<PAGE>
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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 March 31, 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)
------------------------
<TABLE>
<S> <C>
BRITISH COLUMBIA, CANADA N/A
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
SUITE 540-THE MARINE BUILDING,
355 BURRARD STREET, VANCOUVER, BC V6C 2G8
(Address of principal executive offices)
(604) 687-0619
(Registrant's telephone number, including area code)
N/A
(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 / /
------------------------
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 May 13, 1998, there were 38,814,057 common shares outstanding.
- --------------------------------------------------------------------------------
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
- Consolidated Balance Sheets as at March 31, 1998, and December 31, 1997....................... 3
- Consolidated Statements of Loss and Deficit for the three months ended March 31, 1998, and
March 31, 1997................................................................................ 4
- Consolidated Statements of Changes in Financial Position for the three months ended March 31,
1998, and March 31, 1997...................................................................... 5
- Notes to Consolidated Financial Statements.................................................... 6-14
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations......... 15-18
PART II OTHER INFORMATION
Item 1 Legal Proceedings............................................................................. 19
Item 2 Changes In Securities and Use of Proceeds..................................................... 19
Item 3 Defaults Upon Senior Securities............................................................... 19
Item 4 Submission of Matters to a Vote of Security Holders........................................... 19
Item 5 Other Information............................................................................. 19
Item 6 Exhibits And Reports On Form 8-K.............................................................. 20
SIGNATURES................................................................................................ 21
EXHIBIT INDEX............................................................................................. 22
</TABLE>
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, fluctuation of gold prices, competition, uninsured risks, recovery of
reserves, capitalization and commercial viability and requirements for obtaining
bonds, permits and licenses.
2
<PAGE>
CORNUCOPIA RESOURCES LTD.
CONSOLIDATED BALANCE SHEETS
(PREPARED BY MANAGEMENT WITHOUT AUDIT)
(STATED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................................................... 169,799 996,732
Accounts receivable................................................................. 409,248 546,050
Product inventory................................................................... -- --
Prepaid expenses and deposits....................................................... 27,297 40,880
------------- -------------
606,344 1,583,662
------------- -------------
Capital assets...................................................................... 46,131 63,116
Resource assets..................................................................... 16,767,461 16,710,818
------------- -------------
TOTAL ASSETS........................................................................ 17,419,936 18,357,596
------------- -------------
------------- -------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities............................................ 1,883,603 2,367,508
Debt................................................................................ 13,200,117 13,186,599
------------- -------------
15,083,720 15,554,107
------------- -------------
Capital lease obligations........................................................... 28,279 42,436
Provision for site reclamation...................................................... 172,908 172,908
------------- -------------
TOTAL LIABILITIES................................................................... 15,284,907 15,769,451
------------- -------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL
Common shares (38,663,540).......................................................... 37,829,307 37,829,307
Deficit............................................................................. (35,694,278) (35,241,162)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY.......................................................... 2,135,029 2,588,145
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......................................... 17,419,936 18,357,596
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
CORNUCOPIA RESOURCES LTD.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(PREPARED BY MANAGEMENT WITHOUT AUDIT)
(STATED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1998 1997
------------ ------------
<S> <C> <C>
REVENUES
Product sales......................................................................... -- 6,764
Production costs...................................................................... -- 81,682
------------ ------------
Operating profit (loss)............................................................... -- (74,918)
Interest and other income............................................................. 2,309 41,942
------------ ------------
2,309 (32,976)
------------ ------------
EXPENSES (OTHER INCOME)
General and administrative expenses................................................... 455,424 499,352
Loss (gain) on disposal/write down of investments..................................... -- 132,096
Abandonment and write down of resource assets......................................... -- --
------------ ------------
455,424 631,448
------------ ------------
LOSS BEFORE NON-CONTROLLING INTEREST.................................................. (453,115) (664,424)
Equity loss........................................................................... -- 51,945
------------ ------------
NET LOSS FOR THE PERIOD............................................................... (453,115) (716,369)
------------ ------------
------------ ------------
Deficit, beginning of the period...................................................... 35,241,162 16,776,537
Net loss for the period............................................................... 453,115 716,369
------------ ------------
DEFICIT, END OF THE PERIOD............................................................ 35,694,278 17,492,906
------------ ------------
------------ ------------
LOSS PER SHARE........................................................................ (0.01) (0.02)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............................................ 38,619,346 35,724,151
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
CORNUCOPIA RESOURCES LTD.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(PREPARED BY MANAGEMENT WITHOUT AUDIT)
(STATED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
MARCH 31, MARCH 31,
1998 1997
---------- -----------
<S> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATIONS
Net loss for the period................................................................. (453,115) (716,369)
Items not involving cash;
Amortization............................................................................ 37,873 23,735
Reclamation accrual..................................................................... -- --
Loss (gain) on disposal/write down of investment........................................ -- 132,096
Abandonment and write down of resource assets........................................... -- --
---------- -----------
(415,242) (560,538)
Net change in non-cash working capital items............................................ (333,520) 3,512,806
---------- -----------
(748,762) 2,952,268
---------- -----------
INVESTING
Investments............................................................................. -- 10,993
Note receivable......................................................................... -- 4.043
Capital assets.......................................................................... -- (46,124)
Resource assets......................................................................... (77,532) (7,009,868)
---------- -----------
(77,532) (7,040,956)
---------- -----------
FINANCING
Capital lease obligations............................................................... (14,157) (10,664)
Debt.................................................................................... 13,518 845,956
Net proceeds from issue of common shares for cash....................................... -- 1,735,687
Net proceeds (expenses) from issue of special warrants.................................. -- (946,019)
---------- -----------
(639) 1,624,960
---------- -----------
INCREASE (DECREASE) IN CASH............................................................. (826,933) (2,463,728)
---------- -----------
Cash and Equivalents, beginning of the period........................................... 996,732 3,870,312
---------- -----------
CASH AND EQUIVALENTS, END OF THE PERIOD................................................. 169,799 1,406,584
---------- -----------
---------- -----------
</TABLE>
(includes funds in escrow)
See accompanying notes to financial statements.
5
<PAGE>
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 March 31, 1998, Cornucopia Resources Ltd. (the "Company") had a working
capital deficiency of $14,437,376, which is, in part, due to the classification
of indebtedness (see below). In addition, the Company's mining operations at its
Mineral Ridge Mine have been suspended since 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 timing of recommencement of mining operations at
Mineral Ridge cannot be determined with certainty. The Company has 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
is uncertain.
The Company is not in compliance with certain debt covenants calculated as
at March 31, 1998. The lender has given notice to the Company that an event of
default has occurred and has taken action to accelerate repayment of the loan or
to otherwise act on its security. Action taken by the lender was in the form of
a letter declaring that forbearance would not continue beyond April 30, 1998,
and that the lender may foreclose on Mineral Ridge Resources Inc. and enforce
the guarantee of Cornucopia Resources Ltd. Until the covenants governing these
financial ratios are formally amended, the Company is not in compliance with the
loan agreement. Therefore, the total obligation of $13,200,117 has been
classified as a current liability on the balance sheet.
Notwithstanding the covenant violation, under the terms of the existing loan
agreement, the Company is required to make loan payments of approximately
$6,850,117 in the next twelve months. Although the Company does not currently
have sufficient funds to satisfy this repayment obligation, it is management's
intention to be able to make the repayments from cash flow generated by
operations from Mineral Ridge. The amount of cash flow generated is partially
dependent upon future gold prices. However, if the lender were to act on the
covenant violation or the Company were unable to meet these repayment
requirements, the future operations of the Company could be materially and
adversely affected.
To improve liquidity and to enable necessary expenditures of capital at
Mineral Ridge, discussions are underway with third parties to obtain additional
financing. Current discussions focus on a corporate merger or sale of the
Mineral Ridge Mine.
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, consisting only those of
a normal recurring nature, necessary to present fairly the financial position of
Cornucopia Resources Ltd. as of March 31, 1998, and the results of its
operations and changes in its financial position for the three months ended
March 31, 1998, and 1997. The results of operations for the three months ended
March 31, 1998, are not necessarily indicative of the results to be expected for
the entire fiscal year.
6
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(PREPARED BY MANAGEMENT WITHOUT AUDIT)
(STATED IN UNITED STATES DOLLARS)
2. BASIS OF PRESENTATION (CONTINUED)
The accompanying consolidated financial statements for the three months
ended March 31, 1998, are prepared on the basis of accounting principles
generally accepted in Canada. Significant differences to accounting principles
generally accepted in the United States of America are explained in note 8.
The consolidated financial statements include the accounts of Cornucopia
Resources Ltd., (the "Company") which is incorporated under the Company Act
(British Columbia), its subsidiary, including Cornucopia Resources, Inc., a
wholly-owned subsidiary incorporated in the State of Nevada, and its
subsidiaries which are wholly-owned.
The Company's 25% interest in the Ivanhoe joint venture (note 5(a)) has been
accounted for by the proportionate consolidation method. All significant
intercompany accounts and transactions have been eliminated upon consolidation.
The Company's 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")
These financial statements reflect the application of the equity method
until April 30, 1997, after which the cost method became appropriate with the
completion of the Block Trade discussed below. As at December 31, 1997, and as
at March 31, 1998, the Company's interest in Carlin Resources was 14.6%.
(b) DISPOSITION OF CARLIN RESOURCES SHARES
Under the terms of the agreement to sell Carlin shares with an underwriter,
the Company advanced C $400,000 to Carlin Resources upon closing of the Block
Trade which amount was subsequently repaid in July 1997. At March 31, 1998, the
Company has an amount due from Carlin Resources of $208,500 (C $296,000) which
is carried in accounts receivable at its estimated realizable amount.
All advances made by the Company to Carlin Resources bear interest at prime
plus 2%.
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, 1998 1997
------------------------- -------------
ACCUMULATED NET BOOK NET BOOK
COST DEPRECIATION VALUE VALUE
$ $ $ $
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
CAPITAL ASSETS
Buildings, leasehold improvements............................. 12,088 6,803 5,285 6,278
Drilling, field equipment and vehicles........................ -- -- -- --
Furniture, fixtures, and office equipment..................... 212,163 171,317 40,846 56,838
---------- ------------ ----------- ------
$ 224,251 178,120 46,131 63,116
---------- ------------ ----------- ------
---------- ------------ ----------- ------
</TABLE>
7
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(PREPARED BY MANAGEMENT WITHOUT AUDIT)
(STATED IN UNITED STATES DOLLARS)
5. RESOURCE ASSETS
<TABLE>
<CAPTION>
ACQUISITION DEFERRED MARCH 31, DECEMBER 31,
COSTS EXPENSES 1998 1997
$ $ $ $
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
RESOURCE ASSETS
Ivanhoe Property (a).................................. 1 1,874,891 1,874,892 1,874,892
Mineral Ridge Mine (b)................................ 1,428,616 13,463,949 14,892,565 14,835,922
Other properties...................................... 4 -- 4 4
------------ ------------- ------------- -------------
$ 1,428,621 $ 15,338,840 $ 16,767,461 $ 16,710,818
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
(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.
In June 1996, Newmont Exploration Limited ("Newmont") the former joint
venture partner, commenced reclamation, which consisted primarily of rinsing the
heaps, monitoring the site, constructing extensive diversion ditches and
re-shaping waste stock piles. Newmont submitted a formal reclamation and closure
plan to the State of Nevada Bureau of Land Management (the "BLM") in March 1997,
and began a more extensive program. The budget for the complete reclamation plan
through to December 2003, is estimated to be $6,000,000.
The Company, Newmont and Great Basin Gold Inc. ("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 would transfer its 75% interest in the Ivanhoe Property to
Great Basin in consideration for a $1,000,000 contribution to a reclamation
fund. This contribution was made on August 14, 1997.
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.
The parties acknowledge that the Company has contributed $500,000 to the
reclamation fund and Newmont has contributed $3,000,000. Great Basin has
contributed $1,000,000 on behalf of the Company. Once the $4,500,000 has been
expended, the parties will each contribute funds to the reclamation fund on an
equal basis until a total of $6,000,000 has been spent. Reclamation costs in
excess of $6,000,000 will be paid 75% by Newmont and 25% pro rata by the Company
and Great Basin.
8
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(PREPARED BY MANAGEMENT WITHOUT AUDIT)
(STATED IN UNITED STATES DOLLARS)
5. RESOURCE ASSETS (CONTINUED)
(b) MINERAL RIDGE MINE
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
$ $
------------ -------------
<S> <C> <C>
RESOURCE ASSETS
Deposits/bonds................................................... 904,990 1,056,700
Capital assets, net.............................................. 463,863 484,751
Land/options..................................................... 1,428,616 1,428,616
Deferred royalties............................................... 114,491 127,354
Deferred exploration............................................. 4,299,071 4,298,803
Deferred construction Costs...................................... 13,551,895 12,271,104
Net smelter revenue.............................................. (8,889,893) (7,612,719)
Deferred financing costs......................................... -- --
Other capital costs.............................................. 3,019,532 2,781,313
------------ -------------
14,892,565 $ 14,835,922
------------ -------------
------------ -------------
</TABLE>
On May 15, 1996, the Company exercised its Purchase Right to acquire a 100%
interest in the Mary Mining Lease in Esmeralda County, Nevada.
In 1996, the Company acquired additional mining properties contiguous to the
Company's other claims at Mineral Ridge.
The State of Nevada, Bureau of Land Management ("BLM") required the Company
to provide a reclamation bond in the amount of $1,640,086, half of which is
included in the balance for reclamation bonds and deposits. During 1996, the
Company funded 50% of this bond and the balance was funded by a bonding company
for a yearly fee of 2% on the outstanding balance. The Company's $820,043
contribution earns a market rate of interest compounded over time. The bond is
intended to remain in place until all reclamation at the mine site is completed
to the satisfaction of the BLM estimated to be in approximately 10 years.
A provision in the agreement with the bonding company allows the periodic
review of the 50% funding formula. On April 24, 1998, 10 days notice was
received to increase the collateral by $719,700 which would bring the total
collateral to $1,604,086 for the Mineral Ridge Mine. The Company did not have
the financial resources to meet this payment by the requested date of May 4,
1998, but is providing additional information to allow the bonding company to
continue to evaluate their position. If the request for additional collateral is
not complied with or if the additional information does not satisfy the bonding
company, the bond could be canceled. The cancellation of the bond, if such
action is taken, could have a negative impact on the operations of the company.
Effective June 1997, after the first gold was poured the Company began to
calculate royalties which are payable on the Mary Mining Company assets based on
4% of revenue net of smelter expenses and proceeds taxes.
Additions to resource assets at the Mineral Ridge Mine site during the
quarter ended March 31, 1998, totaled $77,832.
9
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(PREPARED BY MANAGEMENT WITHOUT AUDIT)
(STATED IN UNITED STATES DOLLARS)
5. RESOURCE ASSETS (CONTINUED)
The Company has recorded a write down of $16,000,000 against the Mineral
Ridge Mine at December 31, 1997. Management will continue to reassess the
underlying value of the Mineral Ridge Mine.
6. MINE DEBT FINANCING FACILITY
On January 17, 1997, the Company entered into a loan agreement with a
financial institution for senior secured loan facilities to be used for the
construction, development, and mining of ore from the Mineral Ridge Mine. The
agreement provided for $13,000,000 for construction and development purposes and
initial working capital and a $2,000,000 contingency facility to be available to
fund cost overruns and the initial debt service reserve.
The Mine Debt Financing Facility contemplates that the Company's share
holdings in Carlin Resources would be pledged as security for the Company's
indebtedness, but could thereafter be disposed of in accordance with the terms
of such pledge. The facility also provides that the Company's interest in the
Ivanhoe Property be pledged as security.
The Mineral Ridge Mine is required to meet certain financial covenants
pursuant to the loan agreement. As of December 31, 1997, the Mineral Ridge Mine
was not in compliance with certain of the covenants. The Company was unable to
make principal payments at September 30, 1997 ($1,500,000), December 31, 1997
($1,500,000), and at March 31, 1998 ($1,500,000). In addition to the $6,850,117
in scheduled loan payments and interest the Company has classified the remaining
$6,350,000 of the borrowings to current portion of long term debt as a result of
the covenant violations.
Management are in discussions with the lender to renegotiate the covenants
in the loan agreement which, if completed as anticipated, will result in the
existing violations being waived. Discussions to date have resulted in the bank
deferring the principal payments removing the restrictions on the use of
$910,192 held in a reserve account pursuant to the disposition of the Carlin
Resources shares, and agreeing to other concessions. These amendments are
subject to the approval of the bank's credit committee. Until the covenants
governing these financial ratios are formally amended and until the principal
payments are formally rescheduled, the Company is not in compliance with the
loan agreement. If these amendments are completed as is currently being
discussed, the violated covenant will be revised and a waiver will be granted as
to all pre-amendment violations. The timing of this amendment, if any, is not
known.
The extended forbearance by the bank is largely due to the continuing
discussions between the Company, the bank and other interested parties, the
objective of which is to complete a merger with the Company or the sale of the
Mineral Ridge Mine. The discussions with interested parties, if completed, would
result in the restructuring of the Mine Financing Facility and would be subject
to the approval of the bank's credit committee. In the event of failure of the
current discussions to merge the Company, or to sell the Mineral Ridge Mine, the
bank has informed the Company in writing that the next step would be to declare
default on the loan and commence enforcement of the bank's rights including but
not limited to foreclosure of Mineral Ridge assets, sale of the Ivanhoe Property
interest and enforcement of the guarantee granted by the Company.
10
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(PREPARED BY MANAGEMENT WITHOUT AUDIT)
(STATED IN UNITED STATES DOLLARS)
7. 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>
VALUE OF
AVERAGE PRICE SHARE
NUMBER OF PER SHARE CAPITAL
SHARES $ $
------------ --------------- -------------
<S> <C> <C> <C>
ISSUED AND OUTSTANDING:
Balance, January 1, 1997......................... 35,058,040 $35,327,772
- --issued for cash March 7, 1997.................. 2,398,000 0.724 1,736,737
------------ ----- -------------
Balance, March 31, 1997.......................... 37,456,040 $37,063,459
------------ ----- -------------
------------ ----- -------------
</TABLE>
<TABLE>
<CAPTION>
VALUE OF
AVERAGE PRICE SHARE
NUMBER OF PER SHARE CAPITAL
SHARES $ $
------------ --------------- -------------
<S> <C> <C> <C>
ISSUED AND OUTSTANDING:
Balance, December 31, 1997....................... 38,556,040 $37,829,307
- --issued for share bonus February 6, 1998........ 107,500 -- --
------------ ----- -------------
Balance, March 31, 1998.......................... 38,663,540 $37,829,307
------------ ----- -------------
------------ ----- -------------
</TABLE>
(b) OPTIONS
As at March 31, 1998, there were an aggregate of 2,025,000 stock options
outstanding (December 31, 1997; 2,275,000) granted to directors, officers and
employees of the Company.
The following changes occurred in the stock options outstanding as of
December 31, 1997:
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 optionee, totaling 50,000
common shares, at an exercise price 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.
11
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(PREPARED BY MANAGEMENT WITHOUT AUDIT)
(STATED IN UNITED STATES DOLLARS)
8. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND
THE UNITED STATES
(a) For purposes of United States generally accepted accounting principles, in
1993 the Company would have been required to adopt Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes". Statement
109 changed the method companies use to account for income taxes from the
deferred method to an asset and liability method. As indicated in Note 9,
the Company has significant unrecognized loss carry forwards for income tax
purposes. As there is no certainty as to the utilization of the loss carry
forwards, the benefit attributable thereto would be fully offset by the
valuation allowance. Accordingly, the adoption of Statement No. 109 does not
result in a material difference for accounting purposes.
(b) Under United States accounting principles the value attributable to the
Common Shares issued for services and non-cash transactions related to the
deconsolidation of Carlin Resources in 1996 would be excluded from financing
activities in the consolidated statement of changes in financial position
and reported separately.
(c) Under United States accounting principles the $16,000,000 write down of
resource assets at December 31, 1997, would have been calculated using
discounted cash flow methods. Under such calculation methods using a
discount rate of 4% an additional provision of $900,000 ($0.02 per share)
would have been recorded.
(d) Under United States accounting principles, the Company's interest in the
Ivanhoe joint venture (note 5(a)) would be accounted for by the equity
method. If applied, this difference would not impact the reported earnings
or shareholders' equity.
(e) Under United States accounting principles, Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation", requires that
stock-based compensation be accounted for based on a fair value methodology.
As permitted by the statement, the Company has elected to continue measuring
compensation costs using the intrinsic value based method of accounting.
Under this method, compensation is the excess, if any, of the quoted market
value of the stock at the measurement date of the grant over the amount an
optionee must pay to acquire the stock. As the exercise price of the options
approximate market value at date of grant, the Company has determined that
there is no material difference to United States accounting principles.
9. INCOME TAXES
The Company's operations are primarily in the United States. Tax benefits
related to losses of prior years are not recognized in the statements of
operations and deficit in prior years due to the uncertainty of their
realization.
At December 31, 1997, the Company had net operating loss carry forwards for
United States income tax purposes of approximately $9,117,000 which, if not
utilized to reduce United States taxable income in future periods, expires
through 2012. Of this amount, approximately $945,000 can only be utilized
against future taxable income of a non-operating subsidiary and will begin to
expire in the year 2001.
At December 31, 1996, the Company had net operating losses for Canadian
income tax purposes carried forward of approximately C $11,051,000 which, if not
utilized to reduce Canadian taxable income in future periods, will expire during
the years 1998 to 2003.
12
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(PREPARED BY MANAGEMENT WITHOUT AUDIT)
(STATED IN UNITED STATES DOLLARS)
10. RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere are as follows:
(a) The Company paid $44,341 in the first quarter of 1998, (1997--$51,857) to
Glencoe Management Ltd., a company controlled by an officer and director, in
return for consulting services.
(b) The Company incurred legal fees of $29,251 in the first quarter of 1998,
(1997--$33,904) to DuMoulin Black, a firm in which a director of the Company
is a partner.
11. COMMITMENTS AND CONTINGENCIES
(a) LEASE COMMITMENTS
The Company leases certain facilities and equipment under operating lease
arrangements. Minimum rental expense under such arrangements amounts to
approximately $111,000, $106,000, and $67,000 for fiscal 1997, 1996, and 1995
respectively. Future minimum lease commitments under such arrangements will be
approximately $61,000, $6,000 and $6,000 for fiscal 1998, 1999, and 2000
respectively.
(b) PROVISION FOR SITE RESTORATION
Newmont submitted a reclamation and closure plan for the Ivanhoe Venture to
the BLM in March 1997. The budget for the complete reclamation plan through to
December 2003, is estimated to be $6,000,000 (note 5(a)).
(c) AGREEMENTS
The Company has entered into an agreement with Glencoe Management Ltd. a
company controlled by Andrew F. B. Milligan, the President and Chief Executive
Officer and a director of the Company. The agreement includes provisions by
which Mr. Milligan will be entitled to receive an amount equal to three years
management fees and benefits should the Company terminate the agreement with or
employment of him without cause. The estimated cost of this arrangement to the
Company based on current compensation would be approximately $495,000.
(d) CONTRACTS
On August 20, 1996, the Company entered into a contract with Roberts &
Schaefer Company for the construction of certain facilities and plant at the
Mineral Ridge Mine. The total contract price is fixed at $12,399,672 payable in
installments for the portion of the work completed each month over the
construction period.
On January 21, 1997, the Company entered into a contract with D. H. Blattner
& Sons, Inc. for open-pit mining over the life-of-mine estimated at 6 years. The
contract price is based on performance of work. The unit prices and hourly rates
remain constant through to December 31, 1997, and for ensuing years of the
contract shall be subject to an escalation provision which must be approved by
the Company.
On July 11, 1997, Mineral Ridge Resources, Inc. entered into an agreement
with Sierra Pacific Power Company to provide electric power to the Mineral Ridge
Mine in Esmeralda County, Nevada throughout the life of the project. The
agreement establishes certain long term prices for current and future capacity.
The agreement provides for a minimum monthly facilities charge of $24,358 to be
paid monthly until
13
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(PREPARED BY MANAGEMENT WITHOUT AUDIT)
(STATED IN UNITED STATES DOLLARS)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
May 31, 2002, to reimburse Sierra Pacific for the capital costs associated with
the electrical installation. The Company has guaranteed a letter of credit
related to the construction of electrical facilities
12. FINANCIAL INSTRUMENTS
(a) GOLD HEDGING
In order to manage its exposure to fluctuations in the price of gold, the
Company may enter into fixed forward contracts. Forward sales agreements
obligate the Company to sell gold at a specified price on a specified date.
In October 1997, the Company realized a portion of the equity in some of its
forward sales contracts for gold ounces scheduled for delivery in the years 2000
through to September 30, 2002. This resulted in a gain of $2.3 million which was
offset to Resource Assets.
As at March 31, 1998, the Company had outstanding forward contracts of
100,000 ounces (1996-- 120,000) of which 44,000 carry an average price of
$397.32 per ounce. These contracts of 44,000 ounces mature on various dates
between June 30, 1998, and December 31, 1999. The remaining contract of 56,000
ounces at $328.98 per ounce matures May 29, 1998.
Based upon current gold spot and forward sales prices and other market
conditions prevailing at the end of the respective fiscal years, the fair value
of the outstanding forward contracts is estimated to be approximately $4,900,000
(1997--$1,500,000) however, these contracts are with the lender of the Mine Debt
Financing Facility (note 6) on which the Company is not in compliance.
The Company's ability to realize on the above contracts is dependent upon
the ability of the counter-parties to perform in accordance with the terms of
the agreements. The forward contract derivatives are with one major financial
institution and the Company does not expect this counter-party to fail to meet
its obligations.
(b) INVESTMENTS AND OTHER
The fair value of other financial instruments are not materially different
from their carrying value.
13. SUBSEQUENT EVENTS
On May 4, 1998, 150,517 common shares were issued in accordance with a
settlement agreement entered into January 31, 1998, with B. J. Gordon, former
Chief Financial Officer. The settlement agreement provided for one year's
severance including benefits and provided that the amount not paid in cash would
be settled by the issuance of shares.
14
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial position of the Company and
results of operations for the quarter ended March 31, 1998, and March 31, 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 Consolidated Financial Statements.
OVERVIEW
The Company's primary focus is exploration, development and mining of
precious metal deposits in the United States.
Construction at the Mineral Ridge heap leach gold mine in Nevada began in
1996, and mechanical completion was reached May 31, 1997. The first ore was fed
into the crusher in May 1997, and gold production began in June 1997. The mine
has not met tests that qualify the project as being in full commercial
production. Net smelter revenues (including the gain from closing forward gold
sales contracts) continue to be recorded as an offset to capital expenditures
and operating costs continue to be recorded as capital expenditures.
Mining and crushing operations were suspended at Mineral Ridge effective
November 14, 1997, due to the decline in spot gold prices and an unforeseen
reduction in water supply to the heaps. Leach and process plant operations
continue and gold has continued to be recovered and sold at previously hedged
prices. The return towards full production is dependent upon a number of
factors, including those discussed under "Liquidity and Capital Resources".
As at December 31, 1997, the Company owned 14.6% of the outstanding common
shares of Carlin Resources Corp. ("Carlin Resources"), a Vancouver Stock
Exchange listed company, which has operations and mineral property interests in
Africa. To April 30, 1997, the accounts of Carlin Resources were accounted for
by the equity method. Subsequently the cost method was used to account for the
investment.
The Company has a 25% interest in the Ivanhoe Property in Nevada, an early
stage exploration project. The Venture Agreement with Great Basin Gold Inc.
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 $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
THREE MONTHS ENDED MARCH 31, 1998, COMPARED TO THE YEAR ENDED MARCH 31, 1997
REVENUES
Net smelter revenues totaling $8.9 million from the Mineral Ridge Mine, for
shipments beginning in June 1997, through March 31, 1998, continue to be
recorded as an offset to capital expenditures until full commercial production
status is attained. As a result, no revenues 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.
Revenues of $6,764, from sales of gold from residual heap leaching on the
Ivanhoe Venture with Newmont Exploration Ltd., the Company's former venture
partner, and operating cost of $81,682 was recorded for the three months ended
March 31, 1997. No corresponding revenues and expenses were incurred in the
first quarter of 1998. Revenues from interest and other income were $2,309 in
the first quarter of 1998 and $41,942 in 1997, the reduction due to lower
balances of cash and cash equivalents.
15
<PAGE>
EXPENSES
General and administrative expenses decreased to $455,424 in the first
quarter of 1998 from $499,424 in the first quarter of 1997. The decrease was due
to lower employment costs in the Vancouver, British Columbia office resulting
from staff reduction.
In the first quarter of 1997, the Company recorded a loss of $132,096 from
the write down of its investment in Carlin Resources. No corresponding loss
occurred in the first quarter of 1998.
With the application of equity accounting to April 30, 1997, the Company's
share of the loss reported by Carlin Resources was $51,945 for the first quarter
ended March 31, 1997. No corresponding loss occurred in the first quarter of
1998.
LOSS PER COMMON SHARE
The net loss for the quarter ended March 31, 1998, was $453,115 compared to
net loss of $716,369 for the first quarter ended March 31, 1997.
The weighted average number of Common Shares for the first quarter ended
March 31, 1998, was 38.6 million which results in a loss of $0.01 per share. The
weighted average number of Common Shares for the first quarter ended March 31,
1997, was 35.7 million resulting in a loss of $0.02 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company faces serious liquidity problems. There was a working capital
deficiency of $14,477,375 at March 31, 1998, compared to a working capital
deficiency of $13,970,445 as at December 31, 1997, and a working capital
deficiency of $6,240,121 as at March 31, 1997.
Cash and cash equivalents decreased by a net amount of $826,933 in the
quarter ended March 31, 1998. Principal uses of cash were to fund net capital
expenditures on resource assets at the Mineral Ridge property, reduction of
accounts payable and for operations, primarily general and administrative
expenses. These expenditures were financed by a reduction in accounts receivable
and by drawing down cash balances.
The working capital deficiency has forced the Company to delay payment to
its mining contractor and construction contractor for invoices and holdback
totaling $1.3 million. Notice of lien was filed by the mining contractor on
February 10, 1998, against the Mineral Ridge property.
On December 8, 1997, the construction contractor recorded its notice of lien
on the Mineral Ridge property claiming for holdback, legal fees and interest. On
April 2, 1998, the construction contractor filed suit to obtain judgment to
collect amounts owing of $619,486.
On April 24, 1998, 10 days notice was received from the 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 at the Mineral Ridge Mine. The
company did not have the financial resources to meet this payment by the
requested date of May 4, 1998, but is providing additional information to allow
the bonding company to continue to evaluate their position. If the request for
additional collateral is not complied with or if the additional information does
not satisfy the bonding company, the bond may be cancelled resulting in a
negative impact on the operations of the Company.
To improve liquidity, remove the above encumbrances and to enable necessary
expenditures of capital at Mineral Ridge property, discussions are underway with
third parties to strengthen the financial position of the Company by way of
corporate merger or sale of the Mineral Ridge Mine. No assurances can be given
that the Company will be successful in these endeavors. If the Company is
unsuccessful in completing a merger or sale of the Mineral Ridge Mine the
continuing liquidity problems may force the Company into receivership.
16
<PAGE>
MINERAL RIDGE MINE
Preproduction shipments of 2,997 ounces in the first quarter of 1998 have
been made bringing total preproduction shipments to 16,948 ounces of gold. First
quarter 1998 preproduction revenues of $1,277,174 were recorded.
For the mine to reach commercial production it is required to produce at a
consistent level over a sustained period of time. As this test has not been met,
net smelter revenues continue to be recorded as an offset to capital
expenditures and operating costs continue to be recorded as capital
expenditures.
Mechanical completion of the project was achieved on May 29, 1997, and the
first gold poured in late June. Net additions to resource assets at the Mineral
Ridge Mine site during the quarter ended March 31, 1998, totaled $77,832.
The Mineral Ridge Mine was previously expected to reach commercial
production by October 1, 1997. During the fourth quarter of 1997, the Company
conducted a review of the Mineral Ridge operations which resulted in the
suspension of mining operations due to the decline in spot gold prices and an
unforeseen reduction in water supply to the heaps. During the suspension, leach
operations are ongoing and gold continues to be recovered and sold. The Company
recorded a write down of $16.0 million, as at December 31, 1997, against the
Mineral Ridge Mine.
Crushing of the existing mine stockpile of approximately 100,000 tons was
recommenced in February 1998, and continued through the quarter end, March 31,
1998. Lifting the suspension of mining operations and making the capital
expenditures to bring the mine into full commercial production will require the
resolution of accounts owing to the two lien claimants, the cooperation of the
bonding company, Van American, and the bank, Dresdner Kleinwort Benson.
Furthermore, in order to source sufficient funds to make necessary capital
expenditures, it will be necessary to enter into a business combination with a
suitable partner or arrange the sale of Mineral Ridge to a qualified purchaser.
No assurances can be given that the Company will be successful in these
endeavors.
MINE DEBT FINANCING FACILITY
On January 17, 1997, the Company entered into a loan agreement with Dresdner
Kleinwort Benson for senior secured loan facilities of $13.0 million for
construction and development purposes and working capital; and a $2.0 million
contingency facility to be available to fund potential cost overruns and the
initial debt service reserve.
As of December 31, 1997, the Mineral Ridge Mine was not in compliance with
certain covenants. Discussions to date have resulted in the bank deferring the
principal payments as well as other concessions.
In April 1998, the Company received written notice from the bank whereby the
bank did not intend to extend its forbearance of the various events of default
beyond April 30, 1998. The written notice also contained the bank's intention to
declare Mineral Ridge Resources Inc. in formal default and to thereafter
commence enforcement of its rights to foreclose on the assets of Mineral Ridge,
sell the Ivanhoe Property under a pledge agreement and enforce the guarantee of
the loan by the Company.
As at May 13, 1998, the formal default notice has not been received and the
extended forbearance by the bank is largely due to the continued discussions
between the Company, the bank and other interested parties, the objective of
which is to complete a merger with the Company or the sale of the Mineral Ridge
Mine. The discussions with interested parties, if completed, would result in the
restructuring of the Mine Debt Financing Facility and would be subject to the
approval of the bank's credit committee.
DISPOSITION OF CARLIN RESOURCES SHARES
The agreement whereby the Company appointed an agent to sell 1,535,639
common shares of Carlin Resources held by the Company, for net proceeds to the
Company of C $0.65 per share until October 31, 1997, and C $0.95 per share until
April 30, 1998, has expired and other means may be undertaken to sell
17
<PAGE>
the shares. As at March 31, 1998, the Company held 1,561,139 shares or 14.6% of
Carlin Resources and the carrying value of the investment has been reduced to
nil.
IVANHOE JOINT VENTURE
Under the terms of the Venture Agreement with Great Basin Gold Inc.,
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 as
reported under Item 2 of the Company's Form 10-K filed on March 31, 1998.
RISKS AND UNCERTAINTIES
The Company is obliged to repay $6,850,117 to the bank over the next year
pursuant to the terms of its financing facility. The Company's ability to make
these payments is contingent upon gold prices and the achievement of commercial
production after the water supply problems are resolved. Additionally $6,350,000
of the financing facility has been classified as a current liability as the
Company has been unable to make principal payments and is not in compliance with
debt covenants.
There can be no certainty the Company could successfully pursue other
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 favourable. The
Company has no unused banking commitments or lines of credit which could provide
significant increases in its working capital.
There can be no certainty the Company will successfully complete a corporate
merger or sale of the Mineral Ridge mine and settle the liens recorded by the
construction contractor and the mining contractor. Such sale or merger would
also be subject to the approval of the bonding company and the bank and no
measure of certainty can be given as to those outcomes. If the Company is
unsuccessful in completing a merger or sale of the Mineral Ridge Mine the
continuing liquidity problems may force the Company into receivership.
18
<PAGE>
CORNUCOPIA RESOURCES LTD.
PART II
OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Roberts & Schaefer Company, on December 8, 1997, recorded its notice of lien
on the Mineral Ridge property claiming for holdback, legal fees and interest.
Holdback remains outstanding and is recorded under accounts payable.
Roberts & Schaefer, on April 2, 1998, filed a complaint in the United States
District Court, Nevada, to foreclose on the mechanics lien in the amount of
$619,486 for holdback and other charges. The Company has filed a defense of the
foreclosure, claiming a construction deficiency.
D.H. Blattner & Sons, on February 10, 1998, recorded its notice of lien on
the Mineral Ridge property for payment of invoices for contract mining. Invoices
totaling $699,000 are recorded in accounts payable and will be paid as permitted
by the cash flow of Mineral Ridge Resources Inc.
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" 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
The Company's Annual General Meeting will be held on May 21, 1998, in
Vancouver, British Columbia. A copy of the Notice of Meeting, Information
Circular (Proxy Statement) and Proxy Form was filed electronically with SEDAR
and EDGAR in April, 1998. Copies of the Company's Annual Report to the
Shareholders was filed with the Securities and Exchange Commission on April 18,
1998.
ITEM 5: OTHER INFORMATION
The Company announced its year end results in a news release dated April 15,
1998, and also reported that the Company's wholly-owned subsidiary Mineral Ridge
Resources Inc. (MRRI) was not in compliance with certain of the covenants
pursuant to the loan agreement with its banker, Dresdner Kleinwork Benson
(Dresdner). Principal payments of $1.5 million each due September 30, 1997, and
December 31, 1997, had not been made and the Company had classified the entire
loan and overdue interest to current liabilities. As of December 31, 1997, the
Company had a working capital deficiency of $14.0 million. In the announcement,
the Company also reported that on April 10, 1998, Roberts & Schaefer had filed a
notice of foreclosure on the Mineral Ridge property claiming holdback, legal
fees and interest of $619,486 and that D.H. Blattner & Sons had also recorded a
notice of lien for unpaid invoices totaling $0.7 million.
On April 21, 1998, the Company announced in a news release that it had been
notified by its bankers, that, effective May 1, 1998, Dresdner intended to
declare the Company's wholly-owned subsidiary Mineral Ridge Resources Inc.
(MRRI) in default pursuant to a loan agreement between Dresdner and MRRI dated
January 17, 1997. The Company was advised that Dresdner reserves its right to
foreclose on MRRI's assets and enforce the Company's guarantee. Dresdner advised
the Company that prompt cooperative action could result in fulfillment of the
Company's obligations to Dresdner as well as preserve some value for equity. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations for a detailed discussion of the Mine Debt Financing Facility.
On April 24, 1998, 10 days notice was received to increase the collateral by
$719,700 which would bring the total collateral to $1,604,086 for the Mineral
Ridge Mine. The Company did not have the
19
<PAGE>
financial resources to meet this payment by the requested date of May 4, 1998,
but is providing additional information to allow the bonding company to continue
to evaluate their position. If the request for additional collateral is not
complied with or if the additional information does not satisfy the bonding
company, the bond could be canceled. The cancellation of the bond, if such
action is taken, could have a negative impact on the operations of the company.
The Company faces serious liquidity problems which can only be resolved by
an infusion of fresh capital to rectify the working capital deficiency, restore
the Mineral Ridge Mine to full production, and also provide funds for further
exploration and capital improvements. As a result, the Company has been holding
discussions with several companies interested in a corporate combination or
financial restructuring.
Vancouver, B.C.--The Company's News Release of May 13, 1998, Cornucopia
reports that negotiations are continuing in an attempt to arrange a corporate
merger with an established gold mining company or a sale of Mineral Ridge
Resources Inc. to another mining group. In order to structure a workable
transaction, it is anticipated that significant concessions will have to be made
by all the affected parties including the Company's bankers, the major creditors
and the shareholders.
In the event that neither of these proposed transactions can be completed,
the Company's bankers have indicated that they will have no alternative to
foreclosing on Mineral Ridge's assets and enforcing Cornucopia's guarantee. See
Exhibit 20.1, news release dated May 13, 1998.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits required by Regulation S-K
Exhibit 20.1--News Release issued dated May 13, 1998.
b) Reports on Form 8K:
The following reports Form 8-K have been made year-to-date: February
12, 1998, February 26, 1998, April 15, 1998, and April 21, 1998.
20
<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.
<TABLE>
<S> <C> <C>
CORNUCOPIA RESOURCES LTD.
(Registrant)
Date: May 13, 1998 /s/ GLENN H. FRIESEN
-----------------------------------------
Glenn H. Friesen
CORPORATE CONTROLLER
Date: May 13, 1998 /s/ ANDREW F. B. MILLIGAN
-----------------------------------------
Andrew F. B. Milligan
PRESIDENT & CEO
</TABLE>
21
<PAGE>
EXHIBIT INDEX
<TABLE>
EXHIBIT NUMBER
- --------------
<S> <C>
20.1 News Releases dated May 13, 1998
27 Financial Data Schedule
</TABLE>
<PAGE>
[LOGO] [LETTERHEAD]
NEWS RELEASE
INVESTOR RELATIONS: 1.800.436.4404 NASDAQ TRADING SYMBOL: CNPGF
TSE TRADING SYMBOL: CNP
FOR IMMEDIATE RELEASE MAY 13, 1998
Vancouver, BC - Further to the Company's News Release of April 21, 1998,
Cornucopia reports that negotiations are continuing in an attempt to arrange a
corporate merger with an established gold mining company. In order to
structure a workable transaction, it is anticipated that significant
concessions will have to be made by all the affected parties including the
Company's bankers, the major creditors and the shareholders.
Parallel negotiations are also taking place with another mining group who have
expressed interest in acquiring 100% of Mineral Ridge Resources Inc., the
Company's wholly-owned subsidiary which operates the Mineral Ridge gold mine in
Esmeralda County, Nevada. This transaction will also require the cooperation
of all parties.
In the event that neither of these proposed transactions can be completed, the
Company's bankers have indicated that they will have no alternative to
foreclosing on Mineral Ridge's assets and enforcing Cornucopia's guarantee.
Cornucopia has pledged all its assets, including its interest in the Ivanhoe
Joint Venture, to the bank in support of the Mineral Ridge loan.
A foreclosure will clearly eliminate any residual value for Cornucopia's
shareholders. However, it is hoped that the type of transaction now
contemplated could recognize modest value for shareholders' equity.
ON BEHALF OF THE BOARD OF DIRECTORS
/s/ Andrew F. B. Milligan
- --------------------------
Andrew F. B. Milligan
President and CEO
CORNUCOPIA RESOURCES Ltd.
<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> JAN-01-1998
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<PP&E> 16,991,712
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