FORM 10-QSB
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from to
Commission file number 0-9137
U.S. GOLD CORPORATION
(Exact name of small business issuer as specified in its charter)
COLORADO 84-0796160
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2201 Kipling Street, Suite 100
Lakewood, Colorado 80215-1545
(Address of principal executive offices)
(303) 238-1438
(Issuers telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practicable date:
Class Outstanding as of May 10, 1999
Common Stock, $0.10 par value 13,927,469
U.S. GOLD CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS March 31, 1999
Current assets:
Cash and cash equivalents $12,923
Project payments receivable 540,000
Total current assets 552,923
Project payments receivable 945,000
Investment in Tonkin Springs LLC 2,262,578
Marketable securities, Globex
common stock at market 52,659
Other assets, net 80,950
$3,894,110
LIABILITIES, DEFERRED CREDIT AND
SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable and accrued liabilities $68,943
Installment purchase contracts 9,994
Related party payables 114,573
193,510
Installment purchase contracts, long term 41,078
Deferred credit, project payments 1,485,000
Reserve for reclamation 640,000
Total liabilities and deferred credit 2,359,588
Shareholders equity:
Common stock, $.10 par value, 18,000,000
shares authorized; 13,927,469 shares
issued and outstanding 1,392,747
Additional paid-in capital 31,969,459
Accumulated deficit (31,827,684)
Total shareholders equity 1,543,522
$3,894,110
See accompanying notes to consolidated financial statements.
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1999 and 1998
(Unaudited)
March 31, 1999 March 31, 1998
Project payments $235,000 $-
Interest income 26 5,713
Loss on disposition of assets (7,092) -
227,834 5,713
Costs and expenses:
General and administrative 215,833 241,051
Depreciation, depletion and
amortization 4,237 3,070
Total expense 220,070 244,121
Income (loss) before income taxes 7,764 (238,408)
Provision for income taxes - -
Net income (loss) $7,764 $(238,408)
Basic and diluted per share data:
Basic $0.00 $(0.02)
Diluted $0.00 $(0.02)
Weighted average shares outstanding 13,927,469 13,927,469
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended March 31, 1999 and 1998
(unaudited)
March 31, 1999 March 31, 1998
Net income (loss) $7,764 $(238,408)
Comprehensive item- unrealized
loss on securities available for sale - (1,143,676)
Comprehensive income (loss) $7,764 $(1,382,084)
See accompanying notes to consolidated financial statements.
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1999 and 1998
(unaudited)
March 31, 1999 March 31, 1998
Cash flows from operating activities:
Interest received $26 $5,713
Project payments 235,000 -
Cash paid to suppliers and employees (232,358) (235,041)
Cash provided by (used in)
operating activities 3,668 (229,328)
Cash flows from investing activities:
Sale of marketable securities 10,485 -
Capital expenditures (1,193) (3,530)
Cash provided by (used in)
investing activities 9,292 (3,530)
Cash flows from financing activities:
Payments on installment purchase
contracts (1,991) -
Cash provided by (used in)
financing activities (1,991) -
Increase (decrease) in cash
and cash equivalents 10,969 (232,858)
Cash and cash equivalents,
beginning of period 1,954 615,999
Cash and cash equivalents,
end of period $12,923 $383,141
Reconciliation of net income to cash used in operating activities:
Net income (loss) $7,764 $(238,408)
Items not requiring (providing) cash:
Loss on disposition of assets 7,778 -
Depreciation and amortization 4,237 3,070
Increase (decrease) in current
liabilities related to operations (6,224) 14,966
Decrease (increase) in other assets,
long term (9,887) (8,956)
Cash provided by (used in) operating
activities $3,668 $(229,328)
See accompanying notes to consolidated financial statements.
U.S. GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, as well as the accounts of the wholly-owned
Tonkin Springs Venture Limited Partnership (TSVLP). Significant intercompany
accounts and transactions have been eliminated.
Basic per share data includes no dilution and is computed by dividing income or
(loss) available to common shareholders by the weighted-average number of shares
outstanding during the period (13,927,469 for 1999 and for 1998). Diluted per
share data reflect the potential dilution of securities that could share in the
earnings of the Company, similar to fully diluted earnings per share. For the
three months ended March 31, 1999 and 1998, options are not considered in the
computation of diluted per share data since options outstanding in the 1999
period were priced above the average share price and inclusion of options for
the 1998 period would be antidilutive.
The preparation of the Companys consolidated financial statements in conformity
with generally accepted accounting principles requires the Companys management
to make estimates and assumptions that affect the amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2. Tonkin Springs Project
From December 31, 1993 until February 26, 1999, TSVLP, a partnership owned by
subsidiaries of the Company, held a 40 percent undivided interest in the Tonkin
Springs Properties (the Properties) subject to a mining joint venture, the
Tonkin Springs Project Joint Venture as amended ( the 1993 Agreement) with Gold
Capital Corporation (Gold Capital) being the holder of 60 percent undivided
interest and project manager. In August 1997, Gold Capital became a wholly-
owned subsidiary of Globex Mining Enterprises, Inc. (Globex), a Canadian
corporation with shares traded on the Toronto stock exchange (symbol: GMX)
pursuant to the merger of Gold Capital with a subsidiary of Globex (the Gold
Capital Merger). With the Gold Capital Merger the Company and TSVLP received
an aggregate of 631,905 shares of Globex common stock in exchange for shares of
Gold Capital. During the three months ended March 31, 1999, the Company sold
100,000 shares of Globex for aggregate $10,485 recognizing a gain on the sale
of $586.
Effective February 26, 1999 (the Effective Date) TSVLP and Gold Capital
terminated the 1993 Agreement and each retained their respective 40 percent and
60 percent undivided interests in the Properties. Gold Capital then immediately
sold its 60 percent undivided interest in the Properties to Tonkin Springs
Holdings Inc., a Colorado corporation (TSHI) which is owned by subsidiaries of
Sudbury Contact Mines Limited, an Ontario, Canada corporation (Sudbury)
(SUD:TSE), which is itself a subsidiary of Agnico-Eagle Mines Limited, an
Ontario, Canada corporation (Agnico-Eagle) (AME:NYSE). TSHI then immediately
contributed its 60 percent undivided interest in the Properties into a new
limited liability company, Tonkin Springs LLC (TSLLC) in exchange for 60 percent
of the equity membership interest of TSLLC, and TSVLP contributed its 40 percent
undivided interest in the Properties into TSLLC in exchange for 40 percent of
the equity membership interest of TSLLC. The deemed amount of the Initial
Contribution of TSVLP to TSLLC is $2 million and for TSHI the Initial
Contribution to TSLLC is $3 million. The objective of TSLLC is the exploration,
evaluation and, if justified, the development and mining of mineral resources
in the Properties.
Under the Members Agreement and the Operating Agreement of the TSLLC, TSHI is
required to fund all costs related to the Properties, including all holding,
administrative, operational and exploration costs, until TSHI has first
expended $4 million on exploration of the Properties (the Cut-Off Date). All
expenditures funded by TSHI prior to the Cut-Off Date shall be added to TSHIs
Recoupable Amount which has as its opening balance the sum of $5,625,000, which
represented approximately one-half of the recoupment account balance of Gold
Capital under the 1993 Agreement as of the Effective Date. If TSHI should
withdraw from the TSLLC prior to Cut-Off, TSHI shall have no further right,
title or interest in the Properties of TSLLC and its ownership interest shall be
deemed transferred to TSVLP. In addition, TSHI shall remain obligated to
TSVLP: (i) to fund the remaining balance of the adopted Program and Budget in
effect upon termination, (ii) to complete its Minimum Work Commitment for
exploration of the Properties in the amount of $2 million, or pay to TSVLP the
deficiency, (iii) to pay any unpaid Monthly Minimum Payments to TSVLP (as
described further below) that are due and payable, and (iv) to fund and
satisfy all unfunded liabilities to third parties arising out of operations
conducted subsequent to the Effective Date but prior to the date of TSHIs
withdrawal or deemed withdrawal. TSVLP and TSHI (the Members) have designated
Tonkin Springs Management Co., a Colorado corporation (TSMC, and an affiliate
of TSHI) as the initial Manager of the Properties with overall management
responsibilities for operations.
At the Effective Date, TSHI paid to TSVLP $190,000, and commencing March 1, 1999
TSHI commenced making additional payments to TSVLP in the amount of $45,000 per
month through December 1, 2001 (collectively Minimum Payments to TSVLP). During
the three months ended March 31, 1999, the Company received $235,000 in Minimum
Payments to TSVLP which are reflected in revenue. One half of Minimum Payments
to TSVLP will be added to TSHIs Recoupable Amount as discussed further below.
As of March 31, 1999, there remains recorded a $1,475,000 receivable due from
the TSLLC reflecting remaining Minimum Payments to TSVLP, of which $540,000 is
classified as a current asset, offset by a $1,475,000 deferred credit, with the
effect that the entire receivable is offset by a deferred credit.
The Operating Agreement of the TSLLC defines Commencement of Commercial
Production (CCP). After CCP 60 percent of positive cash flow from the
operations of the Properties (Cash Flow), if any, shall be distributed to TSHI
until TSHI has recovered its Recoupment Amount, and the remaining 40 percent of
Cash Flow shall be distributed to the Members based upon their respective
ownership interest on a calendar quarter basis. After TSHI has recovered the
Recoupment Amount, 100 percent of Cash Flow shall be distributed to the
Members in proportion to the Members ownership interest. Therefore, initially
during the period in which TSHI is thus receiving preferential payments, TSVLP
shall receive 16 percent of Cash Flow from operations. Cash Flow otherwise due
TSVLP shall first be applied to reduce any Elected Loans outstanding from TSHI,
as discussed further below.
On the last day in the calendar month in which CCP is achieved, TSHI shall pay
TSVLP an additional amount to be calculated by multiplying $15,000 times the
number of months from the Effective Date through the month in which CCP is
achieved (the Lump-Sum Payment).
After the Cut-Off Date, TSHI is required to exercise reasonable efforts to
attempt to obtain third party project financing for any development of the
Properties requiring funding of more than $20 million. After the Cut-Off Date,
TSVLP is required to fund its 40 percent share of all costs of the Properties or
be subject to dilution under a formula. Either party may elect to contribute a
lesser amount or none towards its share of an adopted program and budget.
However, as long as TSHI owns at least 50 percent interest in TSLLC, TSHI
is obligated to loan TSVLP its share of funding of an adopted program and
budget after the Cut-Off Date under one-year term loans (the "Elected Loan")
with an interest rate of LIBOR plus 2 percent. If, however, TSVLP does not
repay an Elected Loan when due, TSHI shall have no further obligation to make
additional Elected Loans to TSVLP and the amounts of defaulted Elected Loans
and accrued interest thereon (the Default Amount) shall be incorporated into
the computation of dilution of TSVLPs working interest under a formula.
If the ownership interest of any Member falls to 10 percent or less as a result
of the dilution formula, then such Member shall be deemed to have withdrawn from
the TSLLC and to have automatically relinquished and transferred its interest to
the other Member and upon such relinquishment the withdrawing Member shall be
granted an overriding 2 percent net smelter royalty (the NSR) on products
subsequently extracted, removed and sold from the Properties.
The Company recognized neither a gain nor a loss on the termination of the 1993
Agreement or with the contribution of its 40 percent undivided interest in the
Properties to the TSLLC.
3. Condensed Financial Information of Tonkin Springs LLC, unaudited
As noted in Footnote 2 above, effective February 26, 1999, the Companys interest
in the Tonkin Springs Properties were contributed into the TSLLC with TSMC as
manager. The condensed balance sheet of TSLLC as of March 31, 1999, and a
condensed statement of operations for the three months then ended were not
available as of the date of filing this report.
4. Loan Settlement Agreement with FABC
On February 21, 1992, the Company, among other related things, entered into a
Loan Settlement Agreement with its senior secured lender, The French American
Banking Corporation (FABC). The Company discharged its debt to FABC and
terminated all prior security interests related thereto. As part of the
consideration to FABC under the Loan Settlement Agreement, the Company entered
into an agreement between Tonkin Springs Gold Mining Company, a wholly-owned
subsidiary of the Company (TSGMC) and FABC entitled Agreement To Pay
Distributions, which requires TSGMC to pay a limited portion of certain
distributions from TSVLP through TSGMC to FABC. The Company has complete
control of such distributions, if any, from TSVLP to TSGMC. Under the terms of
the Agreement To Pay Distributions, TSGMC is required to pay to FABC (i) the
first $30,000 in cash or value of asset distributions, as defined in such
agreement, received from TSVLP, plus (ii) an amount equal to 50% of such
retained distributions in cash or value of asset distributions after TSGMC
has first received and retained $500,000 of such retained distributions. This
obligation to FABC shall terminate after FABC has been paid a total of
$2,030,000 thereunder or upon disposition by TSGMC of its interest in TSVLP.
5. Related Party Transactions
Effective November 15, 1997 through February, 1999, the Company and Moyes &
Newby & Co, (Moyes Newby) entered into a month-to-month arrangement whereby
Moyes Newby provided the Company general corporate and financial advisory
services for a retainer of $5,000/month plus reimbursement of reasonable out of
pocket expenses of which $7,000 remained unpaid as of March 31, 1999. Douglas
J. Newby, a director of the Company, is managing partner of Moyes Newby.
Commencing July 1, 1998, the three executive officers of the Company voluntarily
deferred a portion of their individual salaries in order to conserve working
capital of the Company. As of March 31, 1999, the total amount of such
voluntary deferral was $69,761. The Company also has not paid certain salaries
(at the voluntarily reduced rates) to the three executive officers of the
Company in the aggregate of $29,812, as of March 31, 1999. During the fourth
quarter of 1998 and first quarter of 1999, the three executive officers
of the Company made personal cash loans to the Company to allow the Company
in pay critical obligations to third parties in the aggregate amount of $28,579,
which amounts were fully repaid to those executives as of March 31, 1999. In
addition, certain of the director fees accrued for the last half of 1998 and
first quarter of 1999 in the amount of $15,000 remain unpaid as of March 31,
1999. All of these amounts are reflected as liabilities of the Company as of
March 31, 1999.
MANAGEMENTS DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS
Changes in Financial Condition
From December 31, 1993 until February 26, 1999, TSVLP, a partnership owned by
subsidiaries of the Company, held a 40 percent undivided interest in the Tonkin
Springs Properties (the Properties) subject to a mining joint venture, the
Tonkin Springs Project Joint Venture as amended ( the 1993 Agreement) with Gold
Capital Corporation (Gold Capital) which is a subsidiary of Globex Mining
Enterprises, Inc. (Globex), a Canadian corporation with shares traded on the
Toronto stock exchange (symbol: GMX).
Effective February 26, 1999 (the Effective Date) TSVLP and Gold Capital
terminated the 1993 Agreement and each retained their respective 40 percent and
60 percent undivided interests in the Properties. Gold Capital then immediately
sold its 60 percent undivided interest in the Properties to Tonkin Springs
Holdings Inc., a Colorado corporation (TSHI) which is owned by subsidiaries of
Sudbury Contact Mines Limited, an Ontario, Canada corporation (Sudbury)
(SUD:TSE), which is itself a subsidiary of Agnico-Eagle Mines Limited, an
Ontario, Canada corporation (Agnico-Eagle) (AME:NYSE). TSHI then immediately
contributed its 60 percent undivided interest in the Properties into a new
limited liability company, Tonkin Springs LLC (TSLLC) in exchange for 60 percent
of the equity membership interest of TSLLC, and TSVLP contributed its 40 percent
undivided interest in the Properties into TSLLC in exchange for 40 percent of
the equity membership interest of TSLLC. The objective of TSLLC is the
exploration, evaluation and, if justified, the development and mining of mineral
resources in the Properties.
Under the Members Agreement and the Operating Agreement of the TSLLC, TSHI is
required to fund all costs related to the Properties, including all holding,
administrative, operational and exploration costs, until TSHI has first
expended $4 million on exploration of the Properties (the Cut-Off Date). After
the Cut-Off Date, TSVLP is required to fund its 40 percent share of all costs of
the Properties or be subject to dilution under a formula. However, as long as
TSHI owns at least 50 percent interest in TSLLC, TSHI is obligated to loan TSVLP
its share of funding of an adopted program and budget after the Cut-Off Date
under one-year term loans (the Elected Loan) with an interest rate of LIBOR plus
2 percent. If, however, TSVLP does not repay an Elected Loan when due, TSHI
shall have no further obligation to make additional Elected Loans to TSVLP and
the amounts of defaulted Elected Loans shall be incorporated into the
computation of dilution of TSVLPs working interest under a formula. If the
ownership interest of any Member falls to 10 percent or less as a result of
the forgoing calculation, then such Member shall be deemed to have withdrawn
from the TSLLC and to have automatically relinquished and transferred its
interest to the other Member and upon such relinquishment the withdrawing Member
shall be granted an overriding 2 percent net smelter royalty (the NSR) on
products subsequently extracted, removed and sold from the Properties. After
the Cut-Off Date, TSHI is required to exercise reasonable efforts to attempt to
obtain third party project financing for any development of the Properties
requiring funding of more than $20 million.
The Company recognized neither a gain nor a loss on the termination of the 1993
Agreement or with the contribution of its 40 percent undivided interest in the
Properties to the TSLLC.
Liquidity and Capital Resources
At the Effective Date, TSHI paid to TSVLP $190,000, and commencing March 1, 1999
TSHI commenced making additional payments to TSVLP in the amount of $45,000 per
month through December 1, 2001 (collectively Minimum Payments to TSVLP). During
the three months ended March 31, 1999, the Company received $235,000 in Minimum
Payments to TSVLP which are reflected in revenue. One half of Minimum Payments
to TSVLP will be added to TSHIs Recoupable Amount as discussed further below.
As of March 31, 1999, there remains recorded a $1,475,000 receivable due from
the TSLLC reflecting remaining Minimum Payments to TSVLP of which $540,000 is
classified as a current asset offset by a $1,475,000 deferred credit, with the
effect that the entire receivable is offset by a deferred credit.
During the three months ended March 31, 1999, the Company sold 100,000 shares of
Globex for aggregate $10,485 recognizing a gain on the sale of $586.
The Operating Agreement of the TSLLC defines Commencement of Commercial
Production (CCP). On the last day in the calendar month in which CCP is
achieved, TSHI shall pay TSVLP an additional amount to be calculated by
multiplying $15,000 times the number of months from the Effective Date through
the month in which CCP is achieved (the Lump-Sum Payment).
As of March 31, 1999, the Company had working capital of $359,383 made up of
current assets of $552,923 and current liabilities of $193,510. During the next
twelve months the Company anticipates receipt of $540,000 in Minimum Payments to
TSVLP from the TSLLC. 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 1999.
Net cash provided by operations increased to $3,668 for the three months ended
March 31, 1999 from ($229,328) for the corresponding period of 1998, primarily
reflecting the $235,000 in Minimum Payments to TSVLP during the 1999 period as
well as lower cash paid to suppliers and employees. Cash flow from investing
activities increased to $9,292 in 1999 from ($3,530) during the 1998 period,
primarily reflecting the sale of marketable securities in the 1999 period. Cash
flows from financing activities decreased from none for 1998 to ($1,991) for
1999.
Results of Operations: 1999 Compared to 1998
For the three month period ended March 31, 1999, the Company recorded a net
income of $7,764 compared to a loss of $238,408 in the corresponding period
of 1998. During the 1999 period, $235,000 in Minimum Payments to TSVLP were
received and recognized in income while in 1998 no such payments were recorded.
General and Administrative expenses decreased approximately $25,218 in the 1999
period compared to 1998, primarily reflecting lower salary expense.
Other
The Company has addressed Year 2000 Issue as relates to the computing systems,
software and programs for which the Company relies to determine which are year
2000 compliant. The Company has concluded that such systems, software and
programs which are not year 2000 compliant will be replaced prior to January 1,
2000 at an estimated cost of approximately $30,000.
PART II
1. No report required.
2. No report required.
3. No report required.
4. No report required.
5. No report required.
6.a No report required.
6.b No report required.
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
U.S. GOLD CORPORATION
Dated: May 10, 1999 By /s/ William W. Reid
President and Chairman of the Board
Dated: May 10, 1998 By /s/ William F. Pass
Vice President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE 3/31/99 FORM
10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 12,923
<SECURITIES> 52,659
<RECEIVABLES> 540,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 178,236
<DEPRECIATION> (115,031)
<TOTAL-ASSETS> 3,894,110
<CURRENT-LIABILITIES> 193,510
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0
0
<COMMON> 1,392,747
<OTHER-SE> 141,775
<TOTAL-LIABILITY-AND-EQUITY> 3,894,110
<SALES> 235,000
<TOTAL-REVENUES> 227,834
<CGS> 0
<TOTAL-COSTS> 215,833
<OTHER-EXPENSES> 4,237
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 7,764
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<INCOME-CONTINUING> 7,764
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