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, 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 incorporation (I.R.S. Employer
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 November 4, 1998
Common Stock, $0.10 par value 13,927,469
U.S. GOLD CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS September 30, 1998
Current assets:
Cash and cash equivalents $7,276
Project distributions receivable 720,000
Total current assets 727,276
Project distributions receivable 1,380,000
Investment in Tonkin Springs Project Joint Venture 2,262,578
Marketable securities, Globex common stock at market 185,628
Other assets, net 111,071
$4,666,553
LIABILITIES, DEFERRED CREDIT AND SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable and accrued liabilities $86,980
Deferred credit, project distributions 2,100,000
Reserve for reclamation 640,000
Total liabilities and deferred credit 2,826,980
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 (29,717,832)
Unrealized loss on securities available
for sale (1,804,801)
Total shareholders equity 1,839,573
$4,666,553
See accompanying notes to consolidated financial statements.
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended September 30, 1998 and 1997
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Project distributions $60,000 $- $60,000 $-
Interest income 489 17,812 8,906 70,046
60,489 17,812 68,906 70,046
Other costs and expenses:
General and administrative 216,341 622,900 731,118 1,000,357
Depreciation and
amortization 3,751 8,110 10,344 14,028
Total expense 220,092 631,010 741,462 1,014,385
Loss before income taxes (159,603) (613,198) (672,556) (944,339)
Provision for income taxes - - - -
Net loss $(159,603) $(613,198) $(672,556) $(944,339)
Basic and diluted per
share data:
Basic $(0.01) $(0.04) $(0.05) $(0.07)
Diluted $(0.01) $(0.04) $(0.05) $(0.07)
Weighted average shares
outstanding 13,927,469 13,853,767 13,927,469 13,853,872
U.S. GOLD CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Nine Months Ended September 30, 1998 and 1997
(unaudited)
September 30,
1998 1997
Net loss $(672,556) $(944,339)
Comprehensive item- unrealized
loss on securities available
for sale (1,804,801) -
Comprehensive loss $(2,477,357) $(944,339)
See accompanying notes to consolidated financial statements.
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1998 and 1997
(unaudited)
September 30, September 30,
1998 1997
Cash flows from operating activities:
Interest received $8,906 $69,619
Project distributions 60,000 -
Cash paid to suppliers and
employees (672,211) (1,052,955)
Cash used in operating activities (603,305) (983,336)
Cash flows from investing activities:
Cash received from sale of Tonkin
Springs interest - 1,501,076
Cash received for accrued interest
on note - 129,569
Capital expenditures (5,418) (3,775)
Cash provided by (used in)
investing activities (5,418) 1,626,870
Cash flows from financing activities:
Cash provided by financing activities - -
Increase (decrease) in cash and
cash equivalents (608,723) 643,534
Cash and cash equivalents,
beginning of period 615,999 5,459
Cash and cash equivalents,
end of period $7,276 $648,993
Reconciliation of net income to cash
used in operating activities:
Net income (loss) $(672,556) $(944,339)
Items not requiring (providing) cash:
Depreciation and amortization 10,344 14,028
(Increase) decrease in other current
assets related to operations - 15,464
Increase (decrease) in current
liabilities related to operations 77,327 (98,642)
Decrease (increase) in other assets,
long term (18,420) 30,153
Cash used in operating activities $(603,305) $(983,336)
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 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
13,853,872 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 September 30, 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 Company's 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 Capital's 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 September 30, 1998 represented approximately 5.4 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 reported commitment letter for
a $13 million loan along with a $10 million secured hedging line. The
Company understands 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 TSVLPs 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 September 30,
1998, the Company has recorded a $2,100,000 receivable due from the Project
Joint Venture of which $720,000 was classified as current offset by a
$2,100,000 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, unaudited
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 balance sheet of the Project
Joint Venture as of September 30, 1998, and a preliminary condensed statement
of operations for the nine 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 Nine Months Ended September 30, 1998
Property maintenance costs, net $1,400,038
Net loss $(1,400,038)
BALANCE SHEET September 30, 1998
Assets:
Property, plant, equipment &
development costs $14,357,364
Prepaid royalties 844,604
Restricted time deposit for
reclamation bond 1,375,680
Deposits and other assets 8,824
Total assets $16,586,472
Liabilities, Reserves and Project Joint Venturers Interest:
Liabilities $222,143
Reserve for reclamation 1,469,900
Intercompany, Gold Capital 10,470,483
12,162,526
Venturers Interest:
Gold Capitals interest 1,988,768
TSVLPs interest 2,435,178
Total venturers interest 4,423,946
Total liabilities, reserves and
venturers interest $16,586,472
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 $1,375,680.
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 September
30, 1998, Gold Capital has reported that it has incurred approximately $10.5
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 reported commitment letter for a $13 million loan along with a $10
million secured hedging line. The Company understands 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 5.4 percent of Globex's outstanding common shares at September
30, 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 TSVLPs
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 operations of the Project Joint
Venture and ultimately to put the project into production is dependent upon
its ability to raise additional funding. Globex has informed the Company that
they have not yet finalized the previously announced project financing package
for Tonkin Springs but that process is continuing, and that Globex is seeking
alternatives for interim funding, for which there can be no assurance of
success, to allow it to fund Gold Capitals obligations under the Project Joint
Venture. Alternatively, Globex could seek to sell its interest in the Project
Joint Venture or Gold Capital to a third party. 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 September 30, 1998, the Company had working capital of $640,296 made up
of current assets of $727,276 and current liabilities of $86,980. During the
next twelve months, the Company anticipates receipt of $720,000 in minimum
distributions from the Tonkin Springs Joint Venture. The Company may also
issue equity in public or private transactions or enter into loan transactions
to raise additional working capital. In addition, the Company is exploring
various business transactions including, but not limited to, potential mergers
or acquisitions. The Company may also sell a portion or all of its common
stock in Globex. These items are the primary anticipated sources of working
capital.
Net cash used in operations decreased to $603,305 for the nine months ended
September 30, 1998 from $983,336 for the same period of 1997. Cash flow
from investing activities decreased to $(5,418) for 1998 compared to
$1,626,870 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 nine month period ended September 30, 1998, the Company recorded a
loss of $672,556 compared to a loss of $944,339 in the corresponding period of
1997. During the 1997 period, $70,046 in interest income, primarily related
to the Promissory Note from Gold Capital, was recorded, compared to interest
income of$8,906 during the 1998 period reflecting accrued interest on invested
cash balances. General and Administrative expenses decreased approximately
$269,239 in the 1998 period compared to 1997, primarily reflecting lower
employee compensation expense offset in part by approximately $72,000 in cost
recovery related to support of Gold Capital during 1997 with no such cost
recovery during the 1998 period, and costs in the 1998 period of approximatley
$47,000 associated with the annual meeting of shareholders held June 10, 1998.
Other
The Company has addressed Year 2000 Issues as relates to the computing systems,
software and programs for which the Company relies to determine which are year
2000 compliant. The Company has concluded that such systems, software and
programs which are not 2000 compliant will be replaced prior to January 1,
2000 at an estimated cost of approximately $30,000.
PART II
1. No report required.
2. No report required.
3. No report required.
4. No report required.
5. On September 25, 1998, the common stock of the Company became eligible
for trading on the OTC Bulletin Board following the delisting of the
Companys stock from The Nasdaq SmallCap Market effective with the close of
business September 24, 1998. This event followed the decision by Nasdaqs
Listing Qualifications Panel regarding the Companys appeal for a temporary
exemption from the new rule change that requires a minimum $1.00 bid price for
continued listing on The Nasdaq Small-Cap Market.
6.a No report required.
6.b No report required.
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
U.S. GOLD CORPORATION
Dated: November 4, 1998 By /s/ William W. Reid
William W. Reid, President and Chairman
of the Board
Dated: November 4, 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 9/30/98 Form
10-QSB and is qualified in its entirety by reference to such Form 10-QSB.
</LEGEND>
<CIK> 0000314203
<NAME> U.S. GOLD CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
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<PERIOD-END> SEP-30-1998
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