FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1995
GOLD RESERVE CORPORATION
State Of Incorporation: . . . . . . . . . . Montana
Commission File Number: . . . . . . . . . . 1-8372
IRS Employer Identification No: . . . . . . 81-0266636
Address Of Principal Executive Offices: . . 1940 Seafirst Financial
Center
Spokane, Washington 99201
Registrant's Telephone Number: . . . . . . (509) 623-1500
Securities registered pursuant to Section 12(b) of the Act:
Title Of Each Class: . . . . . . . . . . . Common Stock
Name Of Each Exchange On Which Registered: NASDAQ
The Toronto Stock
Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period as the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes[X]
The number of shares of common stock outstanding at November 13, 1995,
was 20,437,444.
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED BALANCE SHEETS
September 30, 1995 and December 31, 1994
(unaudited)
September 30, December 31,
1995 1994
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $11,195,219 $ 6,675,771
Cash held in escrow 4,500,000 _
Investments:
Held-to-maturity securities, at amor-
tized cost 14,519,080 26,079,822
Accrued interest on investments 26,697 259,780
Deposits, advances and other assets 336,741 493,956
----------- -----------
Total current assets 30,577,737 33,509,329
Available-for-sale securities 210,081 177,809
Property, plant and equipment, net 21,429,572 9,551,676
Other assets 24,733 24,066
----------- -----------
Total assets $52,242,123 $43,262,880
=========== ===========
LIABILITIES
Current Liabilities:
Litigation settlement payable $ 4,500,000 $ 4,500,000
Accounts payable and accrued expenses 314,113 572,713
KSOP note payable, current portion 93,446 25,000
----------- -----------
Total current liabilities 4,907,559 5,097,713
KSOP note payable, non-current portion 56,514 123,760
Minority interest in consolidated sub-
sidiaries 95,394 141,651
----------- -----------
Total liabilities 5,059,467 5,363,124
----------- -----------
Commitments and contingencies _ _
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED BALANCE SHEETS, CONTINUED
September 30, 1995 and December 31, 1994
(unaudited)
September 30, December 31,
1995 1994
------------- ------------
SHAREHOLDERS' EQUITY
Serial preferred stock, no par value
Authorized: 10,000,000 shares, none
issued $ _ $ _
Common stock, no par value
Shares authorized: 40,000,000 shares
Shares issued: 1995, 20,437,444; 1994,
18,929,668
Shares outstanding:
1995, 19,956,400; 1994, 18,577,175 79,877,200 69,453,393
Common stock held by affiliates (1,428,565) (504,276)
Unrealized gain on available-for-sale
securities 80,677 79,017
Accumulated deficit (31,196,696) (30,979,618)
KSOP debt guarantee (149,960) (148,760)
----------- -----------
Total shareholders' equity 47,182,656 37,899,756
----------- -----------
Total liabilities and shareholders'
equity $52,242,123 $43,262,880
=========== ===========
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1995 and 1994
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended NineMonthsEnded
------------------------- -------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C><C>
Other Income:
Interest $ 411,652 $ 355,730 $ 1,194,650 $ 664,812
Foreign currency gain (loss) 41,579 (46,516) 33,207 296,636
Miscellaneous _ 38,663 _ 74,648
----------- ----------- ----------- -----------
453,231 347,877 1,227,857 1,036,096
----------- ----------- ----------- -----------
Expenses:
General and administrative 254,533 233,598 798,253 1,010,064
Directors' and officers'
compensation 235,804 76,628 359,621 229,006
Legal and accounting 46,814 338,347 264,322 508,497
Writedown of capitalized exploration
and development cost _ _ _ 750,000
Depreciation 7,275 3,839 20,599 11,017
Minority interest in net loss of
consolidated subsidiaries _ (285) (3,126) (2,372)
Interest expense, net of amount
capitalized 1,616 626 5,266 2,163
546,042 652,753 1,444,935 2,508,375
----------- ----------- ----------- -----------
Loss before income taxes (92,811) (304,876) (217,078) (1,472,279)
Income tax provision _ _ _ _
----------- ----------- ----------- -----------
Net loss $ (92,811) $ (304,876) $ (217,078) $(1,472,279)
=========== =========== =========== ===========
</TABLE>
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED STATEMENTS OF OPERATIONS, CONTINUED
For the Three and Six Months Ended June 30, 1995 and 1994
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- -------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss per share $ nil $ (0.02) $ (0.01) $ (0.11)
=========== =========== =========== ===========
Weighted average common shares
outstanding 19,949,314 15,745,166 19,189,476 13,414,054
=========== =========== =========== ===========
</TABLE>
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1995 and 1994
(unaudited)
1995 1994
------------- ------------
Cash flows from operating activities:
Net loss $ (217,078) $(1,472,279)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation 20,599 11,017
Accreted interest on investments (563,053) _
Foreign currency gain (33,207) (316,719)
Writedown of capitalized explor-
ation and development costs _ 750,000
Common stock issued for services _ 33,000
Minority interest in net loss of
consolidated subsidiaries (3,126) (2,372)
Net (gain) loss on disposition and
revaluation of equity securities 11,770 (61,635)
Changes in current assets and
liabilities:
Net increase in current assets (4,109,702) (144,552)
Net decrease in current
liabilities (258,600) (215,172)
----------- -----------
Net cash used by operating
activities (5,152,397) (1,418,712)
----------- -----------
Cash flows from investing activities:
Proceeds from maturity of held-to-
maturity securities 22,194,000 _
Purchase of held-to-maturity securities (10,070,205) (19,966,054)
Purchase of property, plant and
equipment (2,999,986) (3,524,959)
Proceeds from sale of available-for-
sale securities _ 75,769
Other (667) (18,217)
----------- -----------
Net cash provided by (used
in) investing activities 9,123,142 (23,433,461)
----------- -----------
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
For the Nine Months Ended September 30, 1995 and 1994
(unaudited)
1995 1994
------------- ------------
Cash flows from financing activities:
Principal payments on Brisas contract $ _ $ (230,461)
Proceeds from issuance of common shares 548,703 33,119,453
----------- -----------
Net cash provided by
financing activities 548,703 32,888,992
----------- -----------
Change in cash and cash equivalents:
Net increase in cash and cash
equivalents 4,519,448 8,036,819
Cash and cash equivalents, beginning of
period 6,675,771 6,766,712
----------- -----------
Cash and cash equivalents, end of
period $11,195,219 $14,803,531
=========== ===========
Supplemental cash flow information:
Non-cash investing and financing
activities:
Exchange of shares for minority
interest in subsidiaries 9,882,028 _
=========== ===========
1. The Company and significant accounting policies:
The Company was incorporated in Montana in 1956 for the purpose of
acquiring, exploring and developing mining properties and placing
these properties into production. The Company is currently
involved in the exploration and development of the Brisas
concession, a potential gold property in Venezuela. A number of
significant events must occur before commercial production, if
any, on the Brisas concession can begin, these being the
establishment of proven and probable reserves, financing of
anticipated mine development costs, and the procurement of all
necessary regulatory permits and approvals. The Company has no
producing mineral properties at this time.
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
For the Nine Months Ended September 30, 1995 and 1994
(unaudited)
The December 31, 1994 financial information has been derived from
the Company's 1994 audited financial statements. The notes to the
financial statements as of December 31, 1994, as set forth in the
Company's 1994 Form 10_K, substantially apply to these interim
financial statements at September 30, 1995, and are not repeated
here. The financial information given in the accompanying
unaudited financial statements reflects all normal, recurring
adjustments, which, in the opinion of management, are necessary
for a fair presentation for the periods reported.
The consolidated financial statements include the accounts of the
Company; Glandon Company A.V.V. ("Glandon"), and Gold Reserve de
Aruba ("Gold Reserve Aruba"); three Venezuelan subsidiaries,
Compania Minera Unicornio, C.A. (Unicorn), Gold Reserve de
Venezuela, C.A. (GLDRV) and Compania Aurifera Brisas del Cuyuni,
C.A. (Brisas); two domestic majority-owned subsidiaries, Great
Basin Energies, Inc. (Great Basin) and MegaGold Corporation
(MegaGold); and five additional non-operating Aruban subsidiaries.
All significant intercompany accounts and transactions have been
eliminated in consolidation. The Company's policy is to
consolidate those subsidiaries where majority control exists and
control is other than temporary.
Three of the Company s majority or wholly-owned subsidiaries own
shares of the Company. The Company's effective ownership of its
own stock through these subsidiaries is deducted from common stock
outstanding at September 30, 1995 and December 31, 1994, resulting
in a difference between common stock issued and outstanding. Due
to current operating losses, no income tax provision or benefit
has been recorded for the nine months ended September 30, 1995 and
1994.
<PAGE>
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations:
RESULTS OF OPERATIONS
September 30, 1995 compared to September 30, 1994
Consolidated net loss for the three and nine months ended September
30, 1995 amounted to $92,811 and $217,078, or $nil and $0.01 per
share, respectively, compared to a consolidated net loss of $304,876
and 1,472,279, or $0.02 and $0.11 per share, respectively, for the
same periods in 1994. All expenditures related to exploration
activities on the Brisas concession have been recorded as capitalized
exploration and development costs.
The net increase in other income is primarily attributable to an
increase in interest income due to higher levels of, and returns on,
invested cash and changes in foreign currency gain or loss due to the
effect of exchange and price controls implemented by the Venezuelan
government and the repayment of a note payable denominated in the
Venezuelan currency, in 1994.
The net decrease in operating expenses for the three month comparison
is primarily due to a decrease in legal and accounting costs partially
offset by an increase in directors' and officers' compensation. The
net decrease in operating expenses for the nine month comparison is
due to the writedown of capitalized exploration and development costs
in 1994, and a decrease in general and administrative costs and legal
and accounting costs offset by an increase in directors' and officers'
compensation. Decreases in general and administrative costs were due
to decreased costs associated with the Alfa Concessions (which were
sold in 1994) and a reduction in employee related costs. Legal and
accounting costs decreased as a result of the settlement of the Brisas
litigation in early 1995. Directors and officers compensation
increased due to salary adjustments for officers which were
implemented in September and recorded retroactively from January 1,
1995.
The Company filed an application with the Venezuelan Ministry of
Energy and Mines ( MEM ) in February of 1993 to obtain an exploration
and exploitation concession to the hardrock (veta) mineralization
believed to underlie the Brisas alluvial concession. MEM has informed
the Company the application was approved on March 3, 1995, but has not
been submitted for public comment as of the date of this report.
Management and members of the MEM are presently negotiating certain
terms of the concession. These negotiations have been delayed
principally due to the ongoing development of a new Venezuelan mining
law. The Company is not aware of any facts or circumstances which
would prevent the MEM from submitting the application for public
comment and ultimately granting the veta concession to the Company.
<PAGE>
The Venezuelan government, amid economic uncertainties and a bank
crisis, suspended certain constitutional rights and implemented
certain currency exchange and price controls on June 27, 1994. All
constitutional rights have subsequently been re-established although
the exchange and price controls remain in place as of the date of this
report. The Venezuelan government is currently negotiating with the
International Monetary Fund to secure funding to restructure its
economy. As a result of these negotiations, the Venezuelan government
is expected to lift exchange and price control measures during the
first quarter of 1996. Venezuela has generally encouraged foreign
investment in the past, and the Company believes there presently exist
no significant policies, license requirements or other regulations
which might present barriers to its continued investment in the
country. Inflation and other economic conditions have resulted in
political and social turmoil on occasion, which also can be expected
to continue. Whether and to what extent these conditions may
materially adversely affect the Company's operations in the future, if
at all, cannot be predicted.
LIQUIDITY AND CAPITAL RESOURCES
Investing
During the three and nine months ended September 30, 1995, the Company
invested approximately $1.0 and $3.2 million, respectively, in the
exploration and development of the Brisas concession. On a cumulative
basis since inception, the Company has invested approximately $44.8
million relating to the Brisas concession. These cumulative costs are
attributable to litigation settlement costs of $22.5 million ($17.5
million of which was stock and warrants) which were expensed in 1994,
common stock valued at $9.8 million issued to purchase the minority
interest in subsidiaries which owned the Brisas concession, concession
acquisition costs of approximately $2.0 million, capitalized
development and exploration costs of $9.9 million and $.6 million for
equipment.
The Company is currently working in three significant areas or zones
contained within the main trend in its efforts to define the
mineralization located on the concession. These areas or zones are 1)
the Pozo Azul zone located in the northern part of the concession, 2)
the high-grade Blue-Whale hardrock structure which is contained within
the Pozo Azul zone and 3) the Laguna Donna zone immediately to the
south of the Pozo Azul zone. Generally the concession mineralization
is characterized by a large low grade system with a higher grade core.
The Pozo Azul zone contains the high grade gold/copper zone called the
"Blue Whale" which is characterized by much higher grades of gold as
well as copper. Low grade copper is also present in the Pozo Azul zone
outside the higher grade core, whereas there is little copper present
in the Laguna Donna area.
<PAGE>
In mid-September 1995, the Company announced that it's drilling
program at the Brisas concession delineated a partial geologic
resource of approximately 4 million ounces of gold and gold
equivalents, consisting of 3.1 million ounces of gold and 366 million
pounds of copper (or approximately 950,000 ounces of gold equivalent).
This partial geologic resource was determined from 127 drill holes
with 100 meter spacing resulting in 79 million tonnes of material
grading 1.23 grams of gold per tonne (or 0.04 oz of gold/tonne) and an
average of 0.21% copper per tonne. The conversion of copper to gold
equivalent ounces was calculated assuming a copper price of $1.00 per
pound and a gold price of $380 per ounce. The announced geologic
resource relates only to the Pozo Azul zone and includes both the
alluvial concession and areas under application (veta application).
The resource estimate does not include the mineralization below 210
meters, the Laguna Donna zone, or any further potential mineralization
in the "Blue Whale" zone which may result due to future in-fill or
closer spaced drilling.
The Company initiated, in late September, further development drilling
in the Pozo Azul zone which will include a 130 diamond drill-hole
program, totaling some 18,000 meters. This program will include three
phases. The first phase consists of 51 holes on the existing section
lines used in the resource estimate and is expected to be completed by
the end of 1995. The second phase will consist of approximately 42
holes on intermediate cross section lines with holes spaced 100 meters
apart and is expected to be completed in March of 1996. The final
phase, to be completed in May of 1996, will consist of the remaining
holes on the intermediate lines to give a 50 x 50 meter collar-site
grid spacing. This program of drilling is designed to fully delineate
the resource including the Blue Whale zone, evaluate the
mineralization below 210 meters and also support a feasibility study.
In addition, the Company will continue with wide spaced drilling of
the Laguna Donna zone with the objective of establishing a geologic
resource for this zone later this year.
Management expects to make additional announcements regarding an
expanded geologic resource as information becomes available. The exact
timing of such announcements will be subject to the results of
exploration on the property. Commercial development, if warranted, is
not likely to commence in less than twelve to eighteen months and
significant revenue and cash flow from mining operations is unlikely
to occur before twelve to eighteen months thereafter.
<PAGE>
Financing
Cashflow used by operating activities during the nine months ended
September 30, 1995 and 1994 increased by approximately $3.7 million.
This increased use of cash by operating activities is principally the
result of the transfer of $4.5 million into escrow, pursuant to the
Brisas litigation settlement agreement finalized in January 1995,
offset by a decrease in net loss from $1.5 million for the nine
months ended September 30, 1994 to $0.22 million for the nine months
ended September 30, 1995. Cashflow from investing activities
increased from a $23.4 million use of funds during the nine months
ended September 30, 1994 to a $9 million source of funds during the
nine months ended September 30, 1995. The net change of approximately
$32.4 million is primarily a result of net purchases of investment
securities of $20 million and net maturities of investment securities
of $12.1 million during the nine months ended September 30, 1994 and
1995, respectively. Cashflow from financing activities decreased in
1995 by approximately $32.3 million as a result of a reduction in
sales of common stock.
As of the date of this report, the Company held approximately $25
million in unrestricted cash and held-to-maturity securities. Whether,
and to what extent, additional or alternative financing options are
pursued by the Company in the future will depend on a number of
important factors, including: the results of exploration and
development activities on the Brisas concession; management's
assessment of the financial markets; the successful acquisition of
additional properties or projects, if any; and the overall capital
requirements of the consolidated group. At this time, management
anticipates that its current cash position will be sufficient to cover
estimated operational and capital expenditures associated with the
exploration and development of the Brisas concession into 1997.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
GOLD RESERVE CORPORATION
November 13, 1995 By: /s/ Robert A. McGuinness
--------------------------
Robert A. McGuinness
Vice President - Finance
Chief Financial Officer
<PAGE>
<PAGE>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 15695
<SECURITIES> 14756
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 30578
<PP&E> 21785
<DEPRECIATION> 355
<TOTAL-ASSETS> 52242
<CURRENT-LIABILITIES> 4908
<BONDS> 0
<COMMON> 79877
0
0
<OTHER-SE> (32695)
<TOTAL-LIABILITY-AND-EQUITY> 47183
<SALES> 0
<TOTAL-REVENUES> 1228
<CGS> 0
<TOTAL-COSTS> 1445
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> (217)
<INCOME-TAX> 0
<INCOME-CONTINUING> (217)
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<NET-INCOME> (217)
<EPS-PRIMARY> (0.01)
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</TABLE>
