stock Units

 

Shares

 

 Share

Outstanding at December 31, 2016

 

1,607,317

 

$

1.28

Granted during the period

 

280,000

 

 

0.48

Restrictions lifted during the period

 

 —

 

 

 —

Forfeited during the period

 

 —

 

 

 —

Outstanding at June 30, 2017

 

1,887,317

 

$

1.16

 

For the six months ended June 30, 2017 the Company recognized approximately $60,000 of compensation expense related to the RSU grants. The Company expects to recognize additional compensation expense related to the RSU grants of approximately $120,000 over the next 10 months.

 

17


 

Key Employee Long-Term Incentive Plan

 

The Company’s 2013 Key Employee Long-Term Incentive Plan (the “KELTIP”) provides for the grant of units (“KELTIP Units”) to certain officers and key employees of the Company, which units will, once vested, entitle such officers and employees to receive an amount, in cash or in Company common stock issued pursuant to the Company’s 2009 Equity Plan, measured generally by the price of the Company’s common stock on the settlement date. KELTIP Units are not an actual equity interest in the Company and are solely unfunded and unsecured obligations of the Company that are not transferable and do not provide the holder with any stockholder rights. Payment of the settlement amount of vested KELTIP Units is deferred generally until the earlier of a change of control of the Company or the date the grantee ceases to serve as an officer or employee of the Company. The KELTIP Units are recorded as a liability, included in “Accounts payable and other accrued liabilities” in the Condensed Consolidated Balance Sheets. On May 23, 2017 and May 19, 2016, the Company awarded 435,000 and 585,000 KELTIP Units respectively, to two officers of the Company and recorded approximately $0.2 million and $0.3 million respectively, of compensation expense, included in “Stock based compensation” in the Condensed Consolidated Statement of Operations and Comprehensive Loss.  The KELTIP Units are marked to market at the end of each reporting period and for the six months ended June 30, 2017 the Company recognized approximately $23,000 of additional compensation expense. There were 1,020,000 and 585,000 KELTIP Units outstanding at June 30, 2017 and at December 31, 2016, respectively.

 

Common stock warrants

 

The following table summarizes the status of the Company’s common stock warrants at June 30, 2017 and the changes during the six months then ended: