SCHEDULE 14a INFORMATION
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240.14a-11(c) or paragraph 240.14-12
U. S. GOLD CORPORATION
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other
than the Registrant)
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1997 ANNUAL REPORT TO SHAREHOLDERS
(COVER OF ANNUAL REPORT)
(picture of underground miner with jack leg)
1997
ANNUAL REPORT
TWENTIETH YEAR
U.S.GOLD-20
1977 - 1997
(picture of Tonkin Springs project milling complex)
(INSIDE FRONT COVER)
ANNUAL MEETING
A critical issue essential to the future of the Company will be
voted upon at this years meeting of shareholders. Everyones vote
is important as the issue will require approval of two-thirds of
the shares outstanding. All shareholders are encouraged to vote
their shares, either in person or by proxy.
The Companys annual meeting of shareholders will be held at 10 A.M.
on June 10, 1998 at the Cherry Creek Inn, 600 South Colorado
Boulevard, Denver, Colorado, or at any adjournment or postponement
thereof. Shareholders of record on April 3, 1998 are entitled to
notice and to vote at the meeting.
Table of Contents
Twenty Years of History 1
Letter to Shareholders 2
Managements Discussion 4
Financial Information 7
Corporate Information INSIDE BACK COVER
Except for the historical information contained herein, the
statements in this report which relate to the Companys plans,
objectives or future performance may be deemed to be forward-
looking statements. Such statements are based on current
expectations of management. Actual strategies and results may
differ materially from those currently expected because of factors
including gold prices, ore grades, metallurgical recovery,
operating costs, market valuation, and project operators decisions
and performance under the Project Joint Venture, as well asd other
risks and uncertainties.
U.S. Gold Corporation is engaged in the precious metals mining
business in the continental United States. The Company owns a 40%
interest in the Tonkin Springs gold mine located in Eureka County,
Nevada.
(FIRST PAGE OF REPORT)
In 1997 U.S. Gold Corporation celebrated a 20 year milestone. As
a production-orented gold mining company we have been involved with
six producing mines in our history, a record matched by few
companies our size. From the beginning, we have put our
shareholders money into hard assets: mining projects that produce
precious metals and thereby generate positive cash flow. Having
sold our interest in all but one of these mines, our immediate
focus is in seeing our Tonkin Springs mine reach production. We
are accomplishing this through a joint venture whereby our partner
is responsible for all funding yet we continue to own 40%. It is
anticipated that cashflow from this near-term gold production will
fuel continued building of our company. While many philosophies
exist on how to succeed in the mining business, ours will continue
to emphasize evaluating deposits of known mineralization with a
view toward MAKING A MINE based on our demonstrated competitive
advantage and our innovative and cost-effective approach to the
business of mining. We are confident this approach will continue
to yield mines in the future as it has for the past 20 years.
(Picture of underground miner with jack leg with caption)
U.S. Golds first project (Alma) included two underground mines and
a 200 ton per day floatation mill.
(Picture of Tonkin Springs project milling facility with caption)
U.S. Golds present project (Tonkin Springs) encompasses over 33
square miles on the Battle Mountain-Eureka Gold Trend in Nevada and
includes a 2000 ton per day CIL mill.
(Graphic image of chart of Gold Prices/Ounce (Gold Price-London PM
Fix Weekly) from 1977 through 1998 with time bars indicating past
operating projects of the Company):
Alma, CO 1977-1983
Victor, CO 1981-1992
Tonkin Springs (I), NV 1984-1988
Dee, NV 1986-1989
White Pine, NV 1986-1990
Hayden Hill, CA 1986-1990
Tonkin Springs, NV 1988-1998
(SECOND PAGE OF REPORT)
Dear Shareholder:
Two decades ago, January of 1977, U.S. Gold embarked on a course to
compete in the gold mining industry, armed with the belief that a
small yet determined company could be successful in this highly
competitive business. That course has led to a remarkable 20 year
journey, filled with successes as well as disappointments, but with
our founding vision intact and as true today as it was then.
U.S. Golds track record of owning or participating in 6 producing
gold mines over its history is matched by few companies our size
and demonstrates our ability to locate, acquire and place mines
into production. We have always focused on putting our
shareholders money into hard assets that can generate a cash flow;
this, to a large extent, is why we are celebrating our 20th year.
The realities of the gold mining business are constantly changing.
When we formed the Company, the price of gold was around $130 per
ounce. However, adjusted for inflation, gold is worth less today
than it was then! The new reality of low gold prices is forcing a
return to fundamentals - gold production, cash flow and exploration
focused on large land positions in politically stable countries and
geological settings capable of hosting significant ore bodies.
Today, U.S. Gold is meeting these new realities. Our Tonkin
Springs gold mines large land position, located on one of the
richest gold trends in Nevada, holds great promise. Our joint
venture partner, Globex Mining Enterprises Inc., a Canadian-based
mining company, is presently moving Tonkin Springs toward gold
production. This should be a period of exciting growth for U.S.
Gold as results come in from exploration on our quality land
position and as our share of annual gold production builds to a
targeted 40,000 ounces.
We do not pretend to know what the gold price will do in the
future, but what we do know is that we must structure our
activities to live with the prices that come. In other wards, as
we stated in our first annual report as a public company, you must
be able to survive the lows in order to reap the benefits of the
highs. The soundness of our basic approach is shown in our
flexibility to adapt to change. This is why we structured a joint
venture at Tonkin Springs so that U.S. Gold has neither financial
nor management commitment to establish gold production there.
Further, the Company is guaranteed minimum monthly payments of
$60,000 from September 1998 for a period of three years regardless
of the gold price yet participates in this gold mine as 40% owner.
The challenge of the current gold price environment also provides
opportunities. We have the experience and ability to identify and
take advantage of some of those opportunities in order to build and
grow the Company. Our philosophy of bringing mines into production
at the earliest stage, and then funding reserve expansion from
operating cash flow, is especially relevant in the current gold
price environment. We are looking at various opportunities to
bring new projects into the Company, although we will proceed with
extreme caution in view of the challenge of finding mines which are
economically viable in the current market.
We are asking shareholders to increase the authorized share capital
of U.S. Gold from 15 million shares to 25 million. That does not
mean that we intend to issue that number of shares - our decisions
are based on building per-share value. However, since all of the
currently authorized shares are either issued or committed, the
Company has no ability to issue new shares either to raise money to
finance a new project or as part of the acquisition of a new
project.
Of equal importance, in these uncertain times, we could be faced
with circumstances where we need to issue shares in order to
protect the Companys existing assets. At present, that option
would not be available to us.
Please take the time to read the proxy material and to vote in
favor of the increase in authorized shares. Your vote is needed -
we need support from two-thirds of the shares outstanding (not just
those voting) which is a very challenging task!
(Graphic image of a hatched map of a portion of Nevada showing the
Tonkin Springs project outline on a trend which includes other
mines: Hilltop, Gold Acres, Pipeline, South Pipeline, Horse Canyon,
Buckhorn, Cortez, Gold Pick, Gold Ridge and Gold Bar, with a scale
of 6 miles per hatch line.
(THIRD PAGE OF REPORT)
We are disappointed that we reported a loss of the past year after
five straight years of profitability. It is particularly
disappointing given that we had a deferred gain of $1.7 million in
our ownership of Globex stock which evaporated during the latter
part of 1997 owing to the depressed gold price and sharp decline in
gold stocks. However, as Tonkin Springs is placed into production,
we anticipate a return to profitability.
We expect that the stock market will show renewed recognition of
the Company as Tonkin Springs restores our ranking as a gold
producer. Still the real opportunity for increased value at Tonkin
Springs lies in the exploration potential of the project.
The Property is located on the rich Battle Mountain-Eureka Gold
Trend in Nevada. Although the sister trend in Nevada, the Carlin
Trend, has been the focus for much of the past decade or so, the
Battle Mountain-Eureka Gold Trend has received renewed attention
with the commissioning of Placer Domes Pipeline mine to the north
of Tonkin Springs. As new discoveries at Carlin become deeper and
more difficult, many believe that the Battle Mountain-Eureka Gold
Trend will become the center of attention in the gold industry.
Tonkin Springs covers 33 square miles and 12 linear miles of strike
length along the Battle Mountain-Eureka Gold Trend. Of that 12
miles only 3 have been explored, and much of that has only been
partially explored near surface. Some 2,700 holes have been
drilled with an average depth of 200 feet, yet, this limited,
shallow drilling has delineated an approximate 1.4 million ounce
gold resource.
As can be seen on the accompanying cross-section of the northern
part of the explored area, continuous ore-grade mineralization has
been found over 3500 linear feet, or three-quarters of a mile, and,
as yet, we have not found the limits of mineralization in any one
direction. The size and continuity of near surface mineralization
indicates the existence of a large, powerful mineralizing event
which is a requirement, but not a guarantee, of a large orebody.
Tonkin Springs is a strong and valuable asset whose development is
underway. U.S. Golds efforts are now directed toward locating our
next mine. We see no lack of opportunity but we are very specific
in what we require for a property to meet our criteria. Our focus
is on projects where we can convert identified resources and
reserves into profitable mine production in a short timeframe,
bringing our broad range of operating experience to full effect.
Often these properties are initially too small for the larger
companies but many grow into sizable deposits.
We welcome Mr. Douglas Newby who joined the Board in January, 1998.
Douglas has extensive experience in the natural resource business
both domestically and internationally. We believe his experience
and contacts in both the finance and industry arenas will prove
invaluable in building the Company
We appreciate your support over the years and look forward to
continuing to earn it in the future. With the first twenty years
of the Company behind us, we eagerly and actively take on the
challenges that will move U.S. Gold through the next twenty years.
Sincerely.
(signature) William Reid
William W. Reid
Chairman, President and Chief Executive Officer
March 4, 1998
(Graphic image of geologic cross section with surface level shown
and subserface oxide and sulfide gold mineralization shown in
blocks over 3500 linear feet.)
(FORTH PAGE OF REPORT)
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The principal property of U.S. Gold Corporation (the Company) is
its 40 percent interest in Tonkin Springs which is subject to the
Tonkin Springs Project Joint Venture (Project Joint Venture) with
Gold Capital Corporation (Gold Capital), owner of 60 percent and
project manager. Gold Capital is responsible for all funding until
Commencement of Commercial Production. In order to commence
operations at Tonkin Springs, Gold Capital must, among other
things, obtain additional financing, receive various governmental
permits and approvals, complete certain construction efforts and
acquire and install certain equipment and start-up mining and
processing activities.
Gold Capital has stated their intent to put the Tonkin Springs
project into production. Gold Capitals ability to continue to
fund the Project Joint Venture and ultimately to put the project
into production is dependent upon its ability to raise additional
funding.
During 1998, the Company will continue to closely monitor Gold
Capitals performance under the Project Joint Venture. In addition,
the Company may evaluate potential sources of additional funding
for the Company and review projects for potential acquisition.
Changes in Financial Condition
On December 31, 1993, Tonkin Springs Venture Limited Partnership
(TSVLP), a partnership owned by subsidiaries of the Company, sold
a 60 percent undivided interest in the Tonkin Springs Properties
and Obligations (the Properties) to Gold Capital. Gold Capital
purchased its interest in the Properties from TSVLP for a purchase
price and other consideration of approximately $7,830,000
representing the estimated fair market value of the assets. The
purchase price included, among other consideration, a mortgage note
in the amount of $3.8 million (the Promissory Note) and 300,000
shares of unregistered Gold Capitals Series A Preferred Stock (Gold
Capital Preferred Stock) having an assigned value of $3 million.
Effective December 31, 1996, TSVLP converted its Preferred Stock
into 1,750,000 shares of Gold Capital common shares, which along
with shares received in satisfaction of mandatory Preferred Stock
dividends for 1995 and 1996 and accounts receivable, resulted in
the Company owning an aggregate 2,287,547 shares of Gold Capital.
As part of its purchase price obligation Gold Capital is required
to fund 100% of the holding, development and administrative costs
relating to the Properties until Commencement of Commercial
Production. For such expenditures up to the maximum Recoupment
Amount as provided in the Joint Venture Agreement, Gold Capital
shall be reimbursed from a preferential portion (84%) of cash flows
from the operations of the Properties, if any. Expenditures in
excess of the maximum Recoupment Amount will be considered
contributions to the Project Joint Venture by Gold Capital. Through
December 31, 1997, Gold Capital has reported that it has incurred
approximately $9 million in Recoupment Amount expenditures.
Effective August 29, 1997, Gold Capital became a wholly-owned
subsidiary of Globex Mining Enterprises, Inc. (Globex), a Canadian
corporation with shares traded on the Toronto and Montreal stock
exchanges (symbol: GMX) pursuant to the merger of Gold Capital with
a subsidiary of Globex (the Gold Capital Merger). Globex raised
approximatley $12 million in equity related to the Gold Capital
Merger, a portion of which has been or will be invested in the
Tonkin Springs Project and has also arranged conditional project
financing for Tonkin Springs with a bank through a commitment
letter for a $13 million loan along with a $10 million secured
hedging line. These proposed project financings are subject to
pre-conditions as well as final contractual documentation and
closing and therefore, there can be no assurance that they will be
sucessfully completed by Globex. In the Gold Capital Merger the
Company received an aggregate of 631,905 shares of Globex common
stock in exchange for its common stock ownership in Gold Capital
which represents approximately 5.6 percent of Globexs equivalent
outstanding common shares at December 31, 1997.
The Company recognized the gain from the sale of the 60% interest
in the Tonkin Springs Properties to Gold Capital using the
installment method of accounting. For 1996, 24.5% ($1,165,418) of
the gain was recognized representing the balance of the gain
related to the Promissory Note. At December 31, 1996, there was
$1,789,100 in deferred gain remaining which was associated with the
Gold Capital common stock received in exchange for the Gold Capital
Preferred Stock. With the Gold Capital Merger this deferred gain
was eliminated as non-realizable as provided under the installment
method of accounting as the value in Globex common stock was less
than the Companys carrying amount in Gold Capital common stock.
The Company agreed to amend the Project Joint Venture Agreement
effective upon the Gold Capital Merger. Under the terms of the
amendment Gold Capital i) paid off the balance of the Promissory
Note to TSVLP, ii) agreed to finance any capital requirements of
TSVLP after Commencement of Commercial Production, and iii) agreed
to pay TSVLP $60,000 per month in minimum cash distributions during
a 36 month period commencing September 1, 1998. TSVLP will not be
obligated to refund such payments if its share of cash flow is
insufficient to recoup same, except upon liquidation of the Project
Joint Venture, in which event any balance could be recouped from
liquidation distributions due TSVLP, if any. The amendment also i)
gives Gold Capital the right to borrow up to 100% of TSVLPs cash
flow from the Project (after the $60,000 per month minimum payments
noted above) if required to support Gold Capitals debt service for
future third party project financing, if any, with any net
borrowings from TSVLPs share of cash flow due and payable within 30
days of payoff of any third party project financing, ii) increases
the maximum Recoupment Amount from $6 million to $11.25 million and
further provides for limited increases to the Recoupment Amount for
additional exploration costs in excess of $750,000 but not more
than $1,500,000 prior to Commencement of Commercial Production (for
a maximum Recoupment Amount of $12 million), and iii) provides
expanded definition of Commencement of Commercial Production. The
Promissory Note and accrued interest was fully paid August 29,
1997. The Company also agreed for a period of 2 years to vote its
Globex shares as directed by Globex and to give Globex a first
right of refusual on sales of Globex stock to third parties.
Liquidity and Capital Resources
As of December 31, 1997, the Company had working capital of
$846,346 made up of current assets of $855,999 and current
liabilities of $9,653. During 1998, the Company anticipates
receipt of $240,000 in minimum distributions from the Tonkin
Springs Joint Venture plus interest on its cash balances. The
Company may also sell a portion of its common stock of Globex as
well as possibly issue equity in public or private transactions to
raise additional working capital. These items are the primary
source of working capital presently anticipated during 1998 unless
the Tonkin Springs Project commences commercial production with
cash flow in excess of the minimum distributions to TSVLP. Net
cash used in operations increased to $1,011,446 for 1997 from
$837,512 for 1996, reflecting increases during 1997 in cash paid to
suppliers and employees of $287,568. Cash flow from investing
activities increased to $1,621,986 for 1997 compared to $608,645 in
1996, primarily reflecting a payoff of the principal balance and
accrued interest under the Gold Capital note. No cash flows from
financing activities occured in 1997 nor 1996.
Results of Operations - 1997 Compared to 1996
At December 31, 1996, there was $1,789,100 in deferred gain
remaining which was associated with the Gold Capital common stock
received in exchange for Gold Capital Preferred Stock. With the
Gold Capital Merger this deferred gain was eliminated effective
August 29, 1997 against the carrying value of the Globex stock as
non-realizable as provided under the installment method of
accounting as the value in Globex common stock was less than the
Companys carrying value in Gold Capital common stock. Interest
income decreased during 1997 to $77,973 from $144,716 during 1996,
reflecting the payoff of the Promissory Note from Gold Capital and
lower interest received on bank deposits. General and
administrative expense increased approximately $412,000 in 1997
compared to 1996 reflecting higher employee compensation of
$197,000, an increase of $88,000 in other administrative expenses,
and $127,000 of reduced cost recovery from Gold Capital for
temporary staff support related to the Tonkin Springs project.
The Companys 1993 Federal income tax return reflected a liability
of $451,474 for alternative minimum tax. During 1997 and 1996, the
Company received federal tax refunds of $198,317 and $79,324,
respectively as tax losses were carried back and applied against
the 1993 alternative minimum tax payment. As of December 31, 1997,
the Company has approximately $11,200 in alternative minimum tax
credits which can be carried forward and utilized against future
tax income of the Company as well as capital loss carryforward of
approximatley $1.2 million which is available for capital gains
through year 2003. As of December 31, 1997, the Company has
recorded approximatley $318,203 net of a deferred tax liability of
$277,000. The Company believes that it is more likely than not
that the net deferred asset will be realized and the Company
believes that it will generate future taxable income to be able to
utilize its alternative minimum tax credits. Therefore, no
valuation allowance was provided for the $41,203 net deferred tax
asset.
Other
The Company has addressed Year 2000 Issues as relates to the
computing systems, software and programs for which the Company
relies and has concluded such systems, software and programs will
not be negatively impacted by calendar year 2000 transition
implications.
Recent Accounting Pronouncements: In June 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard No. 130 Reporting Comprehensive Income (SFAS
130). SFAS 130 establishes standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions
to owners. Among other disclosures, SFAS 130 requires that all
items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a
financial statement that displays with the same prominence as other
financial statements. In June 1997, FASB issued Statement of
Financial Standard No. 131 Disclosures about Segments of an
Enterprise and Related Information (SFAS 131). SFAS 131 supersedes
Statement of Financial Accounting Standard No. 14 Financial
Reporting for Segments of a Business Enterprise. SFAS 131
established standards of the way that public companies report
information about operating segments in annual financial statements
and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It
also establishes standards for disclosures regarding products and
services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate
financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate
resources and in assessing performance. SFAS 130 and SFAS 131 are
effective for financial statements for periods beginning after
December 15, 1997 and require comparable information for earlier
years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact,
if any, the standards may have on future financial statement
disclosures. Results of operations and financial position,
however, will be unaffected by the implementation of these
standards.
Except for the historical information contained herein, the
statements in this report which relate to the Companys plans,
objectives or future performance may be deemed to be forward-
looking statements. Such statements are based on current
expectations of management. Actual strategies and results may
differ materially from those currently expected because of factors
including gold price, ore grades, metallurgical recovery, operating
costs, market valuation, and project operators decisions and
performance under the Project Joint Venture, as well as other risks
and uncertainties.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
U.S. Gold Corporation
Denver, Colorado
We have audited the accompanying consolidated balance sheet of U.S.
Gold Corporation (the Company) as of December 31, 1997 and the
related consolidated statements of operations, changes in
shareholders equity and cash flows for each of the two years ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is
to express an opinion on these consolidated financial statements
based upon our audits.
We conducted our audits in accordance with generally accepted
auditing standards. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of the Company as of December 31, 1997, and the results of
their operation and their cash flows for each of the two years
ended December 31, 1997, in conformity with generally accepted
accounting principles.
(signature) BDO Seidman, LLP
BDO Seidman, LLP
Certified Public Accountants
February 16, 1998
Denver, Colorado
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
1997 1996
Installment gain on sale of
Tonkin Springs interest (Note 2) $- $1,165,418
Interest income 77,973 144,716
77,973 1,310,134
Costs and expenses:
General and administrative 1,205,060 806,496
Consulting fees, related
parties (Note 11) 13,625 -
Interest 3,424 1,695
Depreciation, depletion and
amortization 16,946 11,516
1,239,055 819,707
Income (loss) before income taxes (1,161,082) 490,427
Provision for income taxes (Note 6) - -
Net income (loss) $(1,161,082) $490,427
Basic and diluted per share data:
Basic $(0.08) $0.04
Diluted $(0.08) $0.03
U.S. GOLD CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS December 31, 1997
Current assets:
Cash and cash equivalents $615,999
Project distributions receivable (Note 2) 240,000
Total current assets 855,999
Project distributions receivable,
(Note 2) 1,920,000
Investment in Tonkin Springs Project
Joint Venture (Note 3) 2,262,578
Marketable securities, Globex common
stock at market (Note 2) 1,105,834
Deferred tax assets, net (Note 6) 41,203
Other assets (Note 5) 56,374
$6,241,988
LIABILITIES, DEFERRED CREDIT &
SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable and accrued liabilities $9,653
Deferred credit, project distributions (Note 2) 2,160,000
Reserve for reclamation (Note 3) 640,000
Total liabilities and deferred credit 2,809,653
Commitments and contingencies
(Note 4, 5, 8 and 9)
Shareholders equity (Note 7):
Common stock, $.10 par value, 15,000,000
shares authorized; 13,927,469 shares
issued and outstanding 1,392,747
Additional paid-in capital 31,969,459
Accumulated deficit (29,045,276)
Unrealized loss on securities
available for sale (884,595)
Total shareholders equity 3,432,335
$ 6,241,988
The accompanying notes are an integral part of these consolidated
financial statements.
U.S.GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Common Stock Additional
Par Paid-in
Shares Value Capital
Balance, January 1, 1996 13,806,505 $1,380,651 $31,982,165
Exercise of Stock
Options (Note 7) 48,000 4,800 (4,800)
Treasury shares canceled (386) (4) (141)
Net income - - -
Balance, December 31, 1996 13,854,119 1,385,447 31,977,224
Exercise of stock
options (Note 7) 73,530 7,353 (7,353)
Treasury shares canceled (180) (53) (412)
Changes in unrealized
loss on securities for
sale, net of tax - - -
Net loss - - -
Balance, December 31, 1997 13,927,469 $1,392,747 $31,969,459
Statement continued below
Unrealized
Loss on
Securities
Accumulated Available for
Deficit Sale
Balance, January 1, 1996 $(28,374,621) $-
Exercise of Stock
Options (Note 7) - -
Treasury shares canceled - -
Net income 490,427 -
Balance, December 31, 1996 (27,884,194) -
Exercise of stock
options (Note 7) - -
Treasury shares canceled - -
Changes in unrealized
loss on securities for
sale - (884,595)
Net loss (1,161,082) -
Balance, December 31, 1997 $(29,045,276) $(884,595)
U.S. GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1997 1996
Cash flows from operating activities:
Cash paid to suppliers and employees $(1,217,856) $(930,288)
Interest received 11,517 15,147
Interest paid (3,424) (1,695)
Receipt of refund from IRS 198,317 79,324
Cash used in operating activities (1,011,446) (837,512)
Cash flows from investing activities:
Cash received from sale of Tonkin
Springs interest 1,501,076 450,844
Cash received for accrued interest
on note 129,569 195,572
Capital expenditures (9,569) (38,986)
Sale of assets 910 1,215
Cash provided by investing activities 1,621,986 608,645
Cash flows from financing activities:
Cash used in financing activities - -
Increase (decrease) in cash and
cash equivalents 610,540 (228,867)
Cash and cash equivalents,
beginning of year 5,459 (234,326)
Cash and cash equivalents,
end of year $615,999 $5,459
Reconciliation of net income to cash used in operating activities:
Net income (loss) $(1,161,082) $490,427
Items not requiring (providing) cash:
Interest income - (129,569)
Depreciation, depletion and
amortization 16,946 11,516
Investment gain on sale of
Tonkin Springs interest - (1,165,418)
Gain on sale of assets (348) (1,215)
Decrease in income tax receivable 198,317 79,324
(Increase) decrease in other current
assets related to operations 52,568 (203,441)
Increase (decrease) in accounts
payable related to operations (117,847) 80,864
Cash used in operating activities $(1,011,446) $(837,512)
The accompanying notes are an integral part of these consolidated
financial statements.
U.S. GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.Summary of Significant Accounting Policies
Basis of presentation: U.S. Gold Corporation (the Company) was
organized under the laws of the State of Colorado on July 14, 1979.
Since its inception, the Company has been engaged in the
exploration for, development of, and the production and sale of
gold and silver.
Basis of consolidation: The consolidated financial statements
include the accounts of the Company and its wholly-owned
subsidiaries, as well as the accounts of the wholly-owned Tonkin
Springs Venture Limited Partnership (TSVLP). Significant
intercompany accounts and transactions have been eliminated.
Statements of cash flows: The Company considers cash in banks,
deposits in transit, and highly liquid debt instruments purchased
with original maturities of three months or less to be cash and
cash equivalents.
Investments: Investment in Globex Mining Enterprises Inc. (Globex)
common stock is classified as available-for-sale and carried at
fair value, based on quoted market prices. The unrealized loss on
this investment is reported as a separate component of shareholders
equity. The carrying amount of securities at December
31, 1997 was $1,990,429.
Investment in Tonkin Springs Project Joint Venture is accounted for
under the equity method of accounting. Under the equity method of
accounting, the original investment is recorded at cost and
adjusted by the Companys share of undistributed earnings, losses
and distributions. This investment is evaluated periodically and
carried at the lesser of cost or its estimated realizable value.
Property and equipment: Property and equipment are carried at cost
not in excess of their estimated net realizable value. Normal
maintenance and repairs are charged to earnings while expenditures
for major betterments are capitalized. Gains or losses on
disposition are recognized in operations.
Exploration and development costs: General exploration costs are
expensed as incurred while exploration and acquisition costs
related to projects are deferred until the properties are put into
commercial production, sold, or abandoned. Mine development costs
incurred either to develop new ore deposits, expand the capacity of
operating mines, or to develop mine areas substantially in advance
of current production are also deferred. Costs incurred to
maintain current production or to maintain properties on a standby
basis are charged to operations. Costs of abandoned projects are
charged to operations upon abandonment. The Company evaluates, at
least quarterly, the carrying value of capitalized mining costs and
related property, plant and equipment costs to determine if these
costs are in excess of their net realizable value and if an
impairment needs to be recorded.
Permanent impairments are evaluated periodically based upon
expected future cash flows in accordance with Statement of
Financial Accounting Standards No. 121, Accounting for Impairment
of Long-Lived Assets. This standard did not have an effect on the
financial statements for the year ended December 31, 1997.
Depreciation, depletion and amortization: Depreciation of property
and equipment is computed using the units-of-production and
straight-line methods, depending upon which method more accurately
reflects the related assets use. Mine development costs are
charged to operations using the units-of-production method based on
estimated ounces of gold to be recovered.
Property reclamation costs: The estimated reclamation cost
obligation related to present disturbances at the Tonkin Springs
Properties is carried as a liability. Changes to these estimates,
or the estimated reclamation costs associated with other mineral
properties, are accrued and charged over the expected life of each
property using the units of production method. Ongoing
environmental and reclamation expenditures are expensed as
incurred.
Stock Option Plans: The Company applies APB Opinion 25, Accounting
for Stock Issued to Employees, and related Interpretations in
accounting for all stock option plans. Under APB Opinion 25, no
compensation cost has been recognized for stock options issued to
employees as the exercise price of the Companys stock options
granted equals or exceeds the market price of the underlying common
stock on the date of grant.
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
Company to provide pro forma information regarding net income as if
compensation costs for the Companys stock option plans had been
determined in accordance with the fair value based method
prescribed in SFAS No. 123. To provide the required pro forma
information, the Company estimates the fair value of each stock
option at the grant date by using the Black-Scholes option-pricing
model.
Per share amounts: Statement of Financial Accounting Standards No.
128 provides for the calculation of Basic and Diluted earnings per
share. Basic earnings per share includes no dilution and is
computed by dividing income available to common shareholders by the
weighted-average number of shares outstanding during the period
(13,911,443 for 1997 and 13,823,947 for 1996). Diluted earnings
per share reflect the potential dilution of securities that could
share in the earnings of the Company, similar to fully diluted
earnings per share. As of December 31, 1997, options are not
considered in the computation of diluted earnings per share as
their inclusion would be antidilutive. As of December 31, 1996,
options in the amount of 854,149 are considered in the computation
of diluted earnings per share. The implementation of this standard
did not have a material effect on the consolidated financial
statements.
Income Taxes: The Company accounts for income taxes under
Statement of Financial Accounting Standards No. 109 (SFAS No. 109.)
Temporary differences are differences between the tax basis of
assets and liabilities and their reported amounts in the financial
statements that will result in taxable or deductible amounts in
future years.
Concentration of risks: The Companys financial instruments that
are exposed to concentration of credit risk consists primarily of
cash equivalent balances in excess of the insurance provided by
federal insurance authorities. The Companys investment in Globex
common stock is exposed to concentration of credit risk primarily
because this investment is dependent upon the successful operation
of Globex.
Use of estimates: The preparation of the Companys consolidated
financial statements in conformity with generally accepted
accounting principles requires the Companys management to make
estimates and assumptions that affect the amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Fair Value of Financial Instruments: Statement of Financial
Accounting Standards No. 107, Disclosures About Fair Value of
Financial Instruments, requires disclosure of fair value
information about financial instruments. Fair value estimates
discussed herein are based upon certain market assumptions and
pertinent information available to management as of December 31,
1997.
The respective carrying value of certain on-balance-sheet financial
instruments approximate their fair values. These financial
instruments include cash and cash equivalents, receivables and
accounts payable. Fair values were assumed to approximate carrying
values for these financial instruments since they are short term in
nature and their carrying amounts approximate fair value or they
are receivable or payable on demand.
Recent Accounting Pronouncements: In June 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard No. 130 Reporting Comprehensive Income (SFAS
130). SFAS 130 establishes standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions
to owners. Among other disclosures, SFAS 130 requires that all
items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a
financial statement that displays with the same prominence as other
financial statements. In June 1997, FASB issued Statement of
Financial Standard No. 131 Disclosures about Segments of an
Enterprise and Related Information (SFAS 131). SFAS 131 supersedes
Statement of Financial Accounting Standard No. 14 Financial
Reporting for Segments of a Business Enterprise. SFAS 131
established standards of the way that public companies report
information about operating segments in annual financial statements
and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It
also establishes standards for disclosures regarding products and
services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate
financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate
resources and in assessing performance. SFAS 130 and SFAS 131 are
effective for financial statements for periods beginning after
December 15, 1997 and require comparable information for earlier
years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact,
if any, the standards may have on future financial statement
disclosures. Results of operations and financial position,
however, will be unaffected by the implementation of these
standards.
2. Sale of 60% Interest in Tonkin Springs Project
On December 31, 1993 (the Closing), TSVLP, a partnership owned by
subsidiaries of the Company, sold a 60 percent undivided interest
in the Tonkin Springs Properties and Obligations (the Properties)
to Gold Capital Corporation (Gold Capital). TSVLP retained a 40
percent undivided interest in the Properties. Immediately after
the conveyance to Gold Capital and effective December 31, 1993,
TSVLP and Gold Capital each made their respective interest in the
Properties subject to a mining joint venture, the Tonkin Springs
Project Joint Venture (Project Joint Venture), to operate and
manage the Properties. Ownership in the Project Joint Venture is:
TSVLP- 40 percent, Gold Capital- 60 percent. Gold Capital is
manager of the Properties under the Project Joint Venture.
Gold Capital purchased its 60 percent undivided interest in the
Properties from TSVLP for a purchase price and other consideration
of approximately $7,830,000 representing the estimated fair market
value of the assets. The purchase price included $200,000 in cash
at Closing; delivery of a mortgage note in the amount of $3.8
million (the Promissory Note); 300,000 shares of unregistered Gold
Capitals Series A Preferred Stock (Gold Capital Preferred Stock)
having an assigned value of $3 million, and the assumption of 60
percent of a reclamation obligation recorded at $960,000.
Effective December 31, 1996, TSVLP converted its 300,000 shares of
Preferred Stock of Gold Capital into 1,750,000 shares of Gold
Capital common shares, and with shares of Gold Capital common stock
received in satisfaction of mandatory Preferred Stock dividends for
1995 and 1996 and accounts receivable, the Company and TSVLP owned
an aggregate of 2,287,547 shares of Gold Capital as of that date.
Effective August 29, 1997, Gold Capital became a wholly-owned
subsidiary of Globex Mining Enterprises, Inc. (Globex), a Canadian
corporation with shares traded on the Toronto and Montreal stock
exchanges (symbol: GMX) pursuant to the merger of Gold Capital with
a subsidiary of Globex (the Gold Capital Merger). With this
merger, Globex through its wholly-owned subsidiary Gold Capital,
assumed responsibilities and obligations for the Project Joint
Venture under the various Gold Capital agreements with the Company
and TSVLP. With the Gold Capital Merger the Company and TSVLP
received an aggregate of 631,905 shares of Globex common stock in
exchange for its common stock ownership in Gold Capital which as of
December 31, 1997 represents approximately 5.6 percent of the
equivalent outstanding common shares of Globex.
The Company recognized the gain from the sale of the 60% interest
in the Tonkin Springs Properties to Gold Capital using the
installment method of accounting. For 1996, 24.5% ($1,165,418) of
the gain was recognized representing the balance of the gain
related to the Promissory Note. At December 31, 1996, there was
$1,789,100 in deferred gain remaining which was associated with the
Gold Capital common stock received in exchange for Gold Capital
Preferred Stock. With the Gold Capital Merger this deferred gain
was eliminated effective September 30, 1997 as non-realizable as
provided under the installment method of accounting, as the value
in Globex common stock was less than the Companys carrying amount
in Gold Capital common stock.
Globex raised approximatley $12 million in equity related to the
Gold Capital Merger, a portion of which has been or will be
invested in the Project Joint Venture and has also arranged
conditional project financing for the Project Joint Venture with a
bank through a commitment letter for a $13 million loan along with
a $10 million secured hedging line. These proposed project
financings are subject to pre-conditions as well as final
contractual documentation and closing and therefore, there can be
no assurance that they will be sucessfully completed by Globex.
The Company agreed to amend the Project Joint Venture Agreement
effective upon the Gold Capital Merger. Under the terms of the
amendment Gold Capital i) paid off the balance of the Promissory
Note to TSVLP in the amount of $1,206,449 including $66,804 of
accrued interest, ii) agreed to finance any capital requirements of
TSVLP after Commencement of Commercial Production, and iii) agreed
to pay TSVLP $60,000 per month in minimum cash distributions during
a 36 month period commencing September 1, 1998. TSVLP will not be
obligated to refund such payments if its share of cash flow is
insufficient to recoup same, except upon liquidation of the Project
Joint Venture, in which event any balance could be recouped from
liquidation distributions due TSVLP, if any. The amendment also i)
gives Gold Capital the right to borrow up to 100% of TSVLPs cash
flow from the Project Joint Venture (after the $60,000 per month
minimum payments noted above) if required to support Gold Capitals
debt service for future third party project financing, if any, with
any net borrowings from TSVLPs share of cash flow due and payable
within 30 days of payoff of any third party project financing, ii)
increases the maximum Recoupment Amount from $6 million to $11.25
million and further provides for limited increases to the
Recoupment Amount for additional exploration costs in excess of
$750,000 but not more than $1,500,000 prior to Commencement of
Commercial Production (for a maximum Recoupment Amount of $12
million), and iii) provides expanded definition of Commencement of
Commercial Production. The Company also agreed for a period of
2 years to vote its Globex shares as directed by Globex and to give
Globex a first right of refusual on sales of Globex stock to third
parties. As of December 31, 1997, the Company recorded a
$2,160,000 receivable due from the Project Joint Venture of which
$240,000 was classified as current. There is also a $2,160,000
deferred credit, so in effect the entire receivable is offset by a
deferred credit.
As part of its purchase price obligation in the December 31, 1993
transaction, Gold Capital is required to fund 100% of the holding,
development and administrative costs relating to the Properties
until Commencement of Commercial Production. For such expenditures
up to the maximum Recoupable Amount as provided in the Joint
Venture Agreement, Gold Capital shall be reimbursed from a
preferential portion (84%) of cash flows from the operations of the
Properties, if any. Expenditures in excess of the maximum
Recoupment Amount will be considered contributions to the Project
Joint Venture by Gold Capital.
Effective June 1, 1995, the Company granted to its officers and an
outside director options to purchase an aggregate of 450,000 shares
of common stock of Gold Capital from the Company which options
agreements were terminated and replaced effective September 30,
1997 subsequent to the Gold Capital Merger with Globex. The new
option agreements for an aggregate of 124,380 shares of common
stock of Globex are at an exercise price of $3.15 per share
(greater than the market price of the Globex shares as of the date
of the replacement grant of $2.83 per share). These option
agreements expire October 1, 2002. The value of these options
issued to the Companys officers and an outside director is
considered nominal.
3. Condensed Financial Information of Tonkin Springs Project
Joint Venture, unaudited
As noted in Footnote 2 above, effective December 31, 1993, TSVLP
sold a 60 percent undivided interest in the Properties to Gold
Capital and the parties each made their respective interest in the
Properties subject to the Project Joint Venture. Gold Capital is
manager of the Properties under the Project Joint Venture. The
following is the condensed balance sheet of the Project Joint
Venture as of December 31, 1997, and a condensed statement of
operations for the year then ended. All costs associated with the
Properties have been funded by Gold Capital.
STATEMENT OF OPERATIONS Year Ended
December 31, 1997
Miscellaneous income $15,122
Property maintenance costs 923,453
Net loss $(908,331)
BALANCE SHEET December 31, 1997
Assets:
Property, plant, equipment &
development costs $15,131,653
Prepaid royalties 694,603
Restricted time deposit for
reclamation bond 1,348,228
Deposits and other assets 2,829
Total assets $17,177,313
Liabilities, Reserves and Project Joint Venturers Interest:
Current liabilities $21,012
Reserve for reclamation 1,469,900
Intercompany, Gold Capital 8,999,037
Venturers Interest:
Gold Capitals interest 4,252,186
TSVLPs interest 2,435,178
Total venturers interest 6,687,364
Total liabilities, reserves
and venturers interest $17,177,313
Note A. TSVLP and Gold Capital are jointly responsible for
reclamation of disturbance of the Properties, proportionate to
their respective interest in the Project Joint Venture. The
current estimate of reclamation cost, on a 100% basis, totals
approximately $1.47 million of which TSVLP and the Company reflects
$640,000 on its balance sheet related to its 40% share. Actual
reclamation, generally, will be commenced upon the completion of
operations at the Properties. Bonding of reclamation under various
Nevada and Federal Bureau of Land Management agencies, tentatively
set at $1.3 million, is the responsibility of Gold Capital under
the terms of the Project Joint Venture. Effective November 25,
1997, Gold Capital posted a cash bond in the initial amount of $1.3
million with the required governmental agencies secured by a
restricted cash time deposit for a total balance of reclamation
deposits of $1,348,228.
4. Loan Settlement Agreement with FABC
On February 21, 1992, the Company, among other related things,
entered into a Loan Settlement Agreement with its senior secured
lender, The French American Banking Corporation (FABC). The
Company discharged its debt to FABC and terminated all prior
security interests related thereto. As part of the consideration
to FABC under the Loan Settlement Agreement, the Company entered
into an agreement between Tonkin Springs Gold Mining Company, a
wholly-owned subsidiary of the Company (TSGMC) and FABC entitled
Agreement To Pay Distributions, which requires TSGMC to pay a
limited portion of certain distributions from TSVLP to FABC. TSVLP
has complete control of such distributions, if any, to TSGMC.
Under the terms of the Agreement To Pay Distributions, TSGMC is
required to pay to FABC (i) the first $30,000 in cash or value of
asset distributions, as defined in such agreement, received from
TSVLP, plus (ii) an amount equal to 50% of such retained
distributions in cash or value of asset distributions after TSGMC
has first received and retained $500,000 of such retained
distributions. This obligation to FABC shall terminate after FABC
has been paid a total of $2,030,000 thereunder.
5.Property and Equipment
At December 31, 1997 property and equipment, net of accumulated
depreciation of $119,674 totalled $41,913, and represented office
leasehold improvements, office furniture and equipment, vehicles
and trailers.
The Company has transferred its interest in several mining
properties over the past years. The Company could remain
potentially liable for environmental enforcement actions related to
its prior ownership interest of such properties. However, the
Company has no reasonable belief that any violation of relevant
environmental laws or regulations has occurred regarding these
transferred properties.
6.Income Taxes
In the various transactions entered into February 21, 1992, the
Company had an ownership change, as that term is defined under
Section 382 (g), IRC. As a result, the tax net operating loss
carry forwards and the investment tax credit carry forwards will be
subject to annual limitations under Section 382 IRC, following the
date of such ownership change. Except as noted below, the Company
will receive no future benefits from net operating loss
carryforwards or investment tax credit carryforwards existing as of
the date of the ownership change. At December 31, 1997, the
Company estimates that tax loss carry forwards totals approximately
$3,170,000 expiring in year 2012. The Company has an additional
capital loss carryforward of approximately $1.2 million which is
only available against capital gains from investment securities and
which expires in year 2002.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1997 are presented below:
Deferred tax assets:
Alternative minimum tax credit carryfoward $11,200
Reclamation obligation 140,800
Net operating loss carryforward 697,400
Capital loss carryforward 268,400
Total gross deferred tax assets 1,117,800
Less valuation allowance (799,597)
Net deferred tax assets 318,203
Deferred tax liabilities:
Basis in TSVLP 277,000
Total gross deferred tax liabilities 277,000
Total net deferred tax asset $41,203
The Company believes that it is more likely than not that the net
deferred tax asset will be realized. Therefore, no valuation
allowance has been provided for the $41,203 net deferred tax asset.
A reconciliation of the tax provision for 1997 and 1996 at
statutory rates is comprised of the following components:
1997 1996
Statutory rate tax provision
on book income (loss) $(395,000) $167,000
Book to tax adjustments:
Installment gain on sale
of Tonkin Springs 148,100 (398,000)
Loss from joint venture (40,072) -
Valuation allowance 290,128 230,000
Other (3,156) 1,000
Tax provision $0 $0
7. Shareholders Equity
Stock options have been granted to key employees, directors and
others under the Non-Qualified Amended and Restated Stock Option
and Stock Plan (the Plan). Options to purchase shares and stock
grants under the Plan were granted at market value as of the date
of the grant. Effective October 16, 1997, the Board of Directors
amended the Plan and increased the number of shares thereunder from
2,300,000 to 2,500,000.
Effective December 8, 1993 options to purchase a total of 1,000,000
shares at an exercise price of $.50 per share, were granted to
executives and directors of the Company which remain outstanding
but are not currently exercisable, and effective October 16, 1997,
options to purchase a total of 100,000 shares at an exercise price
of $.97 per share were granted to a new member of the Board of
Directors. These options cannot be exercised until sufficient
reserved shares of common stock are determined to be available for
option exercise by the Board of Directors. Options to purchase a
total of 1,250,000 shares at an exercise price of $.28 per share
were issued to officers, directors and others on February 3, 1992
of which 1,048,295 remain outstanding and unexercised as of
December 31, 1997, including options for 5,764 shares which cannot
be exercised until sufficient shares of common stock are determined
to be available.
During 1997, the estate of a former director of the Company
exercised stock options to purchase 100,000 shares of the Companys
common stock at an exercise price of $.28 with 26,470 shares
retained by the Company as payment of the exercise price of the
option and with cancellation and return to the status of authorized
but unissued for those shares retained. In 1996, executive
management of the Company exercised stock options to purchase
64,000 shares of the Companys common stock at an exercise price of
$.28 with 16,000 shares retained by the Company as payment of the
exercise price of the option and with cancellation and return to
the status of authorized but unissued for those shares retained.
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
Company to provide pro forma information regarding net income as if
compensation cost for the Companys stock option plans had been
determined in accordance with the fair value based method
prescribed in SFAS No. 123. The Company estimates the fair value
of each stock option at the grant date by using the Black-Scholes
option-pricing model with the following weighted-average
assumptions used for the 1997 grant: dividend yield of 0%; expected
volatility of 14% risk free interest rate of 6.4%; and expected
life of 10 years.
Under the accounting provisions of SFAS No. 123, the Companys net
income (loss) and net income (loss) per share would have been
adjusted to the following pro forma amounts:
1997 1996
Net income (loss)
As reported $(1,161,082) $490,427
Pro forma $(1,164,116) $487,393
Basic net income per share
As reported $(0.08) $0.04
Pro forma $(0.08) $0.04
1997 1996
Weighted Weighted
Average Average
Range of Exercise Range of Exercise
Shares Prices Shares Prices
Outstanding,
beginning of year 2,198,295 $.39 2,262,295 $.38
Granted 100,000 $.97 0 -
Exercised 73,530 $.28 48,000 $.28
Canceled 26,470 $.28 16,000 $.28
Expired 0 - 0 -
Outstanding,
end of year 2,198,295 $.42 2,198,295 $.39
Options exercisable,
end of year 1,072,531 $.29 1,145,881 $.28
Weighted average fair
value of option
granted during year $.46 $ 0
The following table summarizes information about stock options
outstanding at December 31, 1997:
Options Outstanding Weighted Average Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/97 life Price at 12/31/97 Price
$.28 1,048,295 4.1 yrs. $.28 1,042,531 $.28
$.47 50,000 7.1 yrs. $.47 30,000 $.47
$.50 1,000,000 5.9 yrs. $.50 - -
$.97 100,000 9.8 yrs. $.97 - -
$.28-$.97 2,198,295 4.1 to 9.8 yrs. $.42 1,072,531 $.29
8. Employee Benefit Plans
On December 10, 1985, the Companys Board of Directors adopted a
Simplified Employee Pension Plan (SEP). The Company intends to
make a determination of contributions under the SEP on an annual
basis, based upon review by the Board of Directors of the Companys
financial statements as of its fiscal year end. The Company has
not yet determined any contributions to the SEP for the year ended
December 31, 1997. For 1996, the Company made a contribution of
15% which was paid during 1997 in the aggregate amount of $74,400.
Under the SEP, the Company has the option of contributing a certain
amount directly to its employees Individual Retirement Accounts.
The Plan covers all employees of the Company with certain
participation requirements, however the Company is not required to
make any contributions in a given year.
If contributions are made, they must be made to all eligible
employees. Contributions made under the SEP in any one calendar
year for any one employee may not be more than the smaller of
$24,000 or 15% of that employees total compensation.
9. Lease Commitments and Contingencies
The Company has leased office space and equipment and vehicles
under noncancelable operating leases which expire through October,
2001. Future minimum lease payments as of December 31, 1997 are as
follows:
1998 $70,000
1999 61,300
2000 50,700
2001 3,400
$185,400
Rent expense during the years ended December 31, 1997 and 1996 on
all operating leases was approximately $75,700 and $73,000,
respectively. See Note 5 for potential environmental liability.
10. Statements of Cash Flows
The Companys statement of cash flows for the two year periods ended
December 31, 1997 excludes the following non-cash investing and
financing activities:
1997 1996
Exchange of shares of Gold Capital
for shares of Globex common stock $1,990,429 $-
Satisfaction of dividend receivable
by investment in Gold Capital
common stock. $- $247,500
Exercise of stock options with
shares representing exercise
price retained and canceled $- $18,000
Investment in Gold Capital Preferred
Stock converted into investment in
Gold Capital Common Stock $- $3,000,000
Satisfaction of accounts receivable
into Gold Capital Common Stock $- $262,029
11. Related Party Transactions
Effective September 13, 1996, the Company retained the firm of
Moyes Newby & Co., Inc. (Moyes Newby) as its financial advisor to
develop potential financial options available to the Company and
identify possible mining investment opportunities. Effective
January 16, 1997, the relationship with Moyes Newby was suspended
to allow the Company to focus its attention on the merger of its
partner at Project Joint Venture, Gold Capital, with Globex which
merger was consummated August 29, 1997. The Company paid Moyes
Newby an aggregate of $17,330 and $20,402 for services and expenses
for 1996 and through January 16, 1997, respectively, under that
arrangement. Effective November 15, 1997, the Company and Moyes
Newby entered into a month-to-month arrangement whereby Moyes Newby
provides the Company general corporate and financial advisory
services for a retainer of $5,000/month plus reimbursement of
reasonable out of pocket expenses, for a total of $13,625 through
December 31, 1997. Douglas J. Newby is managing partner of Moyes
Newby and effective October 16, 1997, Mr. Newby became a director
of the Company.
(INSIDE BACK COVER)
CORPORATE INFORMATION
Directors
John W. Goth
Mining Consultant
Denver, Colorado
Douglas J. Newby
Managing Partner
Moyes Newby & Co., Inc.
New York, New York
David C. Reid
Vice President Exploration
U.S. Gold Corporation
Denver, Colorado
William W. Reid
Chairman, President & CEO
U.S. Gold Corporation
Denver, Colorado
Officers
William F. Pass
Chief Financial Officer
David C. Reid
Vice President Exploration
William W. Reid
Chairman, President & CEO
Auditors
BDO Seidman, LLP
Denver, Colorado
Transfer Agent
American Stock Transfer & Trust
40 Wall Street, 46th Fl.
New York, NY 10015
Telephone (718) 921-8200
Form 10-KSB
A copy of the Form 10-KSB filed with the Securities and Exchange
Commission, or additional materials on U.S. Gold, are available by
contacting the Companys corporate office.
Corporate Office
55 Madison Street
Suite 700
Denver, Colorado 80206
Telephone (303) 322-8002
(800) 544-3280
FAX (303) 322-7866
Stock Information
The Companys common stock trades on The Nasdaq Stock Market under
the symbol USGL. Nasdaq has announced that effective February 23,
1998, it will institute new requirements for continued listing of
stocks on Nasdaq which include, among other requirements, a
$1.00 minimum bid price. USGL does not currently meet the
new requirements with regard to minimum bid price. The Company
understands that there will be a period to cure non-compliance. If
compliance is not achieved in the time allowed, U.S. Gold
anticipates that it would be traded on the OTC Bulletin
Board system.
U.S. Gold has approximately 7,800 record shareholders
Dividends paid: none.
Stock Bid Prices*
Quarter High Low
1997 First $1.53 $1.06
Second $1.22 $0.84
Third $1.06 $0.78
Fourth $1.03 $0.56
1996 First $1.53 $0.77
Second $1.25 $0.91
Third $1.19 $0.91
Fourth $1.50 $1.00
* As reported by The Nasdaq Stock Market. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
Selected Financial Data
(thousands of dollars)
SIX YEAR FINANCIAL PROFILE
December 31 1997 1996 1995 1994 1993 1992
Revenues $78 $1,311 $1,368 $976 $1,446 $1,507
Income (loss) before
extraordinary items (1,161) 490 572 204 769 176
Extraordinary items 0 0 0 0 (454) 26,985
Net income (loss) (1,161) 490 572 204 315 27,161
Net income (loss)
per share (0.08) 0.03 0.04 0.01 0.02 2.07
Working capital 846 750 1,463 953 1,700 (257)
Total assets 6,242 8,035 8,629 9,647 9,361 5,575
Long-term obligations
and deferred credits 2,800 2,429 3,595 4,297 4,637 1,426
Shareholders equity 3,432 5,478 4,988 4,406 4,202 3,862
BACK COVER
(texture pattern of bricks)