<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 June 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
- --------------------------------------------------------------------------------
(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 August 8, 1997,
there were 19,464,466 outstanding shares of the Registrant's Common Stock, par
value $.01 per share.
1
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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
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MK GOLD COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
(UNAUDITED) (UNAUDITED)
1997 1996 1997 1996
------------------------- --------------------------
<S> <C> <C> <C> <C>
Revenue
Product sales $ 3,163 $ 628 $ 8,813 $ 7,273
Mining services 2,905 2,792 6,139 4,654
---------- ---------- ---------- ----------
Total revenue 6,068 3,420 14,952 11,927
Costs and operating expenses
Product sales 3,036 2,544 8,326 10,951
Mining services 2,467 2,254 5,071 3,778
---------- ---------- ---------- ----------
Total costs and operating expenses 5,503 4,798 13,397 14,729
Gross profit (loss) 565 (1,378) 1,555 (2,802)
Exploration and project investigation costs (481) (391) (826) (1,097)
General and administrative expenses (428) (547) (935) (1,693)
Provision for impairment of long lived assets - - - (27,935)
Equity in loss of unconsolidated affiliate - - - (58)
---------- ---------- ---------- ----------
Loss from operations (344) (2,316) (206) (33,585)
Investment income 302 182 479 254
Interest expense (47) (32) (70) (32)
---------- ---------- ---------- ----------
Income (loss) before income taxes (89) (2,166) 203 (33,363)
Income tax benefit (expense) 36 436 (81) (3,766)
---------- ---------- ---------- ----------
Net income (loss) $ (53) $ (1,730) $ 122 $ (37,129)
========== ========== ========== ==========
Net income (loss) per common share $ (0.00) $ (.09) $ .01 $ (1.91)
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 financial statements.
3
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MK GOLD COMPANY
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
(UNAUDITED) (AUDITED)
----------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $18,003 $13,925
Gold bullion held for sale 3,764 5,933
Receivables 2,014 1,014
Refundable income taxes - 2,346
Inventories
Ore and in process 922 1,456
Materials and supplies 554 1,196
Other 334 248
------- -------
Total current assets 25,591 26,118
------- -------
Property, plant and mine development, net 4,588 4,526
Deferred income taxes 1,094 1,124
Restricted cash 1,250 1,210
------- -------
TOTAL ASSETS $32,523 $32,978
======= =======
</TABLE>
(CONTINUED)
4
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
(UNAUDITED) (AUDITED)
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,518 $ 2,486
Current portion of mine closure liabilities 650 700
Other accrued liabilities 959 606
-------- --------
Total current liabilities 3,127 3,792
-------- --------
Mine closure and reclamation liabilities 4,073 3,208
Deferred revenue 4,655 5,534
-------- --------
Total liabilities 11,855 12,534
-------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized
40,000,000 shares, issued 19,464,466 at
June 30, 1997 and 19,397,800 at
December 31, 1996. 195 194
Capital in excess of par value 67,319 67,214
Accumulated deficit (46,767) (46,885)
Deferred compensation (79) (79)
-------- --------
Total stockholders' equity 20,668 20,444
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 32,523 $ 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>
SIX MONTHS ENDED
JUNE 30
1997 1996
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 122 $(37,129)
------- --------
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation, depletion and amortization 1,172 3,151
Receivable from sale of assets (918) -
Deferred taxes 30 2,524
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 2,169 (5,179)
Receivables (82) (1,127)
Refundable income taxes 2,346 113
Inventories 1,176 (361)
Other current assets (86) 633
Restricted cash (40) (125)
Deferred revenue (615) (404)
Mine closure and reclamation liabilities (879) (3,026)
Accounts payable and other accrued liabilities 526 162
------- --------
Total adjustments 4,799 24,700
------- --------
Net cash provided (used) by operating activities 4,921 (12,429)
------- --------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,149) (1,122)
Investment in Jerooy Gold Company - (470)
Proceeds from disposition of property, plant and
mine development 306 1,094
Proceeds from sale of securities available for sale - 8,663
Castle Mountain contract lawsuit settlement - 8,925
------- --------
Net cash provided (used) by investing activities (843) 17,090
------- --------
FINANCING ACTIVITIES:
INCREASE IN CASH AND CASH EQUIVALENTS 4,078 4,661
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,925 4,194
------- --------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $18,003 $ 8,855
======= ========
Supplemental disclosures of cash flow information
Interest paid $ 23 $ 64
Income taxes paid - 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 six months ended June 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
Six Months Ended June 30 1997 1996 1997 1996
------------------------ ------- ------- ------- ------
<S> <C> <C> <C> <C>
Product sales $21,404 $25,804 $ 5,351 $6,451
Income (loss) before taxes $(4,310) $ 431 $(1,078) $ 108
</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
$.01 and net income per common share of less than $.01 for the three and
six month periods ended June 30, 1997, respectively. Diluted EPS would not
have changed from basic EPS for the three and six month periods ended June
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 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 financial
statements.
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").
8
<PAGE>
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. Reclamation activities of the surface and
underground operations began in mid-September. 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.
In 1996, the Company reported serious problems at each of the Company's
operations and projects. The Company reported an impairment of assets of $28
million for the quarter ended March 31, 1996. This impairment of assets is
discussed in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996 and in the Transition 10-K.
RESULTS OF OPERATIONS
GOLD PRODUCTION: The Company's attributable share of gold production for the
three and six month periods ended June 30, 1997, was 8,986 ounces and 18,039
ounces, respectively, compared to 13,764 ounces and 29,688 ounces for the three
and six month periods ended June 30, 1996. This represents a decrease in
production of 26% for the three month period and 20% for the six month period,
compared to the same periods in 1996.
The Company's share of gold production at the CMV increased 115 ounces to 7,712
ounces for the three months ended June 30, 1997 and decreased 1,336 ounces to
14,906 ounces for the six months ended June 30, 1997. The decrease in
production for the six months ended June 30, 1997 is attributable to the lower
grade ore experienced in the Oro Belle, Hart Tunnel and Jumbo ("OBHT") pits
compared to the higher grade Leslie Ann and Jumbo South pits processed during
the three months ended March 31, 1996. During the first six 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.
9
<PAGE>
REVENUE: Product sales for the three and six months ended June 30, 1997
increased $2.5 million and $1.5 million, respectively, compared to the same
periods in 1996. In 1996, gold production was temporarily held in inventory and
was subsequently sold in July of 1996. During the six months ended June 30,
1997, 9,600 ounces were sold under forward sales contracts at an average price
of $399 per ounce. An additional 13,000 ounces were sold on the spot market.
Declining gold prices have had a negative impact on gold revenues. Spot gold
prices have declined approximately 12% compared to the first six months of 1996.
Product sales revenue also includes $.1 million and $.3 million in deferred
revenue associated with hedging activity for the three and six month periods
ended June 30, 1997, respectively.
Mining service revenue for the three and six month periods ended June 30, 1997
increased $.1 million and $1.5 million, respectively, compared to the same
periods in 1996. During the six months ended June 30, 1996, contract mining
operations were transitioning from the low volume Leslie Ann pit to the new OBHT
pits. Production volumes during that period were significantly below current
monthly volumes.
HEDGING: For the six month period ended June 30, 1997, the average gold price
realized was $368 per ounce compared to an average spot price of $347. For the
remainder of 1997, the Company has sold call options on 5,000 ounces at $365 per
ounce.
GROSS PROFIT: Gross profit from product sales was $.1 million and $.5 million
for the three and six month periods ended June 30, 1997, respectively, compared
to ($1.9 million) and ($3.7 million) for the same periods in 1996. The impact
of falling gold prices and lower grades was partially offset by the processing
of the high grade stockpile and reduced mining costs.
Gross profit from contract mining operations for the three and six month periods
ended June 30, 1997 was comparable to the results for the same periods in 1996.
Increased revenues from higher production levels have been offset by increased
operating costs associated with such higher production levels.
EXPLORATION COSTS: Exploration and project investigation costs were $.5 million
and $.8 million for the three and six month periods ended June 30, 1997,
respectively. These expenditures represent a 23% increase and a 25% decrease
compared to the same periods in 1996. During 1997, the Company has been
increasing its expenditures for exploration activity in many areas, including
Nevada and Brazil. During the three months ended March 31, 1996, the Company
incurred significant expenditures associated with Arlo Resources, Ltd. ("ARLO")
and its exploration efforts in Panama. In September 1996, the Company sold its
investment in ARLO. During the second quarter, the Company also examined
properties in Mexico, Bolivia, Peru and the western United States. No
acquisitions were made during the six months ended June 30, 1997.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses
decreased to $.4 million and $.9 million for the three and six month periods
ended June 30, 1997, respectively. This represents a decrease of 22% and 45%
compared to the same periods in 1996. The decrease was the result of cost
reduction efforts undertaken and reduced legal expenses. Legal expenses
10
<PAGE>
were higher during the three months ended March 31, 1996, as a result of
expenses associated with a lawsuit involving Viceroy Gold Company and contract
mining operations at the CMV.
INTEREST EXPENSE: Interest expense, primarily consisting of loan commitment
fees, was $47,000 and $70,000 for the three and six month periods ended June 30,
1997, respectively. The Company maintains a credit facility, but did not
utilize it during the first half 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 June 30, 1997, the Company had cash and cash equivalents of $18 million and
gold bullion of $3.8 million representing an increase in cash and cash
equivalents and gold bullion of $1.9 million from December 31, 1996.
Net cash provided by operating activities was $4.9 million for the six months
ended June 30, 1997, compared to net cash used by operating activities of $12.4
million for the same period in 1996.
During the quarter ended March 31, 1997, the Company received $2.1 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 $1.1 million for the
six months ended June 30, 1997, compared to $1.6 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 six
months ended June 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
June 30, 1997, $4.7 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
On June 26, 1997, the Company held its annual meeting of stockholders in Salt
Lake City Utah. The only item of consideration was the election of two directors
with the votes tabulated as follows: Robert V. Hansberger received 18,506,626
shares voting in favor and 79,792 shares were withheld; Robert S. Shriver
received 18,505,626 shares voting in favor and 80,792 shares were withheld. Five
directors who were not up for re-election continue to serve as directors of the
company: Ian M. Cumming, Gordon J. Humphrey, G. Frank Joklik, James P. Miscoll
and Joseph S. Steinberg.
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: August 11, 1997
13
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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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 18,003
<SECURITIES> 0
<RECEIVABLES> 2,014
<ALLOWANCES> 0
<INVENTORY> 1,476
<CURRENT-ASSETS> 25,591
<PP&E> 23,774
<DEPRECIATION> 19,186
<TOTAL-ASSETS> 32,523
<CURRENT-LIABILITIES> 3,127
<BONDS> 0
0
0
<COMMON> 195
<OTHER-SE> 20,473
<TOTAL-LIABILITY-AND-EQUITY> 32,523
<SALES> 8,813
<TOTAL-REVENUES> 14,952
<CGS> 8,326
<TOTAL-COSTS> 13,396
<OTHER-EXPENSES> 1,761
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70
<INCOME-PRETAX> 203
<INCOME-TAX> 81
<INCOME-CONTINUING> 122
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
