Quarterly Report (10-q)

Date : 11/13/2019 @ 11:04AM
Source : Edgar (US Regulatory)
Stock : Golden Minerals Co (AUMN)
Quote : 0.29145  0.01395 (5.03%) @ 7:41PM

Quarterly Report (10-q)

IncomeLossFromContinuingOperations

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

(MARK ONE)

 

 

 

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

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019.

 

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)

 

 

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Tile of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.01 par value

AUMN

NYSE American

 

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 every Interactive Data File required to be submitted 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 such files).   Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions 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 Act).  Yes     No  

 

At November 11, 2019,  106,734,279 shares of common stock, $0.01 par value per share, were issued and outstanding.

 

 

GOLDEN MINERALS COMPANY

FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2019

 

INDEX

 

 

 

2

PART I. FINANCIAL INFORMATION

 

Item 1.Financial Statements

 

GOLDEN MINERALS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Expressed in United States dollars)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2019

    

2018

 

 

 

(in thousands, except share data)

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents (Note 6)

 

$

2,892

 

$

3,293

 

Short-term investments (Note 6)

 

 

 —

 

 

330

 

Lease receivables

 

 

460

 

 

481

 

Inventories, net (Note 8)

 

 

227

 

 

229

 

Value added tax receivable, net (Note 9)

 

 

11

 

 

14

 

Prepaid expenses and other assets (Note 7)

 

 

374

 

 

619

 

Total current assets

 

 

3,964

 

 

4,966

 

Property, plant and equipment, net (Note 10)

 

 

6,304

 

 

7,109

 

Other long term assets (Note 11)

 

 

965

 

 

569

 

Total assets

 

$

11,233

 

$

12,644

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable and other accrued liabilities (Note 12)

 

$

1,665

 

$

1,969

 

Deferred revenue, current (Note 18)

 

 

293

 

 

293

 

Other current liabilities (Note 13)

 

 

1,649

 

 

12

 

Total current liabilities

 

 

3,607

 

 

2,274

 

Asset retirement and reclamation liabilities (Note 14)

 

 

2,782

 

 

2,683

 

Deferred revenue, non-current (Note 18)

 

 

88

 

 

307

 

Other long term liabilities  (Note 14)

 

 

384

 

 

10

 

Total liabilities

 

 

6,861

 

 

5,274

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 21)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity (Note 17)

 

 

 

 

 

 

 

Common stock, $.01 par value, 200,000,000 shares authorized; 106,734,279 and 95,620,796 shares issued and outstanding respectively

 

 

1,067

 

 

955

 

Additional paid in capital

 

 

521,268

 

 

517,806

 

Accumulated deficit

 

 

(517,963)

 

 

(511,391)

 

Shareholders' equity

 

 

4,372

 

 

7,370

 

Total liabilities and equity

 

$

11,233

 

$

12,644

 

 

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

 

3

GOLDEN MINERALS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Expressed in United States dollars)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

  

2019

  

2018

  

2019

  

2018

 

 

(in thousands except per share data)

 

(in thousands, except per share data)

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Oxide plant lease (Note 18)

 

$

1,944

 

$

1,900

 

$

5,852

 

$

5,267

Total revenue

 

 

1,944

 

 

1,900

 

 

5,852

 

 

5,267

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Oxide plant lease costs (Note 18)

 

 

(594)

 

 

(657)

 

 

(1,804)

 

 

(1,685)

Exploration expense

 

 

(935)

 

 

(1,077)

 

 

(3,119)

 

 

(3,017)

El Quevar project expense

 

 

(582)

 

 

(364)

 

 

(1,584)

 

 

(917)

Velardeña shutdown and care and maintenance costs

 

 

(422)

 

 

(428)

 

 

(1,391)

 

 

(1,409)

Administrative expense

 

 

(742)

 

 

(673)

 

 

(2,784)

 

 

(2,556)

Stock based compensation

 

 

(72)

 

 

139

 

 

(725)

 

 

(111)

Reclamation expense

 

 

(57)

 

 

(53)

 

 

(171)

 

 

(156)

Other operating income, net (Notes 9 & 10)

 

 

45

 

 

3,188

 

 

225

 

 

4,638

Depreciation and amortization

 

 

(270)

 

 

(337)

 

 

(814)

 

 

(897)

Total costs and expenses

 

 

(3,629)

 

 

(262)

 

 

(12,167)

 

 

(6,110)

Income (loss) from operations

 

 

(1,685)

 

 

1,638

 

 

(6,315)

 

 

(843)

Other income and (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income (expense), net (Note 19)

 

 

(42)

 

 

(59)

 

 

(182)

 

 

54

Gain (loss) on foreign currency

 

 

(24)

 

 

 7

 

 

(63)

 

 

(46)

Total other income (loss)

 

 

(66)

 

 

(52)

 

 

(245)

 

 

 8

Income (loss) from operations before income taxes

 

 

(1,751)

 

 

1,586

 

 

(6,560)

 

 

(835)

Income taxes (Note 16)

 

 

(9)

 

 

(1)

 

 

(9)

 

 

(4)

 Net income (loss)

 

$

(1,760)

 

$

1,585

 

$

(6,569)

 

$

(839)

Net income (loss) per common share — basic

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss)

 

$

(0.02)

 

$

0.02

 

$

(0.07)

 

$

(0.01)

Net income (loss) per common share — diluted

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss)

 

 

(0.02)

 

 

0.02

 

 

(0.07)

 

 

(0.01)

Weighted average Common Stock outstanding - basic

 

 

104,764,260

 

 

95,271,194

 

 

99,263,135

 

 

93,572,608

Weighted average Common Stock outstanding - diluted (1)

 

 

104,764,260

 

 

99,461,233

 

 

99,263,135

 

 

93,572,608


(1)Potentially dilutive shares for loss periods 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)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

    

2019

    

2018

 

 

 

(in thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net cash used in operating activities  (Note 20)

 

$

(3,122)

 

$

(3,701)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Proceeds from sale of assets

 

 

144

 

 

4,699

 

Proceeds from sale of trading securities

 

 

113

 

 

 —

 

Acquisitions of property, plant and equipment

 

 

(28)

 

 

(61)

 

Net cash from investing activities

 

$

229

 

$

4,638

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

2,492

 

 

809

 

Net cash from financing activities

 

$

2,492

 

$

809

 

Net decrease in cash and cash equivalents

 

 

(401)

 

 

1,746

 

Cash and cash equivalents, beginning of period

 

 

3,293

 

 

3,250

 

Cash and cash equivalents, end of period

 

$

2,892

 

$

4,996

 

 

See Note 20 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, 2017

 

91,929,709

 

$

919

 

$

516,284

 

$

(509,082)

 

$

(40)

 

$

8,081

 

Cumulative adjustment related to change in accounting principle (Note 5)

 

 —

 

 

 —

 

 

 —

 

 

(89)

 

 

40

 

 

(49)

 

Adjustment related to correction of immaterial error (Note 3)

 

 —

 

 

 —

 

 

 —

 

 

(154)

 

 

 —

 

 

(154)

 

Adjusted balance at January 1, 2018

 

91,929,709

 

$

919

 

$

516,284

 

$

(509,326)

 

$

 —

 

$

7,877

 

Stock compensation accrued and shares issued for vested stock awards

 

537,279

 

 

 4

 

 

221

 

 

 —

 

 

 —

 

 

225

 

Registered direct purchase agreement, net (Note 17)

 

3,153,808

 

 

32

 

 

1,210

 

 

 —

 

 

 —

 

 

1,242

 

Deemed dividend on warrants (Note 5)

 

 —

 

 

 —

 

 

 8

 

 

(8)

 

 

 —

 

 

 —

 

Net loss for nine months ended September 30, 2018

 

 —

 

 

 —

 

 

 —

 

 

(839)

 

 

 —

 

 

(839)

 

Balance, September 30, 2018

 

95,620,796

 

 

955

 

 

517,723

 

 

(510,173)

 

 

 —

 

 

8,505

 

Balance, December 31, 2018

 

95,620,796

 

$

955

 

$

517,806

 

$

(511,278)

 

$

 —

 

$

7,483

 

Adjustment related to correction of immaterial error (Note 3)

 

 —

 

 

 —

 

 

 —

 

 

(113)

 

 

 —

 

 

(113)

 

Adjusted balance at January 1, 2019

 

95,620,796

 

$

955

 

$

517,806

 

$

(511,391)

 

$

 —

 

$

7,370

 

Stock compensation accrued and shares issued for vested stock awards (Note 17)

 

312,000

 

 

 3

 

 

499

 

 

 —

 

 

 —

 

 

502

 

Modification of previously awarded KELTIP Units (Note 17)

 

 —

 

 

 —

 

 

583

 

 

 —

 

 

 —

 

 

583

 

Shares issued under the at-the-market offering agreement, net (Note 17)

 

33,995

 

 

 1

 

 

11

 

 

 —

 

 

 —

 

 

12

 

Shares issued under the Lincoln Park commitment purchase agreement, net (Note 17)

 

2,113,642

 

 

21

 

 

507

 

 

 —

 

 

 —

 

 

528

 

Registered direct offering agreement, net (Note 17)

 

8,653,846

 

 

87

 

 

1,860

 

 

 —

 

 

 —

 

 

1,947

 

Deemed dividend on warrants (Note 5)

 

 —

 

 

 —

 

 

 2

 

 

(2)

 

 

 —

 

 

 —

 

Net loss for nine months ended September 30, 2019

 

 —

 

 

 —

 

 

 —

 

 

(6,569)

 

 

 —

 

 

(6,569)

 

Balance, September 30, 2019

 

106,734,279

 

$

1,067

 

$

521,268

 

$

(517,963)

 

$

 —

 

$

4,372

 

 

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, 2018 and filed with the SEC on February 28, 2019.

 

The Company is a mining company holding a 100% interest in the El Quevar advanced exploration silver property in the province of Salta, Argentina, the Velardeña and Chicago precious metals mining properties and associated oxide and sulfide processing plants in the State of Durango, Mexico (the “Velardeña Properties”), and a diversified portfolio of precious metals and other mineral exploration properties located primarily in or near historical precious metals producing regions of Mexico, Nevada and Argentina. The El Quevar advanced exploration property and the Velardeña Properties are the Company’s only material properties.

 

The Company remains focused on evaluation activities at its El Quevar exploration property in Argentina and on evaluating and searching for mining opportunities in North America with near term prospects of mining.  The Company is also focused on continuing its exploration efforts on selected properties in its portfolio of approximately 12 exploration properties located in Mexico, Nevada, and Argentina.

 

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 maintains 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”). The employees at the Velardeña Properties 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.

 

On June 26, 2019, the Company entered into a Purchase and Sale Agreement (the “Agreement”) along with its indirectly wholly-owned subsidiary, Minera de Cordilleras S. de R.L. de C.V., to sell certain assets to Compañía Minera Autlán S.A.B. de C.V. (“Autlán”) for US$22.0 million. Upon execution of the Agreement, Autlán paid the Company a deposit of US$1.5 million (see Note 13). Under the terms of the Agreement, Autlán had agreed to purchase three of the Company’s Mexican subsidiaries, which together hold the Velardeña properties, including the Velardeña and Chicago mines (which are currently on care and maintenance), two processing plants, mining equipment and other adjacent exploration properties. The sale would have also included the Velardeña oxide plant lease as well as the Rodeo and Santa Maria project concessions. The Agreement provided for a period of up to 75 days for Autlán to conduct due diligence related to the three subsidiary companies, the Rodeo concessions and the Santa Maria concessions.  Under the Agreement, Autlán had the right to terminate the Agreement at any time during the due diligence period. On September 11, 2019, the Company announced that Autlán exercised its right to terminate the Agreement. As a result of the termination of the Agreement, the Company is required to repay the $1.5 million deposit amount, plus interest at 3% per annum, within 90 days following termination (on or before December 8, 2019) (the “Due Date”). If the Company does not pay such amount prior to the Due Date, then the Company shall convey the Rodeo concessions to Autlán in full settlement of the deposit. If the Rodeo concessions cannot be conveyed for any reason (as determined by Autlán in its reasonable discretion), the Company will be obligated to repay the deposit by making dedicated monthly payments equal to approximately 60 percent of the anticipated cash flow from the lease of the Velardeña oxide plant until the deposit amount is repaid with interest at approximately 11% per annuum. The $1.5 million deposit is recorded in “Other Current Liabilities” on the accompanying Condensed Consolidated Balance Sheets (see Note 13).

7

 

 

In connection with the Agreement, at June 30, 2019, the Company reported the results of operations for the Velardeña Properties and related subsidiaries as discontinued operations and assets held for sale for the periods presented in the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows.  Due to the termination of the Agreement, the Company is no longer reporting the Velardeña Properties and related subsidiaries as discontinued operations and assets held for sale.

 

The Company is considered an exploration stage company under SEC criteria since it has not yet demonstrated the existence of proven or probable mineral reserves, as defined by SEC Industry Guide 7, at any of its properties. Until such time, if ever, that the Company demonstrates the existence of proven or probable reserves pursuant to SEC Industry Guide 7, we expect to remain as an exploration stage company.

 

2.     Liquidity

 

At September 30, 2019, the Company’s aggregate cash and cash equivalents totaled $2.9 million, compared to the $3.3 million in similar assets held at December 31, 2018. The September 30, 2019 balance is due in part from the following expenditures and cash inflows for the nine months ended September 30, 2019.  Expenditures totaled $8.8 million from the following:

 

·

$3.1 million in exploration expenditures, including work at the Yoquivo, Sand Canyon, Santa Maria and other properties;

 

·

$1.3 million in care and maintenance costs at the Velardeña Properties;

 

·

$1.6 million in exploration and evaluation activities, care and maintenance and property holding costs at the El Quevar project; and

 

·

$2.8 million in general and administrative expenses.

 

The foregoing expenditures were offset by cash inflows of $8.4 million from the following:

 

·

$4.0 million of net operating margin received pursuant to the oxide plant lease (defined as oxide plant lease revenue less oxide plant lease costs);

 

·

$1.9 million of net proceeds from the sale of the Company’s common stock in a registered direct offering (as described in Note 17);

 

·

$1.5 million received as a deposit related to the proposed sale of the Velardeña Properties and other mineral concessions to Autlán (as described in Notes 1 and 13);

 

·

$0.6 million, net of commitment fees and other offering related costs, from the LPC Program (as described in Note 17);

 

·

$0.1 million from the sale of miscellaneous assets and $0.1 million from the sale of an investment in a junior mining company (Note 6); and

 

·

$0.2 million from a decrease in working capital primarily related to increased accounts payables for general and administrative expenses.

 

In addition to the $2.9 million cash balance at September 30, 2019, in October 2019 the Company entered into an option to purchase agreement for the sale of its interest in the Santa Maria property and expects to receive an initial cash payment of $1.0 million in connection with the transaction by the end of the first quarter 2020 (Note 24).  The Company also expects to receive an additional approximately $4.8 million in net operating margin from the lease of the oxide plant

8

through the end of the third quarter 2020.  The Company’s budgeted expenditures, totaling $9.8 million, during the next twelve months ending September 30, 2020 are as follows:

 

·

Approximately $2.5 million on exploration activities and property holding costs related to the Company’s portfolio of exploration properties located in Mexico, Nevada and Argentina, including project assessment and evaluation costs relating to Yoquivo, Sand Canyon and other properties;

 

·

Approximately $1.6 million at the Velardeña Properties for care and maintenance;

 

·

Approximately $1.5 million for repayment of the Autlán deposit according to the terms of the Agreement (as described in Note 1);

 

·

Approximately $0.8 million at the El Quevar project to fund ongoing exploration and evaluation activities, care and maintenance and property holding costs;

 

·

Approximately $3.1 million on general and administrative costs; and

 

·

Approximately $0.3 million for income tax payments due in Canada.

 

The Company’s currently budgeted expenditures of $9.8 million are slightly greater than the cash resources of $8.7 million that are expected to be available during the period.  Therefore, during the remainder of 2019 and through September 30, 2020, the Company will take appropriate actions, which may include sales of certain of the Company’s exploration assets, reductions to the Company’s currently budgeted level of spending, and/or raising additional equity capital through sales under the ATM Program (as defined in Note 17 below), the LPC Program or otherwise.

 

The actual amount of cash expenditures that the Company incurs during the twelve-month period ending September 30, 2020 may vary significantly from the amounts specified above and will depend on a number of factors, including variations from anticipated care and maintenance costs at the Velardeña Properties and costs for continued exploration, project assessment, and development at the Company’s other exploration properties, including El Quevar.  Likewise, the actual amount of cash receipts that the Company receives during the period may vary significantly from the amounts specified above due to, among other things, a decrease in the quantity of material processed under the oxide plant lease, an unexpected early termination of the oxide plant lease by the lessee, or the election by the purchaser of the Santa Maria property to terminate the proposed acquisition prior to payment of the initial $1.0 million portion of the purchase price.   If cash expenditures are greater than anticipated or if cash receipts are less than anticipated, the Company would need to take more aggressive actions to maintain sufficient cash balances over the next twelve months.

 

The consolidated financial statements have been prepared on a going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the normal course of business.  However, the Company’s continuing long-term operations are dependent upon its ability to secure sufficient funding and to generate future profitable operations.  The underlying value and recoverability of the amounts shown as property, plant and equipment in the Company’s consolidated financial statements are dependent on its ability to generate positive cash flows from operations and to continue to fund exploration and development activities that would lead to profitable mining activities or to generate proceeds from the disposition of property, plant and equipment.

 

There can be no assurance that the Company will be successful in generating future profitable operations or securing additional funding in the future on terms acceptable to the Company or at all.  The Company believes the continuing cash flow from the lease of the oxide plant, use of the ATM Program and the LPC Program, and the potential for additional asset dispositions make it probable that the Company will have sufficient cash to meet its financial obligations and continue its business strategy beyond one year from the filing of the Company’s consolidated financial statements for the period ended September 30, 2019.

9

 

3.Correction of Immaterial Error – Income Taxes

 

In the third quarter 2019, the Company became aware that it had failed to timely file withholding tax returns and pay taxes that were due at the end of 2017 and 2018 relating to return of capital distributions made to the Company by one of the Company’s wholly-owned subsidiaries (see Note 16).  The effect of correcting this error was to reduce beginning retained earnings by $154,000 and $113,000 at January 1, 2018 and January 1, 2019, respectively as reflected in the accompanying Condensed Consolidated Statements of Changes in Equity. 

 

The Company evaluated the materiality of the error described above from a qualitative and quantitative perspective. Based on such evaluation, the Company concluded that while the accumulation of the error was significant to the three months ended September 30, 2019, the correction would not be material to any individual prior period, nor did it have an effect on the trend of financial results, taking into account the requirements of the SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). Accordingly, we are correcting the error for every effected period of the 2018 Condensed Consolidated Financial Statements included in this Form 10-Q.

 

 

 

4.     New Accounting Pronouncements

 

During the first quarter 2019 the Company adopted ASU 2016-02, “Leases” (“ASU 2016-02”) and ASU No. 2018-11 “Leases (Topic 842)” (“ASU 2018-11”), which 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 Company currently leases administrative offices in the U.S. and in several foreign locations under lease agreements that typically exceed one year.  The Company has elected the modified retrospective method of adopting ASU 2016-02 (see Note 5).

 

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 2014-09 (see Note 5).

 

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 5).  

 

5.     Change in Accounting Principle

 

Leases

 

Effective January 1, 2019 the Company adopted ASU 2016-02 and ASU No. 2018-11, which requires 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 Company currently leases administrative offices in the U.S. and in several foreign locations under lease agreements that typically exceed one year.  The Company has elected the modified retrospective method of adopting ASU 2016-02 per Topic 842.  The adoption of ASU 2016-02 and ASU No. 2018-11 at January 1, 2019 resulted in only a negligible difference to amounts already recorded by the Company in its Consolidated Balance Sheets as of December 31, 2018, and as result the Company did not

10

record an adjustment to the beginning balance of retained earnings at January 1, 2019, as required under the modified retrospective method.

 

The Company took possession of new office space and began a new long-term lease for its principal headquarters office with an effective commencement date of June 1, 2019. The new office lease will expire five years and eight full calendar months following the commencement date.  There are no options to extend the lease beyond the stated term. The Company recorded a right of use asset of approximately $465,000 (see Note 10) and a lease liability of approximately $450,000 (see Note 13) in the second quarter of 2019 based on the net present value of the future lease payments discounted at 9.5%, which represents the Company’s incremental borrowing rate for purposes of applying the guidance of Topic 842. As required, the Company will recognize a single lease cost on a straight-line basis.

 

The Company also has long-term office leases in Mexico and Argentina that will expire in 2019 and has recorded a combined lease liability of approximately $18,000 and combined right of use asset of approximately $18,000 relating to both of those leases. 

 

Other Income Related to the Sale of Exploration Properties

 

During the first quarter 2018 the Company adopted ASU No. 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”) could 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 10).  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 for the period ended September 30, 2018.  See Note 10 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.

 

Trading 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 (see Note 6).  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. Subsequent to adopting ASU 2016-01 The Company recorded a mark-to-market gain of approximately $51,000 for the period ended September 30, 2018, with both amounts being recorded to” Interest and other income (expense), net”. The trading securities were all liquidated during the third quarter 2019 (see Note 6).

 

11

6.     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 following table summarizes the Company’s short-term investments at December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Estimated

    

Carrying

 

December 31, 2018

 

Cost

 

Fair Value

 

Value

 

 

 

 

(in thousands)

 

Investments:

 

 

 

 

 

 

 

 

 

 

Short-term:

 

 

 

 

 

 

 

 

 

 

Trading securities

 

$

275

 

$

330

 

$

330

 

Total trading securities

 

 

275

 

 

330

 

 

330

 

Total short term

 

$

275

 

$

330

 

$

330

 

 

 

 

 

 

 

 

 

 

 

 

 

The short-term investments at December 31, 2018 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. All the Golden Tag shares were sold during the third quarter 2019, resulting in net proceeds of approximately $113,000 and a loss on the sale of approximately $57,000 recorded in “Interest and other income (expense), net”.  For the nine months ended September 30, 2019 the Company recorded total losses related to ownership of the Golden Tag shares of approximately $217,000.

 

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.

 

7.     Prepaid Expenses and Other Assets

 

Prepaid expenses and other current assets at September 30, 2019 and December 31, 2018 consist of the following:

 

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

2019

    

2018

 

 

 

(in thousands)

 

Prepaid insurance

 

$

191

 

$

358

 

Recoupable deposits and other

 

 

183

 

 

261

 

 

 

$

374

 

$

619

 

 

 

8.     Inventories, net

 

 

Inventories at the Velardeña Properties at September 30, 2019 and December 31, 2018 consist of the following:

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2019

    

2018

 

 

 

(in thousands)

 

Material and supplies

 

$

227

 

$

229

 

 

 

$

227

 

$

229

 

12

 

The material and supplies inventory at September 30, 2019 and December 31, 2018 is reduced by a $0.2 million obsolescence allowance.

 

 

8.

9.     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 September 30, 2019, the Company has also recorded approximately $21,000 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 nine months ended September 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.  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.     Property, Plant and Equipment, Net

 

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

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2019

    

2018

 

 

 

(in thousands)

 

Mineral properties

 

$

9,353

 

$

9,353

 

Exploration properties

 

 

2,518

 

 

2,518

 

Royalty properties

 

 

200

 

 

200

 

Buildings

 

 

3,755

 

 

4,278

 

Mining equipment and machinery

 

 

16,038

 

 

16,024

 

Other furniture and equipment

 

 

884

 

 

888

 

Asset retirement cost

 

 

866

 

 

866

 

 

 

 

33,614

 

 

34,127

 

Less: Accumulated depreciation and amortization

 

 

(27,310)

 

 

(27,018)

 

 

 

$

6,304

 

$

7,109

 

 

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 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. 

13

 

In September 2018, the Company and Electrum entered into a second and final amendment of the Celaya earn-in agreement pursuant to which Electrum acquired 100% of the Company’s remaining interest in the Celaya project in exchange for a payment of $3.0 million.  The transaction was set out in a definitive Assignment of Rights Agreement (the “Assignment Agreement”) containing customary terms and conditions. The earn-in agreement was terminated upon entry into the Assignment Agreement.

 

The Company had 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 in the period ended September 30, 2018, included in “Other operating income, net” in the accompanying Condensed Consolidated Statements of Operations.  The Company recognized a gain of $3.0 million from the execution of the second amendment to the agreement in the nine-month period ended September 30, 2018.

 

Zacatecas Farm-out

 

In April 2016, the Company entered into an option agreement, which was later amended in February 2018, under which Santacruz acquired the Company’s interest in the Zacatecas Properties for a series of payments totaling approximately $1.5 million through October 2018, including $249,000,  $225,000 and $212,000 paid to the Company during the first, second and third quarters of 2018, respectively.  The final payment due the Company of $13,000 was received in October 2018.  Upon receipt of each cash payment, the agreement imposed 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, with a final obligation, following receipt of the final payment, to formally acknowledge completion of the sale enabling Santacruz to register title to the properties in its name.  At December 31, 2018 there were no further performance obligations and the Company had taken all steps necessary for Santacruz to take title to the properties.

 

The Company previously expensed all of its costs associated with the Zacatecas Properties.  Because Santacruz was able to terminate the option agreement at any time, and the associated uncertainty relating to timely payments, the Company only recognized income, equal to the cash payments made, evenly over the period covered by each payment.  The Company recognized approximately $336,000 of income under the agreement for the nine months ended September 30, 2018, included in “Other operating income, net” in the accompanying Condensed Consolidated Statements of Operations. The Company also recorded a liability of approximately $225,000 at September 30, 2018 representing its unearned performance obligation related to the agreement, included in “Other current liabilities” as reported in its Condensed Consolidated Balance Sheets.    

 

11.Other Long-Term Assets

 

Other long-term assets at September 30, 2019 and December 31, 2018 consist of the following:

 

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

2019

 

2018

 

 

 

(in thousands)

 

Deferred offering costs

 

$

511

 

$

569

 

Right of use assets

 

 

454

 

 

 —

 

 

 

$

965

 

$

569

 

 

The deferred offering costs are associated with the LPC Program and ATM Agreement (see Note 17). The right of use assets are related to certain office leases (see Note 5).

 

14

12.     Accounts Payable and Other Accrued Liabilities

 

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

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

 

2019

 

2018

 

 

 

(in thousands)

 

Accounts payable and accruals

 

$

562

 

$

358

 

Accrued employee compensation and benefits

 

 

829

 

 

1,344

 

Income taxes payable

 

 

274

 

 

267

 

 

 

$

1,665

 

$

1,969

 

 

September 30, 2019

 

Accounts payable and accruals at September 30, 2019 are primarily related to amounts due to contractors and suppliers in the amounts of $0.2 million related to the Company’s Velardeña Properties and $0.4 million related to exploration and corporate administrative activities.  In the case of the Velardeña Properties, approximately, $0.1 million is related to a net VAT payable.

 

Accrued employee compensation and benefits at September 30, 2019 consist of $0.3 million of accrued vacation payable and $0.5 million related to withholding taxes and benefits payable. Included in the $0.8 million of accrued employee compensation and benefits is $0.6 million related to activities at the Velardeña Properties.

 

The income taxes payable are related to certain Canadian taxes due on capital distributions the Company received from its Canadian subsidiary (see Note 16).

 

December 31, 2018

 

Accounts payable and accruals at December 31, 2018 are primarily related to amounts due to contractors and suppliers in the amounts of $0.2 million related to the Company’s Velardeña Properties and $0.2 million related to corporate administrative and exploration activities.  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, 2018 consist of $0.2 million of accrued vacation payable and $0.7 million related to withholding taxes and benefits payable. Included in the $1.3 million of accrued employee compensation and benefits is $0.6 million related to activities at the Velardeña Properties and $0.4 million related to the KELTIP Units (see Note 17).

 

The income taxes payable are related to certain Canadian taxes due on capital distributions the Company received from its Canadian subsidiary (see Note 16).

 

13.     Other Liabilities

 

Other Current Liabilities

 

Included in other current liabilities for the period ended September 30, 2019 is a $1.5 million liability related to the deposit received for the proposed sale of our Velardeña Properties and other mineral concessions to Autlán (see Note 1).  As a result of termination of the Agreement, the Company is required to repay the $1.5 million deposit amount, plus interest at 3% per annum on or before the Due Date and if such deposit is not repaid then the Company shall convey the Rodeo concessions to Autlán in full settlement of the deposit. If the Rodeo concessions cannot be conveyed for any reason (as determined by Autlán in its reasonable discretion), the Company will be required to repay the deposit by making dedicated monthly payments equal to approximately 60 percent of the anticipated cash flow from the lease of the Velardeña oxide plant until the deposit amount is repaid with interest at approximately 11% per annum.

 

Also included in other current liabilities is approximately $0.1 million related to a lease liability for office space at the Company’s principal headquarters in Golden and in Mexico and Argentina (see Note 5).

 

15

Other Long-Term Liabilities

 

Other long-term liabilities of $0.4 million for the period ended September 30, 2019 is primarily related to a lease liability for office space at the Company’s principal headquarters in Golden (see Note 5).

 

 

14.     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 at that time.

 

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 nine months of 2019, the Company recognized approximately $167,000 of accretion expense.

 

The following table summarizes activity in the Velardeña Properties ARO:

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

    

2019

    

2018

 

 

 

(in thousands)

 

Beginning balance

 

$

2,660

 

$

2,448

 

 

 

 

 

 

 

 

 

Changes in estimates, and other

 

 

(60)

 

 

 2

 

Accretion expense

 

 

167

 

 

156

 

Ending balance

 

$

2,767

 

$

2,606

 

 

The change in estimate of the ARO recorded during 2019 is primarily 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 September 30, 2019 and December 31, 2018 includes a nominal amount of reclamation liability related to activities at the El Quevar project in Argentina.

 

15.     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.

 

16

The following table summarizes the Company’s financial assets and liabilities at fair value on a recurring basis at September 30, 2019 and December 31, 2018, by respective level of the fair value hierarchy:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Level 1

    

Level 2

    

Level 3

    

Total

 

 

 

(in thousands)

 

At September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,892

 

$

 —

 

$

 —

 

$

2,892

 

Lease receivables

 

 

460

 

 

 —

 

 

 —

 

 

460

 

 

 

$

3,352

 

$

 —

 

$

 —

 

$

3,352

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,293

 

$

 —

 

$

 —

 

$

3,293

 

Lease receivables

 

 

481

 

 

 —

 

 

 —

 

 

481

 

Short-term investments

 

 

330

 

 

 —

 

 

 —

 

 

330

 

 

 

$

4,104

 

$

 —

 

$

 —

 

$

4,104

 

 

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 short-term investments consist of the common stock in Golden Tag and are classified within Level 1 of the fair value hierarchy (see Note 6). All of the Golden Tag shares were sold during the third quarter 2019.

 

Non-recurring Fair Value Measurements

 

There were no non-recurring fair value measurements at September 30, 2019 or December 31, 2018.

 

16.     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 nine months ended September 30, 2019 and September 30, 2018 the Company recognized income tax expense of $9,000 and $4,000, respectively. 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 September 30, 2019 and as of December 31, 2018, the Company had no net deferred tax assets or net deferred tax liabilities reported on its balance sheet.

 

In the third quarter 2019, the Company became aware that it had failed to timely file withholding tax returns and pay taxes that were due relating to return of capital distributions made to the Company by ECU Silver Mining Inc. (the Company’s wholly-owned Canadian subsidiary) at the end of 2017 and 2018.  The capital distributions constituted dividends under Canadian tax law, subject to a 5% withholding tax.  The Canadian withholding taxes, which constituted taxes on income for the months of December 2017 and December 2018, totaled approximately $284,000 at September 30, 2019, including an estimate of interest due of approximately $20,000 on the late filing.  The Company has accrued this amount in “other accrued liabilities”  in its Condensed Consolidated Balance Sheets at September 30, 2019. The Company has treated the income tax expense related to this liability as the correction of an accounting error and has adjusted the beginning balance of retained earnings at January 1, 2018 and January 1, 2019 (Note 3).  The Company plans to apply to enter into the Canadian Revenue Agency’s Voluntary Disclosure Program, whereby the Company will pay the taxes and the estimated interest due and request abatement of any penalties or additional interest that may apply.  If the Canada Revenue Agency denies the Company’s request for abatement, additional interest and penalties could be assessed.

 

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

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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 September 30. 2019 or December 31, 2018.

 

17.     Equity

 

Registered direct offering

 

On July 17, 2019, the Company entered into an agreement with certain institutional investors providing for the issuance and sale of 8,653,846 shares of the Company’s common stock at a price of $0.26 per share, and in a concurrent private placement transaction, the issuance of 8,653,846 Series A warrants to purchase up to 8,653,846 shares of the Company’s common stock at an exercise price of $0.35 per share, for aggregate gross proceeds of $2.25 million (the “Offering”).  Each Series A warrant will become exercisable on January 17, 2020 and will expire on January 17, 2025, five years from the initial exercise date. Each of the investors in the Offering held warrants that were issued by the Company in May 2016 and were exercisable until November 2021 at an exercise price of $0.75 per share. In connection with the Offering, the Company also agreed to exchange, on a one-for-one basis, the May 2016 warrants for Series B warrants to purchase 4,500,000 shares of common stock at an exercise price of $0.35 per share.  Each Series B warrant will also become exercisable on January 17, 2020 and will expire on May 20, 2022 but are otherwise subject to the same terms and conditions as the Series A warrants. 

 

The net proceeds of the Offering were recorded in equity and appear as a separate line item in the Condensed Consolidated Statements of Changes in Equity. Total costs for the Offering were approximately $0.3 million, including the placement agent fee of six percent of aggregate gross proceeds, listing fees and legal and other costs. Such costs were recorded as a reduction to “Additional paid in capital” on the Condensed Consolidated Balance Sheets.  Using the Black Scholes model, the fair value of the Series A warrants issued was approximately $2.1 million and the incremental fair value of the Series B warrants, when compared to the warrants that they replaced, was approximately $0.3 million. The Black Scholes inputs for the Series A warrants included the closing stock price on July 16, 2019 (the day preceding the date the Company entered into the agreement to issue the shares) of $0.33, the exercise price and exercise period of the warrants, the Company’s applicable volatility rate for the period of the Series A warrants of 95%, and the applicable risk-free rate of 1.9%.  The Black Scholes inputs for the Series B warrants included the closing stock price on July 16, 2019 of $0.33, the exercise price and exercise period of the warrants, the Company’s applicable volatility rate for the period of the Series B warrants of 88%, and the applicable risk-free rate of 1.9%.

 

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. 

 

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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 $191,000 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 December 31, 2018, approximately $56,000 of LPC Program costs had been amortized against the $1.3 million in proceeds received on May 8, 2018, resulting in $434,000 of deferred LPC Program costs, recorded in “Other long-term assets” on the Condensed Consolidated Balance Sheets.

 

During the nine months ended September 30, 2019 the Company sold 2,113,642 shares of common stock to LPC under the LPC Program at an average sales price per share of approximately $0.28, resulting in net proceeds of approximately $590,000.  In addition, approximately $58,000 of LPC Program costs were amortized, resulting in a remaining balance of $376,000 of deferred LPC Program costs, recorded in “Other long-term assets” on the Condensed Consolidated Balance Sheets as of September 30, 2019.

 

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.  On November 23, 2018 the Company entered into a second amendment of the ATM Agreement extending the agreement until the earlier of December 20, 2020, 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. 

 

During the first nine months of 2019, the Company sold an aggregate of 33,995 shares of common stock under the ATM Agreement at an average price of $0.34 per share of common stock for total proceeds of approximately $11,000.  As of September 30, 2019, approximately $135,000 of deferred ATM Program costs remained, recorded in “Other long term assets” on the Condensed Consolidated Balance Sheets.

 

The Company did not sell any stock under the ATM Program during the nine months ended September 30, 2018.

 

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.

 

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The following table summarizes the status of the Company’s restricted stock grants issued under the Equity Plan at September 30, 2019 and the changes during the nine months then ended:

 

 

 

 

 

 

 

 

 

    

 

    

Weighted 

 

 

 

 

 

Average Grant 

 

 

 

 

 

 Date Fair 

 

 

 

Number of 

 

 Value Per 

 

Restricted Stock Grants

 

Shares

 

 Share

 

Outstanding at December 31, 2018

 

340,001

 

$

0.45

 

Granted during the period

 

312,000

 

 

0.26

 

Restrictions lifted during the period

 

(290,664)

 

 

0.39

 

Forfeited during the period

 

 —

 

 

 —

 

Outstanding September 30, 2019

 

361,337

 

$

0.33

 

 

For the nine months ended September 30, 2019 the Company recognized approximately $100,000 of compensation expense related to the restricted stock grants.  The Company expects to recognize additional compensation expense related to these awards of approximately $84,000 over the next 32 months. Of the 290,664 grants for which the restriction was lifted 186,665 were related to grants made in prior years and 103,999 were related to grants made during the current year for which one third of the shares vested on the grant date.

 

The following table summarizes the status of the Company’s stock option grants issued under the Equity Plan at September 30, 2019 and the changes during the nine months then ended:

 

 

 

 

 

 

 

 

 

    

 

    

Weighted

 

 

 

 

 

Average

 

 

 

 

 

Exercise

 

 

 

Number of 

 

Price Per 

 

Equity Plan Options

 

Shares

 

Share

 

Outstanding at December 31, 2018

 

30,310

 

$

8.06

 

Granted during the period

 

 —

 

 

 —

 

Forfeited or expired during period

 

 —

 

$

 —

 

Exercised during period

 

 —

 

 

 —

 

Outstanding September 30, 2019

 

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.

 

The following table summarizes the status of the RSU grants issued under the Deferred Compensation Plan at September 30, 2019 and the changes during the nine months then ended:

 

 

 

 

 

 

 

 

    

 

    

Weighted 

 

 

 

 

Average Grant 

 

 

 

 

 Date Fair 

 

 

Number of 

 

 Value Per 

Restricted Stock Units

 

Shares

 

 Share

Outstanding at December 31, 2018

 

2,230,038

 

$

0.93

Granted during the period

 

600,000

 

 

0.24

Restrictions lifted during the period