UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________________ to ______________________
Commission File Number 0-9370
--------------------
USMX, INC.
(Exact name of registrant as specified in its charter)
--------------------
Delaware 84-1076625
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
141 Union Boulevard, Suite 100
Lakewood, Colorado 80228
(Address of principal executive (Zip Code)
offices)
(303) 985-4665
(Registrant's telephone number, including area code)
Not Applicable (Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 .
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class of Common Stock Outstanding at
May 14, 1997
---------------------------- ------------------------------
$.001 par value 16,184,182
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
USMX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
(Amounts in Thousands)
March 31, December 31,
1997 1996
ASSETS ------------- --------------
<S> <C> <C>
Cash and equivalents $ - $ 238
Restricted cash 28 108
Inventories 288 688
Federal income taxes receivable 424 424
Other current assets 931 803
------------- -----------
Total current assets 1,671 2,261
------------- -----------
Property, plant & equipment . 48,935 46,439
Accumulated depreciation, depletion and amortization. (3,514) (3,532)
------------- -----------
Net property, plant and equipment . 45,421 42,907
Reclamation surety and other assets 4,990 4,987
------------- -----------
Total assets $ 52,082 $ 50,155
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 7,733 $ 6,708
Current portion of long term debt 23,762 21,710
Accrued salaries 49 84
Accrued reclamation 744 843
Other accrued liabilities 279 48
------------- -----------
Total current liabilities 32,567 29,393
------------- -----------
Note payable related party 3,896 3,923
Other liabilities 298 298
Stockholders' equity
Common stock 16 16
Additional paid-in capital . 19,581 19,581
Retained earnings (4,276) (3,056)
------------- -----------
Total liabilities and stockholders' equity $ 52,082 $ 50,155
=========== ============
</TABLE>
The accompanying notes are part of the condensed consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
USMX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in Thousands, Except Per Share Amounts)
Three Months Ended
March 31,
1997 1996
---------- ----------
<S> <C> <C>
Sales $ - $ -
Cost applicable to sales - -
---------- ----------
Gross loss - -
General and administrative expenses 1,182 564
Prospecting costs 57 194
Mineral property abandonments - -
---------- ----------
Loss from operations (1,239) (758)
Royalty income 180 180
Other income (expense), net (161) 77
---------- ----------
Loss before income tax provision. (1,220) (501)
Income tax benefit - (23)
---------- ----------
Net loss $ (1,220) $ (478)
---------- ----------
Loss per common share $ (0.08) $ (0.03)
---------- ----------
Weighted average common and common equivalent
shares outstanding 16,184 14,739
========== =========
</TABLE>
The accompanying notes are part of the condensed consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
USMX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
Three Months Ended
March 31,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Net cash used in operations $ (983) $ (867)
-------- --------
Net cash provided by (used in) investing activities:
Capital additions and property acquisitions (1,453) (1,437)
Proceeds from sale of property plant and equipment 147 -
-------- --------
(1,306) (1,437)
-------- --------
Net cash provided by (used in) financing activities:
Proceeds of notes payable 2,051 -
-------- --------
2,051 -
-------- --------
Increase (decrease) in cash and equivalents (238) (2,304)
Cash and cash equivalents at beginning of period 238 5,226
-------- --------
Cash and cash equivalents at end of period $ - $2,922
-------- --------
Three Months Ended
Supplemental Disclosures of Cash Flow Information March 31,
1997 1996
-------- --------
Cash paid during the period for:
Interest $ 177 $ -
Income taxes $ 5 $ -
</TABLE>
The accompanying notes are part of the condensed consolidated financial
statements.
<PAGE>
USMX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - General
The accompanying interim condensed consolidated financial statements
have been prepared in accordance with the instructions for Form 10-Q. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair statement of the results for the
interim periods presented have been included. Operating results for the three
month period ended March 31, 1997 are not necessarily indicative of the results
which may be expected for the year ending December 31, 1997. These interim
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 1996.
Note 2 - Income Taxes
The income tax provisions were computed using the expected annual
effective income tax rate. The effective income tax rate varies from the
statutory rate primarily due to differences in tax and book treatment of
statutory depletion on mining properties.
Note 3 - Inventories
Inventories at March 31, consisted of the following:
1997 1996
---- ----
Ore inventories $200,000 $ -
Supplies Inventories 88,000 -
-------- ------------
$288,000 $ -
======== ============
Note 4 - Long Term Debt
On February 5, 1997, the Company signed a definitive merger agreement
with Dakota Mining Corporation ("Dakota") whereby the shareholders of the
Company will receive one share of Dakota common stock for every 1.1 shares of
the Company's common stock and the Company will become a wholly owned subsidiary
of Dakota ("the Merger").
As part of the merger agreement, Dakota and the Company agreed that
Dakota would provide a $5 million line of credit to the Company to provide
interim working capital to sustain the Company's operations until the Merger is
consummated. The line of credit bears interest at the rate of one per cent above
a quoted prime rate and is due August 31, 1997 or earlier if the merger
agreement is terminated, under certain cercumstances, before such date. The
proceeds are to be used to pay certain ongoing operating expenses of the
Company, primarily in connection with start-up activities associated with the
Illinois Creek Mine and to partially pay trade creditors of the Company and its
subsidiaries.
The line of credit is evidenced by two notes with similar terms but
different amounts and different securities. A $2 million note ("the first note")
is secured by a second priority position in the shares of USMX of Alaska and
ranks pari passu with the $22 million loan of Rothschild (which holds the first
priority position in such collateral). USMX of Alaska is the subsidiary holding
title to the Illinois Creek Mine. A second note for $3 million ("the second
note") is secured by a first position on all of the shares of USMX's Mexican
subsidiary and a first position on USMX's Thunder Mountain property in Idaho.
Rothschild was granted a second priority security position in the second note
security. Funding for the line of credit is being provided from the proceeds of
a Special Warrant offering by Dakota described below.
In February 1997, Dakota offered by way of private placement 25,000
Special Warrants at a price of Cdn. $1,000 per Special Warrant resulting in
gross proceeds of Cdn. $25 million. Each Special Warrant entitles the holder to
receive one 7.5% unsecured subordinated convertible debenture in the amount of
Cdn. $1,000. Of the proceeds, US $5.0 million have been released immediately and
the remaining proceeds have been deposited in escrow pending completion of the
merger and approval by the Dakota shareholders of the issuance of the common
shares underlying the debentures. Completion of this offering was a condition of
the Company's obligation to proceed with the merger. At March 31, 1997, the
Company had made draws against the line of credit totaling approximately $1.8
million.
Note 5 - Commitments and Contingencies
Reclamation Surety
Pursuant to the mining reclamation and bonding regulations of the State
of Utah, Department of Natural Resources and the Bureau of Land Management, in
1993 the Company provided reclamation surety for the Goldstrike Mine in the
amount of $2,251,000. In October 1995, the Company was advised that, as a result
of the reclamation work accomplished by the Company at the Goldstrike Mine, the
required surety had been reduced by approximately $514,000 to $1,737,000. The
required surety is in the form of a certificate of deposit in the amount of
$800,000 and letters of credit in the amount of $937,000. The certificate of
deposit and restricted cash account supporting the letter of credit are
reflected in Reclamation surety and other assets in the accompanying
Consolidated Statements of Financial Position.
Pursuant to the mining reclamation and bonding regulations of the State
of Alaska, Department of Natural Resources, the Company provided reclamation
surety for the Illinois Creek Mine in the amount of $1,575,000 in 1996. The
required surety is in the form of certificates of deposit totaling $1,575,000
and is reflected in Reclamation surety and other assets in the accompanying
Consolidated Statements of Financial Position.
Hedging
As part of its gold hedging program the Company has entered into
agreements with a major financial institution to deliver gold. Realization under
these agreements is dependent upon the ability of the counterparties to perform
in accordance with the terms of the agreement. As of March 31, 1997, the Company
had entered into forward sales contracts for 140,900 ounces of gold for delivery
at various dates through December 31, 1999 at an average selling price of $410
per ounce. Delivery under these spot deferred contracts can be deferred at the
Company's option up to forty months depending on the individual contract. The
aggregate unrealized excess of the net market value of the Company's forward
sales contracts over the spot gold price of $351 per ounce as of March 31, 1997,
is approximately $5,644,000.
The Company has also written silver call options, which if exercised,
would become spot deferred contracts with delivery deferred as previously
described. At March 31, 1997 the Company had sold 825,300 ounces of silver call
option contracts all at a strike price of $5.50 per ounce expiring on dates
ranging from September 28, 1997 through December 29, 1999.
Forward sales contracts and silver call options that are not
considered hedges are recorded on the Consolidated Statements of Financial
Position at market value and any unrealized gains or losses are recognized on
the Consolidated Statements of Operations.
Note 6 - Subsequent Event
One of the construction contractors on the Illinois Creek Property in
Alaska has submitted invoices and claims totaling approximately $7 million and
filed a lien on the property for work completed in 1996. At March 31, 1997, the
Company had paid the contractor $1,772,000. In April, 1997, USMX and the
construction contractor agreed to settle the claim for $5 million in cash and
shares of the Company's common stock. The terms of the settlement include an
additional cash payment of approximately $445,000 which was made in April, 1997,
the issuance of one million shares of the Company's common stock to the
contractor, immediately prior to the merger with Dakota, and a final cash
payment of approximately $1,783,000 upon completion of the merger with Dakota.
At March 31, 1997, accounts payable on the accompanying Consolidate Statements
of Financial Position include a liability of approximately $3,228,000 related to
this settlement.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Financial Condition
Going Concern Uncertainty
USMX, Inc. (the "Company" or "USMX") has suffered recurring losses and
cash flow deficits from operations and currently has no mines in operation. At
March 31, 1997, USMX has an accumulated deficit of approximately $4,276,000, a
working capital deficiency of approximately $30,896,000 and is not in compliance
with certain covenants of its long term debt agreements. In addition,
significant additional funds will be required to bring USMX's Illinois Creek
Mine into production. USMX's auditors included an explanatory paragraph in their
opinion relating to the financial statements at December 31, 1996, that states
that these matters raise substantial doubt about USMX's ability to continue as a
going concern and that the financial statements as of December 31, 1996, do not
include any adjustment that might result from the outcome of this uncertainty.
USMX has entered into a Merger Agreement with Dakota pursuant to which
USMX will become a wholly owned subsidiary of Dakota (the "Merger"). The Merger
is subject to approval by the TSE, stockholder and creditor approval, review by
other regulatory authorities, and other customary conditions. The proposed
merger will be considered by USMX's stockholders at the Annual Meeting of
Stockholders which is scheduled to be held on May 27,1997. In connection with
the Merger, Dakota agreed to loan up to $5 million to USMX to be used to pay for
work completed and ongoing work at the Illinois Creek Mine prior to the Merger.
In connection with the Merger, USMX's principal lender, N M Rothschild and Sons
Limited ("Rothschild"), agreed with Dakota not to accelerate the due date of any
loans to USMX or to exercise any rights it may have to collateral security
(except for payment or bankruptcy defaults) until the earlier of the
consummation of the Merger, the termination of the Merger Agreement in
accordance with its terms, or June 30, 1997.
Should USMX be unable to complete the Merger with Dakota, the ability
of USMX to continue as a going concern is dependent on the continued forbearance
of Rothschild, and the commencement and continuation of successful profitable
operations at the mine. Future success of the mine is dependent on USMX's
ability to produce gold from the mine in quantities and at costs consistent with
those projected by USMX.
Liquidity and Capital Resources
Cash and cash equivalents decreased during the three months ended March
31, 1997, by $238,000 as a result of capital additions of $1,453,000 to the
Company's Illinois Creek property in Alaska and cash used in operations of
$983,000 partially offset by proceeds of notes payable of $2,051,000 and
proceeds from the sale of equipment.
On January 3, 1997, USMX entered into an agreement in principle to
merge with Dakota. On February 5, 1997, USMX signed a definitive Merger
Agreement with Dakota whereby USMX Stockholders will receive one Dakota Common
Share for every 1.1 shares of USMX Common Stock and USMX will become a
wholly-owned subsidiary of Dakota. As part of the Merger Agreement, Dakota and
USMX agreed that Dakota would provide up to a $5 million line of credit to USMX
to provide interim working capital to sustain USMX operations until the Merger
is consummated. The proceeds are to be used to pay certain ongoing operating
expenses primarily in connection with start-up activities associated with the
Illinois Creek Mine and to partially pay trade creditors.
The $5 million line of credit is evidenced by two promissory notes with
similar terms but different amounts and different securities. The $2 million
promissory note ("Note 1") is secured by a second priority position in all of
the capital stock of USMX of Alaska, Inc. owned by USMX. USMX of Alaska, Inc.
holds title to the Illinois Creek Mine. The second promissory note for $3
million ("Note 2") is secured by a first position on all of the capital stock of
MXUS S.A. de C.V., USMX's Mexican Subsidiary, and a first position on USMX's
interest in the Thunder Mountain property in Idaho. USMX and Dakota agreed to
grant Rothschild a second priority security position in the security for Note 2.
At March 31, 1997, the Company had made draws against the line of credit
totaling approximately $1.8 million.
In February 1997, Dakota offered by way of private placement 25,000
Special Warrants at a price of Cdn. $1,000 per Special Warrant resulting in
gross proceeds of Cdn. $25 million. Each Special Warrant entitles the holder to
receive one 7.5% unsecured subordinated convertible debenture in the amount of
Cdn. $1,000. Of the proceeds, U.S. $5 million have been released and the
remaining proceeds have been deposited in escrow pending completion of the
Merger and approval by the Dakota Shareholders of the issuance of the Common
Shares underlying the Debentures. This offering was a condition of USMX's
obligation to proceed with the Merger. A substantial portion of the proceeds
will be used to pay suppliers and contractors for work completed at the Illinois
Creek Mine and to complete construction and provide working capital at the
Illinois Creek Mine.
USMX estimates that an additional $7 million, including $3.2 million of
working capital will be required to bring the mine to production. In addition,
one of the construction contractors on the Illinois Creek Property in Alaska has
submitted invoices and claims totaling approximately $7 million and filed a lien
on the property for work completed in 1996. At March 31, 1997, the Company had
paid the contractor $1,772,000. In April, 1997, USMX and the construction
contractor agreed to settle the claim for $5 million in cash and shares of the
Company's common stock. The terms of the settlement include an additional cash
payment of approximately $445,000 which was made in April, 1997, the issuance of
one million shares of the Company's common stock to the contractor immediately
prior to the merger with Dakota, and a final cash payment of approximately
$1,783,000 upon completion of the merger with Dakota. At March 31, 1997, the
Company had recorded a liability of approximately $3,228,000 related to this
settlement.
In the event the Merger is not consummated, USMX would need to obtain
other financing or attempt to merge or engage in another form of business
combination with an entity with available cash resources, or sell assets. Prior
to entering into the agreement in principle to merge with Dakota, USMX had
contemplated a public offering of securities to raise additional capital. USMX
determined not to proceed with such plans because of the attractiveness of the
Merger with Dakota. Nonetheless, considerable preparation for such offering had
been accomplished, including regulatory filings and preliminary marketing
arrangements. Moreover, Illinois Creek is presently closer to production and the
ability to achieve cash flow from operations is nearer to realization. USMX has
also reduced its recurring general and administrative expenditures in an effort
to lower its ongoing cash requirements. As a result, USMX believes that it has
reasonable prospects for continued forbearance from Rothschild and other
creditors pending receipt of funds from operations at Illinois Creek and
proceeds of a securities offering or as a result of another business
combination. USMX also believes that the prospects for sale of its principal
asset, the Illinois Creek Mine, are enhanced as the plans for production are
advanced. Therefore, USMX believes that it has a viable plan for continuation of
operations. As noted above, and in the Joint Proxy Statement/Prospectus sent to
USMX's stockholders, in connection with the Annual Meeting of Stockholders.
USMX's plan is subject to substantial risk and success of its plan is not
assured.
In addition to construction and working capital requirements at
Illinois Creek, USMX is required by the terms of the credit agreements with
Rothschild to deposit $1.5 million in a Proceeds Account, by December 31, 1996,
for use only in connection with the Project and to maintain certain financial
ratios related to the Project and to USMX. At March 31, 1997, USMX was unable to
comply with the requirements. As a result of the covenant violations, at
December 31, 1996 and March 31, 1997, the loans from Rothschild have been
classified as a current liability. As of March 31, 1997 the Company has made
draws on the Rothschild credit facility totaling approximately $21,360,000.
Results of Operations
The Company sustained a net loss for the first quarter of 1997 of
$1,220,000, compared with a net loss of $478,000 for the same period of 1996.
Production at the Company's Goldstrike Mine was terminated October 1,
1995, and rinsing of the heaps commenced. Also, the Company has not commenced
production at its Illinois Creek Mine. Consequently, the Company had no gold
sales during the first quarter of 1997, or the first quarter of 1996.
General and administrative costs were $1,182,000 during the first
quarter of 1997, compared to $564,000 for the same period of 1996. The increase
was attributable primarily to legal, accounting and professional fees related to
the proposed merger and an estimated provision of $253,000 related to
termination settlements with four of the Company's officers.
Prospecting costs were reduced to $57,000 during the first quarter of
1997 compared to $194,000 during the first quarter of 1996, as the result of the
Company's postponement of all non-essential exploration related activity.
The Company recorded other expense of $161,000 during the first quarter
of 1997 compared to other income of $77,000 for the first quarter of 1996. The
change is principally the result of reduced interest received during the first
quarter of 1997 compared to the same period of 1996 because of lower cash
balances and increased interest expense related to increased borrowings during
1996.
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K
During the Quarter ended March 31, 1997, the Company filed a
Form 8-K reporting under Item 5. a letter agreement in
principle regarding a proposed business combination of the
Company and Dakota Mining Corporation, dated January 3, 1997.
The letter agreement in principle was filed as an exhibit to
the Form 8-K.
During the Quarter ended March 31, 1997, the Company filed a
Form 8-K reporting under Item 5. the agreement and plan of
merger between the Company and Dakota Mining Corporation dated
February 4, 1997. The agreement and plan of merger and other
pertinent documents were filed as exhibits to the Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
USMX, INC.
(Registrant)
Date: May 15, 1997 By: /s/ Gregory Pusey
- --------------------------- --------------------------------
Gregory Pusey, President
Date: May 15, 1997 By: /s/ Daniel J. Stewart
- -------------------------- ----------------------------------
Daniel J. Stewart, Controller, (Principal
Accounting Officer)
<TABLE> <S> <C>
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<NAME> USMX, INC.
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
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