March 2, 1998
Securities and Exchange Commission
Branch of Edgar Operations-Filers Support
6432 General Green Way
Alexandria, VA 22312
Re: U.S. Gold Corporation Form 10-KSB
Cover Letter
File No. 0-9137
Gentlemen and Ladies:
U.S. Gold Corporation (the Company) hereby files its Form 10-KSB
for the year ended December 31, 1997, by Edgar submission.
Very truly yours,
/s/ William F. Pass
William F. Pass
Vice President, Secretary and Chief Financial Officer
U.S. Gold Corporation
55 Madison, Suite 700
Denver, Colorado 80206
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1997
[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
[No Fee Required]
For the transition period from ________ to __________
Commission file number 0-9137
U.S. GOLD CORPORATION
(Name of small business issuer in its charter)
Colorado 84-0796160
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
55 Madison, Suite 700, Denver, Colorado 80206
(Address of principal executive office) (Zip Code)
Issuers telephone number (303) 322-8002
Securities registered pursuant to Section 12(b) of the Exchange
Act:
Title of each class Name of each exchange on which registered
None N/A
Securities registered pursuant to Section 12(g) of the Exchange
Act:
Common Stock, $0.10 par value
(Title of class)
Check whether the issuer (1) has filed all reports required to be
filed by Sections 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
Check if there is no disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ].
State issuers revenues for its most recent fiscal year. $77,973
in revenues for year ended December 31, 1997.
The aggregate market value (at the last trade price of $0.63 per
share) of the Common Stock of U.S. Gold Corporation held by
nonaffiliates as of February 24, 1998 was approximately $5,337,723.
As of February 27, 1998, there were 13,927,469 shares of Common
Stock, par value $0.10, outstanding.
Documents incorporated by reference: The Companys Proxy Statement
for its 1998 Annual Meeting of Shareholders is hereby incorporated
by reference with respect to Part III of this Form 10K-SB.
Transitional Small Business Disclosure Format (check one):
yes no x
PART I.
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development
U.S. Gold Corporation (the Company) was organized under the laws of
the State of Colorado on July 24, 1979 under the name Silver State
Mining Corporation. On June 21, 1988, the Company, pursuant to a
vote of its shareholders, changed its name from Silver State Mining
Corporation to U.S. Gold Corporation. Since its inception, the
Company has been engaged in the exploration for, development of,
and the production and sale of gold and silver.
The Companys principal property is Tonkin Springs (Tonkin Springs)
located in Eureka County Nevada, which interest is held by Tonkin
Springs Venture Limited Partnership (TSVLP), a Nevada limited
partnership owned 100% by wholly-owned subsidiaries of the Company.
On December 31, 1993, TSVLP sold a 60 percent undivided interest in
Tonkin Springs to Gold Capital Corporation (Gold Capital), a
Colorado corporation. TSVLP retained a 40 percent undivided
interest in Tonkin Springs.
During 1990, the Company completed construction of its milling
facility at Tonkin Springs and operated the integrated mill
facility in a start-up mode commencing March, 1990. However,
because of severe liquidity problems the Company put the operation
on stand-by status beginning in June, 1990, while the Company
concluded a transaction on February 13, 1991 with wholly-owned
subsidiaries of Homestake Mining Company of California (hereinafter
Denay). In that transaction, the Company sold 51% undivided
interest in the Tonkin Springs project to Denay and the parties
contributed their respective interests in the Tonkin Springs
project into the TSVLP. Denay conducted and funded exploration and
other activities at Tonkin Springs until its withdrawal from TSVLP
effective October 9, 1992. Upon Denays withdrawal, the Company,
through its wholly-owned subsidiaries, became the 100% owner of
TSVLP and assumed responsibility for Tonkin Springs until the
transaction with Gold Capital effective December 31, 1993.
Except for the historical information contained herein, 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, mineralized material grades, metallurgical
recovery, operating costs, market valuation, and project operators
decisions and performance under the Project Joint Venture, as well
as other risks and uncertainties.
Business
General
The Company is primarily engaged in the precious metal mining
business in the continental United States, however, it may also
evaluate and develop properties outside the United States. The
Company, through its wholly-owned subsidiaries, owns an interest in
the Tonkin Springs gold mine located in Eureka County, Nevada.
As a gold mining company, the Companys activities include, at
various times and to various degrees, exploration, land
acquisition, geological evaluation and feasibility studies of
properties and, where warranted, development and construction of
mining and processing facilities, mining and processing and the
sale of gold and other metal by-products. The Company also may
enter into joint ventures or partnerships to accomplish these
activities. All refined bullion is either sold to outside
companies, delivered in satisfaction of forward sale delivery
contracts, or held in inventory for later disposition. The Company
also may enter into joint undertakings with other companies to
accomplish the same purposes.
Sale of 60% Interest in Tonkin Springs Properties to Gold Capital
On December 31, 1993 (the Closing), TSVLP sold a 60 percent
undivided interest in the Tonkin Springs properties and obligations
(the Properties) to Gold Capital. TSVLP retained a 40 percent
undivided interest in the Properties. Immediately after the
conveyance to Gold Capital, TSVLP and Gold Capital made their
respective interest in Tonkin Springs subject to the Tonkin Springs
Project Joint Venture (Project Joint Venture) with Gold Capital
designated manager. Gold Capital is responsible for funding of all
costs related to Tonkin Springs until defined commercial
production, if any, is achieved.
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 7.5 percent mortgage
note in the amount of $3.8 million (the Promissory Note); 300,000
shares of Gold Capitals Series A Convertible 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 August 29, 1997, the remaining
balance of the Promissory Note was paid.
Effective December 31, 1996, TSVLP converted its Gold Capital
Preferred Stock into 1,750,000 shares of Gold Capital common stock,
as provided under the Commitment and Agreement to Convert dated
June 22, 1995. The Gold Capital Preferred Stock required Gold
Capital to pay a 9% annualized rate dividend through November 30,
1995 (based on the $10 per share stated value which totals $3
million aggregate valuation) payable at the option of Gold Capital
in cash or its common stock. Gold Capital elected to pay all
dividends with shares with 275,518 unregistered shares of Gold
Capital being issued to TSVLP through November 30, 1995. In
addition, the Company received 262,029 shares of Gold Capitals
common shares in satisfaction of a liability owed to the Company.
William W. Reid, president of the Company, was appointed a member
of the board of directors of Gold Capital subsequent to the Closing
pursuant to the Gold Capital Preferred Stock covenants and served
in that capacity until August 29, 1997.
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 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 2,287,547 shares of Gold Capital which as of December 31,
1997 represents approximately 5.6 percent of the equivalent
outstanding common shares of Globex. 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.
Globex raised approximately $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 project financing for 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 TSVLPs cash
flow from the Project Joint Venture (after the $60,000 per month
minimum payments noted above) if required to support Gold Capital
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 definitions of Commencement of
Commercial Production. As of December 31, 1997, the Company
recorded a $2,160,000 receivable due from the Project Joint Venture
of which $240,000 was classified as current. There is also a
$2,160,000 deferred credit, so in effect the entire receivable is
offset by a deferred credit.
The expanded definition of Commencement of Commercial Production
under the Amended Project Joint Venture Agreement provides for
three alternative operating possibilities including milling
operations, a combination of high grade/low grade sulfide
mineralized material bioheap-recovery heap, and an oxide
mineralized material heap leach operation. Criteria for
Commencement of Commercial Production include, but are not limited
to, the capacity of production facilities, minimum operations
during consecutive day periods, and minimum gold recovery. If any
gold is produced prior to Commencement of Commercial Production,
Gold Capital may elect either to i) hold such gold for sale after
Commencement of Commercial Production or ii) sell the gold prior to
Commencement of Commercial Production in which case the gross
proceeds shall be distributed to the Participants with TSVLP
receiving 16 percent thereof.
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 (maximum possible amount of $12
million), 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 Recoupment Amount maximum
will be considered contributions to the Project Joint Venture by
Gold Capital. Through December 31, 1997, Gold Capital has reported
that it has incurred approximately $9 million in Recoupment Amount
expenditures.
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 1995, 14.8% ($702,828) of
the gain was recognized and for 1996, 24.5% ($1,165,418) of the
gain was recognized representing the balance of the gain related to
the Promissory Note. At December 31, 1996, 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
effective August 29, 1997 as non-realizable as provided under the
installment method of accounting as the value in Globex common
stock was less than the Companys carrying amount in Gold Capital
common stock.
Loan Settlement Agreement with FABC
Effective February 21, 1992, the Company entered into a Loan
Settlement Agreement with its former senior secured lender, French
American Banking Corporation (FABC). As partial consideration to
FABC under that agreement the Company entered into an agreement
between Tonkin Springs Gold Mining Company (TSGMC), a wholly owned
subsidiary of the Company, and FABC entitled Agreement To Pay
Distributions, which requires TSGMC to pay a limited portion of
certain distributions, if any, from TSVLP to FABC. TSVLP has
complete control of such distributions, if any, to TSGMC. Under
the terms of the Agreement To Pay Distributions, TSGMC is required
to pay to FABC (i) the first $30,000 of retained distributions, as
defined in such agreement, received from the 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.
Competitive Business Conditions
The exploration for, and the acquisition and development of gold
properties are subject to intense competition. Companies with
greater financial resources, larger staffs, more experience, and
more equipment for exploration and development may be in a better
position than the Company to compete for such mineral properties.
The Companys present limited cash flow means that its ability to
compete for properties to be explored and developed is more limited
than in the past. The Company believes that competition for
acquiring mineral prospects will continue to be intense in the
future. The Company may have to undertake greater risks than more
established companies in order to compete. The market price for
gold depends on numerous factors beyond the Companys control,
including production or sales by other gold producing nations.
Major Customers
Sales of refined gold and silver bullion derived from operating
properties in the past have been made to unaffiliated companies.
The Company believes that the loss of these customers would not
affect its business.
Patents, Trademarks, Licenses, Franchises, Concessions
The Company co-owns with Denay three United States patents
(expiring in 2008) and two Republic of South Africa patents
covering various aspects of its bio-oxidation technology. If
feasible, the Company intends to exploit its bio-oxidation
expertise, technology and patents derived from activities at Tonkin
Springs to help create business opportunities in the gold mining
business. The Company owns by itself two Chilean patents related
to its bio-oxidation technology. No research and development
expenditures have been incurred by the Company during the last two
years.
The Company does not own any trademarks, licenses, franchises or
concessions, except mining interests granted by governmental
authorities and private landowners. No portion of its business is
subject to renegotiation of profits or termination of contracts or
subcontracts at the election of the government.
Government Regulations
In connection with mining, milling and exploration activities, the
Company is subject to extensive Federal, state and local laws and
regulations governing the protection of the environment, including
laws and regulations relating to air and water quality, mining
reclamation, waste disposal, and the protection of endangered or
threatened species.
Numerous and in some regards conflicting bills have been introduced
during the last several sessions in the U.S. Congress, some of
which are currently pending, which would supplant or radically
alter the provisions of the Mining Law of 1872. If enacted, such
legislation could substantially increase the cost of holding
unpatented mining claims and could impair the ability of companies
to develop mineral resources on unpatented mining claims. Under
the terms of these bills, the ability of companies to a obtain
patent on unpatented mining claims would be nullified or
substantially impaired, and most contain provisions for the payment
of royalties to the federal government in respect of production
from unpatented mining claims, which could adversely affect the
potential for development of such claims and the economics of
operating new or even existing mines on federal unpatented mining
claims. The Company financial performance could therefore be
affected adversely by passage of such legislation. Pending
possible reform of the Mining Law of 1872, Congress has put in
place a moratorium which prohibits acceptance or processing of most
mineral patent applications. It is not possible to predict whether
any change in the Mining Law of 1872 will, in fact, be enacted or,
if enacted, the form the changes may take.
Costs and Effects of Compliance with Environmental Laws
In connection with its mining, milling and exploration activities,
the Company is required to comply with various federal, state and
local laws and regulations pertaining to the discharge of materials
into the environment or otherwise relating to the protection of the
environment. The Company or joint venture participants have
obtained, or are in the process of obtaining, environmental
permits, licenses or approvals required for its operations.
Management of the Company is not aware of any material violations
of environmental permits, licenses or approvals issued with respect
to the Companys operations.
The Company through TSVLP, owns a 40% interest in the Tonkin
Springs Properties, and is jointly responsible for the reclamation
obligations related to disturbances at the Properties. A
reclamation plan and projected cost estimate for the Properties was
prepared by TSVLP in 1993 and estimated the reclamation costs
associated with current disturbances at the Properties at
approximately $1.4 million. The plan was filed with appropriate
governmental agencies (the Nevada Department of Environmental
Protection and the Federal Bureau of Land Management). During
November, 1997, Gold Capital posted a reclamation bond in the
preliminary amount of $1.3 million with the appropriate
governmental agencies for the Tonkin Springs Properties.
The Company has transferred its interest in several mining
properties over the past years. The Company could remain
potentially liable for environmental enforcement actions related to
its prior ownership interest of such properties. However, the
Company has no reasonable belief that any violation of relevant
environmental laws or regulations has occurred regarding these
transferred properties. The Company is not currently subject to
any material pending administrative or judicial enforcement
proceedings arising under environmental laws or regulations.
Environmental laws and regulations may be adopted and enacted in
the future which may have an impact on the Companys operations.
The Secretary of the Interior has announced his intent to undertake
rule making procedures to impose more comprehensive surface
management regulations on mineral operations of Federal lands. The
Company cannot now accurately predict or estimate the impact of any
such future laws or regulations on its operations.
Employees
At December 31, 1997, the Company had 5 employees, each of which
were employed on a full-time basis.
ITEM 2. DESCRIPTION OF PROPERTIES.
Tonkin Springs Properties
General
The Company through TSVLP holds a 40% undivided ownership interest
in the Tonkin Springs Properties, Eureka County, Nevada (Properties
or Project), subject to the Project Joint Venture. Gold Capital
owns the remaining 60% undivided interest in the Properties, and is
Project Joint Venture manager. The Properties are located on the
Battle Mountain-Cortez Trend, approximately 45 miles northwest of
Eureka, Nevada.
General
Tonkin Springs is an open-pit gold mining and processing project
consisting of unpatented mining claims, an integrated milling
facility, and support facilities on approximately 14,980 acres of
Federal land located along the Battle Mountain - Cortez Trend
approximately 45 miles northwest of the town of Eureka in Eureka
County, Nevada. In April, 1996, Gold Capital obtained an audit and
updated feasibility study from an independent consulting firm which
represented an estimate for an initial 5 year plan of the economic
viability of producing gold from a milling and heap leach operation
at Tonkin Springs, with development to include biooxidation
followed by milling, bio-oxidation followed by conventional heap
leach recovery for lower grade mineralized material, and an oxide
heap leach.
As previously noted, effective August 29, 1997, Gold Capital became
a wholly-owned subsidiary of Globex pursuant to 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 project 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 order to commence production at the Tonkin Springs Project, Gold
Capital must re-establish or amend the permits that are required to
operate the Project, complete the construction of an on-off
impermeable leach pad started in 1996 to accommodate crushed
mineralized material, reconfigure the existing crushing arrangement
or provide for alternative crushing equipment and commence mining
operations. Sufficient overburden removal and development work has
been accomplished to date to allow the mining of mineralized
material to commence quickly.
Part of the mineralized material at the Project is contained in
sulfides and will require pre-treatment prior to the conventional
mill or heap recovery processing. For this reason, Gold Capital
has commenced construction of a leach pad to be utilized to pre-
oxidize the mineralized material through bio-oxidation prior to
conventional carbon-in-leach processing. Mining is proposed to
commence initially at the TSP-1 pit of the Project. An important
part of the mineralized material at the Project is in the oxide
form (the Tonkin North deposit) and is amenable to conventional
heap leach extraction methods.
An additional component of the mineralized material at the Project
is contained in lower grade sulfides which can be mined in
conjunction with both the milling and Tonkin North operations.
Gold Capital has indicated that it proposes to pre-oxidize this
material in a similar fashion to that used prior to conventional
milling. After oxidation however, Gold Capital intends to convey
the lower grade mineralized material to the new oxide leach pad
constructed in conjunction with the Tonkin North operations where
Gold Capital intends to utilize conventional heap leach extraction
methods.
Recent Activities at Tonkin Springs
During 1997, activities at the Project primarily consisted of
construction work on the on-off leach pad and continued work on
permitting.
The leach pad construction continued with completion of the
necessary dirt work and installation of the impermeable liner on
approximately 50 percent of the pad area. In November 1997,
construction work on the pad was temporarily suspended because of
the inability to install the liner in cold whether. Additional
work is required to complete construction of the pad including
installation of the remaining impermeable liner, installation of
sumps and piping, etc.
Permitting activities are oriented toward allowing the project to
begin operations and gold production. Gold Capital has stated the
intent to put the Tonkin Springs project into production following
securing of the necessary financing. Gold Capitals and Globexs
ability to continue to fund the Venture and ultimately to put the
Project into production is dependent upon their ability to raise
additional funding through project financing, equity sales, or
otherwise. There can be no assurance that Gold Capital and/or
Globex will be successful in their efforts to raise such additional
funding.
Proposed Operations
Mining at the Tonkin Springs Project is anticipated to be
accomplished by conventional open pit methods utilizing a
contractor. Gold Capital has indicated that after mining, the
mineralized material will be crushed and then placed on an
impervious pad where it will be treated with acid, other chemicals
and certain bacteria acting as catalysts to oxidize the sulfides
present. This oxidation process is estimated to take approximately
30 to 60 days per batch of mined mineralized material. When this
process is complete, the crushed and oxidized mineralized material
will be washed on the heap with water and a neutralizing agent to
remove acid accumulated during the oxidation process. Mineralized
material will then be transported to the existing mill storage
facility for further processing in the existing milling facility
utilizing a conventional carbon-in-leach process or alternatively,
placed on a conventional cyanide heap leach pad for gold
extraction.
In the milling process alternative, the mineralized material is
ground and then treated with cyanide in solution with activated
carbon. This activated carbon adsorbs any gold present. The gold
bearing carbon is separated from the slurry, processed for gold
recovery and reactivated for use. The barren slurry is then
discharged to the tailing facility. Gold is removed from the
carbon using a hot, caustic cyanide solution and extracted from the
solution by electrowining and further processed and melted with
fluxes to produce dore bullion. The dore would then be shipped by
armored carrier to a refinery for final processing.
In the heap leach process alternative, the mineralized material is
agglomerated with lime and stacked on a permanent heap leach pad
where solutions of weak cyanide are applied to dissolve the gold
and those solutions are pumped through tanks containing activated
carbon which adsorbs any gold present. The gold bearing carbon is
processed similar to the milling process above and the barren
solutions are recirculated back to the heap leach. Construction of
a new heap leach pad would be required for the heap leach process
alternative and would likely be constructed adjacent to the on-
off leach pad started in 1996.
The Tonkin North oxide pit development plan is envisioned as a
separate heap leach operation to be initiated subsequent to
commencement of milling operations as discussed above. Additional
capital expense is estimated for placing the Tonkin North
mineralized material into production including additional necessary
permits, design and construction of the heap leach pad, design and
construction of the solution pond and related support facilities.
The low grade sulfide mineralized material will be pretreated and
bio-oxidized in the same manner as the high grade sulfide, but
instead of final processing through the conventional mill, this
material will then be processed in a conventional heap leach
operation.
Access to the Project is provided by a county maintained road.
Electrical power is provided through a substation located near the
mill and operated by Sierra Pacific Power Company. Water is
available through production wells which have been established on
the site. The Project also contains an assay laboratory and
metallurgical pilot plant testing lab. In addition to the heavy
equipment shop for repair and maintenance of mining equipment, a
repair shop and warehouse building is situated adjacent to the mill
building. The site also contains facilities to store and
distribute propane, diesel fuel and gasoline. An administrative
building is available to office management and administrative
personnel. Potable water will be brought in from outside the
Project.
Geology
Host rocks for gold mineralization at Tonkin Springs consist of a
sequence of Paleozoic rocks that were subsequently faulted,
intruded and mineralized. Gold-bearing solutions originated at
depth and migrated up along fracture systems until reaching
fractured rock or chemically favorable rock suitable for deposition
of mineralized material. Later volcanism, faulting, erosion and
sedimentation affected the mineralized material.
Claims
The Tonkin Springs Project consists of a total of 1,059 claims. Of
that amount, an aggregate of 207 of the unpatented mining claims
covered by the Project are leased from unaffiliated third parties
pursuant to two mining leases. One lease at Tonkin North, which
covers 197 claims, has an initial term which expires December 31,
2006 and may be extended from year to year, up to a maximum term of
99 years, by production from the leased claims. The Buffington
Lease, which covers 10 claims, had an initial term which expired
August 9, 1996, and has been extended on a year to year basis by
continued payment of advance royalties. Each lease contains
certain conditions and other requirements for annual payments, as
well as expenditures or work to be performed in order to retain the
leased claims.
The Tonkin North lease requires an annual advance royalty in the
amount of $150,000, or the value of 450 ounces of gold, whichever
is greater, which royalty is payable in January of each year. The
lease also requires production royalties of 5% of the gross sales
price of gold or silver but provides for recapture of annual
advance royalties previously paid. The Project Joint Venture is
required to perform an annual work commitment and the lease
includes a defined area of interest extending from the boundaries
of certain claims. Certain of the claims which are included in the
Tonkin North lease are also subject to a 1% net smelter return
royalty (defined as gross revenues from sales of minerals, less
refining costs, transportation costs, severance, production and
sales taxes, and sales commissions) payable to Precambrian
Exploration, Inc. after $15,000,000 in gross revenues are realized
from the claims.
The Buffington lease requires nominal payment of an initial advance
royalty and 5% of all net returns following commencement of
production.
An aggregate of 848 of the unpatented mining claims covered by the
Project, as well as 4 millsites, are owned jointly by the TSVLP and
Gold Capital. A total of 317 of these claims are subject to a
royalty of 2% of net smelter returns, which becomes payable to
Precambrian Exploration, Inc. after $50 million in gross revenues
is realized from the claims. Precambrian Exploration, Inc. is an
unaffiliated third party and predecessor in interest to the claims.
Precambrian may elect to receive such royalty in kind, upon proper
notice to the Project Joint Venture. The remaining 531 claims and
the millsites are not subject to any royalties. The Project Joint
Venture is required to perform all assessment work required under
state and Federal law to hold the claims.
In March, 1994, the Project Joint Venture acquired 215 claims
covering approximately 4,400 acres in the vicinity of the Tonkin
Springs Project from an unaffiliated third party. The claims are
subject to a royalty of 1% of net smelter returns for gold when the
indexed price of gold is $350 per ounce or more, and a royalty of
1% of net smelter returns for silver when the indexed price of
silver is $3.50 per ounce or more. No royalties are payable at
lower indexed prices. The indexed prices shall reflect adjustments
based on the Producers Price Index, sub-index Finished Goods
Excluding Foods, as published by the United States Department of
Commerce. During 1995, TSVLP assigned its interest in
approximately 247 mineral claims to the Project Joint Venture. The
Company and TSVLP believe that the carrying value of the foregoing
mineral claims is inconsequential.
History of Property
In late 1989, the Company substantially completed construction of
a 1,500 ton-per-day milling facility at Tonkin Springs designed to
utilize stirred-tank bioleaching technology in the pre-oxidation
step for sulfide mineralized material to allow subsequent
extraction of the gold through the conventional carbon-in-leach
mill process. The construction cost of the mill was approximately
$31 million. The Company operated the integrated mill facility in
a start-up mode commencing in March, 1990. However, the mill
facility did not reach commercial operation by June, 1990, and
because of severe liquidity problems the Company put the operation
on stand-by status beginning in June, 1990, while the Company
concluded a transaction with Denay on February 13, 1991 discussed
further below. During 1990, in anticipation of results of the
1991 Closing, the Company reduced its carrying value in the
Properties and charged operations for $29.6 million. In the
February 13, 1991 Denay transaction, TSGMC sold a 51 percent
undivided interest in the Properties to Denay and the parties
contributed their respective interests in the Properties into the
TSVLP. Ownership in the TSVLP was initially: TSGMC- 49 percent,
Denay- 51 percent, with Denay and TSGMC general partners and
Homestake Nevada a limited Partner. Denay was initially designated
manager of the Properties.
Denay purchased its 51 percent undivided interest in the Properties
in exchange for forgiveness by Denay of an aggregate of $4.5
million in short term debt of the Company purchased by Denay from
certain creditors for an aggregate cash price of $3.5 million.
Denay also committed to make certain expenditures through TSVLP for
the benefit of the Properties. In particular, Denay was required
to expend a minimum aggregate $2 million on exploration of the
Properties and to fund other property costs. Effective October 9,
1992, Denay withdrew from TSVLP. Such withdrawal was provided for
and governed by the Limited Partnership Agreement between the
parties dated February 11, 1991, and as provided thereunder the
partnership interest of the withdrawing parties reverted to TSGMC
and U.S. Environmental Corporation (USEC), both wholly-owned
subsidiaries of the Company. The Companys interest in TSVLP is
held 99.5% by TSGMC and 0.5% by USEC. During the period of Denay
involvement, Denay expended approximately $2.49 million on
exploration and approximately $1.84 million on other property
costs.
Upon the withdrawal by Denay from the TSVLP, the Company
effectively acquired Denays 51% ownership of the partnership and
assumed responsibility for the reclamation of the properties,
establishing a $1.6 million estimated reclamation cost for the
Properties as an obligation and, reflected this amount as an
acquisition cost of Denays 51% partnership interest thereby
increasing its investment in the TSVLP. As noted above, effective
December 31, 1993, the Company sold a 60 percent undivided interest
in the Properties to Gold Capital.
ITEM 3. LEGAL PROCEEDINGS.
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Companys common stock trades on The Nasdaq SmallCap Market tier
of The Nasdaq Stock Market under the symbol USGL. The tables below
set forth the high and low sales prices for the Companys common
stock as quoted by Nasdaq for the fiscal years ended December 31,
1997 and 1996. Quotations represent prices between dealers, do not
include retail markups, markdowns or commissions, and do not
necessarily represent prices at which actual transactions were
effected.
Fiscal Year Ended
December 31, 1997 High Low
First Quarter $1.531 $1.063
Second Quarter $1.219 $0.844
Third Quarter $1.063 $0.781
Fourth Quarter $1.031 $0.563
Fiscal Year Ended
December 31, 1996 High Low
First Quarter $1.531 $0.766
Second Quarter $1.250 $0.906
Third Quarter $1.188 $0.906
Fourth Quarter $1.500 $1.000
Nasdaq has announced that effective February 23, 1998, it will
institute new requirements for continued listing of stocks on
Nasdaq which requirements include, among other requirements, a
$1.00 minimum bid price. The Company does not currently meet the
new requirements with regard to minimum bid price. After notice of
non-compliance from Nasdaq, the Company understands that there will
be a period to appeal and to cure any non-compliance. However, if
compliance is not corrected in the time allowed, the Companys
common stock could be removed from Nasdaq quotation system and it
is anticipated that it would then be traded on the OTC Bulletin
Board system.
As of February 27, 1998, there were approximately 7,800 record
holders for the Companys common stock.
No dividends have ever been paid with respect to the Companys
common stock and the Company does not anticipate the payment of
dividends in the foreseeable future.
ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
The principal property of U.S. Gold Corporation (the Company) is
its 40 percent interest in Tonkin Springs which is subject to the
Tonkin Springs Project Joint Venture (Project Joint Venture) with
Gold Capital Corporation (Gold Capital), owner of 60 percent and
project manager. Gold Capital is responsible for all funding until
Commencement of Commercial Production. In order to commence
operations at Tonkin Springs, Gold Capital must, among other
things, obtain additional financing, receive various governmental
permits and approvals, complete certain construction efforts and
acquire and install certain equipment and start-up mining and
processing activities.
Gold Capital has stated their intent to put the Tonkin Springs
project into production. 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.
During 1998, the Company will continue to closely monitor Gold
Capitals performance under the Project Joint Venture. In addition,
the Company may evaluate potential sources of additional funding
for the Company and review projects for potential acquisition.
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. Gold Capital
purchased its 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, among other consideration, a mortgage note
in the amount of $3.8 million (the Promissory Note) and 300,000
shares of unregistered Gold Capitals Series A Preferred Stock (Gold
Capital Preferred Stock) having an assigned value of $3 million.
Effective December 31, 1996, TSVLP converted its Preferred Stock
into 1,750,000 shares of Gold Capital common shares, which along
with shares received in satisfaction of mandatory Preferred Stock
dividends for 1995 and 1996 and accounts receivable, resulted in
the Company owning an aggregate 2,287,547 shares of 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
December 31, 1997, Gold Capital has reported that it has incurred
approximately $9 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 and Montreal stock
exchanges (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 project
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 its common stock ownership in Gold Capital
which represents approximately 5.6 percent of Globexs equivalent
outstanding common shares at December 31, 1997.
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 December 31, 1996, there was
$1,789,100 in deferred gain remaining which was associated with the
Gold Capital common stock received in exchange for the 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 as the value in Globex common stock was less
than the Companys carrying amount in Gold Capital common stock.
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.
Liquidity and Capital Resources
As of December 31, 1997, the Company had working capital of
$846,346 made up of current assets of $855,999 and current
liabilities of $9,653. During 1998, the Company anticipates
receipt of $240,000 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
source of working capital presently anticipated during 1998 unless
the Tonkin Springs Project commences commercial production with
cash flow in excess of the minimum distributions to TSVLP. Net
cash used in operations increased to $1,011,446 for 1997 from
$837,512 for 1996, reflecting increases during 1997 in cash paid to
suppliers and employees of $287,568. Cash flow from investing
activities increased to $1,621,986 for 1997 compared to $608,645 in
1996, primarily reflecting a payoff of the principal balance and
accrued interest under the Gold Capital note. No cash flows from
financing activities occured in 1997 nor 1996.
Results of Operations - 1997 Compared to 1996
At December 31, 1996, 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 effective
August 29, 1997 against the carrying value of the Globex stock as
non-realizable as provided under the installment method of
accounting as the value in Globex common stock was less than the
Companys carrying value in Gold Capital common stock. Interest
income decreased during 1997 to $77,973 from $144,716 during 1996,
reflecting the payoff of the Promissory Note from Gold Capital and
lower interest received on bank deposits. General and administrative
expense increased approximately $412,000 in 1997 compared to 1996
reflecting higher employee compensation of $197,000, an increase of
$88,000 in other administrative expenses, and $127,000 of reduced
cost recovery from Gold Capital for temporary staff support related
to the Tonkin Springs project.
The Companys 1993 Federal income tax return reflected a liability
of $451,474 for alternative minimum tax. During 1997 and 1996, the
Company received federal tax refunds of $198,317 and $79,324,
respectively as tax losses were carried back and applied against
the 1993 alternative minimum tax payment. As of December 31, 1997,
the Company has approximately $11,200 in alternative minimum tax
credits which can be carried forward and utilized against future
tax income of the Company as well as capital loss carryforward of
approximatley $1.2 million which is available for capital gains
through year 2003. As of December 31, 1997, the Company has
recorded approximatley $318,203 net of a deferred tax liability of
$277,000. The Company believes that it is more likely than not
that the net deferred asset will be realized and the Company
believes that it will generate future taxable income to be able to
utilize its alternative minimum tax credits. Therefore, no
valuation allowance was provided for the $41,203 net deferred tax
asset.
Other
The Company has addressed Year 2000 Issues as relates to the
computing systems, software and programs for which the Company
relies and has concluded such systems, software and programs will
not be negatively impacted by calendar year 2000 transition
implications.
Recent Accounting Pronouncements. In June 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard No. 130 Reporting Comprehensive Income (SFAS
130). SFAS 130 establishes standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions
to owners. Among other disclosures, SFAS 130 requires that all
items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a
financial statement that displays with the same prominence as other
financial statements. In June 1997, FASB issued Statement of
Financial Standard No. 131 Disclosures about Segments of an
Enterprise and Related Information (SFAS 131). SFAS 131 supersedes
Statement of Financial Accounting Standard No. 14 Financial
Reporting for Segments of a Business Enterprise. SFAS 131
established standards of the way that public companies report
information about operating segments in annual financial statements
and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It
also establishes standards for disclosures regarding products and
services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate
financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate
resources and in assessing performance. SFAS 130 and SFAS 131 are
effective for financial statements for periods beginning after
December 15, 1997 and require comparable information for earlier
years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact,
if any, the standards may have on future financial statement
disclosures. Results of operations and financial position,
however, will be unaffected by the implementation of these
standards.
Except for the historical information contained herein, 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 decisions and
performance under the Project Joint Venture, as well as other risks
and uncertainties.
ITEM 7. FINANCIAL STATEMENTS
Index to Financial Statements Page
Report of Independent Certified Public Accountants F-1
Consolidated Statements of Operations for the years
ended December 31, 1997 and 1996 F-2
Consolidated Balance Sheet at December 31, 1997 F-3
Consolidated Statements of Changes in Shareholders
Equity for the years ended December 31, 1997 and 1996 F-4
Consolidated Statements of Cash Flows for the
years ended December 31, 1997 and 1996 F-5
Notes to Consolidated Financial Statements F-6
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
U.S. Gold Corporation
Denver, Colorado
We have audited the accompanying consolidated balance sheet of U.S.
Gold Corporation (the Company) as of December 31, 1997 and the
related consolidated statements of operations, changes in
shareholders equity and cash flows for each of the two years ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is
to express an opinion on these consolidated financial statements
based upon our audits.
We conducted our audits in accordance with generally accepted
auditing standards. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of the Company as of December 31, 1997, and the results of
their operation and their cash flows for each of the two years
ended December 31, 1997, in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
Certified Public Accountants
February 16, 1998
Denver, Colorado
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
1997 1996
Installment gain on sale of
Tonkin Springs interest (Note 2) $- $1,165,418
Interest income 77,973 144,716
77,973 1,310,134
Costs and expenses:
General and administrative 1,205,060 806,496
Consulting fees, related
parties (Note 11) 13,625 -
Interest 3,424 1,695
Depreciation, depletion and
amortization 16,946 11,516
1,239,055 819,707
Income (loss) before income taxes (1,161,082) 490,427
Provision for income taxes (Note 6) - -
Net income (loss) $(1,161,082) $490,427
Basic and diluted per share data:
Basic $(0.08) $0.04
Diluted $(0.08) $0.03
The accompanying notes are an integral part of these consolidated
financial statements.
U.S. GOLD CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS December 31, 1997
Current assets:
Cash and cash equivalents $615,999
Project distributions receivable (Note 2) 240,000
Total current assets 855,999
Project distributions receivable,
(Note 2) 1,920,000
Investment in Tonkin Springs Project
Joint Venture (Note 3) 2,262,578
Marketable securities, Globex common
stock at market (Note 2) 1,105,834
Deferred tax assets, net (Note 6) 41,203
Other assets (Note 5) 56,374
$6,241,988
LIABILITIES, DEFERRED CREDIT &
SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable and accrued liabilities $9,653
Deferred credit, project distributions (Note 2) 2,160,000
Reserve for reclamation (Note 3) 640,000
Total liabilities and deferred credit 2,809,653
Commitments and contingencies
(Note 4, 5, 8 and 9)
Shareholders equity (Note 7):
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 (29,045,276)
Unrealized loss on securities
available for sale (884,595)
Total shareholders equity 3,432,335
$ 6,241,988
The accompanying notes are an integral part of these consolidated
financial statements.
U.S.GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Common Stock Additional
Par Paid-in
Shares Value Capital
Balance, January 1, 1996 13,806,505 $1,380,651 $31,982,165
Exercise of Stock
Options (Note 7) 48,000 4,800 (4,800)
Treasury shares canceled (386) (4) (141)
Net income - - -
Balance, December 31, 1996 13,854,119 1,385,447 31,977,224
Exercise of stock
options (Note 7) 73,530 7,353 (7,353)
Treasury shares canceled (180) (53) (412)
Changes in unrealized
loss on securities for
sale, net of tax - - -
Net loss - - -
Balance, December 31, 1997 13,927,469 $1,392,747 $31,969,459
Statement continued below
Unrealized
Loss on
Securities
Accumulated Available for
Deficit Sale
Balance, January 1, 1996 $(28,374,621) $-
Exercise of Stock
Options (Note 7) - -
Treasury shares canceled - -
Net income 490,427 -
Balance, December 31, 1996 (27,884,194) -
Exercise of stock
options (Note 7) - -
Treasury shares canceled - -
Changes in unrealized
loss on securities for
sale - (884,595)
Net loss (1,161,082) -
Balance, December 31, 1997 $(29,045,276) $(884,595)
The accompanying notes are an integral part of these consolidated
financial statements.
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1997 1996
Cash flows from operating activities:
Cash paid to suppliers and employees $(1,217,856) $(930,288)
Interest received 11,517 15,147
Interest paid (3,424) (1,695)
Receipt of refund from IRS 198,317 79,324
Cash used in operating activities (1,011,446) (837,512)
Cash flows from investing activities:
Cash received from sale of Tonkin
Springs interest 1,501,076 450,844
Cash received for accrued interest
on note 129,569 195,572
Capital expenditures (9,569) (38,986)
Sale of assets 910 1,215
Cash provided by investing activities 1,621,986 608,645
Cash flows from financing activities:
Cash used in financing activities - -
Increase (decrease) in cash and
cash equivalents 610,540 (228,867)
Cash and cash equivalents,
beginning of year 5,459 (234,326)
Cash and cash equivalents,
end of year $615,999 $5,459
Reconciliation of net income to cash used in operating activities:
Net income (loss) $(1,161,082) $490,427
Items not requiring (providing) cash:
Interest income - (129,569)
Depreciation, depletion and
amortization 16,946 11,516
Investment gain on sale of
Tonkin Springs interest - (1,165,418)
Gain on sale of assets (348) (1,215)
Decrease in income tax receivable 198,317 79,324
(Increase) decrease in other current
assets related to operations 52,568 (203,441)
Increase (decrease) in accounts
payable related to operations (117,847) 80,864
Cash used in operating activities $(1,011,446) $(837,512)
The accompanying notes are an integral part of these consolidated
financial statements.
U.S. GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.Summary of Significant Accounting Policies
Basis of presentation: U.S. Gold Corporation (the Company) was
organized under the laws of the State of Colorado on July 14, 1979.
Since its inception, the Company has been engaged in the
exploration for, development of, and the production and sale of
gold and silver.
Basis of consolidation: 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.
Statements of cash flows: The Company considers cash in banks,
deposits in transit, and highly liquid debt instruments purchased
with original maturities of three months or less to be cash and
cash equivalents.
Investments: Investment in Globex Mining Enterprises Inc. (Globex)
common stock is classified as available-for-sale and carried at
fair value, based on quoted market prices. The unrealized loss on
this investment is reported as a separate component of shareholders
equity. The carrying amount of securities at December
31, 1997 was $1,990,429.
Investment in Tonkin Springs Project Joint Venture is accounted for
under the equity method of accounting. Under the equity method of
accounting, the original investment is recorded at cost and
adjusted by the Companys share of undistributed earnings, losses
and distributions. This investment is evaluated periodically and
carried at the lesser of cost or its estimated realizable value.
Property and equipment: Property and equipment are carried at cost
not in excess of their estimated net realizable value. Normal
maintenance and repairs are charged to earnings while expenditures
for major betterments are capitalized. Gains or losses on
disposition are recognized in operations.
Exploration and development costs: General exploration costs are
expensed as incurred while exploration and acquisition costs
related to projects are deferred until the properties are put into
commercial production, sold, or abandoned. Mine development costs
incurred either to develop new ore deposits, expand the capacity of
operating mines, or to develop mine areas substantially in advance
of current production are also deferred. Costs incurred to
maintain current production or to maintain properties on a standby
basis are charged to operations. Costs of abandoned projects are
charged to operations upon abandonment. The Company evaluates, at
least quarterly, the carrying value of capitalized mining costs and
related property, plant and equipment costs to determine if these
costs are in excess of their net realizable value and if an
impairment needs to be recorded. Permanent impairments are
evaluated periodically based upon expected future cash flows in
accordance with Statement of Financial Accounting Standards No.
121, Accounting for Impairment of Long-Lived Assets. This standard
did not have an effect on the financial statements for the year
ended December 31, 1997.
Depreciation, depletion and amortization: Depreciation of property
and equipment is computed using the units-of-production and
straight-line methods, depending upon which method more accurately
reflects the related assets use. Mine development costs are
charged to operations using the units-of-production method based on
estimated ounces of gold to be recovered.
Property reclamation costs: The estimated reclamation cost
obligation related to present disturbances at the Tonkin Springs
Properties is carried as a liability. Changes to these estimates,
or the estimated reclamation costs associated with other mineral
properties, are accrued and charged over the expected life of each
property using the units of production method. Ongoing
environmental and reclamation expenditures are expensed as
incurred.
Stock Option Plans: The Company applies APB Opinion 25, Accounting
for Stock Issued to Employees, and related Interpretations in
accounting for all stock option plans. Under APB Opinion 25, no
compensation cost has been recognized for stock options issued to
employees as the exercise price of the Companys stock options
granted equals or exceeds the market price of the underlying common
stock on the date of grant.
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
Company to provide pro forma information regarding net income as if
compensation costs for the Companys stock option plans had been
determined in accordance with the fair value based method
prescribed in SFAS No. 123. To provide the required pro forma
information, the Company estimates the fair value of each stock
option at the grant date by using the Black-Scholes option-pricing
model.
Per share amounts: Statement of Financial Accounting Standards No.
128 provides for the calculation of Basic and Diluted earnings per
share. Basic earnings per share includes no dilution and is
computed by dividing income available to common shareholders by the
weighted-average number of shares outstanding during the period
(13,911,443 for 1997 and 13,823,947 for 1996). Diluted earnings
per share reflect the potential dilution of securities that could
share in the earnings of the Company, similar to fully diluted
earnings per share. As of December 31, 1997, options are not
considered in the computation of diluted earnings per share as
their inclusion would be antidilutive. As of December 31, 1996,
options in the amount of 854,149 are considered in the computation
of diluted earnings per share. The implementation of this standard
did not have a material effect on the consolidated financial
statements.
Income Taxes: The Company accounts for income taxes under
Statement of Financial Accounting Standards No. 109 (SFAS No. 109.)
Temporary differences are differences between the tax basis of
assets and liabilities and their reported amounts in the financial
statements that will result in taxable or deductible amounts in
future years.
Concentration of risks: The Companys financial instruments that
are exposed to concentration of credit risk consists primarily of
cash equivalent balances in excess of the insurance provided by
federal insurance authorities. The Companys investment in Globex
common stock is exposed to concentration of credit risk primarily
because this investment is dependent upon the successful operation
of Globex.
Use of estimates: 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.
Fair Value of Financial Instruments: Statement of Financial
Accounting Standards No. 107, Disclosures About Fair Value of
Financial Instruments, requires disclosure of fair value
information about financial instruments. Fair value estimates
discussed herein are based upon certain market assumptions and
pertinent information available to management as of December 31,
1997.
The respective carrying value of certain on-balance-sheet financial
instruments approximate their fair values. These financial
instruments include cash and cash equivalents, receivables and
accounts payable. Fair values were assumed to approximate carrying
values for these financial instruments since they are short term in
nature and their carrying amounts approximate fair value or they
are receivable or payable on demand.
Recent Accounting Pronouncements: In June 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard No. 130 Reporting Comprehensive Income (SFAS
130). SFAS 130 establishes standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions
to owners. Among other disclosures, SFAS 130 requires that all
items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a
financial statement that displays with the same prominence as other
financial statements. In June 1997, FASB issued Statement of
Financial Standard No. 131 Disclosures about Segments of an
Enterprise and Related Information (SFAS 131). SFAS 131 supersedes
Statement of Financial Accounting Standard No. 14 Financial
Reporting for Segments of a Business Enterprise. SFAS 131
established standards of the way that public companies report
information about operating segments in annual financial statements
and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It
also establishes standards for disclosures regarding products and
services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate
financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate
resources and in assessing performance. SFAS 130 and SFAS 131 are
effective for financial statements for periods beginning after
December 15, 1997 and require comparable information for earlier
years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact,
if any, the standards may have on future financial statement
disclosures. Results of operations and financial position,
however, will be unaffected by the implementation of these
standards.
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 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 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
December 31, 1997 represents approximately 5.6 percent of the
equivalent 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 December 31, 1996, 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 effective September 30, 1997 as non-realizable as
provided under the installment method of accounting, as the value
in Globex common stock was less than the Companys carrying amount
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 project 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 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 December 31, 1997, the Company recorded a
$2,160,000 receivable due from the Project Joint Venture of which
$240,000 was classified as current. There is also 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.
Effective June 1, 1995, the Company granted to its officers and an
outside director options to purchase an aggregate of 450,000 shares
of common stock of Gold Capital from the Company which options
agreements were terminated and replaced effective September 30,
1997 subsequent to the Gold Capital Merger with Globex. The new
option agreements for an aggregate of 124,380 shares of common
stock of Globex are at an exercise price of $3.15 per share
(greater than the market price of the Globex shares as of the date
of the replacement grant of $2.83 per share). These option
agreements expire October 1, 2002. The value of these options
issued to the Companys officers and an outside director is
considered nominal.
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 condensed balance sheet of the Project Joint
Venture as of December 31, 1997, and a condensed statement of
operations for the year then ended. All costs associated with the
Properties have been funded by Gold Capital.
STATEMENT OF OPERATIONS Year Ended
December 31, 1997
Miscellaneous income $15,122
Property maintenance costs 923,453
Net loss $(908,331)
BALANCE SHEET December 31, 1997
Assets:
Property, plant, equipment &
development costs $15,131,653
Prepaid royalties 694,603
Restricted time deposit for
reclamation bond 1,348,228
Deposits and other assets 2,829
Total assets $17,177,313
Liabilities, Reserves and Project Joint Venturers Interest:
Current liabilities $21,012
Reserve for reclamation 1,469,900
Intercompany, Gold Capital 8,999,037
Venturers Interest:
Gold Capitals interest 4,252,186
TSVLPs interest 2,435,178
Total venturers interest 6,687,364
Total liabilities, reserves
and venturers interest $17,177,313
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 $1,348,228.
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 to FABC. TSVLP
has complete control of such distributions, if any, 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.
5.Property and Equipment
At December 31, 1997 property and equipment, net of accumulated
depreciation of $119,674 totalled $41,913, and represented office
leasehold improvements, office furniture and equipment, vehicles
and trailers.
The Company has transferred its interest in several mining
properties over the past years. The Company could remain
potentially liable for environmental enforcement actions related to
its prior ownership interest of such properties. However, the
Company has no reasonable belief that any violation of relevant
environmental laws or regulations has occurred regarding these
transferred properties.
6.Income Taxes
In the various transactions entered into February 21, 1992, the
Company had an ownership change, as that term is defined under
Section 382 (g), IRC. As a result, the tax net operating loss
carry forwards and the investment tax credit carry forwards will be
subject to annual limitations under Section 382 IRC, following the
date of such ownership change. Except as noted below, the Company
will receive no future benefits from net operating loss
carryforwards or investment tax credit carryforwards existing as of
the date of the ownership change. At December 31, 1997, the
Company estimates that tax loss carry forwards totals approximately
$3,170,000 expiring in year 2012. The Company has an additional
capital loss carryforward of approximately $1.2 million which is
only available against capital gains from investment securities and
which expires in year 2002.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1997 are presented below:
Deferred tax assets:
Alternative minimum tax credit carryfoward $11,200
Reclamation obligation 140,800
Net operating loss carryforward 697,400
Capital loss carryforward 268,400
Total gross deferred tax assets 1,117,800
Less valuation allowance (799,597)
Net deferred tax assets 318,203
Deferred tax liabilities:
Basis in TSVLP 277,000
Total gross deferred tax liabilities 277,000
Total net deferred tax asset $41,203
The Company believes that it is more likely than not that the net
deferred tax asset will be realized. Therefore, no valuation
allowance has been provided for the $41,203 net deferred tax asset.
A reconciliation of the tax provision for 1997 and 1996 at
statutory rates is comprised of the following components:
1997 1996
Statutory rate tax provision
on book income (loss) $(395,000) $167,000
Book to tax adjustments:
Installment gain on sale
of Tonkin Springs 148,100 (398,000)
Loss from joint venture (40,072) -
Valuation allowance 290,128 230,000
Other (3,156) 1,000
Tax provision $0 $0
7. Shareholders Equity
Stock options have been granted to key employees, directors and
others under the Non-Qualified Amended and Restated Stock Option
and Stock Plan (the Plan). Options to purchase shares and stock
grants under the Plan were granted at market value as of the date
of the grant. Effective October 16, 1997, the Board of Directors
amended the Plan and increased the number of shares thereunder from
2,300,000 to 2,500,000.
Effective December 8, 1993 options to purchase a total of 1,000,000
shares at an exercise price of $.50 per share, were granted to
executives and directors of the Company which remain outstanding
but are not currently exercisable, and effective October 16, 1997,
options to purchase a total of 100,000 shares at an exercise price
of $.97 per share were granted to a new member of the Board of
Directors. These options cannot be exercised until sufficient
reserved shares of common stock are determined to be available for
option exercise by the Board of Directors. Options to purchase a
total of 1,250,000 shares at an exercise price of $.28 per share
were issued to officers, directors and others on February 3, 1992
of which 1,048,295 remain outstanding and unexercised as of
December 31, 1997, including options for 5,764 shares which cannot
be exercised until sufficient shares of common stock are determined
to be available.
During 1997, the estate of a former director of the Company
exercised stock options to purchase 100,000 shares of the Companys
common stock at an exercise price of $.28 with 26,470 shares
retained by the Company as payment of the exercise price of the
option and with cancellation and return to the status of authorized
but unissued for those shares retained. In 1996, executive
management of the Company exercised stock options to purchase
64,000 shares of the Companys common stock at an exercise price of
$.28 with 16,000 shares retained by the Company as payment of the
exercise price of the option and with cancellation and return to
the status of authorized but unissued for those shares retained.
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
Company to provide pro forma information regarding net income as if
compensation cost for the Companys stock option plans had been
determined in accordance with the fair value based method
prescribed in SFAS No. 123. The Company estimates the fair value
of each stock option at the grant date by using the Black-Scholes
option-pricing model with the following weighted-average
assumptions used for the 1997 grant: dividend yield of 0%; expected
volatility of 14% risk free interest rate of 6.4%; and expected
life of 10 years.
Under the accounting provisions of SFAS No. 123, the Companys net
income (loss) and net income (loss) per share would have been
adjusted to the following pro forma amounts:
1997 1996
Net income (loss)
As reported $(1,161,082) $490,427
Pro forma $(1,164,116) $487,393
Basic net income per share
As reported $(0.08) $0.04
Pro forma $(0.08) $0.04
1997 1996
Weighted Weighted
Average Average
Range of Exercise Range of Exercise
Shares Prices Shares Prices
Outstanding,
beginning of year 2,198,295 $.39 2,262,295 $.38
Granted 100,000 $.97 0 -
Exercised 73,530 $.28 48,000 $.28
Canceled 26,470 $.28 16,000 $.28
Expired 0 - 0 -
Outstanding,
end of year 2,198,295 $.42 2,198,295 $.39
Options exercisable,
end of year 1,072,531 $.29 1,145,881 $.28
Weighted average fair
value of option
granted during year $.46 $ 0
The following table summarizes information about stock options
outstanding at December 31, 1997:
Options Outstanding Weighted Average Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/97 life Price at 12/31/97 Price
$.28 1,048,295 4.1 yrs. $.28 1,042,531 $.28
$.47 50,000 7.1 yrs. $.47 30,000 $.47
$.50 1,000,000 5.9 yrs. $.50 - -
$.97 100,000 9.8 yrs. $.97 - -
$.28-$.97 2,198,295 4.1 to 9.8 yrs. $.42 1,072,531 $.29
8. Employee Benefit Plans
On December 10, 1985, the Companys Board of Directors adopted a
Simplified Employee Pension Plan (SEP). The Company intends to
make a determination of contributions under the SEP on an annual
basis, based upon review by the Board of Directors of the Companys
financial statements as of its fiscal year end. The Company has
not yet determined any contributions to the SEP for the year ended
December 31, 1997. For 1996, the Company made a contribution of
15% which was paid during 1997 in the aggregate amount of $74,400.
Under the SEP, the Company has the option of contributing a certain
amount directly to its employees Individual Retirement Accounts.
The Plan covers all employees of the Company with certain
participation requirements, however the Company is not required to
make any contributions in a given year.
If contributions are made, they must be made to all eligible
employees. Contributions made under the SEP in any one calendar
year for any one employee may not be more than the smaller of
$24,000 or 15% of that employees total compensation.
9. Lease Commitments and Contingencies
The Company has leased office space and equipment and vehicles
under noncancelable operating leases which expire through October,
2001. Future minimum lease payments as of December 31, 1997 are as
follows:
1998 $70,000
1999 61,300
2000 50,700
2001 3,400
$185,400
Rent expense during the years ended December 31, 1997 and 1996 on
all operating leases was approximately $75,700 and $73,000,
respectively. See Note 5 for potential environmental liability.
10. Statements of Cash Flows
The Companys statement of cash flows for the two year periods ended
December 31, 1997 excludes the following non-cash investing and
financing activities:
1997 1996
Exchange of shares of Gold Capital
for shares of Globex common stock $1,990,429 $-
Satisfaction of dividend receivable
by investment in Gold Capital
common stock. $- $247,500
Exercise of stock options with
shares representing exercise
price retained and canceled $- $18,000
Investment in Gold Capital Preferred
Stock converted into investment in
Gold Capital Common Stock $- $3,000,000
Satisfaction of accounts receivable
into Gold Capital Common Stock $- $262,029
11. Related Party Transactions
Effective September 13, 1996, the Company retained the firm of
Moyes Newby & Co., Inc. (Moyes Newby) as its financial advisor to
develop potential financial options available to the Company and
identify possible mining investment opportunities. Effective
January 16, 1997, the relationship with Moyes Newby was suspended
to allow the Company to focus its attention on the merger of its
partner at Project Joint Venture, Gold Capital, with Globex which
merger was consummated August 29, 1997. The Company paid Moyes
Newby an aggregate of $17,330 and $20,402 for services and expenses
for 1996 and through January 16, 1997, respectively, under that
arrangement. Effective November 15, 1997, the Company and Moyes
Newby entered into a month-to-month arrangement whereby Moyes Newby
provides the Company general corporate and financial advisory
services for a retainer of $5,000/month plus reimbursement of
reasonable out of pocket expenses, for a total of $13,625 through
December 31, 1997. Douglas J. Newby is managing partner of Moyes
Newby and effective October 16, 1997, Mr. Newby became a director
of the Company.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS on
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
The information required by this Part III is incorporated by
reference to the Companys definitive proxy statement to be filed
with the U.S. Securities and Exchange Commission within 120 days
after December 31, 1997.
ITEM 13.EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3.0 Companys Articles of Incorporation, as Amended June 22,
1988, July 5, 1988, and December 20, 1991 (incorporated by
reference from the Report on Form 10-KSB dated December 31, 1995,
Exhibit 3.0).
3.1 Companys Bylaws, as Amended June 22, 1988 (incorporated by
reference from the Report on Form 10-KSB dated December 31, 1995,
Exhibit 3.1).
10.1 Royalty Purchase and Restructuring Agreement dated February
21, 1992, by and between U.S. Gold Corporation and NERCO Minerals
Company (incorporated by reference from the Report on Form 8-K
dated February 21, 1992, Exhibit 1).
10.2 Agreement To Pay Distributions dated February 21, 1992, by
and between Tonkin Springs Gold Mining Company and French American
Banking Corporation (incorporated by reference from the Report on
Form 8-K dated February 21, 1992, Exhibit 4).
10.3 Amended and Restated Non-Qualified Stock Option and Stock
Grant Plan, as amended effective December 8, 1993 (incorporated by
reference from the Report on Form 10-KSB for the year ended
December 31, 1993, Exhibit 10.14).
10.4 Purchase and Sales Agreement dated December 31, 1993, by and
between Tonkin Springs Venture Limited Partnership and Gold Capital
Corporation (incorporated by reference from the Report on Form 8-K
dated December 31, 1993, Exhibit 10.1).
10.5 Mining Venture Agreement dated December 31, 1993, by and
between Tonkin Springs Venture Limited Partnership and Gold Capital
Corporation (incorporated by reference from the Report on Form 8-K
dated December 31, 1993, Exhibit 10.5).
10.6 Amendment to Mining Venture Agreement dated effective August
29, 1997, by and between Tonkin Springs Venture Limited Partnership
and Gold Capital Corporation (incorporated by reference to the
Report on Form 10-QSB dated September 30, 1997, Exhibit 6.a).
10.7 Amended Employment Agreement with William W. Reid dated June
1, 1995 (Incorporated by reference from the Report on Form 10-QSB
for the period ended September 30, 1995, Exhibit 10.1).
10.8 Amended Employment Agreement with William F. Pass dated June
1, 1995 (Incorporated by reference from the Report on Form 10-QSB
for the period ended September 30, 1995, Exhibit 10.2).
10.9 Amended Employment Agreement with David C. Reid dated June
1, 1995 (Incorporated by reference from the Report on Form 10-QSB
for the period ended September 30, 1995, Exhibit 10.3).
*10.10 Stock Option Agreement dated October 1, 1997 with William
W. Reid related to option to purchase shares of common stock of
Globex Mining Enterprises, Inc. from the Company.
*10.11 Stock Option Agreement dated October 1, 1997 with William
F. Pass related to option to purchase shares of common stock of
Globex Mining Enterprises, Inc. from the Company.
*10.12 Stock Option Agreement dated October 1, 1997 with David C.
Reid related to option to purchase shares of common stock of Globex
Mining Enterprises, Inc. from the Company.
*10.13 Stock Option Agreement dated October 1, 1997 with John W.
Goth related to option to purchase shares of common stock of Globex
Mining Enterprises, Inc. from the Company.
*10.14 Letter Agreement dated August 29, 1997, by and between the
Company and Globex Mining Enterprises Inc. related to first right
of refusal for sale of Globex stock and agreement to vote shares of
Globex as directed by Globex.
21. Subsidiaries of the Company (incorporated by reference from
the Report on Form 10-KSB for the year ended December 31, 1993,
Exhibit 21).
*23.1 Consent of BDO Siedman, LLP, to the incorporation by
reference of their audit report dated February 27, 1998, in the
Companys Form S-8.
*27 Financial Data Schedule
*Filed herewith.
(b) Reports on Form 8-K during the 4th quarter of 1997.
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934,
the Company caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
U.S. GOLD CORPORATION
February 26, 1998
By /s/ William W. Reid
William W. Reid, President and Chief Executive Officer
February 26, 1998
By /s/ William F. Pass
William F. Pass, Vice President, Chief Financial Officer
and Secretary
In accordance with the Exchange Act, this Report has been signed
below by the following persons on behalf of the Company and in the
capacities and on the dates indicated.
February 26, 1998
By /s/ William W. Reid
William W. Reid, Chairman of the Board of Directors
February 26, 1998
By /s/ David C. Reid
David C. Reid, Exploration Vice President and Director
February 26, 1998
By /s/ John W. Goth
John W. Goth, Director
February 26, 1998
By /s/ Douglas J. Newby
Douglas J. Newby, Director
<PAGE>
Exhibit 10.10 Stock Option Agreement dated October 1, 1997 with
William W. Reid related to option to purchase shares of common
stock of Globex Mining Enterprises, Inc. from the Company.
U.S. GOLD CORPORATION
PURCHASE OPTION AGREEMENT
FOR COMMON STOCK OF
GLOBEX MINING ENTERPRISES INC.
THIS PURCHASE OPTION AGREEMENT (the Agreement) is made and entered
into as of October 1, 1997 (the Date of Grant), by and between U.S.
Gold Corporation, a Colorado corporation (the Company), and William
W. Reid (the Optionee).
WITNESSETH:
WHEREAS, the Company holds certain common stock of Globex Mining
Enterprises Inc., a publicly traded Quebec, Canadian corporation
(Globex); and
WHEREAS, Gold Capital Corporation (Gold Capital) was merged into
Globex effective August 29, 1997, whereby Globex acquired control
of the interest of Gold Capital in the Tonkin Springs project; and
WHEREAS, the Company and Globex have joint ownership in the Tonkin
Springs project, the successful operation of which is significant
and integral to the business objectives of the Company; and
WHEREAS, the contribution of the Optionee to the business
objectives of the Company, with emphasis at Tonkin Springs is
acknowledged, and continued significant contributions by the
Optionee is considered important to the future business objectives
of the Company; and
WHEREAS, effective June 1, 1995 the Optionee was granted an option
by the Company to purchase certain shares of Gold Capital (the 1995
Option); and
WHEREAS, the Optionee and the Company have mutually agreed to
terminate the 1995 Option; and
WHEREAS, on October 1, 1997, the Board of Directors determined that
the Optionee should receive an option to purchase directly from the
Company, subsidiaries of the Company, or Tonkin Springs Venture
Limited Partnership (the Related Entities) certain shares of common
stock of Globex in order to provided the Optionee with an
opportunity for investment in the Tonkin Springs project and
additional incentive to pursue the success of the Company, said
option to be for the number of shares, at the price per share and
on the terms set forth in this Agreement; and
WHEREAS, Optionee desires to receive an option on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Grant of Option. The Company hereby grants to Optionee, as a
matter of separate agreement and not in lieu of salary or any other
compensation for service, the right and option (the Option) to
purchase all or any part of an aggregate of 55,280 shares of common
stock of Globex held now or in the future by the Company or Related
Parties (the Option Shares) pursuant to the terms and conditions
set forth in this Agreement.
2. Option Price. At any time when shares are to be purchased
pursuant to the Option, the purchase price for each Option Share
shall be $3.15 (the Option Price).
3. Option Period. The Option period shall commence as of the Date
of Grant and shall terminate five years from the Date of Grant,
unless terminated earlier as provided in this Agreement. If an
Optionee, for any reason, other than the Optionees death, ceases to
be employed by, a consultant for, or a director of, either the
Company or Related Entities, any Option held by the Optionee at the
time he ceases to be an employee, consultant or director may be
exercised within 90 days after the date of such cessation, but only
to the extent that the Option was exercisable according to its
terms on the date of such cessation. After such 90-day period, any
unexercised portion of an Option shall expire. Any Option held by
an Optionee at the time of his death may be exercised by his
estate, subject to any limitation otherwise applicable to such
Option, only within six months of his death or such longer period
as the Board of Directors of the Company may determine.
4. Exercise of Option.
(a) The Option may be exercised by delivering to the Company:
(i) a Notice of Exercise of Option, substantially in the form
attached hereto as Exhibit A, specifying the number of Option
Shares with respect to which the Option is exercised, and
(ii) full payment of the Option Price for such shares in cash.
(b) Promptly upon receipt of the Notice of Exercise and the full
payment of the Option Price by the Optionee (including payment or
provision for payment of any applicable withholding or similar
taxes, if any), the Company shall take action to arrange for
delivery to the Optionee a properly executed certificate
representing the Option Shares being purchased.
5. Securities Laws Requirements. No Option Shares shall be issued
unless and until, in the opinion of the Company, any applicable
registration requirements or listing requirements of any securities
exchange on which stock of the same class is listed, and any other
requirements of law or any regulatory bodies having jurisdiction
over such issuance and delivery have been fully complied with.
6. Transferability of Option. The Option shall not be
transferable except by will or the laws of descent and
distribution, and any attempt to do so shall void the Option.
7. Adjustment By Stock Split, Stock Dividend, Etc. If at any time
Globex changes in any way the rights and privileges of its common
shares, by means of the payment of a stock dividend or the making
of any other distribution on such shares payable in its common
stock, or through a stock split or subdivision of shares, or a
consolidation or combination of shares, or through a
reclassification or recapitalization involving its common stock,
the numbers, rights, and privileges of the shares of common stock
included in the Option shall be increased, decreased or changed in
like manner as if such shares had been issued and outstanding,
fully paid and nonassessable at the time of such occurrence.
8. Privilege of Ownership. Optionee shall not have any of the
rights of a shareholder with respect to the shares covered by the
Option except to the extent that one or more certificates for such
shares shall be delivered to him upon exercise of the Option.
9. Notices. Any notices required or permitted to be given under
this Agreement shall be in writing and they shall be deemed to be
given upon receipt by sender of senders return receipt for
acknowledgement of delivery of said notice by postage prepaid
registered mail. Such notice shall be addressed to the party to be
notified as shown below:
Company; U.S. Gold Corporation
55 Madison, Suite 700
Denver, Colorado 80206
Optionee: At the address listed below his name on the last page of
this Agreement.
Any party may change its address for purposes of this paragraph by
giving the other parties written notice of the new address in the
manner set forth above.
10. General Provisions. This instrument: (a) contains the entire
agreement among the parties, (b) may not be amended nor may any
rights hereunder be waived except by an instrument in writing
signed by the parties sought to be charged with such amendment or
waiver, (c) shall be constructed in accordance with, and governed
by, the laws of the State of Colorado, and (d) shall be binding
upon and shall inure to the benefit of the parties and their
respective personal representatives and assigns, except as above
set forth.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
dates set forth below, to be effective as of the date and year
first above written.
U.S. GOLD CORPORATION
Date: September 30, 1997
By: William F. Pass
William F. Pass, Vice President, Chief Financial Officer
and Secretary
OPTIONEE:
Date:September 30, 1997
By: William W. Reid
Name: William W. Reid
Address: 338 Clayton, #1
Denver, Colorado 80206
Exhibit 10.11 Stock Option Agreement dated October 1, 1997 with
William F. Pass related to option to purchase shares of common
stock of Globex Mining Enterprises, Inc. from the Company.
U.S. GOLD CORPORATION
PURCHASE OPTION AGREEMENT
FOR COMMON STOCK OF
GLOBEX MINING ENTERPRISES INC.
THIS PURCHASE OPTION AGREEMENT (the Agreement) is made and entered
into as of October 1, 1997 (the Date of Grant), by and between U.S.
Gold Corporation, a Colorado corporation (the Company), and William
F. Pass (the Optionee).
WITNESSETH:
WHEREAS, the Company holds certain common stock of Globex Mining
Enterprises Inc., a publicly traded Quebec, Canadian corporation
(Globex); and
WHEREAS, Gold Capital Corporation (Gold Capital) was merged into
Globex effective August 29, 1997, whereby Globex acquired control
of the interest of Gold Capital in the Tonkin Springs project; and
WHEREAS, the Company and Globex have joint ownership in the Tonkin
Springs project, the successful operation of which is significant
and integral to the business objectives of the Company; and
WHEREAS, the contribution of the Optionee to the business
objectives of the Company, with emphasis at Tonkin Springs is
acknowledged, and continued significant contributions by the
Optionee is considered important to the future business objectives
of the Company; and
WHEREAS, effective June 1, 1995 the Optionee was granted an option
by the Company to purchase certain shares of Gold Capital (the 1995
Option); and
WHEREAS, the Optionee and the Company have mutually agreed to
terminate the 1995 Option; and
WHEREAS, on October 1, 1997, the Board of Directors determined that
the Optionee should receive an option to purchase directly from the
Company, subsidiaries of the Company, or Tonkin Springs Venture
Limited Partnership (the Related Entities) certain shares of common
stock of Globex in order to provided the Optionee with an
opportunity for investment in the Tonkin Springs project and
additional incentive to pursue the success of the Company, said
option to be for the number of shares, at the price per share and
on the terms set forth in this Agreement; and
WHEREAS, Optionee desires to receive an option on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Grant of Option. The Company hereby grants to Optionee, as a
matter of separate agreement and not in lieu of salary or any other
compensation for service, the right and option (the Option) to
purchase all or any part of an aggregate of 27,640 shares of common
stock of Globex held now or in the future by the Company or Related
Parties (the Option Shares) pursuant to the terms and conditions
set forth in this Agreement.
2. Option Price. At any time when shares are to be purchased
pursuant to the Option, the purchase price for each Option Share
shall be $3.15 (the Option Price).
3. Option Period. The Option period shall commence as of the Date
of Grant and shall terminate five years from the Date of Grant,
unless terminated earlier as provided in this Agreement. If an
Optionee, for any reason, other than the Optionees death, ceases to
be employed by, a consultant for, or a director of, either the
Company or Related Entities, any Option held by the Optionee at the
time he ceases to be an employee, consultant or director may be
exercised within 90 days after the date of such cessation, but only
to the extent that the Option was exercisable according to its
terms on the date of such cessation. After such 90-day period, any
unexercised portion of an Option shall expire. Any Option held by
an Optionee at the time of his death may be exercised by his
estate, subject to any limitation otherwise applicable to such
Option, only within six months of his death or such longer period
as the Board of Directors of the Company may determine.
4. Exercise of Option.
(a) The Option may be exercised by delivering to the Company:
(i) a Notice of Exercise of Option, substantially in the form
attached hereto as Exhibit A, specifying the number of Option
Shares with respect to which the Option is exercised, and
(iv) full payment of the Option Price for such shares in cash.
(d) Promptly upon receipt of the Notice of Exercise and the full
payment of the Option Price by the Optionee (including payment or
provision for payment of any applicable withholding or similar
taxes, if any), the Company shall take action to arrange for
delivery to the Optionee a properly executed certificate
representing the Option Shares being purchased.
5. Securities Laws Requirements. No Option Shares shall be issued
unless and until, in the opinion of the Company, any applicable
registration requirements or listing requirements of any securities
exchange on which stock of the same class is listed, and any other
requirements of law or any regulatory bodies having jurisdiction
over such issuance and delivery have been fully complied with.
6. Transferability of Option. The Option shall not be
transferable except by will or the laws of descent and
distribution, and any attempt to do so shall void the Option.
7. Adjustment By Stock Split, Stock Dividend, Etc. If at any time
Globex changes in any way the rights and privileges of its common
shares, by means of the payment of a stock dividend or the making
of any other distribution on such shares payable in its common
stock, or through a stock split or subdivision of shares, or a
consolidation or combination of shares, or through a
reclassification or recapitalization involving its common stock,
the numbers, rights, and privileges of the shares of common stock
included in the Option shall be increased, decreased or changed in
like manner as if such shares had been issued and outstanding,
fully paid and nonassessable at the time of such occurrence.
8. Privilege of Ownership. Optionee shall not have any of the
rights of a shareholder with respect to the shares covered by the
Option except to the extent that one or more certificates for such
shares shall be delivered to him upon exercise of the Option.
9. Notices. Any notices required or permitted to be given under
this Agreement shall be in writing and they shall be deemed to be
given upon receipt by sender of senders return receipt for
acknowledgement of delivery of said notice by postage prepaid
registered mail. Such notice shall be addressed to the party to be
notified as shown below:
Company; U.S. Gold Corporation
55 Madison, Suite 700
Denver, Colorado 80206
Optionee: At the address listed below his name on the last page
of this Agreement.
Any party may change its address for purposes of this paragraph by
giving the other parties written notice of the new address in the
manner set forth above.
10. General Provisions. This instrument: (a) contains the entire
agreement among the parties, (b) may not be amended nor may any
rights hereunder be waived except by an instrument in writing
signed by the parties sought to be charged with such amendment or
waiver, (c) shall be constructed in accordance with, and governed
by, the laws of the State of Colorado, and (d) shall be binding
upon and shall inure to the benefit of the parties and their
respective personal representatives and assigns, except as above
set forth.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
dates set forth below, to be effective as of the date and year
first above written.
U.S. GOLD CORPORATION
October 1, 1997
By: William W. Reid
William W. Reid, President, CEO and Chairman of the Board of
Directors
OPTIONEE:
Date: October 1, 1997
By: William F. Pass
Name: William F. Pass
Address: 14820 W. 58th Pl.
Golden, Colorado 80403
Exhibit 10.12 Stock Option Agreement dated October 1, 1997 with
David C. Reid related to option to purchase shares of common stock
of Globex Mining Enterprises, Inc. from the Company.
U.S. GOLD CORPORATION
PURCHASE OPTION AGREEMENT
FOR COMMON STOCK OF
GLOBEX MINING ENTERPRISES INC.
THIS PURCHASE OPTION AGREEMENT (the Agreement) is made and entered
into as of October 1, 1997 (the Date of Grant), by and between U.S.
Gold Corporation, a Colorado corporation (the Company), and David
C. Reid (the Optionee).
WITNESSETH:
WHEREAS, the Company holds certain common stock of Globex Mining
Enterprises Inc., a publicly traded Quebec, Canadian corporation
(Globex); and
WHEREAS, Gold Capital Corporation (Gold Capital) was merged into
Globex effective August 29, 1997, whereby Globex acquired control
of the interest of Gold Capital in the Tonkin Springs project; and
WHEREAS, the Company and Globex have joint ownership in the Tonkin
Springs project, the successful operation of which is significant
and integral to the business objectives of the Company; and
WHEREAS, the contribution of the Optionee to the business
objectives of the Company, with emphasis at Tonkin Springs is
acknowledged, and continued significant contributions by the
Optionee is considered important to the future business objectives
of the Company; and
WHEREAS, effective June 1, 1995 the Optionee was granted an option
by the Company to purchase certain shares of Gold Capital (the 1995
Option); and
WHEREAS, the Optionee and the Company have mutually agreed to
terminate the 1995 Option; and
WHEREAS, on October 1, 1997, the Board of Directors determined that
the Optionee should receive an option to purchase directly from the
Company, subsidiaries of the Company, or Tonkin Springs Venture
Limited Partnership (the Related Entities) certain shares of common
stock of Globex in order to provided the Optionee with an
opportunity for investment in the Tonkin Springs project and
additional incentive to pursue the success of the Company, said
option to be for the number of shares, at the price per share and
on the terms set forth in this Agreement; and
WHEREAS, Optionee desires to receive an option on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Grant of Option. The Company hereby grants to Optionee, as a
matter of separate agreement and not in lieu of salary or any other
compensation for service, the right and option (the Option) to
purchase all or any part of an aggregate of 27,640 shares of common
stock of Globex held now or in the future by the Company or Related
Parties (the Option Shares) pursuant to the terms and conditions
set forth in this Agreement.
2. Option Price. At any time when shares are to be purchased
pursuant to the Option, the purchase price for each Option Share
shall be $3.15 (the Option Price).
3. Option Period. The Option period shall commence as of the Date
of Grant and shall terminate five years from the Date of Grant,
unless terminated earlier as provided in this Agreement. If an
Optionee, for any reason, other than the Optionees death, ceases to
be employed by, a consultant for, or a director of, either the
Company or Related Entities, any Option held by the Optionee at the
time he ceases to be an employee, consultant or director may be
exercised within 90 days after the date of such cessation, but only
to the extent that the Option was exercisable according to its
terms on the date of such cessation. After such 90-day period, any
unexercised portion of an Option shall expire. Any Option held by
an Optionee at the time of his death may be exercised by his
estate, subject to any limitation otherwise applicable to such
Option, only within six months of his death or such longer period
as the Board of Directors of the Company may determine.
4. Exercise of Option.
(a) The Option may be exercised by delivering to the Company:
(i) a Notice of Exercise of Option, substantially in the form
attached hereto as Exhibit A, specifying the number of Option
Shares with respect to which the Option is exercised, and
(iii) full payment of the Option Price for such shares in cash.
(c) Promptly upon receipt of the Notice of Exercise and the full
payment of the Option Price by the Optionee (including payment or
provision for payment of any applicable withholding or similar
taxes, if any), the Company shall take action to arrange for
delivery to the Optionee a properly executed certificate
representing the Option Shares being purchased.
5. Securities Laws Requirements. No Option Shares shall be issued
unless and until, in the opinion of the Company, any applicable
registration requirements or listing requirements of any securities
exchange on which stock of the same class is listed, and any other
requirements of law or any regulatory bodies having jurisdiction
over such issuance and delivery have been fully complied with.
6. Transferability of Option. The Option shall not be
transferable except by will or the laws of descent and
distribution, and any attempt to do so shall void the Option.
7. Adjustment By Stock Split, Stock Dividend, Etc. If at any time
Globex changes in any way the rights and privileges of its common
shares, by means of the payment of a stock dividend or the making
of any other distribution on such shares payable in its common
stock, or through a stock split or subdivision of shares, or a
consolidation or combination of shares, or through a
reclassification or recapitalization involving its common stock,
the numbers, rights, and privileges of the shares of common stock
included in the Option shall be increased, decreased or changed in
like manner as if such shares had been issued and outstanding,
fully paid and nonassessable at the time of such occurrence.
8. Privilege of Ownership. Optionee shall not have any of the
rights of a shareholder with respect to the shares covered by the
Option except to the extent that one or more certificates for such
shares shall be delivered to him upon exercise of the Option.
9. Notices. Any notices required or permitted to be given under
this Agreement shall be in writing and they shall be deemed to be
given upon receipt by sender of senders return receipt for
acknowledgement of delivery of said notice by postage prepaid
registered mail. Such notice shall be addressed to the party to be
notified as shown below:
Company; U.S. Gold Corporation
55 Madison, Suite 700
Denver, Colorado 80206
Optionee: At the address listed below his name on the last page
of this Agreement.
Any party may change its address for purposes of this paragraph by
giving the other parties written notice of the new address in the
manner set forth above.
10. General Provisions. This instrument: (a) contains the entire
agreement among the parties, (b) may not be amended nor may any
rights hereunder be waived except by an instrument in writing
signed by the parties sought to be charged with such amendment or
waiver, (c) shall be constructed in accordance with, and governed
by, the laws of the State of Colorado, and (d) shall be binding
upon and shall inure to the benefit of the parties and their
respective personal representatives and assigns, except as above
set forth.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
dates set forth below, to be effective as of the date and year
first above written.
U.S. GOLD CORPORATION
Date: October 1, 1997
By: William W. Reid
William W. Reid, President, CEO and Chairman of the Board of
Directors
OPTIONEE:
Date: October 1, 1997
By: David C. Reid
Name: David C. Reid
Address: 9070 E. Jewell Circle
Denver, Colorado 80231
Exhibit 10.13 Stock Option Agreement dated October 1, 1997 with
John W. Goth related to option to purchase shares of common stock
of Globex Mining Enterprises, Inc. from the Company.
U.S. GOLD CORPORATION
PURCHASE OPTION AGREEMENT
FOR COMMON STOCK OF
GLOBEX MINING ENTERPRISES INC.
THIS PURCHASE OPTION AGREEMENT (the Agreement) is made and entered
into as of October 1, 1997 (the Date of Grant), by and between U.S.
Gold Corporation, a Colorado corporation (the Company), and John W.
Goth (the Optionee).
WITNESSETH:
WHEREAS, the Company holds certain common stock of Globex Mining
Enterprises Inc., a publicly traded Quebec, Canadian corporation
(Globex); and
WHEREAS, Gold Capital Corporation (Gold Capital) was merged into
Globex effective August 29, 1997, whereby Globex acquired control
of the interest of Gold Capital in the Tonkin Springs project; and
WHEREAS, the Company and Globex have joint ownership in the Tonkin
Springs project, the successful operation of which is significant
and integral to the business objectives of the Company; and
WHEREAS, the contribution of the Optionee to the business
objectives of the Company, with emphasis at Tonkin Springs is
acknowledged, and continued significant contributions by the
Optionee is considered important to the future business objectives
of the Company; and
WHEREAS, effective June 1, 1995 the Optionee was granted an option
by the Company to purchase certain shares of Gold Capital (the 1995
Option); and
WHEREAS, the Optionee and the Company have mutually agreed to
terminate the 1995 Option; and
WHEREAS, on October 1, 1997, the Board of Directors determined that
the Optionee should receive an option to purchase directly from the
Company, subsidiaries of the Company, or Tonkin Springs Venture
Limited Partnership (the Related Entities) certain shares of common
stock of Globex in order to provided the Optionee with an
opportunity for investment in the Tonkin Springs project and
additional incentive to pursue the success of the Company, said
option to be for the number of shares, at the price per share and
on the terms set forth in this Agreement; and
WHEREAS, Optionee desires to receive an option on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Grant of Option. The Company hereby grants to Optionee, as a
matter of separate agreement and not in lieu of salary or any other
compensation for service, the right and option (the Option) to
purchase all or any part of an aggregate of 13,820 shares of common
stock of Globex held now or in the future by the Company or Related
Parties (the Option Shares) pursuant to the terms and conditions
set forth in this Agreement.
2. Option Price. At any time when shares are to be purchased
pursuant to the Option, the purchase price for each Option Share
shall be $3.15 (the Option Price).
3. Option Period. The Option period shall commence as of the Date
of Grant and shall terminate five years from the Date of Grant,
unless terminated earlier as provided in this Agreement. If an
Optionee, for any reason, other than the Optionees death, ceases to
be employed by, a consultant for, or a director of, either the
Company or Related Entities, any Option held by the Optionee at the
time he ceases to be an employee, consultant or director may be
exercised within 90 days after the date of such cessation, but only
to the extent that the Option was exercisable according to its
terms on the date of such cessation. After such 90-day period, any
unexercised portion of an Option shall expire. Any Option held by
an Optionee at the time of his death may be exercised by his
estate, subject to any limitation otherwise applicable to such
Option, only within six months of his death or such longer period
as the Board of Directors of the Company may determine.
4. Exercise of Option.
(a) The Option may be exercised by delivering to the Company:
(i) a Notice of Exercise of Option, substantially in the form
attached hereto as Exhibit A, specifying the number of Option
Shares with respect to which the Option is exercised, and
(v) full payment of the Option Price for such shares in cash.
(e) Promptly upon receipt of the Notice of Exercise and the full
payment of the Option Price by the Optionee (including payment or
provision for payment of any applicable withholding or similar
taxes, if any), the Company shall take action to arrange for
delivery to the Optionee a properly executed certificate
representing the Option Shares being purchased.
5. Securities Laws Requirements. No Option Shares shall be issued
unless and until, in the opinion of the Company, any applicable
registration requirements or listing requirements of any securities
exchange on which stock of the same class is listed, and any other
requirements of law or any regulatory bodies having jurisdiction
over such issuance and delivery have been fully complied with.
6. Transferability of Option. The Option shall not be
transferable except by will or the laws of descent and
distribution, and any attempt to do so shall void the Option.
7. Adjustment By Stock Split, Stock Dividend, Etc. If at any time
Globex changes in any way the rights and privileges of its common
shares, by means of the payment of a stock dividend or the making
of any other distribution on such shares payable in its common
stock, or through a stock split or subdivision of shares, or a
consolidation or combination of shares, or through a
reclassification or recapitalization involving its common stock,
the numbers, rights, and privileges of the shares of common stock
included in the Option shall be increased, decreased or changed in
like manner as if such shares had been issued and outstanding,
fully paid and nonassessable at the time of such occurrence.
8. Privilege of Ownership. Optionee shall not have any of the
rights of a shareholder with respect to the shares covered by the
Option except to the extent that one or more certificates for such
shares shall be delivered to him upon exercise of the Option.
9. Notices. Any notices required or permitted to be given under
this Agreement shall be in writing and they shall be deemed to be
given upon receipt by sender of senders return receipt for
acknowledgement of delivery of said notice by postage prepaid
registered mail. Such notice shall be addressed to the party to be
notified as shown below:
Company; U.S. Gold Corporation
55 Madison, Suite 700
Denver, Colorado 80206
Optionee: At the address listed below his name on the last page
of this Agreement.
Any party may change its address for purposes of this paragraph by
giving the other parties written notice of the new address in the
manner set forth above.
10. General Provisions. This instrument: (a) contains the entire
agreement among the parties, (b) may not be amended nor may any
rights hereunder be waived except by an instrument in writing
signed by the parties sought to be charged with such amendment or
waiver, (c) shall be constructed in accordance with, and governed
by, the laws of the State of Colorado, and (d) shall be binding
upon and shall inure to the benefit of the parties and their
respective personal representatives and assigns, except as above
set forth.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
dates set forth below, to be effective as of the date and year
first above written.
U.S. GOLD CORPORATION
Date: October 1, 1997
By: William W. Reid
William W. Reid, President, CEO and Chairman of the Board of
Directors
OPTIONEE:
Date: October 1, 1997
By: John W. Goth
Name: John W. Goth
Address: 14142 Denver West Parkway, Suite 170
Golden, Colorado 80401
Exhibit 10.14 Letter Agreement dated August 29, 1997, by and
between the Company and Globex Mining Enterprises Inc. related to
first right of refusal for sale of Globex stock and agreement to
vote shares of Globex as directed by Globex.
August 29, 1997
U.S. Gold Corporation
55 Madison, Suite 700
Denver, Colorado 80206
Attn: William W. Reid
Gentlemen:
This letter is to set forth the agreement regarding the grant
of an irrevocable proxy and right of first refusal between Globex
Mining Enterprises Inc. (Globex) and U.S. Gold Corporation (US
Gold).
In consideration of the mutual agreements contained herein,
the receipt by US Gold of 542 shares of Globex Common Stock, and
other good and valuable consideration, the receipt and sufficiency
thereof is hereby acknowledged, the parties agree as follows:
1. US Gold hereby agrees, for a period of two (2) years from the
date hereof to vote all shares of Globex Stock beneficially owned
by US Gold (the Globex Shares) in the exact manner specified by
Globex, or, at the sole election of Globex, to grant to Globex a
duly executed irrevocably proxy with respect to the Globex shares
in accordance with C.R.S. Section 7-107-203(5), in the form
attached as Appendix A hereto.
2. US Gold hereby grants to Globex, or any officer, director,
subsidiary or other affiliate thereof, a first right of refusal
with respect to sales of the Globex Shares by US Gold to third-
party non-affiliates, for a period of two (2) years from the date
hereof as provided herein (First Right of Refusal).
i. US Gold will give Globex written notice of US Golds intention
to sell (or deliver in satisfaction of debt) any of the Globex
Shares beneficially owned directly or indirectly by US Gold to any
person, except for an Affiliate, as hereinafter defined, such
written notice to provide in reasonable detail, the terms,
conditions and timing of such intended sale (or delivery) provided
that a written notice from US Gold to the effect that a prescribed
number of shares will be sold at the prevailing market price shall
constitute a valid Sales Notice (Sales Notice). An Affiliate of US
Gold is defined as any entity in which US Gold directly or
indirectly owns a greater than 50 percent interest.
ii. Globex will have 5 business days from receipt of the Sales
Notice to give US Gold written notice of Globexs irrevocable
election to exercise its rights to purchase the sharers covered by
the Sales Notice under terms and conditions no less favorable to US
Gold than those included in the Sales Notice.
iii. If Globex has not given notice to US Gold of its irrevocable
intent to exercise its rights as provided in (ii) and within the
required time frame specified above, Globex shall relinquish any
First Right of Refusual related specifically to those shares
included int he Sales Notice, unless such sale(s) are not
consummated by US Gold within 30 days of the date of the Sales
Notice.
iv. Any election by Globex not to exercise its First Right of
Refusual as related to any Sales Notice shall not change or
diminish Globexs right under this agreement as related to
subsequent Sales Notice.
v. US Gold may sell or transfer any of the Globex Shares which it
beneficially owns directly or indirectly to an Affiliate provided
that such Affiliate agrees in writing to be bound by the terms of
this agreement.
3. Remedies. The parties hereto agree that if for any reason
Globex or US Gold shall have failed to perform its obligations
under this agreement, then any party hereto seeking to enforce this
agreement against such non-performing party shall be entitled to
seek specific performance and injunctive and other equitable
relief, and the parties hereto further agree to waive any
requirement for the securing or posting of any bond in connection
with the obtaining of any such injunctive or other equitable
relief. This provision is without prejudice to any other rights
that either party hereto may have against the other party hereto
for any failure to perform its obligation under this Agreement.
4. Notices. All notices or other communications required or
permitted hereunder shall be in writing (except as otherwise
provided here) and shall be deemed duly given when received by
delivery in person, by telecopy, telex or telegram or by certified
mail, postage prepaid, or by an overnight courier service,
addressed as follows:
If to Globex: 146-14th Street
Rouyn-Noranda, Quebec, Canada
Attn: Jack Stoch, Chief Executive Officer
with copies to:
Davis, Graham & Stubbs LLP
370 17th Street, Suite 4700
Denver, Colorado 80202
Attn. Paul Hilton, Esq.
If to US Gold: U.S. Gold Corporation
55 Madison, Suite 700
Denver, Colorado 80206
Attn. William W. Reid
5. Governing Law. This agreement, and all matters relating
hereto, shall be governed by, and construed in accordance with the
laws of the State of Colorado without giving effect to the
principles of conflicts of laws thereof.
6. Counterparts. This agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original
and all of which together shall constitute one and the same
document.
7. Severability. Any term or provision of this agreement which
is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this agreement or affecting the
validity or enforceability of any of the terms or provisions of
this agreement in any other jurisdiction. If any provision of this
agreement is so broad as to be unenforceable such provision shall
be interpreted to be only so broad as is enforceable.
8. Third Party Beneficiaries. Nothing in this agreement,
expressed or implied, shall be construed to give any person other
than the parties hereto any legal or equitable right, remedy or
claim under or by reason of this Agreement or any provision
contained herein.
If the Foregoing is acceptable to you, please sign the space
provided below.
Globex Mining Enterprises Inc.
By: Joel D. Schneyer
Joel D. Schneyer, Director
U.S. Gold Corporation
By: William W. Reid
William W. Reid, President
Exhibit 23.1 Consent of BDO Siedman, LLP, to the incorporation by
reference of their report dated February 27, 1998 in the Companys
Form S-8.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement of U.S. Gold Corporation on Form S-8, File No. 33-47460
of our report dated February 16, 1998, on our audit of the
consolidated financial statements of U.S. Gold Corporation as of
December 31, 1997 and for the two years then ended, which report in
included in the Annual Report on Form 10-KSB
BDO Siedman, LLP
Certified Public Accountants
February 27, 1998
Denver, Colorado
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THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE 1997 FORM 10-KSB
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