Business context and reporting period
The supplied filing is Silver Horn Mining Ltd.’s Form 10-K for the fiscal year ended December 31, 2012—not a filing identifying Nextplat Corp. The filing describes an exploration-stage company focused on silver properties in Arizona; it reports no active mining, no reserves, and no revenue. Its two properties cover approximately 1,000 acres. The period is the full fiscal year, not just 2012 Q4.
Financial performance and position
| Metric | 2012 | 2011 comparable |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $4.67 million | $1.94 million |
| Operating loss | $4.67 million | $1.94 million |
| Net loss | $4.81 million | $8.72 million |
| Net loss per share | $0.02 | $0.04 |
| Cash from operations | $(192,527) | $(754,006) |
| Cash at year-end | $20 | $15,047 |
Operating expenses rose 140%, chiefly reflecting $3.5 million of stock compensation for 25 million shares issued to CEO Daniel Bleak. Net loss improved year over year primarily because 2011 included a $6.15 million derivative fair-value loss; 2012 recorded a $160,740 gain from fair-value changes, partly offset by $174,128 of derivative-liability expense. No meaningful revenue-based margins are available.
At December 31, 2012, current assets were $7,520 and current liabilities were $1.72 million, producing a $1.71 million working-capital deficit. Reported debt was $243,382 before discounts ($210,110 net on the balance sheet); derivative liabilities were $50,888. The company also reported $849,170 payable to related party MJI, $492,766 in accounts payable and accrued expenses, and $112,397 of liabilities from discontinued operations. Stockholders’ deficit was $1.71 million; accumulated deficit was approximately $49.6 million.
Material changes versus 2011
- Operating expenses increased by $2.73 million, substantially due to the CEO share award. Exploration costs declined to $115,832 from $156,363, which management attributed to limited working capital.
- Net loss decreased by $3.91 million, largely because of the prior-year derivative valuation loss and lower interest expense; the company remained without revenue.
- Operating cash outflow improved to $192,527 from $754,006, while cash fell nearly to zero. Financing provided $177,500 in 2012, versus $675,000 in 2011.
- Common shares outstanding rose to 253.0 million from 225.8 million. The company issued 25 million shares to its CEO, issued $50,000 of Series D preferred stock, and raised $127,500 in net proceeds from notes/debentures.
Outlook, risks, contingencies and unusual items
- Going concern: The auditor and management state that substantial doubt exists about the company’s ability to continue as a going concern. Management planned to seek public or private financing, but gave no assurance of obtaining it. The company said it did not expect to be profitable in 2013 and might curtail or cease operations if financing were unavailable.
- Property and permitting: Neither property has established reserves or commercial feasibility. Exploration and drilling require permits and may require BLM review, reclamation bonding, and other approvals.
- Litigation: A dispute with John C. Cost concerns alleged overlap affecting at least nine of the 14 COD claims; the company asserted its claims were valid, and trial was scheduled for August 20, 2013. A $47,362 default judgment for predecessor-company accounting services was recorded in liabilities.
- Related parties: MJI provided management and employee-leasing services under an agreement described as having a five-year term and a 180-day termination notice. The company incurred $300,000 of management fees and approximately $437,000 of personnel expenses through MJI in 2012; $849,170 was owed to MJI at year-end. The CEO also controlled Can-Am Gold, from which the 76 Property claims were acquired for $10.
- Potential dilution and debt: Convertible notes were past due and due on demand after their February 28, 2013 maturity; holders could convert at $0.05 per share. Convertible securities include price-adjustment terms, and 36.75 million warrants were outstanding at year-end. Further financing could dilute shareholders or carry senior rights.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective, citing limited internal-audit resources and lack of segregation of accounting duties. The auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- Confirm the intended issuer: the provided filing names Silver Horn Mining Ltd., not Nextplat Corp.
- Reconcile conflicting cash-flow disclosures: MD&A states net cash used in operations was $142,000 in one passage and $192,527 elsewhere; the cash-flow statement reports $192,527.
- Reconcile the cash-flow statement’s net-loss figure of $4,770,072 with the statements of operations and MD&A, which report $4,811,072.
- Check the status and repayment or conversion of the notes that matured February 28, 2013, and the company’s subsequent financing and liquidity.
- Verify the COD claim-title litigation outcome, property rights, and any exploration permits or subsequent evidence of reserves.
- Review the related-party payable and service agreement terms, outstanding share and warrant dilution, and remediation of reported control deficiencies.