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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 September 30, 1998.
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 0-16778
CORNUCOPIA RESOURCES LTD.
Exact name of registrant as specified in its charter
BRITISH COLUMBIA, CANADA N/A
State or other jurisdiction of incorporation I.R.S. Employer
or organization Identification No.
SUITE 540 - THE MARINE BUILDING, 355 BURRARD STREET, VANCOUVER, BC V6C 2G8
Address of principle executive offices
Registrants telephone number, including area code: (604) 687-0619
________________________________________________________________
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 proceedings 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes __ No __
Applicable only to Corporate Issuers:
As of November 13, 1998, there were 41,591,834 common shares outstanding.
Page 1 of 17
Exhibit Index is on page 16.
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CORNUCOPIA RESOURCES LTD.
TABLE OF CONTENTS
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Page
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
- Consolidated Balance Sheets as at September 30, 1998, and
December 31, 1997. . . . . . . . . . . . . . . . . . . . . . . . 3
- Consolidated Quarterly Statements of Loss and Deficit for the
three months and nine months ended September 30, 1998, and
September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . 4
- Consolidated Quarterly Statements of Changes in Financial
Position for the three months and nine months ended
September 30, 1998, and September 30, 1997 . . . . . . . . . . . 5
- Notes to Consolidated Financial Statements . . . . . . . . . . . 6-9
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . 10-13
PART II OTHER INFORMATION
Item 1 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 14
Item 2 Changes In Securities and Use of Proceeds. . . . . . . . . . . . 14
Item 3 Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . 14
Item 4 Submission of Matters to a Vote of Security Holders. . . . . . . 14
Item 5 Other Information. . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6 Exhibits And Reports On Form 8-K . . . . . . . . . . . . . . . . 14
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
EXHIBIT INDEX & EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . 16-17
</TABLE>
2
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CORNUCOPIA RESOURCES LTD.
CONSOLIDATED QUARTERLY BALANCE SHEETS
(Prepared by management without audit)
(Stated in United States Dollars)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 19,431 996,732
Accounts receivable 217,816 460,550
Prepaid expenses and deposits 30,337 40,880
Loans and advances 0 85,500
- ------------------------------------------------------------------------------
267,584 1,583,662
- ------------------------------------------------------------------------------
Capital Assets 19,014 63,116
Resource Assets 17,364,018 16,710,818
- ------------------------------------------------------------------------------
TOTAL ASSETS 17,650,616 18,357,596
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 1,916,549 2,367,508
Current portion of long term debt 13,716,225 13,186,599
- ------------------------------------------------------------------------------
15,632,774 15,554,107
- ------------------------------------------------------------------------------
Long term debt 0 0
Capital Lease Obligations (0) 42,436
Provision for Site Reclamation 172,908 172,908
- ------------------------------------------------------------------------------
TOTAL LIABILITIES 15,805,682 15,769,451
- ------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL
Common shares 37,857,830 37,829,307
Issued and Outstanding:
September 30, 1998 - 38,814,057
December 31, 1997 - 38,556,040
Deficit (36,012,896) (35,241,162)
- ------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 1,844,934 2,588,145
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 17,650,616 18,357,596
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
3
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CORNUCOPIA RESOURCES LTD.
CONSOLIDATED QUARTERLY STATEMENTS OF LOSS AND DEFICIT
(Prepared by management without audit)
(Stated in United States Dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
REVENUES
Production costs 0 0 0 (22,888)
- ------------------------------------------------------------------------------------------------------------------
Operating profit (loss) 0 0 0 22,888
Interest and other income 1,695 (25,159) 5,551 49,010
- ------------------------------------------------------------------------------------------------------------------
1,695 (25,159) 5,551 71,898
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EXPENSES
General and administrative expenses 146,163 432,707 802,462 1,567,877
(Gain) on disposal of investments (25,177) 0 (25,177) 0
Write down of investment 0 344,245 0 476,341
- ------------------------------------------------------------------------------------------------------------------
120,986 776,952 777,285 2,044,218
- ------------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (119,291) (802,111) (771,734) (1,972,320)
- ------------------------------------------------------------------------------------------------------------------
LOSS BEFORE NON-CONTROLLING INTEREST (119,291) (802,111) (771,734) (1,972,320)
Equity loss 0 0 0 (71,897)
- ------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD (119,291) (802,111) (771,734) (2,044,217)
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Deficit, beginning of the period 35,893,605 18,018,643 35,241,162 16,776,537
Net Loss for the period 119,291 802,111 771,734 2,044,217
- ------------------------------------------------------------------------------------------------------------------
DEFICIT, END OF THE PERIOD 36,012,896 18,820,754 36,012,896 18,820,754
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
LOSS PER SHARE (0.00) (0.02) (0.02) (0.06)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 38,814,057 38,278,018 38,730,018 37,163,110
</TABLE>
4
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CORNUCOPIA RESOURCES LTD.
CONSOLIDATED QUARTERLY STATEMENTS OF CHANGES IN FINANCIAL POSITION
(Prepared by management without audit)
(Stated in United States Dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATIONS
Net loss for the period (119,291) (802,111) (771,734) (2,044,217)
Items not involving cash;
Amortization 34,259 25,975 113,719 74,281
Reclamation accrual 0 121,764 0 121,764
Write down of investment 0 344,245 0 476,341
- -----------------------------------------------------------------------------------------------------------------------------
(85,032) (310,127) (658,014) (1,371,831)
Net change in non-cash working capital items;
Accounts receivable 140,012 (172,669) 242,734 (620,655)
Product inventory 0 0 0 (372)
Prepaid expenses and deposits (16,500) (20,832) 10,544 3,474
Loans and advances 0 (199,300) 85,500 (199,300)
Accounts payable and accrued liabilities (92,223) 1,845,676 (450,959) 1,513,445
Due to mining joint venture 0 (24,999) 0 (47,516)
Current portion of long term debt 260,004 60,756 529,626 13,180,966
- -----------------------------------------------------------------------------------------------------------------------------
181,085 1,178,505 (265,746) 12,458,211
- -----------------------------------------------------------------------------------------------------------------------------
INVESTING
Investments 349 1,073,624
Note receivable 0 101,794 0 111,837
Capital assets 98 (7,769) 98 (64,102)
Resource assets (343,060) (2,572,288) (722,916) (16,287,563)
- -----------------------------------------------------------------------------------------------------------------------------
(342,962) (2,477,914) (722,818) (15,166,204)
- -----------------------------------------------------------------------------------------------------------------------------
FINANCING
Capital lease obligations (14,131) (21,353) (42,436) (29,874)
Net proceeds from issue of common shares for cash 0 765,848 0 2,501,535
Issue of common shares for debt 0 0 28,523 0
Net proceeds (expenses) from issue of special warrants 0 (765,847) 0 (1,746,177)
- -----------------------------------------------------------------------------------------------------------------------------
- - - -
(14,131) (21,352) (13,913) 725,484
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (150,832) (1,320,761) (977,301) (1,982,509)
Cash and Equivalents, beginning of the period 170,263 3,208,564 996,732 3,870,312
- -----------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS, END OF THE PERIOD 19,431 1,887,803 19,431 1,887,803
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
(includes funds in escrow)
</TABLE>
5
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CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Prepared by management without audit)
(Stated in United States Dollars)
1. OPERATIONS
These financial statements are prepared in accordance with accounting principles
applicable to a going concern. The recoverability of the amounts shown for
interests in mining properties and deferred costs is dependent upon future
profitable operations or proceeds from the disposition thereof, the quantity of
economically recoverable reserves, and on the outcome or timing of legislative
or regulatory developments relating to environmental protection. The viability
of production on mineral properties held by the Company is highly dependent on
the price of gold.
At September 30, 1998, Cornucopia Resources Ltd. (the "Company") had a working
capital deficiency of $15,365,190 which was largely due to the classification of
indebtedness. In addition, the Company's mining operations at its Mineral Ridge
Mine were suspended on November 14, 1997, due, in part, to low gold prices and
the lack of capital to construct a supplemental water supply and leach pad
expansion. The Company had certain liens placed against the Mineral Ridge
property by creditors. Due to these factors, the ability of the Company to meet
its obligations as they become due was uncertain.
The Company was not in compliance with certain debt covenants and had defaults
on loan and interest repayments. Dresdner Kleinwort Benson ("Dresdner" or "the
bank") gave notice to the Company that an event of default had occurred and took
action to accelerate repayment of the loan or to otherwise act on its security.
Therefore, the total obligation of $13,716,225 was classified as a current
liability on the balance sheet.
In order to remedy these deficiencies, the Company entered into discussions with
a third party for the sale of the Mineral Ridge Mine which have subsequently
been concluded successfully. See Subsequent Events, note 7.
2. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited interim consolidated
balance sheet and interim consolidated statements of earnings and changes in
financial position contain all adjustments, comprising only those of a normal
recurring nature, necessary to present fairly the financial position of
Cornucopia Resources Ltd. as of September 30, 1998, and the results of its
operations and changes in its financial position for the three months and nine
months ended September 30, 1998, and 1997. The results of operations for the
three months and nine months ended September 30, 1998, are not necessarily
indicative of the results to be expected for the entire fiscal year.
The consolidated financial statements include the accounts of Cornucopia
Resources Ltd., (the "Company") which is incorporated under the Company Act
(British Columbia), Cornucopia Resources, Inc., a direct wholly-owned subsidiary
incorporated in the State of Nevada, and its United States subsidiaries which
are wholly-owned.
The Company's 25% interest in the Ivanhoe joint venture (note 4(a)) has been
accounted for by the proportionate consolidation method. All significant
intercompany accounts and transactions have been eliminated upon consolidation.
The Company's current operations are focused on exploration, development and
mining of precious metal deposits, and are conducted primarily in the United
States of America.
3. INVESTMENT
(a) CARLIN RESOURCES CORP. ("CARLIN RESOURCES")
The Company's interest in Carlin Resources was 14%. On September 21, 1998, the
Company sold its entire interest in Carlin Resources. See Subsequent Events,
note 7.
6
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CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Prepared by management without audit)
(Stated in United States Dollars)
4. CAPITAL ASSETS
(a) IVANHOE PROPERTY
The Company holds a 25% interest in the Ivanhoe Property in Nevada where mining
of the Hollister deposit ceased in May 1992, but residual leaching of the heap
continued to June 1996, and reclamation activities continued thereafter.
The Company, Newmont and Great Basin Gold Ltd. ("Great Basin"), ratified a
purchase agreement on August 13, 1997, whereby their respective interests in the
Ivanhoe Property were transferred to a joint venture. Under the terms of the
agreement Newmont transferred its 75% interest in the Ivanhoe Property to Great
Basin in consideration for a $1,000,000 contribution to a reclamation fund.
Immediately thereafter, the Company and Great Basin entered into a joint venture
agreement whereby Great Basin must spend $5.0 million in exploration and related
expenditures by August 12, 1999, otherwise Great Basin's participating interest
will be diluted 1% for each $166,667 of expenditure not made.
5. SHARE CAPITAL
(a) SHARES AUTHORIZED, ISSUED AND OUTSTANDING
Authorized:
100,000,000 preferred shares without par value, with rights to be determined
upon issue.
200,000,000 common shares authorized, without par value.
<TABLE>
<CAPTION>
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Average Price per Value of Share
Number of Share Capital
ISSUED AND OUTSTANDING: Shares $ $
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<S> <C> <C> <C>
Balance, January 1, 1997 35,058,040 $35,327,772
- - issued for cash 3,498,000 0.715 2,501,535
- --------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1997 38,556,040 $37,829,307
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Average Price per Value of Share
Number of Share Capital
ISSUED AND OUTSTANDING: Shares $ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1997 38,556,040 $37,829,307
- - issued for share bonus February 6, 1998 107,500 -- --
- - issued as part of a settlement agreement
on May 4, 1998 150,517 0.19 28,523
- --------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1998 38,814,057 $37,857,830
- --------------------------------------------------------------------------------------------------
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</TABLE>
(b) OPTIONS
As at September 30, 1998, there were an aggregate of 3,405,000 stock options
outstanding (December 31, 1997; 2,275,000) granted to directors, officers and
employees of the Company.
The following changes have occurred in the stock options outstanding since
December 31, 1997:
7
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CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Prepared by management without audit)
(Stated in United States Dollars)
5. SHARE CAPITAL
(b) OPTIONS (CONTINUED)
1. On January 5, 1998 the Board of Directors approved the grant of an option
to a director of the Company to purchase 50,000 common shares at an
exercise price of C $0.26 per share. This option is exercisable over a
five year period expiring January 4, 2003. This option grant was granted
pursuant to the provisions of the Company's Share Option Plan and approval
of this grant was received by the Toronto Stock Exchange.
2. On February 28, 1998, an option granted to an employee, totaling 50,000
common shares, at an exercise prices of C $1.01, expired due to the
optionee no longer being employed by the Company.
3. On March 3, 1998, an option granted to an officer of the Company, totaling
150,000 common shares, at an exercise price of C $1.08, expired due to the
optionee no longer being employed by the Company.
4. On March 12, 1998, an option granted to a director of the Company totaling
100,000 common shares, at an exercise price of C $1.75, expired due to his
resignation as a director of the Company on February 12, 1998.
5. At the Annual General Meeting of the Company, held on May 21, 1998, the
shareholders approved the repricing of all stock options granted to
directors and employees of the Company to C $0.68 per share.
6. On September 10, 1998, the Company announced the granting of incentive
options to directors and employees for the purchase of a total of 1,415,000
common shares in its capital, an exercise price of C $0.15 per share,
expiring on or before September 10, 2003. The options have been granted
outside of the Company's Stock Option Plan and are subject to regulatory
approval and shareholder approval at the next annual general meeting of the
Company.
7. On September 15, 1998, an option granted to an employee, totaling 5,000
common shares, at an exercise price of C $0.68, expired due to the
optionee no longer being employed by the Company.
8. On September 18, 1998, two options granted to an employee, totaling 30,000
common shares, at an exercise prices of C $0.68, expired due to the
optionee no longer being employed by the Company.
6. RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere are as follows:
(a) The Company paid $118,409 in the nine months ended September 30, 1998,
(1997 - $125,920) to Glencoe Management Ltd., a company controlled by an
officer and director, in return for consulting services.
(b) The Company incurred legal fees of $45,392 in the nine months ended
September 30, 1998, (1997 - $117,862) to DuMoulin Black, a firm in which a
director of the Company is a partner.
(c) To raise working capital, the Company undertook to dispose of all of the
2,561,139 Carlin Resources shares and approached several potential
purchasers during the quarter ended September 30, 1998. In the absence of
any interest by third parties, on September 21, 1998, 1,333,333 shares of
Carlin Resources were sold to a director and 1,227,806 shares of Carlin
Resources were sold to a director who is also an officer to the Company.
7. SUBSEQUENT EVENTS
On October 20, 1998, 2,777,777 common shares were issued to Vista Gold Corp. in
accordance with the agreement entered into on October 21, 1998, regarding the
sale of the Company's wholly-owned indirect United States subsidiary Mineral
Ridge Resources Inc., which held the Mineral Ridge Mine. (See Part II, Item 5).
8
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CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Prepared by management without audit)
(Stated in United States Dollars)
7. SUBSEQUENT EVENTS (CONTINUED)
The common shares of the Company commenced trading on the OTC Bulletin Board
(Symbol CNPGF) effective October 29, 1998. This followed the decision by the
Nasdaq Listing Qualifications Panel not to accept Cornucopia's appeal for a
temporary exemption from the rule change which requires a minimum bid price of
$1.00 for continued listing on the Nasdaq SmallCap Market. Cornucopia remains a
reporting company under the United States SEC rules and the Company's common
shares continue to trade on the Toronto Stock Exchange. (See Exhibit 20.1).
9
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995
(the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties, and other factors which may cause the actual
results, performance, or achievements of the Company to be materially
different from any future results, performance, or achievements express or
implied by such forward-looking statements. Such factors include, among
others, results of merger or sale of assets, precious metals exploration and
development costs and results, reclamation obligations, fluctuation of gold
prices, competition, uninsured risks, recovery of reserves, capitalization
and commercial viability and requirements for obtaining bonds, permits and
licenses.
The following discussion of the financial position of the Company and results
of operations for the three months and nine months ended September 30, 1998,
and September 30, 1997, should be read in conjunction with the Consolidated
Financial Statements and the related notes.
These statements were prepared using accounting principles generally accepted
in Canada, which agree in all material respects with accounting principles
generally accepted in the United States, except as explained in note 8 to the
Company's December 31, 1997 Consolidated Financial Statements.
OVERVIEW
The Company's primary focus is exploration, development and mining of
precious metal deposits in the United States.
Although mechanical completion occurred on May 29, 1997 and gold production
began in June 1997, the Mineral Ridge mine in Nevada has not yet met tests
that qualified the project as being in full commercial production for
accounting purposes. Revenues from the sale of dore continue to be recorded
as an offset to capital expenditures and operating costs continue to be
recorded as capital expenditures.
Subsequent to quarter end, an agreement was reached with Vista Gold Corp.
("Vista") regarding the sale of the Company's wholly-owned indirect United
States subsidiary, Mineral Ridge Resources Inc. ("Mineral Ridge"), which held
the Mineral Ridge mine. As consideration, the Company received 1,562,500
common shares of Vista valued at $250,000 and Vista subscribed to a private
placement of 2,777,777 common shares of Cornucopia Resources Ltd. have been
valued at $250,000.
The Company has a 25% interest in the Ivanhoe Property in Nevada, an early
stage exploration project. The Venture Agreement with Great Basin Gold Ltd.
("Great Basin") provides that Great Basin can earn up to a 75% interest by
spending $2.8 million on exploration by August 12, 1999, and by payment to
Newmont of $1.0 million (paid) as contribution to the reclamation fund and by
purchasing 1.1 million units in the capital stock of the Company at C $1.00
per unit (completed). Great Basin is currently undertaking a drilling
program on the property. The Company and Great Basin will be responsible for
any reclamation costs over certain limits discussed below.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
REVENUES
Revenues from dore shipments totaling $10.6 million from the Mineral Ridge
mine, for shipments beginning in June 1997, through September 30, 1998,
continue to be recorded as an offset to capital expenditures as commercial
production status has not been attained. As a result, no amounts from the
sale of gold and silver from the Mineral Ridge Mine have been included under
revenue on the consolidated statement of loss and deficit.
10
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Revenues from interest and other income were $5,551 and $49,010 in the nine
months ended September 30, 1998, and 1997 respectively. The decrease was due
to lower balances of cash and short term investments.
EXPENSES
General and administrative expenses declined to $802,462 in the nine months
ended September 30, 1998, from $1,567,877 for the period ended September 30,
1997. The decrease was due to reduction in the Vancouver, British Columbia,
office staff costs and reductions in other expense areas such as investor
relations, rent, insurance and travel. General and administrative expenses of
Mineral Ridge were of approximately the same amounts during the nine months
ended September 30, 1998, and 1997. However, significant reductions have
actually been made in the general and administrative expenses of Mineral
Ridge but, as discussed above in Overview, these items were capitalized and
are therefore not reported on the Consolidated Statement of Loss and Deficit.
In the first nine months of 1997 the Company recorded an expense due to the
write down of the investment in Carlin Resources Corp. ("Carlin Resources")
shares. No corresponding loss occurred in the first nine months of 1998.
The equity method of accounting for the investment in Carlin Resources was
applicable for a portion of the period ended September 30, 1997 and a loss of
$71,897 was recorded thereunder. No corresponding loss was applicable to the
nine months ended September 30, 1998.
THREE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
REVENUES
A reclassification of the year-to-date interest income of Mineral Ridge was
recorded for the three months ended September 30, 1997 resulting in a
negative amount of $25,159 reported under interest and other income. No
corresponding reclassification occurred in the third quarter of 1998 and
interest income of $1,695 was earned.
EXPENSES
General and administrative expenses decreased to $146,163 in the three months
ended September 30, 1998, from $432,707 in the third quarter of 1997. The
decrease was due to lower employment costs in the Vancouver, British Columbia
office resulting from the reduction of six staff from the prior year and from
cost reductions in travel, investor relations and legal expenses.
The Company held 2,561,139 shares of Carlin Resources and the carrying value
of the investment had been reduced to nil. On September 21, 1998, all of the
shares of Carlin Resources owned by the Company were sold in order to raise
working capital. The proceeds of $25,177 were recorded as a gain on
disposal.
LOSS PER COMMON SHARE
The Company's net loss for the nine months ended September 30, 1998, was
$771,734 compared to a net loss of $2,044,217 in the same period in 1997.
The net loss for the third quarter 1998, was $119,291 compared to net loss of
$802,111 for the third quarter 1997.
The weighted average number of common shares for the nine months ended
September 30, 1998, was 38.7 million which results in a loss of $0.02 per
share.
LIQUIDITY AND CAPITAL RESOURCES
A low gold price and problems originating in 1997 with construction delays
and water supply led to covenant breaches and repayment defaults under the
Mine Debt Financing Facility and the reclassification of the entire loan as a
current liability. Current assets and liabilities other than the loan
facility include current assets of $267,584 and current accounts payable of
$1,916,549.
11
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The working capital deficiency forced the company's subsidiary, Mineral Ridge
to delay payment to its mining contractor and construction contractor for
invoices and holdback totaling $1.3 million, which were included in accounts
payable as at September 30, 1998.
On April 24, 1998 Mineral Ridge received notice from its bonding company to
increase the collateral by $719,700 which would bring the total collateral to
100% of the budget of $1,604,086 for reclamation. The financial resources
were not available to meet this payment by the requested date of May 4, 1998.
The agreement with Vista completing the sale of the Company's wholly-owned
subsidiary Mineral Ridge includes release agreements for all of the above
encumbrances with the exception of the bonding agreement, which is being
negotiated by Vista. Immediately after the completion of the sale of Mineral
Ridge the Company is expected to have positive working capital.
The Company will now focus its activities on the Ivanhoe Property where its
joint venture partner Great Basin must spend a total of $2.8 million on
exploration and related expenditures in the two years ending August 13, 1999,
to earn a 75% interest.
The working capital deficiency was $15,365,190 at September 30, 1998,
compared to a working capital deficiency of $13,970,445 as at December 31,
1997.
Cash and cash equivalents decreased by a net amount of $977,301 in the nine
months ended September 30, 1998. Uses of cash were to fund net capital
expenditures on resource assets of $722,916 at the Mineral Ridge property,
accounts payable reduction of $450,959 and for operations, primarily general
and administrative expenses and staff costs. These expenditures were
financed by a $242,734 reduction in accounts receivable, the delay of
$529,626 in interest repayments on debt and by drawing down cash balances.
Included in the working capital deficiency at September 30, 1998, was cash of
$19,431 compared to $996,732 in cash at December 31, 1997.
IVANHOE JOINT VENTURE
Under the terms of the Venture Agreement with Great Basin, exploration and
related expenditures of $2.8 million are required to be made by Great Basin
by August 12, 1999, otherwise Great Basin's participating interest will be
diluted 1% for each $166,667 not made. After Great Basin has made the
required exploration expenditures, the Company will be required to fund
future exploration programs to the extent of its participating interest.
A 2,380 feet drilling program conducted on the Hollister sector of the
Ivanhoe Property from November 1997, through February 1998, yielded results
were reported under Item 2 of the Company's Form 10-K filed on March 31, 1998.
A continuing drill program was conducted during the quarter. Significant
intercepts from the two programs are tabulated below:
<TABLE>
<CAPTION>
Drill Hole Intercept (ft.) Gold Grade Silver Grade Angle to Core True Grade
(oz/ton) (oz/ton) Axis Thickness Thickness
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
IH-003 9.3 0.278 2.1 15 2.4 0.67
IH-004 10.6 4.964 47.8 18 3.3 16.38
IH-004 12.6 1.635 39.0 18 3.9 6.38
IH-004 3.9 0.313 6.0 31 2.0 0.63
IH-005 2.7 1.239 10.1 10 0.5 0.62
IH-009 5.0 0.949 6.2 20 1.7 1.61
IH-009A 11.4 2.942 1.4 52 9.0 26.48
IH-011 3.5 2.582 9.1 45 2.5 6.46
IH-011 4.3 4.840 2.0 36 2.5 12.10
</TABLE>
12
<PAGE>
The distribution of high grade drill intercepts along northwest and northeast
trending structures below the near surface bulk tonnage Hollister deposit
strongly suggests potential for a Ken Snyder-type high grade gold-silver
system. The nearby Ken Snyder mine, now under construction, has a mineable
reserve of 2.17 million tons with a reported grade of 1.04 oz gold/ton and
11.65 oz silver/ton, is expected to produce gold for less than $80 per ounce
and is designed to mine at a total diluted width of 3 to 5 feet.
RISKS AND UNCERTAINTIES
There can be no certainty the Company could successfully pursue financing
options or rely on joint venture partners to supply some of the funds
required to explore and develop its properties. There can be no assurance
that the Company will be successful in obtaining the funds it may require for
its programs or that the terms of any financing obtained will be favorable.
The Company has no unused banking commitments or lines of credit which could
provide significant increases in its working capital.
Reclamation on the Ivanhoe Property is being carried out by Newmont. Newmont
submitted the original Ivanhoe Property Reclamation Plan to the State of
Nevada and the Bureau of Land Management in June 1993, as revised in July
1995 for a total budget cost of $6.0 million. In July 1997, Newmont
quitclaimed its interest in the Ivanhoe Property to the Company but has
remained responsible for reclamation of work conducted and disturbance caused
up to that time. As at September 30, 1998, the reclamation fund consisted of
$5,100,000 of which $3,200,000 has been contributed by Newmont, $500,000 by
the Company, $1,200,000 by Great Basin and $200,000 advanced by Great Basin
on the Company's behalf under the terms of the Joint Venture Agreement.
Under the Venture Agreement, if the budget exceeds $6,000,000, Newmont will
contribute 75%, Great Basin 18.75% and the Company 6.25% of the remaining
excess reclamation costs.
MARKET FOR SECURITIES
The common shares of the Company commenced trading on the OTC Bulletin Board
(Symbol CNPGF) effective October 29, 1998. This followed the decision by the
Nasdaq Listing Qualifications Panel not to accept Cornucopia's appeal for a
temporary exemption from the rule change which requires a minimum bid price
of $1.00 for continued listing on the Nasdaq SmallCap Market. Cornucopia
remains a reporting company under the United States SEC rules and the
Company's common stock continues to trade on the Toronto Stock Exchange
(Symbol CNP).
YEAR 2000 COMPUTER RISK
The Company uses current or near current versions of software by major
developers for office productivity, accounting, internet and database
applications. Published statements by these software developers have been
obtained assuring that these programs are year 2000 compliant and management
believes that the risk associated with these internal programs is low.
Operationally, the Company uses two software programs for crusher operation
and for mine modeling and planning. These programs are not date sensitive,
however, the vendors have been contacted directly for confirmation of year
2000 compliance.
13
<PAGE>
CORNUCOPIA RESOURCES LTD.
PART II OTHER INFORMATION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ITEM 1: LEGAL PROCEEDINGS
Not applicable.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
For detailed information see Part 1, Item 2 - "Management's Discussion
and Analysis of Financial Condition and Results of Operations" under
the headings Liquidity and Capital Resources, Mine Debt Financing and
Risks and Uncertainties.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5: OTHER INFORMATION
Negotiations for the sale of the Mineral Ridge Mine continued
throughout the third quarter. These were brought to a successful
conclusion on October 21, 1998, through the sale of all of the shares
of Mineral Ridge Resources Inc. to Vista Gold Corp. The Company
received 1,562,500 shares of Vista as consideration for the sale and
Vista subscribed to a private placement of 2,777,777 shares of the
Company for proceeds of $250,000.
This transaction has provided the Company with sufficient working
capital to proceed confidently with its objectives of raising new
capital for its continuing participation in the Ivanhoe Joint Venture.
The purchase of Mineral Ridge by Vista has also relieved the Company
of all its liabilities, including guarantees, with respect to the loan
agreement with Dresdner Bank AG and approximately $2 million owing to
major trade creditors.
Effective October 29, 1998, the Company's shares were delisted from
the Nasdaq SmallCap Market and transferred to the OTC Bulletin Board
due to non-compliance with the new $1.00 minimum bid-price
requirements. The Company's shares continue to trade on the Toronto
Stock Exchange. The Company's news release dated October 29, 1998, is
filed as Exhibit 20.1.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits required by Regulation S-K
Exhibit 20.1 - News Release dated October 29, 1998.
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8K:
The following reports on Form 8-K have been made year-to-date:
February 12, 1998, February 26, 1998, April 15, 1998, and April 21,
1998, October 23, 1998.
14
<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.
CORNUCOPIA RESOURCES LTD.
(Registrant)
Date: November 12, 1998 /s/ Glenn H. Friesen
------------------------------
Glenn H. Friesen
Vice President, Finance
Date: November 12, 1998 /s/ Andrew F. B. Milligan
------------------------------
Andrew F. B. Milligan
President & CEO
Director
15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Page
- -------------- ----
<S> <C>
20.1 News Release dated October 29, 1998 ........................... 17
27 Financial Data Schedule ....................................... 18
</TABLE>
16
<PAGE>
[GRAPHIC]
CORNUCOPIA RESOURCES LTD.
Suite 540 - 355 Burrard Street, Vancouver, BC Canada V6C 2G8
Telephone: (604) 687-0619 - Facsimile: (604) 681-4170
NEWS RELEASE
NASDAQ TRADING SYMBOL: CNPGF
TSE TRADING SYMBOL: CNP
FOR IMMEDIATE RELEASE OCTOBER 29, 1998
CORNUCOPIA TO TRADE ON OTC BULLETIN BOARD
VANCOUVER, BC - The common shares of Cornucopia Resources Ltd. have commenced
trading on the OTC Bulletin Board (Symbol CNPGF) effective October 29, 1998.
The Bulletin Board is an automated exchange allowing real time access to the
Company's stock price through brokerage systems as well as the Internet.
This follows the decision by the Nasdaq Listing Qualifications Panel not to
accept Cornucopia's appeal for a temporary exemption from the rule change
which requires a minimum bid price of US$1.00 for continued listing on the
Nasdaq SmallCap Market. Cornucopia remains a reporting company under the
United States SEC rules and the Company's common stock continues to trade on
the Toronto Stock Exchange (Symbol CNP).
Cornucopia is a joint venture partner with Great Basin Gold Ltd. at the
Ivanhoe Property in Nevada's Carlin Trend, where two successful drill
programs have so far been completed during 1998. The 21 square mile Ivanhoe
Property is being explored for high-grade gold and silver quartz veins with
strong similarities to Franco Nevada's and Euro Nevada's nearby Ken Snyder
underground project at Midas.
ON BEHALF OF THE BOARD OF DIRECTORS
(SIGNED)
Andrew F. B. Milligan
President and CEO
CORNUCOPIA RESOURCES LTD. INVESTOR RELATIONS: 1.604.687.0619
17
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
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<SECURITIES> 0
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