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, 1998
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 November 13, 1998
was 23,176,767.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED BALANCE SHEETS
September 30, 1998 and December 31, 1997 (unaudited)
September 30, December 31,
1998 1997
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,383,471 $12,524,125
Investments:
Held-to-maturity securities 15,048,887 4,054,494
Accrued interest on investments 207,283 240,757
Deposits, advances and other 477,183 411,725
Litigation settlement held in escrow -- 4,500,000
----------- -----------
Total current assets 21,116,824 21,731,101
Property, plant and equipment, net 40,286,995 38,446,169
Investments:
Available-for-sale securities 1,283,767 127,754
Held-to-maturity securities 3,498,842 11,521,973
Other 1,343,440 1,465,997
----------- -----------
Total assets $67,529,868 $73,292,994
=========== ===========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 411,113 $ 646,203
Note payable - KSOP, current portion 414,771 188,470
Litigation settlement payable -- 4,500,000
----------- -----------
Total current liabilities 825,884 5,334,673
Note payable - KSOP, non-current portion -- 434,390
Minority interest in consolidated
subsidiaries 995,121 974,522
----------- -----------
Total liabilities 1,821,005 6,743,585
----------- -----------
Commitments and contingencies
<PAGE>
GOLD RESERVE CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
CONSOLIDATED BALANCE SHEETS, CONTINUED
September 30, 1998 and December 31, 1997 (unaudited)
September 30, December 31,
1998 1997
------------- ------------
SHAREHOLDERS' EQUITY
Serial preferred stock, without par value
Authorized: 20,000,000 shares
Issued: none
Common stock, without par value
Authorized: 480,000,000 shares
Issued: 1998... 23,176,767;
1997... 22,918,143
Outstanding: 1998... 22,705,329;
1997... 22,437,099 $ 101,645,109 $102,269,494
Less, common stock held by affiliates (403,331) (1,428,565)
Accumulated other comprehensive (loss)
income-
Unrealized gain (loss) on available-
for-sale securities (12,500) 11,000
Accumulated deficit (35,105,644) (33,679,660)
KSOP debt guarantee (414,771) (622,860)
------------- ------------
Total shareholders' equity 65,708,863 66,549,409
------------- ------------
Total liabilities and share-
holders' equity $ 67,529,868 $ 73,292,994
============= ============
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, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Other Income:
Interest $ 328,517 $ 483,917 $ 1,008,775 $ 1,451,646
Foreign currency loss (45,752) (26,576) (156,772) (46,875)
----------- ----------- ----------- -----------
282,765 457,341 852,003 1,404,771
----------- ----------- ----------- -----------
Expenses:
General and administrative 183,603 284,085 1,009,296 1,236,224
Directors' and officers'
compensation 236,499 357,800 993,740 1,008,829
Legal and accounting 47,630 63,025 198,842 259,751
Depreciation 8,735 11,918 29,602 35,189
Interest expense, net of
amount capitalized 8,377 6,428 25,908 15,451
Minority interest in net
income of consolidated
subsidiaries 1,580 9,806 20,599 13,666
----------- ----------- ----------- -----------
486,424 733,062 2,277,987 2,569,110
----------- ----------- ----------- -----------
Net loss (203,659) (275,721) (1,425,984) (1,164,339)
Other comprehensive (loss)
income (2,270) 15,000 (23,500) 18,000
----------- ----------- ----------- -----------
Comprehensive loss $ (205,929) $ (260,721) $(1,449,484) $(1,146,339)
=========== =========== =========== ===========
Net loss per share - basic
and diluted $ (0.01) $ (0.01) $ (0.06) $ (0.05)
=========== =========== =========== ===========
Weighted average common
shares outstanding 22,679,304 22,365,929 22,547,581 22,321,181
=========== =========== =========== ===========
</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, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,425,984) $(1,164,339)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 29,602 35,189
Amortization of premium (discount) on held-to-
maturity securities 70,519 (158,672)
Foreign currency loss 156,772 46,875
Minority interest in net income of consoli-
dated subsidiaries 20,599 13,666
Changes in current assets and liabilities:
Net decrease in current assets 4,468,016 96,846
Net (decrease) increase in current liabilities (4,735,090) 60,502
----------- -----------
Net cash used by operating activities (1,415,566) (1,069,933)
----------- -----------
Cash Flows from Investing Activities:
Proceeds from maturities of held-to-maturity
securities 13,056,187 12,550,000
Purchase of held-to-maturity securities (16,097,968) (20,551,746)
Purchase of available-for-sale securities (1,188,602) --
Purchase of property, plant and equipment (2,027,200) (7,597,418)
Other 122,557 (691,567)
----------- -----------
Net cash used by investing activities (6,135,026) (16,290,731)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of common shares 409,938 1,236,301
----------- -----------
Net cash provided by financing activities 409,938 1,236,301
----------- -----------
Change in Cash and Cash Equivalents:
Net decrease in cash and cash equivalents (7,140,654) (16,124,363)
Cash and cash equivalents - beginning of period 12,524,125 30,329,024
----------- -----------
Cash and cash equivalents, end of period $ 5,383,471 $14,204,661
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
THE COMPANY AND SELECTED NOTES TO THE FINANCIAL STATEMENTS
THE COMPANY. Gold Reserve Corporation (the "Company") is a mining
company incorporated in the state of Montana in 1956 for the purpose
of exploring, developing and acquiring mining properties with the
intention of placing them into production. The Company's principal
asset, the Brisas property, is a late exploration-stage gold and
copper mineralized deposit located in the KM 88 mining district of the
State of Bolivar in southeastern Venezuela.
The Company has no revenue producing mining operations at this time.
Development of the Brisas property is currently the Company's primary
activity. The initial stage of a feasibility study, a pre-feasibility
report, was completed in February 1998 and subsequently modified in
August 1998. Further studies are ongoing and management anticipates
that the final feasibility study will be completed in early 1999.
A number of significant events must occur before the Company could
proceed with commercial production on the Brisas property, including
the establishment of proven and probable reserves, obtaining financing
for anticipated mine development costs and the procurement of needed
regulatory permits and approvals.
The Company's strategy for growth is to develop mining and process
operations at its Brisas property through the successful development
of mineable reserves and by making selective property or corporate
acquisitions.
FINANCIAL INFORMATION. The December 31, 1997 balance sheet has been
derived from the Company's 1997 audited consolidated financial
statements. The notes to the consolidated financial statements as of
December 31, 1997 as set forth in the Company's 1997 Form 10-K, apply
to these interim financial statements at September 30, 1998 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.
<PAGE>
NET LOSS PER SHARE. Net loss per share (basic and diluted) is based
on the weighted average number of common shares outstanding during
each period which has been reduced by the Company's proportionate
ownership of common shares owned by Great Basin and MegaGold. As of
September 30, 1998 and 1997, there were 3,510,484 and 2,911,410 shares
available for issuance pursuant to the exercise of previously granted
stock options, respectively. These options were not included in the
computation of diluted loss per share as a loss was incurred in each
of the periods presented and their inclusion would be anti-dilutive.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
--------------------------
The information presented in or incorporated by reference in this
Quarterly Report on Form 10-Q includes both historical information and
"forward-looking statements" (within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), relating to the future results of the Company (including
projections and business trends), which involve risks and
uncertainties. 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 on Form 10-Q that would warrant any
modification of any forward-looking statement made in this document or
other documents filed periodically with the Securities and Exchange
Commission ("SEC"). All subsequent written and oral forward-looking
statements attributable to the Company 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.
The Company cautions that numerous factors which are disclosed in the
Company's Annual Report on Form 10-K under the heading "Risk Factors"
and elsewhere in documents filed from time to time with the SEC,
including this Quarterly Report on Form 10-Q, could cause actual
results to differ materially from those in the forward-looking
statements, including without limitation the risk that one or more of
the following matters may negatively affect the Company: the Company's
Brisas feasibility study may conclude that development of the Brisas
property would be uneconomic or actual ore reserves, costs, recovery
rates, construction schedules and metals production levels may vary
considerably from those used in the feasibility study. Likewise,
continued low metals prices, production volatility, concentration of
operations and assets in Venezuela, regulatory, environmental
(including concerns with the Imataca Forest Reserve), political and
economic issues associated with investments in Venezuela, anticipated
or estimated future project development costs, need for additional
<PAGE>
funding, dependence upon the abilities and continued participation of
certain key employees of the Company, the impact of year 2000 issues,
and the uncertainty normally incident to the operation and development
of mining properties may also cause adverse results for the Company.
BRISAS PROPERTY
---------------
OWNERSHIP. The Brisas property consists of the Brisas alluvial
concession, the Brisas hardrock concession beneath the alluvial
concession, other applications for mineralization (primarily nominal
values of copper and silver) in the material contained in the alluvial
concession and other mineralization (primarily gold, copper and
molybdenum) on small land parcels contiguous to the existing alluvial
and hardrock concessions.
The Company acquired Brisas (which was granted the Brisas alluvial
concession in 1988) in 1992 and was granted the underlying Brisas
hardrock concession in March 1998. The Brisas alluvial and hardrock
concessions have original terms of twenty (20) years, renewable for
two subsequent ten year periods at the discretion of the Ministry of
Energy and Mines ("MEM") and provide for a three to four percent (3%
to 4%) tax on sales of gold production outside of Venezuela and a
seven percent (7%) mine-mouth tax on copper production. Gold sold
directly to the Central Bank of Venezuela (the "Central Bank") is
taxed at one percent (1%).
The Brisas property is located within the Imataca Forest Reserve (the
"Imataca"), which is comprised of 3.6 million hectares in the State of
Bolivar. In 1986, an area (in which the Brisas property is located) in
the southwestern part of the Imataca was authorized, by presidential
decree, for mining exploration and exploitation activities. Subsequent
legislation in 1997 identified additional uses and activities within
the Imataca including mining. The 1997 legislation and previously
issued regulations allowing mining activities within the Imataca were
later challenged by several parties as unconstitutional. In response
to this challenge, the Venezuelan Supreme Court (the "Court") issued
an order prohibiting the MEM from granting new concessions pursuant to
the 1997 legislation, but excluded challenges to previous legislation
authorizing mining in certain regions of the Imataca. The Company has
been advised by its Venezuelan attorneys that it is unlikely that
future rulings by the Court related to this issue will impact the
Company's concessions, but there can be no assurance that an adverse
ruling that affects the Company will not occur.
DEVELOPMENT. In July 1997, the Company engaged JE MinCorp and a
number of other independent consultants to assist the Company in the
preparation of a feasibility study on the Brisas mineralized deposit.
The initial stage of the study, a pre-feasibility report, was
completed in February 1998 and subsequently modified in August 1998.
<PAGE>
The original report included a "Base Case" analysis of the proposed
project assuming $375 per ounce gold and $1 per pound copper as well
as additional whittle-pit designs using $350 and $300 per ounce gold
and $.90 and $.80 per pound of copper, respectively.
In August 1998, certain modifications to the Brisas pre-feasibility
report were completed which include a revised mine operating plan and
an on-site copper production process coupled with the revised mine
operating plan. The supplement to the pre-feasibility report, more
limited in scope than the original pre-feasibility report, was
prepared by the Company and JE MinCorp, a Denver, Colorado-based
division of Jacobs Engineering Group Inc of Pasadena, California.
The original pre-feasibility report with modifications is preliminary
and based on a number of assumptions which are subject to change.
Since the Company has not completed its final feasibility study on the
property, proven and probable reserves have not been established under
standards promulgated by the SEC.
The original pre-feasibility study concluded that, assuming a gold
price of $375 per ounce, copper price of $1.00 per pound and assuming
open pit mining methods, the Brisas property is estimated to contain a
mineralized deposit consisting of approximately 249.2 million tonnes
with an average grade of 0.70 grams of gold per tonne and 0.14%
copper. The estimate of mineralization uses an internal cutoff grade
of 0.40 grams per tonne gold equivalent and assumed waste rock
material of 419.2 million tonnes, resulting in a strip ratio of 1.68:1
(waste to mineralization). Total material expected to be moved, under
the original pre-feasibility report, is estimated to be 668 million
tonnes. Alternatively, assuming a gold price of $350 and $300 per
ounce and copper price of $0.90 and $0.80 per pound, the Brisas
property is estimated to contain (based on a preliminary Whittle pit
design) approximately 239.3 and 177.1 million tonnes with an average
grade of 0.71 and 0.80 grams per tonne gold and 0.14% and 0.12%
copper, respectively. The pre-feasibility report estimates that the
Company may achieve gold recovery at 83% and copper recovery at 73% at
the Brisas property, but there can be no assurance that such rates can
be achieved or, if achieved, maintained.
The following charts represent, as determined by the original pre-
feasibility report, an estimation of mineralized material assuming
certain gold and copper prices and open pit mining methods. The
Company has not completed its final feasibility study. Therefore, the
Brisas mineralized deposit does not yet qualify as a commercially
mineable ore body under standards promulgated by the SEC and may so
qualify only after a positive comprehensive economic, technical and
legal feasibility study has been completed. Once the final feasibility
study is completed, a continued low gold price (currently
approximately $290 per ounce) would have a material adverse effect on
the Company's current plans for the Brisas property.
<PAGE>
<TABLE>
<CAPTION>
Average Grade
-------------
Tonnes Gold Copper
Pre-Feasibility Estimated Mineralized Deposit assuming: (millions) gpt percent
-------------------------------------------------------- ---------- ---- ------
<S> <C> <C> <C>
$375 per ounce gold and $1.00 per pound copper 249.2 0.70 0.14
$350 per ounce gold and $0.90 per pound copper 239.3 0.71 0.14
$300 per ounce gold and $0.80 per pound copper 177.1 0.80 0.12
Average Recovery 83% 73%
</TABLE>
Based on the original pre-feasibility report, and contingent on
positive completion of the final feasibility study, the Company
currently plans to develop on the Brisas property a large scale open
pit mining operation consisting of drilling, blasting, loading, and
truck haulage to carry ore to the crusher and waste to the waste
repository. The Company currently estimates that the plant would
process 55,000 tonnes per day, yielding an estimated average annual
production of as much as 335,000 ounces of gold and 38.3 million
pounds of copper, over a mine life of 14.2 years. These are initial
estimates based on the pre-feasibility report and there can be no
assurance, however, that such production will occur at such levels, if
at all.
The processing flowsheet contained in the original pre-feasibility
report and developed from metallurgical testwork completed by three
independent laboratories includes conventional crushing with a primary
gyratory crusher and grinding with SAG mill and ball mills followed by
gravity separation to recover coarse gold, flotation and cyanidation
of cleaner flotation tailings. Based upon the results of the pre-
feasibility report, the Company currently expects the final products
of the operation on the Brisas property to be a gold copper
concentrate and gold dore. The Company expects to transport the
concentrates to Puerto Ordaz and then ship them to a smelter for final
processing.
The Company expects most operating supplies to be imported, probably
from North America. Electrical power is expected to be available from
a major new transmission line which is planned to run south from
Puerto Ordaz into Brazil, passing within a few kilometers of the
Brisas property. There can be no assurance, however, that the power
line will be completed as planned, if ever. If the power line is not
completed as planned, the Company will be required to obtain
alternative sources of electrical power, which may significantly
increase the capital and operating costs to the Company and have a
material adverse affect on the Company. A sufficient supply of water
is available in the area, and the Company expects project requirements
to be met by water pumped from the pit de-watering system, and by
rainfall stored in the tailings water pond. On-site accommodations
will be provided for employees, who will be drawn from both the local
area and from the industrialized area around Puerto Ordaz.
<PAGE>
In April 1998, Behre Dolbear & Company, Inc. completed an independent
review of the Company's mineralized deposit modeling and ore reserve
methodology utilized for the pre-feasibility report. They concluded
that estimating techniques used were an accurate representation for
the reserves; drill hole spacing was sufficient to generate future
estimates of proven and probable reserves; and the database was
correct and reliable. This recent study compliments Behre Dolbear &
Company, Inc.'s audit of sampling and assaying procedures at the
Brisas property completed in August 1997.
The pre-feasibility report estimates that base case initial capital
required to bring the Brisas property into commercial production at
the planned 55,000 tonnes per day will be approximately $293 million.
Ongoing life of mine capital requirements are estimated at $53
million, and working capital needs are estimated at $15 million. The
ultimate design of the plant is subject to the results of the final
feasibility study, and there can be no assurance that the final
feasibility study will conclude that the planned operation will be
economically feasible. Construction of the planned facility is
expected to take approximately 18 to 24 months, with commissioning and
achievement of commercial production expected shortly thereafter.
Under the timetable presently contemplated by the Company, initial
production would commence no earlier than early 2000, with full
production expected to commence no earlier than mid-2001. There can
be no assurance, however, that the Company will begin or complete such
construction according to this schedule, or that, if completed, the
facility will begin commercial production as planned.
Base case pre-feasibility report estimates of pre-tax operating cash
costs, including mining, processing, concentrate transportation,
smelting and refining expenses, total $222 per ounce of gold net of
copper revenues. Total pre-tax costs per ounce of gold produced,
including life of mine capital, are estimated at $295, excluding
previously incurred sunk costs of approximately $38 million or
approximately $8 per ounce. Exploitation taxes and royalties add
approximately $9 per ounce of gold to the total cost per ounce. The
base case pre-tax net present value of the project (assuming $375 per
ounce of gold and $ 1.00 per pound of copper) at 0% is $354.9 million,
with an internal rate of return of 11.8%.
Modified Pre-feasibility Study
------------------------------
The Company and its consultants continue to develop alternatives to
the assumptions utilized in the initial pre-feasibility report. In
August 1998 certain modifications to the Brisas pre-feasibility report
were completed which include (1) a revised mine operating plan,
resulting in a 7% reduction in cash operating cost to $206 per ounce
of gold, net of copper credit and, (2) an on-site copper production
process coupled with the revised mine operating plan, resulting in a
24% reduction in cash operating cost to $169 per ounce of gold, net of
copper credit. The supplement to the pre-feasibility report, more
limited in scope than the original pre-feasibility report, was
prepared by the company and JE MinCorp, a Denver, Colorado-based
division of Jacobs Engineering Group Inc of Pasadena, California.
<PAGE>
<TABLE>
<CAPTION>
On-Site
Copper
Pre-Feasibility Revised Production
Study Mine and Revised
U.S. $ (March 98) Plan Mine Plan
--------------------------------------------- --------------- ------- -----------
<S> <C> <C> <C>
Pit design gold price ($/oz.) $375 $335 $335
Pit design copper price ($/lb.) $1.00 $.90 $.90
Mine cut-off grade (grams of gold per tonne) 0.40 0.50 0.50
Mineralized deposit (mm tonnes) 249 200 200
Mineralized deposit (mm gold ozs.) 5.6 5.0 5.0
Gold grade (grams/tonne) 0.70 0.77 0.77
Copper grade % 0.14 0.14 0.14
Throughput (tonnes/day) 55,000 55,000 55,000
Average annual gold production (oz.) 335,000 362,000 362,000
Average annual copper production (mm lbs.) 38 39 39
Strip ratio (waste to ore) 1.68:1 1.97:1 1.97:1
Mine life (Years) 14.2 11.5 11.5
Initial capital cost (mm) $293 $299 $344
Working capital (mm) $15 $20 $20
Ongoing capital (mm) $53 $42 $42
Total cost (per tonne) $6.28 $6.40 $5.78
Operating cash cost (per oz.)* $222 $206 $169
Total cash and operating costs (per oz.)** $295 $288 $262
* Net of copper credit
** Pre tax and independent of costs incurred to-date
</TABLE>
In addition to the modifications to the pre-feasibility report, the
Company is currently proceeding with metallurgical testing and ore
reserve modeling both of which are an ongoing process. An update to
the mine model, which will be verified by an independent engineering
firm, is expected later this year. The Company is proceeding with the
completion of the final feasibility study expected next year.
Outlook
-------
The primary focus of the Company in the upcoming 12 to 18 months while
considering the current price of gold and copper continues to be
activities related to securing permits, acquiring additional sites for
process facility infrastructure, completion of the final feasibility
study and investigation of funding sources needed to finance the
construction of the Brisas mining facility.
A period of 12 to 18 months is anticipated in the overall project
schedule for permitting as well as completion of the final feasibility
study. In addition, continuation or completion of metallurgical
testing, geotechnical and hydrological investigations, electrical
power supply and concentrate sales agreements, and development and
condemnation drilling will occur prior to completion of the final
feasibility study. It is estimated that an additional $5 million will
be spent for completion of the final feasibility study.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash and investments combined decreased approximately $3 million from
December 31, 1997 to September 30, 1998. Changes in the financial
position of the Company are more fully discussed below.
Operations
----------
Cash used by operations for the nine months ended September 30, 1998
compared to the same nine-month period in 1997 increased approximately
$0.3 million. The increase in the use of funds by operations is
primarily a result of an increase in net loss due to a reduction in
the amount of cash flow from invested funds and a reduction in
accounts payable over the same period in 1997.
Investing
---------
Net cash flow used by investing activities decreased approximately
$10.2 million for the nine months ended September 30, 1998 compared to
the same nine-month period in 1997. This change is primarily comprised
of a net reduction in purchases of investments of approximately $3.8
million and a reduction in exploration and development expenditures
related to the Brisas property of approximately $5.6 million. 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 and general support costs related to the Brisas
property.
Financing
---------
As of October 31, 1998, the Company held approximately $25 million in
cash and current and long-term held-to-maturity securities. The 1998
budget, which excludes any future construction costs related to the
proposed mining facilities, is expected to total approximately $4.3
million. Management anticipates that its current cash and investment
positions are adequate to cover estimated operational and capital
expenditures (excluding estimated mine construction costs) associated
with the remainder of 1998 and all of 1999.
Future construction costs and development 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 stock, bank borrowings or other
means. Whether and to what extent additional or alternative financing
options are pursued by the Company depends on a number of important
factors, including if and when mine development activities are
commenced on the Brisas property, management's assessment of the
financial markets, the price of gold, the potential acquisition of
additional properties or projects and the overall capital requirements
of the consolidated corporate group. There can be no assurances that
financing will be available on favorable terms or at all.
<PAGE>
RESULTS OF OPERATIONS
---------------------
September 30, 1998 compared to September 30, 1997.
Consolidated net loss for the three and nine months ended September
30, 1998 amounted to $203,659 and $1,425,984 or $0.01 and $0.06 per
share respectively compared to consolidated net loss of $275,721 and
$1,164,339 or $0.01 and $0.05 per share respectively, for the same
periods in 1997.
Changes in operating results were caused by the following factors:
Other income for the current three and nine month periods decreased
from the comparable periods in 1997 due to decreased interest income
from lower average levels of invested cash as well as increased
foreign exchange loss due to the depreciation of the Venezuelan
currency. General and administrative expenses and legal and
accounting expenses for the current three and nine month periods
decreased from the comparable periods in 1997 primarily due to
decreases in expenses associated with administering activities in
Venezuela and decreases in promotional activities in the United
States. Directors' and officers' compensation during the three months
ended September 30, 1998 decreased from the comparable period in 1997
due to the timing of the payment of fees to directors.
YEAR 2000 READINESS
-------------------
The Company has made a preliminary assessment of its requirements
regarding year 2000 issues, which generally refers to the inability of
hardware, software and control systems to correctly identify two-digit
references to specific years, beginning with the year 2000. The
Company's present business operations are not dependent upon
sophisticated information systems and, as a result, management's
preliminary conclusions are that the Company's operations will not be
materially impacted by year 2000 issues. Further, the ongoing Brisas
feasibility study is also expected to include an evaluation of year
2000 issues as they relate to the proposed future development of the
Brisas property. Although management believes that the feasibility
study will adequately address such issues and prevent significant
future business disruptions, subsequent work may lead to discovery of
material issues or costs. In addition, compliance-related failures,
including those of material third-party suppliers, could also result
in temporary delays in the Company's future operations. Based on the
current information available to management, the impact of future
business disruption as a result of year 2000 issues cannot be
estimated at this time.
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In June 1998, Statement of Financial Accounting Standards No. 133
(SFAS 133). "Accounting for Derivative Instruments and Hedging
Activities" was issued. SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company does not believe the
adoption of this standard will have a material impact on the financial
condition or results of operations of the Company.
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
for an Enterprise and Related Information" in 1998. The implementation
of these new standards did not have a material impact on the
presentation of the consolidated financial statements.
PART II OTHER INFORMATION
--------------------------
Item 4. Submission of Matters To a Vote Of Security Holders.
The Annual meeting of Security Holders was held on June 16, 1998 in
Spokane, Washington. The following matters were submitted to a vote
of the shareholders: 1) Election of Directors; 2) Approval of the
purchase of common stock by the combined 401(k) Salary Reduction and
Employee Stock Ownership Plan and 3) Ratification of
PricewaterhouseCoopers LLP as the Company's independent auditor for
the year ending December 31, 1998 and any interim period.
The Company's articles of incorporation require a minimum of 50% of
all shareholders eligible to vote either in person or by proxy be
present at the annual meeting in order for a quorum to be obtained.
The Company failed to obtain a quorum at its original meeting on June
16, 1998 and, after four postponements on July 14, August 13,
September 15 and October 15, 1998, the Company still had not obtained
a quorum of shareholders. Since a quorum was not obtained prior to the
required 120 days from the date of the original meeting, the
previously elected directors will continue to serve until their
successors can be elected in the future.
Item 5. Other information
In accordance with recent amendments to Rule 14a-4 under the
Securities Exchange Act of 1934 (the "Exchange Act"), if notice of a
non-Rule 14a-8 shareholder proposal is to be raised at the next annual
meeting of shareholders and it is received at the principal executive
offices of the Company after March 15, 1999 (45 days prior to the
month and date in 1999 corresponding to the date on which the Company
mailed its proxy materials for the 1998 annual meeting), proxy voting
<PAGE>
on that proposal when and if raised at the 1999 annual meeting will be
subject to the discretionary voting authority of management proxy
holders and without any discussion of the matter in the Company's
Proxy Statement for the 1999 annual meeting. As stated in the
Company's 1998 Proxy Statement, any shareholder proposal to be
considered for inclusion in the Company's 1999 Proxy Statement must be
received at the principal executive offices of the Company no later
than December 16, 1998 [old 120 day rule].
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, 1998
<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
November 13, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 5383
<SECURITIES> 19831
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21117
<PP&E> 41274
<DEPRECIATION> 987
<TOTAL-ASSETS> 67530
<CURRENT-LIABILITIES> 826
<BONDS> 0
0
0
<COMMON> 101645
<OTHER-SE> (35936)
<TOTAL-LIABILITY-AND-EQUITY> 65709
<SALES> 0
<TOTAL-REVENUES> 852
<CGS> 0
<TOTAL-COSTS> 2252
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> (1426)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1426)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1426)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
