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, 1997
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
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 October 31, 1997
was 22,908,143.
This Quarterly Report on Form 10-Q has 15 pages.
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and December 31, 1996
(unaudited)
September 30, December 31,
1997 1996
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $14,204,661 $30,329,024
Investments:
Held-to-maturity securities 8,095,748 8,442,492
Accrued interest on investments 134,136 143,580
Deposits, advances and other 441,056 528,458
Litigation settlement held in escrow 4,500,000 4,500,000
----------- -----------
Total current assets 27,375,601 43,943,554
Property, plant and equipment, net 36,612,659 29,097,305
Investments:
Available-for-sale securities 137,504 119,504
Held-to-maturity securities 8,507,162
Other 1,302,771 611,204
----------- -----------
Total assets $73,935,697 $73,771,567
=========== ===========
LIABILITIES
Current Liabilities:
Litigation settlement payable $ 4,500,000 $ 4,500,000
Accounts payable and accrued expenses 999,394 938,892
Note payable - KSOP 622,860 186,708
----------- -----------
Total current liabilities 6,122,254 5,625,600
Minority interest in consolidated
subsidiaries 966,237 952,571
----------- -----------
Total liabilities 7,088,491 6,578,171
----------- -----------
Commitments and contingencies
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED BALANCE SHEETS, CONTINUED
September 30, 1997 and December 31, 1996
(unaudited)
September 30, December 31,
1997 1996
------------- ------------
SHAREHOLDERS' EQUITY
Serial preferred stock, without par
value
Authorized: 1997... 20,000,000;
1996... 10,000,000
Issued: none
Common stock, without par value
Authorized: 1997..480,000,000;
1996... 40,000,000
Issued: 1997... 22,897,142;
1996... 22,703,811
Outstanding: 1997... 22,416,098;
1996... 22,222,767 102,189,079 100,952,778
Less, common stock held by affiliates (1,428,565) (1,428,565)
Unrealized gain on available-for-sale
securities 20,750 2,750
Accumulated deficit (33,311,198) (32,146,859)
KSOP debt guarantee (622,860) (186,708)
----------- -----------
Total shareholders' equity 66,847,206 67,193,396
----------- -----------
Total liabilities and stockholders'
equity $73,935,697 $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 and Nine Months Ended September 30, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Other Income:
Interest $ 483,917 $ 387,804 $ 1,451,646 $ 965,385
Foreign currency loss (26,576) (13,094) (46,875) (140,678)
Gain on sale of available-
for-sale securities - - - 87,661
----------- ----------- ----------- -----------
457,341 374,710 1,404,771 912,368
----------- ----------- ----------- -----------
Expenses:
General and administrative 284,085 189,452 1,236,224 824,101
Directors' and officers'
compensation 357,800 129,300 1,008,829 532,300
Legal and accounting 63,025 239,932 259,751 412,664
Depreciation 11,918 10,575 35,189 28,122
Minority interest in net
gain (loss) of consoli-
dated subsidiaries 9,806 (1,990) 13,666 (5,034)
Interest expense, net of
amount capitalized 6,428 2,290 15,451 8,424
----------- ----------- ----------- -----------
733,062 569,559 2,569,110 1,800,577
----------- ----------- ----------- -----------
Net loss $ (275,721) $ (194,849) $(1,164,339) $ (888,209)
=========== =========== =========== ===========
Net loss per share $ (0.01) $ (0.01) $ (0.05) $ (0.04)
=========== =========== =========== ===========
Weighted average common shares
outstanding 22,365,929 21,009,877 22,321,181 20,399,911
=========== =========== =========== ===========
</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 STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,164,339) $ (888,209)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 35,189 28,122
Accretion of discount on held-to-maturity
securities (158,672) (299,716)
Foreign currency loss 46,875 140,678
Minority interest in net gain (loss) of
consolidated subsidiaries 13,666 (5,034)
Gain on sale of available-for-sale
securities (87,661)
Changes in current assets and liabilities:
Net decrease (increase) in current assets 96,846 (56,723)
Net increase in current liabilities 60,502 973,333
----------- -----------
Net cash used by operating activities (1,069,933) (195,210)
----------- -----------
Cash Flows from Investing Activities:
Proceeds from maturities of held-to-maturity
securities 12,550,000 19,495,000
Purchase of held-to-maturity securities (20,551,746) (12,962,474)
Purchase of property, plant and equipment (7,597,418) (5,235,994)
Proceeds from sale of available-for-sale
securities 125,311
Other (691,567) (291,187)
----------- -----------
(16,290,731) 1,130,656
----------- -----------
Net cash provided (used) by investing
activities (16,290,731) 1,130,656
----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of common shares 1,236,301 20,248,567
----------- -----------
Net cash provided by financing activities 1,236,301 20,248,567
----------- -----------
Change in Cash and Cash Equivalents:
Net increase (decrease) in cash and cash
equivalents (16,124,363) 21,184,013
Cash and cash equivalents - beginning of period 30,329,024 10,095,616
----------- -----------
Cash and cash equivalents - end of period $14,204,661 $31,279,629
=========== ===========
</TABLE>
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 obtaining the
mining title to the hardrock mineralization, the establishment of
proven and probable reserves, financing of anticipated mine
development costs and the procurement of all necessary regulatory
permits and approvals.
The Company's growth strategy is to develop proven and probable
reserves as well as mining and process operations by the successful
development of proven and probable mining reserves at its Brisas
property and 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 September
30, 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 information presented in this quarterly report includes both
historical information and forward-looking information or statements,
as defined by the Private Securities Litigation Reform Act of 1995
(the "Act"). In accordance with the provisions of the Act, the Company
cautions that important factors could cause actual results to differ
materially from those in the forward-looking statements. Such factors
include the Company's concentration of operations and assets other
than cash and investments in Venezuela, regulatory risks (such as
obtaining the veta or hardrock concession or obtaining approval of
environmental compliance plans), the political and economic risks
associated with operations in Venezuela, the anticipated future
development costs for the Company's Brisas property, the risk that
actual reserve estimates may vary considerably from mineralized
deposit estimates presently made, the impact of metals prices and
metal production volatility, the dependence upon the abilities and
continued participation of certain key employees of the Company, and
the risks normally incident to the operation and development of mining
properties. Important factors that could cause actual results to
differ materially from the Company's expectations are disclosed under
the heading "Risk Factors" and elsewhere in documents filed from time
to time with the SEC. Prospective investors are cautioned not to put
undue reliance on forward-looking statements, and should not infer
that there has been no change in the affairs of the Company since the
date of this quarterly report that would warrant any modification of
any forward-looking statement made in this quarterly report. All
subsequent written and oral forward-looking statements attributable to
Gold Reserve or persons acting on its behalf are expressly qualified
in their entirety by this notice. The Company disclaims any intent or
obligation to update publicly these forward-looking statements,
whether as a result of new information, future events or otherwise.
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 OWNERSHIP. The Company, through its wholly owned
Brisas subsidiary, holds the mining title to the Brisas alluvial gold
concession which includes approximately 8% of the known mineralized
material on the Brisas property. In addition, the Company has
submitted an application to the Venezuelan Ministry of Energy and
Mines ("MEM") for the mining title for gold, copper and molybdenum
contained in the hardrock or veta (vein) beneath the near-surface
alluvial gold concession, which represents approximately 92% of the
known mineralized material on the Brisas property. The process of
obtaining a mining title in Venezuela is lengthy and bureaucratically
<PAGE>
complex and generally takes three to five years. In the Company's
case, this process has been ongoing for more than four years.
The Brisas Property is located within the Imataca Forest Reserve, a
3.7 million hectare (14,286 square miles) area located in Bolivar
State in eastern Venezuela, and more particularly, in the southwestern
portion of the Imataca Reserve, within a triangular area that was set
aside for mining in 1986 by Presidential Decree 1046. In May 1997,
Presidential Decree 1850 was approved and became law; the decree
significantly expanded the area within the Imataca Forest Reserve
deemed suitable for mining and related development activities, and
gave authority to Ministry of Environmental and Renewable Natural
Resources ("MARNR") to issue environmental permits to the holders of
mining rights in the area.
Motions to vacate Decree 1850 on constitutional grounds were filed
with the Venezuelan Supreme Court in July and August of 1997 on behalf
of native Indians and others, who were later joined by the Venezuelan
Congress and the country's solicitor general. The motions contend
that the granting of mining concessions in the Imataca Reserve is
inconsistent with forestry and other environmental policies
established for the area.
On October 21, 1997 the Company was advised by MEM officials that the
environmental permit allowing it to occupy the property for mining
purposes had been granted by the Venezuelan Forestry Service, or
SEFORVEN, and that this permit had been forwarded to the MEM for
processing, in conjunction with the expected grant of the mining
concession to the hardrock or veta mineralization. On October 29,
1997, however, three governmental agencies assisting with mining
development in the country, MEM, MARNR and the Ministry of
Coordination and Planning agreed to temporarily suspend the issuance
of new mining concessions in the Imataca Reserve, pending review by
the Venezuelan Supreme Court of constitutional challenges to
Presidential Decree 1850.
On November 13, 1997, the Venezuelan Supreme Court issued a
preliminary decision prohibiting the MEM from processing new mining
concessions in the Imataca Forest Reserve under Decree 1850. A
definitive ruling from the Court as to the merits of the
constitutional challenge to the decree is not expected for three to
four months.
Based on the interpretation it has received from its Venezuelan
attorneys, management believes the preliminary ruling does not affect
the Brisas alluvual gold concession nor does it prohibit or limit
MEM's descretion to grant new concessions in the Imataca Reserve, such
as the Company's hardrock or vein concession, under other decrees
or regulations preceeding Decree 1850.
<PAGE>
The Company has taken steps to review its activities associated with
the development of the Brisas Property in light of the delay caused by
the Supreme Court's preliminary decision and pending the definitive
ruling. The Company cannot predict whether the challenge to Decree
1850 will be successful, and, if so, whether the Court would seek to
restrict mining activities previously authorized by prior decrees or
regulations, or impose conditions on future activities with additional
regulations. Future restrictions imposed by the Court or additional
regulations could cause the Company to delay efforts to further
explore and develop the Brisas Property or significantly impede such
efforts. The Company has expended approximately $60 million dollars on
the Brisas Property since August of 1992, of which approximately $38
million has been capitalized and approximate $22 million related to
litigation settlement costs has been expensed.
BRISAS GOLD/COPPER MINERALIZED DEPOSIT. 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 positive
comprehensive economic, technical and legal feasibility study has been
completed. A number of significant events, in addition to the
establishment of proven and probable reserves, must occur before
commercial production on the Brisas property can begin obtaining the
mining title to the hardrock mineralization, financing of anticipated
mine development costs and the procurement of all necessary regulatory
permits and approvals.
<PAGE>
Extensive exploration and development work, which has been on going on
the property since 1992, has confirmed a gold and copper mineralized
deposit of 7.3 million ounces of gold and approximately 950 million
pounds of copper. Drilling results indicate the Brisas gold/copper
mineralization is comprised of a northern area characterized by gold
and copper and a southern area characterized primarily by gold as
shown in the following table:
<TABLE>
<CAPTION>
Copper Gold and Gold Equivalent (1)
---------------------- ---------------------------------
Gold Gold Avg. Grade/Tonne
Tonnes Ounces Pounds Equiv. Ozs. Ounces -------------------
Area (millions) (millions) (millions) (millions) (millions) (grams) (ounces)
----- ---------- ---------- ---------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
North 149.5 3.14 835 2.4 5.54 1.16 0.037 gold equivalent
South 108.7 4.16 115 0.3 4.46 1.19 0.038 gold only
---------- ---------- ---------- ---------- ---------- ------- -----
Total 258.2 7.30 950 2.7 10.00 1.20 0.039 gold equivalent
========== ========== ========== ========== ========== ======= =====
(1) Gold Equivalent Cutoff (.5 grams/tonne using $350/ounce gold and
$1/pound copper)
One troy ounce of gold = 31.1034 grams of gold
</TABLE>
The mineralized deposit is comprised of a large lower grade area with
higher-grade mineralization in certain areas and is over 1900 meters
in length and from 500 to 900 meters in width. The current deposit
consists of 258 million tonnes with an overall average grade of 0.88
grams (0.028 ounces) per tonne gold and 0.16 % copper and is defined
by the results of approximately 621 drill-holes totaling over 130,000
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
approximately 12 million ounces of gold.
<PAGE>
Most recently, the Company announced that a zone of copper/gold
mineralization has been identified directly below the center of the
main Brisas gold/copper mineralized zone. This new zone (located
between 2500N and 2900N) has a strike length of 400 meters and is 50
to 70 meters thick and is open in the down-dip direction. It is
characterized as having generally low gold grades with copper grades
more than twice the average grade of the overall Brisas mineralized
deposit. This deeper copper/gold zone was identified during previous
wide-spaced drilling while more recent drilling has successfully
determined the continuity of the zone. Based on preliminary pit
design, this zone of mineralized material appears to be economic and
could extend the mine life by 1 to 2 additional years if found to be
feasible.
BRISAS PROPERTY WORKPLAN. During the third quarter of 1997, the
Company drilled approximately 18,000 meters of exploration and
condemnation drill holes. In July 1997, the Company selected JE
MinCorp, an independent engineering firm, to complete the Brisas
feasibility study. In addition, an independent audit of the Company's
drilling, sampling and assay procedures by Behre Dolbear confirmed
that the Company's drilling data meets or exceed industry standards.
Management expects that JE MinCorp will complete a pre-feasibility
study during the fourth quarter of 1997 and deliver the final
feasibility study during the first half of 1998. Future 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 Environment and Renewable Natural Resources ("MARNR")
is expected to occur throughout 1998 and 1999. Behre Dolbear has also
been engaged to complete an audit of the mineable ore reserve for
inclusion in the final feasibility study.
The Brisas project is a large, low-grade gold/copper ore body of such
size that the Company intends to use the economics of scale that would
result in the most profitable mining and milling operations possible.
Some of the largest mining and milling equipment available will be
utilized to move and process high volumes of ore. In addition, the
process plant will utilize low cost methods of gravity separation and
flotation for metal recovery. Gold production is expected to account
for 70-80% of total revenues and range from 200,000 to 400,000 ounces
per year depending on annual production rates and ore feed grades to
the process plant.
The projected ore-body consists of several different ore material
types, which are the saprolites, weathered rock and hard rock. The
saprolites consist of approximately eight percent of the mineralized
material and are contained in the top 30-50 meters of the deposit.
Each ore type has different physical, chemical and metallurgical
response characteristics and as a result, the process plant will be
designed to accommodate a blend of ore types that come from the pit to
maximize recovery while minimizing capital expenditures. During the
early years of production, saprolite ores (both oxide and sulfide)
will be treated in addition to the hard rock ores. Later, the feed
<PAGE>
will consist almost exclusively of the hard rock type ores. As a
result of the different characteristics of the two rock types, the
crushing and material handling sections of the plant will be divided
into two separate systems.
Upon completion of a positive feasibility study in 1998, a formal
decision will be made to begin construction. The current development
plans call for continuation of detailed engineering in the latter half
of 1998, with the commencement of construction in late 1998. Allowing
for a normal 18-month construction period, metal production should
take place by the middle of the year 2000.
The timing and extent of future activities associated with the
development of the Brisas property, including 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 material beneath the Brisas alluvial gold concession (see
Brisas Property Ownership), completion of a bankable feasibility
study, obtaining the appropriate environmental and operating permits,
the price of gold and the availability of future sources of financing.
VENEZUELA. All of the Company's mining assets are presently
concentrated in Venezuela. Inflation, other negative economic
conditions and political and social turmoil have occurred in the past
and may continue in the future. Past economic, political and social
conditions have not adversely affected the Company's operations in
Venezuela to-date. 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 and nine months ended September 30, 1997,
the Company expended approximately $2.0 and $7.6 million respectively,
for exploration and development of the Brisas property. Over these
same periods, approximately 65 and 200 diamond drill holes were
completed for a total of 18,000 and 61,000 meters, respectively. As of
September 30, 1997, the Company had completed approximately 738 drill
holes (including 621 which define the current mineralized deposit)
approximating 154,000 meters and had expended approximately $59
million associated with the Brisas property. The amounts expended on
the Brisas property are comprised of acquisition costs, capitalized
exploration and development costs and equipment expenditures of $36.5
million and litigation settlement costs of $22.5 million which were
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 Company estimates that capital expenditures (drilling, feasibility
and environmental work) for the project will total approximately
$10,000,000 for the year ended December 31, 1997. Significantly more
funds are expected to be expended on the property in 1998 and 1999, if
the concession is developed and placed into production. During the
pre-feasibility study, the Company has evaluated various mill through-
put rates ranging from 25,000 to 50,000 tonnes per day. The Company's
present preliminary estimate of future capital costs associated with
the Brisas property, assuming a twenty-five thousand tonne per day
plant and related equipment, is approximately $170 million. Capital
costs associated with a fifty-thousand tonne per day plant are
presently estimated to be approximately $260 million. The ultimate
design and capacity of the plant, however, is still under
consideration and is subject to the results of the final feasibility
study. The Company's estimates of capital expenditures for the project
are based upon the best information currently available and could
increase or decrease depending upon a number of factors.
In addition to investment in property, plant and equipment, the
Company increased its net investment in held-to-maturity securities,
by approximately $8.0 million during the nine months ended
September 30, 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 nine month period ended
September 30, 1997.
FINANCING. The Company has financed its general business and
exploration and development activities in Venezuela principally from
the sale of its common shares The Company has no short-term plans to
issue additional common shares other than in connection with the
exercise of employee common stock options. 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.
As of October 31, 1997, the Company held approximately $30 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
---------------------
September 30, 1997 compared to September 30, 1996. Consolidated net
loss for the three and nine months ended September 30, 1997 amounted
to $275,721 and $1,164,339 or $0.01 and $0.05 per share respectively,
compared to consolidated net loss of $194,849 and $888,209 or $0.01
and $0.04 per share respectively, for the same periods in 1996. Other
income for the current nine month period increased over the comparable
period in 1996 due to increased interest income from higher average
levels of invested cash and decreased 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. Other
income for the three months ended September 30, 1997 increased over
the comparable period in 1996 due to increased interest income
partially offset by an increase in foreign currency loss. Operating
expenses during the three and nine months ended September 30, 1997
increased from the comparable periods in 1996 due to increases in
general and administrative expenses and directors' and officers'
compensation partially offset by decreases 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.
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130, "Comprehensive Income" (SFAS No. 130). SFAS No. 130
becomes effective in 1998 and requires reclassification of earlier
financial statements for comparative purposes. SFAS No. 130 requires
that amounts of certain items, including foreign currency translation
adjustments and gains and losses on certain securities, be included in
comprehensive income in the financial statements. SFAS No. 130 does
not require a specific format for the financial statement in which
comprehensive income is reported, but does require that an amount
representing total comprehensive income be reported in that statement.
Management has not yet determined the effect, if any, of SFAS No. 130
on the consolidated financial statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments for an Enterprise and Related Information" (SFAS No. 131).
This Statement will change the way public companies report information
about segments of their business in their annual financial statements
and requires them to report selected segment information in their
quarterly reports issued to shareholders. It also requires entity-
<PAGE>
wide disclosures about the products and services an entity provides,
the material countries in which it holds assets and reports revenues,
and its major customers. The Statement is effective for fiscal years
beginning after December 15, 1997. The Company does not believe the
applications of this standard will have a material effect on the
presentation of its financial statements.
PART II OTHER INFORMATION
Items 1-5 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, 1997
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
November 13, 1997
<PAGE>
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