FORM 10-QSB
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF
THE EXCHANGE ACT
For the transition period from to
Commission file number 0-9137
U.S. GOLD CORPORATION
(Exact name of small business issuer as specified in its charter)
COLORADO 84-0796160
(State or other jurisdiction (I.R.S. Employer
of incorporation Identification No.)
or organization)
55 Madison, Suite 700
Denver, Colorado 80206
(Address of principal executive offices)
(303) 322-8002
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
Class Outstanding as of November 7, 1997
Common Stock, $0.10 par value 13,853,734
U.S. GOLD CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS September 30, 1997
Current assets:
Cash and cash equivalents $648,993
Federal tax refund receivable 198,317
Other current assets 12,205
Total current assets 859,515
Investment in Tonkin Springs Project
Joint Venture 2,262,578
Marketable securities, at market 1,788,826
Deferred tax assets, net 41,203
Other assets, net of depreciation 48,361
$5,000,483
LIABILITIES, DEFERRED CREDITS AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $28,393
Reserve for reclamation 640,000
668,393
Shareholders' equity:
Common stock, $.10 par value, 15,000,000
shares authorized; 13,853,734 shares
issued and outstanding 1,385,408
Additional paid-in capital 31,976,818
Accumulated deficit (28,828,533)
Unrealized loss on marketable securities (201,603)
4,332,090
$5,000,483
See accompanying notes to consolidated financial statements.
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended September 30, 1997 and 1996
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Installment gain on sale
of Tonkin Springs interest $- $143,128 $- $258,896
Interest income 17,812 38,132 70,046 111,863
Other income - - - 1,215
17,812 181,260 70,046 371,974
Other costs and expenses:
General and administrative 622,016 153,035 996,948 648,255
Interest 884 467 3,409 587
Depreciation and amortization 8,110 2,964 14,028 8,552
Total expense 631,010 156,466 1,014,385 657,394
Income (loss) before
income taxes (613,198) 24,794 (944,339) (285,420)
Provision for income taxes - - - -
Net income (loss) $(613,198) $24,794 $(944,339) $(285,420)
Per share data:
Net income (loss) $(0.04) $0.00 $(0.07) $(0.02)
Weighted average shares
and share equivalents
outstanding 13,853,767 14,643,068 13,853,872 13,807,215
See accompanying notes to consolidated financial statements.
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1997 and 1996
(Unaudited)
September 30, 1997 September 30, 1996
Cash flows from operating
activities:
Cash paid to suppliers and
employees $(1,052,955) $(817,301)
Interest received 69,619 -
Cash used in operating
activities (983,336) (817,301)
Cash flows from investing
activities:
Cash received from sale of
Tonkin Springs interest 1,501,076 431,844
Cash received for accrued
interest on note 129,569 195,572
Capital expenditures (3,775) (8,218)
Sale of assets - 1,215
Cash provided by investing
activities 1,626,870 620,413
Cash provided by (used in)
financing activities - -
Increase (decrease) in cash
and equivalents 643,534 (196,888)
Cash and equivalents, beginning 5,459 234,326
Cash and equivalents, ending $648,993 $37,438
Reconciliation of net income
(loss) to cash used in operating
activities:
Net income (loss) $(944,339) $(285,420)
Items not requiring (providing)
cash:
Interest income - (101,192)
Depreciation, depletion and
amortization 14,028 8,552
Investment gain on sale of Tonkin
Springs interest - (258,896)
(Increase) decrease in current assets
related to operations 15,464 (122,256)
Increase (decrease) in current
liabilities related to operations (98,642) (24,099)
Decrease (increase) in other assets,
long term 30,153 (33,990)
Cash used in operating activities $983,336 $817,301
See accompanying notes to consolidated financial statements.
U.S. GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, as well as the accounts of Tonkin Springs
Venture Limited Partnership (TSVLP). Significant intercompany accounts and
transactions have been eliminated.
The balance sheet of the Company as of September 30, 1997 and the results
of operations for the three and nine months ended September 30, 1997 and 1996,
and the cash flows for the nine month periods ended September 30, 1997 and
1996, have not been examined by independent certified public accountants.
However, in the opinion of management, the accompanying unaudited consolidated
financial statements contain all necessary adjustments in order to make the
financial statements not misleading.
The preparation of the Companys consolidated financial statements in
conformity with generally accepted accounting principles requires the Companys
management to make estimates and assumptions that affect the amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The results of operations for the three and nine month periods ended September
30, 1997 and 1996 are not necessarily indicative of the results to be expected
for the full years. These financial statements should be read in conjunction
with the Companys annual report on Form 10-KSB filed with the Securities and
Exchange Commission for the year ended December 31, 1996.
2. Sale of 60% Interest in Tonkin Springs Project
On December 31, 1993 (the Closing), TSVLP, a partnership owned by subsidiaries
of U.S. Gold Corporation (the Company), sold a 60 percent undivided interest in
the Tonkin Springs Properties and Obligations (the Properties) to Gold Capital
Corporation (Gold Capital). TSVLP retained a 40 percent undivided interest in
the Properties. Immediately after this conveyance, TSVLP and Gold Capital each
made their respective interest in the Properties subject to a mining joint
venture,the Tonkin Springs Project Joint Venture (Project Joint Venture), to
operate and manage the Properties. Ownership in the Project Joint Venture is:
TSVLP- 40 percent, Gold Capital- 60 percent. Gold Capital is manager of the
Properties under the Project Joint Venture.
Gold Capital purchased its 60 percent undivided interest in the Properties
from TSVLP for a purchase price and other consideration of approximately
$7,830,000 representing the estimated fair market value of the assets. The
purchase price included delivery of a mortgage note in the amount of $3.8
million (the Promissory Note); 300,000 shares of unregistered Gold Capitals
Series A Preferred Stock (Gold Capital Preferred Stock) having an assigned
value of $3 million, and the assumption of 60 percent of a reclamation
obligation recorded at $960,000. Effective December 31, 1996, the Company
converted its Gold Capital Preferred Stock for 1,750,000
shares of Gold Capital common stock which in turn, will be exchanged for
shares of Globex common stock as provided under the Gold Capital Merger
discussed further below.
Effective August 29, 1997, Gold Capital became a wholly-owned subsidiary of
Globex Mining Enterprises, Inc. (Globex), a Canadian corporation with shares
traded on the Toronto and Montreal stock exchanges (symbol: GMX) pursuant to
the merger of Gold Capital with a subsidiary of Globex (the Gold Capital
Merger). With this merger, Globex through its wholly-owned subsidiary Gold
Capital, assumed responsibilities and obligations for Tonkin Springs under the
various Gold Capital agreements with the Company and TSVLP.
Globex raised approximatley $12 million in equity related to the Gold Capital
Merger and for the Tonkin Springs Project and has also arranged conditional
project financing for Tonkin Springs with a bank through a commitment letter for
$13 million along with $10 million secured hedging line. These proposed project
financings are subject to pre-conditions as well as final contractual
documentation and closing and therefore, there can be no assurance that they
will be sucessfully completed by Globex.
The Company agreed to amend the Project Joint Venture Agreement effective upon
the Gold Capital Merger. Under the terms of the amendment, Gold Capital paid off
the balance of the Promissory Note to TSVLP, agreed to finance capital
requirements of TSVLP after Commencement of Commercial Production, and agreed
to pay TSVLP $60,000 per month in minimum cash distributions during a 36 month
period commencing September 1, 1998. The amendment gives Gold Capital the right
to borrow up to 100% of TSVLPs cash flow from the Project to support Gold
Capitals debt service, if any, for third party project financing with any net
borrowings from TSVLPs cash flow due and payable upon payoff of any third party
project financing, increase the amount of Reimbursable Costs from $6 million to
$11.25 million and further provide for limited increases to the amount of
Reimbursable Costs for additional exploration costs in excess of $750,000 but
not more than $1,500,000 prior to Commencement of Commercial Production, and
provide expanded definitions of Commencement of Commercial Production.
The remaining principal and accrued interest on the Promissory Note in the
amount of $1,206,000 was fully paid on August 29, 1997. The Promissory Note
had accrued interest at a fixed rate of 7.5% on the unpaid principal balance.
Interest on the Promissory Note for fiscal year 1996 in the
amount of $129,569 was received in January, 1997.
Also related to the Gold Capital Merger, the Company agreed for a period of 2
years to vote its Globex shares as directed by Globex and to give Globex a
first right of refusual on sales of Globex stock to third parties.
Gold Capital is required to fund 100% of the holding, development and
administrative costs relating to the Properties until commencement of commercial
production. For such expenditures up to the maximum amount of Reimbursable
Costs, Gold Capital shall be reimbursed from a preferential portion (84%) of
cash flows from the operations of the Properties, if any. Expenditures in
excess of the Recoupable Costs maximum will be considered contributions to the
Project Joint Venture by Gold Capital. Through September 30, 1997, Gold Capital
has reported that it has incurred approximately $4.96 million in Reimbursable
Costs.
The Company recognized the gain from the sale of the 60% interest in the
Tonkin Springs Properties to Gold Capital using the installment method of
accounting. At December 31, 1996, there was $1,789,100 in deferred gain
associated with the Gold Capital common stock received in exchange for Gold
Capital Preferred Stock. With the Gold Capital Merger this deferred gain was
eliminated as provided under the installment method of accounting.
3. Tonkin Springs Venture Limited Partnership
The Company holds its interest in the Project Joint Venture through TSVLP, a
partnership which is owned by subsidiaries of the Company, Tonkin Springs Gold
Mining Company (TSGMC) (99.5% general partner) and U.S. Environmental
Corporation (0.5% limited partner). The following is the unaudited condensed
balance sheet and statement of operations for TSVLP as of and for the nine
months ended September 30, 1997.
BALANCE SHEET September 30, 1997
Assets:
Current assets
Cash $647,789
Investment in Project Joint Venture 3,283,875
Investment in Globex Common Stock 1,748,400
Intercompany account 2,231,546
Other assets 2,097
Total Assets $7,913,707
Reserve, Deferred Gain and Partners' Interest:
Reserve for reclamation $640,000
Partners' interest
Subsidiaries of U.S. Gold-
Initial interest 3,309,902
Allocation of withdrawn interests 3,515,384
Accumulated earnings 448,421
Partners' Interest 7,273,707
Total Reserve, Deferred Gain and
Partners' Interest $7,913,707
STATEMENT OF OPERATIONS Nine Months Ended
September 30, 1997
Revenues:
Interest income $ 69,619
Costs and expenses:
General, administrative and other 239,685
Net loss $(170,066)
Note A. TSVLP and Gold Capital are jointly responsible for reclamation of
disturbance of the Properties, proportionate to their respective interest
in the Project Joint Venture. The current estimate of reclamation cost, on
a 100% basis, totals approximately $1.47 million of which the Company
reflects $640,000 on its balance sheet related to its 40% share. Actual
reclamation, generally, will be commenced upon the completion of operations
at the Properties. Bonding of reclamation under various Nevada and Federal
Bureau of Land Management agencies, currently set at $1.3 million, is the
responsibility of Gold Capital under the terms of the Project Joint Venture.
4. Condensed Financial Information of Tonkin Springs Project Joint Venture
As noted in Footnote 2 above, effective December 31, 1993, TSVLP sold a 60
percent undivided interest in the Properties to Gold Capital and the parties
each made their respective interest in the Properties subject to the Project
Joint Venture. Gold Capital is manager of the Properties under the Project
Joint Venture. The following is the unaudited condensed statement of operations
and balance sheet of the Project Joint Venture as of and for the nine months
ended September 30, 1997. All costs and expenditures associated with the
Properties have been funded by Gold Capital.
STATEMENT OF OPERATIONS Nine Months Ended
September 30, 1997
Revenues $13,020
Property maintenance costs (499,914)
Interest expense (31,111)
Net loss $(518,005)
BALANCE SHEET September 30, 1997
Assets:
Current assets $2,372
Property, plant, equipment &
development costs 12,826,355
Prepaid royalties 694,604
Other assets 8,457
Total assets $13,531,788
Liabilities, Reserves and Project
Joint Venturers Interest:
Current liabilities $22,925
Intercompany account-Gold Capital 4,961,273
Reserve for reclamation 1,469,900
6,454,098
Venturers' Interest-
Gold Capital's interest 4,642,512
TSVLP's interest 2,435,178
Total venturers' interest 7,077,690
Total liabilities, reserves and
venturers' interest $13,531,788
5. Marketable Securities
Marketable securities at September 30, 1997 consisted of approximately 632,094
shares of common stock of Golbex to be received by the Company pursuant to the
Gold Capital Merger (see Note 2). The Companys historical cost basis in the
Globex common shares is $1,990,429. As of September 30, 1997, the market value
of the Companys holdings in Globex was $1,788,826.
6. Loan Settlement Agreement
On February 21, 1992, in a Loan Settlement Agreement with its senior secured
lender, The French American Banking Corporation (FABC), the Company discharged
its debt to FABC. As part of the consideration to FABC under the Loan
Settlement Agreement, the Company entered into an agreement between TSGMC and
FABC entitled Agreement To Pay Distributions. Under the terms of this agreement,
TSGMC is required to pay to FABC (i) the first $30,000 of distributions,
as defined in such agreement, received from TSVLP, plus (ii) an amount equal to
50% of such retained distributions after TSGMC has first received and retained
$500,000 of such retained distributions. This obligation to FABC shall terminate
after FABC has been paid a total of $2,030,000 thereunder.
PART II
MANAGEMENTS DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS
Except for the historical information contained in this Form 10-QSB, the
statements in this report which relate to the Companys plans, objectives or
future performance may be deemed to be forward-looking statements. Such
statements are based on current expectations of management. Actual strategies
and results may differ materially from those currently expected because of
factors including gold price, ore grades, metallurgical recovery, operating
costs, market valuation, and project operators performance under the
Project Joint Venture, as well as other risks and uncertainties.
Changes in Financial Condition
On December 31, 1993 (the Closing), TSVLP, a partnership owned by subsidiaries
of U.S. Gold Corporation (the Company), sold a 60 percent undivided interest in
the Tonkin Springs Properties and Obligations (the Properties) to Gold Capital
Corporation (Gold Capital). TSVLP retained a 40 percent undivided interest in
the Properties. Immediately thereafter, TSVLP and Gold Capital each made their
respective interest in the Properties subject to the Tonkin Springs Project
Joint Venture (the Project Joint Venture) to operate and manage the Properties.
Ownership in the Project Joint Venture is: TSVLP- 40 percent, Gold Capital- 60
percent. Gold Capital is manager of the Properties under the Project Joint
Venture.
Gold Capital purchased its 60 percent undivided interest in the Properties from
TSVLP for a purchase price and other consideration of approximately $7,830,000
representing the estimated fair market value of the assets purchased. The
purchase price included $200,000 in cash at Closing; delivery of a mortgage note
in the amount of $3.8 million (the Promissory Note); 300,000 shares of
unregistered Gold Capitals Series A Preferred Stock (Gold Capital Preferred
Stock) having an assigned value of $3 million, and the assumption of 60 percent
of a reclamation obligation recorded at $960,000. Effective
December 31, 1996, the Company converted the Gold Capital Preferred Stock into
1,750,000 shares of Gold Capital common stock.
Effective August 29, 1997, Gold Capital became a wholly-owned subsidiary of
Globex Mining Enterprises, Inc. (Globex), a Canadian corporation with shares
traded on the Toronto and Montreal stock exchanges (symbol: GMX) pursuant to a
merger of Gold Capital with a subsidiary of Globex (the Gold Capital Merger).
With this merger, Globex through its wholly-owned subsidiary Gold Capital,
assumed responsibilities and obligations for Tonkin Springs under the various
Gold Capital agreements with the Company and TSVLP. As a result of the Gold
Capital Merger, the Company will receive approximatley 632,094 shares of Globex
common stock in exchange for 2,287,547 shares of Gold Capital common stock.
Globex raised approximatley $12 million in equity related to the Gold Capital
Merger and for the Tonkin Springs Project and has also arranged additional
conditional project financing with a bank through a commitment letter for $13
million along with $10 million secured hedging line. These proposed project
financings are subject to pre-conditions as well as final contractual
documentation and closing, and therefore there can be no assurance that Globex
will be successful in completing such additional financings.
Gold Capital is required to fund 100% of the holding, development and
administrative costs relating to the Properties until commencement of commercial
production. Through September 30, 1997, Gold Capital has reported that it has
incurred approximately $4.96 million in costs for the Project Joint Venture.
The Company amended the Project Joint Venture Agreement effective upon the Gold
Capital Merger. Under the terms of the amendment, Gold Capital paid off the
balance of the Promissory Note to TSVLP, agreed to finance capital requirements
of TSVLP after Commencement of Commercial Production, and agreed to pay TSVLP
$60,000 per month as minimum cash distributions during a 36 month period
commencing September 1, 1998. The amendment gives Gold Capital the right to
borrow up to 100% of TSVLPs cash flow from the Project to support Gold Capitals
debt service, if any, for third party project financing with any net borrowings
from TSVLPs cash flow due and payable upon payoff of any third party project
financing. The amendment also increased the amount of Reimbursable Costs from
$6 million to $11.25 million and further provide for limited increases to the
maximum amount of Reimbursable Costs for additional exploration costs in excess
of $750,000 but not more than $1,500,000 prior to Commencement of Commercial
Production, and provide expanded definitions of Commencement of Commercial
Production. Gold Capital shall be reimbursed for the maximum allowed
Reimbursable Costs from a preferential portion (84%) of cash flows
from the operations of the Properties, if any. After preferential recovery of
Reimbursable Costs, cash flow will be distributed 40% to TSVLP and 60% to Gold
Capital. Expenditures in excess of the Reimbursable Costs maximum will be
considered contributions to the Project Joint Venture by Gold Capital.
The remaining principal and accrued interest on the Promissory Note in the
amount of $1,206,000 was fully paid on August 29, 1997. The Promissory Note had
accrued interest at a fixed rate of 7.5% on the unpaid principal balance.
Interest on the Promissory Note for fiscal year 1996 in the amount of $129,569
was received in January, 1997. Also related to the Gold Capital Merger, the
Company agreed for a period of 2 years to vote its Globex shares as directed by
Globex and to give Globex a first right of refusual on sales of Globex stock
to third parties.
The Company recognized the gain from the sale of the 60% interest in the Tonkin
Springs Properties to Gold Capital using the installment method of accounting.
At December 31, 1996, there was $1,789,100 in deferred gain associated with the
shares of Gold Capital common stock received in exchange for Gold Capital
Preferred Stock. With the Gold Capital Merger this deferred gain was eliminated
as provided under the installment method of accounting.
The Companys historic cost basis of the Globex common stock is $1,990,429.
As of September 30, 1997, the market value of the Companys holdings in Globex
was $1,788,826.
In April, 1996, Gold Capital obtained an audit of the project feasibility study
from an outside engineering firm, which study confirms the economic viability
and recommends development of the project to produce gold from a milling and
heap leach operation at Tonkin Springs. Subject to certain conditions and
assumptions set forth therein, the feasibility study concludes that gold can be
successfully mined over the estimated five-year initial phase of the Project.
At various times, the Project has engaged the consulting firm Ore Reserves
Engineering (ORE) to provide estimates of the open pit minable reserves from
the Project. The open-pit reserve estimate done by ORE and completed in
October, 1996, is summarized in the table below:
Tons Grade Ounces
above above Contained Strip
Deposit Cutoff Cutoff Cutoff Gold Ratio
(opt Au) (1,000) (opt Au) (1,000) (W:O)
TSP-1
Milling 0.055 1,470 0.099 146 3.4
Bioheap 0.025 1,159 0.040 46 2.0
2,629 192
Rooster
Oxide Heap 0.015 3,692 0.037 136 1.3
Bioheap 0.027 1,805 0.051 92 1.3
5,497 228
O-15
Milling 0.055 969 0.107 103 11
Bioheap 0.025 601 0.040 24 3
1,570 127
TSP-6
Milling 0.055 90 0.117 11 2.4
Bioheap 0.025 86 0.039 3 2.4
176 14
TSP-8
Milling 0.055 48 0.081 4 8.2
Bioheap 0.025 61 0.041 2 8.2
109 6
F-Grid
Milling 0.055 247 0.094 23 7.0
Bioheap 0.025 407 0.037 15 7.0
654 38
Total 10,635 0.057 605 3.1
Liquidity and Capital Resources
As of September 30, 1997, the Company had working capital of $813,122, including
cash of $648,993, Federal tax refund receivable of $198,317 anticipated to be
received in the fourth quarter of 1997, and current liabilities of $28,393. The
Company anticipates receipt of interest income on invested cash balances as its
only source of additional income for the remainder of 1997. However, effective
September, 1998, the Gold Capital is required to pay TSVLP minimum cash
distributions of $60,000 per month from the Tonkin Springs Project for the
following 36 months.
For the nine months ended September 30, 1997, net cash used in operations
increased to $983,336 in the 1997 period from $817,301 during 1996, primarily
reflecting an increase in cash paid for suppliers and compensation to employees.
Cash flow from investing activities increased to $1,626,870 for 1997 from
$620,413 in 1996, primarily reflecting the payoff of the Gold Capital Promissory
Note in August, 1997.
Results of Operations:
Three Months Ended September 30, 1997 Compared to 1996
For the three month period ended September 30, 1996, $143,128 of the deferred
gain related to the sale of the interest in the Tonkin Springs Properties was
recognized reflecting principal payment received on the Promissory Note.
During the 1997 period, $17,812 in interest income, primarily related to the
Promissory Note, was recorded, compared to interest income of $38,132 during
the 1996 period, reflecting the larger average balance outstanding under the
Promissory Note.
General and Administrative expenses increased $468,981 in the 1997 period
compared to 1996, primarily reflecting expenses related to funding of the 1996
contribution to the Companys Simplified Employee Pension plan, increased
compensation to employees, and write off of deferred property acquisition and
financing costs.
Nine Months Ended September 30, 1997 Compared to 1996
For the nine month period ended September 30, 1996, $258,896 of the deferred
gain related to the sale of the interest in the Tonkin Springs Properties was
recognized reflecting principal payment received on the Promissory Note.
During the 1997 period, $70,046 in interest income, primarily related to the
Promissory Note, was recorded, compared to interest income of $111,863 during
the 1996 period reflecting the larger average balance outstanding under the
Promissory Note.
General and Administrative expenses increased approximately $348,693 in the
1997 period compared to 1996, primarily reflecting higher compensation paid
to employees, funding of the 1996 contribution to the Companys Simplified
Employee Pension plan, and write off of deferred property acquisition and
financing costs.
For the nine month period ended September 30, 1997, cash flow from investing
activities amounted to $1,626,870, related primarily to the Promissory Note
which was repaid with accrued interest effective August 29, 1997 as
discussed above, compared to $620,413 for the corresponding period of 1996
reflecting receipt of accrued interest and principal payments on the
Promissory Note. Cash used in operating activities increased to $983,336
for the 1997 period compared to $817,301 for the corresponding period of 1996.
PART II
1. No report required.
2. No report required.
3. No report required.
4. No report required.
5. No report required.
6.a Amendment to Mining Venture Agreement effective
August 29, 1997, by and between Tonkin Springs
Venture Limited Partnership and Gold Capital Corporation.
6.b No report required.
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
U.S. GOLD CORPORATION
Dated: November 7, 1997 By William W. Reid,
President and Chairman of the Board
Dated: November 7, 1997 By William F. Pass,
Vice President and Chief Financial Officer
Exhibit 6.a Amendment to Mining Venture Agreement effective
August 29, 1997, by and between Tonkin Springs Venture Limited
Partnership and Gold Capital Corporation
AMENDMENT TO MINING VENTURE AGREEMENT
This Amendment to Mining Venture Agreement (the Amendment) is executed
as of the 7th day of March, 1997, to be effective, if at all, upon the
date specified in paragraph 1 below, by and between Tonkin Springs
Venture Limited Partnership, a Nevada limited partnership, whose address
is 55 Madison, Suite 700, Denver, Colorado 80206 (TSVLP), and Gold Capital
Corporation, a Colorado corporation, whose address is 5525 Erindale Drive,
Suite 201, Colorado Springs, Colorado 80918 (GCC).
RECITALS
A. TSVLP and GCC are parties to a Mining Venture Agreement dated effective
as of December 31, 1993 (the Mining Venture Agreement), which governs the
operations of the parties at the Tonkin Springs Project in Eureka County,
Nevada (the Project).
B. TSVLP and GCC are among the parties to a Letter of Intent dated December 20,
1996, as amended on January 16, 1997 (collectively, the Letter of Intent),
which contemplates a series of transactions by which Globex Mining Enterprises,
Inc. (Globex) would acquire GCC. In the Letter of Intent, the parties agreed
to amend certain provisions of the Mining Venture Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Effective Date of Amendments: The amendments to the Mining Venture
Agreement, as set forth in paragraph 2 below, shall become effective only if
and when the merger transaction between GCC and Globex has been approved by
the owners of a sufficient number of GCCs shares to make the merger effective
under Colorado law and GCCs Articles of Incorporation. If such closing has not
occurred by August 30, 1997 (or such later date as provided for in the
definitive Merger Agreement for the merger transaction), this Amendment shall
terminate and shall be of no further force or effect.
2. Amendments to Mining Venture Agreement: Upon the effective date described
in paragraph 1 above, the Mining Venture Agreement shall be amended as set forth
below in this paragraph 2.
A. Section 1.6. The definition of Budget is hereby revised to read as follows:
Budget means a detailed estimate, covering at least a one-year period, of all
costs to be incurred by the Participants with respect to a Program and a
schedule of cash advances necessary to fund the costs of that Program. For any
Budget accompanying a Program for Mining Operations, such Budget shall include,
without limitation, cost information and data, to be updated in accordance with
standard industry practice, setting forth, on a semi-annual basis over the life
of Recoverable Reserves from the Properties: (a) estimates of ore reserves
within the Properties, including without limitation Recoverable Reserves, (b)
projections of production of Products, (c) direct and out-of-pocket cash costs
for Operations, (d) projections of state and local taxes and production
royalties to be incurred on the production of Products from the Properties, (e)
capital expenditures, (f) Exploration and Development expenditures, (g)
projections of estimated Cash Flow, and (h) projected distributions (if any) to
the Participants during the period of time encompassed by the Budget.
B. Section 1.7. The introductory phrase of this Section hereby is amended to
read as follows: Cash Flow means the following, calculated on a calendar
quarter basis after Commencement of Commercial Production: Subparagraph (b) in
the definition of Cash Flow is hereby revised to read as follows:
(b) the sum of: (i) all direct and out-of-pocket cash costs and expenditures
for Operations, provided, however, that for purposes of calculating Cash Flow,
costs shall not include any non-cash expenses (i.e. amortization, depletion and
depreciation), (ii) Exploration and capital expenditures included in the then
current annual Budget, (iii) reasonable, ordinary and necessary amounts of
working capital in support of approved Programs and Budgets, (iv) state and
local taxes, and (v) production royalties actually paid (or for which payment
obligations have accrued).
C. Section 1.10. The definition of Commencement of Commercial Production is
hereby revised to read as follows:
Commencement of Commercial Production means one of the alternatives (i), (ii)
or (iii) below:
(i) If the mill on the Properties is utilized to process Products: the last
day of a period of 60 consecutive days during which, for not less than 50 days,
the mill processed sulfide ore from the Properties at least at an average of
1,300 tons per day with a gold recovery percentage of at least 75%; provided,
however, that no period of time during which ore is milled or processed for
testing purposes, and no period of time during which milling operations are
undertaken as tune-up, shall be taken into account in determining the date of
Commencement of Commercial Production, or
(ii) If a combined high grade/low grade sulfide ore bioheap-recovery heap is
utilized to process Products: the last day of a period of 30 consecutive days
during which sulfide ore is loaded on the recovery pad at a rate of at least an
average of 3,000 tons per day provided that all of those 3,000 tons per day
meet the following requirements:
(a) crushed to 80% minus 3/8ths inch,
(b) conveyed to, conditioned and stacked on the bio heap pad,
(c) bio oxidized on the pad,
(d) washed, neutralized, conveyed and stacked on recovery pad,
(e) for both the heap pads, construction is complete for a capacity to handle
three years at an average production rate of at least 3,000 tons per day,
(f) the carbon/gold recovery plant is completed, so as to be capable of
handling an average production rate of at least 3,000 tons per day, and
(g) a total of at least 2,000 ounces of gold has been produced, either in dore
or bullion form.
(iii) In no event can processing of oxide ore constitute Commencement of
Commercial Production, unless in conjunction with the commencement of
processing oxide ore, the following conditions have been met:
(a) feasibility study outlining a plan for the economic processing of sulfide
ore pursuant to the requirements of (i) or (ii) above in this definition has
been completed,
(b) financing is in place to fund the construction and operation of the
processing facilities for sulfide ore, and
(c) with respect to the oxide operation, the following conditions have been
met:
(1) construction of the oxide recovery pads is complete for a capacity to
handle three years of production at an average production rate of at least
6,000 tons per day;
(2) oxide ore has been loaded on the pads for at least 30 consecutive days
at an average rate of at least 6,000 tons per day;
(3) the carbon/gold recovery plant is completed so as to be capable of
handling an average production rate of at least 6,000 tons per date; and
(4) a total of at least 2,000 ounces of gold has been produced, either
in dore or bullion form.
(iv) If any gold is produced prior to Commencement of Commercial Production,
GCC may elect either to: (x) hold such gold for sale until after Commencement
of Commercial Production, in which event the Proceeds or Deemed Proceeds from
the Sale of Products shall be included in calculating Cash Flow, or (y) sell
the gold prior to Commencement of Commercial Production, in which event the
Proceeds or Deemed Proceeds from the Sale of Products shall be distributed
84% to GCC and 16% to TSVLP, and such Proceeds shall not be included in
calculating Cash Flow.
D. Section 1.10.A (new). A new Section 1.10.A is hereby added to Article I,
reading as follows:
Debt means project financing (as defined below in this Section 1.10.A)
obtained by GCC solely for purposes of funding Operations. Project financing
means financing from a non-Affiliate of GCC that is secured only by GCCs
Participating Interest and TSVLPs share of Cash Flow, production of Products,
and proceeds therefrom under this Agreement. The parties hereby agree that
in connection with such project financing, TSVLPs share of Cash Flow under
this Agreement may be pledged as part of a commodity hedging program required
by the lender as part of the financing package. In the event project
financing is obtained, neither TSVLPs Participating Interest nor TSVLPs
payments under Section 6.4.A shall be pledged as collateral for such financing.
E. Section 1.13.A (new). A new Section 1.13.A hereby is added to Article I,
reading as follows:
GCC Advances to TSVLP means and includes: (i) Debt advances made by GCC on
TSVLPs behalf, (ii) the excess of the monthly minimum cash distributions
under Section 6.4.A over normal distributions to TSVLP (if any), and (iii)
TSVLPs Participating Interest percentage of its proportionate share of
accrued interest and finance origination costs on Debt; all of the foregoing
reduced by Cash Flow otherwise due TSVLP which is used by GCC to service Debt.
GCC shall establish and maintain on the Ventures books a separate GCC Advance
to TSVLP account. This account (in credit balance form) is in effect a
receivable account from the TSVLP Pledge of Cash Flow to GCC account and,
while in debit balance, represents monies owed to TSVLP by GCC for debt
service in excess of TSVLPs share, plus accrued interest thereon.
F. Section 1.26. The definition of Recoupment Amount is hereby revised to read
as follows:
Recoupment Amount means all sums expended by GCC for Operations including
without limitation amounts borrowed solely for purposes of funding Operations
by GCC from Globex pursuant to that Loan Agreement (the Loan Agreement) among
Globex, GCC, TSVLP, Tonkin Springs Gold Mining Company and U.S. Gold
Corporation dated January 16, 1997) prior to the Commencement of Commercial
Production, up to a maximum of Eleven Million Two Hundred and Fifty Thousand
Dollars ($11,250,000). Such sums shall include but not be limited to working
capital, capital costs, Exploration expenditures (subject to the provisions
of the last paragraph of this definition) and Development expenditures and
costs of holding and maintaining the Properties and the Venture. Any such
amounts so incurred by GCC and included in GCC's Initial Contribution in
excess of that maximum amount prior to the Commencement of Commercial
Production shall not be repaid to or recoupable by GCC and such excess shall
not be included in the calculation of the Participating Interest of GCC.
Prior to Commencement of Commercial Production, and upon the unanimous
adoption of any Program for Exploration of the Properties, where the
Budget for such Program calls for aggregate Exploration expenditures to
be spent prior to the Commencement of Commercial Production in excess of
$750,000, the aggregate amount of expenditures for Exploration above the
first $750,000 but below $1,500,000 shall be added to the Recoupment Amount.
Expenditures for Exploration prior to Commencement of Commercial Production
up to the first $750,000 and in excess of an aggregate of $1,500,000 shall
not be included as part of the Recoupment Amount or repaid to or recoupable
by GCC, and shall not be considered in the calculation of the Participating
Interests of either GCC or TSVLP.
G. Section 1.26.A (new). A new Section 1.26.A is hereby added to Article I,
reading as follows:
Recoverable Reserves means the aggregate of economically minable and
recoverable gold and silver contained in ore reserves from the Properties
which fall within the definition of proven or probable reserves in
accordance with guidelines promulgated by the United States Securities
and Exchange Commission.
H. Section 1.27.A (new). A new Section 1.27.A hereby is added to Article I,
to read as follows:
TSVLP Pledge of Cash Flow to GCC means and includes: (i) Debt advances
by GCC on TSVLPs behalf, (ii) the excess of the monthly minimum cash
distributions described in Section 6.4.A over normal Cash Flow
distributions to TSVLP (if any), and (iii) TSVLPs Participating Interest
percentage share of accrued interest and proportionate finance origination
costs on Debt; all of the foregoing reduced by Cash Flow otherwise due
TSVLP which is used by GCC to service Debt. GCC shall establish and
maintain on the Ventures books a separate TSVLP Pledge of Cash Flow to
GCC account. This account (in debit balance form) is in effect a Contra
account to the GCC Advances to TSVLP account and, while in credit balance,
represents monies owned to TSVLP by GCC for debt service in excess of
TSVLPs share, plus accrued interest thereon.
I. Section 3.3(d). Section 3.3(d) is hereby revised to read as follows:
(d) to engage in Exploration, Development and Mining Operations on the
Properties,
J. Section 3.5. Section 3.5 is hereby revised to read as follows:
Effective Date and Term. The effective date and term of this Agreement
shall be the date first recited above. The term of this Agreement shall
be for 20 years from the effective date and for so long thereafter as
Operations are being conducted on or for the benefit of the Properties
(without cessation for a period of more than 180 consecutive days) or
the Manager is continuing to maintain the Properties, unless this
Agreement is earlier terminated as herein provided.
K. Section 5.1. Section 5.1(b) hereby is revised to read as follows:
(b) unless TSVLP has elected, subsequent to the Commencement of Commercial
Production, to fund its share of costs of Operations in accordance with its
Participating Interest, agrees to pay 100% of all costs of Operations,
including but not limited to costs of holding and maintaining the Properties,
permits and bonds for Operations, Capital and Exploration, Development and
Mining costs and working capital.
L. Section 5.3. Section 5.3 hereby is deleted in its entirety.
M. Section 6.3. The first sentence of Section 6.3 is hereby revised to read
as follows:
After Commencement of Commercial Production, Operations shall be funded by
GCC except as provided in Section 5.1(b). GCC shall be entitled to recover
forty percent (40%) of costs of Operations from TSVLPs share of Cash Flow,
but only as provided in Section 6.4 below.
N. Section 6.4. The last paragraph of Section 6.4 is hereby deleted and
replaced with the following:
It is the intent of the Participants that the effect of the foregoing
provisions of this Section 6.4 shall be that: (i) after Commencement of
Commercial Production and until GCC has so recovered the Recoupment Amount,
TSVLP shall receive 16% of 100% of Cash Flow, and GCC shall receive 84% of
100% of Cash Flow; and (ii) after GCC has so recovered the Recoupment
Amount, TSVLP shall receive 40% of 100% of Cash Flow, and GCC shall
receive 60% of 100% of Cash Flow.
Notwithstanding the foregoing, if TSVLP has elected pursuant to paragraph
2.T of this Amendment to have its share of costs of Operations after
Commencement of Commercial Production funded by Debt, Cash Flow shall be
distributed and accounted for pursuant to the TSVLP Pledge of Cash Flow
to GCC and GCC Advances to TSVLP accounts (collectively, the Accounts).
To the extent the GCC Advances to TSVLP account is credited with Debt
advances made by GCC on TSVLPs behalf after such an election by TSVLP,
or is credited with TSVLP Pledge of Cash Flow to GCC, however, all such
advances and credits shall bear interest at the Prime Rate plus two
percent (2%), accrued from the date or dates such advances are made or
credits accrued. Within 30 days after repayment of Debt in full, GCC
shall pay TSVLP all amounts owned by GCC to TSVLP under the Accounts,
plus interest thereon at the Prime Rate plus two percent (2%), accrued
from the date or dates such excess amounts were incurred.
Attached as Exhibit F hereto, solely for purposes of illustrating how the
provisions of this Section 6.4 would operate, are sample accounting entries
showing allocations of Cash Flow.
O. Section 6.4.A (new). A new Section 6.4.A hereby is added to the Agreement,
as follows:
6.4.A GCC Payments to TSVLP. Within five (5) days after the effective date
of the Amendment pursuant to which this Section 6.4.A was added to the
Agreement, GCC shall pay TSVLP the full principal balance, plus accrued
interest, owed by GCC to TSVLP under the TSVLP Security Agreement.
Commencing on the first day of the thirteenth (13th) calendar month after
such payment, and continuing on the first days of each of the following
thirty-five (35) calendar months, GCC shall pay TSVLP the sum of Sixty
Thousand Dollars ($60,000). Such monthly payments, but not the loan
payment, shall be credited against Cash Flow payments otherwise due TSVLP
until fully recouped. In no event shall TSVLP be obligated to refund any
such payments if its share of Cash Flow is insufficient to recoup same,
except upon liquidation of the Venture as provided in Section 12.4.
P. Section 7.2. The first full paragraph of Section 7.2 is hereby revised to
read as follows:
Each Participant, acting through its appointed members, shall have one vote
on the Management Committee. Unless otherwise provided in this Agreement,
the vote of the Participant with a Participating Interest over fifty percent
(50%) shall determine the decisions of the Management Committee, except with
respect to the matters listed below, which shall require unanimous approval.
Notwithstanding the foregoing, if the Management Committee is unable to reach
a unanimous decision with respect to any of the matters listed below, except
for Sections 7.2(e), (f), (g) and (h), as to which a unanimous vote is
required, the parties agree that they will resolve such disagreement through
the arbitration of technical issues process set out in Section 16.3, except
that the parties agree to use their best efforts to expedite the arbitration
process so that any such disagreement is resolved by arbitration not more
than forty-five (45) days following the selection of the first arbitrator.
If the Participants are unable to resolve any such disagreement through an
expedited arbitration process within the time periods set forth above, the
Participant with a Participating Interest over fifty percent (50%) may cause
the Management Committee to implement the decision of that Participant
pertaining to the matter in question.
Q. Section 7.2(d). The following provisions of Section 7.2 are hereby revised
to read as follows:
(d) the initial decision to develop a heap leach operation for low grade
oxide ore;
(g) the processing or other treatment of any ores, concentrates or other
materials at the Ventures facilities from sources other than the Ventures
Properties; and
(h) the termination of or the wind-up of the Venture, other than as provided
in this Agreement.
R. Section 8.5. Section 8.5 is hereby revised to add the following sentence to
the end of that Section:
GCC and TSVLP agree that all reviews and amendments of the Managers charges
pursuant to Section 3.13(e) of the Accounting Procedure shall be accomplished
reasonably and in good faith.
S. Section 10.2. The first two sentences of Section 10.2 are hereby revised to
read as follows:
On the basis of the adopted Program and Budget and subject to the provisions
of Section 5.1(b), the Manager shall submit to each Participant, not later
than thirty (30) days following the adoption of that Program and Budget, a
billing for estimated cash requirements for the next year. Within thirty
(30) days after receipt of such billing, each Participant shall advance to
the Manager its proportionate share of the estimated requirements for the
following six-month period (and shall make a similar advance for the second
six-month period within thirty (30) days prior to the end of the first
six-month period).
T. Section 15.2. The following provisions of Section 15.2 are hereby revised
to read as follows:
(a) So long as any project financing remains in place pursuant to the
provisions of Section 6.3 or 6.4, TSVLP shall not transfer any interest in
this Agreement, its Participating Interest, or the Assets. In addition, no
transferee of all or any part of the interest of a Participant in this
Agreement, any Participating Interest, or the Assets shall have the rights
of a Participant unless and until the transferring Participant has provided
to the other Participant notice of the Transfer, and except as provided in
Sections 15.2(g) and 15.2(h), the transferee, as of the effective date of
the Transfer, has committed in writing to be bound by this Agreement to the
same extent as the transferring Participant;
(g) So long as any project financing remains in place pursuant to the
provisions of Section 6.3 or 6.4, TSVLP shall not grant any security interest
by mortgage, deed of trust, pledge, lien or other encumbrance, or allow any
other encumbrance on any of its interest in this Agreement, its Participating
Interest, or the Assets. Thereafter, if a Transfer is the grant of a
security interest by mortgage, deed of trust, pledge, lien or other
encumbrance of any interest in this Agreement, any Participating Interest
or the Assets to secure a loan or other indebtedness of a Participant in a
bona fide transaction, such security interest shall be subordinate to the
terms of this Agreement and the rights and interests of the other
Participant hereunder. Upon any foreclosure or other enforcement of rights
in the security interest the acquiring third party shall be deemed to have
assumed the position of the encumbering Participant with respect to this
Agreement and the other Participant, and it shall comply with and be bound
by the terms and conditions of this Agreement;
U. General. In addition, notwithstanding any provisions to the contrary in
either the Agreement or this Amendment, the parties hereby agree that the
Management Committee shall be deemed to have adopted as the current Program
that certain plan of operation included in the April, 1996 feasibility audit
by Behre Dolbear & Co., Inc., as modified and updated by the mine plan dated
(and submitted to GCC) October, 1996 by Ore Reserve Engineering. The parties
further agree that GCC shall prepare and submit to the Management Committee
for approval, not later than twenty (20) days following the effective date
of this Amendment under paragraph 1 above, a Budget for implementation of
that Program. TSVLP agrees that not later than twenty (20) days following
its receipt of a copy of that Budget, it will make a written election to
either (i) fund the costs of Operations after Commencement of Commercial
Production, as contemplated by that Program and Budget in accordance with
its Participating Interest, or (ii) have its share of costs of Operations
after the Commencement of Commercial Production funded by Debt as set forth
in Sections 6.3 and 6.4 of the Agreement. If TSVLP fails to make such
written election, it shall be deemed to have elected alternative (ii). The
parties further agree that the Program and Budget referred to in this paragraph
shall constitute the initial Program and Budget for Mining Operations.
Promptly after the execution of this Amendment, the parties agree to prepare
and execute a mutually satisfactory Memorandum of the Agreement, as amended,
for purposes of placing of record a notice of the Agreement and this Amendment,
and GCC shall record that Memorandum in the official records of Eureka County,
Nevada.
3. Effective Amendment; Supersession. Except as specifically set forth in
this Amendment, all of the provisions of the Mining Venture Agreement remain
in full force and effect. This Amendment replaces and supersedes all other
verbal or written agreements between the parties hereto and Globex regarding
the Mining Venture Agreement, including but not limited to the Letter of Intent.
IN WITNESS WHEREOF, GCC and TSVLP have executed this Amendment effective as
of the date first set forth above.
Tonkin Springs Venture Limited Partnership, a Nevada limited partnership
By: Tonkin Springs Gold Mining Company, a Colorado corporation, general partner
By: William W. Reid, President
Gold Capital Corporation, a Colorado corporation
By: Bill M. Conrad, President
U.S. GOLD CORPORATION
Exhibit 11 to Form 10-Q
for the Three and Nine Month Period Ended September 30, 1997 and 1996
Computation of Weighted Average Shares Outstanding Used in Earnings Per Share
Calculations:
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Total shares issued,
beginning 13,853,834 13,806,505 13,854,119 13,806,505
Weighted average of
common shares issued with
exercise of stock option,
$0.28/share - 2,133 - 710
Weighted average treasury
shares acquired and retired (67) - (247) -
Weighted average shares issued 13,853,767 13,808,638 13,853,872 13,807,215
Weighted average of common
stock equivalents (2):
Unexercised stock options - 1,145,495 - -
Less: Buy back of common
shares under treasury stock
method using average price. - (311,065) - -
13,853,767 14,643,068 13,853,872 13,807,215
(1) Common stock equivalents not considered since their effect would
be antidilutive.
(2) Fully diluted computations not made as total shares and share equivalents
outstanding would be effected by less than 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMTION EXTRACTED FROM THE 9/30/97 FORM 10-QSB
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 648,993
<SECURITIES> 1,788,826
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 859,515
<PP&E> 157,269
<DEPRECIATION> (117,821)
<TOTAL-ASSETS> 5,000,483
<CURRENT-LIABILITIES> 28,393
<BONDS> 0
0
0
<COMMON> 1,385,408
<OTHER-SE> 2,946,682
<TOTAL-LIABILITY-AND-EQUITY> 5,000,483
<SALES> 0
<TOTAL-REVENUES> 70,046
<CGS> 0
<TOTAL-COSTS> 996,948
<OTHER-EXPENSES> 14,028
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,409
<INCOME-PRETAX> (944,339)
<INCOME-TAX> 0
<INCOME-CONTINUING> (944,339)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (944,339)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
