<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number 0-23042
MK GOLD COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 82-0487047
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
60 East South Temple, Suite 2100, Salt Lake City, Utah 84111
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(801) 297-6900
-----------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
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 that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. On November 7,
1997, there were 19,464,466 outstanding shares of the Registrant's Common Stock,
par value $.01 per share.
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
On January 30, 1997, the Board of Directors elected to change the
fiscal year end of the Company from March 31 to December 31. Accordingly, the
Company filed a Transition Report on Form 10-K for the nine months ended
December 31, 1996 (the "Transition 10-K"). As more fully described in the
accompanying notes, the unaudited interim consolidated financial statements
contained in this report should be read in conjunction with the Transition 10-K.
2
<PAGE>
MK GOLD COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
(Unaudited) (Unaudited)
1997 1996 1997 1996
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue
Product sales $ 1,433 $ 7,488 $ 10,246 $ 14,761
Mining services 3,179 2,858 9,318 7,512
----------- ------------ ----------- -----------
Total revenue 4,612 10,346 19,564 22,273
Costs and operating expenses
Product sales 1,766 7,833 10,092 18,784
Mining services 2,521 2,035 7,592 5,813
----------- ------------ ----------- -----------
Total costs and operating expenses 4,287 9,868 17,684 24,597
Gross profit (loss) 325 478 1,880 (2,324)
Exploration and project investigation costs (715) (580) (1,541) (1,677)
General and administrative expenses (347) (690) (1,282) (2,383)
Provision for impairment of long lived assets - - - (27,935)
Provision for Closure and Reclamation of American
Girl Joint Venture Operations and Properties - (2,100) - (2,100)
Equity in loss of unconsolidated affiliate - - - (58)
----------- ------------ ------------ -----------
Loss from operations (737) (2,892) (943) (36,477)
Investment income 247 189 726 443
Interest expense (34) (23) (104) (55)
----------- ------------ ------------ -----------
Loss before income taxes (524) (2,726) (321) (36,089)
Income tax benefit (expense) 10 (290) (71) (4,056)
----------- ------------ ----------- -----------
Net loss $ (514) $ (3,016) $ (392) $ (40,145)
=========== =========== =========== ===========
Net loss per common share $ (0.03) $ (0.16) $ (0.02) $ (2.07)
Common shares used to compute loss per share 19,464,466 19,397,800 19,464,466 19,397,800
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
MK GOLD COMPANY
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
September 30, December 31,
1997 1996
(Unaudited) (Audited)
----------- ---------
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $16,086 $13,925
Gold bullion held for sale 5,311 5,933
Receivables 1,729 1,014
Other Receivables 918 -
Refundable income taxes - 2,346
Inventories
Ore and in process 791 1,456
Materials and supplies 428 1,196
Other 381 248
------- -------
Total current assets 25,644 26,118
------- -------
Property, plant and mine development, net 4,042 4,526
Deferred income taxes 1,114 1,124
Restricted cash 1,260 1,210
------- -------
TOTAL ASSETS $32,060 $32,978
======= =======
</TABLE>
(continued)
4
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1997 1996
(Unaudited) (Audited)
------------ -----------
<S> <C> <C>
Current liabilities
Accounts payable $ 1,645 $ 2,486
Current portion of mine closure liabilities 650 700
Other accrued liabilities 1,294 606
-------- --------
Total current liabilities 3,589 3,792
-------- --------
Mine closure and reclamation liabilities 3,959 3,208
Deferred revenue 4,358 5,534
-------- --------
Total liabilities 11,906 12,534
-------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized
40,000,000 shares, issued 19,464,466 at
September 30, 1997 and 19,397,800 at
December 31, 1996. 195 194
Capital in excess of par value 67,319 67,214
Accumulated deficit (47,281) (46,885)
Deferred compensation (79) (79)
-------- --------
Total stockholders' equity 20,154 20,444
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 32,060 $ 32,978
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
(concluded)
5
<PAGE>
MK GOLD COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1997 1996
(Unaudited) (Unaudited)
----------- -----------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (392) $(40,145)
------- --------
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation, depletion and amortization 1,857 4,115
Gain on sale of assets (1,244) -
Deferred taxes 10 3,003
Equity in loss of unconsolidated affiliate - 58
Write-down of investment in unconsolidated affiliate - 346
Provision for impairment of long lived assets - 27,935
Changes in operating assets and liabilities:
Gold bullion held for sale 622 (3,499)
Trade Receivables (712) (106)
Refundable income taxes 2,346 731
Inventories 1,433 30
Other assets (133) 206
Restricted cash (50) (192)
Income taxes payable - (808)
Deferred revenue (1,177) (3,674)
Mine closure and reclamation liabilities 701 2,399
Accounts payable and other accrued liabilities (240) (388)
------- --------
Total adjustments 3,413 30,156
------- --------
Net cash provided (used) by operating activities 3,021 (9,989)
------- --------
INVESTING ACTIVITIES:
Additions to property, plant and equipment, net (1,242) (1,636)
Investment in Jerooy Gold Company - (470)
Proceeds from disposition of property plant and equipment 382 1,101
Proceeds from sale of unconsolidated subsidiaries - 1,196
Proceeds from sale of securities available for sale - 8,642
Castle Mountain contract lawsuit settlement - 8,925
------- --------
Net cash provided (used) by investing activities (860) 17,758
------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 2,161 7,769
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,925 4,194
------- --------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $16,086 $ 11,963
======= ========
Supplemental disclosures of cash flow information:
Interest paid $ 104 $ 93
Income taxes paid, net - 1,100
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
MK GOLD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS)
1. UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The financial information included herein is unaudited; however, the
information reflects all adjustments (consisting of normal recurring
adjustments) that are, in the opinion of management, necessary to the fair
presentation of the consolidated financial position, results of operations,
and cash flows for the interim periods. The consolidated financial
statements should be read in conjunction with the notes to consolidated
financial statements for the transition period from April 1, 1996 to
December 31, 1996, which are included in the Company's Transition Report on
Form 10-K for such period (the "Transition 10-K"). The results of operations
for the nine months ended September 30, 1997, are not necessarily indicative
of the results to be expected for the full year. The consolidated balance
sheet at December 31, 1996, was extracted from the audited consolidated
financial statements contained in the Transition 10-K and does not include
all disclosures required by generally accepted accounting principles for
annual consolidated financial statements. Effective December 31, 1996, the
Company changed its fiscal year end from March 31 to December 31.
2. RECLASSIFICATION
Certain prior period amounts have been reclassified to conform with the
current period's presentation.
3. MINING JOINT VENTURES
The Company owns a 25% undivided interest in the Castle Mountain Venture
(the "CMV"), which operates a gold mine in San Bernardino County,
California. The results for the CMV have been proportionally reflected in
the accompanying consolidated financial statements. Any differences between
the Company's share of reported sales and income and the amounts shown on
these schedules are due to differences in the timing of revenue and expense
recognition. The amounts below reflect the balances on the joint venture
books and do not reflect the impairment previously recorded by the Company.
CASTLE MOUNTAIN VENTURE
<TABLE>
<CAPTION>
Total Venture MK GOLD'S SHARE
------------- ---------------
Results of Operations
Nine Months Ended September 30 1997 1996 1997 1996
------------------------------ ------- ------- ------- ------
<S> <C> <C> <C> <C>
Product sales $32,134 $37,752 $ 8,034 $9,438
Loss before taxes $(7,518) $ (583) $(1,880) $ (146)
</TABLE>
7
<PAGE>
The Company owns a 53% interest in the American Girl Mining Joint Venture
(the "AGMJV") which, prior to September 1996, operated a gold mine in
Imperial County, California. After an extensive review of the operations at
the AGMJV, the Company determined that continued operation at the AGMJV
could not be economically justified. On September 5, 1996, the Company
announced the suspension of operations at the AGMJV. Subsequent to the
announcement, the Company has been actively conducting mine closure and
reclamation operations. During the second quarter of 1997, the Company sold
a substantial portion of the AGMJV's capital equipment.
4. ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board adopted Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No.
128"). SFAS No. 128 establishes standards for computing and presenting
earnings per share ("EPS"). SFAS No. 128 simplifies the approach for
computing earnings per share previously found in Accounting Principles Board
Opinion ("APB") Opinion No. 15. It replaces the presentation of primary EPS
with a presentation of basic EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities
with complex capital structures.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997. The computation of basic EPS under SFAS No. 128
would have resulted in a net loss per common share of less than $.03 and net
loss per common share of $.02 for the three and nine month periods ended
September 30, 1997, respectively. Diluted EPS would not have changed from
basic EPS for the three and nine month periods ended September 30, 1997.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." SFAS No. 131 established standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosure about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. The Company does not expect the impact of
SFAS No. 131 to be material in relation to its consolidated financial
statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general purpose financial statements. SFAS No. 130
requires that an enterprise (a) classify items of other comprehensive income
by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in-capital in the equity section of a statement of financial
position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. The Company does not expect the impact of SFAS No. 130 to
be material in relation to its consolidated financial statements.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------ -----------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The purpose of this section is to discuss and analyze the Company's consolidated
financial condition, liquidity and capital resources and results of operations.
This analysis should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's Transition Report on Form 10-K for the period from April 1, 1996 to
December 31, 1996 (the "Transition 10-K").
GENERAL
The Company holds a 53% interest in the American Girl Mining Joint Venture.
During the year ended December 31, 1996, the AGMJV continued to experience high
mining costs. The Company reviewed several alternative operating and shut-down
strategies and determined that no practical mining and processing method could
be developed that would justify continued operations. On September 5, 1996, the
Company announced that it was suspending operations at the AGMJV.
As part of the suspension plan at the AGMJV, the Company and its joint venture
partner, Hecla Mining Company, agreed to a modified program and budget for the
remainder of 1996 which called for a suspension of full scale open pit and
underground mining effective mid-September, 1996. Crushing and milling
operations ceased in mid-October 1996. Reclamation activities of the surface
and underground operations began in mid-September 1996. It is expected that
mine reclamation will be completed by the end of 1999. The Company's share of
the expected costs associated with the closure was recorded in 1996.
RESULTS OF OPERATIONS
GOLD PRODUCTION: The Company's attributable share of gold production for the
three and nine month periods ended September 30, 1997, was 9,105 ounces and
27,144 ounces, respectively, compared to 14,161 ounces and 43,849 ounces for the
three and nine month periods ended September 30, 1996. This represents a
decrease in production of 36% for the three month period and 38% for the nine
month period, compared to the same periods in 1996. The decrease in production
for the 1997 periods is primarily the result of the suspension of mining
operations at the AGMJV.
The Company's share of gold production at the CMV increased 318 ounces to 8,289
ounces for the three months ended September 30, 1997 and decreased 1,018 ounces
for the nine months ended September 30, 1997, compared to the same periods in
1996. The decrease in production for the nine months ended September 30, 1997 is
attributable to the lower grade ore experienced at the Oro Belle, Hart Tunnel
and Jumbo ("OBHT") pits compared to the higher grade Leslie Ann and Jumbo South
processed during the three months ended March 31, 1996. During the
9
<PAGE>
first nine months of 1997, the CMV processed stockpiled high grade material
which partially offset the lower ore grade in the new OBHT pits.
Gold production at the AGMJV significantly declined because mining operations at
the AGMJV were suspended in 1996. During 1997, the Company has continued to
leach existing leach pads which has resulted in limited gold production.
REVENUE: Product sales for the three and nine months ended September 30, 1997
decreased $6.1 million and $4.5 million, respectively, compared to the same
periods in 1996. In 1996, gold production was temporarily held in inventory and
was sold in July 1996. During the third quarter of 1997, the Company made
relatively few gold sales due to depressed gold prices. Decreased gold
production and depressed gold prices had a significant negative effect on
product revenue for the three and nine months ended September 30, 1997. During
the nine months ended September 30, 1997, 9,600 ounces were sold under forward
contracts at an average price of $399 per ounce. An additional 17,000 ounces
were sold on the spot market at an average price of $340 per ounce. Spot gold
prices have declined 10% since the beginning of 1997. Product sales for the
nine months ended September 30, 1997 also included $.3 million in deferred
revenue related to hedging activity.
Mining service revenue increased $.3 million and $1.8 million for the three and
nine months ended September 30, 1997, respectively, compared to the same periods
in 1996. The increased revenue is the result of higher volumes being mined in
the OBHT pits.
HEDGING: For the nine month period ended September 30, 1997, the average price
realized was $361 per ounce compared to an average spot price of $341 per ounce.
For the remainder of 1997, the Company has sold forward 10,000 ounces at an
average price of $334 per ounce. For 1998, the Company has sold forward 4,000
ounces at an average price of $338 per ounce and has purchased call options on
10,000 ounces at an average price of $360 per ounce.
GROSS PROFIT: Gross profit (loss) from product sales was $(.3 million) and $(.2
million) for the three and nine months ended September 30, 1997, respectively,
compared to $.3 million and $(4 million) for the same periods in 1996. Declining
gold prices negatively impacted margins. During the nine months ended September
30, 1996, the Company experienced high operating costs associated with the AGMJV
which adversely impacted margins.
Gross profit from contract mining operations for the three and nine month
periods ended September 30, 1997 was $.7 million and $1.7 million and is
comparable to the same periods in 1996. Increased revenues have been offset by
increased operating costs.
EXPLORATION COSTS: Exploration and project investigation costs were $.7 million
and 1.5 million for the three and nine month periods ended September 30, 1997,
respectively, compared to $.6 million and $1.7 million for the comparable
periods in 1996. The Company is actively conducting exploration programs in
Nevada and Brazil. During the nine months ended September 30, 1997, the Company
also examined properties in Mexico, Chile, Peru, Bolivia, Canada and the western
United States.
10
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses for
the three and nine month periods ended September 30, 1997 were $.3 million and
$1.3 million, respectively. This represents a decrease of 49% and 46%,
respectively, compared to the same periods in 1996. The decrease was the result
of decreased legal expenditures and the effectiveness of cost reduction programs
started in 1996.
INTEREST EXPENSE: Interest expense, primarily consisting of loan commitment
fees, was $34,000 and $104,000 for the three and nine month periods ended
September 30, 1997, respectively. The Company did not utilize its existing
credit facility during the first nine months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are its available resources of cash and
cash equivalents, a $20 million credit facility and cash generated from mining
operations and contract mining services.
At September 30, 1997, the Company had cash and cash equivalents of $16.1
million and gold bullion of $5.3 million representing an increase in cash and
cash equivalents and gold bullion of $1.5 million from December 31, 1996.
Net cash provided by operating activities was $3.1 million for the nine months
ended September 30, 1997, compared to net cash used by operating activities of
$10 million for the same period in 1996.
During the quarter ended March 31, 1997, the Company received $2.3 million of
income tax refunds relating to the tax loss reported for the fiscal year ended
March 31, 1996.
Additions to property, plant and mine development totaled $1.2 million for the
nine months ended September 30, 1997, compared to $2.1 million for the same
period in 1996. For all periods presented, additions to property, plant and mine
development equipment consisted of (i) mine development expenditures; (ii)
construction expenditures for buildings, machinery, plant and equipment; and
(iii) expenditures for mobile mining service equipment. Additions for the nine
months ended September 30, 1996 also included expenses relating to the Jerooy
project and Arlo Resources, Ltd.
Upon completion of production at a mine, the Company must make expenditures for
reclamation and closure of the mine. The Company provides for future reclamation
and mine closure liabilities on a units-of-production basis. At September 30,
1997, $4.6 million was accrued for such costs. In addition to the accruals, the
Company and its joint venture partner are depositing cash in separate funds to
cover future reclamation costs at the CMV properties. The Company reviews the
adequacy of its reclamation and mine closure liabilities in light of current
laws and regulations and adjusts its liabilities as necessary.
11
<PAGE>
PART II. OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
- ------ -----------------
As reported by the Company in its Transition Report on Form 10-K for the
nine months ended December 31, 1996, the Company has filed a complaint against
Morrison Knudsen Corporation ("MK") seeking a declaration that MK's agreement
not to compete with the Company is valid, binding and enforceable. On November
3, 1997, MK filed an answer and counterclaim in this action. In its
counterclaim, MK asserts a claim for reformation of the agreement not to compete
on the grounds that the agreement is not reasonable so as to protect a
legitimate interest of the Company. MK's counterclaim also alleges that the
Company breached a tax matters agreement between MK and the Company and that
MK is entitled to damages in the amount of $296,843.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
(a) The following exhibits are filed with this report.
27 Financial Data Schedule
(b) No report on Form 8-K was filed during the quarter for which this
report is filed.
12
<PAGE>
SIGNATURES
----------
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.
MK GOLD COMPANY
/s/ John C. Farmer
------------------------------------------
JOHN C. FARMER
Controller, Treasurer and Secretary
(Authorized Signatory and
Principal Accounting Officer)
Date: November 12, 1997
13
<PAGE>
INDEX TO EXHIBITS
Exhibits
27 Financial Data Schedule.
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
financial statements contained in the body of the accompanying Form 10-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 16,086
<SECURITIES> 0
<RECEIVABLES> 2,647
<ALLOWANCES> 0
<INVENTORY> 1,219
<CURRENT-ASSETS> 25,644
<PP&E> 23,867
<DEPRECIATION> 19,825
<TOTAL-ASSETS> 32,060
<CURRENT-LIABILITIES> 3,589
<BONDS> 0
0
0
<COMMON> 195
<OTHER-SE> 19,959
<TOTAL-LIABILITY-AND-EQUITY> 32,060
<SALES> 10,246
<TOTAL-REVENUES> 19,564
<CGS> 10,092
<TOTAL-COSTS> 17,684
<OTHER-EXPENSES> 2,823
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> (321)
<INCOME-TAX> 71
<INCOME-CONTINUING> (392)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (392)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
