10QSB/A 1 f10qam2_june2003usgold.txt AM. NO. 2 TO FORM 10-QSB FORM 10-QSB/A-2 U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to -------------- --------------- Commission file number 0-9137 U.S. GOLD CORPORATION (Exact name of small business issuer as specified in its charter) COLORADO 84-0796160 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2201 Kipling Street, Suite 100 Lakewood, Colorado 80215-1545 (Address of principal executive offices) (303) 238-1438 (Issuer's telephone number) (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 --- --- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Class Outstanding as of August 10, 2003 Common Stock, $0.10 par value 17,453,533
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- U.S. GOLD CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited Three Month Period Ended Six Month Period Ended June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002 ------------- ------------- ------------- ------------- (Restated) (Restated) Revenues: Management contract fees from Gold Resource Corporation ("GRC") $ -- $ -- $ -- $ 30,000 Interest income 3,369 4,549 3,383 4,923 Gain on sale of assets -- 6,000 4,000 10,000 --------- --------- --------- --------- Total revenues 3,369 10,549 7,383 44,923 --------- --------- --------- --------- Costs and expenses: General and administrative 57,372 29,492 144,064 88,326 Holding costs of Tonkin Springs property 121,416 285,143 412,081 572,724 Exploration expense (costs of services provided under GRC management contract) -- 38,743 -- 84,280 Stock compensation expense -- -- 290,000 -- Interest 268 1,288 658 2,015 Accretion of asset retirement Obligation of SFAS 143 24,013 -- 47,481 -- Depreciation 7,370 2,751 10,193 5,503 --------- --------- --------- --------- Total costs and expenses 210,439 357,417 904,477 752,848 --------- --------- --------- --------- (Loss) before income taxes and cumulative effect of accounting change (207,070) (346,868) (897,094) (707,925) --------- --------- --------- --------- Provision for income taxes -- -- -- -- --------- --------- --------- --------- (Loss) before cumulative effect of -- -- accounting change (207,070) (346,868) (897,094) (707,925) --------- --------- --------- --------- Accounting change: cumulative effect: gain on implementation of SFAS 143 -- -- 404,000 -- --------- --------- --------- --------- Net (loss) $(207,070) $(346,868) $(493,094) $(707,925) ========= ========= ========= ========= Basic and diluted per share data: (Loss) before cumulative effect of accounting change: Basic $ (0.01) $ (0.02) $ (0.05) $ (0.05) ========= ========= ========= ========= Diluted $ (0.01) $ (0.02) $ (0.05) $ (0.05) ========= ========= ========= ========= Cumulative effect of accounting change Basic -- -- $ 0.02 -- ========= ========= ========= ========= Diluted -- -- $ 0.02 -- ========= ========= ========= ========= Net (loss) Basic $ (0.01) $ (0.02) $ (0.03) $ (0.05) ========= ========= ========= ========= Diluted $ (0.01) $ (0.02) $ (0.03) $ (0.05) ========= ========= ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
2 U.S. GOLD CORPORATION CONSOLIDATED BALANCE SHEET JUNE 30, 2003 (Unaudited and Restated) ASSETS Current assets: Cash and cash equivalents $ 85,020 Receivable-BacTech 12,881 Prepaid expense 5,989 ------------ Total current assets 103,890 ------------ Property and equipment, net 10,089 ------------ Investment in affiliate-GRC -- ------------ Restrictive time deposits for reclamation bonding 1,799,913 ------------ Other assets: Inactive milling equipment 1,312,601 Technology license, net and other assets 57,160 Advance to GRC 30,000 ------------ Total other assets 1,399,761 ------------ TOTAL ASSETS $ 3,313,653 ============ LIABILITIES, OBLIGATIONS, DEFERRED CREDIT & SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 131,856 Accrued salaries and directors fees, related parties 247,896 Installment purchase contracts 1,908 Deferred credit-BacTech purchase option payment 250,000 ------------ Total current liabilities and deferred credit 631,660 ------------ Related party payables, long-term 544,760 Retirement obligation 1,144,052 Other permit obligations 52,112 ------------ Total liabilities, deferred credit and obligations 2,372,584 ------------ Shareholders' equity: Common stock, $.10 par value, 18,000,000 shares authorized; 17,453,533 shares issued and outstanding 1,745,353 Additional paid-in capital 33,214,223 Accumulated (deficit) (34,018,507) ------------ Total shareholders' equity 941,069 ------------ TOTAL LIABILITIES, OBLIGATIONS, DEFERRED CREDIT & SHAREHOLDERS' EQUITY $ 3,313,653 ============ The accompanying notes are an integral part of these consolidated financial statements. 3
U.S. GOLD CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the six months ended June 30, 2003 2002 ----- ---- (Restated) Cash flows from operating activities: Cash received from management contract $ -- $ 30,000 Cash paid to suppliers and employees (632,225) (555,737) Interest received 3,383 4,923 Interest paid (658) (2,015) Income taxes paid -- -- --------- --------- Cash (used in) operating activities (629,500) (522,829) --------- --------- Cash flows from investing activities: BacTech option payment 250,000 -- Decrease in restrictive time deposits for reclamation bond 42,449 -- Payment on license -- (20,000) Sale of assets 4,000 10,000 --------- --------- Cash provided by investing activities 296,449 (10,000) --------- --------- Cash flows from financing activities: Sale of common stock for cash 450,000 673,223 Borrowing from related parties -- 29,358 Repayment of borrowing from related parties -- (29,358) Advance to GRC (30,000) -- Payments on installment purchase contracts (6,366) (6,615) --------- --------- Cash provided by (used in) financing activities 413,634 666,608 --------- --------- Increase in cash and cash equivalents 80,583 133,779 Cash and cash equivalents, beginning of period 4,437 72,089 --------- --------- Cash and cash equivalents, end of period $ 85,020 $ 205,868 ========= ========= Reconciliation of net loss to cash (used in) operating activities: Net (loss) $(493,094) $(707,925) Items not requiring/providing cash: Stock compensation expense 290,000 -- Accretion of asset retirement obligation-SFAS 143 47,481 -- Cumulative-effect: gain on implementation of SFAS 143 (404,000) -- Depreciation 10,193 5,503 (Increase) in other assets related to operations (4,358) (15,331) Increase (decrease) in liabilities related to operations (75,722) 194,924 --------- --------- Cash (used in) operating activities $(629,500) $(522,829) ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
4 U.S. GOLD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION: The interim consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. Certain adjustments have been made to correct an error related to the implementation of SFAS 143 effective January 1, 2003, and related accounting for the three and six month periods ended June 30, 2003. These adjustments had the effect of increasing Net (loss) by $24,013 for the three month period ended June 30, 2003, and decreasing Net (loss) by $356,519 for the six month period ended June 30, 2003, and made changes to certain balance sheet accounts. See Note 5. Certain adjustments have also been made in the financial statements for June 30, 2002 to conform to accounting and financial statement presentation for the period ended June 30, 2003. The changes had no effect on Net (loss) for the three or six month periods ended June 30, 2002. These statements reflect all adjustments, consisting of normal recurring adjustments which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-KSB/A as of December 31, 2002. PER SHARE AMOUNTS: Statement of Financial Accounting Standards No. 128, "Earnings Per Share", 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 (17,453,533 and 17,209,089 for the three and six month periods ended June 30, 2003 and 14,362,819 and 14,194,326 for the corresponding periods of 2002). 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 June 30, 2003 warrants and options are not considered in the computation of diluted earnings per share as their inclusion would be antidilutive. INACTIVE MILLING EQUIPMENT: The Company carries mining assets located at the Tonkin Springs project as inactive milling equipment. The Board of Directors periodically, but not less than annually, assesses the net realizable value of the inactive milling equipment. During 2003 the Company utilized a third party engineering firm to assess the liquidation value of these assets. As a result of this assessment management has concluded that there is no impairment on the Company's inactive milling equipment as of June 30, 2003. TECHNOLOGY LICENSE: The Company amortizes an acquired technology license on a straight-line basis over its useful life, which is estimated to be 5 years. 5 U.S. GOLD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003 (Unaudited) RECENT PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board issued SFAS 143, "Accounting for Asset Retirement Obligations" which the Company adopted effective January 1, 2003. SFAS 143 requires the fair value of a liability for an asset retirement obligation to be recognized in the period that it is incurred if a reasonable estimate of fair value can be made (See Note 5). 2. TONKIN SPRINGS PROJECT As of June 30, 2003, the Company, through subsidiaries, owned 100% of the Tonkin Springs LLC, a Delaware limited liability company ("TSLLC") which in turn owns the Tonkin Springs gold mine property located in Eureka County, Nevada. As discussed further below, effective July 31, 2003, the Company sold a 55% interest in TSLLC to BacTech Nevada Corporation ("BacTech Nevada"), a Nevada corporation and subsidiary of BacTech Enviromet Corporation ("BacTech"), a Canadian corporation based in Ontario with shares traded on the TSX-Venture Exchange (symbol YBA). Effective July 31, 2003, Tonkin Springs Venture Limited Partnership ("TSLVP"), a Nevada limited partnership owned 100% by subsidiaries of the Company, closed the sale of 55% equity ownership interest in TSLLC to BacTech Nevada. The Company, through subsidiaries, owns the remaining 45% equity ownership interest in TSLLC. BacTech Nevada has assumed management and funding responsibilities for TSLLC. This closing was the transaction contemplated under a letter agreement between the Company and BacTech dated March 25, 2003 (the "Letter Agreement"), whereby BacTech had the right to purchase the interest in TSLLC. BacTech paid $250,000 associated with the Letter Agreement which amount has been reflected as a deferred credit on the Consolidated Balance Sheet at June 30, 2003, and which amount will be applied against the purchase price upon BacTech successfully closing the requisite financing. The purchase price for BacTech Nevada's 55% equity ownership interest in TSLLC is $1,750,000 plus a funding obligation of $12 million to TSLLC. BacTech Nevada has paid a total of $400,000 of the purchase price to date, including the $250,000 paid with the Letter Agreement, with an additional $600,000 payment due October 31, 2003 and the remaining $750,000 to be paid either upon commencement of commercial production at Tonkin Springs, or if production has not commenced by July 31, 2004, in 12 consecutive monthly payments of $62,500 commencing on that date. BacTech Nevada shall also pay 100% of funding required by TSLLC up to $12 million (the "Funding Obligation"). If additional funding is required by TSLLC after the Funding Obligation, BacTech Nevada is required to advance the Company's share of any cash calls if requested by the Company (the "Advances"), with repayment to BacTech Nevada of any Advances plus interest from 50% of cash distributions otherwise due the Company. If BacTech Nevada withdraws from TSLLC at any time, its equity ownership interest would revert back to subsidiaries of the Company. Under the Letter Agreement BacTech was required to reimburse the Company for the holding costs at the Tonkin Springs property from March 25, 2003 through the date of the closing, which approximated $68,500. Through June 30, 2003, the amount of such holding costs was $46,553, which was applied to reduce the holding cost of Tonkin Springs property for Statement of Operations presentation. The Company and BacTech Nevada have amended and restated both the Member's Agreement and the Operating Agreement of the TSLLC to reflect the July 31, 2003 transaction. Those agreements provide for cash distributions from TSLLC (the "Distributions"), if any, prior to BacTech Nevada recovering its Funding Obligation under sliding scale related to the gold price which varies as to Distributions to BacTech Nevada from 55% at $360 per ounce gold and above to 80% 6 U.S. GOLD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003 (Unaudited) for a gold price below $320 per ounce. After BacTech Nevada has received Distributions equal to its Funding Obligation of $12 million, then all Distributions shall be 55% to BacTech Nevada and 45% to the Company. 3. SHAREHOLDERS' EQUITY During January 2003, the Company entered into a subscription agreement with Resource Investment Trust, plc ("RIT") for the sale of 1,000,000 shares of restricted common stock at $.45/share for net proceeds of $450,000. RIT is the Company's largest shareholder, owning approximately 19.6% of the outstanding shares as of June 30, 2003. Because RIT is a significant shareholder of the Company and the stock was issued below its market price at the date of the closing of the transaction, the Company recognized stock compensation expense of $290,000. After the transaction with RIT the Company has no available shares of common stock to meet future financing needs. The Company is considering requesting its shareholders to approve an increase to the authorized capital of the Company. It takes the affirmative vote of two-thirds of the outstanding shares to approve an increase to the authorized number of shares of the Company and the approval of this number of outstanding shares may be difficult to obtain. Effective April 30, 2003, the Company and Excalibur Limited Partnership ("Excalibur") agreed to amend the exercise price of warrants and term for the purchase of 428,572 shares of stock of the Company from $.53 per share to $.30 per share (the market price of the shares on April 30, 2003) and to extend the exercise period under the warrants from May 30, 2004 to May 30, 2006. In exchange, Excalibur agreed to forgive amounts owed currently and in the future related to penalties incurred by the Company for failure to have filed an effective registration statement with the Securities and Exchange Commission for their purchased shares and warrants. While the Company has filed a registration statement with the Securities and Exchange Commission, it has not been declared effective to date. Penalties forgiven by Excalibur aggregated $25,500, which was credited to Additional paid-in capital on the Consolidated Balance Sheet as of June 30, 2003. 4. RELATED PARTY TRANSACTIONS-GOLD RESOURCE CORPORATION The Company owns 1,280,000 shares of common stock of Gold Resource Corporation ("GRC"), a private Colorado corporation and affiliate company, which shares were earned by the Company under a management contract with GRC that expired December 31, 2001 (the "2000 Management Contract"). The 1,280,000 shares represent approximately 27% of GRC's capitalization as of June 30, 2003. Through its stock ownership in GRC the Company has the opportunity to benefit from GRC's activities in Mexico. GRC is currently evaluating two mineral properties in Mexico. During 2003, the Company made a non-interest bearing and unsecured advance to GRC of $30,000 to enable GRC to make critical payments related to its mineral properties. This advance has been classified as a non-current receivable as of June 30, 2003. GRC is involved in efforts to raise funds through the sale of its common stock in order to fund its exploration programs, property maintenance costs and corporate overhead. William W. Reid and David C. Reid, each founders of GRC and officers and directors of the Company, have approximately 34% aggregate direct and beneficial ownership of GRC as of June 30, 2003. Effective January 1, 2002, the Company and GRC entered into a management contract (the "2002 Management Contract") which expired by its term December 31, 2002. Under the 2002 Management Contract the Company was to be paid $30,000 per 7 U.S. GOLD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003 (Unaudited) month to provided general management of GRC business activities. During the six months ended June 30, 2002, GRC paid only $30,000 to the Company under the 2002 Management Contract, which the Company recognized as revenues. The shares of GRC are not currently publicly traded. The shares of GRC earned under the 2000 Management Contract were assessed by the Company to have indeterminable market value and the investment was therefore recorded at zero basis. Under equity accounting, the Company has not recorded its share of GRC's operating losses to date since such recognition would reduce its zero basis investment in GRC to below zero. GRC's unaudited operating loss for the six month periods ended June 30, 2003 and 2002 is $90,463 and $364,419, respectively, of which the Company's share would be approximately $24,678 and $112,013, respectively. The unaudited balance sheet of GRC as of June 30, 2003 reflects total assets of $8,046 and liabilities to vendors, contractors, consultants and officers of $402,739, including $330,000 payable to the Company for services under the 2002 Management Contract (which the Company will not recognize as revenue until receipt from GRC is reasonably assured), $30,000 for an advance to GRC made by the Company in 2003, and a shareholders' (deficit) of $(394,692). The overhead expense of the Company allocated to the 2002 GRC Management Contract for the three and six month periods ended June 30, 2002 and classified as "Exploration expense (cost of services provided under GRC management contract)" totaled $38,743 and $84,280, respectively, representing allocation of staff time. 5. CORRECTION OF ERROR The Company adopted Financial Accounting Standards Board SFAS 143 "Accounting for Asset Retirement Obligations" effective January 1, 2003 and initially determined that such adoption had no material impact on the Company's financial position, results of operations or cash flows since the Company had historically recorded as reserve for estimated reclamation cost based upon Bureau of Land Management ("BLM") requirements which was larger that the asset retirement cost as determined under SFAS 143. However, upon reconsideration, the Company determined it was appropriate to implement the adoption of SFAS 143 as set forth in that standard and that such adoption did have a material impact on the Company's financial position, results of operations and cash flows as explained and set forth below. SFAS 143 requires the fair value of a liability for an asset retirement obligation be recognized in the period that it is incurred if a reasonable estimate of fair value can be made. The Company had historically recorded a liability for reclamation of the Tonkin Springs property for the legal obligations for asset retirement and reclamation of the property based on BLM approved methodology to estimate the cost for required reclamation of the Tonkin Springs property. The Company has restrictive cash securities in excess of the full estimated amount of the BLM approved reclamation cost estimate for such reclamation. Under BLM obligations for Tonkin Springs we are required to remove processing plant and facilities from the property and to complete certain other property restoration. The historic liability for reclamation obligation at Tonkin Springs computed as required by the BLM was greater than the Retirement Obligation as of January 1, 2003 as determined under methodology of SFAS 143. Therefore, the implementation of SFAS 143 resulted in a gain of $404,000 in the Company's Consolidated Statement of Operations for the six month period ended June 30, 2003, as discussed further below. Upon the adoption of SFAS 143 the Company reversed the prior liability for reserve for reclamation, in the amount of $1,737,866, and then recorded Retirement Obligation computed under SFAS 143, in the amount of $1,096,571. That Retirement Obligation was determined by estimating the cost for retirement obligation at Tonkin Springs and then increasing such estimate by 5% per annum (for inflation) to the date of estimated actual retirement of the assets (initially assumed to be 2010) and then discounting that result amount by the estimated cost of capital of the Company, 8.5% per annum, to January 1, 2003, the date of implementation of SFAS 143. During the three and six month period ended June 30, 2003, SFAS 143 requires accretion of the Retirement Obligation at 8.5% per annum. 8 U.S. GOLD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003 (Unaudited) The implementation of SFAS 143 had the effect of decreasing the Net (loss) for the six month period ended June 30, 2003 by $404,000 which effect is net of $66,000 of amortization expense based upon units of production related to gold production at Tonkin Springs during the period 1985 to 1988. The implementation of SFAS 143 effective January 1, 2003 also had the effect of decreasing the aggregate liability related to Tonkin Springs by $641,295 and decreasing the book value of assets at Tonkin Springs by $237,296. In addition, as provided under SFAS 143, the Company recorded expense for accretion of asset retirement obligation of $24,013 and $47,481 in the three and six month periods ended June 30, 2003. Implementation of SFAS 143 had no effect on cash flows of the Company. The following table of summarized consolidated balance sheet of the Company as of June 30, 2003 and summarized consolidated statement of operations for the six months ended June 30, 2003, reconciles reported amounts to the restated amounts:
As Reported Adjustments As Restated ----------- ----------- ----------- SUMMARIZED CONSOLIDATED BALANCE SHEET ASSETS: Property and equipment, net (reclassification) $ 11,888 $ (1,799) $ 10,089 Inactive milling equipment 1,548,098 (235,497) $ 1,312,601 ------------ ------------ ------------ TOTAL ASSETS $ 3,550,949 $ (237,296) $ 3,313,653 ============ ============ ============ TOTAL LIABILITIES, OBLIGATIONS & SHAREHOLDERS'EQUITY Reserve for reclamation $ 1,789,978 $ (1,789,978) $ -- Other permit obligations (reclassification) -- 52,112 52,112 Retirement obligation -- 1,144,052 1,144,052 ------------ ------------ ------------ Total liabilities and obligations 2,966,398 (593,815) 2,372,584 Accumulated (deficit) (34,375,026) 356,519 (34,018,507) ------------ ------------ ------------ Total shareholders' equity 584,550 356,519 941,069 ------------ ------------ ------------ TOTAL LIABILITIES, OBLIGATIONS & SHAREHOLDERS'EQUITY $ 3,550,948 $ (237,296) $ 3,313,653 ============ ============ ============ SUMMARIZED CONSOLIDATED STATEMENT OF OPERATIONS Costs and expenses: Accretion of asset retirement obligation-SFAS 143 $ 0 $ 47,481 $ 47,481 ------------ ------------ ------------ Total costs and expenses 856,996 47,481 904,477 ------------ ------------ ------------ (Loss) before cumulative-effect of accounting change (849,613) (47,481) (897,094) ------------ ------------ ------------ Accounting change-cumulative effect gain on implementation of SFAS 143 0 404,000 404,000 ------------ ------------ ------------ NET (LOSS) $ (849,613) $ 356,519 $ (493,094) ============ ============ ============ Basic and diluted per share data- (Loss) before cumulative effect of accounting change: Basic $ (0.05) $ (0.00) $ (0.05) Diluted $ (0.05) $ (0.00) $ (0.05) Cumulative effect of accounting change: Basic -- $ 0.02 $ 0.02 Diluted -- $ 0.02 $ 0.02 Net (loss) Basic $ (0.05) $ 0.02 $ (0.03) Diluted $ (0.05) $ 0.02 $ (0.03)
9 U.S. GOLD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003 (Unaudited) The following is a reconciliation of the aggregate carrying amount of asset retirement obligation since adoption of SFAS 143 effective January 1, 2003 through June 30, 2003: Asset retirement and reclamation liability-January 1, 2003 $1,096,571 Accretion of liability at assumed 8.5% annual rate for 6 months ended June 30, 2003 47,481 ---------- Asset retirement and reclamation liability-June 30, 2003 $1,144,052 ========== When and if gold production re-commences at the Tonkin Springs project, it is anticipated that the capitalized asset retirement costs related to implementation of SFAS 143 ($1,144,052 at June 30, 2003) will be charged to expense based on the units of production method commencing with gold production at Tonkin Springs. There was no amortization of capitalized retirement costs during the three or six month periods ended June 30, 2003 since the Tonkin Springs property was not in operation. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Tonkin Springs (the "Properties") is the only direct property interest of the Company and is reflected at June 30, 2003 by 100 percent ownership by subsidiaries of the Company of Tonkin Springs LLC ("TSLLC"). Effective July 31, 2003, the Company sold a 55% interest in TSLLC to BacTech Nevada Corporation ("BacTech Nevada"), a subsidiary of BacTech Enviromet Corporation ("BacTech"), a Canadian corporation based in Ontario with shares traded on the TSX-Venture Exchange (symbol YBA), discussed further below. Through July 31, 2003, the Company maintained the Properties on a care and maintenance basis. Effective July 31, 2003 Tonkin Springs Venture Limited Partnership ("TSLVP"), a Nevada limited partnership owned 100% by subsidiaries of the Company, closed the sale of 55% equity ownership interest in TSLLC to BacTech Nevada. The Company, through subsidiaries, owns the remaining 45% equity ownership interest in TSLLC. With the closing BacTech Nevada assumed manager and funding responsibilities for TSLLC. This closing was the transaction contemplated under a letter agreement between the Company and BacTech dated March 25, 2003 (the "Letter Agreement"), whereby BacTech had the right to purchase the interest in TSLLC. The purchase price for BacTech Nevada's 55% equity ownership interest in TSLLC is $1,750,000 (the "Purchase Price") plus a funding obligation of $12 million to TSLLC. Including the $250,000 paid by BacTech with the Letter Agreement and the $150,000 paid by BacTech Nevada at the closing, BacTech Nevada has paid a total of $400,000 of the Purchase Price to date. An additional $600,000 payment from BacTech Nevada to the Company is due October 31, 2003 with the remaining $750,000 is to be paid either upon commencement of commercial production at Tonkin Springs as defined, or if production has not commenced by July 31, 2004, in 12 consecutive monthly payments of $62,500 commencing on that date. BacTech Nevada shall also pay 100% of funding required by TSLLC up to $12 million (the "Funding Obligation"). If additional funding is required by TSLLC after the Funding Obligation, BacTech Nevada is required to advance the Company's share of any cash calls if requested by the Company (the "Advances"), with repayment to BacTech Nevada of any Advances plus interest from 50% of cash distributions otherwise due the Company. If BacTech Nevada withdraws from TSLLC at any time, its equity ownership interest would revert back to subsidiaries of the Company. Under the Letter Agreement, BacTech will reimburse the Company for the holding costs at Tonkin Springs from March 25, 2003 through the date of the closing, which was estimated to be $68,500. CHANGES IN FINANCIAL CONDITION The Company's financial statements are prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and obligations in the normal course of business. The Company has experienced losses for the six months ended June 30, 2003 of $493,094 and for the year ended December 31, 2002 of $1,375,459. During the six months ended June 30, 2003, the Company sold 1,000,000 shares of its common stock for net proceeds of $450,000. The Company has no remaining available shares of common stock to sell to raise additional funding. With the closing of the Bactech Nevada transaction effective July 31, 2003, the Company received $150,000 payment on the Purchase Price which it anticipates will be adequate to fund corporate costs through October 31, 2003. In addition, BacTech is required to pay an additional $600,000 of the Purchase Price by October 31, 2003. If BacTech makes the required $600,000 payment due October 31, 2003, such payment is anticipated to be adequate to fund corporate costs for up to an additional twelve months. The Company is dependent upon the financial performance of BacTech Nevada. The Company may also seek to secure other financings, or, if BacTech fails to perform as required, to seek other participation arrangements of its Properties and, ultimately, to attain profitable operations, or to enter into other business arrangements. 11 LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2003, the Company had negative working capital of $(527,770) made up of current assets of $103,890 and current liabilities of $631,660, including related party liabilities of $247,896 and the deferred credit for the BacTech purchase option payment. The Company has no source of anticipated working capital other than these payments from BacTech Nevada. Net cash used by operations increased to $(629,500) for the six months ended June 30, 2003 from $(522,829) for the corresponding period in 2002, reflecting receipt of $30,000 in management contract payments from Gold Resource Corporation ("GRC"), an affiliate of the Company, in the 2002 period and none during the 2003 period. Interest received decreased to $3,383 in 2003 from $4,923 in 2002 related to interest related to restrictive cash deposits that secure reclamation costs at the Tonkin Springs project. Cash paid to suppliers and employees increased to $632,225 during 2003 period from $555,737 during the 2002 period, reflecting increased compensation payments to employees under employment contracts while during the 2002 period a portion of salary expense went unpaid, and increased payments to suppliers funded by the sale of stock during 2003. Cash flows from investing activities was $296,449 for 2003 compared to $(10,000) in 2002 primarily reflecting the $250,000 BacTech option payment and a $42,449 decrease in restrictive time deposits for reclamation bond at Tonkin Springs both in the 2003 period, and the $20,000 technology license payment in the 2002 period. Cash flow from financing activities decrease to $413,634 in 2003 from $666,608 in 2002 primarily reflecting $450,000 in proceeds from the sale of common stock and a $30,000 advance to GRC, while during the 2002 period $673,223 in net proceeds was raised from the sale of common stock. RESULTS OF OPERATIONS - 2003 COMPARED TO 2002 For the six months ended June 30, 2003, the Company recorded a net loss of $(493,094), or $(.03) per share, compared to a loss for the corresponding period of 2002 of $(707,925) or $(.05) per share. Included in the 2003 period results was a cumulative-effect gain on implementation of SFAS 143 of $404,000 which was a non-cash event. For the 2002 period the Company recorded $30,000 in revenues for management contract fees with GRC. General and administrative expense increased $55,738 in 2003 to $144,064, primarily reflecting $14,000 of increased investor relations expenses, $12,000 in penalties related to registration obligations, and an increase of approximately $13,000 in legal and accounting costs primarily related to registration filings with the Securities and Exchange Commission. During the 2003 period $220,613 of general and administrative expense was allocated to "Holding costs of Tonkin Springs property" while $160,155 of such allocations were made in the 2002 period. However, in the 2002 period $84,280 of general and administrative expense was allocated to the cost of services provided under the GRC management contract and included in "Exploration expense (costs of services provided under GRC management contract)" while no such allocations were made during the 2003 period. Holding costs for the Tonkin Springs property were $412,081 during 2003 compared to $572,724 for 2002 and, as noted above, include allocation of corporate office general and administrative expense of $220,613. Holding costs for the Tonkin Springs property was reduced in the 2003 period by $46,553 representing cost reimbursement from BacTech as provided in the option agreement and by $36,000, representing a reduction of reclamation liability related to the property. In addition, during the 2002 period claim fees of $155,307 were paid early and expensed while such costs will be paid when due during the third quarter of 2003. Stock compensation expense of $290,000 was recognized in the 2003 period related to the sale of 1,000,000 shares of Common Stock to a significant shareholder at a price below the market price of the shares on the date of the transaction. Depreciation expense increased during the 2003 period to $10,193 from $5,503 during 2002 primarily reflecting amortization of capitalized license fees commencing during 2003. In the 2003 period, accretion expense of asset retirement obligation under SFAS 143 totaled $47,481. For the three months ended June 30, 2003, the Company recorded a net loss of $(207,070) or $(.01) per share, compared to a loss for the corresponding period of 2002 of $(346,868) or $(.02) per share. General and administrative expense increased $27,880 in 2003 to $57,372, reflecting a small increase in salary expense as well as legal and accounting costs. Holding costs for the Tonkin Springs property were $121,416 for the three months ended June 30, 2003 compared 12 to $285,143 for the 2002 period and include allocation of general and administrative expense of $109,331 and $90,359 respectively. The 2003 period holding costs reflected reduction of costs of $46,553 representing cost reimbursement from BacTech as provided in the option agreement. During the 2002 period an additional $38,743 of general and administrative cost were allocated to the cost of services provided under the GRC management contract while no similar allocation was made during the 2003 period. Depreciation increased during the 2003 period primarily reflecting amortization of capitalized license fees commencing during 2003. In the 2003 period, accretion expense of asset retirement obligation under SFAS 143 totaled $24,013. GRC's unaudited operating loss for the six month periods ended June 30, 2003 and 2002 is $90,463 and $364,419, respectively, of which the Company's share would be approximately $24,678 and $112,031, respectively. Under equity accounting, the Company has not recorded its share of GRC's operating losses to date since such recognition would reduce its zero basis investment in GRC to below zero. The overhead expense of the Company allocated to the management contract during the six months ended June 30, 2002 totaled $84,280, representing allocation of staff time. ITEM 3. CONTROLS AND PROCEDURES -------------------------------- (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Regulations under the Securities Exchange Act of 1934 require public companies to maintain "disclosure controls and procedures," which are defined to mean a company's controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. The Company's chief executive officer and chief financial officer, based on their evaluation of the Company's disclosure controls and procedures within 90 days before the filing date of this report, concluded that Company's disclosure controls and procedures were effective for this purpose. (b) CHANGES IN INTERNAL CONTROLS. There were no significant changes in the Company's internal controls or, to the Company's knowledge, in other factors that could significantly affect these controls subsequent to the date of their evaluation. OTHER EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE STATEMENTS IN THIS REPORT WHICH RELATE TO THE COMPANY'S 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, MINERALIZED MATERIAL GRADES, METALLURGICAL RECOVERY, OPERATING COSTS, MARKET VALUATION, AND PROJECT OPERATOR'S DECISIONS AND PERFORMANCE UNDER THE TONKIN SPRINGS LIMITED LIABILITY COMPANY, AS WELL AS OTHER RISKS AND UNCERTAINTIES. 13 PART II ITEM 1. LEGAL PROCEEDINGS. --------------------------- No report required. ITEM 2. CHANGES IN SECURITIES ------------------------------ No report required. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. ----------------------------------------- No report required. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ------------------------------------------------------------ No report required. ITEM 5. OTHER INFORMATION. --------------------------- No report required. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. ------------------------------------------ a. Exhibits 10.1 Letter Agreement between the Company and BacTech Enviromet Corporation dated as amended March 28, 2003 related to the purchase by BacTech of 55% interest in TSLLC from Tonkin Springs LP, a subsidiary if the Company, (incorporated by reference from the report on Form 8-K dated May 5, 2003, Exhibit 10.1). 10.2 Purchase Agreement between Tonkin Springs Venture L.P. and BacTech Nevada Corporation dated effective July 31, 2003, (incorporated by reference from the report on Form 8-K, Item 5, dated August 6, 2003, Exhibit 10.1). 10.3 Amended and Restated Member's Agreement to the Tonkin Springs LLC between Tonkin Springs Venture L.P., U.S. Environmental Corporation and BacTech Nevada Corporation dated effective July 31, 2003, (incorporated by reference from the report on Form 8-K, Item 5, dated August 6, 2003, Exhibit 10.2). 10.4 Amended and Restated Operating Agreement to the Tonkin Springs LLC between Tonkin Springs Venture L.P., U.S. Environmental Corporation and BacTech Nevada Corporation dated effective July 31, 2003, (incorporated by reference from the report on Form 8-K, Item 5, dated August 6, 2003, Exhibit 10.3). 31.1* Certification of President, Chief Executive Officer and Chairman of the Board pursuant to U.S.C. Section 1350, as adopted pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Vice President, Chief Financial Officer and Secretary pursuant to U.S.C. Section 1350, as adopted pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. 32* Certification of (i) President, Chief Executive Officer and Chairman of the Board, and (ii) Vice President and Chief Financial Officer, Pursuant to Section 906 of Sarbanes-Oxley Act of 2002. ---------------- * Filed and included in this Form 10-QSB. b. Reports on Form 8-K. On May 5, 2003, the Company reported on Form 8-K, Item 5, regarding the Letter Agreement with BacTech Enviromet Corporation whereby BacTech had the option to purchase a 55% interest in Tonkin Springs LLC from subsidiaries of the Company through July 31, 2003. 15 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the Company caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. U.S. GOLD CORPORATION Dated: February 13, 2004 By: /s/ William W. Reid -------------------------------- William W. Reid, President and Chairman of the Board Dated: February 13, 2004 By: /s/ William F. Pass -------------------------------- William W. Pass, Vice President and Chief Financial Officer 16