SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2003
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-13078
CAPITAL GOLD CORPORATION
(Exact name of small business issuer as specified in its charter)
NEVADA 13-3180530
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
76 Beaver Street, New York, NY 10005
(Address of principal executive offices)
Issuer's telephone number: (212) 344-2785
LEADVILLE MINING & MILLING CORPORATION
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.
Class Outstanding at March 19, 2003
Common Stock, par value $.001 per share 41,543,129
Transitional Small Business Format (check one); Yes |_| No |X|
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying financial statements are unaudited for the interim
periods, but include all adjustments (consisting only of normal recurring
accruals), which we consider necessary for the fair presentation of results for
the three and six months ended January 31, 2003.
Moreover, these financial statements do not purport to contain complete
disclosure in conformity with generally accepted accounting principles and
should be read in conjunction with our audited financial statements at, and for
the fiscal year ended July 31, 2002.
The results reflected for the three and six months ended January 31, 2003
are not necessarily indicative of the results for the entire fiscal year.
2
CAPITAL GOLD CORPORATION
F/K/A LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEET
JANUARY 31, 2003
(Unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents $ 778,232
Loans Receivable - Others 18,640
Marketable Securities 75,000
Other Current Assets 35,704
------------
Total Current Assets 907,576
------------
Mining, Milling and Other Property and Equipment
(Net of Accumulated Depreciation of $358,230) 341,370
------------
Other Assets:
Other investments 12,882
Mining Reclamation Bonds 42,150
Security Deposits 8,435
------------
Total Other Assets 63,467
------------
Total Assets $ 1,312,413
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 79,280
Accrued Expenses 139,910
------------
Total Current Liabilities 219,190
------------
Minority Interest (45,238)
------------
Commitments and Contingencies
Stockholders' Equity:
Common Stock, Par Value $.001 Per Share;
Authorized 150,000,000 Shares; Issued and
Outstanding 41,825,607 Shares 41,826
Additional Paid-In Capital 21,516,386
Deficit Accumulated in the Development Stage (20,455,782)
Accumulated Other Comprehensive Income 36,031
------------
Total Stockholders' Equity 1,138,461
------------
Total Liabilities and Stockholders' Equity $ 1,312,413
============
The accompany notes are an integral part of the financial statements.
3
CAPITAL GOLD CORPORATION
F/K/A LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For The Period
Three Months Ended Six Months Ended September 17,1982
January 31, January 31, (Inception)
---------------------------- ---------------------------- To
2003 2002 2003 2002 January 31, 2003
------------ ------------ ------------ ------------ ----------------
Revenues:
Interest Income $ 5,828 $ 393 $ 26,994 $ 1,033 $ 744,571
Miscellaneous -- -- 7,701 -- 33,977
------------ ------------ ------------ ------------ ------------
Total Revenues 5,828 393 34,695 1,033 778,548
------------ ------------ ------------ ------------ ------------
Costs and Expenses:
Mine Expenses 285,381 122,156 448,980 274,731 5,559,565
Write-Down of Mining, Milling and Other
Property and Equipment -- -- -- -- 999,445
Selling, General and Administrative Expenses 165,106 147,867 304,211 262,138 7,703,789
Stock Based Compensation 75,353 -- 75,353 -- 8,629,700
Depreciation -- 582 -- 1,163 367,726
------------ ------------ ------------ ------------ ------------
Total Costs and Expenses 525,840 270,605 828,544 538,032 23,260,225
------------ ------------ ------------ ------------ ------------
Loss Before Other Income (Expense) (520,012) (270,212) (793,849) (536,999) (22,481,677)
------------ ------------ ------------ ------------ ------------
Other Income (Expense):
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 -- -- -- -- (101,700)
------------ ------------ ------------ ------------ ------------
Total Other Income (Expense) -- -- -- -- 1,913,007
------------ ------------ ------------ ------------ ------------
Loss Before Minority Interest (520,012) (270,212) (793,849) (536,999) (20,568,670)
Minority Interest in Net Loss of Subsidiary 43,880 -- 58,345 -- 112,888
------------ ------------ ------------ ------------ ------------
Net Loss $ (476,132) $ (270,212) $ (735,504) $ (536,999) $(20,455,782)
============ ============ ============ ============ ============
Net Loss Per Common Share - Basic and Diluted $ (0.01) $ (0.01) $ (0.02) $ (0.02)
============ ============ ============ ============
Weighted Average Common Shares Outstanding 41,461,871 36,467,592 41,057,376 35,434,479
============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
4
CAPITAL GOLD CORPORATION
F/K/A LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For The Six For The Period
Months Ended September 17, 1982
January 31, (Inception)
------------------------ To
2003 2002 January 31, 2003
----------- --------- ------------------
Cash Flow From Operating Activities:
Net Loss $ (735,504) $(536,999) $(20,455,782)
Adjustments to Reconcile Net Loss to Net Cash
(Used) By Operating Activities:
Depreciation -- 1,163 367,726
Gain on Sale of Subsidiary -- -- (1,907,903)
Minority Interest in Net Loss of Subsidiary (58,345) -- (112,888)
Write-Down of Impaired Mining, Milling and Other
Property and Equipment -- -- 999,445
Gain on Sale of Property and Equipment -- -- (46,116)
Loss on Write-Off of Investment -- -- 10,000
Loss From Joint Venture -- -- 101,700
Value of Common Stock Issued for Services -- -- 2,755,602
Stock Based Compensation 75,353 -- 8,629,700
Changes in Operating Assets and Liabilities:
(Increase) in Other Current Assets (32,380) (1,173) (35,704)
(Increase) in Security Deposits -- -- (8,435)
Increase (Decrease) in Accounts Payable (103,752) -- 71,473
Increase (Decrease) in Accrued Expenses (45,153) 255,653 17,356
Other -- 1,404 --
----------- --------- ------------
Net Cash (Used) By Operating Activities (899,781) (279,952) (9,613,826)
----------- --------- ------------
Cash Flow From Investing Activities:
Purchase of Mining, Milling and Other Property and
Equipment -- -- (1,705,650)
Proceeds on Sale of Mining, Milling and Other Property
and Equipment -- -- 83,638
Proceeds From Sale of Subsidiary 1,492,131 -- 2,131,616
Expenses of Sale of Subsidiary -- -- (101,159)
Advance Payments - Joint Venture -- -- 98,922
Investment in Joint Venture -- -- (101,700)
Investment in Privately Held Company -- -- (10,000)
Net Assets of Business Acquired (Net of Cash) -- -- (42,130)
Purchase of Marketable Securities (50,000) -- (50,000)
Purchase of Other Investments (12,882) -- (12,882)
Payment of Option Payment Payable -- (50,000) --
----------- --------- ------------
Net Cash Provided (Used) By Investing Activities 1,429,249 (50,000) 290,655
----------- --------- ------------
The accompanying notes are an integral part of the financial statements.
5
CAPITAL GOLD CORPORATION
F/K/A/ LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Continued)
For the Six For The Period
Months Ended September 17, 1982
January 31, (Inception)
--------------------- To
2003 2002 January 31, 2003
-------- --------- ----------------
Cash Flow From Financing Activities:
(Increase) Decrease in Loans Receivable -
Related Party $ -- $ 11,000 $ --
(Increase) Decrease in Loans Receivable - Others (3,640) 260 (18,640)
Increase in Loans Payable - Officers -- -- 18,673
Repayment of Loans Payable - Officers -- -- (18,673)
Increase in Note Payable -- -- 11,218
Payments of Note Payable -- (1,965) (11,218)
Proceeds From Issuance of Common Stock 27,300 274,776 10,429,071
Commissions on Sale of Common Stock -- -- (5,250)
Expenses of Initial Public Offering -- -- (408,763)
Capital Contributions - Joint Venture Subsidiary 50,340 -- 124,532
Purchase of Certificate of Deposit - Restricted -- -- (5,000)
Purchase of Mining Reclamation Bond -- -- (37,150)
-------- --------- ------------
Net Cash Provided By Financing Activities 74,000 284,071 10,078,800
-------- --------- ------------
Effect of Exchange Rate Changes 25,331 -- 22,603
-------- --------- ------------
Increase (Decrease) In Cash and Cash Equivalents 628,799 (45,881) 778,232
Cash and Cash Equivalents - Beginning 149,433 63,920 --
-------- --------- ------------
Cash and Cash Equivalents - Ending $778,232 $ 18,039 $ 778,232
======== ========= ============
Supplemental Cash Flow Information:
Cash Paid For Interest $ -- $ -- --
======== ========= ============
Cash Paid For Income Taxes $ -- $ 1,440 $ 28,060
======== ========= ============
Non-Cash Financing Activities:
Issuances of Common Stock as Commissions
on Sales of Common Stock $ -- $ 8,000 $ 440,495
======== ========= ============
Issuance of Common Stock as Payment for Mining,
Milling and Other Property and Equipment $ -- $ -- $ 4,500
======== ========= ============
Transfer of Joint Venture Advance Payments into
Joint Venture Capital $ 98,922 $ -- $ 98,922
======== ========= ============
The accompanying notes are an integral part of the financial statements.
6
CAPITAL GOLD CORPORATION
F/K/A LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(Unaudited)
NOTE 1 - Basis of Presentation
The consolidated financial statements include the accounts of Capital Gold
Corporation and its subsidiaries, which are wholly and majority owned. All
significant inter-company accounts and transactions have been eliminated in
consolidation.
In the opinion of the Company's management, the accompanying consolidated
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the consolidated financial
position and results of operations and cash flows for the periods presented.
These financial statements are unaudited and have not been reported on by
independent public accountants.
Results of operations for interim periods are not necessarily indicative
of the results of operations for a full year.
The consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company is a development stage
enterprise and has recurring losses from operations and operating cash
constraints that raise substantial doubt about the Company's ability to continue
as a going concern.
NOTE 2 - Marketable Securities
The Company accounts for its investments in marketable securities in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities."
Management determines the appropriate classification of all securities at
the time of purchase and re-evaluates such designation as of each balance sheet
date. The Company has classified its marketable equity securities as available
for sale securities and has recorded such securities at fair value. The Company
uses the specific identification method to determine realized gains and losses.
Unrealized holding gains and losses are excluded from earnings and, until
realized, are reported in a separate component of stockholders' equity.
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 $75,000
=======
NOTE 3 - Other Investments
Other investments are carried at cost and consist of tax liens purchased
on properties located in Lake County, Colorado.
-7-
CAPITAL GOLD CORPORATION
F/K/A LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2003
(Unaudited)
NOTE 4 - Other Comprehensive Income (Loss) - Supplemental Non-Cash Investing
Activities
Other comprehensive income (loss) consists of accumulated foreign
translation gains and losses and net unrealized gain on available-for-sale
securities and is summarized as follows:
Balance - July 31, 2002 $(7,246)
Equity Adjustments from Foreign
Currency Translation 18,277
Unrealized Gain on Available-for-
Sale Securities 25,000
-------
Balance - January 31, 2003 $36,031
=======
NOTE 5 - Stockholders' Equity
In January 2003 the Company granted to two individuals an aggregate of
350,000 options to purchase common stock. The stock options have an exercise
price of $.05 per share and expire in two years. In connection with the grant,
the Company recognized stock based compensation of $75,353.
In January 2003 the Company terminated an aggregate of 5,010,454 options
to purchase common stock and re-granted the same amount of stock options to the
same individuals under revised terms including an exercise price of $.05 per
share and an expiration date of January 2005. The Company recognized no stock
based compensation as a result of this transaction.
NOTE 6 - Subsequent Events
During March 2003 the Company's stockholders approved an amendment to the
Articles of Incorporation to change its name from Leadville Mining and Milling
Corp. to Capital Gold Corporation.
In March 2003 the Company obtained exclusive options to purchase an ore
crusher and related assets for a total cost of $700,000. The Company paid
$25,000 for these options, which expire on April 30, 2003, unless extended to
June 30, 2003 upon payment of an additional $25,000.
-8-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Cautionary Statement on Forward-Looking Statements
Some information contained in or incorporated by reference into this report on
Form 10-QSB may contain "forward-looking statements," as defined in Section 21E
of the Securities and Exchange Act of 1934. These statements include comments
regarding exploration and mine development and construction plans, costs, grade,
production and recovery rates, permitting, financing needs, the availability of
financing on acceptable terms or other sources of funding, and the timing of
additional tests, feasibility studies and environmental permitting. The use of
any of the words "anticipate," "continue," "estimate," "expect," "may," "will,"
"project," "should," "believe" and similar expressions are intended to identify
uncertainties. We believe the expectations reflected in those forward-looking
statements are reasonable. However, we cannot assure you that these expectations
will prove to be correct. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of the risk factors
set forth below and other factors set forth in, or incorporated by reference
into, this report:
o worldwide economic and political events affecting the supply of and
demand for gold;
o volatility in market prices for gold and other metals;
o financial market conditions, and the availability of debt or equity
financing on terms acceptable to our company;
o uncertainties as to whether additional drilling, testing and
feasibility studies will establish reserves at any of our
properties;
o uncertainties associated with developing a new mine, including
potential cost overruns and the unreliability of estimates in early
states of mine development;
o uncertainties as to title to our properties and the availability of
sufficient properties to allow for planned activities at Leadville
in Colorado and at El Chanate in Mexico.
o variations in ore grade and other characteristics affecting mining,
crushing, milling and smelting operations and mineral recoveries;
o geological, metallurgical, technical, permitting, mining and
processing problems;
o the availability and timing of acceptable arrangements for power,
transportation, mine construction, contract mining, water and
smelting; the availability, terms conditions and timing of required
government approvals;
o uncertainties regarding future changes in tax and foreign-investment
legislation or implementation of existing tax and foreign-investment
legislation;
o the availability of experienced employees; and
o political instability, violence and other risks associated with
operating in a country like Mexico with a developing economy.
-9-
Many of those factors are beyond our ability to control or predict. You should
not unduly rely on these forward-looking statements. These statements speak only
as of the date of this report on Form 10-QSB. Except as required by law, we are
not obligated to publicly release any revisions to these forward-looking
statements to reflect future events or developments. All subsequent written and
oral forward-looking statements attributable to our Company and persons acting
on our behalf are qualified in their entirety by the cautionary statements
contained in this section and elsewhere in this report on Form 10-QSB and other
periodic reports filed by us with the Securities and Exchange Commission.
Results of Operation
General
Sonora, Mexico
During the quarter ended January 31, 2003, we continued to analyze the El
Chanate concessions in Mexico. As of January 31, 2003, we had reduced our
property holdings to a coherent package of 12 contiguous, high priority
concessions totaling approximately 3,506 hectares (8,663 acres or 13.5 square
miles). Further exploration and development of the El Chanate project, assuming
it is economically feasible, will mostly occur on these concessions owned by us.
We also own outright 466 hectares (1,151 acres or 1.8 square miles) of surface
rights at El Chanate (except for our joint venture agreement with Grupo Minero
FG S.A. de C.V.) and no third party ownership or leases exist on this fee land
or the El Chanate concessions.
Currently, and during the quarter ended January 31, 2003, through our
engineering consultants and with Grupo Minero FG S.A. de C.V. ("FG"), we are
continuing metallurgical tests to determine the most optimal and economically
feasible crushing and or grinding sizes for processing the El Chanate deposit.
Management believes that these studies showed that El Chanate deposits are
generally suited for treatment using dilute cyanide solutions, and ore grade
samples from El Chanate have shown encouraging recoveries from rock tested after
crushing to 80% minus 3/8 inch size. The result of the crushing and grinding
studies show that the gold recovery increases significantly as the rock is
reduced to finer particle sizes. Test work was conducted at Resources
Development Inc. in Wheat Ridge, Colorado and in Mexico at the La Colorada mine
laboratory, which is owned by FG, our joint venture partner. In November 2002,
the Company employed Metcon Inc., of Tucson, Arizona to conduct further
metallurgical testing on Chanate ores. Metallurgical testing is continuing.
In August 2002, we retained SRK Consulting to conduct a Scoping Study of the
proposed project at El Chanate. The Scoping Study was completed in October 2002
and we have received the definitive report. Based on our review of the Scoping
Study, we believe that the prospects for a surface/heap leach mining operation
at El Chanate remain positive. The Study indicated that additional metallurgical
testing would be necessary to allow for preparation of a Feasibility Study. This
testing is ongoing and nearing completion. In addition, SRK indicated that it
did not have sufficient historical information to determine the adequacy of the
equipment fleet, or the availability of a sufficient water supply. In this
regard, the equipment fleet currently is being evaluated and we plan to drill
our first water test well before the end of March 3003. The SRK Study also
recommended additional drilling to further define the deposit. We conducted the
additional exploratory drilling and we believe that no additional drilling is
required at this time.
-10-
In February 2003, we retained M3 Engineering of Tucson, Arizona to begin working
on a Feasibility Study. Assuming no unexpected issues arise, we anticipate that
this study will be completed by June 2003.
Leadville, Colorado
During the quarter ended January 31, 2003, as during the prior quarter and the
fiscal year ended July 31, 2002, activity at our Leadville, Colorado properties
consisted principally of mine maintenance. Primarily as a result of our focus on
El Chanate, we temporarily reduced to a minimum activity in Leadville, Colorado.
On November 1, 2002, we conditionally acquire 56 properties in Leadville,
Colorado having a gross acreage of approximately 594 acres. Some of the
properties are classified as residential and others are classified as mining.
All were purchased at the Lake County, Colorado, tax sale for the back taxes due
on the properties. We paid an aggregate of approximately $13,000 for the
properties.
If a property owner does not pay his property taxes the county treasurer has the
right to put the property up for auction at an advertised county tax sale.
Sometimes, the property owner will ask the treasurer to postpone the auction of
the property for a year with the promise to pay soon. If taxes are still not
paid, the auction bidder will be required to pay two years of taxes. If we pay
the 'back taxes' and then 'current year' taxes for four consecutive years our
ownership of a given property purchased at tax sale is final, and the deed is
transferred to us. If the property owner can pay the back taxes, he is required
to pay us the back taxes plus interest. The current back tax interest rate is
12% in Lake County.
We acquired these properties, especially the residential properties, as an
investment. We are not required to commit to any work or maintenance on any of
the properties at this time. Management believes that these are good
investments. The mining properties are located in the general area of our other
mining properties. There is a possibility that at some future date the zoning
for the mining claims will be changed to allow residential development.
Management believes that, at such time, these properties will most likely become
more valuable due to their scenic location. In the time prior to any zoning
change, these properties may have mineral value; however, we have no current
plans to explore these mining properties.
Revenues
We generated no revenues from mining operations during the three months ended
January 31, 2003 and 2002. There were de minimis non-operating revenues during
the three months ended January 31, 2003 and 2002 of $5,828 and $393,
respectively. These non-operating revenues represent interest income.
Costs and Expenses
Over all, costs and expenses during the three months ended January 31, 2003
($525,840) increased by $255,235 (approximately 94%) from the three months ended
January 31, 2002 ($270,605).
Mine expenses during the three months ended January 31, 2003 ($285,381)
increased by $163,225 (approximately 134%%) from the three months ended January
31, 2002 ($122,156). We believe that the increase in mine expenses resulted
primarily from work at our Mexican properties.
-11-
Selling, general and administrative expenses during the three months ended
January 31, 2003 ($165,106) increased by $17,239 (approximately 12%) from the
three months ended January 31, 2002 ($147,867). We believe that the increase was
due to increased levels of activity at our El Chanate concessions in Mexico. Our
ability to increase activity was due to our receipt of funds from the sale of
our Subsidiary, Minera Chanate, S.A. de C.V. ("Minera Chanate").
Stock based compensation during the three months ended January 31, 2003 was
$75,353 compared to 0 for the three months ended January 31, 2002.
Gains from Changes in Foreign Exchange Rates
During the six months ended January 31, 2003, we recorded equity adjustments
from foreign currency translations of $18,000. These translation adjustments are
related to changes in the rates of exchange between the Mexican Peso and the US
dollar.
Net Income
As a result, our net loss for the three months ended January 31, 2003 was
$476,132 which was $205,920 greater than our $270,212 loss for the three months
ended January 31, 2002.
Liquidity and Capital Resources
As of January 31, 2003, we had working capital of $688,386. Our plans over the
next 12 months include the costs of administration, and exploration related
activities in Mexico and administration and holding costs in Colorado.
In this regard, as noted in prior reports, in February 2002, we entered into a
joint venture agreement with Grupo Minero FG S.A. de C.V. ("Grupo Minero") in
Hermosillo to explore, evaluate and develop certain of our Mexican properties in
five phases. We completed the first phase in November 2002. We estimate that the
balance of our portion of the costs for the second phase (anticipated to be
completed by June 2003) will be approximately $350,000.
On March 13, 2003, we obtained exclusive options to purchase an ore crusher and
related assets (spare parts for the crusher and certain transportable building
structures) for a total cost of $700,000. FG, our joint venture partner, has
agreed orally that this purchase will be pursuant to the joint venture and that
FG will be responsible for 50% of the cost.
During the three months ended January 31, 2003, we received the final payment
from the sale of our subsidiary, Minera Chanate in the amount of $1,009,924.
After commissions of $80,777, our gross proceeds from the sale of Minera Chanate
was $1,990,031.
We plan to pay for a significant portion of our anticipated expenses related to
phase two of the joint venture and our portion of the acquisition of the ore
crusher and related assets with the proceeds from the sale of our subsidiary,
Minera Chanate. As explained in our annual report on form 10-KSB, historically,
we have not generated any material revenues from operations and have been in a
precarious financial condition. No assurance whatsoever can be given that we
will be able to generate any significant revenues in the near future or, after
we have depleted the proceeds from the sale of our subsidiary, that we will be
able to continue as a going concern or that any of our plans with respect to our
gold properties will, to a material degree, come to fruition. In order to
continue our program if and when we have depleted the proceeds from the sale of
our subsidiary, we will need to obtain substantial financing. While we plan to
seek such financing through bank financing, private placement of our shares,
joint venture partners and other arrangements, there is no assurance that we
will be successful.
-12-
In addition, during the three months ended January 31, 2003, we raised $27,300
through the sale and issuance of common stock.
The consolidated financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company is a development stage
enterprise and has recurring losses from operations and operating cash
constraints that raise substantial doubt about the Company's ability to continue
as a going concern.
Environmental Issues
Management does not expect that environmental issues will have an adverse
material effect on our liquidity or earnings. Before any additional exploration
or any development or mining or construction of milling facilities could begin
at our Leadville properties, it would be necessary to meet all environmental
requirements and to satisfy the regulatory agencies in Colorado that our
proposed procedures fell within the boundaries of sound environmental practice.
We currently are bonded to insure reclamation of any areas disturbed by our past
activities. The current amount of this bond is $42,150. In Mexico, we are not
aware of any significant environmental concerns or existing reclamation
requirements at the El Chanate properties. However, we will be required to
obtain various environmental and related permits in order to engage in our
planned activities at El Chanate. This has presently been undertaken. The costs
and any delays associated with obtaining these required permits could have an
impact on our ability to timely complete our planned activities at El Chanate
and ultimately on the feasibility of opening a mine.
Part of the Leadville Mining District has been declared a federal Superfund site
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, and the Superfund Amendments and Reauthorization Act of 1986. Several
mining companies and one individual were declared defendants in a possible
lawsuit. We were not named a defendant or Possible Responsible Party. We did
respond in full detail to a lengthy questionnaire prepared by the Environmental
Protection Agency ("EPA") regarding our proposed procedures and past activities
in November 1990. To our knowledge, the EPA has initiated no further comments or
questions.
We do include in all our internal revenue and cost projections a certain amount
for environmental and reclamation costs on an ongoing basis. This amount is
determined at a fixed amount of $1.50 per ton of material to be milled on a
continual, ongoing basis to provide for further tailing disposal sites and to
reclaim the tailings disposal sites in use. 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.
Application Of Critical Accounting Policies
Our financial statements and accompanying notes are prepared in accordance with
accounting principles generally accepted in the United States of America.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue,
and expenses. These estimates and assumptions are affected by management's
application of accounting policies. Critical accounting policies for us include
impairment of long-lived assets, accounting for stock-based compensation and
environmental remediation costs.
-13-
In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," 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, which approximates management's estimate of fair
value.
Environmental remediation costs are accrued based on estimates of known
environmental remediation exposure. Such accruals are recorded even if
significant uncertainties exist over the ultimate cost of the remediation. It is
reasonably possible that our estimates of reclamation liabilities, if any, could
change as a result of changes in regulations, extent of environmental
remediation required, means of reclamation or cost estimates. Ongoing
environmental compliance costs, including maintenance and monitoring costs, are
expensed as incurred. There were no environmental remediation costs accrued at
January 31, 2003.
Issues And Uncertainties
The following issues and uncertainties, among others, should be considered in
evaluating our financial outlook.
We have not generated any operating revenues. If we are unable to
commercially develop our mineral properties, we will not be able to
generate profits and our business may fail.
We are an exploration company engaged in the acquisition and exploration of
mineral exploration properties. 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 a mine at least one of our
properties.
We lack operating cash flow and rely on external funding sources. If we
are unable to continue to obtain needed capital from outside sources, we
will be forced to reduce or curtail our operations.
We do not generate any positive cash flow from operations and we do not
anticipate that any positive cash flow will be generated for some time. Aside
from the proceeds from the sale of Minera Chanate we have limited financial
resources. Leases and licenses which we hold as well as our joint venture
agreement with FG, impose financial obligations on us. We cannot assure that
additional funding will be available to allow us to fulfill such obligations.
Further exploration and development of the mineral properties in which we hold
interests depends upon our ability to obtain financing through
o bank or other debt financing,
o equity financing, or
o other means.
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Failure to obtain additional financing on a timely basis could cause us to
forfeit all or parts of our interests in some or all of (i) the El Chanate
concessions, (ii) the joint venture with FG and (iii) our Leadville properties,
and reduce or terminate our operations.
As a mineral exploration company, our ability to commence production and
generate profits is dependent on our ability to discover viable and
economic mineral reserves. Our ability to discover such reserves is
subject to numerous factors, most of which are beyond our control and are
not predictable.
Exploration for gold is speculative in nature, involves many risks and is
frequently unsuccessful. Any gold exploration program entails risks relating to
o the location of economic bodies of minerals,
o development of appropriate metallurgical processes,
o receipt of necessary governmental approvals and
o construction of mining and processing facilities at any site chosen
for mining.
The commercial viability of a mineral deposit is dependent on a number of
factors including:
o the price of gold,
o exchange rates,
o the particular attributes of the deposit, such as its
o size,
o grade and concentrate ability
o stripping ratio
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.
All of the mineral properties in which we have an interest or right are in the
exploration stages only and are without reserves of gold or other minerals. We
cannot assure that current or proposed exploration or development programs on
properties in which we have an interest will result in the discovery of gold
mineralization reserves or will result in a profitable commercial mining
operation.
We have a limited number of prospects. As a result, our chances of
commencing viable mining operations are dependent upon the success of one
project.
Our only current properties are the El Chanate concessions and our Leadville
properties. At present, we are not doing any substantive work at our Leadville
properties. While the El Chanate concessions are owned by one of our
subsidiaries, FG, our joint venture partner, has a 31% interest with a right to
increase its interest to 45%. We currently do not have operations
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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 and are affected by numerous factors beyond
our control, including:
o the level of interest rates,
o the rate of inflation,
o central bank sales,
o world supply of gold and
o stability of exchange rates.
Each of these factors can cause significant fluctuations in gold prices. Such
external factors are in turn influenced by changes in international investment
patterns and monetary systems and political developments. The price of gold has
historically fluctuated widely and, depending on the price of gold, revenues
from mining operations may not be sufficient to offset the costs of such
operations.
Changes in regulatory or political policy could adversely affect our
exploration and future production activities.
Any changes in government policy may result in changes to laws affecting:
o ownership of assets,
o land tenure,
o mining policies,
o monetary policies,
o taxation,
o rates of exchange,
o environmental regulations,
o labor relations,
o repatriation of income and
o return of capital.
Any such changes may affect our ability to undertake exploration and development
activities in respect of present and future properties in the manner currently
contemplated, as well as our ability to continue to explore, develop and operate
those properties in which we have an interest or in respect of which we have
obtained exploration and development rights to date. The possibility,
particularly in Mexico, that future governments may adopt substantially
different policies, which might extend to expropriation of assets, cannot be
ruled out.
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:
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o stricter standards and enforcement,
o increased fines and penalties for non-compliance,
o more stringent environmental assessments of proposed projects and
o a heightened degree of responsibility for companies and their
officers, directors and employees.
There can be no assurance that future changes to environmental legislation and
related regulations, if any, will not adversely affect our operations. We could
be held liable for environmental hazards that exist on the properties in which
we hold interests, whether caused by previous or existing owners or operators of
the properties. Any such liability could adversely affect our business and
financial condition.
Mining risks and potential inadequacy of insurance coverage could
adversely affect us.
If and when we commence mining operations at any of our properties, such
operations will involve a number of risks and hazards, including:
o environmental hazards,
o industrial accidents,
o labor disputes,
o metallurgical and other processing,
o unusual and unexpected rock formations,
o ground or slope failures,
o cave-ins,
o acts of God,
o mechanical equipment and facility performance problems and
o the availability of materials and equipment.
Such risks could result in:
o damage to, or destruction of, mineral properties or production
facilities,
o personal injury or death,
o environmental damage,
o delays in mining,
o monetary losses and
o possible legal liability.
Industrial accidents could have a material adverse effect on our future business
and operations. Although as we move forward in the development of any of our
properties we plan to 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 could have a material adverse effect on
us.
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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.
All of the mineral properties in which we have an interest or right are in the
exploration stages only and are without reserves of gold or other minerals. If
and when we can prove such reserves, 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.
There are uncertainties as to title matters in the mining industry. We
believe that we have good title to our properties; however, defects in
such title could have a material adverse effect on us.
We have investigated our rights to explore, exploit and develop our various
properties in manners consistent with industry practice and, to the best of our
knowledge, those rights are in good standing. However, we cannot assure that the
title to or our rights of ownership of either the El Chanate concessions or our
Leadville properties will not be challenged or impugned by third parties or
governmental agencies. In addition, there can be no assurance that the
properties in which we have an interest are not subject to prior unregistered
agreements, transfers or claims and title may be affected by undetected defects.
Any such defects could have a material adverse effect on us.
Should we successfully commence mining operations in the future, our
ability to remain profitable, should we become profitable, will be
dependent on our ability to find, explore and develop additional
properties. Our ability to obtain such additional properties will be
hindered by 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. As a result of such competition, we may not be able to obtain such
additional properties. Assuming that we commence profitable operations from our
current properties, our inability to obtain and exploit new properties in the
future would, eventually, adversely affect our ability to maintain profitable
operations.
We are dependent on the efforts of certain key personnel and contractors,
the loss of whose services could have a materially adverse effect on our
operations.
We are dependent on a relatively small number of key personnel, the loss of any
one of whom could have an adverse effect on us. In addition, while certain of
our officers and directors have experience in the exploration and operation of
gold producing properties, we will remain highly dependent upon contractors and
third parties in the performance of our exploration and development activities.
As such there can be no guarantee that such contractors and third parties will
be available to carry out such activities on our behalf or be available upon
commercially acceptable terms.
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Our property interests in Mexico are subject to the risks of doing
business in a foreign country.
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.
Gold is sold in the world market in U.S. dollars; however, we may 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 the world
market in U.S. dollars. We may 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, and even if these measures are implemented there can
be no assurance that such arrangements will be available, be cost effective or
be able to fully offset such future currency risks.
Item 3. Controls and Procedures.
Gifford A Dieterle, our Chief Executive Officer and our Chief Financial Officer,
has conducted an evaluation of the effectiveness of disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation,
taking into account our limited resources and current business operations, he
concluded that the disclosure controls and procedures are effective in ensuring
that all material information required to be filed in this quarterly report has
been made known to him in a timely fashion. There have been no significant
changes in internal controls, or in other factors that could significantly
affect internal controls, subsequent to the date he completed his evaluation.
-19-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities THIS IS BARRY
During the quarter ended January 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 1,187,727 shares for
an aggregate of $27,300 to three persons.
Item 3. Defaults Upon Senior Securities
None.
Item 4 Submission of Matters to a Vote of Security Holders
On March 7, 2003, at a special meeting of our stockholders, our stockholders,
approved an amendment to our Articles of Incorporation to change our name from
Leadville Mining & Milling Corp. to Capital Gold Corporation. Results of the
voting on this matter were as follows:
For: 31,880,340
Against: 232,216
Abstain: 103,261
The Certificate of Amendment to our Articles of Incorporation was filed with the
Nevada Secretary of State on March 7, 2003 and our name officially changed to
Capital Gold Corporation on that date.
Item 5. Other Information
On March 13, 2003, we obtained exclusive options to purchase an ore crusher and
related assets (spare parts for the crusher and certain transportable building
structures). The total cost will be $700,000. FG, our joint venture partner, has
agreed orally that this purchase will be pursuant to the joint venture and that
FG will be responsible for 50% of the cost. We paid $25,000 for these options,
which expire on April 30, 2003, unless extended to June 30, 2003 upon the
payment of an additional $25,000. These assets currently are located in Sonora,
Mexico, approximately 70 miles from the El Chanate Concessions. Assuming we can
obtain the requisite financing to acquire these assets, we plan to move them to
our concession after purchase.
See also, Item 4, above.
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Item 6. Exhibits and Reports on Form 8-K
Exhibits:
3.1 Certificate of Amendment to our Articles of Incorporation (name change to
Capital Gold Corporation).*
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
----------
* Previously filed as an exhibit to our Current Report on Form 8-K dated
March 7, 2003, filed with the Commission on March 10, 2003.
Reports on Form 8-K:
Form 8-K filed on March 11, 2003. Item 5. Name change and results of
special meeting of stockholders, approving the name change.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
CAPITAL GOLD CORPORATION
------------------------
Registrant
By: /s/ Gifford A. Dieterle
---------------------------------
Gifford A Dieterle
President/Treasurer
Date: March 20, 2003
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CERTIFICATION
I, Gifford A. Dieterle, Chief Executive Officer and Chief Financial Officer of
Capital Gold Corporation (the "Registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-QSB of the Registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
Registrant and I have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Registrant, including its consolidated subsidiaries,
is made known to me by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and
c) presented in this quarterly report my conclusions about the effectiveness of
the disclosure controls and procedures based on my evaluation as of the
Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the Registrant's
auditors and the audit committee of Registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the Registrant's ability to record, process,
summarize and report financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 20, 2003
/s/ Gifford A. Dieterle
---------------------------------
Gifford A. Dieterle
Chief Executive Officer and
Chief Financial Officer
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