Business Context and Reporting Period
Company: Contango ORE, Inc. (Note: Input metadata referenced "Contango Silver & Gold Inc.", but the filing identifies the registrant as Contango ORE, Inc.)
Filing Type: Form 8-K (Current Report)
Date of Report: October 9, 2015
Subject: Non-reliance on previously issued financial statements for the three and nine-month periods ended March 31, 2015.
Key Financial Metrics and Restatement Details
The filing does not provide specific revenue, profit, or cash flow figures for the current period. Instead, it details a restatement of prior financials due to accounting errors:
- Accounting Method Change: The Company previously consolidated the results of Peak Gold, LLC (a joint venture with Royal Gold, Inc.). It has determined that Royal Gold had the ability to direct operations, meaning the Company only had significant influence. Consequently, the investment must be accounted for under the equity method rather than consolidation.
- Reclassification of Funds: A $750,000 payment from Royal Gold, originally recorded as revenue, has been reclassified to a contra expense account to reflect its nature as a reimbursement for transaction costs.
- Joint Venture Status: As of March 31, 2015, Royal Gold's percentage interest in the Joint Venture was zero, though it held the right to appoint two of three Management Committee members.
Material Changes Versus Prior Period
The material change is the correction of the accounting treatment for the Peak Gold, LLC joint venture and the reclassification of the $750,000 reimbursement. These changes impact the unaudited consolidated financial statements for the three and nine months ended March 31, 2015, which were originally filed on May 15, 2015. The filing states that these changes do not impact periods prior to March 31, 2015.
Management Commentary, Risks, and Contingencies
- Internal Control Weakness: Management concluded there is a material weakness in internal control over financial reporting regarding complex, nonrecurring transactions. As a result, internal controls were deemed ineffective as of March 31, 2015, and June 30, 2015.
- Remediation: The Company is filing an amended Form 10-Q/A to correct the financial statements.
- Audit Committee Involvement: The Audit Committee and authorized officers discussed the restatement with the independent accountant, BDO USA, LLP, starting September 22, 2015.
Investor Verification Checklist
- Verify the filing of the amended Form 10-Q/A to review the restated financial figures for the quarter ended March 31, 2015.
- Confirm the specific impact of the equity method accounting change on the Company's reported assets, liabilities, and net income.
- Review the Company's plan to remediate the identified material weakness in internal controls over financial reporting.
- Monitor future disclosures regarding the status and financial performance of the Peak Gold, LLC joint venture.