SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1996
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[4]
The number of shares of common stock outstanding at August 1, 1996 was
21,397,411.
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and December 31, 1995
(unaudited)
June 30, December 31,
1996 1995
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 9,609,084 $10,095,616
Investments:
Held-to-maturity securities, at
amortized cost 12,783,005 10,630,963
Accrued interest on investments 113,470 101,793
Deposits, advances and other 598,947 628,037
Litigation settlement held in escrow 4,500,000 4,500,000
----------- -----------
Total current assets 27,604,506 25,956,409
Property, plant and equipment, net 25,357,125 22,065,868
Investments:
Available-for-sale securities 91,754 215,364
Held-to-maturity securities, at
amortized cost -- 4,000,000
Other 18,783 24,066
----------- -----------
Total assets $53,072,168 $52,261,707
=========== ===========
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED BALANCE SHEETS, CONTINUED
June 30, 1996 and December 31, 1995
(unaudited)
June 30, December 31,
1996 1995
------------ ------------
LIABILITIES
Current Liabilities:
Accounts payable and accrued expenses $ 1,064,956 $ 262,219
Note payable - KSOP, current portion 186,708 149,960
Litigation settlement payable 4,500,000 4,500,000
----------- -----------
Total current liabilities 5,751,664 4,912,179
----------- -----------
Note payable - KSOP, non-current portion -- 186,749
Minority interest in consolidated
subsidiaries 87,116 90,160
----------- -----------
Total liabilities 5,838,780 5,189,088
----------- -----------
SHAREHOLDERS' EQUITY
Serial preferred stock, no par value
Authorized: 10,000,000 shares
Issued: none
Common stock, without par value
Authorized: 40,000,000 shares
Issued: 1996... 20,632,825;
1995... 20,476,688
Outstanding: 1996... 20,151,781;
1995... 19,995,644 80,858,942 80,068,854
Less: common stock held by affiliates (1,428,565) (1,428,565)
Unrealized gain on available-for-sale
securities -- 85,960
Accumulated deficit (32,010,281) (31,316,921)
KSOP debt guarantee (186,708) (336,709)
----------- -----------
Total shareholders' equity 47,233,388 47,072,619
----------- -----------
Total liabilities and shareholders'
equity $53,072,168 $52,261,707
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three and Six Months Ended June 30, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ ------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Other Income:
Interest $ 289,351 $ 354,387 $ 577,581 $ 782,998
Foreign currency gain (loss) 35,056 (4,510) (127,584) (8,372)
Gain on sale of available-for-sale
securities -- -- 86,286 --
Miscellaneous -- -- 1,375 --
----------- ----------- ----------- -----------
324,407 349,877 537,658 774,626
----------- ----------- ----------- -----------
Expenses:
General and administrative 213,310 368,386 634,649 543,720
Directors' and officers' compensation 97,500 54,987 403,000 123,817
Legal and accounting 53,705 142,149 172,732 217,508
Depreciation 9,181 6,723 17,547 13,324
Minority interest in net loss of
consolidated subsidiaries (1,617) -- (3,044) (3,126)
Interest expense, net of amount
capitalized 3,417 2,228 6,134 3,650
----------- ----------- ----------- -----------
375,496 574,473 1,231,018 898,893
----------- ----------- ----------- -----------
Net loss $ (51,089) $ (224,596) $ (693,360) $ (124,267)
=========== =========== =========== ===========
Net loss per share NIL $ (0.01) $ (0.03) $ (0.01)
=========== =========== =========== ===========
Weighted average common shares outstanding 20,099,154 18,916,606 20,089,586 18,735,539
=========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1995
(unaudited)
1996 1995
----------- -----------
Cash Flows from Operating Activities:
Net loss $ (693,360) $ (124,267)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 17,547 13,324
Amortization of discount on held-to-
maturity securities (212,482) (412,814)
Foreign currency loss 127,584 8,372
Minority interest in net loss of
consolidated subsidiaries (3,044) (3,126)
Gain on sale of available-for-sale
securities (86,286) --
Changes in current assets and
liabilities:
Net decrease (increase) in
current assets 17,413 (4,345,399)
Net increase in current
liabilities 802,737 57,758
----------- -----------
Net cash used by operating
activities (29,891) (4,806,152)
----------- -----------
Cash Flows from Investing Activities:
Proceeds from maturity of held-to-
maturity securities 10,665,000 16,170,000
Purchase of held-to-maturity securities (8,604,560) (7,991,392)
Purchase of property, plant and
equipment (3,436,388) (2,121,001)
Proceeds from sale of available-for-sale
securities 123,936 --
Other 5,283 (667)
----------- -----------
Net cash provided (used)
by investing activities (1,246,729) 6,056,940
----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of common shares 790,088 374,457
----------- -----------
Net cash provided by
financing activities 790,088 374,457
----------- -----------
Change in Cash and Cash Equivalents:
Net increase (decrease) in cash and cash
equivalents (486,532) 1,625,245
Cash and cash equivalents - beginning of
period 10,095,616 6,675,771
----------- -----------
Cash and cash equivalents - end of period $ 9,609,084 $ 8,301,016
=========== ===========
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED
For the Six Months Ended June 30, 1996 and 1995
(unaudited)
1996 1995
----------- -----------
Supplemental Cash Flow Information:
Non-cash Investing and Financing
Activities:
Exchange of shares for minority
interest in subsidiaries $ -- $ 9,882,028
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
The Company and Significant Accounting Policies
-----------------------------------------------
THE COMPANY. 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 property. A
number of significant events must occur before commercial production,
if any, on the Brisas property 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.
FINANCIAL INFORMATION. The December 31, 1995 financial information
has been derived from the Company's 1995 audited financial statements.
The notes to the financial statements as of December 31, 1995 as set
forth in the Company's 1995 Form 10-K, substantially apply to these
interim financial statements at June 30, 1996 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.
CONSOLIDATED FINANCIAL STATEMENTS. The consolidated financial
statements include the accounts of the Company, three Venezuelan
subsidiaries, Gold Reserve de Venezuela, C.A. (GLDRV), Compania
Aurifera Brisas del Cuyuni, C.A. (Brisas), Compania Minera Unicornio,
C.A. (Unicorn), two domestic majority-owned subsidiaries, Great Basin
Energies, Inc. (Great Basin) and MegaGold Corporation (MegaGold) and
seven Aruban subsidiaries which were formed to hold the Company's
interest in its foreign subsidiaries or for future transactions. All
significant intercompany accounts and transactions have been
eliminated in consolidation. The Company's policy is to consolidate
those subsidiaries were majority control exists and is other than
temporary.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
---------------------------------------------------------------
THE BRISAS PROPERTY. The Company's sole mining asset is the Brisas
property, located in the Kilometer_88 mining region of Bolivar State
in southeastern Venezuela. The Company's present concession on the
Brisas property covers the rights to the alluvial gold mineralization
which is approximately 15% of the total mineralization on the Brisas
property. In February 1993, the Company applied for a concession
covering a significant polymetallic mineralized deposit believed to
underlie the near-surface alluvial deposit. This application was
approved by the Venezuelan Ministry of Energy and Mines ("MEM"), which
exercises jurisdiction over the Brisas property, in March 1995, but
such application has not yet been submitted to the Official Gazette
for public comment. Since March 1995, the Company has responded to a
number of administrative and technical questions and requests from the
MEM regarding the veta application. Most recently the Venezuelan
mining authorities and our attorney have informed us that the present
delay in obtaining the veta rights is due to the MEM submitting a
<PAGE>
request for consultation to the Solicitor General regarding whether
the MEM should grant a single mining title covering the three metals
applied for or separate mining titles for each metal applied for in
the application. The MEM has further informed the Company that this
process of clarification will be completed soon, after which our
application will be processed promptly. Under the Venezuelan mining
concession system, which for gold and diamonds is solely administered
by the MEM since July 15, 1996, holders of alluvial concessions have
preference in respect to the granting of the underlying veta
concession. The Company is not aware of any fact or circumstance that
would prevent the MEM from submitting the application for public
comment and ultimately granting the hardrock (veta) concession to the
Company. However, the process of obtaining a concession in Venezuela
is lengthy and bureaucratically complex, and no assurance can be given
that the Company will be successful in obtaining a concession to this
mineralized deposit in the near term, if at all.
SIGNIFICANT ZONES OR AREAS OF INTEREST. The Company has identified
and is currently working in a number of significant areas or zones in
its effort to further define the mineralization on the property.
Drilling continues to be focused primarily in the Pozo Azul zone
located in the northern half of the property; a new southwest zone
which is contiguous to the Pozo Azul zone, the high-grade Blue Whale
hardrock structure, including at depth, which is contained within the
Pozo Azul zone; the southern part of the property where visible gold
has been observed in drill core; and other areas of exploration and
condemnation interest.
MINERALIZED DEPOSIT. The Company has to-date announced a gold and
copper deposit of 5.5 million ounces of gold and approximately 700
million pounds of copper. The mineralized deposit now approximates 186
million tonnes grading 0.91 grams (0.029 ounces) per tonne gold and
0.17% copper. The deposit is derived from approximately 375 holes
(50x50 meter spacing) and is approximately 1700 meters long, 400 to
800 meters wide and up to 300 meters deep. The mineralization
identified on the Brisas property as a consequence of the Company's
exploration activities will qualify as a commercially mineable ore
body under standards promulgated by the Securities and Exchange
Commission only after a comprehensive economic, technical and legal
feasibility study has been completed. As a result, the Company has not
yet established either proven or probable reserves on the Brisas
property and no assurance can be given that any such reserves will be
established on the property.
VENEZUELA. The Venezuelan government, amid economic uncertainties and
a banking crisis, suspended certain constitutional rights and
implemented certain currency exchange and price controls on June 27,
1994. Subsequently, substantially all constitutional rights were
re-established. On April 15, 1996, Venezuelan President Rafael Caldera
announced a series of free-market measures that included, among other
actions, removal of all exchange and price controls, floating interest
rates, gasoline price increases and increases in certain taxes. As
part of these fiscal measures, the Venezuelan government has entered
an agreement with the International Monetary Fund and certain
multilateral lending agencies to help in restructuring the Venezuelan
<PAGE>
economy. Subsequent to the announcement the Venezuelan bolivar exchange
rate increased from 290 bolivars per U.S. dollar to a high of 500
bolivars per U.S. dollar. On August 1, 1996, the exchange rate was
approximately 470 bolivars per U.S. dollar.
Venezuela has generally encouraged foreign investment in the past, and
the Company believes there presently exists no significant policies,
legal 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 and this can be expected to continue. Such conditions have
not materially adversely affected the Company's operations in
Venezuela to-date as substantially all of the Company's sources of
funding for its Venezuelan operations are denominated in U.S. dollars
and the Company does not currently repatriate funds from Venezuela.
Nonetheless, its activities and investment in Venezuela could be
adversely affected by future exchange controls, currency fluctuations,
political and social events, and laws or policies of Venezuela and the
United States affecting trade, investment and taxation. Whether and to
what extent current or future economic, regulatory or political
conditions may affect the Company in the future cannot be predicted.
RESULTS OF OPERATIONS
JUNE 30, 1996 COMPARED TO JUNE 30, 1995. Other income for the six
months ended June 30, 1996 decreased from the comparable six month
period in 1995 due to decreased interest income as a result of both
lower levels of, and returns on, invested cash and an increase in
foreign currency loss due to depreciation of the Venezuelan currency,
partially offset by an increase in income from sales of available-
for-sale securities. Other income for the three months ended June 30,
1996 decreased from the comparable three month period in 1995 due to
decreased interest income partially offset by an increase in foreign
currency gain.
Operating expenses during the six months ended June 30, 1996 increased
from the comparable six month period in 1995 due to increased general
and administrative expenses and directors' and officers' compensation
partially offset by decreased legal and accounting expense. Operating
expenses for the three months ended June 30, 1996 decreased from the
comparable three month period in 1995 primarily due to decreased
general and administrative and legal and accounting expenses partially
offset by an increase in directors' and officers' compensation.
For the comparable six month periods, the increase in general and
administrative expense resulted from increased KSOP contributions to a
larger pool of eligible employees over the previous year partially
offset by reductions in other employee and consultant related costs.
For the comparable three month periods, the decrease in general and
administrative expense resulted from a combined decrease in personnel
related costs and consulting fees as well as recovery of foreign taxes
previously paid. In both the three and six month comparable periods,
<PAGE>
directors' and officers' compensation increased as a result of general
salary increases for officers as well as first time compensation for
services paid to directors and legal and accounting costs decreased as
a result of the settlement of the Brisas litigation in late 1995. All
expenditures related to exploration activities on the Brisas property
have been recorded as capitalized exploration and development costs.
LIQUIDITY AND CAPITAL RESOURCES
INVESTING. The Company expended approximately $2.0 and $3.2 million
for exploration and development of the Brisas property during the
three and six months ended June 30, 1996, respectively. During these
same periods approximately 82 and 167 diamond drill holes were
completed for a total of 14,293 and 27,643 meters respectively. To
date, the Company has completed approximately 440 diamond and auger
drill holes approximating 65,000 meters. On a cumulative basis since
inception, the Company has expended approximately $48 million on the
Brisas property. These costs include acquisition costs of $2 million,
capitalized exploration and development costs and equipment
expenditures of $23.5 million (including Company stock valued at $9.8
million issued to purchase the minority interest in subsidiaries which
owned the Brisas property) and litigation settlement costs of $22.5
million (including $17.5 million of Company stock and warrants).
The current drilling program for the remainder of the year, which is
subject to change based on actual drilling results, includes at least
50 diamond drill-holes totaling approximately 10,000 meters. Further
drilling to identify tailings and waste disposal sites, and to provide
data for metallurgical tests and engineering design criteria will
continue into 1997. Environmental and feasibility work is ongoing. The
Company's technical advisors indicate that the 50x50 and limited 25x25
meter spaced drilling is sufficient for the preparation of a
feasibility study. The presently estimated development budget for the
remainder of 1996 is approximately $3 to $4 million.
In late 1995 the Company engaged an independent consultant to provide
advice on preliminary mill design and production plans. This
information is being utilized by the Company to develop a feasibility
study for the property, is preparatory in nature and therefore not
definitive. Currently, the Brisas property is expected to be mined by
open pit methods and the mill is expected to be a conventional,
gravity/flotation/cyanidation process. Initial cost estimates of a
15,000 tonnes per day mill (with an error factor of -5% to +25%) are
approximately $90 million. It is currently contemplated that a 20,000
or more tonnes per day milling facility will be constructed, and that
open pit mining will generate at least 40,000 tonnes per day,
including waste rock. Studies to be conducted in late 1996 will focus
on the final recovery process to be applied to this deposit.
Significant additional drilling activities remain to be undertaken on
the property. Management has not determined when commercial
development of the property, if warranted, might begin. Development of
the Brisas property is contingent on the results of future drilling,
obtaining the veta rights to the property and other Venezuelan
regulatory issues.
<PAGE>
FINANCING. Cash used by operating activities during the six months
ended June 30, 1996 decreased by approximately $4.8 million from the
same period in 1995. This decreased use of cash is primarily due to
the January 1995 transfer of $4.5 million into escrow, pursuant to the
Brisas litigation settlement agreement, a decrease in the amortization
of discount on held-to-maturity securities and an increase in other
current liabilities offset by an increase in net loss. Cash flow from
investing activities decreased from a $6.1 million source of funds
during the six months ended June 30, 1995 to a $1.2 million use of
funds for the same period in 1996. The decrease was due to a $6.1
million decrease in net purchases (maturities) of held-to-maturity
securities and an increase in purchases of property, plant and
equipment of $1.3 million offset by a $0.1 million increase in
proceeds from sales of available-for-sale securities. Cash flow from
financing activities increased in 1996 by approximately $0.4 million
as a result of an increase in the issuance of common stock related to
the exercise of employee stock options.
In July of 1996, the Company received approximately $5.5 million from
the exercise of 750,000 common share purchase warrants that had been
issued as part of the December, 1994 settlement of the Brisas
litigation. As of August 1, 1996 the Company held approximately $27.5
million in cash and held-to-maturity securities. In addition, the
Company has 1,000,000 common share purchase warrants, exercisable at
$13 for a total of $13 million, expiring in September 1996. Whether
and to what extent additional or alternative financing options are
pursued by the Company will depend on a number of important factors,
including the results of exploration and development activities on the
Brisas property, whether the Company is successful in obtaining the
rights to the veta mineralization believed to underlie the Brisas
alluvial 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 and
investment position, together with the proceeds expected to be
received from any future exercise of outstanding options and/or
warrants will be sufficient to cover estimated operational and capital
expenditures associated with the exploration and development of the
Brisas property through 1997.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Annual
Meeting of Security Holders was scheduled for Friday, June 7, 1996, in
Spokane, Washington at 9:00 AM. Due to the lack of a quorum, the
meeting was adjourned to July 10, 1996 whereby a quorum was obtained
and the following items were approved by the security holders.
Item 1. Election of Directors:
Nominee For Against Abstain
---------------------- ---------- ------- -------
Rockne J. Timm 10,367,407 1,653 27,460
A. Douglas Belanger 10,367,407 1,653 27,460
Patrick D. McChesney 10,367,407 1,653 27,460
Jean Charles Potvin 10,367,407 1,653 27,460
James H. Coleman 10,367,407 1,653 27,460
<PAGE>
Item 2. Ratification of Coopers & Lybrand L.L.P. as the Company's
independent auditor for the year ending December 31, 1996 and any
interim period:
For Against Abstain
---------- ------- -------
10,344,698 30,189 21,633
Item 3. Approval of proposed issuance for cash of common stock of
Great Basin and MegaGold to affiliates of the Company:
For Against Abstain
---------- ------- -------
7,843,267 458,161 63,354
SIGNATURE. Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has caused this report to be signed on its
behalf by the duly authorized undersigned.
GOLD RESERVE CORPORATION
By: /s/ Robert A. McGuinness
--------------------------------
Robert A. McGuinness
Vice President - Finance
Chief Financial Officer
August 1, 1996
<PAGE>
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