GDRZF 6-K
Gold Reserve Ltd (GDRZF)
Exhibit 99.1
GOLD RESERVE LTD.
September 30, 2024
Interim Consolidated Financial Statements
U.S. Dollars
(unaudited)
GOLD RESERVE LTD.
CONSOLIDATED BALANCE SHEETS
(Unaudited - Expressed in U.S. dollars)
|
September 30, 2024 |
December 31, 2023 | ||||||
| ASSETS | |||||||
| Current Assets: | |||||||
| Cash and cash equivalents (Note 4) | $ | $ | |||||
| Term deposits (Note 5) | |||||||
| Marketable equity securities (Note 6) | |||||||
| Prepaid expense and other | |||||||
| Total current assets | |||||||
| Property, plant and equipment, net (Note 7) | |||||||
| Total assets | $ | $ | |||||
| LIABILITIES | |||||||
| Current Liabilities: | |||||||
| Accounts payable and accrued expenses | $ | $ | |||||
| Income tax payable (Note 10) | |||||||
| Severance accrual (Note 9) | |||||||
| Total current liabilities | |||||||
| Total liabilities | |||||||
| SHAREHOLDERS' EQUITY | |||||||
| Serial preferred stock, without par value | |||||||
| Authorized: | 2024…None; 2023…Unlimited | ||||||
| Issued: | None | ||||||
| Common shares (Note 11 and 12) | |||||||
| Class A common shares | |||||||
| Par value: | 2024…$; 2023…$ |
||||||
| Authorized: | 2024…; 2023…Unlimited | ||||||
| Issued and outstanding: | 2024…; 2023… | ||||||
| Common Share Premium (Note 12) | |||||||
| Contributed surplus | |||||||
| Stock options (Note 9) | |||||||
| Accumulated deficit | ( |
( | |||||
| Total shareholders' equity | |||||||
| Total liabilities and shareholders' equity | $ | $ | |||||
Contingencies (Notes 3 and 9)
Subsequent Event (Note 13)
The accompanying notes are an integral part of the interim consolidated financial statements.
Approved by the Board of Directors:
/s/ James P. Tunkey /s/ Yves M. Gagnon
GOLD RESERVE LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited - Expressed in U.S. dollars)
| Three Months Ended | Nine Months Ended | |||||||
| September 30, | September 30, | |||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| INCOME (LOSS) | ||||||||
| Interest income | $ | $ | |
$ | $ | |||
| Unrealized gain (loss) on equity securities (Note 6) | ( |
|||||||
| Foreign currency gain (loss) | ( |
( |
( |
( | ||||
| 962,142 | 840,718 | 3,098,883 | 2,113,531 | |||||
| EXPENSES | ||||||||
| Corporate general and administrative (Notes 3 and 9) | ||||||||
| Legal and accounting | ||||||||
| Enforcement of Arbitral Award (Note 3) | ||||||||
| Write-down of assets held for sale (Note 7) | ||||||||
| Exploration costs | ||||||||
| Equipment holding costs | ||||||||
| Net loss before income tax for the period | $ | ( |
$ | ( |
$ | ( |
$ | ( |
| Income tax expense (Note 10) | ( |
( |
( |
( | ||||
| Net loss and comprehensive loss for the period | $ | ( |
$ | ( |
$ | ( |
$ | ( |
| Net loss per share, basic and diluted | $ | ( |
$ | ( |
$ | ( |
$ | ( |
| Weighted average common shares outstanding, basic and diluted |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the interim consolidated financial statements.
GOLD RESERVE LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited - Expressed in U.S. dollars)
| For the Three Months Ended September 30, 2024 and 2023 | |||||||
| Common Shares | Contributed Surplus | Stock Options | Accumulated Deficit | ||||
| Number | Amount | Premium | |||||
| Balance, June 30, 2024 | $ |
$ |
$ |
$ ( | |||
| Net loss for the period | – | ( | |||||
| Stock option compensation (Note 9) | – | ||||||
| Fair value of options exercised | – | ( |
|||||
| Common shares issued for: | |||||||
| Private placement, net of costs | |||||||
| Option exercises | |||||||
| Reclassification (Note 12) | – | ( |
|||||
| Balance, September 30, 2024 | $ |
$ |
$ |
$ |
$ ( | ||
|
|
|||||||
| Balance, June 30, 2023 | $ |
$ |
$ |
$ ( | |||
| Net loss for the period | – | ( | |||||
| Common shares issued for: | |||||||
| Option exercises | ( |
||||||
| Balance, September 30, 2023 | 99,548,711 | $ |
$ |
$ |
$ ( | ||
| For the Nine Months Ended September 30, 2024 and 2023 | |||||||
| Common Shares | Contributed Surplus | Stock Options | Accumulated Deficit | ||||
| Number | Amount | Premium | |||||
| Balance, December 31, 2023 | $ |
$ |
$ |
$ ( | |||
| Net loss for the period | – | ( | |||||
| Stock option compensation (Note 9) | – | ||||||
| Fair value of options exercised | – | ( |
|||||
| Common shares issued for: | |||||||
| Private placement, net of costs | |||||||
| Option exercises | |||||||
| Reclassification (Note 12) | – | ( |
|||||
| Balance, September 30, 2024 | $ |
$ |
$ |
$ |
$ ( | ||
|
|
|||||||
| Balance, December 31, 2022 | $ |
$ |
$ |
$ ( | |||
| Net loss for the period | – | ( | |||||
| Common shares issued for: | |||||||
| Option exercises | ( |
||||||
| Balance, September 30, 2023 | $ |
$ |
$ |
$ ( | |||
The accompanying notes are an integral part of the interim consolidated financial statements.
GOLD RESERVE LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - Expressed in U.S. dollars)
| Three Months Ended | Nine Months Ended | |||||||
| September 30, | September 30, | |||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss for the period | $ | ( |
$ | ( |
$ | ( |
$ | ( |
|
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Stock option compensation (Note 9) | ||||||||
| Depreciation | ||||||||
| Write-down of assets held for sale (Note 7) | ||||||||
|
Unrealized loss (gain) on marketable equity securities (Note 6) |
( |
( |
( | |||||
| Amortized interest on term deposits (Note 5) | ( |
( |
( |
( | ||||
| Decrease in income tax receivable related to change in uncertain tax position (Note 10) |
||||||||
| Changes in non-cash working capital: | ||||||||
| Increase in income tax payable (Note 10) | ||||||||
| Decrease in severance accrual (Note 9) | ( |
( | ||||||
| Decrease in contingent value rights accrual | ( |
( | ||||||
| Net decrease (increase) in prepaid expense and other | ( |
( | ||||||
| Net increase (decrease) in payables and accruals | ( |
|||||||
| Net cash used in operating activities | ( |
( |
( |
( | ||||
|
Cash Flows from Investing Activities: |
||||||||
| Purchase of term deposits | ( |
( |
( |
( | ||||
| Proceeds from maturity of term deposits | ||||||||
| Net cash provided by (used in) investing activities | ( |
( | ||||||
|
Cash Flows from Financing Activities: |
||||||||
| Proceeds from private placement of common shares | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Financing fees | ( |
( |
||||||
| Net cash provided by financing activities | ||||||||
|
Change in Cash and Cash Equivalents: |
||||||||
| Net increase (decrease) in cash and cash equivalents | ( | |||||||
| Cash and cash equivalents - beginning of period | ||||||||
| Cash and cash equivalents - end of period | $ | $ |
$ | $ | ||||
The accompanying notes are an integral part of the interim consolidated financial statements.
Note 1. The Company and Significant Accounting Policies:
Gold Reserve Ltd. ("Gold Reserve," the "Company," "we," "us," or "our") has historically been engaged in the business of evaluating, acquiring, exploring and developing mining projects and was incorporated in 1998 under the laws of the Yukon Territory, Canada and continued to Alberta, Canada in September 2014. On September 30, 2024, the Company continued from the Province of Alberta to Bermuda. In connection with the continuance, the Company’s name was changed from “Gold Reserve Inc.” to “Gold Reserve Ltd.” (See Note 12).
Gold Reserve Inc. was the successor issuer to Gold Reserve Corporation which was incorporated in 1956. The Company’s primary activities include those related to corporate and legal activities associated with the collection of the unpaid balance of the Award (defined below, see Note 3) and matters related to the Siembra Minera project (the “Siembra Minera Project”).
The U.S. and Canadian governments have imposed various sanctions (the “Sanctions”) targeting the Bolivarian Republic of Venezuela ("Venezuela"). The Sanctions, in aggregate, essentially prevent any dealings with Venezuelan government or state-owned or controlled entities and prohibit directors, management and employees of the Company who are U.S. Persons from dealing with certain Venezuelan individuals or entering into certain transactions.
The Sanctions imposed by the U.S. government generally block all property of the government of Venezuela and prohibit directors, management and employees of the Company who are U.S. Persons (as defined by U.S. Sanction statutes) from dealing with the Venezuelan government and/or state-owned/controlled entities, entering into certain transactions or dealing with Specially Designated Nationals and target corruption in, among other identified sectors, the gold sector of the Venezuelan economy.
The Sanctions imposed by the Canadian government include asset freezes and prohibitions on dealings with certain named Venezuelan officials under the Special Economic Measures (Venezuela) Regulations of the Special Economic Measures Act and the Justice for Victims of Corrupt Foreign Officials Regulations of the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law).
The cumulative impact of the Sanctions continues to prohibit or restrict the Company, in certain ways, from working with Venezuelan government officials with respect to the Settlement Agreement (defined below) and/or payment of the remaining balance of the Award plus interest and /or pursuing remedies with respect to the Resolution (defined below) by the Venezuelan Ministry of Mines to revoke the mining rights in connection with the Siembra Minera Project and/or the financing, development and operation of the Siembra Minera Project.
Basis of Presentation
and Principles of Consolidation. These consolidated financial statements have been prepared in accordance with U.S. generally
accepted accounting principles ("U.S. GAAP"). The statements include the accounts of the Company, Gold Reserve Corporation and
three Barbadian subsidiaries one of which was formed to hold our equity interest in Empresa Mixta Ecosocialista Siembra Minera, S.A. (“Siembra
Minera”) which is beneficially owned
Cash and Cash Equivalents. We consider short-term, highly liquid investments purchased with an original maturity of three months or less to be cash equivalents for purposes of reporting cash equivalents and cash flows. The cost of these investments approximates fair value. We manage the exposure of our cash and cash equivalents to credit risk by diversifying our cash holdings (See Note 4).
Exploration and Development Costs. Exploration costs incurred in locating areas of potential mineralization or evaluating properties or working interests with specific areas of potential mineralization are expensed as incurred. Development costs of proven mining properties not yet producing are capitalized at cost and classified as capitalized development costs under property, plant and equipment. Mineral property acquisition costs are capitalized and holding costs of such properties are charged to operations during the period if no significant exploration or development activities are being conducted on the related properties. Upon commencement of production, capitalized exploration and development costs would be amortized based on the estimated proven and probable reserves benefited. Mineral properties determined to be impaired or that are abandoned are written-down to the estimated fair value. Carrying values do not necessarily reflect present or future values.
Property, Plant and Equipment. Property, plant and equipment are recorded at cost and depreciated on a straight-line basis over their estimated useful lives, except for equipment not yet placed into use. The cost and accumulated depreciation of assets retired or sold are removed from the accounts and any resulting gain or loss is reflected in operations. Furniture, office equipment and leasehold improvements are depreciated using the straight-line method over five to ten years.
Impairment of Long-Lived Assets. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the sum of the expected future net cash flows to be generated from the use or eventual disposition of a long-lived asset (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized based on a determination of the asset's fair value. Fair value is generally determined by discounting estimated cash flows based on market participant expectations of those future cash flows, or applying a market approach that uses market prices and other relevant information generated by market transactions involving comparable assets.
Foreign Currency. The U.S. dollar is our (and our foreign subsidiaries') functional currency. Monetary assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the rates of exchange in effect at the balance sheet dates. Non-monetary assets and liabilities are translated at historical rates and revenue and expense items are translated at average exchange rates during the reporting period, except for depreciation which is translated at historical rates. Translation gains and losses are included in the statement of operations.
Income Taxes. We use the liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on the differences between the tax basis of assets and liabilities and those amounts reported in the financial statements. The deferred tax assets or liabilities are calculated using the enacted tax rates expected to apply in the periods in which the differences are expected to be settled. Deferred tax assets are recognized to the extent that they are considered more likely than not to be realized.
Uncertain Tax Positions. We record uncertain tax positions based on a two-step process that separates recognition from measurement. The first step is determining whether a tax position has met the recognition threshold which requires that the Company determine if it is more likely than not that it will sustain the tax benefit taken or expected to be taken in the event of a dispute with taxing authorities. The second step, for those positions meeting the “more likely than not” threshold, is to recognize the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement with taxing authorities. Management periodically evaluates positions taken in tax returns in situations in which applicable tax regulation is subject to interpretation. The Company establishes provisions where appropriate on the basis of amounts expected to be received from or paid to tax authorities.
Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure 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 those estimates.
Marketable Equity Securities. The Company's marketable equity securities are reported at fair value with changes in fair value included in the statement of operations.
Equity accounted investments. Investments in incorporated entities in which the Company has the ability to exercise significant influence over the investee are accounted for by the equity method.
Financial Instruments. Marketable equity securities are measured at fair value at each reporting date, with the change in value recognized in the statement of operations as a gain or loss. Cash and cash equivalents, term deposits, deposits, advances and receivables are accounted for at amortized cost which approximates fair value (See Notes 4 and 5). Accounts payable and contingent value rights are recorded at amortized cost which approximates fair value. The values of the financial instruments noted above are based on level one inputs.
Note 2. New Accounting Policies:
Recently issued accounting pronouncements
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40). This update was issued to improve the disclosures about a public entity’s expenses and address requests from investors for more detailed information about the types of expenses included in commonly presented expense captions. This update is effective commencing with the annual period beginning after December 15, 2026. The Company is evaluating the impact of the adoption of this standard on its financial statements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). This update is intended to enhance the transparency and decision usefulness of income tax disclosures primarily through improvements related to rate reconciliation and income taxes paid information. This update is effective commencing with the annual period beginning after December 15, 2024. The Company is evaluating the impact of the adoption of this standard on its financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This update expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss and interim disclosures of a reportable segment’s profit or loss and assets. The standard is effective for the Company’s annual reporting for the year ended December 31, 2024, and subsequent interim periods, with early adoption permitted. The Company does not expect the adoption to have a material impact on the consolidated financial statements or disclosures.
Note 3. Enforcement of Arbitral Award:
In October 2009 we initiated
a claim (the "Brisas Arbitration") under the Additional Facility Rules of the International Centre for the Settlement of Investment
Disputes ("ICSID") to obtain compensation for the losses caused by the actions of Venezuela that terminated our previous mining
project known as the "Brisas Project." On September 22, 2014, we were granted an Arbitral Award (the "Award") totaling
$
In July 2016, we signed
the Settlement Agreement, subsequently amended, whereby Venezuela agreed among other things to pay us a total of approximately $
To date, the Company has
received payments of approximately $
The interest rate provided for on any unpaid amounts pursuant to the Award (less legal costs and expenses) is specified as LIBOR plus 2%, compounded annually. With the phase out of LIBOR, the U.S. Congress enacted the Adjustable Interest Rate (LIBOR) Act to establish a process for replacing LIBOR in existing contracts. The U.S. Federal Reserve Board adopted a final rule that implements the Adjustable Interest Rate (LIBOR) Act by identifying benchmark rates based on the Secured Overnight Financing Rate (SOFR) that replaced LIBOR in certain financial contracts after June 30, 2023. Accordingly, effective July 1, 2023, the Company began calculating the interest due on the unpaid amount of the Award using a benchmark replacement rate based on SOFR plus two percent.
We have Contingent Value
Rights ("CVRs") outstanding that entitle the holders to an aggregate of
We maintain a bonus plan
(the "Bonus Plan") which is intended to compensate the participants, including executive officers, employees, directors and
consultants, for their past and present contributions to the Company. The bonus pool under the Bonus Plan is comprised of the gross proceeds
collected or the fair value of any consideration realized less applicable taxes multiplied by 1.28% of the first $200 million and
Due to U.S. and Canadian Sanctions and the uncertainty of transferring the remaining amounts due from Venezuela to bank accounts outside of Venezuela, management only considers those funds received by the Company into its North American bank accounts as funds available for purposes of the CVR and Bonus Plan cash distributions.
Following receipt, if any, of additional funds pursuant to the Award and after applicable payments to CVR holders and Bonus Plan participants, we expect to distribute to our shareholders a substantial majority of any remaining amounts, subject to applicable regulatory requirements and retaining sufficient reserves for operating expenses, contractual obligations, accounts payable and income taxes, and any obligations arising as a result of the collection of the remaining amount owed by Venezuela.
Note 4. Cash and Cash Equivalents:
Cash and Cash Equivalents
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Bank deposits | $ | $ | ||||||
| Short term investments: | ||||||||
| Money market funds | ||||||||
| U.S. Treasury bills | ||||||||
| Total short term investments | ||||||||
| Total cash and cash equivalents | $ | $ |
The Company’s cash and cash equivalents are predominantly held in U.S. banks and Canadian chartered banks. Short term investments include money market funds and U.S. treasury bills which mature in three months or less.
Note 5. Term Deposits:
Term Deposits
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| U.S. Treasury Bills | $ | $ | ||||||
| Certificates of deposit | ||||||||
| $ | 25,594,336 | $ | 29,361,215 |
The Company has term deposits
which are classified as held to maturity, carried at amortized cost and have original maturities of greater than 3 months and less than
12 months. Term deposits consist of U.S. treasury bills purchased at a discount and amortized to face value over their respective terms
and certificates of deposit. The Company recorded non-cash interest income of $
Note 6. Marketable Securities:
| September 30, | December 31, | |||||||
| Schedule of Marketable Securities Value | 2024 | 2023 | ||||||
| Equity securities | ||||||||
| Fair value and carrying value at beginning of period | $ | $ | ||||||
| Increase in fair value | ||||||||
| Fair value and carrying value at balance sheet date | $ | $ | ||||||
Marketable equity securities are classified as trading securities and accounted for at fair value, based on quoted market prices with unrealized gains or losses recorded within “Income (Loss)" in the Consolidated Statements of Operations.
Accounting Standards Codification ("ASC") 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels: Level 1 inputs are quoted prices in active markets for identical assets or liabilities, Level 2 inputs are inputs other than quoted prices included within Level 1 that are directly or indirectly observable for the asset or liability and Level 3 inputs are unobservable inputs for the asset or liability that reflect the entity's own assumptions. The fair values of the Company's marketable equity securities as at the balance sheet date are based on Level 1 inputs.
Note 7. Property, Plant and Equipment:
Property, Plant and Equipment
| Accumulated | ||||||
| Cost | Depreciation | Net | ||||
| September 30, 2024 | ||||||
| Furniture and office equipment | $ | $ | ( |
$ | ||
| Transportation equipment | ( |
|||||
| Leasehold improvements | ( |
|||||
| Mineral property | ||||||
| $ | $ | ( |
$ |
| Accumulated | ||||||
| Cost | Depreciation | Net | ||||
| December 31, 2023 | ||||||
| Furniture and office equipment | $ | $ | ( |
$ | ||
| Transportation equipment | ( |
|||||
| Leasehold improvements | ( |
|||||
| Mineral property | ||||||
| $ | $ | ( |
$ |
We evaluate our equipment and
mineral property to determine whether events or changes in circumstances have occurred that may indicate that the carrying amount may
not be recoverable. No impairment write-downs of property, plant and equipment were recorded during the nine months ended September 30,
2024. During the nine months ended September 30, 2023, the Company recorded an impairment charge of approximately $
Note 8. 401(k) Plan:
The 401(k) Plan, formerly
entitled the KSOP Plan, was originally adopted in 1990 and was most recently restated effective January 1, 2021. The purpose of the 401(k)
Plan is to offer retirement benefits to eligible employees of the Company. The 401(k) Plan provides for a salary deferral, a non-elective
contribution of 3% of each eligible Participant’s annual compensation and discretionary contributions. Allocation of Class A common
shares or cash to participants' accounts, subject to certain limitations, is at the discretion of the Board. Cash contributions for the
2023 plan year were approximately $
Equity Incentive Plan
The Company's
equity incentive plan provides for the grant of stock options to purchase up to a maximum of
Stock option transactions for the nine months ended September 30, 2024 and 2023 are as follows:
| 2024 | 2023 | |||||
| Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||
| Options outstanding - beginning of period | $ |
$ |
||||
| Options granted | |
|
||||
| Options exercised | ( |
|
( |
|||
| Options cancelled | ( |
|
||||
| Options outstanding - end of period | $ |
$ |
||||
| Options exercisable - end of period | $ |
$ |
||||
The following table relates to stock options at September 30, 2024:
| Outstanding Options | Exercisable Options | ||||||||
| Exercise Price | Number | Weighted Average Exercise Price | Aggregate Intrinsic Value | Weighted Average Remaining Contractual Term (Years) | Number | Weighted Average Exercise Price | Aggregate Intrinsic Value | Weighted Average Remaining Contractual Term (Years) | |
| $ - $ | $ | $ |
$ |
$ |
|||||
| $ - $ | $ | $ |
|||||||
| $ - $ | $ | $ |
|||||||
| $ - $ | $ | $ |
|||||||
| $ - $ | $ | $ |
|||||||
| $ - $ | $ | $ |
|||||||
| $ - $ | $ | $ |
$ |
$ |
|||||
During the nine months
ended September 30, 2024, the Company granted 940,000 stock options. Additionally, the Company granted
The weighted average fair value of the options granted in 2024, exclusive of the conditional stock options, was calculated as $. The fair value of options granted was determined using the Black-Scholes model based on the following weighted average assumptions:
| Risk free interest rate | % | |
| Expected term | years | |
| Expected volatility | % | |
| Dividend yield |
The risk free interest rate is based on the US Treasury rate on the date of grant for a period equal to the expected term of the option. The expected term is based on historical exercise experience and projected post-vesting behavior. The expected volatility is based on historical volatility of our common stock over a period equal to the expected term of the option.
Change of Control Agreements
The Company maintains
change of control agreements with certain officers and a consultant. A Change of Control is generally defined as one or more of the following:
the acquisition by any individual, entity or group, of beneficial ownership of 25 percent of the voting power of the Company’s outstanding
Common Shares; a change in the composition of the Board that causes less than a majority of the current directors of the Board to be members
of the incoming board; reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets
of the Company; liquidation or dissolution of the Company; or any other event the Board reasonably determines constitutes a Change of
Control. As of September 30, 2024, the amount payable to participants under the change of control agreements, in the event of a Change
of Control, was approximately $
Senior Management Employment Agreements
In the fourth quarter
of 2021, the Company and certain members of senior management entered into employment agreements as part of a three-year cost reduction
program. The plan provides for the reduction of cash compensation and the payment of an incentive bonus upon the achievement of specific
objectives related to the development of the Company’s business and prospects in Venezuela within certain time frames. As of September
30, 2024, the estimated maximum amount payable under the plan in the event of the achievement of the specific objectives was approximately
$
Note 10. Income Tax:
Effective with the September 30, 2024 continuance to Bermuda, the corporate income tax rate for the Bermuda parent company was reduced to zero. Income tax benefit (expense) for the three and nine months ended September 30, 2024 and 2023 differs from the amount that would result from applying Bermuda tax rates (in 2024) and Canadian tax rates (in 2023) to net loss before taxes. These differences result from the items noted below:
|
Three Months Ended September 30, |
Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||
| Amount | % | Amount | % | Amount | % | Amount | % | ||
|
Income tax benefit based on statutory tax rates |
$( |
( |
$ |
$ |
$ |
||||
| Difference due to: | |||||||||
|
Different tax rates in foreign jurisdictions |
( |
( |
( |
( | |||||
| Non-deductible expenses | ( |
( |
( |
( |
( |
( |
|||
|
Derecognition of previously recognized tax benefits |
( |
( |
( |
( | |||||
|
Change in valuation allowance and other |
( |
( |
( |
( |
( |
( |
( |
( | |
|
Interest on income tax payable |
( |
( |
( |
( |
|||||
| Income tax expense | $ ( |
( |
$( |
( |
$ ( |
( |
$( |
( | |
The Company recorded income
tax expense of $
The 2017 through 2020 tax filings of the Company’s U.S. subsidiary are under examination by the Internal Revenue Service (IRS). In June 2024, the Company received a thirty-day letter and accompanying revenue agent’s report disallowing the worthless stock deductions (related to investments in the Brisas project) taken by the Company’s U.S. subsidiary for the 2017 tax year and proposing to tax income on or related to the Award that may be received by the Company in the future. The conclusions in the revenue agent’s report are consistent with the Notices of Proposed Adjustments (NOPA) issued by the IRS in 2023. The Company disagrees with the IRS’s position and filed a brief in August 2024 protesting the IRS’s conclusions and requesting an appeal. In October 2024, the IRS filed a rebuttal to the Company’s protest brief and the matter was sent to the IRS Independent Office of Appeals.
ASC 740-10-25 requires that the Company recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The tax benefits of the worthless stock deductions referred to above were previously recorded in the Company’s financial statements on the basis that it was more likely than not that the tax filing position would be sustained. As of each balance sheet date, the Company reassesses the tax position and considers any changes in facts or circumstances that indicate factors underlying the sustainability assertion have changed and whether the amount of the recognized tax benefit is still appropriate.
In 2023, the Company determined
it appropriate to derecognize the tax benefit of the worthless stock deductions given the increased uncertainty the IRS’s position
had raised and in consideration of the ongoing CRA audit. Accordingly, the Company recognized approximately $17.6 million in income tax
expense (including interest of $1.6 million), as a result of the reversal of an $
The Company also recorded a valuation allowance to reflect the estimated amount of the deferred tax assets which may not be realized, principally due to the uncertainty of utilization of net operating losses and other carry forwards prior to expiration. The valuation allowance for deferred tax assets may be reduced if our estimate of future taxable income changes.
Canada Revenue Agency (CRA) is examining the Company’s 2018 and 2019 international transactions and in November 2024, the Company received a letter (the “Proposal Letter”) from the CRA advising that, subject to submissions by the Company, the CRA proposes to reassess GRI to include in its income certain amounts, including amounts in respect of the Award and/or the Settlement Agreement (See Note 13, Subsequent Event). The Company has an uncertain tax position as it relates to the tax impact of the potential income inclusions outlined in the Proposal Letter. As the Proposal Letter consists of multiple different bases of assessments which could result in significantly different amounts of tax due, the potential tax impact cannot reasonably be estimated at this time. The Company has not recorded any amount related to this matter in its financial statements as of and for the three and nine months ended September 30, 2024.
Determining our tax liabilities requires the interpretation of complex tax regulations and significant judgment by management. There is no assurance that the tax examinations to which we are currently subject or any appeals or other resolutions of the adjustments proposed by the IRS and CRA will result in favorable outcomes.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, exclusive of interest and penalties, is as follows:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Total amount of gross unrecognized tax benefits at beginning of year | $ | $ | ||||||
| Addition based on tax positions related to the current year | - | - | ||||||
| Addition for tax positions of prior years | ||||||||
| Reductions for tax positions of prior years | - | - | ||||||
| Settlements | - | - | ||||||
| Total amount of gross unrecognized tax benefits at end of period | $ | $ |
At September 30, 2024 and
December 31, 2023, the amount of unrecognized tax benefits, inclusive of interest that, if recognized, would impact the Company’s
effective tax rate were $
The components of the deferred income tax assets and liabilities as of September 30, 2024 and December 31, 2023 were as follows:
| September 30, | December 31, | |||
| 2024 | 2023 | |||
| Deferred income tax assets | ||||
| Net operating loss carry forwards | $ | $ | ||
| Property, Plant and Equipment | ( |
( | ||
| Other | ||||
| T | ||||
| Valuation allowance | ( |
( | ||
| $ | |
$ | | |
| Deferred income tax liabilities | ||||
| Other | ( |
( | ||
| Net deferred income tax asset | $ | $ |
At September 30, 2024, the Company’s U.S. subsidiary had a $6.9 million U.S. tax loss carry forward, which can be carried forward indefinitely, but is limited to 80% of taxable income.
In June 2024, the Company
closed a private placement of shares for gross proceeds of $
In July 2024, the Company
closed a private placement of shares for gross proceeds of $
The Company is evaluating and considering engaging in a potential transaction, solely or with one or more other parties (“Potential Transaction”) in relation to the sale of the common shares of PDV Holdings, Inc., (PDVH) the indirect parent company of CITGO Petroleum Corp, pursuant to the sales and bidding procedures managed by the Special Master appointed by the U.S. District Court for the District of Delaware. The Company currently does not have any obligations or commitments with respect to any Potential Transaction.
The net proceeds from the 2024 private placements, as well as additional cash on hand, provide the Company with funds to be used to assist in funding certain expenses in connection with any Potential Transaction, including any cash deposit required with respect thereto; however, there can be no assurance that any Potential Transaction will be consummated and in such case, the net proceeds of the private placement may also be used for working capital and general corporate purposes.
Note 12. Continuance to Bermuda:
In September 2024, the Company’s shareholders approved a special resolution permitting the Company to effect a continuance from the Province of Alberta to Bermuda. On September 30, 2024, the continuance was completed through a plan of arrangement pursuant to Section 193 of the Business Corporations Act (Alberta). In connection with the continuance, the Company’s name was changed from “Gold Reserve Inc.” to “Gold Reserve Ltd.”.
Prior to the continuance, the Company’s authorized share capital was an unlimited number of common shares without par value. The Companies Act (Bermuda) requires that the amount of capital with which the company is registered be divided into shares of a certain fixed amount (nominal or par value). Gold Reserve Ltd. was registered with the Bermuda Registrar of Companies with an authorized share capital comprising 500,000,000 common shares, each with a par value of $0.01. As a result, the balances of certain capital accounts were reclassified as follows:
| Common Shares | ||||
| Number | Amount | Premium | ||
| Balance, prior to continuance | 113,037,414 | $ 352,855,434 | – | |
| Reclassification | – | (351,725,060) | 351,725,060 | |
| Balance, post continuance | 113,037,414 | $ 1,130,374 | $ 351,725,060 | |
Note 13. Subsequent Event:
Prior to the Company’s
September 30, 2024 continuance to Bermuda, it was domiciled in Alberta, Canada as Gold Reserve Inc. (GRI). In November 2024, the Company
received a letter (the “Proposal Letter”) from the CRA advising that, subject to submissions by the Company, the CRA proposes
to reassess GRI to include in its income certain amounts, including amounts in respect of the Award and/or the Settlement Agreement. The
Proposal Letter proposes multiple alternative bases of assessment, in respect of the 2014, 2016, 2017 and 2018 taxation years of GRI.
The maximum potential income inclusion amounts as set out in the Proposal Letter are the full amount of the 2014 Arbitral Award of $
The Company is preparing to defend its previous tax filing positions and assessing the potential outcomes of this matter. The Company will respond to the Proposal Letter and, failing a resolution of the matter, the CRA may proceed to issue a notice of reassessment. If the CRA reassesses the Company as described in the Proposal Letter, the Company will have 90 days from the issuance of the notice of reassessment to prepare and file a notice of objection which would be reviewed by CRA’s Appeals Division. At that time, the Company would be required to pay 50% of the assessed tax liability and interest in order to preclude CRA from initiating collections action. This payment, if
made, would have a material adverse impact on the financial position of the Company and may lead to substantial doubt about the Company’s ability to continue as a going concern. If the CRA is not in agreement with the Company’s notice of objection, within the prescribed period, the Company would have the right to appeal to the Tax Court of Canada. If a notice of reassessment is received, the Company currently estimates that the ultimate resolution of the matter may take two to four years. If the Company is ultimately successful in defending its position, then any taxes, interest and penalties paid to CRA would be refunded plus interest. If CRA is successful, then any taxes payable plus interest and any penalties would have to be remitted. This would have a material adverse impact on the financial position of the Company and may lead to substantial doubt about the Company’s ability to continue as a going concern.
Determining our tax liabilities requires the interpretation of complex tax regulations and significant judgment by management. There is no assurance that the CRA tax examinations to which we are currently subject will result in favorable outcomes.