As filed with the Securities and Exchange Commission on November 23, 2005
Registration No. 333- _____________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
CAPITAL GOLD CORPORATION
(Name of small business issuer in its charter)
Nevada 1040 13-3180530
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
--------------------
76 Beaver Street
New York, NY10005
(212) 344-2785
(Address and telephone number of principal executive offices)
--------------------
Gifford A. Dieterle, Chief Executive Officer
Capital Gold Corporation
76 Beaver Street
New York, NY 10005
(212) 344-2785
(Name, address and telephone number of agent for service)
Copies of all communications to:
Richard Feiner, Esq.
381 Park Avenue South, Suite 1601
New York, New York, 10016
(212) 779-8600
Fax (212) 779-8858
Approximate date of proposed sale to the public: From time to time or at
any time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 ("Securities Act"), other than securities offered only in connection
with dividend or reinvestment plans, check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to 462(c) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. |_|
If this form is a post-effective amendment filed pursuant to 462(d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
====================================================================================================
Proposed Proposed
Title of Each Class Maximum Maximum
of Securities to be Amount to be Offering Price Aggregate Amount of
Registered Registered (1) Per Share (2) Offering Price Registration Fee
====================================================================================================
Common Stock 6,440,002 $0.24 $1,545,600 $181.92
====================================================================================================
Total Registration Fee $181.92(3)
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(1) Pursuant to Rule 416 of the Securities Act of 1933, there are also being
registered an indeterminate number of additional shares of common stock as
may become offered, issuable or sold to prevent dilution resulting from
stock splits, stock dividends or similar transactions.
(2) Estimated solely for the purpose of computing the registration fee in
accordance with Rules 457(c) of the Securities Act on the basis of $0.24
per share, which was the average of the high and low prices of the shares
of common stock of the Registrant on November 21, 2005, as reported on the
OTC Bulletin Board.
(3) Pursuant to Rule 457(p), the registrant is applying $181.92 (the aggregate
total dollar amount of the filing fee associated with securities
deregistered) of the filing fee previously paid with regard to the
registrant's registration statement on Form SB-2 (SEC file no. 333-123216/
filed on March 9, 2005) to offset against the currently due filing fee.
Pursuant to Rule 429 under the Securities Act of 1933, as amended, the
prospectus included in this Registration Statement also relates to the remaining
unsold shares which were previously registered by the Registrant under
Registration Statement No. 333-123216.
The Registrant hereby amends this registration statement on the date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on a date as the Securities and Exchange Commission, acting pursuant
to said Section 8(a), may determine.
The information in this prospectus is not complete and may be amended. Neither
we nor the selling stockholders may sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where an offer or sale is not
permitted.
Subject to Completion
Preliminary Prospectus Dated November 23, 2005
CAPITAL GOLD CORPORATION
65,043,644 Shares of Common Stock
---------------------------------------
This prospectus relates to the resale of 65,043,644 shares of our common stock,
including 31,665,640 shares of common stock issuable upon the exercise of
outstanding warrants and options, that may be offered and sold from time to time
by the selling stockholders listed herein.
We will not receive any proceeds from the sale of the shares of common stock by
the selling stockholders other than payment of the exercise price of the
warrants and options.
Our common stock is listed on the Over-The-Counter Bulletin Board under the
symbol "CGLD." The last reported sales price per share of our common stock as
reported by the OTC Bulletin Board on November 21, 2005, was $0.24.
-----------------------------------------
Please see the risk factors beginning on page 4 to read about certain factors
you should consider before buying shares of common stock.
-----------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined that
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is November __, 2005
PROSPECTUS SUMMARY
In the following summary, we have highlighted information that we believe is the
most important about us. However, because this is a summary, it may not contain
all information that may be important to you. You should read this entire
prospectus, including the information incorporated by reference and the
financial data and related notes, before making an investment decision. When
used in this prospectus, the terms "we," "our" and "us" refer to Capital Gold
Corporation and not to the selling stockholders. You should also see the
"Glossary" for definitions of some of the terms used to describe our business.
About Capital Gold
Through a wholly-owned subsidiary and an affiliate, Capital Gold Corporation
owns 100% of 16 mining concessions located in the Municipality of Altar, State
of Sonora, Republic of Mexico totaling approximately 3,544 hectares (8,756 acres
or 13.7 square miles). We are in the process of constructing and developing an
open-pit gold mining operation to mine two of these concessions. We sometimes
refer to the planned operations on these two concessions as the El Chanate
project.
We plan to construct a surface gold mine and facility at El Chanate capable of
producing about 2.6 million metric tons per year of ore from which we anticipate
recovering about 44,000 to 48,000 ounces of gold per year, over a six year mine
life. We are following the updated feasibility study (the "2005 Study") for the
El Chanate project prepared by M3 Engineering of Tucson, Arizona which was
completed in October 2005. The original feasibility study (the "2003 Study") was
completed by M3 Engineering in August 2003. Since completion of the 2003 Study,
both the price of gold and production costs have increased and equipment choices
have broadened from those identified in the 2003 Study.
The 2005 Study includes the following changes from the 2003 Study:
o an increase in the mine life from five to six years,
o an increase in the base gold price from $325/oz to $375/oz,
o use of a mining contractor,
o revised mining, processing and support costs,
o stockpiling of low grade material for possible processing in year six, if
justified by gold prices at that time,
o a reduced size for the waste rock dump and revised design of reclamation
waste dump slopes,
o a revised process of equipment selection and
o evaluation of the newly acquired water well for processing the ore.
Pursuant to the 2005 Study, our estimated mine life is now six years as opposed
to five years and the ore reserve is 367,880 ounces of gold present in the
ground (up 9,880 ounces). Of this, we anticipate recovering approximately
264,846 ounces of gold (up 16,846 ounces) over a six year life of the mine. The
targeted cash cost (which include mining, processing and on-property general and
administrative expenses) per the 2005 Study is $259 per ounce (up $29 per
ounce). The 2005 Study contains the same mining rate as the 2003 Study of 7,500
metric tonnes per day of ore. We also have commissioned an engineering study to
analyze the benefits of expanding production rates beyond 7,500 metric tonnes
per day of ore. The 2005 Study takes into consideration a different crushing
system than the one contemplated in the 2003 Study. The system referred to in
the 2005 Study is a new more modern system, that, we believe will be faster to
install and provide more efficient processing capabilities than the used
equipment referred to in the 2003 Study. We need to acquire this equipment. In
addition, the 2005 Study assumes a contractor will mine the ore and haul it to
the crushers. In the 2003 Study, we planned to perform these functions. We have
interviewed firms to provide contract mining services for the El Chanate
project. While we believe we are nearing successful completion of negotiations
with the contractor of choice, there is no guarantee that these negotiations
will be successful. Please see "Our Business."
Our principal executive offices are located at 76 Beaver Street, 26th floor, New
York, NY 10005, and our telephone number is (212) 344-2785.
The Offering
Common stock to be offered
by the selling stockholders ................65,043,644 Shares
Common stock outstanding
prior to this offering .....................96,969,214 Shares
Use of Proceeds ............................We will not receive any of the
proceeds from the sale of the shares
of common stock because they are
being offered by the selling
stockholders and we are not offering
any shares for sale under this
prospectus, but we may receive
proceeds from the exercise of
warrants and options held by the
selling stockholders. We will apply
such proceeds, if any, toward the
construction of our mining operation
in Mexico, and for working capital.
See "Use of Proceeds."
Over-The-Counter Bulletin
Board symbol ...............................CGLD
The 65,043,644 shares of our common stock offered consist of:
o Up to 30,902,004 shares of common stock issuable upon the exercise
of outstanding warrants;
o Up to 763,636 shares of common stock issuable upon the exercise of
outstanding options; and
o Up to 33,378,004 shares of common stock owned by certain of the
selling stockholders.
Summary Financial Data
In the table below, we provide you with our summary historical financial data.
We have prepared this information using our audited financial statements for
each of the five years in the period ended July 31, 2005.
It is important that you read this summary historical financial data in
conjunction with our historical financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus.
3
Statement of Operations Data
For the Years Ended
July 31,
-------------------------------------------------------------------------------
2001 2002 2003 2004 2005
------------- ------------- ------------- ------------- -------------
(consolidated) (consolidated) (consolidated) (consolidated) (consolidated)
Revenues $ -- $ -- $ -- $ -- $ --
------------- ------------- ------------- ------------- -------------
Mine Expenses $ 982,585 $ 709,961 $ 1,028,899 $ 673,050 $ 851,374
------------- ------------- ------------- ------------- -------------
General and
Administrative $ 1,432,327 $ 639,652 $ 770,629 $ 687,722 $ 1,005,038
------------- ------------- ------------- ------------- -------------
Stock Based
Compensation $ 7,002,500 $ 222,338 $ 288,623 $ 379,033 $ 187,844
------------- ------------- ------------- ------------- -------------
Depreciation $ 3,823 $ 3,105 $ -- $ -- $ 7,431
------------- ------------- ------------- ------------- -------------
Total Other
Income (Expense) $ 2,969 $ 2,027,810 $ (11,735) $ (950,005) $ 46,005
------------- ------------- ------------- ------------- -------------
Minority Interest $ -- $ 54,543 $ 180,625 $ 51,220 $ --
------------- ------------- ------------- ------------- -------------
Write Down of Mining,
Milling and Other
Property and Equipment $ -- $ 999,445 $ -- $ 300,000 $ --
------------- ------------- ------------- ------------- -------------
Net Loss $ (9,418,266) $ (492,148) $ (1,919,261) $ (2,938,590) $ (2,005,682)
------------- ------------- ------------- ------------- -------------
Balance Sheet Data
As of July 31,
-------------------------------------------------------------------------------
2001 2002 2003 2004 2005
------------- ------------- ------------- ------------- -------------
(consolidated) (consolidated) (consolidated) (consolidated) (consolidated)
Working Capital $ (3,301) $ 1,192,871 $ 105,661 $ 182,939 $ 4,239,991
------------- ------------- ------------- ------------- -------------
Total Assets $ 1,564,428 $ 2,056,851 $ 761,607 $ 485,753 $ 5,551,871
------------- ------------- ------------- ------------- -------------
Stockholders' Equity $ 1,438,591 $ 1,622,119 $ 651,000 $ 281,594 $ 5,269,055
------------- ------------- ------------- ------------- -------------
RISK FACTORS
WE ARE SUBJECT TO VARIOUS RISKS THAT MAY MATERIALLY HARM OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. YOU SHOULD CAREFULLY CONSIDER THE RISKS AND
UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS
BEFORE DECIDING TO PURCHASE OUR COMMON STOCK. IF ANY OF THESE RISKS OR
UNCERTAINTIES ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR OPERATING
RESULTS COULD BE MATERIALLY HARMED. IN THAT CASE, THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
Risks related to our business and operations
We have not generated any operating revenues. If we are unable to
commercially develop our mineral properties, we will not be able to
generate profits and our business may fail.
To date, we have no producing properties. As a result, we have 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 our El Chanate gold mining project in Sonora, Mexico.
4
We lack operating cash flow and rely on external funding sources. If we
are unable to continue to obtain needed capital from outside sources until
we are able to generate positive cash flow from operations, 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. Our
primary focus is the development of our El Chanate project which, we anticipate,
will cost between $17.5 and $18.5million. We also anticipate non-mine related
operating expenses of approximately $1.4 million. In February 2005, we raised
approximately $6.2 million in a private placement and in November 2005 we
received a commitment letter from Standard Bank Plc. (formerly, Standard Bank
London Limited) for a project finance facility of up to US$12 million for our El
Chanate project. Funding the Standard Bank facility is subject to the
negotiation, execution, and delivery of definitive financing documentation, as
well as the completion of certain conditions, including raising additional funds
necessary for construction and working capital. Accordingly, we will need to
obtain additional capital from outside sources. To the extent that we need to
obtain additional capital, management intends to raise such funds through bank
financing, the sale of our securities, the sale of a royalty interest in the
future production from the El Chanate concessions and/or joint venturing with
one or more strategic partners. We cannot assure that adequate additional
funding will be available. If we are unable to obtain needed capital from
outside sources, we will be forced to reduce or curtail 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, 2005 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, 2005 consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty. Our
inability to continue as a going concern would require a restatement of assets
and liabilities on a liquidation basis, which would differ materially and
adversely from the going concern basis on which our consolidated financial
statements have been prepared. See, "Management's Discussion and Analysis of
Financial Condition and Results of Operations; Liquidity and Capital Resources."
If we are unable to obtain a crushing system and other equipment for our Mexican
concessions at an acceptable cost, our anticipated results of operations from
mining at these concessions, once mining commences, may be adversely affected.
We are currently in discussions with a US supplier to acquire a crushing system,
including conveyors, that consist of new equipment. We plan to use this
equipment at our El Chanate project. We need to consummate the Standard Bank
financing before we acquire this equipment. If we are unable to obtain requisite
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. See, "Management's Discussion and Analysis
of Financial Condition and Results of Operations; Liquidity and Capital
Resources; Plan of Operations."
We will be using reconditioned and used equipment which could adversely
affect our cost assumptions and our ability to economically and
successfully mine the project.
We plan to use reconditioned and used carbon column collection equipment to
recover gold. Such equipment is subject to the risk of more frequent breakdowns
and need for repair than new equipment. If the equipment that we use breaks down
and needs to be repaired or replaced, we will incur additional costs and
operations may be delayed resulting in lower amounts of gold recovered. In such
event, our capital and operating cost assumptions may be inaccurate and our
ability to economically and successfully mine the project may be hampered,
resulting in decreased revenues and, possibly, a loss from operations.
5
As a result of the projected short mine life of six years, if major
problems develop, we will have limited time to correct these problems and
we may have to cease operations earlier than planned.
Pursuant to the 2005 Study, the mine life will be only six years. If major
problems develop in the project, or we fail to achieve the operating
efficiencies or costs projected in the feasibility study, we will have limited
time to find ways to correct these problems and we may have to cease operations
earlier than planned.
The gold deposit we have identified at El Chanate is relatively small and
low-grade. If our estimates and assumptions are inaccurate, our results of
operation and financial condition could be materially adversely affected.
The gold deposit we have identified at our El Chanate Project is relatively
small and low-grade. If the estimates of ore grade or recovery rates contained
in the feasibility study turn out to be higher than the actual ore grade and
recovery rates, if costs are higher than expected, or if we experience problems
related to the mining, processing of, or recovery of gold from, ore at the El
Chanate project, our results of operation and financial condition could be
materially adversely affected. Moreover, it is possible that actual costs and
economic returns may differ materially from our best estimates. It is not
unusual in the mining industry for new mining operations to experience
unexpected problems during the start-up phase and to require more capital than
anticipated. There can be no assurance that our operations at El Chanate will be
profitable.
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 and, in fact, have written these properties off. 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.
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, 2005 and October 31, 2005,
the fixed price for gold on the London Exchange has fluctuated between $411.10
and $478.50 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.
6
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.
Our material property interests are in Mexico. Risks of doing business in
a foreign country could adversely affect our results of operations and
financial condition.
We face risks normally associated with any conduct of business in 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 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;
however, pursuant to the commitment letter from Standard Bank Plc. we will be
required to implement such measures. If and when these measures are implemented,
there can be no assurance that such arrangements will be cost effective or be
able to fully offset such future currency risks.
Changes in regulatory policy could adversely affect our exploration and
future production activities.
Any changes in government policy may result in changes to laws affecting:
o ownership of assets,
o land tenure,
o mining policies,
o monetary policies,
o taxation,
7
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.
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.
We are not insured against any losses or liabilities that could arise from
our operations because we have not commenced operations at El Chanate.
Although we plan on obtaining insurance once construction begins, such
insurance may not be adequate. If we incur material losses or liabilities
because we do not have insurance or our coverage is not adequate, our
financial position could be materially and adversely affected.
We are in the process of developing our Mexican concessions and hope to commence
mining operations during calendar 2006. If and when we commence mining
operations, such operations will involve a number of risks and hazards,
including:
o environmental hazards,
o industrial accidents,
o metallurgical and other processing,
o acts of God, and
o mechanical equipment and facility performance problems.
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,
8
o monetary losses and /or
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 the El Chanate
project we plan to obtain and maintain insurance within ranges of coverage
consistent with industry practice, we cannot be 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 may have a material adverse
effect on our financial position.
Calculation of reserves and metal recovery dedicated to future production
is not exact, might not be accurate and might not accurately reflect the
economic viability of our properties.
Reserve estimates may not be accurate. There is a degree of uncertainty
attributable to the calculation of reserves, resources and corresponding grades
being dedicated to future production. Until reserves or resources are actually
mined and processed, the quantity of reserves or resources and grades must be
considered as estimates only. In addition, the quantity of reserves or resources
may vary depending on metal prices. Any material change in the quantity of
reserves, resource grade or stripping ratio may affect the economic viability of
our properties. In addition, there can be no assurance that mineral recoveries
in small scale laboratory tests will be duplicated in large tests under on-site
conditions or during production.
We are dependent on the efforts of certain key personnel and we need to
retain additional personnel and/or contractors to develop our El Chanate
project. If we lose the services of these personnel or we are unable to
retain additional personnel and/or contractors, our ability to complete
development and operate our El Chanate project may be delayed and our
planned operations may be materially adverse affected.
We are dependent on a relatively small number of key personnel, including but
not limited to Dave Loder, the General Manager of the El Chanate project, 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 need to retain additional personnel
and/or contractors to develop and operate our El Chanate project. Certain of
these consultants, including Dave Loder, have already been engaged. There can be
no guarantee that such personnel or contractors will be available to carry out
such activities on our behalf or be available upon commercially acceptable
terms. If we lose the services of our key personnel or we are unable to retain
additional personnel and/or contractors, our ability to complete development and
operate our El Chanate project may be delayed and our planned operations may be
materially adverse affected.
There are uncertainties as to title matters in the mining industry. We
believe that we have good title to our properties; however, any defects in
such title that cause us to lose our rights in mineral properties could
jeopardize our planned business operations.
We have investigated our rights to explore, exploit and develop our concessions
in manners consistent with industry practice and, to the best of our knowledge,
those rights are in good standing. However, we cannot assure that the title to
or our rights of ownership of the El Chanate concessions will not be challenged
or impugned by third parties or governmental agencies. In addition, there can be
no assurance that the concessions in which we have an interest are not subject
to prior unregistered agreements, transfers or claims and title may be affected
by undetected defects. Any such defects could have a material adverse effect on
us.
9
Should we successfully commence mining operations in Mexico, our ability
to remain profitable long term, should we become profitable, eventually
will depend on our ability to find, explore and develop additional
properties. Our ability to acquire such additional properties will be
hindered by competition. If we are unable to acquire, develop and
economically mine additional properties, we most likely will not be able
to be profitable on a long-term basis.
Gold properties are wasting assets. They eventually become depleted or
uneconomical to continue mining. The acquisition of gold properties and their
exploration and development are subject to intense competition. Companies with
greater financial resources, larger staffs, more experience and more equipment
for exploration and development may be in a better position than us to compete
for such mineral properties. If we are unable to find, develop and economically
mine new properties, we most likely will not be able to be profitable on a
long-term basis.
Our ability on a going forward basis to discover additional viable and
economic mineral reserves is subject to numerous factors, most of which
are beyond our control and are not predictable. If we are unable to
discover such reserves, we most likely will not be able to be profitable
on a long-term basis.
Exploration for gold is speculative in nature, involves many risks and is
frequently unsuccessful. Few properties that are explored are ultimately
developed into commercially producing mines. As noted above, our long-term
profitability will be, in part, directly related to the cost and success of
exploration programs. Any gold exploration program entails risks relating to
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 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,
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.
10
Risks related to ownership of our stock
There is a limited market for our common stock. If a substantial and
sustained market for our common stock does not develop, our stockholders
may have difficulty selling, or be unable to sell, their shares.
Our common stock is tradable in the over-the-counter market and is quoted on the
Over-The-Counter Bulletin Board. There is only a limited market for our common
stock and there can be no assurance that this market will be maintained or
broadened. If a substantial and sustained market for our common stock does not
develop, our stockholders may have difficulty selling, or be unable to sell,
their shares.
Our stock price may be adversely affected if a significant amount of
shares, primarily those offered herein, are sold in the public market.
As of November 21, 2005, approximately 56,040,500 shares of our Common Stock,
constituted "restricted securities" as defined in Rule 144 under the Securities
Act of 1933. More than half of these shares have been registered for public
resale. In addition, we have registered 30,902,004 shares of Common Stock
issuable upon the exercise of outstanding warrants and 763,636 shares of Common
Stock issuable upon the exercise of outstanding options. All of the foregoing
shares, assuming exercise of all of the above options and warrants, would
represent in excess of 50% of the then outstanding shares of our Common Stock.
Registration of the shares permits the sale of the shares in the open market or
in privately negotiated transactions without compliance with the requirements of
Rule 144. To the extent the exercise price of the warrants or options is less
than the market price of the Common Stock, the holders of the warrants are
likely to exercise them and sell the underlying shares of Common Stock and to
the extent that the exercise prices of these securities are adjusted pursuant to
anti-dilution protection, the securities could be exercisable or convertible for
even more shares of Common Stock. In addition, should we consummate the project
finance facility with Standard Bank, we will be required to issue an additional
1,000,000 shares and warrants for an additional 12.6 million shares and to
register the foregoing shares and the shares issuable upon exercise of these
warrants for public resale. We also may issue shares to be used to meet our
capital requirements or use shares to compensate employees, consultants and/or
directors. We are unable to estimate the amount, timing or nature of future
sales of outstanding Common Stock. Sales of substantial amounts of our Common
Stock in the public market could cause the market price for our Common Stock to
decrease. Furthermore, a decline in the price of our Common Stock would likely
impede our ability to raise capital through the issuance of additional shares of
Common Stock or other equity securities.
We do not intend to pay dividends in the near future.
Our board of directors determines whether to pay dividends on our issued and
outstanding shares. The declaration of dividends will depend upon our future
earnings, our capital requirements, our financial condition and other relevant
factors. Our board does not intend to declare any dividends on our shares for
the foreseeable future. We anticipate that we will retain any earnings to
finance the growth of our business and for general corporate purposes. In
addition, our ability to pay dividends most likely will be restricted by
financial covenants in any project finance facility we enter into with Standard
Bank or another lender.
If our Common Stock is deemed to be a "penny stock," trading of our shares
would be subject to special requirements that could impede our
stockholders' ability to resell their shares.
"Penny stocks" as that term is defined in Rule 3a51-1 of the Securities and
Exchange Commission are stocks:
i. with a price of less than five dollars per share;
ii. that are not traded on a recognized national exchange;
o whose prices are not quoted on the NASDAQ automated quotation
system; or
iii. of issuers with net tangible assets equal to or less than
o -$2,000,000 if the issuer has been in continuous operation for
at least three years; or
o -$5,000,000 if in continuous operation for less than three
years, or
o of issuers with average revenues of less than $6,000,000 for
the last three years.
11
Our Common Stock is not currently a penny stock because we have net tangible
assets of more than $2,000,000. Should our net tangible assets drop below
$2,000,000 and we do not meet any of the other criteria for exclusion of our
Common Stock from the definition of penny stock, our Common Stock will be a
penny stock.
Section 15(g) of the Exchange Act, and Rule 15g-2 of the Securities and Exchange
Commission, require broker-dealers dealing in penny stocks to provide potential
investors with a document disclosing the risks of penny stocks and to obtain a
manually signed and dated written receipt of the document before effecting any
transaction in a penny stock for the investor's account. Moreover, Rule 15g-9 of
the Securities and Exchange Commission requires broker-dealers in penny stocks
to approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer:
i. to obtain from the investor information concerning his or her financial
situation, investment experience and investment objectives;
ii. to determine reasonably, based on that information, that transactions in
penny stocks are suitable for the investor and that the investor has
sufficient knowledge and experience as to be reasonably capable of
evaluating the risks of penny stock transactions;
iii. to provide the investor with a written statement setting forth the basis
on which the broker-dealer made the determination in (ii) above; and
iv. to receive a signed and dated copy of such statement from the investor,
confirming that it accurately reflects the investor's financial situation,
investment experience and investment objectives.
Should our Common Stock be deemed to be a penny stock, compliance with the above
requirements may make it more difficult for holders of our Common Stock to
resell their shares to third parties or to otherwise dispose of them.
FORWARD-LOOKING STATEMENTS
Risks Associated With Forward-Looking Statements
Certain statements in this prospectus constitute "forwarding-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities and Exchange Act of 1934. Certain, but not necessarily all, of
such forward-looking statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should," or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy that involve risks and uncertainties.
All statements other than statements of historical fact, included in this
prospectus regarding our financial position, business and plans or objectives
for future operations are forward-looking statements. Without limiting the
broader description of forward-looking statements above, we specifically note
that statements regarding exploration 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 are all forward-looking in nature.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors, including but not limited to, the risk factors discussed
below, which may cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements and other factors
referenced in this prospectus. We do not undertake and specifically decline any
obligation to publicly release the results of any revisions which may be made to
any forward-looking statement to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.
12
USE OF PROCEEDS
Proceeds, if any, from stockholders exercising some or all of the Warrants and
Options will be used for the development of our El Chanate project and for
working capital.
DIVIDEND POLICY
We have not paid any cash dividends since our inception and do not anticipate
paying cash dividends in the foreseeable future. In addition, our ability to pay
dividends most likely will be restricted by financial covenants in any project
finance facility we enter into with Standard Bank or another lender.
PRICE RANGE OF COMMON STOCK
Our common stock is quoted on the OTC Bulletin Board under the symbol " CGLD. "
The following table sets forth the range of high and low closing bid quotes of
our Common Stock per quarter for the past two fiscal years and the first fiscal
quarter of the year ending July 31, 2006 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).
Bid
----------------
Quarter Ending High and Low
-------------- ------------------------
---------------------------------------------- ----------- ------------
October 31, 2005 0.26 0.172
---------------------------------------------- ----------- ------------
---------------------------------------------- ----------- ------------
July 31, 2005 0.24 0.16
---------------------------------------------- ----------- ------------
April 30, 2005 0.40 0.17
---------------------------------------------- ----------- ------------
January 31, 2005 0.39 0.23
---------------------------------------------- ----------- ------------
October 31, 2004 0.33 0.19
---------------------------------------------- ----------- ------------
---------------------------------------------- ----------- ------------
July 31, 2004 0.31 0.20
---------------------------------------------- ----------- ------------
April 30, 2004 0.58 0.27
---------------------------------------------- ----------- ------------
January 31, 2004 0.65 0.23
---------------------------------------------- ----------- ------------
October 31, 2003 0.28 0.20
---------------------------------------------- ----------- ------------
On November 21, 2005, the last reported sale price of our common stock as
reported on the OTC Bulletin Board was $0.24 per share. As of November 21, 2005,
there were approximately 1,200 holders of record of our common stock not
including holders in street name.
13
SELECTED FINANCIAL DATA
Our selected historical consolidated financial information presented as of July
31, 2001, 2002, 2003, 2004 and 2005 and for each of the five years ended July
31, 2005 was derived from our audited consolidated financial statements.
This information should be read in conjunction with the historical consolidated
financial statements and related notes included herein, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Statements
of Operations Data
------------------
For the Years Ended
-------------------------------------------------------------------------------
July 31,
-------------------------------------------------------------------------------
2001 2002 2003 2004 2005
------------- ------------- ------------- ------------- -------------
(consolidated) (consolidated) (consolidated) (consolidated) (consolidated)
Revenues $ -- $ -- $ -- $ -- $ --
------------- ------------- ------------- ------------- -------------
Mine Expenses $ 982,585 $ 709,961 $ 1,028,899 $ 673,050 $ 851,374
------------- ------------- ------------- ------------- -------------
General and
Administrative $ 1,432,327 $ 639,652 $ 770,629 $ 687,722 $ 1,005,038
------------- ------------- ------------- ------------- -------------
Stock Based
Compensation $ 7,002,500 $ 222,338 $ 288,623 $ 379,033 $ 187,844
------------- ------------- ------------- ------------- -------------
Depreciation $ 3,823 $ 3,105 $ -- $ -- $ 7,431
------------- ------------- ------------- ------------- -------------
Total Other
Income (Expense) $ 2,969 $ 2,027,810 $ (11,735) $ (950,005) $ 46,005
------------- ------------- ------------- ------------- -------------
Minority Interest $ -- $ 54,543 $ 180,625 $ 51,220 $ --
------------- ------------- ------------- ------------- -------------
Write Down of Mining,
Milling and Other
Property and Equipment $ -- $ 999,445 $ -- $ 300,000 $ --
------------- ------------- ------------- ------------- -------------
Net Loss $ (9,418,266) $ (492,148) $ (1,919,261) $ (2,938,590) $ (2,005,682)
------------- ------------- ------------- ------------- -------------
Other Cash Flows Data
---------------------
For the Years Ended
-------------------------------------------------------------------------------
July 31,
-------------------------------------------------------------------------------
2001 2002 2003 2004 2005
------------- ------------- ------------- ------------- -------------
(Consolidated) (Consolidated) (Consolidated) (Consolidated) (Consolidated)
Net Cash (Used)
in Operations $ (1,719,539) $ (1,094,098) $ (1,889,349) $ (1,423,372) $ (1,841,821)
------------- ------------- ------------- ------------- -------------
Net Cash Provided by
Investing Activities $ 7,870 $ 670,886 $ 1,429,249 $ 2,992 $ (712,868)
------------- ------------- ------------- ------------- -------------
Net Cash from Financing
Activities $ 1,726,167 $ 511,453 $ 494,601 $ 1,362,776 $ 6,598,819
------------- ------------- ------------- ------------- -------------
Effects of Exchange
Rates on Cash $ -- $ (2,728) $ 62,476 $ 19,637 $ 28,975
------------- ------------- ------------- ------------- -------------
Net Increase (Decrease)
in Cash $ 14,498 $ 85,513 $ 96,977 $ (37,967) $ 4,073,105
------------- ------------- ------------- ------------- -------------
14
Balance Sheet Data
------------------
As of July 31,
-------------------------------------------------------------------------------
2001 2002 2003 2004 2005
------------- ------------- ------------- ------------- -------------
(consolidated) (consolidated) (consolidated) (consolidated) (consolidated)
Cash $ 63,920 $ 149,433 $ 246,410 $ 208,443 $ 4,281,548
------------- ------------- ------------- ------------- -------------
Total Current Assets $ 122,536 $ 1,659,888 $ 359,960 $ 387,098 $ 4,522,807
------------- ------------- ------------- ------------- -------------
Mining Concessions $ -- $ -- $ -- $ 44,780 $ 70,104
------------- ------------- ------------- ------------- -------------
Property and
Equipment (Net) $ 1,390,475 $ 346,378 $ 344,780 $ -- $ 650,941
------------- ------------- ------------- ------------- -------------
Intangible Assets (Net) $ -- $ -- $ -- $ -- $ 17,842
------------- ------------- ------------- ------------- -------------
Total Assets $ 1,564,428 $ 2,056,851 $ 761,607 $ 485,753 $ 5,551,871
------------- ------------- ------------- ------------- -------------
Total Current Liabilities $ 125,837 $ 467,017 $ 254,299 $ 204,159 $ 282,816
------------- ------------- ------------- ------------- -------------
Stockholders' Equity $ 1,438,591 $ 1,622,119 $ 651,000 $ 281,594 $ 5,269,055
------------- ------------- ------------- ------------- -------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our financial statements and
related notes included elsewhere in this prospectus. This discussion and
analysis and plan of operations contains forward-looking statements that involve
risks, uncertainties and assumptions. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of a
number of factors including, but not limited to, those set forth under "Risk
Factors" and elsewhere in this prospectus.
Result of Operations
Fiscal year ended July 31, 2005 compared to fiscal year ended July 31, 2004
Revenues
We generated no revenues from mining operations during the fiscal year ended
July 31, 2005 and 2004. There were de minimis non-operating revenues during the
fiscal year ended July 31, 2005 and 2004 of approximately $46,005 and $4,000,
respectively. These non-operating revenues primarily represent interest income.
Costs and Expenses
Over all costs and expenses during the fiscal year ended July 31, 2005 were
$2,051,687, an increase of $11,882 or 0.6% from the fiscal year ended July 31,
2004. The primary reason for the increase during the fiscal year ended July 31,
2005 was increases in mine and in selling, general and administrative expenses
offset by a reduction in stock based compensation and no impairment loss
incurred during the year ending July 31, 2005.
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.
15
Mine expenses during the fiscal year ended July 31, 2005 were $851,374, an
increase of $178,324 or 26% from the fiscal year ended July 31, 2004. We believe
that the increase in mine expenses resulted primarily from increased
professional and engineering and consulting costs as well as continuing
development of the mine.
Selling, general and administrative expenses during the fiscal year ended July
31, 2005 were $1,005,038, an increase of $317,316 or 46% from the fiscal year
ended July 31, 2004. We believe that the increase in selling, general and
administrative expenses resulted primarily from an increase in professional,
consulting fees as well as travel expenses and public relations costs incurred
in connection with fund raising efforts during the fiscal year ended July 31,
2005.
Stock based compensation during the fiscal year ended July 31, 2005 was $187,844
compared to $379,033 for the fiscal year ended July 31, 2004. This decrease
resulted from a reduction in the amount of options granted and common stock
issued for services rendered during the fiscal year ended July 31, 2005.
Loss on Joint Venture for the fiscal year ended July 31, 2005 was $0 compared to
$800,000 for the fiscal year ended July 31, 2004. The Joint Venture was
terminated during the quarter ended April 30, 2004.
Loss on the write-off of minority interest was $0 for the fiscal year ended July
31, 2005 compared to $150,382 for the fiscal year ended July 31, 2004. Since the
Joint Venture was terminated during the quarter ended April 30, 2004 there is no
longer a minority interest.
Net Loss
As a result, our net loss for the fiscal year ended July 31, 2005 was
$2,005,682, which was $932,908 or 32% less than our net loss for the fiscal year
ended July 31, 2004, which was $2,938,590.
Loss from Changes in Foreign Exchange Rates
During the fiscal year ended July 31, 2005, we recorded equity adjustments from
foreign currency translations of approximately $29,000. These translation
adjustments are related to changes in the rates of exchange between the Mexican
Peso and the US dollar.
16
Liquidity and Capital Resources; Plan of Operations
As of July 31, 2005, we had working capital of $4,239,991. Our planned
activities over the next twelve months in Mexico, in order of priority, are as
set forth below. The activities and the costs may vary materially, especially if
there are significant increase in costs related to such items as fuel,
construction materials and labor. The following costs are derived from the 2005
Study.
Activity Estimated Cost
-------- --------------
Mexico
------
Crushing 5,600,000
Heap leaching 2,100,000
Carbon handling & refining 900,000
Power system 650,000
Water system 730,000
Trucks and other mining equipment 460,000
Engineering and planning 1,100,000
Ancillaries (building, shops, lab and road) 1,100,000
Owner's costs 3,200,000
Working capital 1,700,000
General and administrative 350,000
--------------
Sub-total $ 17,890,000
--------------
New York and Colorado
---------------------
General, administrative and professional expenses 1,380,000
--------------
Total $ 19,270,000
--------------
Historically, we have not generated any material revenues from operations and
have been in a precarious financial condition. Our consolidated financial
statements have been prepared on a going concern basis, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of
business. We have recurring losses from operations. Our primary source of funds
used during the fiscal year ended July 31, 2005 was from the sale and issuance
of equity securities for net proceeds of approximately $7,338,316. As discussed
below, in February 2005, we completed a private placement, netting approximately
$6.2 million, and, in November 2005, we received a commitment letter from
Standard Bank Plc. For a project finance facility of up to US$12 million for our
El Chanate project in Sonora State, Mexico.
17
February 2005 Private Placement
In the private placement that closed in February 2005, we issued 27,200,004
shares of our Common Stock and warrants to purchase an aggregate of up to
27,200,004 shares of our Common Stock for an aggregate gross purchase price of
approximately $6.8 million and we received approximately $6.2 million in net
proceeds. The Warrant issued to each purchaser is exercisable for one share of
our Common Stock, at an exercise price equal to $0.30 per share. Each Warrant
has a term of two years and is fully exercisable from the date of issuance. We
issued to the placement agent two year warrants to purchase up to 2,702,000
shares of our Common Stock at an exercise price of $0.25 per share. The
purchasers acquired the Common Stock and warrants to purchase Common Stock
directly from us in transactions exempt from the registration requirements of
the federal and state securities laws. All of the securities were issued and
sold solely to accredited investors, as defined in Rule 501 of Regulation D
pursuant to the Securities Act.
Pursuant to our agreement with the purchasers we have registered the foregoing
shares and shares issuable upon the exercise of the foregoing Warrants
(collectively, the "registrable shares") for public resale. We also agreed to
prepare and file all amendments and supplements necessary to keep the
registration statement effective until the earlier of the date on which the
selling stockholders may resell all the registrable shares covered by the
registration statement without volume restrictions pursuant to Rule 144(k) under
the Securities Act or any successor rule of similar effect and the date on which
the selling stockholders have sold all the shares covered by the registration
statement. If, subject to certain exceptions, sales of all shares registered
cannot be made pursuant to the registration statement, we will be required to
pay to these selling stockholders in cash or, at our option, in shares, their
pro rata share of 0.0833% of the aggregate market value of the registrable
shares held by these selling stockholders for each month thereafter until sales
of the registrable shares can again be made pursuant to the registration
statement.
In addition, we agreed to have our Common Stock listed for trading on the
Toronto Stock Exchange. If our Common Stock was not listed for trading on the
Toronto Stock Exchange within 180 days after February 8, 2005, we were required
to issue to these selling stockholders an additional number of shares of our
Common Stock that is equal to 20% of the number of shares acquired by them in
the private placement. We did not timely list our shares on the Toronto Stock
Exchange and, in July 2005, we issued 5,440,000 shares to the selling
stockholders. These 5,440,000 shares are registered for public resale herein.
Project Finance Facility
On February 2, 2005, we mandated Standard Bank Plc. as the exclusive arranger of
a project finance facility of up to US$10 million for our El Chanate project and
associated hedging. In November 2005, we received a commitment letter from
Standard Bank informing us that its credit committee had approved the Standard
Bank's arranging and providing for a senior project finance facility for up to
US$12 million for the development of our El Chanate project.
The terms and conditions contained in the commitment letter and the term sheet
attached thereto are indicative only and actual funding is subject to the
negotiation of and execution of satisfactory definitive documents as well as
satisfaction of certain conditions, including raising the additional funds
necessary for construction and working capital, there occurring no events that
materially adversely affect our business, operations or financial condition and
there being no material deterioration in the gold price. The commitment expires
on January 31, 2006 if not funded by that date.
18
According to the term sheet included with the commitment letter, Minera Santa
Rita S. de R.L. de C.V. and Oro de Altar S. de R. L. de C.V., two of our
wholly-owned Mexican subsidiaries (the "Borrowers"), will borrow up to US$12
million from Standard Bank. The loan proceeds will be used to fund project costs
related to the El Chanate project. The loan will mature in five years after the
closing date and bear interest at 4% plus the 1,2,3 or 6 month Libor rate. The
loan will be repayable in 14 quarterly installments commencing on a date to be
determined. In addition, on each installment date, we will be required to apply
50% of excess cash flow towards prepayment of the loan. The loan will be secured
by all shares and all of the assets of the Borrowers, The loan will also be
supported by our guarantee and we will be required to maintain a minimum cash
liquidity balance in an amount to be determined.
We (the Borrowers and/or us) will be required to deposit all cash proceeds we
receive from operations and other sources in an off-shore proceeds account which
will be subject to Standard Bank's security interest. Absent default by us under
the finance documents, funds from this account will be used for specific
purposes such as approved operating costs, budgeted capital expenditures,
hedging costs and funds payable to Standard Bank under the finance documents. As
additional security, we also will be required to fund an offshore debt service
account ("DSRA") and maintain a minimum balance of US$1,800,000.
We will be required to meet and maintain certain financial covenants and conform
to certain customary affirmative and negative covenants, such as restrictions on
sale of assets. We also will be required to enter into a gold price protection
program that mitigates the risk of downward movement in gold prices by entering
into an acceptable hedging program and we will need to structure a hedging
program to mitigate interest rate risk and foreign exchange risk, all in a
manner satisfactory to Standard Bank.
The facility will close and funding will be available upon satisfaction of
certain conditions precedent. In addition to customary conditions precedent such
as execution of definitive documents, the absence of events of default and
satisfactory representations and warranties, closing and funding of the facility
will be subject to: (i) Standard Bank's determination that we have hired
appropriate additional management to provide construction, operations and
financial management and oversight; and (ii) our raising sufficient equity
funding, net of expenses, that, along with cash on hand, is adequate to cover
all required project equity contributions, pre-completion funding of the DSRA
and other cash requirements prior to Economic Completion (the date upon which
Standard Bank determines that all covenants and completion conditions have been
met over a period of 90 consecutive days and are sustainable over the life of
the project), and to meet a certain minimum liquidity balance to be determined
by Standard Bank.
Pursuant to the original mandate in February 2005, we issued to Standard Bank
1,000,000 common stock purchase warrants and paid certain upfront fees. Pursuant
to the Commitment letter, we paid Standard Bank additional upfront fees
consisting of cash and 1,000,000 shares of our common stock. In addition, on the
closing date we will be required to deliver to Standard Bank as an additional
upfront cash fee, an additional 1,000,000 shares of common stock and an
additional 12,600,000 common stock purchase warrants. We have registered the
1,000,000 shares and the 1,000,000 shares issuable upon exercise of warrants
issued to Standard Bank for public resale herein and we have agreed to register
the above-mentioned additional shares and shares issuable upon exercise of the
warrants for public resale.
As noted above, the Standard Bank commitment requires us to raise additional
funds. Moreover, If Standard determines not to provide the funding, we will be
required to obtain such funding from another source. To the extent that we need
to obtain additional capital to complete the mine, commence operations and cover
ongoing general and administrative expenses, management intends to raise such
funds 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. We cannot assure that adequate
additional funding will be available. If we are unable to obtain needed capital
from outside sources, we will be forced to reduce or curtail our operations.
Please see the risk factor "We lack operating cash flow and rely on external
funding sources. If we are unable to continue to obtain needed capital from
outside sources until we are able to generate positive cash flow from
operations, we will be forced to reduce or curtail our operations."
19
Environmental and Permitting Issues
Management does not expect that environmental issues will have an adverse
material effect on our liquidity or earnings. In Mexico, although we must
continue to comply with laws, rules and regulations concerning mining,
environmental, health, zoning and historical preservation issues, we are not
aware of any significant environmental concerns or existing reclamation
requirements at the El Chanate concessions. We received the required Mexican
government permits for construction, mining and processing the El Chanate ores
in January 2004. The permits were extended in June 2005. Pursuant to the
extensions, once we file a notice that work has commenced, we have one year to
prepare the site and construct the mine and seven years to mine and process ores
from the site. We received the explosive permit from the government in January
2004. This permit must be renewed annually and currently runs through December
2005.
We own properties in Leadville, Colorado that we have written off. Part of the
Leadville Mining District has been declared a federal Superfund site under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
and the Superfund Amendments and Reauthorization Act of 1986. Several mining
companies and one individual were declared defendants in a possible lawsuit. We
were not named a defendant or Principal Responsible Party. We did respond in
full detail to a lengthy questionnaire prepared by the Environmental Protection
Agency ("EPA") regarding our proposed procedures and past activities in November
1990. To our knowledge, the EPA has initiated no further comments or questions.
We do include in all our internal revenue and cost projections a certain amount
for environmental and reclamation costs on an ongoing basis. This amount is
determined at a fixed amount of $0.13 per metric tonne of material to be 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.
Equipment Disposition
In June 2005, we purchased used crushing equipment for approximately $325,500.
We spent about $68,329 disassembling, transporting and inspecting the equipment.
However, in late summer 2005, we determined to use new rather than used crushing
equipment. As a result, we plan to sell this used equipment and we have
commissioned an agent to obtain potential buyers.
Contractual Obligations as of July 31, 2005
Lease Commitments
We occupy office space in New York City under a non cancelable operating lease
that commenced on September 1, 2002 and terminates on August 31, 2007. In
addition to base rent, the lease calls for payment of utilities and other
occupancy costs.
20
Approximate future minimum payments under this lease are as follows:
Year Ending July 31,
2006 $ 51,000
2007 51,000
2008 4,200
--------------------------------------
$ 106,200
===========
Rent expense under the office lease in New York City was approximately $63,000
and $57,000 for the years ended July 31, 2005 and 2004, respectively.
New Accounting Pronouncements
Financial Accounting Standards Board ("FASB") Statement No. 154 Accounting
Changes and Error Corrections--a replacement of APB Opinion No. 20 and FASB
Statement No. 3
This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB
Statement No. 3, Reporting Accounting Changes in Interim Financial Statements,
and changes the requirements for the accounting for and reporting of a change in
accounting principle. This Statement applies to all voluntary changes in
accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement includes specific
transition provisions, those provisions should be followed.
Opinion 20 previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period of the change
the cumulative effect of changing to the new accounting principle. This
Statement requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. When it is impracticable to determine the period-specific effects of an
accounting change on one or more individual prior periods presented, this
Statement requires that the new accounting principle be applied to the balances
of assets and liabilities as of the beginning of the earliest period for which
retrospective application is practicable and that a corresponding adjustment be
made to the opening balance of retained earnings (or other appropriate
components of equity or net assets in the statement of financial position) for
that period rather than being reported in an income statement. When it is
impracticable to determine the cumulative effect of applying a change in
accounting principle to all prior periods, this Statement requires that the new
accounting principle be applied as if it were adopted prospectively from the
earliest date practicable.
This Statement defines retrospective application as the application of a
different accounting principle to prior accounting periods as if that principle
had always been used or as the adjustment of previously issued financial
statements to reflect a change in the reporting entity. This Statement also
redefines restatement as the revising of previously issued financial statements
to reflect the correction of an error.
This Statement requires that retrospective application of a change in accounting
principle be limited to the direct effects of the change. Indirect effects of a
change in accounting principle, such as a change in nondiscretionary
profit-sharing payments resulting from an accounting change, should be
recognized in the period of the accounting change.
This Statement also requires that a change in depreciation, amortization, or
depletion method for long-lived, nonfinancial assets be accounted for as a
change in accounting estimate effected by a change in accounting principle.
21
This Statement carries forward without change the guidance contained in Opinion
20 for reporting the correction of an error in previously issued financial
statements and a change in accounting estimate. This Statement also carries
forward the guidance in Opinion 20 requiring justification of a change in
accounting principle on the basis of preferability. FASB Statement No. 154 is
effective for fiscal years beginning after December 15, 2005.
Financial Accounting Standards Board ("FASB") Statement No. 151 "Inventory
Costs-an amendment of ARB No. 43, Chapter 4", FASB Statement No. 152,
"Accounting for Real Estate Time-Sharing Transactions-an amendment of FASB
Statements No. 66 and 67", FASB Statement No. 153, "Exchanges of Non Monetary
Assets-an amendment of APB Opinion No. 29", and FASB Statement No. 123R, "Share
Based Payment" were issued November 2004, December 2004, December 2004 and
December 2004, respectively. FASB Statements No. 151, 152 and 153 have no
current applicability to us or their effect on the consolidated financial
statements would not have been significant.
FASB Statement No. 123R is a revision of FASB Statement No. 123, "Accounting for
Stock-Based Compensation". This Statement supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and its related implementation
guidance.
This Statement establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or services. It also
addresses transactions in which an entity incurs liabilities in exchange for
goods or services that are based on the fair value of the entity's equity
instruments or that may be settled by the issuance of those equity instruments.
This Statement focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment transactions. This
Statement does not change the accounting guidance for share-based payment
transactions with parties other than employees provided in Statement 123 as
originally issued and EITF Issue No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services." This Statement does not address the accounting for
employee share ownership plans, which are subject to AICPA Statements of
Position 93-6, Employers' Accounting for Employee Stock Ownership Plans.
This Statement requires a public entity to measure the cost of employee services
received in exchange for an award of equity instruments based on the grant-date
fair value of the award (with limited exceptions). That cost will be recognized
over the period during which an employee is required to provide service in
exchange for the award-the requisite service period (usually the vesting
period). No compensation cost is recognized for equity instruments for which
employees do not render the requisite service. Employee share purchase plans
will not result in recognition of compensation cost if certain conditions are
met; those conditions are much the same as the related conditions in Statement
123.
This Statement is effective for us as of the beginning of the first interim or
annual reporting period that begins after December 15, 2005. The provisions of
this Statement will be adopted in quarter ending April 30, 2006. We are in the
process of assessing the impact of adopting this Statement.
Disclosure About Off-Balance Sheet Arrangements
We do not have any transactions, agreements or other contractual arrangements
that constitute off-balance sheet arrangements.
22
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 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 incurred or
accrued at July 31, 2005.
OUR BUSINESS
We, directly or indirectly, own concessions located in the State of Sonora,
Mexico and rights to property located in the California Mining District, Lake
County, Colorado. We are engaged in the business of exploring for gold and other
minerals on our Mexican concessions. We have written off our Colorado
properties.
Sonora, Mexico
El Chanate
In June 2001, we purchased 100% of the issued and outstanding stock of Minera
Chanate, S.A. de C.V. 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, four new
concessions were located, and the number of concessions is now 16. These
concessions are contiguous, totaling approximately 3,544 hectares (8,756 acres
or 13.7 square miles). We sometimes refer to these concessions as the El Chanate
concessions. Although there are 16 concessions, we only plan to mine two of
these concessions at the present time. We sometimes refer to the planned
operations on these two concessions as the El Chanate project. We also own
outright 466 hectares (1,151 acres or 1.8 square miles) of surface rights at El
Chanate and no third party ownership or leases exist on this fee land or the El
Chanate concessions. See "Acquisition of El Chanate concessions" below.
23
The 16 mining concessions are as follows:
-------------------------------------------
Concession Name Title No. Hectares
-------------------------------------------------------------------
1 San Jose 200718 96.0000
-------------------------------------------------------------------
2 Las Dos Virgen 214874 132.2350
-------------------------------------------------------------------
3 Rono I 206408 82.1902
-------------------------------------------------------------------
4 Rono 3 214224 197.2180
-------------------------------------------------------------------
5 La Cuchilla 211987 143.3481
-------------------------------------------------------------------
6 Elsa 212004 2,035.3997
-------------------------------------------------------------------
7 Elisa 214223 78.4717
-------------------------------------------------------------------
8 Ena 217495 190.0000
-------------------------------------------------------------------
9 Eva 212395 416.8963
-------------------------------------------------------------------
10 Mirsa 212082 20.5518
-------------------------------------------------------------------
11 Olga 212081 60.5890
-------------------------------------------------------------------
12 Edna 212355 24.0431
-------------------------------------------------------------------
13 La Tira 219624 1.7975
-------------------------------------------------------------------
14 La Tira 1 219623 18.6087
-------------------------------------------------------------------
15 Los Tres 223634 8.000
-------------------------------------------------------------------
16 El Charro 206,404 40.0000
-------------------------------------------------------------------
Total 3,543.3491
The El Chanate project, our current planned mining activities, will involve
mining on two concessions, San Jose and Las Dos Virgens. We will utilize four
other concessions for processing mined ores. In the future, provided we have
adequate funding, we plan to explore some or all of these concessions to
determine whether or not further activity is warranted.
24
[GRAPHIC MAP - EL CHANATE MEXICO]
Surface Property Ownership
Anglo Gold purchased surface property ownership, consisting of 466 Hectares in
Altar, Sonora, on January 27, 1998. The ownership was conveyed to our
subsidiary, Oro de Altar S.A. de C.V., in 2002. 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.
General information and location
The El Chanate project is located in the State of Sonora, Mexico, 37 kilometers
northeast of the town of Caborca. It is accessible by paved and all weather dirt
roads typically traveled by pickup trucks and similar vehicles. Driving time
from Caborca is approximately 40 minutes. Access from Caborca to the village of
16 de September is over well maintained National highways. Beyond the 16 de
September village, routes to the property are currently over well traveled
gravel and sandy desert roads suitable for lightweight vehicles. We acquired
rights for a service road to allow immediate access for mine construction
activities. This service road access was acquired from the village of 16 de
September, and construction of this road is now complete. However, this road
will likely require some up grading before large crushing and processing
equipment can safely be moved to the mine site. In addition to this service
road, we have negotiated long term access that does not pass through the village
of 16 de September. However, an issue has arisen with regard to whether the land
owner from whom we acquired this right had adequate title to this land. In the
event that we are unable to obtain adequate title to this land, we will continue
to rely on the existing access through the Village of 16 de September.
25
The project is situated on the Sonora desert in a hot and windy climate,
generally devoid of vegetation with the exception of cactus. The terrain is
generally flat with immense, shallow basins, scattered rock outcropping and low
rocky hills and ridges. The desert floor is covered by shallow, fine sediment,
gravel and caliche. The main body of the known surface gold covers and
irregularly shaped area of approximately 1,800 feet long by 900 feet wide.
Several satellite mineral anomalies exist on surfaces which have not been
thoroughly explored. Assays on chip samples taken from trenches at these
locations by us indicate the presence of gold mineralization.
The general El Chanate mine area has been mined for gold since the early 19th
century. A number of old underground workings exist characterized by narrow
shafts, to a depth of several tens of feet and connecting drifts and cross cuts.
No information exists regarding the amount of gold taken out; however,
indications are that mining was conducted on a small scale.
Geology
The project area is underlain by sedimentary rocks of the Late Jurassic - Early
Cretaceous Bisbee Group, and the Late Cretaceous Chanate Group, which locally
are overlain by andesites of the Cretaceous El Charro volcanic complex. The
sedimentary strata are locally intruded by andesitic sills and dikes, a
microporphyritic latite and by a diorite stock. The sedimentary strata are
comprised of mudstone, siltstone, sandstone, conglomerate, shale and limestone.
Within the drilled resource area, a predecessor exploration company
differentiated two units on the basis of their position relative to the Chanate
fault. The upper member is an undifferentiated sequence of sandstone,
conglomerate and lesser mudstone that lies above the Chanate fault and it is
assigned to the Escalante Formation of the Middle Cretaceous Chanate Group. The
lower member is comprised of mudstone with mixed in sandstone lenses and thin
limestone interbreds; it lies below the Chanate fault and is assigned to the
Arroyo Sasabe Formation of the Lower Cretaceous Bisbee Group. The Arroyo Sasabe
formation overlies the Morita Formation of the Bisbee Group. Both the Escalante
and Arroyo Sasabe formations are significantly mineralized proximal to the
Chanate fault, while the Morita Formation is barren.
The main structural feature of the project area is the Chanate fault, a 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 silicified and pyritized to varying degrees.
In surface outcrop the mineralized zone is distinguished by its bleached
appearance relative to unmineralized rock. The mineralized zone contains only
single digit ppm (parts per million) levels of gold. Dense swarms of veinlets
form thick, mineralized lenses, within a larger area of sub-economic but
anomalous gold concentrations. Drill hole data indicates that the mineralized
lenses are sub-horizontal to gently southwest-dipping and are grossly parallel
to the Chanate fault. The fault zone itself is also weakly mineralized, although
strata in the near hanging wall and footwall are appreciably mineralized.
26
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 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.
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. M3
completed the study in August 2003. Based on 253 drill holes and more than
22,000 gold assays, this study (the "2003 Study") provided details for an open
pit gold mine. The 2003 Study indicated that at a gold price of $325, the
initial open pit project contains proven and probable reserves of 358,000 ounces
of gold contained within 13.5 million metric tonnes of ore with an average grade
of 0.827 grams/tonne. It estimated that the mine could recover approximately
48,000 - 50,000 ounces of gold per year or 248,854 ounces over a five year mine
life.
In October 2005, M3 completed an update of the 2003 Study (The "2005 Study").
The 2005 Study includes the following changes from the 2003 Study:
o an increase in the mine life from five to six years,
o an increase in the base gold price from $325/oz to $375/oz,
o use of a mining contractor,
27
o revised mining, processing and support costs,
o stockpiling of low grade material for possible processing in year six, if
justified by gold prices at that time,
o a reduced size for the waste rock dump and revised design of reclamation
waste dump slopes,
o a revised process of equipment selection and
o evaluation of the newly acquired water well for processing the ore.
Pursuant to the 2005 Study, our estimated mine life is now six years as opposed
to five years and the ore reserve is 367,880 ounces of gold present in the
ground (up 9,880 ounces). Of this, we anticipate recovering approximately
264,846 ounces of gold (up 16,846 ounces) over a six year life of the mine. The
targeted cash cost (which include mining, processing and on-property general and
administrative expenses) per the 2005 Study is $259 per ounce (up $29 per
ounce). The 2005 Study contains the same mining rate as the 2003 Study of 7,500
metric tonnes per day of ore. We also have commissioned an engineering study to
analyze the benefits of expanding production rates beyond 7,500 metric tonnes
per day of ore. The 2005 Study takes into consideration a different crushing
system than the one contemplated in the 2003 Study. The system referred to in
the 2005 Study is a new more modern system, that, we believe will be faster to
install and provide more efficient processing capabilities than the used
equipment referred to in the 2003 Study. We need to acquire this equipment. In
addition, the 2005 Study assumes a contractor will mine the ore and haul it to
the crushers. In the 2003 Study, we planned to perform these functions. We have
interviewed firms to provide contract mining services for the El Chanate
project. While we believe we are nearing successful completion of negotiations
with the contractor of choice, there is no guarantee that these negotiations
will be successful.
The 2005 Study assumes a mining production rate of 2.6 million tonnes of ore per
year or 7,500 tonnes per day. The processing plant will operate 365 days per
year. The processing plan for this open pit heap leach gold project calls for
crushing the ore to 100% minus 3/8 inch. Carbon columns will be used to recover
the gold.
The following Summary is contained in the 2005 Study. Please note that the
reserves as stated are an estimate of what can be economically and legally
recovered from the mine and, as such, incorporate losses for dilution and mining
recovery. The 367,880 ounces (or 11.4 Tons) of contained gold represents ounces
contained in ore in the ground, and therefore does not reflect losses in the
recovery process. Total gold produced is estimated to be approximately 264,846
ounces (or 8.24 Tons), or approximately 70% of the contained gold. The gold
recovery rate is expected to average approximately 70% for the entire ore body.
Individual portions of the ore body may experience varying recovery rates
ranging from about 73% to 48%. Oxidized and sandstone ore types may have
recoveries of about 73%; fault zone ore type recoveries may be about 64%; and
siltstone ore types recoveries may be about 48%.
El Chanate Project
Reserves and Production Summary
(2005 Updated Feasibility Study Page 1-1)
----------------------------------------------------------------------------------------------------------------------
Metric U.S.
----------------------------------------------------------------------------------------------------------------------
Reserves
Ore 14.1 Million Tonnes @ 0.812 g/t* 15.5 Million Tons @ 0.026 opt*
Low Grade 1.0 Million Tonnes @ 0.445 g/t 1.1 Million Tons @ 0.014 opt
Waste 9.5 Million Tonnes 10.5 Million Tons
Total 24.6 Million Tonnes 27.1 Million tons
Contained Gold 11.4 Million grams 367,880 Oz
Contained Gold in Low Grade 0.46 Million grams 14,793 Oz
Production
Ore Crushed 2.6 Million Tonnes /Year 2.86 Million Tons/Year
Operating Days/Year 7,500 Mt/d* 8,250 t/d
Gold Plant Average Recovery 365 Days per year 365 Days per year
Average Annual Production 69.2 % 69.2 %
Total Gold Produced 1.4 Million grams 44,390 Oz
8.24 Million grams 264,846 Oz
----------------------------------------------------------------------------------------------------------------------
----------
* "g/t" means grams per metric tonne, "Mt/d" means metric tonnes per day and
"opt" means ounces per ton.
28
Pursuant to the 2005 Study, based on the current reserve calculations, the mine
life is estimated to be approximately 72 months, and at least another year will
likely be required to perform required reclamation. The 2005 Study forecasts
initial capital costs of $17.9 million, which includes $1.7 million of working
capital. Annual production is planned at approximately 44,000 to 48,000 ounces
per year at an average operating cash cost of $259 per ounce. We believe that
the cash cost may decrease as the production rate increases. Total costs (which
include cash costs as well as off-property costs such as property taxes,
royalties, refining, transportation and insurance costs and exclude financing
costs) will vary depending upon the price of gold (due to the nature of
underlying payment obligations to the original owner of the property). Total
costs are estimated in the 2005 Study to be $339 per ounce at a gold price of
$417 per ounce (the three year average gold price as of the date of the study).
We will be working on measures to attempt to reduce costs going forward. Ore
reserves and production rates are based on a gold price of $375 per ounce, which
is the Base Case in the 2005 Study. Between January 1, 2005 and October 31,
2005, the spot price for gold on the London Exchange has fluctuated between
$411.10 and $478.50 per ounce.
Management believes that the capital costs to establish a surface, heap leach
mining operation at El Chanate will be between $17.5 and $18.5 million. In
February 2005, we raised approximately $6.1 million in a private placement and
in November 2005 we received a commitment letter from Standard Bank Plc. for a
project finance facility of up to US$12 million. Funding of the Standard Bank
facility, among other things, is subject to our raising additional funds
necessary for construction and working capital. Accordingly, we will need to
obtain additional capital from outside sources. To the extent that we need to
obtain additional capital, management intends to raise such funds through bank
financing, the sale of our securities, the sale of a royalty interest in the
future production from the Chanate concessions and/or joint venturing with one
or more strategic partners. See "Risk Factors - We lack operating cash flow and
rely on external funding sources. If we are unable to continue to obtain needed
capital from outside sources until we are able to generate positive cash flow
from operations, we will be forced to reduce or curtail our operations" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations; Results of Operations."
Management believes the El Chanate project will benefit substantially from
rising gold prices, which are currently above $450 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 $375 per ounce used in the 2005 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.
However, the new crushing system will likely have to be modified to handle the
additional tonnage required for expanding our production. The crushing system
that we hope to acquire, with certain modifications, is expected to have a
capacity beyond the 7,500 metric tons per day that are initially planned. We
need to consummate the Standard Bank financing before we acquire this equipment.
29
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 in the main high grade part of the deposit to
obtain ore samples for metallurgical column testing from siltstone host rocks.
The latest metallurgical column test studies were completed earlier this year at
Metcon's laboratory in Tucson Arizona to determine the optimal conditions at El
Chanate for recovering gold from within siltstone host rocks using heap leach
technology. The siltstone drill core samples were tested at crush sizes of 100
percent -3/8 inch and 100 percent -1/4 inch, and these column tests showed
recovery rates of 42% and 46% respectively. With rising gold prices, management
believes the ore reserves may increase beyond the level currently published in
the 2005 Study. Although 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 project. The permits were extended in June 2005. Pursuant to the
extensions, once we file a notice that work has commenced, we will have one year
to prepare the site and construct the mine and seven years to mine and process
ores from the site. These permits also cover the operation of a heap-leach gold
recovery system.
In 2005, we acquired 15 year rights of way for the current access road, and we
acquired the right to purchase 81 hectares of land near the main highway. We
have use of the land; however, our actual purchase of the land is conditioned
upon the Ejido (local cooperative) privatizing the land, before the acquisition
is finalized. We subsequently purchased an extension of our rights-of-way from
15 to 30 years. We have completed an access road on this land that will provide
access for water and power lines. However, this road will likely require some up
grading before heavy equipment can be moved to the mine site. In addition to
this road, we acquired a water concession, and our water well is located within
a large regional aquifer that, we believe, is capable of producing a sustained
flow in excess of 300 gallons per minute, which is the flow rate we estimate to
be required for processing gold ore at El Chanate
As discussed above, we are considering acquiring a new crushing system capable
of producing 7,500 metric tons per day of ore. We also retained Golder
Associates, - a geotechnical engineering firm, for the detailed engineering of
the leach pads and ponds. This design is included in the 2005 Study.
30
Our Current Plans for the El Chanate Project
Construction of the access road is complete and equipment can be moved to the
property. Some road up grading will likely be required before very large
equipment is moved to a final location. A crushing and conveying system has been
selected and we plan purchase this equipment once project funding is complete.
Once financing is available we plan to commence construction on the crushing,
heap leaching, carbon handling and refining portions of the project. Also
included in the construction phase will be installation of power and water
lines. These construction phase activities will require some additional detailed
engineering, but major parts of the project are turnkey and already have
existing detailed engineering drawings. Some buildings for an office, chemical
laboratory, warehouse and truck shops also will be built as part of the
construction phase. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations; Liquidity and Capital Resources;
Plan of Operations" for the anticipated costs of our activities over the next 12
months.
Acquisition of El Chanate concessions
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. 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 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.
31
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.
("Oro"), another of our wholly-owned subsidiaries. Oro, in turn, leased the
foregoing land and mining claims to Minera Santa Rita.
In May 2005, we acquired rights to the El Charro concession for approximately
$25,000 and a royalty of 1.5% of net smelter return. We acquired the El Charro
concession because it is surrounded entirely by our other concessions.
Leadville, Colorado Properties
We own or lease a number of claims and properties, all of which are located in
California Mining District, Lake County, Colorado, Township 9 South, Range 79.
For the past three years, activity at our Leadville, Colorado properties
consisted primarily of mine maintenance. Primarily as a result of our focus on
the El Chanate concessions, we ceased activities in Leadville, Colorado. During
the year ended July 31, 2002, we performed a review of our Leadville mine and
mill improvements and determined that an impairment loss should be realized.
Therefore, we significantly reduced the carrying value of certain assets
relating to our Leadville, Colorado assets by $999,445. During the year ending
July 31, 2004, we again performed a review of our Colorado mine and mill
improvements and determined that an additional impairment loss should be
recognized. Accordingly, we further reduced the net carrying value to $0,
recognizing an additional loss of $300,000. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations; Results of
Operations."
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.
32
Human Resources
As of November 21, 2005, we had nine full time employees and/or consultants,
including our current officers and one administrative personnel in the US and,
in Mexico, a General Project Manager, an Administration Manager and an
Environmental Manager and one part-time consultant in Mexico.
Facilities
Our executive office is located at 76 Beaver Street, 26th Floor, New York, New
York 10005. Telephone Number 212-344-2785. We lease the offices from an
unaffiliated party. The lease expires on August 31, 2007. Annual rent for the
lease year ended August 31, 2005 is approximately 54,000 plus utilities and
other occupancy expenses.
We also maintain an office at 418 Harrison Avenue, Suite 2, Leadville, CO 80461
pursuant to an oral month-to-month arrangement. The office is approximately 400
square feet and rent is $365 per month.
Legal Proceedings
We are not presently a party to any material litigation.
MANAGEMENT
The following sets forth biographical information about each of our directors
and executive officers as of the date of this prospectus:
Name Age Position
Gifford A. Dieterle 73 President, Treasurer, Chief Financial Officer
& Chairman of the Board
Robert Roningen 70 Director, Senior Vice President and
Secretary
Jack V. Everett 84 Director, Vice President - Exploration
Roger A. Newell 62 Director, Vice President - Development
Jeffrey W. Pritchard 47 Director, Vice President - Investor Relations
J. Scott Hazlitt 53 Vice President - Mine Development
Directors are elected at the meeting of stockholders called for that purpose and
hold office until the next stockholders meeting called for that purpose or until
their resignation or death. Officers of the corporation are elected by the
directors at meetings called by the directors for its purpose.
GIFFORD A. DIETERLE, President, Treasurer, 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.
33
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.
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 Development, has been in the mining
business since 1974. He has worked primarily in mine feasibility, development,
and mine operations. Mr. Hazlitt was a field geologist for ARCO Syncrude
Division at their CB oil Shale project in 1974 and 1975. He was a contract
geologist for Pioneer Uravan and others from 1975 to 1977. He was a mine
geologist for Cotter Corporation in 1978 and 1979, and was a mine geologist for
ASARCO from 1979 to 1984. He served as Vice President of Exploration for Mallon
Minerals from 1984 to 1988. From 1988 to 1992, Mr. Hazlitt was a project
geologist and Mine Superintendent for the Lincoln development project. From 1992
to 1995, he was self-employed as a consulting mining geologist in California and
Nevada. He was Mine Operations Chief Geologist for Getchell Gold from 1995 to
1999. His work experience has included precious metals, base metals, uranium,
and oil shale. Mr. Hazlitt has served as mine manager at our Hopemore Mine in
Leadville, Colorado starting in November 1999. Since 2001, he has focused on
development of our El Chanate concessions. His highest educational degree is
Master of Science from Colorado State University. He is a registered geologist
in the state of California.
Key Consultant
DAVID LODER has been the General Manager of our El Chanate project since March
2005. Mr. Loder is a registered professional mining engineer with over 30 years
experience in the mining industry, spending the last 15 years managing open-pit
gold heap leach operations. He has been a General Manager responsible for the
overall planning and start-up for open-pit gold mining operations in Sonora,
Mexico and elsewhere in Latin America. From 2003 to 2004, he was general manager
of the Bellavista mine owned by Glencairn Gold in Costa Rica. From 1995 to 2001,
Mr. Loder was general manager of the Santa Gertrudis mine owned by Campbell
Resources in Sonora, Mexico. Mr. Loder is a Registered Professional Engineer in
the United States and Canada.
34
Compensation of Directors
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.
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 Restrict- All Other
Annual ed Stock LTIP Compensa
Name and Principal Bonus Compen- Award Options Payouts -tion
Position Year Salary ($) sation($) ($) SARs ($) (i)
--------------------------- ----- ------- ------- --------- --------- -------- --------- --------
Gifford A. Dieterle 2005 123,000 -0- -0- -0- -0- -0- -0-
Chief Executive 2004 104,000 20,000 -0- -0- 250,000 -0- -0-
Officer 2003 70,856 23,400 -0- -0- -0- -0- -0-
The following table sets forth information with respect to the Company's
Executive Officers concerning the grants of options and Stock Appreciation
Rights ("SAR") during the past fiscal year:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
(a) (b) (c) (d) (e)
-------------------------------------------------------------------------------------------
Percent of Total
Options/SARs
Options/ Granted to
SARs Employee in Exercise or Base Expiration
Name Granted Fiscal Year Price ($/SH) Date
-------------------------------------------------------------------------------------------
Gifford A. Dieterle 0 0% $.0 N/A
Robert N. Roningen 0 0% $.0 N/A
Jack V. Everett 0 0% $.0 N/A
Roger A. Newell 0 0% $.0 N/A
Jeffrey W. Pritchard 0 0% $.0 N/A
35
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 $ 75,000
Robert N. Roningen -- -- 750,000 $ 75,000
Jeffrey W. Pritchard -- -- 622,727 $ 75,000
Roger A. Newell 227,227 50,000 750,000 $ 135,000
Scott Hazlitt 400,000 132,000 325,000 $ 97,500
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.
Employment Agreements
For information on compensation arrangements with our executive officers, please
see "Certain Relationships and Related Transactions" below.
PRINCIPAL STOCKHOLDERS
The following table sets forth as of November 21, 2005, the number and
percentage of outstanding shares of Common Stock beneficially owned by:
o Each person, individually or as a group, known to us to be deemed
the beneficial owners of five percent or more of our issued and
outstanding Common Stock;
o each of our Directors and the Named Executives; and
o all of our officers and Directors as a group.
As of the foregoing date, there were no other persons, individually or as a
group, known to us to be deemed the beneficial owners of five percent or more of
the issued and outstanding Common Stock.
This table is based upon information supplied by Schedules 13D and 13G, if any,
filed with the Securities and Exchange Commission, and information obtained from
our directors and named executives. For purposes of this table, a person or
group of persons is deemed to have "beneficial ownership" of any shares of
Common Stock which such person has the right to acquire within 60 days of
November 21, 2005. For purposes of computing the percentage of outstanding
shares of Common Stock held by each person or group of persons named in the
table, any security which such person or persons has or have the right to
acquire within such date is deemed to be outstanding but is not deemed to be
outstanding for the purpose of computing the percentage ownership of any other
person. Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, we believe, based on information supplied by
such persons, that the persons named in this table have sole voting and
investment power with respect to all shares Common Stock which they beneficially
own. Unless otherwise noted, the address of each of the principal stockholders
is care of us at 76 Beaver Street, 26th floor, New York, NY 10005.
36
Name and Address Amount & Nature
of Beneficial of Beneficial Approximate
Owner Ownership Percentage(1)(2)
--------------- --------------- ----------------
Gifford A. Dieterle* 2,650,000(2) 2.7%
Jack Everett* 1,000,000 1.0%
534 Observatory Drive
Colorado Springs, CO 80904
Robert Roningen* 2,200,000(2)(3) 2.3%
2955 Strand Road
Duluth, MN 55804
Jeffrey W. Pritchard* 956,354(2) 1.0%
Roger A Newell* 1,477,273(2) 1.5%
1781 South Larkspur Drive
Golden, CO 80401
Scott Hazlitt* 1,025,000(2) 1.1%
949 F Street
Salida. CO 81201
RAB Special Situations
(Master) Fund Limited 17,600,000(4) 16.8%
1 Adam Street
London, WC2N 6LE, UK
SPGP 20,270,000(5) 19.3%
17, Avenue Matignon
75008 Paris, France
Caisse de Depot et Placement
du Quebec 5,280,000(6) 5.4%
1000, place Jean-Paul-Riopelle
Montreal, Quebec, H2Z 2B3
All Officers and
Directors as a
Group (6) 9,308,627(2)(3) 9.5%
---------------------------------
* Officer and/or Director of Capital Gold.
(1) Based upon 96,969,214 shares issued and outstanding as of November 21,
2005.
(2) For Messrs. Dieterle, Roningen, Pritchard, Newell and Hazlitt, includes,
respectively, 1,500,000 shares, 750,000 shares, 622,727 shares, 750,000
shares and 325,000 shares issuable upon exercise of options and/or
warrants.
37
(3) Includes shares owned by Mr. Roningen's wife and children.
(4) The shares are held of record by Credit Suisse First Boston LLC. Includes
shares issuable upon exercise of warrants to purchase an aggregate of
8,000,000 shares. The warrants are not exercisable if, as a result of an
exercise, the holder would then become a "ten percent beneficial owner" of
our Common Stock, as defined in Rule 16a-2 under the Securities Exchange
Act of 1934. The Approximate Percentage column takes into account the
shares issuable upon exercise of these warrants. We have been advised that
William P. Richards is the Fund Manager for RAB Special Situations
(Master) Fund Limited, with dispositive and voting power over the shares
held by RAB Special Situations (Master) Fund Limited.
(5) Includes shares issuable upon exercise of warrants to purchase an
aggregate of 9,600,000 shares. We have been advised that Guy-Philippe
Bertin, Fund Manager, is a natural person with voting and investment
control over shares of our Common Stock beneficially owned by SPGP.
(6) The shares are held of record by Fiducie Desjardins. Includes shares
issuable upon exercise of warrants to purchase an aggregate of 2,400,000
shares. We have been advised that Francois Perron has dispositive power
and Anne Genevieve Beique has voting power over the shares held by Caisse
de Depot et Placement du Quebec.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal years ended July 31, 2005 and 2004, we paid Roger Newell
$68,000 and $62,000, respectively, for professional geologist and management
services rendered to us, plus expenses. During the fiscal years ended July 31,
2005 and 2004, we paid Scott Hazlitt $96,000 per year, for professional
geologist and mine management services rendered to us, plus expenses. During the
fiscal years ended July 31, 2005 and 2004, we paid Jack Everett consulting fees
of $56,900 and $47,600, respectively. During the fiscal year ended July 31, 2005
and 2004, we paid Robert Roningen legal fees of $6,625 and $6,900, respectively.
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.
The Company utilizes Caborca Industrial S.A. de C.V., a Mexican corporation 100%
owned by Messrs. Dieterle and Pritchard, two of our officers and directors for
mining support services. These services include but are not limited to the
payment of mining salaries and related costs. Caborca Industrial bills us for
these services at cost. Mining expenses charged by it amounted to approximately
$24,000 for the year ended July 31, 2005.
SELLING STOCKHOLDERS
The following table provides information regarding the selling stockholders and
the number of shares of common stock they are offering, which includes shares
issuable upon exercise of options and warrants held by the selling stockholders.
Under the rules of the SEC, beneficial ownership includes shares over which the
indicated beneficial owner exercises voting or investment power. Shares of
common stock subject to warrants and options that are currently exercisable or
will become exercisable within 60 days are deemed outstanding for computing the
percentage ownership of the person holding the options but are not deemed
outstanding for computing the percentage ownership of any other person.
Notwithstanding the foregoing, certain of the selling stockholders elected, at
the time of the initial issuance of the warrants, to include provisions in the
warrant, which provide that the warrants may not be exercised if such action
would result in the holder, together with its affiliates, beneficially owning
more than 4.99% of our common stock. In addition, certain of the selling
stockholders elected, at the time of the initial issuance of the warrants, to
include provisions in the warrant, which provide that the warrants may not be
exercised if such action would result in the holder, together with its
affiliates, beneficially owning more than 9.99% of our common stock.
38
Unless otherwise indicated in the footnotes below, we believe that the persons
and entities named in the table have sole voting and investment power with
respect to all shares beneficially owned. The information regarding shares
beneficially owned after the offering assumes the sale of all shares offered by
each of the selling stockholders. The percentage ownership data is based on
96,969,214 shares of our common stock issued and outstanding as of November 21,
2005.
The shares of common stock covered by this prospectus may be sold by the selling
stockholders, by those persons or entities to whom they transfer, donate,
devise, pledge or distribute their shares or by other successors in interest. We
are registering the shares of our common stock for resale by the selling
stockholders defined below. The shares are being registered to permit public
secondary trading of the shares, and the selling stockholders may offer the
shares for resale from time to time. See "How The Shares May Be Distributed"
below
The following table has been prepared based solely upon information furnished to
us as of the date of this prospectus by the selling stockholders listed below.
The selling stockholders identified below may have sold, transferred or
otherwise disposed of, in transactions exempt from the registration requirements
of the Securities Act, all or a portion of their shares since the date on which
the information in the following table is presented.
None of the selling stockholder has had any position, office or other material
relationship with us or any of our affiliates within the past three years, other
than as disclosed in the footnotes to the table.
[TABLE TO BE UPDATED PRIOR TO SEC EFFECTIVENESS]
------------------------------------------------
Common Stock Common Stock
Owned Prior No. of Shares Owned After
Selling Stockholder To Offering Being Offered The Offering
----------------------------------------------------- -------------------- ---------------------- --------------------
Peter Alan Lloyd(1) 165,000(1) 165,000(1) --
----------------------------------------------------- -------------------- ---------------------- --------------------
Terence Owen Lloyd(2) 440,000(2) 440,000(2) --
----------------------------------------------------- -------------------- ---------------------- --------------------
SPGP(3) 20,270,000(3) 20,270,000(3) --
----------------------------------------------------- -------------------- ---------------------- --------------------
Richard Harry Wells(4) 176,000(4) 176,000(4) --
----------------------------------------------------- -------------------- ---------------------- --------------------
RAB Special Situations (Master)
Fund Limited (5) 17,600,000(5) 17,600,000(5) --
----------------------------------------------------- -------------------- ---------------------- --------------------
NCL Smith & Williamson Ltd(6) 330,000(6) 330,000(6) --
----------------------------------------------------- -------------------- ---------------------- --------------------
Galloway Ltd(7) 2,200,000(7) 2,200,000(7) --
----------------------------------------------------- -------------------- ---------------------- --------------------
Regent Pacific Group Ltd(8) 1,320,000(8) 1,320,000(8) --
----------------------------------------------------- -------------------- ---------------------- --------------------
39
----------------------------------------------------- -------------------- ---------------------- --------------------
Excalibur Limited Partnership(9) 2,640,000(9) 2,640,000(9) --
----------------------------------------------------- -------------------- ---------------------- --------------------
Tameem Auchi(10) 160,000(10) 176,000(10) --
----------------------------------------------------- -------------------- ---------------------- --------------------
Compagnie Internationale 1,760,000(11) 1,760,000(11) --
de Participations Bancaires
et Financieres(11)
----------------------------------------------------- -------------------- ---------------------- --------------------
Sook Hee Chang(12) 88,000(12) 88,000(12) --
----------------------------------------------------- -------------------- ---------------------- --------------------
AGF Precious Metals Fund(13) 3,520,000(13) 3,520,000(13) --
----------------------------------------------------- -------------------- ---------------------- --------------------
Caisse de Depot et Placement 5,280,000(14) 5,280,000(14) --
du Quebec(14)
----------------------------------------------------- -------------------- ---------------------- --------------------
Minh-Thu Dao-Huy(15) 220,000(15) 220,000(15) --
----------------------------------------------------- -------------------- ---------------------- --------------------
Michael White(16) 29,568(16) 29,568(16) --
----------------------------------------------------- -------------------- ---------------------- --------------------
Neil McLoughlin(17) 179,441(17) 179,441(17) --
----------------------------------------------------- -------------------- ---------------------- --------------------
Jay Smith(18) 880,000(18) 718,000(18) --
----------------------------------------------------- -------------------- ---------------------- --------------------
Charles L. Stafford(19) 396,000(19) 396,000(19) --
----------------------------------------------------- -------------------- ---------------------- --------------------
Standard Bank Plc.(20)* 2,000,000(20) 2,000,000(20) --
----------------------------------------------------- -------------------- ---------------------- --------------------
IBK Capital Corp. (21) 2,702,000(21) 2,702,000(21) --
----------------------------------------------------- -------------------- ---------------------- --------------------
Josephine Scott 1,100,000(22) 763,636 336,364
----------------------------------------------------- -------------------- ---------------------- --------------------
Peter I. Wold 350,000(23) 250,000 100,000
----------------------------------------------------- -------------------- ---------------------- --------------------
John P. Wold 250,000 250,000 --
----------------------------------------------------- -------------------- ---------------------- --------------------
John S. Wold 500,000(23) 250,000 250,000
----------------------------------------------------- -------------------- ---------------------- --------------------
Andrew Fraser (24) 880,000(24) 880,000(24) --
----------------------------------------------------- -------------------- ---------------------- --------------------
RBC/David Paterson Trust (25) 440,000(25) 440,000(25) --
----------------------------------------------------- -------------------- ---------------------- --------------------
* This selling stockholder has identified itself as an affiliate of a
registered broker-dealer.
(1) Shares offered and owned includes 75,000 shares issuable upon exercise of
warrants issued in the February 2005 private placement. The stockholder's
brother, Terence Owen Lloyd, shares voting and investment control with the
stockholder. Terence Owen Lloyd disclaims beneficial ownership of the
shares owned by Peter Alan Lloyd.
40
(2) Shares offered and owned includes 200,000 shares issuable upon exercise of
warrants issued in the February 2005 private placement.
(3) Shares offered and owned includes 9,600,000 shares issuable upon exercise
of warrants issued in the February 2005 private placement. The selling
stockholder has identified Guy-Philippe Bertin, Fund Manager, as a natural
person with voting and investment control over shares of our common stock
beneficially owned by the selling stockholder.
(4) The shares are held of record by Hargreave Hale. Shares offered and owned
includes 80,000 shares issuable upon exercise of warrants issued in the
February 2005 private placement.
(5) The shares are held of record by Credit Suisse First Boston LLC. Includes
shares issuable upon exercise of warrants to purchase an aggregate of
9,600,000 shares. The warrants are not exercisable if, as a result of an
exercise, the holder would then become a "ten percent beneficial owner" of
our common stock, as defined in Rule 16a-2 under the Securities Exchange
Act of 1934. We have been advised that William P. Richards is the Fund
Manager for RAB Special Situations (Master) Fund Limited, with dispositive
and voting power over the shares held by RAB Special Situations (Master)
Fund Limited.
(6) The shares are held of record by NCL Investments Limited. Shares offered
and owned includes 150,000 shares issuable upon exercise of warrants
issued in the February 2005 private placement. The selling stockholder has
identified Mr. P. A. Irving as a natural person with voting and investment
control over shares of our common stock beneficially owned by the selling
stockholder.
(7) Shares offered and owned includes 1,000,000 shares issuable upon exercise
of warrants issued in the February 2005 private placement. The selling
stockholder has identified Denham Eke as a natural person with voting and
investment control over shares of our common stock beneficially owned by
the selling stockholder. Mr. Eke disclaims beneficial ownership of the
shares offered.
(8) The shares are held of record by Willbro Nominees Limited. Shares offered
and owned includes 600,000 shares issuable upon exercise of warrants
issued in the February 2005 private placement. The selling stockholder has
identified Jamie Gibson as a natural person with voting and investment
control over shares of our common stock beneficially owned by the selling
stockholder.
(9) Shares offered and owned includes 1,200,000 shares issuable upon exercise
of warrants issued in the February 2005 private placement. The selling
stockholder has identified William Hechter, the president of the selling
stockholder's general partner as a natural person with voting and
investment control over shares of our common stock beneficially owned by
the selling stockholder. Mr. Hechter disclaims beneficial ownership of the
shares offered.
(10) The shares are held of record by Fitel Nominees Limited. Shares offered
and owned includes 80,000 shares issuable upon exercise of warrants issued
in the February 2005 private placement.
(11) The shares are held of record by Fitel Nominees Limited. Shares offered
and owned includes 800,000 shares issuable upon exercise of warrants
issued in the February 2005 private placement. The selling stockholder has
identified Messrs. Nadhmi S. Auchi, Nasir Abid and Guy Glesener as natural
persons with voting and investment control over shares of our common stock
beneficially owned by the selling stockholder.
41
(12) Shares offered and owned includes 40,000 shares issuable upon exercise of
warrants issued in the February 2005 private placement. The selling
stockholder has indicated that her husband, Paul Ensor, also exercises
voting and investment control over shares of our common stock beneficially
owned by the selling stockholder.
(13) The shares are held of record by Roytor & Co. Shares offered and owned
includes 1,600,000 shares issuable upon exercise of warrants issued in the
February 2005 private placement. The selling stockholder has identified
Charles Oliver and Bob Farquharson as natural persons with voting and
investment control over shares of our common stock beneficially owned by
the selling stockholder. Messrs. Oliver and Farquharson disclaim
beneficial ownership of the shares offered.
(14) The shares are held of record by Fiducie Desjardins. Includes shares
issuable upon exercise of warrants to purchase an aggregate of 2,400,000
shares. We have been advised that Francois Perron has dispositive power
and Anne Genevieve Beique has voting power over the shares held by Caisse
de Depot et Placement du Quebec.
(15) Shares offered and owned includes 100,000 shares issuable upon exercise of
warrants issued in the February 2005 private placement. The selling
stockholder is an officer of IBK Capital Corp., the placement agent.
(16) Shares offered and owned includes 13,440 shares issuable upon exercise of
warrants issued in the February 2005 private placement. The selling
stockholder is an officer of IBK Capital Corp., the placement agent.
(17) Shares offered and owned includes 81,564 shares issuable upon exercise of
warrants issued in the February 2005 private placement.
(18) Shares offered and owned includes 400,000 shares issuable upon exercise of
warrants issued in the February 2005 private placement.
(19) Shares offered and owned includes 180,000 shares issuable upon exercise of
warrants issued in the February 2005 private placement and shares issued
in trust for the benefit of his children.
(20) Shares offered includes 1,000,000 shares issuable upon exercise of
warrants. The selling stockholder has identified its directors and senior
management as a natural persons with voting and investment control over
shares of our common stock beneficially owned by the selling stockholder.
(21) Shares offered and owned represent shares issuable upon exercise of
placement agent warrants issued with regard to the February 2005 private
placement. The selling stockholder was the placement agent for the
February 2005 private placement. The selling stockholder has identified
William F. White, Minh-Thu Dao-Huy and Michael F. White as natural persons
with voting and investment control over shares of our common stock
beneficially owned by the selling stockholder.
(22) Shares owned includes 763,636 shares issuable upon exercise of options.
The selling stockholder is one of our employees.
(23) John P. Wold and Peter I. Wold are brothers. John S. Wold is the father of
John P. and Peter I. Wold. Each disclaims beneficial ownership of the
shares owned by the others.
42
(24) The shares are held of record by Willbro Nominees Limited. Shares offered
and owned includes 400,000 shares issuable upon exercise of warrants
issued in the February 2005 private placement.
(25) The shares are held of record by Willbro Nominees Limited. Shares offered
and owned includes 200,000 shares issuable upon exercise of warrants
issued in the February 2005 private placement. The selling stockholder has
identified David Paterson as a natural person with voting and investment
control over shares of our common stock beneficially owned by the selling
stockholder.
HOW THE SHARES MAY BE DISTRIBUTED
The selling stockholders and any of their pledgees, donees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o short sales that are not violations of the laws and regulations of any
state or the United States;
o broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The compensation paid to a particular broker-dealer may be less than
or in excess of customary commissions.
The selling stockholders may from time to time pledge or grant a security
interest in some or all of the Shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell shares of common stock from time to time under this prospectus,
or under an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933 amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.
43
The selling stockholders have been apprised that, if a particular offer of
common stock is to be made on terms constituting a material change from the
information set forth above with respect to how the shares may be distributed,
then, to the extent required, a post-effective amendment to the accompanying
registration statement must be filed with the Securities and Exchange
Commission.
The selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.
The selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. In addition, each of the selling
stockholders who is a registered broker-dealer or is affiliated with a
registered broker-dealer has advised us that:
o it purchased the shares in the ordinary course of business; and
o at the time of the purchase of the shares to be resold, it had no
agreements or understandings, directly or indirectly, with any
person to distribute the shares.
We have advised the selling stockholders that they are required to comply with
Regulation M promulgated under the Securities and Exchange Act during such time
as they may be engaged in a distribution of the shares. With certain exceptions,
Regulation M precludes a selling stockholder, any affiliated purchasers, and any
broker-dealer or other person who participates in the distribution from bidding
for or purchasing, or attempting to induce any person to bid for or purchase any
security which is the subject of the distribution until the entire distribution
is complete. Regulation M also prohibits any bids or purchases made in order to
stabilize the price of a security in connection with the distribution of that
security. All of the foregoing may affect the marketability of the shares
offered hereby in this prospectus.
We are required to pay all fees and expenses incident to the registration of the
shares. We have agreed to indemnify the selling stockholders against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers, and controlling persons, we have been
advised that in the opinion of the SEC this indemnification is against public
policy as expressed in the Securities Act and is therefore, unenforceable.
Under the securities laws of certain states, the shares may be sold in those
states only through registered or licensed broker-dealers. In addition, the
shares may not be sold unless the shares have been registered or qualified for
sale in the relevant state or unless the shares qualify for an exemption from
registration or qualification.
DESCRIPTION OF SECURITIES BEING REGISTERED
The following section does not purport to be complete and is qualified in all
respects by reference to the detailed provisions of our certificate of
incorporation and our by-laws, copies of which have been filed with the
Securities and Exchange Commission.
44
Our authorized capital stock consist of: (i) 200,000,000 shares of stock, $.001
par value. 96,969,214 shares of common stock were issued and outstanding as of
the date of this prospectus.
Our Board of Directors is empowered, without stockholder approval, to issue
shares of stock in classes and series with such voting powers, designations,
preferences and relative participating or other special rights and
qualifications, limitations or restrictions thereof, as shall be determined from
time to time by our Board of Directors
Common Stock
Shares of our common stock are entitled to one vote per share, either in person
or by proxy, on all matters that may be voted upon by the owners of our shares
at meetings of our stockholders. There is no provision for cumulative voting
with respect to the election of directors by the holders of common stock.
Therefore, the holder of more than 50% of our shares of outstanding common stock
can, if they choose to do so, elect all of our directors. In this event, the
holders of the remaining shares of common stock will not be able to elect any
directors.
The holders of common stock:
o have equal rights to dividends from funds legally available
therefore, when and if declared by our board of directors;
o are entitled to share ratably in all of our assets available for
distribution to holders of common stock upon liquidation,
dissolution or winding up of our affairs; and
o do not have preemptive rights, conversion rights, or redemption of
sinking fund provisions.
The outstanding shares of our common stock are duly authorized, validly issued,
fully paid and nonassessable.
Anti-Takeover Provisions
Our Certificate of Incorporation allow us to issue shares of stock without any
vote or further action by our stockholders. Our Board of Directors has the
authority to designate classes and series of our stock and to fix and determine
the relative rights and preferences of such classes and series. As a result, our
Board of Directors could authorize the issuance of a series of stock that would
grant to holders the preferred right to our assets upon liquidation, the right
to receive dividend payments before dividends are distributed to the holders of
common stock and the right to the redemption of the shares, together with a
premium, prior to the redemption of our common stock. These provisions may make
it more difficult for someone to acquire control of us or for our stockholders
to remove existing management, and might discourage a third party from offering
to acquire us, even if a change in control or in management would be beneficial
to our stockholders.
Transfer Agent And Registrar
The transfer agent and registrar for our common stock and warrants is American
Stock Transfer and Trust Company, 59 Maiden Lane, Plaza Level, New York, NY
10038.
45
LEGAL MATTERS
The validity of the common stock offered in this prospectus has been passed upon
for us by Richard Feiner, Esq., 381 Park Avenue South, Suite 1601, New York, New
York 10016. Mr. Feiner owns options to purchase an aggregate of 200,000 shares
of our common stock.
EXPERTS
Our consolidated financial statements included in this prospectus have been
audited by Wolinetz, Lafazan & Company, P.C., independent registered public
accountants, to the extent and for the periods set forth in their report
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement (which contains this prospectus) on Form SB-2 under the Securities Act
of 1933. The registration statement relates to the shares offered by the selling
stockholders. This prospectus does not contain all of the information set forth
in the registration statement and the exhibits and schedules to the registration
statement. Please refer to the registration statement and its exhibits and
schedules for further information with respect to us, the common stock, the
debentures and the warrants. Statements contained in this prospectus as to the
contents of any contract or other document are not necessarily complete and, in
each instance, we refer you to the copy of that contract or document filed as an
exhibit to the Registration Statement. You may read and obtain a copy of the
registration statement and its exhibits and schedules from the SEC, as described
below.
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document we file at the Securities and Exchange Commission's public
reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further information
on the public reference rooms. Many of our Securities and Exchange Commission
filings are also available to the public from the Securities and Exchange
Commission's Website at "http://www.sec.gov."
GLOSSARY
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.
46
Hydrometallurgical
Plant: A metallurgical mineral processing plant that uses water to
leach or separate and concentrate elements or minerals.
Intercalated: Mixed in.
Litho static
Pressure: Pressure brought on by weight of overlaying rocks.
Major
Intrusive Center: An area where large bodies of intrusive igneous rock exist
and through which large amounts of mineralizing fluids rose.
Mesothermal: A class of hydrothermal ore deposit formed at medium
temperatures and a depth over one mile in the earth's crust.
Microporphyritic
Latite: Extremely fine grained siliceous igneous rock with a
distribution of larger crystals within.
Mudstone: Sedimentary bed composed primarily of fine grained material
such as clay and silt.
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.
PPM: Part per million.
Pyritized: Partly replaced by the mineral pyrite.
Reverse Circulation
Drilling (or R.C.
Drilling): Type of drilling using air to recover cuttings for sampling
through the middle of the drilling rods rather than the
outside of the drill rods, resulting in less contamination
of the sampled interval.
Sericitized: Rocks altered by heat, pressure and solutions resulting in
formation of the mineral sericite, a very fine grained mica.
Siltstone: A sedimentary rock composed of clay and silt sized
particles.
Silicified: Partly replaced by silica.
Stockwork Breccia: Earth's crust broken by two or more sets of parallel faults
converging from different directions.
47
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.
48
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, 2005, 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, 2005 and for the period September 17, 1982 (Inception) to July
31, 2005. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstance, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. Also, an audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Capital
Gold Corporation and Subsidiaries as of July 31, 2005 and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended July 31, 2005 and for the period September 17, 1982 (Inception)
to July 31, 2005 in conformity with accounting principles generally accepted in
the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company is a development stage enterprise
whose operations have generated recurring losses since its inception. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans regarding these matters are described in Note
17. 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 25, 2005
F-1
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
July 31, 2005
ASSETS
Current Assets:
Cash and Cash Equivalents $ 4,281,548
Loans Receivable - Affiliate 31,419
Prepaid Expenses 18,991
Marketable Securities 150,000
Other Current Assets 40,849
------------
Total Current Assets 4,522,807
------------
Mining Concessions 70,104
------------
Property & Equipment - net 650,941
------------
Intagible Assets - net 17,842
------------
Other Assets:
Other Investments 21,220
Deferred Financing Costs 100,000
Mining Reclamation Bonds 35,550
Other 43,802
Other Deposits 80,000
Security Deposits 9,605
------------
Total Other Assets 290,177
------------
Total Assets $ 5,551,871
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 92,040
Accrued Expenses 190,776
------------
Total Current Liabilities 282,816
------------
Commitments and Contingencies
Stockholders' Equity:
Common Stock, Par Value $.001 Per Share;
Authorized 150,000,000 shares; Issued and
Outstanding 95,969,218 Shares 95,969
Additional Paid-In Capital 31,851,724
Deficit Accumulated in the Development Stage (26,583,811)
Deferred Financing Costs (252,541)
Accumulated Other Comprehensive Income 157,714
------------
Total Stockholders' Equity 5,269,055
------------
Total Liabilities and Stockholders' Equity $ 5,551,871
============
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
2005 2004 July 31, 2005
------------ ------------ ------------
Revenues $ -- $ -- $ --
------------ ------------ ------------
Costs and Expenses:
Mine Expenses 851,374 673,050 7,663,908
Write-Down of Mining, Milling and Other
Property and Equipment -- 300,000 1,299,445
Selling, General and Administrative
Expenses 1,005,038 687,722 9,862,967
Stock Based Compensation 187,844 379,033 9,409,847
Depreciation and Amortization 7,431 -- 375,157
------------ ------------ ------------
Total Costs and Expenses 2,051,687 2,039,805 28,611,324
------------ ------------ ------------
Loss from Operations (2,051,687) (2,039,805) (28,611,324)
------------ ------------ ------------
Other Income (Expense):
Interest Income 42,483 4,074 795,998
Miscellaneous 3,522 -- 36,199
Financing Fees -- -- --
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)
Loss on Other Investments -- (3,697) (3,697)
Loss on Write -Off of Minority Interest -- (150,382) (150,382)
------------ ------------ ------------
Total Other Income (Expense) 46,005 (950,005) 1,741,125
------------ ------------ ------------
Loss Before Minority Interest (2,005,682) (2,989,810) (26,870,199)
Minority Interest -- 51,220 286,388
------------ ------------ ------------
Net Loss $ (2,005,682) $ (2,938,590) $(26,583,811)
============ ============ ============
Net Loss Per Common Share - Basic and
Diluted $ (0.03) $ (0.06)
============ ============
Weighted Average Common Shares
Outstanding 75,123,922 51,584,715
============ ============
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, 2005
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, 2005
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, 2005
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, 2005
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, 2005
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, 2005
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, 2005
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, 2005
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, 2005
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, 2005
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, 2005
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, 2005
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, 2005
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, 2005
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 CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2005
Deficit
Accumulated Accumulated
Common Stock Additional In The Other Deferred
---------------------- Paid-In Development Comprehensive Financing
Shares Amount Capital Stage Income (Loss) Costs Total
---------- -------- ------------ ------------ ---------- --------- ----------
Common Stock Issued for:
Cash:
At $.10 Per Share 175,000 175 17,325 -- -- -- 17,500
At $.11 Per Share 381,763 382 41,612 -- -- -- 41,994
At $.12 Per Share 2,378,493 2,379 283,042 -- -- -- 285,421
At $.13 Per Share 582,307 582 75,118 -- -- -- 75,700
At $.14 Per Share 35,714 36 4,964 -- -- -- 5,000
At $.15 Per Share 101,333 101 15,099 -- -- -- 15,200
At $.20 Per Share 25,000 25 4,975 -- -- -- 5,000
At $.25 Per Share 27,200,004 27,200 6,772,801 -- -- -- 6,800,001
Shares issued for
Cash Through Private
Placement Private
Placement costs (637,991) -- (637,991)
Services:
At $.11 Per Share 188,173 188 20,511 -- -- -- 20,699
At $.12 Per Share 71,334 71 8,489 -- -- -- 8,560
Exercise of Options:
Cash:
At $.022 Per Share by
Related Party 227,273 227 4,773 -- -- -- 5,000
At $.05 Per Share by
Related Party 400,000 400 19,600 -- -- -- 20,000
At $.05 Per Share by
Other 250,000 250 12,250 -- -- -- 12,500
At $.22 Per Share by
Other 250,000 250 54,750 -- -- -- 55,000
Services
At $.12 Per Share by
Other 300,000 300 35,700 -- -- -- 36,000
Commissions:
At $.12 Per Share 193,666 194 (194) -- -- -- --
Non Registration Penalty:
At $.19 Per Share 5,440,000 5,440 (5,440) -- -- -- --
Stock Based Compensation 158,584 158,584
Deferred Financing Costs -- -- 252,541 -- -- (252,541)
----------
Net Loss -- -- -- (2,005,682) -- -- (2,005,682)
Equity Adjustment from
Foreign Currency
Translation -- -- -- -- 28,976 -- 28,976
Unrealized Gain on
Marketable Securities -- -- -- -- 40,000 -- 40,000
----------
Total Comprehensive
Loss (1,936,707)
----------
----------------------------------------------------------------------------------------------------------------------------------
Balance - July 31, 2005 95,969,216 $ 95,969 $ 31,851,724 $(26,583,811) $ 157,715 $(252,541) $5,269,055
========== ======== ============ ============ ========== ========= ==========
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
For The For The Period
Year Ended September 17, 1982
July 31, (Inception)
---------------------------- To
2005 2004 July 31, 2005
------------ ------------ ------------
Cash Flow From Operating Activities:
Net Loss $ (2,005,682) $ (2,938,590) $(26,583,811)
Adjustments to Reconcile Net Loss to
Net Cash (Used) By Operating Activities:
Depreciation and Amoritzation 7,431 -- 375,157
Gain on Sale of Subsidiary (1,907,903)
Minority Interest in Net Loss of Subsidiary -- (51,220) (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 29,260 900 2,843,153
Stock Based Compensation 158,584 379,033 9,380,587
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Prepaid Expenses (54,299) 1,533 (62,793)
(Increase) Decrease in Other Current Assets (10,601) (15,270) (40,849)
(Increase) in Other Deposits (80,000) -- (80,000)
(Increase) in Security Deposits (1,170) -- (9,605)
Increase (Decrease) in Accounts Payable 39,953 (43,941) 120,222
Increase (Decrease) in Accrued Expenses 74,703 (6,199) 68,232
------------ ------------ ------------
Net Cash (Used) By Operating Activities (1,841,821) (1,423,372) (13,868,587)
------------ ------------ ------------
Cash Flow From Investing Activities:
(Increase) in Other Investments (11,330) 2,992 (21,220)
Purchase of Mining, Milling and Other Property and
Equipment (657,683) -- (2,363,333)
Purchase of Mining Concession (25,324) -- (25,324)
Investment in Intangibles (18,531) -- (18,531)
Proceeds on Sale of Mining, Milling and Other Property
and Equipment -- -- 83,638
Proceeds From Sale of Subsidiary -- -- 2,131,616
Expenses of Sale of Subsidiary -- -- (101,159)
Advance Payments - Joint Venture -- -- 98,922
Investment in Joint Venture -- -- (101,700)
Investment in Privately Held Company -- -- (10,000)
Net Assets of Business Acquired (Net of Cash) -- -- (42,130)
Investment in Marketable Securities -- -- (50,000)
------------ ------------ ------------
Net Cash Provided By (Used) In Investing Activities (712,868) 2,992 (419,221)
------------ ------------ ------------
The accompanying notes are an integral part of the financial statements.
F-19
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
For The For The Period
Year Ended September 17, 1982
July 31, (Inception)
---------------------------- To
2005 2004 July 31, 2005
------------ ------------ ------------
Cash Flow From Financing Activities:
Advances to Affiliate (3,571) (7,668) (31,419)
(Increase) Decrease in Loans Receivable - Others 2,065 16,300 --
Prodeeds of Borrowings - Officers 18,673
Repayment of Loans Payable - Officers (18,673)
Prodeeds of Note Payable 11,218
Payments of Note Payable (11,218)
Proceeds From Issuance of Common Stock 6,700,325 1,253,988 18,735,924
Commissions on Sale of Common Stock (5,250)
Finance costs associated with Issuance of Common Stock (100,000) (100,000)
Expenses of Initial Public Offering (408,763)
Capital Contributions - Joint Venture Subsidiary 100,156 304,564
Purchase of Certificate of Deposit - Restricted (5,000)
(Purchase) of Mining Reclamation Bonds (30,550)
------------ ------------ ------------
Net Cash Provided By Financing Activities 6,598,819 1,362,776 18,459,506
------------ ------------ ------------
Effect of Exchange Rate Changes 28,975 19,637 109,850
------------ ------------ ------------
Increase (Decrease) In Cash and Cash Equivalents 4,073,105 (37,967) 4,281,548
Cash and Cash Equivalents - Beginning 208,443 246,410
------------ ------------ ------------
Cash and Cash Equivalents - Ending $ 4,281,548 $ 208,443 $ 4,281,548
============ ============ ============
Supplemental Cash Flow Information:
Cash Paid For Interest $ -- $ -- $ --
============ ============ ============
Cash Paid For Income Taxes $ -- $ 4,095 $ 32,155
============ ============ ============
Non-Cash Financing Activities:
Issuances of Common Stock as Commissions
on Sales of Common Stock $ 23,240 $ -- $ 440,495
============ ============ ============
Issuance of Common Stock as Payment for Mining,
Milling and Other Property and Equipment $ -- $ -- $ 4,500
============ ============ ============
Exercise of Options as Payment of Accounts Payable $ 36,000 $ -- $ 36,000
============ ============ ============
The accompanying notes are an integral part of the financial statements.
F-20
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2005
NOTE 1 - Basis of Presentation
Capital Gold Corporation ("Capital Gold", "the Company", "we" or "us") was
incorporated in February 1982 in the State of Nevada. During March 2003 the
Company's stockholders approved an amendment to the Articles of Incorporation to
change its name from Leadville Mining and Milling Corp. to Capital Gold
Corporation. 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 it's 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 $26,583,811. These factors raise
substantial doubt about the Company's ability to continue as a going concern. As
indicated in Note 17, 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
F-21
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2005
NOTE 1 - Basis of Presentation - (Continued)
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.
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 highly liquid investments with original maturities
of three months or less from the date of purchase to be cash equivalents. Cash
and cash equivalents include money market funds and short term U.S. treasury
bonds.
Marketable Securities
The Company accounts for its investments in marketable securities in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities".
Management determines the appropriate classification of all securities at
the time of purchase and re-evaluates such designation as of each balance sheet
date. The Company has classified its marketable equity securities as available
for sale securities and has recorded such securities at fair value. The Company
uses the specific identification method to determine realized gains and losses.
Unrealized holding gains and losses are excluded from earnings and, until
realized, are reported as a separate component of stockholders' equity.
Mining, Milling and Other Property and Equipment
Mining, milling and other property and equipment is reported at cost. It
is the Company's policy to capitalize costs incurred to improve and develop the
mining and milling properties. General exploration costs and costs to maintain
rights and leases are expensed as incurred. Management of the Company
periodically reviews the recoverability of the capitalized mineral properties
and mining equipment. Management takes into consideration various information
including, but not limited to, historical production records taken from previous
mine operations, results of exploration activities conducted to date, estimated
future prices and reports and opinions of outside geologists, mine engineers,
and consultants. When it is determined that a project or property will be
abandoned or its carrying value
F-22
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2005
NOTE 2 - Summary of Significant Accounting Policies (Continued)
has been impaired, a provision is made for any expected loss on the project or
property.
Depletion of mining and milling improvements will be computed at cost
using the units of production method. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets.
Other Intangible Assets
Purchased intangible assets consisting of rights of way and easements are
carried at cost less accumulated amortization. Amortization is computed using
the straight-line method over the economic lives of the respective assests,
generally five years. It is the Company's policy to asses periodically the
carrying amount of its purchased intangible assets to determine if there has
been an impairment to their carrying value. Impairments of other intangible
assets are determined in accordance with SFAS 144. There was no impairment at
July 31, 2005.
Impairment of Long-Lived Assets
In accordance with SFAS 144, "Accounting for the Impairment and Disposal
of Long-Lived Assets" the Company reviews its long-lived assets for impairments.
Impairment losses on long-lived assets are recognized when events or changes in
circumstances indicate that the undiscounted cash flows estimated to be
generated by such assets are less than their carrying value and, accordingly,
all or a portion of such carrying value may not be recoverable. Impairment
losses then are measured by comparing the fair value of assets to their carrying
amounts. During the year ended July 31, 2002 the Company performed a review of
its Colorado mine and mill improvements and determined that an impairment loss
should be recognized. Accordingly, at July 31, 2002 the Company reduced by
$999,445 the net carrying value of certain assets relating to its Leadville,
Colorado facility to $300,000 and further reduced the net carrying value to $0
at July 31, 2004, which approximated management's estimate of fair value.
Fair Value of Financial Instruments
The carrying value of the Company's financial instruments, including cash
and cash equivalents, loans receivable and accounts payable approximated fair
value because of the short maturity of these instruments.
Revenue Recognition
Revenues, if any, from the possible sales of minerals will be recognized
by the Company only upon receipt of final settlement funds from the purchaser.
Foreign Currency Translation
Assets and liabilities of the Company's Mexican subsidiaries are
translated to US dollars using the current exchange rate for assets and
liabilities. Amounts on the statement of operations are translated at the
average exchange rates during the year. Gains or losses resulting from foreign
currency translation are included as a component of other comprehensive income
(loss).
Comprehensive Income (Loss)
Comprehensive income (loss) which is reported on the accompanying
consolidated statement of stockholders' equity as a component of accumulated
other comprehensive income (loss) consists of accumulated foreign translation
gains and losses and net unrealized gains and losses on available-for-sale
securities.
F-23
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2005
NOTE 2 - Summary of Significant Accounting Policies (Continued)
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.
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 non-employees.
Reclassifications
Certain items in these financial statements have been reclassified to
conform to the current period presentation. These reclassifications had no
impact on our results of operations, stockholders' equity (deficit) or cash
flows.
Net Loss Per Common Share
The computation of basic net loss per share of common stock is computed by
dividing net loss for the period by the weighted average number of common shares
outstanding during that period.
F-24
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2005
NOTE 2 - Summary of Significant Accounting Policies (Continued)
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.
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, 2005.
Recently Issued Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment". SFAS 123 (R)addresses the accounting for share-based
payment transactions in which an enterprise receives employee services in
exchange for (a) equity instruments of the enterprise or (b) liabilities that
are based on the fair value of the enterprise's equity instruments. SFAS 123 (R)
requires an entity to recognize the grant-date fair-value of stock options and
other equity-based compensation issued to employees in the income statement. The
revised statement generally requires that an entity account for those
transactions using the fair-value-based method and eliminates the intrinsic
value method of accounting in APB 25, which was permitted under SFAS No. 123, as
originally issued.
The revised statement requires entities to disclose information about the
nature of the share-based payment transactions and the effects of those
transactions on the financial statements.
F-25
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2005
NOTE 2 - Summary of Significant Accounting Policies (Continued)
SFAS No. 123 ( R ) is effective for small business issuer's financial
statements for the first interim or annual reporting period after December 15,
2005, with early adoption encouraged.
The Company is currently evaluating the impact that this statement will
have on its financial condition or results of operations.
Emerging Issue Task Force (EITF) Issue 04-08, "The Effect of Contingently
Convertible Instruments on Diluted Earnings Per Share". The EITF reached a
consensus that contingently convertible instruments, such as contingently
convertible debt, contingently convertible preferred stock, and other such
securities should be included in diluted earnings per share (if dilutive)
regardless of whether the market price trigger has been met. The consensus is
effective for reporting periods after December 15, 2004.
The adoption of this pronouncement did not have a material effect on the
Company's financial statements.
In May 2005, the FASB issued Statement of Financial Accounting Standards
No. 154, "Accounting Changes and Error Corrections--a replacement of APB Opinion
No. 20 and FASB Statement No. 3" ("SFAS 154"). This statement replaces APB
opinion No. 20, "Accounting Changes" and FASB Statement No. 3, "Reporting
Accounting Changes in Interim Financial Statements" and changes the requirements
for the accounting for and reporting of a change in accounting principle. This
statement applies to all voluntary changes in accounting principle. It also
applies to changes required by an accounting pronouncement in the unusual
instance that the pronouncement does not include specific transaction provision.
When a pronouncement includes specific transaction provisions, those provisions
should be followed. SFAS 154 is effective for accounting changes and corrections
of errors made in fiscal years beginning after December 15, 2005. Consequently,
the Company will adopt the provisions of SFAS No. 154 for its fiscal year
beginning July 1, 2006. Management currently believes that adoption of the
provisions of SFAS No. 154 will not have a material impact on the Company's
consolidated financial statements.
In January 2003, the Financial Accounting Standards Board (FASB) issued
interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities"
(VIEs), which is an interpretation of Accounting Research Bulletin (ARB) No. 51,
"Consolidated Financial Statements". FIN 46, as revised by FIN 46R in December
2003, addresses the application of ARB No. 51 to VIEs, and generally would
require assets, liabilities and results of activity of a VIE be consolidated
into the financial statements of the enterprise that is considered the primary
beneficiary. FIN 46R shall be applied to all VIEs by the end of the first
reporting period ending after December 15, 2004. The Company has determined that
FIN 46R has no material impact on its financial statements.
F-26
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2005
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
(See Notes 10 & 13) $150,000
========
NOTE 4 - Property and Equipment
Property and Equipment consist of the following at July 31, 2005:
Equipment Held for Resale $ 393,829
Equipment 73,845
Water Well 141,244
Vehicle 34,656
Office Equipment 12,266
Furniture 1,843
----------
Total 657,683
Less: accumulated depreciation (6,742)
----------
Fixed assets, net $ 650,941
==========
Depeciation expense for the year ending July 31, 2005 was $6,742 as compared to
$0 for the same period last year. The increase was due to the acquisition of
assets related to the Mexico operations.
NOTE 5 - Intangible Assets
Investment in Right of way $ 18,531
Less: accumulated amortization (689)
----------
Intangible assets, net $ 17,842
==========
Amortization expense for the year ending July 31, 2005 was $689 as compared to
$0 for the same period last year. The increase was due to the investment in a
right of way.
F-27
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2005
NOTE 6 - 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-28
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2005
NOTE 7 - 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 6), 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 8 - Mining Reclamation Bonds
These represent certificates of deposit that have been deposited as
security for Mining Reclamation Bonds in Colorado. They bear interest at rates
varying from 4.35% to 5.01% annually and mature at various dates through 2010.
NOTE 9 - Mining Concessions
Mining concessions consists of the following:
El Charro $ 25,324
El Chanate $ 44,780
==========
Total $ 70,104
==========
The El Chanate exploitation and exploration concessions are carried at
historical cost and were acquired in connection with the purchase of the stock
of Minera Chanate, S.A. de C.V. (see Note 1).
The Company acquired an additional mining concession - El Charro. El
Charro lies within the current El Chanate property boundaries. The Company is
required to pay 1 1/2% net smelter royalty in connection with the El Charro
concession.
NOTE 10 - 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 3 & 13).
F-29
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2005
NOTE 11 - Other Investments
Other investments are carried at cost and consist of tax liens purchased
on properties located in Lake County, Colorado.
NOTE 12 - 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, 2003 53,633
Equity Adjustments from Foreign
Currency Translation (24,894)
Unrealized Gains on Marketable
Securities 60,000
----------
Balance - July 31, 2004 $ 88,739
Equity Adjustments from Foreign
Currency Translation 28,975
Unrealized Gains on Marketable
Securities 40,000
==========
Balance - July 31, 2005 $ 157,714
==========
NOTE 13 - Related Party Transactions
In August 2002 the Company purchased marketable equity securities of a
related company. The Company recorded approximately $9,300 and $12,300 in
expense reimbursements including office rent from this entity for the years
ended July 31, 2005 and 2004, respectively (see Notes 3 and 10). The Company
utilizes a Mexican Corporation 100% owned by two officers/Directors and
stockholders of the Company for mining support services. These services include
but are not limited to the payment of mining salaries and related costs. The
Mexican Corporation bills the Company for these services at cost. Mining
expenses charged by the Mexican Corporation and reported on the statement of
operations amounted to approximately $24,000 for the year ended July 31, 2005.
NOTE 14 - 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, 2005, the Company issued 3,679,610 shares for
gross proceeds of $445,815. During the year ended July 31, 2005 the Company
issued 259,507 shares of common stock for services
F-30
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2005
NOTE 14 - Stockholders' Equity (Continued)
rendered valued at $29,260. During the year ended July 31, 2005 the Company
issued 193,666 shares of common stock valued at $23,240 as commissions on the
sale of common stock. During the year ended July 31, 2005 the Company granted
options to purchase 550,000 shares of common stock. The Company recognized
approximately $159,000 of stock based compensation relating to the options
granted.
Pursuant to a private placement that closed in February 2005 we issued
27,200,004 shares of our common stock and warrants to purchase an aggregate of
up to 27,200,004 shares of our common stock for an aggregate gross purchase
price of approximately $6.8 million and we received approximately $6.2 million
in net proceeds. The Warrant issued to each purchaser is exercisable for one
share of our common stock, at an exercise price equal to $.30 per share. Each
Warrant has a term of two years and is fully exercisable from the date of
issuance. We issued to the placement agent two year warrants to purchase up to
2,702,000 shares of our common stock at an exercise price of $.25 per share.
Such placement agent warrants are valued at approximately $414,000 using the
Black-Scholes option pricing method.
Pursuant to our agreement with the investors, we filed with the Securities and
Exchange Commission a registration statement covering resales of the foregoing
shares and shares issuable upon the exercise of the foregoing warrants
(collectively, the "registrable shares"). We also agreed to prepare and file all
amendments and supplements necessary to keep the registration statement
effective until the earlier of the date on which the selling stockholders may
resell all the registrable shares covered by the registration statement without
volume restrictions pursuant to Rule 144(k) under the Securities Act or any
successor rule of similar effect and the date on which the selling stockholders
have sold all the shares covered by the registration statement.
In addition, we agreed to have our common stock listed for trading on the
Toronto Stock Exchange or the TSX Venture Exchange.
If our common stock was not listed for trading on the Toronto Stock Exchange or
the TSX Venture Exchange or the registration statement was not declared
effective by the SEC within 180 days after February 8, 2005, then we would be
required to issue to these selling stockholders an additional number of shares
of our common stock that is equal to 20% of the number of shares acquired by
them in the private placement. In addition, if the registration statement is not
declared effective by the SEC within 180 days after February 8, 2005 or, after
the registration statement is declared effective by the SEC, subject to certain
exceptions, sales of all shares so registered cannot be made pursuant to the
registration statement, then we will be required to pay to these selling
stockholders in cash or, at our option in shares, their pro rata share of
0.0833% of the aggregate market value of the registrable shares held by these
selling stockholders for each month thereafter until the registration statement
is declared effective or sales of the registrable shares can again be made
pursuant to the registration statement, as the case may be. As of August 8, 2005
our listing on the Toronto Stock Exchange was not complete. Therefore, on August
11, 2005 we issued approximately 5,440,000
F-31
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2005
NOTE 14 - Stockholders' Equity (Continued)
shares of our common stock, which represented 20% of the number of shares
acquired in the private placement.
During the year ended 7/31/05, the Company issued 500,000 shares of common stock
upon the exercise of options for gross proceeds of $67,500.In addition 627,273
shares of common stock were issued upon exercise of options by related parties
for gross proceeds of $25,000. We also issued 300,000 shares of common stock
upon exercise of options for payment of accounts payable of $36,000.
Stock Options
A summary of stock option activity for the years ended July 31, 2005 and 2004
are as follows:
Options Outstanding
--------------------------- Weighted
Number of Price Range Average
Shares Per Share Exercise Price
----------- ----------- --------------
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-.50 $ .11
Options Granted:
Related Parties 550,000 .05-.12 .09
Others 30,902,004 .25-.30 .29
Exercised:
Related Parties (627,273) .022-.05 .037
Others (800,000) .05-.22 .129
Expired (300,000) .22-.25 .23
----------- ----------- --------
Outstanding - July 31, 2005 36,613,367 $.022-.50 $ .30
=========== =========== ========
F-32
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2005
NOTE 14 - Stockholders' Equity (Continued)
Options to purchase 36,613,367 shares of common stock were exercisable at
July 31, 2005 at a weighted average exercise price of $.30 with a weighted
average contractual life of 1.23 years as follows:
Options Outstanding and Exercisable by Price Range as of July 31, 2005 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 90,909 .51 $.022 90,909 $ .022
.05 550,000 .51 .05 550,000 .05
.24 100,000 0.92 .24 100,000 .24
.21 1,250,000 1.83 .21 1,250,000 .21
.05 500,000 .51 .05 500,000 .05
.25 2,702,000 1.50 .25 2,702,000 .25
.30 27,200,004 1.50 .30 27,200,004 .30
.22 500,000 .51 .22 500,000 .22
.32 1,000,000 1.50 .32 1,000,000 .32
.41 100,000 0.92 .41 100,000 .41
.50 3,120,454 1.50 .50 3,120,454 .50
--------- ---------- ----- ----- ---------- ------
$.022-.50 36,613,367 1.23 $ .30 36,613,367 $ .30
========= ========== ===== ===== ========== ======
The Company recognized approximately $158,584 and $348,000 of stock-based
compensation expense during the years ended July 31, 2005 and 2004 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, 2005 would
not change, since there was no issuances of employees stock options during the
year.
F-33
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2005
NOTE 14 - Stockholders' Equity (Continued)
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.
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 15 - Income Taxes
For income tax purposes, the Company has available net operating loss
carryforwards ("NOL") at July 31, 2005 of approximately $13,711,000 to reduce
future federal taxable income, if any The NOL's expire at various dates through
2025. There may be certain limitations as to the future annual use of the NOLs
due to certain changes in the Company's ownership.
Income tax benefit attributable to net loss differed from the amounts
computed by applying the statutory Federal Income tax rate applicable for Each
period as a result of the following:
Year Ended July 31,
--------------------------
2005 2004
---------- ----------
Computed "expected" tax benefit $4,661,620 $4,107,880
Decrease in tax benefit resulting from net
operating loss for which no benefit is
currently available 4,661,620 4,107,880
---------- ----------
$ -- $ --
========== ==========
The Company has deferred tax assets of approximately $4,661,620 at July
31, 2005 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 $553,740 and $754,363 in 2005 and
2004, respectively.
F-34
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2005
NOTE 16 - 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.
NOTE 17 - Liquidity and Going Concern Uncertainty
The Company is a development stage enterprise with no mining revenues and
has incurred recurring losses amounting to $26,583,811 through July 31, 2005.
The Company incurred net losses of $2,005,682 and $2,938,590 during the years
ended July 31, 2005 and 2004, 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 or 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, 2005, 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 Bank financing (see "Note 19 - Project Finance Facility" below.
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.
F-35
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2005
NOTE 18 - Commitments and Contingencies
Minera Chanate Option
Under the terms of the Minera Chanate purchase agreement, Capital Gold has
granted AngloGold's designee to receive a one-time option to purchase 51% of
Minera Chanate (or such entity that owns the Minera Chanate concessions at time
of exercise) based upon the achievements of certain events (see Note 1).
Lease Commitments
The Company occupies office space in New York City under a non cancelable
operating lease that commenced on September 1, 2002 and terminates on August 31,
2007. In addition to base rent, the lease calls for payment of utilities and
other occupancy costs.
Approximate future minimum payments under this lease are as follows:
Year Ending July 31,
2006 51,000
2007 51,000
2008 4,200
--------
$106,200
========
Rent expense under the office lease in New York City was approximately
$63,000 and $57,000 for the years ended July 31, 2005 and 2004, respectively.
Land Easement
On May 25, 2005 Minera Santa Rita S. de R.L. de C.V entered into an
agreement for an irrevocable access easement and an irrevocable fluids
(electricity, gas, water and others) easement.
Term of the agreement is 5 years, extendable for 1-year additional terms, upon
MSR's request. Terms suspendible by force majeure or Acts of God; and extendable
for duration of suspension.
In consideration, $18,000 paid upon the signing of the agreement and yearly
advance payments equal to 2 annualized general minimum wages (365 X 2 general
minimum wages) in force in Altar, Sonora, Mexico. Said yearly payments to be
made on September 1 of each year, using the minimum wage in effect on that day
for the calculation of the amount payable. These payments are to be made for as
long as the construction and production mining works and activities of MSR are
being carried out, and are to cease as soon as said works and activities are
permanently stopped.
F-36
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2005
NOTE 18 - Commitments and Contingencies (Continued)
El Charro
In May 2005, we acquired rights to the El Charro concession for
approximately $25,000 and a royalty of 1.5% of net smelter return. We acquired
the El Charro concession because it is surrounded entirely by our other
concessions.
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.
Purchase of House
On July 5, 2005, Oro de Altar purchased a house located in Caborca, Sonora
for the sum of $116,000 US Dollars. The Company has made payments of $80,000
with additional installments of $6,000 each for the remaining balance payable on
the first of each month beginning August 1, 2005 and ending January 3, 2006.
Title to the property does not transfer until full payments have been made.
Therefore the initial payments have been classified as Other Deposits on the
balance sheet.
NOTE 19 - Project Finance Facility
On February 2, 2005, we mandated Standard Bank London Limited as the exclusive
arranger of a project finance facility of up to US$10 million for our El Chanate
gold mining project and associated hedging. We anticipate that Standard Bank
will administer the loan and the hedging throughout the construction and
operational phases of the project.
Although the specific terms of the proposed financing are subject to alteration,
we anticipate, among other things, that the loan would mature in five years
after the initial draw and bear interest at a rate linked to the 1,2,3 or 6
month Libor rate. The loan would be secured by our assets and supported by our
guarantee. In addition, we will be required to deposit all cash proceeds we
receive from operations and other sources in an off-shore account. Absent
default by us under the finance documents, we may use funds from this account
for specific purposes such as approved operating costs, budgeted capital
expenditures, hedging costs and funds payable to Standard Bank under the finance
documents. We would be required to meet and maintain certain financial covenants
and we would be required to conform to certain negative covenants such as
restrictions on sale of assets. We also would be required to enter into a gold
price protection program that mitigates the gold price risk by purchasing price
protection in a manner satisfactory to the lender.
As required by the mandate, we issued to Standard Bank 1,000,000 common stock
purchase warrants and paid an initial cash fee of $100,000. Such warrants have
been valued at approximately $253,000 using the Black-Scholes option pricing
model and are reflected as deferred financing costs as a reduction of
stockholders' equity on the Company's balance sheet. Such costs will be
amortized to operations over the life of the debt and in the event the
transaction with Standard Bank is not consummated, such costs will be charged to
operations immediately. The initial cash fee of $100,000 is included in other
assets as prepaid debt issuance costs on
F-37
CAPITAL GOLD CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2005
NOTE 19 - Project Finance Facility (Continued)
the Company's balance sheet. Such costs will be amortized to operations over the
life of the debt and in the event the transaction with Standard Bank is not
consummated, such costs will be charged to operations immediately. If Standard
Bank determines to proceed with the funding, we will be required to pay certain
additional fees of $300,000 and issue to Standard Bank an additional 14,600,000
common stock purchase warrants.
Per our arrangement with Standard Bank, the shares issuable upon exercise of the
1,000,000 common stock purchase warrants have been included in the registration
statement (discussed above in "February 2005 Private Placement") filed with the
Securities and Exchange Commission covering their public resale. We also will be
required to so register the shares issuable upon exercise of the additional
14,600,000 warrants if and when these warrants are issued. The warrants may be
exercised at a price equivalent to the lower of a) $.32 per share and b) the
Company's common share price at the closing date, but in no case less than $.30
per share.
This mandate is not a commitment to provide the funding. Funding is subject to
satisfactory completion of due diligence, approvals from Standards Bank's credit
committee and execution of definitive documentation.
NOTE 20 - Subsequent Events
On September 22, 2005, the Board of Directors, subject to stockholder approval,
recommended an amendment to the Company's Certificate of Incorporation to
increase the Company's authorized shares of capital stock from 150,000,000 to
200,000,000 shares. In addition, the Board of Directors, subject to stockholder
approval, recommended that the Company reincorporate in the State of Delaware.
Stockholders will vote on these proposals at a special meeting of stockholders
to be held on November 18, 2005.
F-38
================================================================================
No dealer, salesman or any other person is authorized to give any information or
to represent anything not contained in this prospectus. You must not rely on any
unauthorized information or representations. This prospectus is an offer to sell
these securities and it is not a solicitation of an offer to buy these
securities in any state where the offer or sale is not permitted. The
information contained in this Prospectus is current only as of this date.
TABLE OF CONTENTS
Page
Prospectus Summary........................ 2
Risk Factors ............................. 4
Forward-looking Statements................ 12
Use of Proceeds........................... 13
Dividend Policy........................... 13
Price Range of Common Stock............... 13
Selected Consolidated
Financial Data .......................... 14
Management's Discussion and
Analysis of Financial Condition
And Results of Operations................ 15
Our Business ............................ 23
Management .............................. 33
Executive Compensation................... 35
Principal Stockholders................... 36
Certain Relationships and
Related Transactions..................... 38
Selling Stockholders .................... 38
How the Shares May
Be Distributed........................... 43
Description of Securities
Being Registered ....................... 44
Legal Matters ........................... 46
Experts ................................. 46
Where you can find
More information ........................ 46
Glossary................................. 46
Financial Statements..................... F-1
65,043,644 SHARES OF
COMMON STOCK
CAPITAL GOLD CORPORATION
----------------------------
PROSPECTUS
----------------------------
November __, 2005
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, permits the Company to indemnify any and all
persons, including directors, officers, employees and agents of the Company,
whom it shall have power to indemnify under said section (the "Indemnitee") from
and against any and all of the expenses, liabilities or other matters referred
to in or covered by said section, and the indemnification provided for therein
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC Filing Fees........................................... $ 181.92
Printing and Engraving Expenses*......................... $ 10,000.00
Accounting Fees and Expenses*............................. $ 7,500.00
Legal Fees and Expenses*.................................. $ 10,000.00
Miscellaneous*............................................ $ 2,318.08
-------------
Total Expenses*........................................... $ 30,000.00
------------------------
* Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Since August 1, 2002, we have issued and sold the following securities:
During the fiscal year ended July 31, 2003, 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 2,802,579 shares for
an aggregate of $346,030 to 19 persons. We issued 1,227,727 shares of common
stock upon exercise of options for gross proceeds of $35,300. We also issued
14,363 shares to one individual for administrative services.
During the fiscal year ended July 31, 2004, we issued the following shares of
our common stock pursuant to the exemption from registration provided by Section
4(2) of the Securities Act of 1933: We sold an aggregate of 8,748,569 shares for
an aggregate of $1,145,886 to 94 persons. In addition, we issued 757,727 shares
of common stock and received gross proceeds of $ 28,100 from the exercise of
options by officers and directors, and we issued 1,612,826 shares of common
stock for gross proceeds of $80,003 to unrelated parties upon exercise of
options. We also issued 7,500 shares for services rendered. We also issued
2,000,000 of our common stock in connection with the termination of our Joint
Venture Agreement. We also issued 250,000 common stock options each to Messrs.
Dieterle, Roningen, Pritchard, Everett and Newell, and one of our employees
exercisable at $.22 per share expiring on May 25, 2007.
II-1
During the year ended July 31, 2005, we issued the following shares of our
Common Stock pursuant to the exemption from registration provided by Section
4(2) of the Securities Act of 1933 and/or Regulation S under the Securities Act
of 1933: We sold an aggregate of 32,006,887 shares for gross proceeds of
$7,245,816 and issued warrants to purchase an aggregate of 30,902,004 shares of
our common stock to 63 persons. In addition 627,273 options were exercised by
related parties for gross proceeds of $25,000. 250,000 options were exercised by
others for gross proceeds of $12,500. In addition, we issued 500,000 shares upon
exercise of options for gross proceeds of $67,500. We also issued 300,000 shares
upon exercise of options (received as reduction of debt owed to the option
holders in the amount of 36,000). We also issued 259,507 shares for services
valued at $29,260 and 193,666 shares were issued as commissions on sales of
common stock. We also issued 5,440,000 shares of our common stock to the
purchasers in our February 2004 private placement as liquidated damages in
connection with not timely listing our stock on the Toronto Stock Exchange.
In November 2005, we issued 1,000,000 shares of our Common Stock to Standard
Bank Plc. The foregoing securities were issued pursuant to exemptions from
registration provided by Rule 506 of the Securities Act of 1933.
ITEM 27. EXHIBITS.
Exhibit
No. Description
--------- ------------
3.1 Certificate of Incorporation of Company.(1)
3.2 Amendments to Certificate of Incorporation of Company.(1)(5)
3.3 Certificate of Merger (Delaware) (which amends our Certificate of
Incorporation)
3.4 By-Laws of Company
4.1 Specimen certificate representing our Common Stock.(9)
4.2 Form of Warrant for Common Stock of the Company issued in February
2005 private placement.(8) 4.3 Form of Warrant for Common Stock of
the Company issued to Standard Bank.(10)
5.1 Opinion of Richard Feiner, Esq., legal counsel.
10.1 Mining Claims (1)
10.2 Stock Purchase Option Agreement from AngloGold (2)
10.3 Letter of Intent with International Northair Mines Ltd. (2)
10.4 March 30, 2002 Minera Chanate Stock Purchase and Sale and Security
Agreement (Sale by us and Holding of all of the stock of Minera
Chanate) (In Spanish).(3)
10.5 English summary of March 30, 2002 Minera Chanate Stock Purchase and
Sale and Security Agreement.(3)
10.6 Agreement between Santa Rita and Grupo Minero FG.(4)
10.7 Amendment to Agreement between Santa Rita and Grupo Minero FG.(6)
II-2
10.8 Termination Agreement between Santa Rita and Grupo Minero FG.(7)
10.9 English summary of El Charro agreement. (11)
10.10 Plan and agreement of merger (reincorporation). (12)
21 Subsidiaries of the Registrant. (9)
23.1 Consent of Wolinetz, Lafazan & Company, P.C., independent registered
public accountants.
23.2 Consent of Richard Feiner, Esq., legal counsel (included in Exhibit
5.1).
24.1 Powers of Attorney (included in Signature Pages to this Registration
Statement on Form SB-2).
-------------------
(1) Previously filed as an exhibit to the Company's Registration
Statement on Form S-18 (SEC File No. 2-86160-NY) filed on or about
November 10, 1983, and incorporated herein by this reference.
(2) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the quarter ended January 31, 2001 filed with the
Commission on or about March 16, 2001, and incorporated herein by
this reference.
(3) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the quarter ended April 30, 2002 filed with the
Commission on or about June 20, 2002, and incorporated herein by
this reference.
(4) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the quarter ended January 31, 2002 filed with the
Commission on or about March 25, 2002, and incorporated herein by
this reference.
(5) Previously filed as an exhibit to the Company's Current Report on
Form 8-K filed with the Commission on or about 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.
(8) Previously filed as an exhibit to the Company's Current Report on
Form 8-K filed with the Commission on or about February 10, 2005,
and incorporated herein by this reference.
(9) Previously filed as an exhibit to the Company's Registration
Statement on Form SB-2 (SEC file no. 333-123216) filed with the
Commission on or about March 9, 2005, and incorporated herein by
this reference.
II-3
(10) Previously filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form SB-2 (SEC file no. 333-123216) filed
with the Commission on or about June 27, 2005, and incorporated
herein by this reference.
(11) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the quarter ended April 30, 2005 filed with the
Commission on or about June 20, 2005, and incorporated herein by
this reference.
(12) Previously filed as Appendix B to the Company's Definitive 14A Proxy
Statement filed with the Commission on or about October 7, 2005, and
incorporated herein by this reference.
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Sections 10(a) (3) of the Securities Act
of 1933 (the Act);
(ii) Reflect in the prospectus any facts or events arising after the effective
date of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement;
(iii) Include any additional or changed material information on the plan of
distribution;
(2) That, for the purpose of determining any liability under the Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, this Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of New York, State of New York, on the 23rd day of
November, 2005.
CAPITAL GOLD CORPORATION
------------------------
(Registrant)
By: /s/ Gifford A. Dieterle
-----------------------------------
Gifford A. Dieterle, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on the dates indicated.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Gifford A. Dieterle acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for such person in his name, place and stead, in any and all capacities, in
connection with the Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, including, without limiting the generality of the
foregoing, to sign the Registration Statement in the name and on behalf of the
Registrant or on behalf of the undersigned as a director or officer of the
Registrant, and any and all amendments or supplements to the Registration
Statement, including any and all stickers and post-effective amendments to the
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission and any applicable securities exchange or securities self-regulatory
body, granting unto said attorney-in-fact and agents, each acting alone, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Gifford A. Dieterle
------------------------- President, Treasurer, Principal financial and November 23, 2005
Gifford A. Dieterle Accounting officer and Chairman of the Board
/s/ Jack V. Everett
------------------------
Jack V. Everett Director November 23, 2005
------------------------
Robert N. Roningen Director November __, 2005
/s/ Roger A. Newell
------------------------
Roger A. Newell Director November 23, 2005
/s/ Jeffrey W. Pritchard
------------------------
Jeffrey W. Pritchard
Director November 23, 2005
II-5
Capital Gold Corporation
Form SB-2
Index to Exhibits
Exhibit No. Description
----------- -----------
3.3 Certificate of Merger (Delaware) (which amends our Certificate of
Incorporation)
3.4 By-Laws of Company
5.1 Opinion of Richard Feiner, Esq., legal counsel.
23.1 Consent of Wolinetz, Lafazan & Company, P.C., independent
registered public accountants.