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 March 31, 1998
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Madison, Suite 700
Denver, Colorado 80206
(Address of principal executive offices)
(303) 322-8002
(Issuers 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 issuers classes of common
equity, as of the latest practicable date:
Class Outstanding as of May 11, 1998
Common Stock, $0.10 par value 13,927,469
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1998 and 1997
(unaudited)
March 31, March 31,
1998 1997
Interest income $5,713 $28,171
5,713 28,171
Costs and expenses:
General and administrative 241,051 198,593
Depreciation, depletion and amortization 3,070 2,954
Total expense 244,121 201,547
Loss before income taxes (238,408) (193,376)
Provision for income taxes - -
Net loss $(238,408) $(173,376)
Basic and diluted per share data:
Basic $(0.02) $(0.01)
Diluted $(0.02) $(0.01)
Weighted average shares outstanding 13,927,469 13,854,006
U.S. GOLD CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
Three Months Ended March 31, 1998 and 1997
(unaudited)
March 31, March 31,
1998 1997
Net loss $(238,408) $(173,376)
Comprehensive item - unrealized loss
on securities available for sale (1,143,846) -
Comprehensive loss $(1,382,254) $(173,376)
The accompanying notes are an integral part of these consolidated financial
statements.
U.S. GOLD CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS March 31, 1998
Current assets:
Cash and cash equivalents $383,141
Project distributions receivable 360,000
Total current assets 743,141
Project distributions receivable 1,800,000
Investment in Tonkin Springs Project
Joint Venture 2,262,578
Marketable securities, Globex common
stock at market 846,753
Other assets, net 106,993
$5,759,465
LIABILITIES, DEFERRED CREDIT &
SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable and accrued liabilities $24,619
Deferred credit, project distributions 2,160,000
Reserve for reclamation 640,000
Total liabilities and deferred credit 2,824,619
Commitments and contingencies
Shareholders equity:
Common stock, $.10 par value, 15,000,000
shares authorized; 13,927,469 shares
issued and outstanding 1,392,747
Additional paid-in capital 31,969,459
Accumulated deficit (29,283,684)
Unrealized loss on securities
available for sale (1,143,676)
Total shareholders equity 2,934,846
$5,759,465
The accompanying notes are an integral part of these consolidated financial
statements.
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1998 and 1997
March 31, March 31,
1998 1997
Cash flows from operating activities:
Interest received $5,713 $152
Cash paid to suppliers and employees (235,041) (237,528)
Cash used in operating activities (229,328) (237,376)
Cash flows from investing activities:
Cash received from sale of Tonkin
Springs interest - 161,431
Cash received for accrued interest
on note - 129,569
Capital expenditures (3,530) -
Cash provided by (used in)
investing activities (3,530) 291,000
Cash flows from financing activities:
Cash provided by financing activities - -
Increase (decrease) in cash and cash
equivalents (232,858) 53,624
Cash and cash equivalents, beginning
of period 615,999 5,459
Cash and cash equivalents, end of period $383,141 $59,083
Reconciliation of net income to cash
used in operating activities:
Net income (loss) $(238,408) $(173,376)
Items not requiring (providing) cash:
Interest income - (28,065)
Depreciation, depletion and amortization 3,070 2,954
(Increase) decrease in other current assets
related to operations - (48,271)
Increase (decrease) in current liabilities
related to operations 14,966 (16,952)
Decrease (increase) in other assets,
long term (8,956) 26,334
Cash used in operating activities $(229,328) $(237,376)
The accompanying notes are an integral part of these 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 the wholly-owned
Tonkin Springs Venture Limited Partnership (TSVLP). Significant intercompany
accounts and transactions have been eliminated.
Basic per share data includes no dilution and is computed by dividing income or
(loss) available to common shareholders by the weighted-average number of shares
outstanding during the period (13,927,469 for 1998 and 13,854,006 for 1997).
Diluted per share data reflect the potential dilution of securities that could
share in the earnings of the Company, similar to fully diluted earnings per
share. As of March 31, 1998 and 1997, options are not considered in the
computation of diluted per share data as their inclusion would be antidilutive.
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.
2. Sale of 60% Interest in Tonkin Springs Project
On December 31, 1993 (the Closing), TSVLP, a partnership owned by subsidiaries
of 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 the conveyance to Gold Capital and effective December 31,
1993, 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 $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, TSVLP converted
its 300,000 shares of Preferred Stock of Gold Capital into 1,750,000 shares of
Gold Capital common shares, and with shares of Gold Capital common stock
received in satisfaction of mandatory Preferred Stock dividends for 1995 and
1996 and accounts receivable, the Company and TSVLP owned an aggregate of
2,287,547 shares of Gold Capital as of that date.
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 stock exchange (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 the Project Joint Venture under the various
Gold Capital agreements with the Company and TSVLP. With the Gold Capital
Merger the Company and TSVLP received an aggregate of 631,905 shares
of Globex common stock in exchange for its common stock ownership in Gold
Capital which as of March 31, 1998 represented approximately 6.8 percent of
outstanding common shares of Globex.
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.
For 1996, 24.5% ($1,165,418) of the gain was recognized representing the balance
of the gain related to the Promissory Note. At August 29, 1997, there was
$1,789,100 in deferred gain remaining which was 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 non-realizable as
provided under the installment method of accounting since the value in
Globex common stock was less than the Company's carrying value in Gold Capital
common stock.
Globex raised approximatley $12 million in equity related to the Gold Capital
Merger, a portion of which has been or will be invested in the Project Joint
Venture and has also arranged conditional financing for the Project Joint
Venture with a bank through a commitment letter for a $13 million loan along
with a $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 i) paid
off the balance of the Promissory Note to TSVLP in the amount of $1,206,449
including $66,804 of accrued interest, ii) agreed to finance any capital
requirements of TSVLP after Commencement of Commercial Production, and iii)
agreed to pay TSVLP $60,000 per month in minimum cash distributions during a 36
month period commencing September 1, 1998. TSVLP will not be obligated to
refund such payments if its share of cash flow is insufficient to recoup same,
except upon liquidation of the Project Joint Venture, in which event any balance
could be recouped from liquidation distributions due TSVLP, if any. The
amendment also i) gives Gold Capital the right to borrow up to 100% of TSVLP's
cash flow from the Project Joint Venture (after the $60,000 per month minimum
payments noted above) if required to support Gold Capitals debt service for
future third party project financing, if any, with any net borrowings from
TSVLP's share of cash flow due and payable within 30 days of payoff of any third
party project financing, ii) increases the maximum Recoupment Amount from $6
million to $11.25 million and further provides for limited increases to the
Recoupment Amount for additional exploration costs in excess of $750,000 but
not more than $1,500,000 prior to Commencement of Commercial Production (for a
maximum Recoupment Amount of $12 million), and iii) provides expanded
definition of Commencement of Commercial Production. The Company also
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. As of March 31, 1998, the Company has recorded a $2,160,000 receivable
due from the Project Joint Venture of which $360,000 was classified as current
offset by a $2,160,000 deferred credit, so in effect the entire receivable is
offset by a deferred credit.
As part of its purchase price obligation in the December 31, 1993 transaction,
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 Recoupable Amount as
provided in the Joint Venture Agreement, 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 maximum Recoupment
Amount will be considered contributions to the Project Joint Venture by Gold
Capital.
3. 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 preliminary condensed balance sheet of the
Project Joint Venture as of March 31, 1998, and a preliminary condensed
statement of operations for the three month period then ended, both as reported
by Gold Capital. All costs associated with the Properties have been funded by
Gold Capital.
STATEMENT OF OPERATIONS Three Months Ended
March 31, 1998
Property maintenance costs $440,043
Net loss $(440,043)
BALANCE SHEET March 31, 1998
Assets:
Property, plant, equipment &
development costs $14,346,611
Prepaid royalties 844,604
Restricted time deposit for reclamation bond 1,338,513
Deposits and other assets 24,965
Total assets $16,554,693
Liabilities, Reserves and Project Joint Venturers Interest:
Liabilities $77,666
Reserve for reclamation 1,469,900
Intercompany, Gold Capital 9,603,042
11,150,608
Venturers Interest:
Gold Capitals interest 2,968,907
TSVLPs interest 2,435,178
Total venturers interest 5,404,085
Total liabilities, reserves and
venturers interest $16,554,693
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 TSVLP and 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, tentatively set at $1.3 million, is the
responsibility of Gold Capital under the terms of the Project Joint Venture.
Effective November 25, 1997, Gold Capital posted a cash bond in the initial
amount of $1.3 million with the required governmental agencies secured by a
restricted cash time deposit for a total balance of reclamation deposits of
$1,338,513.
4. Loan Settlement Agreement with FABC
On February 21, 1992, the Company, among other related things, entered into a
Loan Settlement Agreement with its senior secured lender, The French American
Banking Corporation (FABC). The Company discharged its debt to FABC and
terminated all prior security interests related thereto. As part of the
consideration to FABC under the Loan Settlement Agreement, the Company entered
into an agreement between Tonkin Springs Gold Mining Company, a wholly-owned
subsidiary of the Company (TSGMC) and FABC entitled Agreement To Pay
Distributions, which requires TSGMC to pay a limited portion of certain
distributions from TSVLP through TSGMC to FABC. The Company has
complete control of such distributions, if any, from TSVLP to TSGMC. Under the
terms of the Agreement To Pay Distributions, TSGMC is required to pay to FABC
(i) the first $30,000 in cash or value of asset distributions, as defined in
such agreement, received from TSVLP, plus (ii) an amount equal to 50% of such
retained distributions in cash or value of asset 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 or upon disposition by TSGMC of its interest in TSVLP.
MANAGEMENTS DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS
Changes in Financial Condition
On December 31, 1993, Tonkin Springs Venture Limited Partnership (TSVLP), a
partnership owned by subsidiaries of the Company, sold a 60 percent undivided
interest in the Tonkin Springs Properties and Obligations (the Properties) to
Gold Capital. As part of its purchase price obligation 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 Recoupment Amount as provided in the Joint
Venture Agreement, 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 maximum Recoupment Amount will be considered
contributions to the Project Joint Venture by Gold Capital. Through March 31,
1998, Gold Capital has reported that it has incurred approximately $9.6 million
in Recoupment Amount expenditures.
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 stock exchange (symbol: GMX) pursuant to the merger of
Gold Capital with a subsidiary of Globex (the Gold Capital Merger). Globex
raised approximatley $12 million in equity related to the Gold Capital Merger,
a portion of which has been or will be invested in the Tonkin Springs Project
and has also arranged conditional financing for Tonkin Springs with a bank
through a commitment letter for a $13 million loan along with a $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.
In the Gold Capital Merger the Company received an aggregate of 631,905 shares
of Globex common stock in exchange for common stock ownership in Gold Capital
which represents approximately 6.8 percent of Globex's outstanding common shares
at March 31, 1998.
The Company agreed to amend the Project Joint Venture Agreement effective upon
the Gold Capital Merger. Under the terms of the amendment Gold Capital i) paid
off the balance of the Promissory Note to TSVLP, ii) agreed to finance any
capital requirements of TSVLP after Commencement of Commercial Production, and
iii) agreed to pay TSVLP $60,000 per month in minimum cash distributions during
a 36 month period commencing September 1, 1998. TSVLP will not be obligated to
refund such payments if its share of cash flow is insufficient to recoup same,
except upon liquidation of the Project Joint Venture, in which event any balance
could be recouped from liquidation distributions due TSVLP, if any. The
amendment also i) gives Gold Capital the right to borrow up to 100% of TSVLPs
cash flow from the Project (after the $60,000 per month minimum payments
noted above) if required to support Gold Capital's debt service for future third
party project financing, if any, with any net borrowings from TSVLP's share of
cash flow due and payable within 30 days of payoff of any third party project
financing, ii) increases the maximum Recoupment Amount from $6 million to $11.25
million and further provides for limited increases to the Recoupment Amount for
additional exploration costs in excess of $750,000 but not more than $1,500,000
prior to Commencement of Commercial Production (for a maximum Recoupment Amount
of $12 million), and iii) provides expanded definition of Commencement of
Commercial Production. The Promissory Note and accrued interest was fully paid
August 29, 1997. The Company also 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 Capitals ability to continue to fund the Project Joint Venture and
ultimately to put the project into production is dependent upon its ability to
raise additional funding. In the event of certain defaults by Gold Capital
under the Project Joint Venture, including failure to fund minimum holding
and administrative costs for the project and minimum cash distributions to
TSVLP, Gold Capital would be deemed to have forfeited its interest in the
Properties and the Project Joint Venture. The Company will continue to closely
monitor Gold Capital's performance under the Project Joint Venture.
Liquidity and Capital Resources
As of March 31, 1998, the Company had working capital of $718,522 made up of
current assets of $743,141 and current liabilities of $24,619. During the next
twelve months, the Company anticipates receipt of $360,000 in minimum
distributions from the Tonkin Springs Joint Venture plus interest on its cash
balances. The Company may also sell a portion of its common stock of Globex as
well as possibly issue equity in public or private transactions to raise
additional working capital. These items are the primary anticipated sources of
working capital.
Net cash used in operations decreased slightly to $229,041 for the three months
ended March 31, 1998 from $237,376 for the same period of 1997. Cash flow from
investing activities decreased to $(3,530) for 1998 compared to $291,000 in
1997, primarily reflecting payoff of the principal balance and accrued interest
under the Gold Capital Promissory Note in August, 1997. No cash flows from
financing activities occured in 1998 nor 1997.
Results of Operations - 1998 Compared to 1997
For the three month period ended March 31, 1998, the Company recorded a loss of
$238,408 compared to a loss of $173,376 in the corresponding period of 1997.
During the 1997 period, $28,171 in interest income, primarily related to the
Promissory Note from Gold Capital, was recorded, compared to interest income of
$5,713 during the 1998 period reflecting accrued interest on cash balances.
General and Administrative expenses increased approximately $42,458 in the 1998
period compared to 1997, primarily reflecting $30,576 in cost recovery related
to support of Gold Capital during 1997 with no such cost recovery during the
1998 period.
PART II
1. No report required.
2. No report required.
3. No report required.
4. No report required.
5. No report required.
6.a No report required.
6.b No report required.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
U.S. GOLD CORPORATION
Dated: May 11, 1998 By /s/ William W. Reid
William W. Reid, President and\
Chairman of the Board
Dated: May 11, 1998 By /s/ William F. Pass
William F. Pass, Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE 3/31/98 FORM
10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 383,141
<SECURITIES> 846,753
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 743,141
<PP&E> 165,117
<DEPRECIATION> 122,744
<TOTAL-ASSETS> 5,759,465
<CURRENT-LIABILITIES> 24,617
<BONDS> 0
0
0
<COMMON> 1,392,747
<OTHER-SE> 1,542,099
<TOTAL-LIABILITY-AND-EQUITY> 5,759,465
<SALES> 0
<TOTAL-REVENUES> 5,713
<CGS> 0
<TOTAL-COSTS> 241,051
<OTHER-EXPENSES> 3,070
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (238,408)
<INCOME-TAX> 0
<INCOME-CONTINUING> (238,408)
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<NET-INCOME> (238,408)
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