FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996
GOLD RESERVE CORPORATION
State Of Incorporation: Montana
Commission File Number: 1-8372
IRS Employer Identification No: 81-0266636
Address Of Principal Executive Offices: 601 West Riverside Ave
Suite 1940
Spokane, Washington 99201
Registrant's Telephone Number: (509) 623-1500
Securities registered pursuant to
Section 12(b) of the Act:
Title Of Each Class: Common Stock
Name Of Each Exchange On Which
Registered: NASDAQ
The Toronto Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period as the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes[4]
The number of shares of common stock outstanding at November 11, 1996
was 22,620,239.
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and December 31, 1995
(unaudited)
September 30, December 31,
1996 1995
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $31,279,629 $10,095,616
Investments:
Held-to-maturity securities, at
amortized cost 8,398,153 10,630,963
Accrued interest on investments 30,947 101,793
Deposits, advances and other 1,054,716 628,037
Litigation settlement held in escrow 4,500,000 4,500,000
----------- -----------
Total current assets 45,263,445 25,956,409
Property, plant and equipment, net 27,133,062 22,065,868
Investments:
Available-for-sale securities 91,754 215,364
Held-to-maturity securities, at
amortized cost -- 4,000,000
Other 16,143 24,066
----------- -----------
Total assets $72,504,404 $52,261,707
=========== ===========
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED BALANCE SHEETS, CONTINUED
September 30, 1996 and December 31, 1995
(unaudited)
September 30, December 31,
1996 1995
------------- ------------
LIABILITIES
Current Liabilities:
Accounts payable and accrued expenses $ 1,235,552 $ 262,219
Note payable - KSOP, current portion 186,708 149,960
Litigation settlement payable 4,500,000 4,500,000
----------- -----------
Total current liabilities 5,922,260 4,912,179
Note payable - KSOP, non-current portion -- 186,749
Minority interest in consolidated
subsidiaries 85,126 90,160
----------- -----------
Total liabilities 6,007,386 5,189,088
----------- -----------
SHAREHOLDERS' EQUITY
Serial preferred stock, no par value
Authorized: 10,000,000 shares
Issued: none
Common stock, without par value
Authorized: 40,000,000 shares
Issued: 1996, 22,593,139; 1995,
20,476,688
Outstanding: 1996, 22,112,095;
1995, 19,995,644 100,317,421 80,068,854
Less, common stock held by affiliates (1,428,565) (1,428,565)
Unrealized gain on available-for-sale
securities -- 85,960
Accumulated deficit (32,205,130) (31,316,921)
KSOP debt guarantee (186,708) (336,709)
----------- -----------
Total shareholders' equity 66,497,018 47,072,619
----------- -----------
Total liabilities and shareholders'
equity $72,504,404 $52,261,707
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three and Nine Months Ended September 30, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Other Income:
Interest $ 387,804 $ 411,652 $ 965,385 $ 1,194,650
Foreign currency gain (loss) (13,094) 41,579 (140,678) 33,207
Gain (loss) on sale of available-
for-sale securities -- (11,770) 86,286 (11,770)
Miscellaneous -- -- 1,375 --
----------- ----------- ----------- -----------
374,710 441,461 912,368 1,216,087
----------- ----------- ----------- -----------
Expenses:
General and administrative 189,452 242,763 824,101 786,483
Directors' and officers' compensation 129,300 235,804 532,300 359,621
Legal and accounting 239,932 46,814 412,664 264,322
Depreciation 10,575 7,275 28,122 20,599
Minority interest in net loss of
consolidated subsidiaries (1,990) -- (5,034) (3,126)
Interest expense, net of amount
capitalized 2,290 1,616 8,424 5,266
----------- ----------- ----------- -----------
569,559 534,272 1,800,577 1,433,165
----------- ----------- ----------- -----------
Net loss $ (194,849) $ (92,811) $ (888,209) $ (217,078)
=========== =========== =========== ===========
Net loss per share $ (0.01) NIL $ (0.04) $ (0.01)
=========== =========== =========== ===========
Weighted average common shares
outstanding 21,009,877 19,949,314 20,399,911 19,189,476
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 1996 and 1995
(unaudited)
Nine Months Ended
September 30,
-------------------------
1996 1995
----------- -----------
Cash Flows from Operating Activities:
Net loss $ (888,209) $ (217,078)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 28,122 20,599
Amortization of discount on held-to-
maturity securities (299,716) (563,053)
Foreign currency loss (gain) 140,678 (33,207)
Minority interest in net loss of
consolidated subsidiaries (5,034) (3,126)
Loss (gain) on sale of available-for-
sale securities (86,286) 11,770
Changes in current assets and
liabilities:
Net increase in current assets (355,833) (4,109,702)
Net increase (decrease) in current
liabilities 973,333 (258,600)
----------- -----------
Net cash used by operating
activities (492,945) (5,152,397)
----------- -----------
Cash Flows from Investing Activities:
Proceeds from maturity of held-to-
maturity securities 19,495,000 22,194,000
Purchase of held-to-maturity
securities (12,962,474) (10,070,205)
Purchase of property, plant and
equipment (5,235,994) (2,999,986)
Proceeds from sale of available-for-
sale securities 123,936 --
Other 7,923 (667)
----------- -----------
Net cash provided by investing
activities 1,428,391 9,123,142
----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of common
shares 20,248,567 548,703
----------- -----------
Net cash provided by financing
activities 20,248,567 548,703
----------- -----------
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED
For the Nine Months Ended September 30, 1996 and 1995
(unaudited)
Nine Months Ended
September 30,
-------------------------
1996 1995
----------- -----------
Change in Cash and Cash Equivalents:
Net increase in cash and cash
equivalents $21,184,013 $ 4,519,448
Cash and cash equivalents -
beginning of period 10,095,616 6,675,771
----------- -----------
Cash and cash equivalents - end of
period $31,279,629 $11,195,219
=========== ===========
Supplemental Cash Flow Information:
Non-cash Investing and Financing
Activities:
Exchange of shares for minority
interest in subsidiaries $ -- $ 9,882,028
<PAGE>
THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------
THE COMPANY. The Company was incorporated in Montana in 1956 for the
purpose of acquiring, exploring and developing mining properties and
placing them into production. The Company is currently involved in the
exploration and development of the Brisas property located in the
Kilometer 88 mining region of Bolivar State in southeastern Venezuela.
A number of significant events must occur before commercial
production, if any, on the Brisas property can begin, these being the
procurement of all necessary regulatory permits and approvals, the
establishment of proven and probable reserves and financing of
anticipated mine development costs. The Company has no producing
mineral properties at this time.
FINANCIAL INFORMATION. The December 31, 1995 financial information
has been derived from the Company's 1995 audited financial statements.
The notes to the financial statements as of December 31, 1995 as set
forth in the Company's 1995 Form 10-K, substantially apply to these
interim financial statements at September 30, 1996 and are not
repeated here. The financial information given in the accompanying
unaudited financial statements reflects all normal, recurring
adjustments which, in the opinion of management, are necessary for a
fair presentation of the periods reported.
CONSOLIDATED FINANCIAL STATEMENTS. The consolidated financial
statements include the accounts of the Company, three Venezuelan
subsidiaries, Gold Reserve de Venezuela, C.A. (GLDRV), Compania
Aurifera Brisas del Cuyuni, C.A. (Brisas), Compania Minera Unicornio,
C.A. (Unicorn), two domestic majority-owned subsidiaries, Great Basin
Energies, Inc. (Great Basin) and MegaGold Corporation (MegaGold) and
seven Aruban subsidiaries which were formed to hold the Company's
interest in its foreign subsidiaries or for future transactions. All
significant intercompany accounts and transactions have been
eliminated in consolidation. The Company's policy is to consolidate
those subsidiaries were majority control exists and is other than
temporary.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------------------------------------------------
THE BRISAS PROPERTY. The Company's present concession on the Brisas
property covers the rights to the alluvial gold mineralization which
is approximately 15% of the total mineralization on the Brisas
property. In February 1993, the Company applied for a concession
covering a significant polymetallic mineralized deposit known to
underlie the near-surface alluvial deposit. This application was
approved by the Venezuelan Ministry of Energy and Mines ("MEM"), which
exercises jurisdiction over the Brisas property, in March of 1995 and
was submitted to the Official Gazette for public comment in September
of 1996. In October of 1996, the Company received official
notification that the 30 day public comment period had expired and
that no opposition was made to the application. As a result, the
Company will be submitting the official map of the concession to the
MEM relating to the location and legal description of the Brisas
<PAGE>
property. This is the next step in the procedure to grant the
hardrock (veta) concession on the Brisas property. The Company is not
aware of any fact or circumstance that would prevent the MEM from
ultimately granting the hardrock (veta) concession to the Company.
However, the process of obtaining a concession in Venezuela is lengthy
and bureaucratically complex, and no assurance can be given that the
Company will be successful in obtaining a concession to this
mineralized deposit in the near term.
SIGNIFICANT ZONES OR AREAS OF INTEREST. The Company has identified,
in addition to the main Pozo Azul Zone, a number of other significant
areas or zones in its effort to define the mineralization on the
property. These areas consist of the Southwest Zone which is south of
and contiguous to the Pozo Azul Zone, the El Remo area, deeper
potential areas west of the main trend indicated by magnetic highs
and/or geologic projection and several other areas of exploration and
condemnation interest.
As a result of identification of the Southwest Zone in June of 1996, a
major new drilling program was implemented by the Company which will
continue into 1997 and primarily focus in the Southwest Zone and an
area north of the Southwest Zone and west of the Pozo Azul Zone.
Development drilling continues in the Southwest Zone along with
exploration drilling in the area to the north. Deep exploration
targets in these areas have been identified by geophysics and previous
exploration drilling and management expects to drill several deep
targets before year-end or early in 1997. Management plans to operate
two shifts per day and drill over 60 exploration, development and
condemnation holes totaling over 21,000 meters by the first quarter of
1997.
MINERALIZED DEPOSIT. As of September 30, 1996 the Company had
announced a gold and copper deposit of approximately 6.0 million
ounces of gold and approximately 788 million pounds of copper. The
mineralized deposit approximates 212 million tonnes grading 0.88 grams
(0.028 ounces) per tonne gold and 0.17% copper. The deposit is derived
from approximately 440 holes (50x50 meter spacing) and is
approximately 1700 meters long, 400 to 800 meters wide and up to 300
meters deep. The mineralization identified on the Brisas property as a
consequence of the Company's exploration activities will qualify as a
commercially mineable ore body under standards promulgated by the
Securities and Exchange Commission only after a comprehensive
economic, technical and legal feasibility study has been completed. As
a result, the Company has not yet established either proven or
probable reserves on the Brisas property and no assurance can be given
that any such reserves will be established on the property.
<PAGE>
VENEZUELA. Venezuela has generally encouraged foreign investment in
the past, and the Company believes there presently exists no
significant policies, legal requirements or other regulations which
might present barriers to its continued investment in the country.
Inflation and other economic conditions have resulted in political and
social turmoil on occasion and this can be expected to continue. Such
conditions have not materially adversely affected the Company's
operations in Venezuela. Nonetheless, its activities and investment
in Venezuela could be adversely affected by future exchange controls,
currency fluctuations, political and social events, and laws or
policies of Venezuela and the United States affecting trade,
investment and taxation. Whether and to what extent current or future
economic, regulatory or political conditions may affect the Company in
the future cannot be predicted.
RESULTS OF OPERATIONS
SEPTEMBER 30, 1996 COMPARED TO SEPTEMBER 30, 1995. Other income for
the nine months ended September 30, 1996 decreased from the comparable
nine month period in 1995 due to decreased interest income as a result
of lower average levels of invested cash and an increase in foreign
currency loss due to depreciation of the Venezuelan currency,
partially offset by an increase in gains from sales of available-
for-sale securities. Other income for the three months ended
September 30, 1996 decreased from the comparable three month period in
1995 due to decreased interest income and an increase in foreign
currency loss.
Operating expenses during the nine months ended September 30, 1996
increased from the comparable nine month period in 1995 due to
increased general and administrative expenses, directors' and
officers' compensation and legal and accounting expense. Operating
expenses for the three months ended September 30, 1996 increased from
the comparable three month period in 1995 due to increased legal and
accounting expense partially offset by decreases in general and
administrative expense and directors' and officers' compensation.
For the comparable nine month periods, the increase in general and
administrative expense resulted from increased KSOP contributions to a
larger pool of eligible employees over the previous year partially
offset by reductions in other employee and consultant related costs as
well as recovery of foreign taxes paid. Directors' and officers'
compensation increased as a result of general salary increases for
officers as well as first time compensation for services paid to
directors. For the comparable three month periods, the decrease in
general and administrative expense resulted primarily from decreases
in personnel related costs and consulting fees. The decrease in
directors' and officers' compensation resulted from the September 1995
salary adjustments for officers which were retroactive to the
beginning of that year. In both the three and nine month comparable
periods, legal and accounting costs increased in support of the
Company's ongoing compliance and permitting activities in Venezuela.
All expenditures related to exploration activities on the Brisas
property have been recorded as capitalized exploration and development
costs.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
INVESTING. The Company expended approximately $2.0 and $5.2 million
for exploration and development of the Brisas property during the
three and nine months ended September 30, 1996, respectively. During
these same periods approximately 59 and 226 diamond drill holes were
completed for a total of 11,887 and 39,530 meters, respectively. To
date, the Company has completed approximately 525 diamond and auger
drill holes approximating 85,000 meters. On a cumulative basis since
inception, the Company has expended approximately $50 million
associated with the Brisas property. These costs include acquisition
costs of $2 million, capitalized exploration and development costs and
equipment expenditures of $25.5 million (including Company stock
valued at $9.8 million issued to purchase the minority interest in
subsidiaries which owned the Brisas property) and litigation
settlement costs of $22.5 million (including $17.5 million of Company
stock and warrants). The presently estimated development budget for
the remainder of 1996 is approximately $1 to $2 million.
The Brisas property is expected to be mined by open pit methods and
the mill is expected to be a conventional, gravity/flotation/
cyanidation process. Previous cost estimates of a 15,000 tonnes per
day mill (with an error factor of -5% to +25%) were approximately $90
million. Currently, a 15,000 to 20,000 or more tonne per day milling
facility is contemplated. Further drilling to identify tailings and
waste disposal sites, and to provide data for metallurgical tests and
engineering design criteria will likely be conducted in 1997.
Environmental and feasibility work is ongoing.
Significant additional drilling activities remain to be undertaken on
the property. Management has not determined when commercial
development of the property, if warranted, might begin. Development
of the Brisas property is contingent on the results of future
drilling, completion of a feasibility study, obtaining the veta rights
to the property and other Venezuelan regulatory issues.
FINANCING. Cash used by operating activities during the nine months
ended September 30, 1996 decreased by approximately $4.7 million from
the same period in 1995. This decreased use of cash is primarily due
to the January 1995 transfer of $4.5 million into escrow, pursuant to
the Brisas litigation settlement agreement, a decrease in the
amortization of discount on held-to-maturity securities and an
increase in other current liabilities offset by an increase in net
loss. Cash flow from investing activities during the nine months
ended September 30, 1996 decreased by $7.7 million from the same
period in 1995. The decrease was due to a $5.6 million decrease in
net purchases (maturities) of held-to-maturity securities and an
increase in purchases of property, plant and equipment of $2.2 million
offset by a $0.1 million increase in proceeds from sales of available-
for-sale securities. Cash flow from financing activities increased in
1996 by approximately $19.7 million as a result of the exercise of
common stock purchase warrants and employee stock options.
<PAGE>
In September and July of 1996, the Company received approximately
$12.7 and $5.5 million respectively from the exercise of common share
purchase warrants. These warrants had originally been issued in 1994
as part of a financing and in settlement of litigation, respectively.
As of November 11, 1996, the Company held approximately $39 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 property, whether
the Company is successful in obtaining the rights to the veta
mineralization believed to underlie the Brisas alluvial concession,
management's assessment of the financial markets, the successful
acquisition of additional properties or projects, if any, and the
overall capital requirements of the consolidated group. At this time,
management anticipates that its current cash and investment position
will be sufficient to cover estimated operational and capital
expenditures associated with the exploration and development of the
Brisas property through 1997.
<PAGE>
PART II - OTHER INFORMATION
Items 1-5 are omitted as they are not applicable
Item 6 - Exhibits and Reports on Form 8-K
a. Exhibit 27 - Financial Data Schedule
b. There were no reports on Form 8-K for the quarter ended
September 30, 1996
SIGNATURE. Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has caused this report to be signed on its
behalf by the duly authorized undersigned.
GOLD RESERVE CORPORATION
By: /s/ Robert A. McGuinness
------------------------------------------
Robert A. McGuinness
Vice President - Finance
Chief Financial Officer
November 11, 1996
<PAGE>
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