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 March 31, 1997
GOLD RESERVE CORPORATION
State Of Incorporation: Montana
Commission File Number: 1-8372
IRS Employer Identification No: 81-0266636
Address Of Principal Executive Offices: West 601 Riverside Avenue,
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 SmallCap Market
The Toronto Stock Exchange
Securities registered pursuant to
Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period as the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes[X]
The number of shares of common stock outstanding at May 13, 1997 was
22,814,021.
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and December 31, 1996
(unaudited)
March 31, December 31,
1997 1996
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 19,503,419 $ 30,329,024
Investments:
Held-to-maturity securities 10,492,922 8,442,492
Accrued interest on investments 63,630 143,580
Deposits, advances and other 682,955 528,458
Litigation settlement held in escrow 4,500,000 4,500,000
------------ ------------
Total current assets 35,242,926 43,943,554
Property, plant and equipment, net 31,423,310 29,097,305
Investments:
Available-for-sale securities 124,254 119,504
Held-to-maturity securities 7,002,308 --
Other 826,607 611,204
------------ ------------
Total assets $ 74,619,405 $ 73,771,567
============ ============
LIABILITIES
Current Liabilities:
Litigation settlement payable $ 4,500,000 $ 4,500,000
Accounts payable and accrued expenses 1,718,293 938,892
Note payable - KSOP 22,860 186,708
------------ ------------
Total current liabilities 6,241,153 5,625,600
Minority interest in consolidated
subsidiaries 950,854 952,571
------------ ------------
Total liabilities 7,192,007 6,578,171
Commitments and contingencies
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED BALANCE SHEETS, CONTINUED
March 31, 1997 and December 31, 1996
(unaudited)
March 31, December 31,
1997 1996
------------ ------------
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: 1997... 22,813,021;
1996... 22,703,811
Outstanding: 1997... 22,331,977;
1996... 22,222,767 101,669,902 100,952,778
Less, common stock held by affiliates (1,428,565) (1,428,565)
Unrealized gain on available-for-sale
securities 7,500 2,750
Accumulated deficit (32,798,579) (32,146,859)
KSOP debt guarantee (22,860) (186,708)
------------ ------------
Total shareholders' equity 67,427,398 67,193,396
------------ ------------
Total liabilities and share-
holders' equity $ 74,619,405 $ 73,771,567
============ ============
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 STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1997 and 1996
(unaudited)
1997 1996
------------ ------------
Other Income:
Interest $ 434,491 $ 288,230
Foreign currency loss (25,366) (162,640)
Gain on sale of available-for-sale
securities -- 87,661
------------ ------------
409,125 213,251
Expenses:
General and administrative 518,419 421,339
Directors' and officers' compensation 449,854 305,500
Legal and accounting 78,172 119,027
Depreciation 11,574 8,366
Minority interest in net loss of
consolidated subsidiaries (1,717) (1,427)
Interest expense, net of amount
capitalized 4,543 2,717
------------ ------------
1,060,845 855,522
------------ ------------
Net loss $ (651,720) $ (642,271)
============ ============
Net loss per share $ (0.03) $ (0.03)
============ ============
Weighted average common shares
outstanding 22,263,673 20,039,296
============ ============
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 STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1997 and 1996
(unaudited)
1997 1996
------------ ------------
Cash Flows from Operating Activities:
Net loss $ (651,720) $ (642,271)
Adjustments to reconcile net loss to
net cash provided (used) by operating
activities:
Depreciation 11,574 8,366
Accretion of discount on held-to-
maturity securities (53,363) (109,655)
Foreign currency loss 25,366 162,640
Minority interest in net loss of
consolidated subsidiaries (1,717) (1,427)
Gain on sale of available-for-sale
securities -- (86,286)
Changes in current assets and
liabilities:
Net (increase) decrease in
current assets (74,547) 274,778
Net increase in current
liabilities 779,401 67,286
------------ ------------
Net cash provided (used)
by operating activities 34,994 (326,569)
------------ ------------
Cash Flows from Investing Activities:
Proceeds from maturities of held-to-
maturity securities 4,000,000 8,460,000
Purchase of held-to-maturity securities (12,999,375) (8,604,560)
Purchase of property, plant and
equipment (2,362,945) (1,192,603)
Proceeds from sale of available-for-
sale securities -- 123,936
Other (215,403) 15,875
------------ ------------
Net cash used by investing
activities (11,577,723) (1,197,352)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of common shares 717,124 448,903
------------ ------------
Net cash provided by
financing activities 717,124 448,903
------------ ------------
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
For the Three Months Ended March 31, 1997 and 1996
(unaudited)
1997 1996
------------ ------------
Change in Cash and Cash Equivalents:
Net decrease in cash and cash
equivalents (10,825,605) (1,075,018)
Cash and cash equivalents - beginning
of period 30,329,024 10,095,616
------------ ------------
Cash and cash equivalents - end of
period $ 19,503,419 $ 9,020,598
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY. Gold Reserve Corporation is an exploration-stage mining
company incorporated in the state of Montana in 1956 for the purpose
of acquiring, exploring and developing mining properties, and placing
them into production. The Company's principal asset is the Brisas
property, a gold/copper mineralized deposit located in southeastern
Venezuela and currently the subject of an exploration and development
program. A number of significant events must occur before commercial
production on the Brisas property can begin, including the
establishment of proven and probable reserves and obtaining the
hardrock (veta) mining title.
The Company's growth strategy is to develop proven and probable
reserves as well as mining and process operations by (i) the
successful development of proven and probable mining reserves at its
Brisas property, (ii) discovering new properties through its
exploration program, (iii) entering joint ventures with advanced
exploration properties and (iv) making selective property or corporate
acquisitions.
FINANCIAL INFORMATION. The December 31, 1996 balance sheet has been
derived from the Company s 1996 audited consolidated financial
statements. The notes to the consolidated financial statements as of
December 31, 1996 as set forth in the Company s 1996 Form 10-K,
substantially apply to these interim financial statements at March 31,
1997 and are not repeated here. The financial information given in
the accompanying unaudited financial statements reflects all normal,
recurring adjustments which, in the opinion of management, are
necessary for a fair presentation for the periods reported.
CONSOLIDATED FINANCIAL STATEMENTS. The Company's operations in
Venezuela are conducted through subsidiary corporations. 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 where majority control
exists and is other than temporary. Certain reclassifications of the
1996 consolidated financial statement balances have been made to
conform with the 1997 presentation. These reclassifications had no
effect on the net loss or accumulated deficit as previously reported.
<PAGE>
MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The matters discussed in this quarterly report include historical
information and forward-looking statements which include budgets,
estimates and similar information. In accordance with the provisions
of the Private Securities Litigation Reform Act of 1995, the Company
cautions that important factors, as discussed in the Company's Form
10-K and other filings with the United States Securities and Exchange
Commission, could cause actual results to differ materially from those
in the forward-looking statements.
Unless the context indicates otherwise, the terms "Brisas property" or
"Brisas mineralization" used throughout this report include: the
Brisas alluvial gold concession, the application for the mining title
to the gold, copper and molybdenum contained in the hardrock beneath
the alluvial gold concession, other mineralization applied for in the
alluvial material and other mineralized areas applied for contiguous
to the alluvial concession.
BRISAS PROPERTY. The Brisas property is located in the KM 88 mining
region of southeastern Venezuela in Bolivar State, approximately 300
kilometers (186 miles) by a paved highway southeast of Puerto Ordaz.
The property occupies a rectangular area of 2,500 meters (1.5) miles
north-south by 2,000 meters (1.25 miles) east-west or approximately
500 hectares (1,235 acres). The rocks identified on the Brisas
property consist of two major types of materials-saprolite/clay-rich
surface material occurring in the upper several meters of the property
and unweathered hard rock, andesite tuffs and volcanoclastics
extending below the saprolite/alluvial material at depth. Gold, copper
and molybdenum mineralization are found in both materials, and the
mineralization is open at depth.
BRISAS PROPERTY OWNERSHIP. The Company, through its wholly-owned
Venezuelan subsidiary, currently holds the mining title to the Brisas
alluvial gold concession which includes approximately 10% of the known
mineralization on the Brisas property. In addition, the Venezuelan
subsidiary has submitted applications for mining rights to the
Venezuelan Ministry of Energy and Mines ("MEM") for other
mineralization and areas identified as the Brisas property. In
particular, an application for the mining title for gold, copper and
molybdenum contained in the hardrock or veta (vein) beneath the near-
surface alluvial gold concession, representing approximately 90% of
the known mineralization on the Brisas property, is currently in the
final stages of issuance by MEM. The Company has been advised by MEM
that it has met all of the requirements to obtain the hardrock mining
title which is expected to be issued during the middle part of 1997.
Management is not aware of any fact or circumstance that would prevent
MEM from granting the mining title to the Company, however the process
of obtaining a concession (mining title) in Venezuela is lengthy and
bureaucratically complex and, as a result, the Company cannot predict
with certainty when the title will be formally granted.
<PAGE>
BRISAS GOLD/COPPER MINERALIZED DEPOSIT. Extensive exploration work,
which has been on-going on the property since 1992, has confirmed a
gold and copper deposit of 6.4 million ounces of gold and
approximately 800 million pounds of copper. Drilling results indicate
the Brisas gold/copper mineralization is comprised of a northern area
characterized as a gold/copper deposit and a southern area
characterized as primarily a gold deposit as shown in the following
table:
<TABLE>
<CAPTION>
Gold and Gold
Gold Copper Equivalent Combined
---------- ---------------------- -----------------------------
Avg Grade/Tonne
Gold Equiv -----------------
Tonnes Ounces Pounds Ounces Ounces
Area (millions) (millions) (millions) (millions) (millions) (grams) (ounces)
-------- ---------- ---------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
North 126 2.75 685 1.8 4.55 1.12(1) 0.036
South 98 3.65 115 .3 3.95 1.16(2) 0.040
Total 224 6.40 800 2.1 8.50 1.18(1) 0.038
</TABLE>
(1) Gold Equivalent (.5 grams/tonne gold equivalent cutoff using
$380/ ounce gold and $1/pound copper)
(2) Gold Only (.5 grams/tonne gold cutoff)
One ounce of gold = 31.1034 grams of gold
The mineralized deposit is comprised of a large lower-grade area with
higher-grade mineralization in certain areas and is approximately 1.7
kilometers (approximately one mile) in length and from 400 to 800
meters in width. The current deposit consists of 224 million tonnes
with an approximate grade of 0.88 grams (0.028 ounces) per tonne gold
and 0.16% copper and is defined by the results of approximately 496
drill-holes totaling over 80,000 meters. Drill spacing of the
mineralized deposit is generally 50 meters throughout the
significantly mineralized trend, with 25 meters in selected areas. The
Brisas Gold/Copper mineralized deposit is on strike and contiguous
with the Placer Dome/Corporacion Venezolana de Guayana ("CVG") Las
Cristinas deposit to the north. Placer Dome/CVG has announced a
mineable reserve on its Las Cristinas property of more than 9 million
ounces of gold.
The Brisas gold/copper mineralized deposit does not yet qualify as a
commercially mineable ore body under standards promulgated by the U.S.
Securities and Exchange Commission and may so qualify 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. A number of significant events, in addition to the
<PAGE>
establishment of proven and probable reserves, must occur before
commercial production on the Brisas property can begin, these being
financing of anticipated mine development costs and the procurement of
all necessary regulatory permits and approvals, including the mining
title to the hardrock mineralization.
RECENT BRISAS PROPERTY DRILL RESULTS. Although management's primary
focus has shifted to development and in-fill drilling related to a
final feasibility study, recent exploration drilling has expanded the
Brisas mineralization to the west and southwest and confirmed a new
deeper zone of mineralization with good gold and copper grades.
Several recent drill holes west of the northern area have mineralized
intercepts greater than 100 meters thick with grades ranging from 1.09
to 1.39 grams (.035 to .045 ounce) gold per tonne. Previously reported
drilling in this area also encountered massive sulfide Blue Whale type
material in three holes. Two drill holes drilled to the south and
southwest of the southern area encountered thick good-grade intercepts
including 57 meters of gold mineralization grading 1.20 grams (.038
ounce) gold per tonne in one hole and 30 and 60 meter intercepts
grading 1.60 grams (.051 ounce) and 1.08 grams (.035 ounce) per tonne,
respectively, in another hole, which indicate that the mineralization
is open to the south and southwest of the southern area.
1997 BRISAS PROPERTY WORKPLAN. Due to the recent drill results, the
previously announced 25,000 meter drill program has been expanded to
30,000 meters with eighty percent of the 1997 drilling planned for
exploration drill-holes and twenty percent for development drill-holes
within the previously delineated 50 by 50 meter drill grid. The
revised 30,000 meter drill program including data compilation will be
completed during July 1997. Revisions to the database and an update of
the mineralized deposit is expected to be completed in August 1997.
The Company expects to complete a pre-feasibility study during the
latter part of the third quarter of 1997 and the final feasibility
study during the first quarter of 1998.
Upon completion of the current 30,000 meter drill program, development
drilling will continue in the northern and southern areas and
exploration drilling will continue to the west, southwest, south and
southeast of the current delineated mineralized deposit. In addition
to further exploration and development drilling, other activities will
include permitting, administration and the necessary work required to
complete the Brisas feasibility study. Various permitting required for
the Brisas property is ongoing and approval from MEM and the Ministry
of Ambiente (Environment) is expected to occur throughout 1998.
Construction is estimated to take approximately 18 months, with
commissioning and achievement of commercial production estimated to be
completed by the end of the second quarter of 2000.
<PAGE>
The recovery plant is expected to be a conventional,
gravity/flotation/cyanidation facility with recovery rates for both
gold and copper of 80%-85%. Mining is to be completed using open-pit
mining methods. Final plant design, costs and construction schedules
are contingent upon, among other things, the timing of the issuance of
the mining title to the hardrock or veta area beneath the Brisas
alluvial gold concession, results of future drilling, completion of a
bankable feasibility study including the establishment of proven and
probable reserves and obtaining the appropriate environmental and
operating permits.
VENEZUELA. All of the Company's mining assets are presently
concentrated in Venezuela. Inflation, other economic conditions and
political and social turmoil have occurred in the past and can be
expected to continue. Past economic, political and social conditions
have not adversely affected the Company's operations in Venezuela to-
date. The Company believes its operations in Venezuela pose no greater
risk than those mining operations conducted in other locations in the
world. Venezuela has generally encouraged foreign investment in the
past, and the Company is not aware of any policies, license
requirements or other regulations which might present barriers to its
continued investment in the country. Nevertheless, whether and to what
extent current or future economic, regulatory or political and social
conditions may affect the Company in the future cannot be predicted.
LIQUIDITY AND CAPITAL RESOURCES
INVESTING. During the three months ended March 31, 1997, the Company
expended approximately $2.5 million for exploration and development of
the Brisas property. Over this same period, approximately 55 diamond
drill holes were completed for a total of 18,000 meters. As of March
31, 1997, the Company had completed approximately 511 diamond and
auger drill holes approximating 110,000 meters and had expended
approximately $54 million associated with the Brisas property. The
amounts expended on the Brisas property are comprised of acquisition
costs of $2 million, capitalized exploration and development costs and
equipment expenditures of $29.5 million (including common shares
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 common
shares and warrants) which was expensed in 1994. Amounts recorded as
property, plant and equipment (capitalized exploration and development
costs) include all costs associated with the Brisas property,
including personnel and related administrative expenditures incurred
in Venezuela, drilling and related exploration costs, capitalized
interest expenses and general support costs related to the Brisas
property.
<PAGE>
The presently estimated development budget for the remainder of 1997
is approximately $6 million. The Company s preliminary estimate of
future capital costs associated with the Brisas property is
approximately $150 million. The plant is estimated to cost
approximately $120 million with an additional $30 million estimated
for ancillary facilities, mining equipment and working capital.
In addition to investment in property, plant and equipment, the
Company increased its investment in held-to-maturities, net of
maturities, by approximately $9 million during the three months ended
March 31, 1997. Investments in property, plant and equipment and held-
to-maturity securities accounted for the majority of the reduction in
cash and cash equivalents for the three month period ended March 31,
1997.
FINANCING. Cash flow from financing activities increased in 1997 by
approximately $0.3 million as a result of an increase in the exercise
of employee stock options. The Company has financed its general
business and exploration and development activities in Venezuela
principally from the sale of its common shares. Future acquisition
costs and exploration expenses, and the cost of placing the Brisas
property or additional future properties into production, if
warranted, are expected to be financed by a combination of the sale of
additional common shares, bank borrowings or other means. The Company
routinely evaluates the market for the Company's common shares and
other appropriate conditions for the possible sale of common stock to
finance its future activities and from time-to-time the Company
reviews potential financing activities with its investment bankers.
The Company has no current plans to issue additional common shares
other than in connection with the exercise of employee common stock
options but, may determine in the future that market conditions for
its common shares are appropriate and, as a result, issue additional
common shares during the next twelve months.
As of May 13, 1997, the Company held approximately $36 million in cash
and current and long-term held-to-maturity securities. The timing and
extent of additional financing options pursued by the Company will
depend on a number of important factors, including the results of
further exploration and development activities on the Brisas property,
the timing of the issuance of the mining title or concession to the
hardrock or veta mineralization located beneath the Brisas alluvial
concession, management s assessment of the financial markets, the
acquisition of additional properties or projects and the overall
capital requirements of the consolidated group. At this time,
management anticipates that its current cash and investment position
is adequate to cover estimated operational and capital expenditures
associated with the exploration and development of the Brisas property
into 1998.
<PAGE>
RESULTS OF OPERATIONS
MARCH 31, 1997 COMPARED TO MARCH 31, 1996. Consolidated net loss for
the three months ended March 31, 1997 amounted to $651,720 or $0.03
per share, compared to consolidated net loss of $642,271 or $0.03 per
share for the same three month period in 1996. The increase in net
loss is a result of an increase in operating expenses offset by an
increase in other income. Other income for the current three month
period increased over the comparable period in 1996 due to increased
interest income from higher average levels of invested cash and a
decrease in foreign currency loss due to less depreciation of the
Venezuelan currency, partially offset by a decrease in gains from
sales of available-for-sale securities. Operating expenses during the
three months ended March 31, 1997 increased from the comparable three
month period in 1996 due to an increase in general and administrative
expenses and directors' and officers' compensation partially offset by
a decrease in legal and accounting expense. The principal reason for
the increase in operating expenses is the increased expense associated
with the addition of several new Company executives during the first
quarter of 1997.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings per Share" was issued. SFAS 128 establishes
standards for computing and presenting earnings per share (EPS) and
simplifies the existing standards. SFAS 128 is effective for financial
statements issued for periods ending after December 15, 1997,
including interim periods and requires restatement of all prior-period
EPS data presented. The Company does not believe the application of
this standard will have a material effect on the presentation of its
loss per share disclosure.
<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
March 31, 1997
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
GOLD RESERVE CORPORATION
By: /s/ Robert A. McGuinness
--------------------------------------
Vice President - Finance
Chief Financial Officer
May 13, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 19503
<SECURITIES> 17619
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35243
<PP&E> 32084
<DEPRECIATION> (661)
<TOTAL-ASSETS> 74619
<CURRENT-LIABILITIES> 6241
<BONDS> 0
0
0
<COMMON> 101670
<OTHER-SE> (34243)
<TOTAL-LIABILITY-AND-EQUITY> 74619
<SALES> 0
<TOTAL-REVENUES> 409
<CGS> 0
<TOTAL-COSTS> 1061
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> (652)
<INCOME-TAX> 0
<INCOME-CONTINUING> (652)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (652)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
