<PAGE>
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, 1999.
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
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State or other jurisdiction of I.R.S. Employer
incorporation 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
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________________________________________________________________________________
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 May 13, 1999, there were 41,591,834 common shares outstanding.
<PAGE>
CORNUCOPIA RESOURCES LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
Item 1 Financial Statements
- Consolidated Balance Sheets as at March 31, 1999, and December 31, 1998...............................3
- Consolidated Statements of Loss and Deficit for the three months ended March 31, 1999,
and March 31, 1998....................................................................................4
- Consolidated Statements of Changes in Financial Position for the three months ended
March 31, 1999, and March 31, 1998....................................................................5
- Notes to Consolidated Financial Statements.......................................................6 - 11
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations...........12 - 14
PART II OTHER INFORMATION
Item 1 Legal Proceedings....................................................................................15
Item 2 Changes In Securities and Use of Proceeds............................................................15
Item 3 Defaults Upon Senior Securities......................................................................15
Item 4 Submission of Matters to a Vote of Security Holders..................................................15
Item 5 Other Information....................................................................................15
Item 6 Exhibits And Reports On Form 8-K.....................................................................15
SIGNATURES.....................................................................................................16
EXHIBIT INDEX.................................................................................................N/A
</TABLE>
GENERAL
All References to number of common shares and per share amounts in this Form
10-Q reflect the subdivision of the Company's common shares ("Common Shares")
on a two-for-one basis on July 7, 1987.
The information set forth in this form is as of March 31, 1999, expect where
an earlier or later date is indicated, and all information included in this
document should only be considered correct as of such date, except as
otherwise stated.
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, MINERAL PROPERTY EXPLORATION AND DEVELOPMENT COSTS
AND RESULTS, RECLAMATION OBLIGATIONS, FLUCTUATION OF GOLD PRICES,
COMPETITION, UNINSURED RISKS, CAPITALIZATION AND COMMERCIAL VIABILITY AND
REQUIREMENTS FOR OBTAINING BONDS, PERMITS AND LICENSES.
2
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CORNUCOPIA RESOURCES LTD.
CONSOLIDATED BALANCE SHEETS
(Prepared by management without audit)
(Stated in United States Dollars)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents 41,292 103,949
Accounts receivable 11,087 25,844
Prepaid expenses and deposits 21,029 21,180
Investment 234,305 234,305
- ----------------------------------------------------------------------------------------------
307,713 385,278
- ----------------------------------------------------------------------------------------------
Capital Assets 3,390 11,701
Mineral properties and deferred exploration costs 1,874,895 1,874,895
- ----------------------------------------------------------------------------------------------
TOTAL ASSETS 2,185,998 2,271,874
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 161,208 101,277
Debt -- --
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES 161,208 101,277
- ----------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL
Issued and outstanding common shares 38,119,366 38,119,366
March 31, 1999 - 41,591,834
December 31, 1998 - 41,591,834
Deficit (36,094,576) (35,948,769)
- ----------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 2,024,790 2,170,597
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 2,185,998 2,271,874
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</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,
1999 1998
<S> <C> <C>
REVENUES
Product sales -- --
Production costs -- --
- ---------------------------------------------------------------------------------------------
Operating profit (loss) -- --
Interest and other income 5,824 2,309
- ---------------------------------------------------------------------------------------------
5,824 2,309
- ---------------------------------------------------------------------------------------------
EXPENSES (OTHER INCOME)
General and administrative expenses 151,631 455,424
Loss (gain) on disposal/write down of investments -- --
Abandonment and write down of mineral properties -- --
- ---------------------------------------------------------------------------------------------
151,631 455,424
- ---------------------------------------------------------------------------------------------
LOSS BEFORE NON-CONTROLLING INTEREST (145,807) (453,115)
Equity loss -- --
- ---------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD (145,807) (453,115)
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Deficit, beginning of the period 35,948,769 35,241,163
Net loss for the period 145,807 453,115
- ---------------------------------------------------------------------------------------------
DEFICIT, END OF THE PERIOD 36,094,576 35,694,278
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
LOSS PER SHARE (0.00) (0.01)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 41,591,834 38,619,346
</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,
1999 1998
<S> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATIONS
Net loss for the period (145,807) (453,115)
Items not involving cash;
Amortization 8,310 37,873
Reclamation accrual -- --
- ---------------------------------------------------------------------------------------------
(137,497) (415,242)
Net change in non-cash working capital items; 74,840 (333,520)
- ---------------------------------------------------------------------------------------------
(62,657) (748,762)
- ---------------------------------------------------------------------------------------------
INVESTING
Capital assets -- --
Mineral properties and deferred exploration costs -- (77,532)
- ---------------------------------------------------------------------------------------------
-- (77,532)
- ---------------------------------------------------------------------------------------------
FINANCING
Capital lease obligations -- (14,157)
Debt -- 13,518
Net proceeds from issue of common shares -- --
- ---------------------------------------------------------------------------------------------
-- (639)
- ---------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (62,657) (826,933)
- ---------------------------------------------------------------------------------------------
Cash and Equivalents, beginning of the period 103,949 996,732
- ---------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS, END OF THE PERIOD 41,292 169,799
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
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 mineral properties and deferred exploration costs is
dependent upon discovery and delineation of economically recoverable
reserves, on the outcome of legislative or regulatory developments relating
to environmental protection, and on future profitable operations or proceeds
from the disposition thereof. The viability of production on mineral
properties or natural resource related share investments held by the Company
is highly dependent on the price of gold.
The Company's principal mineral property, the Ivanhoe Property, is currently
being explored by Great Basin Gold Ltd. ("Great Basin") under a Venture
Agreement. The Company faces dilution under the Venture Agreement unless it
participates in future exploration programs conducted by Great Basin. The
financial position of the Company would not allow participation in such
exploration programs without undertaking some form of financing. At March 31,
1999, the Company had working capital of $146,505, (December 31, 1998 -
$284,001). The Company has very limited ability to access capital markets
because of market conditions generally in financing mining related business
activities as well as the depressed price of the Company's common shares.
The Company has reached agreements to the terms of a major reoganization
(note 3) which, if completed, will result in the sale of its interest in the
Ivanhoe Property in exchange for an equity interest in Great Basin and will
release the Company from any past and future cash calls for Ivanhoe
reclamation. However, for such reorganization to be successful, shareholder
approval must be sought and a major financing will need to be completed.
There can be no assurances that the Company will complete the proposed
reorganization. If the proposed reorganization is not successful, the Company
will be required to significantly curtail its operations and future
exploration programs.
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 March 31, 1999, and the results of its
operations and changes in its financial position for the three months ended
March 31, 1999, and 1998. The results of operations for the three months
ended March 31, 1999, are not necessarily indicative of the results to be
expected for the entire fiscal year.
The accompanying consolidated financial statements for the three months ended
March 31, 1999, are prepared on the basis of accounting principles generally
accepted in Canada. Any differences to accounting principles generally
accepted in the United States of America are explained in note 7.
The consolidated financial statements include the accounts of Cornucopia
Resources Ltd., (the "Company") which is incorporated under the Company Act
(British Columbia), its subsidiaries, including Cornucopia Resources, Inc. a
wholly-owned subsidiary incorporated in the State of Nevada, and its
subsidiaries which are wholly-owned, except, Carlin Resources Corp. ("Carlin
Resources") which was a partially-owned subsidiary.
The Company's interest in Carlin Resources was accounted for using the cost
method applied after April 30, 1997, until the end of the third quarter of
1998, when the Company divested itself of all of the remaining shares of
Carlin Resources.
All significant intercompany accounts and transactions have been eliminated
upon consolidation.
The Company's functional and reporting currency is the United States dollar.
Monetary assets and liabilities stated in Canadian dollars are translated at
the exchange rate in effect at the balance sheet date and non-monetary assets
and liabilities at the rate in effect on the dates of the related
transactions. Revenues and expenses are translated at rates approximating
exchange rates in effect at the time of the transactions. Gains or losses
arising on conversion of foreign currency transactions are included in income
in the period they occur.
6
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CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Prepared by management without audit)
(Stated in United States Dollars)
3. CORPORATE REORGANIZATION
(a) DISPOSITION OF IVANHOE JOINT VENTURE INTEREST
The Company has entered into an agreement dated March 2, 1999 (the "Sale
Agreement"), subject to shareholder approval, pursuant to which the Company
will sell its wholly-owned subsidiary, Touchstone Resources Company,
("Touchstone") to Great Basin Gold Ltd., its joint venture partner in the
Ivanhoe Property, in exchange for 2,750,000 common shares (the "Great Basin
Shares") at a price of C$1.25 per share (total C$3,437,500) and 250,000 share
purchase warrants of Great Basin. The share purchase warrants will entitle
the Company to purchase additional shares of Great Basin at $2.00 per share
for one year. Touchstone holds the Company's 25% joint venture interest in
the Ivanhoe Property, which is its only asset, and is party to a joint
venture agreement dated August 13, 1997 with Great Basin Gold Inc., a
subsidiary of Great Basin Gold Ltd. of Vancouver, British Columbia. The
closing market price of Great Basin's Shares on the Vancouver Stock Exchange
on March 2, 1999 was C$1.25. Because the Company's interest in the Ivanhoe
venture is its sole remaining active mining asset, the sale of that asset
represents a major change in the status of the Company as a mining entity and
a sale of substantially all of the Company's undertaking. Such a sale
requires special approval of the shareholders of the Company, which
management will seek in the form of a special resolution approving the
transaction.
Material Terms of Sale Agreement are as follows:
I. Resale of the Great Basin Shares and any shares issued upon exercise of
the share purchase warrants issued in consideration ("Warrant Shares")
will be restricted, by agreement, for a period of six months (the
"Prohibition Period").
II. Following the Prohibition Period the Company is entitled to sell,
without restriction or notice to Great Basin, up to 25,000 of the Great
Basin Shares and the Warrant Shares in any 30 calendar day period or to
carry over any or all of that number of Shares to the next 30 calendar
day period and thereafter for up to four such periods, so that, in
effect, the Company may sell up to 100,000 Great Basin Shares during
the last 30 days of a 120 calendar day period.
III. Notwithstanding the foregoing, the Company is entitled to sell up to
100,000 Great Basin Shares in any 30 calendar day period provided that
it first gives to Great Basin the right to cause such Shares to be
acquired by a person designated by Great Basin at a price at least
equal to the five day average closing price of Great Basin's Shares on
the five trading days before it received such notice, less a 10%
discount. If Great Basin does not exercise that right, the Company is
free to sell up to 100,000 Great Basin Shares by private sale or on the
market for a period of 45 days.
IV. Under the terms of the agreement, Great Basin has an assignable right
to purchase any shares in Great Basin in excess of 2,000,000
(fully-diluted) held from time to time by the Company at a price based
on the 5 day average closing price of Great Basin's Shares, plus 10%,
subject to a minimum price of C$1.00 per share. The agreement provides
for adjustments to the price in the event that the five day average
closing price post-sale is more than a specified percentage of the
price paid.
V. The Company has agreed to a voting trust in favour of Great Basin
management for a period of two years and will be given representation
on the board of directors of Great Basin.
VI. The Company will have the right to participate in future financings of
Great Basin in order to maintain its equity interest if so desired.
VII. Completion of the purchase and sale is subject to conditions precedent
in favour of both parties which include the requisite regulatory and
shareholder approvals, satisfactory due diligence review of and
favorable opinions on matters material to the transaction. No
regulatory approval of the transaction is required by the Company.
Great Basin requires approval of the Vancouver Stock Exchange, which
has been sought.
7
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CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Prepared by management without audit)
(Stated in United States Dollars)
(b) ACQUISITION OF STOCKSCAPE
Agreement has been reached to acquire a British Columbia company, Stockscape
Technologies Ltd. ("Stockscape") which is a privately-owned Internet
investment research provider, concurrent with the disposition of Touchstone.
Under the terms of a Share Exchange Agreement entered into with the Company
and the shareholders of Stockscape, the Company will acquire all of the
issued and outstanding shares of Stockscape by issuing 10,000,000
post-consolidation Common Shares of the Company (the "Payment Shares"). The
parties have agreed that the Payment Shares will be issued for a value of
C$0.50 per share post-consolidation, which was equal to the product of the
market value on March 2, 1999, the date of the announcement, and the
consolidation ratio. Both the shareholders of Stockscape and Stockscape are
entirely at arm's length to the Company.
The acquisition of Stockscape is conditional upon the completion of due
diligence by both parties. Definitive documentation was executed May 4, 1999.
The Payment Shares will be subject to trading restrictions under U.S.
securities legislation for a minimum of two years. The acquisition of
Stockscape is also subject to conditions precedent, one of which is the
commitment for a financing of up to C$2,000,000 and representing 4,000,000
units (the "Units"), each Unit consisting of one post-consolidation Common
Share and two share purchase warrants of the Company, to be completed at the
time of closing of the acquisition of Stockscape.
(c) CONSOLIDATION AND NAME CHANGE
As part of the reorganization shareholders will be asked to consider and, if
thought fit, to pass a special resolution approving:
I. The consolidation of the Company's authorized and issued Common Share
capital from two hundred million (200,000,000) Common Shares to twenty
(20,000,000) Common Shares, (i.e.) one (1) new Common Share for ten
(10) pre-consolidation Common Shares without par value;
II. An increase in the Company's authorized common share capital to its
pre-consolidation level of two hundred million (200,000,000) common
shares without par value; and
III. A change of the Company's name to "Stockscape Technologies Ltd." or
another similar name.
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
March 31, 1999 December 31, 1998
- -------------------------------------------------------------------------------------------------------------
Accumulated Net Book Net Book
Cost Depreciation Value Value
Capital Assets $ $ $ $
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Buildings, leasehold improvements 12,088 12,088 - 2,151
Furniture, fixtures, and office equipment 212,163 208,773 3,390 9,550
- -------------------------------------------------------------------------------------------------------------
$224,251 220,861 3,390 $11,701
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
5. MINERAL PROPERTIES AND DEFERRED EXPLORATION COSTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Mineral Properties & Deferred Acquisition costs Deferred Expenses March 31, 1999 December 31, 1998
Exploration Costs $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ivanhoe Property 1 1,874,891 1,874,892 1,874,892
Other properties 3 - 3 3
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
$4 $1,874,891 $1,874,895 $1,874,895
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
8
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CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Prepared by management without audit)
(Stated in United States Dollars)
IVANHOE PROPERTY
The Company holds a 25% interest in the Ivanhoe Property in Nevada through
Touchstone Resources Company. The Ivanhoe Property is approximately 50 miles
northeast of Battle Mountain, Nevada and encompasses approximately 9,321
acres.
Newmont Exploration Limited ("Newmont") the former joint venture partner, is
conducting a program to reclaim the disturbances of previous mining
operations at the Hollister mine. The budget for the complete reclamation
plan through to December 2004, is estimated to be $5,893,512. As of March 31,
1999, $5,707,585 has been spent and the reclamation program is substantially
complete.
The Company, Newmont and Great Basin Gold Ltd. 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 under which Great Basin has now completed the
requirement to earn its 75% interest, including spending C$5.0 million on
exploration and related expenditures.
On March 2, 1999, agreement was reached to sell Touchstone Resources Co. to
Great Basin (note 3) subject to shareholder approval.
6. 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>
- ----------------------------------------------------------------------------------------
Average Price Value of Share
Number of per Share Capital
Issued and outstanding: Shares $ $
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1998 38,556,040 $37,829,307
- - issued for share bonus February 6, 107,500 0.20 21,500
1998
- ----------------------------------------------------------------------------------------
Balance, March 31, 1998 38,663,540 $37,850,807
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Average Price Value of Share
Number of per Share Capital
Issued and outstanding: Shares $ $
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1998 41,591,834 38,119,366
- - issued -- --
- ----------------------------------------------------------------------------------------
Balance, March 31, 1999 41,591,834 $38,119,366
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
(b) GRANT OF OPTIONS
As at March 31, 1999, there were an aggregate of 2,610,000 stock options
outstanding, under the Company's Stock Option Plan (the "Plan") and outside
of the Plan, granted to directors, officers and employees of the Company
(December 31, 1998; 3,160,000).
The following changes occurred in stock options outstanding during the three
months ended March 31, 1999:
9
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Prepared by management without audit)
(Stated in United States Dollars)
I. On February 5, 1999, options granted under the Plan to a director of
the Company to purchase 150,000 Common Shares, at an exercise price of
C$0.68, were cancelled due to his resignation on January 4, 1999.
Options granted outside the Plan to the same director, to purchase
50,000 Common Shares at an exercise price of C$0.15 also expired on
February 5, 1999.
II. On February 16, 1999, options granted under the Plan to a director of
the Company to purchase 175,000 Common Shares, at an exercise price of
C$0.68, were cancelled due to his resignation on January 15, 1999.
Options granted outside the Plan to the same director, to purchase
175,000 Common Shares at an exercise price of C$0.15 also expired on
February 16, 1999.
The following table summarizes the options granted under the Plan, and
outside of the Plan, to directors and employees of the Company for the
purchase of Common Shares at various exercise prices. Stock options are
granted at exercise prices based on the closing market price of the Company's
shares on the day before the grant.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Options Options (1) Options
Granted Outstanding Outstanding Number of Options
Exercise Price Inside the Outside the Outstanding
Year Granted (C $) Expiry Date Stock Option Plan Stock Option Plan Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 $0.68 January 4, 2000 140,000 140,000
1996 $0.68 January 4, 2001 733,000 733,000
1997 $0.68 February 2, 2002 12,000 12,000
0.68 February 27, 2002 150,000 150,000
0.68 May 20, 2002 35,000 35,000
0.68 June 19, 2002 250,000 250,000
1998 $0.26 January 4, 2003 50,000 50,000
0.15 November 17, 2003 100,000 100,000
0.15 September 9, 2003 1,140,000 1,140,000
- -----------------------------------------------------------------------------------------------------------------------
1,470,000 1,140,000 2,610,000
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) On September 10, 1998, the Board of Directors resolved that an aggregate of
1,415,000 new stock options, of which 275,000 have been subsequently
canceled, be granted to directors and employees of the Company to reflect
the current market price of the Company's shares, at an exercise price of
C$0.15 per share expiring September 9, 2003, and that the new options would
be granted outside of the Plan. It is expected that, as part of the
corporate reorganization (note 3), outstanding directors' and employees'
options granted both inside and outside of the Company's Stock Incentive
Plan will be cancelled and replaced by new incentive options to purchase
post-consolidation shares at a price of C$0.50 per share. Shareholder
approval will be sought for such replacement of stock options.
7. 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 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.
10
<PAGE>
CORNUCOPIA RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Prepared by management without audit)
(Stated in United States Dollars)
(c) 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.
8. RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere are as follows:
(a) The Company incurred fees of $35,699 in the first quarter of 1999, (1998 -
$44,341) to Glencoe Management Ltd., a company controlled by an officer and
director, in return for consulting services.
(b) The Company incurred legal fees of $48,580 in the first quarter of
1999, (1998 - $29,251) to DuMoulin Black, a firm in which a director of
the Company is a partner.
11
<PAGE>
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, mineral property exploration and development costs
and results, reclamation obligations, fluctuation of gold prices,
competition, uninsured risks, capitalization, 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 quarter ended March 31, 1999, and March 31, 1998,
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 7 to the
Company's Consolidated Financial Statements.
OVERVIEW
Since its incorporation the Company's primary focus has been the exploration,
development and mining of precious metal deposits. On March 2, 1999 a major
reorganization was announced which, if approved by shareholders, will result
in a change in the Company's business focus and a restructuring of the
Company's remaining active mining property interest into an investment in
Great Basin Gold Ltd. ("Great Basin") common shares, publicly traded on the
Vancouver Stock Exchange and the Nasd OTC Bulletin Board.
At present, the Company's principal and only active mining asset is its
interest in the Ivanhoe property in Nevada's Carlin Trend. As part of the
reorganization of the Company an agreement dated March 2, 1999 was entered
into with Great Basin pursuant to which the Company will sell its
wholly-owned subsidiary Touchstone, which holds the Ivanhoe property, to
Great Basin, in exchange for 2,750,000 common shares and 250,000 share
purchase warrants of Great Basin.
As part of its proposed reorganization the Company plans to complete
acquisition of Stockscape, a privately-held British Columbia company. As a
condition precedent to the Stockscape acquisition the Company will be
required to consolidate its issued and outstanding Common Shares on a
10-for-1 basis. At the annual general meeting shareholders will be asked to
pass a special resolution approving the consolidation. This resolution must
be passed by a majority of 75% of the votes cast on the resolution.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999, COMPARED TO THE YEAR ENDED MARCH 31, 1998
REVENUES
Revenues from interest and other income were $5,824 in the first three months
of 1999 due mainly to interest income in the final settlement of an account
receivable originating from a property sale in 1992. Revenues from interest
and other income were $2,309 in the first quarter of 1998, derived from
investment of cash and cash equivalents.
EXPENSES
General and administrative expenses decreased to $151,631 in the first
quarter of 1999, from $455,424 in the first quarter of 1998. The decrease was
due to lower employment costs in the Vancouver, British Columbia office and
lower office premises costs partially offset by higher legal costs due to the
ongoing corporate reorganization.
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LOSS PER COMMON SHARE
The net loss for the quarter ended March 31, 1999, was $145,807 compared to
net loss of $453,115 for the first quarter ended March 31, 1998.
The weighted average number of Common Shares for the first quarter ended
March 31, 1999, was 41.6 million which results in a loss of $0.00 per share.
The weighted average number of Common Shares for the first quarter ended
March 31, 1998, was 38.6 million resulting in a loss of $0.01 per share.
LIQUIDITY AND CAPITAL RESOURCES
Although positive working capital of $146,505 is reported at March 31, 1999,
compared to a working capital deficiency of $14,477,375 as at March 31, 1999,
the Company continues to face serious liquidity problems.
Cash and cash equivalents decreased by a net amount of $62,657 in the quarter
ended March 31, 1999. Principal uses of cash were to fund operations,
primarily general and administrative expenses and staff reduction costs.
These expenditures were financed by drawing down cash balances, a reduction
in accounts receivable and an increase in accounts payable. The Company has
no material commitments for capital expenditures.
To improve liquidity and to avoid dilution of its Ivanhoe Property interest,
the Company has undertaken a major corporate reorganization which includes a
proposed financing, as detailed in note 3 of the Consolidated Financial
Statements. No assurances can be given that the Company will be successful in
these endeavors. If the Company is unsuccessful in completing all proposals
which require approval by shareholders and if the acquisition of Stockscape
and associated C$2,000,000 private placement financing do not complete,
general and administrative activity would be curtailed to conserve funds and
management would pursue all other financing possibilities and evaluate other
prospects for business development. If unable to arrange alternate financing,
in such case, the Company may be forced to liquidate assets and ultimately
the Company could be forced into receivership.
IVANHOE JOINT VENTURE
As a result of the unfavorable market conditions for junior resource issuers
in the past twenty-four months the Company has been unable to raise the
necessary capital to fund its share of costs to reclaim the previously mined
Hollister area of the Ivanhoe property as contemplated under the Purchase
Agreement between the Company, Great Basin and Newmont Mining Company, or to
enable it to participate in the current drilling program proposed by Great
Basin. In those circumstances, the Company faced an inevitable dilution of
its 25% interest in the Ivanhoe Property, pursuant to the terms of its
agreements with Great Basin. Taking into account the present state of the
capital markets for an issuer in the Company's position, the Board decided
that it was in the best interests of the Company to sell its interest in the
Ivanhoe property before suffering material dilution and a further loss of
negotiating strength. A sale of the Company's joint venture interest to Great
Basin will result in 100% of the project being held by Great Basin, thereby
assisting Great Basin in financing further exploration and development of the
property. At the same time, the Company, by virtue of its proposed
shareholding in Great Basin, will still be in a position to realize a benefit
from any discovery on the project, or any other projects which Great Basin
may undertake.
As at March 31, 1999 the Company held of 1.57 million shares of Vista Gold
Corp. which together with the shares in Great Basin will represent a
continued stake which the Board believes could be valuable investments if and
when the price of gold recovers from present levels. If the transaction with
Great Basin completes, the Company will own 2,750,000 shares of the then
outstanding 19,786,771 shares of Great Basin, or 14%. The Company owned at
March 31, 1999, 1,562,500 shares of the outstanding 90,715,040 shares of
Vista Gold, or 1.7%.
In the event that the sale of Touchstone does not receive shareholder
approval, management expects the Company's interest in the Ivanhoe Property
will be further diluted due to its anticipated inability to fund both ongoing
exploration and reclamation costs due to market conditions generally in the
resource sector.
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CONSOLIDATION AND NAME CHANGE
The common share consolidation and name change are fundamental to the
Company's reorganization and are conditions precedent to completion of the
acquisition by the Company of Stockscape. The consolidation and the
consolidation ratio were the subject of negotiation between the Company and
Stockscape. Both the consolidation and the ratio were agreed to be necessary
steps to improving the Company's ability to attract and maintain investors. A
reduction of the number of outstanding shares may be expected to result in a
corresponding increase in market price, which should allow the Company to
secure future equity financing on terms more advantageous to existing
shareholders. The proposed consolidation will have the effect of reducing the
Company's authorized common share capital to 20,000,000. The increase in
share capital to the pre-consolidation level of 200,000,000 is necessary, in
the opinion of management, for the future capital requirements of the Company.
RISKS AND UNCERTAINTIES
There can be no certainty that the Company could successfully pursue
financing options or rely on joint venture partners to supply the funds
required to explore and develop its properties. There can be no assurance
that the Company will be successful in obtaining approvals for the proposed
major reorganization 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.
In the event that the sale of Touchstone is not approved, certain obligations
to reclaim the Ivanhoe property will continue to be the responsibility of the
Company. However, the Ivanhoe Venture agreement provides for these
obligations to be met by Great Basin through the progressive dilution of the
Company's interest in the Ivanhoe Joint Venture. Reclamation of the Ivanhoe
Property is being carried out by Newmont pursuant to a current budget
totaling $5,893,512 through to completion in 2004. The reclamation program
was substantially complete as at March 31, 1999, with total expenditures of
$5,707,585. Budgeted expenditures for the years 2000 to 2004 relate to
monitoring.
If the sale of the Company's interest in the Ivanhoe property to Great Basin
is not ratified by the shareholders, the Company's interest in the Ivanhoe
Venture will be diluted from 25% to 19% effective March 31, 1999. Management
considers it to be unlikely that the Company will be able to raise the funds
required to continue to participate in the Ivanhoe Venture or to meet any
reclamation obligations given the current unfavorable market conditions faced
by resource companies and the depressed price of the Company's shares. In
these circumstances, the Company's interest could ultimately be reduced to a
5% Net Profits Interest or a 2 1/2% Net Smelter Royalty.
YEAR 2000 COMPUTER RISK
The Year 2000 issue has resulted from computer programs coded to accept two
digits rather than four to define the applicable year. The effects of the
problem, if any, would occur on or about January 1, 2000, and could result in
internal system failure in, among other things, local area network,
accounting and other administrative functions. Externally, the problem could
result in system failure by third party providers or suppliers. It is not
possible to be certain that all aspects of the Year 2000 issue which may
arise from third party providers and suppliers will be resolved. In early
1998, the Company began assessment of the potential impact of the Year 2000
issue. Internally, the Company uses current or near current versions of
software by major developers for office productivity, accounting, internet
and database applications. To gain further certainty as to Year 2000
compliance, the Company will either purchase upgrades which are currently
available or obtain published statements by these software developers
assuring that these programs are Year 2000 compliant. The software developers
have suggested that three of the software programs currently in use will need
upgrades and it is expected that these upgrades will be obtained by the end
of the second quarter of 1999. The cost of obtaining these upgrades is not
expected to be material. As the Company currently is not heavily reliant on
software now in use, even a worst case scenario would not significantly
impede the conduct of the business of the Company. In the event that the
Company acquires other businesses, the software and hardware acquired in
connection with those business combinations may be Year 2000 non-compliant.
14
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CORNUCOPIA RESOURCES LTD.
PART II OTHER INFORMATION
- ------------------------------------------------------------------------------
ITEM 1: LEGAL PROCEEDINGS
None.
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 date of the Company's Annual and Extraordinary General Meeting
for 1999 has been set for June 30, 1999.
ITEM 5: OTHER INFORMATION
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits required by Regulation S-K
None.
b) Reports on Form 8K:
The following reports Form 8-K have been made year-to-date:
April 28, 1999, March 11, 1999, and January 21, 1999.
15
<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: May 13, 1998 /s/ Glenn H. Friesen
-------------------------------
Glenn H. Friesen
Vice President, Finance
and Chief Financial Officer
Date: May 13, 1998 /s/ Andrew F. B. Milligan
-------------------------------
Andrew F. B. Milligan
President & CEO
16
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
27 FINANCIAL DATA SCHEDULE
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 41,292
<SECURITIES> 0
<RECEIVABLES> 11,087
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 307,713
<PP&E> 2,099,146
<DEPRECIATION> 220,861
<TOTAL-ASSETS> 1,878,285
<CURRENT-LIABILITIES> 161,208
<BONDS> 0
0
0
<COMMON> 38,119,366
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,024,790
<SALES> 0
<TOTAL-REVENUES> 5,824
<CGS> 0
<TOTAL-COSTS> 151,631
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (145,807)
<INCOME-TAX> 0
<INCOME-CONTINUING> (145,807)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (145,807)
<EPS-PRIMARY> .00
<EPS-DILUTED> 0
</TABLE>
