SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
|x| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 2004
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-13078
CAPITAL GOLD CORPORATION
(Name of Small business issuer in its charter)
State of Nevada 13-31805030
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
76 Beaver Street, 26th Floor, New York, New York 10005
(Address of principal executive offices) (Zip Code)
Issuer's telephone numbering: (212) 344-2785
Securities registered under Section 12(b) of the Exchange Act: none
Securities registered under Section 12(g) of the Exchange Act: Common Stock, par
value $.001 per share
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES |X| NO |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulations S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |_|
State issuer's revenues for its most recent fiscal year. $4,000.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the average between the closing bid
($.30) and asked ($.35) price of the issuer's Common Stock as of November 2,
2004, was $17,878,176 based upon the average between the closing bid and asked
price ($0.325) multiplied by the 55,009,771 shares of the issuer's Common Stock
held by non-affiliates. (In computing this number, issuer has assumed all record
holders of greater than 5% of the common equity and all directors and officers
are affiliates of the issuer.).
The number of shares outstanding of each of the issuer's classes of common
equity as of November 2, 2004: 59,700,724
DOCUMENTS INCORPORATED BY REFERENCE: None.
Transitional Small Business Disclosure Format: Yes |_| No |X|
CAPITAL GOLD CORPORATION
Form 10-KSB
July 31, 2004
Table of Contents Page
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Glossary (iii)
Part I
Item 1. Description of Business 1
Item 2. Description of Properties 6
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of 14
Security Holders
Part II
Item 5. Market for Common Equity, 14
Related Stockholder Matters and Small Business Issuer
Purchases of Equity Securities
Item 6. Management's Discussion and Analysis of 15
Financial Condition and Results of Operations
Item 7. Financial Statements 28
Item 8. Changes in and Disagreement with Accountants 28
on Accounting and Financial Disclosure
Item 8A Controls and Procedures 28
Item 8B Other Information 28
Part III
Item 9. Directors, Executive Officers, Promoters 29
and Control Persons; Compliance with
Section 16(a) of the Exchange Act
Item 10. Executive Compensation 31
Item 11. Security Ownership of Certain Beneficial 32
Owners and Management and Related
Stockholder Matters
Item 12. Certain Relationships and Related Transactions 33
Item 13. Exhibits 34
Item 14. Principal Accountant Fees and Services 35
Signatures 37
Supplemental Information N/A
Financial Statements F-1
ii
GLOSSARY OF TECHNICAL TERMS
Andesites: Rocks of volcanic origin
Backfilling: Putting waste rock in an open stope.
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
Leadville Dolomite: Name of a specific limestone bed in Leadville, Colorado.
Litho static Pressure: Pressure brought on by weight of overlaying rocks.
Magnetite Skarn: The mineral magnetite (iron oxide) in combination with
quartz emplaced in limestone.
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.
iii
Mineral Deposit or
Mineralized Material: A mineralized rock mass which has been intersected by
sufficient closely spaced drill holes and or underground
sampling to support sufficient tonnage and average grade
of metal(s) to warrant further exploration-development
work. This deposit does not qualify as a commercially
mineable ore body (Reserves), as prescribed under
Commission standards, until a final and comprehensive
economic, technical and legal feasibility study based
upon the test results is concluded.
Open Stope: A mined area that remains as an open space.
Patented Claim: Unpatented claim that is now privately owned mineral
land after a grant from the federal government.
Placer Claim: Claim on which minerals are found in sand and gravel -
on surface.
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.
Replacement
Body: Mineral ore, irregular in form, which is emplaced in
limestone.
Sandstone Lenses and
Thin Limestone
Interbeds: Thin beds of limestone mixed with thin beds of
sandstone.
Sericitized: Altered by heat, pressure and solutions resulting in 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.
Sills: Tabular, horizontal bodies of igneous rock.
Square Setting: A system of timbering a tunnel or opening underground to
prevent cave-in.
iv
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.
Unpatented Claim: Mineral land staked on public lands open to
appropriation by mineral location, subject to the
paramount title of the federal government and maintained
by timely payment of an annual fee.
v
PART I
Item 1. Description of Business
Capital Gold Corporation, formerly Leadville Mining And Milling Corp. (the
"Company," "we" or "us") was incorporated in the state of Nevada in February
1982. 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 and we are engaged in the business of exploring for gold
and other minerals on our Mexican concessions. During the fiscal year ended July
31, 2004, we actively engaged in the evaluation of our Sonora, Mexico
concessions. Our future is dependent upon our ability to continue to fund our
activities and eventually produce gold in sufficient quantities and in an
economically feasible manner. A description of the mining concessions and
properties owned by us is contained in "Item 2. Description of Properties." None
of our concessions or properties is in production and, consequently, we have no
operating income or cash flow.
Sonora, Mexico
El Chanate
In June 2001, we 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'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 of 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, two new concessions were located, and the number of
concessions is now 14. These concessions are contiguous, totaling approximately
3,497 hectares (8,642 acres or 13.5 square miles). We sometimes refer to these
concessions as the El Chanate concessions. See "Item 2. Description of
Properties."
Pursuant to the terms of the agreement, on December 15, 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
1
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, Minera Santa Rita S. de R.L. de C.V., one of our wholly-owned
Mexican affiliates ("Santa Rita"), 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. to explore, evaluate and develop the El Chanate concessions. Grupo
Minero FG S.A. de C.V., referred to as FG, is a private Mexican company that
owns and operates the La Colorada open-pit gold mine outside of Hermosillo in
Sonora, Mexico.
Effective March 31, 2004, the joint venture agreement with FG 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 Santa
Rita issued to FG a participation certificate entitling FG to receive five
percent of the Santa Rita's annual dividends, when declared. The participation
certificate also gives FG the right to participate, but not to vote, in the
meetings of Santa Rita's Board of Managers, Technical Committee and Partners.
Santa Rita 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 Santa Rita 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 Santa Rita's name. The foregoing has been completed.
In March 2002, we and our wholly-owned subsidiary, Leadville Mining & Milling
Holding Corporation ("Holding") sold all of the issued and outstanding shares of
stock of Minera Chanate to an unaffiliated party for a purchase price of
US$2,131,616, payable in three installments. We received the final installment
on December 9, 2002. In connection with the sale of Minera Chanate stock, we
incurred approximately $174,000 in commissions.
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.
("Ora"), another of our wholly-owned subsidiaries. Ora, in turn, leased the
foregoing land and mining claims to Minera Santa Rita.
2003-2004 Activities and Planned 2005 Activities
During fiscal 2003 and 2004, we continued to focus our efforts on the evaluation
of our Mexican properties - the El Chanate concessions. This evaluation involved
data reviews of existing geologic maps and reports, drill logs, assay results,
resource estimates, surface sample results, land titles and a feasibility study.
We utilized independent consultants, in conjunction with company personnel, in
this evaluation. We, along with our technical consultants, completed
2
reviews and reconnaissance of the 44 remaining early stage exploration
concessions. Following this evaluation, we elected to maintain and focus
exploration and development attention on 14 of the concessions totaling about
approximately 3,497 hectares (8,642 acres or 13.5 square miles). Management
believes that the combination of existing data and analysis generally supports
the existence of a gold deposit that warrants further exploration work. We also
actively sought, and we continue to actively seek, funding to prepare for and
commence mining operations (see "Part II, Item 6, Management's Discussion and
Analysis of Financial Condition and Results of Operations; Liquidity and Capital
Resources").
In August 2002, we retained SRK's (a global engineering company) Denver,
Colorado office 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 (the
"Study"). M3 completed the study in August 2003. Based on 253 drill holes and
more than 22,000 gold assays, the study provides details for an open pit gold
mine. The Study indicates 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 over a five year mine life.
The study assumes a production rate of 2.6 million tonnes of ore per year or
7,500 tonnes per day, operating at 345 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. If financing for the
project is obtained and required permitting is completed by the end of 2004, and
if the necessary mining plant, equipment and facilities are acquired, an
adequate water supply is secured, and power lines to the mine are constructed,
we anticipate, but cannot assure, that the mine will commence full commercial
production in December of 2005.
Pursuant to the Study, based on the current reserve calculations, the mine life
is estimated to be 62 months. The study forecasts initial capital costs of $13.8
million, which includes $2.1 million of working capital. Average initial annual
production is planned at approximately 48,000 to 50,000 ounces per year at an
average operating cash cost of $229 per ounce. This cash cost may decrease as
the production rate increases. Total costs will vary depending upon the price of
gold (due to the nature of underlying payment obligations to the original owner
of the property); they are estimated to range between $292 per ounce at a gold
price of $310 per ounce and $299 per ounce at a gold price of $370 per ounce. We
will be working on measures to attempt to reduce costs going forward. Reserves
and production rates are based on a gold price of $325 per ounce, which is the
Base Case of the Study. Between January 1, 2004 and September 30, 2004, the
fixed price for gold on the London Exchange has fluctuated between $373 and $428
per ounce.
Management believes that the capital costs to establish a surface, heap leach
mining operation at El Chanate may approximate $16 million. Financing, is being
sought through bank loans, the sale of equity and/or joint venturing. In this
regard, we had executed a royalty financing term sheet with Royal Gold, Inc., of
Denver, Colorado to supply the $13.8 million, as specified in the
3
Study. However, in April 2004, we and Royal Gold mutually agreed not to proceed
because the parties could not agree on final terms. Normal expenditures for the
next fiscal year in New York and Mexico, such as Colorado holding costs, general
administration, accounting and legal are estimated to be approximately $915,000
and non-capital items for the Chanate mine development and related activities
being estimated at $430,000zz. As discussed below in "Item 6. Management's
Discussion and Analysis of Financial Condition and Results of Operations;
Liquidity and Capital Resources," all of our planned activities are dependent
upon our ability to obtain adequate financing.
Management continues to be encouraged by results to date however, there can be
no assurance that we will be able to establish and open a mine at El Chanate
that any mining will be profitable or that necessary additional funding can be
obtained. Assuming that we are able to obtain adequate funding, we intend to
continue development work at the El Chanate project. (See "Part II, Item 6,
Management's Discussion and Analysis of Financial Condition and Results of
Operations; Liquidity and Capital Resources").
In March 2003, we obtained exclusive options to purchase an ore crusher and
related assets (spare parts for the crusher and certain transportable building
structures). These assets were located in Sonora, Mexico, approximately 70 miles
from the El Chanate Concessions. The total cost for these assets (exclusive of
the option cost) was to be $700,000. The owner of these assets could not obtain
rights of clear passage from surrounding property owners and we did not acquire
this equipment. We continue to look for comparable equipment to acquire.
Management believes the project will benefit substantially from rising gold
prices, which are currently above $400 per ounce. Mineralized material
previously below operating cut-off gold grades could possibly become economic if
future engineering studies support lowering the cutoff grade due to gold prices
substantially above the $325 per ounce used in the feasibility study to define
the proven and probable reserves mentioned above. We are currently looking at
equipment and processing techniques that may be capable of supporting higher
production rates that may be justified due to rising gold prices.
In this regard, 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, we are analyzing with core drilling the conditions that
might allow an enlarged open pit to include ores from the Los Dos Virgens zone.
The third core hole was drilled
4
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 are now underway at Metcon's laboratories 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 are being tested at crush sizes of 100 percent -3/8 inch and
100 percent -1/4 inch, and these column tests are showing encouraging recovery
rates. If these gold recoveries are within an economic range and with rising
gold prices, management believes the ore reserves may be increased beyond the
level currently published in the feasibility study. While we are optimistic
about the results, there can be no assurance that improved gold recoveries 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 gold mining project. These permits also cover the operation of a
heap-leach gold recovery system.
Leadville, Colorado Developments
During the fiscal year ended July 31, 2004, activity at our Leadville, Colorado
properties consisted primarily of mine maintenance. Primarily as a result of our
focus on El Chanate, we temporarily 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. (see, "Part II, Item 6, Management's
Discussion and Analysis of Financial Condition and Results of Operations;
Results of Operations").
Company Mill at Leadville
We have a mill situated on a 20.73-acre site in Leadville, Colorado.
Construction of the mill began in 1987 and was completed in August of 1989. The
mill is not in operation at this time.
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. However, should we
commence mining operations at our Leadville property; we believe that there is
no material competition in the sale of metallic products because prices are
based upon standards established by the commodity exchange (London Metals
Exchange Market).
5
Employees
As of October 31st, 2004, we had six full time employees and/or consultants.
Item 2. Description of Properties
El Chanate Properties - Sonora, Mexico
Through our wholly-owned subsidiary, Oro de Altar S. de R. L. de C.V., and our
affiliate, Santa Rita, we own 100% of the following 14 mining concessions, all
of which are located in the Municipality of Altar, State of Sonora Republic of
Mexico, subject to the terms of our joint venture agreement with FG which allows
FG to earn up to a 45% interest in the venture.
----------------------
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Concession Name Title No. Hectares
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1 San Jose 200718 96.0000
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2 Las Dos Virgen 214874 132.2350
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3 Rono I 206408 82.1902
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4 Rono 3 214224 197.2180
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5 La Cuchilla 211987 143.3481
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6 Elsa 212004 2,035.3997
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7 Elisa 214223 78.4717
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8 Ena 217495 190.0000
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9 Eva 212395 416.8963
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10 Mirsa 212082 20.5518
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11 Olga 212081 60.5890
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12 Edna 212355 24.0431
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13 La Tira 219624 1.7975
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14 La Tira 1 219623 18.6087
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Total 3,497.3491
Surface Property Ownership
Emisa 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. Santa Rita, 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.
6
Leadville, Colorado Properties
We own or lease the following patented claims (except where noted) and
properties, all of which are located in California Mining District, Lake County,
Colorado, Township 9 South, Range 79.
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Gross Net
Claim Percent Acreage Acreage
Count Ownership CLAIM NAME CLAIM# of Claim of Claim
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Claims and Properties owned by Capital Gold Corporation
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1 16% Ballard 589 3.200 0.512
2 50% Belle Placer 2778 129.000 64.500
3 13% Belle Placer 2778 16.800
4 100% Bonanza 1088 5.920 5.920
5 25% Boulder Nest 3574 6.480 1.620
6 8% Chestnut 712 9.400 0.752
7 50% CHICAGO 1295 10.200 5.100
8 100% Chieftain 978 8.550 8.550
9 100% Codfish Balls 767 2.600 2.600
10 88% Colman 9747 1.320
11 100% Cyclops 1567 8.700 8.700
12 100% Devlin 1579 7.600 7.600
13 38% EMMA 756 8.300 3.154
14 75% Free America #2 1177 4.200 3.150
15 100% Golden rod 9441 4.000 4.000
16 50% Greenback 1043 4.000 2.000
17 100% Highland Chief 429 2.100 2.100
18 100% Highland Mary 539 6.600 6.600
19 32% J G Fraction 13251 1.700 0.544
20 38% Little Bertha 504 8.400 3.192
21 11% Little Chief 358 6.980 0.763
22 13% Little Galesburg 1176 6.000 0.780
23 100% MIKADO 8015 9.300 9.300
24 11% New Discovery 286 10.700 1.170
25 50% NEW YORK 1294 10.100 5.050
26 100% Personal Property in Lake Co ******
27 96% PHARMACIST 11617 1.200 1.152
28 6% President 8942 0.414
29 50% Pride of the Hills 3963 0.900 0.450
30 63% PROSPERINE & 5214 9.900 6.237
31 100% PT ZUNI PLACER ****** 20.700 22.000
32 75% PUEBLO 12718 36.600 27.450
33 39% Pyrenees 1537 6.800 2.652
34 100% R A M 1566 5.900 5.900
35 100% Robert Burns 538 9.900 9.900
36 100% Security 3181 2.850 2.850
37 25% Stray Horse 301 7.300 1.825
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Totals 376.080 246.608
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Claims Leased by Capital Gold Corporation
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1 12% Colman 9747 1.500 0.180
2 44% President 8942 6.900 3.036
3 3% Big Six (West End) 1616 3.700 0.111
4 3% Elbert 4163 9.900 0.297
5 3% Greenwood 630 9.400 0.282
6 3% Little Maud 758 4.860 0.028
7 100% Comstock 1542 3.500 3.500
8 100% Homestake 1540 7.600 7.600
9 100% Lady Jane 491 8.900 8.900
10 100% Little Chippewa 655 9.900 9.900
11 19% Ohio 584 9.240 1.756
7
12 100% Silver Spray 1539 2.100 2.100
13 100% Wade Hampton 1538 6.100 6.100
14 13% Great Hope 489 10.300 1.339
15 100% St. Ann 4640 6.700 6.700
16 100% St. Louis 558 8.000 8.000
17 100% Curran 449 8.800 8.800
18 100% Grand Prize 473 AM 4.500 4.500
19 83% Ishpeming 1018 6.806
20 92% XYT 4162 6.532
21 50% Medium 13344 4.800 2.400
22 50% Medium 13344 2.400
23 88% Little Galesburg 1176 5.250
24 100% Cora Belle 3919 6.700 6.700
25 8% Big Six (West End) 1616 0.296
26 8% Elbert 4163 0.792
27 8% Greenwood 630 9.400 0.564
28 8% Ishpeming 1018 8.200 0.656
29 8% KRL 4299 4.700 0.376
30 8% Little Maud 758 0.392
31 8% Mineral Farms 1359 9.100 0.728
32 8% Minnesota 2651 2.800 0.224
33 8% Park 838 10.300 0.824
34 8% Park#2 897 9.700 0.776
35 8% Silver Cloud 1016 4.900 0.392
36 8% Snow 4161 3.714 0.296
37 8% XYT 4162 7.100 0.568
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Totals 203.314 110.100
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Total of Owned and Leased Properties 579.39 356.71
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Claims owned by Highland Group
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1 100% Hubert 11286 1.140 1.140
2 100% JFW 15176 0.023 0.023
3 100% Rocky & Snowflake 5038 9.395 9.395
4 100% Tokio 9923 1.007 1.007
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Totals 11.565 11.565
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Claims Purchased at tax lien sales
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1 81% Blue Belle#4*** 11121 7.594 6.170
2 81% Blue Belle#5***** 11121 5.530 4.479
3 100% Bow**** 11777 3.139 3.139
4 100% Christmas**** 763 5.120 5.120
5 100% Content Liberty &Gold Belt*** 9373 21.330 21.330
6 100% County Line*** 11359 7.748 7.748
7 100% Dauntless*** 579 10.330 10.330
8 17% Dolphin ** 719 1.987 0.331
9 11% Elmore**** 636 10.200 1.169
10 50% Famous*** 4554 3.991 1.996
11 100% Fortune*** 2309 4.921 4.921
12 100% Frame House Smelter ******
13 100% Gnome**** 1010 2.920 2.920
14 100% Golconda**** 3690 5.250 5.250
15 100% Grand View*** 621 2.450 2.450
16 100% Herman Placer**** 743 95.540 95.540
17 10% Horseshoe ** 1493 5.480 0.542
18 100% Jew**** 7141 1.480 1.480
19 8% King Soloman ***** 769
20 100% Kokomo*** 892 8.211 8.211
21 100% Little Ellen **** 550 10.140 10.140
22 100% Little Rische*** 412 9.710 9.710
23 100% Midnight**** 4532 4.310 4.310
24 100% Moquito*** 4542 2.467 2.467
25 8% Negro Infant ***** 795 4.820 0.371
26 100% New Year**** 496 9.300 9.300
27 100% Office Bldg*** --
28 81% Ohio ***** 584 9.240 7.508
8
29 8% Park ** 838 0.858
30 88% Penfield*** 2308 3.576 3.129
31 100% Polaris #1-3**** 12486 5.720 5.720
32 100% Pt. Oro*** 283 3.366 3.366
33 100% Sailing Cissy #1*** 11121 6.336 6.336
34 100% Sailing Cissy #2*** 11121 5.412 5.412
35 75% Shale*** 11121 9.684 7.263
36 28% Silent Friend**** 595 4.650 1.308
37 40% Silent Friend 192/480 **** 595 1.860
38 100% Slide**** 6455 2.810 2.810
39 100% South Fork**** 623 10.160 10.160
40 100% Summit & Summit #2**** 6590 20.156 20.156
41 100% Uintah Placer mill**** 2407 4.473 4.473
42 100% Uintah Placer(tract 5)**** 2407 2.273 2.273
43 60% Wall Street*** 1000 3.060 2.295
44 100% What is Left*** 4970 7.100 7.100
-----------------------------------------------------------------------------------------------------------------------
Totals 341.984 311.451
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Unpatented Mining Claims, Bureau of Land Management
-----------------------------------------------------------------------------------------------------------------------
1 100% COLUMBINE CMC-248958 7.300 7.300
2 100% JUDY CMC-248957 18.000 18.000
3 100% New Comstock (unpatented) CMC-248955 5.000 5.000
4 100% New Comstock (unpatented) CMC-248956 5.000 5.000
-----------------------------------------------------------------------------------------------------------------------
Totals 35.300 35.300
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Summary Of Information
-----------------------------------------------------------------------------------------------------------------------
Gross Acres Net Acres
-----------------------------------------------------------------------------------------------------------------------
Claims owned by Capital Gold Corporation 376.080 246.608
Claims leased by Capital Gold Corporation 579.394 356.708
Claims owned by Highland Group (affiliated) 11.565 11.565
Claims purchased at tax lien sales 442.617 311.451
Unpatented Mining Claims, BLM 35.300 35.300
-----------------------------------------------------------------------------------------------------------------------
Total 1,444.956 961.631
-----------------------------------------------------------------------------------------------------------------------
** Purchased at tax lien sale/delinquents, pending completion of payments (year 1999).
*** Purchased at tax lien sale, pending completion of payments (year 2001)
**** Purchased at tax lien sale, pending completion of payments, Paid two years taxes (2000, 2001)
***** Purchased at tax lien sale, pending completion of payments (year 2003)
****** Represents a property, not a claim.
Note: We may have multiple agreements for the same claim that cover fractional ownership interests.
CMC = Unpatented claim
-----------------------------------------------------------------------------------------------------------------------
We own or have rights to explore, develop and mine the foregoing claims as
indicated. We have not formed any partnership or joint venture regarding these
claims, nor have we entered into any associations whereby profits or expenses
are to be shared. The claims are located approximately 2.5 miles northeast of
the town of Leadville, Colorado and are accessible by County Road. The principal
acreage forms a contiguous group and is located on a prominent topographic
feature known as Breece Hill, as indicated in the discussion of the Hopemore
Project below.
9
The following claims that were purchased at the tax lien sales were redeemed by
the original claim owners during the past year: Little Annie, Mill site, Ready
Cash and Resurrection#1-15. We were reimbursed for taxes paid on these
properties plus 12% annual interest.
We dropped the following properties that were acquired at the November 2002 tax
lien sale (sold for non-payment of 2001 taxes) in November of 2003 by not paying
further taxes: Leadville Corp (cinder Block Bldg) (not moveable); LC Lots154,
156, 158 (Stringtown); LC Lots 2,4,6,8 &10 (Stringtown); LC Lots 209, 210, 211,
212, 213; LC Lots 219, 220, 221, 222, 223; LC Lots224 225; LC Lot 227, 228, 229,
230, 231; LC Lots 232, 233, 234, 235; Martinez, house; and Mill site (Mining
Claim) (slab heaps). We viewed the lots as having limited liquidity due to their
location.
General Information
El Chanate Project - Sonora Mexico
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. Driving time from Caborca is approximately 40 minutes. Access is via 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 bodies 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 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 intercalated sandstone lenses and
thin limestone interbreds; it lies below the Chanate fault and is assigned to
the Arroyo Sasabe Formation of the Lower Cretaceous
10
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 7km 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 sericised, silicified and pyritized to varying
degrees. In surface outcrop the altered zone is distinguished by its bleached
appearance relative to unaltered rock. The mineralized zone contains only single
digit ppm levels of silver. Dense swarms of vein lets 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-magnetometry
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
11
assays were obtained both for core samples and for reverse drill samples that
initially assayed greater than 0.3 gm/tonne. Chemex Labs, Vancouver, Canada,
preformed both the initial and the check assays, and the check assays supported
the initial assay results.
Metallurgical studies and independent tests of El Chanate mineralization
continue. Management believes that these tests continue to show promise that
heap leach technology can be utilized at El Chanate.
Our Current Plans for the El Chanate Project
Assuming that adequate funding and remaining required permits are obtained, we
anticipate beginning project construction before the end of the calendar year
2005. Our current plans over the next 12 months include:
Environmental and Permitting. We already own the surface over the deposit. We
will need to obtain water permits for processing ores, electrical permits to
purchase or produce our own power and use of soil permits. We also need to
establish reclamation plans. These permits were recently completed and filed
with the proper government agencies. Other permits, including, mining and
processing permits, have been issued.
Site Construction. We plan to construct a surface gold mine and facility capable
of producing about 2.6 million metric tons per year of ore and about 48,000 to
50,000 ounces of gold per year, over a five year mine life, at a targeted cash
cost of less than $230 per ounce.
If we are not able to obtain adequate funding, we will need to cut back or
curtailed our plans.
Hopemore Project - Leadville, Colorado
The Leadville mining district is located 100 miles west of Denver, Colorado in
the heart of the Rocky Mountains. The weather is harsh with long winters and
short summers. The Hopemore Project can be reached by paved state highway and
other gravel roads. Work by us started in 1984 with the acquisition of the
Comstock Hopemore Group of claims. Retimbering of the entire Hopemore shaft
followed along with establishment of the new 7th level, partial rehabilitation
of the other levels, several raises, the 5th level connection with the Hunter
shaft, construction of a mill and the retimbering of the Hunter escape shaft.
Historically, our properties were worked as separate mining areas, the Hopemore
and Hunter shafts in the Ibex area. The ores were not concentrated by milling
but were shipped directly to the Arkansas Valley Smelter in Leadville.
The Hopemore shaft was worked as part of the Ibex mines until approximately
1902. The Hopemore shaft was sunk in 1907 to reach the 7th level of the Ibex No.
4 mine. Ore bodies in the Leadville dolomite (Blue limestone) lie on the hanging
wall side (southwest) of the Ibex No. 4 vein. The ore is associated with a large
magnetite skarn replacement body in the Leadville dolomite. The Leadville
dolomite hosted ore on the shallow footwall (northeast) side of the Ibex No. 4
vein was mined via the Hunter Shaft. Mineralization in the Hunter workings is
oxidized, where as mineralization in the Hopemore mine is un-oxidized.
12
Ground conditions in the district generally do not allow open stopes, therefore,
square setting and backfilling with waste of low-grade ore was commonly
practiced. When the large historic ore bodies of the Hopemore were mined, zinc
sulfide ore was of no value.
The Hopemore area historically has been mined from the Ibex No. 7 level. The
lower host rocks of the Manitou and Dyer formations are thought to remain
unexplored. Steep sulfide veins commonly control the mineralized zones. Four
veins have been identified which could feed replacement mineral bodies in these
underlying formations.
Geology
The deposits in the Leadville district include precious and base metal massive
sulfide veins and carbonate hosted deposits near surface oxidized deposits, gold
bearing magnetite skarns, and gold rich veins. The major ore bodies are hosted
in Paleozoic aged, shelf carbonate rocks with a total thickness of 600 feet.
These sedimentary rocks have been intruded by a series of sills and dikes and
faulted, resulting in complex geology. Our properties are located on Breece
Hill, on the margin of a major intrusive center. Carbonate host rocks on our
property contain magnetite and hematite skarn deposits with local gold, silver
and base metal mineralization.
Weston Fault Massive Sulfide
The Weston fault forms the western boundary of the down-dropped block that
contains the deposits of the Black Cloud mine south and east of our properties.
The Black Cloud mine was operated from the early 1970's until 1998 by ASARCO,
primarily for lead and zinc. The Hopemore-Hunter workings are separated from the
Penn Group by the Weston fault that has had a complex history of movement. Early
compressional tectonics are believed to have resulted in minor over thrusting
and drag folding, possibly similar to that along the Tucson Main Fault on Iron
Hill. Later normal faulting resulted in a near vertical structure with the east
side down faulted. These two episodes of movement are believed to have produced
two strands of the Western Fault.
Weston Fault Stockwork Breccia
Along the southern strike of the Weston fault zone, intersecting faults have
hosted stockwork breccia zones that contain precious metals and are low in
sulfides. The Antioch mine was mined for precious metals during the early part
of the twentieth century, producing a siliceous gold ore contained in a broken
and brecciated porphyry body between two fault strands. Another similar
stockwork breccia ore zone is known as the South Ibex stockwork or Capital stope
that contained approximately 250,000 tons of mineralized rock. There are two
strands of the Weston fault on our property. The strike length controlled is
from 1,400-1,600 feet.
As noted in "Part I, Item 1, Description of Business" above, we have ceased
activities in Leadville, Colorado, primarily as a result of our focus on El
Chanate.
13
Item 3. Legal Proceedings
We are not presently a party to any material litigation
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of our shareholders during the fourth
quarter of fiscal 2004.
PART II
Item 5. Market for Common Equity, Related Stockholder Matters and Small Business
Issuer Purchases of Equity Securities.
(a) Marketing Information -- The principal U.S. market in which our common
shares (all of which are of one class, $.001 par value Common Stock) are traded
or will trade is in the over-the-counter market (Bulletin Board Symbol: "CGLD").
Our stock is not traded or quoted on any Automated Quotation System.
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 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).
MARKET PRICE OF COMMON STOCK
Bid
---
Quarter Ending High and Low
-------------- ------------------
October 31, 2004 0.33 0.19
July 31, 2004 0.29 0.20
April 30, 2004 0.58 0.27
January 31, 2004 0.65 0.23
October 31, 2003 0.28 0.20
July 31, 2003 0.43 0.23
April 30, 2003 0.33 0.19
January 31, 2003 0.26 0.12
October 31, 2002 0.18 0.12
(b) Holders -- The approximate number of record holders of our Common
Stock, as of November 2, 2004 amounts to 1,581 inclusive of those brokerage
firms and/or clearing houses holding our common shares for their clientele (with
each such brokerage house and/or clearing house being considered as one holder).
The aggregate number of shares of Common Stock outstanding is 59,700,724 as of
November 2, 2004.
14
(c) Dividends - We had not paid or declared any dividends upon our Common
Stock since inception and, by reason of our present financial status and our
contemplated financial requirements, do not contemplate or anticipate paying any
dividends upon our Common Stock in the foreseeable future.
During the quarter 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 1,490,095 shares for
an aggregate of $186,539 to 24 persons. We issued 250,000 common stock options
each to Messrs. Dieterle, Roningen, Pritchard, Everett and Newell exercisable at
$.22 per share expiring on May 25, 2007. We also issued 250,000 shares to one
individual for administrative services.
We did not repurchase any of our securities during the fiscal year ended July
31, 2004.
The following table gives information about our Common Stock that may be issued
upon the exercise of options, warrants and rights under all of our equity
compensation plans as of July 31, 2004.
Number of Number of securities
Securities to be remaining available
issued upon Weighted-average for future issuance
exercise of exercise price of under equity
outstanding outstanding compensation plans
options, warrants options, warrants (excluding securities
Plan Category and rights and rights reflected in column (a))
====================================================== =================== =================== ==========================
(a) (b) (c)
=================== =================== ==========================
Equity compensation plans approved by security
holders: -0- $ -0- N/A
========== ======== ==============
Equity compensation plans not approved by security
holders: 318,182 $ .022 N/A
200,000 .25 N/A
4,570,454 .05 N/A
100,000 ..20 N/A
100,000 .24 N/A
1,500,000 .21 N/A
100,000 .41 N/A
========== ======== ==============
Total 6,886,636 $.11 N/A
========== ======== ==============
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Cautionary Statement on Forward-Looking Statements
Some information contained in or incorporated by reference into this report on
Form 10-KSB may contain "forward-looking statements," as defined in Section 21E
of the Securities and
15
Exchange Act of 1934. These statements include comments regarding exploration
and mine development and construction plans, costs, grade, production and
recovery rates, permitting, financing needs, the availability of financing on
acceptable terms or other sources of funding, and the timing of additional
tests, feasibility studies and environmental permitting. The use of any of the
words "anticipate," "continue," "estimate," "expect," "may," "will," "project,"
"should," "believe" and similar expressions are intended to identify
uncertainties. We believe the expectations reflected in those forward-looking
statements are reasonable. However, we cannot assure you that these expectations
will prove to be correct. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of the risk factors
set forth below and other factors set forth in, including the section "Issues
and Uncertainties" below, or incorporated by reference into, this report:
o worldwide economic and political events affecting the supply of and
demand for gold;
o volatility in market prices for gold and other metals;
o financial market conditions, and the availability of debt or equity
financing on terms acceptable to us;
o uncertainties as to whether additional drilling, testing and
feasibility studies will establish reserves at any of our
properties;
o uncertainties associated with developing a new mine, including
potential cost overruns and the unreliability of estimates in early
states of mine development;
o uncertainties as to title to our properties and the availability of
sufficient properties to allow for planned activities at El Chanate
in Mexico and at Leadville in Colorado;
o variations in ore grade and other characteristics affecting mining,
crushing, milling and smelting operations and mineral recoveries;
o geological, metallurgical, technical, permitting, mining and
processing problems;
o the availability and timing of acceptable arrangements for power,
transportation, mine construction, contract mining, water and
smelting; the availability, terms conditions and timing of required
government approvals;
o uncertainties regarding future changes in tax and foreign-investment
legislation or implementation of existing tax and foreign-investment
legislation;
o the availability of experienced employees; and
o political instability, violence and other risks associated with
operating in a country like Mexico with a developing economy.
Many of those factors are beyond our ability to control or predict. You should
not unduly rely on these forward-looking statements. These statements speak only
as of the date of this report on Form 10-KSB. Except as required by law, we are
not obligated to publicly release any revisions to these forward-looking
statements to reflect future events or developments. All subsequent
16
written and oral forward-looking statements attributable to us and persons
acting on our behalf are qualified in their entirety by the cautionary
statements contained in this section and elsewhere in this report on Form
10-KSB.
Results of Operations
Fiscal year ended July 31, 2004 compared to fiscal year ended July 31, 2003
Revenues.
We generated no revenues from mining operations during the fiscal year ended
July 31, 2004 and 2003. We generated interest income during the 12 months ended
July 31, 2004 of approximately $4,000 a decrease of $28,000 from the 12 months
period ended July 31, 2003 ($32,000). This decrease resulted from lower cash
balances and interest collected on the sale of our subsidiary, Minera Chanate,
stopped during 2003 due to the full collection of the receivable.
Costs and Expenses.
Over all, costs and expenses during the 12 months ended July 31, 2004
($2,040,000) decreased by $48,000 (approximately 2.3%) from the 12 months ended
July 31, 2003 ($2,088,000). However, this decrease primarily relates to an
increase in the write down of mining and milling properties ($300,000) offset by
a decrease in other costs and expenses.
In accordance with SFAS 144, "Accounting for the Impairment and Disposal of
Long-Lived Assets), we review our long-lived assets for impairment. 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, we performed a review of our
Colorado mine and mill improvements and determined that an impairment loss
should be recognized. Accordingly, at July 31, 2002, we reduced by $999,445 the
net carrying value of certain assets relating to our Leadville, Colorado
facility to $300,000. At July 31, 2004, we further reduced the net carrying
value to $0, which approximates our management's estimate of fair value.
Mine expenses during the 12 months ended July 31, 2004 ($673,000) decreased by
$356,000 (approximately 34.6%) from the 12 months ended July 31, 2003
($1,029,000). We believe that the decrease in mine expenses resulted primarily
from the termination of the joint venture agreement in Mexico.
Selling, general and administrative expenses during the 12 months ended July 31,
2004 ($688,000) decreased by $83,000 (approximately 10.8%) from the 12 months
ended July 31, 2003 ($771,000). We believe that the decrease is due to a
decrease in miscellaneous administrative costs.
17
Other Expenses:
During the year ending July 31, 2004, we incurred a loss of $800,000 on the
joint venture termination. In addition, a loss of $150,000 resulted from the
minority interest write-off.
Stock based compensation increased $90,000 approximately (31.1%) during the 12
months ended July 31, 2004 ($379,000) from the 12 months ended July 31, 2003
($289,000).
Net Loss.
As a result, our net loss for the 12 months ended July 31, 2004 was $2,939,000,
which was $1,020,000 more than our $1,919,000 loss for the 12 months ended July
31, 2003.
Loss from Changes in Foreign Exchange Rates
During the year ended July 31, 2004, we recorded equity adjustments from foreign
currency translations of approximately $25,000. These translation adjustments
are related to changes in the rates of exchange between the Mexican Peso and the
US dollar.
Liquidity and Capital Resources
As of July 31, 2004, we had working capital of approximately $183,000. As noted
below, management anticipates that we will need at least $1,345,000 in order to
carry out our plans for fiscal 2004 which includes the costs of administration
and mine related activities and an additional $16 million in order to develop a
surface mine at the El Chanate project if it continues to be deemed economically
feasible. To the extent that cash flow is unavailable, management intends to
raise all necessary capital through bank financing, the sale of our securities,
the sale of a royalty interest in the future production from the Chanate
properties and/or joint venturing with one or more strategic partners.
Assuming that we are able to obtain funds, planned activities over the next
twelve months in Mexico, in order of priority, are as set forth below. Some of
these activities may not be completed by July 31, 2005, the end of our current
fiscal year.
Activity Estimated Cost
-------- --------------
Sonora, Mexico
Permitting and Public Relations 11,000
Water Rights/Well Acquisition 200,000*
Road Construction 30,000
Building down payment 20,000
Land Taxes 44,000
Employee Salaries, and Consultants 125,000
----------
Subtotal 430,000
Leadville, Colorado
Holding cost, maintenance, insurance 40,000
New York, NY - Admin.
New York Office 690,000**
Mexican legal, accounting, 75,000
Mining and Geological Consultants 150,000
----------
Subtotal Maintaining minimum operations 915,000
Project Development (Senior financing) 16,000,000
Total 17,345,000
==========
18
-----------
* This significant increase results from our determination to purchase two
nearby existing wells rather than searching for and drilling our own
wells. We believe that this is less risky.
** Includes rent and related costs, New York Salaries, taxes, U.S. legal and
accounting expenses, and other U.S. general and administrative costs.
Until July 31, 2003, we had been funding these basic requirements through funds
obtained from our sale of Minera Chanate. All of the proceeds from the sale have
been expended. During the year ended July 31, 2004, we obtained approximately
$1,300,000 from the issuance of Common Stock. All of our planned activities are
dependent upon our ability to obtain adequate financing. Financing, is being
sought through bank loans, the sale of equity, royalty arrangements and/or joint
venture arrangements. In this regard, we are actively looking for financing for
construction of the El Chanate open-pit gold mine in Sonora, Mexico. We had a
term sheet for funding from Royal Gold. However, in April 2004, we and Royal
Gold mutually agreed not to proceed because the parties could not agree on final
terms. We believe that equity financing may provide certain attractive
alternative sources of project funding and we are exploring those possibilities.
Unless and until we obtain adequate financing on acceptable terms, we will not
be able to move forward with full-scale construction of the mine. There is no
assurance whatsoever that we will generate any operating revenues during the
fiscal year ending July 31, 2005 or that any of our proposed plans to raise
capital and otherwise fund operations will prove successful. Our inability to
obtain sufficient funding will delay our planned operations or, possibly, force
us to go out of business.
Our audited 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 are a development stage
enterprise and have recurring losses from operations and operating cash
constraints that raise substantial doubt about our ability to continue as a
going concern.
Environmental Issues
Management does not expect that environmental issues will have an adverse
material effect on our liquidity or earnings. Before any additional exploration
or any development or mining or
19
construction of milling facilities could begin at our Leadville properties, it
would be necessary to meet all environmental requirements and to satisfy the
regulatory agencies in Colorado that our proposed procedures fell within the
boundaries of sound environmental practice. We currently are bonded to insure
reclamation of any areas disturbed by our past activities. The current amount of
this bond is $35,550. In Mexico, we are not aware of any significant
environmental concerns or existing reclamation requirements at the El Chanate
properties. We received the required Mexican government permits for
construction, mining and processing the El Chanate ores in January 2004.
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 Possible 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 $0.05 per metric tonne of material to be milled
on a continual, ongoing basis to provide primarily for reclaiming tailing
disposal sites and other reclamation requirements. At this time, there do not
appear to be any environmental costs to be incurred by us beyond those already
addressed above. No assurance can be given that environmental regulations will
not be changed in a manner that would adversely affect our planned operations.
Off-Balance Sheet Transactions
We do not have any transactions, agreements or other contractual arrangements
that constitute off-balance sheet arrangements.
APPLICATION OF 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
impairment of long-lived assets, accounting for stock-based compensation and
environmental remediation costs.
In accordance with SFAS 144, "Accounting for the Impairment and Disposal of
Long-Lived Assets" we review our 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, we performed a review of our
Colorado mine and mill improvements and
20
determined that an impairment loss should be recognized. Accordingly, at July
31, 2002, we reduced by $999,445 the net carrying value of certain assets
relating to our Leadville, Colorado facility to $300,000, and further reduced
the net carrying value to $0 at July 31, 2004, which approximates management's
estimate of fair value.
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 our 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, 2004.
ISSUES AND UNCERTAINTIES
The following issues and uncertainties, among others, should be considered in
evaluating our financial outlook.
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 no current source
of operating revenue and 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 the El Chanate project.
We lack operating cash flow and rely on external funding sources. If we
are unable to continue to obtain needed capital from outside sources, we
will be forced to reduce or curtail our operations.
We do not generate any positive cash flow from operations and we do not
anticipate that any positive cash flow will be generated for some time. We have
limited financial resources. Leases and licenses that we hold impose financial
obligations on us. As a result we need to obtain additional capital from outside
sources to continue operations and affect our business plan. We cannot assure
that adequate additional funding will be available. If we are unable to continue
to obtain needed capital from outside sources, we will be forced to reduce or
curtain our operations. Mining costs quotes were received in 2003 from selected
qualified mining contractors and these bids range from 13% to 45% above
feasibility study costs. We are exploring ways to reduce these mining costs as
quoted by the potential contractors.
Further exploration and development of the mineral properties in which we hold
interests depends upon our ability to obtain financing through
o bank or other debt financing,
o equity financing,
o strategic partner joint venturing or
21
o other means.
Failure to obtain additional financing on a timely basis could cause us to
forfeit all or parts of our interests in some or all of the El Chanate
concessions and our Leadville properties, and reduce or terminate our
operations.
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 report have been prepared.
Our consolidated financial statements for the year ended July 31, 2004 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, 2004 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.
Our ability on a going forward basis to discover viable and economic
mineral reserves is subject to numerous factors, most of which are beyond
our control and are not predictable.
Exploration for gold is speculative in nature, involves many risks and is
frequently unsuccessful. Any gold exploration program entails risks relating to
o the location of economic ore bodies,
o development of appropriate metallurgical processes,
o receipt of necessary governmental approvals and
o 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:
o the price of gold,
o exchange rates,
o the particular attributes of the deposit, such as its
o size,
o grade and
o proximity to infrastructure,
o financing costs,
o taxation,
o royalties,
o land tenure,
22
o land use,
o water use,
o power use,
o importing and exporting gold and
o environmental protection.
The effect of these factors cannot be accurately predicted.
Aside from our El Chanate concessions, the mineral properties in which we have
an interest or right are in the exploration stages and are without reserves of
gold or other minerals. We cannot assure that current or proposed exploration or
development on our other properties in which we have an interest will result in
the discovery of gold mineralization reserves or will result in a profitable
commercial mining operation.
We have a limited number of prospects. As a result, our chances of
commencing 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. Our El Chanate concessions are owned by one of our wholly-owned
subsidiaries, Oro de Altar. Santa Rita, another of our Mexican subsidiaries,
leases the land and claims at El Chanate from Oro de Altar. FG, our former joint
venture partner, has the right to receive five percent of Santa Rita's annual
dividends, when declared. We currently do not have operations on either of our
properties, and we must commence such operations to receive revenues.
Accordingly, we are dependent upon the success of the El Chanate concessions.
If we are unable to obtain a crushing system and other equipment for our
Mexican concessions at an acceptable cost, our ability to obtain requisite
funding for our planned mining operations and our anticipated results of
operations from mining at these concessions, once mining commences, may be
adversely affected.
In March 2003, we obtained exclusive options to purchase an ore crusher and
related assets (spare parts for the crusher and certain transportable building
structures). The options expired and the owner of these assets sold his interest
to a third party. We currently are in discussions with others for the
acquisition of equipment for use at our Mexican concessions. We are optimistic
about being able to acquire additional equipment at favorable costs; however,
there can be no assurance that we will be successful in acquiring these assets.
Moreover, our ability to acquire such equipment is subject to our ability to
obtain adequate necessary funding. If we are unable to obtain comparable
equipment at an acceptable cost, our planned mining operations and our
anticipated results of operations from mining at these concessions, once mining
commences, may be adversely affected.
23
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. Between January 1, 2004 and September 30,
2004, the fixed price for gold on the London Exchange has fluctuated between
$373 and $428 per ounce. Gold prices are affected by numerous factors beyond our
control, including:
o the level of interest rates,
o the rate of inflation,
o central bank sales,
o world supply of gold and
o 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.
Changes in regulatory or political policy could adversely affect our
exploration and future production activities.
Any changes in government policy may result in changes to laws affecting:
o ownership of assets,
o land tenure,
o mining policies,
o monetary policies,
o taxation,
o rates of exchange,
o environmental regulations,
o labor relations,
o repatriation of income and
o return of capital.
Any such changes may affect our ability to undertake exploration and development
activities in respect of present and 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.
24
Compliance with environmental regulations could adversely affect our
exploration and future production activities.
With respect to environmental regulation, environmental legislation generally is
evolving in a manner which will require:
o stricter standards and enforcement,
o increased fines and penalties for non-compliance,
o more stringent environmental assessments of proposed projects
and
o 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.
Mining Risks and Potential Inadequacy of Insurance Coverage could
adversely affect us.
If and when we commence mining operations at any of our properties, such
operations will involve a number of risks and hazards, including:
o environmental hazards,
o industrial accidents,
o labor disputes,
o metallurgical and other processing,
o unusual and unexpected rock formations,
o ground or slope failures,
o cave-ins,
o acts of God,
o mechanical equipment and facility performance problems and
o the availability of materials and equipment.
Such risks could result in:
o damage to, or destruction of, mineral properties or production
facilities,
o personal injury or death,
o environmental damage,
o delays in mining,
o monetary losses and
o possible legal liability.
Industrial accidents could have a material adverse effect on our future business
and operations. Although as we move forward in the development of any of our
properties we plan to obtain and maintain insurance within ranges of coverage
consistent with industry practice, we cannot be
25
certain that this insurance will cover 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 could
have a material adverse effect on us.
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,
the loss of whose services could have a materially adverse effect on our
operations.
We are dependent on a relatively small number of key personnel, the loss of any
one of whom could have an adverse effect on us. In addition, while certain of
our officers and directors have experience in the exploration and operation of
gold producing properties, we will remain highly dependent upon contractors and
third parties in the performance of our exploration and development activities.
As such there can be no guarantee that such contractors and third parties will
be available to carry out such activities on our behalf or be available upon
commercially acceptable terms.
There are uncertainties as to title matters in the mining industry. We
believe that we have good title to our properties; however, defects in
such title could have a material adverse effect on us.
We have investigated our rights to explore, exploit and develop our various
properties 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 of either the El Chanate concessions or our
Leadville properties will not be challenged or impugned by third parties or
governmental agencies. In addition, there can be no assurance that the
properties 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.
26
Should we successfully commence mining operations in the future, our
ability to remain profitable, should we become profitable, will be
dependent on our ability to find, explore and develop additional
properties. Our ability to acquire such additional properties will be
hindered by competition.
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.
Our property interests in Mexico are subject to the risks of doing
business in foreign countries.
We face risks normally associated with any conduct of business in foreign
countries 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 future
operations which, in turn, could have a material adverse impact on our future
cash flows, earnings, results of operations and financial condition. These risks
include the following:
o labor disputes,
o invalidity of governmental orders,
o uncertain or unpredictable political, legal and economic environments,
o war and civil disturbances,
o changes in laws or policies,
o taxation,
o delays in obtaining or the inability to obtain necessary governmental
permits,
o governmental seizure of land or mining claims,
o limitations on ownership,
o limitations on the repatriation of earnings,
o increased financial costs,
o import and export regulations, including restrictions on the export of
gold, and
o 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
27
would be affected by fluctuations in the value of the Mexican peso to the U.S.
dollar. At the present time, we have no plan or policy to utilize forward
contracts or currency options to minimize this exposure, and even if these
measures are implemented there can be no assurance that such arrangements will
be available, be cost effective or be able to fully offset such future currency
risks.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities", SFAS No. 147, "Acquisitions
of Certain Financial Institutions - and Amendment of FASB Statements No. 72 and
144 and FASB Interpretation No. 9", SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", and SFAS No. 150, "Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity", were recently issued. SFAS No. 146, 147, 149 and 150 have no current
applicability to us or their effect on the financial statements would not have
been significant.
Item 7. Financial Statements.
For the Financial Statements required by Item 7 see the Financial Statements
included at the end of this Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
There have been no changes in or disagreements with accountants with respect to
accounting and/or financial disclosure.
Item 8A. Controls and Procedures.
Gifford A Dieterle, our Chief Executive Officer and our Chief Financial Officer,
performed an evaluation of our disclosure controls and procedures, which have
been designed to permit us to effectively identify and timely disclose important
information. Taking into account our limited resources and current business
operations he concluded that the controls and procedures were effective as of
July 31, 2004 to ensure that material information was accumulated and
communicated to him and our other management, as appropriate to allow timely
decisions regarding required disclosure. During the quarter ended July 31, 2004,
we have made no change in our internal controls over financial reporting that
has materially affected, or is reasonably likely to materially affect, our
internal controls over financial reporting.
Item 8B. Other Information.
None.
28
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
The following table sets forth certain information concerning the directors and
executive officers of the Company:
First
Became
Name Age Director Position
---- --- -------- --------
Gifford A. Dieterle 72 9/22/82 President, Treasurer, Chief
Financial Officer &
Chairman of the Board
Robert Roningen 70 9/14/93 Director, Senior Vice President,
Secretary
Jack V. Everett 83 1/25/95 Director, Vice President - Exploration
Roger A. Newell 61 8/28/00 Director, Vice President -
Development
Jeffrey W. Pritchard 46 1/27/00 Director, Vice President -
Investor Relations
J. Scott Hazlitt 52 Vice President - Mine Development
Directors are elected at the meeting of shareholders called for that purpose and
hold office until the next shareholders 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, Chief Financial Officer and Chairman
of the Board of Directors of the Company. Mr. Dieterle was appointed President
in September 1997. He has been the Company's Chairman, Treasurer and Chief
Financial Officer since 1981. His highest educational degree is 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.
ROBERT RONINGEN, Senior Vice President, Secretary 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.
29
JACK V. EVERETT, Vice President - Exploration and Director, has been a
consulting mining geologist since 1971, with expertise in all phases of
exploration for base and precious metals. Following his 1947 graduation from
Michigan State University, he was District Geologist for Pickands Mather &
Company on the Cuyuna Iron Range, Minnesota. From 1951 to 1970, he was Chief
Geologist and Exploration Manager for W.S. Moore Company, Duluth, Minnesota an
iron mining company with gold and base metal sulfide holdings in the U.S. and
Canada.
ROGER A. NEWELL, Vice President - Development and Director, has been in the
mining industry for over 30 years. 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. He has been self-employed as a geologist since 2001. His
highest educational degree is a Ph.D. in mineral exploration from Stanford
University.
JEFFREY W. PRITCHARD, Vice President - Investor Relations and Director, has
worked for the Company 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. Jeff 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.
J. SCOTT HAZLITT, Vice President - Mine Operations, has been a geologist since
1974. He has been providing geological consulting services to the Company since
November 1999. From 1995 to 1999, he was Chief Geologist for Getchell Gold Corp.
Mr. Hazlitt received a B.Sc. degree in Geology from Fort Lewis College in
Durango, Colorado in 1974 and a M.Sc. degree in Economic Geology from Colorado
State University in Fort Collins, Colorado in 1985.
Compliance with Section 16(a) of The Securities Exchange Act of 1934
To our knowledge, based solely on a review of such materials as are required by
the Securities and Exchange Commission, no officer, director or beneficial
holder of more than ten percent of our issued and outstanding shares of Common
Stock failed to timely file with the Securities and Exchange Commission any form
or report required to be so filed pursuant to Section 16(a) of the Securities
Exchange Act of 1934, except that Messrs. Dieterle, Newell, Roningen, Everett
and Pritchard did not file forms 4 with regard to options issued to them during
2004.
Audit Committee Financial Expert
We do not have a financial expert. We believe that the cost of retaining a
financial expert at this time is too prohibitive given our current financial
condition and lack of operating revenues.
Code of Ethics
We adopted a Code of Ethics that applies to our officers, directors and
employees, including our principal executive officer, principal financial
officer and principal accounting officer. The Code of Ethics is publicly
available in the Management section on our Website at
30
www.capitalgoldcorp.com. If we make any substantive amendments to this code of
ethics or grant any waiver, including any implicit waiver, from a provision of
the code to our chief executive officer, principal financial officer or
principal accounting officer, we will disclose the nature of such amendment or
waiver on that Website or in a report on Form 8-K.
Item 10. Executive Compensation
The following table shows all the cash compensation paid or to be paid by the
Company or any of its subsidiaries, as well as certain other compensation paid
or accrued, during the fiscal years indicated, to the Chief Executive Officer
for such period in all capacities in which he served. Information concerning the
Chief Executive Officer relates to Gifford Dieterle.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
---------------------------------------------
Annual Compensation Awards Payouts
--------------------------------------- ---------------------- --------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
----------------------------- ---- --------- -------- --------- ---------- --------- --------- ---------
Other Restricted All Other
Annual Stock LTIP Compensa-
Name and Principal Bonus Compen- Award Options Payouts tion
Position Year Salary ($) sation($) ($) SARs ($) (i)
----------------------------- ---- --------- -------- --------- --------- --------- --------- -----
Gifford A. Dieterle 2004 104,000 20,000 -0- -0- 250,000 -0- -0-
Chief Executive 2003 70,856 23,400 -0- -0- -0- -0- -0-
Officer 2002 70,642 -0- -0- -0- -0- -0- -0-
31
The following table sets forth information with respect to the Company's
Executive Officers concerning the grants of options and Stock Appreciation
Rights ("SAR") during the past fiscal year:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
(a) (b) (c) (d) (e)
--------------------------------------------------------------------------------------------
Percent of Total
Options/SARs
Options/ Granted to
SARs Employee in Exercise or Base Expiration
Name Granted Fiscal Year Price ($/SH) Date
--------------------------------------------------------------------------------------------
Gifford A. Dieterle 250,000 13.8% $.21 3-16-07
Rogert N. Roningen 250,000 13.8% $.21 3-16-07
Jack V. Everett 250,000 13.8% $.21 3-16-07
Roger A. Newell 250,000 13.8% $.21 3-16-07
Jeffrey W. Pritchard 250,000 13.8% $.21 3-16-07
The following table sets forth information with respect to the Company's
Executive Officers 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/ Exercisable/
Name Exercise (#) Realized Unexercisable Unexercisable
-------------------------------------------------------------------------------------------------------
Gifford A. Dieterle -- -- 1,500,000 $330,000
Robert N. Roningen -- -- 750,000 $165,000
Jack V. Everett 300,000 $77,000 250,000 $ 55,000
Jeffrey W. Pritchard -- -- 622,727 $136,400
Roger A. Newell 272,727 79,127 977,273 $215,000
Scott Hazlitt -- -- 725,000 $159,500
Directors are not compensated for acting in their capacity as Directors.
Directors are reimbursed for their accountable expenses incurred in attending
meetings and conducting their duties.
For information on compensation arrangements with our executive officers, please
see "Part III, Item 12. Certain Relationships and Related Transactions" below.
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
(a) Security Ownership of Certain Beneficial Owners -- The persons set
forth on the charts below are known to the Company to be the beneficial owners
of more than 5% of the Company's outstanding voting Common Stock as of November
2, 2004
32
(b) Security Ownership of Management - Information concerning the number
and percentage of shares of voting Common Stock of the Company owned of record
and beneficially by management as of November 2, 2004, is set forth on the
charts below.
Name of Amount & Nature
Beneficial of Beneficial Approximate
Title of Class Owner Ownership Percentage(1)(2)
-------------- ---------- --------- ----------------
Common Stock Gifford A. Dieterle* 2,607,326(2) 4.3%
Common Stock Jack Everett* 1,250,000(2) 2.1%
Common Stock Robert Roningen* 2,200,000(2)(3) 3.6%
Common Stock Jeffrey W. Pritchard* 956,354(2) 1.6%
Common Stock Roger A Newell* 1,277,273(2) 2.1%
Common Stock Scott Hazlitt* 1,025,000(2) 1.7%
All Officers and
Directors as a
Group (6) 9,315,953(2)(3) 14.5%
------------------
* Officer and/or Director of the Company.
(1) Based upon 59,700,724 shares issued and outstanding as of November 2,
2004.
(2) For Messrs. Dieterle, Everett, Roningen, Pritchard, Newell and Hazlitt,
includes, respectively, 1,500,000 shares, 250,000 shares, 750,000 shares,
622,727 shares, 777,273 shares and 725,000 shares issuable upon exercise
of options and/or warrants.
(3) Includes shares owned by Mr. Roningen's wife and children.
Item 12. Certain Relationships and Related Transactions.
During the fiscal years ended July 31, 2004 and 2003, we paid Roger Newell
$62,000 and $60,000, respectively, for professional geologist services rendered
to us plus expenses. In addition, during the fiscal year ended July 31, 2003, we
paid Mr. Newell a bonus of $35,000. During the fiscal years ended July 31, 2004
and 2003, we paid Scott Hazlitt $96,000 per year, for professional geologist and
mine management services rendered to us, plus expenses. In addition, during the
fiscal year ended July 31, 2003, we paid Mr. Hazlitt a bonus of $10,000. During
the fiscal years ended July 31, 2004 and 2003, we paid Jack Everett consulting
fees of $47,600 and $42,000, respectively. In addition, during the fiscal year
ended July 31, 2003, we paid Mr. Everett a bonus of $35,000. During the fiscal
year ended July 31, 2004 and 2003, we paid Robert Roningen legal fees of $6,900
and $2,300, respectively. In addition, during the fiscal year ended July 31,
2003, we paid Mr. Roningen a bonus of $10,000.
33
In May 2004, we issued 250,000 common stock options each to Messrs. Dieterle,
Roningen, Pritchard, Everett and Newell exercisable at $.22 per share expiring
on May 25, 2007.
At July 31, 2003 we had outstanding salary advances of $10,020 to an
officer/director. Subsequent to July 31, 2003, we made additional salary
advances to this officer of $9,000. The officer agreed to transfer his net
paychecks to us until such time as all salary advances have been exhausted. All
such advances were subsequently repaid.
On October 29, 2002, we issued to Scott Hazlitt options to purchase 400,000
shares that expire on March 15, 2005 and are exercisable at $.22 per share, and
options to purchase 300,000 shares that expire on February 1, 2007 and are
exercisable at $.22 per share. The exercise prices of these options were
subsequently reduced to $.05.
Item 13. Exhibits.
Exhibits
--------
3.a Certificate of Incorporation of Company(1)
3.b Amendments to Certificate of Incorporation of Company
(1)(5)
3.c By-Laws of Company (1)
10.a Mining Claims (1)
10.b Stock Purchase Option Agreement from AngloGold (2)
10.c Letter of Intent with International Northair Mines Ltd.
(2)
10.d 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.e English summary of March 30, 2002 Minera Chanate Stock
Purchase and Sale and Security Agreement.(3)
10.f Agreement between Santa Rita and Grupo Minero FG.(4)
10.g Amendment to Agreement between Santa Rita and Grupo
Minero FG.(6)
10.h Termination Agreement between Santa Rita and Grupo
Minero FG.(7)
21.1 Subsidiaries of the Company
31.1 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 from the Company's Chief
Executive Officer
31.2 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 from the Company's Chief
Financial Officer
32.1 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 from the Company's Chief
Executive Officer
32.2 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 from the Company's Chief
Financial Officer
34
(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 April 11, 2003, 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 January 22, 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 April 12, 2004, and
incorporated herein by this reference
Statements contained in this Form 10-KSB as to the contents of any agreement or
other document referred to are not complete, and where such agreement or other
document is an exhibit to this Report or is included in any forms indicated
above, each such statement is deemed to be qualified and amplified in all
respects by such provisions.
Item 14. Principal Accountant Fees And Services.
Wolinetz, Lafazan & Company, P.C. ("WL"), Certified Public Accountants, are the
Company's independent auditors that examined the financial statements of the
Company for the fiscal years ended July 31, 2004 and 2003. WL has performed the
following services and has been paid the following fees for these fiscal years.
Audit Fees
WL billed $40,000 and $39,000 for our audit of Company's financial statements
for the fiscal years ended July 31, 2004 and 2003 and our review of the
financial statements included in the Company's filing of its quarterly reports
on form 10-QSB during these fiscal years.
35
Audit-Related Fees
WL was not paid any additional fees for the fiscal years ended July 31, 2004 and
2003 for assurance and related services reasonably related to the performance of
the audit or review of the Company's financial statements.
Tax Fees
WL billed $7,000 and $12,000 for the fiscal years ended July 31, 2004 and 2003
for professional services rendered for tax compliance, tax advice and tax
planning.
All Other Fees
WL was paid no other fees for professional services during the fiscal years
ended July 31, 2004 and 2003.
Audit Committee Pre-Approval Policies
The Board of Directors, which performs the equivalent functions of an audit
committee, currently does not have any pre-approval policies or procedures
concerning services performed by WL. All the services performed by WL that are
described above were pre-approved by the Board of Directors. Less than 50% of
the hours expended on WL's engagement to audit the Company's financial
statements for the fiscal years ended July 31, 2004 and 2003 were attributed to
work performed by persons other than WL's full-time, permanent employees.
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAPITAL GOLD CORPORATION
By: /s/ Gifford A. Dieterle
------------------------------
Gifford A. Dieterle, President
Dated: November 11, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Gifford A. Dieterle President, November 11, 2004
------------------------- Treasurer,
Gifford A. Dieterle Principal Financial
and Accounting
Officer and Chairman
of the Board of Directors
/s/ Jack V. Everett Director November 11, 2004
-------------------------
Jack V. Everett
/s/ Robert Roningen Director November 11, 2004
-------------------------
Robert Roningen
/s/ Roger A. Newell Director November 11, 2004
-------------------------
Roger A. Newell
/s/ Jeffrey W. Pritchard Director November 11, 2004
-------------------------
Jeffrey W. Pritchard
37
SUPPLEMENTAL INFORMATION
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act.
NOT APPLICABLE.
38
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, 2004, 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, 2004 and for the period September 17, 1982 (Inception) to July
31, 2004. 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. 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, 2004 and the consolidated
results of their operations and cash flows for each of the two years in the
period ended July 31, 2004 and for the period September 17, 1982 (Inception) to
July 31, 2004 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 and cash flow deficiencies from
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 16. 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 22, 2004
F-1
CAPITAL GOLD CORPORAITON
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
JULY 31, 2004
ASSETS
Current Assets:
Cash and Cash Equivalents $ 208,443
Loans Receivable -Affiliate 27,848
Loans Receivable - Others 2,065
Prepaid Expenses 8,494
Marketable Securities 110,000
Other Current Assets 30,248
------------
Total Current Assets 387,098
------------
Mining Concessions 44,780
------------
Other Assets:
Other Investments 9,890
Mining Reclamation Bonds 35,550
Security Deposits 8,435
------------
Total Other Assets 53,875
------------
Total Assets $ 485,753
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 88,086
Accrued Expenses 116,073
------------
Total Current Liabilities 204,159
------------
Commitments and Contingencies
Stockholders' Equity:
Common Stock, Par Value $.001 Per Share;
Authorized 150,000,000 shares; Issued and
Outstanding 57,769,156 Shares 57,769
Additional Paid-In Capital 24,713,215
Deficit Accumulated in the Development Stage (24,578,129)
Accumulated Other Comprehensive Income (Loss) 88,739
------------
Total Stockholders' Equity 281,594
------------
Total Liabilities and Stockholders' Equity $ 485,753
============
The accompanying notes are an integral part of the financial statements.
F-2
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF OPERATIONS
For The Period
For The Year Ended September 17, 1982
July 31, (Inception)
---------------------------- To
2004 2003 July 31, 2004
------------ ------------ -------------
Revenues $ -- $ -- $ --
------------ ------------ ------------
Costs and Expenses:
Mine Expenses 673,050 1,028,899 6,812,534
Write-Down of Mining, Milling and Other Property and
Equipment 300,000 -- 1,299,445
Selling, General and Administrative Expenses 687,722 770,629 8,857,929
Stock Based Compensation 379,033 288,623 9,222,003
Depreciation -- -- 367,726
------------ ------------ ------------
Total Costs and Expenses 2,039,805 2,088,151 26,559,637
------------ ------------ ------------
Loss From Operations (2,039,805) (2,088,151) (26,559,637)
------------ ------------ ------------
Other Income (Expense):
Interest Income 4,074 31,864 753,515
Miscellaneous -- 6,401 32,677
Gain on Sale of Property and Equipment -- -- 46,116
Gain on Sale of Subsidiary -- -- 1,907,903
Option Payment -- -- 70,688
Loss on Write-Off of Investment -- -- (10,000)
Loss on Joint Venture (800,000) -- (901,700)
Loss on Option -- (50,000) (50,000)
Loss on Other Investments (3,697) -- (3,697)
Loss on Write-Off of Minority Interest (150,382) -- (150,382)
------------ ------------ ------------
Total Other Income (Expense) (950,005) (11,735) 1,695,120
------------ ------------ ------------
Loss Before Minority Interest (2,989,810) (2,099,886) (24,864,517)
Minority Interest 51,220 180,625 286,388
------------ ------------ ------------
Net Loss $ (2,938,590) $ (1,919,261) $(24,578,129)
============ ============ ============
Net Loss Per Common Share - Basic and Diluted $ (.06) $ (.05)
============ ============
Weighted Average Common Shares Outstanding 51,584,715 41,892,989
============ ============
The accompanying notes are an integral part of the financial statements.
F-3
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2004
Deficit
Accumulated
Common Stock Additional In The
--------------------- Paid-In 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.
F-4
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, 2004
Deficit
Accumulated
Common Stock Additional In The
--------------------- Paid-In 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.
F-5
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, 2004
Deficit
Accumulated
Common Stock Additional In The
--------------------- Paid-In 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.
F-6
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, 2004
Deficit
Accumulated
Common Stock Additional In The
--------------------- Paid-In 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.
F-7
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, 2004
Deficit
Accumulated
Common Stock Additional In The
--------------------- Paid-In 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.
F-8
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, 2004
Deficit
Accumulated
Common Stock Additional In The
--------------------- Paid-In 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.
F-9
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, 2004
Deficit
Accumulated
Common Stock Additional In The
--------------------- Paid-In 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.
F-10
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, 2004
Deficit
Accumulated
Common Stock Additional In The
--------------------- Paid-In 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.
F-11
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, 2004
Deficit
Accumulated
Common Stock Additional In The
---------------------- Paid-In Development
Shares Amount Capital Stage Total
---------- --------- ----------- ----------- -----------
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.
F-12
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, 2004
Deficit
Accumulated
Common Stock Additional In The
---------------------- Paid-In 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.
F-13
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, 2004
Deficit
Accumulated Accumulated
Common Stock Additional In The Other
----------------------- Paid-In Development 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.
F-14
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, 2004
Deficit
Accumulated Accumulated
Common Stock Additional In The Other
----------------------- Paid-In Development 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.
F-15
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, 2004
Deficit
Accumulated Accumulated
Common Stock Additional In The Other
----------------------- Paid-In Development 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.
F-16
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, 2004
Deficit
Accumulated Accumulated
Common Stock Additional In The Other
----------------------- Paid-In Development 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 from
Foreign 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.
F-17
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Period
For The Year Ended September 17, 1982
July 31, (Inception)
--------------------------- To
2004 2003 July 31, 2004
----------- ----------- ------------------
Cash Flow From Operating Activities:
Net Loss $(2,938,590) $(1,919,261) $(24,578,129)
Adjustments to Reconcile Net Loss to
Net Cash (Used) By Operating Activities:
Depreciation -- -- 367,726
Gain on Sale of Subsidiary -- -- (1,907,903)
Minority Interest in Net Loss of Subsidiary (51,220) (180,625) (286,388)
Write-Down of Impaired Mining, Milling and Other
Property and Equipment 300,000 -- 1,299,445
Gain on Sale of Property and Equipment -- -- (46,116)
Loss on Write-Off of Investment -- -- 10,000
Loss on Joint Venture 800,000 -- 901,700
Loss on Write-Off of Minority Interest 150,382 -- 150,382
Value of Common Stock Issued for Services 900 57,391 2,813,893
Stock Based Compensation 379,033 288,623 9,222,003
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Prepaid Expenses 1,533 (10,027) (8,494)
(Increase) in Other Current Assets (15,270) (11,654) (30,248)
(Increase) in Security Deposits -- -- (8,435)
Increase (Decrease) in Accounts Payable (43,941) (51,015) 80,269
(Decrease) in Accrued Expenses (6,199) (62,781) (6,471)
----------- ----------- ------------
Net Cash (Used) By Operating Activities (1,423,372) (1,889,349) (12,026,766)
----------- ----------- ------------
Cash Flow From Investing Activities:
(Increase) Decrease in Other Investments 2,992 (12,882) (9,890)
Purchase of Mining, Milling and Other Property and
Equipment -- -- (1,705,650)
Proceeds on Sale of Mining, Milling and Other Property
and Equipment -- -- 83,638
Proceeds From Sale of Subsidiary -- 1,492,131 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) (50,000)
----------- ----------- ------------
Net Cash Provided By Investing Activities 2,992 1,429,249 293,647
----------- ----------- ------------
The accompanying notes are an integral part of the financial statements.
F-18
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
For The Period
For The Year Ended September 17, 1982
July 31, (Inception)
------------------------- To
2004 2003 July 31, 2004
----------- --------- ------------------
Cash Flow From Financing Activities:
(Increase) in Loans Receivable -Affiliate $ (7,668) $ (20,180) $ (27,848)
Increase (Decrease) in Loans Receivable - Others 16,300 (3,365) (2,065)
Increase in Loans Payable - Officers -- -- 18,673
Repayment of Loans Payable - Officers -- -- (18,673)
Increase in Note Payable -- -- 11,218
Payments of Note Payable -- -- (11,218)
Proceeds From Issuance of Common Stock 1,253,988 381,330 12,035,599
Commissions on Sale of Common Stock -- -- (5,250)
Expenses of Initial Public Offering -- -- (408,763)
Capital Contributions - Joint Venture Subsidiary 100,156 130,216 304,564
Purchase of Certificate of Deposit - Restricted -- -- (5,000)
(Purchase) Sale of Mining Reclamation Bonds -- 6,600 (30,550)
----------- --------- ------------
Net Cash Provided By Financing Activities 1,362,776 494,601 11,860,687
----------- --------- ------------
Effect of Exchange Rate Changes 19,637 62,476 80,875
----------- --------- ------------
Increase (Decrease) In Cash and Cash Equivalents (37,967) 96,977 208,443
Cash and Cash Equivalents - Beginning 246,410 149,433 --
----------- --------- ------------
Cash and Cash Equivalents - Ending $ 208,443 $ 246,410 $ 208,443
=========== ========= ============
Supplemental Cash Flow Information:
Cash Paid For Interest $ -- $ -- --
=========== ========= ============
Cash Paid For Income Taxes $ 4,095 $ 2,433 $ 32,155
=========== ========= ============
Non-Cash Financing Activities:
Issuances of Common Stock as Commissions
on Sales of Common Stock $ -- $ -- $ 440,495
=========== ========= ============
Issuance of Common Stock as Payment for Mining,
Milling and Other Property and Equipment $ -- $ -- $ 4,500
=========== ========= ============
The accompanying notes are an integral part of the financial statements.
F-19
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2004
NOTE 1 - Organization and Basis of Presentation
Leadville Mining and Milling Corp. ("Leadville", "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. The Company owns rights to property located in the
California Mining District, Lake County, Colorado and in the State of Sonora,
Mexico and is engaged in the exploration for gold and other minerals from its
properties. Substantially 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'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 $24,578,129. These factors raise
substantial doubt about the Company's ability to continue as a going concern. As
indicated in Note 16, the Company is in the process of raising additional
capital and financing. Continuation of the Company is dependent on (1)
consummation of financings, (2) achieving sufficiently profitable operations (3)
subsequently maintaining adequate financing arrangements and (4) 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.
F-20
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2004
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. The Company
accounted for its Mexican joint venture operation through the date of
dissolution (see Note 5) 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 those short-term, highly liquid investments with
original maturities of three months or less as cash and cash equivalents.
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 in 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 will be computed using the
straight-line method over the estimated useful lives of the related assets.
F-21
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2004
NOTE 2 - Summary of Significant Accounting Policies (Continued)
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 approximates 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, accounts payable and accrued expenses
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.
F-22
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2004
NOTE 2 - Summary of Significant Accounting Policies (Continued)
Stock-Based Compensation
The Company accounts for stock-based compensation to its employees using
the intrinsic value method in accordance with provisions of the Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations which requires the recognition of
compensation expense over the vesting period of the option when the exercise
price of the stock option granted is less than the fair value of the underlying
common stock. Additionally, the Company complies with the disclosure provisions
of Statement of Financial Accounting Standards No. 123 "Accounting for Stock
Based Compensation" ("SFAS 123") and provides pro forma disclosure of net loss
and loss per share as if the fair value method has been applied in measuring
compensation expense for stock options granted. Stock-based compensation related
to options and warrants granted to non-employees is recognized using the fair
value method in accordance with SFAS 123 and Emerging Issues Task Force ("EITF")
No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services".
Compensation costs are amortized in a manner consistent with Financial
Accounting Standards Board Interpretation No. 28 (FIN No. 28), "Accounting for
Stock Appreciation Rights and Other Variable Stock Option or Award Plans". The
Company uses the Black-Scholes options pricing model to value options,
restricted stock grants and warrants granted to nonemployees.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure". SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation" to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The provisions of SFAS No. 148 are effective for
financial statements for the year ended December 31, 2003. SFAS No. 148 did not
have a material impact on the Company's consolidated financial statements, as
the adoption of this standard does not require the Company to change, and the
Company does not plan to change, to the fair value based method of accounting
for stock-based compensation.
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 consists 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.
F-23
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2004
NOTE 2 - Summary of Significant Accounting Policies (Continued)
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, 2004.
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities", SFAS No. 147,
"Acquisitions of Certain Financial Institutions - and Amendment of FASB
Statements No. 72 and 144 and FASB Interpretation No. 9", SFAS No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities",
and SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity", were recently issued. SFAS No.
146, 147, 149 and 150 have no current applicability to the Company or their
effect on the financial statements would not have been significant.
Reclassifications
Certain items in these financial statements have been reclassified to
conform to the current period presentation.
NOTE 3 - Marketable Securities
Marketable securities are classified as current assets and are summarized
as follows:
Marketable equity securities, at cost $ 50,000
========
Marketable equity securities, at fair value $110,000
========
NOTE 4 - Loans Receivable - Others
Loans receivable - others are short-term non-interest bearing loans made
to an individual.
F-24
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2004
NOTE 5 - Joint Venture
On February 23, 2002, Minera Santa Rita S. de R.L. de C.V., one of our
wholly-owned Mexican subsidiaries, entered into a joint venture agreement with
Grupo Minero FG S.A. de C.V. to explore, evaluate and develop the El Chanate
concessions. Grupo Minero FG S.A. de C.V., referred to as 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.
On April 6 and 8, 2004, effective March 31, 2004, Minera Santa Rita S. de
R.L. de C.V. ("MSR"), one of our 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 have terminated
amicably the JV Agreement and have released each other from all obligations
under the JV Agreement. 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. In connection
with the issuance of these 2,000,000 shares, the Company recognized a charge to
operations of $800,000. Additionally, the Company has 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.
F-25
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2004
NOTE 6 - 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 S.A. de C.V.
("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 5), 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. ("Ora"), another of our wholly-owned subsidiaries. Ora, in turn,
leased the foregoing land and mining claims to MSR.
NOTE 7 - 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 5.01% to 5.87% annually and mature at various dates in 2005.
NOTE 8 - Mining Concessions
Mining concessions consists of the following:
Mining Concessions $ 44,780
========
These exploitation and exploration concessions are carried at historical
cost and were acquired in connection with the purchase of the stock of Minera
Chanate, S.A. de C.V. (see Note 1).
F-26
CAPITAL GOLD CORPORAITON
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2004
NOTE 9 - Loans Receivable - Affiliate
Loans receivable - affiliate consist of expense reimbursements from a
publicly-owned corporation in which the Company has an investment. In addition,
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 12).
NOTE 10 - Other Investments
Other investments are carried at cost and consist of tax liens purchased
on properties located in Lake County, Colorado.
NOTE 11 - Other Comprehensive Income (Loss) - Supplemental Non-Cash Investing
Activities
Other comprehensive income (loss) consists of accumulated foreign
translation gains and losses and unrealized gains on marketable securities and
is summarized as follows:
Balance - July 31, 2002 $ (7,246)
Equity Adjustments from Foreign
Currency Translation 60,879
--------
Balance - July 31, 2003 53,633
Equity Adjustments from Foreign
Currency Transaction (24,894)
Unrealized Gains on Marketable
Securities 60,000
--------
Balance - July 31, 2004 $ 88,739
========
NOTE 12 - Related Party Transactions
In August 2002 the Company purchased marketable equity securities of a
related company. The Company recorded approximately $12,300 and $18,900 in
expense reimbursements including office rent from this entity for the years
ended July 31, 2004 and 2003, respectively (see Notes 3 and 9).
NOTE 13 - 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, 2003, the Company issued 2,802,579 shares
for gross proceeds of $346,030. During the year ended July 31, 2003 the Company
issued 1,222,727 shares of common stock upon exercising of stock options with
gross proceeds of $35,300.
F-27
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2004
NOTE 13 - Stockholders' Equity (Continued)
Common Stock (Continued)
During the year ended July 31, 2004, the Company issued 10,756,069 shares
for gross proceeds of $1,145,888. During the year ended July 31, 2004 the
Company issued 2,335,553 shares of common stock upon exercising of stock options
with gross proceeds of $108,100.
Stock Options
A summary of stock option activity for the years ended July 31, 2004 and
2003 is as follows:
Options Outstanding
--------------------------- Weighted
Number of Price Range Average
Shares Per Share Exercise Price
----------- ----------- --------------
Outstanding - July 31, 2002 12,027,370 $ .022-.50 $ .199
Options Granted:
Related Parties 700,000 .05 .05
Others 1,250,000 .05-.25 .11
Exercised:
Related Parties (1,122,727) .022-.05 .022
Others (100,000) .05 .022
Expired (2,657,727) .022-.22 .071
----------- ----------- --------
Outstanding - July 31, 2003 10,096,916 .022-.50 .11
Options Granted:
Related Parties 1,500,000 .21 .21
Others 300,000 .12-.21 .15
Exercised:
Related Parties (572,727) .022-.05 .04
Others (1,762,826) .022-.12 .05
Expired (2,672,727) .022-.05 .03
----------- ----------- --------
Outstanding - July 31, 2004 6,888,636 $.022-.21 $ .11
=========== =========== ========
F-28
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2004
NOTE 13 - Stockholders' Equity (Continued)
Options to purchase 6,888,636 shares of common stock were exercisable at
July 31, 2004 at a weighted average exercise price of $.11 with a weighted
average contractual life of .75 years as follows:
Options Outstanding and Exercisable by Price Range as of July 31, 2004 is
as follows:
Options Outstanding Options Exercisable
------------------------------------------------ ------------------------------
Weighted
Average Weighted Weighted
Range of Exercise Number Remaining Average Number Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
----------------- ----------- ---------------- -------------- ----------- --------------
$ .022 318,182 .63 $.022 318,182 $ .022
.25 200,000 .67 .25 200,000 .25
.05 4,570,454 .61 .05 4,570,454 .05
.20 100,000 .50 .20 100,000 .20
.24 100,000 2.91 .24 100,000 .24
.21 1,500,000 2.63 .21 1,500,000 .21
.41 100,000 2.63 .41 100,000 .41
--------- --------- ----- ----- --------- ---------
$.022-.41 6,888,636 .75 $ .11 6,888,636 $ .11
========= ========= =========
The Company recognized approximately $348,000 and $289,000 of stock-based
compensation expense during the years ended July 31, 2004 and 2003 respectively,
relating to options granted.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company has
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes options pricing model with the following weighted-average
assumptions: risk-free interest rate of 3.1%; volatility factor of the expected
market price of the Company's common stock of .7-1.0; and a weighted-average
expected life of the option of 3 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company' stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
Had compensation cost for stock options granted been determined based on
the fair value at the grant date consistent with the provisions of SFAS 123, the
Company's net loss and net loss per share for the year ended July 31, 2004 would
have been $(3,252,590) and $(.06). There would have been no material impact on
the net loss and net loss per share for the year ended July 31, 2003.
The effects of applying the pro forma disclosures of SFAS 123 are not
likely to be representative of the effects on reported net earnings for future
years.
F-29
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2004
NOTE 13 - Stockholders' Equity (Continued)
Authorized Common Stock
In September 1993 the Company's shareholders approved an increase in the
authorized common stock from 100,000,000 shares to 150,000,000 shares.
Effective April 11, 1998 the Company underwent a 1 for 10 reverse split
with all fractions being rounded up into new common stock.
All references to common stock are restated to reflect the 1 for 10
reverse split.
NOTE 14 - Income Taxes
For income tax purposes, the Company has available net operating loss
carryforwards ("NOL") at July 31, 2004 of approximately $12,082,000 to reduce
future federal taxable income, if any. The NOL's expire at various dates through
2024. 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,
--------------------------
2004 2003
---------- ----------
Computed "expected" tax benefit $4,107,880 $3,353,517
Decrease in tax benefit resulting from net
operating loss for which no benefit is
currently available 4,107,880 3,353,517
---------- ----------
$ -- $ --
========== ==========
The Company has deferred tax assets of approximately $4,107,880 at July
31, 2004 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 $754,363 and $190,497 in 2004 and
2003, respectively.
NOTE 15 - Loss on 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.
F-30
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2004
NOTE 16 - Liquidity and Going Concern Uncertainty
The Company is a development stage enterprise with no mining revenues and
has incurred recurring losses amounting to $24,578,129 through July 31, 2004.
The Company incurred net losses of $2,938,590 and $1,919,261 during the years
ended July 31, 2004 and 2003, respectively. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern
(see Note 1).
There can be no assurance that sufficient funds required during the next
year or thereafter will be generated from operations of that funds will be
available from external sources such as debt or equity financings or other
potential 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.
During the year ended July 31, 2004, the Company has successfully obtained
external financing through sales of its stock and exercise of options as well as
capital contributions.
The Company has developed a plan to address liquidity and fund a full
scale mining operation in Mexico in several ways, namely:
o Continue to raise capital through the sale or exercise of equity
securities.
o Obtain outside financing to fund operations.
o Strategic Partner Joint Venturing.
o Other means.
There is no assurance, however, that any of the Company's proposed plans
to obtain financing, raise capital and otherwise fund operations 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 17 - Commitments and Contingencies
Minera Chanate Option
Under the terms of the Minera Chanate purchase agreement, Leadville 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).
F-31
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2004
NOTE 17 - Commitments and Contingencies (Continued)
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,
2005 $ 54,000
2006 55,000
2007 38,000
--------
$147,000
========
Rent expense under the office lease in New York City was approximately
$57,000 and $56,000 for the years ended July 31, 2004 and 2003, respectively.
Lack of Insurance
The Company currently has no insurance in force at its mining properties
and it cannot be certain that it can cover the risks associated with its mining
operations or that it will be able to maintain insurance to cover these risks at
economically feasible premiums.
F-32