Nextplat Corp quarterly report, Q3 FY2011

Business context and reporting period

This is Silver Horn Mining Ltd.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2011. The request identifies Nextplat Corp, but the supplied filing names Silver Horn Mining Ltd.; confirm the issuer before relying on this summary. Silver Horn had recently shifted its focus to early-stage mineral exploration, principally silver, and had generated no revenue. Its Arizona properties had no identified reserves.

Key financial metrics

No meaningful operating margin is available because the company had no revenue. The three-month profit was driven by a $4,413,763 gain from the change in fair value of derivative liabilities, not operating performance. The nine-month results included an $8,648,418 derivative fair-value expense and a $500,000 mineral-rights impairment.

Material changes versus the prior comparable period

• Quarterly operating expenses rose 154% to $544,020 from $214,255; nine-month operating expenses fell 62% to $1,554,189 from $4,055,927. The nine-month comparison reflects substantial prior-period stock-based and consulting expenses.
• Quarterly results changed from a $2,147,085 net loss in 2010 to $3,800,428 net income in 2011, principally because derivative remeasurement swung from a $366,480 expense to $4,413,763 of income.
• The nine-month net loss increased to $10,700,857 from $6,968,251 in 2010, with derivative remeasurement a major contributor.
• Cash increased from $94,053 at December 31, 2010 to $196,292 at September 30, 2011. The company raised $550,000 from common-stock sales and $125,000 from warrant exercises during the nine-month period.
• Common shares outstanding increased from 170,613,692 at year-end 2010 to 211,833,555 at September 30, 2011.

Outlook, risks, contingencies, and unusual items

• Going concern: Management reported substantial doubt about the company’s ability to continue as a going concern. It needs additional capital, has no revenue, available credit, or other external working-capital source, and warned that financing may not be available on acceptable terms. Management did not expect profitability in fiscal 2011.
• Exploration risk: The company had no proven or probable reserves and expensed exploration costs. It recorded a $500,000 impairment of mineral rights, concluding the cost was not recoverable and exceeded fair value.
• Property dispute: A third party claimed that nine of the company’s 14 COD Property claims overlap older claims. The company disputed the claim; after the third party failed to provide a requested quitclaim deed by October 25, 2011, the company said it might pursue legal remedies.
• Derivative volatility: Convertible debentures and warrants with down-round provisions are recorded as liabilities and remeasured through earnings. The filing says future non-cash gains or losses could materially affect results and cannot be estimated.
• Debt and dilution: The $480,000 debenture principal was due within one year according to the contractual-obligations table. Additional equity or debt financing could dilute shareholders or carry senior rights. The company also had 36 million warrants and 30 million options outstanding.
• Related parties: The company paid MJI Resource Management Corp. $25,000 per month under an employee-leasing and services agreement amended in August. A director was MJI’s president; the CEO was also connected to the company’s property grantor and the landlord under a prior warehouse lease.
• Controls: Management concluded disclosure controls were ineffective at September 30, 2011, citing limited internal resources and insufficient levels of transaction review. It had not assured timely or adequate remediation.
• Registration obligation: For the May 2011 stock sale, the company agreed to file and seek effectiveness of a resale registration statement. The agreements provide for payments of 1% of each investor’s investment per 30-day period, subject to a 5% cap, for specified filing or effectiveness delays.

Important facts for investors to verify

1. Confirm the registrant identity: the provided filing is for Silver Horn Mining Ltd., not Nextplat Corp.
2. Review available financing, near-term cash needs, and the status and maturity terms of the $480,000 debenture principal.
3. Check the COD Property claim dispute and the legal status and title of both Arizona properties.
4. Assess the derivative-liability valuation and its effect on reported earnings, particularly the large quarterly gain and nine-month expense.
5. Verify progress in remediating the disclosed ineffective controls and compliance with the resale-registration commitments.