Business context and reporting period
This filing is Silver Horn Mining Ltd.’s unaudited Form 10-Q for the quarter ended March 31, 2013. The request identifies Nextplat Corp, but the filing names Silver Horn Mining Ltd. as the registrant; verify the company and filing identity. Silver Horn is an exploration-stage company focused on silver claims in Arizona. It reported no revenue, no proven or probable mineral reserves, and no active mining operations.
Financial performance and position
- Revenue: $0 for the quarter, unchanged from Q1 2012.
- Net loss: $183,980, versus $3,829,450 in Q1 2012. Basic and diluted loss per share was reported as $0.001, versus $0.02.
- Operating expenses: $170,021, down from $3,809,229. The main driver was the absence of the $3.5 million stock compensation expense recorded in Q1 2012 for shares issued to the CEO. Related-party management fees remained $75,000; exploration costs were $5,000.
- Cash flow: The cash flow statement reports $0 net cash used in operations and $0 net financing cash flow for Q1 2013, with cash unchanged at $20. The reported zero operating cash flow reflects, among other items, a $166,607 increase in accounts payable and accrued expenses.
- Liquidity: Current assets were $2,020, including $20 cash, versus current liabilities of $1,893,811; the company reported a $1,891,791 working capital deficit. Total stockholders’ deficit was $1,891,791.
- Debt and obligations: Convertible debentures and notes totaled $243,382 before discounts and $237,132 net. The $105,882 face amount of notes issued for $90,000 matured February 28, 2013 and was past due and payable on demand; the filing says no holders had converted them. Related-party accounts payable were $994,974. Derivative liabilities were $35,742.
- Margins: Not meaningful because the company had no revenue.
Changes, outlook, and risks
The much smaller year-over-year loss primarily reflects the absence of the prior-year $3.5 million stock-based compensation charge, rather than revenue growth. The company says it does not expect to be profitable in 2013. Management intends to seek additional capital, but gives no assurance that financing will be available. It warns that without financing it may need to curtail operations or cease operations. The filing states that the lack of working capital and need for capital raise substantial doubt about the company’s ability to continue as a going concern.
- Exploration and property risk: The company has not established reserves or commercial feasibility; exploration costs are expensed as incurred. Limited working capital constrained exploration activity.
- Contingency: A dispute over claims at the COD property remained in discovery, with trial scheduled for August 20, 2013. The company said it believed the opposing party’s claims were without merit.
- Related parties: The company owed MJI approximately $994,974 for unpaid management fees, employee salaries, and reimbursable expenses. Management fees were $75,000 for the quarter under an agreement with a five-year term, terminable on 180 days’ notice.
- Controls: Management concluded disclosure controls were ineffective at March 31, 2013 because of limited internal resources and insufficient levels of transaction review. Remediation was being considered, with no assurance it would be completed timely or prove adequate.
- Unusual reporting issue: The MD&A describes a 2013 operating loss of $70,021, while the financial statements report $170,021. The statements show $90,000 of financing cash flow in Q1 2012; the MD&A discussion contains an inconsistent period reference.
Important facts to verify
- Confirm whether this filing belongs to Silver Horn Mining Ltd. or the requested Nextplat Corp.
- Reconcile the $70,021 versus $170,021 operating-loss figure and the MD&A cash-flow period references.
- Confirm the status, repayment terms, and any defaults or amendments relating to the past-due convertible notes.
- Assess available financing, near-term obligations, and the company’s ability to continue as a going concern, given $20 cash and the working capital deficit.
- Check the status and outcome of the COD property title litigation and the validity of the company’s mining claims.
- Review the company’s proposed remediation of ineffective disclosure controls and the potential dilution from outstanding warrants and convertible debt.