FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
GOLD RESERVE CORPORATION
(Exact name of registrant as specified in its charter)
Montana 1-8372 81-0266636
(State of incorporation) (Commission File Number) (IRS Employer
Identification No.)
1940 Seafirst Financial Center
Spokane, Washington 99201
(509) 623-1500
Securities registered pursuant to Section 12(b) of the Act:
Common Stock
Title of each class
NASDAQ Small-Cap System
The Toronto Stock Exchange
Name of each exchange on which registered
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]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or other information statements incorporated by reference in Part III
of this Form 10-K or any amendments to this Form 10-K.[ ]
The aggregate market value of the voting stock held by non-affiliates
(excludes officers, directors and subsidiaries) of the registrant
based on the closing NASDAQ price at March 1, 1996 was $179,262,539.
The total number of common shares outstanding at such date was
19,846,518, excluding 693,362 shares held by subsidiaries of the
Company.
Portions of the Proxy Statement for the Registrant's Annual Meeting to
be held June 7, 1996, are incorporated by reference to Part III of
this Annual Report on Form 10-K.
<PAGE>
TABLE OF CONTENTS
PART I
Item 1: Business
Item 2: Properties
Item 3: Legal Proceedings
Item 4: Submission of Matters to a Vote of Security
Holders
PART II
Item 5: Market for Registrant's Common Equity and
Related Stockholder Matters
Item 6: Selected Financial Data
Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 8: Financial Statements and Supplementary Data
Item 9: Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
PART III
Item 10: Directors and Executive Officers of the Registrant
Item 11: Executive Compensation
Item 12: Security Ownership of Certain Beneficial Owners
and Management
Item 13: Certain Relationships and Related Transactions
PART IV
Item 14: Exhibits, Financial Statement Schedules,
and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I
Item 1. Business.
Gold Reserve Corporation (the "Company") is a Montana corporation
organized in 1956 to explore and develop mining properties. The
Company is presently engaged, through subsidiary foreign corporations,
in exploring a gold property in Venezuela for possible development,
and to a lesser extent, in evaluating other mineral properties
elsewhere in the world for possible acquisition or joint venture.
Unless otherwise stated, all amounts specified in this report are
denominated in U.S. dollars.
The Company's sole mining asset is the Brisas alluvial gold concession
(the "Brisas concession"), located in the Kilometer 88 mining region
("KM 88") of Bolivar State in southeastern Venezuela. The concession
is an exploitation concession granted by the Venezuelan Ministry of
Energy and Mines ("MEM") covering near-surface alluvial deposits. The
Company continues to await formal issuance of the veta rights to the
Brisas concession. An application was submitted to the MEM in February
of 1993 to obtain an exploration and exploitation concession to the
hardrock (veta) mineralization (gold and copper) which is beneath the
Brisas alluvial concession. MEM informed the Company the application
was approved on March 3, 1995, but the MEM has not yet submitted the
application, as of March 26, 1996, to the Official Gazette for public
comment. The Company is not aware of any fact or circumstance which
would prevent the MEM from submitting the application for public
comment and ultimately granting the veta concession to the Company.
Unless the context requires otherwise, the term the "Company" used
throughout this report refers to Gold Reserve Corporation and the
following subsidiaries: Compania Aurifera Brisas del Cuyuni, C.A.
("Brisas"); Gold Reserve de Venezuela, C.A. ("GLDRV"); Compania Minera
Unicornio, C.A. ("Unicorn"); Great Basin Energies, Inc. ("Great
Basin"); MegaGold Corporation ("MegaGold"); Gold Reserve de Aruba
A.V.V. ("Gold Reserve Aruba"); G.L.D.R.V. Aruba A.V.V. ("GLDRV
Aruba"); Glandon Company A.V.V. ("Glandon"); Stanco Investments A.V.V.
("Stanco"); GoldenLake A.V.V. ("GoldenLake"); Mont Ventoux A.V.V.
("Mont Ventoux") and Gold Reserve Holdings A.V.V. ("Gold Reserve
Holdings"). Activities on the Brisas concession, are conducted through
GLDRV and its subsidiary Brisas, which holds title to the alluvial
gold concession and has applied to the MEM for the hardrock (veta)
concession. GLDRV is owned directly and indirectly by Gold Reserve
Aruba and Glandon, which are wholly-owned subsidiaries of the Company.
The Company has to-date announced a geologic resource of 6.7 million
ounces of gold and gold equivalent, consisting of 4.9 million ounces
of gold and 720 million pounds of copper (or approximately 1.8 million
ounces of gold equivalent). The resource approximates 177 million
tons grading 0.85 grams (0.027 ounces) per ton gold and 0.18% copper.
Mineralization related to the alluvial concession is less than 15% of
the deposit; the remainder of the deposit is related to the hardrock
(veta) concession for which the Company has applied to the MEM but has
not been formally granted as of March 26, 1996.
<PAGE>
Development drilling continues in the Pozo Azul zone, the bulk of
which will be completed in 1996. The drilling will include an
estimated 129 diamond drill-holes based on 50 meter spacing, totaling
some 18,000 meters. In addition, the Company will initiate a 25 x 25
meter spaced drill program on selected areas of the Pozo Azul zone in
May or June of 1996. These programs are designed to delineate further
the resource within the Pozo Azul zone, including the "Blue Whale"
horizon and the mineralization below 210 meters, and to support a
feasibility study. Concurrently, additional drilling is planned to
identify tailings and waste disposal sites, and a number of large-
diameter holes are planned for pilot-scale metallurgical testing to
substantiate initial research work and provide pilot test data to
generate engineering design criteria. The estimated development
budget for 1996 is $6 to $8 million.
On a cumulative basis since inception, the Company has expended
approximately $45.5 million on the Brisas concession. These costs
include acquisition costs of $2 million, capitalized development and
exploration costs and equipment of $21 million (including Company
stock valued at $9.8 million issued to purchase the minority interest
in subsidiaries which owned the Brisas concession) and litigation
settlement costs of $22.5 million ($17.5 million of which was stock
and warrants).
Economic instability continued in Venezuela throughout 1995. The
Venezuelan government imposed controls over the exchange rate between
the U.S. dollar and the Venezuelan bolivar in mid 1994, freezing the
rate at 170 bolivares per dollar and limiting the access to dollars in
exchange for bolivares. These exchange control measures remain in
place as of March 26, 1996 although, in December 1995, the official
exchange rate was increased to 290 bolivares per U.S. dollar. The
Venezuelan government is presently negotiating with the International
Monetary Fund to secure funding to restructure its economy. As a
result of these negotiations, the Venezuelan government has announced
it expects to lift exchange and price control measures sometime during
1996.
In January 1995, the Company and its Brisas subsidiary settled all
outstanding litigation commenced in Venezuela in July 1992 to rescind
a mining lease and purchase option agreement covering the Brisas
concession. As part of the settlement the Company issued the
defendants 2,750,000 common shares and 750,000 common share purchase
warrants (exercisable at $10 Cdn for 18 months), and deposited $4.5
million into escrow to be released to one of the defendants upon the
granting of the Brisas hardrock or veta rights to the Company. The
total settlement of $22,512,500 was recorded as an expense in the
consolidated statement of operations of the Company for the year ended
December 31, 1994 (see Item 3. Legal Proceedings).
Pursuant to a plan of exchange approved by the Company's shareholders
in May 1995, each issued and outstanding share of Gold Reserve Aruba
and Glandon (indirect owners of the Brisas concession), other than
shares held by the Company, was exchanged for shares of the Company.
As a result of the exchange, which was completed in June 1995, the
Company issued 1,329,185 common shares valued at $9.8 million, Gold
Reserve Aruba and Glandon became wholly-owned subsidiaries of the
Company and the Company increased its indirect ownership in the Brisas
concession from 91% to 100%.
<PAGE>
Financial Information about Industry Segments.
---------------------------------------------
The Company is solely engaged in mining, which is a single industry
segment.
Other Activities.
-----------------
The Company continually evaluates other precious metal mining
opportunities in Venezuela and throughout the world for possible
acquisition or joint venture and from time-to-time, engages in
exploratory discussions regarding such opportunities. The Company
does not at this time have any discussions underway regarding such
transactions.
Executive Offices and Employees.
--------------------------------
The Company's principal executive offices are located at 1940 Seafirst
Financial Center, Spokane, Washington 99201. At March 26, 1996, the
Company employed six people in its Spokane office and eighty in
Venezuela, of which approximately sixty employees are located at the
Brisas concession. The Company manages the day-to-day activities of
its Venezuelan operations from its offices in Caracas and Puerto
Ordaz.
Financial Information about Foreign and Domestic Operations and Export
Sales.
----------------------------------------------------------------------
The following table sets out, as of and for the years ended
December 31, 1995, 1994 and 1993, identifiable assets attributable to
the Company's operations in the United States and Venezuela, and net
losses from United States and Venezuelan operations.
Year Ended December 31,
(in thousands of dollars)
---------------------------
1995 1994 1993
Identifiable assets:
United States $29,721 $33,503 $ 5,636
Venezuela 22,541 9,760 8,271
------- ------- -------
Totals $52,262 $43,263 $13,907
======= ======= =======
Net loss:
United States $ 182 $23,434 $ 994
Venezuela 155 306 1,850
------- ------- -------
Totals $ 337 $23,740 $ 2,844
======= ======= =======
<PAGE>
Item 2. Properties.
The Brisas Concession
Location.
---------
The Brisas concession is located in the KM 88 mining area of
southeastern Venezuela in Bolivar State. The concession is situated
approximately 120 miles (200 kilometers) southeast of Puerto Ordaz,
between the mining town of Las Claritas and the KM 88 distance marker
on Highway 10 leading south from the town of El Dorado. The
concession is 1.5 miles (2.5 kilometers) west of KM 88, and is
accessible by an all-weather dirt road which divides the concession
longitudinally into two halves. Supplies and accommodations are
available in Las Claritas. The Brisas concession occupies a
rectangular area of approximately 1,235 acres (500 hectares). The
dimensions of the concession are 2,500 meters or 1.5 miles (north-
south) by 2,000 meters or 1.25 miles (east-west). The concession is
covered by a sparse jungle canopy not typical of the region.
Ownership.
----------
Gold Reserve acquired the Brisas concession in late 1992. At that
time the property was the subject of a lawsuit over ownership, which
was ultimately settled in January 1995. The Brisas concession is an
exploitation concession granted by the MEM covering near-surface
alluvial deposits. Activities on the Brisas concession are conducted
through GLDRV and its subsidiary Brisas, which holds title to the
alluvial gold concession and has applied to the MEM for the hardrock
(veta) concession. GLDRV is owned directly and indirectly by Gold
Reserve Aruba and Glandon, which are wholly-owned subsidiaries of the
Company. The Company applied to the MEM in February 1993 for the
hardrock or veta rights to additional mineralization underlying the
Brisas alluvial concession. The application was reviewed by the
technical and legal departments of MEM, without objection, and was
approved by MEM on March 3, 1995. The next step is for the MEM to
submit the application to the Official Gazette for publication,
following which interested parties, if any, who believe that the
concession, if granted, would invade their property rights, may file a
formal opposition and present testimony to the MEM. The Company is
not aware of any fact or circumstance which would prevent the MEM from
submitting the application for public comment and ultimately granting
the veta concession to the Company, nor is it aware of any objection
to the application or any circumstance under which an objection, if
filed, would be sustained. Under Venezuelan law, only the party which
holds title to the alluvial concession may be granted the hardrock or
veta concession.
Geology.
--------
The general geology of the area includes thick sequences of
Proterozoic volcanic flows, sediments and various intrusives of the
Guayanan Shield which were folded, sheared, faulted and metamorphosed
during the Proterozoic period. The prospect pits and mineralization
on the Brisas concession show a northeasterly regional trend. The
mineralization found in the larger existing pits on the concession has
characteristics similar to other large deposits in Precambrian rocks,
such as volcanogenic sulphide and structurally controlled deposits.
<PAGE>
The structure identified on the Brisas property consists of two major
types of materials--saprolite/clay-hosted alluvial material occurring
in the upper several meters of the concession and hard rock dacitic
tuffs, basalt and andesite porphyry extending below the alluvial
material to depths of over 400 meters. Gold, copper and molybdenum
mineralization are found in both materials, and the structure is open
at depth and in all directions.
Exploration.
------------
Exploration activities on the concession have included mapping,
surface sampling and assaying, geophysics, geochemistry, preliminary
metallurgical testing, airborne magnetic and radiometric surveys, and
diamond and auger drilling. These activities have confirmed the
existence of an anomaly approximately one mile (1.6 kilometers) in
length, on strike with a deposit on Placer Dome Inc.'s Las Cristinas
property to the north. Placer Dome Inc. has announced a geologic
resource on its Las Cristinas property of more than 9 million ounces
of gold with a total potential of up to 12 million ounces. Airborne
magnetic and radiometric surveys of the Brisas concession and the
surrounding region have outlined the most altered and potentially
mineralized areas indicating the presence of a widespread alteration
zone centered on Placer's Las Cristinas property and extending
southward onto the Brisas concession.
In December 1993, the Company completed the first phase of its
preliminary drilling program on the concession. The drilling program
consisted of 47 diamond and auger drill holes totaling approximately
4,600 meters. The holes ranged from 50 meters to approximately 400
meters in depth and were concentrated in the northern end of the
concession. This drilling program confirmed the existence of the
Brisas-Las Cristinas trend previously identified by the Company using
geophysical and geochemical sampling methodologies, and revealed gold-
copper mineralization in the saprolites and the underlying hard rock.
Zones of massive sulfide were also encountered in the hard rock. In
1994 approximately 120 auger and 55 diamond drill holes were completed
at depths ranging from 50 to 200 meters. (A total of 3,336 meters of
auger drilling and 9,777 meters of core drilling were completed during
the year.) The drilling program was disrupted by a number of events
related to the Brisas litigation. As a consequence, no substantive
information was obtained. The Company also developed a computer model
of the geologic structures on the concession in 1994. The model
indicates that the geology of the concession is very complex, due to
faulting and other tectonic activity. The computer model also
indicates the possibility of an extension of mineralization at depth.
The 1995 exploration program included approximately 23,000 meters of
auger and core drilling which cost approximately $4 million, inclusive
of related personnel and administrative costs. This drilling program,
along with the results of the 1993 and 1994 drilling and exploration
efforts, served as the basis for the Company's announced geologic
resource.
<PAGE>
Geologic Resource.
------------------
The Company has to-date announced a geologic resource of 6.7 million
ounces of gold and gold equivalent, consisting of 4.9 million ounces
of gold and 720 million pounds of copper (or approximately 1.8 million
ounces of gold equivalent). The resource now approximates 177 million
tons grading 0.85 grams (0.027 ounces) per ton gold and 0.18% copper.
Mineralization related to the alluvial concession is less than 15% of
the deposit; the remainder of the deposit is related to the hardrock
(veta) concession for which the Company has applied to the MEM but has
not been formally granted as of the date of this report. This
resource is expected to increase as additional results from the
current in-fill drilling program are obtained, as the Blue Whale
structure is delineated further, and as the southern part of the
concession and deeper zones are explored. The resource announced to-
date has been influenced only slightly by mineralization contained in
the Blue Whale structure, since only limited drilling has been
conducted in this area. In addition, the mineability of the deeper
resource will ultimately be determined by several factors, including
the price of gold and an economic feasibility study. However, it is
clear that mineralization continues at depth and should be further
evaluated.
Significant Zones or Areas of Interest.
---------------------------------------
The Company is currently working in four significant areas or zones
contained within the main trend in efforts to define the minerali-
zation of the concession. The four significant areas or zones of
interest within this trend are the Pozo Azul zone located in the
northern half of the concession; the high-grade Blue Whale hardrock
structure which is contained within the Pozo Azul zone; the southern
part of the concession where visible gold has been observed in drill
core; and the deeper material below 210 meters.
Generally the mineralization is characterized by a large low grade
system with a higher-grade core. In addition, the Pozo Azul zone
contains a high-grade gold/copper zone called the "Blue Whale" which
is characterized by much higher grades of gold and copper. Low grade
copper is also present in the Pozo Azul zone outside the higher grade
core, whereas there is little or no copper present in the southern end
of the Pozo Azul zone. The Pozo Azul zone has been drilled with over
300 diamond and auger holes which indicate an area of wide spaced
mineralization. Drilling has confirmed a strike length of at least
1,600 meters. The width of the mineralization ranges from 400 meters
to more than 800 meters, with depths of over 300 meters and is
surrounded, mainly to the east, by additional shallow mineralization
as much as 800 meters wide. The mineralization is also open at depth,
meaning that some of the holes bottomed in gold and/or copper
mineralization.
The high-grade Blue Whale horizon within the Pozo Azul zone outcrops
in the northeast corner of the property in the Pozo Azul pit, and dips
to the southwest of the property. This is believed to be the locus or
"feeder zone" for the Brisas mineralization. Limited drilling has
indicated the length of the Blue Whale at over 600 meters along strike
and as much as 100 meters wide at surface, and up to 32 meters thick.
<PAGE>
The Blue Whale has been encountered 328 meters deep and is open at
depth. The Blue Whale is characterized by much higher-grade gold and
copper mineralization; grades up to 6 grams or more of gold per ton,
and over one percent copper have been encountered with limited
drilling.
Several drill-holes planned for the current in-fill drilling program
should intercept the Blue Whale and may add to the total geologic
resource.
Current Development Program.
----------------------------
Development drilling continues in the Pozo Azul zone, the bulk of
which will be completed in 1996. The drilling includes an estimated
129 diamond drill hole program based on 50 meter spacing, totaling
some 18,000 meters. The first phase of in-fill drilling consists of
approximately 51 holes on the existing section lines used in the
resource estimate. The second phase consists of approximately 42 holes
on intermediate cross section lines with holes spaced at 100 meters.
The final phase consists of the remaining approximately 36 holes on
the intermediate lines resulting in a 50 x 50 grid spacing. In
addition, the Company will initiate a 25 x 25 meter spaced drill
program on selected areas of the Pozo Azul zone in May or June of
1996. These programs are designed to delineate further the resource
within the Pozo Azul zone, including the "Blue Whale" horizon and the
mineralization below 210 meters, and to support a feasibility study.
Approximately 50 additional holes are planned to identify tailings and
waste disposal sites, and a number of large-diameter holes are planned
for pilot-scale metallurgical testing to substantiate initial research
work and provide pilot test data to generate engineering design
criteria. The estimated development budget for 1996 is $6 to $8
million.
Preliminary Mill Design and Production Plans.
---------------------------------------------
The Company engaged an independent consultant to provide advice on
preliminary mill design and production plans. This information, to be
utilized by the Company to develop its feasibility study for the
concession, is preparatory in nature and therefore not definitive. The
mill is expected to be a conventional, gravity/flotation/cyanidation
process yielding estimated recovery of gold and copper in excess of
90%. Up to 25% of the gold could be recovered by gravity, 50% by
copper flotation and over 20% by cyanidation. Preliminary cost
estimates of a 15,000 ton per day mill (with an error factor of -5% to
+25%) are approximately $90 million.
The Brisas concession is expected to be mined by open pit methods
commencing in the Pozo Azul pit. The gold and copper appear at surface
and mining is expected to be relatively simple and low cost,
characterized by a low waste to ore strip ratio (estimated to be 1 to
1). The Pozo Azul pit would ultimately be longer than 1.6 kilometers
and up to 800 meters wide. It is currently contemplated that a 20,000
or more tons per day milling facility will be constructed, and that
open pit mining will generate at least 40,000 tons per day, including
waste rock. In the early years this mine could produce in excess of
<PAGE>
400,000 ounces of gold and 45 million pounds of copper, with the
addition of Blue Whale material. It is anticipated that the average
gold production would be between 200,000 and 300,000 ounces of gold
per year over a 12-14 year mine life. Studies to be conducted in late
1996 will focus on the final recovery process to be applied to this
deposit. There are two main types of material to be mined, a soft
clay-like material called saprolite, which constitutes about 15
percent of the deposit, and bedrock which represents the other 85
percent. Mining will be conventional blast, shovel and haul open pit
mining which would then be fed to a central crusher. Special
techniques may have to be employed in mining of the surface
saprolites. Also because of the high water table in the area,
continuous dewatering of the pit will have to be employed.
Venezuelan Mining and Environmental Matters.
--------------------------------------------
The Company's Venezuelan mining operations are subject to laws of
title that differ substantially from those of the United States, and
to various mining and environmental rules and regulations that are
similar in purpose to those in the United States. The more
significant of these laws, rules and regulations are summarized below.
CURRENT VENEZUELAN MINING LAW. The principal legislation governing
the exploration and development of mineral resources in Venezuela is
the Mining Law of 1945 and related regulations, administrative
decrees and resolutions. The law governs every aspect of mineral
exploration, evaluation and extraction throughout the country, and
is administered by the MEM, through its Department of Mines.
A chief distinction between the mining laws of Venezuela and those
of the United States is the way in which mineral rights are owned
and held. In Venezuela, all minerals, other than those used in
construction, are initially owned by the government and can be
explored and developed only by state-owned corporations or private
entities that have applied for and obtained concessions or permits
for such activities. Concessions may be granted for near-surface
development (an alluvial concession) or subsurface vein development
(a veta concession) or both. Generally a separate concession is
granted for each mineral to be explored or exploited.
There are two types of concessions. The first, an exploration and
exploitation concession, gives the holder up to two years to explore
a property of a maximum of 5,000 hectares (12,355 acres), and the
right to choose for exploitation 50% of the area granted in parcels
of 500 hectares (1,235.5 acres) each; for that purpose a certificate
of exploitation has to be granted by the MEM. The second, an
exploitation concession, does not have an exploration period and has
an established surface area of up to 500 hectares. Under an
exploitation concession, a mining title is granted directly to the
holder. In both kinds of concessions, the holders have, in the case
of alluvial deposits, three years to initiate exploitation and, in
the case of vein deposits, five years to initiate exploitation.
During such period, concession holders must submit a technical and
economical feasibility study for approval to the MEM within 18
months for alluvial deposits and within 36 months for vein deposits,
each case determined from the date of grant of the mining title or
of the certificate of exploitation.
<PAGE>
Concessions and certificates of exploitation are granted in respect
of rectangular lots not larger than 500 hectares (1,235.5 acres),
and a single holder cannot be granted a total of more than 10,000
hectares (24,710 acres) of concessions relating to vein deposits and
20,000 hectares (49,420 acres) of concessions relating to alluvial
deposits. Generally each mineral to be exploited is subject to the
grant of a different concession, and usually a concession granted
relating to alluvial deposits constitutes a separate concession from
a concession relating to the underlying vein deposits. Both
concessions grant the holder 20 years to actually complete
development of the concession, provided all specified requirements,
including compliance with environmental laws, are met. This period
can be extended for up to an additional 20 years, through two 10-
year extensions, following which all rights to the concession,
including improvements, revert to the Venezuelan government.
Holders of concessions are required to report their activities to
the Department of Mines and must submit to routine inspections by
Department representatives to confirm compliance with the law.
All exploration and development activities must be conducted in
compliance with applicable mining law, and may be undertaken only by
applicants who demonstrate technical and financial capability,
undertake to manufacture or refine mined ores in Venezuela, submit
to Venezuela's tax laws, agree to share their mining technology with
the local mining industry and recognize the reversionary interests
of the Venezuelan government in the concession. In addition, an
applicant for a concession must agree to certain terms, known as
"special advantages", including the amount of royalties or mining
taxes to be paid and the extent to which bonds or sureties may be
posted to guarantee performance of the applicant's obligations. An
applicant may also be required to make certain improvements for the
benefit of the concession property and the surrounding area, such as
constructing and maintaining access roads, airstrips, schools and
medical dispensaries, and must agree to train local employees in
modern mining exploration and production techniques.
Venezuela has historically relied on government-owned entities to
explore and develop mineral resources, although this practice is
diminishing as the government seeks to encourage private investment.
In the Guayana region of the country, for example, the regional
Corporacion Venezolana de Guayana (the "CVG") and its various
subsidiary state-owned companies have been granted the exclusive
right to explore, evaluate and mine diamond and gold resources not
previously awarded as concessions by the MEM. To accomplish this,
CVG has granted mining contracts to private investors in the region
and has engaged in joint venture or other arrangements with foreign
and local companies. Although the Company's Brisas concession is
located in the Guayana region, it was awarded by the MEM and is not
subject to exploration or development claims by the CVG. The Company
has been granted contracts by CVG and has pending applications on
small parcels of property adjacent to the concession.
<PAGE>
PROPOSED MINING LAW. The former administration in Venezuela, lead
by the MEM, introduced extensive amendments to Venezuela's mining
law in 1993. These amendments include, among other items: the
creation of a national mining council as an auxiliary entity under
the Department of Mines; the introduction of the concept of
assignment of mineral exploration and exploitation rights, which
would facilitate joint ventures with state-owned companies; an
easing of costly and time-consuming bureaucratic steps necessary to
obtain a concession, coupled with the introduction of a new
permitting system; expansion of the area that may be covered by a
single exploration concession, and extension of the exploration
period to up to six years; extension of the concession exploitation
period from a maximum of 40 years to a maximum of 50 years; and a
re-evaluation of the method and manner in which mining activities
are taxed. Subsequently, the current MEM administration proposed new
changes to the mining law which includes, among other things,
granting concessionaires rights to substantially all mineralization
contained in surface and deep (hardrock) material, seven year
exploration periods, a royalty on gold production of 4%, (1% if sold
to the Venezuelan Central Bank) and a bidding process for new
concessions. The Venezuelan government, the MEM and industry
representatives are currently debating the proposed changes to the
mining law and there is no indication when or if any of the proposed
changes will be adopted. The proposed amendments to the mining law
are not expected to substantially affect existing concessions such
as the Company's Brisas concession, or the terms under which such
concessions can be explored or developed.
ENVIRONMENTAL LAWS AND REGULATIONS. Venezuela's environmental laws
and regulations are administered through regional offices of the
Ministry of the Environment and Renewable Natural Resources.
Concession holders who seek to develop a mineral property must first
obtain a permit granting them the right to occupy the territory for
mining purposes and then submit a report outlining the environmental
impact of the development and the rehabilitative or reconditioning
work to be undertaken once development activities are concluded.
The ministry also prescribes certain mining recovery methods deemed
harmful to the environment and monitors the concessionaire's
activities to ensure compliance. The Company has presented an
environmental audit of the alluvial concession and the first phase
of an environmental impact study to the ministry (through its Brisas
subsidiary), and will soon submit the second phase of the study.
The Company also expects to submit an environmental impact statement
to the Ministry addressing development and reclamation of the deeper
mineralization believed to underlie the Brisas concession when the
Company's application for the veta concession is granted.
Alternatively, the Company may amend the existing environmental
study to include the effect of mining the deeper mineralization.
<PAGE>
Item 3. Legal Proceedings.
In January 1995, the Company and its Brisas subsidiary settled all
outstanding litigation commenced in Venezuela in July 1992 to rescind
a mining lease and purchase option agreement covering the Brisas
concession. The Company contended throughout the lawsuit that the
lease was terminable for nonpayment of rentals during a thirteen month
period, and that a purchase option in the lease granting the
defendant-lessee a right to purchase the concession was likewise
terminable. The defendant-lessee and other parties who acquired an
interest in the defendant-lessee during the course of the lawsuit and
became additional defendants contended that the obligation to pay
rentals during the disputed period was suspended by Brisas, and that
the purchase option had not terminated. Despite the fact that the
Venezuelan courts largely agreed with the Company's arguments,
management and the board of directors determined that the long-term
interests of the Company and its shareholders were best served by
settlement of the lawsuit.
Under the terms of the settlement agreement, which closed in January
1995, the Company issued 1,500,000 common shares and 500,000 common
share purchase warrants (exercisable at $10 Cdn for 18 months) to
Marwood International Ltd. ("Marwood") a wholly-owned subsidiary of
TVX Gold Inc. ("TVX") and issued 1,250,000 common shares and 250,000
common share purchase warrants (exercisable at $10 Cdn for 18 months)
to Bluegrotto Trading Limited ("Bluegrotto"), in exchange for releases
irrevocably disposing of all rights, claims or causes of action
asserted or capable of being asserted against the Company or Brisas
with respect to the ownership, custody and control of the Brisas
concession. Inversiones 871010, C.A., the original defendant is owned
90% by Marwood and 10% by Bluegrotto. The Company also deposited the
sum of $4.5 million into a special escrow account for the benefit of
TVX. These funds are to be released in the event Brisas is granted a
concession from MEM to exploit the veta or bedrock rights underlying
the Brisas concession on or before January 1, 2000. A related
standstill covenant provided that the securities issued to the
defendants may be sold only in accordance with certain
limitations including a limitation that not more than 75,000 shares be
sold in any 30-day period, other than pursuant to certain permitted
block trades--until the earlier of three years following closing or
such time as the defendants and any related persons own in the
aggregate 5% or less of the then outstanding shares of common stock of
the Company.
As part of this covenant, the defendants further agreed that, for a
period of four years, they would not: acquire any additional shares of
common stock of the Company, whether in the open market or otherwise;
directly or indirectly initiate, encourage or participate in any
solicitation of proxies with respect to any matter submitted to the
shareholders of the Company for vote; deposit any of their shares into
a voting trust or other voting arrangement, or join in any
partnership, limited partnership, syndicate or group for the purpose
of owning, holding or disposing of such securities; or directly or
indirectly initiate or encourage a tender or exchange offer for the
securities of the Company, or agree to vote in respect of, or deposit
or tender their securities in response to, any tender or exchange
offer initiated, directly or indirectly, by a related party.
<PAGE>
On February 15, 1996, the Company consented, for a 30 day period, to
the disposal by TVX of 1,500,000 common shares and 500,000 common
share purchase warrants to a prescribed group of purchasers. According
to an amendment to Schedule 13D filed by TVX, these securities were
sold on February 19 and 26, 1996. All other terms and conditions of
the settlement remain in full force and effect.
The total settlement of $22,512,500 was recorded as an expense in the
consolidated statement of operations of the Company for the year ended
December 31, 1994. The settlement amount represents the market value,
as of the settlement date, of the 2,750,000 shares of common stock
issued in settlement; a value of $800,000, determined by an
independent financial advisor retained by the Company, attributable to
the 750,000 warrants issued in settlement; the $4.5 million placed in
escrow; and related settlement costs of approximately $300,000.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's shareholders
during the fourth quarter of 1995.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Market Information.
-------------------
The common stock of the Company is traded on NASDAQ under the symbol "GLDR"
and on the Toronto Stock Exchange ("TSE"), since September 1994, under the
symbol "GLR". The following table sets out the high and low prices per
share for the common stock for 1995 and 1994, as reported by the TSE and
NASDAQ. The prices reported reflect inter-dealer prices, without regard to
retail mark-ups, mark-downs or commissions, and do not necessarily reflect
actual transactions.
<TABLE>
<CAPTION>
TSE NASDAQ
---------------------------------- ----------------------------------
1995 1994 1995 1994
---------------- ---------------- ---------------- ----------------
High Low High Low High Low High Low
------- ------- ------- ------- ------- ------- ------- -------
Canadian Dollars U.S.Dollars
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $11.750 $ 7.000 -- -- $ 8.750 $ 5.000 $15.750 $ 8.000
Second Quarter 11.125 8.500 -- -- 8.250 6.125 10.250 6.000
Third Quarter 11.750 7.375 $8.875 $7.250 8.844 5.250 7.875 5.000
Fourth Quarter 9.500 6.750 13.125 6.750 7.250 4.875 9.500 4.875
</TABLE>
Holders.
--------
The number of holders of common stock of record on March 26, 1996 was
approximately 1,400 and total holders of common stock including those
held in street name was approximately 6,000.
Dividends.
----------
The Company has declared no cash or stock dividends on its common stock
since 1984, and in the opinion of management of the Company, will declare
cash dividends in the future only if the earnings and capital of the
Company are sufficient to justify the payment of such dividends.
<PAGE>
Item 6. Selected Financial Data.
The consolidated financial data set forth below have been selected by
the Company and should be read in conjunction with the Company's
consolidated financial statements. The financial data for 1995, 1994,
1993 and 1992 have been derived from the Company's consolidated
financial statements, which have been audited by Coopers & Lybrand
L.L.P., Spokane, Washington. The consolidated financial data for 1991
have been derived from the Company's consolidated financial statements,
which have been audited by McFarland & Alton, P.S., Spokane, Washington.
This financial data should be read in conjunction with, and is qualified
by such financial statements and the notes thereto.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
(in thousands of dollars, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Other income $ 1,419 $ 1,334 $ 516 $ 215 $ 28
Net loss (337) (23,740) (2,844) (992) (936)
Loss per share of
common stock (0.02) (1.68) (.28) (.16) (.19)
Total assets 52,262 43,263 13,907 6,110 1,591
Long-term debt
(contract payable) -- -- 825 1,586 --
Shareholder's equity 47,073 37,900 11,792 3,774 1,147
Common stock:
Issued 20,476,688 18,929,668 11,723,451 8,875,862 5,877,135
Outstanding(1) 19,995,644 18,577,175 11,429,291 8,581,702 5,877,135
_____________
(1) Great Basin, MegaGold and Stanco each consolidated subsidiaries of the Company own shares
of the Company's common stock, representing an indirect investment in itself. The
Company's proportionate ownership interest in the common stock held by these entities
represents the difference between issued and outstanding shares.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Summary.
--------
The consolidated results of operations for 1995 consist of expenses
related to activities other than the exploration and development of
the Brisas concession partially offset by interest income from
invested funds. All expenditures related to exploration activities on
the concession have been capitalized as exploration and development
costs. The Company has incurred losses in each of the last five years
due to the lack of an operating property or other revenue generating
business activity, and because of litigation, settlement costs and
disposal of the Alfa concessions. Management anticipates that net
losses of the Company will likely continue over the next three years
as the result of increased expenditures associated with the management
of exploration and development activities on the Brisas concession.
Management estimates the trend of consolidated losses will reverse if
and when gold and copper is produced from the Brisas concession.
However, a number of significant events must occur before commercial
production of the Brisas concession can begin, including the
establishment of proven and probable reserves, the formal granting of
the veta rights to the concession and procurement of all necessary
regulatory permits and approvals.
Results of Operations.
----------------------
1995 COMPARED TO 1994. Consolidated net loss for the year ended
December 31, 1995 was $337,303 or $0.02 per share, a decrease of
approximately $23,000,000 from the prior year. The year ended
December 31, 1994 included one-time litigation settlement costs as
well as costs associated with the disposal of subsidiaries. Other
income for 1995 was $1,418,754, which is an increase of
approximately $85,000 over the previous year. The increase in other
income during 1995 was principally due to increases in interest
income offset by lower foreign currency gains. Interest income
increased approximately $518,000 during the year due to greater
levels of and returns on invested cash and foreign currency gain
decreased approximately $418,000 due to the increases in currency
exchange rates in Venezuela. The Venezuelan exchange rate was set
at 170 bolivares per U.S. dollar during most of 1995 and was
increased to 290 in December 1995. Operating expenses for the year
amounted to $1,756,057, which is a decrease from the prior year of
approximately $118,000, excluding settlement costs and loss on
disposal of consolidated subsidiary incurred in 1994. Major
components of the change in operating expenses, exclusive of
settlement costs and loss on disposal of consolidated subsidiary,
are a decrease in general and administrative of approximately
$259,000 and legal and accounting of approximately $403,000, offset
by an increase in directors' and officers' compensation of
approximately $139,000 and a decrease in minority interest in net
loss of consolidated subsidiaries of approximately $314,000.
<PAGE>
The decrease in general and administrative expenses was generally
caused by the elimination of costs associated with Unicorn and its
subsidiaries which operated the Alfa concessions. The Alfa
concessions were disposed of in 1994. The decrease in legal and
accounting expense is principally related to the settlement of the
Brisas litigation. Directors' and officers' compensation increased
as a result of salary adjustments in 1995 for officers. The
principal change in minority interest in net loss of consolidated
subsidiaries is the minority interest share of Unicorn's net loss
from the Alfa concessions.
1994 COMPARED TO 1993. Consolidated net loss for the year ended
December 31, 1994 was $23,740,478 or $1.68 per share, an increase of
approximately $21,000,000 from the prior year. Other income for the
year was $1,334,044, which is an increase of approximately $818,000
over the previous year. The increase in other income during 1994
was principally due to increases in interest income offset by lower
foreign currency gains. Interest income increased approximately
$932,000 during the year due to greater levels of invested cash and
foreign currency gain decreased approximately $108,000 due to the
repayment of the Brisas contract payable and exchange controls
implemented by the Venezuelan government. During 1994 the Venezuelan
exchange rate was set at 170 bolivares per U.S. dollar. Operating
expenses for the year amounted to $25,074,522, which is an increase
of approximately $21,700,000 from the prior year. The increase in
operating expense was primarily due to costs related to the
settlement of the Brisas litigation. Operating expenses for 1994,
exclusive of the settlement costs, were approximately $2,600,000,
which is a decrease from the prior year of approximately $800,000.
Major components of the change in operating expenses, exclusive of
settlement costs, were an increase in general and administrative of
approximately $550,000 and legal and accounting of $290,000, offset
by an increase in minority interest in net loss of approximately
$320,000 and a decrease in loss on disposal of consolidated
subsidiary of approximately $1,200,000.
The 1994 increase in general and administrative expenses was
generally caused by increases in personnel related costs, travel,
consulting, costs related to expanded shareholder communications and
promotion and associated costs related to dual stock market
listings. Previously, costs associated with Unicorn were recorded
as capitalized exploration and development costs. In 1994, all
costs associated with the operations of Unicorn were expensed and
included in the consolidated results of operations. The change in
legal and accounting is principally related to the Brisas
litigation. The principal change in minority interest in net loss
of consolidated subsidiary is the minority interest share of
Unicorn's net loss. The change in the loss on disposal of
consolidated subsidiary represents the difference between the
adjustment for estimated net realizable value recorded in 1993 and
the additional loss recorded in 1994 at the time the sale
transaction was completed.
<PAGE>
During 1994, the Company exchanged all of the outstanding shares of
common stock of a subsidiary, Caromin Aruba (and indirectly its
ownership of the Alfa concessions) for all of the outstanding shares
of Stanco, a company owned by a former employee. The former
employee placed 58,333 shares of the Company and 700,000 shares of
Glandon into an escrow arrangement within Stanco. These securities
are held by an independent escrow agent pending future sale for the
benefit of the Company. Under certain circumstances a portion of
the proceeds from the sale of the securities held in escrow are
payable to the former employee. The Company's total investment,
through its subsidiaries, associated with the Alfa concessions was
approximately $3.8 million as of the date of sale. The proceeds to
be received by the Company from the securities held in escrow are
$1.3 million, based on the market value of the Company's common
stock as of the date of the transaction, resulting in a loss of $2.5
million from the disposal. The Company recorded $1.85 million of
this loss during the year ended December 31, 1993, and recorded the
remaining $690,000 in 1994.
Liquidity and Capital Resources.
--------------------------------
INVESTING. During 1995 the Company commenced development drilling
in the Pozo Azul zone, the bulk of which will be completed in 1996.
The drilling includes a 129 diamond drill-hole program based on 50
meter spacing, totaling some 18,000 meters. In addition, the Company
will initiate a 25 x 25 meter spaced drill program on selected areas
of the Pozo Azul zone in May or June of 1996. These programs are
designed to delineate further the resource within the Pozo Azul
zone, including the "Blue Whale" horizon and the mineralization
below 210 meters, and to support a feasibility study. Approximately
50 additional holes are planned to identify tailings and waste
disposal sites, and a number of large-diameter holes are planned for
pilot-scale metallurgical testing to substantiate initial research
work and provide pilot test data to generate engineering design
criteria. The estimated development budget for 1996 is $6 to $8
million.
The Company engaged an independent consultant to provide advice on
preliminary mill design and production plans. This information, to
be utilized by the Company to develop its feasibility study for the
concession, is preparatory in nature and therefore not definitive.
The mill is expected to be a conventional, gravity/flotation/
cyanidation process yielding estimated recoveries of gold and copper
in excess of 90%. Initial cost estimates of a 15,000 ton per day
mill (with an error factor of -5% to +25%) are approximately $90
million.
Significant additional drilling activities remain to be undertaken
on the concession. Management has not determined when commercial
development of the concession, if warranted, might begin. On
March 21, 1996 the Company announced a geologic resource of 6.7 million
ounces of gold and gold equivalent, consisting of 4.9 million ounces
of gold and 720 million pounds of copper (or approximately 1.8
million ounces of gold equivalent). The resource now approximates
177 million tons grading 0.85 grams (0.027 ounces) per ton gold and
0.18% copper. Mineralization related to the alluvial concession is
<PAGE>
less than 15% of the deposit, the remainder of the deposit relates
to the hardrock (veta) concession for which the Company has applied
to the MEM but has not been formally granted as of the date of this
report. Development of the Brisas concession is contingent on the
results of future drilling, obtaining the hardrock or veta rights to
the property and other Venezuelan regulatory issues.
During the year ended December 31, 1995, the Company expended
approximately $3.7 million on the Brisas concession. These
expenditures consisted of approximately $3.5 million in capitalized
development and exploration costs and $0.2 million for equipment. On
a cumulative basis since inception, the Company has expended
approximately $45.5 million on the Brisas concession. These costs
include acquisition costs of $2 million, capitalized development and
exploration costs and equipment expenditures of $21 million
(including Company stock valued at $9.8 million issued to purchase
the minority interest in subsidiaries which owned the Brisas
concession) and litigation settlement costs of $22.5 million ($17.5
million of which was stock and warrants) which was expensed in 1994.
Amounts recorded as capitalized exploration and development costs
include all costs associated with the Brisas concession, including
personnel and related administrative expenditures, drilling and
related exploration costs, capitalized interest expenses, litigation
costs and general support costs related to the concession.
The Venezuelan government imposed controls over the exchange rate
between the U.S. dollar and the Venezuelan bolivar in mid 1994,
freezing the rate at 170 bolivares per dollar and limiting the
access to dollars in exchange for bolivares. These exchange control
measures remain in place as of March 26, 1996 although, in December
1995, the official exchange rate was increased to 290 bolivares per
dollar. The Venezuelan government is presently 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
sometime during 1996.
Beginning in the third quarter of 1995, partly in reaction to pent-
up demand in Venezuela for U.S. dollars, the government sanctioned
an unofficial secondary currency market by permitting deeply
discounted purchases of dollar denominated Venezuelan national debt
(Brady Bonds) using bolivares on the Caracas Stock Exchange. During
the second half of 1995, the Company utilized the Brady Bond market
mechanism to convert $1.6 million dollars into 410 million
bolivares, realizing an average conversion rate of 256 bolivares per
dollar compared to the official exchange rate of 170 bolivares per
dollar, which helped offset the effect of inflation in Venezuela
during 1995. The Company expects to continue to utilize this
mechanism for substantially all of its conversions of dollars into
bolivares to satisfy its bolivar denominated obligations as long as
the combination of exchange controls and available secondary markets
exist, although there is no certainty as to how long such conditions
will continue or to what extent the officially controlled exchange
rate will be exceeded by the secondary market conversion rate which
as of March 22, 1996 such exchange rate was in excess of 530
bolivares per dollar.
<PAGE>
The economic conditions in Venezuela have resulted in political and
social turmoil on occasion, which 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 repatriate
funds from Venezuela. If exchange controls continue in Venezuela,
then inflation will likely have an adverse affect on the Company's
Venezuelan operations in the future. The Company does not believe
its operations in Venezuela pose mining risks that are significantly
greater than mining operations conducted in the United States.
Although Venezuelan mining law treats mineral rights differently
than they are treated in the United States, mining exploration and
development activities themselves are conducted, as they are in the
United States, under the auspices of the government and pursuant to
published development and environmental guidelines and regulations.
The Company believes such requirements are reasonable.
FINANCING. The Company has financed its mining activities in
Venezuela principally from the sale of equity securities. Future
acquisition costs and exploration expenses, and the cost of placing
the Brisas concession or additional future properties, if any, into
production, if warranted, are expected to be similarly financed.
During 1994 and 1993, the Company raised approximately $46.7 million
in equity financing to support its business activities. These
transactions consisted of the sale of additional shares of common
stock, or warrants to purchase common stock, and the exercise of
previously issued warrants and options. Management anticipates that
the Company will require additional financing in order to place the
concession into production. The Company continuously evaluates
market and other conditions for the possible sale of common stock to
finance such activities, but has no current plans to issue
additional shares except in connection with the exercise of warrants
and options.
On March 14, 1996 the board of directors of the Company approved a
six month extension of the expiration date, from March 15, 1996 to
September 15, 1996, of the 1,000,000 common share purchase warrants
(exercisable at $13.00) issued in March of 1994 and previously
extended from March 15, 1995 to March 15, 1996. In addition, the
Company has 750,000 common share purchase warrants outstanding which
are exercisable at $7.33 and expire in June 1996. The Company
expects to raise an additional $18.5 million if and when these
warrants are exercised.
As of March 26, 1996, the Company held approximately $24 million in
cash and held-to-maturity securities. 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
concession, whether the Company is successful in obtaining the
concession to the bedrock or veta mineralization believed to
underlie 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
<PAGE>
its current cash and investment position, together with the
proceeds expected to be received from any future exercise of
outstanding warrants, will be sufficient to cover estimated
operational and capital expenditures associated with the exploration
and development of the Brisas concession through 1997.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123). The Statement establishes
financial accounting and reporting standards for stock-based
employee compensation plans. The Statement requires adoption on or
before January 1, 1996 and allows a reporting entity to continue to
measure compensation cost for those plans using the intrinsic value
method of accounting prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees" as long as the entity provides pro-
forma disclosure of stock-based employee compensation plans using
the fair value based method of accounting in its annual financial
statements.
In March 1995, Statement of Financial Accounting Standards No. 121
(SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" was issued. The
Statement prescribes the recognition and measurement of impaired
assets, including long-lived assets. It requires that the carrying
amount of impaired assets be reduced to fair value. The Statement
requires a review for impairment of long-lived assets and
identifiable intangibles to be held and used by an entity whenever
events or changes in circumstances indicate that the carrying amount
of the assets may not be recoverable. In performing the review for
recoverability, the entity should estimate the future cash flows
expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future net cash flows
(undiscounted and without interest charges) is less than the
carrying amount of the asset, an impairment loss should be
recognized. However, the amount of the impairment loss to be
recognized is based on discounted cash flows. Management does not
expect any significant financial statement impact as a result of
adopting the provisions of SFAS No. 121 as required on January 1,
1996.
Item 8. Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets
December 31, 1995 and 1994
Consolidated Statement of Operations
for the years ended December 31, 1995, 1994 and 1993
Consolidated Statement of Changes in Shareholders' Equity
for the years ended December 31, 1995, 1994 and 1993
Consolidated Statement of Cash Flows
for the years ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
There were no changes in or disagreements with accountants on
accounting or financial disclosures during the year ended December 31,
1995.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Gold Reserve Corporation
We have audited the accompanying consolidated balance sheets of Gold
Reserve Corporation and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Gold Reserve Corporation and subsidiaries as of December 31,
1995 and 1994, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Notes 2 and 4, the Company changed its method of
accounting for investments in 1994 and income taxes in 1993.
COOPERS & LYBRAND L.L.P.
Spokane, Washington
March 15, 1996
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
1995 1994
----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $10,095,616 $ 6,675,771
Investments:
Held-to-maturity securities, at
amortized cost 10,630,963 26,079,822
Accrued interest on investments 101,793 259,780
Deposits, advances and other 628,037 493,956
Litigation settlement held in escrow 4,500,000 --
----------- -----------
Total current assets 25,956,409 33,509,329
----------- -----------
Property, plant and equipment, net 22,065,868 9,551,676
Investments:
Available-for-sale securities 215,364 177,809
Held-to-maturity securities, at
amortized cost 4,000,000 --
Other 24,066 24,066
----------- -----------
Total assets $52,261,707 $43,262,880
=========== ===========
LIABILITIES
Current Liabilities:
Litigation settlement payable $ 4,500,000 $ 4,500,000
Accounts payable and accrued expenses 262,219 572,713
Note payable: KSOP, current portion 149,960 25,000
----------- -----------
Total current liabilities 4,912,179 5,097,713
Note payable: KSOP, non-current portion 186,749 123,760
Minority interest in consolidated
subsidiaries 90,160 141,651
----------- -----------
Total liabilities 5,189,088 5,363,124
----------- -----------
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
December 31, 1995 and 1994
1995 1994
----------- -----------
SHAREHOLDERS' EQUITY
Shareholders' Equity:
Serial preferred stock, without par value
Authorized: 10,000,000 shares
Issued: none
Common stock, without par value
Authorized: 40,000,000 shares
Issued: 1995, 20,476,688
1994, 18,929,668
Outstanding, 1995, 19,995,644
1994, 18,577,175 $80,068,854 $69,453,393
Less common stock held by affiliates (1,428,565) (504,276)
Unrealized gain on available-for-sale
securities 85,960 79,017
Accumulated deficit (31,316,921) (30,979,618)
KSOP debt guarantee (336,709) (148,760)
----------- -----------
Total shareholders' equity 47,072,619 37,899,756
----------- -----------
Total liabilities and shareholders'
equity $52,261,707 $43,262,880
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
------------ ------------ ------------
Other Income:
Interest income $ 1,548,998 $ 1,031,206 $ 98,995
Foreign currency (loss)
gain (130,244) 288,628 396,795
Miscellaneous -- 14,210 20,589
------------ ------------ ------------
1,418,754 1,334,044 516,379
------------ ------------ ------------
Expenses:
General and administrative 961,829 1,220,740 674,652
Directors' and officers'
compensation 465,684 327,005 421,639
Legal and accounting 288,371 691,140 401,371
Depreciation 28,549 15,751 12,497
Interest, net of amount
capitalized 8,214 3,318 2,221
Minority interest in net
loss of consolidated
subsidiaries (8,360) (322,348) (2,448)
Loss on disposal of
consolidated subsidiary -- 688,051 1,850,000
Litigation settlement 22,512,500
Net loss (gain) on
investments 11,770 (61,635) --
------------ ------------ ------------
1,756,057 25,074,522 3,359,932
------------ ------------ ------------
Net loss $ (337,303) $(23,740,478) $ (2,843,553)
============ ============ ============
Net loss per share $ (0.02) $ (1.68) $ (0.28)
============ ============ ============
Weighted average common
shares outstanding 19,415,805 14,102,646 10,228,272
============ ============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Unrealized
Common Gainon
Common Stock Issued Stock Issued Available-
-------------------------- Accumulated to for-Sale
Shares Amount Deficit Affiliates Securities
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 8,875,862 $ 8,290,819 $ (4,395,587) $ (70,944) $ --
Net loss (2,843,553)
Common stock issued:
Services 12,552 48,851
Cash 2,530,000 10,413,976
Options and warrants 305,037 418,749
Reduction of shareholders'
equity associated with
change in subsidiaries'
minority interest (25,050)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1993 11,723,451 19,147,345 (7,239,140) (70,944) --
Effect of change in accounting
for investments $ 108,425
Net loss (23,740,478)
Common stock issued:
Services 6,000 33,000
Litigation settlement 2,750,000 16,912,500
Cash 2,020,000 19,754,290
Options and warrants 2,430,217 13,650,244
Value attributed to
issuance of warrants 800,000
Decrease in unrealized gain
on available-for-sale
securities (29,408)
Increase in common stock held
by consolidated subsidiaries (433,332)
</TABLE>
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY, CONTINUED
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Unrealized
Common Gainon
Common Stock Issued Stock Issued Available-
-------------------------- Accumulated to for-Sale
Shares Amount Deficit Affiliates Securities
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Reduction of shareholders'
equity associated with
change in subsidiaries'
Minority interest $ (843,986)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 $ 18,929,668 69,453,393 $(30,979,618) $ (504,276) $ 79,017
Net loss (337,303)
Common stock issued:
Cash 50,000 280,195
Options 167,835 460,162
Exchange for minority
interest of subsidiaries 1,329,185 9,882,028
Increase in common stock held
by consolidated subsidiaries (924,289)
Increase in unrealized gain on
available-for-sale securities 6,943
Reduction of shareholders'
equity associated with
change in subsidiaries'
minority interest (6,924)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 20,476,688 $ 80,068,854 $(31,316,921) $ (1,428,565) $ 85,960
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net loss $ (337,303) $(23,740,478) $ (2,843,553)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 28,549 15,751 12,497
Amortization of discount on held-to-maturity
securities (765,451) -- --
Foreign currency loss (gain) 130,244 (308,711) (396,795)
Minority interest in net loss of consolidated
subsidiaries (8,360) (322,348) (2,448)
Net (gain) loss on disposition and revaluation
of equity securities 11,770 (61,635) --
Loss on disposal of consolidated subsidiary -- 688,051 1,850,000
Common stock issued for services/expenses -- 33,000 48,851
Loss on disposal of equipment -- 25,909 --
Common stock and warrants issued for litigation
settlement -- 17,712,500 --
Changes in current assets and liabilities:
Net increase in current assets (4,476,094) (412,308) (141,197)
Net (decrease) increase in current
liabilities (310,494) 4,656,881 159,194
------------ ------------ ------------
Net cash used by operating activities (5,727,139) (1,713,388) (1,313,451)
------------ ------------ ------------
Cash Flow from Investing Activities:
Purchase of held-to-maturity securities (20,609,690) (32,022,160) --
Purchase of property, plant and equipment (3,807,683) (5,034,437) (4,392,914)
Proceeds from maturity of held-to-maturity
securities 32,824,000 5,942,338 --
</TABLE>
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flow from Investing Activities, Continued:
Proceeds from sale of available-for-sale
securities -- 75,769 --
Other -- (1,512) 11,500
------------ ------------ ------------
Net cash provided (used) by
investing activities 8,406,627 (31,040,002) (4,381,414)
------------ ------------ ------------
Cash Flow from Financing Activities:
Proceeds from issuance of common shares 740,357 33,404,534 10,832,725
Payments on contract payable -- (742,085) --
------------ ------------ ------------
Net cash provided by financing
activities 740,357 32,662,449 10,832,725
------------ ------------ ------------
Change in Cash and Cash Equivalents:
Net increase (decrease) in cash and cash
equivalents 3,419,845 (90,941) 5,137,860
Cash and cash equivalents - beginning of year 6,675,771 6,766,712 1,628,852
------------ ------------ ------------
Cash and cash equivalents - end of year $ 10,095,616 $ 6,675,771 $ 6,766,712
============ ============ ============
Supplemental Cash Flow Information
Cash paid during the year for:
Interest, net of amount capitalized $ 10,202 $ 3,318 $ 2,221
Other non-cash activities:
Issuance of common shares for minority
interest in subsidiaries $ 9,882,028 -- --
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. 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 Alluvial Gold Concession (Brisas concession) a potential
gold property in Venezuela.
Consolidation
-------------
The consolidated financial statements include the accounts of the
Company, three Venezuelan subsidiaries, Gold Reserve de
Venezuela, C.A. (GLDRV) Compania Aur'fera Brisas del Cuyun', 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 where majority control exists and
control is other than temporary.
At December 31, 1995 and 1994, the Company's proportionate share
of the equity in its consolidated subsidiaries exceeded the
Company's cost basis of its investments by $35,659 and $42,583,
respectively, due to sales of the subsidiaries' common stock to
minority shareholders at amounts in excess of the Company's cost
basis.
Cash and Cash Equivalents
-------------------------
The Company considers short-term, highly liquid investments
purchased with an original maturity of three months or less to be
cash equivalents for purposes of reporting cash equivalents and
cash flows. At December 31, 1995, the Company had certificates of
deposits totaling $149,960 pledged as security for bank loans
related to the Gold Reserve KSOP Plan (see Note 5). At
December 31, 1995, the Company had $95,000 in U.S. banks in
excess of federally insured limits and had $927,000 in Venezuelan
and off-shore banks.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. The Company and Significant Accounting Policies, Continued:
Investments
-----------
Investments classified as available-for-sale are carried at
quoted market value. Unrealized gains and losses are recorded as
a component of shareholders' equity. Investments classified as
held-to-maturity are carried at amortized cost. Realized gains
and losses on the sale of investments are recorded based upon
specific identification.
Exploration and Development Costs
---------------------------------
Exploration costs incurred in locating areas of potential
mineralization are expensed as incurred. Exploration costs of
properties or working interests with specific areas of potential
mineralization are capitalized pending the determination of a
property's economic viability. Development costs of proven mining
properties not yet producing are capitalized and classified as
property, plant and equipment. Upon commencement of production,
capitalized exploration and development costs will be amortized
based on the estimated proven and probable ore reserves
benefited. Deferred exploration and development costs of
unsuccessful projects are expensed.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are recorded at the lower of cost
or estimated net realizable value. Replacements and major
improvements are capitalized. Maintenance and repairs are charged
to expense as incurred. The cost and accumulated depreciation of
assets retired or sold are removed from the accounts and any
resulting gain or loss is reflected in operations. Depreciation
is provided using straight-line and accelerated methods over the
useful life of the related asset. During the exploration and
development phase, depreciation of mining assets is capitalized.
Interest costs incurred during the construction and development
of qualifying assets are capitalized. During 1994 and 1993,
approximately $218,000 and $473,000 of interest was capitalized.
In March 1995, Statement of Financial Accounting Standards No.
121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" was issued.
The Statement prescribes the recognition and measurement of
impaired assets, including long-lived assets. It requires that
the carrying amount of impaired assets be reduced to fair value.
The Statement requires a review for impairment of long-lived
assets and identifiable intangibles to be held and used by an
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. The Company and Significant Accounting Policies, Continued:
Property, Plant and Equipment, Continued
----------------------------------------
entity whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable. In
performing the review for recoverability, the entity should
estimate the future cash flows expected to result from the use of
the asset and its eventual disposition. If the sum of the
expected future net cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, an
impairment loss should be recognized. However, the amount of the
impairment loss to be recognized is based on discounted cash
flows. Management does not expect any significant financial
statement impact as a result of adopting the provisions of SFAS
No. 121 as required on January 1, 1996.
Foreign Currency
----------------
The Company's Venezuelan subsidiaries operate in a highly
inflationary economy. As a result, non-monetary assets and
liabilities are translated at historical rates, while net
monetary assets and liabilities are translated at current rates,
with the resulting foreign currency translation gains and losses
included in operations. Gains and losses from foreign currency
transactions are also included in the results of operations.
Estimates
---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Substantially all of the Company's investment in property, plant
and equipment represents amounts invested in the Brisas
concession. Management's capitalization of exploration and
development costs and assumptions regarding the future
recoverability of such costs is subject to the risks and
uncertainties of developing a mineable ore reserve on the Brisas
concession which is based on engineering and geological estimates
including gold and copper prices, estimated plant construction
costs and operating costs and the procurement of all necessary
regulatory permits and approvals, including the hard rock (veta)
rights to the concession. These estimates could change in the
future which could affect the carrying value and the ultimate
recoverability of the amounts recorded as property, mineral
rights and capitalized exploration and development costs.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. The Company and Significant Accounting Policies, Continued:
Estimates, Continued
--------------------
The Venezuelan government imposed controls over the exchange rate
between the U.S. dollar and the Venezuelan bolivar in mid 1994,
freezing the rate at 170 bolivares per dollar and limiting the
access to dollars in exchange for bolivares. These exchange
control measures remain in place as of the first quarter of 1996
although, in December of 1995, the official exchange rate was
increased to 290 bolivares per dollar. The Venezuelan government
is presently 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 sometime during 1996.
Inflation and other economic conditions have resulted in
political and social turmoil on occasion, which can be expected
to continue. Such conditions have not materially adversely
affected the Company's operations in Venezuela to date.
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. Whether and to what extent current or future economic,
regulatory or political conditions may materially adversely
affect the Company's financial position in the future cannot be
predicted.
Net Loss Per Share
------------------
Net loss per share is based on the weighted average number of
common shares outstanding during each year, which has been
reduced by the Company's proportionate ownership of common shares
owned by Great Basin, MegaGold and Stanco Investments, A.V.V.
(Stanco). Common stock equivalents are anti-dilutive and
therefore have been excluded from the computation.
2. Investments:
The Company accounts for its investment in equity securities as
available-for-sale securities, and its investment in government-
backed bonds as held-to-maturity securities according to the
provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" which was adopted by the Company January 1, 1994.
The effect of applying this new standard was to increase
shareholders' equity by $108,425. There was no income tax effect
on the unrealized gain. Held-to-maturity securities consist
primarily of U.S. bonds which are recorded at amortized cost.
The bonds outstanding at December 31, 1995 mature as follows:
$10,630,963 in 1996 and $4,000,000 in 1997.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. Investments, Continued:
<TABLE>
<CAPTION>
Held-to-Maturity Securities
-----------------------------------------------------
Amortized
Cost/ Quoted
Carrying Unrealized Unrealized Market
December 31, 1995: Value Gain Loss Value
-------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Government backed bonds $14,630,963 $ 39,401 $ (1,879) $14,668,485
=========== =========== =========== ===========
<CAPTION>
Available-for-Sale Securities
-----------------------------------------------------
Carrying
Quoted
Unrealized Unrealized Market
Cost Gain Loss Value
----------- ----------- ----------- -----------
Gold Reserve Corporation $ 220,318 $ 3,683,310 -- $ 3,903,628
Less, ownership by the
Company (1) (128,564) (3,683,310) -- (3,811,874)
----------- ----------- ----------- -----------
91,754 -- -- 91,754
Other equity securities 37,650 85,960 -- 123,610
----------- ----------- ----------- -----------
$ 129,404 $ 85,960 -- $ 215,364
=========== =========== =========== ===========
<CAPTION>
Held-to-Maturity Securities
-----------------------------------------------------
Amortized
Cost/ Quoted
Carrying Unrealized Unrealized Market
December 31, 1994: Value Gain Loss Value
-------------------------------------- ----------- ----------- ----------- -----------
Government backed bonds $26,079,822 -- $ (94,382) $25,985,440
=========== =========== =========== ===========
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. Investments, Continued:
<TABLE>
<CAPTION>
Available-for-Sale Securities
-----------------------------------------------------
Carrying
Quoted
Unrealized Unrealized Market
December 31, 1994, Continued: Cost Gain Loss Value
----------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gold Reserve Corporation $ 120,318 $ 4,061,110 -- $ 4,181,428
Less, ownership by the Company (1) (70,944) (4,061,110) -- (4,132,054)
----------- ----------- ----------- -----------
49,374 -- -- 49,374
Other equity securities 49,418 79,017 -- 128,435
----------- ----------- ----------- -----------
$ 98,792 $ 79,017 -- $ 177,809
=========== =========== =========== ===========
------------------
(1) The Gold Reserve Corporation shares above are owned by the Company's subsidiaries: Great
Basin, MegaGold and Stanco. The Company's effective ownership of its own stock through its
subsidiaries is deducted from the above number of shares held and recorded as a reduction
of common stock outstanding on the balance sheets. These shares are carried at cost.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. Property, Plant and Equipment:
Property, plant and equipment as of December 31, 1995 and 1994
consisted of the following:
1995 1994
----------- -----------
Domestic
--------
Furniture and office equipment $ 184,271 $ 138,643
Transportation equipment 162,000 162,000
----------- -----------
346,271 300,643
Less accumulated depreciation (98,888) (70,339)
----------- -----------
247,383 230,304
----------- -----------
Foreign
-------
Property and mineral rights 11,002,335 2,149,339
Capitalized exploration and
development costs 10,247,988 6,737,686
Buildings 86,989 15,381
Furniture and fixtures 295,323 256,404
Transportation equipment 225,832 179,448
Machinery and equipment 286,463 163,702
----------- -----------
22,144,930 9,501,960
Less accumulated depreciation (326,445) (180,588)
----------- -----------
21,818,485 9,321,372
----------- -----------
Total $22,065,868 $ 9,551,676
=========== ===========
In June 1994, the Company exchanged all of the outstanding shares
of common stock of a subsidiary, Compania Minera de Bajo Caroni
A.V.V. (and indirectly its rights to the Alfa gold and diamond
concessions) for all of the outstanding shares of Stanco, a
company owned by a former employee. The Company's total
investment, through its subsidiaries, associated with the Alfa
concessions was approximately $3.8 million. Based on the value
of the consideration received at the date of the transaction, the
resulting total loss from the disposal was $2.5 million. During
the year ended December 31, 1993, the Company recorded $1.85
million of this loss and during the year ended December 31, 1994,
recorded the remaining $690,000 loss from the transaction.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Income Tax:
Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." The change had no financial statement effect
at January 1, 1993. No income tax benefit has been recorded for
the three years ended December 31, 1995 due to net operating
losses.
The Company's Venezuelan subsidiaries are subject to Venezuelan
income tax. All costs related to the Company's Brisas concession
have been recorded as capitalized exploration and development
costs for tax purposes, and therefore the Company has not
recorded any foreign tax attributes. No income tax has been paid
or accrued by the Company's subsidiaries during 1995, 1994 and
1993. At December 31, 1995, the Company had the following U.S.
federal tax basis loss carryforwards and tax credits:
Amount Expires
----------- -----------
Regular tax net operating loss: $ 272,248 2006
1,650,395 2007
1,244,312 2008
700,536 2009
329,918 2010
-----------
$ 4,197,409
===========
Alternative minimum tax net
operating loss: $ 289,523 2006
1,624,454 2007
1,218,023 2008
671,999 2009
300,000 2010
-----------
$ 4,103,999
===========
Foreign tax credit $ 825 1996
Capital loss $ 832,473 1996
Investment tax credit $ 5,967 2001
Alternative minimum tax credit $ 19,871 --
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. Income Tax, Continued:
The components of the deferred tax assets and liabilities as of
December 31, 1995 and 1994 were as follows:
Deferred Tax Asset
(Liability)
------------------------
1995 1994
----------- -----------
Accounts payable and accrued
expenses $ 9,908 $ --
Accrued investment income (35,426) --
Property, plant and equipment 8,502,255 8,413,365
----------- -----------
Total temporary differences 8,476,737 8,413,365
Net operating loss carryforward 1,427,119 1,588,083
Investment tax credit 5,967 5,967
Alternative minimum tax credit 19,871 19,871
Foreign tax credit 825 17,336
Capital loss carryforward 283,041 303,978
----------- -----------
Total temporary differences,
operating losses and tax credit
carryforwards 10,213,560 10,348,600
Valuation allowance (10,213,560) (10,348,600)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
The Company has recorded a valuation allowance to reflect the
estimated amount of the deferred tax asset which may not be
realized, principally due to expiration of net operating losses
and other carryforwards. The valuation allowance for deferred tax
assets may be reduced in the near term if the Company recognizes
taxable income in the future. The changes in the valuation
allowance for the years ended December 31, 1995, 1994 and 1993
were as follows:
1995 1994 1993
------------ ------------ ------------
Balance, beginning of
year $ 10,348,600 $ 2,031,630 $ 910,734
Change in valuation
allowance due to
change in deferred
tax asset subject
to uncertainty of
recovery (135,040) 8,316,970 1,120,896
------------ ------------ ------------
Balance, end of year $ 10,213,560 $ 10,348,600 $ 2,031,630
============ ============ ============
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. Employee Benefit KSOP Plan:
In October, 1990, the Company adopted the Gold Reserve KSOP Plan
(the KSOP Plan). The KSOP Plan is comprised of two parts, (1) the
salary reduction plan, or 401(k) plan, and (2) the employee stock
ownership plan, or ESOP.
During 1995 and 1994, the KSOP Plan purchased from the Company
50,000 and 20,000 common shares for $280,195 and $123,760,
respectively. On a cumulative basis, the KSOP Plan has purchased
323,571 common shares since inception. The purchases of stock
were financed by bank loans, with varying rates of interest
between 4.70 and 8.24 percent. As of December 31, 1995, $149,960
of the bank loans is due in 1996 and $186,749 is due in 1997.
The loans are guaranteed by the Company and accordingly are
recorded as a reduction to shareholders' equity. The Company
contributed $92,247, $20,000 and $5,000 to the KSOP Plan in 1995,
1994 and 1993, respectively.
Allocation of shares to participants' accounts is based on the
combination of contributions by the Company and the participants,
up to a maximum of 25 percent of the participants' annual
compensation. The purchase price per share of the Company's
common shares by the KSOP Plan is used to calculate the number of
shares allocated to each participant.
6. Stock Option Plans:
The Company has three stock option plans (the Plans) for
officers, directors, and key individuals. All shares available
under the 1985 and 1992 Plans have been granted and approximately
736,000 options remain unexercised as of December 31, 1995. The
Company's 1994 Plan allows for the granting of up to 2,000,000
options to purchase common shares, which may be granted for terms
of up to ten years. The exercise price of incentive stock options
must be the average of the closing bid and ask prices of the
stock on the date of grant. At December 31, 1995, options to
purchase approximately 1,099,000 common shares were available for
future grants under the 1994 Plan. The vesting period of options
ranges from immediately to up to three years.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. Stock Option Plans, Continued:
The stock option transactions are summarized as follows:
Number of Option Price
Shares Per Share
--------- ----------------
Outstanding, December 31, 1992 802,500 $ .215 - $ 1.400
Granted 476,750 $3.375 - $15.250
Exercised (299,287) $ .215 - $ 5.080
--------- ----------------
Outstanding, December 31, 1993 979,963 $ .690 - $15.250
Granted 304,800 $5.250 - $ 6.000
Exercised (295,967) $ .690 - $5 .580
Canceled (24,168) $1.250 - $ 5.080
--------- ----------------
Outstanding, December 31, 1994 964,628 $1.000 - $ 6.000
Granted 913,334 $5.375 - $ 7.063
Exercised (167,835) $1.000 - $ 6.000
Canceled (73,334) $5.080 - $ 7.063
--------- ----------------
Outstanding, December 31, 1995 1,636,793 $1.090 - $ 7.063
========= ================
Exercisable, December 31, 1995 1,041,483
========= ================
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS No. 123). The Statement
establishes financial accounting and reporting standards for
stock-based employee compensation plans. The Statement requires
adoption on or before January 1, 1996 and allows a reporting
entity to continue to measure compensation cost for those plans
using the intrinsic value method of accounting prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees" as
long as the entity provides pro forma disclosure of stock-based
employee compensation plans using the fair value based method of
accounting in its annual financial statements. The Company is
required to implement SFAS No. 123 on January 1, 1996.
Management does not plan to adopt the measurement provisions of
SFAS No. 123 although the Company will comply with the pro forma
disclosure requirements of the statement in its 1996 annual
financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. Common Stock Purchase Warrants:
During 1994 and 1993, the Company issued 1,750,000 and 2,215,000
warrants, respectively, to purchase common stock of the Company,
principally related to the private placement of common stock and
the litigation settlement. Warrant holders exercised 2,134,250
and 5,750 common stock purchase warrants for approximately
$12,962,750 and $17,250 in 1994 and 1993, respectively. Common
stock purchase warrants outstanding at December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Exercise Total
Number Price per Exercise Expiration
Issued of Warrants Warrant Amount Date
------------------------------ ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
March 1994 (1) 1,000,000 $ 13.00 $13,000,000 September 1996
December 1994 (2) 750,000 7.33 5,497,500 June 1996
----------- ----------- ----------- --------------
Balance, December 31, 1995 1,750,000 $18,497,500
=========== =========== ===========
(1) Warrant expiration date extended from original expiration date of March 1995 to
September 1996.
(2) Warrants issued in connection with settlement of litigation are exercisable at $10 Cdn
(see Note 11).
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. Related-Party Transactions:
Common Stock Issued
-------------------
During 1994 and 1993, the Company issued 6,000 and 12,552
shares, valued at $33,000 and $48,851, respectively, for
services provided to the Company by certain officers,
directors, shareholders and employees.
MegaGold
--------
The President and the Vice President-Finance of the Company are
also officers and a director of MegaGold. At December 31, 1995
and 1994, the Company owned 7,592,226 common shares of MegaGold
and MegaGold owned 125,083 common shares of the Company. In
addition, MegaGold owned 280,000 common shares of Great Basin
at December 31, 1995 and 1994. The Company performs various
administrative functions and sublets a portion of its office
space to MegaGold for $1,200 per year.
Great Basin
-----------
The President and the Executive Vice President of the Company
are also officers and directors of Great Basin. At December 31,
1995 and 1994, the Company owned 15,177,400 common shares of
Great Basin and Great Basin owned 391,161 and 374,192 common
shares of the Company, respectively. Great Basin also owned
170,800 common shares of MegaGold at December 31, 1995 and
1994. The Company performs various administrative functions and
sublets a portion of its office space to Great Basin for $1,200
per year.
Legal Fees Paid to Director's Firm
----------------------------------
During 1995 and 1994, one of the Company's directors also
served as Canadian legal counsel for the Company. During
1995 and 1994, the Company incurred approximately $60,000 and
$440,000, respectively, for legal services performed by the
director's firm, in which he is Chairman and a partner. At
December 31, 1994, approximately $68,000 of these fees are
included in accounts payable and accrued expenses.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. Geographic Segments:
<TABLE>
<CAPTION>
United States Venezuela Consolidated
------------- ----------- ------------
<S> <C> <C> <C>
December 31, 1995:
Depreciation $ 28,549 $ 28,549
============= =========== ============
Net loss $ 182,216 $ 155,087 $ 337,303
============= =========== ============
Identifiable assets: (1)
Property, plant and equipment, net $ 247,383 $21,818,485 $ 22,065,868
General corporate assets 29,473,430 722,409 30,195,839
------------- ----------- ------------
Identifiable assets at December 31,
1995 $ 29,720,813 $22,540,894 $ 52,261,707
============= =========== ============
December 31, 1994:
Depreciation $ 15,751 -- $ 15,751
============= =========== ============
Net loss $ 23,433,755 $ 306,723 $ 23,740,478
============= =========== ============
Identifiable assets: (1)
Property, plant and equipment, net $ 230,304 $ 9,321,372 $ 9,551,676
General corporate assets 33,272,338 438,866 33,711,204
------------- ----------- ------------
Identifiable assets at December 31, 1994 $ 33,502,642 $ 9,760,238 $ 43,262,880
============= =========== ============
December 31, 1993:
Depreciation $ 12,497 $ 12,497
============= =========== ============
Net loss $ 993,553 $ 1,850,000 $ 2,843,553
============= =========== ============
Identifiable assets: (1)
Property, plant and equipment, net $ 72,912 $ 6,613,365 $ 6,686,277
General corporate assets 5,562,893 1,658,176 7,221,069
------------- ----------- ------------
Identifiable assets at December 31, 1993 $ 5,635,805 $ 8,271,541 $ 13,907,346
============= =========== ============
(1) Identifiable assets of each segment are those that are directly identified with those
operations. General corporate assets consist primarily of cash, cash equivalents and
investment securities.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. Exchange of Shares for Minority Interest in Subsidiaries:
Pursuant to a plan of exchange approved by the Company's
shareholders on May 19, 1995, each issued and outstanding share
of Gold Reserve de Aruba A.V.V. (Gold Reserve Aruba) and Glandon
Company A.V.V. (Glandon) (the companies which indirectly own 100%
of the Brisas concession), other than shares held by the Company,
was exchanged for common shares of the Company. The exchange
ratios under the plan of exchange were established using an
implied market valuation of the Brisas concession. This implied
market valuation, in turn, was used to establish the value of the
minority shares of Gold Reserve Aruba and Glandon. The implied
market valuation of the Brisas concession was based on the total
market value of the Company. Accordingly, the fair value of the
Company's common shares issued to acquire the minority interests
was recorded as additional property and mineral rights costs
associated with the Brisas concession. As a result of the
exchange which was completed on June 23, 1995, the Company issued
1,329,185 common shares valued at $9.8 million. In consequence
of the exchange, Gold Reserve Aruba and Glandon became wholly-
owned subsidiaries of the Company and in effect the Company
increased its ownership in the Brisas concession from 91% to
100%.
11. Litigation Settlement:
Brisas, which was acquired by the Company in August 1992 to
obtain the Brisas concession, was the plaintiff in a lawsuit
commenced in Venezuela in July 1992 to rescind a mining lease and
purchase option agreement covering the Brisas concession. In late
December 1994, the Company, on behalf of its Brisas subsidiary,
settled all outstanding litigation related to the Brisas
concession and issued 2,750,000 common shares, 750,000 common
share purchase warrants (exercisable at $10 Cdn for 18 months) to
the defendants and deposited $4,500,000 into escrow to be
released to one of the defendants upon the granting of the Brisas
hardrock or veta rights to the Company. If the veta rights are
not granted to the Company by January 1, 2000, the $4,500,000
plus interest earned thereon will revert to the Company. The
total settlement of $22,512,500, recorded as an expense in the
1994 consolidated statement of operations, represents the market
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
11. Litigation Settlement, Continued:
value, on the date of the agreement, of the consideration given
and related settlement costs. A related standstill covenant
provided that the securities issued to the defendants may be sold
only in accordance with certain limitations. On February 15,
1996, the Company consented, for a 30 day period, to the disposal
by one of the defendants of 1,500,000 common shares and 500,000
common share purchase warrants to a prescribed group of
purchasers. According to an amendment to Schedule 13D filed by
the defendant, these securities were sold on February 19 and 26,
1996. All other terms and conditions of the settlement remain in
full force and effect.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information requested by this item is contained in the
registrant's 1996 proxy statement and is incorporated by reference
herein.
Item 11. Executive Compensation.
The information requested by this item is contained in the
registrant's 1996 proxy statement and is incorporated by reference
herein.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information requested by this item is contained in the
registrant's 1996 proxy statement and is incorporated by reference
herein.
Item 13. Certain Relationships and Related Transactions.
The information requested by this item is contained in the
registrant's 1996 proxy statement and is incorporated by reference
herein.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
Exhibits.
---------
The following exhibits are filed as part of this report. Exhibits
previously filed are incorporated by reference, as noted. Exhibits
filed herewith appear beginning at page 33.
Exhibit
Number Exhibit
----------------------------------------------------------------------
3.1 Copy of Articles of Incorporation of Registrant,
as amended. Filed as Exhibit C to the
Registrant's Registration Statement on Form 10
dated July 12, 1982 and incorporated by reference
herein.
3.2 Bylaws of Registrant, as amended March 4, 1993.
Filed as Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1992 and incorporated by reference
herein.
10.29 Mining Operations Agreement dated July 1, 1992
between Compania Minera Bajo Caroni - Caromin,
C.A. and Compania Minera Unicornio, C.A. Filed as
Exhibit 10.29 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992 and
incorporated by reference herein.
10.30 Stock Purchase Agreement dated August 1992 between
Antonio Sosa Aviles and Servicios Escriber S.R.L.,
and Stock Purchase Agreement dated November 26,
1992 between Servicios Escriber S.R.L. and Gold
Reserve de Venezuela. Filed as Exhibit 10.30 to
the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992 and incorporated
by reference herein.
10.31 License and Technical Assistance Agreement dated
September 1, 1992 between Registrant and Compania
Minera Unicornio, C.A. Filed as Exhibit 10.31 to
the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992 and incorporated
by reference herein.
10.32 Credit Agreement dated October 13, 1992 between
Registrant and Compania Aurifera Brisas del
Cuyuni, C.A. Filed as Exhibit 10.32 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992 and incorporated by
reference herein.
<PAGE>
Exhibit
Number Exhibit
----------------------------------------------------------------------
10.33 Services Agreement dated November 6, 1992 between
Registrant and A. Douglas Belanger. Filed as
Exhibit 10.33 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992 and
incorporated by reference herein.
10.34 Settlement Agreement dated December 21, 1994 among
the Registrant, Brisas, GLDR, Marwood
International Ltd., TVX Gold, Inc., BlueGrotto
Trading Limited and Inversiones 871010, C.A.
Filed as an exhibit to the Registrant's current
report on Form 8-K dated December 21, 1994 and
incorporated by reference herein.
13*
16.1*
18*
19*
22.1 Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
24*
25*
27.1 Financial Data Schedule
28*
29*
*Items denoted by an asterisk have either been omitted or are not
applicable.
Financial Statements.
---------------------
An index to the financial statements included in this report appears
at page 14. The financial statements themselves appear at pages 15
through 29 of this report.
Reports on Form 8-K.
--------------------
No report on Form 8-K was issued during the quarter ended December 31,
1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Rockne J. Timm
---------------------------------------------
Rockne J. Timm, its Chairman,
President and Chief Executive Officer
March 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
By: /s/ Robert A. McGuinness
--------------------------------------------
Robert A. McGuinness, its Principal
Financial and Accounting Officer
March 27, 1996
By: /s/ A. Douglas Belanger, Director
--------------------------------------------
A. Douglas Belanger, Director
March 27, 1996
By: /s/ Jean Charles Potvin, Director
--------------------------------------------
Jean Charles Potvin, Director
March 27, 1996
By: /s/ James H. Coleman, Director
--------------------------------------------
James H. Coleman, Director
March 27, 1996
By: /s/ Patrick D. McChesney, Director
--------------------------------------------
Patrick D. McChesney, Director
March 27, 1996
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Subsidiary % Ownership
Compania Aurifera Brisas del Cuyuni, C.A. ("Brisas") 100
Gold Reserve de Venezuela, C.A. ("GLDRV"); 100
Compania Minera Unicornio, C.A. ("Unicorn") 100
Great Basin Energies, Inc. ("Great Basin") 58
MegaGold Corporation ("MegaGold") 63
Gold Reserve de Aruba A.V.V. ("Gold Reserve Aruba") 100
G.L.D.R.V. Aruba A.V.V. ("GLDRV Aruba") 100
Glandon Company A.V.V. ("Glandon") 100
Stanco Investments A.V.V. ("Stanco") 100
GoldenLake A.V.V. ("GoldenLake") 100
Mont Ventoux A.V.V. ("Mont Ventoux") 100
Gold Reserve Holdings A.V.V. ("Gold Reserve Holdings") 100
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Gold Reserve Corporation on Form S-3 (File No. 33-62804)
and Form S-8 (File No. 33-61113) of our report, which includes an
explanatory paragraph concerning changes in accounting for investments
in 1994 and income taxes in 1993, dated March 15, 1996, on our audits
of the consolidated financial statements of Gold Reserve Corporation
and subsidiaries as of December 31, 1995 and 1994, and for the years
ended December 31, 1995, 1994 and 1993, which report is included in
this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Spokane, Washington
March 26, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 10096
<SECURITIES> 14948
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25956
<PP&E> 22491
<DEPRECIATION> 425
<TOTAL-ASSETS> 42262
<CURRENT-LIABILITIES> 4912
<BONDS> 0
0
0
<COMMON> 80069
<OTHER-SE> (31654)
<TOTAL-LIABILITY-AND-EQUITY> 52262
<SALES> 0
<TOTAL-REVENUES> 1419
<CGS> 0
<TOTAL-COSTS> 1748
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> (337)
<INCOME-TAX> 0
<INCOME-CONTINUING> (337)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (337)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
