Business Context and Reporting Period
Company: Gold Resource Corporation
Filing Type: Form 8-K (Current Report)
Date of Report: November 2, 2012
Subject: Non-reliance on previously issued financial statements for the first and second quarters of fiscal 2012 due to a material error regarding the impairment of certain receivables.
Key Financial Metrics and Material Changes
The filing discloses a material restatement of financial results for the six months ended June 30, 2012, driven by a settlement with a concentrate buyer regarding assay variances.
- Revenue Adjustment: Net reduction to revenues of approximately $3.7 million for the six months ended June 30, 2012.
- Cash Impact: $3.0 million represents the cash settlement with the buyer.
- Non-Cash Impact: $0.7 million represents a non-cash derivative adjustment.
- Production Impact: Approximately 1,800 gold equivalent ounces will not be paid for shipments in February and March 2012.
- Internal Controls: The company identified a material weakness in internal controls over financial reporting related to the concentrate sales process and chain of custody.
Management Commentary, Risks, and Remediation
Cause of Error: Significant variances were discovered between preliminary assays used for provisional sales prices and final assays obtained by the buyer after shipment. This led to a dispute over payment adjustments.
Settlement Terms: The buyer agreed to accept the Company's preliminary assays for April, May, and June 2012. However, preliminary assays for February and March 2012 were rejected, resulting in the revenue reduction noted above.
Remediation: Management implemented additional security measures concerning concentrate shipments. As of September 30, 2012, management believes the internal control deficiency has been remediated.
Risks and Contingencies:
- Previously issued financial statements for Q1 and Q2 2012 should no longer be relied upon.
- The company will file amendments to its Form 10-Q for the quarters ended March 31, 2012, and June 30, 2012.
- Forward-looking statements regarding exploration and development are subject to risks including precious metals prices and market conditions.
- The company has no "reserves" as defined by SEC Guide 7.
Investor Verification Checklist
- Verify the amended Form 10-Q filings for the quarters ended March 31, 2012, and June 30, 2012, to confirm the restated revenue figures.
- Review the press release dated November 8, 2012 (Exhibit 99.1) for additional details on the settlement.
- Assess the impact of the $3.7 million revenue reduction on the company's liquidity and cash flow position.
- Confirm the status of the remediation plan for internal controls in subsequent filings.