10-Q 1 aumn-20180630x10q.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, 2018.

 

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 9, 2018, 95,620,796 SHARES OF COMMON STOCK, $0.01 PAR VALUE PER SHARE, WERE ISSUED AND OUTSTANDING

 

 


 

GOLDEN MINERALS COMPANY

FORM 10-Q

QUARTER ENDED JUNE 30, 2018

 

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,

 

 

    

2018

    

2017

 

 

 

(in thousands, except share data)

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents (Note 4)

 

$

2,510

 

$

3,250

 

Short-term investments (Note 4)

 

 

343

 

 

238

 

Lease receivables

 

 

435

 

 

314

 

Inventories, net (Note 6)

 

 

239

 

 

242

 

Value added tax receivable, net (Note 7)

 

 

13

 

 

148

 

Prepaid expenses and other assets (Note 5)

 

 

1,019

 

 

745

 

Total current assets

 

 

4,559

 

 

4,937

 

Property, plant and equipment, net (Note 8)

 

 

7,632

 

 

8,140

 

Total assets

 

$

12,191

 

$

13,077

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable and other accrued liabilities (Note 9)

 

$

1,652

 

$

1,556

 

Deferred revenue, current (Note 15)

 

 

293

 

 

293

 

Other current liabilities (Note 10)

 

 

197

 

 

 9

 

Total current liabilities

 

 

2,142

 

 

1,858

 

Asset retirement and reclamation liabilities (Note 11)

 

 

2,582

 

 

2,495

 

Deferred revenue, non-current (Note 15)

 

 

454

 

 

600

 

Other long term liabilities

 

 

27

 

 

43

 

Total liabilities

 

 

5,205

 

 

4,996

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 18)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity (Note 14)

 

 

 

 

 

 

 

Common stock, $.01 par value, 200,000,000 shares authorized; 95,520,796 and 91,929,709 shares issued and outstanding respectively

 

 

955

 

 

919

 

Additional paid in capital

 

 

517,635

 

 

516,284

 

Accumulated deficit

 

 

(511,604)

 

 

(509,082)

 

Accumulated other comprehensive loss

 

 

 —

 

 

(40)

 

Shareholders' equity

 

 

6,986

 

 

8,081

 

Total liabilities and equity

 

$

12,191

 

$

13,077

 

 

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,

 

 

  

2018

  

2017

  

2018

  

2017

 

 

 

(in thousands except per share data)

 

(in thousands, except per share data)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Oxide plant lease (Note 15)

 

$

1,730

 

$

1,692

 

$

3,367

 

$

3,336

 

Total revenue

 

 

1,730

 

 

1,692

 

 

3,367

 

 

3,336

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Oxide plant lease costs (Note 15)

 

 

(525)

 

 

(548)

 

 

(1,028)

 

 

(1,085)

 

Exploration expense

 

 

(1,041)

 

 

(457)

 

 

(1,940)

 

 

(991)

 

El Quevar project expense

 

 

(281)

 

 

(192)

 

 

(553)

 

 

(341)

 

Velardeña shutdown and care and maintenance costs

 

 

(492)

 

 

(369)

 

 

(981)

 

 

(719)

 

Administrative expense

 

 

(822)

 

 

(872)

 

 

(1,883)

 

 

(1,898)

 

Stock based compensation

 

 

(235)

 

 

(242)

 

 

(250)

 

 

(307)

 

Reclamation expense

 

 

(52)

 

 

(48)

 

 

(103)

 

 

(97)

 

Other operating income, net (Notes 7 and 8)

 

 

224

 

 

705

 

 

1,450

 

 

862

 

Depreciation and amortization

 

 

(264)

 

 

(130)

 

 

(560)

 

 

(318)

 

Total costs and expenses

 

 

(3,488)

 

 

(2,153)

 

 

(5,848)

 

 

(4,894)

 

Loss from operations

 

 

(1,758)

 

 

(461)

 

 

(2,481)

 

 

(1,558)

 

Other income and (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income, net (Note 16)

 

 

110

 

 

 4

 

 

113

 

 

22

 

(Loss) gain on foreign currency

 

 

(41)

 

 

(3)

 

 

(56)

 

 

 3

 

Total other income

 

 

69

 

 

 1

 

 

57

 

 

25

 

Loss from operations before income taxes

 

 

(1,689)

 

 

(460)

 

 

(2,424)

 

 

(1,533)

 

Income tax

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Net loss

 

$

(1,689)

 

$

(460)

 

$

(2,424)

 

$

(1,533)

 

Comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on securities (Note 3)

 

 

 —

 

 

(51)

 

 

 —

 

 

(103)

 

Comprehensive loss

 

$

(1,689)

 

$

(511)

 

$

(2,424)

 

$

(1,636)

 

Net loss per common share — basic

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

$

(0.02)

 

$

(0.01)

 

$

(0.03)

 

$

(0.02)

 

Weighted average Common Stock outstanding - basic (1)

 

 

93,681,301

 

 

89,618,677

 

 

92,709,238

 

 

89,485,223

 


(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,

 

 

    

2018

    

2017

 

 

 

(in thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net cash used in operating activities (Note 17)

 

$

(2,949)

 

$

(1,269)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Proceeds from sale of assets

 

 

1,474

 

 

733

 

Acquisitions of property, plant and equipment

 

 

(58)

 

 

 —

 

Net cash from investing activities

 

$

1,416

 

$

733

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

793

 

 

674

 

Net cash from financing activities

 

$

793

 

$

674

 

Net (decrease) increase in cash and cash equivalents

 

 

(740)

 

 

138

 

Cash and cash equivalents, beginning of period

 

 

3,250

 

 

2,588

 

Cash and cash equivalents, end of period

 

$

2,510

 

$

2,726

 

 

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, 2016

 

89,020,041

 

$

889

 

$

495,455

 

$

(488,037)

 

$

55

 

$

8,362

 

Cumulative adjustment related to change in accounting principle (Note 3)

 

 —

 

 

 —

 

 

19,046

 

 

(17,148)

 

 

 —

 

 

1,898

 

Adjusted balance at January 1, 2017

 

89,020,041

 

$

889

 

$

514,501

 

$

(505,185)

 

$

55

 

$

10,260

 

Stock compensation accrued and shares issued for vested stock awards

 

200,000

 

 

 1

 

 

196

 

 

 —

 

 

 —

 

 

197

 

Shares issued under the at-the-market offering agreement, net (Note 14)

 

1,024,392

 

 

10

 

 

671

 

 

 —

 

 

 —

 

 

681

 

Consideration shares sold to Hecla, net (Notes 14 and 15)

 

1,811,015

 

 

18

 

 

912

 

 

 —

 

 

 —

 

 

930

 

Cancellation of treasury shares (Note 14)

 

(125,739)

 

 

 1

 

 

(1)

 

 

 —

 

 

 —

 

 

 —

 

Deemed dividend on warrants (Note 3)

 

 —

 

 

 —

 

 

 5

 

 

(5)

 

 

 —

 

 

 —

 

Unrealized loss on marketable equity securities, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(95)

 

 

(95)

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(3,892)

 

 

 —

 

 

(3,892)

 

Balance, December 31, 2017

 

91,929,709

 

$

919

 

$

516,284

 

$

(509,082)

 

$

(40)

 

$

8,081

 

Cumulative adjustment related to change in accounting principle (Note 3)

 

 —

 

 

 —

 

 

 —

 

 

(89)

 

 

40

 

 

(49)

 

Adjusted balance at January 1, 2018

 

91,929,709

 

$

919

 

$

516,284

 

$

(509,172)

 

$

 —

 

$

8,031

 

Stock compensation accrued and shares issued for vested stock awards

 

437,279

 

 

 4

 

 

133

 

 

 —

 

 

 —

 

 

137

 

Registered direct purchase agreement, net (Note 14)

 

3,153,808

 

 

32

 

 

1,210

 

 

 —

 

 

 —

 

 

1,242

 

Deemed dividend on warrants (Note 3)

 

 —

 

 

 —

 

 

 8

 

 

(8)

 

 

 —

 

 

 —

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(2,424)

 

 

 —

 

 

(2,424)

 

Balance, June 30, 2018

 

95,520,796

 

$

955

 

$

517,635

 

$

(511,604)

 

$

 —

 

$

6,986

 

 

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, 2017, and filed with the SEC on March 2, 2018.

 

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 $1.0 million and $0.7 million in care and maintenance costs for the six months ended June 30, 2018 and June 30, 2017, respectively.  On an ongoing basis, the Company 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 at the Velardeña Properties, most of whom have been assigned to operate and provide administrative support for the oxide plant, which is leased to a subsidiary of Hecla Mining Company (“Hecla”) and not affected by the shutdown. The oxide plant began processing material for Hecla in mid-December 2015, and the Company expects to receive net cash flow under the lease of approximately $4.5 million in 2018. However, because Hecla has the right to terminate the lease on sixty days’ notice, there is no assurance that this amount will be received. On March 24, 2017, Hecla exercised its right to extend the lease through December 31, 2018. On August 2, 2017, the Company granted Hecla 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 14). The retained employees also include an exploration group and an operations and administrative group 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 Properties 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 processing plants at the 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. 

 

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 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

7


 

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

 

During the first quarter 2018 the Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) which was issued by the Financial Accounting Standards Board (“FASB”) in May 2014.  The Company also adopted ASU No. 2017-05, “Other Income (Subtopic 310-20)” (“ASU 2017-05”), which was issued by the FASB in February 2017 clarifying the scope of Subtopic 610-20, which was originally issued as part of 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.  The Company has elected the modified retrospective method of adopting ASU 2014 (see Note 3).

 

During the first quarter 2018 the Company adopted ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”), which amended its accounting treatment for the recognition, measurement, presentation and disclosure of certain financial assets. ASU 2016-01 requires equity investments that have a readily determinable fair value to be measured at fair value through net income. Previously, entities would recognize changes in fair value of available-for-sale equity securities in other comprehensive income, and would recognize in net income impairment losses that were other-than-temporary.  There will no longer be an available-for-sale classification (with changes in fair value reported in other comprehensive income) for equity securities with readily determinable fair values.  The Company recognized retrospectively the cumulative effect of initially adopting ASU 2016-01 (see Note 3).

 

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.  Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced based on the pricing of future equity offerings. An entity still is required to determine whether instruments would be classified as 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, adoption of ASU 2017-11 was required for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption was permitted, including in an interim period. The Company early adopted ASU 2017-11 during the interim period ended September 30, 2017 (see Note 3).  

 

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 with terms greater than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. For a lessor, the accounting applied is 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 currently leases administrative offices in the U.S. and in several foreign locations under lease agreements that typically exceed one year.  Depending on the number of years remaining under such lease agreements the right-of-use assets and lease liabilities that the Company would record under ASU 2016-2 could be material.

 

8


 

3.Change in Accounting Principle

 

Warrant Liability

 

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.  Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced based on the pricing of future equity offerings.  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.  In the case where the exception from derivative accounting does not apply, warrants must be accounted for as a liability and recorded at fair value at the date of grant and re-valued at the end of each reporting period.

 

The September 2012 and 2014 warrants (see Note 14) include anti-dilution provisions characterized as down round features and were previously accounted for as liabilities, with the fair value of the warrant liabilities remeasured at each reporting date and the change in liabilities recorded as other non-operating income or loss.  The Company had recorded a “Warrant liability” of $1.9 million and a warrant derivative gain of $17.1 million in its “Accumulated deficit” as reported in its Condensed Consolidated Balance Sheets for the year ended December 31, 2016 relating to the September 2012 and 2014 warrants prior to the change in accounting principle.    The Company had recorded a warrant liability of $1.5 million as of June 30, 2017 and reported a warrant derivative loss of $0.4 million for the six months ended June 30, 2017 relating to the September 2012 and 2014 warrants prior to the change in accounting principle.

 

In addition, for freestanding equity-classified financial instruments, ASU 2017-11 also requires entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered.  That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS.  Certain equity transactions following the issuance of the September 2012 and 2014 warrants have triggered anti-dilution clauses in the warrant agreements resulting in additional warrant shares and a reduction to the original strike price of the warrants.  ASU 2017-11 prescribes a method to measure the value of a deemed dividend related to a triggering event by computing the difference in fair value between two instruments that have terms consistent with the actual instrument but that do not have a down round feature, where the number of warrant shares and strike price of one instrument corresponds to the actual instrument before the triggering event and the number of warrant shares and strike price of the other instrument corresponds to the actual instrument immediately after the triggering event.  Following ASU 2017-11, for periods ending on or prior to December 31, 2016 the Company would have reduced its “Accumulated deficit” as reported on its Condensed Consolidated Balance Sheets by approximately $0.3 million related to prior triggering events.  During the six-month period ending June 30, 2017 the Company would have reduced its accumulated deficit by approximately $1,000 related to triggering events. During the six-month period ending June 30, 2018 the Company reduced its accumulated deficit by approximately $8,000 related to triggering events.

 

Except for the down round features in the September 2012 and 2014 warrants, the warrants would have been classified in equity under the guidance in Subtopic 815-40 and therefore qualify for the scope exception in ASU 2017-11As permitted, the Company elected to adopt the accounting principles prescribed by ASU 2017-11 during the interim period ended September 30, 2017 and recorded a cumulative-effect adjustment stemming from a change in accounting principle in its financial statements measured retrospectively to the beginning of 2017.  The cumulative effect adjustment appears at the beginning of 2017 in the Company’s Condensed Consolidated Statement of Changes in Equity.  The results of operations for the Company for the three months ended March 31, 2017 reflect application of the change in accounting principle from the beginning of 2017.  As noted above, the Company had previously reported a warrant derivative gain of $0.4 million during the six month period ending June 30, 2017.  Because the Company has retroactively applied the change in accounting principle discussed above to the beginning of 2017, the Company is no longer reporting warrant derivative gains or losses for the September 2012 and 2014 warrants beginning in 2017.

 

9


 

Other Income Related to the Sale of Exploration Properties

 

During the first quarter 2018 the Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) which was issued by the FASB” in May 2014. 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.  The Company has elected the modified retrospective method of initially adopting ASU 2014-09. 

 

ASU 2014-09 requires, in certain instances, that transactions covered by ASC Topic 610, “Other Income” (“Topic 610”) follow the recognition, measurement and disclosure guidelines established by ASU 2014-09.  The Company generally follows the guidance of Topic 610 with respect to the recognition of income from the farm-out or sale of exploration properties.  As of the beginning of 2018, the Company had one open contract impacted by the adoption of ASU 2014-09, involving 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 (Note 8).  In applying ASU 2014-09, approximately $49,000 of the income recognized from the Santacruz transaction in the fourth quarter of 2017 would have been recognized in the first quarter of 2018.  Accordingly, the Company has recognized retrospectively the cumulative effect of initially adopting ASU 2014-09 by recording a negative adjustment to retained earnings of $49,000 at the beginning of 2018, included in the Company’s Condensed Consolidated Statement of Changes in Equity, and recording $49,000 in “Other operating income, net” in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss for the period ended June 30, 2018.  See Note 8 for a further description of the contract with Santacruz and the identification of performance obligations and other significant judgments used in applying the guidance of Topic 606 to the contract.

 

Available for Sale Securities

 

During the first quarter 2018 the Company adopted ASU No. 2016-01, which amended its accounting treatment for the recognition, measurement, presentation and disclosure of certain financial assets. ASU 2016-01 requires equity investments that have readily determinable fair values to be measured at fair value through net income. Previously, entities would recognize changes in fair value of available-for-sale equity securities in other comprehensive income, and would recognize in net income impairment losses that were other-than-temporary.  There will no longer be an available-for-sale classification (with changes in fair value reported in other comprehensive income) for equity securities with readily determinable fair values.  At December 31, 2017, the Company had equity securities classified as available-for-sale and reported at fair value of $238,000, with cumulative unrealized losses of $40,000 recorded in “Accumulated other comprehensive loss” on its Condensed Consolidated Balance Sheets.  The Company has recognized the cumulative effect of initially adopting ASU 2016-01 by recording a negative adjustment to retained earnings and other comprehensive income of $40,000 at the beginning of 2018, included in the Company’s Condensed Consolidated Statement of Changes in Equity, and has recorded a gain of approximately $67,000  in  “Interest and other income, net” in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss for the period ended June 30, 2018.

 

4.     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.  Trading securities at June 30, 2018 were marked to market with a gain of $61,000 and $67,000 due to the change in fair value for the three and six months ended June 30, 2018, respectively, recorded in “interest and  other income, net” in the Condensed Consolidated Statements of Operations and Comprehensive Loss.  Available for sale investments at December 31, 2017 were marked to market with the cumulative negative change in fair value through December 31, 2017 of $40,000 recorded as a component of other comprehensive (loss) (see Note 3).

 

10


 

The following tables summarize the Company’s short-term investments at June 30, 2018 and December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Estimated

    

Carrying

 

June 30, 2018

 

Cost

 

Fair Value

 

Value

 

 

 

 

(in thousands)

 

Investments:

 

 

 

 

 

 

 

 

 

 

Short-term:

 

 

 

 

 

 

 

 

 

 

Trading securities

 

$

275

 

$

343

 

$

343

 

Total trading securities

 

 

275

 

 

343

 

 

343

 

Total short term

 

$

275

 

$

343

 

$

343

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

Short-term:

 

 

 

 

 

 

 

 

 

 

Available for sale common stock

 

$

275

 

$

238

 

$

238

 

Total available for sale common stock

 

 

275

 

 

238

 

 

238

 

Total short term

 

$

275

 

$

238

 

$

238

 

 

The short-term investments identified as trading securities at June 30, 2018 and available for sale common stock at December 31, 2017 consist 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.

 

5.     Prepaid Expenses and Other Assets

 

Prepaid expenses and other current assets consist of the following:

 

 

 

 

 

 

 

 

 

 

    

June 30,

    

December 31,

 

 

2018

 

 

2017

 

 

 

(in thousands)

 

Prepaid insurance

 

$

319

 

$

362

 

Deferred offering costs

 

 

585

 

 

137

 

Recoupable deposits and other

 

 

115

 

 

246

 

 

 

$

1,019

 

$

745

 

 

The deferred offering costs are related to the ATM Program and the LPC Program, discussed in detail in Note 14.

 

 

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6.     Inventories, net

 

Inventories at the Velardeña Properties at June 30, 2018 and December 31, 2017 consist of the following:

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

    

2018

    

2017

 

 

 

(in thousands)

 

Material and supplies

 

$

239

 

$

242

 

 

 

$

239

 

$

242

 

 

The material and supplies inventory at June 30, 2018 and December 31, 2017 is reduced by a $0.2 million obsolescence charge reflected in shutdown and care and maintenance costs.

 

7.     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, 2018, the Company has also recorded approximately $13,000 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.

 

During the six months ended June 30, 2018 the Company utilized a VAT credit in Mexico that had been previously fully offset by a valuation allowance and recorded other income of $0.1 million, included in “Other operating income, net” in the accompanying 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.

 

8.     Property, Plant and Equipment, Net

 

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

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

    

2018

    

2017

 

 

 

(in thousands)

 

Mineral properties

 

$

9,352

 

$

9,352

 

Exploration properties

 

 

2,518

 

 

2,518

 

Royalty properties

 

 

200

 

 

200

 

Buildings

 

 

4,274

 

 

4,246

 

Mining equipment and machinery

 

 

15,987

 

 

15,989

 

Other furniture and equipment

 

 

966

 

 

958

 

Asset retirement cost

 

 

866

 

 

865

 

 

 

 

34,163

 

 

34,128

 

Less: Accumulated depreciation and amortization

 

 

(26,531)

 

 

(25,988)

 

 

 

$

7,632

 

$

8,140

 

 

Minera Indé Equipment Sale

 

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 The Sentient Group (“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.  With the approval of a Special Committee of the Company’s Board of Directors, 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, net” in the accompanying Condensed Consolidated Statements of

12


 

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.

 

Celaya Farm-out

 

In August 2016, the Company, through its wholly owned Mexican subsidiary, entered into an earn-in agreement with a 100% owned Mexican subsidiary of Electrum Group, LLC, 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 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 initially earned the right to acquire an undivided 60% interest in a joint venture company to be formed to hold the Celaya project by incurring exploration expenditures totaling at least $2.5 million during the initial first three years of the agreement. Electrum would serve as manager of the joint venture. Prior to subsequent amendments to the agreement, the Company would have been allowed to maintain a 40% interest in the Celaya project, following the initial earn-in period, by contributing its pro-rata share of an additional $2.5 million in exploration or development expenditures incurred over a second three-year period. 

 

In February 2018, the Company and Electrum amended the Celaya earn-in agreement to permit Electrum to earn, at its option, an incremental 20% interest in the Celaya project in exchange for a payment of $1.0 million.  Following the amendment, Electrum could have increased its total interest in the project to 80% by contributing 100% of the $2.5 million of additional expenditures required in the second three-year earn-in period.  Following the second earn-in period, and prior to the Company entering into a non-binding letter of intent with Electrum (the “Celaya LOI”) to execute a second and final amendment of the agreement, the Company could have maintained its 20% participating interest or its interest could ultimately have been converted into a carried 10% net profits interest if the Company elected not to participate as a joint venture owner. 

 

In August 2018, the Company entered into the Celaya LOI to execute a second and final amendment of the Celaya earn-in agreement (the “Proposed Transaction”) pursuant to which Electrum intends to acquire 100% of the Company’s remaining interest in the Celaya project in exchange for a payment of $3.0 million.  The Proposed Transaction would be set out in a mutually acceptable and agreed upon definitive agreement containing customary terms and conditions and is intended to close no later than September 30, 2018.  The Celaya LOI is not binding and there is no assurance that the parties will ultimately consummate the transaction.

 

The Company has previously expensed all of its costs associated with the Celaya property and accordingly recognized a gain of $1.0 million from the execution of the first amendment to the agreement for the six month period ended June 30, 2018, included in “Other operating income, net” in the accompanying Consolidated Statements of Operations and Comprehensive Loss. The Company will recognize an additional gain of $3.0 million from the execution of the second and final amendment in the third quarter 2018.

 

Zacatecas Farm-out

 

In April 2016, the Company entered into an option agreement, which was later amended in February 2018, under which Santacruz Silver Mining Ltd. may acquire the Company’s interest the Zacatecas Properties for a series of payments totaling $1.5 million through September 2018. To date, Santacruz has paid the Company approximately $1.3 million, including $249,000 and $225,000 paid to the Company during the three months ended March 31, 2018 and June 30, 2018, respectively.  To complete the acquisition of the Zacatecas Properties Santacruz must make one additional payment of $225,000 in September 2018.  Santacruz has the right to terminate the option agreement at any time, and the agreement could be terminated, at the Company’s option, if Santacruz fails to make subsequent payments when due.  If the agreement is terminated, the Zacatecas Properties will revert back to the full ownership and control of the Company and any payments that have been made by Santacruz are nonrefundable.  Upon receipt of each cash payment, the agreement imposes a performance obligation on the Company to provide Santacruz an exclusive right to the Zacatecas Properties to conduct exploration activities during the period from receipt of the payment until the next payment due date.  Accordingly, the Company has determined that its performance obligation for each option payment received is satisfied over time.

 

The Company has previously expensed all of its costs associated with the Zacatecas Properties.  The Company recognizes income, equal to the cash payments made, evenly over the period covered by each payment.  The Company

13


 

has recognized approximately $336,000 of income under the agreement for the six months ended June 30, 2018, included in “Other operating income, net” in the accompanying Consolidated Statements of Operations and Comprehensive Loss. The Company has also recorded a liability of approximately $187,000 at June 30, 2018 representing its unearned performance obligation related to the agreement, included in “Other current liabilities” as reported in its Condensed Consolidated Balance Sheets.

 

Other items

 

The asset retirement cost (“ARC”) is all related to the Company’s Velardeña Properties.  The amounts for ARC have been fully depreciated as of June 30, 2018 and December 31, 2017.  The small increase in the ARC during the period is related to an adjustment to the asset retirement obligation (“ARO”), as discussed below in Note 11.

 

9.     Accounts Payable and Other Accrued Liabilities

 

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

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

 

2018

 

2017

 

 

 

(in thousands)

 

Accounts payable and accruals

 

$

488

 

$

310

 

Accrued employee compensation and benefits

 

 

1,164

 

 

1,246

 

 

 

$

1,652

 

$

1,556

 

 

June 30, 2018

 

Accounts payable and accruals at June 30, 2018 are primarily related to amounts due to contractors and suppliers in the amounts of $0.1 million and $0.4 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 partially offset by a small VAT receivable.

 

Accrued employee compensation and benefits at June 30, 2018 consist of $0.2 million of accrued vacation payable and $0.4 million related to withholding taxes and benefits payable, of which $0.4 million is related to activities at the Velardeña Properties, and $0.6 million related to the KELTIP (see Note 14).

 

December 31, 2017

 

Accounts payable and accruals at December 31, 2017 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, 2017 consist of $0.2 million of accrued vacation payable and $0.6 million related to withholding taxes and benefits payable, of which $0.3 million is related to activities at the Velardeña Properties and $0.4 million related to the KELTIP (see Note 14).

 

10. Other Current Liabilities

 

Included in other current liabilities for the period ended June 30, 2018 is a $187,000 contract liability related to payments received under a contract involving the sale of the Zacatecas Properties to Santacruz.  The contract liability represents a future performance obligation imposed on the Company under the terms of the contract and will be recorded to income as performance occurs during the third quarter of 2018 (see Notes 3 and 8).

 

 

11.     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.

14


 

 

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 2018, the Company recognized approximately $103,000 of accretion expense and approximately $2,000 of amortization expense related to the ARC.

 

The following table summarizes activity in the Velardeña Properties ARO:

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

    

2018

    

2017

 

 

 

(in thousands)

 

Beginning balance

 

$

2,448

 

$

2,380

 

 

 

 

 

 

 

 

 

Changes in estimates, and other

 

 

 2

 

 

(128)

 

Accretion expense

 

 

103

 

 

97

 

Ending balance

 

$

2,553

 

$

2,349

 

 

The change in the ARO recorded during the 2018 and 2017 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, 2018 and December 31, 2017 includes a nominal amount and approximately $0.1 million, respectively of reclamation liabilities related to activities at the El Quevar project in Argentina.

 

12.     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.

 

15


 

The following table summarizes the Company’s financial assets and liabilities at fair value on a recurring basis at June 30, 2018 and December 31, 2017, by respective level of the fair value hierarchy:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

 

 

(in thousands)

 

At June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,510

 

$

 —

 

$

 —

 

$

2,510

 

Lease receivables

 

 

435

 

 

 —

 

 

 —

 

 

435

 

Short-term investments

 

 

343

 

 

 —

 

 

 —

 

 

343

 

 

 

$

3,288

 

$

 —

 

$

 —

 

$

3,288

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,250

 

$

 —

 

$

 —

 

$

3,250

 

Lease receivables

 

 

314

 

 

 —

 

 

 —

 

 

314

 

Short-term investments

 

 

238

 

 

 —

 

 

 —

 

 

238

 

 

 

$

3,802

 

$

 —

 

$

 —

 

$

3,802

 

 

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

 

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 plant lease agreement.

 

The Company’s short-term investments consist of the common stock in Golden Tag and are classified within Level 1 of the fair value hierarchy (see Note 4).

 

Non-recurring Fair Value Measurements

 

There were no non-recurring fair value measurements at June 30, 2018 or December 31, 2017.

 

13.     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 six months ended June 30, 2018 and June 30, 2017 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.   

 

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, 2018 and as of December 31, 2017, 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, 2018 or December 31, 2017.

 

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14.     Equity

 

Registered direct purchase agreement and commitment purchase agreement and registration rights agreement

 

On May 9, 2018 the Company entered into a registered direct purchase agreement (the “Registered Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”) pursuant to which LPC purchased 3,153,808 shares of the Company’s common stock at a price of $0.4122 per share, the closing price of the Company’s common stock on the NYSE American on May 8, 2018, for an aggregate purchase price of $1.3 million.

 

On May 9, 2018, the Company also entered into a commitment purchase agreement (the “Commitment Purchase Agreement” and together with the Registered Purchase Agreement, the “LPC Program”) and a registration rights agreement (the “Registration Rights Agreement”) with LPC, pursuant to which the Company, at its sole discretion, has the right to sell  up to an additional $10.0 million of the Company’s common stock to LPC, subject to certain limitations and conditions contained in the Commitment Purchase Agreement. The Company closed on the Commitment Purchase Agreement in July 2018.

 

On June 7, 2018, pursuant to the terms of the Registration Rights Agreements, the Company filed a registration statement on Form S-1 (File No. 333-225483) (the “Registration Statement”) registering the resale up to 15,222,941 shares of the Company’s common stock to be issued to LPC pursuant to the terms of the Commitment Purchase Agreement. The Registration Statement was declared effective on June 28, 2018. Proceeds from the LPC Program will be used for general corporate purposes, including advancing the exploration program at the Company’s El Quevar property in Argentina. 

 

Subject to the terms of the Commitment Purchase Agreement, the Company will control the timing and amount of any future sale of the Company’s common stock to LPC. LPC has no right to require any sales by the Company under the Commitment Purchase Agreement but is obligated to make purchases at the Company’s sole direction, as governed by such agreement. There are no upper limits to the price LPC may be obligated to pay to purchase common stock from the Company and the purchase price of the shares will be based on the prevailing market prices of the Company’s shares at the time of each sale to LPC. LPC has agreed not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s shares of common stock. The Company has the right to terminate the Commitment Purchase Agreement at any time, at its discretion, without any cost or penalty.

 

In consideration for LPC’s commitment to purchase shares pursuant to the Commitment Purchase Agreement, the Company paid LPC a commitment fee of $300,000 and incurred an additional approximate $207,000 in stock exchange fees, legal and other associated costs in connection with the LPC Program.  The total costs for the LPC Program will be recorded as a reduction to equity as common stock is sold to LPC. As of June 30, 2018, approximately $58,000 of LPC Program costs had been amortized against $1.3 million in proceeds received, resulting in $449,000 of deferred LPC Program costs, recorded in “Prepaid expenses and other assets” on the Condensed Consolidated Balance Sheets.

 

As of June 30, 2018, no additional common stock had been sold to LPC under the LPC Program following the initial sale of common stock pursuant to the Registered Purchase Agreement.

 

At the Market Offering Agreement

 

In December 2016, the Company entered into an at-the-market offering agreement (as amended from time to time, 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. 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 did not sell any stock under the ATM Program during the six months ended June 30, 2018.

 

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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 approximately $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, 2018 and June 30, 2017 the Company also incurred approximately $10,000 and $15,000 respectively 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.   As of June 30, 2018, approximately $136,000 of deferred ATM Program costs remained, recorded in “Prepaid expenses and other assets” on the Condensed Consolidated Balance Sheets.

 

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.

 

The following table summarizes the status of the Company’s restricted stock grants issued under the Equity Plan at June 30, 2018 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, 2017

 

203,334

 

$

0.55

 

Granted during the period

 

180,000

 

 

0.41

 

Restrictions lifted during the period

 

(60,000)

 

 

0.41

 

Forfeited during the period

 

 —

 

 

 —

 

Outstanding June 30, 2018

 

323,334

 

$

0.50

 

 

For the six months ended June 30, 2018 the Company recognized approximately $53,000 of compensation expense related to the restricted stock grants.  The Company expects to recognize additional compensation expense related to these awards of approximately $118,000 over the next thirty months. During the period, 180,000 shares were granted to five employees, with one third of the grants vesting on the grant date and the remaining shares vesting equally on the first and second anniversaries of the grant date. 

 

The following table summarizes the status of the Company’s stock option grants issued under the Equity Plan at June 30, 2018 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, 2017

 

40,310

 

$

8.05

 

Granted during the period

 

 —

 

 

 —

 

Forfeited or expired during period

 

(10,000)

 

$

8.00

 

Exercised during period

 

 —

 

 

 —

 

Outstanding June 30, 2018

 

30,310

 

$

8.06

 

Exercisable at end of period

 

30,310

 

$

8.06

 

Granted and vested

 

30,310

 

$

8.06

 

 

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.

18


 

 

The following table summarizes the status of the RSU grants issued under the Deferred Compensation Plan at June 30, 2018 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, 2017

 

1,887,317

 

$

1.16

Granted during the period

 

600,000

 

 

0.42

Restrictions lifted during the period

 

(257,279)

 

 

1.44

Forfeited during the period

 

 —

 

 

 —

Outstanding at June 30, 2018

 

2,230,038

 

$

0.93

 

For the six months ended June 30, 2018 the Company recognized approximately $85,000 of compensation expense related to the RSU grants. The Company expects to recognize additional compensation expense related to the RSU grants of approximately $222,000 over the next 12 months. During the period, 100,000 RSUs were granted to each of the six board members. Also during the period, the restrictions were lifted on 257,279 RSUs related to the retirement of a member of the Board of Directors.

 

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 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 17, 2018, the Company awarded a total of 600,000 KELTIP Units to two officers of the Company and recorded approximately $252,000 of compensation expense, included in “Stock based compensation” in the Condensed Consolidated Statement of Operations and Comprehensive Loss.  On May 23, 2017, the Company awarded a total of 435,000 KELTIP Units to two officers of the Company and recorded approximately $209,000 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, 2018 the Company recognized an approximately $140,000 reduction to compensation expense. There were 1,620,000 and 1,020,000 KELTIP Units outstanding at June 30, 2018 and December 31, 2017, respectively.

 

Common stock warrants

 

The following table summarizes the status of the Company’s common stock warrants at June 30, 2018 and the changes during the six months then ended:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted 

 

 

 

Number of

 

Average Exercise 

 

 

 

Underlying

 

Price Per

 

Common Stock Warrants 

 

Shares

 

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