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| USCS.OB > SEC Filings for USCS.OB > Form 10-K on 13-Jan-2009 | All Recent SEC Filings |
13-Jan-2009
Annual Report
You should read the following discussion and analysis in conjunction with the Consolidated Financial Statements and Notes thereto, and the other financial data appearing elsewhere in this Annual Report.
The information set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including, among others (i) expected changes in the Company's revenues and profitability, (ii) prospective business opportunities and (iii) the Company's strategy for financing its business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as "believes", "anticipates", "intends" or "expects". These forward-looking statements relate to the plans, objectives and expectations of the Company for future operations. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of its knowledge of its business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this Annual Report should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved.
The Company's revenues and results of operations could differ materially from those projected in the forward-looking statements as a result of numerous factors, including, but not limited to, the following: (i) changes in external competitive market factors, (ii) termination of certain operating agreements or inability to enter into additional operating agreements, (iii) inability to satisfy anticipated working capital or other cash requirements, (iv) changes in or developments under domestic or foreign laws, regulations, governmental requirements or in the mining industry, (v) changes in the Company's business strategy or an inability to execute its strategy due to unanticipated changes in the market, (vi) various competitive factors that may prevent the Company from competing successfully in the marketplace, and (ix) the Company's lack of liquidity and its ability to raise additional capital. In light of these risks and uncertainties, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. The foregoing review of important factors should not be construed as exhaustive. The Company undertakes no obligation to release publicly the results of any future revisions it may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
OVERVIEW
The Company is an "exploration stage" company. During fiscal year ended September 30, 2008, the Company's activities centered on the exploration of USMetals' mining property known as the Twin Peaks Project in the Eureka Mining District of Yavapai County, Arizona, the exploration of the Picacho Salton Project Claims in the Mesquite Mining District of Imperial County, California. During the fiscal year, the Company did not engage in any commercially viable operations and realized no revenues from its activities. The annual costs incurred to date were primarily for the continued exploration of the Company's mining properties, expansion and maintenance of the Company's website, legal and accounting costs in conjunction with the Company's general and administrative expenses in anticipation of completing exploration and commencing a test production program on the Company's mining properties. The annual maintenance fee payment for the 407 claims owned by the Company is $125 per claim for a total annual cost of $50,875.
All of the Company's mining claims are owned by its subsidiaries, USMetals, Inc. and Southwest Resource Development, Inc. Geological Support Services, LLC, has agreed to continue to supervise and direct the work of the Twin Peaks Project Team through completion of permitting.
The Company, through its wholly owned subsidiary, USMetals, owns 172 unpatented contiguous mining claims totaling 3,440 acres in the Eureka Mining District of Yavapai County, Arizona. These claims have a history of mining activity from the middle of the 19th century to the beginning of World War II. Gold, silver, copper and other minerals were recovered in important quantities. The previous owners started acquisition of this claim group in the early 1940's and by the mid-1980's the claims group totaled 134 claims. Exploration, drilling and assessment work was done and several geological reports were completed indicating the presence of economically viable deposits of precious metals and complex ores.
In 2008 we have conducted exploration, testing, surveying and re-staking of all claims, and added significant claims to the group. The result of this work is the feasibility study prepared by Geological Support Services, LLC, in 2007 which stated in part: "The feasibility study operating plan assumes an open cast quarry type operation containing [mineralized material]. The project anticipates utilizing conventional truck and shovel mining methods with the processing of ore at full production of 800 tons per day for the first year, yielding an annual production of 34,748 oz. of gold and 126,000 oz. of silver the first year. Estimated mine life is 12.9 years. Production levels (and mine life) will increase as proven reserve amounts increase. The feasibility study assumes an economic base case, utilizing $600 per ounce gold and $12 per ounce silver. At such prices cash operating costs, including operating costs and initial sustaining capital are estimated at $250 dollars per ounce of gold. Initial capital costs are currently estimated to be $12,974,728. All amounts are in US dollars."
The Company, through its wholly owned subsidiary Southwest Resource development, Inc, ("Southwest") owns 235 unpatented lode placer mining claims totaling approximately 4,600 acres in the Mesquite Mining District of eastern Imperial County, California which the Company refers to as the Picacho Salton Project Claims. These claims and the surrounding Mesquite Mining District have a history of mining activity going back almost 200 years. The exploration, drilling and assessment work at the Picacho Salton Project Claims in the Mesquite Mining District of Imperial County, was done and geological reports were completed by prior owners and indicated the presence of economically viable deposits of precious metals.
In 2008 we conducted additional exploration, testing, surveying and re-staking of all claims, and added a total of 77 significant claims to the group of which 70 claims are primarily gold bearing and seven claims, approximately 140 acres, are Pink Rhyolite (decorative rock) and construction grade aggregate. Geological Support Services LLC completed a feasibility study covering the gold claims, it says in part: "The feasibility study operating plan assumes an open caste quarry type operation containing [mineralized material]. The plan anticipates conventional truck and shovel mining techniques. Processing will be phased according to ore type and permit approvals. Phase 1 being a wash and sedimentation gravity system with initial production capacity of 1,000 tons per day ramping to 6,000 tons per day. This type of operation has been proven to achieve .02 ounce per ton recovery, in the targeted placers. With approval of cyanide leach permits, the implementation of leaching facilities will increase recovery to the 87% target. Also along with the construction of the leaching facilities, the milling circuit for processing the hard rock lode ore will be constructed. This grinding circuit will be designed to crush incoming hard rock down to 150- prior to gravity separation and leaching. Although this study is based on production of 6,000 tons a day it is anticipated that if additional water resources are developed production could be increased to greater levels. Mine life is estimated to be in excess of 20 years. The feasibility study assumes an economic base case utilizing a $600 per ounce gold price. At current fuel and labor prices, cash operating costs, including operating cost and sustaining capital are estimated to be $260 dollars per ounce of gold produced. Initial capital costs are anticipated to be $13,790,300 all amounts are in U.S. Dollars."
Impairment Expense
We acquired the Twin Peaks Project asset in 2002 and have been conducting exploration work on it, with the goal of commencing mineral production, for six years. Exploration activities have confirmed the presence of mineralization on this property. However, we have not commenced mining activities due to a lack of funding. Consequently, per our accounting policy regarding impairment charges, we decided to impair this asset and take it off the balance sheet. However, we are still aggressively pursing the financing necessary to proceed with our plans to commence mining activity now that we have completed a feasibility study on the property and Phase One and Phase Two of our drilling program due to our persistence and our improved financial position. The feasibility study prepared by Geological Support Services, LLC, in part: "The feasibility study operating plan assumes an open cast quarry type operation containing [mineralized material]."
I. Results of Operations
Comparison of operating results.
The Company has not yet commenced commercial operations and has had no revenues from operations.
General and administrative expense for fiscal 2008 was $1,337,741 compared to $2,853,391 for last year, a decrease of approximately 54%. The main area of decrease was in consulting costs ($397,791 for fiscal 2008 compared to $2,436,469 last year). Administration expenses increased ($850,082 for fiscal 2008 compared to $337,847 last year). The increase in administrative expenses was due to the increase in salaries and space rental costs.
As a result of general and administrative costs, the Company experienced a loss from operations of $2,853,391 for the year ended September 30, 2007 compared to loss from operations of $1,337,741 for the year ended September 30, 2008.
After interest expense in fiscal 2008 of $468,643, compared to $154,327 in the prior year, the Company realized a net loss for fiscal 2008 of $1,981,543 as compared to a net loss of $3,176,745 for the prior fiscal year. This loss translated into a loss of $.09 per share for fiscal 2007, compared to a loss of $.04 for fiscal 2008.
II. Discussion of Financial Condition: Liquidity and Capital Resources
At September 30, 2007 cash on hand was $1,541,001 as compared with $478,843 at September 30, 2008. The Company received services in the aggregate amount of $2,123,750 through the issuance of additional shares of common stock. See, "Recent Sales of Unregistered Securities" above.
The Company used these cash proceeds to pay for its business operations.
Total assets at September 30, 2007 were $1,546,432 as compared to $482,033 at September 30, 2008.
The Company's total stockholders' equity changed to -$1,692,367 September 30, 2008 from -$3,559,491 at September 30, 2007. The reduction in the deficit of total stockholders' equity was due to the loss from operations and the issuance of shares for services rendered.
Impact of Inflation
The general level of inflation has been relatively low during the last several fiscal years and has not had a significant impact on the Company.
Off Balance Sheet Arrangements
None
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