For
the Quarters Ended December 31, 2007 and December 31, 2006
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1.
|
Organization
of the Company and Significant Accounting
Principles
|
USCorp
(the “Company”) is a publicly held corporation formed in May 1989 in the state
of Nevada. In April 2002 the Company acquired US Metals, Inc. (“USMetals”), a
Nevada corporation, by issuing 24,200,000 shares of common stock. US Metals
became a wholly owned subsidiary of the Company.
The
Company owns the mineral rights to 141 Lode Mining Claims in the Eureka Mining
District of Yavapai County, Arizona, called the Twin Peaks Project; and owns
the
mineral rights to 22 Placer and 84 Lode Claims on five properties in the
Mesquite Mining District of Imperial County, California, which the Company
collectively refers to as the Picacho Salton Project.
The
Company has no business operations to date and has defined itself as an
“exploration stage” company.
Exploration
Stage Company
-
the
Company has no operations or revenues since its inception and therefore
qualifies for treatment as an Exploration Stage company as per Statement of
Financial Accounting Standards (SFAS) No. 7. As per SFAS No. 7, financial
transactions are accounted for as per generally accepted accounted principles.
Costs incurred during the development stage are accumulated in “accumulated
deficit- exploration stage” and are reported in the Stockholders’ Equity section
of the balance sheet.
Consolidation-
the
accompanying consolidated financial statements include the accounts of the
company and its wholly owned subsidiaries. All significant inter-company
balances have been eliminated.
Use
of Estimates
-
The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make reasonable
estimates and assumptions that affect the reported amounts of the assets and
liabilities and disclosure of contingent assets and liabilities and the reported
amounts of revenues and expenses at the date of the financial statements and
for
the period they include. Actual results may differ from these
estimates.
Cash
and interest bearing deposits-
For the
purpose of calculating changes in cash flows, cash includes all cash balances
and highly liquid short-term investments with an original maturity of three
months or less.
Long
Lived Assets
-
The
Company reviews for the impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not
be recoverable. An impairment loss would be recognized when estimated future
cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount.
Convertible
Debentures Payable-
The
Company applies Emerging Issues Task Force (EITF) No. 98-5,
Accounting
for Convertible Debt Issued with Beneficial Conversion
Features.
EITF No.
98-5 requires that a beneficial conversion feature be recognized upon the
issuance of the debt with a favorable conversion feature, and the resultant
debt
discount be amortized to interest expense during the period from the date of
issuance to the date the securities become convertible.
Property
and Equipment
-
Property
and equipment are stated at cost. Depreciation expense is computed using the
straight-line method over the estimated useful life of the asset, which is
estimated at three years.
Income
taxes-
The
Company accounts for income taxes in accordance with the Statement of Accounting
Standards No. 109 (SFAS No. 109), "
Accounting
for Income Taxes
".
SFAS
No. 109 requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between financial statement and income tax
bases of assets and liabilities that will result in taxable income or deductible
expenses in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary
to
reduce
deferred tax assets and liabilities to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the period adjusted
for
the change during the period in deferred tax assets and
liabilities.
Mineral
Properties
-
Costs
incurred to acquire mineral interest in properties, to drill and equip
exploratory sites within the claims groups are capitalized. Costs to conduct
exploration and assay work are expensed as incurred. Costs that are
capitalized
are
periodically assessed for impairment of value and a loss will be recognized
at
the time of impairment.
Revenue
Recognition
-
Mineral
sales will result from undivided interests held by the Company in mineral
properties. Sales of minerals will be recognized when delivered to be picked
up
by the purchaser. Mineral sales from marketing activities will result from
sales
by the Company of minerals produced by the Company (or affiliated entities)
and
will be recognized when delivered to purchasers. Mining revenues generated
from
the Company’s day rate contracts, included in mine services revenue, will be
recognized as services are performed or delivered.
The
accompanying financial statements have been presented in accordance with
generally accepted accounting principals, which assume the continuity of the
Company as a going concern. However, the Company has incurred significant losses
since its inception and has no business operations and continues to rely on
financing and the issuance of shares and warrants to raise capital to fund
its
business operations.
Management’s
plans with regard to this matter are as follows:
|
*
|
Obtain
the necessary approvals and permits to complete exploration and begin
test
production on our properties as warranted. An application for drilling
on
Twin Peaks Project has been submitted to the Bureau of Land Management
and
is being reviewed by them. Additional applications are being prepared
for
the Twin Peaks Project and the Picacho Salton Project and are being
reviewed for submission to Federal, State and local
authorities.
|
|
*
|
USCorp
plans to begin commercial scale operations on one or more of its
properties as soon as the required permits and approvals have been
granted. Due to the nature of the ore bodies of the Company’s current
properties Management believes it will begin commercial scale operations
on our Picacho Salton Project. Then Management plans to begin commercial
scale operations on the Twin Peaks
Project.
|
|
*
|
Continue
exploration and ramp up permitting process to meet ongoing and anticipated
demand for gold, silver, uranium, aggregate, decorative rock and
polymetalic ores resulting from our planned commercial scale production
activities.
|
|
*
|
Augment
our mining exploration team with quality and results-oriented people
as
needed. Upon adequate funding management intends to hire qualified
and
experienced personnel, including additional officers and directors,
and
mining specialists, professionals and consulting firms to advise
management as needed to handle mining operations, acquisitions and
development of existing and future mineral resource
properties.
|
|
*
|
Put
together a strategic alliance of consultants, engineers, contractors
as
well as joint venture partners when appropriate, and set up an information
and communication network that allows the alliance to function effectively
under USCorp's management.
|
|
*
|
In
calendar 2008 Management will launch an investor awareness and public
relations campaign including coordinated and periodic release of
information to the public via press releases, company newsletter
and
updates to the company’s web sites
|
|
*
|
Attend
and exhibit at industry and investment trade
shows
|
|
*
|
Acquire
additional properties and/or corporations with properties as subsidiaries
to advance the company's growth
plans.
|
|
*
|
Rearrange
our finances for better return and insured
coverage.
|
3.
Net Loss per Share
The
Company applies SFAS No. 128, “
Earnings
per Share”
to
calculate loss per share. In accordance with SFAS No. 128, basic net loss per
share has been computed based on the weighted average of common shares
outstanding during the years, adjusted for the financial instruments outstanding
that are convertible into common stock during the years. The effects of the
preferred and common stock warrants and the debentures convertible into shares
of common stock, however, have been excluded from the calculation of loss per
share because their inclusion would be anti-dilutive.
Loss
per
share has been calculated as follows:
|
|
|
31-Dec-07
|
|
31-Dec-06
|
|
|
|
|
|
|
|
|
|
Net
loss before cumulative preferred dividend
|
|
|
($637,132
|
)
|
|
($160,944
|
)
|
|
|
|
|
|
|
|
|
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|
Cumulative
dividend preferred
|
|
|
(22,893
|
)
|
|
(15,182
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
($660,025
|
)
|
|
($176,126
|
)
|
|
|
|
|
|
|
|
|
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|
Weighted
average
|
|
|
49,517,400
|
|
|
33,807,560
|
|
|
|
|
|
|
|
|
|
|
|
Basic
& fully diluted net loss per common share
|
|
|
($0.01
|
)
|
|
($0.01
|
)
|
|
|
|
|
|
|
|
|
|
4.
Gold Bullion Promissory Note
In
September 2005, the Company issued a promissory note to a shareholder and
received proceeds of $635,663. The note requires the Company to pay the
shareholder 1,634 ounces of Gold Bullion (.999 pure) in September 2007. In
September 2007, the holder of the promissory note extended the maturity date
until September 27, 2009 at the previous terms. The loss on the underlying
derivative gold contract has been calculated as follows.
|
|
|
31-Dec-07
|
|
|
|
|
|
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Carrying
value of loan
|
|
$
|
764,973
|
|
|
|
|
|
|
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Fair
value of loan
|
|
|
1,495,110
|
|
|
|
|
|
|
|
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Life
to date loss on unhedged underlying derivative
|
|
|
($730,137
|
)
|
5.
Equipment
A
summary
of equipment at December 31, 2007 and September 30, 2007 is as
follows:
|
|
|
31-Dec-07
|
|
30-Sep-07
|
|
|
|
|
|
|
|
|
|
Office
equipment
|
|
$
|
15,914
|
|
$
|
15,914
|
|
|
Accumulated
depreciation
|
|
|
(11,567
|
)
|
|
(10,483
|
)
|
|
Net
equipment
|
|
$
|
4,347
|
|
$
|
5,431
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense for the quarters ended December 31, 2007 and December 31, 2006 was
$1,084 and $1,196, respectively.
6.
Stock
Warrants Outstanding
The
following is a summary of common stock warrants outstanding at December 31,
2007:
|
|
|
|
|
Wgtd
Avg
|
|
Wgtd
Years
|
|
|
|
|
Amount
|
|
Exercise
Price
|
|
to
Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Balance
at September 30, 2007
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issues
|
|
|
4,136,666
|
|
|
|
|
|
|
|
|
Exercises
|
|
|
0
|
|
|
|
|
|
|
|
|
Expires
|
|
|
0
|
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|
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|
|
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|
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|
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|
|
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|
Outstanding
at September 30, 2007
|
|
|
4,136,666
|
|
$
|
0.40
|
|
|
1.76
|
|
|
|
|
|
|
|
|
|
|
|
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|
The
warrants to purchase preferred stock expired in October 2007
.
|
|
|
|
|
Wgtd
Avg
|
|
Wgtd
Years
|
|
|
|
|
Amount
|
|
Exercise
Price
|
|
to
Maturity
|
|
|
|
|
|
|
|
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Outstanding
at September 30, 2004
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
155,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Outstanding
at September 30, 2005
|
|
|
155,000
|
|
$
|
0.25
|
|
|
2.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
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|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Outstanding
at September 30, 2006
|
|
|
155,000
|
|
$
|
0.25
|
|
|
1.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
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|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Outstanding
at September 30, 2007
|
|
|
155,000
|
|
$
|
0.25
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(155,000
|
)
|
|
|
|
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|
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|
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|
Outstanding
at December 31, 2007
|
|
|
0
|
|
$
|
0.00
|
|
|
0.00
|
|
|
|
|
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|
|
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7.
Convertible Debenture
During
the fiscal year ended September 30, 2007, the Company issued convertible
debentures with a face value of $1,200,000. The debentures are convertible
into
common stock at $0.125 per share. The debentures have an interest rate of 5%
and
mature in December 2009 to September 2010. As a result of the issuance of the
debentures, the Company allocated $648,098 to stockholders’ equity as a result
of the favorable conversion feature of the debentures. The Company is amortizing
the beneficial conversion feature to interest expense over the life of the
debenture. In October 2007, the holder of the debentures converted $300,000
of
the debentures to 2,400,000 shares of common stock.
The
balance of the convertible debt at December 31, 2007 is as follows:
|
Convertible
debt payable
|
|
$
|
900,000
|
|
|
Unamortized
beneficial conversion feature
|
|
|
(412,574
|
)
|
|
Net
convertible debt payable
|
|
$
|
487,426
|
|
|
|
|
|
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8.
Income
Tax Provision
|
|
|
31-Dec-07
|
|
31-Dec-06
|
|
|
|
|
|
|
|
|
|
Net
loss before provision for income taxes
|
|
|
($637,132
|
)
|
|
($101,385
|
)
|
|
|
|
|
|
|
|
|
|
|
Current
tax expense:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
0
|
|
$
|
0
|
|
|
State
|
|
|
0
|
|
|
0
|
|
|
Total
|
|
$
|
0
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
Less
deferred tax benefit:
|
|
|
|
|
|
|
|
|
Timing
differences
|
|
|
(570,404
|
)
|
|
(94,756
|
)
|
|
Allowance
for recoverability
|
|
|
570,404
|
|
|
94,756
|
|
|
Provision
for income taxes
|
|
$
|
0
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of provision for income taxes at the statutory rate
to
provision
|
|
|
|
|
for
income taxes at the Company's effective tax rate is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory
U.S. federal rate
|
|
|
34
|
%
|
|
34
|
%
|
|
Statutory
state and local income tax
|
|
|
10
|
%
|
|
10
|
%
|
|
Less
allowance for tax recoverability
|
|
|
-44
|
%
|
|
-44
|
%
|
|
Effective
rate
|
|
|
0
|
%
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing
differences
|
|
$
|
570,404
|
|
$
|
94,756
|
|
|
Allowance
for recoverability
|
|
|
(570,404
|
)
|
|
(94,756
|
)
|
|
Deferred
tax benefit
|
|
$
|
0
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
Note:
The deferred tax benefits arising from the timing differences begin
to
expire in fiscal year 2026 and 2027 and may not be recoverable upon
the
purchase of the Company under current IRS statutes
|
|
|
Provision
for income taxes is comprised of the following: