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 June 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 (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 issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding as of August 12, 1998
Common Stock, $0.10 par value 13,927,469
U.S. GOLD CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS June 30, 1998
Current assets:
Cash and cash equivalents $127,926
Project distributions receivable 600,000
Total current assets 727,926
Project distributions receivable 1,560,000
Investment in Tonkin Springs Project Joint Venture 2,262,578
Marketable securities, Globex common stock at market 430,517
Other assets, net 116,000
$5,097,021
LIABILITIES, DEFERRED CREDIT AND SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable and accrued liabilities $52,956
Deferred credit, project distributions 2,160,000
Reserve for reclamation 640,000
Total liabilities and deferred credit 2,852,956
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 (29,558,229)
Unrealized loss on securities
available for sale (1,559,912)
Total shareholders equity 2,244,065
$5,097,021
See accompanying notes to consolidated financial statements.
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended June 30, 1998 and 1997
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Interest income $2,704 $24,163 $8,417 $52,334
Other costs and expenses:
General and administrative 273,726 178,864 514,777 377,457
Depreciation and amortization 3,523 2,964 6,593 5,918
Total expense 277,249 181,828 521,370 383,375
Income (loss) before income taxes (274,545) (157,665) (512,953) (331,041)
Provision for income taxes - - - -
Net income (loss) $(274,545) $(157,665) $(512,953) $(331,041)
Basic and diluted per share data:
Basic $(0.02) $(0.01) $(0.04) $(0.02)
Diluted $(0.02) $(0.01) $(0.04) $(0.02)
Weighted average shares
outstanding 13,927,469 13,853,851 13,927,469 13,853,929
U.S. GOLD CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
Six Months Ended June 30, 1998 and 1997
(unaudited)
June 30, 1998 June 30, 1997
Net loss $(512,953) $(310,214)
Comprehensive item- unrealized loss
on securities available for sale (1,159,912) -
Comprehensive loss $(1,672,865) $(310,214)
See accompanying notes to consolidated financial statements.
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1998 and 1997
(unaudited)
June 30, 1998 June 30, 1997
Cash flows from operating activities:
Interest received $8,417 $-
Cash paid to suppliers and employees (491,657) (417,623)
Cash used in operating activities (483,240) (417,623)
Cash flows from investing activities:
Cash received from sale of Tonkin
Springs interest - 311,431
Cash received for accrued interest on note - 129,569
Capital expenditures (4,833) -
Cash provided by (used in) investing
activities (4,833) 441,000
Cash flows from financing activities:
Cash provided by financing activities - -
Increase (decrease) in cash and
cash equivalents (488,073) 23,377
Cash and cash equivalents,
beginning of period 615,999 5,459
Cash and cash equivalents,
end of period $127,926 $28,836
Reconciliation of net income to cash used in operating activities:
Net income (loss) $(512,953) $(331,041)
Items not requiring (providing) cash:
Interest income - (51,934)
Depreciation and amortization 6,593 5,918
(Increase) decrease in other current assets
related to operations - (8,826)
Increase (decrease) in current liabilities
related to operations 43,303 29,953
Decrease (increase) in other assets,
long term (20,183) (61,693)
Cash used in operating activities $(483,240) $(417,623)
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 13,853,929 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 June 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 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 (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. 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 (the 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 June 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 Companys 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 TSVLPs
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 June 30, 1998, the Company has recorded a $2,160,000 receivable due from
the Project Joint Venture of which $600,000 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,
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 condensed balance sheet of the
Project Joint Venture as of June 30, 1998, and a preliminary condensed statement
of operations for the six 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 Six Months Ended June 30, 1998
Property maintenance costs, net $950,751
Net loss $(950,751)
BALANCE SHEET June 30, 1998
Assets:
Property, plant, equipment &
development costs $14,364,487
Prepaid royalties 844,604
Restricted time deposit for reclamation bond 1,339,448
Deposits and other assets 10,043
Total assets $16,558,582
Liabilities, Reserves and Project Joint Venturers Interest:
Liabilities $61,015
Reserve for reclamation 1,469,900
Intercompany, Gold Capital 10,153,208
Venturers Interest:
Gold Capitals interest 2,439,281
TSVLPs interest 2,435,178
Total venturers interest 4,874,459
Total liabilities, reserves and
venturers interest $16,558,582
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
$1,339,448.
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 June 30, 1998, Gold
Capital has reported that it has incurred approximately $10.2 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 June 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 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 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. 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 Capitals
performance under the Project Joint Venture.
Liquidity and Capital Resources
As of June 30, 1998, the Company had working capital of $674,970 made up of
current assets of $727,926 and current liabilities of $52,956. During the next
twelve months, the Company anticipates receipt of $600,000 in minimum
distributions from the Tonkin Springs Joint Venture plus interest on its cash
balances. 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 increased to $483,240 for the six months ended June
30, 1998 from $417,623 for the same period of 1997. Cash flow from investing
activities decreased to $(4,833) for 1998 compared to $441,000 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 six month period ended June 30, 1998, the Company recorded a loss of
$512,953 compared to a loss of $331,041 in the corresponding period of 1997.
During the 1997 period, $52,334 in interest income, primarily related to the
Promissory Note from Gold Capital, was recorded, compared to interest income of
$8,417 during the 1998 period reflecting accrued interest on invested cash
balances. General and Administrative expenses increased approximately $137,320
in the 1998 period compared to 1997, primarily reflecting $47,355 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. The Corporation held an annual meeting of shareholders on June 10, 1998
which meeting was continued until July 21, 1998. The following directors
were elected to hold office until the next meeting of shareholders and
thereafter until a successor is elected and has qualified: William W. Reid,
John W. Goth, David C. Reid, and Douglas J. Newby. These four individuals
represent the entire board of directors.
At the annual meeting the shareholders also considered a proposal to approve
an amendment to the Corporations Articles of Incorporation to increase the
number of authorized shares from 15,000,000 shares to 25,000,000 shares.
Amendment to the Articles of Incorporation requires approval of holders of
two-thirds of the outstanding shares of Common Stock or approximately
9,285,026 shares. The proposal was not approved with 7,010,441 shares in
favor, 5,994,439 shares against, and 76,706 shares abstaining to vote.
Following the consideration the above proposal, a motion was made from the
floor and duly seconded to amend the Corporations Articles of Incorporation
to increase the number of authorized shares from 15,000,000 shares to
18,000,000 shares. This proposal was approved with 12,314,985 shares in
favor with no shares voted against and no shares abstaining to vote.
5. Proposals of shareholders for presentation at the next annual meeting of
shareholders. The Company anticipates that the next Annual Meeting of
Shareholders will be held in June of 1999. Any Shareholder of record of the
Company who desires to submit a proper proposal for inclusion in the proxy
material related to the next Annual Meeting of Shareholders must do so in
writing and it must be received at the Companys principal executive offices
on or before December 31, 1998. If a Shareholder intends to submit a
proposal at the meeting that is not included in the Companys proxy
statement, and the Shareholder fails to notify the Company prior to March 8,
1999 of such proposal, then the proxies appointed by the Companys Management
would be allowed to use their discretionary voting authority when the
proposal is raised at the Annual Meeting, without any discussion of the
matter in the proxy statement. The proponent must be a record or beneficial
owner entitled to vote on such proposal at the next Annual Meeting and must
continue to own such security entitling such right to vote through the date
on which the meeting is held.
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: August 12, 1998 By William W. Reid
William W. Reid, President and Chairman
of the Board
Dated: August 12, 1998 By /s/ William F. Pass
William F. Pass, Vice President and Chief
Financial Officer
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE 6/30/98 FORM
10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB.
</LEGEND>
<CIK> 0000314203
<NAME> U. S. GOLD CORPORATION
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