##### 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 September 30, 2005
 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
 þ o
 o þ




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CANYON RESOURCES CORPORATION
FORM 10-Q
For the Three and Nine Months ended September 30, 2005
 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 24Item 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 27Item 6. Exhibits
    
    Page 27SIGNATURES
    
    Page 28Certification of Chief Executive Officer Pursuant to Section 302Certification of Chief Accounting Officer Pursuant to Section 302Certification of Chief Executive Officer Pursuant to Section 906Certification of Chief Accounting Officer Pursuant to Section 906




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##### Table of Contents



PART I FINANCIAL INFORMATION
 
 Item 1. Financial Statements
   Consolidated Balance Sheets
    
    Page 2Consolidated Statements of Operations
    
    Page 3Consolidated Statements of Cash Flows
    
    Pages 4-5Consolidated Statement of Changes in Stockholders Equity
    
    Page 6Notes to Interim Consolidated Financial Statements
    
    Pages 7-15Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    Page 16Item 3. Quantitative and Qualitative Disclosures
About Market Risk
    
    Page 24Item 4. Controls and Procedures
    
    Page 25
 1




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CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2005
    
    
    2004ASSETSCash and cash equivalents
    
    $
    4,121,200
    
    
    $
    4,638,300Restricted cash
    
    
    274,800
    
    
    
    274,800Accounts receivable
    
    
    83,100
    
    
    
    769,000Metal inventories
    
    
    219,900
    
    
    
    1,906,400Prepaid and other assets
    
    
    206,900
    
    
    
    153,400Total current assets
    
    
    4,905,900
    
    
    
    7,741,900Property and equipment, at costMineral claims and leases
    
    
    5,317,800
    
    
    
    Producing properties
    
    
    6,943,500
    
    
    
    6,443,500Other
    
    
    641,100
    
    
    
    643,10012,902,400
    
    
    
    7,086,600Accumulated depreciation, depletion, and amortization
    
    
    (7,907,600
    )
    
    
    (5,667,700
    )Net property and equipment
    
    
    4,994,800
    
    
    
    1,418,900Undeveloped mineral claims and leases, net
    
    
    
    
    
    
    13,359,500Restricted cash
    
    
    2,886,600
    
    
    
    2,847,300Other assets
    
    
    246,300
    
    
    
    247,400Total Assets
    
    $
    13,033,600
    
    
    $
    25,615,000LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    397,800
    
    
    $
    446,300Notes payable  current
    
    
    
    
    
    
    2,412,700Capital leases  current
    
    
    20,700
    
    
    
    32,900Asset retirement obligations
    
    
    1,712,400
    
    
    
    2,007,700Payroll liabilities
    
    
    240,500
    
    
    
    273,800Other current liabilities
    
    
    64,200
    
    
    
    106,400Total current liabilities
    
    
    2,435,600
    
    
    
    5,279,800Notes payable  long term
    
    
    825,000
    
    
    
    Asset retirement obligations
    
    
    2,950,200
    
    
    
    4,231,200Total liabilities
    
    
    6,210,800
    
    
    
    9,511,000Commitments and contingencies (Note 12)Common stock ($.01 par value) 100,000,000 shares authorized;
issued and outstanding: 35,020,500 at September 30, 2005, and
29,207,600 at December 31, 2004
    
    
    350,200
    
    
    
    292,100Capital in excess of par value
    
    
    132,165,300
    
    
    
    127,608,200Retained deficit
    
    
    (125,692,700
    )
    
    
    (111,796,300
    )Total stockholders equity
    
    
    6,822,800
    
    
    
    16,104,000Total Liabilities and Stockholders Equity
    
    $
    13,033,600
    
    
    $
    25,615,000
  2




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##### Table of Contents



CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months ended September 30,
    
    
    Nine months ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004REVENUESales
    
    $
    914,200
    
    
    $
    2,279,900
    
    
    $
    3,053,600
    
    
    $
    9,843,800EXPENSESCost of sales (exclusive of depreciation,
depletion and amortization)
    
    
    638,800
    
    
    
    2,305,700
    
    
    
    2,606,800
    
    
    
    8,748,600Depreciation, depletion and amortization
    
    
    198,000
    
    
    
    1,149,400
    
    
    
    1,812,600
    
    
    
    4,677,700Selling, general and administrative
    
    
    401,700
    
    
    
    2,350,500
    
    
    
    1,635,200
    
    
    
    4,816,900Exploration and development costs
    
    
    286,500
    
    
    
    99,800
    
    
    
    1,176,400
    
    
    
    394,300Impairment of mineral claims and leases
    
    
    
    
    
    
    
    
    
    
    9,242,100
    
    
    
    Accretion expense
    
    
    33,400
    
    
    
    43,300
    
    
    
    100,400
    
    
    
    129,900Asset retirement obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    935,200Debenture conversion expense
    
    
    
    
    
    
    
    
    
    
    448,200
    
    
    
    (Gain) loss on asset disposals
    
    
    
    
    
    
    (230,000
    )
    
    
    2,700
    
    
    
    (229,200
    )1,558,400
    
    
    
    5,718,700
    
    
    
    17,024,400
    
    
    
    19,473,400OTHER INCOME (EXPENSE)Interest income
    
    
    45,300
    
    
    
    25,900
    
    
    
    119,900
    
    
    
    66,700Interest expense
    
    
    (13,000
    )
    
    
    (55,400
    )
    
    
    (67,100
    )
    
    
    (191,800
    )Gain on derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    147,200Other
    
    
    500
    
    
    
    
    
    
    
    21,600
    
    
    
    (140,000
    )32,800
    
    
    
    (29,500
    )
    
    
    74,400
    
    
    
    (117,900
    )Net loss
    (
    $
    611,400
    )
    (
    $
    3,468,300
    )
    (
    $
    13,896,400
    )
    (
    $
    9,747,500
    )Basic and diluted net loss per share
    (
    $
    0.02
    )
    (
    $
    0.12
    )
    (
    $
    0.42
    )
    (
    $
    0.35
    )Basic and diluted weighted average
shares outstanding
    
    
    34,542,100
    
    
    
    28,557,500
    
    
    
    33,122,600
    
    
    
    27,640,400
  3




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##### Table of Contents



CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine months ended September 30,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    ($
    13,896,400
    )
    
    ($
    9,747,500
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation, depletion and amortization
    
    
    1,812,600
    
    
    
    4,677,700Impairment of long-lived assets
    
    
    9,242,100
    
    
    
    Amortization of beneficial conversion feature
    
    
    11,300
    
    
    
    47,100Debenture conversion expense
    
    
    448,200
    
    
    
    Impairment of inventory
    
    
    143,100
    
    
    
    1,056,500Loss (gain) on asset dispositions
    
    
    2,700
    
    
    
    (229,200
    )Gain on derivative instruments
    
    
    
    
    
    
    (147,200
    )Non-cash compensation expense
    
    
    
    
    
    
    607,300Provision for asset retirement obligations
    
    
    
    
    
    
    935,200Interest accretion
    
    
    100,400
    
    
    
    129,900Write off prepaid expenses
    
    
    
    
    
    
    151,000Fair market value of stock options
    
    
    14,500
    
    
    
    Changes in operating assets and liabilities:Decrease in accounts receivable
    
    
    605,900
    
    
    
    98,000Decrease in inventories
    
    
    950,800
    
    
    
    1,246,200Increase in prepaid and other assets
    
    
    (52,400
    )
    
    
    (6,900
    )Decrease in accounts payable and accrued liabilities
    
    
    (190,800
    )
    
    
    (1,225,900
    )Decrease in asset retirement obligations
    
    
    (1,676,700
    )
    
    
    (2,291,700
    )(Increase) decrease in restricted cash
    
    
    (39,300
    )
    
    
    20,900Total adjustments
    
    
    11,372,400
    
    
    
    5,068,900Net cash used in operating activities
    
    
    (2,524,000
    )
    
    
    (4,678,600
    )Cash flows from investing activities:Purchases and development of property and equipment
    
    
    (164,400
    )
    
    
    (407,700
    )Proceeds from asset sales
    
    
    
    
    
    
    379,200Net cash used in investing activities
    
    
    (164,400
    )
    
    
    (28,500
    )Cash flows from financing activities:Issuance of common stock
    
    
    3,107,500
    
    
    
    9,733,800Payments on debt
    
    
    (924,000
    )
    
    
    (1,037,400
    )Payments on capital lease obligations
    
    
    (12,200
    )
    
    
    (15,700
    )Net cash provided by financing activities
    
    
    2,171,300
    
    
    
    8,680,700Net (decrease) increase in cash and cash equivalents
    
    
    (517,100
    )
    
    
    3,973,600Cash and cash equivalents, beginning of year
    
    
    4,638,300
    
    
    
    4,139,800Cash and cash equivalents, end of period
    
    $
    4,121,200
    
    
    $
    8,113,400
  4




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##### Table of Contents



CANYON RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
  1.
    
    The Company paid $55,800 of interest during the first nine months of 2005, and $144,700
during the corresponding period of 2004.
 2.
    
    The Company paid no income taxes during the first nine months of 2005 nor the corresponding
period of 2004.
  1.
    
    During the first nine months of 2005, debenture holders representing $675,000 of principal
converted to shares of common stock and warrants at a lower price than the original conversion
price, resulting in a conversion expense of $448,200.
 2.
    
    During the first nine months of 2004, the Company issued 108,700 shares of common stock in
connection with the conversion of $150,000 of debenture principal.
 3.
    
    The Company issued 110,400 shares of common stock with a fair market value of $179,900 to an
employee as compensation for services during the first nine months of 2004.
 4.
    
    Non-cash stock compensation for the Companys stock option plans under variable plan
accounting was $427,400 during the first nine months of 2004.
 5.
    
    The Company issued 500,000 shares of common stock at a fair market value of $370,000 in
connection with the repurchase of the Briggs crusher during the first nine months of 2005.
 6.
    
    During the first nine months of 2005, the Company issued an option to purchase 50,000 shares
of common stock to an investor relations firm in connection with a contract for services with
a fair market value of $14,500.
  5




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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, January 1, 2005
    
    
    29,207,600
    
    
    $
    292,100
    
    
    $
    127,608,200
    
    
    
    ($111,796,300
    )
    
    $
    16,104,000Stock issued for cash, net of
issuance costs of $47,500
    
    
    4,366,700
    
    
    
    43,700
    
    
    
    3,057,200
    
    
    
    
    
    
    
    3,100,900Option exercise
    
    
    10,000
    
    
    
    100
    
    
    
    6,500
    
    
    
    
    
    
    
    6,600Other stock issued(1)
    
    
    500,000
    
    
    
    5,000
    
    
    
    365,000
    
    
    
    
    
    
    
    370,000Other equity changes (2)
    
    
    
    
    
    
    
    
    
    
    14,500
    
    
    
    
    
    
    
    14,500Debentures converted into stock
    
    
    936,200
    
    
    
    9,300
    
    
    
    665,700
    
    
    
    
    
    
    
    675,000Debenture conversion expense
    
    
    
    
    
    
    
    
    
    
    448,200
    
    
    
    
    
    
    
    448,200Comprehensive lossNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,896,400
    )
    
    
    (13,896,400
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,896,400
    )
    
    
    (13,896,400
    )Balances, September 30, 2005
    
    
    35,020,500
    
    
    $
    350,200
    
    
    $
    132,165,300
    
    
    
    ($125,692,700
    )
    
    $
    6,822,800
 
 (1)
    
    Stock issued for repurchase of Briggs crusher.(2)
    
    Fair value of stock option issued for investor relations contract.  6




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##### Table of Contents



CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1.
    
    Basis of Presentation:
   2.
    
    Management Estimates and Assumptions:
  3.
    
    Stock Based Compensation:
 Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
 Accounting for Stock-Based Compensation  Transition and Disclosure
  7




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CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 3.
    
    Stock Based Compensation, continued:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss, as reported
    
    ($
    611,400
    )
    
    ($
    3,468,300
    )
    
    ($
    13,896,400
    )
    
    ($
    9,747,500
    )Add: compensation expense
determined under variable plan
accounting
    
    
    
    
    
    
    59,800
    
    
    
    
    
    
    
    427,400Deduct: compensation expense
determined under fair value
based method
    
    
    (62,400
    )
    
    
    (62,000
    )
    
    
    (220,900
    )
    
    
    (92,700
    )Pro forma net loss
    
    ($
    673,800
    )
    
    ($
    3,470,500
    )
    
    ($
    14,117,300
    )
    
    ($
    9,412,800
    )Basic and diluted loss per share As reported
    
    ($
    0.02
    )
    
    ($
    0.12
    )
    
    ($
    0.42
    )
    
    ($
    0.35
    ) Pro forma
    
    ($
    0.02
    )
    
    ($
    0.12
    )
    
    ($
    0.43
    )
    
    ($
    0.34
    )
 4.
    
    Earnings per Share (EPS):
 Earnings per Share
 5.
    
    Equity
  8




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##### Table of Contents



CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 6.
    
    Restricted Cash:
  September 30,
    
    
    December 31,2005
    
    
    2004Collateral for Letter of Credit (a)
    
    $
    249,000
    
    
    $
    249,000Collateral for reclamation bonds and other contingent
events (b)
    
    
    155,200
    
    
    
    152,400Kendall Mine reclamation (c)
    
    
    1,982,400
    
    
    
    1,945,900McDonald Gold Project cash reclamation bond (d)
    
    
    500,000
    
    
    
    500,000Net proceeds from property sales (e)
    
    
    274,800
    
    
    
    274,8003,161,400
    
    
    
    3,122,100Current portion
    
    
    274,800
    
    
    
    274,800Noncurrent portion
    
    $
    2,886,600
    
    
    $
    2,847,300
 
 (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, 2005, 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 continuing reclamation at the
Kendall minesite. (See Note 12(a))(d)
    
    Held directly by the Montana Department of Environmental Quality for
reclamation at the McDonald Gold Property.(e)
    
    In connection with the auction of certain properties, cash has been
sequestered by court order. (See Note 12(e)). 7.
    
    Inventories:
  September 30, 2005
    
    
    December 31, 2004Broken ore under leach
    
    $
    77,100
    
    
    $
    1,805,700Doré
    
    
    142,800
    
    
    
    100,700$
    219,900
    
    
    $
    1,906,400
  9




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CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 8.
    
    Undeveloped Mineral Claims and Leases:
  September 30, 2005
    
    
    December 31, 2004McDonald
    
    
    Seven-Up Pete
    
    
    Total
    
    
    McDonald
    
    
    Seven-Up Pete
    
    
    TotalGross carrying value
    
    $
    16,200,200
    
    
    $
    5,175,000
    
    
    $
    21,375,200
    
    
    $
    16,200,200
    
    
    $
    5,175,000
    
    
    $
    21,375,200Accumulated amortization(1)
    
    
    (6,958,100
    )
    
    
    (2,210,200
    )
    
    
    (9,168,300
    )
    
    
    (6,075,000
    )
    
    
    (1,940,700
    )
    
    
    (8,015,700
    )Impairment (2)
    
    
    (9,242,100
    )
    
    
    
    
    
    
    (9,242,100
    )
    
    
    
    
    
    
    
    
    
    
    Reclassification (3)
    
    
    
    
    
    
    (2,964,800
    )
    
    
    (2,964,800
    )
    
    
    
    
    
    
    
    
    
    
    Net book value
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    10,125,200
    
    
    $
    3,234,300
    
    
    $
    13,359,500
 
 (1)
    
    Amortization of these properties commenced in 2002 at the rate of
$2,671,900 per year. The properties were being amortized over eight years with no
residual value. (See the following footnotes).(2)
    
    On June 8, 2005, the Montana Supreme Court (i) upheld the anti-cyanide
initiative, I-137, (ii) affirmed the conclusion of the Montana Department of Natural
Resources and Conservation hearing examiner with respect to termination of the
Companys mineral leases with the State of Montana, and (iii) denied the Companys
takings compensation claim. Accordingly, the Company wrote off its carrying value for
the McDonald mineral leases during the second quarter of 2005. (See Note 9).(3)
    
    During the second quarter of 2005, the Company determined that the Seven-Up
Pete property may have the potential to be economically developed using non-cyanide
technologies in todays gold market price environment. Consistent with the provisions
of EITF 04-02, the Company has (i) re-characterized the underlying mineral leases as
tangible from intangible; (ii) re-classified their carrying value to a separate
component of property and equipment on the Companys consolidated balance sheet; and
(iii) ceased amortizing their carrying value with effect as of June 1, 2005. Prior
period carrying values have not been re-classified on the Companys consolidated
balance sheet because development of the property using cyanide technology was
uncertain at the time of adoption of EITF 04-02 due to the pending litigation of
matters relating to the anti-cyanide initiative, I-137. 9.
    
    Impairment of Undeveloped Mineral Claims and LeasesThe Company tests for impairment of its long-lived assets when changes in events or
circumstances occur in accordance with the recognition and measurement provisions of SFAS
No. 144, Accounting for the Impairment and Disposal of Long-Lived Assets. 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. Because the Company believed it held valid mineral leases
prior to the Montana Supreme Court decision, the carrying value of the leases had previously
been assessed for impairment using a probability weighted approach for potential property
development. The Seven-Up Pete lands, owned directly by the Company or leased with private
parties, were not affected by the Montana Supreme Court decision.
 10




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CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 10.
    
    Notes Payable:
  September 30, 2005
    
    
    December 31, 2004Debentures (a)
    
    $
    825,000
    
    
    $
    2,424,000- discount
    
    
    
    
    
    
    (11,300
    )825,000
    
    
    
    2,412,700Current portion
    
    
    
    
    
    
    2,412,700Notes payable  Noncurrent
    
    $
    825,000
    
    
    $
    
 
 (a)
    
    In March 2003, the Company completed a private placement financing of
6%, two year convertible debentures, raising $3,299,000. The debentures require
quarterly interest payments, and the holders have the right to convert
principal to common stock of the Company, subject to certain adjustments, at
any time, at a conversion rate of $1.38 per share of common stock. For certain
investors, the common stock had a fair value at the commitment date in excess
of the conversion price resulting in a beneficial conversion feature. The
intrinsic value of the beneficial conversion was recorded as an addition to
paid in capital and a discount on the debt with the discount then amortized to
interest expense over the term of the debt using the effective interest method.
The discount was fully accreted as of February 28, 2005. The Companys stock
price at the end of September 2005 was $0.70.In March 2005, $924,000 of principal was repaid, $675,000 was
converted into units consisting of common stock and warrants and $825,000 of
the remaining debentures were extended to March 2011. The debenture holders
that converted were given terms of $0.721 per unit consisting of one share of
common stock and one-half warrant. The total number of shares issued for
conversion to common stock was 936,200. The number of shares issued was
determined by dividing $675,000 by $0.721 per unit.Interest expense for the debentures was approximately $12,500 and $54,300 for the
third quarters of 2005 and 2004, and $65,400 and $165,300 for the first nine
months of 2005 and 2004, respectively. Included in the above amounts is accretion
of debt discount. The Company had no accretion of debt discount during the third
quarter of 2005. Accretion of the debt discount included in interest expense was
$16,100 for the third quarter of 2004, and $11,300 and $47,100 for the first nine
months of 2005 and 2004, respectively. 11.
    
    Asset Retirement Obligations:
   11




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CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 11.
    
    Asset Retirement Obligations, continued:
 Balance, December 31, 2004
    
    $
    6,238,900Settlement of liabilities
    
    
    (1,676,700
    )Accretion expense
    
    
    100,400Balance, September 30, 2005
    
    
    4,662,600Current portion
    
    
    1,712,400Non current portion
    
    $
    2,950,200
  12.
    
    Commitments and Contingencies:
 (a)
    
    Kendall Mine ReclamationThe Kendall Mine holds permits granted by the Montana Department of Environmental Quality
(DEQ). In February 2002, the DEQ issued a decision that a comprehensive Environmental
Impact Statement (EIS) is needed for completion of reclamation activities. The Company
is proposing to the DEQ that it will implement all reclamation measures that are not
under review in the EIS process. The Companys estimate to achieve mine closure could be
impacted by the outcome of the DEQs decision following an EIS. The Company has
$1,982,400 on deposit 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 the U.S.
Bureau of Land Management (BLM), Inyo County, 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 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 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
had discussions with the Surety to reschedule the deposit requirements. If an acceptable
rescheduling of the deposit requirements cannot be agreed to, the Surety 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. In April 2004, the Company ceased
active mining at Briggs and has commenced reclamation activities.The Company has spent approximately $1.3 million on Briggs reclamation through the nine
months ended September 30, 2005.
 12




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##### Table of Contents



CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 12.
    
    Commitments and Contingencies, continued:
 (c)
    
    Contingent LiabilityOn September 25, 1997, the Company, together with its wholly-owned subsidiary, CR Montana
Corporation (CR Montana), purchased a 72.25% participating interest and underlying
assets in the Seven-Up Pete Venture (SPV) from CR Montanas partner in the SPV,
Phelps Dodge Corporation (Phelps Dodge). The Company and its wholly-owned subsidiary now
own 100% of the SPV. The SPV includes the McDonald Gold Project near Lincoln, Montana.The Company made an initial payment of $5.0 million and is required to make a final
payment of one-third of any proceeds received from any potential takings lawsuit. Due to
the contingent nature of the transaction, the Company recorded only the initial payment
of $5.0 million as additions to mining claims and leases. 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.(d)
    
    Anti-Cyanide Initiative (I-137)In November 1998, the Montana electorate passed an anti-cyanide initiative (I-137) by a
vote of 52% to 48%. I-137, as modified by the Montana State Legislature in April 1999,
bans development of new gold and silver mines that use open-pit mining methods and
cyanide in the treatment and recovery process. In April 2000, the SPV filed lawsuits in
Montana State District Court and in the United States District Court seeking to have
I-137 declared unconstitutional, or alternatively, to obtain a takings or damage award
for the lost value of the SPVs mineral properties. The SPVs federal takings claims were
stayed pending exhaustion of remedies available to it at the state level. Through a
series of court decisions, most recently with a Montana State Supreme Court decision on
June 8, 2005, the provisions of I-137 were upheld and the SPV was denied its takings
compensation claim. On July 19, 2005, the SPV, along with private plaintiffs, filed a
motion in the United States District Court to reopen its reserved federal takings claim.
As of November 4, 2005, the US District Court had not made a decision to hear the case.
Accordingly, the Company has filed a Petition of Writ of Certiorari with the US Supreme
Court to meet its November 4, 2005 deadline for such filing.(e)
    
    Kendall Mine LawsuitsIn October 2001, a plaintiff group filed suit in Montana State District Court against the
Company and its wholly-owned subsidiary, CR Kendall Corporation, alleging violation of
water rights and other torts in connection with the operation of the Kendall Mine. The
Complaint seeks unspecified damages and punitive damages. The Company has vigorously
defended this lawsuit and intends to continue to do so. In view of the inherent
uncertainties of lawsuits of this nature, the Company is unable to make a judgment
concerning the likelihood of success in, or the outcome of, this matter.In August 2002, a Preliminary Injunction was issued in Montana State District Court on
behalf of the plaintiff group in connection with the Companys auction of certain mineral
rights and fee lands in western Montana. In October 2002, the Court issued a Supplemental
Order which will sequester any proceeds realized from the auction until such time as the
lawsuit is concluded. As of September 30, 2005, $267,800 had been remitted to the Court
as required by the Order. Including interest earned on the funds remitted, the Court held
$274,800 as of September 30, 2005.
 13




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##### Table of Contents



CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 12.
    
    Commitments and Contingencies, continued:
  13.
    
    Derivative Instruments and Price Protection Arrangements:
  14.
    
    Income Taxes:
  15.
    
    Recently Issued Financial Accounting Standards:
 Accounting Changes and Error Corrections Accounting Changes Reporting Accounting Changes in Interim Financial Statements
 Accounting for Conditional Asset
Retirement Obligations  an interpretation of FASB Statement No. 143 Accounting for Asset
Retirement Obligations,
 14




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##### Table of Contents



CANYON RESOURCES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 15.
    
    Recently Issued Financial Accounting Standards, continued:
 Accounting for Stripping Costs Incurred during Production in the Mining Industry,
 Share-Based Payment. Accounting for Stock-Based Compensation"
 16.
    
    Hycroft Mine Purchase Option:
  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 un-availability 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.
  Overview
     16




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##### Table of Contents



Critical Accounting Policies and Estimates
  17




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##### Table of Contents



Results of Operations
    Three Months Ended
    
    
    Three Months EndedSeptember 30, 2005
    
    
    September 30, 2004Average
    
    
    
    
    
    
    
    
    
    
    AverageGold
    
    
    Price Per
    
    
    Revenue
    
    
    Gold
    
    
    Price Per
    
    
    RevenueOunces
    
    
    Oz.
    
    
    $000s
    
    
    Ounces
    
    
    Oz.
    
    
    $000sDeliveriesSpot Sales
    
    
    2,048
    
    
    $
    445
    
    
    $
    911
    
    
    
    5,670
    
    
    $
    398
    
    
    $
    2,2582,048
    
    
    $
    445
    
    
    
    911
    
    
    
    5,670
    
    
    $
    398
    
    
    
    2,258Other transactionsSilver proceeds
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    222,048
    
    
    $
    446
    
    
    $
    914
    
    
    
    5,670
    
    
    $
    402
    
    
    $
    2,280
  18




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##### Table of Contents



Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2005
    
    
    September 30, 2004Average
    
    
    
    
    
    
    
    
    
    
    AverageGold
    
    
    Price Per
    
    
    Revenue
    
    
    Gold
    
    
    Price Per
    
    
    RevenueOunces
    
    
    Oz.
    
    
    $000s
    
    
    Ounces
    
    
    Oz.
    
    
    $000sDeliveriesForwards
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    3,820
    
    
    $
    378
    
    
    $
    1,442Spot Sales
    
    
    7,020
    
    
    $
    433
    
    
    
    3,039
    
    
    
    21,195
    
    
    $
    395
    
    
    
    8,3667,020
    
    
    $
    433
    
    
    
    3,039
    
    
    
    25,015
    
    
    $
    392
    
    
    
    9,808Other transactions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Silver proceeds
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    357,020
    
    
    $
    435
    
    
    $
    3,054
    
    
    
    25,015
    
    
    $
    394
    
    
    $
    9,843
        19




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##### Table of Contents



Liquidity & Capital Resources
    Outlook
 Summary
   Operations
   20




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##### Table of Contents



Financing
    Contractual Obligations
  Payments due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1  3 years
    
    
    3  5 years
    
    
    5 yearsLong-term debt obligations
    
    $
    825,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    825,000Capital lease obligations
    
    
    20,700
    
    
    
    20,700
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    152,100
    
    
    
    82,100
    
    
    
    70,000
    
    
    
    
    
    
    
    Asset retirement obligations
    
    
    4,662,600
    
    
    
    1,712,400
    
    
    
    2,950,200
    
    
    
    
    
    
    
    Total
    
    $
    5,660,400
    
    
    $
    1,815,200
    
    
    $
    3,020,200
    
    
    $
    
    
    
    $
    825,000
 Other Matters
 McDonald Gold Project
  21




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##### Table of Contents



Kendall Mine
 Lawsuit and Preliminary Injunction
   Lawsuit Alleging Violations of the Federal Pollution Control Act
  Environmental Regulation
     22




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##### Table of Contents



Federal Legislation
  Gold Prices, Price Protection Arrangements, and Associated Risks
  Recently Issued Accounting Standards
 Accounting Changes and Error Corrections Accounting Changes Reporting Accounting Changes in Interim Financial Statements
 Accounting for Conditional Asset
Retirement Obligations  an interpretation of FASB Statement No. 143 Accounting for Asset
Retirement Obligations,
 Accounting for
Stripping Costs Incurred during Production in the Mining Industry,
 23




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##### Table of Contents



Share-Based Payment" Accounting for Stock-Based Compensation" Accounting for Stock Issued to Employees"
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Commodity Prices
  Interest Rates
  Foreign Currency
  24




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##### Table of Contents



Item 4. Controls and Procedures
 Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  Incorrect application of generally accepted accounting principles regarding equity
compensation plans
 
    
    During the first quarter of 2004, the Company determined that its stock option
plans should have been recorded under variable plan accounting, as the plans allowed an
option holder to pay for the exercise price using the share withholding method. This
caused the Company to restate the consolidated financial statements included in its 2003
Form 10-K. The Company subsequently amended its stock option plans and modified existing
option agreements to no longer allow the share withholding method of payment. During
the third quarter of 2005, the Company tested its remediation efforts relating to this
control deficiency and has concluded that its controls are effective as of the end of
the period covered by this report.
 Lack of adequate policies and procedures regarding the review and approval process of
complex calculations or unusual transactions
 
    
    During the second quarter of 2004, the Company determined that its model used for impairment testing of the Briggs Mine was
incorrect, insofar as the revenue stream included ounces recovered from the leach pad. The Company changed its model using only
projected revenues from in-ground reserves which resulted in earlier and more frequent impairments than had previously been
recorded. This caused the Company to restate the consolidated financial statements included in its 2003 Form 10-K and for the first
quarter ended March 31, 2004 included in its Form 10-Q. As the Briggs Mine is the Companys only producing asset, and no in-ground
reserves existed at September 30, 2005, the Company has been unable to test its remediation efforts relating to this control
deficiency as of September 30, 2005.
    
    Also during the second quarter of 2004, the Company determined that its accounting for a 2003 private placement of convertible
debentures was incorrect.Specifically, a beneficial conversion feature and related amortization expense should have been recognized
for certain subscribers that executed the subscription agreement on a date when the conversion price was lower than the market price
of the Companys common stock. This caused the Company to restate the consolidated financial statements included in its 2003 Form
10-K and for the first quarter ended March 31, 2004 included in its Form 10-Q. As no transactions of a similar complexity occurred
subsequent to this private placement, the Company has been unable to test its remediation efforts relating to this control
deficiency as of September 30, 2005.
 25




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##### Table of Contents




    
    Increased involvement in the review and analysis by senior management of the
Companys financial statements.
    
    Added more rigorous policies and procedures regarding the review and approval
process for complex calculations and transactions.
    
    Engaged 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
  
 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
    
    None
 
 Item 5. Other Information
    
    None
 
 Item 6. Exhibits
 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 Accounting 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 Accounting Officer pursuant to U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
 27




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##### Table of Contents



SIGNATURES
  CANYON RESOURCES CORPORATIONDate:    November 7, 2005
    /s/ James K. B. HeskethJames K. B. HeskethPresident and Chief Executive Officer


(Principal Executive Officer) Date:   November 7, 2005
    /s/ Richard T. PhillipsRichard T. PhillipsChief Accounting Officer, Treasurer and

Corporate Secretary(Principal Accounting Officer) 28




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##### Table of Contents



Exhibit Index
 EXHIBIT NO.
    
    DESCRIPTION31.1
    
    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 Accounting 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 Accounting Officer pursuant to U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002