Unassociated Document
As
filed
with the Securities and Exchange Commission on June 22, 2007
Registration
No. 333-____________
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
____________________
FORM
SB-2
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
____________________
CAPITAL
GOLD CORPORATION
(Name
of
small business issuer in its charter)
Delaware
|
|
1040
|
|
13-3180530
|
(State
or jurisdiction of
incorporation
or organization)
|
|
(Primary
Standard Industrial
Classification
Code Number)
|
|
(I.R.S.
Employer
Identification
Number)
|
____________________
76
Beaver
Street
New
York,
NY10005
(212)
344-2785
(Address
and telephone number of principal executive offices)
____________________
Gifford
A. Dieterle, Chief Executive Officer
Capital
Gold Corporation
76
Beaver
Street
New
York,
NY10005
(212)
344-2785
(Name,
address and telephone number of agent for service)
Copies
of
all communications to:
Richard
Feiner, Esq.
381
Park
Avenue South, Suite 1601
New
York,
New York, 10016
(212)
779-8600
Fax
(212)
779-8858
Approximate
date of proposed sale to the public: From time to time or at any time after
the
effective date of this Registration Statement.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933
("Securities Act"), other than securities offered only in connection with
dividend or reinvestment plans, check the following box. x
If
this
form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If
this
form is a post-effective amendment filed pursuant to 462(c) under the Securities
Act, check the following box and list the Securities Act registration number
of
the earlier effective registration statement for the same offering.o
If
this
form is a post-effective amendment filed pursuant to 462(d) under the Securities
Act, check the following box and list the Securities Act registration number
of
the earlier effective registration statement for the same offering.o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
CALCULATION
OF REGISTRATION FEE
Title
of Each Class of Securities to be Registered
|
Amount
to be Registered (1)
|
Proposed
Maximum Offering Price Per Share(3)
|
Proposed
Maximum Aggregate Offering Price
|
Amount
of Registration Fee
|
Common
Stock
|
12,561,667
|
$0.386
|
$4,848,804
|
$148.86
|
Common
Stock (2)
|
4,382,542
|
$0.386
|
$1,691,662
|
$
51.93
|
Total
Registration Fee
|
|
|
|
$200.79
|
(1)
|
Pursuant
to Rule 416 of the Securities Act of 1933, there are also being registered
an indeterminate number of additional shares of common stock as may
become
offered, issuable or sold to prevent dilution resulting from stock
splits,
stock dividends or similar
transactions.
|
(2)
|
Represent
shares issuable upon exercise of warrants and options owned by selling
stockholders.
|
(3)
|
Estimated
solely for the purpose of computing the registration fee in accordance
with Rules 457(c) of the Securities Act on the basis of $0.386 per
share,
which was the average of the high and low prices of the shares of
common
stock of the Registrant on June 18, 2007, as reported on the OTC
Bulletin
Board.
|
The
Registrant hereby amends this registration statement on the date or dates as
may
be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on a date as the Securities and Exchange Commission, acting pursuant
to said Section 8(a), may determine.
The
information in this prospectus is not complete and may be amended. Neither
we
nor the selling stockholders may sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting
an
offer to buy these securities in any state where an offer or sale is not
permitted.
Subject
to Completion
Preliminary
Prospectus Dated June 22, 2007
CAPITAL
GOLD CORPORATION
16,944,209
Shares of Common Stock
_______________________________________
This
prospectus relates to the resale of 16,944,209 shares
of
our common stock, including 4,382,542 shares of common stock issuable upon
the
exercise of outstanding warrants and options, that may be offered and sold
from
time to time by the selling stockholders listed herein.
We
will
not receive any proceeds from the sale of the shares of common stock by the
selling stockholders other than payment of the exercise price of the warrants
and options.
Our
common stock is listed on the Over-The-Counter Bulletin Board under the symbol
"CGLD." The last reported sales price per share of our common stock as reported
by the OTC Bulletin Board on June 19, 2007, was $0.40. On common stock also
trades on the Toronto Stock Exchange (“TSX”) under the symbol “CGC.” On June 19,
2007, the closing price of our common stock on the TSX was $0.43 CDN
(approximately $0.40 USD).
_________________________________________
Please
see the risk factors beginning on page 5 to
read
about certain factors you should consider before buying shares of common
stock.
_________________________________________
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined that this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
The
date
of this prospectus is June __, 2007
PROSPECTUS
SUMMARY
In
the following summary, we have highlighted information that we believe is the
most important about us. However, because this is a summary, it may not contain
all information that may be important to you. You should read this entire
prospectus, including the information incorporated by reference and the
financial data and related notes, before making an investment decision. When
used in this prospectus, the terms “we,” “our” and “us” refer to Capital Gold
Corporation and not to the selling stockholders. You should also see the
“Glossary”
for
definitions of some of the terms used to describe our business.
About
Capital Gold
Through
a
wholly-owned subsidiary and an affiliate, Capital Gold Corporation owns 100%
of
16 mining concessions located in the Municipality of Altar, State of Sonora,
Republic of Mexico totaling approximately 3,544 hectares (8,756 acres or 13.7
square miles). We are in the final stages of completing the construction and
development of an open-pit gold mining operation to mine two of these
concessions. We sometimes refer to the planned operations on these two
concessions as the El Chanate Project. Mining operations began in late March
2007, we began applying cyanide solution to ore stacked on the leach pads in
late-June 2007 and we hope to start receiving revenues from mining operations
prior to July 31, 2007, the end of our current fiscal year.
We
believe that surface gold mine and facility at El Chanate will be capable of
producing about 2.6 million metric tons per year of ore from which we anticipate
recovering about 44,000 to 48,000 ounces of gold per year, over a seven year
mine life. We are following the updated feasibility study (the “2005 Study”) for
the El Chanate Project prepared by M3 Engineering of Tucson, Arizona which
was
completed in October 2005, as further updated by an August 2006 technical report
from SRK Consulting, Denver, Colorado (the “2006 Update”). The original
feasibility study (the “2003 Study”) was completed by M3 Engineering in August
2003. Since completion of the 2003 Study, both the price of gold and production
costs have increased and equipment choices have broadened from those identified
in the 2003 Study.
Pursuant
to the 2005 Study, as updated by the 2006 Update using a $450 per ounce gold
price, our estimated mine life is seven years and the ore reserve is 490,000
ounces of gold present in the ground. Of this, we anticipate recovering
approximately 332,000 ounces of gold over a seven year life of the mine. The
targeted cash cost (which includes mining, processing and on-property general
and administrative expenses) per the 2005 Study is $259 per ounce. We believe
that cash costs may decrease as the production rate increases. Total costs
(which include cash costs as well as off-property costs such as property taxes,
royalties, refining, transportation and insurance costs and exclude financing
costs) will vary depending upon the price of gold (due to the nature of
underlying payment obligations to the original owner of the property). Total
costs are estimated in the 2005 Study to be $339 per ounce at a gold price
of
$417 per ounce (the three year average gold price as of the date of that study).
We will be working on measures to attempt to reduce costs going forward. Ore
reserves and production rates are based on a gold price of $450 per ounce,
which
is the Base Case in the 2006 Update. During the first five months of 2007,
the
spot price for gold on the London Exchange has fluctuated between $608.30 and
$691.40 per ounce. During 2006, the spot price for gold on the London Exchange
has fluctuated between $524.75 and $725.00 per ounce. The 2005 Study contains
the same mining rate as the 2003 Study of 7,500 metric tonnes per day of ore.
It
should be noted that, during the preliminary engineering phase of the project
it
was decided to design the crushing screening and ore stacking system with the
capability of processing 10,000 tonnes per day of ore. This will make allowances
for any possible increase in production and for operational flexibility. It
was
found that the major components in the feasibility study would be capable of
handling the increase in tonnage. Design changes were made where necessary
to
accommodate the increased tonnage. The 2005 Study takes into consideration
a
more modern crushing system than the one contemplated in the 2003 Study. The
crushing system referred to in the 2005 Study is a new system, that, we believe
will provide more efficient processing capabilities than the used equipment
referred to in the 2003 Study. In addition, the 2005 Study assumes a contractor
will mine the ore and haul it to the crushers. In the 2003 Study, we planned
to
perform these functions. We have engaged a mining contractor to perform these
services and the mining contractor is on site.
In
May
2007, we completed an expanded 72-hole drilling campaign to determine additional
proven and probable gold reserves at the El Chanate Project. The 72 holes
totaled approximately 8,200 meters, and are positioned to fill in gaps in the
ore body and test the outer limits of the currently known ore zones. We have
received all of the assays back from the drilling program. The quality control
of the drilling procedures and the chain of custody of the samples were audited
by SRK Consulting of Denver, CO. Now that we have received all of the assays,
we
plan on turning that data over to a third party, and have them prepare a new
resource and reserve estimate for the El Chanate mine as well as an updated
mine
plan.
Our
principal executive offices are located at 76 Beaver Street, 26th
floor,
New York, NY10005, and our telephone number is (212) 344-2785.
The
Offering
Common
stock to be offered
|
|
by
the selling stockholders
|
16,944,209
Shares
|
|
|
Common
stock outstanding
|
|
prior
to this offering
|
167,942,964
Shares
|
|
|
Use
of Proceeds
|
We
will not receive any of the proceeds from the sale of the shares
of common
stock because they are being offered by the selling stockholders
and we
are not offering any shares for sale under this prospectus, but we
may
receive proceeds from the exercise of warrants and options held by
the
selling stockholders. We will apply such proceeds, if any, toward
future
exploration and/or acquisitions and for working capital. See "Use
of
Proceeds."
|
|
|
Over-The-Counter
Bulletin
|
|
Board
symbol
|
CGLD
|
|
|
Toronto
Stock Exchange symbol
|
CGC
|
The
16,944,209 shares
of
our common stock offered consist of:
|
·
|
Up
to 12,561,667 shares of common stock owned by certain of the selling
stockholders; and
|
|
·
|
Up
to 4,382,542 shares of common stock issuable upon the exercise of
outstanding warrants and options.
|
Summary
Financial Data
In
the
table below, we provide you with our summary historical financial data. We
have
prepared this information using our audited financial statements for each of
the
five years in the period ended July 31, 2006 and
our
unaudited financial statements for the nine months ended April 30, 2006 and
April 30, 2007. Operating results for the nine months ended April 30, 2007
are
not necessarily indicative of the results that may be expected for the year
ending July 31, 2007.
It
is
important that you read this summary historical financial data in conjunction
with our historical financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations"
appearing elsewhere in this prospectus.
Statement
of Operations Data
|
|
For
the Years Ended
|
|
|
|
July
31,
|
|
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
Revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Mine
Expenses
|
|
$
|
709,961
|
|
$
|
1,028,899
|
|
$
|
673,050
|
|
$
|
851,374
|
|
$
|
1,940,805
|
|
Selling,
General and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative
|
|
$
|
639,652
|
|
$
|
770,629
|
|
$
|
687,722
|
|
$
|
1,005,038
|
|
$
|
2,135,493
|
|
Stock
& Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
for Services
|
|
$
|
222,338
|
|
$
|
288,623
|
|
$
|
379,033
|
|
$
|
187,844
|
|
$
|
89,391
|
|
Depreciation
&
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
$
|
3,105
|
|
$
|
-
|
|
$
|
-
|
|
$
|
7,431
|
|
$
|
38,969
|
|
Total
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Expense)
|
|
$
|
2,027,810
|
|
$
|
(
11,735
|
)
|
$
|
(
950,005
|
)
|
$
|
46,005
|
|
$
|
(600,034
|
)
|
Minority
Interest
|
|
$
|
54,543
|
|
$
|
180,625
|
|
$
|
51,220
|
|
$
|
-
|
|
$
|
-
|
|
Write
Down of Mining,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milling
and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment
|
|
$
|
999,445
|
|
$
|
-
|
|
$
|
300,000
|
|
$
|
-
|
|
$
|
-
|
|
Net
Loss
|
|
$
|
(492,148
|
)
|
$
|
(1,919,261
|
)
|
$
|
(2,938,590
|
)
|
$
|
(2,005,682
|
)
|
$
|
(4,804,692
|
)
|
|
|
For
the Nine months Ended
|
|
|
|
April
30,
|
|
|
|
2006
|
|
2007
|
|
|
|
(consolidated)
|
|
(consolidated)
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
Revenues
|
|
$
|
-
|
|
$
|
-
|
|
Mine
Expenses
|
|
$
|
1,528,653
|
|
$
|
743,334
|
|
Selling,
General and
|
|
|
|
|
|
|
|
Administrative
|
|
$
|
1,377,104
|
|
$
|
2,151,362
|
|
Stock
& Warrants
|
|
|
|
|
|
|
|
Issued
for Services
|
|
$
|
6,585
|
|
$
|
153,093
|
|
Exploration
|
|
$
|
-
|
|
$
|
581,395
|
|
Depreciation
& Amortization
|
|
$
|
27,000
|
|
$
|
631,797
|
|
Total
Other Income (Expense)
|
|
$
|
(276,814
|
)
|
$
|
(1,222,586
|
)
|
Net
Loss
|
|
$
|
(3,216,156
|
)
|
$
|
(5,483,568
|
)
|
Balance
Sheet Data
|
|
As
of July 31,
|
|
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
Working
Capital
|
|
$
|
1,192,871
|
|
$
|
105,661
|
|
$
|
182,939
|
|
$
|
4,239,991
|
|
$
|
7,031,526
|
|
Total
Assets
|
|
$
|
2,056,851
|
|
$
|
761,607
|
|
$
|
485,753
|
|
$
|
5,551,871
|
|
$
|
9,545,580
|
|
Total
Liabilities
|
|
$
|
467,017
|
|
$
|
254,299
|
|
$
|
204,159
|
|
$
|
282,816
|
|
$
|
615,643
|
|
Stockholders’
Equity
|
|
$
|
1,622,119
|
|
$
|
651,000
|
|
$
|
281,594
|
|
$
|
5,269,055
|
|
$
|
8,929,937
|
|
|
|
As
of April 30
|
|
|
|
2006
|
|
2007
|
|
|
|
(consolidated)
|
|
(consolidated)
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
|
Working
Capital
|
|
$
|
8,213,728
|
|
$
|
9,358,500
|
|
Total
Assets
|
|
$
|
10,535,564
|
|
$
|
27,854,550
|
|
Total
Liabilities
|
|
$
|
462,992
|
|
$
|
14,587,942
|
|
Stockholders’
Equity
|
|
$
|
10,072,572
|
|
$
|
13,266,608
|
|
RISK
FACTORS
WE
ARE SUBJECT TO VARIOUS RISKS THAT MAY MATERIALLY HARM OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. YOU SHOULD CAREFULLY CONSIDER THE RISKS
AND
UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS
BEFORE DECIDING TO PURCHASE OUR COMMON STOCK. IF ANY OF THESE RISKS OR
UNCERTAINTIES ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR OPERATING
RESULTS COULD BE MATERIALLY HARMED. IN THAT CASE, THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR
INVESTMENT.
Risks
related to our business and operations
We
have not generated any operating revenues. If we are unable to commercially
develop our mineral properties, we will not be able to generate profits and
our
business may fail.
To
date,
we have no producing properties. As a result, we have historically operated
and
continue to operate at a loss. Our ultimate success will depend on our ability
to generate profits from our properties. Our viability is largely dependent
on
the successful commercial development of our El Chanate gold mining project
in
Sonora, Mexico. While we are in the process of commencing mining operations
and
we anticipate that revenues will begin prior to July 31, 2007, the end of our
current fiscal year, we cannot assure if or when revenues will cover cash flow
or generate profits.
We
lack operating cash flow and, historically, have relied on external funding
sources. While we anticipate revenues from mining operations at El Chanate
and
we believe that we have adequate funds to permit us to reach positive cash
flow
from such operations, if we encounter unexpected problems and we are unable
to
generate positive cash flow in a timely manner, we may need to raise additional
capital. If additional capital is required and we are unable to obtain it from
outside sources, we may be forced to reduce or curtail our operations or our
anticipated exploration activities.
Historically,
we have not generated cash flow from operations. We believe that we have
adequate funds to cover our financial requirements until such time as mining
operations at the El Chanate Project generate positive cash flow. In this regard
as of April 30, 2007, we have approximately $7,545,000, in cash and cash
equivalents. However, if we encounter unexpected problems and we are unable
to
generate positive cash flow in a timely manner, we may need to raise additional
capital. We also may need to raise additional capital for property acquisition
and new exploration. To the extent that we need to obtain additional capital,
management intends to raise such funds through the sale of our securities and/or
joint venturing with one or more strategic partners. We cannot assure that
adequate additional funding, if needed, will be available.
If
we
need additional capital and we are unable to obtain it from outside sources,
we
may be forced to reduce or curtail our operations or our anticipated exploration
activities.
Our
year end audited financial statements contain a “going concern” explanatory
paragraph. Our
inability to continue as a going concern would require a restatement of assets
and liabilities on a liquidation basis, which would differ materially and
adversely from the going concern basis on which our financial statements
included in this prospectus have been prepared.
Our
consolidated financial statements for the year ended July 31, 2006 included
herein have been prepared on the basis of accounting principles applicable
to a
going concern. Our auditors’ report on the consolidated financial statements
contained herein includes an additional explanatory paragraph following the
opinion paragraph on our ability to continue as a going concern. A note to
these
consolidated financial statements describes the reasons why there is substantial
doubt about our ability to continue as a going concern and our plans to address
this issue. Our July 31, 2006 and April 30, 2007 consolidated financial
statements do not include any adjustments that might result from the outcome
of
this uncertainty. Our inability to continue as a going concern would require
a
restatement of assets and liabilities on a liquidation basis, which would differ
materially and adversely from the going concern basis on which our consolidated
financial statements have been prepared. See, Management's
Discussion and Analysis of Financial Condition and Results of Operations;
Liquidity and Capital Resources; Plan of Operations.”
Our
Credit Facility with Standard Bank plc imposes restrictive covenants on us.
Our
Credit Facility with Standard Bank requires us, among other obligations, to
meet
certain financial covenants including (i) a debt service coverage ratio of
not
less than 1.2 to 1.0, (ii) a projected debt service coverage ratio of not less
than 1.2 to 1.0, (iii) a loan life coverage ratio of at least 1.6 to 1.0, (iv)
a
project life coverage ratio of at least 2.0 to 1.0 and (v) a minimum reserve
tail. We are also required to maintain a certain minimum level of unrestricted
cash. In addition, the Credit Facility restricts, among other things, our
ability to incur additional debt, create liens on our property, dispose of
any
assets, merge with other companies or make any investments. A failure to comply
with the restrictions contained in the Credit Facility could lead to an event
of
default thereunder which could result in an acceleration of such indebtedness.
We
will be using reconditioned and used equipment which could adversely affect
our
cost assumptions and our ability to economically and successfully mine the
project.
We
will
be using reconditioned and used carbon column collection equipment to recover
gold. Such equipment is subject to the risk of more frequent breakdowns and
need
for repair than new equipment. If the equipment that we use breaks down and
needs to be repaired or replaced, we will incur additional costs and operations
may be delayed resulting in lower amounts of gold recovered. In such event,
our
capital and operating cost assumptions may be inaccurate and our ability to
economically and successfully mine the project may be hampered, resulting in
decreased revenues and, possibly, a loss from operations.
As
a result of the projected short mine life of seven years, if major problems
develop, we will have limited time to correct these problems and we may have
to
cease operations earlier than planned.
Pursuant
to the 2005 Study as updated by the 2006 Update, the mine life will be only
approximately seven years. If major problems develop in the project, or we
fail
to achieve the operating efficiencies or costs projected in the feasibility
study, we will have limited time to find ways to correct these problems and
we
may have to cease operations earlier than planned.
The
gold deposit we have identified at El Chanate is relatively small and low-grade.
If our estimates and assumptions are inaccurate, our results of operation and
financial condition could be materially adversely affected.
The
gold
deposit we have identified at our El Chanate Project is relatively small and
low-grade. If the estimates of ore grade or recovery rates contained in the
feasibility study turn out to be higher than the actual ore grade and recovery
rates, if costs are higher than expected, or if we experience problems related
to the mining, processing, or recovery of gold from ore at the El Chanate
Project, our results of operation and financial condition could be materially
adversely affected. Moreover, it is possible that actual costs and economic
returns may differ materially from our best estimates. It is not unusual in
the
mining industry for new mining operations to experience unexpected problems
during the start-up phase and to require more capital than anticipated. There
can be no assurance that our operations at El Chanate will be
profitable.
Our
currently permitted water rights may not be adequate for all of our total
project needs over the entire course of our anticipated mining operations.
If we
need to obtain additional rights, but are unable to procure them our planned
operations may be adversely affected.
The
2005
feasibility study indicates our average life of mine water requirements, for
ore
processing only, will be about 94.6 million gallons per year (11.4 liters per
second). The amount of water we are currently permitted to pump for our
operations is approximately 71.3 million gallons per year (8.6 liters per
second). Our currently permitted water rights may not be adequate for all of
our
total project needs over the entire course of our anticipated mining operations.
We are looking into ways to rectify this issue and anticipate, but cannot
assure, that additional water may be acquired by purchasing a third party’s
allocation and/or water conservation through good operational practice. If
we
need to obtain additional rights, but are unable to procure them our planned
operations may be adversely affected.
We
have a limited number of prospects. As a result, our chances of conducting
viable mining operations are dependent upon the success of one
project.
Our
only
current properties are the El Chanate concessions and our Leadville properties.
At present, we are not doing any substantive work at our Leadville properties
and, in fact, have written these properties off. Accordingly, we are dependent
upon the success of the El Chanate concessions.
Gold
prices can fluctuate on a material and frequent basis due to numerous factors
beyond our control. If and when we commence production, our ability to generate
profits from operations could be materially and adversely affected by such
fluctuating prices.
The
profitability of any gold mining operations in which we have an interest will
be
significantly affected by changes in the market price of gold. Gold prices
fluctuate on a daily basis. During the first five months of 2007, the spot
price
for gold on the London Exchange has fluctuated between $608.30 and $691.40
per
ounce. During 2006, the spot price for gold on the London Exchange fluctuated
between $524.75 and $725.00 per ounce. Gold prices are affected by numerous
factors beyond our control, including:
|
·
|
the
level of interest rates,
|
|
·
|
world
supply of gold and
|
|
·
|
stability
of exchange rates.
|
Each
of
these factors can cause significant fluctuations in gold prices. Such external
factors are in turn influenced by changes in international investment patterns
and monetary systems and political developments. The price of gold has
historically fluctuated widely and, depending on the price of gold, revenues
from mining operations may not be sufficient to offset the costs of such
operations.
We
may not be successful in hedging against gold price and interest rate
fluctuations and may incur mark to market losses and lose money through our
hedging programs.
We
have
entered into metals trading transactions to hedge against fluctuations in gold
prices, using call option purchases and forward sales, and have entered into
various interest rate swap agreements. The terms of our Credit Facility with
Standard Bank require that we utilize various price hedging techniques to hedge
a portion of the gold we plan to produce at the El Chanate Project and hedge
at
least 50% of our outstanding loan balance. There can be no assurance that we
will be able to successfully hedge against gold price and interest rate
fluctuations.
Further,
there can be no assurance that the use of hedging techniques will always be
to
our benefit. Hedging instruments that protect against metals market price
volatility may prevent us from realizing the full benefit from subsequent
increases in market prices with respect to covered production, which would
cause
us to record a mark-to-market loss, decreasing our revenues and profits. Hedging
contracts also are subject to the risk that the other party may be unable or
unwilling to perform its obligations under these contracts. Any significant
nonperformance could have a material adverse effect on our financial condition,
results of operations and cash flows.
We
were
not in production on March 30, 2007, the first date upon which we were required
to settle a forward sale of 5,285 oz of gold with Standard Bank. Rather than
modifying the original Gold Price Protection agreement with Standard Bank to
satisfy this forward sale obligation, we opted for a net cash settlement between
the call option purchase price of $535 and the forward sale price of $500,
or
$35.00 per oz. We paid Standard Bank approximately $185,000 due to this
settlement with a corresponding reduction in our derivative liability. Going
forward, we expect to settle our forward sales at a time when the El Chanate
Project is in production. If we are unable for any reason to deliver the
quantity of gold required by our forward sales, we may need to net cash settle
these forward sales as we did on March 30, 2007, by paying Standard Bank the
difference between the call option purchase price and the forward sale price.
We
will not be able to deliver the quantity of gold required by our forward sale
as
of June 30, 2007, and therefore, will be required to net cash settle this
forward sale or amend the gold price protection agreement. The approximate
cost
of a net cash settlement would be $275,000; however, we believe we will be
able
to deliver the quantity of gold required by our forward sales on a going forward
basis. Continued financial settlement in cash of the forward sales could have
a
material adverse effect on our financial condition and cash flows.
Our
material property interests are in Mexico. Risks of doing business in a foreign
country could adversely affect our results of operations and financial
condition.
We
face
risks normally associated with any conduct of business in a foreign country
with
respect to our El Chanate Project in Sonora, Mexico, including various levels
of
political and economic risk. The occurrence of one or more of these events
could
have a material adverse impact on our efforts or operations which, in turn,
could have a material adverse impact on our cash flows, earnings, results of
operations and financial condition. These risks include the
following:
|
·
|
invalidity
of governmental orders,
|
|
·
|
uncertain
or unpredictable political, legal and economic
environments,
|
|
·
|
war
and civil disturbances,
|
|
·
|
changes
in laws or policies,
|
|
·
|
delays
in obtaining or the inability to obtain necessary governmental
permits,
|
|
·
|
governmental
seizure of land or mining claims,
|
|
·
|
limitations
on ownership,
|
|
·
|
limitations
on the repatriation of earnings,
|
|
·
|
increased
financial costs,
|
|
·
|
import
and export regulations, including restrictions on the export of gold,
and
|
|
·
|
foreign
exchange controls.
|
These
risks may limit or disrupt the project, restrict the movement of funds or impair
contract rights or result in the taking of property by nationalization or
expropriation without fair compensation.
We
anticipate selling gold in U.S. dollars; however, we incur a significant amount
of our expenses in Mexican pesos. If and when we sell gold, if applicable
currency exchange rates fluctuate our revenues and results of operations may
be
materially and adversely affected.
If
and
when we commence sales of gold, such sales will be made in U.S. dollars. We
incur a significant amount of our expenses in Mexican pesos. As a result, our
financial performance would be affected by fluctuations in the value of the
Mexican peso to the U.S. dollar.
Changes
in regulatory policy could adversely affect our exploration and future
production activities.
Any
changes in government policy may result in changes to laws
affecting:
|
·
|
environmental
regulations,
|
|
·
|
repatriation
of income and/or
|
Any
such
changes may affect our ability to undertake exploration and development
activities in respect of future properties in the manner currently contemplated,
as well as our ability to continue to explore, develop and operate those
properties in which we have an interest or in respect of which we have obtained
exploration and development rights to date. The possibility, particularly in
Mexico, that future governments may adopt substantially different policies,
which might extend to expropriation of assets, cannot be ruled out.
Compliance
with environmental regulations could adversely affect our exploration and future
production activities.
With
respect to environmental regulation, future environmental legislation could
require:
|
·
|
stricter
standards and enforcement,
|
|
·
|
increased
fines and penalties for non-compliance,
|
|
·
|
more
stringent environmental assessments of proposed projects and
|
|
·
|
a
heightened degree of responsibility for companies and their officers,
directors and employees.
|
There
can
be no assurance that future changes to environmental legislation and related
regulations, if any, will not adversely affect our operations. We could be
held
liable for environmental hazards that exist on the properties in which we hold
interests, whether caused by previous or existing owners or operators of the
properties. Any such liability could adversely affect our business and financial
condition.
We
have insurance against losses or liabilities that could arise from our
operations with the exception of our processing plant which is not yet fully
operational. We will obtain this insurance when the processing plant is
commissioned for use. If we incur material losses or liabilities in excess
of
our insurance coverage, our financial position could be materially and adversely
affected.
We
are in
the process of commencing mining operations. Mining operations involve a number
of risks and hazards, including:
|
·
|
metallurgical
and other processing,
|
|
·
|
mechanical
equipment and facility performance problems.
|
Such
risks could result in:
|
·
|
damage
to, or destruction of, mineral properties or production
facilities,
|
|
·
|
personal
injury or death,
|
|
·
|
monetary
losses and /or
|
|
·
|
possible
legal liability.
|
Industrial
accidents could have a material adverse effect on our future business and
operations. While we do not have insurance coverage on our processing plant,
we
anticipate obtaining such coverage when this plant is fully commissioned. We
currently maintain general liability, auto and property insurance coverage.
We
cannot be certain that the insurance we have (and will have) in place will
cover
all of the risks associated with mining or that we will be able to maintain
insurance to cover these risks at economically feasible premiums. We also might
become subject to liability for pollution or other hazards which we cannot
insure against or which we may elect not to insure against because of premium
costs or other reasons. Losses from such events may have a material adverse
effect on our financial position.
Calculation
of reserves and metal recovery dedicated to future production is not exact,
might not be accurate and might not accurately reflect the economic viability
of
our properties.
Reserve
estimates may not be accurate. There is a degree of uncertainty attributable
to
the calculation of reserves, resources and corresponding grades being dedicated
to future production. Until reserves or resources are actually mined and
processed, the quantity of reserves or resources and grades must be considered
as estimates only. In addition, the quantity of reserves or resources may vary
depending on metal prices. Any material change in the quantity of reserves,
resource grade or stripping ratio may affect the economic viability of our
properties. In addition, there can be no assurance that mineral recoveries
in
small scale laboratory tests will be duplicated in large tests under on-site
conditions or during production.
We
are dependent on the efforts of certain key personnel and contractors to develop
our El Chanate Project. If we lose the services of these personnel and
contractors and we are unable to replace them, our planned operations at our
El
Chanate Project may be disrupted and/or materially adversely
affected.
We
are
dependent on a relatively small number of key personnel, including but not
limited to John Brownlie, Chief Operating Officer, who oversees the El Chanate
Project, the loss of any one of whom could have an adverse effect on us. We
are
also dependent upon Sinergia to provide mining services. Sinergia
commenced mining operations on March 25, 2007, and remains in the pre-production
phase of the mining contract. Sinergia continues to mobilize portions of
its mining fleet to the site; however, its mining fleet is not new. If we lose
the services of our key personnel, or if Sinergia is unable to effectively
mobilize and maintain its fleet, our planned operations at our El Chanate
Project may be disrupted and/or materially adversely affected.
There
are uncertainties as to title matters in the mining industry. We believe that
we
have good title to our properties; however, any defects in such title that
cause
us to lose our rights in mineral properties could jeopardize our planned
business operations.
We
have
investigated our rights to explore, exploit and develop our concessions in
manners consistent with industry practice and, to the best of our knowledge,
those rights are in good standing. However, we cannot assure that the title
to
or our rights of ownership in the El Chanate concessions will not be challenged
or impugned by third parties or governmental agencies. In addition, there can
be
no assurance that the concessions in which we have an interest are not subject
to prior unregistered agreements, transfers or claims and title may be affected
by undetected defects. Any such defects could have a material adverse effect
on
us.
Should
we successfully commence mining operations in Mexico, our ability to remain
profitable long term, should we become profitable, eventually will depend on
our
ability to find, explore and develop additional properties. Our ability to
acquire such additional properties will be hindered by competition. If we are
unable to acquire, develop and economically mine additional properties, we
most
likely will not be able to be profitable on a long-term
basis.
Gold
properties are wasting assets. They eventually become depleted or uneconomical
to continue mining. The acquisition of gold properties and their exploration
and
development are subject to intense competition. Companies with greater financial
resources, larger staffs, more experience and more equipment for exploration
and
development may be in a better position than us to compete for such mineral
properties. If we are unable to find, develop and economically mine new
properties, we most likely will not be able to be profitable on a long-term
basis.
Our
ability on a going forward basis to discover additional viable and economic
mineral reserves is subject to numerous factors, most of which are beyond our
control and are not predictable. If we are unable to discover such reserves,
we
most likely will not be able to be profitable on a long-term
basis.
Exploration
for gold is speculative in nature, involves many risks and is frequently
unsuccessful. Few properties that are explored are ultimately developed into
commercially producing mines. As noted above, our long-term profitability will
be, in part, directly related to the cost and success of exploration programs.
Any gold exploration program entails risks relating to
|
·
|
the
location of economic ore bodies,
|
|
·
|
development
of appropriate metallurgical processes,
|
|
·
|
receipt
of necessary governmental approvals and
|
|
·
|
construction
of mining and processing facilities at any site chosen for mining.
|
The
commercial viability of a mineral deposit is dependent on a number of factors
including:
|
·
|
the
particular attributes of the deposit, such as its
|
|
o
|
proximity
to infrastructure,
|
|
·
|
importing
and exporting gold and
|
|
·
|
environmental
protection.
|
The
effect of these factors cannot be accurately predicted.
Risks
related to ownership of our stock
There
is a limited market for our common stock. If a substantial and sustained market
for our common stock does not develop, our stockholders may have difficulty
selling, or be unable to sell, their shares.
Our
common stock is tradable in the United States in the over-the-counter market
and
is quoted on the Over-The-Counter Bulletin Board and our shares of common stock
trade on the Toronto Stock Exchange. There is only a limited market for our
common stock and there can be no assurance that this market will be maintained
or broadened. If a substantial and sustained market for our common stock does
not develop, our stockholders may have difficulty selling, or be unable to
sell,
their shares.
Our
stock price may be adversely affected if a significant amount of shares,
including those offered herein, are sold in the public
market.
As
of
June 19, 2006, approximately 82,712,341 shares of our common stock, constituted
"restricted securities" as defined in Rule 144 under the Securities Act of
1933.
We have registered herein and in prior registration statements more than half
of
these shares for public resale. In addition, we have registered herein and
in
prior registration statements 23,906,542 shares
of
common stock issuable upon the exercise of outstanding warrants and options.
All
of the foregoing shares, assuming exercise of all of the above options and
warrants, would represent in excess of 50% of the then outstanding shares of
our
common stock. Registration
of the shares permits the sale of the shares in the open market or in privately
negotiated transactions without compliance with the requirements of Rule 144.
To
the extent the exercise price of the warrants or options is less than the market
price of the common stock, the holders of the warrants are likely to exercise
them and sell the underlying shares of common stock and to the extent that
the
exercise prices of these securities are adjusted pursuant to anti-dilution
protection, the securities could be exercisable or convertible for even more
shares of common stock. We
also
may
issue
shares
to be used to meet our capital requirements or use shares to compensate
employees, consultants and/or directors. We are unable to estimate the amount,
timing or nature of future sales of outstanding common stock. Sales of
substantial amounts of our common stock in the public market could cause the
market price for our common stock to decrease. Furthermore, a decline in the
price of our common stock would likely impede our ability to raise capital
through the issuance of additional shares of common stock or other equity
securities.
We
do not intend to pay cash dividends in the near future.
Our
board
of directors determines whether to pay cash dividends on our issued and
outstanding shares. The declaration of dividends will depend upon our future
earnings, our capital requirements, our financial condition and other relevant
factors. Our board does not intend to declare any dividends on our shares for
the foreseeable future. We anticipate that we will retain any earnings to
finance the growth of our business and for general corporate purposes.
Provisions
of our Certificate of Incorporation, By-laws and Delaware law could defer a
change of our management which could discourage or delay offers to acquire
us.
Provisions
of our Certificate of Incorporation, By-laws and Delaware law may make it more
difficult for someone to acquire control of us or for our stockholders to remove
existing management, and might discourage a third party from offering to acquire
us, even if a change in control or in management would be beneficial to our
stockholders. For example, our Certificate of Incorporation allows us to issue
different series of shares of common stock without any vote or further action
by
our stockholders and our Board of Directors has the authority to fix and
determine the relative rights and preferences of such series of common stock.
As
a result, our Board of Directors could authorize the issuance of a series of
common stock that would grant to holders the preferred right to our assets
upon
liquidation, the right to receive dividend payments before dividends are
distributed to the holders of other common stock and the right to the redemption
of the shares, together with a premium, prior to the redemption of other series
of our common stock.
If
our common stock is deemed to be a "penny stock," trading of our shares would
be
subject to special requirements that could impede our stockholders' ability
to
resell their shares.
Generally,
"penny stocks" as that term is defined in Rule 3a51-1 of the Securities and
Exchange Commission are stocks:
|
i.
|
with
a price of less than five dollars per share;
or
|
|
ii.
|
of
issuers with net tangible assets equal to or less than
|
|
§
|
-$2,000,000
if the issuer has been in continuous operation for at least three
years;
or
|
|
§
|
-$5,000,000
if in continuous operation for less than three years,
or
|
|
§
|
of
issuers with average revenues of less than $6,000,000 for the last
three
years.
|
Our
common stock is not currently a penny stock because we have net tangible assets
of more than $2,000,000. Should our net tangible assets drop below $2,000,000
and we do not meet any of the other criteria for exclusion of our common stock
from the definition of penny stock, our common stock will be a penny
stock.
Section
15(g) of the Exchange Act, and Rule 15g-2 of the Securities and Exchange
Commission, require broker-dealers dealing in penny stocks to provide potential
investors with a document disclosing the risks of penny stocks and to obtain
a
manually signed and dated written receipt of the document before effecting
any
transaction in a penny stock for the investor's account. Moreover, Rule 15g-9
of
the Securities and Exchange Commission requires broker-dealers in penny stocks
to approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer:
i.
|
to
obtain from the investor information concerning his or her financial
situation, investment experience and investment objectives;
|
ii.
|
to
determine reasonably, based on that information, that transactions
in
penny stocks are suitable for the investor and that the investor
has
sufficient knowledge and experience as to be reasonably capable of
evaluating the risks of penny stock transactions;
|
iii.
|
to
provide the investor with a written statement setting forth the basis
on
which the broker-dealer made the determination in (ii) above; and
|
iv.
|
to
receive a signed and dated copy of such statement from the investor,
confirming that it accurately reflects the investor's financial situation,
investment experience and investment objectives.
|
Should
our common stock be deemed to be a penny stock, compliance with the above
requirements may make it more difficult for holders of our common stock to
resell their shares to third parties or to otherwise dispose of them.
FORWARD-LOOKING
STATEMENTS
Risks
Associated With Forward-Looking Statements
Certain
statements in this prospectus constitute “forwarding-looking statements” within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the
Securities and Exchange Act of 1934. Certain, but not necessarily all, of such
forward-looking statements can be identified by the use of forward-looking
terminology such as “believes,” “expects,” “may,” “will,” “should,” or
“anticipates” or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy that involve risks and uncertainties.
All statements other than statements of historical fact, included in this
prospectus regarding our financial position, business and plans or objectives
for future operations are forward-looking statements. Without limiting the
broader description of forward-looking statements above, we specifically note
that statements regarding exploration, costs, grade, production and recovery
rates, permitting, financing needs and the availability of financing on
acceptable terms or other sources of funding are all forward-looking in nature.
Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors, including but not limited to, the risk factors discussed above,
which may cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements and other factors referenced in
this
prospectus. We do not undertake and specifically decline any obligation to
publicly release the results of any revisions which may be made to any
forward-looking statement to reflect events or circumstances after the date
of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
USE
OF PROCEEDS
Proceeds,
if any, from stockholders exercising some or all of the warrants and options
will be used for future exploration and/or acquisitions and for working capital.
DIVIDEND
POLICY
We
have
not paid any cash dividends since our inception and do not anticipate paying
cash dividends in the foreseeable future.
PRICE
RANGE OF COMMON STOCK
Our
common stock is quoted on the OTC Bulletin Board under the symbol " CGLD.
"
The
following table sets forth the range of high and low closing bid quotes of
our
common stock per quarter for the past two fiscal years and the first three
fiscal quarters of the year ending July 31, 2007 as reported by the OTC Bulletin
Board (which reflect inter-dealer prices without retail mark-up, mark-down
or
commission and may not necessary represent actual transactions).
Quarter
Ending
|
|
High
|
and
|
Low
|
|
April
30, 2007
|
|
|
0.47
|
|
|
0.37
|
|
January
31, 2007
|
|
|
0.41
|
|
|
0.31
|
|
October
31, 2006
|
|
|
0.33
|
|
|
0.28
|
|
|
|
|
|
|
|
|
|
July
31, 2006
|
|
|
0.43
|
|
|
0.32
|
|
April
30, 2006
|
|
|
0.39
|
|
|
0.33
|
|
January
31, 2006
|
|
|
0.42
|
|
|
0.28
|
|
October
31, 2005
|
|
|
0.27
|
|
|
0.17
|
|
|
|
|
|
|
|
|
|
July
31, 2005
|
|
|
0.24
|
|
|
0.16
|
|
April
30, 2005
|
|
|
0.40
|
|
|
0.17
|
|
January
31, 2005
|
|
|
0.39
|
|
|
0.23
|
|
October
31, 2004
|
|
|
0.33
|
|
|
0.19
|
|
As
of
March 22, 2006, our common stock began trading on the Toronto Stock Exchange
under the symbol "CGC." The high and low trading prices for our Common stock
for
the periods indicated below are as follows:
Period
Ending
|
|
High
|
and
|
Low
|
|
|
|
US$/CDN$
|
|
US$/CDN$
|
|
Quarter
ended April 30, 2007
|
|
|
0.52/0.60
|
|
|
0.36/0.42
|
|
Quarter
ended January 31, 2007
|
|
|
0.42/0.49
|
|
|
0.27/0.31
|
|
Quarter
ended October 31, 2006
|
|
|
0.36/0.40
|
|
|
0.28/0.32
|
|
Quarter
ended July 31, 2006
|
|
|
0.49/0.55
|
|
|
0.28/0.32
|
|
March
22 2006 - April 30, 2006
|
|
|
0.44/0.50
|
|
|
0.33/0.37
|
|
The
last
reported sales price per share of our common stock as reported by the OTC
Bulletin Board on June 19, 2007, was $0.40. On June 19, 2007, the closing price
of our common stock on the TSX was $0.43 CDN (approximately $0.40 USD).
As
of June 19, 2007, there were approximately 1,880 holders of record of our common
stock not including holders in street name.
SELECTED
CONSOLIDATED FINANCIAL DATA
Our
selected historical consolidated financial information presented as of July
31,
2002, 2003, 2004, 2005 and 2006 and for each of the five years ended July 31,
2006 was derived from our audited consolidated financial statements. Our
selected historical financial information presented as of April 30, 2006 and
2007 and for the nine month periods ended April 30, 2006 and 2007 are unaudited.
Operating results for the nine months ended April 30, 2007 are not necessarily
indicative of the results that may be expected for the year ending July 31,
2007. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for fair presentation have been
included.
This
information should be read in conjunction with the historical consolidated
financial statements and related notes included herein, and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
Statements
of Operations Data
|
|
For
the Years Ended
|
|
|
|
July
31,
|
|
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
Revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
$ -
|
|
$
|
-
|
|
|
|
|
Mine
Expenses
|
|
$
|
709,961
|
|
$
|
1,028,899
|
|
$
|
673,050
|
|
$
|
851,374
|
|
$
|
1,940,805
|
|
Selling,
General and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative
|
|
$
|
639,652
|
|
$
|
770,629
|
|
$
|
687,722
|
|
$
|
1,005,038
|
|
$
|
2,135,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stocks
and Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
for Services
|
|
$
|
222,338
|
|
$
|
288,623
|
|
$
|
379,033
|
|
$
|
187,844
|
|
$
|
89,391
|
|
Depreciation
&
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
$
|
3,105
|
|
$
|
-
|
|
$
|
-
|
|
$
|
7,431
|
|
$
|
38,969
|
|
Total
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Expense)
|
|
$
|
2,027,810
|
|
$
|
(11,735
|
)
|
$
|
(950,005
|
)
|
$
|
46,005
|
|
$
|
(600,034
|
)
|
Minority
Interest
|
|
$
|
54,543
|
|
$
|
180,625
|
|
$
|
51,220
|
|
$
|
-
|
|
$
|
-
|
|
Write
Down of Mining,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milling
and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment
|
|
$
|
999,445
|
|
$
|
-
|
|
$
|
300,000
|
|
$
|
-
|
|
$
|
-
|
|
Net
Loss
|
|
$
|
(492,148
|
)
|
$
|
(1,919,261
|
)
|
$
|
(2,938,590
|
)
|
$
|
(2,005,682
|
)
|
$
|
(4,804,692
|
)
|
|
|
For
the Nine months Ended
|
|
|
|
April
30,
|
|
|
|
2006
|
|
2007
|
|
|
|
(consolidated)
|
|
(consolidated)
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
Revenues
|
|
$
|
-
|
|
$
|
-
|
|
Mine
Expenses
|
|
$
|
1,528,653
|
|
$
|
743,334
|
|
Selling,
General and
|
|
|
|
|
|
|
|
Administrative
|
|
$
|
1,377,104
|
|
$
|
2,151,362
|
|
Stock
& Warrants
|
|
|
|
|
|
|
|
Issued
for Services
|
|
$
|
6,585
|
|
$
|
153,093
|
|
Exploration
|
|
$
|
-
|
|
$
|
581,395
|
|
Depreciation
& Amortization
|
|
$
|
27,000
|
|
$
|
631,797
|
|
Total
Other Income (Expense)
|
|
$
|
(276,814
|
)
|
$
|
(1,222,586
|
)
|
Net
Loss
|
|
$
|
(3,216,156
|
)
|
$
|
(
5,483,568
|
)
|
Cash
Flows Data
|
|
For
the Years Ended
|
|
|
|
July
31,
|
|
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash (Used) in Operations
|
|
$
|
(1,094,098
|
)
|
$
|
(1,889,349
|
)
|
$
|
(1,423,372
|
)
|
$
|
(1,841,821
|
)
|
$
|
(8,720,598
|
)
|
Net
Cash Provided by (Used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
$
|
670,886
|
|
$
|
1,429,249
|
|
$
|
2,992
|
|
$
|
(712,868
|
)
|
$
|
(618,774
|
)
|
Net
Cash Provided by Financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activities
|
|
$
|
511,453
|
|
$
|
494,601
|
|
$
|
1,362,776
|
|
$
|
6,598,819
|
|
$
|
(7,753,817
|
)
|
Effects
of Exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rates
on Cash
|
|
$
|
(
2,728
|
)
|
$
|
62,476
|
|
$
|
19,637
|
|
$
|
28,975
|
|
$
|
45,506
|
|
Net
Increase (Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
Cash
|
|
$
|
85,513
|
|
$
|
96,977
|
|
$
|
(37,967
|
)
|
$
|
4,073,105
|
|
$
|
(1,540,050
|
)
|
|
|
For
the Nine months Ended
|
|
|
|
April
30,
|
|
|
|
2006
|
|
2007
|
|
|
|
(Consolidated)
|
|
(Consolidated)
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
Net
Cash Provided by
|
|
|
|
|
|
(Used
in) Operating Activities
|
|
$
|
(
8,042,665
|
)
|
$
|
(
243,808
|
)
|
Net
Cash Used in
|
|
|
|
|
|
|
|
Investing
Activities
|
|
$
|
(
238,801
|
)
|
$
|
(15,608,385
|
)
|
Net
Cash Provided By
|
|
|
|
|
|
|
|
(Used
In) Financing Activities
|
|
$
|
(
7,940,844
|
)
|
$
|
20,393,614
|
|
Effects
of Exchange
|
|
|
|
|
|
|
|
Rates
on Cash
|
|
$
|
(
40,776
|
)
|
$
|
262,265
|
|
Net
Increase (Decrease) in
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
(
381,398
|
)
|
$
|
4,803,686
|
|
|
|
Balance
Sheet Data
|
|
|
|
As
of July 31,
|
|
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
(consolidated)
|
|
Cash
and Cash Equivalents
|
|
$
|
149,433
|
|
$
|
246,410
|
|
$
|
208,443
|
|
$
|
4,281,548
|
|
$
|
2,741,498
|
|
Total
Current Assets
|
|
$
|
1,659,888
|
|
$
|
359,960
|
|
$
|
387,098
|
|
$
|
4,522,807
|
|
$
|
7,647,169
|
|
Mining
Concessions
|
|
$
|
-
|
|
$
|
-
|
|
$
|
44,780
|
|
$
|
70,104
$
|
|
|
70,104
|
|
Property
and Equipment (Net)
|
|
$
|
346,378
|
|
$
|
344,780
|
|
$
|
-
|
|
$
|
650,941
|
|
$
|
1,035,972
|
|
Intangible
Assets (Net)
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
17,842
|
|
$
|
13,800
|
|
Total
Assets
|
|
$
|
2,056,851
|
|
$
|
761,607
|
|
$
|
485,753
|
|
$
|
5,551,871
|
|
$
|
9,545,580
|
|
Total
Current Liabilities
|
|
$
|
467,017
|
|
$
|
254,299
|
|
$
|
204,159
|
|
$
|
282,816
|
|
$
|
615,643
|
|
Total
Long-term Liabilities
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Stockholders’
Equity
|
|
$
|
1,622,119
|
|
$
|
651,000
|
|
$
|
281,594
|
|
$
|
5,269,055
|
|
$
|
8,929,937
|
|
|
|
As
of April 30
|
|
|
|
2006
|
|
2007
|
|
|
|
(consolidated)
|
|
(consolidated)
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
Cash
& Cash Equivalents
|
|
$
|
3,900,150
|
|
$
|
7,545,184
|
|
Total
Current Assets
|
|
$
|
8,676,720
|
|
$
|
10,718,666
|
|
Mining
Concessions
|
|
$
|
70,104
|
|
$
|
70,104
|
|
Intangible
Assets (Net)
|
|
$
|
14,833
|
|
$
|
580,267
|
|
Property
and Equipment (Net)
|
|
$
|
986,435
|
|
$
|
15,749,270
|
|
Total
Assets
|
|
$
|
10,535,564
|
|
$
|
27,854,550
|
|
Total
Current Liabilities
|
|
$
|
462,992
|
|
$
|
1,360,166
|
|
Total
Long-term Liabilities
|
|
$
|
-
|
|
$
|
13,227,776
|
|
Stockholders’
Equity
|
|
$
|
10,072,572
|
|
$
|
13,266,608
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You
should read the following discussion and analysis of our financial condition
and
results of operations in conjunction with our consolidated financial statements
and related notes included elsewhere in this prospectus. This discussion and
analysis and plan of operations contains forward-looking statements that involve
risks, uncertainties and assumptions. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of a
number of factors including, but not limited to, those set forth under "Risk
Factors" and elsewhere in this prospectus.
Result
of Operations
Nine
months Ended April 30, 2007 compared to Nine months Ended April 30,
2006
Net
Loss
Our
net
loss for the nine months ended April 30, 2007 was approximately $5,484,000,
an
increase of approximately $2,267,000 or 71% from the nine months ended April
30,
2006. As discussed below, the primary reasons for the increase in loss during
the nine months ended April 30, 2007 were: 1) an increase in selling, general
and administrative expenses of approximately $774,000; 2) an increase in
depreciation and amortization expense of approximately $605,000; 3) an increase
in exploration expenditures of approximately $581,000; 4) losses of
approximately $485,000 in the 2007 period due to the change in fair value of
our
derivative instruments; and 5) an increase in interest expense of approximately
$485,000. These increases in loss were offset by a decrease in mine expenses
of
approximately $785,000 due to higher planning and engineering costs being
expensed in the prior period. Net loss per share was $.04 and $.03 for the
nine
months ended April 30, 2007 and 2006, respectively.
Revenues
We
generated no revenues from mining operations during the nine months ended April
30, 2007 and 2006. There were de minimis non-operating revenues during the
nine
months ended April 30, 2007 and 2006 of approximately $98,000 and $85,000,
respectively. These non-operating revenues primarily represent interest
income.
Mine
Expenses
Mine
expenses during the nine months ended April 30, 2007 were $743,000, a decrease
of $785,000 or 51% from the nine months ended April 30, 2006. Mine expenses
were
lower in the 2007 versus the same period a year earlier primarily due to higher
engineering and planning costs related to our El Chanate Project being expensed
in the prior period.
Selling,
General and Administration Expense
Selling,
general and administrative expenses during the nine months ended April 30,
2007
were $2,151,000, an increase of approximately $774,000 or 56% from the nine
months ended April 30, 2006. The increase in selling, general and administrative
expenses resulted primarily from higher salaries and wages, higher professional
and consulting fees as well as an increase in insurance costs versus the same
period a year earlier.
Stocks
and Warrants Issued for Services
Stocks
and warrants issued for services during the nine months ended April 30, 2007
were $153,000 as compared to $7,000 in costs for the same period a year earlier.
This increase primarily resulted from the issuance of stock options to our
independent directors, SEC counsel, and outside Canadian Counsel as well as
an
issuance of shares of common stock to an independent contractor for services
provided related to our El Chanate project.
Exploration
Expense
Exploration
expense during the nine months ended April 30, 2007 was approximately $581,000.
There were no exploration expenses during the nine months ended April 30, 2006.
The primary reason for the increase can be attributed to our 72-hole drilling
campaign to determine additional proven and probable gold reserves at the El
Chanate Project. The 72 holes totaled approximately 8,200 meters, and are
positioned to fill in gaps in the ore body and test the outer limits of the
currently known ore zones. We have received all of the assayed samples. See
“Current
Status of El Chanate”
in
“Our
Business”
below.
Depreciation
and Amortization
Depreciation
and amortization expense during the nine months ended April 30, 2007 and 2006
was approximately $632,000 and $27,000, respectively. The primary reason for
the
increase was due to amortization charges on deferred financing costs resulting
from the Credit Facility entered into in August 2006 with Standard Bank Plc.
This accounted for approximately $604,000 of the increase in the 2007 period
versus the same period a year ago.
Other
Income and Expense
Our
loss
on the change in fair value of derivative instruments during the nine months
ended April 30, 2007 and 2006, was approximately $847,000 and $362,000,
respectively. This
was
primarily due to us entering into two identically structured derivative
contracts with Standard Bank in March 2006. Each derivative consisted of a
series of forward sales of gold and a purchase gold cap. We agreed to sell
a
total volume of 121,927 ounces of gold forward to Standard Bank at a price
of
$500 per ounce on a quarterly basis during the period from March 2007 to
September 2010. We also agreed to a purchase gold cap on a quarterly basis
during this same period and at identical volumes covering a total volume of
121,927 ounces of gold at a price of $535 per ounce. While the period of the
derivative contracts has commenced, we do not anticipate any material adverse
effect from the fact that we have not commenced to sell gold because the price
of gold is substantially above $535 per ounce. Under FASB Statement No. 133,
“Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”),
these contracts must be carried on the balance sheet at their fair value, with
changes to the fair value of these contracts reflected as Other
Income or Expense.
These
contracts were not designated as hedging derivatives; and therefore, special
hedge accounting does not apply.
The
first
derivative was entered into on March 1, 2006 for a premium of $550,000; and
the
second was entered into on March 30, 2006 for a premium of $250,000. The gold
price rose sharply in second quarter 2006, and was the primary reason for the
decrease in premium on the derivative contracts. The change in fair value during
the nine months ended April 30, 2007 reduced the carrying value on these
derivative contracts by approximately $847,000, and was reflected as an other
expense during the 2007 period.
Interest
expense was approximately $473,000 for the nine months ended April 30, 2007
versus no such expense for the same period in 2006. This increase was mainly
due
to interest expense associated with our outstanding balances on our draw downs
associated with the Credit Facility entered into in August 2006 with Standard
Bank Plc related to project costs for our El Chanate Project.
Changes
in Foreign Exchange Rates
During
the nine months ended April 30, 2007, we recorded equity adjustments from
foreign currency translations of approximately $262,000. These translation
adjustments are related to changes in the rates of exchange between the Mexican
Peso and the US dollar.
Fiscal
year ended July 31, 2006 compared to fiscal year ended July 31,
2005
Net
Loss
Our
net
loss for the year ended July 31, 2006 was approximately $4,805,000, an increase
of approximately $2,799,000 or 140% from the fiscal year ended July 31, 2005.
The primary reasons for the increase in loss during the fiscal year ended July
31, 2006 was due to 1) an increase in mine related expenditures of approximately
$1,090,000 in the current period, 2) an increase in selling, general and
administrative expenses of approximately $1,130,000 as compared to the same
period a year ago, 3) losses of approximately $582,000 in the current period
due
to the change in fair value of our derivative instruments, 4) loss on sale
of
equipment in the current period of approximately $202,000, including commission
paid, and 5) increase in stock compensation expense in the current period as
compared to a year ago. Net loss per share was $0.04 and $0.03 for the fiscal
year ended July 31, 2006 and 2005, respectively.
Revenues
We
generated no revenues from mining operations during the fiscal years ended
July
31, 2006 and 2005. There were de minimis non-operating revenues during the
fiscal year ended July 31, 2006 and 2005 of approximately $184,000 and $46,000,
respectively. These non-operating revenues primarily represent interest and
miscellaneous income.
Mine
Expenses
Mine
expenses during the fiscal year ended July 31, 2006 were $1,941,000, an increase
of $1,090,000 or 128% from the fiscal year ended July 31, 2005. The increase
in
mine expenses was primarily due to an increase in professional, engineering
and
consulting costs over the same period a year ago as we ramped up our engineering
and planning on our El Chanate Project for production. Our ability to ramp
up
these activities was due to our receipt of significant funds from our financing
activities.
Selling,
General and Administration Expense
Selling,
general and administrative expenses during the fiscal year ended July 31, 2006
were $2,135,000, an increase of $1,130,000 or 112% from the fiscal year ended
July 31, 2005. The increase in selling, general and administrative expenses
resulted primarily from an increase in professional and consulting fees related
to investor relations and accounting, listing fees with the TSX and travel
expenses incurred during the fiscal year ended July 31, 2006. The increase
also
resulted from charges related to options granted to employees during the current
period of approximately $272,000 due to the adoption of SFAS 123R.
Stock
and Warrants Issued for Services
Stock
based compensation during the fiscal years ended July 31, 2006 and 2005 was
approximately $89,000 and $188,000, respectively. These charges resulted from
options granted to non-employees for services rendered during the fiscal years
ended July 31, 2006 and 2005.
Depreciation
and Amortization
Depreciation
and amortization expenses during the fiscal years ended July 31, 2006 and 2005
were approximately $39,000 and 7,000, respectively. The primary reason for
the
increase was due to the addition of property and equipment placed into service
during the 2006 period, mostly related to the El Chanate Project.
Other
Expense
Other
expense during the fiscal year ended July 31, 2006, was approximately $782,000.
This was primarily due to us entering into two identically structured derivative
contracts with Standard Bank in March 2006. Each derivative consisted of a
series of forward sales of gold and a purchase gold cap. We agreed to sell
a
total volume of 121,927 ounces of gold forward to Standard Bank at a price
of
$500 per ounce on a quarterly basis during the period from March 2007 to
September 2010. We also agreed to a purchase gold cap on a quarterly basis
during this same period and at identical volumes covering a total volume of
121,927 ounces of gold at a price of $535 per ounce. Under FASB Statement No.
133, “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”),
these contracts must be carried on the balance sheet at their fair value, with
changes to the fair value of these contracts reflected as Other Income or
Expense. These contracts were not designated as hedging derivatives; and
therefore, special hedge accounting does not apply.
The
first
derivative was entered into on March 1, 2006 for a premium of $550,000; and
the
second was entered into on March 30, 2006 for a premium of $250,000. The gold
price rose sharply in second quarter 2006, and was the primary reason for the
decrease in premium on the derivative contracts. The change in fair value during
the fiscal year ended July 31, 2006 reduced the carrying value on these
derivative contracts by approximately $582,000, and was reflected as an other
expense during the current period. There was no such transactions entered into
during the same period in 2005.
During
the fiscal year ended July 31, 2006, we also sold our Equipment Held for Resale
and received proceeds, net of commissions, of $192,000. We recorded a loss
on
sale of this equipment of approximately $202,000.
Loss
from Changes in Foreign Exchange Rates
During
the fiscal year ended July 31, 2006, we recorded equity adjustments from foreign
currency translations of approximately $49,000. These translation adjustments
are related to changes in the rates of exchange between the Mexican Peso and
the
US dollar.
Liquidity
and Capital Resources; Plan of Operations
As
of
April 30, 2007, we had working capital of approximately $9,359,000, compared
to
$7,031,500 as of July 31, 2006, an increase of $2,327,500. Cash
used
in operating activities for the nine months ended April 30, 2007 was
approximately $244,000, which primarily represents cash costs of our mining
operation at El Chanate for the month of April 2007.
Cash
used
in investing activities for the nine months ending April 30, 2007, amounted
to
$15,608,000, primarily from the purchase and erection of property, plant and
equipment related to our El Chanate Project. Cash provided by financing
activities for the nine months ended April 30, 2007 amounted to $20,394,000,
primarily from proceeds from our Credit Facility of $12,000,000 and
approximately $8,655,000 in proceeds from the sale of common stock and
exercising of warrants. Our
plans
over the next 12 months primarily include: 1) completing construction of the
ADR
plant and refinery; 2) completing the logging of assays received related to
our
drilling campaign, initiated in February 2007, designed to determine if an
increase in our proven and probable gold reserves is warranted; 3) commencing
gold production; and 4) possible exploration and/or acquisitions in northern
Mexico. Mining operations at El Chanate began March 25, 2007, with revenues
anticipated to begin by the end of our fiscal year ending July 31, 2007. We
believe, but cannot assure, that we have sufficient available funds to cover
our
mining activities at El Chanate and general and administrative expenses until
revenues from gold mining operations at El Chanate reach positive cash flow.
We
also anticipate that we have sufficient funds to conduct exploration/acquisition
activities.
Historically,
we have not generated any material revenues from operations and have been in
a
precarious financial condition. Our consolidated financial statements have
been
prepared on a going concern basis, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business. We have
recurring losses from operations. Our primary source of funds during the nine
months ended April 30, 2007 was from the sale and issuance of equity securities
as well as proceeds from our Credit Facility with Standard Bank for the El
Chanate Project. We anticipate that our operations and project costs through
fiscal 2007 will be funded from the proceeds from our recent private placements
and warrant exercises as well as our Credit Facility. The private placements
of
our securities and the Standard Bank Credit Facility are discussed below.
January
2007 Private Placements & Warrant Exercises
We
closed
two private placements in January 2007 pursuant to which we issued an aggregate
of 12,561,667 units, each unit consisting of one share of our common stock
and a
warrant to purchase ¼ of a share of our common stock for proceeds of
approximately $3,486,000, net of commissions of approximately $283,000. During
the nine months ended April 30, 2007, we also received proceeds of approximately
$5,169,523, from the exercising of an aggregate of 20,282,454 warrants issued
in
past private placements discussed below. The Warrant issued to each purchaser
in
the January 2007 Private Placement is exercisable for one share of our common
stock, at an exercise price equal to $0.40 per share. Each Warrant has a term
of
eighteen months and is fully exercisable from the date of issuance. We issued
to
the placement agents eighteen month warrants to purchase up to an aggregate
of
942,125 shares of our common stock at an exercise price of $0.30 per share.
Such
placement agent warrants are valued at approximately $142,000 using the
Black-Scholes option pricing method.
In
May
2007, we received proceeds of $233,500 from the exercising of an aggregate
of
934,000 warrants issued in past private placements and $154,100 from the
exercising of an aggregate of 700,455 warrants issued to officers, directors
and
an employee.
February
2006 Private Placements & Warrant Exercises
We
closed
two private placements in 2006 pursuant to which we issued an aggregate of
21,240,000 units, each unit consisting of one share of our common stock and
a
warrant to purchase ¼ of a share of our common stock for net proceeds of
$4,999,500, net of commissions of $310,500. We also received net proceeds of
$2,373,570, net of commissions of $206,430, from the exercising of 8,600,000
warrants in February 2006. The Warrant issued to each purchaser is exercisable
for one share of our common stock, at an exercise price equal to $0.30 per
share. Each Warrant has a term of eighteen months and is fully exercisable
from
the date of issuance. We issued to the placement agent in one of the placements
eighteen month warrants to purchase up to 934,000 shares of our common stock
at
an exercise price of $0.25 per share. Such placement agent warrants are valued
at approximately $189,000 using the Black-Scholes option pricing method.
February
2005 Private Placement
In
the
private placement that closed in February 2005, we issued 27,200,004 units,
each
unit consisting of one shares of our common stock and one common stock Purchase
Warrant for an aggregate gross purchase price of approximately $6,800,000 and
we
received approximately $6,200,000 in net proceeds. The Warrant issued to each
purchaser was originally exercisable for one share of our common stock, at
an
exercise price equal to $0.30 per share. We temporarily lowered the exercise
price of the Warrants to $0.20 per shares for the period commencing on November
28, 2005 and ending on January 31, 2006, after which time the exercise price
increased back to $0.30 per share Each Warrant had a term of two years
and was fully exercisable from the date of issuance. These warrants, to the
extent that they were not exercised, expired in February 2007. We issued to
the
placement agent two year warrants to purchase up to 2,702,000 shares of our
common stock at an exercise price of $0.25 per share. Such placement agent
warrants are valued at approximately $414,000 using the Black-Scholes option
pricing method.
All of
the warrants issued in conjunction with this private placement were either
exercised or expired within the term limit.
Registration
of Shares
Pursuant
to our agreements with the purchasers in all of the above private placements
we
have registered the foregoing shares and shares issuable upon the exercise
of
the foregoing warrants for public resale. In this regard, the shares issued
in
the January 2007 Private Placement and the shares issuable upon exercise of
the
warrants issued in that placement have been registered for public resale in
this
registration statement. We also agreed to prepare and file all amendments and
supplements necessary to keep the registration statements effective until the
earlier of the date on which the selling stockholders may resell all the
registrable shares covered by the registration statements without volume
restrictions pursuant to Rule 144(k) under the Securities Act or any
successor rule of similar effect and the date on which the selling stockholders
have sold all the shares covered by the registration statements. If, subject
to
certain exceptions, sales of all shares registered from the 2005 Private
Placement cannot be made pursuant to the registration statement, we will be
required to pay to these selling stockholders in cash or, at our option, in
shares, their pro rata share of 0.0833% of the aggregate market value of the
registrable shares held by these selling stockholders for each month thereafter
until sales of the registrable shares can again be made pursuant to the
registration statement. In this regard, we paid $7,100 to the purchasers
representing liquidated damages incurred during a period when that registration
statement was not current. That registration statement was subsequently declared
effective on January 30, 2006.
In
addition, we agreed to have our common stock listed for trading on the Toronto
Stock Exchange. If our common stock was not listed for trading on the Toronto
Stock Exchange within 180 days after February 8, 2005, we were required to
issue
to the selling stockholders from the 2005 Private Placement an additional number
of shares of our common stock that is equal to 20% of the number of shares
acquired by them in the private placement. We did not timely list our shares
on
the Toronto Stock Exchange and, in August 2005, we issued 5,440,000 shares
to
these selling stockholders. We subsequently registered these 5,440,000 shares
for public resale.
Project
Finance Credit Facility
On
August
15, 2006, we entered into a credit facility (the “Credit Facility”) involving
our affiliate, Minera Santa Rita S. de R.L. de C.V. (“MSR”), and our
wholly-owned subsidiary, Oro de Altar S. de R. L. de C.V. (“Oro”), as borrowers,
us, as guarantor, and Standard Bank plc (“Standard Bank”), as the lender and the
offshore account holder. Under the Credit Facility, MSR and Oro agreed to borrow
money in an aggregate principal amount of up to US$12.5 million (the “Loan”) for
the purpose of constructing, developing and operating our El Chanate Project
(the “Mine”). We have guaranteed the repayment of the Loan and the performance
of the obligations under the Credit Facility. The Loan is scheduled to be repaid
in fourteen quarterly payments with the first principal payment due after
certain Mine start-up production and performance criteria are satisfied, which
we believe will occur in the first calendar quarter of 2008. The Loan bears
interest at LIBOR plus 4.00%, with LIBOR interest periods of 1, 2, 3 or 6 months
and with interest payable at the end of the applicable interest
period.
The
Credit Facility contains covenants customary for a project financing loan,
including but not limited to restrictions (subject to certain exceptions) on
incurring additional debt, creating liens on our property, disposing of any
assets, merging with other companies and making any investments. We are required
to meet and maintain certain financial covenants, including (i) a debt service
coverage ratio of not less than 1.2 to 1.0, (ii) a projected debt service
coverage ratio of not less than 1.2 to 1.0, (iii) a loan life coverage ratio
of
at least 1.6 to 1.0, (iv) a project life coverage ratio of at least 2.0 to
1.0
and (v) a minimum reserve tail. We are also required to maintain a certain
minimum level of unrestricted cash, and upon meeting certain Mine start-up
production and performance criteria, MSR and Oro will be required to maintain
a
specified amount of cash as a reserve for debt repayment.
The
Loan
is secured by all of the tangible and intangible assets and property owned
by
MSR and Oro pursuant to the terms of a Mortgage Agreement, a Non-Possessory
Pledge Agreement, an Account Pledge Agreement and certain other agreements
entered into in Mexico (the “Mexican Collateral Documents”). As additional
collateral for the Loan, we, together with our subsidiary, Leadville Mining
& Milling Holding Corporation, have pledged all of our ownership interest in
MSR and Oro. In addition to these collateral arrangements, MSR and Oro are
required to deposit all proceeds of the Loan and all cash proceeds received
from
operations and other sources in an offshore, controlled account with Standard
Bank. Absent a default under the loan documents, MSR and Oro may use the funds
from this account for specific purposes such as approved project costs and
operating costs.
As
part
of the fee for entering into and closing the Credit Facility, we issued to
Standard Bank 1,150,000 shares of our restricted common stock and a warrant
for
the purchase of 12,600,000 shares of our common stock at an exercise price
of
$0.317 per share, expiring on the earlier of (a) December 31, 2010 or (b) the
date one year after the repayment of the Credit Facility. We recorded the
issuance of the 1,150,000 shares of common stock and 12,600,000 warrants as
deferred financing costs of approximately $351,000 and $3,314,000, respectively,
as a reduction of stockholders' equity on our balance sheet. The issuance of
1,150,000 shares was recorded at the fair market value of our common stock
at
the closing date or $0.305 per share. The warrants were valued at approximately
$3,314,000 using the Black-Scholes option pricing model and were reflected
as
deferred financing costs as a reduction of stockholders' equity on our balance
sheet.
Previously,
pursuant to the mandate and commitment letter for the facility, we issued to
Standard Bank 1,000,000 shares of our restricted common stock and a warrant
for
the purchase of 1,000,000 shares of our common stock at an exercise price of
$0.32 per share, expiring on the earlier of (a) December 31, 2010 or (b) the
date one year after the repayment of the Credit Facility. We recorded the
issuance of the 1,000,000 shares of common stock as deferred financing costs
of
approximately $270,000 as a reduction of stockholders' equity on our balance
sheet as of July 31, 2006. The issuance of these shares was recorded at the
fair
market value of our common stock at the commitment letter date or $0.27 per
share. In addition, the warrants were valued at approximately $253,000 using
again the Black-Scholes option pricing model and were reflected as deferred
financing costs as a reduction of stockholders' equity on our balance sheet
as
of July 31, 2006. We have registered for public resale the 2,150,000 shares
issued to Standard Bank and the 13,600,000 shares issuable upon exercise of
warrants issued to Standard Bank.
In
March
2006, we entered into a gold price protection arrangement with Standard Bank
to
protect us against future fluctuations in the price of gold. We agreed to a
series of gold forward sales and call option purchases in anticipation of
entering into the Credit Facility. Under the price protection agreement, we
have
agreed to sell a total volume of 121,927 ounces of gold forward to Standard
Bank
at a price of $500 per ounce on a quarterly basis during the period from March
2007 to September 2010. We will also purchase call options from Standard Bank
on
a quarterly basis during this same period covering a total volume of 121,927
ounces of gold at a price of $535 per ounce. We paid a fee to Standard Bank
in
connection with the price protection agreement. In addition, we provided
aggregate cash collateral of approximately $4.3 million to secure our
obligations under this agreement. The cash collateral was returned to us after
the Credit Facility was executed in August 2006.
Between
October 11, 2006 and May 1, 2007, we drew down the full amount of $12,500,000
from the Credit Facility with Standard Bank. We used substantially all of these
proceeds for the development of our El Chanate Project. We also used some of
these funds to repurchase of the 5% net profits interest formerly held by
FG.
On
October 11, 2006, prior to our initial draw on the Credit Facility, we entered
into interest rate swap agreements in accordance with the terms of the Credit
Facility, which requires that we hedge at least 50 percent of our outstanding
debt under this facility. The agreements entered into cover $9,375,000 or 75%
of
the outstanding debt. Both swaps covered this same notional amount of
$9,375,000, but over different time horizons. The first covered the six months
commencing October 11, 2006 and a termination date of March 31, 2007 and the
second covering the period from March 30, 2007 and a termination date of
December 31, 2010. We intend to use discretion in managing this risk as
market conditions vary over time, allowing for the possibility of adjusting
the
degree of hedge coverage as we deem appropriate. However, any use of interest
rate derivatives will be restricted to use for risk management
purposes.
While
we
believe that we have adequate funds to cover our financial requirements until
such time as mining operations at the El Chanate Project generate positive
cash
flow, if we encounter unexpected problems and we are unable to generate positive
cash flow in a timely manner, we may need to raise additional capital. We also
may need to raise additional capital for property acquisition and exploration.
To the extent that we need to obtain additional capital, management intends
to
raise such funds through the sale of our securities and/or joint venturing
with
one or more strategic partners. We cannot assure that adequate additional
funding, if needed, will be available.
If
we
need additional capital and we are unable to obtain it from outside sources,
we
may be forced to reduce or curtail our operations or our anticipated exploration
activities. Please see “We
lack operating cash flow and, historically, have relied on external funding
sources. While we anticipate revenues from mining operations at El Chanate
and
we believe that we have adequate funds to permit us to reach positive cash
flow
from such operations, if we encounter unexpected problems and we are unable
to
generate positive cash flow in a timely manner, we may need to raise additional
capital. If additional capital is required and we are unable to obtain it from
outside sources, we may be forced to reduce or curtail our operations or our
anticipated exploration activities.”
in
“Risk
Factors.”
Environmental
and Permitting Issues
Management
does not expect that environmental issues will have an adverse material effect
on our liquidity or earnings. In Mexico, although we must continue to comply
with laws, rules and regulations concerning mining, environmental, health,
zoning and historical preservation issues, we are not aware of any significant
environmental concerns or existing reclamation requirements at the El Chanate
concessions. We received the required Mexican government permits for
construction, mining and processing the El Chanate ores in January 2004. The
permits were extended in June 2005. Pursuant to the extensions, once we file
a
notice that work has commenced, we have one year to prepare the site and
construct the mine and seven years to mine and process ores from the site.
We
filed the notice on June 1, 2006. We received the explosive permit from the
government in August 2006. This permit, as extended, expires on December 31,
2007.
We
own
properties in Leadville, Colorado for which we have recorded an impairment
loss.
Part of the Leadville Mining District has been declared a federal Superfund
site
under the Comprehensive Environmental Response, Compensation and Liability
Act
of 1980, and the Superfund Amendments and Reauthorization Act of 1986. Several
mining companies and one individual were declared defendants in a possible
lawsuit. We were not named a defendant or Principal Responsible Party. We did
respond in full detail to a lengthy questionnaire prepared by the Environmental
Protection Agency ("EPA") regarding our proposed procedures and past activities
in November 1990. To our knowledge, the EPA has initiated no further comments
or
questions.
We
do
include in all our internal revenue and cost projections a certain amount for
environmental and reclamation costs on an ongoing basis. This amount is
determined at a fixed amount of $0.13 per metric tonne of material to be mined
on a continual, ongoing basis to provide primarily for reclaiming tailing
disposal sites and other reclamation requirements. No assurance can be given
that environmental regulations will not be changed in a manner that would
adversely affect our planned operations. We have estimated the reclamation
costs
for the El Chanate site to be approximately $2,300,000. Reclamation costs are
allocated to expense over the life of the related assets (7 year mine life)
and
are periodically adjusted to reflect changes in the estimated present value
resulting from the passage of time and revisions to the estimates of either
the
timing or amount of the reclamation and abandonment costs. The asset retirement
obligation is based on when the spending for an existing environmental
disturbance and activity to date will occur. We review, on an annual basis,
unless otherwise deemed necessary, the asset retirement obligation at each
mine
site.
Contractual
Obligations
Lease
Commitments
We
occupy
office space in New York City under a non cancelable operating lease that
commenced on September 1, 2002 and terminates on August 31, 2007. In addition
to
base rent, the lease calls for payment of utilities and other occupancy costs.
The approximate future minimum payments under this lease as of April 30, 2007
were $17,000.
Rent
expense under the office lease in New York City was approximately $63,000 and
$63,000 for the years ended July 31, 2006 and 2005, respectively. Rent Expense
for the nine months ended April 30, 2007 and 2006 was $41,000 and $36,000,
respectively.
In
June
2006, MSR retained the contracting services of a Mexican subsidiary of M3
Engineering & Technology Corporation (“M3M”) to provide EPCM (engineering
procurement construction management) services. M3M is supervising the
construction and integration of the various components necessary to commence
production at the El Chanate Project. The contracted services shall not exceed
$1,200,000 and the contract is based on the EPCM services to be provided by
M3M.
As of June 19, 2007, approximately $844,000 has been incurred pursuant to the
contract.
New
Accounting Pronouncements
We
adopted the provisions of FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes" ("FIN 48") effective January 1, 2007. The purpose
of FIN 48 is to clarify and set forth consistent rules for accounting for
uncertain tax positions in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". The cumulative effect of
applying the provisions of this interpretation are required to be reported
separately as an adjustment to the opening balance of retained earnings in
the
year of adoption. The adoption of this standard did not have an impact on the
financial condition or the results of our operations.
In
February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments" ("FAS 155") - an amendment of FASB Statements No. 133
and
140. FAS 155 amends SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("FAS 133"), and SFAS No. 140 ("FAS 140"), "Accounting
for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities",
to permit fair value re-measurement of any hybrid financial instrument that
contains an embedded derivative that would otherwise require bifurcation.
Additionally, FAS 155 seeks to clarify which interest-only strips and
principal-only strips are not subject to the requirements of FAS 133 and to
clarify that concentrations of credit risk in the form of subordination are
not
embedded derivatives. This Statement is effective for all financial instruments
acquired or issued after the beginning of an entity's first fiscal year that
begins after September 15, 2006. Management does not believe the adoption of
this standard will have a material impact on the financial condition or the
results of our operations.
In
September 2006, the FASB issued Statement No. 157, “Fair Value Measurements,”
This new standard provides guidance for using fair value to measure assets
and
liabilities. The FASB believes the standard also responds to investors’ requests
for expanded information about the extent to which companies measure assets
and
liabilities at fair value, the information used to measure fair value, and
the
effect of fair value measurements on earnings. Statement 157 applies whenever
other standards require (or permit) assets or liabilities to be measured at
fair
value but does not expand the use of fair value in any new circumstances.
Currently,
over 40 accounting standards within GAAP require (or permit) entities to measure
assets and liabilities at fair value. Prior to Statement 157, the methods for
measuring fair value were diverse and inconsistent, especially for items that
are not actively traded. The standard clarifies that for items that are not
actively traded, such as certain kinds of derivatives, fair value should reflect
the price in a transaction with a market participant, including an adjustment
for risk, not just the our mark-to-model value. Statement 157 also requires
expanded disclosure of the effect on earnings for items measured using
unobservable data.
Under
Statement 157, fair value refers to the price that would be received to sell
an
asset or paid to transfer a liability in an orderly transaction between market
participants in the market in which the reporting entity transacts. In this
standard, the FASB clarifies the principle that fair value should be based
on
the assumptions market participants would use when pricing the asset or
liability. In support of this principle, Statement 157 establishes a fair value
hierarchy that prioritizes the information used to develop those assumptions.
The fair value hierarchy gives the highest priority to quoted prices in active
markets and the lowest priority to unobservable data, for example, the reporting
entity’s own data. Under the standard, fair value measurements would be
separately disclosed by level within the fair value hierarchy.
The
provisions of Statement 157 are effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within
those
fiscal years. Earlier application is encouraged, provided that the reporting
entity has not yet issued financial statements for that fiscal year, including
any financial statements for an interim period within that fiscal year.
Management does not believe the adoption of this standard will have a material
impact in the financial condition or results of our operations.
On
February 15, 2007, the FASB issued FASB Statement No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities - Including an Amendment of
FASB
Statement No. 115. This standard permits an entity to choose to measure many
financial instruments and certain other items at fair value. This option is
available to all entities, including not-for-profit organizations. Most of
the
provisions in Statement 159 are elective; however, the amendment to FASB
Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities, applies to all entities with available-for-sale and trading
securities. Some requirements apply differently to entities that do not report
net income. The FASB's stated objective in issuing this standard is as follows:
"to improve financial reporting by providing entities with the opportunity
to
mitigate volatility in reported earnings caused by measuring related assets
and
liabilities differently without having to apply complex hedge accounting
provisions".
The
fair
value option established by Statement 159 permits all entities to choose to
measure eligible items at fair value at specified election dates. A business
entity will report unrealized gains and losses on items for which the fair
value
option has been elected in earnings (or another performance indicator if the
business entity does not report earnings) at each subsequent reporting date.
A
not-for-profit organization will report unrealized gains and losses in its
statement of activities or similar statement. The fair value option: (a) may
be
applied instrument by instrument, with a few exceptions, such as investments
otherwise accounted for by the equity method; (b) is irrevocable (unless a
new
election date occurs); and (c) is applied only to entire instruments and not
to
portions of instruments.
Statement
159 is effective as of the beginning of an entity's first fiscal year that
begins after November 15, 2007. Early adoption is permitted as of the
beginning of the previous fiscal year provided that the entity makes that choice
in the first 120 days of that fiscal year and also elects to apply the
provisions of FASB Statement No. 157, Fair Value Measurements.
Disclosure
About Off-Balance Sheet Arrangements
On
October 11, 2006, prior to the initial draw on our Credit Facility, we
entered into interest rate swap agreements with total notional amounts of
$18,750,000 in accordance with the terms of the Credit Facility. There was
one
six month swap contract totaling $9,375,000 (75% of the outstanding debt) with
an effective date of October 11, 2006 and a termination date of March 31, 2007
and one three-year nine month swap contract totaling $9,375,000 (75% of the
outstanding debt) with an effective date of March 30, 2007 and a termination
date of December 31, 2010. These swaps were entered into for the purpose of
hedging a portion of our variable interest expenses. Although we are required
by
our lenders to hedge at least 50% of the outstanding debt, we retain the
authority to hedge a larger share of this exposure, and we will use discretion
in managing this risk as market conditions vary over time. We only issue and/or
hold derivative contracts for risk management purposes.
We
do not
have any other transactions, agreements or other contractual arrangements that
constitute off-balance sheet arrangements.
Critical
Accounting Policies
Our
financial statements and accompanying notes are prepared in accordance with
accounting principles generally accepted in the United States of America.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue,
and expenses. These estimates and assumptions are affected by management’s
application of accounting policies. Critical accounting policies for us include
inventory, revenue recognition, property, plant and mine development, impairment
of long-lived assets, accounting for equity-based compensation, environmental
remediation costs and accounting for derivative and hedging activities.
Stockpiles,
Ore on Leach Pads and Inventories
Costs
that are incurred in or benefit the productive process are accumulated as
stockpiles, ore on leach pads and inventories. Stockpiles, ore on leach pads
and
inventories are carried at the lower of average cost or net realizable value.
Net realizable value represents the estimated future sales price of the product
based on current and long-term metals prices, less the estimated costs to
complete production and bring the product to sale. Write-downs of stockpiles,
ore on leach pads and inventories, resulting from net realizable value
impairments, will be reported as a component of Costs
applicable to sales.
The
current portion of stockpiles, ore on leach pads and inventories is determined
based on the expected amounts to be processed within the next 12 months.
Stockpiles, ore on leach pads and inventories not expected to be processed
within the next 12 months are classified as long-term. The major
classifications are as follows:
Stockpiles
Stockpiles
represent ore that has been mined and is available for further processing.
Stockpiles are measured by estimating the number of tons added and removed
from
the stockpile, the number of contained ounces or pounds (based on assay data)
and the estimated metallurgical recovery rates (based on the expected processing
method). Stockpile ore tonnages are verified by periodic surveys. Costs are
allocated to stockpiles based on relative values of material stockpiled and
processed using current mining costs incurred up to the point of stockpiling
the
ore, including applicable overhead, depreciation, depletion and amortization
relating to mining operations, and removed at each stockpile’s average cost per
recoverable unit.
Ore
on Leach Pads
The
recovery of gold from certain gold oxide ores is achieved through the heap
leaching process. Under this method, oxide ore is placed on leach pads where
it
is treated with a chemical solution, which dissolves the gold contained in
the
ore. The resulting “pregnant” solution is further processed in a plant where the
gold is recovered. Costs are added to ore on leach pads based on current mining
costs, including applicable depreciation, depletion and amortization relating
to
mining operations. Costs are removed from ore on leach pads as ounces are
recovered based on the average cost per estimated recoverable ounce of gold
on
the leach pad.
The
estimates of recoverable gold on the leach pads are calculated from the
quantities of ore placed on the leach pads (measured tons added to the leach
pads), the grade of ore placed on the leach pads (based on assay data) and
a
recovery percentage (based on ore type). In general, leach pads recover
approximately 50% to 95% of the recoverable ounces in the first year of
leaching, declining each year thereafter until the leaching process is complete.
Although
the quantities of recoverable gold placed on the leach pads are reconciled
by
comparing the grades of ore placed on pads to the quantities of gold actually
recovered (metallurgical balancing), the nature of the leaching process
inherently limits the ability to precisely monitor inventory levels. As a
result, the metallurgical balancing process needs to be constantly monitored
and
estimates need to be refined based on actual results over time. Our operating
results may be impacted by variations between the estimated and actual
recoverable quantities of gold on its leach pads. Variations between actual
and
estimated quantities resulting from changes in assumptions and estimates that
do
not result in write-downs to net realizable value will be accounted for on
a
prospective basis.
In-process
Inventory
In-process
inventories represent materials that are currently in the process of being
converted to a saleable product. Conversion processes vary depending on the
nature of the ore and the specific processing facility, but include mill
in-circuit, leach in-circuit, flotation and column cells, and carbon in-pulp
inventories. In-process material will be measured based on assays of the
material fed into the process and the projected recoveries of the respective
plants. In-process inventories will be valued at the average cost of the
material fed into the process attributable to the source material coming from
the mines, stockpiles and/or leach pads plus the in-process conversion costs,
including applicable depreciation relating to the process facilities incurred
to
that point in the process.
Precious
Metals Inventory
Precious
metals inventories will include gold doré and/or gold bullion. Precious metals
that result from the Company’s mining and processing activities will be valued
at the average cost of the respective in-process inventories incurred prior
to
the refining process, plus applicable refining costs.
Concentrate
Inventory
Concentrate
inventories represent gold concentrate available for shipment. We will value
concentrate inventory at the average cost, including an allocable portion of
refinery support costs and refining depreciation. Costs will be added and
removed to the concentrate inventory based on tons of concentrate and will
be
valued at the lower of average cost or net realizable value.
Materials
and Supplies
Materials
and supplies are valued at the lower of average cost or net realizable value.
Cost includes applicable taxes and freight.
Property,
Plant and Mine Development
Expenditures
for new facilities or equipment and expenditures that extend the useful lives
of
existing facilities or equipment are capitalized and depreciated using the
straight-line method at rates sufficient to depreciate such costs over the
estimated productive lives, which do not exceed the related estimated mine
lives, of such facilities based on proven and probable reserves.
Mineral
exploration costs are expensed as incurred. When it has been determined that
a
mineral property can be economically developed as a result of establishing
proven and probable reserves, costs incurred prospectively to develop the
property will be capitalized as incurred and are amortized using the
units-of-production (“UOP”) method over the estimated life of the ore body based
on estimated recoverable ounces or pounds in proven and probable reserves.
At
our surface mine, these costs would include costs to further delineate the
ore
body and remove overburden to initially expose the ore body.
Major
development costs incurred after the commencement of production will be
amortized using the UOP method based on estimated recoverable ounces or pounds
in proven and probable reserves. To the extent that these costs benefit the
entire ore body, they will be amortized over the estimated life of the ore
body.
Costs incurred to access specific ore blocks or areas that only provide benefit
over the life of that area will be amortized over the estimated life of that
specific ore block or area.
Impairment
of Long-Lived Assets
We
review
and evaluate our long-lived assets for impairment when events or changes in
circumstances indicate that the related carrying amounts may not be recoverable.
An impairment is considered to exist if the total estimated future cash flows
on
an undiscounted basis are less than the carrying amount of the assets, including
goodwill, if any. An impairment loss is measured and recorded based on
discounted estimated future cash flows. Future cash flows are estimated based
on
quantities of recoverable minerals, expected gold and other commodity prices
(considering current and historical prices, price trends and related factors),
production levels and operating costs of production and capital, all based
on
life-of-mine plans. Existing proven and probable reserves and value beyond
proven and probable reserves, including mineralization other than proven and
probable reserves and other material that is not part of the measured, indicated
or inferred resource base, are included when determining the fair value of
mine
site reporting units at acquisition and, subsequently, in determining whether
the assets are impaired. The term “recoverable minerals” refers to the estimated
amount of gold or other commodities that will be obtained after taking into
account losses during ore processing and treatment. Estimates of recoverable
minerals from such exploration stage mineral interests are risk adjusted based
on management’s relative confidence in such materials. In estimating future cash
flows, assets are grouped at the lowest level for which there are identifiable
cash flows that are largely independent of future cash flows from other asset
groups. Our estimates of future cash flows are based on numerous assumptions
and
it is possible that actual future cash flows will be significantly different
than the estimates, as actual future quantities of recoverable minerals, gold
and other commodity prices, production levels and operating costs of production
and capital are each subject to significant risks and uncertainties.
Reclamation
and Remediation Costs (Asset Retirement Obligations)
Reclamation
costs are allocated to expense over the life of the related assets and are
periodically adjusted to reflect changes in the estimated present value
resulting from the passage of time and revisions to the estimates of either
the
timing or amount of the reclamation and abandonment costs. The asset retirement
obligation is based on when the spending for an existing environmental
disturbance and activity to date will occur. We review, on an annual basis,
unless otherwise deemed necessary, the asset retirement obligation at our mine
site in
accordance with FASB FAS No. 143, “Accounting for Asset Retirement
Obligations.”
Equity
Based Compensation
In
connection with offers of employment to our executives as well as in
consideration for agreements with certain consultants, we issue options and
warrants to acquire our common stock. Employee and non-employee awards are
made
in the discretion of the Board of Directors.
Effective
February 1, 2006, we adopted the provisions of SFAS No. 123R. Under FAS 123R,
share-based compensation cost is measured at the grant date, based on the
estimated fair value of the award, and is recognized as expense over the
requisite service period. We adopted the provisions of FAS 123R using a modified
prospective application. Under this method, compensation cost is recognized
for
all share-based payments granted, modified or settled after the date of
adoption, as well as for any unvested awards that were granted prior to the
date
of adoption. Prior periods are not revised for comparative purposes. Because
we
previously adopted only the pro forma disclosure provisions of SFAS 123, we
will
recognize compensation cost relating to the unvested portion of awards granted
prior to the date of adoption, using the same estimate of the grant-date fair
value and the same attribution method used to determine the pro forma
disclosures under SFAS 123, except that forfeitures rates will be estimated
for
all options, as required by FAS 123R.
Accounting
for Derivatives and Hedging Activities
We
entered into two identically structured derivative contracts with Standard
Bank
in March 2006. Each derivative consisted of a series of forward sales of gold
and a purchase gold cap. We agreed to sell a total volume of 121,927 ounces
of
gold forward to Standard Bank at a price of $500 per ounce on a quarterly basis
during the period from March 2007 to September 2010. We also agreed to a
purchase gold cap on a quarterly basis during this same period and at identical
volumes covering a total volume of 121,927 ounces of gold at a price of $535
per
ounce. Although these contracts are not designated as hedging derivatives,
they
serve an economic purpose of protecting us from the effects of a decline in
gold
prices. Because they are not designated as hedges, however, special hedge
accounting does not apply. Derivative results are simply marked to market
through earnings, with these effects recorded in other
income
or
other
expense,
as
appropriate under FASB Statement No. 133, “Accounting for Derivative Instruments
and Hedging Activities” (“FAS 133”).
On
October 11, 2006, prior to our initial draw on the Credit Facility, we entered
into interest rate swap agreements in accordance with the terms of the Credit
Facility, which requires that we hedge at least 50 percent of our outstanding
debt under this facility. The agreements entered into cover $9,375,000 or 75%
of
the outstanding debt. Both swaps covered this same notional amount of
$9,375,000, but over different time horizons. The first covered the six months
commencing October 11, 2006 and a termination date of March 31, 2007 and the
second covering the period from March 30, 2007 and a termination date of
December 31, 2010. We intend to use discretion in managing this risk as
market conditions vary over time, allowing for the possibility of adjusting
the
degree of hedge coverage as we deem appropriate. However, any use of interest
rate derivatives will be restricted to use for risk management
purposes.
We
use
variable-rate debt to finance a portion of the El Chanate Project. Variable-rate
debt obligations expose us to variability in interest payments due to changes
in
interest rates. As a result of these arrangements, we will continuously monitor
changes in interest rate exposures and evaluate hedging opportunities. Our
risk
management policy permits us to use any combination of interest rate swaps,
futures, options, caps and similar instruments, for the purpose of fixing
interest rates on all or a portion of variable rate debt, establishing caps
or
maximum effective interest rates, or otherwise constraining interest expenses
to
minimize the variability of these effects.
The
interest rate swap agreements will be accounted for as cash flow hedges, whereby
“effective” hedge gains or losses are initially recorded in other comprehensive
income and later reclassified to the interest expense component of earnings
coincidently with the earnings impact of the interest expenses being hedged.
“Ineffective” hedge results are immediately recorded in earnings also under
interest expense. No component of hedge results will be excluded from the
assessment of hedge effectiveness.
We
are
exposed to credit losses in the event of non-performance by counterparties
to
these interest rate swap agreements, but we do not expect any of the
counterparties to fail to meet their obligations. To manage credit risks, we
select counterparties based on credit ratings, limit our exposure to a single
counterparty under defined guidelines, and monitor the market position with
each
counterparty as required by SFAS 133.
OUR
BUSINESS
We,
directly or indirectly, own concessions located in the State of Sonora, Mexico
and rights to property located in the California Mining District, Lake County,
Colorado. We are engaged in the business of exploring for gold and other
minerals on our Mexican concessions. We have written off our Colorado
properties.
Sonora,
Mexico
El
Chanate
Through
our wholly-owned subsidiary, Oro de Altar S. de R. L. de C.V. (“Oro”), and our
affiliate, Minera Santa Rita S. de R.L. de C.V. (“MSR”), we own 100% of the
following 16 mining concessions, all of which are located in the Municipality
of
Altar, State of Sonora Republic of Mexico.
The
16
mining concessions are as follows:
|
Concession
Name
|
Title
No.
|
Hectares
|
1
|
San
Jose
|
200718
|
96.0000
|
2
|
Las
Dos Virgen
|
214874
|
132.2350
|
3
|
Rono
I
|
206408
|
82.1902
|
4
|
Rono
3
|
214224
|
197.2180
|
5
|
La
Cuchilla
|
211987
|
143.3481
|
6
|
Elsa
|
212004
|
2,035.3997
|
7
|
Elisa
|
214223
|
78.4717
|
8
|
Ena
|
217495
|
190.0000
|
9
|
Eva
|
212395
|
416.8963
|
10
|
Mirsa
|
212082
|
20.5518
|
11
|
Olga
|
212081
|
60.5890
|
12
|
Edna
|
212355
|
24.0431
|
13
|
La
Tira
|
219624
|
1.7975
|
14
|
La
Tira 1
|
219623
|
18.6087
|
15
|
Los
Tres
|
223634
|
8.000
|
16
|
El
Charro
|
206,404
|
40.0000
|
|
|
Total
|
3,543.3491
|
At
the El
Chanate Project our current planned mining activities involve mining on two
concessions, San Jose and Las Dos Virgens. We will utilize four other
concessions for processing mined ores. In the future, we plan to explore some
or
all of these concessions to determine whether or not further activity is
warranted.
Surface
Property Ownership
Anglo
Gold purchased surface property ownership, consisting of 466 Hectares in Altar,
Sonora, on January 27, 1998. The ownership was conveyed to our subsidiary,
Oro
de Altar S.A. de C.V., in 2002. MSR, one of our wholly-owned Mexican affiliates,
has a lease on the property for the purpose of mining the Chanate gold deposit.
The purchase transaction was recorded as public deed 19,591 granted by Mr.
Jose
Maria Morera Gonzalez, Notary Public 102 of the Federal District, registered
at
the Public Registry of Property of Caborca, Sonora, under number 36026, book
one, volume 169 of the real estate registry section on May 7, 1998.
General
Information and Location
The
El
Chanate Project is located in the State of Sonora, Mexico, 37 kilometers
northeast of the town of Caborca. It is accessible by paved and all weather
dirt
roads typically traveled by pickup trucks and similar vehicles. Driving time
from Caborca is approximately 40 minutes. Access from Caborca to the village
of
16 de September is over well maintained National highways. Beyond the 16 de
September village, routes to the property are currently over well traveled
gravel and sandy desert roads suitable for lightweight vehicles. We acquired
rights for a service road to allow immediate access for mine construction
activities. This service road access was acquired from the village of 16 de
September, and construction of this road is now complete. In addition to this
service road, we had negotiated long term access that does not pass through
the
village of 16 de September. However, an issue arose with regard to whether
the
land owner from whom we negotiated this right had adequate title to this land.
We continue to rely on the existing access through the village of 16 de
September.
The
project is situated on the Sonora desert in a hot and windy climate, generally
devoid of vegetation with the exception of cactus. The terrain is generally
flat
with immense, shallow basins, scattered rock outcropping and low rocky hills
and
ridges. The desert floor is covered by shallow, fine sediment, gravel and
caliche. The main body of the known surface gold covers and irregularly shaped
area of approximately 1,800 feet long by 900 feet wide. Several satellite
mineral anomalies exist on surfaces which have not been thoroughly explored.
Assays on chip samples taken from trenches at these locations by us indicate
the presence of gold mineralization.
The
general El Chanate mine area has been mined for gold since the early
19th
century.
A number of old underground workings exist characterized by narrow shafts,
to a
depth of several tens of feet and connecting drifts and cross cuts. No
information exists regarding the amount of gold taken out; however, indications
are that mining was conducted on a small scale.
Geology
The
project area is underlain by sedimentary rocks of the Late Jurassic - Early
Cretaceous Bisbee Group, and the Late Cretaceous Chanate Group, which locally
are overlain by andesites of the Cretaceous El Charro volcanic complex. The
sedimentary strata are locally intruded by andesitic sills and dikes, a
microporphyritic latite and by a diorite stock. The sedimentary strata are
comprised of mudstone, siltstone, sandstone, conglomerate, shale and limestone.
Within the drilled resource area, a predecessor exploration company
differentiated two units on the basis of their position relative to the Chanate
fault. The upper member is an undifferentiated sequence of sandstone,
conglomerate and lesser mudstone that lies above the Chanate fault and it is
assigned to the Escalante Formation of the Middle Cretaceous Chanate Group.
The
lower member is comprised of mudstone with mixed in sandstone lenses and thin
limestone interbreds; it lies below the Chanate fault and is assigned to the
Arroyo Sasabe Formation of the Lower Cretaceous Bisbee Group. The Arroyo Sasabe
formation overlies the Morita Formation of the Bisbee Group. Both the Escalante
and Arroyo Sasabe formations are significantly mineralized proximal to the
Chanate fault, while the Morita Formation is barren.
The
main
structural feature of the project area is the Chanate fault, a 7 km long
(minimum) northwest-striking, variably southwest-dipping structure that has
been
interpreted to be a thrust fault. The Chanate fault is overturned
(north-dipping) at surface, and is marked by brittle deformation and shearing
which has created a pronounced fracture foliation and fissility in the host
rocks. In drill holes the fault is often marked the presence of an andesite
dike. Reports prepared by a predecessor exploration company describe the fault
as consisting of a series of thrust ramps and flats; however, geologic cross
sections which we have reviewed but did not prepare may negate this
interpretation.
Alteration/Mineralization
A
predecessor exploration company has defined a 600 meter long, 300 meter wide,
120 meter thick zone of alteration that is centered about the Chanate fault.
The
strata within this zone have been silicified and pyritized to varying degrees.
In surface outcrop the mineralized zone is distinguished by its bleached
appearance relative to unmineralized rock. The mineralized zone contains only
single digit ppm (parts per million) levels of gold. Dense swarms of veinlets
form thick, mineralized lenses, within a larger area of sub-economic but
anomalous gold concentrations. Drill hole data indicates that the mineralized
lenses are sub-horizontal to gently southwest-dipping and are grossly parallel
to the Chanate fault. The fault zone itself is also weakly mineralized, although
strata in the near hanging wall and footwall are appreciably mineralized.
Work
to Date
The
El
Chanate property has been the site of small scale mining of high grade quartz
veins (La Cuchilla mine) during the last century. Modern exploration includes
work by Phelps Dodge in the 1980’s as part of a copper exploration program.
Kennecott conducted geologic mapping and geochemical sampling in 1991 and
dropped the property. A Mexican subsidiary of AngloGold explored the property
intermittently between 1992 and 1997, and has conducted extensive surface
geologic mapping, geochemical sampling, geophysical studies and drilling,
including 11,000 meters of trenching, over 14 line-kilometers of induced
polarization geophysical surveys, 61 line-kilometers of VLF-magnetometer
geophysical surveys, 87 line-kilometers of enzyme leach geochemical surveys
and
34,000 meters of R.C. drilling in 190 holes and 1080 meters of diamond drilling
in 9 holes. That company also commissioned various consultant studies concerning
petrography, fluid inclusions, air photo interpretation and structural analyses,
and conducted some metallurgical test work.
In
April
and May 2002, to confirm previous results obtained by third parties and to
provide specifically located metallurgical test samples, we drilled six diamond
core holes totaling 1,508 feet into the main mineralized zone at El Chanate.
Management believes that the diamond drill results generally confirmed the
previous results and,
in
June 2002 and January 2003, we drilled an additional 45 reverse circulation
holes totaling 9,410 feet. This reverse circulation drill program confirmed
previous results and also expanded certain mineralized areas. In May 2004,
three
core holes were drilled for a total of 2,155 feet. The total number of holes
is
now 256. Of these, 235 are reverse circulation drill holes and 21 are diamond
drill holes. Detailed check assays were obtained both for core samples and
for
reverse drill samples that initially assayed greater than 0.3 grams/tonne.
Chemex Labs, Vancouver, Canada, preformed both the initial and the check assays,
and the check assays supported the initial assay results.
In
August
2002, we retained SRK Consulting (a global engineering company) Denver,
Colorado, to conduct a scoping engineering study for the El Chanate Project.
This study was completed in October 2002 and concluded that the El Chanate
Project deserved additional work and that the property contained important
gold
mineralization. The base case for this study assumed a gold price of
$320.
Following
SRK’s positive conclusion, in February 2003, we retained M3 Engineering of
Tucson, Arizona to begin work on a feasibility study. M3 completed the study
in
August 2003. Based on 253 drill holes and more than 22,000 gold assays, this
study (the “2003 Study”) provided details for an open pit gold mine. The 2003
Study indicated that at a gold price of $325, the initial open pit project
contains proven and probable reserves of 358,000 ounces of gold contained within
13.5 million metric tonnes of ore with an average grade of 0.827 grams/tonne.
It
estimated that the mine could recover approximately 48,000 - 50,000 ounces
of
gold per year or 248,854 ounces over a five year mine life.
In
October 2005, M3 completed an update of the 2003 Study (The “2005 Study”). The
2005 Study includes the following changes from the 2003 Study:
·
|
an
increase in the mine life from five to six
years,
|
·
|
an
increase in the base gold price from $325/oz to
$375/oz,
|
·
|
use
of a mining contractor,
|
·
|
revised
mining, processing and support
costs,
|
·
|
stockpiling
of low grade material for possible processing in year six, if justified
by
gold prices at that time,
|
·
|
a
reduced size for the waste rock dump and revised design of reclamation
waste dump slopes,
|
·
|
a
revised process of equipment selection
and
|
·
|
evaluation
of the newly acquired water well for processing the
ore.
|
In
view
of a significant rise in the gold price, in June 2006, we commissioned SRK
Consulting, Denver, Colorado, to prepare an updated Canadian Securities
Administration National Instrument 43-101 compliant technical report on our
El
Chanate Project. SRK completed this technical report in August 2006 (the “2006
Update”). The 2006 Update provided the following updated information from the
2005 Study:
·
|
an
18% increase in the proven mineral reserve
tonnage,
|
·
|
a
59% increase in the probable mineral reserve
tonnage
|
·
|
an
increase in mine life from six to seven
years,
|
·
|
an
increase in the base gold price from $375/oz to $450/oz
and
|
·
|
Stockpiling
of low grade material for possible processing in year seven, if justified
by gold prices at that time.
|
Pursuant
to the 2005 Study, as updated by the 2006 Update using a $450 per ounce gold
price, our estimated mine life is seven years (with at least another year to
perform required reclamation) and the ore reserve is 490,000 ounces of gold
present in the ground. Of this, we anticipate recovering approximately 332,000
ounces of gold over a seven year life of the mine. The targeted cash cost (which
includes mining, processing and on-property general and administrative expenses)
per the 2005 Study is $259 per ounce. We believe that cash costs may decrease
as
the production rate increases. Total costs (which include cash costs as well
as
off-property costs such as property taxes, royalties, refining, transportation
and insurance costs and exclude financing costs) will vary depending upon the
price of gold (due to the nature of underlying payment obligations to the
original owner of the property). Total costs are estimated in the 2005 Study
to
be $339 per ounce at a gold price of $417 per ounce (the three year average
gold
price as of the date of that study). We will be working on measures to attempt
to reduce costs going forward. Ore reserves and production rates are based
on a
gold price of $450 per ounce, which is the Base Case in the 2006 Update. During
the first five months of 2007, the spot price for gold on the London Exchange
has fluctuated between $608.30 and $691.40 per ounce. During 2006, the spot
price for gold on the London Exchange has fluctuated between $524.75 and $725.00
per ounce. The 2005 Study contains the same mining rate as the 2003 Study of
7,500 metric tonnes per day of ore. It should be noted that, during the
preliminary engineering phase of the project it was decided to design the
crushing screening and ore stacking system with the capability of processing
10,000 tonnes per day of ore. This will make allowances for any possible
increase in production and for operational flexibility. It was found that the
major components in the feasibility study would be capable of handling the
increase in tonnage. Design changes were made where necessary to accommodate
the
increased tonnage. The 2005 Study takes into consideration a more modern
crushing system than the one contemplated in the 2003 Study. The crushing system
referred to in the 2005 Study is a new system, that, we believe will provide
more efficient processing capabilities than the used equipment referred to
in
the 2003 Study. In addition, the 2005 Study assumes a contractor will mine
the
ore and haul it to the crushers. In the 2003 Study, we planned to perform these
functions. We have engaged a mining contractor to perform these
services.
The
2005
Study assumes a mining production rate of 2.6 million tonnes of ore per year
or
7,500 tonnes per day. The processing plant will operate 365 days per year.
The
processing plan for this open pit heap leach gold project calls for crushing
the
ore to 100% minus 3/8 inch. Carbon columns will be used to recover the
gold.
The
following Summary is extracted from the 2005 Study, as updated by the 2006
Update. Please note that the reserves as stated are an estimate of what can
be
economically and legally recovered from the mine and, as such, incorporate
losses for dilution and mining recovery. The 489,952 ounces of contained gold
represents ounces of gold contained in ore in the ground, and therefore does
not
reflect losses in the recovery process. Total gold produced is estimated to
be
331,560 ounces, or approximately 68% of the contained gold. The gold recovery
rate is expected to average approximately 68% for the entire ore body.
Individual portions of the ore body may experience varying recovery rates
ranging from about 73% to 48%. Oxidized and sandstone ore types may have
recoveries of about 73%; fault zone ore type recoveries may be about 64%; and
siltstone ore types recoveries may be about 48%.
El
Chanate Project
Production
Summary
|
Metric
|
U.S.
|
Materials
Reserves
Proven
Probable
Total
Reserves
Other
Mineralized Materials
Waste
Total
Contained
Gold
Production
Ore
Crushed
Operating
Days/Year
Gold
Plant Average Recovery
Average
Annual Production
Total
Gold Produced
|
11.7
Million Tonnes @ 0.811 g/t*
8.2 Million Tonnes @
0.705g/t*
19.9
Million Tonnes @ 0.767 g/t*
0
Million Tonnes
19.9
Million Tonnes
39.7
Million Tonnes
15.24
Million grams
2.6
Million Tonnes /Year
7,500
Mt/d*
365
Days per year
67.7
%
1.35
Million grams
10.31
Million grams
|
12.9
Million Tons @ 0.024 opt*
9.0 Million Tons
@
0.021
opt*
21.9
Million Tons @ 0.022 opt*
0 Million Tons
21.9
Million Tons
43.8
Million tons
489,952
Oz
2.87
Million Tons/Year
8,267
t/d
365
Days per year
67.7
%
43,414
Oz
331,560
Oz
|
·
|
“g/t”
means grams per metric tonne, “opt” means ounces per ton, “Mt/d” means
metric tonnes per day and “t/d” means tons per
day.
|
·
|
The
reserve estimates are based on a recovered gold cutoff grade of 0.20
grams
per metric tonne as described on below.
|
In
the
mineral resource block model developed, with blocks 10m (meters) x 10m x 5m
high, Measured and Indicated resources (corresponding to Proven and Probable
reserves respectively when within the pit design) were classified in accordance
with the following scheme:
|
·
|
Blocks
with 4 or more drill holes within a search radius of 40m x 40m x
25m and
inside suitable geological zones were classified as Measured
(corresponding to Proven);
|
|
·
|
Blocks
with 3 or more holes within a search radius of 75m x 75m x 50m and
inside
suitable geological zones were classified as Indicated (corresponding
to
Probable);
|
|
·
|
Blocks
with 1 or 2 holes within a search radius of 75m x 75m x 50m and inside
suitable geological zones were classified as Inferred (and which
was
classed as waste material in the mining reserves
estimate);
|
|
·
|
Blocks
outside the above search radii or outside suitable geological zones
were
not assigned a classification.
|
The
proven and probable reserve estimates are based on a recovered gold internal
cutoff grade of 0.20 grams/tonne. (A constant recovered gold cutoff grade was
used for reserves calculation as the head gold grade cutoff varies with the
different ore types due to their variable gold recoveries.) The internal
(in-pit) cutoff grade was used for reserves reporting.
Cutoff
Grade Calculation
Basic
Parameters
Gold
Price
Gold
Recovery
Operating
Costs per Tonne of Ore
Royalty
(4%)
Smelting
& Refining
Mining
*
Processing
Heap
Leach Pad Development
G&A
Total
Internal
Cutoff Grade
Head
Grade Cutoff (67.7% recov.)
Recovered
Gold Grade Cutoff
|
Internal
Cutoff Grade
US$450/oz
67.7%
$
per Tonne of Ore
0.115
0.015
0.070
1.680
0.185
0.810
2.875
Grams
per Tonne
0.29
0.20
|
Break
Even Cutoff Grade
US$450/oz
67.7%
$
per Tonne of Ore
0.164
0.021
1.250
1.680
0.185
0.810
4.110
Grams
per Tonne
0.41
0.28
|
*
The
calculation of an internal cutoff grade does not include the basic mining costs
(which are considered to be sunk costs for material within the designed pit).
The $0.07 per tonne cost included is the incremental (added) cost of hauling
ore
over hauling waste, and which is included in the calculation.
In
February 2005, Metcon Research Inc. of Tucson, Arizona completed gold recovery
studies on existing samples at fine grind sizes of 100 mesh, 150 mesh and 200
mesh. These studies were undertaken to determine whether extraction by fine
grinding is economical given the increased price of gold. Generally, fine
grinding, while more expensive, will achieve higher gold recoveries than the
heap leach method recommended in the feasibility study. Metcon found that
increasing amounts of gold were recovered at finer grind sizes. However in
May
2004, M3, who conducted the feasibility study, reported that at El Chanate,
heap
leaching remains the most economical and optimal method of extracting gold
at
current prices.
In
May
2004, three core holes were drilled at El Chanate to define gold grades, to
obtain metallurgical samples from siltstone hosted ores, and to evaluate
previous deep drilling results by Anglo Gold in the Los Dos Virgens Zone. Two
of
the core holes tested and confirmed the presence of gold in the deep Los Dos
Virgens Zone that lies below the level of the planned open pit. This zone was
previously identified by Anglo Gold’s reverse circulation drilling and, with
increasing gold prices based on the three year moving average of the spot price
of gold, we may be able to access this zone in an enlarged open pit. We do
not
anticipate focusing on this for a few years until after we have mined the
overlying material. The third core hole was drilled in the main high grade
part
of the deposit to obtain ore samples for metallurgical column testing from
siltstone host rocks.
Metallurgical
column test studies were completed in February 2005 at Metcon’s laboratory in
Tucson Arizona to determine the optimal conditions at El Chanate for recovering
gold from within siltstone host rocks using heap leach technology. The siltstone
drill core samples were tested at crush sizes of 100 percent -3/8 inch and
100
percent -1/4 inch, and these column tests showed recovery rates of 42% and
46%
respectively. With rising gold prices, based
on
the three year moving average of the spot price of gold, management believes
the
ore reserves may increase beyond the level currently published in the 2006
Update. Although we are optimistic about the results, there can be no assurance
that improved gold recoveries alone will result in an increase in
reserves.
In
January 2004, we received permits from the Mexican Department of Environmental
Affairs and Natural Resources necessary to begin construction of the El Chanate
Project. The permits were extended in June 2005. Pursuant to the extensions,
once we file a notice that work has commenced, we have one year to prepare
the
site and construct the mine and seven years to mine and process ores from the
site. We filed the notice on June 1, 2006. These permits also cover the
operation of a heap-leach gold recovery system.
In
2005,
we acquired 15 year rights of way for the current access road, and we acquired
the right to purchase 81 hectares of land near the main highway. We have use
of
the land; however, our actual purchase of the land is conditioned upon the
Ejido
(local cooperative) privatizing the land, before the acquisition is finalized.
We subsequently purchased an extension of our rights-of-way from 15 to 30 years.
In addition to this road, we acquired a water concession, and our water well
is
located within a large regional aquifer. The 2005 feasibility study indicates
our average life of mine water requirements, for ore processing only, will
be
about 94.6 million gallons per year (11.4 liters per second). The amount of
water we are currently permitted to pump for our operations is approximately
71.3 million gallons per year (8.6 liters per second). While there are issues
about the adequacy of water supply over the entire life of the project, based
on
the anticipated water consumption for at least the first few years of operation,
we believe that we have an allocation to meet our requirements. Please see
“Current
Status of El Chanate”
below
for more information on the current status of roads and water supply at the
El
Chanate Project.
In
December 2005, MSR
entered
into a Mining Contract with a Mexican mining contractor, Sinergia Obras Civiles
y Mineras, S.A. de C.V. (“Contractor”). The Mining Contract, as amended, became
effective November 1, 2006 and work commenced on or about March 25, 2007 (the
“Commencement Date”). Pursuant to an amendment to the Mining Contract, the
mining rates set forth in that contract are subject to adjustment for the rate
of inflation between September 23, 2005 and the Commencement Date. Pursuant
to the Mining Contract, the Contractor, using its own equipment, will generally
perform all of the mining work (other than crushing) at the El Chanate Project
for the life of the mine. MSR delivered to the Contractor a mobilization payment
of $70,000 and the advance payment of $520,000. The advance payments are
recoverable by MSR out of 100% of subsequent payments due to the Contractor
under the Mining Contract. Pursuant to the Mining Contract, upon termination,
the Contractor would be obligated to repay any portion of the advance payment
that had not yet been recouped. The Contractor’s mining rates are subject to
escalation on an annual basis. This escalation is tied to the percentage
escalation in the Contractor’s costs for various parts for its equipment,
interest rates and labor. One of the principals of the Contractor (“FG’s
Successor”) is one of the former principals of Grupo Minero FG S.A. de C.V.
(“FG”). FG was our former joint venture partner. In March 2007, we made a
further advance to the Contractor of $319,000 in consideration of FG’s
successors transfer to us of his remaining interest in MSR. See the discussion
of FG in “Our
Acquisition and Ownership of the El Chanate Project”
below.
In
June
2006, MSR retained the contracting services of a Mexican subsidiary of M3
Engineering & Technology Corporation (“M3M”) to provide EPCM (engineering
procurement construction management) services. M3M supervised the construction
and integration of the various components necessary to commence production
at
the El Chanate Project. The contracted services were not to exceed $1,200,000.
As of June 19, 2007, we have paid approximately $844,000 and believe that the
total cost will be approximately $950,000.
We
retained Golder Associates, a geotechnical engineering firm, for the detailed
engineering of the leach pads and ponds. The engineering was completed in August
2006 and construction of the leach pads began in September 2006.
The
2005
Study forecasted initial capital costs of $17.9 million, which includes $1.7
million of working capital. As construction is completed and operations are
commencing, we estimate that total net construction costs will be $18.0 million.
Current
Status of El Chanate
We
have
made significant progress in the construction and commissioning of our mine
at
El Chanate. As of June 19, 2007, engineering and procurement is complete, we
have obtained all permits required to commence mining operations, all equipment
has been delivered and installed and the infrastructure support buildings have
been constructed. Mining operations began in late March 2007 and we hope to
start receiving revenues from mining operations prior to July 31, 2007, the
end
of our current fiscal year.
The
current status of the relevant areas is as follows:
Electrical
power is supplied from the National grid by CFE (Commission Federal de
Electricidad) in Caborca at 34.5 kilo volt-amps and is converted to 480 volts
at
seven transformer stations throughout the site. The transmission lines and
transformers have been installed and commissioned and approved for use by CFE.
An emergency generator has been installed adjacent to the solution ponds to
circulate the leach pad solution in the event of power interruptions. An
additional substation is being built by the local power company 20 kilometers
from the mine in the town of Altar. It will have the capability to increase
power to the mine later this year should additional power be required in the
event of additional consumption requirements for increased production or
seasonal fluctuations.
Process
water is supplied from a well owned by MSR, one of our Mexican subsidiaries.
The
well’s casing has been inspected and equipped with a new pump and electrical
hardware. The well is located nine kilometers from the mine and can supply
water
in sufficient quantity to support the mine through a new eight inch diameter
steel pipeline. While there are issues about the adequacy of water supply over
the entire life of the project, based on the anticipated water consumption
for
at least the first few years of operation, we believe that we have an allocation
to meet our requirements. The capability of acquiring additional water through
third party allocation purchase is available, as is the conservation of water
through good operational practice. If we need to obtain additional rights,
but
are unable to procure them our planned operations may be adversely affected.
See
“Our
currently permitted water rights may not be adequate for all of our total
project needs over the entire course of our anticipated mining operations.
If we
need to obtain additional rights, but are unable to procure them our planned
operations may be adversely affected”
in
“Risk
Factors.”
The
mine
access road is nine kilometers long and is capable of supporting all anticipated
traffic. The road connects with a main asphalt road (Route 2) that is maintained
by the state highways department. There are two arroyos that cross the mine
access road, both of which have concrete crossings to prevent erosion of the
road at these locations, giving year round access to the site. The internal
access roads have been constructed for the life of the mine.
The
mine
is supported by a number of infrastructure buildings all of which have been
completed. The completed buildings in or ready for use are the laboratory,
an
explosive and detonator store, a 5,000 sq. ft warehouse, the mine office, the
security guardhouse and first aid center, a lime storage building and a cyanide
and carbon storage building. The refinery building was completed in early June
2007.
The
crushing and screening plant consists of three stage crushing and closed circuit
screening. All of the equipment is new and has a design capacity of 1,000 metric
tons per hour (tph) for the primary crushing circuit and 400 tph for the balance
of the crushing circuit. A 20,000 metric ton buffer stockpile separates the
primary crusher from the rest of the circuit allowing the crushing circuits
to
operate independently of each other. The crushed ore is stacked on the leach
pad
by a series of conveyors and a radial stacker. The equipment is new and has
been
commissioned and is currently stacking ore on a daily basis.
The
mining process is as follows: Ore is placed on a leach pad that is (HDPE)
plastic lined to contain the gold bearing solution and transport it via lined
launders (plastic lined earth trenches) to ponds which are double plastic lined.
The initial leach pad consist of four panels, three of which are lined and
ready
for ore placement at this time with the fourth to be completed by late-June
2007
(the ultimate leach pad will consist of ten panels). These four panels will
allow for the stacking of approximately one year of crushed ore. The launder
and
ponds have been constructed for the mine life. We commenced the application
of
cyanide solution to the ore on the leach pad in late-June 2007. We anticipate
that gold doré (bars of semi-purified gold) production will begin between 30 to
45 days thereafter.
The
initial supply of ore to the crushing plant and leach pad was loaded and
delivered by a group of local truckers. Sinergia, the mining contractor,
commenced mining operations on March 25, 2007, and remains in the pre-production
phase of the mining contract. Sinergia continues to mobilize portions of its
mining fleet to the site. As of June 19, 2007, we have stacked approximately
350,000 metric tons of ore on the leach pad. The Sinergia mining fleet is not
new, however it has been refurbished at Sinergia’s repair facility and at the
Caterpillar dealer in Hermosillo. This process has been monitored by us and
third party specialists and we believe the equipment will be suitable for
mining. Sinergia has constructed staff accommodation within an existing Ejido
(small village) adjacent to the mine site. On site power, water, and fuel supply
has been made available for Sinergia’s use as prescribed in the mining
contract.
The
gold
in the cyanide/gold solution (pregnant solution) will be recovered using
activated carbon held in tanks. The activated carbon will be transferred on
a
daily basis to a processing plant (the “ADR Plant”) that, with the use of
chemicals, will extract the gold from the pregnant solution. The gold from
the
solution will be deposited by an electrowinning (electrolysis) process and
then
dried, mixed with fluxes (substances that reduce the melting point of the
material and remove impurities in the metal) and smelted in a furnace to produce
gold doré . The solution that has been stripped of gold will gravitate to the
barren solution pond. Cyanide will be added to this and the solution will be
pumped to freshly stacked ore. The ADR Plant is not new. It has been
refurbished; all of the pumps, valves, piping, instruments and electrical
components have been replaced. The pumps and piping associated with the solution
ponds are also new. We had anticipated that the ADR Plant would be operational
and ready for use by mid April 2007. However, during a programmed visit by
our
metallurgical consultant, it was determined that additional refurbishment is
required. While the equipment is no longer manufactured, we contracted the
engineer and designer of the equipment who recommended replacement of additional
pieces of equipment to ensure ongoing reliability of the plant after start
up.
All of the recommended parts were delivered to site.
As a
result, we now believe, but cannot assure, that the ADR Plant will become
operational by the end of June 2007.
We
have
filled all key positions in finance, human resources, operations and mine
support , and the majority of the remainder of the staff is also in place.
We
forecast a total staffing complement of between 70 and 80 people. The mine
has
three towns in close proximity where most of the staff live. With this local
infrastructure, the staff will be bussed to site, eliminating the need for
an on
site camp. Certain duties such as security and staff transport will be
contracted. In the town of Caborca we own a house and rent an office. While
we
have constructed and are using an on-site office, we will retain an “in town”
office for the project life.
We
have
entered into a supply agreement for cyanide and have ordered consumable supplies
such as explosives and carbon. We currently have adequate supplies and plan
to
consistently maintain a three month supply of these materials on site. Wear
parts and critical spare parts have also been delivered to the mine. A fully
equipped laboratory has been constructed at the mine with the capability of
monitoring the mine operation and conducting metallurgical test work.
During
the construction and commissioning process, we have been assisted by a number
of
suppliers and consultants to ensure that the transition into full production
becomes a seamless event. Given the location of the mine, there are many local
services available to support the operation. Where we feel it is prudent to
retain critical items such as pond and water well pumps, we have done so and
we
have constructed storage facilities to store in excess of three months supply
of
reagents should we foresee supply shortages looming.
To
support the mine we have purchased a number of vehicles and support equipment
that were used during construction. The equipment consists of a 35 ton crane,
a
water truck, an ambulance, a D4 dozer, a front end loader and a forklift/tool
handler. We also have purchased a number of additional equipment such as
lighting plants, welders and small tools. In May 2007, we purchased an
additional loader at an approximate cost of $400,000 to reinforce Sinergia’s
mining fleet and to assist in removing waste material in other areas of the
open
pit mine.
In
May
2007, we completed an expanded 72-hole drilling campaign to determine additional
proven and probable gold reserves at the El Chanate Project. The 72 holes
totaled approximately 8,200 meters, and are positioned to fill in gaps in the
ore body and test the outer limits of the currently known ore zones. We have
received all of the assays back from the drilling program. The quality control
of the drilling procedures and the chain of custody of the samples were audited
by SRK Consulting of Denver, CO. Now that we have received all of the assays,
we
plan on turning that data over to a third party, and have them prepare a new
resource and reserve estimate for the El Chanate mine as well as an updated
mine
plan.
Our
Acquisition and Ownership of the El Chanate Project
In
June
2001, we purchased 100% of the issued and outstanding stock of Minera Chanate,
S.A. de C.V. from AngloGold North America Inc. and AngloGold (Jerritt Canyon)
Corp. Minera Chanate’s assets at the time of the closing of the purchase
consisted of 106 exploitation and exploration concessions in the States of
Sonora, Chihuahua and Guerrero, Mexico. By June 2002, after property reviews
and
to minimize tax payments, the 106 had been reduced to 12 concessions. To cover
certain non-critical gaps between concessions, four new concessions were
located, and the number of concessions is now 16. These concessions are
contiguous, totaling approximately 3,544 hectares (8,756 acres or 13.7 square
miles). We sometimes refer to these concessions as the El Chanate concessions.
Although there are 16 concessions, we only plan to mine two of these concessions
at the present time. We sometimes refer to the planned operations on these
two
concessions as the El Chanate Project We also own outright 466 hectares (1,151
acres or 1.8 square miles) of surface rights at El Chanate and no third party
ownership or leases exist on this fee land or the El Chanate concessions. In
the
future, assuming adequate funding is available, we plan on conducting
exploration activities on some of the other concessions.
Pursuant
to the terms of the agreement with Anglo Gold, in December 2001, we made a
$50,000 payment to AngloGold. AngloGold will be entitled to receive the
remainder of the purchase price by way of an ongoing percentage of net smelter
returns of between 2% and 4% plus a 10% net profits interest (until the total
net profits interest payment received by AngloGold equals $1,000,000).
AngloGold's right to a payment of a percentage of net smelter returns and the
net profits interest will terminate at such point as they aggregate $18,018,355.
In accordance with the agreement, the foregoing payments are not to be construed
as royalty payments. Should the Mexican government or other jurisdiction
determine that such payments are royalties, we could be subjected to and would
be responsible for any withholding taxes assessed on such payments.
Under
the
terms of the agreement, we have granted AngloGold the right to designate one
of
its wholly-owned Mexican subsidiaries to receive a one-time option to purchase
51% of Minera Chanate (or such entity that owns the El Chanate concessions
at
the time of option exercise). That option is exercisable over a 180 day period
commencing at such time as we notify AngloGold that we have made a good faith
determination that we have gold-bearing ore deposits on any one of the
identified groups of El Chanate concessions, when aggregated with any ore that
we have mined, produced and sold from such concessions, of in excess of
2,000,000 troy ounces of contained gold. The exercise price would equal twice
our project costs on the properties during the period commencing on December
15,
2000 and ending on the date of such notice. Based on current information
available to us, we do not believe a deposit of the size that would trigger
these back-in rights is likely to be identified at El Chanate.
In
February 2002, MSR, one of our wholly-owned Mexican affiliates, now the leasee
of the El Chanate concessions, as discussed below, entered into a joint venture
agreement with Grupo Minero FG S.A. de C.V. (“FG”) to explore, evaluate and
develop the El Chanate concessions. Effective March 31, 2004, this joint venture
agreement was terminated. In consideration of FG’s contributions to the venture
of $457,455, we issued to FG 2,000,000 restricted shares of our common stock
valued at $800,000 and MSR issued to FG a participation certificate entitling
FG
to receive five percent of the MSR’s annual dividends, when declared. The
participation certificate also gave FG the right to participate, but not to
vote, in the meetings of MSR’s Board of Managers, Technical Committee and
Partners. In August 2006, we repurchased the participation certificate from
FG’s
successor (“FG’s successor”) for $500,000 with FG’s successor retaining a 1% net
profits interest in MSR, payable only after a total $20 million in net profits
has been generated from operations at El Chanate. We repurchased the remaining
1% net profits interest from FG’s successor in March 2007. FG’s successor also
received a right of first refusal to carry out the works and render construction
services required to effectuate the El Chanate Project. This right of first
refusal was not applicable where a funding source for the project determines
that others should render such works or services. As discussed above, FG’s
successor is a principal of Sinergia, our mining contractor.
FG
assigned or otherwise transferred to MSR all permits, licenses, consents and
authorizations (collectively, “authorizations”) for which FG had obtained in its
name in connection with the development of the El Chanate Project to the extent
that the authorizations were assignable. To the extent that the authorizations
were not assignable or otherwise transferable, FG gave its consent for the
authorizations to be cancelled so that they can be re-issued or re-granted
in
MSR’s name. The foregoing has been completed.
During
March 2002, prior to the sale of Minera Chanate and pursuant to the FG joint
venture agreement, Minera Chanate, in a series of transactions, sold all of
its
surface land and mining claims to Oro de Altar S. de R. L. de C.V. ("Oro"),
another of our wholly-owned subsidiaries. Oro, in turn, leased the foregoing
land and mining claims to Minera Santa Rita.
Leadville,
Colorado Properties
We
own or
lease a number of claims and properties, all of which are located in California
Mining District, Lake County, Colorado, Township 9 South, Range 79. Presently,
activity at our Leadville, Colorado properties consists primarily of
administrative expenditures. Primarily as a result of our focus on El Chanate,
we ceased activities in Leadville, Colorado. During the year ended July 31,
2002, we performed a review of our Leadville mine and mill improvements and
determined that an impairment loss should be realized. Therefore, we
significantly reduced the carrying value of certain assets relating to our
Leadville, Colorado assets by $999,445. During the year ending July 31, 2004,
we
again performed a review of our Colorado mine and mill improvements and
determined that an additional impairment loss should be recognized. Accordingly,
we further reduced the net carrying value to $0, recognizing an additional
loss
of $300,000.
Competition
The
acquisition of gold properties and their exploration and development are subject
to intense competition. Companies with greater financial resources, larger
staffs, more experience and more equipment for exploration and development
may
be in a better position than us to compete for such mineral properties. Our
lack
of revenues and limited financial resources further hinder our ability to
acquire additional mineral properties.
Human
Resources
As
of
June 19, 2007, we had eight full time employees and/or consultants, including
our current officers and administrative personnel in the US, and 80 full time
employees and three consultants in Mexico. We engaged Barry Heath as general
manager for our El Chanate Project in Mexico in March 2007 for a six month
period with an option for an additional six month term if mutually agreed upon
by both parties. In addition, our chief financial officer devotes approximately
50% of his time to us.
Facilities
Our
executive office is located at 76 Beaver Street, 26th
Floor,
New York, New York 10005. Telephone Number 212-344-2785. We lease the offices
from an unaffiliated party. The lease expires on August 31, 2007. We anticipate
leasing the same or new space in the same building at the end of our current
lease. Annual rent for the lease year ended August 31, 2006 was approximately
$51,000 plus utilities and other occupancy expenses.
We
had
maintained an office at 418 Harrison Avenue, Suite 2, Leadville, CO 80461
pursuant to an oral month-to-month arrangement. We terminated this arrangement
in February 2007.
In
Mexico, we have newly constructed offices on premises at El Chanate and we
own a
house and lease office space in Caborca, Mexico pursuant to an oral
month-to-month lease. Rent is approximately $600 per month.
Legal
Proceedings
We
are
not presently a party to any material litigation.
MANAGEMENT
The
following sets forth biographical information about each of our directors and
executive officers as of the date of this prospectus:
Name
|
Age
|
Position
|
|
|
|
Gifford
A. Dieterle
|
75
|
President,
Treasurer & Chairman
of the Board
|
John
Brownlie
|
57
|
Chief
Operating Officer and Director
|
Christopher
Chipman
|
34
|
Chief
Financial Officer
|
Jeffrey
W. Pritchard
|
48
|
Director,
Vice President - Investor Relations and
Secretary
|
Roger
A. Newell
|
64
|
Director,
Vice President - Development
|
Robert
Roningen
|
71
|
Director,
Senior Vice President
|
J.
Scott Hazlitt
|
54
|
Vice
President - Mine Development
|
Ian
A. Shaw
|
66
|
Director
|
John
Postle
|
65
|
Director
|
Mark
T. Nesbitt
|
61
|
Director
|
Directors
are elected at the meeting of stockholders called for that purpose and hold
office until the next stockholders meeting called for that purpose or until
their resignation or death. Officers of the corporation are elected by the
directors at meetings called by the directors for its purpose.
GIFFORD
A. DIETERLE, President, Treasurer and Chairman of our Board of Directors. Mr.
Dieterle was appointed President in September 1997 and has been an officer
and
Chairman since 1981. He has a M.S. in Geology obtained from New York University.
From 1977 until July 1993, he was Chairman, Treasurer, and Executive
Vice-President of Franklin Consolidated Mining Company. From 1965 to 1987,
he
was lecturer in geology at the City University of N.Y. (Hunter Division). Mr.
Dieterle has been Secretary-Treasurer of South American Minerals Inc. since
1997
and a director of that company since 1996.
JOHN
BROWNLIE, Chief
Operating Officer and a Director, has worked for us since May 2006 and is in
charge of supervising the construction, start-up and operation of the mine.
Mr.
Brownlie provided team management for mining projects requiring technical,
administrative, political and cultural experience over his 28 year mining
career. From 2000 to 2006, Mr. Brownlie was a consultant providing mining and
mineral related services to various companies including SRK, Oxus Mining plc
and
Cemco Inc. From 1995 to 2000, he was the General Manager for the
Zarafshan-Newmont Joint Venture in Uzbekistan, a one-million tonne per month
heap leach plant which produced over 400,000 ounces of gold per year. From
1988
to 1995, Mr. Brownlie served as the Chief Engineer and General Manager for
Monarch Resources in Venezuela, at both the El Callao Revemin Mill and La
Camorra gold projects. Before that, was a resident of South Africa and
associated with numerous mineral projects across Africa. He is also a mechanical
engineer and fluent in Spanish.
CHRISTOPHER
M. CHIPMAN, Chief Financial Officer. Mr. Chipman has been our Chief Financial
Officer since March 1, 2006. Since November 2000, Mr. Chipman has been a
managing member of Chipman & Chipman, LLC, a consulting firm that assists
public companies with the preparation of periodic reports required to be filed
with the Securities and Exchange Commission and compliance with Section 404
of
the Sarbanes Oxley Act of 2002. The firm also provides outsourced financial
resources to clients assisting in financial reporting, forecasting and
accounting services. Mr. Chipman is a CPA and, from 1996 to 1998, he was a
senior accountant with the accounting firm of Grant Thornton LLP. Mr. Chipman
was the Controller of Frontline Solutions, Inc., a software company (March
2000
to November 2000); a Senior Financial Analyst for GlaxoSmithKline (1998-2000);
and an Audit Examiner for Wachovia Corporation (1994-1996). He received a B.A.
in Economics from Ursinus College in 1994. He is a member of the American and
Pennsylvania Institute of Certified Public Accountants. Mr. Chipman devotes
approximately 50% of his time to our business.
JEFFREY
W. PRITCHARD, Vice President - Investor Relations, Secretary and Director,
has
worked for us since 1996. He has been in the marketing/public relations field
since receiving a Bachelor’s degree from the State University of New York in
1979. Mr. Pritchard has served as the Director of Marketing for the New Jersey
Devils (1987-1990) and as the Director of Sales for the New York Islanders
(1985-1987). He also was an Executive Vice President with Long Island based
Performance Network, a marketing and publishing concern from 1990 through
1995.
ROGER
A.
NEWELL, Vice President - Development and Director, has worked for us since
2000.
From 1974 through 1977, he was a geologist with Kennecott Copper Corporation.
From 1977 through 1989, he served as Exploration Manager/Senior Geologist for
the Newmont Mining Corporation and, from 1989 through 1995, was the Exploration
Manager for Gold Fields Mining Company. He was Vice President Development,
for
Western Exploration Company from 1997 through 2000. Since 1995, he has been
a
senior consultant in the Minerals Advisory Group LLC, Tucson, Arizona, a company
that provides technical and engineering advice to clients regarding mineral
projects. He has been self-employed as a geologist since 2001. He is a Fellow
in
the Society of Economic Geologists and a Past President of that Society’s
Foundation. . He has a M.Sc. from the Colorado School of Mines and a Ph.D.
in
mining and mineral exploration from Stanford University.
ROBERT
RONINGEN, Senior Vice President and Director, has been engaged in the practice
of law as a sole practitioner and is a self-employed consultant geophysicist
in
Duluth, Minnesota. From 1988 to August 1993, he was an officer and director
of
Franklin Consolidated Mining Company, Inc. He graduated from the University
of
Minnesota in 1957 with a B.A. in geology and in 1962 with a degree in Law.
J.
SCOTT
HAZLITT, Vice President - Mine Development, has been in the mining business
since 1974. He has worked primarily in mine feasibility, development, and mine
operations. Mr. Hazlitt was a field geologist for ARCO Syncrude Division at
their CB oil Shale project in 1974 and 1975. He was a contract geologist for
Pioneer Uravan and others from 1975 to 1977. He was a mine geologist for Cotter
Corporation in 1978 and 1979, and was a mine geologist for ASARCO from 1979
to
1984. He served as Vice President of Exploration for Mallon Minerals from 1984
to 1988. From 1988 to 1992, Mr. Hazlitt was a project geologist and Mine
Superintendent for the Lincoln development project. From 1992 to 1995, he was
self-employed as a consulting mining geologist in California and Nevada. He
was
Mine Operations Chief Geologist for Getchell Gold from 1995 to 1999. His work
experience has included precious metals, base metals, uranium, and oil shale.
Mr. Hazlitt has served as mine manager at our Hopemore Mine in Leadville,
Colorado starting in November 1999. Since 2001, he has focused on development
of
our El Chanate concessions. His highest educational degree is Master of Science
from Colorado State University. He is a registered geologist in the state of
California.
IAN
A.
SHAW is a member of our Board of Directors and the Board’s Audit and
Compensation Committees. He has been Managing Director of Shaw & Associates
since 1993. Shaw & Associates is a corporate services consulting firm
specializing in corporate finance, regulatory reporting and compliance with
clients that are typically public companies in the resource industry. Since
April 2006, Mr. Shaw has been the Chief Financial Officer of Centenario Copper
Corporation, a corporation with copper properties in Chile. From 2001 to 2003,
he was Vice President of Finance and Chief Financial Officer of Defiance Mining
Corporation (formerly Geomaque Explorations Inc.), a company operating gold
mines in Mexico and Honduras. Mr. Shaw has over 30 years of experience in the
mining industry during which time he was an officer of the following companies:
Blackhawk Mining Inc., Curragh Inc. and Sherritt Gordon Mines Inc. He currently
is a director or officer of the following public companies: Metallica Resources
Inc., Pelangio Mines Inc. and Unor Inc. Mr. Shaw is a Chartered Accountant
and
received a B. Comm. from Trinity College at the University of Toronto in
1964.
JOHN
POSTLE is a member of our Board of Directors and the Board’s Audit and
Compensation Committees. He is Consulting Mining Engineer associated with Roscoe
Postle Associates Inc., an entity in which he was a founding partner in 1985
and
a former principal. Mr. Postle provides mining consulting services to a number
of international financial institutions, corporations, utilities and law firms.
He worked for Cominco Ltd (1965-1970), Falconbridge Ltd (1970-1975) and D.S.
Robertson and Associates (1976-1985) at a number of open pit and underground
operations in both operating and planning capacities. Mr. Postle is a Past
Chairman of the Mineral Economics Committee of the Canadian Institute of Mining,
Metallurgy and Petroleum (“CIM”), and was appointed a Distinguished Lecturer of
the CIM in 1991. In 1997, he was awarded the CIM Robert Elver Mineral Economics
Award. He is currently Chairman of a CIM Standing Committee on Ore Reserve
Definitions. Mr. Postle has a B.A.Sc. Degree in Mining Engineering from the
University of British Columbia in 1965 and a M.Sc. Degree in Earth Sciences
from
Stanford University in 1968.
MARK
T.
NESBITT is a member of our Board of Directors and the Board’s Audit and
Compensation Committees. Since 1988, he has been a natural resources attorney
in
Denver, Colorado specializing in domestic and international mining transactions,
agreements, negotiations, title due diligence, corporate and general business
counsel. Mr. Nesbitt has been an Adjunct Professor at the University of Denver
School of Law's since 2001, is an active member of the Rocky Mountain Mineral
Law Foundation, having served as a Trustee from 1987 to 1993, and from 2003
to
the present, co-chairman of the Foundation's Mining Law and Investment in Latin
America, and Chairman of the same institute in 2003, and Chairman of the
Foundation's first Land and Permitting Special Institute in 1994. He also has
served continuously over the years on the Foundation's Special Institutes
Committee, Long Range Planning Committee, and numerous other committees. Mr.
Nesbitt is a member of the International, American, Colorado and Denver Bar
Associations, Rocky Mountain Mineral Law Foundation, International Mining
Professionals Society (Treasurer since 2000), and the Colorado Mining
Association. He is also a former Director of the Colorado Mining Association
and
past President of the Rocky Mountain Association of Mineral Landmen. He received
a B.S. degree in Geology from Washington State University in 1968 and a J.D.
from Gonzaga University School of Law in 1975.
Audit
Committee and Audit Committee Expert.
The
Audit
Committee of our Board of Directors consists of Ian A. Shaw, Committee Chairman,
John Postle and Mark T. Nesbitt. The Board of Directors has determined that
all
three members are independent directors as (i) defined in Rule 10A-3(b)(1)(ii)
under the Securities Exchange Act of 1934 and (ii) under Section 121B(2)(a)
of
the AMEX Company Guide (although our securities are not listed on the American
Stock Exchange or any other national exchange).
Mr.
Shaw
serves as the financial expert as defined in Securities and Exchange Commission
rules on the committee. We believe Messrs. Shaw, Postle and Nesbitt to be
independent of management and free of any relationship that would interfere
with
their exercise of independent judgment as members of this committee. The
principal functions of the Audit Committee are to (i) assist the Board in
fulfilling its oversight responsibility relating to the annual independent
audit
of our consolidated financial statements, the engagement of the independent
registered public accounting firm and the evaluation of the independent
registered public accounting firm’s qualifications, independence and performance
(ii) prepare the reports or statements as may be required by the securities
laws, (iii) assist the Board in fulfilling its oversight responsibility relating
to the integrity of our financial statements and financial reporting process
and
our system of internal accounting and financial controls, (iv) discuss the
financial statements and reports with management, including any significant
adjustments, management judgments and estimates, new accounting policies and
disagreements with management, and (vi) review disclosures by independent
accountants concerning relationships with us and the performance of our
independent accountants.
EXECUTIVE
COMPENSATION
The
following table shows all the cash compensation paid or to be paid by us or
any
of our subsidiaries, as well as certain other compensation paid or accrued,
during the fiscal years indicated, to our Chief Executive Officer, Gifford
A.
Dieterle, and (ii) the only executive officers other than the CEO who was
serving as an executive officer at the end of the last completed fiscal year
and
whose total annual salary and bonus exceeded $100,000 (collectively, the “Named
Executives”).
SUMMARY
COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Compensation
|
|
|
|
Annual
Compensation
|
|
Awards
|
|
Payouts
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
(i)
|
|
|
|
|
|
|
|
|
|
Other
|
|
Restrict-
|
|
|
|
|
|
All
Other
|
|
|
|
|
|
|
|
|
|
Annual
|
|
ed
Stock
|
|
|
|
LTIP
|
|
Compensa
|
|
Name
and Principal
|
|
|
|
|
|
Bonus
|
|
Compen-
|
|
Award
|
|
Options
|
|
Payouts
|
|
-tion
|
|
Position
|
|
Year
|
|
Salary
|
|
($)
|
|
sation($)
|
|
($)
|
|
SARs
|
|
($)
|
|
(i)
|
|
Gifford
A. Dieterle
|
|
|
2006
|
|
|
169,000
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
1,500,000
|
|
|
-0-
|
|
|
-0-
|
|
Chief
Executive
|
|
|
2005
|
|
|
123,000
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
Officer
|
|
|
2004
|
|
|
104,000
|
|
|
20,000
|
|
|
-0-
|
|
|
-0-
|
|
|
250,000
|
|
|
-0-
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.
Scott Hazlitt
|
|
|
2006
|
|
|
101,000
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
25,000
|
|
|
-0-
|
|
|
-0-
|
|
Vice
President
|
|
|
2005
|
|
|
97,000
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
Mine
Development
|
|
|
2004
|
|
|
96,000
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
The
following table sets forth information with respect to the Named Executives
concerning the grants of options and Stock Appreciation Rights ("SAR") during
the past fiscal year:
OPTION/SAR
GRANTS IN LAST FISCAL YEAR
Individual
Grants
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
|
|
|
|
Percent
of Total
|
|
|
|
|
|
|
|
|
|
Options/SARs
|
|
|
|
|
|
|
|
Options/
|
|
Granted
to
|
|
|
|
|
|
|
|
SARs
|
|
Employee
in
|
|
Exercise
or Base
|
|
Expiration
|
|
Name
|
|
Granted
|
|
Fiscal
Year
|
|
Price
($/SH)
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
Gifford
A. Dieterlie
|
|
|
1,250,000
|
|
|
22.4%
|
|
|
$.05
|
|
|
1/3/2007
|
|
Gifford
A. Dieterlie
|
|
|
250,000
|
|
|
4.5%
|
|
|
$.32
|
|
|
7/31/2008
|
|
J.
Scott Hazlitt
|
|
|
25,000
|
|
|
0.4%
|
|
|
$.05
|
|
|
1/3/2007
|
|
The
following table sets forth information with respect to the Named Executives
concerning exercise of options during the last fiscal year and unexercised
options and SARs held as of the end of the fiscal year:
Aggregated
Option/SAR Exercises and Fiscal Year-End Option/SAR
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
|
|
|
|
|
|
|
|
Value
of
|
|
|
|
|
|
|
|
Number
of
|
|
Unexercised
|
|
|
|
|
|
|
|
Unexercised
|
|
In-the-Money
|
|
|
|
|
|
|
|
Options/SARs
|
|
Option/SARs
|
|
|
|
Shares
|
|
|
|
at
FY-End(#)
|
|
at
FY-End(#)
|
|
|
|
Acquired
on
|
|
Value
|
|
Exercisable/
|
|
|
|
Name
|
|
Exercise
(#)
|
|
Realized
|
|
Unexercisable
|
|
Unexercisable
|
|
|
|
|
|
|
|
|
|
|
|
Gifford
A. Dieterle
|
|
|
200,000
|
|
|
44,000
|
|
|
1,550,000
|
|
|
$308,500
|
|
Scott
Hazlitt
|
|
|
300,000
|
|
|
75,000
|
|
|
25,000
|
|
|
$7,000
|
|
Employment,
Engagement and Change of Control Agreements
Effective
July 31, 2006, we entered into employment agreements with the following
executive officers: Gifford A. Dieterle, our President and Treasurer, Roger
A.
Newell, our Vice President of Development, Jack V. Everett, our Vice President
of Exploration, and Jeffrey W. Pritchard, our Vice President of Investor
Relations. On December 5, 2005, effective January 1, 2007, we entered into
an
employment agreement with J. Scott Hazlitt, our Vice President of Mine
Development.
The
agreements run for a period of three years and automatically renew for
successive one-year periods unless we or the executive provides the other party
with written notice of our or his intent not to renew at least 30 days prior
to
the expiration of the then current employment period.
Mr.
Dieterle is entitled to a base annual salary of at least $180,000, Mr. Hazlitt
is entitled to a base annual salary of at least $105,000 and each of the other
executives is entitled to a base annual salary of at least $120,000. Each
executive is entitled to a bonus or salary increase in the sole discretion
of
our board of directors. In addition, Messrs. Dieterle, Newell, Everett and
Pritchard each received two year options to purchase an aggregate of 250,000
shares of our common stock at an exercise price of $0.32 per share (the closing
price on July 31, 2006).
We
have
the right to terminate any executive’s employment for cause or on 30 days’ prior
written notice without cause or in the event of the executive’s disability (as
defined in the agreements). The agreements automatically terminate upon an
executive’s death. “Cause” is defined in the agreements as (1) a failure or
refusal to perform the services required under the agreement; (2) a material
breach by executive of any of the terms of the agreement; or (3) executive’s
conviction of a crime that either results in imprisonment or involves
embezzlement, dishonesty, or activities injurious to us or our reputation.
In
the event that we terminate an executive’s employment without cause or due to
the disability of the executive, the executive will be entitled to a lump sum
severance payment equal to one month’s salary, in the case of termination for
disability, and up to 12 month’s salary (depending upon years of service), in
the case of termination without cause.
Each
executive has the right to terminate his employment agreement on 60 days’ prior
written notice or, in the event of a material breach by us of any of the terms
of the agreement, upon 30 days’ prior written notice. In the event of a claim of
material breach by us of the agreement, the executive must specify the breach
and our failure to either (i) cure or diligently commence to cure the breach
within the 30 day notice period, or (ii) dispute in good faith the existence
of
the material breach. In the event that an agreement terminates due to our
breach, the executive is entitled to severance payments in equal monthly
installments beginning
in the month following the executive’s termination equal to three month’ salary
plus one additional month’s salary for each year of service to us. Severance
payments cannot exceed 12
month’s salary.
In
conjunction with the employment agreements, our board of directors deeming
it
essential to the best interests of our stockholders to foster the continuous
engagement of key management personnel and recognizing that, as is the case
with
many publicly held corporations, a change of control might occur and that such
possibility, and the uncertainty and questions which it might raise among
management, might result in the departure or distraction of management personnel
to the detriment of our company and our stockholders, determined to reinforce
and encourage the continued attention and dedication of members of our
management to their engagement without distraction in the face of potentially
disturbing circumstances arising from the possibility of a change in control
of
our company, we entered into identical agreements regarding change in control
with the executives. Each of the agreements regarding change in control
continues through December 31, 2009 (December 31, 2010 for Mr. Hazlitt) and
extends automatically to the third anniversary thereof unless we give notice
to
the executive prior to the date of such extension that the agreement term will
not be extended. Notwithstanding the foregoing, if a change in control occurs
during the term of the agreements, the term of the agreements will continue
through the second anniversary of the date on which the change in control
occurred. Each of the agreements entitles the executive to change of control
benefits, as defined in the agreements and summarized below, upon his
termination of employment with us during a potential change in control, as
defined in the agreements, or after a change in control, as defined in the
agreements, when his termination is caused (1) by us for any reason other than
permanent disability or cause, as defined in the agreement (2) by the executive
for good reason as defined in the agreements or, (3) by the executive for any
reason during the 30 day period commencing on the first date which is six months
after the date of the change in control. Each executive would receive a lump
sum
cash payment of three times his base salary and outplacement benefits. Each
agreement also provides that the executive is entitled to a payment to make
him
whole for any federal excise tax imposed on change of control or severance
payments received by him.
On
June
6, 2007, Mr. Everett resigned as Vice President of Exploration and a Director
and entered into a consulting agreement with us pursuant to which he provides
mining and mineral exploration consultation services.
In
May
2006, we entered into an employment agreement with John Brownlie, pursuant
to
which Mr. Brownlie was to serve as Vice President Operations. He was promoted
to
Chief Operating Officer in February 2007. Mr. Brownlie receives a base annual
salary of $150,000 and is entitled to annual bonuses. Upon his employment,
he
received options to purchase an aggregate of 200,000 shares of our common stock
at an exercise price of $.32 per share. 50,000 options vested immediately and
the balance vest upon our achieving “Economic Completion” as that term is
defined in the Credit Facility with Standard Bank plc (when we have commenced
mining operations and have been operating at anticipated capacity for 60 to
90
days). The term of the options is two years from the date of vesting. The
agreement runs for an initial two year period and automatically renews
thereafter for additional one year periods unless terminated by either party
within 30 days of a renewal date. We can terminate the agreement for cause
or
upon 30 days notice without cause. Mr. Brownlie can terminate the agreement
upon
60 days notice without cause or, if there is a breach of the agreement by us
that is not timely cured, upon 30 days notice. In the event that we terminate
him without cause or he terminates due to our breach, he will be entitled to
certain severance payments.
Pursuant
to a September 1, 2006 amended consulting agreement, Christopher Chipman is
engaged as our Chief Financial Officer. Pursuant to the agreement, Mr. Chipman
devotes approximately 50% of his time to our business. He receives a monthly
fee
of $10,000. The agreement runs for an initial one year period, and is renewable
thereafter for an additional year. Mr. Chipman can terminate the Agreement
on 60
days notice. In conjunction with the amended consulting agreement, we entered
into a change of control agreement similar to the agreements entered into with
other executive officers; except that Mr. Chipman’s agreement renews annually
and his benefits are based upon one times his base annual fee.
In
connection with the original engagement agreement with Mr. Chipman, in March
2006, Mr. Chipman received a two year option to purchase an aggregate of 50,000
shares of our common stock at an exercise price of $.34 per share. The option
vested at the rate of 10,000 shares per month and are now fully vested. On
June
13, 2007, we issued an additional 500,000 options to Mr. Chipman under our
2006
Equity Incentive Plan. These options vested immediately and are exercisable
for
a period of two years at an exercise price of $0.384 per share.
2006
Equity Incentive Plan
The
2006
Equity Incentive Plan (the “Plan”) is intended to attract and retain individuals
of experience and ability, to provide incentive to our employees, consultants,
and non-employee directors, to encourage employee and director proprietary
interests in us, and to encourage employees to remain in our employ.
The
Plan
authorizes the grant of non-qualified and incentive stock options, stock
appreciation rights and restricted stock awards (each, an “Award”). A maximum of
10,000,000 shares of common stock are reserved for potential issuance pursuant
to Awards under the Plan. Unless sooner terminated, the Plan will continue
in
effect for a period of 10 years from its effective date.
Pursuant
to delegated authority from our Board of Directors, the Plan is administered
by
the Compensation Committee of the Board. The Compensation Committee consists
of
Messrs. Shaw, Postle and Nesbitt. The Plan provides for Awards to be made to
such of our employees, directors and consultants and our affiliates as the
Board
may select. As of the date hereof, 1,050,000 options and 500,000 shares have
been granted under the Plan to two of our officers and our counsel
Stock
options awarded under the Plan may vest and be exercisable at such times (not
later than 10 years after the date of grant) and at such exercise prices (not
less than Fair Market Value at the date of grant) as the Board may determine.
Unless otherwise determined by the Board, stock options shall not be
transferable except by will or by the laws of descent and distribution. The
Board may provide for options to become immediately exercisable upon a "change
in control," as defined in the Plan.
The
exercise price of an option must be paid in cash. No options may be granted
under the Plan after the tenth anniversary of its effective date. Unless the
Board determines otherwise, there are certain continuous service requirements
and the options are not transferable.
The
Plan
provides the Board with the general power to amend the Plan, or any portion
thereof at any time in any respect without the approval of our stockholders,
provided
however, that the stockholders must approve any amendment which increases the
fixed maximum percentage of shares of common stock issuable pursuant to the
Plan, reduces the exercise price of an Award held by a
director, officer or ten percent stockholder
or
extends the term of an Award held by a
director, officer or ten percent stockholder. Notwithstanding the foregoing,
stockholder approval may still be necessary to satisfy the requirements of
Section 422 of the Code, Rule 16b-3 of the Exchange Act or any applicable stock
exchange listing requirements. The Board may amend the Plan in any respect
it
deems necessary or advisable to provide eligible Employees with the maximum
benefits provided or to be provided under the provisions of the Code and the
regulations promulgated thereunder relating to Incentive Stock Options and/or
to
bring the Plan and/or Incentive Stock Options granted under it into compliance
therewith. Rights under any Award granted before amendment of the Plan cannot
be
impaired by any amendment of the Plan unless the Participant consents in
writing. The Board is empowered to amend the terms of any one or more Awards;
provided, however, that the rights under any Award shall not be impaired by
any
such amendment unless the applicable Participant consents in writing and further
provided that the Board cannot amend the exercise price of an option, the Fair
Market Value of an Award or extend the term of an option or Award without
obtaining the approval of the stockholders if required by the rules of the
TSX
or any stock exchange upon which the common stock is listed.
Please
also see “Certain
Relationships and Related Transactions”
below.
PRINCIPAL
STOCKHOLDERS
The
following table sets forth as of June 19,
2007,
the
number and percentage of outstanding shares of common stock beneficially owned
by:
|
·
|
Each
person, individually or as a group, known to us to be deemed the
beneficial owners of five percent or more of our issued and outstanding
common stock;
|
|
·
|
each
of our Directors and the Named Executives;
and
|
|
·
|
all
of our officers and Directors as a group.
|
As
of the
foregoing date, there were no other persons, individually or as a group, known
to us to be deemed the beneficial owners of five percent or more of the issued
and outstanding common stock.
This
table is based upon information supplied by Schedules 13D and 13G, if any,
filed
with the Securities and Exchange Commission, and information obtained from
our
directors and named executives. For purposes of this table, a person or group
of
persons is deemed to have “beneficial ownership” of any shares of common stock
which such person has the right to acquire within 60 days of June 19,
2007.
For
purposes of computing the percentage of outstanding shares of common stock
held
by each person or group of persons named in the table, any security which such
person or persons has or have the right to acquire within such date is deemed
to
be outstanding but is not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person. Except as indicated in the
footnotes to this table and pursuant to applicable community property laws,
we
believe, based on information supplied by such persons, that the persons named
in this table have sole voting and investment power with respect to all shares
common stock which they beneficially own. Unless otherwise noted, the address
of
each of the principal stockholders is care of us at 76 Beaver Street,
26th
floor,
New York, NY10005.
Name
and Address
|
Amount
& Nature
|
|
of
Beneficial
|
of
Beneficial
|
Approximate
|
Owner
|
Ownership
|
Percentage(1)(2)
|
|
|
|
Gifford
A. Dieterle*
|
2,762,455(2)
|
1.6%
|
|
|
|
Robert
Roningen*
|
1,883,750(3)
|
1.1%
|
2955
Strand Road
|
|
|
Duluth,
MN 55804
|
|
|
|
|
|
Jeffrey
W. Pritchard*
|
1,006,354(2)
|
**
|
|
|
|
Christopher
Chipman*
|
650,000(2)
|
**
|
4014
Redwing Lane
|
|
|
Audubon,
PA 19407
|
|
|
|
|
|
Roger
A Newell*
|
1,577,273(2)
|
**
|
1781
South Larkspur Drive
|
|
|
Golden,
CO 80401
|
|
|
|
|
|
John
Brownlie*
|
|
|
6040
Puma Ridge
|
|
|
Littleton,
CO 80124
|
950,000(2)
|
**
|
|
|
|
Scott
Hazlitt*
|
1,025,000
|
**
|
9428
W. Highway 50
|
|
|
Salida.
CO 81201
|
|
|
|
|
|
Ian
A. Shaw*
|
100,000(2)
|
**
|
20
Toronto Street, 12 Floor
|
|
|
Toronto,
Ontario M5C-2B8
|
|
|
Canada
|
|
|
|
|
|
John
Postle*
|
100,000(2)
|
**
|
2169
Constance Drive
|
|
|
Oakville
Ontario
|
|
|
Canada
L6j 5l2
|
|
|
|
|
|
Mark
T. Nesbitt*
|
141,666(2)(4)
|
**
|
1580
Lincoln St., Ste. 700
|
|
|
Denver
CO 80203-1501
|
|
|
|
|
|
Strategic
Precious Metal Fund
|
12,500,000(5)
|
7.3%
|
c/o
Banque Cantonale Vaoudoise
|
|
|
Case
Postale 300
|
|
|
1001
Lausanne, Switzerland
|
|
|
|
|
|
RAB
Special Situations
|
|
|
(Master)
Fund Limited
|
12,648,552(6)
|
7.5%
|
1
Adam Street
|
|
|
London,
WC2N 6LE, UK
|
|
|
|
|
|
SPGP
|
20,270,000(7)
|
12.1%
|
17,
Avenue Matignon
|
|
|
75008
Paris, France
|
|
|
|
|
|
Standard
Bank PLC
|
15,750,000(8)
|
8.7%
|
320
Park Avenue
|
|
|
New
York, NY 10022
|
|
|
|
|
|
All
Officers and
|
|
|
Directors
as a
|
|
|
Group
(10)
|
10,196,498(2)(3)(4)
|
6.0%
|
_________________________________
* |
Officer
and/or Director of Capital Gold.
|
(1) Based
upon 167,942,964 shares issued and outstanding as of June 19, 2007.
(2)
For
Messrs. Dieterle, Pritchard, Chipman, Newell, Brownlie, Shaw, Postle and Nesbitt
includes, respectively, 250,00 shares, 250,000 shares, 650,000 shares, 250,000
share, 450,000 shares, 100,000 shares, 100,000 shares and 100,000 shares
issuable upon exercise of options.
(3) Represents
shares owned by Mr. Roningen’s wife. All of the foregoing shares are pledged as
collateral for payment of a bank note.
(4) Includes
shares owned jointly with his wife.
(5) Includes
2,500,000 shares issuable upon exercise of warrants issued in the January
2007 Private Placements. The securities are held of record by Gerlach And Co.
(Citibank) for Banque Cantonale Vaudoise (as custodian). We have been advised
that FidFund Management SA is the Fund Manager for Strategic Precious Metal
Fund
and that various persons at the Fund Manager, including its directors, Christian
Piguet, Gino Leonardi, Ariane Ischi, Claudio Müller and Herzig Steve, share
dispositive and voting power over the shares held by Strategic Precious Metal
Fund.
(6) The
shares are held of record by Credit Suisse First Boston LLC. We have been
advised that William P. Richards is the Fund Manager for RAB Special Situations
(Master) Fund Limited, with dispositive and voting power over the shares held
by
RAB Special Situations (Master) Fund Limited.
(7) We
have
been advised that Xavier Roulet, is a natural person with voting and investment
control over shares of our common stock beneficially owned by SPGP.
(8) Includes
shares issuable upon exercise of warrants to purchase an aggregate of 13,600,000
shares. We have been advised that Standard Bank PLC’s directors and senior
management are natural persons with voting and investment control over shares
of
our common stock beneficially owned by Standard Bank PLC.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
We
have
employment agreements with certain of our executive officers and have granted
such officers and directors options and warrants to purchase our common stock,
as discussed under the headings, “Executive Compensation,” and “Security
Ownership of Certain Beneficial Owners and Management,” above.
During
the fiscal years ended July 31, 2006 and 2005, we paid Roger Newell $63,000
and
$68,000, respectively, for professional geologist and management services
rendered to us, plus expenses. Mr. Newell also earned wages of $30,000 during
the last three months of the fiscal year ended July 31, 2006. During the fiscal
years ended July 31, 2006 and 2005, we paid Jack Everett, a former vice
president, consulting fees of $78,500 and $56,900, respectively. In addition,
Mr. Everett earned wages of $10,000 during the last month of fiscal 2006. During
the fiscal year ended July 31, 2006 and 2005, we paid Robert Roningen legal
and
consulting fees of $8,000 and $6,625, respectively.
In
January 2006, we extended the following stock options through January 3, 2007,
all of which are exercisable at $0.05 per share: Messrs. Dieterle -1,050,000
shares; Roningen - 500,000 shares; Pritchard - 327,727 shares; Newell - 500,000
shares; and Hazlitt - 25,000 shares. All of these options were exercised prior
to their expiration date.
Upon
their engagement with us, we issued 50,000 common stock purchase options to
Mr.
Chipman and 200,000 common stock purchase options to Mr. Brownlie (see
“Employment and Change of Control Agreements” in “Executive Compensation”
above). On July 31, 2006, we issued 250,000 common stock purchase options each
to Messrs. Dieterle, Pritchard, Everett and Newell exercisable at $0.32 per
share expiring on July 31, 2008. On November 30, 2006, we granted 100,000 common
stock purchase options to each of John Postle, Ian A. Shaw and Mark T. Nesbitt,
our independent directors exercisable at $0.33 per share expiring November
30,
2008. On December 13, 2006, we issued an additional 250,000
common stock purchase options to John Brownlie, our Vice President of
Operations, and 100,000 common stock purchase options to Christopher Chipman,
our Chief Financial Officer, exercisable at $0.36 per share expiring on December
13, 2008. On
June
13, 2007, we issued an additional 500,000 options to Mr. Chipman under our
2006
Equity Incentive Plan. These options vested immediately and are exercisable
for
a period of two years at an exercise price of $0.384 per share.
We
utilize Caborca Industrial S.A. de C.V. (“Caborca Industrial”), a Mexican
corporation 100% owned by Messrs. Dieterle and Pritchard, two of our officers
and directors for mining support services. These services include but are not
limited to the payment of mining salaries and related costs. Caborca Industrial
bills us for these services at cost. Mining expenses charged by it amounted
to
approximately $122,000 and $24,000 for the years ended July 31, 2006 and 2005
and approximately $240,000 and $85,000 for the nine months ended April 30,
2007
and 2006, respectively. Our
consolidated financial statements include the accounts of Capital Gold
Corporation and its subsidiaries, which are wholly and majority owned as well
as
the accounts within Caborca Industrial. This entity is considered a variable
interest entity and consolidated under accounting rules provided under FIN
46,
“Consolidation of Variable Interest Entities”.
SELLING
STOCKHOLDERS
The
following table provides information regarding the selling stockholders and
the
number of shares of common stock they are offering, which includes shares
issuable upon exercise of warrants held by the selling stockholders. Under
the
rules of the SEC, beneficial ownership includes shares over which the indicated
beneficial owner exercises voting or investment power. Shares of common stock
subject to warrants and options that are currently exercisable or will become
exercisable within 60 days are deemed outstanding for computing the
percentage ownership of the person holding the options but are not deemed
outstanding for computing the percentage ownership of any other person.
Unless
otherwise indicated in the footnotes below, we believe that the persons and
entities named in the table have sole voting and investment power with respect
to all shares beneficially owned. The information regarding shares beneficially
owned after the offering assumes the sale of all shares offered by each of
the
selling stockholders. The percentage ownership data is based on 167,942,964
shares of our common stock issued and outstanding as of June 19, 2007.
The
shares of common stock covered by this prospectus may be sold by the selling
stockholders, by those persons or entities to whom they transfer, donate,
devise, pledge or distribute their shares or by other successors in interest.
We
are registering the shares of our common stock for resale by the selling
stockholders defined below. The shares are being registered to permit public
secondary trading of the shares, and the selling stockholders may offer the
shares for resale from time to time. See "How
The Shares May Be Distributed"
below
The
following table has been prepared based solely upon information furnished to
us
as of the date of this prospectus by the selling stockholders listed below.
The
selling stockholders identified below may have sold, transferred or otherwise
disposed of, in transactions exempt from the registration requirements of the
Securities Act, all or a portion of their shares since the date on which the
information in the following table is presented.
None
of
the selling stockholder has had any position, office or other material
relationship with us or any of our affiliates within the past three years,
other
than as disclosed in the footnotes to the table.
Selling
Stockholder
|
Common
Stock
Owned
Prior
To
Offering
|
|
No.
of Shares
Being
Offered
|
Common
Stock
Owned
After
The
Offering
|
Strategic
Precious Metal Fund
(1)
|
12,500,000(1)
|
|
12,500,000(1)
|
--
|
HSBC
Private Bank (Suisse)(SA)(2)
|
250,000(2)
|
|
250,000(2)
|
--
|
Weston
Compagnie de Finance et
d’Investissement
S.A (3)
|
425,000(3)
|
|
425,000(3)
|
--
|
SC
Fundamental Value BVI, Ltd. (4)
|
1,242,927(4)
|
|
833,334(4)
|
409,593
|
SC
Fundamental Value Fund, LP (5)
|
1,792,960(5)
|
|
1,250,000(5)
|
542,960
|
Wendy
Caledon(6)
|
81,250(6)
|
|
81,250(6)
|
--
|
Michael
J. Hampton(7)
|
352,500(7)
|
|
187,500(7)
|
--
|
Yuet-Ha
Mo(8)
|
50,000(8)
|
|
50,000(8)
|
--
|
Howard
Klein*
(9)
|
100,000(9)
|
|
100,000(9)
|
--
|
Dominic
Frisby(10)
|
125,000(10)
|
|
125,000(10)
|
--
|
Broadband
Capital
Management
LLC* (11)
|
25,000(11)
|
|
25,000(11)
|
--
|
Fairbanc
Advisors Ltd. (12)
|
917,125(12)
|
|
917,125(12)
|
--
|
Richard
Feiner (13)
|
200,000
(13)
|
|
100,000
(13)
|
--
|
William
Bodenlos* (14)
|
100,000
(14)
|
|
100,000
(14)
|
|
*
|
This
selling stockholder has identified itself as a broker-dealer or an
affiliate of a registered broker-dealer.
|
(1)
|
Includes
2,500,000 shares issuable upon exercise of warrants issued in the
January
2007 Private Placements. The securities are held of record by Gerlach
And
Co. (Citibank) for Banque Cantonale Vaudoise (as custodian). We have
been
advised that FidFund Management SA is the Fund Manager for Strategic
Precious Metal Fund and that various persons at the Fund Manager,
including its directors, Christian Piguet, Gino Leonardi, Ariane
Ischi,
Claudio Müller and Herzig Steve, share dispositive and voting power over
the shares held by Strategic Precious Metal Fund. Two signatories
are
required to take any such action.
|
(2) |
Includes
50,000 shares issuable upon exercise of warrants issued in the January
2007 Private Placements. The selling stockholder has identified
[To
be supplied],
as a natural person with voting and investment control over shares
of our
common stock beneficially owned by the selling
stockholder.
|
(3) |
Includes
85,000 shares issuable upon exercise of warrants issued in the January
2007 Private Placements. The selling stockholder has identified Raphael
R.
W. Gerstel ,
its Managing Director, as the natural person with voting and investment
control over shares of our common stock beneficially owned by the
selling
stockholder.
|
(4)
|
Includes
166,667 shares issuable upon exercise of warrants issued in the January
2007 Private Placements. The selling stockholder has identified Peter
M.
Collery, President of SC Fundamental BVI, Inc., as a natural person
with
voting and investment control over shares of our common stock beneficially
owned by the selling stockholder. SC Fundamental BVI, Inc., is the
Managing general partner of SC-BVI Partners, the selling stockholder’s
investment advisor. Excludes shares owned by SC
Fundamental Value Fund, LP. Although SC Fundamental Value Fund, LP
and SC
Fundamental Value BVI, Ltd. are under common control, each disclaims
beneficial ownership of the securities owned by the
other.
|
(5)
|
Includes
250,000 shares issuable upon exercise of warrants issued in the January
2007 Private Placements. The selling stockholder has identified Peter
M.
Collery, a control person of SC Fundamental LLC, as a natural person
with
voting and investment control over shares of our common stock beneficially
owned by the selling stockholder. SC Fundamental LLC is the general
partner of the selling stockholder. Excludes shares owned by SC
Fundamental Value BVI, Ltd. Although SC Fundamental Value BVI, Ltd.
and SC
Fundamental Value Fund, LP are under common control, each disclaims
beneficial ownership of the securities owned by the
other.
|
(6)
|
Includes
16,250 shares issuable upon exercise of warrants issued in the January
2007 Private Placements.
|
(7)
|
The
shares owned include 60,000 shares issuable upon exercise of previously
issued warrants. The shares owned and offered include 37,500 shares
issuable upon exercise of warrants issued in the January 2007 Private
Placements.
|
(8)
|
The
shares owned include 10,000 shares issuable upon exercise of warrants
issued in the January 2007 Private
Placements.
|
(9)
|
The
shares owned are all issuable upon exercise of options. Mr. Klein
is the
Managing Member of RK Equity Advisors, LLC, an entity that provides
consulting services to us and received the options as partial
consideration for such services. RK Equity Advisors, LLC subsequently
transferred them to Mr. Klein. Mr. Klein is a Managing Director of
Broadband Capital Management LLC. He disclaims beneficial ownership
of the
placement agent options, and shares issuable upon exercise thereof,
issued
to Broadband.
|
(10)
|
The
shares owned include 25,000 shares issuable upon exercise of warrants
issued in the January 2007 Private
Placements.
|
(11)
|
The
shares offered and owned represent shares issuable upon exercise
of
placement agent warrants issued with regard to one of the January
2007
Private Placements. The selling stockholder was the placement agent
for
the January 2007 Private Placement conducted in the United States.
The
selling stockholder has identified Michael Rapp and Phil Wagenheim
as
natural persons with voting and investment control over shares of
our
common stock beneficially owned by the selling stockholder. Howard
Klein,
another selling stockholder, is a Managing Director of Broadband
Capital
Management LLC. He disclaims beneficial ownership of the placement
agent
options, and shares issuable upon exercise thereof, owned by Broadband.
|
(12) The
shares offered represent shares issuable upon the exercise of 100,000 options
unrelated to the January 2007 Private Placement and 817,125 placement agent
warrants issued with regard to one of the January 2007 Private Placements.
These
options and warrants were transferred to the selling stockholder by Paul Ensor.
Paul Ensor was the placement agent for the January 2007 Private Placement
conducted outside of the United States. The selling stockholder has identified
Peter Grut, Director of Fairbanc Advisors Ltd as the natural person with voting
and investment control over shares of our common stock beneficially owned by
the
selling stockholder.
(13)
|
Consists
of shares issuable upon exercise of outstanding options. 100,000
of these
option shares have been registered for public resale in a prior
registration statement.
|
(14)
|
The
shares owned and offered consist of shares issuable upon exercise
of
placement agent warrants issued to Broadband Capital Management LLC
as the
placement agent in the January 2007 Private Placement conducted in
the
United States and transferred to Mr. Bodenlos. Mr. Bodenlos is affiliated
with Broadband Capital Management
LLC.
|
HOW
THE SHARES MAY BE DISTRIBUTED
The
selling stockholders and any of their pledgees, donees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which
the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
·
|
privately
negotiated transactions;
|
·
|
short
sales
that are not violations of the laws and regulations of any state
or the
United States;
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
·
|
a
combination of any such methods of sale;
and
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated.
The
compensation paid to a particular broker-dealer may be less than or in excess
of
customary commissions.
The
selling stockholders may from time to time pledge or grant a security interest
in some or all of the Shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell shares of common stock from time to time under this prospectus,
or under an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933 amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.
The
selling stockholders have been apprised that, if a particular offer of common
stock is to be made on terms constituting a material change from the information
set forth above with respect to how the shares may be distributed, then, to
the
extent required, a post-effective amendment to the accompanying registration
statement must be filed with the Securities and Exchange
Commission.
The
selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors
in
interest will be the selling beneficial owners for purposes of this
prospectus.
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. In
addition, each of the selling stockholders who is a registered broker-dealer
or
is affiliated with a registered broker-dealer has advised us that:
|
·
|
it
purchased the shares in the ordinary course of business; and
|
|
·
|
at
the time of the purchase of the shares to be resold, it had no agreements
or understandings, directly or indirectly, with any person to distribute
the shares.
|
Broadband
Capital Management LLC is a registered broker dealer and NASD member firm and
listed as a selling stockholder in this prospectus. Broadband Capital Management
LLC served as placement agent in our recently completed U.S. private placement
offering and received, in addition to cash commissions and reimbursement of
certain expenses, warrants to purchase an aggregate of 125,000 shares of our
Common Stock with an exercise price of $0.30 per share and an exercise period
of
18 months from the date of issuance. Paul Ensor served as placement agent in
our
recently completed offshore private placement offering and received, in addition
to cash commissions and reimbursement of certain expenses, warrants to purchase
an aggregate of 817,125 shares of our Common Stock with the same terms as the
warrants issued to Broadband Capital Management LLC. Paul Ensor transferred
is
securities to Fairbanc
Advisors Ltd. Neither Mr. Ensor nor Fairbanc Advisors Ltd. is a
U.S.
person, registered broker dealer or NASD member firm. Fairbanc Advisors Ltd.
is
listed as a selling stockholder in this prospectus. The registration statement
of which this prospectus forms a part includes the shares underlying the
warrants issued to Broadband Capital Management LLC and Paul Ensor.
The
warrants held by Broadband Capital Management LLC expire on July 23, 2008.
The
125,000 shares of Common Stock issued or issuable upon conversion of placement
agent warrants received by Broadband Capital Management LLC are restricted
from
sale, transfer, assignment, pledge or hypothecation or from being the subject
of
any hedging, short sale, derivative, put, or call transaction that would result
in the effective economic disposition of the securities by any person for a
period of 180 days immediately following the effective date of the registration
statement of which this prospectus forms a part, except transfers of the
warrants to officers, partners or certain affiliates of Broadband Capital
Management LLC as allowed under NASD Rule 2710 (g)(1) and (2). In this regard,
Broadband Capital Management LLC transferred 100,000 of its warrants
to
William
Bodenlos, an affiliate of
Broadband Capital Management LLC.
Broadband
Capital Management LLC has indicated to us its willingness to act as selling
agent on behalf of certain of the selling stockholders named in the prospectus
under the section titled "Selling Security Holders" that purchased our privately
placed securities. All shares sold, if any, on behalf of selling stockholders
by
Broadband Capital Management LLC would be in transactions executed by Broadband
Capital Management LLC on an agency basis and commissions charged to its
customers in connection with each transaction shall not exceed a maximum of
5%
of the gross proceeds. Broadband Capital Management LLC does not have an
underwriting agreement with us and/or the selling stockholders and no selling
stockholders are required to execute transactions through Broadband Capital
Management LLC. Further, other than any existing brokerage relationship as
customers with Broadband Capital Management LLC, no selling stockholder has
any
pre-arranged agreement, written or otherwise, with Broadband Capital Management
LLC to sell their securities through Broadband Capital Management
LLC.
NASD
Rule
2710 requires NASD members firms (unless an exemption applies) to satisfy the
filing requirements of Rule 2710 in connection with the resale, on behalf of
selling stockholders, of the securities on a principal or agency basis. NASD
Notice to Members 88-101 states that in the event a selling stockholder intends
to sell any of the shares registered for resale in this prospectus through
a
member of the NASD participating in a distribution of our securities, such
member is responsible for insuring that a timely filing, if required, is first
made with the Corporate Finance Department of the NASD and disclosing to the
NASD the following:
|
·
|
it
intends to take possession of the registered securities or to facilitate
the transfer of such certificates;
|
|
·
|
the
complete details of how the selling stockholders' shares are and
will be
held, including location of the particular
accounts;
|
|
·
|
whether
the member firm or any direct or indirect affiliates thereof have
entered
into, will facilitate or otherwise participate in any type of payment
transaction with the selling stockholders, including details regarding
any
such transactions; and
|
|
·
|
in
the event any of the securities offered by the selling stockholders
are
sold, transferred, assigned or hypothecated by any selling stockholder
in
a transaction that directly or indirectly involves a member firm
of the
NASD or any affiliates thereof, that prior to or at the time of said
transaction the member firm will timely file all relevant documents
with
respect to such transaction(s) with the Corporate Finance Department
of
the NASD for review.
|
The
NASD
has recently proposed rule changes to NASD Rule 2710 which may, if approved,
modify the requirements of its members to make filings under NASD Rule 2710.
Further, no NASD member firm may receive compensation in excess of that
allowable under NASD rules, including Rule 2710, in connection with the resale
of the securities by the selling stockholders, which total compensation may
not
exceed 8%.
We
have
advised the selling stockholders that they are required to comply with
Regulation M promulgated under the Securities and Exchange Act during such
time
as they may be engaged in a distribution of the shares. With
certain exceptions, Regulation M precludes a selling stockholder, any affiliated
purchasers, and any broker-dealer or other person who participates in the
distribution from bidding for or purchasing, or attempting to induce any person
to bid for or purchase any security which is the subject of the distribution
until the entire distribution is complete. Regulation M also prohibits any
bids
or purchases made in order to stabilize the price of a security in connection
with the distribution of that security. All of the foregoing may affect the
marketability of the shares offered hereby in this prospectus.
We
are
required to pay all fees and expenses incident to the registration of the
shares. We have agreed to indemnify the selling stockholders against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers, and controlling persons, we have been
advised that in the opinion of the SEC this indemnification is against public
policy as expressed in the Securities Act and is therefore,
unenforceable.
Under
the
securities laws of certain states, the shares may be sold in those states only
through registered or licensed broker-dealers. In addition, the shares may
not
be sold unless the shares have been registered or qualified for sale in the
relevant state or unless the shares qualify for an exemption from registration
or qualification.
DESCRIPTION
OF SECURITIES BEING REGISTERED
The
following section does not purport to be complete and is qualified in all
respects by reference to the detailed provisions of our certificate of
incorporation and our by-laws, copies of which have been filed with the
Securities and Exchange Commission.
Our
authorized capital stock consist of: (i) 250,000,000 shares of stock, $.0001
par
value. 167,942,964 shares of common stock were issued and outstanding as of
the
date of this prospectus.
Our
Board
of Directors is empowered, without stockholder approval, to issue shares of
stock in classes and series with such voting powers, designations, preferences
and relative participating or other special rights and qualifications,
limitations or restrictions thereof, as shall be determined from time to time
by
our Board of Directors
Common
Stock
Shares
of
our common stock are entitled to one vote per share, either in person or by
proxy, on all matters that may be voted upon by the owners of our shares at
meetings of our stockholders. There is no provision for cumulative voting with
respect to the election of directors by the holders of common stock. Therefore,
the holder of more than 50% of our shares of outstanding common stock can,
if
they choose to do so, elect all of our directors. In this event, the holders
of
the remaining shares of common stock will not be able to elect any
directors.
The
holders of common stock:
|
·
|
have
equal rights to dividends from funds legally available therefore,
when and
if declared by our board of
directors;
|
|
·
|
are
entitled to share ratably in all of our assets available for distribution
to holders of common stock upon liquidation, dissolution or winding
up of
our affairs; and
|
|
·
|
do
not have preemptive rights, conversion rights, or redemption of sinking
fund provisions.
|
The
outstanding shares of our common stock are duly authorized, validly issued,
fully paid and nonassessable.
Anti-Takeover
Provisions
We
are
subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to exceptions, Section 203 prohibits a
publicly-held Delaware corporation from engaging in a “business combination”
with an “interested stockholder” for a period of three years from the date of
the transaction in which the person became an interested stockholder, unless
the
interested stockholder attained this status with the approval of the board
of
directors or unless the business combination is approved in a prescribed manner.
A “business combination” includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
exceptions, an “interested stockholder” is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more
of
the corporation’s voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to us and, accordingly, may discourage attempts to acquire us.
Provisions
of our certificate of incorporation and bylaws also may make it more difficult
to acquire control of us.
Our
Certificate of Incorporation allow us to issue different series of shares of
stock without any vote or further action by our stockholders. Our Board of
Directors has the authority to designate series of our stock and to fix and
determine the relative rights and preferences of such classes and series. As
a
result, our Board of Directors could authorize the issuance of a series of
stock
that would grant to holders the preferred right to our assets upon liquidation,
the right to receive dividend payments before dividends are distributed to
the
holders of common stock and the right to the redemption of the shares, together
with a premium, prior to the redemption of our common stock.
Our
amended by-laws: (i) require
stockholders that seek to bring business before a meeting of stockholders,
including nominations of candidates for election as directors, to provide notice
of such business to us, and certain other information, within a specified period
prior to the meeting; (ii) authorize the Board of Directors to determine the
record date applicable to any proposed stockholder action to be taken by written
consent without a meeting, and require us to appoint an independent inspector
to
the review the validity and sufficiency of any consents received in connection
with any such proposed action; and (iii) do
not
permit stockholders to call special
stockholders' meeting.
These
provisions may make it more difficult for someone to acquire control of us
or
for our stockholders to remove existing management, and might discourage a
third
party from offering to acquire us, even if a change in control or in management
would be beneficial to our stockholders.
In
addition, the
foregoing provisions could deprive stockholders of the opportunity to realize
a
premium on the shares of common stock owned by them.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock and warrants is American
Stock
Transfer and Trust Company, 59 Maiden Lane, Plaza Level, New York, NY 10038.
LEGAL
MATTERS
The
validity of the common stock offered in this prospectus has been passed upon
for
us by Richard Feiner, Esq., 381 Park Avenue South, Suite 1601, New York, New
York 10016. Mr. Feiner owns options to purchase an aggregate of 200,000 shares
of our common stock.
EXPERTS
Our
consolidated financial statements included in this prospectus have been audited
by Wolinetz, Lafazan & Company, P.C., independent registered public
accountants, to the extent and for the periods set forth in their report
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of said firm as experts in auditing and
accounting.
WHERE
YOU CAN FIND MORE INFORMATION
We
have
filed with the Securities and Exchange Commission a registration statement
(which contains this prospectus) on Form SB-2 under the Securities Act of 1933.
The registration statement relates to the shares offered by the selling
stockholders. This prospectus does not contain all of the information set forth
in the registration statement and the exhibits and schedules to the registration
statement. Please refer to the registration statement and its exhibits and
schedules for further information with respect to us, the common stock, the
debentures and the warrants. Statements contained in this prospectus as to
the
contents of any contract or other document are not necessarily complete and,
in
each instance, we refer you to the copy of that contract or document filed
as an
exhibit to the Registration Statement. You may read and obtain a copy of the
registration statement and its exhibits and schedules from the SEC, as described
below.
We
file
annual, quarterly and special reports, proxy statements and other information
with the Securities and Exchange Commission. You may read and copy any document
we file at the Securities and Exchange Commission's public reference rooms
at
450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Securities
and
Exchange Commission at 1-800-SEC-0330 for further information on the public
reference rooms. Many of our Securities and Exchange Commission filings are
also
available to the public from the Securities and Exchange Commission's Website
at
"http://www.sec.gov."
GLOSSARY
Reserve:
|
That
part of a mineral deposit which could be economically and legally
extracted or produced at the time of the reserve determination. Reserves
must be supported by a feasibility study done to bankable standards
that
demonstrates the economic extraction ("Bankable standards" implies
that
the confidence attached to the costs and achievements developed in
the
study is sufficient for the project to be eligible for external debt
financing.) A reserve includes adjustments to the in-situ tonnes
and grade
to include diluting materials and allowances for losses that might
occur
when the material is mined.
|
|
|
Proven
Reserve:
|
Reserves
for which (a) quantity is computed from dimensions revealed in outcrops,
trenches, workings or drill holes; grade and/or quality are computed
from
the results of detailed sampling and (b) the sites for inspection,
sampling and measurement are spaced so closely and the geologic character
is so well defined that size, shape depth and mineral content of
reserves
are well-established.
|
|
|
Probable
Reserve:
|
Reserves
for which quantity and grade and/or quality are computed from information
similar to that used for proven (measured) reserves, but the sites
for
inspection, sampling, and measurement are farther apart or are otherwise
less adequately spaced. The degree of assurance, although lower than
that
for proven reserves, is high enough to assume continuity between
points of
observation.
|
|
|
mineralized
material
|
The
term “mineralized material” refers to material that is not included in the
reserve as it does not meet all of the criteria for adequate demonstration
for economic or legal extraction.
|
|
|
non-reserves
|
The
term “non-reserves” refers to mineralized material that is not included in
the reserve as it does not meet all of the criteria for adequate
demonstration for economic or legal extraction.
|
|
|
exploration
stage
|
An
“exploration stage” prospect is one which is not in either the development
or production stage.
|
|
|
development
stage
|
A
“development stage” project is one which is undergoing preparation of an
established commercially mineable deposit for its extraction but
which is
not yet in production. This stage occurs after completion of a feasibility
study.
|
|
|
production
stage
|
A
“production stage” project is actively engaged in the process of
extraction and beneficiation of mineral reserves to produce a marketable
metal or mineral product.
|
|
|
ADDITIONAL
DEFINITIONS
|
|
|
|
Caliche:
|
Sediment
cemented by calcium carbonate near surface.
|
|
|
Diorite:
|
Igneous
Rock.
|
|
|
Dikes:
|
Tabular,
vertical bodies of igneous rock.
|
|
|
Fissility:
|
Shattered,
broken nature of rock.
|
|
|
Fracture
Foliations:
|
Fracture
pattern in rock, parallel orientation, resulting from
pressure.
|
|
|
Heap
Leaching:
|
Broken
and crushed ore on a pile subjected to dissolution of metals by leach
solution.
|
|
|
Hydrometallurgical
|
|
Plant:
|
A
metallurgical mineral processing plant that uses water to leach or
separate and concentrate elements or minerals.
|
|
|
Intercalated:
|
Mixed
in.
|
|
|
Litho
static Pressure:
|
Pressure
brought on by weight of overlaying rocks.
|
|
|
Major
|
|
Intrusive
Center:
|
An
area where large bodies of intrusive igneous rock exist and through
which
large amounts of mineralizing fluids rose.
|
|
|
Mesothermal:
|
A
class of hydrothermal ore deposit formed at medium temperatures and
a
depth over one mile in the earth’s crust.
|
|
|
Microporphyritic
|
|
Latite:
|
Extremely
fine grained siliceous igneous rock with a distribution of larger
crystals
within.
|
|
|
Mudstone:
|
Sedimentary
bed composed primarily of fine grained material such as clay and
silt.
|
|
|
PPM:
|
Part
per million.
|
|
|
Pyritized:
|
Partly
replaced by the mineral pyrite.
|
|
|
Reverse
Circulation
|
|
Drilling
(or R.C.
|
|
Drilling):
|
Type
of drilling using air to recover cuttings for sampling through the
middle
of the drilling rods rather than the outside of the drill rods, resulting
in less contamination of the sampled interval.
|
|
|
Sericitized:
|
Rocks
altered by heat, pressure and solutions resulting in formation of
the
mineral sericite, a very fine grained mica.
|
|
|
Siltstone:
|
A
sedimentary rock composed of clay and silt sized particles.
|
|
|
Silicified:
|
Partly
replaced by silica.
|
|
|
Stockwork
Breccia:
|
Earth's
crust broken by two or more sets of parallel faults converging from
different directions.
|
|
|
Stockwork:
|
Ore,
when not in strata or in veins but in large masses, so as to be worked
in
chambers or in large blocks.
|
|
|
Surface
Mine:
|
Surface
mining by way of an open pit without shafts or underground
working.
|
CAPITAL
GOLD CORPORATION
|
(A
DEVELOPMENT STAGE ENTERPRISE)
|
CONDENSED
CONSOLIDATED BALANCE SHEET
|
(UNAUDITED)
|
|
|
April
30,
|
|
ASSETS
|
|
2007
|
|
Current
Assets:
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
7,545,184
|
|
Loans
Receivable - Affiliate (Note 12 and 16)
|
|
|
46,245
|
|
Prepaid
Assets
|
|
|
328,548
|
|
Marketable
Securities (Note 3)
|
|
|
80,000
|
|
Stockpiles
and Ore on Leach Pads (Note 5)
|
|
|
473,584
|
|
Inventories
(Note 4)
|
|
|
100,941
|
|
Deposits
(Note 6)
|
|
|
860,047
|
|
Other
Current Assets (Note 7)
|
|
|
1,284,117
|
|
Total
Current Assets
|
|
|
10,718,666
|
|
|
|
|
|
|
Mining
Concessions (Note 11)
|
|
|
70,104
|
|
Property
& Equipment - net (Note 8)
|
|
|
15,749,270
|
|
Intangible
Assets - net (Note 9)
|
|
|
580,267
|
|
|
|
|
|
|
Other
Assets:
|
|
|
|
|
Other
Investments (Note 13)
|
|
|
28,052
|
|
Deferred
Financing Costs (Note 18)
|
|
|
620,756
|
|
Mining
Reclamation Bonds (Note 10)
|
|
|
35,550
|
|
Other
|
|
|
42,286
|
|
Security
Deposits
|
|
|
9,599
|
|
Total
Other Assets
|
|
|
736,243
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
27,854,550
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Accounts
Payable
|
|
$
|
239,081
|
|
Accrued
Expenses
|
|
|
600,669
|
|
Derivative
Contracts (Note 21)
|
|
|
520,416
|
|
Total
Current Liabilities
|
|
|
1,360,166
|
|
|
|
|
|
|
Reclamation
and Remediation Liabilities (Note 14)
|
|
|
1,227,776
|
|
Note
Payable (Note 18)
|
|
|
12,000,000
|
|
Total
Long-term Liabilities
|
|
|
13,227,776
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
Stockholders’
Equity:
|
|
|
|
|
Common
Stock, Par Value $.0001 Per Share;
|
|
|
|
|
Authorized
250,000,000 shares; Issued and
|
|
|
|
|
Outstanding
166,308,511 Shares
|
|
|
16,631
|
|
Additional
Paid-In Capital
|
|
|
53,522,638
|
|
Deficit
Accumulated in the Development Stage
|
|
|
(36,872,071
|
)
|
Deferred
Financing Costs (Note 18)
|
|
|
(3,670,710
|
)
|
Deferred
Compensation
|
|
|
(52,500
|
)
|
Accumulated
Other Comprehensive Loss (Note 15)
|
|
|
322,620
|
|
Total
Stockholders’ Equity
|
|
|
13,266,608
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
27,854,550
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
|
(A
DEVELOPMENT STAGE ENTERPRISE)
|
CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Period
|
|
|
|
For
The Nine Months Ended
|
|
September
17, 1982
|
|
|
|
April
30,
|
|
(Inception)
|
|
|
|
|
|
|
|
To
|
|
|
|
2007
|
|
2006
|
|
April
30, 2007
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Costs
and Expenses:
|
|
|
|
|
|
|
|
|
|
|
Mine
Expenses
|
|
|
743,334
|
|
|
1,528,653
|
|
|
10,348,047
|
|
Write-Down
of Mining, Milling and Other Property and Equipment
|
|
|
-
|
|
|
-
|
|
|
1,299,445
|
|
Selling,
General and Administrative Expenses
|
|
|
2,151,362
|
|
|
1,377,104
|
|
|
14,149,822
|
|
Stocks
and Warrants issued for Services
|
|
|
153,093
|
|
|
6,585
|
|
|
9,652,331
|
|
Exploration
|
|
|
581,395
|
|
|
-
|
|
|
581,395
|
|
Depreciation
and Amortization
|
|
|
631,797
|
|
|
27,000
|
|
|
1,045,923
|
|
Total
Costs and Expenses
|
|
|
4,260,981
|
|
|
2,939,342
|
|
|
37,076,963
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(4,260,981
|
)
|
|
(2,939,342
|
)
|
|
(37,076,963
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
97,815
|
|
|
85,396
|
|
|
1,077,532
|
|
Interest
Expense
|
|
|
(473,334
|
)
|
|
-
|
|
|
(473,334
|
)
|
Miscellaneous
|
|
|
-
|
|
|
-
|
|
|
36,199
|
|
Loss
on Sale of Property and Equipment
|
|
|
-
|
|
|
-
|
|
|
(155,713
|
)
|
Gain
on Sale of Subsidiary
|
|
|
-
|
|
|
-
|
|
|
1,907,903
|
|
Option
Payment
|
|
|
-
|
|
|
-
|
|
|
70,688
|
|
Loss
on change in fair value of derivative
|
|
|
(847,068
|
)
|
|
(362,210
|
)
|
|
(1,428,992
|
)
|
Loss
on Write-Off of Investment
|
|
|
-
|
|
|
-
|
|
|
(10,000
|
)
|
Loss
on Joint Venture
|
|
|
-
|
|
|
-
|
|
|
(901,700
|
)
|
Loss
on Option
|
|
|
-
|
|
|
-
|
|
|
(50,000
|
)
|
Gain
(Loss) on Other Investments
|
|
|
-
|
|
|
-
|
|
|
(3,697
|
)
|
Loss
on Write -Off of Minority Interest
|
|
|
-
|
|
|
-
|
|
|
(150,382
|
)
|
Total
Other Income (Expense)
|
|
|
(1,222,586
|
)
|
|
(276,814
|
)
|
|
(81,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss
Before Minority Interest
|
|
|
(5,483,568
|
)
|
|
(3,216,156
|
)
|
|
(37,158,459
|
)
|
Minority
Interest
|
|
|
-
|
|
|
-
|
|
|
286,388
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(5,483,568
|
)
|
$
|
(3,216,156
|
)
|
$
|
(36,872,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss Per Common Share - Basic and Diluted
|
|
$
|
(0.04
|
)
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding
|
|
|
143,842,574
|
|
|
105,698,556
|
|
|
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
|
(A
DEVELOPMENT STAGE ENTERPRISE)
|
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
|
FOR
THE NINE MONTHS ENDED APRIL 30, 2007
(UNAUDITED)
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
in
the
|
|
Other
|
|
Deferred
|
|
Deferred
|
|
Total
|
|
|
|
Common
Stock
|
|
paid-in-
|
|
Development
|
|
Comprehensive
|
|
Financing
|
|
Compensation
|
|
Stockholder
|
|
|
|
Shares
|
|
Amount
|
|
capital
|
|
Stage
|
|
Income/(Loss)
|
|
Costs
|
|
Costs
|
|
Equity
|
|
Balance
at July 31, 2006
|
|
131,635,129
|
|
13,163
|
|
40,733,825
|
|
(31,388,503)
|
|
146,493
|
|
(522,541)
|
|
(52,500)
|
|
8,929,937
|
|
Deferred
Financing Costs
|
|
1,150,000
|
|
115
|
|
350,635
|
|
-
|
|
-
|
|
(350,750)
|
|
-
|
|
-
|
|
Deferred
Financing Costs
|
|
-
|
|
-
|
|
3,314,449
|
|
-
|
|
-
|
|
(3,314,449)
|
|
-
|
|
-
|
|
Amortization
of Deferred Finance Costs
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
517,030
|
|
-
|
|
517,030
|
|
Options
and warrants issued for services
|
|
-
|
|
-
|
|
170,447
|
|
-
|
|
-
|
|
-
|
|
-
|
|
170,447
|
|
Private
Placement, Net
|
|
12,561,667
|
|
1,256
|
|
3,484,606
|
|
-
|
|
-
|
|
-
|
|
-
|
|
3,485,862
|
|
Common
Stock issued for services provided
|
|
679,261
|
|
68
|
|
301,182
|
|
-
|
|
-
|
|
-
|
|
-
|
|
301,250
|
|
Common
Stock issued upon the exercising of options and warrants
|
|
20,282,454
|
|
2,029
|
|
5,167,494
|
|
-
|
|
-
|
|
-
|
|
|
|
5,169,523
|
|
Unrealized
loss on marketable securities
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(10,000)
|
|
-
|
|
-
|
|
(10,000)
|
|
Change
in fair value on interest rate swaps
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(76,138)
|
|
-
|
|
-
|
|
(76,138)
|
|
Equity
adjustment from foreign currency translation
|
|
-
|
|
-
|
|
-
|
|
-
|
|
262,265
|
|
-
|
|
-
|
|
262,265
|
|
Net
loss for the nine months ended
April
30, 2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,483,568
|
)
|
|
-
|
|
|
- |
|
|
-
|
|
|
(5,483,568
|
)
|
Balance
- April 30, 2007
|
|
|
166,308,511
|
|
$
|
16,631
|
|
$
|
53,522,638
|
|
$
|
(36,872,071
|
)
|
$
|
322,620
|
|
$
|
(3,670,710
|
)
|
$
|
(52,500
|
)
|
$
|
13,266,608
|
|
The
accompanying notes are an integral part of the financial statements.
CAPITAL
GOLD CORPORATION
|
(A
DEVELOPMENT STAGE ENTERPRISE)
|
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
|
(UNAUDITED)
|
|
|
For
The
|
|
For
The Period
|
|
|
|
Nine
Months Ended
|
|
September
17, 1982
|
|
|
|
April
30,
|
|
(Inception)
To
|
|
|
|
2007
|
|
2006
|
|
April
30, 2007
|
|
Cash
Flow From Operating Activities:
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(5,483,568
|
)
|
$
|
(3,216,156
|
)
|
$
|
(36,872,071
|
)
|
Adjustments
to Reconcile Net Loss to
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by (Used in) Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
|
631,797
|
|
|
27,000
|
|
|
1,054,493
|
|
Gain
on Sale of Subsidiary
|
|
|
-
|
|
|
-
|
|
|
(1,907,903
|
)
|
Minority
Interest in Net Loss of Subsidiary
|
|
|
-
|
|
|
-
|
|
|
(286,388
|
)
|
Write-Down
of Impaired Mining, Milling and Other
|
|
|
-
|
|
|
|
|
|
|
|
Property
and Equipment
|
|
|
-
|
|
|
-
|
|
|
1,299,445
|
|
Loss
on Sale of Property and Equipment
|
|
|
-
|
|
|
-
|
|
|
155,713
|
|
Loss
on change in fair value of derivative
|
|
|
662,354
|
|
|
362,210
|
|
|
1,244,278
|
|
Loss
on Write-Off of Investment
|
|
|
-
|
|
|
-
|
|
|
10,000
|
|
Loss
on Joint Venture
|
|
|
-
|
|
|
-
|
|
|
901,700
|
|
Loss
on Write-Off of Minority Interest
|
|
|
-
|
|
|
-
|
|
|
150,382
|
|
Value
of Common Stock and Warrants Issued for Services
|
|
|
471,697
|
|
|
6,585
|
|
|
13,057,312
|
|
Changes
in Operating Assets and Liabilities:
|
|
|
|
|
|
|
|
|
|
|
(Increase)
Decrease in Prepaid Expenses
|
|
|
(288,474
|
)
|
|
(12,734
|
)
|
|
(309,556
|
)
|
(Increase)
Decrease in Inventory
|
|
|
(446,184
|
)
|
|
-
|
|
|
(446,184
|
)
|
(Increase)
Decrease in Other Current Assets
|
|
|
3,365,966
|
|
|
(5,104,501
|
)
|
|
(1,899,873
|
)
|
(Increase)
in Other Deposits
|
|
|
(610,047
|
)
|
|
(286,000
|
)
|
|
(878,047
|
)
|
Increase
(Decrease) in Other Assets
|
|
|
768
|
|
|
755
|
|
|
(41,900
|
)
|
(Increase)
in Security Deposits
|
|
|
-
|
|
|
-
|
|
|
(9,605
|
)
|
Increase
(Decrease) in Accounts Payable
|
|
|
(19,891
|
)
|
|
133,859
|
|
|
322,293
|
|
Increase
in Redemption Obligation
|
|
|
1,227,776
|
|
|
-
|
|
|
1,227,776
|
|
Increase
(Decrease) in Accrued Expenses
|
|
|
243,998
|
|
|
(46,317
|
)
|
|
380,927
|
|
Net
Cash Provided by (Used in) Operating Activities
|
|
|
(243,808
|
)
|
|
(8,042,665
|
)
|
|
(22,847,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
(Increase)
in Other Investments
|
|
|
(6,572
|
)
|
|
(260
|
)
|
|
(28,312
|
)
|
Purchase
of Mining, Milling and Other Property and
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
(15,031,813
|
)
|
|
(238,541
|
)
|
|
(18,223,095
|
)
|
Purchase
of Concessions
|
|
|
-
|
|
|
-
|
|
|
(25,324
|
)
|
Investment
in Intangibles
|
|
|
(570,000
|
)
|
|
-
|
|
|
(588,620
|
)
|
Proceeds
on Sale of Mining, Milling and Other Property
|
|
|
|
|
|
|
|
|
|
|
and
Equipment
|
|
|
-
|
|
|
-
|
|
|
275,638
|
|
Proceeds
From Sale of Subsidiary
|
|
|
-
|
|
|
-
|
|
|
2,131,616
|
|
Expenses
of Sale of Subsidiary
|
|
|
-
|
|
|
-
|
|
|
(101,159
|
)
|
Advance
Payments - Joint Venture
|
|
|
-
|
|
|
-
|
|
|
98,922
|
|
Investment
in Joint Venture
|
|
|
-
|
|
|
-
|
|
|
(101,700
|
)
|
Investment
in Privately Held Company
|
|
|
-
|
|
|
-
|
|
|
(10,000
|
)
|
Net
Assets of Business Acquired (Net of Cash)
|
|
|
-
|
|
|
-
|
|
|
(42,130
|
)
|
Investment
in Marketable Securities
|
|
|
-
|
|
|
-
|
|
|
(50,000
|
)
|
The
accompanying notes are an integral part of the financial
statements.
|
|
|
|
|
For
The
|
|
For
The Period
|
|
|
|
Nine
Months Ended
|
|
September
17, 1982
|
|
|
|
April
30,
|
|
(Inception)
|
|
|
|
|
|
|
|
To
|
|
|
|
2007
|
|
2006
|
|
April
30, 2007
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Investing Activities
|
|
|
(15,608,385
|
)
|
|
(238,801
|
)
|
|
(16,664,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances
to Affiliate
|
|
|
(4,500
|
)
|
|
(8,076
|
)
|
|
(49,822
|
)
|
Proceeds
from Borrowing on Credit Facility
|
|
|
12,000,000
|
|
|
|
|
|
12,000,000
|
|
Proceeds
of Borrowings - Officers
|
|
|
-
|
|
|
-
|
|
|
18,673
|
|
Repayment
of Loans Payable - Officers
|
|
|
-
|
|
|
-
|
|
|
(18,673
|
)
|
Proceeds
of Note Payable
|
|
|
-
|
|
|
-
|
|
|
11,218
|
|
Payments
of Note Payable
|
|
|
-
|
|
|
-
|
|
|
(11,218
|
)
|
Proceeds
From Issuance of Common Stock, net
|
|
|
8,655,385
|
|
|
8,088,920
|
|
|
35,506,229
|
|
Commissions
on Sale of Common Stock
|
|
|
-
|
|
|
-
|
|
|
(5,250
|
)
|
Deferred
Finance Costs
|
|
|
(257,271
|
)
|
|
(140,000
|
)
|
|
(708,048
|
)
|
Expenses
of Initial Public Offering
|
|
|
-
|
|
|
-
|
|
|
(408,763
|
)
|
Capital
Contributions - Joint Venture Subsidiary
|
|
|
-
|
|
|
-
|
|
|
304,564
|
|
Purchase
of Certificate of Deposit - Restricted
|
|
|
-
|
|
|
-
|
|
|
(5,000
|
)
|
Purchase
of Mining Reclamation Bonds
|
|
|
-
|
|
|
-
|
|
|
(30,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided By (Used In) Financing Activities
|
|
|
20,393,614
|
|
|
(7,940,844
|
)
|
|
46,603,360
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of Exchange Rate Changes
|
|
|
262,265
|
|
|
(40,776
|
)
|
|
453,196
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease) In Cash and Cash Equivalents
|
|
|
4,803,686
|
|
|
(381,398
|
)
|
|
7,545,184
|
|
Cash
and Cash Equivalents - Beginning
|
|
|
2,741,498
|
|
|
4,281,548
|
|
|
-
|
|
Cash
and Cash Equivalents - Ending
|
|
$
|
7,545,184
|
|
$
|
3,900,150
|
|
$
|
7,545,184
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
Cash
Paid For Interest
|
|
$
|
685,735
|
|
$
|
-
|
|
$
|
685,735
|
|
Cash
Paid For Income Taxes
|
|
$
|
20,575
|
|
$
|
7,731
|
|
$
|
66,549
|
|
Non-Cash
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Issuances
of Common Stock as Commissions
|
|
|
|
|
|
|
|
|
|
|
on
Sales of Common Stock
|
|
$
|
-
|
|
$
|
-
|
|
$
|
440,495
|
|
Issuance
of common stock and warrants as payment of financing costs
|
|
$
|
3,665,199
|
|
$
|
270,000
|
|
$
|
4,187,740
|
|
Change
in Fair Value of Derivative Instrument
|
|
$
|
76,138
|
|
$
|
-
|
|
$
|
76,138
|
|
Issuance
of Common Stock and Options/warrants as Payment for
Expenses
|
|
$
|
-
|
|
$
|
-
|
|
$
|
192,647
|
|
Issuance
of Common Stock as Payment for Mining,
|
|
|
|
|
|
|
|
|
|
|
Milling
and Other Property and Equipment
|
|
$
|
-
|
|
$
|
-
|
|
$
|
4,500
|
|
Exercise
of Options as Payment of Accounts Payable
|
|
$
|
-
|
|
$
|
-
|
|
$
|
36,000
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial
statements.
|
|
|
|
|
|
|
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL
30,
2007
NOTE
1 -
Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements include
the
accounts of Capital Gold Corporation ("Capital Gold", "the Company", "we"
or
"us") and its subsidiaries, which are wholly and majority owned as well as
the
accounts within Caborca Industrial S.A. de C.V. (“Caborca Industriale”), a
Mexican corporation 100% owned by two of the Company’s officers and directors
for mining support services. These services include, but are not limited
to, the
payment of mining salaries and related costs. Caborca Industrial bills the
Company for these services at cost. This entity is considered a variable
interest entity under accounting rules provided under FIN 46, “Consolidation of
Variable Interest Entities”.
Capital
Gold was incorporated in February 1982 in the State of Nevada. During March
2003
the Company's stockholders approved an amendment to the Articles of
Incorporation to change its name from Leadville Mining and Milling Corp.
to
Capital Gold Corporation. In November 2005, the Company reincorporated in
Delaware. The Company owns rights to property located in the State of Sonora,
Mexico and the California Mining District, Lake County, Colorado and is in
the
process of completing construction and development of an open-pit gold mining
operation to mine two of its Mexican concessions. All of the Company's mining
activities are now being performed in Mexico. The Company is a development
stage
enterprise.
On
June
29, 2001, the Company exercised an option and purchased from AngloGold North
America Inc. and AngloGold (Jerritt Canyon) Corp. 100% of the issued and
outstanding stock of Minera Chanate, S.A. de C.V., a subsidiary of those
two
companies (“Minera Chanate”). Minera Chanate's assets consisted of certain
exploitation and exploration concessions in the States of Sonora, Chihuahua
and
Guerrero, Mexico. We sometimes refer to these concessions as the El Chanate
Concessions.
Pursuant
to the terms of the agreement, on December 15, 2001, the Company made a $50,000
payment to AngloGold. AngloGold will be entitled to receive the remainder
of the
purchase price by way of an ongoing percentage of net smelter returns of
between
2% and 4% plus 10% net profits interest (until the total net profits interest
payment received by AngloGold equals $1,000,000). AngloGold's right to a
payment
of a percentage of net smelter returns and the net profits interest will
terminate at such point as they aggregate $18,018,355. In accordance with
the
agreement, the foregoing payments are not to be construed as royalty payments.
Should the Mexican government or other jurisdiction determine that such payments
are royalties, we could be subject to and would be responsible for any
withholding taxes assessed on such payments.
Under
the
terms of the agreement, the Company has granted AngloGold the right to designate
one of its wholly-owned Mexican subsidiaries to receive a one time option
to
purchase 51% of Minera Chanate (or such entity that owns the Minera Chanate
concessions at the time of option exercise). That Option is exercisable over
a
180 day period commencing at such time as the Company notifies AngloGold
that it
has made a good faith determination that it has gold-bearing ore deposits
on any
one of the identified group of El Chanate Concessions, when aggregated with
any
ore that the Company has mined, produced and sold from such concessions,
of in
excess of 2,000,000 troy ounces of contained gold. The exercise price would
equal twice the Company's project costs on the properties during the period
commencing on December 15, 2000 and ending on the date of such
notice.
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles
for
interim financial information and with instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by U.S.
generally accepted accounting principles for complete financial statements.
In
the opinion of the Company's management, the accompanying condensed consolidated
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the condensed consolidated
financial position and results of operations and cash flows for the periods
presented.
Results
of operations for interim periods are not necessarily indicative of the results
of operations for a full year.
The
condensed consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and satisfaction
of
liabilities in the normal course of business. The Company is a development
stage
enterprise and has recurring losses from operations and operating cash
constraints that raise substantial doubt about the Company's ability to continue
as a going concern. These statements should be read in conjunction with the
Company’s consolidated financial statements included within its Form 10-KSB for
the fiscal year ended July 31, 2006, as filed with the SEC on November 1,
2006.
NOTE
2 -
Equity Based Compensation
In
connection with offers of employment to the Company’s executives as well as in
consideration for agreements with certain consultants, the Company issues
options and warrants to acquire its common stock. Employee and non-employee
awards are made at the discretion of the Board of Directors.
Such
options and warrants may be exercisable at varying exercise prices currently
ranging from $0.22 to $0.41 per share of common stock with certain of these
grants becoming exercisable immediately upon grant subject to stockholder
approval. Certain grants vest for a period of five months to two years
(generally concurrent with service periods for grants to employees/consultants
-
See Note 20 - Employee and Consulting Agreements). Certain grants contain
a
provision whereby they become immediately exercisable upon a change of
control.
Effective
February 1, 2006, the Company adopted the provisions of SFAS No. 123R. Under
FAS
123R, share-based compensation cost is measured at the grant date, based
on the
estimated fair value of the award, and is recognized as expense over the
requisite service period. The Company adopted the provisions of FAS 123R
using a
modified prospective application. Under this method, compensation cost is
recognized for all share-based payments granted, modified or settled after
the
date of adoption, as well as for any unvested awards that were granted prior
to
the date of adoption. Prior periods are not revised for comparative purposes.
Because the Company previously adopted only the pro forma disclosure provisions
of SFAS 123, it will recognize compensation cost relating to the unvested
portion of awards granted prior to the date of adoption, using the same estimate
of the grant-date fair value and the same attribution method used to determine
the pro forma disclosures under SFAS 123, except that forfeitures rates will
be
estimated for all options, as required by FAS 123R.
The
cumulative effect of applying the forfeiture rates is not material. FAS 123R
requires that excess tax benefits related to stock options exercises be
reflected as financing cash inflows instead of operating cash
inflows.
The
fair
value of each option award is estimated on the date of grant using a
Black-Scholes option valuation model. Expected volatility is based on the
historical volatility of the price of the Company stock. The risk-free interest
rate is based on U.S. Treasury issues with a term equal to the expected life
of
the option. The Company uses historical data to estimate expected dividend
yield, expected life and forfeiture rates. The estimated per share weighted
average grant-date fair values of stock options and warrants granted during
the
nine months ended April 30, 2007 and 2006, were $0.32 and $0.36, respectively.
The fair values of the options and warrants granted were estimated based
on the
following weighted average assumptions:
|
|
Nine
Months ended April 30,
|
|
|
|
2007
|
|
2006
|
|
Expected
volatility
|
|
|
82
|
%
|
|
121
|
%
|
Risk-free
interest rate
|
|
|
6.24
|
%
|
|
5.75
|
%
|
Expected
dividend yield
|
|
|
-
|
|
|
-
|
|
Expected
life
|
|
|
4.2
years
|
|
|
1.05
years
|
|
Stock
option and warrant activity for employees during the nine months
ended
April 30, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Options
|
|
Weighted
Average
exercise
price
|
|
Weighted
average
remaining
contracted
term
(years)
|
|
Aggregate
intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at July 31, 2005
|
|
|
4,711,363
|
|
$
|
.30
|
|
|
0.30
|
|
$
|
1,277,977
|
|
Options
granted
|
|
|
4,611,363
|
|
|
.13
|
|
|
-
|
|
|
-
|
|
Options
exercised
|
|
|
(590,909
|
)
|
|
.05
|
|
|
-
|
|
|
-
|
|
Options
expired
|
|
|
(3,161,363
|
)
|
|
.05
|
|
|
-
|
|
|
-
|
|
Warrants
and options outstanding at July 31, 2006
|
|
|
5,570,454
|
|
$
|
.16
|
|
|
1.17
|
|
$
|
702,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
granted
|
|
|
550,000
|
|
$
|
.34
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercised
|
|
|
(3,570,909
|
)
|
$
|
.08
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
expired
|
|
|
(549,545
|
)
|
$
|
.22
|
|
|
-
|
|
|
-
|
|
Warrants
and options outstanding at April 30, 2007
|
|
|
2,000,000
|
|
$
|
.33
|
|
|
1.39
|
|
$
|
167,000
|
|
Warrants
and options exercisable at April 30, 2007
|
|
|
2,000,000
|
|
$
|
.33
|
|
|
1.39
|
|
$
|
167,000
|
|
|
Unvested
stock option and warrant balances for employees at April 30, 2007
are as
follows:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
average
|
|
|
|
|
|
|
|
Average
|
|
remaining
|
|
Aggregate
|
|
|
|
Number
of
Options
|
|
Exercise
price
|
|
contracted
term
(years)
|
|
Intrinsic
value
|
|
Outstanding
at August 1, 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
-
|
|
Options
granted
|
|
|
150,000
|
|
$
|
.32
|
|
|
1.83
|
|
|
16,500
|
|
Unvested
Options outstanding at April 30, 2007
|
|
|
150,000
|
|
$
|
.32
|
|
|
1.17
|
|
$
|
13,500
|
|
|
Stock
option and warrant activity for non-employees during the nine months
ended
April 30, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
average
|
|
|
|
|
|
|
|
Average
|
|
remaining
|
|
Aggregate
|
|
|
|
Number
of
Options
|
|
Exercise
price
|
|
contracted
term
(years)
|
|
Intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at July 31, 2005
|
|
|
31,902,004
|
|
$
|
.30
|
|
|
1.13
|
|
$
|
3,430,120
|
|
Options
granted
|
|
|
6,844,000
|
|
|
.28
|
|
|
-
|
|
|
-
|
|
Options
exercised
|
|
|
(12,835,004
|
)
|
|
.29
|
|
|
-
|
|
|
-
|
|
Options
expired
|
|
|
(350,000
|
)
|
|
.10
|
|
|
-
|
|
|
-
|
|
Warrants
and options outstanding at July 31, 2006
|
|
|
25,561,000
|
|
$
|
.29
|
|
|
1.33
|
|
$
|
1,939,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
granted
|
|
|
16,982,542
|
|
$
|
.33
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercised
|
|
|
(17,846,000
|
)
|
|
.29
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
expired
|
|
|
_(1,375,000
|
)
|
|
.31
|
|
|
-
|
|
|
-
|
|
Warrants
and options outstanding at April 30, 2007
|
|
|
23,322,542
|
|
$
|
.32
|
|
|
1.72
|
|
$
|
1,988,238
|
|
Warrants
and options exercisable at April 30, 2007
|
|
|
23,322,542
|
|
$
|
.32
|
|
|
1.72
|
|
$
|
1,988,238
|
|
The
impact on the Company’s results of operations of recording equity based
compensation for the nine months ended April 30, 2007, for employees and
non-employees was approximately $427,000 and reduced earnings per share by
$0.00
per basic and diluted share.
As
of
April 30, 2007, there was $52,500 of unrecognized equity based compensation
cost
related to options granted to one executive.
NOTE
3 -
Marketable Securities
Marketable
securities are classified as current assets and are summarized as
follows:
|
|
April
30,
|
|
|
|
2007
|
|
|
|
|
|
Marketable
equity securities, at cost
|
|
$
|
50,000
|
|
|
|
|
|
|
Marketable
equity securities, at fair value
|
|
$
|
80,000
|
|
NOTE
4 -
Inventories
|
|
April 30,
2007
|
|
In-process
|
|
$
|
-
|
|
Concentrate
|
|
|
- |
|
Precious
metals
|
|
|
- |
|
Materials,
supplies and other
|
|
|
100,941 |
|
|
|
|
|
|
|
|
$
|
100,941
|
|
NOTE
5 -
Stockpiles and Leach Pads
|
|
April 30,
2007
|
|
Current:
|
|
|
|
Stockpiles
& Ore on leach pads
|
|
$
|
473,584
|
|
|
|
|
|
|
|
|
$
|
473,584
|
|
Costs
that are incurred in or benefit the productive process are accumulated as
stockpiles, ore on leach pads and inventories. Stockpiles, Ore on leach pads
and
inventories are carried at the lower of average cost or net realizable value.
Net realizable value represents the estimated future sales price of the product
based on current and long-term metals prices, less the estimated costs to
complete production and bring the product to sale. Write-downs of stockpiles,
ore on leach pads and inventories, resulting from net realizable value
impairments, will be reported as a component of Costs
applicable to sales.
The
current portion of stockpiles, ore on leach pads and inventories is determined
based on the expected amounts to be processed within the next 12 months.
Stockpiles, ore on leach pads and inventories not expected to be processed
within the next 12 months will be classified as long-term.
NOTE
6 -
Deposits
Deposits
are classified as current assets and represent payments made on mining equipment
for the Company’s El Chanate Project in Sonora, Mexico. Deposits are summarized
as follows:
|
|
April
30,
|
|
|
|
2007
|
|
|
|
|
|
Advance
payment on Mining Contract to Sinergia (Note 14)
|
|
$
|
832,595
|
|
Other
|
|
|
27,452
|
|
Total
Deposits
|
|
$
|
860,047
|
|
NOTE
7 -
Other Current Assets
Other
current assets consist of the following:
|
|
April
30,
|
|
|
|
2007
|
|
|
|
|
|
Value
added tax to be refunded
|
|
$
|
1,045,102
|
|
Asset
held for resale
|
|
|
166,232
|
|
Other
|
|
|
72,784
|
|
Total
Other Current Assets
|
|
$
|
1,284,117
|
|
NOTE
8 -
Property and Equipment
Property
and Equipment consist of the following at April 30, 2007:
Process
equipment and facilities
|
|
$
|
12,593,830
|
|
Construction
in progress
|
|
|
1,826,925
|
|
Asset
retirement obligation
|
|
|
1,218,314
|
|
Mineralproperties
|
|
|
141,242
|
|
Computer
and office equipment
|
|
|
131,500
|
|
Improvements
|
|
|
15,797
|
|
Furniture
|
|
|
14,162
|
|
|
|
|
|
|
Total
|
|
|
15,941,770
|
|
|
|
|
|
|
Less:
accumulated depreciation
|
|
|
(192,500
|
)
|
|
|
|
|
|
Property
and equipment, net
|
|
$
|
15,749,270
|
|
The
Company had open purchase orders on material and equipment regarding its
El
Chanate Project amounting to approximately $745,000 as of April 30, 2007.
Depreciation
expense for the nine months ended April 30, 2007 and 2006 was $130,645 and
$23,902, respectively.
NOTE
9 -
Intangible Assets
Intangible
assets consist of the following as of April 30, 2007:
Repurchase
of Net Profits Interest from FG
|
|
$
|
500,000
|
|
Mobilization
Payment to Mineral Contractor
|
|
|
70,000
|
|
Investment
in Right of Way
|
|
|
18,000
|
|
Less:
accumulated amortization of Right of Way and Mobilization
Payments
|
|
|
(7,733
|
)
|
|
|
|
|
|
Intangible
assets, net
|
|
$
|
580,267
|
|
On
September 13, 2006, the Company repurchased the 5% net profits interest formerly
held by Grupo Minera FG (“FG”), and subsequently acquired by Daniel Gutierrez
Cibrian, with respect to the operations at the El Chanate mine. That net
profits
interest had originally been granted to FG in connection with the April 2004
termination of the joint venture agreement between FG and Minera Santa Rita
S.
de R.L. de C.V. (“MSR”), the Company’s wholly owned Mexican subsidiary. FG also
received a right of first refusal to carry out the works and render construction
services required to effectuate the El Chanate Project. This right of first
refusal is not applicable where a funding source for the project determines
that
others should render such works or services. FG has assigned or otherwise
transferred to MSR all permits, licenses, consents and authorizations
(collectively, “authorizations”) for which FG had obtained in its name in
connection with the development of the El Chanate Project to the extent that
the
authorizations are assignable. To the extent that the authorizations are
not
assignable or otherwise transferable, FG has given its consent for the
authorizations to be cancelled so that they can be re-issued or re-granted
in
MSR’s name. The foregoing has been completed. The purchase price for the buyback
of the net profits interest was $500,000, and was structured as part of the
project costs financed by the recently completed loan agreement with Standard
Bank, Plc. (See Note 18). Mr. Gutierrez retained a 1% net profits interest
in
MSR, payable only after a total $US 20 million in net profits has been generated
from operations at El Chanate. The Company recorded this transaction on its
balance sheet as an intangible asset under guidance provided by FAS 142 -
Goodwill
and Other Intangible Assets
to be
amortized over the period of which the asset is expected to contribute directly
or indirectly to the Company’s cash flow. On March 23, 2007, The Company
reacquired the remaining 1% net profits interest (see Note 19).
Amortization
expense for the nine months ending April 30, 2007 and 2006 was $3,533 and
$3,098, respectively.
NOTE
10 -
Mining Reclamation Bonds
These
represent certificates of deposit that have been deposited as security for
Mining Reclamation Bonds in Colorado. They bear interest at rates varying
from
4.35% to 5.01% annually and mature at various dates through 2010.
NOTE
11 -
Mining Concessions
Mining
concessions consists of the following:
El
Charro
|
|
$
|
25,324
|
|
El
Chanate
|
|
|
44,780
|
|
|
|
|
|
|
Total
|
|
$
|
70,104
|
|
The
El
Chanate concessions are carried at historical cost and were acquired in
connection with the purchase of the stock of Minera Chanate (see Note
1).
MSR
acquired an additional mining concession - El Charro. El Charro lies within
the
current El Chanate property boundaries. MSR is required to pay 1 1/2% net
smelter royalty in connection with the El Charro concession.
NOTE
12 -
Loans Receivable - Affiliate
Loans
receivable - affiliate consist of expense reimbursements due from a
publicly-owned corporation in which the Company has an investment. The Company's
president and chairman of the board of directors is an officer and director
of
that corporation. These loans are non-interest bearing and due on demand
(see
Note 3 & 16).
NOTE
13 -
Other Investments
Other
investments are carried at cost and consist of tax liens purchased on properties
located in Lake County, Colorado.
NOTE
14 -
Reclamations and Remediation Liabilities (Asset Retirement
Obligations)
Reclamation
costs are allocated to expense over the life of the related assets and are
periodically adjusted to reflect changes in the estimated present value
resulting from the passage of time and revisions to the estimates of either
the
timing or amount of the reclamation and abandonment costs. The asset retirement
obligation is based on when the spending for an existing environmental
disturbance and activity to date will occur. The Company reviews, on an annual
basis, unless otherwise deemed necessary, the asset retirement obligation
at
each mine site. As of April 30, 2007, approximately $1,228,000 was accrued
for
reclamation obligations relating to mineral properties in accordance with
SFAS
No. 143, “Accounting for Asset Retirement Obligations.”
The
following is a reconciliation of the liability for long-term asset retirement
obligations:
|
|
2007
|
|
2006
|
|
Balance
at beginning of period
|
|
$
|
-
|
|
$
|
-
|
|
Additions,
changes in estimates and other
|
|
|
1,218,314 |
|
|
-
|
|
Liabilities
settled
|
|
|
-
|
|
|
-
|
|
Accretion
expense
|
|
|
9,642 |
|
|
-
|
|
Balance
- April 30, 2007
|
|
$
|
1,227,777
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
NOTE
15 -
Other Comprehensive Income (Loss)-Supplemental Non-Cash Investing
Activities
Other
comprehensive income (loss) consists of accumulated foreign translation gains
and losses and unrealized gains and losses on marketable securities and is
summarized as follows:
Balance
- July 31, 2005
|
|
$
|
157,714
|
|
|
|
|
|
|
Equity
Adjustments from Foreign Currency Translation
|
|
|
48,779
|
|
Unrealized
Gains (loss) on Marketable Securities
|
|
|
(60,000
|
)
|
|
|
|
|
|
Balance
- July 31, 2006
|
|
|
146,493
|
|
|
|
|
|
|
Change
in fair value of derivative instrument
|
|
|
(76,138
|
)
|
Equity
Adjustments from Foreign Currency Translation
|
|
|
262,265
|
|
Unrealized
Gains (loss) on Marketable Securities
|
|
|
(10,000
|
)
|
|
|
|
|
|
Balance
- April 30, 2007
|
|
$
|
322,620
|
|
NOTE
16 -
Related Party Transactions
In
August
2002, the Company purchased marketable equity securities of a related company.
The Company recorded approximately $6,750 and $8,100 in expense reimbursements
including office rent from this entity for the nine months ended April 30,
2007
and 2006, respectively (see Notes 3 and 12).
The
Company utilizes a Mexican Corporation 100% owned by two officers/Directors
and
stockholders of the Company for mining support services. These services include
but are not limited to the payment of mining salaries and related costs.
The
Mexican Corporation bills the Company for these services at cost. Mining
expenses charged by the Mexican Corporation and eliminated upon consolidation
amounted to approximately $240,000 and $85,000 for the nine months ended
April
30, 2007 and 2006, respectively.
During
the nine months ended April 30, 2007 and 2006, the Company paid its V.P.
Development and Director $0 and $38,500, respectively, for professional
geologist and management services rendered to the Company. This individual
also
earned wages of $90,000 and $20,000 during the nine months ended April 30,
2007
and 2006 respectively. During the nine months ended April 30, 2007 and 2006,
the
Company paid its V.P. Exploration and Director consulting fees of $0 and
$58,500, respectively. In addition, this individual earned wages of $90,000
during the nine months ended April 30, 2007. During the nine months ended
April
30, 2007 and 2006, we paid a director legal and consulting fees of $18,000
and
$0, respectively.
The
Company’s V.P. Development and Director has, since 1995, been a senior
consultant in the Minerals Advisory Group LLC, Tucson, Arizona, an entity
that
provided $3,000 of services to the Company for the nine months ended April
30,
2007.
In
January 2006, the Company extended the following stock options through January
3, 2007, all of which are exercisable at $0.05 per share: Chief Executive
Officer and Director - 1,250,000 shares; Director - 500,000 shares; V.P.
Investor Relations and Director - 327,727 shares; V.P. Development and Director
- 500,000 shares; and V.P. Mine Development - 25,000 shares.
There
was not a material increase in the intrinsic value of these options at the
date
of modification as compared to the intrinsic value of the original issuance
of
these stock options on the applicable measurement date. All of these options
were exercised prior to their extended expiration.
On
February 5, 2007, Dave Loder, the General Manager of the Company’s El Chanate
Project, resigned for personal reasons unrelated to his employment with the
Company. The Company has engaged, on a temporary basis, an experienced
replacement and is actively looking for a permanent replacement. The Company
does not believe, that Mr. Loder’s departure will have a material adverse affect
on its business.
On
February 7, 2007, Robert Roningen resigned as the Company’s Secretary and, on
February 9, 2007, John Brownlie, the Company’s Vice President of Operations, was
appointed Chief Operating Officer and Jeffrey W. Pritchard, the Company’s Vice
President of Investor Relations, was appointed Secretary. Mr. Brownlie’s
appointment as the Company’s Chief Operating Officer did not result in any
changes to his compensation arrangement under his employment agreement with
the
Company.
NOTE
17 -
Stockholders' Equity
Common
Stock
At
various stages in the Company’s development, shares of the Company’s common
stock have been issued at fair market value in exchange for services or property
received with a corresponding charge to operations, property and equipment
or
additional paid-in capital depending on the nature of the services provided
or
property received.
The
Company issued 1,150,000 shares of common stock and 12,600,000 common stock
purchase warrants to Standard Bank as part of a commitment fee to entering
into
the credit facility on August 15, 2006, with its wholly-owned subsidiaries
MSR
and Oro. The Company recorded the issuance of the 1,150,000 shares of common
stock and 12,600,000 warrants as deferred financing costs of approximately
$351,000 and $3,314,000, respectively, as a reduction of stockholders' equity
on
the Company's balance sheet. The issuance of 1,150,000 shares was recorded
at
the fair market value of the Company's common stock at the closing date or
$0.305 per share. The warrants were valued at approximately $3,314,000 using
the
Black-Scholes option pricing model and were reflected as deferred financing
costs as a reduction of stockholders' equity on the Company’s balance sheet (See
Note 18). The balance of deferred financing costs, net of amortization, as
of
April 30, 2007, as a reduction of stockholders' equity, was approximately
$3,670,710. Amortization expense for the nine months ended April 30, 2007,
was
$517,031.
The
Company closed two private placements in January 2007 pursuant to which it
issued an aggregate of 12,561,667 units, each unit consisting of one share
of
its common stock and a warrant to purchase ¼ of a share of its common stock for
proceeds of approximately $3,486,000, net of commissions of approximately
$283,000. The Company also received proceeds of approximately $5,170,000
during
the quarterly period ended April 30, 2007, from the exercising of an aggregate
of 20,282,454 of warrants issued in past private placements. The Warrant
issued
to each purchaser in the January 2007 placements is exercisable for one share
of
common stock, at an exercise price equal to $0.40 per share. Each Warrant
has a
term of eighteen months and is fully exercisable from the date of issuance.
The
Company issued to the placement agents eighteen month warrants to purchase
up to
an aggregate of 942,125 shares of common stock at an exercise price of $0.30
per
share. Such placement agent warrants are valued at approximately $142,000
using
the Black-Scholes option pricing method.
On
March
22, 2007, the Company issued 500,000 shares of common stock to John Brownlie,
the Company’s Chief Operating Officer under the Company’s 2006 Equity Incentive
Plan. The fair value of the services provided in March 2007 amounted to $225,000
or $0.45 per share.
In
March
2007, the Company issued 65,625 shares of common stock to an independent
contractor for services provided related to the Company’s El Chanate project.
The fair value of the services provided amounted to $26,250 or $0.40 per
share.
In April 2007, this independent contractor was engaged as the general manager
of
the Company’s El Chanate project for a six month term with an option for an
additional six month term, if mutually agreed upon by both parties. Pursuant
to
the agreement, the Company issued 113,636 shares of common stock with a fair
value of $50,000 or $0.44 per share at the fair market value of the Company’s
common stock on the date of the agreement. The issuance of these shares vest
over the six-month term.
Recapitalization
The
Board
of Directors recommended an amendment to the Company's Certificate of
Incorporation to increase the Company's authorized shares of capital stock
from
200,000,000 to 250,000,000 shares. This amendment was approved by the
stockholders on February 21, 2007 and the Company effected the authorized
share
increase on February 26, 2007.
Warrants
and Options
On
November 30, 2006, the Company’s board of directors granted 100,000 common stock
options to each of John Postle, Ian A. Shaw and Mark T. Nesbitt, the Company’s
independent directors. The options are to purchase shares of the Company’s
common stock at an exercise price of $0.33 per share (the closing price of
our
common stock on that date) for a period of two years. The Company utilized
the
Black-Scholes method to fair value the 300,000 options received by the directors
and recorded approximately $40,000 as equity based compensation
expense.
On
December 13, 2006, the Company issued two year options to purchase the Company’s
common stock at an exercise price of $0.36 per share to its Chief Operating
Officer, Chief Financial Officer and the Company’s Canadian counsel. These
options are for the purchase of 250,000 shares, 100,000 shares and 100,000
shares, respectively. The
Company utilized the Black-Scholes method to fair value the 450,000 options
received by these individuals and recorded approximately $61,000 as stock
based
compensation expense.
On
March
22, 2006, the Company issued two year options to purchase the Company’s common
stock at an exercise price of $0.45 per share to the Company’s SEC Counsel.
These options are for the purchase of 100,000 shares and were issued under
the
2006 Equity-Incentive Plan. The Company utilized the Black-Scholes Method
to
fair value these options and recorded approximately $15,000 as equity based
compensation expense.
Warrant
Re-pricing
In
December 2005, the Board of Directors ratified the temporary re-pricing of
certain warrants that were issued in connection with the February 2005 private
placement from $0.30 per share to $0.20 per share exercise price. In addition,
warrants issued to the placement agent were also re-priced from $0.25 per
share
to $0.20 per share exercise price. These re-pricings were in effect for the
period November 28, 2005 through January 31, 2006. All of these warrants
were
either exercised or expired within the term limit.
2006
Equity Incentive Plan
The
2006
Equity Incentive Plan (the “Plan”), approved by stockholders on February 21,
2007, is intended to attract and retain individuals of experience and ability,
to provide incentive to the Company’s employees, consultants, and non-employee
directors, to encourage employee and director proprietary interests in the
Company, and to encourage employees to remain in the Company’s employ.
The
Plan
authorizes the grant of non-qualified and incentive stock options, stock
appreciation rights and restricted stock awards (each, an “Award”). A maximum of
10,000,000 shares of common stock are reserved for potential issuance pursuant
to Awards under the Plan. Unless sooner terminated, the Plan will continue
in
effect for a period of 10 years from its effective date.
The
Plan
is administered by the Company’s Board of Directors or a committee thereof. The
Plan provides for Awards to be made to such of the Company’s employees,
directors and consultants and its affiliates as the Board may select.
As
of
April 30, 2007, 1,050,000 options and shares have been granted under the
Plan.
Stock
options awarded under the Plan may vest and be exercisable at such times
(not
later than 10 years after the date of grant) and at such exercise prices
(not
less than Fair Market Value at the date of grant) as the Board may determine.
Unless otherwise determined by the Board, stock options shall not be
transferable except by will or by the laws of descent and distribution. The
Board may provide for options to become immediately exercisable upon a "change
in control," as defined in the Plan.
The
exercise price of an option must be paid in cash. No options may be granted
under the Plan after the tenth anniversary of its effective date. Unless
the
Board determines otherwise, there are certain continuous service requirements
and the options are not transferable.
The
Plan
provides the Board with the general power to amend the Plan, or any portion
thereof at any time in any respect without the approval of the Company’s
stockholders, provided
however, that the stockholders must approve any amendment which increases
the
fixed maximum percentage of shares of common stock issuable pursuant to the
Plan, reduces the exercise price of an Award held by a
director, officer or ten percent stockholder
or
extends the term of an Award held by a
director, officer or ten percent stockholder. Notwithstanding the foregoing,
stockholder approval may still be necessary to satisfy the requirements of
Section 422 of the Code, Rule 16b-3 of the Securities Exchange Act of 1934,
as
amended or any applicable stock exchange listing requirements. The Board
may
amend the Plan in any respect it deems necessary or advisable to provide
eligible Employees with the maximum benefits provided or to be provided under
the provisions of the Code and the regulations promulgated thereunder relating
to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock
Options granted under it into compliance therewith. Rights under any Award
granted before amendment of the Plan cannot be impaired by any amendment
of the
Plan unless the Participant consents in writing. The Board is empowered to
amend
the terms of any one or more Awards; provided, however, that the rights under
any Award shall not be impaired by any such amendment unless the applicable
Participant consents in writing and further provided that the Board cannot
amend
the exercise price of an option, the Fair Market Value of an Award or extend
the
term of an option or Award without obtaining the approval of the stockholders
if
required by the rules of the TSX or any stock exchange upon which the common
stock is listed.
NOTE
18 -
Project Finance Facility
On
August
15, 2006, the Company entered into a credit facility (the “Credit Facility”)
involving its wholly-owned subsidiaries MSR and Oro, as borrowers, us, as
guarantor, and Standard Bank plc (“Standard Bank”), as the lender and the
offshore account holder. Under the Credit Facility, MSR and Oro have agreed
to
borrow money in an aggregate principal amount of up to US$12.5 million (the
“Loan”) for the purpose of constructing, developing and operating our El Chanate
Project (the “Mine”). The Company is guaranteeing the repayment of the loan and
the performance of the obligations under the Credit Facility. The Loan is
scheduled to be repaid in fourteen quarterly payments with the first principal
payment due after certain Mine start-up production and performance criteria
are
satisfied, which the Company believes it will occur in the first calendar
quarter of 2008. The Loan bears interest at LIBOR plus 4.00%, with LIBOR
interest periods of 1, 2, 3 or 6 months and with interest payable at the
end of
the applicable interest period.
The
Credit Facility contains covenants customary for a project financing loan,
including but not limited to restrictions (subject to certain exceptions)
on
incurring additional debt, creating liens on its property, disposing of any
assets, merging with other companies and making any investments. The Company
will be required to meet and maintain certain financial covenants, including
(i)
a debt service coverage ratio of not less than 1.2 to 1.0, (ii) a projected
debt
service coverage ratio of not less than 1.2 to 1.0, (iii) a loan life coverage
ratio of at least 1.6 to 1.0, (iv) a project life coverage ratio of at least
2.0
to 1.0 and (v) a minimum reserve tail. The Company will also be required
to
maintain a certain minimum level of unrestricted cash, and upon meeting certain
Mine start-up production and performance criteria, MSR and Oro will be required
to maintain a specified amount of cash as a reserve for debt
repayment.
The
Loan
is secured by all of the tangible and intangible assets and property owned
by
MSR and Oro pursuant to the terms of a Mortgage Agreement, a Non-Possessory
Pledge Agreement, an Account Pledge Agreement and certain other agreements
entered into in Mexico (the “Mexican Collateral Documents”). As additional
collateral for the Loan, the Company, together with its subsidiary, Leadville
Mining & Milling Holding Corporation, have pledged all of its ownership
interest in MSR and Oro. In addition to these collateral arrangements, MSR
and
Oro are required to deposit all proceeds of the Loan and all cash proceeds
received from operations and other sources in an offshore, controlled account
with Standard Bank. Absent a default under the loan documents, MSR and Oro
may
use the funds from this account for specific purposes such as approved project
costs and operating costs.
As
part
of the fee for entering into and closing the Credit Facility, the Company
issued
to Standard Bank 1,150,000 shares of its restricted common stock and a warrant
for the purchase of 12,600,000 shares of our common stock at an exercise
price
of $0.317 per share, expiring on the earlier of (a) December 31, 2010 or
(b) the
date one year after the repayment of the Credit Facility. Previously, pursuant
to the mandate and commitment letter for the facility, the Company issued
to
Standard Bank 1,000,000 shares of its restricted common stock and a warrant
for
the purchase of 1,000,000 shares of its common stock at an exercise price
of
$0.32 per share, expiring on the earlier of (a) December 31, 2010 or (b)
the
date one year after the repayment of the Credit Facility. The Company recorded
the issuance of the 1,000,000 shares of common stock as deferred financing
costs
of approximately $270,000 as a reduction of stockholders' equity on its balance
sheet. The issuance of these shares was recorded at the fair market value
of the
Company’s common stock at the commitment letter date or $0.27 per share. In
addition, the warrants were valued at approximately $253,000 using the
Black-Scholes option pricing model and were reflected as deferred financing
costs as a reduction of stockholders' equity on the Company’s balance sheet in
2006. The Company registered for public resale the 2,150,000 shares issued
to
Standard Bank and the 13,600,000 shares issuable upon exercise of warrants
issued to Standard Bank.
In
March
2006, The Company entered into a gold price protection arrangement with Standard
Bank to protect it against future fluctuations in the price of gold. The
Company
agreed to a series of gold forward sales and call option purchases in
anticipation of entering into the Credit Facility. Under the price protection
agreement, the Company has agreed to sell a total volume of 121,927 ounces
of
gold forward to Standard Bank at a price of $500 per ounce on a quarterly
basis
during the period from March 2007 to September 2010. The Company will also
purchase call options from Standard Bank on a quarterly basis during this
same
period covering a total volume of 121,927 ounces of gold at a price of $535
per
ounce. While the period of the derivative contracts has commenced, the Company
does not anticipate any material adverse effect from the fact that it has
not
commenced to sell gold because the price of gold is substantially above $535
per
ounce. The Company paid a fee to Standard Bank in connection with the price
protection agreement. In addition, the Company provided aggregate cash
collateral of approximately $4.3 million to secure its obligations under
this
agreement. The cash collateral was returned to the Company after the Credit
Facility was executed in August 2006.
In
March
2007, the Company made a net cash settlement pursuant to the Gold Price
Protection Agreement of $184,975 to Standard Bank as the Company was unable
to
physically meet the delivery of gold as of March 31, 2007. The offset to
this
payment was a reduction in the Company’s derivative liability.
As
of
April 30, 2007, the Company has drawn down a total of $12,000,000 on the
Credit
Facility.
On
October 11, 2006, prior to the Company’s initial draw on the Credit Facility,
the Company entered into interest rate swap agreements in accordance with
the
terms of the Credit Facility, which requires that the Company hedge at least
50
percent of our outstanding debt under this facility. The agreements entered
into
cover $9,375,000 or 75% of the outstanding debt. Both swaps covered this
same
notional amount of $9,375,000, but over different time horizons. The first
covered the six months commencing October 11, 2006 and a termination date
of
March 31, 2007 and the second covering the period from March 30, 2007 with
a
termination date of December 31, 2010. We intend to use discretion in
managing this risk as market conditions vary over time, allowing for the
possibility of adjusting the degree of hedge coverage as we deem appropriate.
However, any use of interest rate derivatives will be restricted to use for
risk
management purposes (See Note 21).
NOTE
19 -
Mining, Engineering and Supply Contracts
In
early
December 2005, the Company’s wholly-owned Mexican subsidiary, MSR, which holds
the rights to develop and mine El Chanate Project, entered into a Mining
Contract with a Mexican mining contractor, Sinergia Obras Civiles y Mineras,
S.A. de C.V,("Sinergia"). The Mining Contract becomes effective if and when
MSR
sends the Contractor a formal "Notice of Award".
On
August
2, 2006, the Company amended the November 24, 2005 Mining Contract between
its
subsidiary, MSR, and Sinergia. Pursuant to the amendment, MSR's right to
deliver
the Notice to Proceed to Sinergia was extended to November 1, 2006. Provided
that this Notice was delivered to Sinergia on or before that date, with a
specified date of commencement of the Work (as defined in the contract) not
later than February 1, 2007, the mining rates set forth in the Mining Contract
would still apply; subject to adjustment for the rate of inflation between
September 23, 2005 and the date of commencement of the work. As
consideration for these changes, the Company paid Sinergia $200,000 of the
requisite advance payment discussed below. On November 1, 2006, MSR delivered
the Notice of Award specifying January 25, 2007, as the date of commencement
of
Work. Based
on
a revised crushing and stacking plan and since MSR is manufacturing the leach
pad overliner material both Sinergia and MSR mutually agreed to delay mining
until the end of March 2007. Mining of the El Chanate Project initiated on
March
25, 2007.
Pursuant
to the Mining Contract, Sinergia, using its own equipment, generally is
performing all of the mining work (other than crushing) at the El Chanate
Project for the life of the mine. MSR delivered to the Contractor a mobilization
payment of $70,000 and the advance payment of $520,000. The advance payments
are
recoverable by MSR out of 100% of subsequent payments due to Sinergia under
the
Mining Contract. Pursuant to the Mining Contract, upon termination, Sinergia
would be obligated to repay any portion of the advance payment that had not
yet
been recouped. Sinergia’s mining rates are subject to escalation on an annual
basis. This escalation is tied to the percentage escalation in Sinergia’s costs
for various parts for its equipment, interest rates and labor. One of the
principals of Sinergia is one of the former principals of FG. FG was our
former
joint venture partner.
On
March
23, 2007, The Company reacquired the remaining 1% net profits interest in
its
Mexican affiliate, MSR from one of the successors to FG (“FG’s Successor”). FG
was the Company’s former joint venture partner. When the joint venture was
terminated in March 2004, FG received, among other things, a participation
certificate entitling it to receive 5% of the annual dividends of MSR, when
declared. The participation certificate also gave FG the right to participate,
but not to vote, in the meetings of MSR’s Board of Managers, Technical Committee
and Partners. In August 2006, the Company repurchased the participation
certificate from FG’s Successor for $500,000 with FG’s Successor retaining a 1%
net profits interest in MSR, payable only after a total $20 million in net
profits has been generated from operations at El Chanate. The Company reacquired
the remaining 1% net profits interest in consideration of our advancing $319,000
to Sinergia Obras Civiles y Mineras, S.A. de C.V. (“Sinergia”) under the mining
contract between MSR and Sinergia. FG’s Successor is a principal of
Sinergia.
In
June
2006, the Company's Mexican operating subsidiary retained the contracting
services of Mexican subsidiary of M3 Engineering & Technology Corporation
("M3M") to provide EPCM (engineering procurement construction management)
services. M3M supervises the construction and integration of the various
components necessary to commence production at the El Chanate Project. The
contracted services are not to exceed $1,200,000 and the contract is based
on
the EPCM services to be provided by M3M. As of April 30, 2007, the Company
has
incurred approximately $660,000 pursuant to this contract.
On
March
2, 2007, MSR entered into a sales contract with Degussa Mexico S.A. de C.V.
to
supply sodium cyanide solid bricks for use in the heap leach process with
the El
Chanate Project. The contract period initiates April 1, 2007 and extends
through
March 31, 2010 and estimates total yearly requirements at 1,000 metric tons
plus
or minus 20%. The total minimum annual commitment associated with this contract
is anticipated to be between $1,500,000 in year one and two and $1,600,000
in
year three.
NOTE
20 -
Employee and Consulting Agreements
The
Company entered into employment agreements, effective July 31, 2006, with
the
following executive officers: Gifford A. Dieterle, President and Treasurer,
Roger A. Newell, Vice President of Development, Jack V. Everett, Vice President
of Exploration, and Jeffrey W. Pritchard, Vice President of Investor Relations.
On December 5, 2006, effective January 1, 2007, The Company entered into
an
employment agreement with J. Scott Hazlitt, Vice President of Mine
Development.
The
agreements run for a period of three years and automatically renew for
successive one-year periods unless the Company or the executive provides
the
other party with written notice of their intent not to renew at least 30
days
prior to the expiration of the then current employment period.
Mr.
Dieterle is entitled to a base annual salary of at least $180,000, Mr. Hazlitt
is entitled to a base annual salary of at least $125,000 and each of the
other
executives is entitled to a base annual salary of at least $120,000. Each
executive is entitled to a bonus or salary increase in the sole discretion
of
the board of directors. In addition, Messrs. Dieterle, Newell, Everett and
Pritchard each received two year options to purchase an aggregate of 250,000
shares of the Company’s common stock at an exercise price of $0.32 per share
(the closing price on July 31, 2006).
The
Company has the right to terminate any executive’s employment for cause or on 30
days’ prior written notice without cause or in the event of the executive’s
disability (as defined in the agreements). The agreements automatically
terminate upon an executive’s death. “Cause” is defined in the agreements as (1)
a failure or refusal to perform the services required under the agreement;
(2) a
material breach by executive of any of the terms of the agreement; or (3)
executive’s conviction of a crime that either results in imprisonment or
involves embezzlement, dishonesty, or activities injurious to the Company’s
reputation. In the event that the Company terminates an executive’s employment
without cause or due to the disability of the executive, the executive will
be
entitled to a lump sum severance payment equal to one month’s salary, in the
case of termination for disability, and up to 12 month’s salary (depending upon
years of service), in the case of termination without cause.
Each
executive has the right to terminate his employment agreement on 60 days’ prior
written notice or, in the event of a material breach by the Company of any
of
the terms of the agreement, upon 30 days’ prior written notice. In the event of
a claim of material breach by the Company of the agreement, the executive
must
specify the breach and our failure to either (i) cure or diligently commence
to
cure the breach within the 30 day notice period, or (ii) dispute in good
faith
the existence of the material breach. In the event that an agreement terminates
due to the Company’s breach, the executive is entitled to severance payments in
equal monthly installments beginning
in the month following the executive’s termination equal to three month’ salary
plus one additional month’s salary for each year of service to the Company.
Severance payments cannot exceed 12
month’s salary.
In
conjunction with the employment agreements, the Company’s board of directors
deeming it essential to the best interests of its stockholders to foster
the
continuous engagement of key management personnel and recognizing that, as
is
the case with many publicly held corporations, a change of control might
occur
and that such possibility, and the uncertainty and questions which it might
raise among management, might result in the departure or distraction of
management personnel to the detriment of the company and its stockholders,
determined to reinforce and encourage the continued attention and dedication
of
members of the Company’s management to their engagement without distraction in
the face of potentially disturbing circumstances arising from the possibility
of
a change in control of the company, it entered into identical agreements
regarding change in control with the executives. Each
of
the agreements regarding change in control continues through December 31,
2009
(December 31, 2010 for Mr. Hazlitt) and extends automatically to the third
anniversary thereof unless the Company gives notice to the executive prior
to
the date of such extension that the agreement term will not be
extended.
Notwithstanding the foregoing, if a change in control occurs during the term
of
the agreements, the term of the agreements will continue through the second
anniversary of the date on which the change in control occurred. Each of
the
agreements entitles the executive to change of control benefits, as defined
in
the agreements and summarized below, upon his termination of employment with
the
Company during a potential change in control, as defined in the agreements,
or
after a change in control, as defined in the agreements, when his termination
is
caused (1) by the Company for any reason other than permanent disability
or
cause, as defined in the agreement (2) by the executive for good reason as
defined in the agreements or, (3) by the executive for any reason during
the 30
day period commencing on the first date which is six months after the date
of
the change in control. Each executive would receive a lump sum cash payment
of
three times his base salary and outplacement benefits. Each agreement also
provides that the executive is entitled to a payment to make him whole for
any
federal excise tax imposed on change of control or severance payments received
by him.
Pursuant
to a September 1, 2006 amended consulting agreement, Christopher Chipman
is
engaged as the Company’s Chief Financial Officer. Pursuant to the agreement, Mr.
Chipman devotes approximately 50% of his time to our business and receives
a
monthly fee of $10,000. The agreement runs for an initial one year period,
and
is renewable thereafter for an additional year. Mr. Chipman can terminate
the
Agreement on 60 days notice. In conjunction with the amended consulting
agreement, the Company entered into a change of control agreement similar
to the
agreements entered into with other executive officers; except that Mr. Chipman’s
agreement renews annually and his benefits are based upon one times his base
annual fee. In connection with the original engagement agreement with Mr.
Chipman in March 2006, Mr. Chipman received a two year option to purchase
an
aggregate of 50,000 shares of Company common stock at an exercise price of
$.34
per share. The option vested at the rate of 10,000 shares per month and are
now
fully vested.
On
May
12, 2006, the Company entered into an employment agreement with John Brownlie,
pursuant to which Mr. Brownlie serves as Vice President Operations. Mr. Brownlie
receives a base annual salary of $150,000 and is entitled to annual bonuses.
Upon his employment, he received options to purchase an aggregate of 200,000
shares of the Company’s common stock at an exercise price of $.32 per share.
50,000 options vested immediately and the balance vest upon the Company
achieving "Economic Completion" as that term is defined in the Standard Bank
Credit Facility (when the Company has commenced mining operations and has
been
operating at anticipated capacity for 60 to 90 days). The term of the options
is
two years from the date of vesting. The agreement runs for an initial two
year
period, and automatically renews thereafter for additional one year periods
unless terminated by either party within 30 days of a renewal date. The Company
can terminate the agreement for cause or upon 30 days notice without cause.
Mr.
Brownlie can terminate the agreement upon 60 days notice without cause or,
if
there is a breach of the agreement by the Company that is not timely cured,
upon
30 days notice. In the event that the Company terminates him without cause
or he
terminates due to the Company’s breach, he will be entitled to certain severance
payments. The Company utilized the Black-Scholes method to fair value the
200,000 options received by Mr. Brownlie. The Company recorded approximately
$70,000 as deferred compensation expense as of the date of the agreement
and
recorded the vested portion or $17,500 as stock based compensation expense
for
the year ended July 31, 2006.
NOTE
21 -
Sales Contracts, Commodity and Financial Instruments
In
March
2006, the Company entered into two identically structured derivative contracts
with Standard Bank (See Note 13). Each derivative consisted of a series of
forward sales of gold and a purchase gold cap. The Company agreed to sell
a
total volume of 121,927 ounces of gold forward to Standard Bank at a price
of
$500 per ounce on a quarterly basis during the period from March 2007 to
September 2010. The Company also agreed to a purchase gold cap on a quarterly
basis during this same period and at identical volumes covering a total volume
of 121,927 ounces of gold at a price of $535 per ounce. While the period
of the
derivative contracts has commenced, the Company does not anticipate any material
adverse effect from the fact that it has not commenced to sell gold because
the
price of gold is substantially above $535 per ounce. Under FASB Statement
No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"),
these contracts must be carried on the balance sheet at their fair value,
with
changes to the fair value of these contracts reflected as Other Income or
Expense. These contracts were not designated as hedging derivatives; and
therefore, special hedge accounting does not apply.
The
first
derivative was entered into on March 1, 2006 for a premium of $550,000; and
the
second was entered into on March 30, 2006 for a premium of $250,000. The
gold
price rose sharply during the period March 1, 2006 through July 31, 2006
and was
the primary reason for the decrease in premium on the derivative contracts.
As
of April 30, 2007, the carrying value of this derivative liability was
approximately $444,000. The change in fair value on these derivative contracts
was approximately $847,000 for the nine months ended April 30, 2007. This
reduction in fair value was recorded as an other expense on the Company’s income
statement.
On
October 11, 2006, prior to the Company’s initial draw on the Credit Facility,
the Company entered into interest rate swap agreements in accordance with
the
terms of the Credit Facility, which requires that the Company hedge at least
50
percent of the Company’s outstanding debt under this facility. The agreements
entered into cover $9,375,000 or 75% of the outstanding debt. Both swaps
covered
this same notional amount of $9,375,000, but over different time horizons.
The
first covered the six months commencing October 11, 2006 and a termination
date
of March 31, 2007 and the second covering the period from March 30, 2007
and a
termination date of December 31, 2010. The Company intends to use
discretion in managing this risk as market conditions vary over time, allowing
for the possibility of adjusting the degree of hedge coverage as the Company
deems appropriate. However, any use of interest rate derivatives will be
restricted to use for risk management purposes.
The
Company uses variable-rate debt to finance a portion of the El Chanate Project.
Variable-rate debt obligations expose the Company to variability in interest
payments due to changes in interest rates. As a result of these arrangements,
the Company will continuously monitor changes in interest rate exposures
and
evaluate hedging opportunities. The Company’s risk management policy permits it
to use any combination of interest rate swaps, futures, options, caps and
similar instruments, for the purpose of fixing interest rates on all or a
portion of variable rate debt, establishing caps or maximum effective interest
rates, or otherwise constraining interest expenses to minimize the variability
of these effects.
The
interest rate swap agreements are accounted for as cash flow hedges, whereby
“effective” hedge gains or losses are initially recorded in other comprehensive
income and later reclassified to the interest expense component of earnings
coincidently with the earnings impact of the interest expenses being hedged.
“Ineffective” hedge results are immediately recorded in earnings also under
interest expense. No component of hedge results will be excluded from the
assessment of hedge effectiveness. The amount expected to be reclassified
from
OCI to earnings during the 12 months ending July 31, 2007 from these two
swaps
was determined to be immaterial. As of April 30, 2007, the Company’s derivative
liability associated with these swap agreements amounted to approximately
$76,000.
The
Company is exposed to credit losses in the event of non-performance by
counterparties to these interest rate swap agreements, but the Company does
not
expect any of the counterparties to fail to meet their obligations. To manage
credit risks, the Company selects counterparties based on credit ratings,
limits
its exposure to a single counterparty under defined guidelines, and monitor
the
market position with each counterparty as required by
SFAS 133.
NOTE
22 -
Subsequent Events
On
May 1,
2007, the Company completed its final draw down on its credit facility from
Standard Bank receiving proceeds of $500,000 increasing the total outstanding
balance on the Credit Facility to $12,500,000. The Company is using and
anticipates using these proceeds for its El Chanate Project.
In
May
2007, the Company received proceeds of $233,500 from the exercising of an
aggregate of 934,000 warrants issued in past private placements.
In
May
2007, the Company received proceeds of $154,100 from the exercising of an
aggregate of 700,455 warrants issued to officers, directors and an
employee.
In
May
2007, the Company purchased an additional loader at an approximate cost of
$400,000 to reinforce Sinergia’s mining fleet and to assist in removing waste
material in other areas of the open pit mine at the Company’s El Chanate
project.
On
June
6, 2007, Jack V. Everett resigned as Vice President of Exploration and a
Director of the Company and entered into a consulting agreement with the
Company
to provide mining and mineral exploration consultation services.
NOTE
23 -
New Accounting Pronouncements
The
Company adopted the provisions of FASB Interpretation No. 48, "Accounting
for
Uncertainty in Income Taxes" ("FIN 48") effective January 1, 2007. The purpose
of FIN 48 is to clarify and set forth consistent rules for accounting for
uncertain tax positions in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". The cumulative effect of
applying the provisions of this interpretation are required to be reported
separately as an adjustment to the opening balance of retained earnings in
the
year of adoption. The adoption of this standard did not have an impact on
the
financial condition or the results of the Company’s operations.
On
February 15, 2007, the FASB issued FASB Statement No. 159, The Fair Value
Option
for Financial Assets and Financial Liabilities - Including an Amendment of
FASB
Statement No. 115. This standard permits an entity to choose to measure many
financial instruments and certain other items at fair value. This option
is
available to all entities, including not-for-profit organizations. Most of
the
provisions in Statement 159 are elective; however, the amendment to FASB
Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities, applies to all entities with available-for-sale and trading
securities. Some requirements apply differently to entities that do not report
net income. The FASB's stated objective in issuing this standard is as follows:
"to improve financial reporting by providing entities with the opportunity
to
mitigate volatility in reported earnings caused by measuring related assets
and
liabilities differently without having to apply complex hedge accounting
provisions".
The
fair
value option established by Statement 159 permits all entities to choose
to
measure eligible items at fair value at specified election dates. A business
entity will report unrealized gains and losses on items for which the fair
value
option has been elected in earnings (or another performance indicator if
the
business entity does not report earnings) at each subsequent reporting date.
A
not-for-profit organization will report unrealized gains and losses in its
statement of activities or similar statement. The fair value option: (a)
may be
applied instrument by instrument, with a few exceptions, such as investments
otherwise accounted for by the equity method; (b) is irrevocable (unless
a new
election date occurs); and (c) is applied only to entire instruments and
not to
portions of instruments.
Statement
159 is effective as of the beginning of an entity's first fiscal year that
begins after November 15, 2007. Early adoption is permitted as of the
beginning of the previous fiscal year provided that the entity makes that
choice
in the first
120
days of that fiscal year and also elects to apply the provisions of FASB
Statement No. 157, Fair Value Measurements.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
The
Board of Directors and Stockholders of
Capital
Gold Corporation
New
York,
New York
We
have
audited the accompanying consolidated balance sheet of Capital Gold Corporation
and Subsidiaries (A Development Stage Enterprise) (“the Company”) as of July 31,
2006, and the related consolidated statements of operations, changes in
stockholders’ equity and cash flows for each of the two years in the period
ended July 31, 2006 and for the period September 17, 1982 (Inception) to
July
31, 2006. These consolidated financial statements are the responsibility
of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
financial
statements are free of material misstatement. The Company is not required
to
have, nor were we engaged to perform, an audit of its internal control
over
financial reporting. Our audit included consideration of internal control
over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstance, but not for the purpose of expressing
an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. Also, an audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our
audits provide a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the consolidated financial position of Capital
Gold
Corporation and Subsidiaries as of July 31, 2006 and the consolidated results
of
their operations and their cash flows for each of the two years in the
period
ended July 31, 2006 and for the period September 17, 1982 (Inception) to
July
31, 2006 in conformity with accounting principles generally accepted in
the
United States of America.
The
accompanying financial statements have been prepared assuming that the
Company
will continue as a going concern. As discussed in Note 1 to the consolidated
financial statements, the Company is a development stage enterprise whose
operations have generated recurring losses since its inception. These factors
raise substantial doubt about the Company’s ability to continue as a going
concern. Management’s plans regarding these matters are described in Note 18.
The consolidated financial statements do not include any adjustments that
might
result from the outcome of this uncertainty.
WOLINETZ,
LAFAZAN & COMPANY, P.C.
Rockville
Centre, New York
October
24, 2006
(Except
for Note 25, as to which the date is November
1, 2006)
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
BALANCE SHEET
ASSETS
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
2,741,498
|
|
Loans
Receivable - Affiliate (Note 11)
|
|
|
41,745
|
|
Prepaid
Assets
|
|
|
40,074
|
|
Marketable
Securities (Note 3)
|
|
|
90,000
|
|
Deposit
|
|
|
250,000
|
|
Other
Current Assets (Note 4)
|
|
|
4,483,852
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
7,647,169
|
|
|
|
|
|
|
Mining
Concessions (Note 10 )
|
|
|
70,104
|
|
|
|
|
|
|
Property
& Equipment - net (Note 5)
|
|
|
1,035,972
|
|
|
|
|
|
|
Intangible
Assets - net (Note 6)
|
|
|
13,800
|
|
|
|
|
|
|
Other
Assets:
|
|
|
|
|
Other
Investments (Note 12)
|
|
|
21,480
|
|
Deferred
Financing Costs
|
|
|
450,777
|
|
Mining
Reclamation Bonds
|
|
|
35,550
|
|
Other
|
|
|
43,047
|
|
Derivative
Contracts (Note 23)
|
|
|
218,076
|
|
Security
Deposits
|
|
|
9,605
|
|
Total
Other Assets
|
|
|
778,535
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
9,545,580
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Accounts
Payable
|
|
$
|
258,972
|
|
Accrued
Expenses
|
|
|
356,671
|
|
Total
Current Liabilities
|
|
|
615,643
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
Common
Stock, Par Value $.0001 Per Share;
|
|
|
|
|
Authorized
200,000,000 shares; Issued and
|
|
|
|
|
Outstanding
131,635,129 Shares
|
|
|
13,163
|
|
Additional
Paid-In Capital
|
|
|
40,733,825
|
|
Deficit
Accumulated in the Development Stage
|
|
|
(31,388,503
|
)
|
Deferred
Financing Costs (Note 20)
|
|
|
(522,541
|
)
|
Deferred
Compensation
|
|
|
(52,500
|
)
|
Accumulated
Other Comprehensive Loss
|
|
|
146,493
|
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
|
8,929,937
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
9,545,580
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF OPERATIONS
|
|
|
|
|
|
For
the Period
|
|
|
|
|
|
September
17, 1982
|
|
|
|
|
|
(Inception)
|
|
|
|
July
31,
|
|
To
|
|
|
|
2006
|
|
2005
|
|
July
31, 2006
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Costs
and Expenses:
|
|
|
|
|
|
|
|
|
|
|
Mine
Expenses
|
|
|
1,940,805
|
|
|
851,374
|
|
|
9,604,713
|
|
Write-Down
of Mining, Milling and Other Property and Equipment
|
|
|
-
|
|
|
-
|
|
|
1,299,445
|
|
Selling,
General and Administrative Expenses
|
|
|
2,135,493
|
|
|
1,005,038
|
|
|
11,998,460
|
|
Stocks
and Warrants issued for Services
|
|
|
89,391
|
|
|
187,844
|
|
|
9,499,238
|
|
Depreciation
and Amortization
|
|
|
38,969
|
|
|
7,431
|
|
|
414,126
|
|
Total
Costs and Expenses
|
|
|
4,204,658
|
|
|
2,051,687
|
|
|
32,815,982
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(4,204,658
|
)
|
|
(2,051,687
|
)
|
|
(32,815,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
183,719
|
|
|
42,483
|
|
|
979,717
|
|
Miscellaneous
|
|
|
-
|
|
|
3,522
|
|
|
36,199
|
|
Loss
on Sale of Property and Equipment
|
|
|
(201,829
|
)
|
|
-
|
|
|
(155,713
|
)
|
Gain
on Sale of Subsidiary
|
|
|
-
|
|
|
-
|
|
|
1,907,903
|
|
Option
Payment
|
|
|
-
|
|
|
-
|
|
|
70,688
|
|
Loss
on change in fair value of derivative
|
|
|
(581,924
|
)
|
|
|
|
|
(581,924
|
)
|
Loss
on Write-Off of Investment
|
|
|
-
|
|
|
-
|
|
|
(10,000
|
)
|
Loss
on Joint Venture
|
|
|
-
|
|
|
-
|
|
|
(901,700
|
)
|
Loss
on Option
|
|
|
-
|
|
|
-
|
|
|
(50,000
|
)
|
Gain
(Loss) on Other Investments
|
|
|
-
|
|
|
-
|
|
|
(3,697
|
)
|
Loss
on Write -Off of Minority Interest
|
|
|
-
|
|
|
-
|
|
|
(150,382
|
)
|
Total
Other Income (Expense)
|
|
|
(600,034
|
)
|
|
46,005
|
|
|
1,141,091
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
Before Minority Interest
|
|
|
(4,804,692
|
)
|
|
(2,005,682
|
)
|
|
(31,674,891
|
)
|
Minority
Interest
|
|
|
-
|
|
|
-
|
|
|
286,388
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(4,804,692
|
)
|
$
|
(2,005,682
|
)
|
$
|
(31,388,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss Per Common Share - Basic and Diluted
|
|
$
|
(0.04
|
)
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding
|
|
|
112,204,471
|
|
|
75,123,922
|
|
|
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR
THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2006
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Deficit
Accumulated
in
the
Development
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Total
|
Balance
September 17, 1982 (Inception)
|
|
|
-0-
|
|
$
|
-0-
|
|
$
|
-0-
|
|
$
|
-0-
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers
- At $.001 Per Share
|
|
|
1,575,000
|
|
|
1,575
|
|
|
-
|
|
|
-
|
|
|
1,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Investors - At $.001 Per Share
|
|
|
1,045,000
|
|
|
1,045
|
|
|
-
|
|
|
-
|
|
|
1,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
- Mining Claims - Officer - At $.002 Per Share
|
|
|
875,000
|
|
|
875
|
|
|
759
|
|
|
-
|
|
|
1,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued For:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
At $.50 Per Share
|
|
|
300,000
|
|
|
300
|
|
|
149,700
|
|
|
-
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
8,486
|
|
|
(
8,486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 1983
|
|
|
3,795,000
|
|
|
3,795
|
|
|
150,459
|
|
|
(
8,486
|
)
|
|
145,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued For:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Pursuant to Initial Offering
At
$1.50 Per Share, Net of
Offering
Costs of $408,763
|
|
|
1,754,741
|
|
|
1,755
|
|
|
2,221,594
|
|
|
-
|
|
|
2,223,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
48,890
|
|
|
48,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 1984
|
|
|
5,549,741
|
|
|
5,550
|
|
|
2,372,053
|
|
|
40,404
|
|
|
2,418,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
18,486
|
|
|
18,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 1985
|
|
|
5,549,741
|
|
|
5,550
|
|
|
2,372,053
|
|
|
58,890
|
|
|
2,436,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued For:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral
Lease At $1.00 Per Share
|
|
|
100
|
|
|
-
|
|
|
100
|
|
|
-
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,597
|
|
|
4,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 1986
|
|
|
5,549,841
|
|
|
5,550
|
|
|
2,372,153
|
|
|
63,487
|
|
|
2,441,190
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (Continued)
FOR
THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2006
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Deficit
Accumulated
in
the
Development
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Total
|
Net
Loss
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(
187,773
|
)
|
$
|
(187,773
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 1987
|
|
|
5,549,841
|
|
|
5,550
|
|
|
2,372,153
|
|
|
(
124,286
|
)
|
|
2,253,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued For:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
Rendered At $1.00 Per Share
|
|
|
92,000
|
|
|
92
|
|
|
91,908
|
|
|
-
|
|
|
92,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
328,842
|
)
|
|
(328,842
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 1988
|
|
|
5,641,841
|
|
|
5,642
|
|
|
2,464,061
|
|
|
(
453,128
|
)
|
|
2,016,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
379,852
|
)
|
|
(
379,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 1989
|
|
|
5,641,841
|
|
|
5,642
|
|
|
2,464,061
|
|
|
(
832,980
|
)
|
|
1,636,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued For:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.70 Per Share
|
|
|
269,060
|
|
|
269
|
|
|
194,219
|
|
|
-
|
|
|
194,488
|
|
At
$.50 Per Share
|
|
|
387,033
|
|
|
387
|
|
|
199,443
|
|
|
-
|
|
|
199,830
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.50 Per Share
|
|
|
68,282
|
|
|
68
|
|
|
34,073
|
|
|
-
|
|
|
34,141
|
|
Commissions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.70 Per Share
|
|
|
15,000
|
|
|
15
|
|
|
(
15
|
)
|
|
-
|
|
|
-
|
|
Commissions
Paid
|
|
|
-
|
|
|
-
|
|
|
(
2,100
|
)
|
|
-
|
|
|
(
2,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
529,676
|
)
|
|
(
529,676
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 1990
|
|
|
6,381,216
|
|
|
6,381
|
|
|
2,889,681
|
|
|
(1,362,656
|
)
|
|
1,533,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued For:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
At $.60 Per Share
|
|
|
318,400
|
|
|
319
|
|
|
180,954
|
|
|
-
|
|
|
181,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
356,874
|
)
|
|
(
356,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 1991
|
|
|
6,699,616
|
|
|
6,700
|
|
|
3,070,635
|
|
|
(1,719,530
|
)
|
|
1,357,805
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (Continued)
FOR
THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2006
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Deficit
Accumulated
in
the
Development
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Total
|
Common
Stock Issued For:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.30 Per Share
|
|
|
114,917
|
|
$
|
115
|
|
$
|
34,303
|
|
$
|
-
|
|
$
|
34,418
|
|
At
$.50 Per Share
|
|
|
2,000
|
|
|
2
|
|
|
998
|
|
|
-
|
|
|
1,000
|
|
At
$.60 Per Share
|
|
|
22,867
|
|
|
23
|
|
|
13,698
|
|
|
-
|
|
|
13,721
|
|
At
$.70 Per Share
|
|
|
10,000
|
|
|
10
|
|
|
6,990
|
|
|
-
|
|
|
7,000
|
|
At
$.80 Per Share
|
|
|
6,250
|
|
|
6
|
|
|
4,994
|
|
|
-
|
|
|
5,000
|
|
At
$.90 Per Share
|
|
|
5,444
|
|
|
5
|
|
|
4,895
|
|
|
-
|
|
|
4,900
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.32 Per Share
|
|
|
39,360
|
|
|
39
|
|
|
12,561
|
|
|
-
|
|
|
12,600
|
|
At
$.50 Per Share
|
|
|
92,353
|
|
|
93
|
|
|
46,084
|
|
|
-
|
|
|
46,177
|
|
Exercise
of Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.50 Per Share By Related Party
|
|
|
100,000
|
|
|
100
|
|
|
49,900
|
|
|
-
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
307,477
|
)
|
|
(
307,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 1992
|
|
|
7,092,807
|
|
|
7,093
|
|
|
3,245,058
|
|
|
(2,027,007
|
)
|
|
1,225,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued For:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.30 Per Share
|
|
|
176,057
|
|
$
|
176
|
|
$
|
51,503
|
|
$
|
-
|
|
$
|
51,679
|
|
At
$.50 Per Share
|
|
|
140,000
|
|
|
140
|
|
|
69,964
|
|
|
-
|
|
|
70,104
|
|
At
$.60 Per Share
|
|
|
10,000
|
|
|
10
|
|
|
5,990
|
|
|
-
|
|
|
6,000
|
|
At
$.70 Per Share
|
|
|
17,000
|
|
|
17
|
|
|
11,983
|
|
|
-
|
|
|
12,000
|
|
At
$1.00 Per Share
|
|
|
50,000
|
|
|
50
|
|
|
49,950
|
|
|
-
|
|
|
50,000
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.50 Per Share
|
|
|
495,556
|
|
|
496
|
|
|
272,504
|
|
|
-
|
|
|
273,000
|
|
Commissions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.50 Per Share
|
|
|
20,220
|
|
|
20
|
|
|
(
20
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions
Paid
|
|
|
-
|
|
|
-
|
|
|
(
1,500
|
)
|
|
-
|
|
|
(
1,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
626,958
|
)
|
|
(
626,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 1993
|
|
|
8,001,640
|
|
|
8,002
|
|
|
3,705,432
|
|
|
(2,653,965
|
)
|
|
1,059,469
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (Continued)
FOR
THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2006
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Deficit
Accumulated
in
the
Development
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Total
|
Common
Stock Issued For:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.30 Per Share
|
|
|
249,330
|
|
$
|
150
|
|
$
|
43,489
|
|
$
|
-
|
|
$
|
43,639
|
|
At
$.50 Per Share
|
|
|
377,205
|
|
|
377
|
|
|
189,894
|
|
|
-
|
|
|
190,271
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.30 Per Share
|
|
|
500,000
|
|
|
500
|
|
|
149,500
|
|
|
-
|
|
|
150,000
|
|
At
$.50 Per Share
|
|
|
130,000
|
|
|
130
|
|
|
71,287
|
|
|
-
|
|
|
71,417
|
|
At
$.50 Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
Related Party
|
|
|
56,000
|
|
|
156
|
|
|
77,844
|
|
|
-
|
|
|
78,000
|
|
At
$.70 Per Share
|
|
|
4,743
|
|
|
4
|
|
|
3,316
|
|
|
-
|
|
|
3,320
|
|
Exercise
of Options For Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.50 Per Share
|
|
|
35,000
|
|
|
35
|
|
|
17,465
|
|
|
-
|
|
|
17,500
|
|
At
$.50 Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
Related Party
|
|
|
150,000
|
|
|
150
|
|
|
74,850
|
|
|
-
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
665,909
|
)
|
|
(
665,909
|
)
|
Balance
- July 31, 1994
|
|
|
9,503,918
|
|
|
9,504
|
|
|
4,333,077
|
|
|
(3,319,874
|
)
|
|
1,022,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued For:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.30 Per Share
|
|
|
150,000
|
|
$
|
150
|
|
$
|
49,856
|
|
$
|
-
|
|
$
|
50,006
|
|
At
$.40 Per Share
|
|
|
288,200
|
|
|
288
|
|
|
115,215
|
|
|
-
|
|
|
115,503
|
|
At
$.50 Per Share
|
|
|
269,611
|
|
|
270
|
|
|
132,831
|
|
|
-
|
|
|
133,101
|
|
At
$.60 Per Share
|
|
|
120,834
|
|
|
121
|
|
|
72,379
|
|
|
-
|
|
|
72,500
|
|
At
$.70 Per Share
|
|
|
23,000
|
|
|
23
|
|
|
16,077
|
|
|
-
|
|
|
16,100
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.40 Per Share
|
|
|
145,000
|
|
|
145
|
|
|
60,755
|
|
|
-
|
|
|
60,900
|
|
At
$.50 Per Share
|
|
|
75,000
|
|
|
75
|
|
|
34,925
|
|
|
-
|
|
|
35,000
|
|
Exercise
of Options For:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.50 Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
Related Party
|
|
|
350,000
|
|
|
350
|
|
|
174,650
|
|
|
-
|
|
|
175,000
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.50 Per Share
|
|
|
35,000
|
|
|
35
|
|
|
17,465
|
|
|
-
|
|
|
17,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions
Paid
|
|
|
-
|
|
|
-
|
|
|
(
1,650
|
)
|
|
-
|
|
|
(
1,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
426,803
|
)
|
|
(
426,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 1995
|
|
|
10,960,563
|
|
|
10,961
|
|
|
5,005,580
|
|
|
(3,746,677
|
)
|
|
1,269,864
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (Continued)
FOR
THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2006
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Deficit
Accumulated
in
the
Development
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Total
|
Common
Stock Issued For:
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
At
$.40 Per Share
|
|
|
75,972
|
|
$
|
76
|
|
$
|
30,274
|
|
$
|
-
|
|
$
|
30,350
|
|
At
$.50 Per Share
|
|
|
550,423
|
|
|
550
|
|
|
270,074
|
|
|
-
|
|
|
270,624
|
|
At
$.60 Per Share
|
|
|
146,773
|
|
|
147
|
|
|
87,853
|
|
|
-
|
|
|
88,000
|
|
At
$.70 Per Share
|
|
|
55,722
|
|
|
56
|
|
|
38,949
|
|
|
-
|
|
|
39,005
|
|
At
$.80 Per Share
|
|
|
110,100
|
|
|
110
|
|
|
87,890
|
|
|
-
|
|
|
88,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.40 Per Share
|
|
|
104,150
|
|
|
104
|
|
|
38,296
|
|
|
-
|
|
|
38,400
|
|
At
$.50 Per Share
|
|
|
42,010
|
|
|
42
|
|
|
20,963
|
|
|
-
|
|
|
21,005
|
|
At
$.60 Per Share
|
|
|
4,600
|
|
|
5
|
|
|
2,755
|
|
|
-
|
|
|
2,760
|
|
At
$.70 Per Share
|
|
|
154,393
|
|
|
155
|
|
|
107,920
|
|
|
-
|
|
|
108,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.35 Per Share
|
|
|
23,428
|
|
|
23
|
|
|
(
23
|
)
|
|
-
|
|
|
-
|
|
At
$.50 Per Share
|
|
|
50,545
|
|
|
50
|
|
|
(
50
|
)
|
|
-
|
|
|
-
|
|
At
$.60 Per Share
|
|
|
2,000
|
|
|
2
|
|
|
(
2
|
)
|
|
-
|
|
|
-
|
|
At
$.70 Per Share
|
|
|
12,036
|
|
|
12
|
|
|
(
12
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.35 Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
Related Party
|
|
|
19,571
|
|
|
20
|
|
|
6,830
|
|
|
-
|
|
|
6,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.35 Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
Related Party
|
|
|
200,429
|
|
|
200
|
|
|
69,950
|
|
|
-
|
|
|
70,150
|
|
At
$.50 Per Share
|
|
|
95,000
|
|
|
95
|
|
|
47,405
|
|
|
-
|
|
|
47,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
Portion of Options
|
|
|
-
|
|
|
-
|
|
|
261,500
|
|
|
-
|
|
|
261,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
956,043
|
)
|
|
(
956,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 1996
|
|
|
12,607,715
|
|
|
12,608
|
|
|
6,076,152
|
|
|
(4,702,720
|
)
|
|
1,386,040
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (Continued)
FOR
THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2006
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Deficit
Accumulated
in
the
Development
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Total
|
Common
Stock Issued For:
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
At
$.35 Per Share
|
|
|
50,000
|
|
$
|
50
|
|
$
|
17,450
|
|
$
|
-
|
|
$
|
17,500
|
|
At
$.40 Per Share
|
|
|
323,983
|
|
|
324
|
|
|
128,471
|
|
|
-
|
|
|
128,795
|
|
At
$.50 Per Share
|
|
|
763,881
|
|
|
762
|
|
|
381,174
|
|
|
-
|
|
|
381,936
|
|
At
$.60 Per Share
|
|
|
16,667
|
|
|
17
|
|
|
9,983
|
|
|
-
|
|
|
10,000
|
|
At
$.70 Per Share
|
|
|
7,143
|
|
|
7
|
|
|
4,993
|
|
|
-
|
|
|
5,000
|
|
At
$.80 Per Share
|
|
|
28,750
|
|
|
29
|
|
|
22,971
|
|
|
-
|
|
|
23,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.50 Per Share
|
|
|
295,884
|
|
|
296
|
|
|
147,646
|
|
|
-
|
|
|
147,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.35 Per Share
|
|
|
44,614
|
|
|
45
|
|
|
(
45
|
)
|
|
-
|
|
|
-
|
|
At
$.40 Per Share
|
|
|
41,993
|
|
|
42
|
|
|
(
42
|
)
|
|
-
|
|
|
-
|
|
At
$.50 Per Share
|
|
|
37,936
|
|
|
38
|
|
|
(
38
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.35 Per Share
|
|
|
8,888
|
|
|
9
|
|
|
3,099
|
|
|
-
|
|
|
3,108
|
|
At
$.40 Per Share
|
|
|
9,645
|
|
|
10
|
|
|
3,848
|
|
|
-
|
|
|
3,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment At $.60 Per Share
|
|
|
7,500
|
|
|
8
|
|
|
4,492
|
|
|
-
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.35 Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
Related Party
|
|
|
136,301
|
|
|
136
|
|
|
47,569
|
|
|
-
|
|
|
47,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
805,496
|
)
|
|
(
805,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 1997
|
|
|
14,380,900
|
|
|
14,381
|
|
|
6,847,723
|
|
|
(5,508,216
|
)
|
|
1,353,888
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (Continued)
FOR
THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2006
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Deficit
Accumulated
in
the
Development
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Total
|
Common
Stock Issued For:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.20 Per Share
|
|
|
10,000
|
|
$
|
10
|
|
$
|
1,990
|
|
$
|
-
|
|
$
|
2,000
|
|
At
$.25 Per Share
|
|
|
100,000
|
|
|
100
|
|
|
24,900
|
|
|
-
|
|
|
25,000
|
|
At
$.27 Per Share
|
|
|
45,516
|
|
|
46
|
|
|
12,244
|
|
|
-
|
|
|
12,290
|
|
At
$.28 Per Share
|
|
|
150,910
|
|
|
151
|
|
|
41,349
|
|
|
-
|
|
|
41,500
|
|
At
$.30 Per Share
|
|
|
60,333
|
|
|
60
|
|
|
18,040
|
|
|
-
|
|
|
18,100
|
|
At
$.31 Per Share
|
|
|
9,677
|
|
|
10
|
|
|
2,990
|
|
|
-
|
|
|
3,000
|
|
At
$.32 Per Share
|
|
|
86,750
|
|
|
87
|
|
|
27,673
|
|
|
-
|
|
|
27,760
|
|
At
$.33 Per Share
|
|
|
125,364
|
|
|
125
|
|
|
41,245
|
|
|
-
|
|
|
41,370
|
|
At
$.35 Per Share
|
|
|
75,144
|
|
|
75
|
|
|
26,225
|
|
|
-
|
|
|
26,300
|
|
At
$.38 Per Share
|
|
|
49,048
|
|
|
49
|
|
|
18,311
|
|
|
-
|
|
|
18,360
|
|
At
$.40 Per Share
|
|
|
267,500
|
|
|
268
|
|
|
106,732
|
|
|
-
|
|
|
107,000
|
|
At
$.45 Per Share
|
|
|
65,333
|
|
|
65
|
|
|
29,335
|
|
|
-
|
|
|
29,400
|
|
At
$.50 Per Share
|
|
|
611,184
|
|
|
610
|
|
|
304,907
|
|
|
-
|
|
|
305,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.23 Per Share
|
|
|
48,609
|
|
|
49
|
|
|
11,131
|
|
|
-
|
|
|
11,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.22 Per Share
|
|
|
82,436
|
|
|
82
|
|
|
18,054
|
|
|
-
|
|
|
18,136
|
|
At
$.35 Per Share
|
|
|
183,846
|
|
|
184
|
|
|
64,162
|
|
|
-
|
|
|
64,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.22 Per Share
|
|
|
105,000
|
|
|
105
|
|
|
22,995
|
|
|
-
|
|
|
23,100
|
|
At
$.35 Per Share
|
|
|
25,000
|
|
|
25
|
|
|
8,725
|
|
|
-
|
|
|
8,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.22 Per Share
|
|
|
67,564
|
|
|
68
|
|
|
(
68
|
)
|
|
-
|
|
|
|
|
At
$.35 Per Share
|
|
|
291,028
|
|
|
291
|
|
|
(
291
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
807,181
|
)
|
|
(
807,181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 1998
|
|
|
16,841,142
|
|
|
16,841
|
|
|
7,628,372
|
|
|
(6,315,397
|
)
|
|
1,329,816
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (Continued)
FOR
THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2006
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Deficit
Accumulated
in
the
Development
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Total
|
Common
Stock Issued For:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$0.20 Per Share
|
|
|
12,500
|
|
$
|
13
|
|
$
|
2,487
|
|
$
|
-
|
|
$
|
2,500
|
|
At
$0.22 Per Share
|
|
|
45,454
|
|
|
45
|
|
|
9,955
|
|
|
-
|
|
|
10,000
|
|
At
$0.25 Per Share
|
|
|
248,788
|
|
|
249
|
|
|
61,948
|
|
|
-
|
|
|
62,197
|
|
At
$0.27 Per Share
|
|
|
132,456
|
|
|
132
|
|
|
35,631
|
|
|
-
|
|
|
35,763
|
|
At
$0.28 Per Share
|
|
|
107,000
|
|
|
107
|
|
|
30,493
|
|
|
-
|
|
|
30,600
|
|
At
$0.29 Per Share
|
|
|
20,000
|
|
|
20
|
|
|
5,780
|
|
|
-
|
|
|
5,800
|
|
At
$0.30 Per Share
|
|
|
49,333
|
|
|
49
|
|
|
14,751
|
|
|
-
|
|
|
14,800
|
|
At
$0.32 Per Share
|
|
|
152,725
|
|
|
153
|
|
|
48,719
|
|
|
-
|
|
|
48,872
|
|
At
$0.33 Per Share
|
|
|
149,396
|
|
|
149
|
|
|
49,151
|
|
|
-
|
|
|
49,300
|
|
At
$0.35 Per Share
|
|
|
538,427
|
|
|
538
|
|
|
187,912
|
|
|
-
|
|
|
188,450
|
|
At
$0.40 Per Share
|
|
|
17,000
|
|
|
17
|
|
|
6,783
|
|
|
-
|
|
|
6,800
|
|
At
$0.50 Per Share
|
|
|
53,000
|
|
|
53
|
|
|
26,447
|
|
|
-
|
|
|
26,500
|
|
At
$0.55 Per Share
|
|
|
6,000
|
|
|
6
|
|
|
3,294
|
|
|
-
|
|
|
3,300
|
|
At
$0.65 Per Share
|
|
|
33,846
|
|
|
34
|
|
|
21,966
|
|
|
-
|
|
|
22,000
|
|
At
$0.68 Per Share
|
|
|
13,235
|
|
|
13
|
|
|
8,987
|
|
|
-
|
|
|
9,000
|
|
At
$0.70 Per Share
|
|
|
153,572
|
|
|
154
|
|
|
107,346
|
|
|
-
|
|
|
107,500
|
|
At
$0.90 Per Share
|
|
|
57,777
|
|
|
58
|
|
|
51,942
|
|
|
-
|
|
|
52,000
|
|
At
$1.00 Per Share
|
|
|
50,000
|
|
|
50
|
|
|
49,950
|
|
|
-
|
|
|
50,000
|
|
At
$1.10 Per Share
|
|
|
150,000
|
|
|
150
|
|
|
164,850
|
|
|
-
|
|
|
165,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$0.21 Per Share
|
|
|
37,376
|
|
|
37
|
|
|
7,812
|
|
|
-
|
|
|
7,849
|
|
At
$0.30 Per Share
|
|
|
19,450
|
|
|
19
|
|
|
5,816
|
|
|
-
|
|
|
5,835
|
|
At
$0.36 Per Share
|
|
|
34,722
|
|
|
35
|
|
|
12,465
|
|
|
-
|
|
|
12,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$0.21 Per Share
|
|
|
158,426
|
|
|
158
|
|
|
(
158
|
)
|
|
-
|
|
|
-
|
|
At
$0.25 Per Share
|
|
|
28,244
|
|
|
28
|
|
|
(
28
|
)
|
|
-
|
|
|
-
|
|
At
$0.30 Per Share
|
|
|
132,759
|
|
|
133
|
|
|
(
133
|
)
|
|
-
|
|
|
-
|
|
At
$0.35 Per Share
|
|
|
40,000
|
|
|
40
|
|
|
(
40
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services:
|
|
|
95,238
|
|
|
95
|
|
|
19,905
|
|
|
-
|
|
|
20,000
|
|
At
$0.25 Per Share
|
|
|
17,000
|
|
|
17
|
|
|
4,233
|
|
|
-
|
|
|
4,250
|
|
At
$0.30 Per Share
|
|
|
145,941
|
|
|
146
|
|
|
43,636
|
|
|
-
|
|
|
43,782
|
|
At
$0.50 Per Share
|
|
|
71,808
|
|
|
72
|
|
|
35,832
|
|
|
-
|
|
|
35,904
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (Continued)
FOR
THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2006
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Deficit
Accumulated
in
the
Development
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Total
|
Compensation
portion of Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
portion of Cash Issuances
|
|
|
-
|
|
$
|
-
|
|
$
|
618,231
|
|
$
|
-
|
|
$
|
618,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
Portion of Options
|
|
|
-
|
|
|
-
|
|
|
304,900
|
|
|
-
|
|
|
304,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$0.10 Per Share
|
|
|
510,000
|
|
|
510
|
|
|
50,490
|
|
|
-
|
|
|
51,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$0.70 Per Share
|
|
|
100,000
|
|
|
100
|
|
|
69,900
|
|
|
-
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,964,447
|
)
|
|
(1,964,447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 1999
|
|
|
20,222,615
|
|
|
20,221
|
|
|
9,689,625
|
|
|
(8,279,844
|
)
|
|
1,430,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued For:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.18 Per Share
|
|
|
27,778
|
|
|
28
|
|
|
4,972
|
|
|
-
|
|
|
5,000
|
|
At
$.20 Per Share
|
|
|
482,500
|
|
|
483
|
|
|
96,017
|
|
|
-
|
|
|
96,500
|
|
At
$.21 Per Share
|
|
|
47,500
|
|
|
47
|
|
|
9,953
|
|
|
-
|
|
|
10,000
|
|
At
$.22 Per Share
|
|
|
844,821
|
|
|
845
|
|
|
185,012
|
|
|
-
|
|
|
185,857
|
|
At
$.30 Per Share
|
|
|
100,000
|
|
|
100
|
|
|
29,900
|
|
|
-
|
|
|
30,000
|
|
At
$.35 Per Share
|
|
|
280,000
|
|
|
280
|
|
|
97,720
|
|
|
-
|
|
|
98,000
|
|
At
$.37 Per Share
|
|
|
56,000
|
|
|
56
|
|
|
19,944
|
|
|
-
|
|
|
20,000
|
|
At
$.38 Per Share
|
|
|
100,000
|
|
|
100
|
|
|
37,900
|
|
|
-
|
|
|
38,000
|
|
At
$.40 Per Share
|
|
|
620,000
|
|
|
620
|
|
|
247,380
|
|
|
-
|
|
|
248,000
|
|
At
$.42 Per Share
|
|
|
47,715
|
|
|
48
|
|
|
19,952
|
|
|
-
|
|
|
20,000
|
|
At
$.45 Per Share
|
|
|
182,445
|
|
|
182
|
|
|
81,918
|
|
|
-
|
|
|
82,100
|
|
At
$.50 Per Share
|
|
|
313,000
|
|
|
313
|
|
|
156,187
|
|
|
-
|
|
|
156,500
|
|
At
$.55 Per Share
|
|
|
122,778
|
|
|
123
|
|
|
67,377
|
|
|
-
|
|
|
67,500
|
|
At
$.58 Per Share
|
|
|
12,069
|
|
|
12
|
|
|
6,988
|
|
|
-
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.20 Per Share
|
|
|
4,167
|
|
|
4
|
|
|
829
|
|
|
-
|
|
|
833
|
|
At
$.22 Per Share
|
|
|
46,091
|
|
|
46
|
|
|
10,094
|
|
|
-
|
|
|
10,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
Portion
|
|
|
-
|
|
|
-
|
|
|
94,430
|
|
|
-
|
|
|
94,430
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (Continued)
FOR
THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2006
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Deficit
Accumulated
in
the
Development
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Total
|
|
Exercise
of Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.25 Per Share
|
|
|
30,000
|
|
$
|
30
|
|
$
|
7,470
|
|
$
|
-
|
|
$
|
7,500
|
|
At
$.40 Per Share
|
|
|
95,000
|
|
|
95
|
|
|
37,905
|
|
|
-
|
|
|
38,000
|
|
At
$.50 Per Share
|
|
|
25,958
|
|
|
26
|
|
|
12,954
|
|
|
-
|
|
|
12,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.20 Per Share
|
|
|
26,750
|
|
|
27
|
|
|
(
27
|
)
|
|
-
|
|
|
-
|
|
At
$.22 Per Share
|
|
|
86,909
|
|
|
87
|
|
|
(
87
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.10 Per Share
|
|
|
100,000
|
|
|
100
|
|
|
9,900
|
|
|
-
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.22 Per Share
|
|
|
150,000
|
|
|
150
|
|
|
32,850
|
|
|
-
|
|
|
33,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Based Compensation
|
|
|
-
|
|
|
-
|
|
|
221,585
|
|
|
-
|
|
|
221,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,530,020
|
)
|
|
(1,530,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 2000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unconsolidated)
|
|
|
24,024,096
|
|
|
24,023
|
|
|
11,178,748
|
|
|
(9,809,864
|
)
|
|
1,392,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued For:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.15 Per Share
|
|
|
120,000
|
|
|
120
|
|
|
17,880
|
|
|
-
|
|
|
18,000
|
|
At
$.17 Per Share
|
|
|
80,000
|
|
|
80
|
|
|
13,520
|
|
|
-
|
|
|
13,600
|
|
At
$.18 Per Share
|
|
|
249,111
|
|
|
249
|
|
|
44,591
|
|
|
-
|
|
|
44,840
|
|
At
$.19 Per Share
|
|
|
70,789
|
|
|
71
|
|
|
13,379
|
|
|
-
|
|
|
13,450
|
|
At
$.20 Per Share
|
|
|
1,322,500
|
|
|
1,323
|
|
|
261,677
|
|
|
-
|
|
|
263,000
|
|
At
$.21 Per Share
|
|
|
33,810
|
|
|
34
|
|
|
7,066
|
|
|
-
|
|
|
7,100
|
|
At
$.22 Per Share
|
|
|
2,472,591
|
|
|
2,473
|
|
|
541,497
|
|
|
-
|
|
|
543,970
|
|
At
$.23 Per Share
|
|
|
65,239
|
|
|
65
|
|
|
14,935
|
|
|
-
|
|
|
15,000
|
|
At
$.24 Per Share
|
|
|
123,337
|
|
|
123
|
|
|
29,477
|
|
|
-
|
|
|
29,600
|
|
At
$.25 Per Share
|
|
|
610,400
|
|
|
611
|
|
|
151,884
|
|
|
-
|
|
|
152,495
|
|
At
$.26 Per Share
|
|
|
625,769
|
|
|
626
|
|
|
162,074
|
|
|
-
|
|
|
162,700
|
|
At
$.27 Per Share
|
|
|
314,850
|
|
|
315
|
|
|
84,695
|
|
|
-
|
|
|
85,010
|
|
At
$.28 Per Share
|
|
|
7,143
|
|
|
7
|
|
|
1,993
|
|
|
-
|
|
|
2,000
|
|
At
$.30 Per Share
|
|
|
33,333
|
|
|
33
|
|
|
9,967
|
|
|
-
|
|
|
10,000
|
|
At
$.35 Per Share
|
|
|
271,429
|
|
|
272
|
|
|
94,728
|
|
|
-
|
|
|
95,000
|
|
At
$.38 Per Share
|
|
|
453,158
|
|
|
453
|
|
|
169,547
|
|
|
-
|
|
|
170,000
|
|
At
$.40 Per Share
|
|
|
300,000
|
|
|
300
|
|
|
119,700
|
|
|
-
|
|
|
120,000
|
|
At
$.50 Per Share
|
|
|
10,000
|
|
|
10
|
|
|
4,990
|
|
|
-
|
|
|
5,000
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (Continued)
FOR
THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2006
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Deficit
Accumulated
in
the
Development
|
|
|
Accumulated
Other
Comprehensive
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Income
(Loss)
|
|
|
Total
|
|
Compensation
Portion:
|
|
|
-
|
|
$
|
-
|
|
$
|
24,000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
24,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.27 Per Share
|
|
|
30,000
|
|
|
30
|
|
|
8,070
|
|
|
-
|
|
|
-
|
|
|
8,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$0.20 Per Share
|
|
|
33,850
|
|
|
34
|
|
|
6,736
|
|
|
-
|
|
|
-
|
|
|
6,770
|
|
At
$0.23 Per Share
|
|
|
15,000
|
|
|
15
|
|
|
3,435
|
|
|
-
|
|
|
-
|
|
|
3,450
|
|
At
$0.11 Per Share
|
|
|
87,272
|
|
|
87
|
|
|
9,513
|
|
|
-
|
|
|
-
|
|
|
9,600
|
|
At
$0.34 Per Share
|
|
|
50,000
|
|
|
50
|
|
|
16,950
|
|
|
-
|
|
|
-
|
|
|
17,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
Portion:
|
|
|
-
|
|
|
-
|
|
|
21,777
|
|
|
-
|
|
|
-
|
|
|
21,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$0.11 Per Share
|
|
|
266,500
|
|
|
267
|
|
|
(267
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
At
$0.20 Per Share
|
|
|
26,150
|
|
|
26
|
|
|
(26
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
At
$0.22 Per Share
|
|
|
15,000
|
|
|
15
|
|
|
(15
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
Portion:
|
|
|
-
|
|
|
-
|
|
|
36,595
|
|
|
-
|
|
|
-
|
|
|
36,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$0.02 Per Share By
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
Party
|
|
|
225,000
|
|
|
225
|
|
|
4,725
|
|
|
-
|
|
|
-
|
|
|
4,950
|
|
At
$0.10 Per Share
|
|
|
200,000
|
|
|
200
|
|
|
19,800
|
|
|
-
|
|
|
-
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$0.02 Per Share By Related Party
|
|
|
53,270
|
|
|
53
|
|
|
1,120
|
|
|
-
|
|
|
-
|
|
|
1,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
Portion:
|
|
|
-
|
|
|
-
|
|
|
25,463
|
|
|
-
|
|
|
-
|
|
|
25,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$0.02 Per Share
|
|
|
350,000
|
|
|
350
|
|
|
(350
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
Portion:
|
|
|
-
|
|
|
-
|
|
|
132,300
|
|
|
-
|
|
|
-
|
|
|
132,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$0.05 Per Share
|
|
|
1,000,000
|
|
|
1,000
|
|
|
(1,000
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
Portion:
|
|
|
-
|
|
|
-
|
|
|
400,000
|
|
|
-
|
|
|
-
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Based Compensation
|
|
|
-
|
|
|
-
|
|
|
7,002,500
|
|
|
-
|
|
|
-
|
|
|
7,002,500
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (Continued)
FOR
THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2006
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Deficit
Accumulated
in
the
Development
|
|
|
Accumulated
Other
Comprehensive
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Income
(Loss)
|
|
|
Total
|
|
Comprehensive
Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
9,418,266
|
)
|
|
-
|
|
|
(9,418,266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Adjustment from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
493
|
)
|
|
(
493
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(9,418,759
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 2001
|
|
|
33,539,597
|
|
|
33,540
|
|
|
20,633,674
|
|
|
(19,228,130
|
)
|
|
(
493
|
)
|
|
1,438,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.022 Per Share
|
|
|
1,400,976
|
|
|
1,401
|
|
|
29,420
|
|
|
-
|
|
|
-
|
|
|
30,821
|
|
At
$.08 Per Share
|
|
|
250,000
|
|
|
250
|
|
|
19,750
|
|
|
-
|
|
|
-
|
|
|
20,000
|
|
At
$.10 Per Share
|
|
|
980,000
|
|
|
980
|
|
|
97,020
|
|
|
-
|
|
|
-
|
|
|
98,000
|
|
At
$.11 Per Share
|
|
|
145,456
|
|
|
145
|
|
|
15,855
|
|
|
-
|
|
|
-
|
|
|
16,000
|
|
At
$.115 Per Share
|
|
|
478,260
|
|
|
478
|
|
|
54,522
|
|
|
-
|
|
|
-
|
|
|
55,000
|
|
At
$.12 Per Share
|
|
|
500,000
|
|
|
500
|
|
|
59,500
|
|
|
-
|
|
|
-
|
|
|
60,000
|
|
At
$.125 Per Share
|
|
|
40,000
|
|
|
40
|
|
|
4,960
|
|
|
-
|
|
|
-
|
|
|
5,000
|
|
At
$.14 Per Share
|
|
|
44,000
|
|
|
44
|
|
|
6,116
|
|
|
-
|
|
|
-
|
|
|
6,160
|
|
At
$.15 Per Share
|
|
|
383,667
|
|
|
384
|
|
|
57,166
|
|
|
-
|
|
|
-
|
|
|
57,550
|
|
At
$.18 Per Share
|
|
|
25,000
|
|
|
25
|
|
|
4,475
|
|
|
-
|
|
|
-
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.115 Per Share
|
|
|
69,565
|
|
|
70
|
|
|
(
70
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
At
$.22 Per Share
|
|
|
100,000
|
|
|
100
|
|
|
(
100
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
At
$.08 Per Share
|
|
|
20,625
|
|
|
21
|
|
|
(
21
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
At
$.14-$.22 Per Share
|
|
|
282,475
|
|
|
282
|
|
|
(
282
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.10 Per Share
|
|
|
35,950
|
|
|
36
|
|
|
3,559
|
|
|
-
|
|
|
-
|
|
|
3,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.022 Per Share by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
Party:
|
|
|
227,273
|
|
|
227
|
|
|
4,773
|
|
|
-
|
|
|
-
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.022 Per Share by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
Parties
|
|
|
909,092
|
|
|
909
|
|
|
19,091
|
|
|
-
|
|
|
-
|
|
|
20,000
|
|
At
$.022 Per Share by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Others
|
|
|
1,205,929
|
|
|
1,206
|
|
|
25,325
|
|
|
-
|
|
|
-
|
|
|
26,531
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (Continued)
FOR
THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2006
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Deficit
Accumulated
in
the
Development
|
|
|
Accumulated
Other
Comprehensive
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Income
(Loss)
|
|
|
Total
|
|
Additional
Paid-In Capital Arising From Investment In Joint Venture Subsidiary
by Minority Interest
|
|
|
- |
|
|
|
|
|
51,934
|
|
|
-
|
|
|
-
|
|
|
51,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Based Compensation
|
|
|
-
|
|
|
-
|
|
|
222,338
|
|
|
-
|
|
|
-
|
|
|
222,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
492,148
|
)
|
|
-
|
|
|
(
492,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Adjustment from Foreign Currency Translation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
6,753
|
)
|
|
(
6,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
498,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 2002
|
|
|
40,637,865
|
|
|
40,638
|
|
|
21,309,005
|
|
|
(19,720,278
|
)
|
|
(
7,246
|
)
|
|
1,622,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.022 Per Share
|
|
|
250,000
|
|
|
250
|
|
|
5,250
|
|
|
-
|
|
|
-
|
|
|
5,500
|
|
At
$.10 Per Share
|
|
|
50,000
|
|
|
50
|
|
|
4,950
|
|
|
-
|
|
|
-
|
|
|
5,000
|
|
At
$.12 Per Share
|
|
|
1,250,000
|
|
|
1,250
|
|
|
148,750
|
|
|
-
|
|
|
-
|
|
|
150,000
|
|
At
$.14 Per Share
|
|
|
235,714
|
|
|
236
|
|
|
32,764
|
|
|
-
|
|
|
-
|
|
|
33,000
|
|
At
$.15 Per Share
|
|
|
1,016,865
|
|
|
1,017
|
|
|
151,513
|
|
|
-
|
|
|
-
|
|
|
152,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.022 Per Share by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
Party
|
|
|
922,727
|
|
|
923
|
|
|
19,377
|
|
|
-
|
|
|
-
|
|
|
20,300
|
|
At
$.05 Per Share by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
Party
|
|
|
200,000
|
|
|
200
|
|
|
9,800
|
|
|
-
|
|
|
-
|
|
|
10,000
|
|
At
$.05 Per Share by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Others
|
|
|
100,000
|
|
|
100
|
|
|
4,900
|
|
|
-
|
|
|
-
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$4.00 Per Share
|
|
|
14,363
|
|
|
13
|
|
|
57,378
|
|
|
-
|
|
|
-
|
|
|
57,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-In Capital Arising from Investment In Joint Venture Subsidiary
By
Minority Interest
|
|
|
-
|
|
|
-
|
|
|
159,919
|
|
|
-
|
|
|
-
|
|
|
159,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Based Compensation
|
|
|
-
|
|
|
-
|
|
|
288,623
|
|
|
-
|
|
|
-
|
|
|
288,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
1,919,261
|
)
|
|
-
|
|
|
(
1,919,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Adjustment from Foreign Currency Translation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
60,879
|
|
|
60,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Comprehensive Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
1,858,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 2003
|
|
|
44,677,534
|
|
|
44,677
|
|
|
22,192,229
|
|
|
(21,639,539
|
)
|
|
53,633
|
|
|
651,000
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (Continued)
FOR
THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2006
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Deficit
Accumulated
in
the
Development
|
|
|
Accumulated
Other
Comprehensive
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Income
(Loss)
|
|
|
Total
|
|
Common
Stock Issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.05 Per Share
|
|
|
150,000
|
|
|
150
|
|
|
7,350
|
|
|
-
|
|
|
-
|
|
|
7,500
|
|
At
$.11 Per Share
|
|
|
245,455
|
|
|
245
|
|
|
26,755
|
|
|
-
|
|
|
-
|
|
|
27,000
|
|
At
$.12 Per Share
|
|
|
5,929,565
|
|
|
5,929
|
|
|
705,318
|
|
|
-
|
|
|
-
|
|
|
711,247
|
|
At
$.13 Per Share
|
|
|
349,691
|
|
|
350
|
|
|
45,110
|
|
|
-
|
|
|
-
|
|
|
45,460
|
|
At
$.14 Per Share
|
|
|
346,284
|
|
|
346
|
|
|
48,133
|
|
|
-
|
|
|
-
|
|
|
48,479
|
|
At
$.15 Per Share
|
|
|
368,665
|
|
|
369
|
|
|
54,931
|
|
|
-
|
|
|
-
|
|
|
55,300
|
|
At
$.16 Per Share
|
|
|
593,750
|
|
|
594
|
|
|
94,406
|
|
|
-
|
|
|
-
|
|
|
95,000
|
|
At
$.17 Per Share
|
|
|
145,000
|
|
|
145
|
|
|
24,505
|
|
|
-
|
|
|
-
|
|
|
24,650
|
|
At
$.18 Per Share
|
|
|
55,554
|
|
|
56
|
|
|
9,944
|
|
|
-
|
|
|
-
|
|
|
10,000
|
|
At
$.20 Per Share
|
|
|
365,000
|
|
|
365
|
|
|
72,635
|
|
|
-
|
|
|
-
|
|
|
73,000
|
|
At
$.23 Per Share
|
|
|
45,439
|
|
|
45
|
|
|
10,405
|
|
|
-
|
|
|
-
|
|
|
10,450
|
|
At
$.24 Per Share
|
|
|
74,166
|
|
|
74
|
|
|
17,726
|
|
|
-
|
|
|
-
|
|
|
17,800
|
|
At
$.25 Per Share
|
|
|
80,000
|
|
|
80
|
|
|
19,920
|
|
|
-
|
|
|
-
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.02 Per Share by Related
Party
|
|
|
250,000
|
|
|
250
|
|
|
5,250
|
|
|
-
|
|
|
-
|
|
|
5,500
|
|
At
$.05 Per Share by Related
Party
|
|
|
1,415,000
|
|
|
1,415
|
|
|
69,338
|
|
|
-
|
|
|
-
|
|
|
70,753
|
|
At
$.12 Per Share by Related
Party
|
|
|
97,826
|
|
|
98
|
|
|
11,152
|
|
|
-
|
|
|
-
|
|
|
11,250
|
|
At
$.02 Per Share by Related
Party
|
|
|
272,727
|
|
|
273
|
|
|
5,327
|
|
|
-
|
|
|
-
|
|
|
5,600
|
|
At
$.05 Per Share by Related
Party
|
|
|
300,000
|
|
|
300
|
|
|
14,700
|
|
|
-
|
|
|
-
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.12 Per Share
|
|
|
7,500
|
|
|
8
|
|
|
892
|
|
|
-
|
|
|
-
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-In Capital Arising from Investment In Joint Venture Subsidiary
By Minority Interest
|
|
|
-
|
|
|
-
|
|
|
100,156
|
|
|
-
|
|
|
-
|
|
|
100,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Based Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
Parties
|
|
|
-
|
|
|
-
|
|
|
314,000
|
|
|
-
|
|
|
-
|
|
|
314,000
|
|
Other
|
|
|
-
|
|
|
-
|
|
|
65,033
|
|
|
-
|
|
|
-
|
|
|
65,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued In Connection with Termination of Joint
Venture
|
|
|
2,000,000
|
|
|
2,000
|
|
|
798,000
|
|
|
-
|
|
|
-
|
|
|
800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
2,938,590
|
)
|
|
-
|
|
|
(
2,938,590
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Adjustment fromForeign Currency Translation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(24,894
|
)
|
|
(
24,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Gain on Marketable Securities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
60,000
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Comprehensive Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
2,903,484
|
)
|
Balance
- July 31, 2004
|
|
|
57,769,156
|
|
|
57,769
|
|
|
24,713,215
|
|
|
(24,578,129
|
)
|
|
88,739
|
|
|
281,594
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - (Continued)
FOR
THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2006
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Deficit
Accumulated
in
the
Development
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Deferred
Financing
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Income
(Loss)
|
|
|
Costs
|
|
|
Total
|
|
Common
Stock Issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.10 Per Share
|
|
|
175,000
|
|
|
175
|
|
|
17,325
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
17,500
|
|
At
$.11 Per Share
|
|
|
381,763
|
|
|
382
|
|
|
41,612
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
41,994
|
|
At
$.12 Per Share
|
|
|
2,378,493
|
|
|
2,379
|
|
|
283,042
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
285,421
|
|
At
$.13 Per Share
|
|
|
582,307
|
|
|
582
|
|
|
75,118
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
75,700
|
|
At
$.14 Per Share
|
|
|
35,714
|
|
|
36
|
|
|
4,964
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,000
|
|
At
$.15 Per Share
|
|
|
101,333
|
|
|
101
|
|
|
15,099
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
15,200
|
|
At
$.20 Per Share
|
|
|
25,000
|
|
|
25
|
|
|
4,975
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.25 Per Share
|
|
|
27,200,004
|
|
|
27,200
|
|
|
6,772,801
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,800,001
|
|
Shares
issued for Cash Through Private Placement, net
of costs
|
|
|
-
|
|
|
-
|
|
|
(637,991
|
)
|
|
|
|
|
|
|
|
-
|
|
|
(637,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.11 Per Share
|
|
|
188,173
|
|
|
188
|
|
|
20,511
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20,699
|
|
At
$.12 Per Share
|
|
|
71,334
|
|
|
71
|
|
|
8,489
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.022 Per Share by Related
Party
|
|
|
227,273
|
|
|
227
|
|
|
4,773
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,000
|
|
At
$.05 Per Share by Related
Party
|
|
|
400,000
|
|
|
400
|
|
|
19,600
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20,000
|
|
At
$.05 Per Share by
Other
|
|
|
|
|
|
250
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
12,500
|
|
At
$.22 Per Share by
Other
|
|
|
250,000
|
|
|
250
|
|
|
54,750
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.12 Per Share by
Other
|
|
|
300,000
|
|
|
300
|
|
|
35,700
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
36,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.12 Per Share
|
|
|
193,666
|
|
|
194
|
|
|
(194
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
Registration Penalty:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
$.19 Per Share
|
|
|
5,440,000
|
|
|
5,440
|
|
|
(5,440
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Based Compensation
|
|
|
|
|
|
|
|
|
158,584
|
|
|
-
|
|
|
|
|
|
-
|
|
|
158,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
Financing Costs
|
|
|
-
|
|
|
-
|
|
|
252,541
|
|
|
-
|
|
|
-
|
|
|
(252,541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
2,005,682
|
)
|
|
-
|
|
|
-
|
|
|
(2,005,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Adjustment from Foreign Currency Translation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
28,975
|
|
|
-
|
|
|
28,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Gain on Marketable Securities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
40,000
|
|
|
-
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Comprehensive Loss
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,936,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- July 31, 2005
|
|
|
95,969,216
|
|
$
|
95,969
|
|
$
|
31,851,724
|
|
$
|
(26,583,811
|
)
|
$
|
157,714
|
|
$
|
(252,541
|
)
|
$
|
5,269,055
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY - (Continued)
FOR
THE
PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2006
|
|
Common
Stock
|
|
Additional
Paid-In-
|
|
Deficit
Accumulated
in
the
Development
|
|
Accumulated
Other
Comprehensive
|
|
Deferred
Financing
|
|
|
|
Total
Stockholder
|
|
|
|
Shares
|
|
Amount
|
|
capital
|
|
Stage
|
|
Income/(Loss)
|
|
Costs
|
|
Costs
|
|
Equity |
|
Balance
at July 31, 2005
|
|
|
95,969,216
|
|
|
95,969
|
|
|
31,851,724
|
|
|
(26,583,811
|
)
|
|
157,714
|
|
|
(252,541
|
)
|
|
-
|
|
|
5,269,055
|
|
Change
in par value to $0.0001
|
|
|
-
|
|
|
(86,372
|
)
|
|
86,372
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Deferred
Financing Costs
|
|
|
1,000,000
|
|
|
100
|
|
|
269,900
|
|
|
-
|
|
|
-
|
|
|
(270,000
|
)
|
|
-
|
|
|
-
|
|
Issuance
of common stock upon
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
warrant
and option exercises, net
|
|
|
4,825,913
|
|
|
482
|
|
|
741,338
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
741,820
|
|
Issuance
of common stock upon
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
warrant
and option exercises, net
|
|
|
8,600,000
|
|
|
860
|
|
|
2,372,740
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,373,600
|
|
Private
placement, net
|
|
|
21,240,000
|
|
|
2,124
|
|
|
4,997,376
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,999,500
|
|
Options
and warrants issued for services
|
|
|
- |
|
|
- |
|
|
414,375
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(52,500
|
)
|
|
361,875
|
|
Unrealized
loss on marketable securities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
(60,000
|
)
|
|
-
|
|
|
-
|
|
|
(60,000
|
)
|
Equity
adjustment from foreign currency translation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
48,779
|
|
|
-
|
|
|
-
|
|
|
48,779
|
|
Net
loss for the year ended July 31, 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,804,692
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,804,692
|
)
|
Balance
- July 31, 2006
|
|
|
131,635,129
|
|
|
13,163
|
|
|
40,733,825
|
|
|
(31,388,503
|
)
|
|
146,493
|
|
|
(522,541
|
)
|
|
(52,500
|
)
|
|
8,929,937
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
|
|
|
For
The
Period
|
|
|
|
|
|
September
17,
1982
|
|
|
|
July
31,
|
|
(Inception)
To
|
|
|
|
2006
|
|
2005
|
|
July
31, 2006
|
|
Cash
Flow From Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(4,804,692
|
)
|
$
|
(2,005,682
|
)
|
$
|
(31,388,503
|
)
|
Adjustments
to Reconcile Net Loss to
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
|
38,969
|
|
|
7,431
|
|
|
422,696
|
|
Gain
on Sale of Subsidiary
|
|
|
-
|
|
|
-
|
|
|
(1,907,903
|
)
|
Minority
Interest in Net Loss of Subsidiary
|
|
|
-
|
|
|
-
|
|
|
(286,388
|
)
|
Write-Down
of Impaired Mining, Milling and Other
|
|
|
-
|
|
|
|
|
|
|
|
Property
and Equipment
|
|
|
-
|
|
|
-
|
|
|
1,299,445
|
|
Loss
on Sale of Property and Equipment
|
|
|
201,829
|
|
|
-
|
|
|
155,713
|
|
Loss
on change in fair value of derivative
|
|
|
581,924
|
|
|
|
|
|
581,924
|
|
Loss
on Write-Off of Investment
|
|
|
-
|
|
|
-
|
|
|
10,000
|
|
Loss
on Joint Venture
|
|
|
-
|
|
|
-
|
|
|
901,700
|
|
Loss
on Write-Off of Minority Interest
|
|
|
-
|
|
|
-
|
|
|
150,382
|
|
Value
of Common Stock and Warrants Issued for Services
|
|
|
361,875
|
|
|
187,844
|
|
|
12,585,615
|
|
Changes
in Operating Assets and Liabilities:
|
|
|
|
|
|
|
|
|
|
|
(Increase)
Decrease in Prepaid Expenses
|
|
|
(21,082
|
)
|
|
(54,299
|
)
|
|
(21,082
|
)
|
(Increase)
Decrease in Other Current Assets
|
|
|
(5,243,003
|
)
|
|
(10,601
|
)
|
|
(5,265,839
|
)
|
(Increase)
in Other Deposits
|
|
|
(170,000
|
)
|
|
(80,000
|
)
|
|
(268,000
|
)
|
Decrease
in Other Assets
|
|
|
755
|
|
|
-
|
|
|
(42,668
|
)
|
(Increase)
in Security Deposits
|
|
|
-
|
|
|
(1,170
|
)
|
|
(9,605
|
)
|
Increase
(Decrease) in Accounts Payable
|
|
|
166,932
|
|
|
39,953
|
|
|
342,184
|
|
Increase
(Decrease) in Accrued Expenses
|
|
|
165,895
|
|
|
74,703
|
|
|
136,929
|
|
Net
Cash Used in Operating Activities
|
|
|
(8,720,598
|
)
|
|
(1,841,821
|
)
|
|
(22,603,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
(Increase)
in Other Investments
|
|
|
(260
|
)
|
|
(11,330
|
)
|
|
(21,740
|
)
|
Purchase
of Mining, Milling and Other Property and Equipment
|
|
|
(810,425
|
)
|
|
(657,683
|
)
|
|
(3,191,282
|
)
|
Purchase
of Concessions
|
|
|
-
|
|
|
(25,324
|
)
|
|
(25,324
|
)
|
Investment
in Intangibles
|
|
|
(89
|
)
|
|
(18,531
|
)
|
|
(18,620
|
)
|
Proceeds
on Sale of Mining, Milling and Other Property and
Equipment
|
|
|
192,000
|
|
|
-
|
|
|
275,638
|
|
Proceeds
From Sale of Subsidiary
|
|
|
-
|
|
|
-
|
|
|
2,131,616
|
|
Expenses
of Sale of Subsidiary
|
|
|
-
|
|
|
-
|
|
|
(101,159
|
)
|
Advance
Payments - Joint Venture
|
|
|
-
|
|
|
-
|
|
|
98,922
|
|
Investment
in Joint Venture
|
|
|
-
|
|
|
-
|
|
|
(101,700
|
)
|
Investment
in Privately Held Company
|
|
|
-
|
|
|
-
|
|
|
(10,000
|
)
|
Net
Assets of Business Acquired (Net of Cash)
|
|
|
-
|
|
|
-
|
|
|
(42,130
|
)
|
Investment
in Marketable Securities
|
|
|
-
|
|
|
-
|
|
|
(50,000
|
)
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED
STATEMENT OF CASH FLOWS
(Continued)
|
|
|
|
For
The
Period
|
|
|
|
|
|
September
17,
1982
|
|
|
|
|
|
(Inception)
|
|
|
|
July
31,
|
|
To
|
|
|
|
2006
|
|
2005
|
|
July
31, 2006
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Investing Activities
|
|
|
(618,774
|
)
|
|
(712,868
|
)
|
|
(1,055,779
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Advances
to Affiliate
|
|
|
(10,326
|
)
|
|
(3,571
|
)
|
|
(45,322
|
)
|
Decrease
in Loans Receivable - Others
|
|
|
-
|
|
|
2,065
|
|
|
-
|
|
Proceeds
of Borrowings - Officers
|
|
|
-
|
|
|
-
|
|
|
18,673
|
|
Repayment
of Loans Payable - Officers
|
|
|
-
|
|
|
-
|
|
|
(18,673
|
)
|
Proceeds
of Note Payable
|
|
|
-
|
|
|
-
|
|
|
11,218
|
|
Payments
of Note Payable
|
|
|
-
|
|
|
-
|
|
|
(11,218
|
)
|
Proceeds
From Issuance of Common Stock, Net
|
|
|
8,114,920
|
|
|
6,700,325
|
|
|
26,850,844
|
|
Commissions
on Sale of Common Stock
|
|
|
-
|
|
|
-
|
|
|
(5,250
|
)
|
Deferred
Finance Costs
|
|
|
(350,777
|
)
|
|
(100,000
|
)
|
|
(450,777
|
)
|
Expenses
of Initial Public Offering
|
|
|
-
|
|
|
-
|
|
|
(408,763
|
)
|
Capital
Contributions - Joint Venture Subsidiary
|
|
|
-
|
|
|
-
|
|
|
304,564
|
|
Purchase
of Certificate of Deposit - Restricted
|
|
|
-
|
|
|
-
|
|
|
(5,000
|
)
|
Purchase
of Mining Reclamation Bonds
|
|
|
-
|
|
|
-
|
|
|
(30,550
|
)
|
Net
Cash Provided By Financing Activities
|
|
|
7,753,817
|
|
|
6,598,819
|
|
|
26,209,746
|
|
Effect
of Exchange Rate Changes
|
|
|
45,506
|
|
|
28,975
|
|
|
190,932
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease) In Cash and Cash Equivalents
|
|
|
(1,540,050
|
)
|
|
4,073,105
|
|
|
2,741,498
|
|
Cash
and Cash Equivalents - Beginning
|
|
|
4,281,548
|
|
|
208,443
|
|
|
-
|
|
Cash
and Cash Equivalents - Ending
|
|
$
|
2,741,498
|
|
$
|
4,281,548
|
|
$
|
2,741,498
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
Cash
Paid For Interest
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Cash
Paid For Income Taxes
|
|
$
|
15,099
|
|
$
|
-
|
|
$
|
39,886
|
|
Non-Cash
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Issuances
of Common Stock as Commissionson Sales of Common Stock
|
|
$
|
-
|
|
$
|
23,240
|
|
$
|
440,495
|
|
Issuance
of common stock as payment for financing costs
|
|
$
|
270,000
|
|
$
|
-
|
|
$
|
270,000
|
|
Issuance
of common stock and warrants as payment for Expenses
|
|
$
|
-
|
|
$
|
-
|
|
$
|
192,647
|
|
Issuance
of Common Stock as Payment for Mining,
|
|
|
|
|
|
|
|
|
|
|
Milling
and Other Property and Equipment
|
|
$
|
-
|
|
$
|
-
|
|
$
|
4,500
|
|
Exercise
of Options as Payment of Accounts Payable
|
|
$
|
-
|
|
$
|
36,000
|
|
$
|
36,000
|
|
The
accompanying notes are an integral part of the financial
statements.
CAPITAL
GOLD CORPORATION
(A
DEVELOPMENT STAGE ENTERPRISE)
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
July
31,
2006
NOTE
1 -
Basis of Presentation
Capital
Gold Corporation ("Capital Gold", "the Company", "we" or "us") was incorporated
in February 1982 in the State of Nevada. During March 2003 the Company's
stockholders approved an amendment to the Articles of Incorporation to
change
its name from Leadville Mining and Milling Corp. to Capital Gold Corporation.
In
November 2005, the Company reincorporated in Delaware. The Company owns
rights
to property located in the State of Sonora, Mexico and the California Mining
District, Lake County, Colorado and is engaged in the exploration for gold
and
other minerals from its properties in Mexico. All of the Company's mining
activities are now being performed in Mexico. The Company is a development
stage
enterprise.
On
June
29, 2001, the Company exercised an option and purchased from AngloGold
North
America Inc. and AngloGold (Jerritt Canyon) Corp. 100% of the issued and
outstanding stock of Minera Chanate, S.A. de C.V., a subsidiary of those
two
companies (“Minera Chanate”). Minera Chanate's assets consisted of certain
exploitation and exploration concessions in the States of Sonora, Chihuahua
and
Guerrero, Mexico. We sometimes refer to these concessions as the El Chanate
Concessions.
Pursuant
to the terms of the agreement, on December 15, 2001, the Company made a
$50,000
payment to AngloGold. AngloGold will be entitled to receive the remainder
of the
purchase price by way of an ongoing percentage of net smelter returns of
between
2% and 4% plus 10% net profits interest (until the total net profits interest
payment received by AngloGold equals $1,000,000). AngloGold's right to
a payment
of a percentage of net smelter returns and the net profits interest will
terminate at such point as they aggregate $18,018,355. In accordance with
the
agreement, the foregoing payments are not to be construed as royalty payments.
Should the Mexican government or other jurisdiction determine that such
payments
are royalties, we could be subject to and would be responsible for any
withholding taxes assessed on such payments.
Under
the
terms of the agreement, the Company has granted AngloGold the right to
designate
one of its wholly-owned Mexican subsidiaries to receive a one time option
to
purchase 51% of Minera Chanate (or such entity that owns the Minera Chanate
concessions at the time of option exercise). That Option is exercisable
over a
180 day period commencing at such time as the Company notifies AngloGold
that it
has made a good faith determination that it has gold-bearing ore deposits
on any
one of the identified group of El Chanate Concessions, when aggregated
with any
ore that the Company has mined, produced and sold from such concessions,
of in
excess of 2,000,000 troy ounces of contained gold. The exercise price would
equal twice the Company's project costs on the properties during the period
commencing on December 15, 2000 and ending on the date of such
notice.
The
accompanying financial statements have been prepared assuming that the
Company
will continue as a going concern. However, the Company is a development
stage
enterprise and since its inception has had no mining revenues and has incurred
recurring losses aggregating $31,388,503. These factors raise substantial
doubt
about the Company's ability to continue as a going concern. As indicated
in Note
18, while the Company believes that it has sufficient funds to complete
the
construction of the mine, the Company has no source of income and does
not
anticipate revenues from its planned mining operations until the second
calendar
quarter 2007. As a result, it may need additional funding to commence mining
operations, cover any potential material cost overruns on the El Chanate
project, cover ongoing general and administrative expenses and/or fund
exploration. Continuation of the Company is dependent on (1) achieving
sufficiently profitable operations (2) subsequently maintaining adequate
financing arrangements and (3) its exiting the development stage. The
achievement and/or success of the Company's planned measures, however,
cannot be
determined at this time. These financial statements do not reflect any
adjustments relating to the recoverability and classification of assets
carrying
amounts and classification of liabilities should the Company be unable
to
continue as a going concern. Pursuant to the terms and conditions set forth
in
the Company’s credit facility with Standard Bank (see Note 20), Minera Santa
Rita, S.A de R.L. de C.V.(“MSR”) and Oro de Altar S. de R. L. de C.V. (“Oro”),
the Company’s wholly-owned subsidiaries, have pledged all of its assets as
collateral to secure the obligations under the terms of the credit facility.
In
addition, the Company has pledged all of its shares of MSR and Oro to further
secure the obligations under the terms of this credit facility. The Company
is
also subject to comply with certain financial covenants.
NOTE
2 -
Summary of Significant Accounting Policies
Principals
of Consolidation
The
consolidated financial statements include the accounts of Capital Gold
Corporation and its wholly owned and majority owned subsidiaries, Leadville
Mining and Milling Holding Corporation, MSR and Oro. The Company accounted
for
its Mexican joint venture operation through the date of termination (see
Note 7)
as a subsidiary since it controlled the decision making process and it
owned 69%
of the venture. All significant intercompany accounts and transactions
are
eliminated in consolidation.
Cash
and
Cash Equivalents
The
Company considers highly liquid investments with original maturities of
three
months or less from the date of purchase to be cash equivalents. Cash and
cash
equivalents include money market funds and short term U.S. treasury
bonds.
Marketable
Securities
The
Company accounts for its investments in marketable securities in accordance
with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
Management
determines the appropriate classification of all securities at the time
of
purchase and re-evaluates such designation as of each balance sheet date.
The
Company has classified its marketable equity securities as available for
sale
securities and has recorded such securities at fair value. The Company
uses the
specific identification method to determine realized gains and losses.
Unrealized holding gains and losses are excluded from earnings and, until
realized, are reported as a separate component of stockholders'
equity.
Mining,
Milling and Other Property and Equipment
Mining,
milling and other property and equipment is reported at cost. It is the
Company's policy to capitalize costs incurred to improve and develop the
mining
and milling properties. General exploration costs and costs to maintain
rights
and leases are expensed as incurred. Management of the Company periodically
reviews the recoverability of the capitalized mineral properties and mining
equipment. Management takes into consideration various information including,
but not limited to, historical production records taken from previous mine
operations, results of exploration activities conducted to date, estimated
future prices and reports and opinions of outside geologists, mine engineers,
and consultants. When it is determined that a project or property will
be
abandoned or its carrying value has been impaired, a provision is made
for any
expected loss on the project or property.
Depletion
of mining and milling improvements will be computed at cost using the units
of
production method. Depreciation is computed using the straight-line method
over
the estimated useful lives of the related assets.
Deferred
Financing Costs
Deferred
financing costs which were included in other assets and a component of
stockholders’ equity relate to costs incurred in connection with bank borrowings
and will be amortized over the term of the related borrowings.
Intangible
Assets
Purchased
intangible assets consisting of rights of way and easements are carried
at cost
less accumulated amortization. Amortization is computed using the straight-line
method over the economic lives of the respective assets, generally five
years.
It is the Company’s policy to assess periodically the carrying amount of its
purchased intangible assets to determine if there has been an impairment
to
their carrying value. Impairments of other intangible assets are determined
in
accordance with SFAS 144. There was no impairment at July 31, 2006.
Impairment
of Long-Lived Assets
In
accordance with SFAS 144, "Accounting for the Impairment and Disposal of
Long-Lived Assets" the Company reviews its long-lived assets for impairments.
Impairment losses on long-lived assets are recognized when events or changes
in
circumstances indicate that the undiscounted cash flows estimated to be
generated by such assets are less than their carrying value and, accordingly,
all or a portion of such carrying value may not be recoverable. Impairment
losses then are measured by comparing the fair value of assets to their
carrying
amounts. During the year ended July 31, 2002 the Company performed a review
of
its Colorado mine and mill improvements and determined that an impairment
loss
should be recognized. Accordingly, at July 31, 2002 the Company reduced
by
$999,445 the net carrying value of certain assets relating to its Leadville,
Colorado facility to $300,000 and further reduced the net carrying value
to $0
at July 31, 2004, which approximated management's estimate of fair value.
Fair
Value of Financial Instruments
The
carrying value of the Company's financial instruments, including cash and
cash
equivalents, loans receivable and accounts payable approximated fair value
because of the short maturity of these instruments.
Revenue
Recognition
Revenues,
if any, from the possible sales of minerals will be recognized by the Company
only upon receipt of final settlement funds from the purchaser.
Foreign
Currency Translation
Assets
and liabilities of the Company's Mexican subsidiaries are translated to
US
dollars using the current exchange rate for assets and liabilities. Amounts
on
the statement of operations are translated at the average exchange rates
during
the year. Gains or losses resulting from foreign currency translation are
included as a component of other comprehensive income (loss).
Comprehensive
Income (Loss)
Comprehensive
income (loss) which is reported on the accompanying consolidated statement
of
stockholders' equity as a component of accumulated other comprehensive
income
(loss) consists of accumulated foreign translation gains and losses and
net
unrealized gains and losses on available-for-sale securities.
Income
Taxes
The
Company records deferred income taxes using the liability method as prescribed
under the provisions of SFAS No. 109. Under the liability method, deferred
tax
assets and liabilities are recognized for the expected future tax consequences
of temporary differences between the financial statement and income tax
bases of
the Company's assets and liabilities. An allowance is recorded, based upon
currently available information, when it is more likely than not that any
or all
of the deferred tax assets will not be realized. The provision for income
taxes
includes taxes currently payable, if any, plus the net change during the
year in
deferred tax assets and liabilities recorded by the Company.
Equity
Based Compensation
In
connection with offers of employment to the Company’s executives as well as in
consideration for agreements with certain consultants, the Company issues
options and warrants to acquire its common stock. Employee and non-employee
awards are made in the discretion of the Board of Directors.
Such
options and warrants may be exercisable at varying exercise prices currently
ranging from $0.02 to $0.41 per share of common stock with certain of these
grants becoming exercisable immediately upon grant subject to shareholder
approval. Currently, certain grants vest for a period of five months
to two years (generally concurrent with service periods for grants to
employees/consultants - See Note 22 - Employee and Consulting
Agreement ). Certain grants contain a provision whereby they become
immediately exercisable upon a change of control.
Effective
February 1, 2006, the Company adopted the provisions of SFAS No. 123R.
Under FAS
123R, share-based compensation cost is measured at the grant date, based
on the
estimated fair value of the award, and is recognized as expense over the
requisite service period. The Company adopted the provisions of FAS 123R
using a
modified prospective application. Under this method, compensation cost
is
recognized for all share-based payments granted, modified or settled after
the
date of adoption, as well as for any unvested awards that were granted
prior to
the date of adoption. Prior periods are not revised for comparative purposes.
Because the Company previously adopted only the pro forma disclosure provisions
of SFAS 123, it will recognize compensation cost relating to the unvested
portion of awards granted prior to the date of adoption, using the same
estimate
of the grant-date fair value and the same attribution method used to determine
the pro forma disclosures under SFAS 123, except that forfeitures rates
will be
estimated for all options, as required by FAS 123R.
The
cumulative effect of applying the forfeiture rates is not material. FAS
123R
requires that excess tax benefits related to stock options exercises be
reflected as financing cash inflows instead of operating cash
inflows.
The
fair
value of each option award is estimated on the date of grant using a
Black-Scholes option valuation model. Expected volatility is based on the
historical volatility of the price of the Company stock. The risk-free
interest
rate is based on U.S. Treasury issues with a term equal to the expected
life of
the option. The Company uses historical data to estimate expected dividend
yield, expected life and forfeiture rates. The estimated per share weighted
average grant-date fair values of stock options and warrants granted during
the
years ended July 31, 2006 and 2005, were $0.32 and $0.38, respectively.
The fair
values of the options granted were estimated based on the following weighted
average assumptions:
|
|
Years
ended July 31,
|
|
|
2006
|
|
2005
|
|
|
|
|
|
Expected
volatility
|
|
95%
- 165%
|
|
70%
- 100%
|
Risk-free
interest rate
|
|
5.95%
|
|
3.10%
|
Expected
dividend yield
|
|
-
|
|
-
|
Expected
life
|
|
1
-
2 years
|
|
3
years
|
Stock
option and warrant activity for employees during the years ended July
31, 2005
and 2006 is as follows:
|
|
Number
of
Options
|
|
Weighted
Average
exercise
price
|
|
Weighted
average
remaining
contracted
term
(years)
|
|
Aggregate
intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at July 31, 2004
|
|
|
5,588,636
|
|
$
|
.32
|
|
|
-
|
|
$
|
-
|
|
Options
granted
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Options
exercised
|
|
|
(877,273
|
)
|
|
.09
|
|
|
-
|
|
|
-
|
|
Options
expired
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Outstanding
at July 31, 2005
|
|
|
4,711,363
|
|
$
|
.30
|
|
|
0.30
|
|
$
|
1,277,977
|
|
Options
granted
|
|
|
4,611,363
|
|
|
.13
|
|
|
-
|
|
|
-
|
|
Options
exercised
|
|
|
(590,909
|
)
|
|
.05
|
|
|
-
|
|
|
-
|
|
Options
expired
|
|
|
(3,161,363
|
)
|
|
.05
|
|
|
-
|
|
|
-
|
|
Warrants
and options outstanding at July 31, 2006
|
|
|
5,570,454
|
|
$
|
.16
|
|
|
1.17
|
|
$
|
702,250
|
|
Warrants
and options exercisable at July 31, 2006
|
|
|
4,120,454
|
|
$
|
.10
|
|
|
0.71
|
|
$
|
680,250
|
|
Unvested
stock option and warrant balances for employees at July 31, 2006 are
as
follows:
|
|
Number
of
Options
|
|
price
|
|
term
(years)
|
|
value
|
|
Outstanding
at August 1, 2005
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
-
|
|
Options
granted
|
|
|
150,000
|
|
$
|
.32
|
|
|
1.83
|
|
|
16,500
|
|
Unvested
Options outstanding at July 31, 2006
|
|
|
150,000
|
|
$
|
.32
|
|
|
1.83
|
|
$
|
16,500
|
|
Stock
option and warrant activity for non-employees during the years ended
July 31,
2005 and 2006 is as follows:
|
|
Number
of
Options
|
|
price
|
|
term
(years)
|
|
Aggregate
Intrinsic
|
|
Outstanding
at July 31, 2004
|
|
|
1,300,000
|
|
$
|
.31
|
|
|
-
|
|
$
|
-
|
|
Options
granted
|
|
|
31,452,004
|
|
|
.29
|
|
|
-
|
|
|
-
|
|
Options
exercised
|
|
|
(550,000
|
)
|
|
.09
|
|
|
-
|
|
|
-
|
|
Options
expired
|
|
|
(300,000
|
) |
|
.23
|
|
|
-
|
|
|
-
|
|
Outstanding
at July 31, 2005
|
|
|
31,902,004
|
|
$
|
.30
|
|
|
1.13
|
|
$
|
3,430,120
|
|
Options
granted
|
|
|
6,844,000
|
|
|
.28
|
|
|
-
|
|
|
-
|
|
Options
exercised
|
|
|
(4,235,004
|
)
|
|
.27
|
|
|
-
|
|
|
-
|
|
Options
expired
|
|
|
(350,000
|
)
|
|
.10
|
|
|
-
|
|
|
-
|
|
Warrants
and options outstanding at July 31, 2006
|
|
|
34,161,000
|
|
$
|
.29
|
|
|
1.33
|
|
$
|
2,540,530
|
|
Warrants
and options exercisable at July 31, 2006
|
|
|
33,911,000
|
|
$
|
.29
|
|
|
1.31
|
|
$
|
2,539,630
|
|
Prior
to
the adoption of FAS 123R, the Company applied the intrinsic value-based
method
of accounting prescribed by Accounting Principles Board (“APB”) Opinion
No. 25, Accounting
for Stock Issued to Employees,
and
related interpretations including FASB Interpretation No. 44, Accounting
for Certain Transactions involving Stock Compensation an interpretation
of APB
Opinion No. 25
issued
in March 2000 (“FIN 44”), to account for its fixed plan stock options.
Under this method, compensation expense was recorded on the date of grant
only
if the current market price of the underlying stock exceeded the exercise
price.
SFAS No. 123, Accounting
for Stock-Based Compensation,
established accounting and disclosure requirements using a fair value-based
method of accounting for stock-based employee compensation plans. In
December 2002, the FASB issued SFAS No. 148, Accounting
for Stock-Based Compensation Transition and Disclosure, an amendment of
FASB
Statement No. 123.
This
Statement amended FASB Statement No. 123, Accounting
for Stock-Based Compensation,
to
provide alternative methods of transition for a voluntary change to the
fair
value method of accounting for stock-based employee compensation.
The
following table illustrates the effect on the net loss and net loss per
share as
if the Company had applied the fair value recognition provisions of SFAS
No. 123 to stock based compensation prior to February 1, 2006:
|
|
Year
Ended
July
31, 2006
|
|
Net
loss
|
|
$
|
(4,804,692
|
)
|
Add
stock-based employee compensation expense (recovery) included
in reported
net income (loss)
|
|
|
-
|
|
Deduct
total stock-based employee compensation expense determined
under fair value based method
for
all awards, net
of tax
|
|
|
(773,263
|
)
|
Pro
forma net loss
|
|
$
|
(5,577,955
|
)
|
Pro
forma net loss per common share (Basic and diluted)
|
|
$
|
(.05
|
)
|
Weighted
average common shares outstanding: Basic and
diluted
|
|
|
112,204,471
|
|
Net
loss per common share basic and diluted
|
|
$
|
(.04
|
)
|
Reclassifications
Certain
items in these financial statements have been reclassified to conform to
the
current period presentation. These reclassifications had no impact on the
Company’s results of operations, stockholders’ equity (deficit) or cash
flows.
Net
Loss
Per Common Share
The
computation of basic net loss per share of common stock is computed by
dividing
net loss for the period by the weighted average number of common shares
outstanding during that period.
Because
the Company is incurring losses, the effect of stock options and warrants
is
antidilutive. Accordingly, the Company's presentation of diluted net loss
per
share is the same as that of basic net loss per share.
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash and cash equivalents and marketable
securities. The Company maintains cash balances at financial institutions
which
exceed the Federal Deposit Insurance Corporation limit of $100,000 at times
during the year.
Accounting
for Derivatives and Hedging Activities
The
Company entered into two identically structured derivative contracts with
Standard Bank in March 2006. Each derivative consisted of a series of forward
sales of gold and a purchase gold cap. The Company agreed to sell a total
volume
of 121,927 ounces of gold forward to Standard Bank at a price of $500 per
ounce
on a quarterly basis during the period from March 2007 to September 2010.
The
Company also agreed to a purchase gold cap on a quarterly basis during
this same
period and at identical volumes covering a total volume of 121,927 ounces
of
gold at a price of $535 per ounce. Although these contracts are not designated
as hedging derivatives, they serve an economic purpose of protecting the
company
from the effects of a decline in gold prices. Because they are not designated
as
hedges, however, special hedge accounting does not apply. Derivative results
are
simply marked to market through earnings, with these effects recorded in
other
income
or
other
expense,
as
appropriate under FASB Statement No. 133, “Accounting for Derivative Instruments
and Hedging Activities” (“FAS 133”).
Use
of
Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and the disclosures
of
contingent assets and liabilities at the date of the financial statements
and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Environmental
Remediation Costs
Environmental
remediation costs are accrued based on estimates of known environmental
remediation exposure. Such accruals are recorded even if significant
uncertainties exist over the ultimate cost of the remediation. It is reasonably
possible that the Company's estimates of reclamation liabilities, if any,
could
change as a result of changes in regulations, extent of environmental
remediation required, means of reclamation or cost estimates. Ongoing
environmental compliance costs, including maintenance and monitoring costs,
are
expensed as incurred. There were no environmental remediation costs accrued
at
July 31, 2006.
Recently
Issued Accounting Pronouncements
In
December 2004, the FASB issued Statement of Financial Accounting Standards
No.
123 (Revised 2004), "Share-Based Payment" ("SFAS 123R"). On April 14, 2005,
the
Securities and Exchange Commission issued an amendment to Rule 4-01 of
Regulation S-X that allows companies to implement SFAS 123R at the beginning
of
their next fiscal year, instead of the next reporting period that begins
after
June 15, 2005 as originally required. Accordingly, the Company adopted
SFAS 123R
effective January 1, 2006 using the "modified prospective" method in which
compensation cost is recognized beginning with the effective date based
on (a)
the requirements of SFAS 123R for all share-based payments granted after
the
effective date and (b) the requirements of SFAS 123 for all awards granted
to
employees prior to the effective date of SFAS 123R that remain unvested
on the
effective date. In addition, the Company expects to continue to utilize
the
Black-Scholes option-pricing model, which is an acceptable option valuation
model in accordance with SFAS 123R, to estimate the value of stock options
granted to employees.
Beyond
those restricted stock and stock option awards previously granted, the
Company
cannot predict with certainty the impact of SFAS 123R on its future consolidated
financial statements as the type and amount of such awards are determined
on an
annual basis and encompass a potentially wide range depending upon the
compensation decisions made by the Company's Board of Directors. SFAS 123R
also
requires the benefits of tax deductions in excess of compensation cost
recognized in the financial statements to be reported as a financing cash
flow,
rather than an operating cash flow as currently required under Statement
of
Financial Accounting Standards No. 95, "Statement of Cash Flows" ("SFAS
95").
This requirement, to the extent it exists, will decrease net operating
cash
flows and increase net financing cash flows in periods subsequent to adoption.
The Company believes this pronouncement will not have a material impact
on its
consolidated financial statements.
On
March
29, 2005, the SEC issued Staff Accounting Bulletin No. 107 ("SAB107") which
expresses the view of the SEC Staff regarding the interaction of SFAS 123R
and
certain SEC rules and regulations and provides the staff's views regarding
the
valuation of share-based payment arrangements. The Company believes that
the
views provided in SAB 107 are consistent with the approach taken in the
valuation and accounting associated with share-based compensation issued
in
prior periods as well as those issued during 2005.
In
June
2005, the FASB's Emerging Issues Task Force ("EITF") issued EITF Issue
No. 05-02
"The Meaning of "Conventional Convertible Debt Instrument" in EITF Issue
00-19
"Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, A Company's Own Stock", which retains the exception in paragraph
4
of EITF Issue No. 00-19 for conventional debt instruments. Those instruments
in
which the holder has an option to convert the instrument into a fixed number
of
shares (or a corresponding amount of cash at the issuer's discretion) and
its
ability to exercise the option is based on either (a) the passage of time
or (b)
a contingent event, should be considered "conventional" for purposes of
applying
that exception. The consensus should be applied on a prospective basis
for new
or modified instruments starting from the third quarter of 2005. When there
is a
modification of a convertible debt instrument, the change in the fair value
of
an embedded conversion option should be included in the analysis of determining
whether a debt extinguishment has occurred. The change in the fair value
of the
embedded conversion option is calculated as the difference between the
fair
value of the conversion option immediately prior to and after the modification.
Also, when a modification of a convertible debt instrument occurs, the
change in
the fair value of the embedded conversion prior should be recognized as
a
discount (or premium) with a corresponding increase (or decrease) in additional
paid-in capital. Lastly, a beneficial feature should not be recognized
or
reassessed upon modification of a convertible debt instrument. The adoption
of
EITF No. 05-02 is not expected to have a material effect on the Company’s
consolidated financial statements or results of operations.
In
November 2005, FASB issued FSP FAS 115-1 and FAS 124-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments"
("FSP FAS 115-1"), which provides guidance on determining when investments
in
certain debt and equity securities are considered impaired, whether an
impairment is other-than-temporary, and on measuring such impairment loss.
FSP
FAS 115-1 also includes accounting considerations subsequent to the recognition
of an other-than-temporary impairment and requires certain disclosures
about
unrealized losses that have not been recognized as other-than-temporary
impairments. FSP FAS 115-1 is required to be applied to reporting periods
beginning after December 15, 2005. The Company was required to adopt FSP
FAS
115-1 in the first quarter of 2006. The adoption of this statement did
not have
a material impact on the Company's consolidated results of operations or
financial condition.
In
November 2004, the FASB issued SFAS No. 151, "Inventory Costs - An amendment
of
ARB No. 43, Chapter 4" ("SFAS No. 151"). SFAS No. 151 amends the guidance
in
Accounting Research Bulletin No. 43, Chapter 4, "Inventory Pricing," to
clarify
the accounting for abnormal amounts of idle facility expense, freight,
handling
costs, and wasted material (spoilage). Additionally, SFAS No. 151 requires
that
the allocation of fixed production overheads to the cost of conversion
be based
on the normal capacity of the production facilities. SFAS No. 151 was required
to be adopted in the first quarter of 2006. The Company determined that
the
adoption of SFAS No. 151 will not have a material impact on the consolidated
financial statements.
In
December 2004, the FASB issued Statement of Financial Accounting Standards
No.
153 (SFAS 153"), "Exchanges of Non-monetary Assets-an amendment of APB
Opinion
No. 29." SFAS 152 addresses the measurement of exchanges of non-monetary
assets.
It eliminates the exception from fair value measurement for non-monetary
exchanges of similar productive assets in paragraph 21(b) of APB Opinion
No. 29
"Accounting for Non-monetary Transactions" and replaces it with an exception
for
exchanges that do not have commercial substance. A non-monetary exchange
has
commercial substance if the future cash flows of the entity are expected
to
change significantly as a result of the exchange. As required by SFAS 153,
the
Company adopted this new accounting standard effective July 1, 2005. The
adoption of SFAS 153 did not have a material impact on the Company's financial
statements.
In
May
2005, the FASB issued Statement of Financial Accounting Standards No. 154,
“Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20
and FASB Statement No. 3” (“SFAS 154”). This statement replaces APB opinion No.
20, “Accounting Changes” and FASB Statement No. 3, “Reporting Accounting Changes
in Interim Financial Statements” and changes the requirements for the accounting
for and reporting of a change in accounting principle. This statement applies
to
all voluntary changes in accounting principle. It also applies to changes
required by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transaction provision. When a
pronouncement includes specific transaction provisions, those provisions
should
be followed. SFAS 154 is effective for accounting changes and corrections
of
errors made in fiscal years beginning after December 15, 2005. The Company
will
adopt the provisions of SFAS No. 154 for its fiscal year beginning after
July
31, 2006. Management currently believes that adoption of the provisions
of SFAS
No. 154 will not have a material impact on the Company’s consolidated financial
statements.
In
February 2006, the FASB issued SFAS 155, "Accounting for Certain Hybrid
Financial Instruments" ("SFAS No.155") - an amendment of FASB Statements
No. 133
and 140. SFAS 155 amends FAS 133, "Accounting for Derivative Instruments
and
Hedging Activities" ("SFAS No.133"), and SFAS 140 ("SFAS No.140"), "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities", to permit fair value re-measurement of any hybrid financial
instrument that contains an embedded derivative that would otherwise require
bifurcation. Additionally, FAS 155 seeks to clarify which interest-only
strips
and principal-only strips are not subject to the requirements of SFAS 133
and to
clarify that concentrations of credit risk in the form of subordination
are not
embedded derivatives. This Statement is effective for all financial instruments
acquired or issued after the beginning of an entity's first fiscal year
that
begins after September 15, 2006. Management does not believe the adoption
of
this standard will have a material impact on the financial condition or
the
results of operations of the Company.
On
July
13, 2006, the Financial Accounting Standards Board issued Interpretation
No. 48,
"Accounting for Uncertainty in Income Taxes" ("FIN 48"). The requirements
are
effective for fiscal years beginning after December 15, 2006. The purpose
of FIN
48 is to clarify and set forth consistent rules for accounting for uncertain
tax
positions in accordance with Statement of Financial Accounting Standards
No.
109, "Accounting for Income Taxes". The cumulative effect of applying the
provisions of this interpretation are required to be reported separately
as an
adjustment to the opening balance of retained earnings in the year of adoption.
Management does not believe the adoption of this standard will have a material
impact on the financial condition or the results of operations of the
Company.
NOTE
3 -
Marketable Securities
Marketable
securities are classified as current assets and are summarized as
follows:
|
|
July
31,
2006
|
|
|
|
|
|
Marketable
equity securities, at cost
|
|
$
|
50,000
|
|
Marketable
equity securities, at fair value (See Notes 11 & 13)
|
|
$
|
90,000
|
|
NOTE
4 -
Other Current Assets
Other
current assets consist of the following at July 31, 2006:
Cash
collateral on project facility (Note 20)
|
|
$
|
4,267,445
|
|
Other
current assets
|
|
|
216,407
|
|
Total
Other Current Assets
|
|
$
|
4,483,852
|
|
NOTE
5 -
Property and Equipment
Property
and Equipment consist of the following at July 31, 2006:
Construction
in progress
|
|
$
|
661,899
|
|
Water
Well
|
|
|
141,243
|
|
Building
|
|
|
116,000
|
|
Equipment
|
|
|
75,757
|
|
Vehicle
|
|
|
51,385
|
|
Improvements
|
|
|
15,797
|
|
Office
Equipment
|
|
|
12,266
|
|
Furniture
|
|
|
1,843
|
|
|
|
|
|
|
Total
|
|
$
|
1,076,190
|
|
|
|
|
|
|
Less:
accumulated depreciation
|
|
|
(
40,218
|
)
|
|
|
|
|
|
Property
and equipment, net
|
|
$
|
1,035,972
|
|
Depreciation
expense for the year ended July 31, 2006 and 2005 was $33,838 and $6,742,
respectively.
In
March
2006, the Company made a $250,000 down payment to a US supplier to acquire
a new
crushing system, including conveyors, for use at its El Chanate project.
The
total price for this equipment is approximately $1,164,000.
The Company is required to purchase the equipment by the end of the third
quarter of 2006, or the supplier is entitled to retain the down payment.
As the
Company has adequate funds to purchase this equipment, it anticipates purchasing
the equipment within the requisite time period (see Note 24 - “Subsequent
Events” for further details).
On
May
19, 2006, the Company sold its Equipment Held for Resale and received proceeds,
net of commissions, of $192,000. The Company recorded a loss on sale of
this
equipment of approximately $202,000.
NOTE
6 -
Intangible Assets
Intangible
assets consist of the following as of July 31, 2006:
Investment
in Right of way
|
|
$
|
18,620
|
|
|
|
|
|
|
Less:
accumulated amortization
|
|
|
(
4,820
|
)
|
|
|
|
|
|
Intangible
assets, net
|
|
$
|
13,800
|
|
Amortization
expense for the year ending July 31, 2006 and 2005 was $4,131 and $689,
respectively.
NOTE
7 -
Joint Venture
On
February 23, 2002, MSR, one of the Company’s wholly-owned Mexican subsidiaries,
entered into a joint venture agreement with Grupo Minero FG S.A. de C.V.
(“FG”)
to explore, evaluate and develop the El Chanate concessions. FG is a private
Mexican company.
Pursuant
to the agreement with FG, the venture was to be conducted in five phases.
The
first two phases entailed continued exploration and evaluation of the mining
potential of lots within the concessions.
Pursuant
to the agreement, FG has paid us $75,000 to participate in the venture
and
contributed an additional $75,000 towards the first phase of the venture
for
which it received a 30% interest in the venture. The balance of the costs
for
Phase one and the costs for Phase two were to be split equally between
the
parties.
In
April
2004, effective March 31, 2004, MSR, one of the Company’s wholly-owned Mexican
affiliates, and FG executed an agreement (the "Termination Agreement")
terminating their joint venture agreement (the "JV Agreement") with regard
to
the El Chanate project in Mexico.
Pursuant
to the Termination Agreement, the parties amicably terminated the JV Agreement
and released each other from all obligations under the JV Agreement. In
consideration of FG's contributions to the venture of $457,455, the Company
issued to FG 2,000,000 restricted shares of its common stock valued at
$800,000
and MSR issued to FG a participation certificate entitling FG to receive
five
percent of the MSR's annual dividends, when declared. In connection with
the
issuance of these 2,000,000 shares, the Company recognized a charge to
operations of $800,000. Additionally, the Company recognized a loss of
$150,382
on the write off of the joint venture minority interest. The participation
certificate also gives FG the right to participate, but not to vote, in
the
meetings of MSR's Board of Managers, Technical Committee and Partners.
MSR also
received a right of first refusal to carry out the works and render construction
services required to effectuate the El Chanate project. This right of first
refusal is not applicable where a funding source for the project determines
that
others should render such works or services.
FG
has
assigned or otherwise transferred to MSR all permits, licenses, consents
and
authorizations (collectively, "authorizations") for which FG had obtained
in its
name in connection with the development of the El Chanate project to the
extent
that the authorizations are assignable. To the extent that the authorizations
are not assignable or otherwise transferable, FG has given its consent
for the
authorizations to be cancelled so that they can be re-issued or re-granted
in
MSR's name. The foregoing has been accomplished. (see Note 24 - “Subsequent
Events” for details on the Company’s acquisition of its five percent net profits
interest from FG.
NOTE
8 -
Sale of Subsidiary Stock
On
March
20, 2002, the Company sold all of the issued and outstanding shares of
stock of
its wholly-owned subsidiary, Minera Chanate, to an unaffiliated party for
a
purchase price of $2,131,616, payable in three installments. We received
the
first installment of $639,485 and paid commissions of $51,159 in March 2002. A
second payment of $497,377 plus interest at the rate of 4.5% per annum
was paid
in August 2002. A third payment of $994,754 plus interest at the rate of
4.5%
per annum, was paid in December 2002. Commissions of $41,733 and $80,821
were
paid in connection with the second and third installments, respectively.
In
connection with the above transaction the Company recognized a gain of
$1,907,903.
During
March 2002, prior to the sale of Minera Chanate and pursuant to the FG
joint
venture agreement (see Note 6), Minera Chanate, in a series of transactions,
sold all of its surface land and mining claims to Oro, another of the Company’s
wholly-owned subsidiaries. Ora, in turn, leased the foregoing land and
mining
claims to MSR.
NOTE
9 -
Mining Reclamation Bonds
These
represent certificates of deposit that have been deposited as security
for
Mining Reclamation Bonds in Colorado. They bear interest at rates varying
from
4.35% to 5.01% annually and mature at various dates through 2010.
NOTE
10 -
Mining Concessions
Mining
concessions consists of the following:
El
Charro
|
|
$
|
25,324
|
|
El
Chanate
|
|
|
44,780
|
|
|
|
|
|
|
Total
|
|
$
|
70,104
|
|
The
El
Chanate exploitation and exploration concessions are carried at historical
cost
and were acquired in connection with the purchase of the stock of Minera
Chanate
(see Note 1).
The
Company acquired an additional mining concession - El Charro. El Charro
lies
within the current El Chanate property boundaries. The Company is required
to
pay 1 1/2% net smelter royalty in connection with the El Charro
concession.
NOTE
11 -
Loans Receivable - Affiliate
Loans
receivable - affiliate consist of expense reimbursements from a publicly-owned
corporation in which the Company has an investment. The Company's president
and
chairman of the board of directors is an officer and director of that
corporation. These loans are non-interest bearing and due on demand (see
Note 3
& 13).
NOTE
12 -
Other Investments
Other
investments are carried at cost and consist of tax liens purchased on properties
located in Lake County, Colorado.
NOTE
13 -
Other Comprehensive Income(Loss)-Supplemental Non-Cash Investing
Activities
Other
comprehensive income (loss) consists of accumulated foreign translation
gains
and losses and unrealized gains and losses on marketable securities and
is
summarized as follows:
Balance
- July 31, 2004
|
|
$
|
88,739
|
|
|
|
|
|
|
Equity
Adjustments from Foreign Currency Translation
|
|
|
28,975
|
|
Unrealized
Gains on Marketable Securities
|
|
|
40,000
|
|
|
|
|
|
|
Balance
- July 31, 2005
|
|
|
157,714
|
|
|
|
|
|
|
Equity
Adjustments from Foreign Currency Translation
|
|
|
48,779
|
|
Unrealized
Gains (loss) on Marketable Securities
|
|
|
(60,000
|
)
|
|
|
|
|
|
Balance
- July 31, 2006
|
|
$
|
146,493
|
|
NOTE
14 -
Related Party Transactions
In
August
2002, the Company purchased marketable equity securities of a related company.
The Company recorded approximately $10,350 and $9,300 in expense reimbursements
including office rent from this entity for the year ended July 31, 2006
and
2005, respectively (see Notes 3 and 11). The Company utilizes a Mexican
Corporation 100% owned by two officers/Directors and stockholders of the
Company
for mining support services. These services include but are not limited
to the
payment of mining salaries and related costs. The Mexican Corporation bills
the
Company for these services at cost. Mining expenses charged by the Mexican
Corporation and reported on the statement of operations amounted to
approximately $122,000 and $24,000 for the year ended July 31, 2006 and
2005,
respectively.
During
the fiscal years ended July 31, 2006 and 2005, the Company paid its V.P.
Development and Director $63,000 and $68,000, respectively, for professional
geologist and management services rendered to the Company, plus expenses.
This
individual also earned wages of $30,000 during the last three months of
the
fiscal year ended July 31, 2006. During the fiscal years ended July 31,
2006 and
2005, the Company paid its V.P. Exploration and Director consulting fees
of
$78,500 and $56,900, respectively. In addition, this individual earned
wages of
$10,000 during the last month of fiscal 2006. During the fiscal year ended
July
31, 2006 and 2005, we paid a director legal and consulting fees of $8,000
and
$6,625, respectively.
The
Company’s V.P. Development and Director has, since 1995, been a Senior
Consultant in the Minerals Advisory Group LLC, Tucson, Arizona, an entity
that
provided $25,000 worth of services to the Company for the fiscal year
ended July 31, 2006.
In
January 2006, the Company extended the following stock options through
January
3, 2007, all of which are exercisable at $0.05 per share: Chief Executive
Officer and Director - 1,250,000 shares; Director - 500,000 shares; V.P.
Investor Relations and Director - 327,727 shares; V.P. Development and
Director
- 500,000 shares; and V.P. Mine Development - 25,000 shares. There was
not a
material increase in the intrinsic value of these options at the date of
modification as compared to the intrinsic value of the original issuance
of
these stock options on the applicable
measurement date.
NOTE
15 -
Stockholders' Equity
Common
Stock
At
various stages in the Company’s development, shares of the Company’s common
stock have been issued at fair market value in exchange for services or
property
received with a corresponding charge to operations, property and equipment
or
additional paid-in capital depending on the nature of the services provided
or
property received.
During
the year ended July 31, 2006, the Company issued 4,825,913 shares of stock
upon
the exercising of common stock purchase warrants and options for net proceeds
of
$741,820, including 200,000 and 300,000 shares to its CEO and V.P. Mine
Development for net proceeds of $10,000 and $15,000, respectively. The
Company
has also issued 1,000,000 shares of Common Stock (See Note 20) in connection
with receiving a commitment letter from Standard Bank informing the Company
of
its approval for providing a $12 million (now $12.5 million) senior financing
facility.
The
Company closed two private placements in 2006 pursuant to which the Company
issued an aggregate of 21,240,000 units, each unit consisting of one share
of
the Company’s common stock and a warrant to purchase ¼ of a share of the
Company’s common stock for net proceeds of $4,999,500, net of commissions of
$310,500. The Company also received net proceeds of $2,373,600, net of
commissions of $206,430, from the exercising of 8,600,000 warrants in February
2006. The Warrant issued to each purchaser is exercisable for one share
of the
Company’s common stock, at an exercise price equal to $0.30 per share. Each
Warrant has a term of eighteen months and is fully exercisable from the
date of
issuance. The Company issued to the placement agent in one of the placements
eighteen month warrants to purchase up to 934,000 shares of the Company’s common
stock at an exercise price of $0.25 per share. Such placement agent warrants
are
valued at approximately $189,000 using the Black-Scholes option pricing
method.
Recapitalization
On
September 22, 2005, The Board of Directors recommended an amendment to
the
Company's Certificate of Incorporation to increase the Company's authorized
shares of capital stock from 150,000,000 to 200,000,000 shares. In addition,
the
Board of Directors recommended that the Company reincorporate in the State
of
Delaware. These amendments were approved by the stockholders on November
18,
2005 and the Company effected the reincorporation in Delaware and the authorized
share increase on November 21, 2005. In addition, the par value was decreased
from $0.001 per share to $0.0001 per share.
Warrant
Re-pricing
In
December 2005, the Board of Directors ratified the temporary re-pricing
of
certain warrants that were issued in connection with the February 2005
private
placement from $0.30 per share to $0.20 per share exercise price. In addition,
warrants issued to the placement agent were also re-priced from $0.25 per
share
to $0.20 per share exercise price. These re-pricings were in effect for
the
period November 28, 2005 through January 31, 2006.
NOTE
16 -
Income Taxes
For
income tax purposes, the Company has available net operating loss carryforwards
("NOL") as of July 31, 2006 of approximately $15,000,000 to reduce future
federal taxable income. If any of the NOL's are not utilized, they will
expire
at various dates through 2025. There may be certain limitations as to the
future
annual use of the NOLs due to certain changes in the Company's
ownership.
Income
tax benefit attributable to net loss differed from the amounts computed
by
applying the statutory Federal Income tax rate applicable for Each period
as a
result of the following:
|
|
Year
Ended July 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Computed
"expected" tax benefit
|
|
$
|
5,823,176
|
|
$
|
4,661,620
|
|
Decrease
in tax benefit resulting from net operating loss for which no
benefit is currently available
|
|
|
5,823,176
|
|
|
4,661,620
|
|
|
|
$
|
- |
|
$
|
-
|
|
The
Company has deferred tax assets of approximately $5,823,176 at July 31,
2006
resulting primarily from net operating loss carryforwards. The Deferred
tax
assets have been fully offset by a valuation allowance resulting from the
uncertainty surrounding their future realization. The difference between
the
federal statutory rate of 34% and the Company's effective tax rate of 0%
is due
to an increase in the valuation allowance of $1,161,556 and $553,740 in
2006 and
2005, respectively.
NOTE
17 -
Loss on Equipment Option
In
March
2004, the Company obtained exclusive non-refundable options to purchase
an ore
crusher and related assets for a total cost of $700,000. The Company paid
$50,000 for these options, which ultimately expired. Accordingly, the Company
realized a loss of $50,000.
NOTE
18 -
Liquidity and Going Concern Uncertainty
The
Company is a development stage enterprise with no mining revenues and has
incurred recurring losses amounting to $31,388,503 through July 31, 2006.
The
Company incurred net losses of $4,804,692 and $2,005,682 during the years
ended
July 31, 2006 and 2005, respectively. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern
(see Note 1).
During
the year ended July 31, 2006, the Company has successfully obtained external
financing through sales of its stock and exercise of options and, subsequent
to
the fiscal year end, it closed on a credit facility (see “Note 20 - Project
Finance Facility” and Note 24 - ‘Subsequent Events” below). However, as the
Company has no source of income and does not anticipate revenues from its
planned mining operations until the second calendar quarter 2007, it may
need
additional funding to commence mining operations, cover any material cost
overruns on the El Chanate project, cover ongoing general and administrative
expenses and/or fund exploration.
There
can
be no assurance that sufficient funds, if required during the next year
or
thereafter, will be generated from operations or that funds will be available
from external sources. The lack of additional capital resulting from the
inability to generate cash flow from operations or to raise capital from
external sources would force the Company to substantially curtail or cease
operations and would, therefore, have a material adverse effect on its
business.
Furthermore, there can be no assurance that any such required funds, if
available, will be available on attractive terms or that they will not
have a
significant dilutive effect on the Company's existing stockholders.
The
accompanying consolidated financial statements do not include any adjustments
related to the recoverability or classification of asset carrying amounts
or the
amounts and classification of liabilities that may result should the Company
be
able to continue as a going concern.
The
Company has developed a plan to address potential liquidity and funding
issues
until mining operations in Mexico can support ongoing cash flow needs.
Should
additional funds be needed, the Company intends to raise such funds through
the
sale of its securities, the exercising of certain warrants, the sale of
a
royalty interest in the future production from the Chanate properties and/or
joint venturing with one or more strategic partners.
There
is
no assurance, however, that any of the Company's proposed plans to raise
capital
and otherwise fund operations, if needed, will prove successful. The Company's
ability to continue as a going concern is dependent upon its ability to
obtain
sufficient funding as discussed above and its inability to do so will delay
or
cease the Company's planned operations as discussed above.
NOTE
19 -
Commitments and Contingencies
Minera
Chanate Option
Under
the
terms of the Minera Chanate purchase agreement, Capital Gold has granted
AngloGold's designee to receive a one-time option to purchase 51% of Minera
Chanate (or such entity that owns the Minera Chanate concessions at time
of
exercise) based upon the achievements of certain events (see Note
1).
Lease
Commitments
The
Company occupies office space in New York City under a non-cancelable operating
lease that commenced on September 1, 2002 and terminates on August 31,
2007. In
addition to base rent, the lease calls for payment of utilities and other
occupancy costs.
Approximate
future minimum payments under this lease are as follows:
Year
Ending July 31,
|
|
|
|
|
|
|
|
|
2007
|
|
$ |
51,000 |
|
2008
|
|
|
4,200
|
|
|
|
$
|
55,200
|
|
Rent
expense under the office lease in New York City was approximately $63,000
and
$63,000 for the years ended July 31, 2006 and 2005, respectively.
In
June
2006, the Company's Mexican operating subsidiary retained the contracting
services of a Mexican subsidiary of M3 Engineering & Technology Corporation
("M3M") to provide EPCM (engineering procurement construction management)
services. M3M will supervise the construction and integration of the various
components necessary to commence production at the El Chanate Project.
The
contracted services shall not exceed $1,200,000 and the contract is based
on the
EPCM services to be provided by the M3. As of July 31, 2006, the Company
has
incurred approximately $72,000 in services provided.
Land
Easement
On
May
25, 2005, MSR entered into an agreement for an irrevocable access easement
and
an irrevocable fluids (electricity, gas, water and others) easement to
land
located at Altar, Sonora, Mexico. The term of the agreement is 5 years,
extendable for 1-year additional terms, upon MSR’s request. The agreement would
be suspended only by force majeure or Acts of God; and extendable for duration
of suspension. In
consideration for these easements, $18,000 was paid upon the signing of
the
agreement and yearly advance payments equal to 2 annualized general minimum
wages (365 X 2 general minimum wages) in force in Altar, Sonora, Mexico,
are
required. These yearly payments are to be made on September 1 of each year,
using the minimum wage in effect on that day for the calculation of the
amount
payable. These payments are to be made for as long as the construction
and
production mining works and activities of MSR are being carried out, and
are to
cease as soon as such works and activities are permanently stopped.
El
Charro
In
May
2005, the Company acquired rights to the El Charro concession for approximately
$20,000 and a royalty of 1.5% of net smelter return. The Company acquired
the El
Charro concession because it is surrounded entirely by the Company’s other
concessions.
Environmental
Remediation Costs
Environmental
remediation costs are accrued based on estimates of known environmental
remediation exposure. Such accruals are recorded even if significant
uncertainties exist over the ultimate cost of the remediation. It is reasonably
possible that the Company's estimates of reclamation liabilities, if any,
could
change as a result of changes in regulations, extent of environmental
remediation required, means of reclamation or cost estimates. Ongoing
environmental compliance costs, including maintenance and monitoring costs,
are
expensed as incurred. There were no environmental remediation costs accrued
at
July 31, 2006.
NOTE
20 -
Project Finance Facility
On
February 2, 2005, the Company mandated Standard Bank London Limited as
the
exclusive arranger of a project finance facility of up to $10 million for
the
Company’s El Chanate gold mining project and associated hedging. As required by
the mandate, the Company issued to Standard Bank 1,000,000 common stock
purchase
warrants and paid an initial cash fee of $100,000. Such warrants have been
valued at approximately $253,000 using the Black-Scholes option pricing
model
and are reflected as deferred financing costs as a reduction of stockholders'
equity on the Company's balance sheet. Such costs will be amortized to
operations over the life of the debt and in the event the transaction with
Standard Bank is not consummated, such costs will be charged to operations
immediately. The initial cash fee of $100,000 is included in Deferred Finance
Costs on the Company's balance sheet. Per the Company’s arrangement with
Standard Bank, the shares issuable upon exercise of the 1,000,000 common
stock
purchase warrants have been included in a registration statement filed
with the
Securities and Exchange Commission covering their public resale.
On
November 11, 2005 the Company received a commitment letter from Standard
Bank
informing it that its credit committee had approved the banks arranging
and
providing for a senior project financing facility for up to $12 million.
Amongst
other requirements, the commitment letter requires us to raise additional
equity
funding, net of expenses, that, along with cash on hand, is adequate to
cover
all required covenants and completion conditions. In connection with this
letter, the Company paid $100,000 and issued 1,000,000 shares of the Company
common stock. The Company recorded the $100,000 as deferred financing costs
on
the Company's balance sheet. Such costs will be amortized to operations
over the
life of the debt and in the event the transaction with Standard Bank is
not
consummated, such costs will be charged to operations immediately. The
Company
recorded the issuance of the 1,000,000 shares of common stock as deferred
financing costs of approximately $270,000 as a reduction of stockholders'
equity
on the Company's balance sheet. The issuance of these shares was recorded
at the
fair market value of the Company's common stock at the commitment letter
date or
$0.27 per share. Pursuant to this letter, instead of delivering on the
Closing
Date of the facility an additional 14,600,000 common stock purchase warrants,
as
contemplated in the original Mandate, the Company would be required to
deliver
an additional 1,000,000 shares of common stock and an additional 12,600,000
common stock purchase warrants.
During
March 2006, as part of the process with Standard Bank, the Company entered
into
a gold price protection agreement with Standard Bank plc to protect it
against
future fluctuations in the price of gold. The Company agreed to a series
of gold
forward sales and call option purchases in anticipation of entering into
a
credit agreement with Standard Bank, which will be used to fund part of
the cost
of development of the Company's El Chanate project. As of July 31, 2006,
the
Company was continuing to negotiate with Standard Bank on the terms of
the
credit agreement. Under the price protection agreement, the Company has
agreed
to sell a total volume of 121,927 ounces of gold forward to Standard Bank
at a
price of $500 per ounce on a quarterly basis during the period from March
2007
to September 2010. The Company will also purchase call options from Standard
Bank on a quarterly basis during this same period covering a total volume
of
121,927 ounces of gold at a price of $535 per ounce. The Company paid a
premium
to Standard Bank associated with these transactions. In addition, the Company
provided cash collateral of approximately $4.3 million to secure the Company’s
obligations under this agreement and recorded this as an other current
asset as
of July 31, 2006. The cash collateral will be returned to the Company when
the
loan agreement is executed and all conditions precedent to funding have
been
satisfied.
See
“Note
23 & 24” for further information on this derivative instrument and progress
of the credit agreement with Standard Bank.
NOTE
21 -
Mining and Engineering Contracts
In
early
December 2005, the Company’s wholly-owned Mexican subsidiary, MSR, which holds
the rights to develop and mine El Chanate Project, entered into a Mining
Contract with a Mexican mining contractor, Sinergia Obras Civiles y Mineras,
S.A. de C.V,("Sinergia"). The Mining Contract becomes effective if and
when MSR
sends the Contractor a formal "Notice of Award".
Pursuant
to the Mining Contract, the Contractor, using its own equipment, will generally
perform all of the mining work (other than crushing) at the El Chanate
Project
for the life of the mine. The Mining Contract becomes effective upon delivery
by
MSR to the Contractor of a formal "Notice to Proceed". Subsequent to delivery
of
the "Notice to Proceed" and prior to commencement of any work by Sinergia,
MSR
must pay Sinergia a mobilization payment of $70,000, and must also make
an
advance payment of $520,000 to Sinergia. This advance payment is recoverable
by
MSR out of 100% of subsequent payments due to Sinergia under the Mining
Contract. Sinergia's mining rates are subject to escalation on an annual
basis.
This escalation is tied to the percentage escalation in Sinergia's costs
for its
equipment, interest rates and labor. If the "Notice to Proceed" was not
received
by Sinergia by June 1, 2006, Sinergia could elect to either terminate the
agreement or modify its initial mining rates. MSR is not obligated to proceed
with the Mining Contract if those modified rates are unacceptable to MSR.
On
June 1, 2006, MSR sent a letter to Sinergia requesting a meeting to discuss
possible modifications to the Mining Contract and a deferment of the June
1st
deadline. See Note 24 “Subsequent Events” for further information.
In
June
2006, the Company's Mexican operating subsidiary retained the contracting
services of Mexican subsidiary of M3 Engineering & Technology Corporation
("M3M") to provide EPCM (engineering procurement construction management)
services. M3M will supervise the construction and integration of the various
components necessary to commence production at the El Chanate Project.
The
contracted services shall not exceed $1,200,000 and the contract is based
on the
EPCM services to be provided by M3M. As of July 31, 2006, the Company has
incurred approximately $72,000 pursuant to this contract.
NOTE
22 -
Employee and Consulting Agreements
On
March
1, 2006, the Company entered into a consulting agreement with Christopher
Chipman pursuant to which the Company has retained Mr. Chipman as its Chief
Financial Officer. Pursuant to the Agreement with Mr. Chipman, Mr. Chipman
devotes approximately 50% of his time to the Company's business. He receives
a
monthly fee of $7,500 and he was issued two year options to purchase an
aggregate of 50,000 shares of the Company's common stock at an exercise
price of
$.34 per share. The options will vest at the rate of 10,000 shares per
month
during the initial period of his engagement. Notwithstanding the foregoing,
the
options are not exercisable unless and until the issuance of the options
is
approved by the Company's stockholders. The agreement runs for an initial
one
year period, and is renewable thereafter for an additional year. The Company
can
terminate the agreement at any time; however, if the Company terminates
the
agreement other than for cause (as defined in the agreement), the Company
is
required to pay Mr. Chipman the fees otherwise due and payable to him through
the last day of the then current term of the Agreement or six months from
such
termination, which ever is shorter. Mr. Chipman can terminate the Agreement
on
30 days notice.
On
May
12, 2006, the Company entered into an employment agreement with John Brownlie,
pursuant to which Mr. Brownlie serves as Vice President Operations. Mr.
Brownlie
receives a base annual salary of $150,000 and is entitled to annual bonuses.
Upon his employment, he received options to purchase an aggregate of 200,000
shares of the Company’s common stock at an exercise price of $.32 per share.
50,000 options vested immediately and the balance vest upon the Company
achieving "Economic Completion" as that term is defined in the loan agreement
with Standard Bank plc (when the Company has commenced mining operations
and has
been operating at anticipated capacity for 60 to 90 days). The term of
the
options is two years from the date of vesting. The agreement runs for an
initial
two year period, and automatically renews thereafter for additional one
year
periods unless terminated by either party within 30 days of a renewal date.
The
Company can terminate the agreement for cause or upon 30 days notice without
cause. Mr. Brownlie can terminate the agreement upon 60 days notice without
cause or, if there is a breach of the agreement by the Company that is
not
timely cured, upon 30 days notice. In the event that the Company terminates
him
without cause or he terminates due to the Company’s breach, he will be entitled
to certain severance payments. The Company utilized the Black-Scholes method
to
fair value the 200,000 options received by Mr. Brownlie. The Company recorded
approximately $70,000 as deferred compensation expense as of the date of
the
agreement and recorded the vested portion or $17,500 as stock compensation
expense for the year ended July 31, 2006.
Effective
July 31, 2006, the last day of the Company’s fiscal year, the Company entered
into employment agreements with the following executive officers: Gifford
A.
Dieterle, the Company’s President and Treasurer, Roger A. Newell, the Company’s
Vice President of Development, Jack V. Everett, the Company’s Vice President of
Exploration, and Jeffrey W. Pritchard, the Company’s Vice President of Investor
Relations.
The
agreements run for a period of three years and automatically renew for
successive one-year periods unless the Company or the executive provides
the
other party with written notice of the Company’s or his intent not to renew at
least 30 days prior to the expiration of the then current employment
period.
Mr.
Dieterle is entitled to a base annual salary of at least $180,000 and each
of
the other executives is entitled to a base annual salary of at least $120,000.
Each executive is entitled to a bonus or salary increase in the sole discretion
of the Company’s board of directors. In addition, each of the executives
received two year options to purchase an aggregate of 250,000 shares of
the
Company’s common stock at an exercise price of $0.32 per share (the closing
price on July 31, 2006). The Company utilized the Black-Scholes method
to fair
value the 1,000,000 options received by the executives as part of these
employment agreements. The Company recorded approximately $204,000 as stock
compensation expense as of July 31, 2006.
The
Company has the right to terminate any executive's employment for cause
or on 30
days' prior written notice without cause or in the event of the executive's
disability (as defined in the agreements). The agreements automatically
terminate upon an executive's death. "Cause" is defined in the agreements
as (1)
a failure or refusal to perform the services required under the agreement;
(2) a
material breach by executive of any of the terms of the agreement; or (3)
executive's conviction of a crime that either results in imprisonment or
involves embezzlement, dishonesty, or activities injurious to the Company
or the
Company’s reputation. In the event that the Company terminates an executive's
employment without cause or due to the disability of the executive, the
executive will be entitled to a lump sum severance payment equal to one
month's
salary, in the case of termination for disability, and up to 12 month's
salary
(depending upon years of service), in the case of termination without
cause.
Each
executive has the right to terminate his employment agreement on 60 days'
prior
written notice or, in the event of a material breach by us of any of the
terms
of the agreement, upon 30 days' prior written notice. In the event of a
claim of
material breach by us of the agreement, the executive must specify the
breach
and the Company’s failure to either (i) cure or diligently commence to cure the
breach within the 30 day notice period, or (ii) dispute in good faith the
existence of the material breach. In the event that an agreement terminates
due
to the Company’s breach, the executive is entitled to severance payments in
equal monthly installments beginning in the month following the executive's
termination equal to three month' salary plus one additional month's salary
for
each year of service to us. Severance payments cannot exceed 12 month's
salary.
In
conjunction with the employment agreements, the Company’s board of directors
deeming it essential to the best interests of the Company’s stockholders to
foster the continuous engagement of key management personnel and recognizing
that, as is the case with many publicly held corporations, a change of
control
might occur and that such possibility, and the uncertainty and questions
which
it might raise among management, might result in the departure or distraction
of
management personnel to the detriment of the company and the Company’s
stockholders, determined to reinforce and encourage the continued attention
and
dedication of members of the Company’s management to their engagement without
distraction in the face of potentially disturbing circumstances arising
from the
possibility of a change in control of the company, the Company entered
into
identical agreements regarding change in control with the executives. Each
of
the agreements regarding change in control continues through December 31,
2009
and extends automatically to the third anniversary thereof unless the Company
gives notice to the executive prior to the date of such extension that
the
agreement term will not be extended. Notwithstanding the foregoing, if
a change
in control occurs during the term of the agreements, the term of the agreements
will continue through the second anniversary of the date on which the change
in
control occurred. Each of the agreements entitles the executive to change
of
control benefits, as defined in the agreements and summarized below, upon
his
termination of employment with us during a potential change in control,
as
defined in the agreements, or after a change in control, as defined in
the
agreements, when his termination is caused (1) by us for any reason other
than
permanent disability or cause, as defined in the agreement (2) by the executive
for good reason as defined in the agreements or, (3) by the executive for
any
reason during the 30 day period commencing on the first date which is six
months
after the date of the change in control. Each executive would receive a
lump sum
cash payment of three times his base salary and outplacement benefits.
Each
agreement also provides that the executive is entitled to a payment to
make him
whole for any federal excise tax imposed on change of control or severance
payments received by him.
NOTE
23 -
Sales Contracts, Commodity and Financial Instruments
In
March
2006, the Company entered into two identically structured derivative contracts
with Standard Bank (See Note 20). Each derivative consisted of a series
of
forward sales of gold and a purchase gold cap. The Company agreed to sell
a
total volume of 121,927 ounces of gold forward to Standard Bank at a price
of
$500 per ounce on a quarterly basis during the period from March 2007 to
September 2010. The Company also agreed to a purchase gold cap on a quarterly
basis during this same period and at identical volumes covering a total
volume
of 121,927 ounces of gold at a price of $535 per ounce. Under FASB Statement
No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"),
these contracts must be carried on the balance sheet at their fair value,
with
changes to the fair value of these contracts reflected as Other Income
or
Expense. These contracts were not designated as hedging derivatives; and
therefore, special hedge accounting does not apply.
The
first
derivative was entered into on March 1, 2006 for a premium of $550,000;
and the
second was entered into on March 30, 2006 for a premium of $250,000. The
gold
price rose sharply during the period March 1, 2006 through July 31, 2006
and was
the primary reason for the decrease in premium on the derivative contracts.
As
of July 31, 2006, the carrying value of these derivatives was approximately
$218,000. The change in fair value on these derivative contracts was
approximately $582,000 for the year ended July 31, 2006, and was recorded
as an
other expense.
NOTE 24 - Subsequent Events
On
August
14, 2006, the Board of Directors (the "Board") of the Company declared
a
dividend (the "Dividend") of one Series B common share purchase right (a
"Right") for each outstanding share of common stock, par value $.0001 per
share.
Each Right represents the right to purchase one one-thousandth of Series
B
Share. The Dividend is payable to holders of record on August 14, 2006.
In
connection with the Dividend, the Company entered into a Rights Agreement
with
American Stock Transfer & Trust Company as Rights Agent (the "Rights
Agreement"), specifying the terms of the Rights. The Rights will impose
a
significant penalty upon any person or group that acquires beneficial ownership
of 20% or more of the Company's outstanding common stock without the prior
approval of the Board. The Rights Agreement provides an exemption for any
person
who is, as of August 15, 2006, the beneficial owner of 20% or more of the
Company’s outstanding common stock, so long as such person does not, subject to
certain exceptions, acquire additional shares of the Company’s common stock
after that date. The Rights Agreement will not interfere with any merger
or
other business combination approved by the Board.
On
August
15, 2006, The Company entered into a credit agreement (the “Credit Agreement”)
involving the Company’s wholly-owned subsidiaries MSR and Oro, as borrowers, the
Company, as guarantor, and Standard Bank plc (“Standard Bank”), as the lender
and the offshore account holder. Under the Credit Agreement, MSR and Oro
have
agreed to borrow money in an aggregate principal amount of up to US$12.5
million
(the “Loan”) for the purpose of constructing, developing and operating the
Company’s El Chanate project (the “Mine”). The Company is guaranteeing the
repayment of the loan and the performance of the obligations under the
Credit
Agreement. The Loan is scheduled to be repaid in fourteen quarterly payments
with the first principal payment due after certain Mine start-up production
and
performance criteria are satisfied, which the Company believes will occur
in the
first calendar quarter of 2008. The Loan bears interest at LIBOR plus 4.00%,
with LIBOR interest periods of 1, 2, 3 or 6 months and with interest payable
at
the end of the applicable interest period.
The
Credit Agreement contains covenants customary for a project financing loan,
including but not limited to restrictions (subject to certain exceptions)
on
incurring additional debt, creating liens on the Company’s property, disposing
of any assets, merging with other companies and making any investments.
The
Company is required to meet and maintain certain financial covenants, including
(i) a debt service coverage ratio of not less than 1.2 to 1.0, (ii) a projected
debt service coverage ratio of not less than 1.2 to 1.0, (iii) a loan life
coverage ratio of at least 1.6 to 1.0, (iv) a project life coverage ratio
of at
least 2.0 to 1.0 and (v) a minimum reserve tail. The Company is also required
to
maintain a certain minimum level of unrestricted cash, and upon meeting
certain
Mine start-up production and performance criteria, MSR and Oro will be
required
to maintain a specified amount of cash as a reserve for debt
repayment.
The
Loan
was secured by all of the tangible and intangible assets and property owned
by
MSR and Oro pursuant to the terms of a Mortgage Agreement, a Non-Possessory
Pledge Agreement, an Account Pledge Agreement and certain other agreements
entered into
in
Mexico (the “Mexican Collateral Documents”). As additional collateral for the
Loan, the Company, together with its subsidiary, Leadville Mining & Milling
Holding Corporation, pledged all of its ownership interest in MSR and Oro.
In
addition to these collateral arrangements, MSR and Oro will be required
to
deposit all proceeds of the Loan and all cash proceeds received from operations
and other sources in an offshore, controlled account with Standard Bank.
Absent
a default under the loan documents, MSR and Oro may use the funds from
this
account for specific purposes such as approved project costs and operating
costs.
As
part
of the fee for entering into and closing the Credit Agreement, the Company
has
issued to Standard Bank 1,150,000 shares of the Company’s restricted common
stock and a warrant for the purchase of 12,600,000 shares of the Company’s
common stock at an exercise price of $0.317 per share, expiring on the
earlier
of (a) December 31, 2010 or (b) the date one year after the repayment of
the
Credit Agreement. Previously, pursuant to the mandate and commitment letter
for
the facility, The Company issued to Standard Bank 1,000,000 shares of the
Company’s restricted common stock and a warrant for the purchase of 1,000,000
shares of the Company’s common stock at an exercise price of $0.32 per share,
expiring on the earlier of (a) December 31, 2010 or (b) the date one year
after
the repayment of the Credit Agreement. The Company has registered for public
resale the 1,000,000 shares and the 1,000,000 shares issuable upon exercise
of
warrants issued to Standard Bank pursuant to the mandate and commitment
letter
and the Company has agreed to register for resale the shares and the shares
issuable upon exercise of the warrants issued to Standard at the closing
of the
Credit Agreement.
On
August
30, 2006, Standard Bank returned to the Company the $4.3 million held as
cash
collateral to protect the Company against future fluctuations in the price
of
gold as part of a gold price protection agreement with Standard Bank plc
(See
Note 4 & 20).
On
September 1, 2006, the Company amended its consulting agreement with its
Chief
Financial Officer. Pursuant to the agreement, the Company’s Chief Financial
Officer devotes approximately 50% of his time to our business. He receives
a
monthly fee of $10,000. The agreement runs for an initial one year period,
and
is renewable thereafter for an additional year. He can terminate the Agreement
on 60 days notice. In conjunction with the amended consulting agreement,
the
Company entered into a change of control agreement similar to the agreements
entered into with other executive officers; except that the Company’s CFO
agreement renews annually and his benefits are based upon one times his
base
annual fee.
Subsequently
to July 31, 2006, the Company issued purchase orders on material and equipment
regarding its El Chanate Project amounting to approximately $5,600,000.
As of
October 24, 2006, the Company has paid approximately $2,500,000 on these
commitments, including an additional down payment of approximately $230,000
on
the new crushing system, including conveyors.
On
September 13, 2006, the Company repurchased the 5% net profits interest
formerly
held by Grupo Minera FG (“FG”), and subsequently acquired by Daniel Gutierrez
Cibrian, with respect to the operations at the El Chanate mine. That net
profits
interest had originally been granted to FG in connection with the April
2004
termination of the joint venture agreement between FG and MSR, Capital
Gold’s
wholly owned Mexican subsidiary (See Note 7).
The
purchase price for the buyback of the net profits interest was $500,000,
and was
structured as part of the project costs financed by the recently completed
loan
agreement with Standard Bank, Plc. (See Note 20). Mr. Gutierrez will retain
a 1%
net profits interest in MSR, payable only after a total $US 20 million
in net
profits has been generated from operations at El Chanate.
On
October 10, 2006, the Company completed the initial draw down on its credit
facility from Standard Bank receiving proceeds of $1,250,000. The Company
anticipates using the proceeds for the repurchase of the 5% net profits
interest
formerly held by FG and to continue the mine development at the El Chanate
site.
On
October 11, 2006, subsequent to the end of the fiscal year, and prior to
the
initial draw on its credit facility with Standard Bank, the Company entered
into
interest rate swap agreements in accordance with the terms of the Credit
Facility, which requires that the Company hedge at least 50 percent of
its
outstanding debt under this facility. The agreements entered into cover
$9,375,000 or 75% of the outstanding debt. Both swaps covered this same
notional
amount of $9,375,000, but over different time horizons. The first covered
the
six months commencing October 11, 2006 and a termination date of March
31, 2007
and the second covering the period from March 30, 2007 and a termination
date of
December 31, 2010. The Company intends to use discretion in managing this
risk as market conditions vary over time, allowing for the possibility
of
adjusting the degree of hedge coverage as the Company deems appropriate.
However, any use of interest rate derivatives will be restricted to use
for risk
management purposes.
NOTE 25 - Subsequent Events -
Sinergia
On
August
2, 2006, the Company amended the November 24, 2005 Mining Contract (See
Note 21)
between its subsidiary, MSR, and Sinergia. Pursuant to the amendment, MSR's
right to deliver the Notice to Proceed to Sinergia is extended to November
1,
2006. Provided that this Notice is delivered to Sinergia on or before that
date,
with a specified date of commencement of the Work (as defined in the contract)
not later than February 1, 2007, the mining rates set forth in the Mining
Contract will still apply; subject to adjustment for the rate of inflation
between September 23, 2005 and the date of commencement of the work. As
consideration for these changes, the Company paid Sinergia $200,000 of
the
requisite advance payment discussed below. On
November 1, 2006, MSR delivered the Notice of Award specifying January
25, 2007
as the date of commencement of Work.
Pursuant
to the Mining Contract, Sinergia, using its own equipment, will generally
perform all of the mining work (other than crushing) at the El Chanate Project
for the life of the mine. Subsequent to delivery of the Notice to Proceed
and
prior to the commencement of any work by Sinergia, MSR must pay Sinergia
a
mobilization payment of $70,000, and must also make an advance payment of
$520,000 to Sinergia (all of which has already been advanced). The advance
payments are recoverable by MSR out of 100% of subsequent payments due to
Sinergia under the Mining Contract. Pursuant to the Mining Contract, upon
termination, Sinergia would be obligated to repay any portion of the advance
payment that had not yet been recouped. Sinergia’s mining rates are subject to
escalation on an annual basis. This escalation is tied to the percentage
escalation in Sinergia’s costs for various parts for its equipment, interest
rates and labor. One of the principals of Sinergia is one of the former
principals of FG. FG was our former joint venture partner.
No
dealer, salesman or any other person is authorized to give any information
or to represent anything not contained in this prospectus. You must
not
rely on any unauthorized information or representations. This prospectus
is an offer to sell these securities and it is not a solicitation
of an
offer to buy these securities in any state where the offer or sale
is not
permitted. The information contained in this Prospectus is current
only as
of this date.
|
16,944,209
SHARES OF
COMMON
STOCK
|
|
|
|
TABLE
OF CONTENTS
|
|
|
|
Page
|
|
Prospectus
Summary
|
2
|
|
Risk
Factors
|
5
|
|
Forward-looking
Statements
|
14
|
|
Use
of Proceeds
|
14
|
CAPITAL
GOLD CORPORATION
|
Dividend
Policy
|
14
|
|
Price
Range of Common Stock
|
14
|
|
Selected
Consolidated
|
|
|
Financial
Data
|
15
|
|
Management’s
Discussion and
|
|
|
Analysis
of Financial Condition
|
|
____________________________
|
And
Results of Operations
|
17
|
|
Our
Business
|
33
|
|
Management
|
46
|
PROSPECTUS
|
Executive
Compensation
|
49
|
|
Principal
Stockholders
|
53
|
____________________________
|
Certain
Relationships and
|
|
|
Related
Transactions
|
55
|
|
Selling
Stockholders
|
56
|
June
__, 2007
|
How
the Shares May
|
|
|
Be
Distributed
|
59
|
|
Description
of Securities
|
|
____________________________
|
Being
Registered
|
62
|
|
Legal
Matters
|
64
|
|
Experts
|
64
|
|
Where
you can find
|
|
|
More
information
|
64
|
|
Glossary
|
64
|
|
Financial
Statements
|
F-1
|
|
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The
registrant is incorporated under the laws of the State of Delaware. As permitted
by Section 102(b)(7) of the Delaware General Corporation Law, or DGCL, the
article Eighth of the registrants certificate of incorporation provides:
“Directors
of the corporation shall not be liable to either the corporation or its
stockholders for monetary damages for a breach of fiduciary duties unless the
breach involves: (1) a director's duty of loyalty to the Corporation or its
stockholders; (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (3) liability for unlawful
payments of dividends or unlawful stock purchases or redemption by the
Corporation; or (4) a transaction from which the director derived an improper
personal benefit.”
Article
Ninth of the registrant’s certificate of incorporation provides that the
registrant shall indemnify all persons whom it may indemnify pursuant to Section
145 of the DGCL.
Section 145 of the DGCL provides that a corporation may indemnify any person,
including an officer or director, who is, or is threatened to be made, party
to
any threatened, pending or completed legal action, suit or proceeding, whether
civil, criminal, administrative or investigative, other than an action by or
in
the right of such corporation, by reason of the fact that such person was an
officer, director, employee or agent of such corporation or is or was serving
at
the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys’ fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such officer, director, employee or agent acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
corporation’s best interest and, for criminal proceedings, had no reasonable
cause to believe that his conduct was unlawful. A Delaware corporation may
indemnify any officer or director in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged
to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses that such officer or
director actually and reasonably incurred.
ITEM
25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC
Filing Fees
|
|
$
|
200.79
|
|
Printing
and Engraving Expenses*
|
|
$
|
5,000.00
|
|
Accounting
Fees and Expenses*
|
|
$
|
5,000.00
|
|
Legal
Fees and Expenses*
|
|
$
|
25,000.00
|
|
Miscellaneous*
|
|
$
|
4,799.21
|
|
|
|
|
|
|
Total
Expenses*
|
|
$
|
40,000.00
|
|
*
Estimated.
ITEM
26. RECENT SALES OF UNREGISTERED SECURITIES.
Since
August 1, 2003, we have issued and sold the following securities:
During
the fiscal year ended July 31, 2004, we issued the following shares of our
common stock pursuant to the exemption from registration provided by Section
4(2) of the Securities Act of 1933: We sold an aggregate of 8,748,569 shares
for
an aggregate of $1,145,886 to 94 persons. In addition, we issued 572,727 shares
of common stock and received gross proceeds of $20,600 from the exercise of
options by officers and directors, and we issued 1,762,826 shares
of
common stock for gross proceeds of $87,500 to unrelated parties upon exercise
of
options. We also issued 7,500 shares for services rendered. We also issued
2,000,000 shares of our common stock in connection with the termination of
our
Joint Venture Agreement. We also issued 250,000 common stock options each to
Messrs. Dieterle, Roningen, Pritchard, Everett and Newell, and one of our
employees exercisable at $.22 per share expiring on May 25, 2007.
During
the fiscal year ended July 31, 2005, we issued the following shares of our
common stock pursuant to the exemption from registration provided by Section
4(2) of the Securities Act of 1933 and/or Regulation S under the Securities
Act
of 1933: We sold an aggregate of 30,879,614 shares for gross proceeds of
$7,245,816 and issued warrants to purchase an aggregate of 30,902,004 shares
of
our common stock to 63 persons. In addition 627,273 options were exercised
by
related parties for gross proceeds of $25,000. In addition, we issued 500,000
shares upon exercise of options for gross proceeds of $67,500. We also issued
300,000 shares upon exercise of options (received as reduction of debt owed
to
the option holders in the amount of $36,000). We also issued 259,507 shares
for
services valued at $29,260 and 193,666 shares were issued as commissions on
sales of common stock. We also issued 5,440,000 shares of our common stock
to
the purchasers in our February 2004 private placement as liquidated damages
in
connection with not timely listing our stock on the Toronto Stock
Exchange.
In
November 2005, we issued 1,000,000 shares of our common stock to Standard Bank
Plc. The foregoing securities were issued pursuant to exemptions from
registration provided by Rule 506 of the Securities Act of 1933.
Between
December 2005 and January 31, 2006, while the exercise price of the Warrants
was
lowered to $.20, warrant holders exercised warrants for an aggregate of
3,605,004 shares. In February 2006, warrant holders exercised warrants for
an
aggregate of 8,600,000 shares. The foregoing securities were issued pursuant
to
exemptions from registration provided by Rule 506 and/or Regulation S under
the
Securities Act of 1933.
In
January 2006, two of our officers exercised options for an aggregate of 500,000
shares at $.05 per share and two unaffiliated option holders exercised options
for an aggregate of 550,000 shares at $.05 per share. The foregoing securities
were issued pursuant to exemptions from registration provided by Rule 506 of
the
Securities Act of 1933.
In
February and March 2006, we sold an aggregate of 21,240,000 shares for gross
proceeds of $5,310,000 and issued warrants to purchase an aggregate of 5,310,000
shares of our common stock to 39 persons in private placements. We also issued
to the placement agents in one of the placements warrants to purchase up to
934,000 shares. The foregoing securities were issued pursuant to exemptions
from
registration provided by Rule 506 and/or Regulation S under the Securities
Act
of 1933.
In
March
2006, we issued options to purchase 50,000 shares of common stock to our new
Chief Financial Officer. The foregoing issuance was exempt from registration
pursuant to the provisions of Section 4(2) of the Securities Act of
1933.
In
May
2006, we issued options to purchase 200,000 shares of common stock to our new
Vice President of Operations and options to purchase 200,000 shares of common
stock to a consultant. The foregoing issuances were exempt from registration
pursuant to the provisions of Section 4(2) of the Securities Act of
1933.
In
July
2006, we issued 170,909 shares of stock upon the exercising of common stock
purchase warrants and options for gross proceeds of $29,000. The foregoing
securities were issued pursuant to exemptions from registration provided by
Rule
506 and/or Regulation S under the Securities Act of 1933.
In
July
2006, we also issued options to purchase 250,000 shares of our common stock
to
each of four of our executive officers and an option to purchase 250,000 shares
of our common stock to an employee. The foregoing issuances were exempt from
registration pursuant to the provisions of Section 4(2) of the Securities Act
of
1933.
In
addition, in August 2006, as part of the fee for entering into and closing
the
Credit Facility with Standard Bank, we issued to Standard Bank 1,150,000 shares
of our restricted common stock and a warrant for the purchase of 12,600,000
shares of our common stock. The foregoing securities were issued pursuant to
exemptions from registration provided by Rule 506 and/or Regulation S under
the
Securities Act of 1933.
In
November and December 2006, we issued 275,000 shares of stock upon the
exercising of common stock purchase warrants and options for gross proceeds
of
$13,750. The
foregoing securities were issued pursuant to exemptions from registration
provided by Rule 506 under the Securities Act of 1933.
On
November 30, 2006, we granted 100,000 common stock purchase options to each
of
John Postle, Ian A. Shaw and Mark T. Nesbitt, our independent directors
exercisable at $0.33 per share expiring November 30, 2008. The foregoing
issuances were exempt from registration pursuant to the provisions of Section
4(2) of the Securities Act of 1933.
On
December 13, 2006, we issued an additional 250,000
common stock purchase options to John Brownlie, our Vice President of
Operations, and 100,000 common stock purchase options each to Christopher
Chipman, our Chief Financial Officer, and our Canadian counsel, exercisable
at
$0.36 per share expiring on December 13, 2008. The foregoing issuances were
exempt from registration pursuant to the provisions of Section 4(2) of the
Securities Act of 1933.
In
January 2007 we issued an aggregate of 12,561,667 units, each unit consisting
of
one share of our common stock and a warrant to purchase ¼ of a share of our
common stock for proceeds of approximately $3,485,862, net of cash commissions
of $282,638 in two private placements. The Warrant issued to each purchaser
is
exercisable for one share of our common stock, at an exercise price equal to
$0.40 per share. Each Warrant has a term of eighteen months and is fully
exercisable from the date of issuance. We issued to the placement agents
eighteen month warrants to purchase up to an aggregate of 942,125 shares of
our
common stock at an exercise price of $0.30 per share. The foregoing securities
were issued pursuant to exemptions from registration provided by Rule 506 under
the Securities Act of 1933.
Between
December 27, 2006 and February 8, 2007, we issued an aggregate of 16,662,000
shares of our Common Stock pursuant to the exercise of two year warrants issued
in February 2005 and 2006 for aggregate gross proceeds of approximately
$4,864,000. Also, on February 12, 2007, we issued 500,000 shares of our common
stock upon the exercise of outstanding warrants at an exercise price of $0.30
per share for proceeds of $150,000. The foregoing securities were issued
pursuant to exemptions from registration provided by Rule 506 under the
Securities Act of 1933.
In
March
2007, we issued 500,000 shares of stock to John Brownlie, our Chief Operating
Officer, and 100,000 two year common
stock purchase options,
exercisable for $0.45 per share, to our counsel, Richard Feiner, under the
Capital Gold 2006 Equity Incentive Plan. We also issued 65,625 shares of stock
to Barry Heath as partial consideration (valued at $26,250) for electrical
engineering and other services. In April 2007, we issued an additional 113,636
shares to Mr. Heath as a signing bonus when he agreed to be retained as the
general manager of our El Chanate Project. The
foregoing issuances were exempt from registration pursuant to the provisions
of
Section 4(2) of the Securities Act of 1933.
In
May
2007, we issued an aggregate of 700,455 shares upon the exercise of options
for
gross proceeds of $154,100, which includes the following issuances to our
officers and directors: 70,455 shares to Gifford A. Dieterle, 50,000 shares
to
Jeffrey W. Pritchard, and 250,000 shares each to Roger A. Newell and the wife
of
Robert Roningen. The
foregoing issuances were exempt from registration pursuant to the provisions
of
Section 4(2) of the Securities Act of 1933.
On
June
13, 2007, we issued an additional 500,000 options to Mr. Chipman under our
2006
Equity Incentive Plan. These options vested immediately and are exercisable
for
a period of two years at an exercise price of $0.384 per share. The
foregoing issuance was exempt from registration pursuant to the provisions
of
Section 4(2) of the Securities Act of 1933.
ITEM
27. EXHIBITS.
Exhibit
No. Description
|
3.1
|
|
Certificate
of Incorporation of Company.(15)
|
|
3.2
|
|
Amendments
to Certificate of Incorporation of Company.(20)
|
|
3.3
|
|
Certificate
of Merger (Delaware) (which amends our Certificate of
Incorporation).(15)
|
|
3.4
|
|
Amended
and Restated By-Laws of
Company.(16)
|
|
4.1 |
Specimen
certificate representing our Common
Stock.(8)
|
|
4.2
|
Form
of Warrant for Common Stock of the Company issued in February 2005
private
placement.(7)
|
|
4.3
|
Form
of Warrant for Common Stock of the Company issued to Standard
Bank.(9)
|
|
4.4
|
Form
of Warrant for Common Stock of the Company issued in February and
March
2006 private placement.(13)
|
|
5.1 |
Opinion
of Richard Feiner, Esq., legal
counsel.
|
|
10.2 |
Stock
Purchase Option Agreement from AngloGold
(2)
|
|
10.3 |
Letter
of Intent with International Northair Mines Ltd.
(2)
|
|
10.4
|
March
30, 2002 Minera Chanate Stock Purchase and Sale and Security Agreement
(Sale by us and Holding of all of the stock of Minera Chanate) (In
Spanish).(3)
|
|
10.5
|
English
summary of March 30, 2002 Minera Chanate Stock Purchase and Sale
and
Security Agreement.(3)
|
|
10.6 |
Agreement
between Santa Rita and Grupo Minero
FG.(4)
|
|
10.7 |
Amendment
to Agreement between Santa Rita and Grupo Minero
FG.(5)
|
|
10.8 |
Termination
Agreement between Santa Rita and Grupo Minero
FG.(6)
|
|
10.9 |
English
summary of El Charro agreement.
(10)
|
|
10.10 |
Plan
and agreement of merger (reincorporation).
(11)
|
|
10.11 |
Contract
between MSR and Sinergia Obras Civiles y Mineras, S.A. de
C.V.(12)
|
|
10.12
|
Amendment
to Contract between MSR and Sinergia Obras Civiles y Mineras, S.A.
de
C.V.(18)
|
|
10.13
|
September
2006 Chipman Amended Engagement Agreement. (18)
|
|
10.14
|
Employment
Agreement with John Brownlie. (17)
|
|
10.15
|
June
1, 2006 EPCM agreement between MSR and a Mexican subsidiary of M3
Engineering & Technology Corporation
(17)
|
|
10.16
|
Credit
Facility dated August 15, 2006 among MSR and Oro, as the borrowers,
the
Company, as the guarantor, and Standard Bank PLC, as the lender and
the
offshore account holder. (16)
|
|
10.17
|
Employment
Agreement with Gifford A. Dieterle.
(18)
|
|
10.18
|
Employment
Agreement with Roger A. Newell. (18)
|
|
10.19
|
Employment
Agreement with Jeffrey W. Pritchard.
(18)
|
|
10.20
|
Employment
Agreement with Hazlitt Agreement.
(19)
|
|
10.21
|
2006
Equity Incentive Plan (19)
|
|
21 |
Subsidiaries
of the Registrant. (8)
|
|
23.1
|
Consent
of Wolinetz, Lafazan & Company, P.C., independent registered public
accountants.
|
|
23.2 |
Consent
of Richard Feiner, Esq., legal counsel (included in Exhibit
5.1).
|
|
24.1
|
Powers
of Attorney (included in Signature Pages to the Registration Statement
on
Form SB-2).
|
|
(1) |
Previously
filed as an exhibit to the Company's Registration Statement on Form
S-18
(SEC File No. 2-86160-NY) filed on or about November 10, 1983, and
incorporated herein by this
reference.
|
|
(2) |
Previously
filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for
the quarter ended January 31, 2001 filed with the Commission on or
about
March 16, 2001, and incorporated herein by this
reference.
|
|
(3) |
Previously
filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for
the quarter ended April 30, 2002 filed with the Commission on or
about
June 20, 2002, and incorporated herein by this
reference.
|
|
(4) |
Previously
filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for
the quarter ended January 31, 2002 filed with the Commission on or
about
March 25, 2002, and incorporated herein by this
reference.
|
|
(5) |
Previously
filed as an exhibit to the Company's Current Report on Form 8-K filed
with
the Commission on or about January 22, 2004, and incorporated herein
by
this reference.
|
|
(6) |
Previously
filed as an exhibit to the Company's Current Report on Form 8-K filed
with
the Commission on or about April 12, 2004, and incorporated herein
by this
reference.
|
|
(7) |
Previously
filed as an exhibit to the Company's Current Report on Form 8-K filed
with
the Commission on or about February 10, 2005, and incorporated herein
by
this reference.
|
|
(8) |
Previously
filed as an exhibit to the Company's Registration Statement on Form
SB-2
(SEC file no. 333-123216) filed with the Commission on or about March
9,
2005, and incorporated herein by this
reference.
|
|
(9) |
Previously
filed as an exhibit to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 (SEC file no. 333-123216) filed with the Commission
on or about June 27, 2005, and incorporated herein by this
reference.
|
|
(10) |
Previously
filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for
the quarter ended April 30, 2005 filed with the Commission on or
about
June 20, 2005, and incorporated herein by this
reference.
|
|
(11) |
Previously
filed as Appendix B to the Company's Definitive 14A Proxy Statement
filed
with the Commission on or about October 7, 2005, and incorporated
herein
by this reference.
|
|
(12) |
Previously
filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for
the quarter ended October 31, 2005 filed with the Commission on or
about
December 15, 2005, and incorporated herein by this
reference.
|
|
(13) |
Previously
filed as an exhibit to the Company's Current Report on Form 8-K filed
with
the Commission on or about February 16, 2006, and incorporated herein
by
this reference.
|
|
(14) |
Previously
filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for
the quarter ended January 31, 2006 filed with the Commission on or
about
March 22, 2006, and incorporated herein by this
reference.
|
|
(15) |
Previously
filed as an exhibit to the Company's Registration Statement on Form
SB-2
(SEC file no. 333-129939) filed with the Commission on or about November
23, 2005, and incorporated herein by this
reference.
|
|
(16) |
Previously
filed as an exhibit to the Company's Current Report on Form 8-K filed
with
the Commission on or about August 16, 2006, and incorporated herein
by
this reference.
|
|
(17) |
Previously
filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for
the quarter ended April 30, 2006 filed with the Commission on or
about
June 19, 2006, and incorporated herein by this
reference.
|
|
(18) |
Previously
filed as an exhibit to the Company's Annual Report on Form 10-KSB
for the
fiscal year ended July 31, 2006 filed with the Commission on or about
November 1, 2006, and incorporated herein by this
reference.
|
|
(19) |
Previously
filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for
the quarter ended October 31, 2006 filed with the Commission on or
about
December 19, 2006, and incorporated herein by this
reference.
|
|
(20) |
Previously
filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for
the quarter ended January 31, 2007 filed with the Commission on or
about
March 19, 2007, and incorporated herein by this
reference.
|
ITEM
28. UNDERTAKINGS
The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which it offers or sells securities, a post-effective
amendment to this registration statement to:
(i) Include
any prospectus required by Sections 10(a) (3) of the Securities Act of 1933
(the
Act );
(ii) Reflect
in the prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in
the
information set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the
effective Registration Statement;
(iii) Include
any additional or changed material information on the plan of
distribution;
(2) That,
for the purpose of determining any liability under the Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the bona fide offering thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities that remain unsold at the end of the offering.
Insofar
as indemnification for liabilities arising under the Act may be permitted to
directors, officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small business issuer
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer
will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and
will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant
to the requirement of the Securities Act of 1933, this Registrant certifies
that
it has reasonable grounds to believe that it meets all of the requirements
for
filing on Form SB-2 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
New
York, State of New York, on the 20th
day of
June 2007.
CAPITAL
GOLD CORPORATION
(Registrant)
By: |
s/Gifford
A.
Dieterle
|
|
Gifford
A.
Dieterle, President |
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities indicated on the
dates indicated.
KNOW
ALL MEN BY THESE PRESENTS,
that
each person whose signature appears below constitutes and appoints Gifford
A.
Dieterle acting alone, his true and lawful attorney-in-fact and agent, with
full
power of substitution and resubstitution, for such person in his name, place
and
stead, in any and all capacities, in connection with the Registrant's
Registration Statement on Form SB-2 under the Securities Act of 1933, including,
without limiting the generality of the foregoing, to sign the Registration
Statement in the name and on behalf of the Registrant or on behalf of the
undersigned as a director or officer of the Registrant, and any and all
amendments or supplements to the Registration Statement, including any and
all
stickers and post-effective amendments to the Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission and any applicable
securities exchange or securities self-regulatory body, granting unto said
attorney-in-fact and agents, each acting alone, full power and authority to
do
and perform each and every act and thing requisite and necessary to be done
in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes or substitute, may lawfully
do or cause to be done by virtue hereof.
Signature
|
Title
|
Date
|
s/Gifford
A. Dieterle
Gifford
A. Dieterle
|
President,
Treasurer, and Chairman of the Board
|
June
20, 2007
|
|
|
|
s/Christopher
M. Chipman
Christopher
M. Chipman
|
Principal
Financial and Accounting officer
|
June
21, 2007
|
|
|
|
s/Robert
N. Roningen
Robert
N. Roningen
|
Director
|
June
21, 2007
|
|
|
|
s/Roger
A. Newell
Roger
A. Newell
|
Director
|
June
20, 2007
|
|
|
|
_______________
John
Brownlie
|
Director
|
June
__, 2007
|
|
|
|
s/Jeffrey
W. Pritchard
Jeffrey
W. Pritchard
|
Director
|
June
20, 2007
|
|
|
|
_______________ John
Postle
|
Director
|
June
__, 2007
|
|
|
|
s/Ian
Shaw
Ian
Shaw
|
Director
|
June
20, 2007
|
|
|
|
_______________ Mark
T. Nesbitt
|
Director
|
June
__, 2007
|
Capital
Gold Corporation
Form
SB-2
Index
to
Exhibits
|
Description
|
|
|
5.1
|
Opinion
of Richard Feiner, Esq., legal counsel.
|
23.1
|
Consent
of Wolinetz, Lafazan & Company, P.C., independent registered public
accountants.
|