##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2006
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
 For the transition period from  to
 Commission file number 1-11887
 CANYON RESOURCES CORPORATION
   
 þ o
  o o þ
 o þ




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##### 



CANYON RESOURCES CORPORATION
FORM 10-Q
For the Six Months ended June 30, 2006
 TABLE OF CONTENTS
 PART I FINANCIAL INFORMATIONItem 1. Financial Statements
    
    Page 1Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    Page 16Item 3. Quantitative and Qualitative Disclosures About
Market Risk
    
    Page 25Item 4. Controls and Procedures
    
    Page 25PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    Page 27Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds
    
    Page 27Item 3. Defaults Upon Senior Securities
    
    Page 27Item 4. Submission of Matters to a Vote of
Security Holders
    
    Page 27Item 5. Other Information
    
    Page 28Item 6. Exhibits
    
    Page 28SIGNATURES
    
    Page 29Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  i




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##### Table of Contents



PART I FINANCIAL INFORMATION
 
 Item 1. Financial Statements
   Consolidated Balance Sheets
    
    Page 1Consolidated Statements of Operations
    
    Page 2Consolidated Statements of Cash Flows
    
    Pages 3-4Consolidated Statement of Changes in Stockholders Equity
    
    Page 5Notes to Interim Consolidated Financial Statements
    
    Pages 6-15Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    Page 16Item 3. Quantitative and Qualitative Disclosures
About Market Risk
    
    Page 25Item 4. Controls and Procedures
    
    Page 25
 ii




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##### Table of Contents



CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,2006
    
    
    2005ASSETSCash and cash equivalents
    
    $
    1,543,700
    
    
    $
    5,649,200Short term investments
    
    
    6,501,800
    
    
    
    Restricted cash
    
    
    
    
    
    
    281,300Accounts receivable
    
    
    50,700
    
    
    
    16,400Metal inventories
    
    
    28,900
    
    
    
    65,900Prepaid and other current assets
    
    
    72,900
    
    
    
    170,900Total current assets
    
    
    8,198,000
    
    
    
    6,183,700Property, plant and mine development, net
    
    
    6,174,600
    
    
    
    5,276,700Restricted cash
    
    
    3,305,300
    
    
    
    2,939,900Other non current assets
    
    
    246,400
    
    
    
    246,400Total Assets
    
    $
    17,924,300
    
    
    $
    14,646,700LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    376,100
    
    
    $
    474,100Asset retirement obligations
    
    
    1,278,300
    
    
    
    1,210,600Payroll liabilities
    
    
    103,300
    
    
    
    216,900Other current liabilities
    
    
    27,900
    
    
    
    86,600Total current liabilities
    
    
    1,785,600
    
    
    
    1,988,200Notes payable  long term
    
    
    825,000
    
    
    
    825,000Warrant liabilities
    
    
    398,800
    
    
    
    360,000Capital leases  long term
    
    
    21,700
    
    
    
    25,900Asset retirement obligations
    
    
    3,949,800
    
    
    
    4,558,600Total liabilities
    
    
    6,980,900
    
    
    
    7,757,700Commitments and contingencies (Note 13)Common stock ($.01 par value) 100,000,000 shares authorized;
issued and outstanding: 43,767,273 at June 30, 2006, and
38,320,533 at December 31, 2005
    
    
    437,700
    
    
    
    383,200Capital in excess of par value
    
    
    139,702,100
    
    
    
    133,949,900Retained deficit
    
    
    (129,196,400
    )
    
    
    (127,444,100
    )Total Stockholders Equity
    
    
    10,943,400
    
    
    
    6,889,000Total Liabilities and Stockholders Equity
    
    $
    17,924,300
    
    
    $
    14,646,700
  1




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##### Table of Contents



CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months ended June 30,
    
    
    Six months ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005REVENUESales
    
    $
    413,100
    
    
    $
    1,137,200
    
    
    $
    1,006,400
    
    
    $
    2,139,400EXPENSESCost of sales
    
    
    413,000
    
    
    
    837,800
    
    
    
    866,600
    
    
    
    1,968,000Depreciation, depletion and amortization
    
    
    6,700
    
    
    
    704,700
    
    
    
    15,600
    
    
    
    1,614,600Selling, general and administrative
    
    
    770,900
    
    
    
    625,000
    
    
    
    1,638,700
    
    
    
    1,233,500Exploration costs
    
    
    424,100
    
    
    
    718,600
    
    
    
    733,200
    
    
    
    889,900Impairment of long lived assets
    
    
    
    
    
    
    9,242,100
    
    
    
    
    
    
    
    9,242,100Accretion expense
    
    
    50,800
    
    
    
    33,500
    
    
    
    101,600
    
    
    
    67,000Debenture conversion expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    448,200Loss on asset disposals
    
    
    
    
    
    
    2,700
    
    
    
    
    
    
    
    2,7001,665,500
    
    
    
    12,164,400
    
    
    
    3,355,700
    
    
    
    15,466,000OTHER INCOME (EXPENSE)Interest income
    
    
    78,600
    
    
    
    41,900
    
    
    
    136,300
    
    
    
    74,600Interest expense
    
    
    (13,400
    )
    
    
    (12,900
    )
    
    
    (26,400
    )
    
    
    (54,100
    )Gain on sale of securities
    
    
    66,200
    
    
    
    
    
    
    
    882,200
    
    
    
    Loss on derivative instruments
    
    
    (164,600
    )
    
    
    
    
    
    
    (310,500
    )
    
    
    Other
    
    
    (84,600
    )
    
    
    21,100
    
    
    
    (84,600
    )
    
    
    21,100(117,800
    )
    
    
    50,100
    
    
    
    597,000
    
    
    
    41,600Net Loss
    
    $
    (1,370,200
    )
    
    $
    (10,977,100
    )
    
    $
    (1,752,300
    )
    
    $
    (13,285,000
    )Basic and diluted net loss per share
    
    $
    (0.03
    )
    
    $
    (0.32
    )
    
    $
    (0.05
    )
    
    $
    (0.41
    )Basic and diluted weighted average
shares outstanding
    
    
    40,000,300
    
    
    
    34,510,500
    
    
    
    39,165,000
    
    
    
    32,401,100
  2




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##### Table of Contents



CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six months ended June 30,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (1,752,300
    )
    
    $
    (13,285,000
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation, depletion and amortization
    
    
    15,600
    
    
    
    1,614,600Receivable write-off
    
    
    13,800
    
    
    
    Amortization of beneficial conversion feature
    
    
    
    
    
    
    11,300Debenture conversion expense
    
    
    
    
    
    
    448,200Impairment of inventory
    
    
    17,600
    
    
    
    143,100Impairment of long-lived assets
    
    
    
    
    
    
    9,242,100Loss on asset dispositions
    
    
    
    
    
    
    2,700Accretion of asset retirement obligation
    
    
    101,600
    
    
    
    67,000Share-based compensation expense
    
    
    279,600
    
    
    
    Warrant extension cost
    
    
    70,800
    
    
    
    Gain on sale of securities
    
    
    (882,200
    )
    
    
    Purchase of short term investments
    
    
    (6,501,800
    )Loss on derivative instruments
    
    
    310,500
    
    
    
    Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (48,100
    )
    
    
    348,400Decrease in inventories
    
    
    19,400
    
    
    
    673,300Decrease in prepaid and other assets
    
    
    98,000
    
    
    
    85,400(Decrease) increase in accounts payable and other
current liabilities
    
    
    (288,800
    )
    
    
    26,300Decrease in asset retirement obligations
    
    
    (642,700
    )
    
    
    (1,039,500
    )Increase in restricted cash
    
    
    (84,100
    )
    
    
    (22,800
    )Total adjustments
    
    
    (7,520,800
    )
    
    
    11,600,100Net cash used in operating activities
    
    
    (9,273,100
    )
    
    
    (1,684,900
    )Cash flows from investing activities:Purchases and development of property and equipment
    
    
    (875,000
    )
    
    
    (36,300
    )Proceeds on asset dispositions
    
    
    10,000
    
    
    
    Proceeds from sale of securities
    
    
    882,200
    
    
    
    Net cash provided by (used in) investing activities
    
    
    17,200
    
    
    
    (36,300
    )Cash flows from financing activities:Issuance of stock and warrants
    
    
    5,457,200
    
    
    
    3,148,400Issuance cost
    
    
    (302,900
    )
    
    
    (47,500
    )Payments on debt
    
    
    
    
    
    
    (924,000
    )Payments on capital lease obligations
    
    
    (3,900
    )
    
    
    (8,000
    )Net cash provided by financing activities
    
    
    5,150,400
    
    
    
    2,168,900Net (decrease) increase in cash and cash equivalents
    
    
    (4,105,500
    )
    
    
    447,700Cash and cash equivalents, beginning of year
    
    
    5,649,200
    
    
    
    4,638,300Cash and cash equivalents, end of period
    
    $
    1,543,700
    
    
    $
    5,086,000
  3




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##### Table of Contents



CANYON RESOURCES CORPORATION AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
 Six months ended June 30,2006
    
    2005Supplemental disclosures of cash flow information:1. Interest paid
    
    $
    26,400
    
    
    $
    142,8002. Income taxes paid
    
    $
    
    
    
    $
    Supplemental schedule of non-cash financing activities:Non-cash financing activities:1. Issued 936,200 shares to retire convertible debentures
    
    $
    
    
    
    $
    675,0002. Issued 30,000 shares to option the Suitcase/Mineral Hill properties
    
    $
    30,300
    
    
    $
    3. Fair value of amended warrants
    
    $
    271,700
    
    
    $
    4. Issued 535,000 series A warrants related to placement agent fee
    
    $
    219,300
    
    
    $
    
  4




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##### Table of Contents



CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
 Common Stock
    
    
    Capital in
    
    
    
    
    
    
    TotalNumber of
    
    
    At Par
    
    
    Excess of Par
    
    
    Retained
    
    
    StockholdersShares
    
    
    Value
    
    
    Value
    
    
    Deficit
    
    
    EquityBalances, Decemb er 31, 2005
    
    
    38,320,533
    
    
    $
    383,200
    
    
    $
    133,949,900
    
    
    $
    (127,444,100
    )
    
    $
    6,889,000Share-based compensation
    
    
    
    
    
    
    
    
    
    
    279,600
    
    
    
    
    
    
    
    279,600Fair value of amended warrants
    
    
    
    
    
    
    
    
    
    
    271,700
    
    
    
    
    
    
    
    271,700Warrant extension cost
    
    
    
    
    
    
    
    
    
    
    70,800
    
    
    
    
    
    
    
    70,800Shares to be issued for purchase
of property
    
    
    
    
    
    
    
    
    
    
    30,300
    
    
    
    
    
    
    
    30,300Stock and warrants issued for
cash, net of issuance costs
of $302,900
    
    
    5,100,000
    
    
    
    51,000
    
    
    
    4,746,100
    
    
    
    
    
    
    
    4,797,100Exercise of warrants
    
    
    346,740
    
    
    
    3,500
    
    
    
    353,700
    
    
    
    
    
    
    
    357,200Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,752,300
    )
    
    
    (1,752,300
    )Balances, June 30, 2006
    
    
    43,767,273
    
    
    $
    437,700
    
    
    $
    139,702,100
    
    
    $
    (129,196,400
    )
    
    $
    10,943,400
  5




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##### Table of Contents



1.
    
    Basis of Presentation:
   2.
    
    Management Estimates and Assumptions:
  3.
    
    Restricted Cash:
  June 30,
    
    
    December 31,2006
    
    
    2005Collateral for Letter of Credit(a)
    
    $
    249,000
    
    
    $
    249,000Collateral for reclamation bonds and other contingent events (b)
    
    
    160,000
    
    
    
    156,500Kendall Mine reclamation (c)
    
    
    2,051,900
    
    
    
    2,007,500McDonald Gold Project cash reclamation bond (d)
    
    
    526,900
    
    
    
    526,900Net proceeds from property sales (e)
    
    
    287,500
    
    
    
    281,300Briggs cash reclamation bond(f)
    
    
    30,000
    
    
    
    3,305,300
    
    
    
    3,221,200Current portion (e)
    
    
    
    
    
    
    281,300Noncurrent portion
    
    $
    3,305,300
    
    
    $
    2,939,900
 
 (a)
    
    In connection with the issuance of certain bonds for the performance of reclamation
obligations and other
contingent events at the Briggs Mine, a bank letter of credit was provided in favor of the surety
as partial
collateral for such bond obligations. The letter of credit is fully collateralized with cash and
will expire no
earlier than December 31, 2006, and at the banks option, may be renewed for successive one-year
periods.(b)
    
    Held directly by the surety as partial collateral for reclamation and other contingent events
at the Briggs
Mine.(c)
    
    Held directly by the Montana Department of Environmental Quality in an interest bearing account
for use in 6




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##### Table of Contents



continuing reclamation at the Kendall minesite. (See Note 13(a))(d)
    
    Held directly by the Montana Department of Environmental Quality (DEQ) for reclamation at the
McDonald Gold Property.(e)
    
    In connection with the auction of certain properties, cash has been sequestered by court order.
The balance
was reclassified to long term during the second quarter of 2006 due to the uncertainty of when the
restriction
will be removed. (See Note 13(d)).(f)
    
    Cash bond held by Bank of America for the performance of reclamation obligations for Cecil R
exploration
activities at the Briggs Mine. 4.
    
    Short Term Investments:
  5.
    
    Inventories:
  June 30, 2006
    
    
    December 31, 2005Broken ore under leach
    
    $
    
    
    
    $
    Doré
    
    
    28,900
    
    
    
    65,900$
    28,900
    
    
    $
    65,900
  6.
    
    Property, Plant and Mine Development:
  As of June 30, 2006Depreciation
    
    
    Asset Value
    
    
    Accumulated
    
    
    Net BookMethod
    
    
    at Cost
    
    
    Depreciation
    
    
    ValueBuildings and Equipment
    
    1 - 5 Years SL
    
    $
    5,937,500
    
    
    $
    4,027,600
    
    
    $
    1,909,900Mine Development
    
    UOP(a)
    
    
    798,900
    
    
    
    
    
    
    
    798,900Mineral Interest
    
    UOP
    
    
    7,129,000
    
    
    
    3,820,900
    
    
    
    3,308,100Asset Retirement Cost
    
    UOP
    
    
    157,700
    
    
    
    
    
    
    
    157,700$
    14,023,100
    
    
    $
    7,848,500
    
    
    $
    6,174,600
 
 (a)
    
    Unit of production (UOP) is a depreciation method that calculates depreciation expense
over the estimated
proven and probable reserves of the related property.  7




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##### Table of Contents



As of December 31, 2005Depreciation
    
    
    Asset Value
    
    
    Accumulated
    
    
    Net BookMethod
    
    
    at Cost
    
    
    Depreciation
    
    
    ValueBuildings and Equipment
    
    1 - 5 Years SL
    
    $
    5,940,400
    
    
    $
    4,012,000
    
    
    $
    1,928,400Mine Development
    
    UOP
    
    
    
    
    
    
    
    
    
    
    Mineral Interest
    
    UOP
    
    
    7,011,500
    
    
    
    3,820,900
    
    
    
    3,190,600Asset Retirement Cost
    
    UOP
    
    
    157,700
    
    
    
    
    
    
    
    157,700$
    13,109,600
    
    
    $
    7,832,900
    
    
    $
    5,276,700
 7.
    
    Asset Retirement Obligations:
   Balance, December 31, 2005
    
    $
    5,769,200Settlement of liabilities
    
    
    (642,700
    )Accretion expense
    
    
    101,600Balance, June 30, 2006
    
    
    5,228,100Current portion
    
    
    1,278,300Non current portion
    
    $
    3,949,800
 8.
    
    Notes Payable:
  Balance, December 31, 2005
    
    $
    825,000Conversions/Retirements
    
    
    Balance, June 30, 2006
    
    
    825,000Current portion
    
    
    Non current portion
    
    $
    825,000
    8




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##### Table of Contents



9. Warrants and Warrant Liability:
  Range of Exercise
    
    Shares Underlying
    
    
    Weighted Average
    
    
    Weighted AveragePrices
    
    Warrants Outstanding
    
    
    Remaining Contractual Life
    
    
    Exercise Price$0.50-$1.00
    
    
    281,000
    
    
    2.2 years
    
    $
    0.77$1.01-$1.50
    
    
    8,038,483
    
    
    2.2 years
    
    $
    1.28$1.51-$2.16
    
    
    2,199,836
    
    
    0.9 years
    
    $
    2.16Total/Average
    
    
    10,519,319
    
    
    1.9 years
    
    $
    1.45
  Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock
    9




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##### Table of Contents



Warrant
    
    Exercise
    
    
    Expiration
    
    
    Outstanding
    
    
    
    
    
    
    
    
    
    
    OutstandingDescription
    
    Price
    
    
    Date
    
    
    Dec. 31, 2005
    
    
    Exercises
    
    
    Amendments
    
    
    Jun. 30, 2006Series A
    
    $
    1.30
    
    
    
    12/1/2008
    
    
    
    1,765,503
    
    
    
    
    
    
    
    733,408
    
    
    
    1,032,095Series B
    
    $
    1.08
    
    
    
    12/1/2006
    
    
    
    882,754
    
    
    
    
    
    
    
    366,704
    
    
    
    516,050Series C
    
    $
    0.76
    
    
    
    12/1/2008
    
    
    
    231,000
    
    
    
    
    
    
    
    72,631
    
    
    
    158,369Total/Average
    
    $
    1.19
    
    
    
    
    
    
    
    2,879,257
    
    
    
    
    
    
    
    1,172,743
    
    
    
    1,706,514
  10. Equity Transactions:
  11. Share-Based Compensation:
 Share-Based Payment
 10




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##### Table of Contents



2006
    
    2005Expected Volatility
    
    Incentive Stock Options
    
    
    50
    %
    
    
    75
    %
    
    Non-Qualified Stock Options
    
    
    50
    %
    
    
    67
    %Expected Option Term
    
    Incentive Stock Options
    
    2.5-3 years
    
    5 years
    
    Non-Qualified Stock Options
    
    3 years
    
    5 yearsWeighted Average Risk-Free Interest Rate
    
    Incentive Stock Options
    
    4.3-5.0%
    
    
    4.0
    %
    
    Non-Qualified Stock Options
    
    4.5-5.0%
    
    
    3.7
    %Forfeiture rate
    
    Incentive Stock Options
    
    
    
    
    
    
    
    Non-Qualified Stock Options
    
    
    
    
    
    
 11




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##### Table of Contents



Incentive Stock Options
  2006
    
    
    2005Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseNumber
    
    
    Price
    
    
    Number
    
    
    PriceOutstanding  beginning of year
    
    
    1,165,925
    
    
    $
    1.32
    
    
    
    927,925
    
    
    $
    1.51Grants
    
    
    325,000
    
    
    $
    0.87
    
    
    
    100,000
    
    
    $
    0.81Exercises
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeitures
    
    
    (329,170
    )
    
    $
    1.54
    
    
    
    
    
    
    
    Expirations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding  end of period
    
    
    1,161,755
    
    
    $
    1.13
    
    
    
    1,027,925
    
    
    $
    1.44Exercisable  end of period
    
    
    1,061,755
    
    
    $
    1.16
    
    
    
    977,925
    
    
    $
    1.47
  Non-Qualified Options
  2006
    
    
    2005Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseNumber
    
    
    Price
    
    
    Number
    
    
    PriceOutstanding  beginning of year
    
    
    591,601
    
    
    $
    2.65
    
    
    
    571,601
    
    
    $
    2.81Grants
    
    
    375,000
    
    
    $
    1.01
    
    
    
    80,000
    
    
    $
    0.79Exercises
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeitures
    
    
    (150,830
    )
    
    $
    3.01
    
    
    
    
    
    
    
    Expirations
    
    
    
    
    
    
    
    
    
    
    (60,000
    )
    
    $
    1.70Outstanding  end of period
    
    
    815,771
    
    
    $
    1.83
    
    
    
    591,601
    
    
    $
    2.65Exercisable  end of period
    
    
    815,771
    
    
    $
    1.83
    
    
    
    431,601
    
    
    $
    2.61
  Stock Grants
  12




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##### Table of Contents



12. Earnings per Share
 Earnings
per Share
 13. Commitments and Contingencies :
 (a)
    
    Kendall Mine ReclamationThe Kendall Mine operates under permits granted by the Montana DEQ. In February 2002, the
DEQ issued a decision that a comprehensive Environmental Impact Statement (EIS) was
needed for completion of remaining reclamation at Kendall. The Companys estimate to
achieve mine closure could be impacted by the outcome of an agency decision following an
EIS. The Company has deposited $2,051,900 in an interest bearing account with the DEQ
for reclamation at the Kendall Mine.(b)
    
    Briggs Mine Surety BondsThe Briggs Mine operates under permits granted by various agencies including BLM, Inyo
County, California, the California Department of Conservation, and the Lahontan Regional
Water Quality Control Board (Lahontan). These agencies have jointly required the
Company to post a reclamation bond in the amount of $3,030,000 to ensure appropriate
reclamation.Additionally, the Company was required by Lahontan to post a $1,010,000 bond to ensure
adequate funds to mitigate any foreseeable release, as defined, of pollutants to state
waters. Both bonds are subject to annual review and adjustment.In 2000, in response to a demand for an increase in collateral by the surety company who
issued the above described bonds, the Company granted a security interest in 28,000 acres
of mineral interests in Montana. In addition, the Company agreed to make cash deposits
with the surety company totaling $1.5 million over a three year period at the rate of
$0.5 million per year, commencing June 30, 2001. The Company has not made any deposits to
date, and has held discussions with the surety company to reschedule the deposit
requirements. If an acceptable rescheduling of the deposit requirements cannot be agreed
to, the surety company could seek to terminate the bonds which could result in the
Company becoming liable for the principal amounts under its collateral agreement with the
surety company. In April 2004, the Company ceased active mining at Briggs due to lack of
development and began reclamation activities. The Company has spent approximately $2.0
million on Briggs reclamation through the second quarter ended June 30, 2006.Beginning in the fourth quarter of 2005 and through the second quarter ended June 30,
2006, the Company began exploring the possibility that additional ore reserves remain in
and around the Briggs pits. Due to the initial success in the drilling program on the
Briggs property and the addition of the Reward property that could utilize the Briggs
processing plant to process its potential gold production with capital savings, the
Company is currently performing certain redevelopment activities at Briggs designed to
enhance our ability to bring the mine back into production as soon as possible.
 13




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##### Table of Contents



(c)
    
    Contingent Liability  McDonald Gold ProjectUnder the Seven-Up Pete Venture (SPV) purchase agreement with Phelps Dodge Corporation
(Phelps Dodge), the Company is required to make a final payment of $10 million upon
issuance of all permits required for construction of the McDonald Gold Project, or
alternatively, one-third of any proceeds received from a takings lawsuit. The purchase
payments are collateralized only by the 72.25% participating interest and underlying
assets in the SPV transferred from Phelps Dodge to the Company and CR Montana in this
transaction and the 50% co-tenancy interest in certain real property also transferred to
the Company and CR Montana. In April 2006, the Company did not renew the remaining
private lease underlying the McDonald Gold Project and the Company believes the remaining
$10 million contingent payment requirement to Phelps Dodge is no longer valid. The
Company is currently working with Phelps Dodge to formally release the Company from this
liability.During the second quarter of 2005 in connection with the Montana Supreme Court decision
affirming the termination of the McDonald Gold Projects state mineral leases, the
Company wrote off their carrying value of $9,242,100.Also in April 2006, the Companys complaint under the takings lawsuit was dismissed in
U.S. District Court for the District of Montana and the Company filed a notice of appeal
to the U.S. Court of Appeals for the Ninth Circuit.(d)
    
    Kendall Mine LawsuitsIn October 2001, a plaintiff group including members of the Shammel, Ruckman and Harrell
families filed suit in the State of Montana District Court against the Company and its
wholly-owned subsidiary, CR Kendall Corporation. The complaint alleges violation of
water rights, property damage, trespass and negligence in connection with the operation
of the Kendall Mine and seeks unspecified damages and punitive damages. The Company has
taken the position that the allegations are without merit and believes that it will
prevail in this matter.In August 2002, a Preliminary Injunction was issued in Montana District Court on behalf
of the Kendall Mine plaintiff group in connection with the Companys auction of certain
mineral rights and fee lands unrelated to the CR Kendall Corporation or its operation,
but also in western Montana. In October 2002, the Court issued a Supplemental Order which
sequesters any proceeds realized from the auction until such time as the lawsuit is
concluded. As of June 30, 2006, $287,500 is held by the Court as required by the Order.In March 2004, the Montana Environmental Information Center and Earthworks Mineral Policy
Center brought civil action before the U.S. District Court for the District of Montana
against CR Kendall Corporation and the Company claiming that the defendants have polluted
waters of the U.S. with their operations at the Kendall Mine, near Lewistown, Montana.
On February 2, 2006, this case was dismissed without prejudice.
 14. Derivative Instruments and Price Protection Arrangements :
  15. Income Taxes :
  14




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##### Table of Contents



16. Recently Issued Financial Accounting Standards :
 Accounting for Uncertainty in Income
Taxes
 Accounting Changes and Error Corrections Accounting Changes Reporting Accounting
Changes in Interim Financial Statements
 Accounting for Stripping Costs
Incurred during Production in the Mining Industry,
 15




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Cautionary Statement for Purposes of the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995.
  §
    
    the volatility of gold prices;§
    
    the speculative nature of mineral exploration;§
    
    uncertainty of estimates of mineralized material and gold deposits;§
    
    compliance with environmental and governmental regulations;§
    
    the potential lack of financing on acceptable terms or the inability to obtain
additional financing through capital markets, joint ventures, or other arrangements in
the future;§
    
    the outcome of the McDonald and Kendall Mine litigation as well as other possible
judicial proceedings;§
    
    economic and market conditions;§
    
    unanticipated grade, geological, metallurgical, processing or other problems;§
    
    operational risks of mining, development and exploration and force majeure events; and§
    
    other risk factors as described from time to time in the Companys filings with the
Securities and Exchange Commission (SEC).
  Overview
    16




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##### Table of Contents



17




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##### Table of Contents



Seven-Up Pete Venture, et al. v The State of Montana
 Montana Environmental Information Center, Inc. and Earthworks/Mineral
Policy Center Inc., the Plaintiffs, vs. Canyon Resources Corporation and C.R. Kendall Corporation
 Critical Accounting Policies and Estimates
   Reserves:
  18




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##### Table of Contents



Inventories:
 Asset Retirement Obligations: Accounting
for Asset Retirement Obligations
  Impairments: Accounting for the Impairment or Disposal of Long-Lived Assets
  19




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##### Table of Contents



Derivatives Instruments and Hedging Activities: Accounting for Derivative
Instruments and Hedging Activities Accounting for Certain Derivative Instruments
and Certain Hedging Activities-an Amendment to SFAS No. 133.
 Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock
 Stock-Based Compensation: Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
  Income Taxes:
 Potential Litigation Liabilities:
 20




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##### Table of Contents



Results of Operations  Three Months Ended 2006 versus Three Months Ended 2005
    Three Months Ended
    
    
    Three Months EndedJune 30, 2006
    
    
    June 30, 2005Average
    
    
    
    
    
    
    
    
    
    
    AverageGold
    
    
    Price Per
    
    
    Revenue
    
    
    Gold
    
    
    Price Per
    
    
    RevenueOunces
    
    
    Oz.
    
    
    $000s
    
    
    Ounces
    
    
    Oz.
    
    
    $000sDeliveriesSpot Sales
    
    
    690
    
    
    $
    597
    
    
    $
    412
    
    
    
    2,607
    
    
    $
    432
    
    
    $
    1,126690
    
    
    $
    597
    
    
    
    412
    
    
    
    2,607
    
    
    $
    432
    
    
    
    1,126Other transactionsSilver proceeds
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    11690
    
    
    $
    598
    
    
    $
    413
    
    
    
    2,607
    
    
    $
    436
    
    
    $
    1,137
  
    
    Gross margin (revenues less cost of sales) declined $0.3 million due primarily to
reduced production.
    
    Lower depreciation, depletion and amortization of $0.7 million due to the second quarter
2005 impairment of $9.2 million of McDonald mineral leases, which were being amortized on a
straight line basis.
    
    Selling, general and administrative expenses increased by $0.1 million due primarily to
expensing share-based compensation related to the adoption of SFAS 123(R) and increased
investor relations activities.
    
    The decrease in exploration costs of $0.3 million was due primarily to evaluation
performed on the Hycroft property last year compared to lower spending on the six holes
drilled at Cecil R and on the Briggs underground target.
    
    Prior years second quarter included an impairment of the McDonald Gold Project for $9.2
million.
    
    Other expenses increased by $0.2 million due primarily to the increase in the warrant
liability as a result of the warrants issued in the December 2005 financing.
 Results of Operations  Six Months Ended June 30, 2006 versus Six Months Ended June 30,
2005
  21




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##### Table of Contents



Six Months Ended
    
    
    Six Months EndedJune 30, 2006
    
    
    June 30, 2005Average
    
    
    
    
    
    
    
    
    
    
    AverageGold
    
    
    Price Per
    
    
    Revenue
    
    
    Gold
    
    
    Price Per
    
    
    RevenueOunces
    
    
    Oz.
    
    
    $000s
    
    
    Ounces
    
    
    Oz.
    
    
    $000sDeliveriesSpot Sales
    
    
    1,735
    
    
    $
    579
    
    
    $
    1,005
    
    
    
    4,972
    
    
    $
    428
    
    
    $
    2,1281,735
    
    
    $
    579
    
    
    
    1,005
    
    
    
    4,972
    
    
    $
    428
    
    
    
    2,128Other transactionsSilver proceeds
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    111,735
    
    
    $
    580
    
    
    $
    1,006
    
    
    
    4,972
    
    
    $
    430
    
    
    $
    2,139
 Liquidity & Capital Resources
     22




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##### Table of Contents



Outlook
 Operations
    Financing
  Expiration Date
    
    Underlying Shares
    
    
    Strike PriceJune 1, 2007
    
    
    2,199,836
    
    
    $
    2.16December 1, 2006
    
    
    882,754
    
    
    $
    1.08August 31, 2007
    
    
    50,000
    
    
    $
    0.80March 14, 2008
    
    
    2,304,726
    
    
    $
    1.03December 1, 2008
    
    
    1,765,503
    
    
    $
    1.30December 1, 2008
    
    
    231,000
    
    
    $
    0.76June 1, 2009
    
    
    3,085,500
    
    
    $
    1.50Total/Average
    
    
    10,519,319
    
    
    $
    1.45
  23




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##### Table of Contents



Contractual Obligations
  Payments due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsLong-term debt obligations
    
    $
    825,000
    
    
    $
    
    
    
    $
    
    
    
    $
    825,000
    
    
    $
    Capital lease obligations
    
    
    28,100
    
    
    
    6,400
    
    
    
    21,700
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    92,800
    
    
    
    85,600
    
    
    
    7,200
    
    
    
    
    
    
    
    Asset retirement obligations
    
    
    5,228,100
    
    
    
    1,278,300
    
    
    
    1,750,700
    
    
    
    1,714,500
    
    
    
    484,600Total
    
    $
    6,174,000
    
    
    $
    1,370,300
    
    
    $
    1,779,600
    
    
    $
    2,539,500
    
    
    $
    484,600
 Other Matters
 Federal Legislation
  Gold Prices, Price Protection Arrangements, and Associated Risks
   Recently Issued Financial Accounting Standards
 Accounting for Uncertainty in Income
Taxes
 Accounting Changes and Error Corrections Accounting Changes Reporting Accounting
Changes in Interim Financial Statements
 24




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##### Table of Contents



Accounting for Stripping Costs
Incurred during Production in the Mining Industry,
 Dividends
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Commodity Prices
   Interest Rates
  Foreign Currency
  
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  25




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
   
    
    increasing the involvement in the review and analysis by senior management of our financial statements;
    
    adding more rigorous policies and procedures regarding the review and approval process for complex
calculations and transactions; and
    
    engaging outside consultants with accounting expertise regarding unusual and complex transactions.
   26




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##### Table of Contents



PART II OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Seven-Up Pete
Venture, et al. v The State of Montana
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3.
    
    Defaults Upon Senior Securities
    
    None
 
 Item 4. Submission of Matters to Vote of Security Holders
      27




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##### Table of Contents



Item 5.
    
    Other Information
    
    None
 
 Item 6. Exhibits
 4.1
    
    Form of Subscription Agreement (filed as Exhibit 4.1 to the Companys
Current Report on Form 8-K (File No. 001-11887) on December 2, 2005, and
incorporated by reference)4.2
    
    Form of Amendment to Subscription Agreement, dated June 30, 2006, between
the Company and each of the Investors party thereto (filed as Exhibit 4.1 to the
Companys Current Report on Form 8-K (File No. 001-11887) on July 7, 2006, and
incorporated by reference)4.3
    
    Form of Series A Warrant to Purchase Common Stock (filed as Exhibit 4.2
to the Companys Current Report on Form 8-K (File No. 001-11887) on December 2,
2005, and incorporated by reference)10.1
    
    Canyon Resources Corporation 2006 Omnibus Equity Incentive Plan (filed as
Exhibit 10.1 to the Companys Current Report on Form 8-K (File No. 001-11887) on
June 12, 2005, and incorporated by reference)10.2
    
    Form of Restricted Stock Agreement (filed as Exhibit 10.2 to the
Companys Current Report on Form 8-K (File No. 001-11887) on June 12, 2005, and
incorporated by reference)10.3
    
    Form of Incentive Stock Option Agreement (filed as Exhibit 10.3 to the
Companys Current Report on Form 8-K (File No. 001-11887) on June 12, 2005, and
incorporated by reference)10.4
    
    Form of Non-Qualified Stock Option Agreement (filed as Exhibit 10.4 to
the Companys Current Report on Form 8-K (File No. 001-11887) on June 12, 2005, and
incorporated by reference)10.5
    
    Form of Change of Control Agreements between Canyon Resources Corporation
and certain of its Executive Officers and a Schedule of such Agreements (filed as
Exhibit 10.4 to Companys Amendment No. 1 to Registration Statement on Form S-1
(File No. 333-130692) on February 24, 2006, and incorporated herein by reference)31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13(a)-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 200231.2
    
    Certification of Chief Financial Officer pursuant to Rule
13(a)-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 200232.1
    
    Certification of Chief Executive Officer pursuant to U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 28




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##### Table of Contents



SIGNATURES
  CANYON RESOURCES CORPORATIONDate: August 9, 2006
    
    /s/ James K. B. Hesketh

James K. B. HeskethPresident and Chief Executive Officer(Principal Executive Officer)Date: August 9, 2006
    
    /s/ David P. Suleski

David P. SuleskiChief Financial Officer, Treasurer andCorporate Secretary(Principal Financial and Principal Accounting Officer)
 29




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description4.1
    
    Form of Subscription Agreement (filed as Exhibit 4.1 to the Companys
Current Report on Form 8-K (File No. 001-11887) on December 2, 2005, and
incorporated by reference)4.2
    
    Form of Amendment to Subscription Agreement, dated June 30, 2006, between
the Company and each of the Investors party thereto (filed as Exhibit 4.1 to the
Companys Current Report on Form 8-K (File No. 001-11887) on July 7, 2006, and
incorporated by reference)4.3
    
    Form of Series A Warrant to Purchase Common Stock (filed as Exhibit 4.2
to the Companys Current Report on Form 8-K (File No. 001-11887) on December 2,
2005, and incorporated by reference)10.1
    
    Canyon Resources Corporation 2006 Omnibus Equity Incentive Plan (filed as
Exhibit 10.1 to the Companys Current Report on Form 8-K (File No. 001-11887) on
June 12, 2005, and incorporated by reference)10.2
    
    Form of Restricted Stock Agreement (filed as Exhibit 10.2 to the
Companys Current Report on Form 8-K (File No. 001-11887) on June 12, 2005, and
incorporated by reference)10.3
    
    Form of Incentive Stock Option Agreement (filed as Exhibit 10.3 to the
Companys Current Report on Form 8-K (File No. 001-11887) on June 12, 2005, and
incorporated by reference)10.4
    
    Form of Non-Qualified Stock Option Agreement (filed as Exhibit 10.4 to
the Companys Current Report on Form 8-K (File No. 001-11887) on June 12, 2005, and
incorporated by reference)10.5
    
    Form of Change of Control Agreements between Canyon Resources Corporation
and certain of its Executive Officers and a Schedule of such Agreements (filed as
Exhibit 10.4 to Companys Amendment No. 1 to Registration Statement on Form S-1
(File No. 333-130692) on February 24, 2006, and incorporated herein by reference)31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13(a)-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 200231.2
    
    Certification of Chief Financial Officer pursuant to Rule
13(a)-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 200232.1
    
    Certification of Chief Executive Officer pursuant to U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 30