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, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
Commission file number 0-9137
U.S. GOLD CORPORATION
(Exact name of small business issuer as specified in its charter)
COLORADO 84-0796160
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2201 Kipling Street, Suite 100
Lakewood, Colorado 80215-1545
(Address of principal executive offices)
(303) 238-1438
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Class Outstanding as of May 4, 2000
Common Stock, $0.10 par value 13,974,040
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the three months ended March 31, 2000 1999
Project payments $135,000 $235,000
Interest income 20 26
Gain (loss) on sale of assets - (7,192)
135,020 227,834
Costs and expenses:
General and administrative 160,831 204,035
Consulting fees, related Parties - 10,000
Interest 1,013 1,798
Depreciation 3,868 4,237
165,712 220,070
Income (loss) before income taxes (30,692) 7,764
Provision for income taxes - -
Net income (loss) $(30,692) $7,764
Basic and diluted per share data:
Basic $(0.00) $0.00
Diluted $(0.00) $0.00
The accompanying notes are an integral part of these consolidated financial
statements.
U.S. GOLD CORPORATION
CONSOLIDATED BALANCE SHEET
March 31, 2000
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $9,434
Project payments receivable 540,000
Total current assets 549,434
Project payments receivable 405,000
Investment in Tonkin Springs LLC 2,262,578
Other assets 61,113
$3,278,125
LIABILITIES, DEFERRED CREDIT & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $7,359
Installment purchase contracts 10,975
Related party payables 201,297
219,631
Installment purchase contracts, long-term 30,124
Deferred credit, project payments 945,000
Reserve for reclamation 640,000
Total liabilities and deferred credit 1,834,755
Commitments and contingencies
Shareholders' equity:
Common stock, $.10 par value, 18,000,000
shares authorized;13,974,040 shares
issued and outstanding 1,397,409
Additional paid-in capital 31,972,240
Accumulated deficit (31,926,279)
Total shareholders' equity 1,443,370
$3,278,125
The accompanying notes are an integral part of these consolidated financial
statements.
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999
(unaudited)
March 31, March 31,
2000 1999
Cash flows from operating activities:
Interest received $20 $26
Project payments 90,000 235,000
Cash paid to suppliers and employees (126,479) (231,358)
Cash provided by (used in) operating activities (36,459) 3,668
Cash flows from investing activities:
Sale of marketable securities - 10,485
Capital expenditures - (1,193)
Cash provided by (used in) investing activities - 9,292
Cash flows from financing activities:
Payments on installment purchase contracts (2,587) (1,991)
Cash provided by (used in) financing activities (2,587) (1,991)
Increase (decrease) in cash and cash equivalents (39,046) 10,969
Cash and cash equivalents, beginning of period 48,480 1,954
Cash and cash equivalents, end of period $9,434 $12,923
Reconciliation of net income to cash used in operating activities:
Net income (loss) $(30,692) $7,764
Items not requiring (providing) cash:
Loss on disposition of assets - 7,778
Depreciation and amortization 3,868 4,237
Increase (decrease) in liabilities
related to operations 33,693 (6,224)
Decrease (increase) in other assets (43,328) (9,887)
Cash provided by (used in) operating activities $(36,459) $3,668
See accompanying notes to consolidated financial statements.
U.S. GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation: The interim financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's Form 10-KSB as of December 31,
1999. Results of operations for the interim period are not indicative of annual
results.
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.
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 (13,970,534 for 2000 and 13,927,469 for
1999). 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 March 31, 2000 and 1999 options are not
considered in the computation of diluted earnings per share as for the 2000
period their inclusion would be antidilutive and for 1999 the options were
priced above the average share price.
Recent Pronouncements: The FASB recently issued Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of
Effective Date of FASB Statement No. 133." The Statement defers for one
year the effective date of FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The rule now will apply to all fiscal
quarters of all fiscal years beginning after June 15, 2000. In June 1998, the
FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which is required to be adopted in years beginning after
June 15, 1999. The Statement permits early adoption as of the beginning of
any fiscal quarter after its issuance. The Statement will require the Company
to recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of derivatives will either be offset against the change in fair value
of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized
in earnings. The ineffective portion of a derivative's change in fair value
will be immediately recognized in earnings. The Company has determined that
implementation of SFAS No. 133 will have no effect on the earnings and
financial position of the Company.
Adjustments: The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
requires the Company's 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. 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 mineralization 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 (exploration related costs only) of the
Properties (the "Cut-Off Date"). All expenditures funded by TSHI prior to the
Cut-Off Date, including Exploration, holding, administrative or other
operational costs of the Properties, shall be added to TSHI's Recoupable
Amount which has as its opening balance the sum of $5,625,000, which was
intended to represent approximately one-half of the recoupment account
balance of Gold Capital under the 1993 Agreement as of the Effective Date.
TSHI has reported that through March 31, 2000 the balance of Exploration
expenditures on the Properties is approximately $795,000 and that the
balance of the Recoupable Amount as of that date is approximatley
$7,791,200. 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 TSHI's 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 began making additional payments to TSVLP in the amount of
$45,000 per month through December 1, 2001 (collectively "Minimum
Payments to TSVLP"). One half of Minimum Payments to TSVLP are added
to TSHI's Recoupable Amount as discussed further below (and included in the
March 31, 2000 balance as reported above). As of March 31, 2000, there
remains recorded a $945,000 receivable due from the TSLLC reflecting
remaining Minimum Payments to TSVLP, of which $540,000 is classified as
a current asset, offset by a $945,000 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 Member's ownership interest.
Therefore, initially during the period in which TSHI is thus receiving
preferential payments, TSVLP shall receive 16 percent of Cash Flow, if any,
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 shall be
incorporated into the computation of dilution of TSVLP's 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 has guaranteed TSVLP's obligations under the TSLLC and
TSVLP has given a security interest (consisting of its ownership interest
arising under the TSLLC) in favor of TSHI to secure its performance under the
TSLLC. Sudbury has guaranteed certain obligations of TSHI. 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
As noted in Footnote 2 above, effective February 26, 1999, the Company's
interest in the Tonkin Springs Properties were contributed into the Tonkin
Springs LLC with TSMC as manager. The following is the condensed
unaudited balance sheet of Tonkin Springs LLC as of March 31, 2000, and a
condensed statement of operations for the three months then ended. All
costs associated with the Properties have been funded by TSHI.
STATEMENT OF OPERATIONS Three Months Ended
March 31, 2000
Exploration expense $162,027
Property holding costs 301,683
Depreciation 11,585
Net loss $(475,295)
BALANCE SHEET March 31, 2000
Assets:
Cash $2,376
Prepaid claim fees 86,705
89,081
Property, plant, equipment, net 5,081,107
Restricted time deposit for
reclamation bond 1,347,224
Total assets $6,517,412
Liabilities, Reserves and Members' Equity:
Current liabilities $96,668
Reserve for reclamation 1,469,000
1,565,668
Members' Equity-
TSHI 2,951,744
TSVLP 2,000,000
Total members' equity 4,951,744
Total liabilities, reserves and
members' equity $6,517,412
Note A. TSVLP and TSHI are jointly responsible for reclamation of
disturbances of the Properties. The current estimate of reclamation costs, on
a 100 percent basis, totals approximately $1.47 million of which TSVLP and
the Company reflects $640,000 on its balance sheet related to its 40 percent
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 TSHI under the terms of the Tonkin Springs
LLC prior to Cut-Off. Tonkin Springs LLC has a cash bond posted 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
$1,347,224.
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 for a total paid
or accrued for the three months ended March 31, 1999 of $10,000. 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, 2000, the total amount of
such voluntary deferral was $173,251. 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 $16,046, as of March 31, 2000.
In addition, certain of the director fees accrued for 1999 and the first
quarter of 2000 in the amount of $12,000 remain unpaid as of March 31, 2000. All
of these amounts are reflected as liabilities of the Company as of March 31,
2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS
Changes in Financial Condition
The principal property of U.S. Gold Corporation (the "Company") is it's 40
percent interest in Tonkin Springs (the "Properties"). The Company holds it's
interest in the Properties through Tonkin Springs Venture Limited Partnership
("TSVLP"), a partnership owned by subsidiaries of the Company.
Until February 26, 1999, the Properties were subject to the Tonkin Springs
Project Joint Venture as amended (the "1993 Agreement") with Gold Capital
Corporation ("Gold Capital") owner of 60 percent, project manager and
responsible for all funding. Effective February 26, 1999 (the "Effective Date")
TSVLP and Gold Capital terminated the 1993 Agreement and each retained
their respective 40% and 60% undivided interests in the Properties.
Gold Capital then immediately sold it's 60% 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")
(NYSE:AME).
TSVLP and TSHI (the "Members") then immediately contributed their
respective undivided interests in the Properties into a new limited liability
company, Tonkin Springs LLC ("TSLLC") in exchange for 40% and 60%,
respectively, of the equity membership interest of TSLLC. TSHI is manager
of 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,
2000 and 1999, the Company received $90,000 and $235,000, respectively,
in Minimum Payments to TSVLP which are reflected in revenue including for
the 2000 period the January 2000 payment of $45,000 which was received
in December, 1999. One half of Minimum Payments to TSVLP will be added
to TSHI's Recoupable Amount as discussed further below. As of March 31,
2000, there remains recorded a $945,000 receivable due from the TSLLC
reflecting remaining Minimum Payments to TSVLP of which $540,000 is
classified as a current asset offset by a $945,000 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, 2000, the Company had working capital of $329,803 made
up of current assets of $549,434 and current liabilities of $219,631. During
the next twelve months the Company anticipates receipt of $540,000 in
Minimum Payments to TSVLP from the TSLLC. The Company may also issue
equity in public or private transactions to raise additional working capital.
These items are the primary source of working capital presently anticipated
during 2000.
Net cash provided by (used in) operations decreased to $(36,459) for the
three months ended March 31, 2000 from $3,668 for the corresponding
period of 1999, primarily reflecting $235,000 in Minimum Payments to TSVLP
during the 1999 period compared to $90,000 received during the 2000 period,
as well as lower cash paid to suppliers and employees. Cash flow from
investing activities for the 1999 period was $9,292 in 1999 compared to none
during the 2000 period reflecting the sale of marketable securities in the 1999
period. Cash flows from financing activities decreased from $(2,587) for the
2000 period to ($1,991) for the corresponding period of 1999 reflecting
payments on installment purchase contracts.
Results of Operations - 2000 Compared to 1999
For the three month period ended March 31, 2000, the Company recorded a
net loss of $30,692 compared to a net income of $7,764 in the corresponding
period of 1999. During the 2000 period, $135,000 in Minimum Payments to
TSVLP were recognized compared to $235,000 in the corresponding period
of 1999.
General and Administrative expenses decreased approximately $43,204 in the
2000 period compared to 1999, primarily reflecting lower legal, financial
consulting and office rental costs.
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 4, 2000 By /s/ William W. Reid
William W. Reid, President and Chairman
of the Board
Dated: May 4, 2000 By /s/ William F. Pass
William F. Pass, Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE MARCH 31, 2000
FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY SUCH FORM 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 9,434
<SECURITIES> 0
<RECEIVABLES> 540,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 549,434
<PP&E> 164,483
<DEPRECIATION> (116,822)
<TOTAL-ASSETS> 3,278,125
<CURRENT-LIABILITIES> 219,631
<BONDS> 0
0
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<COMMON> 1,397,409
<OTHER-SE> 45,961
<TOTAL-LIABILITY-AND-EQUITY> 3,278,125
<SALES> 135,000
<TOTAL-REVENUES> 135,020
<CGS> 0
<TOTAL-COSTS> 160,831
<OTHER-EXPENSES> 3,868
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,013
<INCOME-PRETAX> (30,692)
<INCOME-TAX> 0
<INCOME-CONTINUING> (30,692)
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