SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

              [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended October 31, 2005

                                       OR

                 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

               For the transition period from ________ to _______

                         Commission File Number: 0-13078
                                                 -------

                            CAPITAL GOLD CORPORATION
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

             DELAWARE                                       13-3180530
   -------------------------------                      -------------------
   (State or other jurisdiction of                       (I.R.S. Employer
   incorporation or organization)                       Identification No.)

                76 Beaver Street, 26TH floor, New York, NY 10005
                ------------------------------------------------
                    (Address of principal executive offices)

                    Issuer's telephone number: (212) 344-2785
                                               --------------

--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

                                 Yes |X| No |_|

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes|_| No |X|

Indicate the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.

                 Class                     Outstanding at December 14, 2005
----------------------------------------   --------------------------------
Common Stock, par value $.0001 per share               96,969,214

Transitional Small Business Format (check one); Yes |_| No |X|


<PAGE>

                          PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

      The accompanying financial statements are unaudited for the interim
periods, but include all adjustments (consisting only of normal recurring
accruals), which we consider necessary for the fair presentation of results for
the three months ended October 31, 2005.

      Moreover, these financial statements do not purport to contain complete
disclosure in conformity with U.S. generally accepted accounting principles and
should be read in conjunction with our audited financial statements at, and for
the fiscal year ended July 31, 2005.

      The results reflected for the three months ended October 31, 2005 are not
necessarily indicative of the results for the entire fiscal year.


                                       -2-
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                October 31, 2005
                                   (UNAUDITED)

                                ASSETS

Current Assets:

  Cash and Cash Equivalents                             $  3,475,872
  Loans Receivable - Affiliate                                34,995
  Marketable Securities                                      110,000
  Other Current Assets                                        22,836
                                                        ------------

     Total Current Assets                                  3,643,704
                                                        ------------

Mining Concessions                                            70,104
                                                        ------------

Property & Equipment - net                                   660,927
                                                        ------------

Intagible Assets - net                                        16,810
                                                        ------------

Other Assets:
  Other Investments                                           21,480
  Deferred Financing Costs                                   100,000
  Mining Reclamation Bonds                                    35,550
  Other                                                       43,422
  Other Deposits                                              98,000
  Security Deposits                                            9,605
                                                        ------------
     Total Other Assets                                      308,057
                                                        ------------


Total Assets                                            $  4,699,602
                                                        ============


                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts Payable                                      $    147,069
  Accrued Expenses                                           143,578
                                                        ------------
     Total Current Liabilities                               290,648
                                                        ------------

 Commitments and Contingencies
 Stockholders' Equity:
     Common Stock, Par Value $.0001 Per Share;
       Authorized 150,000,000 shares; Issued and
       Outstanding 95,969,218 Shares                           9,597
     Additional Paid-In Capital                           31,938,095
     Deficit Accumulated in the Development Stage        (27,396,773)
     Deferred Financing Costs                               (252,541)
     Accumulated Other Comprehensive Income                  110,576

                                                        ------------
     Total Stockholders' Equity                            4,408,954
                                                        ------------

Total Liabilities and Stockholders' Equity              $  4,699,602
                                                        ============

    The accompanying notes are an integral part of the financial statements.


                                      -3-
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                              For The Three Months Ended      For the Period
                                                     October 31,             September 17,1982
                                             ----------------------------     (Inception) To
                                                 2005            2004        October 31, 2005
                                             ------------    ------------    -----------------
<S>                                          <C>             <C>             <C>

Revenues                                     $         --    $         --    $              --
                                             ------------    ------------    -----------------
Costs and Expenses:
  Mine Expenses                                   540,551         179,968            8,204,459
  Write-Down of Mining, Milling and Other
    Property and Equipment                             --              --            1,299,445
  Selling, General and Administrative
    Expenses                                      289,347         152,007           10,152,314
  Stock Based Compensation                             --          29,260            9,409,847
  Depreciation and Amortization                     8,570              --              383,727
                                             ------------    ------------    -----------------
      Total Costs and Expenses                    838,468         361,235           29,449,792
                                             ------------    ------------    -----------------

Loss from Operations                             (838,468)       (361,235)         (29,449,792)
                                             ------------    ------------    -----------------


Other Income (Expense):
  Interest Income                                  25,506             235              821,504
  Miscellaneous                                        --           4,905               36,199
  Gain on Sale of Property and Equipment               --              --               46,116
  Gain on Sale of Subsidiary                           --              --            1,907,903
  Option Payment                                       --              --               70,688
  Loss on Write-Off of Investment                      --              --              (10,000)
  Loss on Joint Venture                                --              --             (901,700)
  Loss on Option                                       --              --              (50,000)
  Loss on Other Investments                            --              --               (3,697)
  Loss on Write -Off of Minority Interest              --              --             (150,382)
                                             ------------    ------------    -----------------
      Total Other Income (Expense)                 25,506           5,140            1,766,631
                                             ------------    ------------    -----------------

Loss Before Minority Interest                    (812,962)       (356,095)         (27,683,161)
Minority Interest                                      --              --              286,388

                                             ------------    ------------    -----------------
Net Loss                                     $   (812,962)   $   (356,095)   $     (27,396,773)
                                             ============    ============    =================

Net Loss Per Common Share - Basic and
Diluted                                      $      (0.01)   $      (0.01)
                                             ============    ============

Weighted Average Common Shares Outstanding     95,969,218      58,746,129
                                             ============    ============
</TABLE>

    The accompanying notes are an integral part of the financial statements.


                                      -4-
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                    For The Three
                                                                     Months Ended          For the Period
                                                                      October 31,         September 17,1982
                                                                 ----------------------    (Inception) To
                                                                    2005        2004      October 31, 2005
                                                                 ---------    ---------   -----------------
<S>                                                              <C>          <C>         <C>
Cash Flow From Operating Activities:
  Net Loss                                                       $(762,962)   $(356,095)   $     (27,396,773)
  Adjustments to Reconcile Net Loss to
    Net Cash (Used) By Operating Activities:
      Depreciation and Amoritzation                                  8,570           --              383,727
      Gain on Sale of Subsidiary                                        --           --           (1,907,903)
      Minority Interest in Net Loss of Subsidiary                       --           --             (286,388)
      Write-Down of Impaired Mining, Milling and Other                  --
        Property and Equipment                                          --           --            1,299,445
        Gain on Sale of Property and Equipment                          --           --              (46,116)
        Loss on Write-Off of Investment                                 --           --               10,000
        Loss on Joint Venture                                           --           --              901,700
        Loss on Write-Off of Minority Interest                          --           --              150,382
      Value of Common Stock Issued for Services                         --           --            2,843,153
      Stock Based Compensation                                          --       29,260            9,380,587
      Changes in Operating Assets and Liabilities:
        Decrease in Prepaid Expenses                                18,991        1,651                   --
        (Increase) Decrease in Other Current Assets                 18,013        6,076              (22,836)
        (Increase) in Other Deposits                               (18,000)          --              (98,000)
        (Increase) in Other Assets                                      --           --              (43,423)
        (Increase) in Security Deposits                                 --           --               (9,605)
        Increase (Decrease) in Accounts Payable                     55,030       (8,651)             175,252
        (Decrease) in Accrued Expenses                             (97,198)        (621)             (28,966)
                                                                 ---------    ---------    -----------------

Net Cash (Used) In Operating Activities                           (777,177)    (328,380)         (14,645,764)
                                                                 ---------    ---------    -----------------


Cash Flow From Investing Activities:
  (Increase) in Other Investments                                     (260)         (93)             (21,480)
  Purchase of Mining, Milling and Other Property and Equipment     (17,524)          --           (2,380,857)
  Purchase of Concessions                                               --           --              (25,324)
  Investment Intangibles                                                --           --              (18,531)
  Proceeds on Sale of Mining, Milling and Other Property
    and Equipment                                                       --           --               83,638
  Proceeds From Sale of Subsidiary                                      --           --            2,131,616
  Expenses of Sale of Subsidiary                                        --           --             (101,159)
  Advance Payments - Joint Venture                                      --           --               98,922
  Investment in Joint Venture                                           --           --             (101,700)
  Investment in Privately Held Company                                  --           --              (10,000)
  Net Assets of Business Acquired (Net of Cash)                         --           --              (42,130)
  Investment in Marketable Securities                                   --           --              (50,000)
                                                                 ---------    ---------    -----------------

Net Cash (Used) In Investing Activities                            (17,784)         (93)            (437,005)
                                                                 ---------    ---------    -----------------
</TABLE>

    The accompanying notes are an integral part of the financial statements.


                                      -5-
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
                                   (Continued)

<TABLE>
<CAPTION>
                                                          For The Three
                                                           Months Ended         For The Period
                                                            October 31,        September 17, 1982
                                                      ----------------------    (Inception) To
                                                         2005         2004     October 31, 2005
                                                      ----------   ---------   -----------------
<S>                                                   <C>          <C>         <C>

Cash Flow From Financing Activities:
  Advances to Affiliate                                   (3,577)         --             (34,996)
  Proceeds of Borrowings - Officers                           --          --              18,673
  Repayment of Loans Payable - Officers                       --          --             (18,673)
  Proceeds of Note Payable                                    --          --              11,218
  Payments of Note Payable                                    --          --             (11,218)
  Proceeds From Issuance of Common Stock                      --     226,820          18,735,924
  Commissions on Sale of Common Stock                         --          --              (5,250)
  Deferred Finance Costs                                      --          --            (100,000)
  Expenses of Initial Public Offering                         --          --            (408,763)
  Capital Contributions - Joint Venture Subsidiary            --          --             304,564
  Purchase of Certificate of Deposit - Restricted             --          --              (5,000)
  Purchase of Mining Reclamation Bonds                        --          --             (30,550)
                                                      ----------   ---------   -----------------

Net Cash Provided By Financing Activities                 (3,577)    226,820          18,455,929
                                                      ----------   ---------   -----------------

Effect of Exchange Rate Changes                           (7,138)      6,088             102,712
                                                      ----------   ---------   -----------------

Increase (Decrease) In Cash and Cash Equivalents        (805,676)    (95,565)          3,475,872

Cash and Cash Equivalents - Beginning                  4,281,548     208,443
                                                      ----------   ---------   -----------------

Cash and Cash Equivalents - Ending                    $3,475,872   $ 112,878   $       3,475,872
                                                      ==========   =========   =================

Supplemental Cash Flow Information:
  Cash Paid For Interest                              $       --   $      --   $              --
                                                      ==========   =========   =================

  Cash Paid For Income Taxes                          $    6,315   $   3,336   $          32,155
                                                      ==========   =========   =================

Non-Cash Financing Activities:
  Issuances of Common Stock as Commissions
    on Sales of Common Stock                          $       --   $  18,200   $         440,495
                                                      ==========   =========   =================

  Issuance of common stock as payment
    for Expenses                                      $       --   $      --   $         192,647
                                                      ==========   =========   =================
  Issuance of Common Stock as Payment for Mining,
    Milling and Other Property and Equipment          $       --   $      --   $           4,500
                                                      ==========   =========   =================

 Exercise of Options as Payment of Accounts Payable   $       --   $      --   $          36,000
                                                      ==========   =========   =================
</TABLE>

    The accompanying notes are an integral part of the financial statements.


                                      -6-
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1 - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include
the accounts of Capital Gold Corporation and its subsidiaries, which are wholly
and majority owned. All significant inter-company accounts and transactions have
been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles for
interim financial information and with instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by U.S.
generally accepted accounting principles for complete financial statements. In
the opinion of the Company's management, the accompanying condensed consolidated
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the condensed consolidated
financial position and results of operations and cash flows for the periods
presented.

Results of operations for interim periods are not necessarily indicative of the
results of operations for a full year.

The condensed consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company is a development stage
enterprise and has recurring losses from operations and operating cash
constraints that raise substantial doubt about the Company's ability to continue
as a going concern.

NOTE 2 - Marketable Securities

Marketable securities are classified as current assets and are summarized as
follows:

Marketable equity securities, at cost         $ 50,000
                                              ========

Marketable equity securities, at fair value   $110,000
                                              ========


                                      -7-
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 3 - Property and Equipment

Property and Equipment consist of the following at October 31, 2005:

Improvements                     $  15,797
Equipment Held for Resale          393,829
Equipment                           75,572
Water Well                         141,244
Vehicle                             34,656
Office Equipment                    12,266
Furniture                            1,843
                                 ---------

Total                              675,207
Less: accumulated depreciation     (14,280)
                                 ---------

Fixed assets, net                $ 660,927
                                 =========


Depreciation expense for the three months ending October 31, 2005 and 2004 was
$7,538 and $ -0-, respectively.

NOTE 4 - Intangible Assets

Investment in Right of Way        $ 18,531
Less: accumulated amortization      (1,721)
                                  --------

Intangible assets, net            $ 16,810
                                  ========


Amortization expense for the period ending October 31, 2005 and 2004 was $1,032
and $ -0-, respectively.

NOTE 5 - Mining Concessions

Mining concessions consists of the following:

      El Charro                    $25,324
      El Chanate                    44,780
                                   -------

      Total                        $70,104
                                   =======


The El Chanate exploitation and exploration concessions are carried at
historical cost and were acquired in connection with the purchase of the stock
of Minera Chanate, S.A. de C.V. The Company acquired an additional mining
concession - El Charro. El Charro lays within the current El Chanate property
boundaries. The Company is required to pay 1 1/2% net smelter royalty in
connection with the El Charro concession.


                                      -8-
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 6 - Loans Receivable - Affiliate

Loans receivable - affiliate consist of expense reimbursements from a
publicly-owned corporation in which the Company has an investment (see Notes 2 &
9). In addition, the Company's president and chairman of the board of directors
is an officer and director of that corporation. These loans are non-interest
bearing and due on demand.

NOTE 7 - Other Investments

Other investments are carried at cost and consist of tax liens purchased on
properties located in Lake County, Colorado.

NOTE 8 - Other Comprehensive Income(Loss)-Supplemental Non-Cash Investing
Activities

Other comprehensive income (loss) consists of accumulated foreign translation
gains and losses and unrealized gains on marketable securities and is summarized
as follows:

      Balance - July 31, 2004                                $  88,739
      Equity Adjustments from Foreign Currency Translation      28,975
      Unrealized Gains on Marketable Securities                 40,000
                                                             ---------

      Balance - July 31, 2005                                  157,714
      Equity Adjustments from Foreign Currency Translation      (7,138)
      Unrealized Gains (loss) on Marketable Securities         (40,000)
                                                             ---------

      Balance - October 31, 2005                             $ 110,576
                                                             =========


NOTE 9 - Related Party Transactions

In August 2002 the Company purchased marketable equity securities of a related
company. The Company recorded approximately $3,600 and $4,900 in expense
reimbursements including office rent from this entity for the three months ended
October 31, 2005 and 2004, respectively (see Notes 2 and 6). The Company
utilizes a Mexican Corporation 100% owned by two officers/Directors and
stockholders of the Company for mining support services. These services include
but are not limited to the payment of mining salaries and related costs. The
Mexican Corporation bills the Company for these services at cost. Mining
expenses charged by the Mexican Corporation and reported on the statement of
operations amounted to approximately $25,000 and $ -0- for the three months
ended October 31, 2005 and 2004, respectively.


                                      -9-
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 10 - Stockholders' Equity

Common Stock

At various stages in the Company's development, shares of the Company's common
stock have been issued at fair market value in exchange for services or property
received with a corresponding charge to operations, property and equipment or
additional paid-in capital depending on the nature of the services provided or
property received.

During the three months ended October 31, 2004, the Company issued 1,926,732
shares for gross proceeds of $226,820. During the same period they also issued
259,507 shares of common stock for services rendered value at $29,260, and
151,666 shares of common stock valued at $18,200 as commissions on the sale of
common stock. During the three months ended October 31, 2005, the Company issued
no shares of common stock.

NOTE 11 - Project Finance Facility

On February 2, 2005, we mandated Standard Bank London Limited as the exclusive
arranger of a project finance facility of up to $10 million for our El Chanate
gold mining project and associated hedging. We anticipate that Standard Bank
will administer the loan and the hedging throughout the construction and
operational phases of the project. Although the specific terms of the proposed
financing are subject to alteration, we anticipate, among other things, that the
loan would mature in five years after the initial draw and bear interest at a
rate linked to the 1,2,3 or 6 month Libor rate. The loan would be secured by our
assets and supported by our guarantee. In addition, we will be required to
deposit all cash proceeds we receive from operations and other sources in an
off-shore account. Absent default by us under the finance documents, we may use
funds from this account for specific purposes such as approved operating costs,
budgeted capital expenditures, hedging costs and funds payable to Standard Bank
under the finance documents. We would be required to meet and maintain certain
financial covenants and we would be required to conform to certain negative
covenants such as restrictions on sale of assets. We also would be required to
enter into a gold price protection program that mitigates the gold price risk by
purchasing price protection in a manner satisfactory to the lender.

As required by the mandate, we issued to Standard Bank 1,000,000 common stock
purchase warrants and paid an initial cash fee of $100,000. Such warrants have
been valued at approximately $253,000 using the Black-Scholes option pricing
model and are reflected as deferred financing costs as a reduction of
stockholders' equity on the Company's balance sheet.


                                      -10-
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 11 - Project Finance Facility -(continued)

Such costs will be amortized to operations over the life of the debt and in the
event the transaction with Standard Bank is not consummated, such costs will be
charged to operations immediately. The initial cash fee of $100,000 is included
in Deferred Finance Costs on the Company's balance sheet. Such costs will be
amortized to operations over the life of the debt and in the event the
transaction with Standard Bank is not consummated, such costs will be charged to
operations immediately. If Standard Bank determines to proceed with the funding,
we will be required to pay certain additional fees of $300,000 and issue to
Standard Bank an additional 14,600,000 common stock purchase warrants. Per our
arrangement with Standard Bank, the shares issuable upon exercise of the
1,000,000 common stock purchase warrants have been included in a registration
statement filed with the Securities and Exchange Commission covering their
public resale. We also will be required to so register the shares issuable upon
exercise of the additional 14,600,000 warrants if and when these warrants are
issued. The warrants may be exercised at a price equivalent to the lower of a)
$.32 per share and b) the Company's common share price at the closing date, but
in no case less than $.30 per share. This mandate is not a commitment to provide
the funding. Funding is subject to satisfactory completion of due diligence,
approvals from Standards Bank's credit committee and execution of definitive
documentation.

NOTE 12 - Subsequent Events

Recapitalization

On September 22, 2005, The Board of Directors recommended an amendment to the
Company's Certificate of Incorporation to increase the Company's authorized
shares of capital stock from 150,000,000 to 200,000,000 shares. In addition, the
Board of Directors recommended that the Company reincorporate in the State of
Delaware. These amendments were approved by the stockholders on November 18,
2005 and the Company effected the reincorporation in Delaware and the authorized
share increase on November 21, 2005. In addition, the par value was decreased
from $0.001 per share to $0.0001 per share.

Project Financing Facility

On November 11, 2005 the Company received a commitment letter from Standard Bank
(see Note 11) informing us that its credit committee had approved the banks
arranging and providing for a senior project financing facility for up to $12
million for the development of our El Chanate project. Amongst other
requirements, the commitment letter requires us to raise additional equity
funding, net of expenses, that, along with cash on hand, is adequate to cover
all required covenants and completion conditions. In connection with this
letter, the Company paid $100,000 and issued 1,000,000 shares of the Company
common stock. Pursuant to this letter, instead of delivering on the Closing Date
of the facility an additional 14,600,000 common stock purchase warrants, as
contemplated in the original Mandate, the Company will be required to deliver an
additional 1,000,000 shares of common stock and an additional 12,600,000 common
stock purchase warrants.


                                      -11-
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 12 - Subsequent Events - (continued)

Warrant Re-pricing

In December 2005, the Board of Directors ratified the temporary re-pricing of
certain warrants that were issued in connection with the February 2005 private
placement from $0.30 per share to $0.20 per share exercise price. In addition,
warrants issued to the placement agent were also re-priced from $0.25 per share
to $0.20 per share exercise price. These re-pricings are offered for the period
November 29, 2005 through December 23, 2005.

Mining Contract

In early December, our wholly-owned Mexican subsidiary, Minera Santa Rita, S.A.
de R.L. de C.V.("MSR"), which holds the rights to develop and mine El Chanate
Project, entered into a Mining Contract with a Mexican mining contractor,
Sinergia Obras Civiles y Mineras, S.A. de C.V,("Contractor"). The Mining
Contract becomes effective when MSR sends the Contractor a formal "Notice of
Award".

Pursuant to the Mining Contract, the Contractor, using its own equipment, will
generally perform all of the mining work (other than crushing) at the El Chanate
Project for the life of the mine. The Mining Contract becomes effective upon
delivery by MSR to the Contractor of a formal "Notice to Proceed". Subsequent to
delivery of the "Notice to Proceed" and prior to commencement of any work by the
Contractor, MSR must pay the Contractor a mobilization payment of $70,000, and
must also make an advance payment of $520,000 to the Contractor. This advance
payment is recoverable by MSR out of 100% of subsequent payments due to the
Contractor under the Mining Contract. The Contractor's mining rates are subject
to escalation on an annual basis. This escalation is tied to the percentage
escalation in the Contractor's costs for its equipment, interest rates and
labor. If the "Notice to Proceed" is not received by the Contractor by June 1,
2006, the Contractor may modify its initial mining rates, and MSR is not
obligated to proceed with the Mining Contract if those modified rates are
unacceptable to MSR.


                                      -12-
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations.

Cautionary Statement on Forward-Looking Statements

Certain statements in this report constitute "forwarding-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities and Exchange Act of 1934. Certain, but not necessarily all, of
such forward-looking statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should," or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy that involve risks and uncertainties.
All statements other than statements of historical fact, included in this report
regarding our financial position, business and plans or objectives for future
operations are forward-looking statements. Without limiting the broader
description of forward-looking statements above, we specifically note that
statements regarding exploration and mine development and construction plans,
costs, grade, production and recovery rates, permitting, financing needs, the
availability of financing on acceptable terms or other sources of funding, and
the timing of additional tests, feasibility studies and environmental permitting
are all forward-looking in nature.

Such forward-looking statements involve known and unknown risks, uncertainties
and other factors, including but not limited to, the factors discussed below in
"Risk Factors" which may cause our actual results, performance or achievements
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements and other factors
referenced in this report. We do not undertake and specifically decline any
obligation to publicly release the results of any revisions which may be made to
any forward-looking statement to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.

                              Results of Operations

General

Sonora, Mexico

During the quarter ended October 31, 2005, we continued to make progress towards
commencement of mining operations at the El Chanate concessions in Mexico. In
this regard, as discussed in greater detail below and in Part II, item 5, during
and subsequent to the end of the quarter: M3 Engineering & Technology
Corporation of Tucson, Arizona completed an update of the 2003 El Chanate
feasibility study; Standard Bank Plc. provided us with a commitment letter for
up to $12 million in financing, including certain contingencies, for partial
construction funding of a gold mine at El Chanate; we entered into a mining
contract with Sinergia Obras Civiles y Mineras, S.A. de C.V. ("Sinergia")
pursuant to which Sinergia has agreed to conduct all mining operations at the El
Chanate project and we have received bids for the construction and integration
of the El Chanate project.

Through a wholly-owned subsidiary and an affiliate, we own 100% of 16 mining
concessions located in the Municipality of Altar, State of Sonora, Republic of
Mexico totaling approximately 3,544 hectares (8,756 acres or 13.7 square miles).
We are in the process of constructing and developing an open-pit gold mining
operation to mine two of these concessions. We sometimes refer to the planned
operations on these two concessions as the El Chanate project.

We plan to construct a surface gold mine and facility at El Chanate capable of
producing about 2.6 million metric tons per year of ore from which we anticipate
recovering about 44,000 to 48,000 ounces of gold per year, over a six year mine
life. We are following the updated feasibility study (the "2005 Study") for the
El Chanate project prepared by M3 Engineering of Tucson, Arizona which was
completed in October 2005. The original feasibility study (the "2003 Study") was
completed by M3 Engineering in August 2003. Since completion of the 2003 Study,
both the price of gold and production costs have increased and equipment choices
have broadened from those identified in the 2003 Study.


                                      -13-
<PAGE>

The 2005 Study includes the following changes from the 2003 Study:

o     an increase in the mine life from five to six years,

o     an increase in the base gold price from $325/oz to $375/oz,

o     use of a mining contractor,

o     revised mining, processing and support costs,

o     stockpiling of low grade material for possible processing in year six, if
      justified by gold prices at that time,

o     a reduced size for the waste rock dump and revised design of reclamation
      waste dump slopes,

o     a revised process of equipment selection and

o     evaluation of the newly acquired water well for processing the ore.

Pursuant to the 2005 Study, our estimated mine life is now six years as opposed
to five years and the ore reserve is 367,880 ounces of gold present in the
ground (up 9,880 ounces). Of this, we anticipate recovering approximately
264,846 ounces of gold (up 16,846 ounces) over a six year life of the mine. The
targeted cash cost (which include mining, processing and on-property general and
administrative expenses) per the 2005 Study is $259 per ounce (up $29 per
ounce). The 2005 Study contains the same mining rate as the 2003 Study of 7,500
metric tonnes per day of ore. We also have commissioned an engineering study to
analyze the benefits of expanding production rates beyond 7,500 metric tonnes
per day of ore. The 2005 Study takes into consideration a different crushing
system than the one contemplated in the 2003 Study. The system referred to in
the 2005 Study is a new more modern system, that, we believe will be faster to
install and provide more efficient processing capabilities than the used
equipment referred to in the 2003 Study. We need to acquire this equipment. In
addition, the 2005 Study assumes a contractor will mine the ore and haul it to
the crushers. In the 2003 Study, we planned to perform these functions. We have
interviewed firms to provide contract mining services for the El Chanate
project. While we believe we are nearing successful completion of negotiations
with the contractor of choice, there is no guarantee that these negotiations
will be successful.

The following Summary is contained in the 2005 Study. Please note that the
reserves as stated are an estimate of what can be economically and legally
recovered from the mine and, as such, incorporate losses for dilution and mining
recovery. The 367,880 ounces (or 11.4 Tons) of contained gold represents ounces
contained in ore in the ground, and therefore does not reflect losses in the
recovery process. Total gold produced is estimated to be approximately 264,846
ounces (or 8.24 Tons), or approximately 70% of the contained gold. The gold
recovery rate is expected to average approximately 70% for the entire ore body.
Individual portions of the ore body may experience varying recovery rates
ranging from about 73% to 48%. Oxidized and sandstone ore types may have
recoveries of about 73%; fault zone ore type recoveries may be about 64%; and
siltstone ore types recoveries may be about 48%.


                                      -14-
<PAGE>

El Chanate Project

                         Reserves and Production Summary
                   ( 2005 Updated Feasibility Study Page 1-1)
<TABLE>
<CAPTION>
                                Metric                             U.S.
-----------------------------   --------------------------------   ------------------------------
<S>                             <C>                                <C>
Reserves
  Ore                           14.1 Million Tonnes @ 0.812 g/t*   15.5 Million Tons @ 0.026 opt*
  Low Grade                     1.0 Million Tonnes @ 0.445 g/t     1.1 Million Tons @ 0.014 opt
  Waste                         9.5 Million Tonnes                 10.5 Million Tons
  Total                         24.6 Million Tonnes                27.1 Million tons

  Contained Gold                11.4 Million grams                 367,880 Oz
  Contained Gold in Low Grade   0.46 Million grams                 14,793 Oz

Production
  Ore Crushed                   2.6 Million Tonnes /Year           2.86 Million Tons/Year
                                7,500 Mt/d*                        8,250 t/d
  Operating Days/Year           365 Days per year                  365 Days per year
  Gold Plant Average Recovery   69.2 %                             69.2 %
  Average Annual Production     1.4 Million grams                  44,390 Oz
  Total Gold Produced           8.24 Million grams                 264,846 Oz
</TABLE>

------------
* "g/t" means grams per metric tonne , "Mt/d means metric tonnes per day and
"opt" means ounces per ton.


Pursuant to the 2005 Study, based on the current reserve calculations, the mine
life is estimated to be approximately 72 months, and at least another year will
likely be required to perform required reclamation. The 2005 Study forecasts
initial capital costs of $17.9 million, which includes $1.7 million of working
capital. Annual production is planned at approximately 44,000 to 48,000 ounces
per year at an average operating cash cost of $259 per ounce. We believe that
the cash cost may decrease as the production rate increases. Total costs (which
include cash costs as well as off-property costs such as property taxes,
royalties, refining, transportation and insurance costs and exclude financing
costs) will vary depending upon the price of gold (due to the nature of
underlying payment obligations to the original owner of the property). Total
costs are estimated in the 2005 Study to be $339 per ounce at a gold price of
$417 per ounce (the three year average gold price as of the date of the study).
We will be working on measures to attempt to reduce costs going forward. Ore
reserves and production rates are based on a gold price of $375 per ounce, which
is the Base Case in the 2005 Study. Between January 1, 2005 and December 2,
2005, the spot price for gold on the London Exchange has fluctuated between
$411.10 and $504.75 per ounce.

Management believes that the capital costs to establish a surface, heap leach
mining operation at El Chanate will be between $17.5 and $18.5 million. In
February 2005, we raised approximately $6.1 million in a private placement and
in November 2005 we received a commitment letter from Standard Bank Plc. for a
project finance facility of up to US$12 million. Funding of the Standard Bank
facility, among other things, is subject to our raising additional funds
necessary for construction and working capital. Accordingly, we will need to
obtain additional capital from outside sources. To the extent that we need to
obtain additional capital, management intends to raise such funds through bank
financing, the sale of our securities, the sale of a royalty interest in the
future production from the Chanate concessions and/or joint venturing with one
or more strategic partners. See "Risk Factors - We lack operating cash flow and
rely on external funding sources. If we are unable to continue to obtain needed
capital from outside sources until we are able to generate positive cash flow
from operations, we will be forced to reduce or curtail our operations"


                                      -15-
<PAGE>

Leadville, Colorado

We own or lease a number of claims and properties, all of which are located in
California Mining District, Lake County, Colorado, Township 9 South, Range 79.
During the quarter ended October 31, 2005, activity at our Leadville, Colorado
properties consisted primarily of mine maintenance. Primarily as a result of our
focus on El Chanate, we ceased activities in Leadville, Colorado. During the
year ended July 31, 2002, we performed a review of our Leadville mine and mill
improvements and determined that an impairment loss should be realized.
Therefore, we significantly reduced the carrying value of certain assets
relating to our Leadville, Colorado assets by $999,445. During the year ending
July 31, 2004, we again performed a review of our Colorado mine and mill
improvements and determined that an additional impairment loss should be
recognized. Accordingly, we further reduced the net carrying value to $0,
recognizing an additional loss of $300,000.

Revenues

We generated no revenues from mining operations during the quarter ended October
31, 2005 and 2004. There were de minimis non-operating revenues during the
quarter ended October 31, 2005 and 2004 of approximately $ 25,506 and $5,140,
respectively. These non-operating revenues primarily represent interest income.

Costs and Expenses

Over all costs and expenses during the quarter ended October 31, 2005 were
$838,468, an increase of $477,233 or 132.1% from the quarter ended October 31,
2004. The primary reason for the significant increase during the quarter ended
October 31, 2005 was increases in mine and in selling, general and
administrative expenses and depreciation and amortization offset by a reduction
in stock based compensation.

In accordance with SFAS 144, "Accounting for the Impairment and Disposal of
Long-Lived Assets", we review our long-lived assets for impairment. Impairment
losses on long-lived assets are recognized when events or changes in
circumstances indicate that the undiscounted cash flows estimated to be
generated by such assets are less than their carrying value and, accordingly,
all or a portion of such carrying value may not be recoverable. Impairment
losses then are measured by comparing the fair value of assets to their carrying
amounts. During the year ended October 31, 2002, we performed a review of our
Colorado mine and mill improvements and determined that an impairment loss
should be recognized. Accordingly, at October 31, 2002, we reduced by $999,445
the net carrying value of certain assets relating to our Leadville, Colorado
facility to $300,000. At October 31, 2004, we further reduced the net carrying
value to $0, which approximates our management's estimate of fair value.

Mine expenses during the quarter ended October 31, 2005 were $540,551, an
increase of $360,583 or 200.4% from the quarter ended October 31, 2004. We
believe that the increase in mine expenses resulted primarily from increased
professional and engineering and consulting costs and the acquisition of a
government permit for approximately $141,000.

Selling, general and administrative expenses during the quarter ended October
31, 2005 were $289,347, an increase of $137,340 or 90.0% from the quarter ended
October 31, 2004. We believe that the increase in selling, general and
administrative expenses resulted primarily from an increase in professional,
consulting fees as well as travel expenses incurred in connection with fund
raising efforts during the quarter ended October 31, 2005.

Stock based compensation during the quarter ended October 31, 2005 was $0
compared to $29,260 for the quarter ended October 31, 2004. This decrease
resulted from a reduction in the amount of options granted and common stock
issued for services rendered during the quarter ended October 31, 2005.


                                      -16-
<PAGE>

Depreciation and amortization during the quarter ended October 31, 2005 was
$8,570 compared to $0 for the quarter ended October 31, 2004. This increase
resulted from asset acquisitions during the year ended July 31, 2005 as well as
the quarter ended October 31, 2005.

Net Loss

As a result, our net loss for the quarter ended October 31, 2005 was $812,962,
which was $456,867 or 128.3% greater than our net loss for the quarter ended
October 31, 2004, which was $356,095.

Loss from Changes in Foreign Exchange Rates

During the quarter ended October 31, 2005, we recorded equity adjustments from
foreign currency translations of approximately $7,100. These translation
adjustments are related to changes in the rates of exchange between the Mexican
Peso and the US dollar.

Liquidity and Capital Resources; Plan of Operations

As of October 31, 2005, we had working capital of $3,353,056. Our planned
activities over the next twelve months in Mexico are outlined in our annual
report on Form 10-KSB for the year ended July 31, 2005. Generally, and assuming
financing is available, we anticipate that our activities will include the
purchase and installation of a crushing system, construction of the heap leach
pad, moving and erection of the carbon plant and refinery at El Chanate, the
construction of the power line and the water line and construction of office and
laboratory buildings. The activities and the costs may vary materially,
especially if there are significant increase in costs related to such items as
fuel, construction materials and labor.

Historically, we have not generated any material revenues from operations and
have been in a precarious financial condition. Our consolidated financial
statements have been prepared on a going concern basis, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of
business. We have recurring losses from operations. Our primary source of funds
used during the quarter ended October 31, 2005 was from the proceeds from the
sale and issuance of equity securities in prior periods. As discussed below, in
February 2005, we completed a private placement, netting approximately $6.2
million, and, in November 2005, we received a commitment letter from Standard
Bank Plc. for a project finance facility of up to US$12 million for our El
Chanate project in Sonora State, Mexico.

February 2005 Private Placement

In the private placement that closed in February 2005, we issued 27,200,004
shares of our Common Stock and warrants to purchase an aggregate of up to
27,200,004 shares of our Common Stock for an aggregate gross purchase price of
approximately $6.8 million and we received approximately $6.2 million in net
proceeds. The Warrant issued to each purchaser was originally exercisable for
one share of our Common Stock, at an exercise price equal to $0.30 per share. We
have temporarily lowered the exercise price of the Warrants to $0.20 per shares
for the period commencing on November 28, 2005 and ending on December 23, 2005,
after which time the exercise price increases back to $0.30 per share Each
Warrant has a term of two years and is fully exercisable from the date of
issuance. We issued to the placement agent two year warrants to purchase up to
2,702,000 shares of our Common Stock at an exercise price of $0.25 per share.
The purchasers acquired the Common Stock and warrants to purchase Common Stock
directly from us in transactions exempt from the registration requirements of
the federal and state securities laws. All of the securities were issued and
sold solely to accredited investors, as defined in Rule 501 of Regulation D
pursuant to the Securities Act.


                                      -17-
<PAGE>

Pursuant to our agreement with the purchasers we registered the foregoing shares
and shares issuable upon the exercise of the foregoing Warrants (collectively,
the "registrable shares") for public resale. We also agreed to prepare and file
all amendments and supplements necessary to keep the registration statement
effective until the earlier of the date on which the selling stockholders may
resell all the registrable shares covered by the registration statement without
volume restrictions pursuant to Rule 144(k) under the Securities Act or any
successor rule of similar effect and the date on which the selling stockholders
have sold all the shares covered by the registration statement. If, subject to
certain exceptions, sales of all shares registered cannot be made pursuant to
the registration statement, we will be required to pay to these selling
stockholders in cash or, at our option, in shares, their pro rata share of
0.0833% of the aggregate market value of the registrable shares held by these
selling stockholders for each month thereafter until sales of the registrable
shares can again be made pursuant to the registration statement.

In addition, we agreed to have our Common Stock listed for trading on the
Toronto Stock Exchange. If our Common Stock was not listed for trading on the
Toronto Stock Exchange within 180 days after February 8, 2005, we were required
to issue to these selling stockholders an additional number of shares of our
Common Stock that is equal to 20% of the number of shares acquired by them in
the private placement. We did not timely list our shares on the Toronto Stock
Exchange and, in August 2005, we issued 5,440,000 shares to the selling
stockholders. We are in the process of registering these 5,440,000 shares for
public resale.

Project Finance Facility

On February 2, 2005, we mandated Standard Bank Plc. as the exclusive arranger of
a project finance facility of up to US$10 million for our El Chanate project and
associated hedging. In November 2005, we received a commitment letter from
Standard Bank informing us that its credit committee had approved the Standard
Bank's arranging and providing for a senior project finance facility for up to
US$12 million for the development of our El Chanate project.

The terms and conditions contained in the commitment letter and the term sheet
attached thereto are indicative only and actual funding is subject to the
negotiation of and execution of satisfactory definitive documents as well as
satisfaction of certain conditions, including raising the additional funds
necessary for construction and working capital, there occurring no events that
materially adversely affect our business, operations or financial condition and
there being no material deterioration in the gold price. The commitment expires
on January 31, 2006 if not funded by that date.

According to the term sheet included with the commitment letter, Minera Santa
Rita S. de R.L. de C.V. and Oro de Altar S. de R. L. de C.V., two of our
wholly-owned Mexican subsidiaries (the "Borrowers"), will borrow up to US$12
million from Standard Bank. The loan proceeds will be used to fund project costs
related to the El Chanate project. The loan will mature in five years after the
closing date and bear interest at 4% plus the 1,2,3 or 6 month Libor rate. The
loan will be repayable in 14 quarterly installments commencing on a date to be
determined. In addition, on each installment date, we will be required to apply
50% of excess cash flow towards prepayment of the loan. The loan will be secured
by all shares and all of the assets of the Borrowers, The loan will also be
supported by our guarantee and we will be required to maintain a minimum cash
liquidity balance in an amount to be determined.

We (the Borrowers and/or us) will be required to deposit all cash proceeds we
receive from operations and other sources in an off-shore proceeds account which
will be subject to Standard Bank's security interest. Absent default by us under
the finance documents, funds from this account will be used for specific
purposes such as approved operating costs, budgeted capital expenditures,
hedging costs and funds payable to Standard Bank under the finance documents. As
additional security, we also will be required to fund an offshore debt service
account ("DSRA") and maintain a minimum balance of US$1,800,000.


                                      -18-
<PAGE>

We will be required to meet and maintain certain financial covenants and conform
to certain customary affirmative and negative covenants, such as restrictions on
sale of assets. We also will be required to enter into a gold price protection
program that mitigates the risk of downward movement in gold prices by entering
into an acceptable hedging program and we will need to structure a hedging
program to mitigate interest rate risk and foreign exchange risk, all in a
manner satisfactory to Standard Bank.

The facility will close and funding will be available upon satisfaction of
certain conditions precedent. In addition to customary conditions precedent such
as execution of definitive documents, the absence of events of default and
satisfactory representations and warranties, closing and funding of the facility
will be subject to: (i) Standard Bank's determination that we have hired
appropriate additional management to provide construction, operations and
financial management and oversight; and (ii) our raising sufficient equity
funding, net of expenses, that, along with cash on hand, is adequate to cover
all required project equity contributions, pre-completion funding of the DSRA
and other cash requirements prior to Economic Completion (the date upon which
Standard Bank determines that all covenants and completion conditions have been
met over a period of 90 consecutive days and are sustainable over the life of
the project), and to meet a certain minimum liquidity balance to be determined
by Standard Bank.

Pursuant to the original mandate in February 2005, we issued to Standard Bank
1,000,000 common stock purchase warrants and paid certain upfront fees. Pursuant
to the Commitment letter, we paid Standard Bank additional upfront fees
consisting of cash and 1,000,000 shares of our common stock. In addition, on the
closing date we will be required to deliver to Standard Bank an additional
upfront cash fee, an additional 1,000,000 shares of common stock and an
additional 12,600,000 common stock purchase warrants. We are in the process of
registering the 1,000,000 shares and, we previously registered the 1,000,000
shares issuable upon exercise of warrants issued to Standard Bank for public
resale and we have agreed to register the above-mentioned additional shares and
shares issuable upon exercise of the warrants for public resale.

As noted above, the Standard Bank commitment requires us to raise additional
funds. Moreover, If Standard determines not to provide the funding, we will be
required to obtain such funding from another source. To the extent that we need
to obtain additional capital to complete the mine, commence operations and cover
ongoing general and administrative expenses, management intends to raise such
funds through bank financing, the sale of our securities, the sale of a royalty
interest in the future production from the Chanate properties and/or joint
venturing with one or more strategic partners. We cannot assure that adequate
additional funding will be available. If we are unable to obtain needed capital
from outside sources, we will be forced to reduce or curtail our operations.
Please see the risk factor "We lack operating cash flow and rely on external
funding sources. If we are unable to continue to obtain needed capital from
outside sources until we are able to generate positive cash flow from
operations, we will be forced to reduce or curtail our operations."

Environmental and Permitting Issues

Management does not expect that environmental issues will have an adverse
material effect on our liquidity or earnings. In Mexico, although we must
continue to comply with laws, rules and regulations concerning mining,
environmental, health, zoning and historical preservation issues, we are not
aware of any significant environmental concerns or existing reclamation
requirements at the El Chanate concessions. We received the required Mexican
government permits for construction, mining and processing the El Chanate ores
in January 2004. The permits were extended in June 2005. Pursuant to the
extensions, once we file a notice that work has commenced, we have one year to
prepare the site and construct the mine and seven years to mine and process ores
from the site. We received the explosive permit from the government in January
2004. This permit must be renewed annually and currently runs through December
2005.


                                      -19-
<PAGE>

We own properties in Leadville, Colorado for which we have recorded an
impairment loss. Part of the Leadville Mining District has been declared a
federal Superfund site under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, and the Superfund Amendments and
Reauthorization Act of 1986. Several mining companies and one individual were
declared defendants in a possible lawsuit. We were not named a defendant or
Principal Responsible Party. We did respond in full detail to a lengthy
questionnaire prepared by the Environmental Protection Agency ("EPA") regarding
our proposed procedures and past activities in November 1990. To our knowledge,
the EPA has initiated no further comments or questions.

We do include in all our internal revenue and cost projections a certain amount
for environmental and reclamation costs on an ongoing basis. This amount is
determined at a fixed amount of $0.13 per metric tonne of material to be milled
on a continual, ongoing basis to provide primarily for reclaiming tailing
disposal sites and other reclamation requirements. At this time, there do not
appear to be any environmental costs to be incurred by us beyond those already
addressed above. No assurance can be given that environmental regulations will
not be changed in a manner that would adversely affect our planned operations.

New Accounting Pronouncements

Financial Accounting Standards Board ("FASB") Statement No. 154 Accounting
Changes and Error Corrections--a replacement of APB Opinion No. 20 and FASB
Statement No. 3

This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB
Statement No. 3, Reporting Accounting Changes in Interim Financial Statements,
and changes the requirements for the accounting for and reporting of a change in
accounting principle. This Statement applies to all voluntary changes in
accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement includes specific
transition provisions, those provisions should be followed.

Opinion 20 previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period of the change
the cumulative effect of changing to the new accounting principle. This
Statement requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. When it is impracticable to determine the period-specific effects of an
accounting change on one or more individual prior periods presented, this
Statement requires that the new accounting principle be applied to the balances
of assets and liabilities as of the beginning of the earliest period for which
retrospective application is practicable and that a corresponding adjustment be
made to the opening balance of retained earnings (or other appropriate
components of equity or net assets in the statement of financial position) for
that period rather than being reported in an income statement. When it is
impracticable to determine the cumulative effect of applying a change in
accounting principle to all prior periods, this Statement requires that the new
accounting principle be applied as if it were adopted prospectively from the
earliest date practicable.

This Statement defines retrospective application as the application of a
different accounting principle to prior accounting periods as if that principle
had always been used or as the adjustment of previously issued financial
statements to reflect a change in the reporting entity. This Statement also
redefines restatement as the revising of previously issued financial statements
to reflect the correction of an error.

This Statement requires that retrospective application of a change in accounting
principle be limited to the direct effects of the change. Indirect effects of a
change in accounting principle, such as a change in nondiscretionary
profit-sharing payments resulting from an accounting change, should be
recognized in the period of the accounting change.


                                      -20-
<PAGE>

This Statement also requires that a change in depreciation, amortization, or
depletion method for long-lived, nonfinancial assets be accounted for as a
change in accounting estimate effected by a change in accounting principle.

This Statement carries forward without change the guidance contained in Opinion
20 for reporting the correction of an error in previously issued financial
statements and a change in accounting estimate. This Statement also carries
forward the guidance in Opinion 20 requiring justification of a change in
accounting principle on the basis of preferability. FASB Statement No. 154 is
effective for fiscal years beginning after December 15, 2005.

Financial Accounting Standards Board ("FASB") Statement No. 151 "Inventory
Costs-an amendment of ARB No. 43, Chapter 4", FASB Statement No. 152,
"Accounting for Real Estate Time-Sharing Transactions-an amendment of FASB
Statements No. 66 and 67", FASB Statement No. 153, "Exchanges of Non Monetary
Assets-an amendment of APB Opinion No. 29", and FASB Statement No. 123R, "Share
Based Payment" were issued November 2004, December 2004, December 2004 and
December 2004, respectively. FASB Statements No. 151, 152 and 153 have no
current applicability to us or their effect on the consolidated financial
statements would not have been significant.

FASB Statement No. 123R is a revision of FASB Statement No. 123, "Accounting for
Stock-Based Compensation". This Statement supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and its related implementation
guidance.

This Statement establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or services. It also
addresses transactions in which an entity incurs liabilities in exchange for
goods or services that are based on the fair value of the entity's equity
instruments or that may be settled by the issuance of those equity instruments.
This Statement focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment transactions. This
Statement does not change the accounting guidance for share-based payment
transactions with parties other than employees provided in Statement 123 as
originally issued and EITF Issue No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services." This Statement does not address the accounting for
employee share ownership plans, which are subject to AICPA Statements of
Position 93-6, Employers' Accounting for Employee Stock Ownership Plans.

This Statement requires a public entity to measure the cost of employee services
received in exchange for an award of equity instruments based on the grant-date
fair value of the award (with limited exceptions). That cost will be recognized
over the period during which an employee is required to provide service in
exchange for the award-the requisite service period (usually the vesting
period). No compensation cost is recognized for equity instruments for which
employees do not render the requisite service. Employee share purchase plans
will not result in recognition of compensation cost if certain conditions are
met; those conditions are much the same as the related conditions in Statement
123.

This Statement is effective for us as of the beginning of the first interim or
annual reporting period that begins after December 15, 2005. The provisions of
this Statement will be adopted in quarter ending April 30, 2006. We are in the
process of assessing the impact of adopting this Statement.

Disclosure About Off-Balance Sheet Arrangements

We do not have any transactions, agreements or other contractual arrangements
that constitute off-balance sheet arrangements.


                                      -21-
<PAGE>

Critical Accounting Policies

Our financial statements and accompanying notes are prepared in accordance with
accounting principles generally accepted in the United States of America.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue,
and expenses. These estimates and assumptions are affected by management's
application of accounting policies. Critical accounting policies for us include
impairment of long-lived assets, accounting for stock-based compensation and
environmental remediation costs.

In accordance with SFAS 144, "Accounting for the Impairment and Disposal of
Long-Lived Assets," we review our long-lived assets for impairments. Impairment
losses on long-lived assets are recognized when events or changes in
circumstances indicate that the undiscounted cash flows estimated to be
generated by such assets are less than their carrying value and, accordingly,
all or a portion of such carrying value may not be recoverable. Impairment
losses then are measured by comparing the fair value of assets to their carrying
amounts. During the year ended July 31, 2002, we performed a review of our
Colorado mine and mill improvements and determined that an impairment loss
should be recognized. Accordingly, at July 31, 2002, we reduced by $999,445 the
net carrying value of certain assets relating to our Leadville, Colorado
facility to $300,000, and further reduced the net carrying value to $0 at July
31, 2004, which approximates management's estimate of fair value.

Environmental remediation costs are accrued based on estimates of known
environmental remediation exposure. Such accruals are recorded even if
significant uncertainties exist over the ultimate cost of the remediation. It is
reasonably possible that our estimates of reclamation liabilities, if any, could
change as a result of changes in regulations, extent of environmental
remediation required, means of reclamation or cost estimates. Ongoing
environmental compliance costs, including maintenance and monitoring costs, are
expensed as incurred. There were no environmental remediation costs incurred or
accrued at October 31, 2005.

                                  Risk Factors

We are subject to various risks that may materially harm our business, financial
condition and results of operations. If any of these risks or uncertainties
actually occur, our business, financial condition or operating results could be
materially harmed. In that case, the trading price of our common stock could
decline and you could lose all or part of your investment.

Risks related to our business and operations

      We have not generated any operating revenues. If we are unable to
      commercially develop our mineral properties, we will not be able to
      generate profits and our business may fail.

To date, we have no producing properties. As a result, we have no current source
of operating revenue and we have historically operated and continue to operate
at a loss. Our ultimate success will depend on our ability to generate profits
from our properties. Our viability is largely dependent on the successful
commercial development of our El Chanate gold mining project in Sonora, Mexico.

      We lack operating cash flow and rely on external funding sources. If we
      are unable to continue to obtain needed capital from outside sources until
      we are able to generate positive cash flow from operations, we will be
      forced to reduce or curtail our operations.


                                      -22-
<PAGE>

We do not generate any positive cash flow from operations and we do not
anticipate that any positive cash flow will be generated for some time. Our
primary focus is the development of our El Chanate project which, we anticipate,
will cost between $17.5 and $18.5million. We also anticipate non-mine related
operating expenses of approximately $1.4 million. In February 2005, we raised
approximately $6.2 million in a private placement and in November 2005 we
received a commitment letter from Standard Bank Plc. (formerly, Standard Bank
London Limited) for a project finance facility of up to US$12 million for our El
Chanate project. Funding the Standard Bank facility is subject to the
negotiation, execution, and delivery of definitive financing documentation, as
well as the completion of certain conditions, including raising additional funds
necessary for construction and working capital. Accordingly, we will need to
obtain additional capital from outside sources. To the extent that we need to
obtain additional capital, management intends to raise such funds through bank
financing, the sale of our securities, the sale of a royalty interest in the
future production from the El Chanate concessions and/or joint venturing with
one or more strategic partners. We cannot assure that adequate additional
funding will be available. If we are unable to obtain needed capital from
outside sources, we will be forced to reduce or curtail our operations.

      Our year end audited financial statements contain a "going concern"
      explanatory paragraph. Our inability to continue as a going concern would
      require a restatement of assets and liabilities on a liquidation basis,
      which would differ materially and adversely from the going concern basis
      on which our financial statements included in this report have been
      prepared.

Our consolidated financial statements for the year ended July 31, 2005 included
in our annual report on form 10-KSB for the year then ended have been prepared
on the basis of accounting principles applicable to a going concern. Our
auditors' report on the consolidated financial statements contained therein
includes an additional explanatory paragraph following the opinion paragraph on
our ability to continue as a going concern. A note to these consolidated
financial statements describes the reasons why there is substantial doubt about
our ability to continue as a going concern and our plans to address this issue.
Our July 31, 2005 and October 31, 2005 consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Our inability to continue as a going concern would require a restatement of
assets and liabilities on a liquidation basis, which would differ materially and
adversely from the going concern basis on which our consolidated financial
statements have been prepared. See, "Management's Discussion and Analysis of
Financial Condition and Results of Operations; Liquidity and Capital Resources;
Plan of Operations

      If we are unable to obtain a crushing system and other equipment for our
      Mexican concessions at an acceptable cost, our anticipated results of
      operations from mining at these concessions, once mining commences, may be
      adversely affected.

We are currently in discussions with a US supplier to acquire a crushing system,
including conveyors, that consist of new equipment to use this equipment at our
El Chanate project. We need to consummate the Standard Bank financing before we
acquire this equipment. If we are unable to obtain requisite equipment at an
acceptable cost, our planned mining operations and our anticipated results of
operations from mining at these concessions, once mining commences, may be
adversely affected. See, "Management's Discussion and Analysis of Financial
Condition and Results of Operations; Liquidity and Capital Resources; Plan of
Operations."

      We will be using reconditioned and used equipment which could adversely
      affect our cost assumptions and our ability to economically and
      successfully mine the project.

We plan to use reconditioned and used carbon column collection equipment to
recover gold. Such equipment is subject to the risk of more frequent breakdowns
and need for repair than new equipment. If the equipment that we use breaks down
and needs to be repaired or replaced, we will incur additional costs and
operations may be delayed resulting in lower amounts of gold recovered. In such
event, our capital and operating cost assumptions may be inaccurate and our
ability to economically and successfully mine the project may be hampered,
resulting in decreased revenues and, possibly, a loss from operations.


                                      -23-
<PAGE>

      As a result of the projected short mine life of six years, if major
      problems develop, we will have limited time to correct these problems and
      we may have to cease operations earlier than planned.

Pursuant to the 2005 Study, the mine life will be only six years. If major
problems develop in the project, or we fail to achieve the operating
efficiencies or costs projected in the feasibility study, we will have limited
time to find ways to correct these problems and we may have to cease operations
earlier than planned.

      The gold deposit we have identified at El Chanate is relatively small and
      low-grade. If our estimates and assumptions are inaccurate, our results of
      operation and financial condition could be materially adversely affected.

The gold deposit we have identified at our El Chanate Project is relatively
small and low-grade. If the estimates of ore grade or recovery rates contained
in the feasibility study turn out to be higher than the actual ore grade and
recovery rates, if costs are higher than expected, or if we experience problems
related to the mining, processing of, or recovery of gold from, ore at the El
Chanate project, our results of operation and financial condition could be
materially adversely affected. Moreover, it is possible that actual costs and
economic returns may differ materially from our best estimates. It is not
unusual in the mining industry for new mining operations to experience
unexpected problems during the start-up phase and to require more capital than
anticipated. There can be no assurance that our operations at El Chanate will be
profitable.

      We have a limited number of prospects. As a result, our chances of
      commencing viable mining operations are dependent upon the success of one
      project.

Our only current properties are the El Chanate concessions and our Leadville
properties. At present, we are not doing any substantive work at our Leadville
properties and, in fact, have written these properties off. Our El Chanate
concessions are owned by one of our wholly-owned subsidiaries, Oro de Altar.
Santa Rita, another of our Mexican subsidiaries leases the land and claims at El
Chanate from Oro de Altar. FG, our former joint venture partner, has the right
to receive five percent of Santa Rita's annual dividends, when declared. We
currently do not have operations on either of our properties, and we must
commence such operations to receive revenues. Accordingly, we are dependent upon
the success of the El Chanate concessions.

      Gold prices can fluctuate on a material and frequent basis due to numerous
      factors beyond our control. If and when we commence production, our
      ability to generate profits from operations could be materially and
      adversely affected by such fluctuating prices.

The profitability of any gold mining operations in which we have an interest
will be significantly affected by changes in the market price of gold. Gold
prices fluctuate on a daily basis. Between January 1, 2005 and December 2, 2005,
the spot price for gold on the London Exchange has fluctuated between $411.10
and $504.75 per ounce. Gold prices are affected by numerous factors beyond our
control, including:

      o     the level of interest rates,

      o     the rate of inflation,

      o     central bank sales,

      o     world supply of gold and

      o     stability of exchange rates.


                                      -24-
<PAGE>

Each of these factors can cause significant fluctuations in gold prices. Such
external factors are in turn influenced by changes in international investment
patterns and monetary systems and political developments. The price of gold has
historically fluctuated widely and, depending on the price of gold, revenues
from mining operations may not be sufficient to offset the costs of such
operations.

      Our material property interests are in Mexico. Risks of doing business in
      a foreign country could adversely affect our results of operations and
      financial condition.

We face risks normally associated with any conduct of business in foreign
countries with respect to our El Chanate project in Sonora, Mexico, including
various levels of political and economic risk. The occurrence of one or more of
these events could have a material adverse impact on our efforts or future
operations which, in turn, could have a material adverse impact on our future
cash flows, earnings, results of operations and financial condition. These risks
include the following:

      o     labor disputes,

      o     invalidity of governmental orders,

      o     uncertain or unpredictable political, legal and economic
            environments,

      o     war and civil disturbances,

      o     changes in laws or policies,

      o     taxation,

      o     delays in obtaining or the inability to obtain necessary
            governmental permits,

      o     governmental seizure of land or mining claims,

      o     limitations on ownership,

      o     limitations on the repatriation of earnings,

      o     increased financial costs,

      o     import and export regulations, including restrictions on the export
            of gold, and

      o     foreign exchange controls.

These risks may limit or disrupt the project, restrict the movement of funds or
impair contract rights or result in the taking of property by nationalization or
expropriation without fair compensation.

      We anticipate selling gold in U.S. dollars; however, we incur a
      significant amount of our expenses in Mexican pesos. If and when we sell
      gold, if applicable currency exchange rates fluctuate our revenues and
      results of operations may be materially and adversely affected.

If and when we commence sales of gold, such sales will be made in U.S. dollars.
We incur a significant amount of our expenses in Mexican pesos. As a result, our
financial performance would be affected by fluctuations in the value of the
Mexican peso to the U.S. dollar. At the present time, we have no plan or policy
to utilize forward contracts or currency options to minimize this exposure;
however, pursuant to the commitment letter from Standard Bank Plc. we will be
required to implement such measures. If and when these measures are implemented,
there can be no assurance that such arrangements will be cost effective or be
able to fully offset such future currency risks.

      Changes in regulatory policy could adversely affect our exploration and
      future production activities.

Any changes in government policy may result in changes to laws affecting:

      o     ownership of assets,

      o     land tenure,

      o     mining policies,

      o     monetary policies,

      o     taxation,

      o     rates of exchange,

      o     environmental regulations,

      o     labor relations,

      o     repatriation of income and

      o     return of capital.


                                      -25-
<PAGE>

Any such changes may affect our ability to undertake exploration and development
activities in respect of present and future properties in the manner currently
contemplated, as well as our ability to continue to explore, develop and operate
those properties in which we have an interest or in respect of which we have
obtained exploration and development rights to date. The possibility,
particularly in Mexico, that future governments may adopt substantially
different policies, which might extend to expropriation of assets, cannot be
ruled out.

      Compliance with environmental regulations could adversely affect our
      exploration and future production activities.

With respect to environmental regulation, environmental legislation generally is
evolving in a manner which will require:

      o     stricter standards and enforcement,

      o     increased fines and penalties for non-compliance,

      o     more stringent environmental assessments of proposed projects and

      o     a heightened degree of responsibility for companies and their
            officers, directors and employees.

There can be no assurance that future changes to environmental legislation and
related regulations, if any, will not adversely affect our operations. We could
be held liable for environmental hazards that exist on the properties in which
we hold interests, whether caused by previous or existing owners or operators of
the properties. Any such liability could adversely affect our business and
financial condition.

      We are not insured against any losses or liabilities that could arise from
      our operations because we have not commenced operations at El Chanate.
      Although we plan on obtaining insurance once construction begins, such
      insurance may not be adequate. If we incur material losses or liabilities
      because we do not have insurance or our coverage is not adequate, our
      financial position could be materially and adversely affected.

We are in the process of developing our Mexican concessions and hope to commence
mining operations during calendar 2006. If and when we commence mining
operations, such operations will involve a number of risks and hazards,
including:

      o     environmental hazards,

      o     industrial accidents,

      o     metallurgical and other processing,

      o     acts of God, and

      o     mechanical equipment and facility performance problems.

Such risks could result in:

      o     damage to, or destruction of, mineral properties or production
            facilities,

      o     personal injury or death,

      o     environmental damage,

      o     delays in mining,

      o     monetary losses and /or

      o     possible legal liability.


                                      -26-
<PAGE>

Industrial accidents could have a material adverse effect on our future business
and operations. Although as we move forward in the development of the El Chanate
project we plan to obtain and maintain insurance within ranges of coverage
consistent with industry practice, we cannot be certain that this insurance will
cover the risks associated with mining or that we will be able to maintain
insurance to cover these risks at economically feasible premiums. We also might
become subject to liability for pollution or other hazards which we cannot
insure against or which we may elect not to insure against because of premium
costs or other reasons. Losses from such events may have a material adverse
effect on our financial position.

      Calculation of reserves and metal recovery dedicated to future production
      is not exact, might not be accurate and might not accurately reflect the
      economic viability of our properties.

Reserve estimates may not be accurate. There is a degree of uncertainty
attributable to the calculation of reserves, resources and corresponding grades
being dedicated to future production. Until reserves or resources are actually
mined and processed, the quantity of reserves or resources and grades must be
considered as estimates only. In addition, the quantity of reserves or resources
may vary depending on metal prices. Any material change in the quantity of
reserves, resource grade or stripping ratio may affect the economic viability of
our properties. In addition, there can be no assurance that mineral recoveries
in small scale laboratory tests will be duplicated in large tests under on-site
conditions or during production.

      We are dependent on the efforts of certain key personnel and we need to
      retain additional personnel and/or contractors to develop our El Chanate
      project. If we lose the services of these personnel or we are unable to
      retain additional personnel and/or contractors, our ability to complete
      development and operate our El Chanate project may be delayed and our
      planned operations may be materially adverse affected.

We are dependent on a relatively small number of key personnel, including but
not limited to Dave Loder, the General Manager of the El Chanate project, the
loss of any one of whom could have an adverse effect on us. In addition, while
certain of our officers and directors have experience in the exploration and
operation of gold producing properties, we need to retain additional personnel
and/or contractors to develop and operate our El Chanate project. Certain of
these consultants, including Dave Loder, have already been engaged. There can be
no guarantee that such personnel or contractors will be available to carry out
such activities on our behalf or be available upon commercially acceptable
terms. If we lose the services of our key personnel or we are unable to retain
additional personnel and/or contractors, our ability to complete development and
operate our El Chanate project may be delayed and our planned operations may be
materially adverse affected.

      There are uncertainties as to title matters in the mining industry. We
      believe that we have good title to our properties; however, any defects in
      such title that cause us to lose our rights in mineral properties could
      jeopardize our planned business operations.

We have investigated our rights to explore, exploit and develop our concessions
in manners consistent with industry practice and, to the best of our knowledge,
those rights are in good standing. However, we cannot assure that the title to
or our rights of ownership of the El Chanate concessions will not be challenged
or impugned by third parties or governmental agencies. In addition, there can be
no assurance that the concessions in which we have an interest are not subject
to prior unregistered agreements, transfers or claims and title may be affected
by undetected defects. Any such defects could have a material adverse effect on
us.


                                      -27-
<PAGE>

      Should we successfully commence mining operations in Mexico, our ability
      to remain profitable long term, should we become profitable, eventually
      will depend on our ability to find, explore and develop additional
      properties. Our ability to acquire such additional properties will be
      hindered by competition. If we are unable to acquire, develop and
      economically mine additional properties, we most likely will not be able
      to be profitable on a long-term basis.

Gold properties are wasting assets. They eventually become depleted or
uneconomical to continue mining. The acquisition of gold properties and their
exploration and development are subject to intense competition. Companies with
greater financial resources, larger staffs, more experience and more equipment
for exploration and development may be in a better position than us to compete
for such mineral properties. If we are unable to find, develop and economically
mine new properties, we most likely will not be able to be profitable on a
long-term basis.

      Our ability on a going forward basis to discover additional viable and
      economic mineral reserves is subject to numerous factors, most of which
      are beyond our control and are not predictable. If we are unable to
      discover such reserves, we most likely will not be able to be profitable
      on a long-term basis.

Exploration for gold is speculative in nature, involves many risks and is
frequently unsuccessful. Few properties that are explored are ultimately
developed into commercially producing mines. As noted above, our long-term
profitability will be, in part, directly related to the cost and success of
exploration programs. Any gold exploration program entails risks relating to

      o     the location of economic ore bodies,

      o     development of appropriate metallurgical processes,

      o     receipt of necessary governmental approvals and

      o     construction of mining and processing facilities at any site chosen
            for mining.

The commercial viability of a mineral deposit is dependent on a number of
factors including:

      o     the price of gold,

      o     the particular attributes of the deposit, such as its

            o     size,

            o     grade and

            o     proximity to infrastructure,

      o     financing costs,

      o     taxation,

      o     royalties,

      o     land tenure,

      o     land use,

      o     water use,

      o     power use,

      o     importing and exporting gold and

      o     environmental protection.

The effect of these factors cannot be accurately predicted.


                                      -28-
<PAGE>

Risks related to ownership of our stock

      There is a limited market for our common stock. If a substantial and
      sustained market for our common stock does not develop, our stockholders
      may have difficulty selling, or be unable to sell, their shares.

Our common stock is tradable in the over-the-counter market and is quoted on the
Over-The-Counter Bulletin Board. There is only a limited market for our common
stock and there can be no assurance that this market will be maintained or
broadened. If a substantial and sustained market for our common stock does not
develop, our stockholders may have difficulty selling, or be unable to sell,
their shares.

      Our stock price may be adversely affected if a significant amount of
      shares are sold in the public market.

As of December 6, 2005, approximately 56,040,500 shares of our Common Stock,
constituted "restricted securities" as defined in Rule 144 under the Securities
Act of 1933. More than half of these shares have been registered or are in the
process of being registered for public resale. In addition, we have registered
or are in the process of registering 30,902,004 shares of Common Stock issuable
upon the exercise of outstanding warrants and 763,636 shares of Common Stock
issuable upon the exercise of outstanding options. All of the foregoing shares,
assuming exercise of all of the above options and warrants, would represent in
excess of 50% of the then outstanding shares of our Common Stock. Registration
of the shares permits the sale of the shares in the open market or in privately
negotiated transactions without compliance with the requirements of Rule 144. To
the extent the exercise price of the warrants or options is less than the market
price of the Common Stock, the holders of the warrants are likely to exercise
them and sell the underlying shares of Common Stock and to the extent that the
exercise prices of these securities are adjusted pursuant to anti-dilution
protection, the securities could be exercisable or convertible for even more
shares of Common Stock. In addition, should we consummate the project finance
facility with Standard Bank, we will be required to issue an additional
1,000,000 shares and warrants for an additional 12.6 million shares and to
register the foregoing shares and the shares issuable upon exercise of these
warrants for public resale. We also may issue shares to be used to meet our
capital requirements or use shares to compensate employees, consultants and/or
directors. We are unable to estimate the amount, timing or nature of future
sales of outstanding Common Stock. Sales of substantial amounts of our Common
Stock in the public market could cause the market price for our Common Stock to
decrease. Furthermore, a decline in the price of our Common Stock would likely
impede our ability to raise capital through the issuance of additional shares of
Common Stock or other equity securities.

      We do not intend to pay dividends in the near future.

Our board of directors determines whether to pay dividends on our issued and
outstanding shares. The declaration of dividends will depend upon our future
earnings, our capital requirements, our financial condition and other relevant
factors. Our board does not intend to declare any dividends on our shares for
the foreseeable future. We anticipate that we will retain any earnings to
finance the growth of our business and for general corporate purposes. In
addition, our ability to pay dividends most likely will be restricted by
financial covenants in any project finance facility we enter into with Standard
Bank or another lender.

      If our Common Stock is deemed to be a "penny stock," trading of our shares
      would be subject to special requirements that could impede our
      stockholders' ability to resell their shares.

"Penny stocks" as that term is defined in Rule 3a51-1 of the Securities and
Exchange Commission are stocks:

i.    with a price of less than five dollars per share;

ii.   that are not traded on a recognized national exchange;

      o     whose prices are not quoted on the NASDAQ automated quotation
            system; or

iii.  of issuers with net tangible assets equal to or less than

      o     -$2,000,000 if the issuer has been in continuous operation for at
            least three years; or

      o     -$5,000,000 if in continuous operation for less than three years, or

      o     of issuers with average revenues of less than $6,000,000 for the
            last three years.

Our Common Stock is not currently a penny stock because we have net tangible
assets of more than $2,000,000. Should our net tangible assets drop below
$2,000,000 and we do not meet any of the other criteria for exclusion of our
Common Stock from the definition of penny stock, our Common Stock will be a
penny stock.

Section 15(g) of the Exchange Act, and Rule 15g-2 of the Securities and Exchange
Commission, require broker-dealers dealing in penny stocks to provide potential
investors with a document disclosing the risks of penny stocks and to obtain a
manually signed and dated written receipt of the document before effecting any
transaction in a penny stock for the investor's account. Moreover, Rule 15g-9 of
the Securities and Exchange Commission requires broker-dealers in penny stocks
to approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer:

i.    to obtain from the investor information concerning his or her financial
      situation, investment experience and investment objectives;

ii.   to determine reasonably, based on that information, that transactions in
      penny stocks are suitable for the investor and that the investor has
      sufficient knowledge and experience as to be reasonably capable of
      evaluating the risks of penny stock transactions;

iii.  to provide the investor with a written statement setting forth the basis
      on which the broker-dealer made the determination in (ii) above; and

iv.   to receive a signed and dated copy of such statement from the investor,
      confirming that it accurately reflects the investor's financial situation,
      investment experience and investment objectives.

Should our Common Stock be deemed to be a penny stock, compliance with the above
requirements may make it more difficult for holders of our Common Stock to
resell their shares to third parties or to otherwise dispose of them.

Item 3. Controls and Procedures.

The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). This term refers to the controls and procedures of a company that are
designed to ensure that information required to be disclosed by a company in the
reports that it files under the Exchange Act is recorded, processed, summarized,
and reported within the required time periods. Our Chief Executive Officer and
our Chief Financial Officer have evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this quarterly
report. They have concluded that, as of that date, our disclosure controls and
procedures were effective at ensuring that required information will be
disclosed on a timely basis in our reports filed under the Exchange Act.

No change in our internal control over financial reporting occurred during the
period covered by this report that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.


                                      -29-
<PAGE>

                           PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

            None.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None during the quarter. In November 2005, we issued 1,000,000,000 shares to
Standard Bank plc pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act of 1933 (see "Part I, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations;
Liquidity and Capital Resources; Plan of Operations- Project Finance Facility"
above).

Item 3. Defaults Upon Senior Securities.

            None.

Item 4 Submission of Matters to a Vote of Security Holders.

      At our Special Meeting of Stockholders on November 18, 2005, stockholders
approved the following:

Approval of a change in our state of incorporation from Nevada to Delaware.

For: 53,080,202  Against: 191,385  Abstain: 44,816  Broker nonvotes: 20,614,580

Approval of an amendment of our Certificate of Incorporation to increase the
authorized number of shares of common stock from 150,000,000 shares to
200,000,000 shares.

For: 71,479,919  Against: 1,692,105  Abstain: 758,999

Total shares voted: 73,931,023 out of 95,969,214 eligible to vote.

As a result of the foregoing, we reincorporated in Delaware effective November
21, 2005 at which time we also increased the authorized number of shares from
150,000,000 shares to 200,000,000 shares.

Item 5. Other Information.

      In December 2005, our wholly-owned Mexican subsidiary, Minera Santa Rita,
S.A. de R.L. de C.V. ("MSR"), which holds the rights to develop and mine the El
Chanate Project, entered into a Mining Contract with a Mexican mining
contractor, Sinergia Obras Civiles y Mineras, S.A. de C.V. ("Contractor"). The
Mining Contract becomes effective when MSR sends the Contractor a formal Notice
of Award. MSR is in the process of sending this formal notice. The parties'
obligations under the Mining Contract are then conditional upon delivery by MSR
to the Contractor of a formal Notice to Proceed. Pursuant to the Mining
Contract, the Contractor, using its own equipment, will generally perform all of
the mining work (other than crushing) at the El Chanate Project for the life of
the mine. Subsequent to delivery of the Notice to Proceed and prior to the
commencement of any work by the Contractor, MSR must pay the Contractor a
mobilization payment of $70,000, and must also make an advance payment of
$520,000 to the Contractor. This advance payment is recoverable by MSR out of
100% of subsequent payments due to the Contractor under the Mining Contract. The
Contractor's mining rates are subject to escalation on an annual basis. This
escalation is tied to the percentage escalation in the Contractor's costs for
various parts for its equipment, interest rates and labor. If the Notice to
Proceed is not received by the Contractor by June 1, 2006, the Contractor may
modify its initial mining rates, and MSR is not obligated to proceed with the
Mining Contract if those modified rates are unacceptable to MSR. One of the
principals of the Contractor is one of the principals of Grupo Minero FG S.A. de
C.V. ("FG"). FG was our former joint venture partner. For more detailed
information, please see the Mining Contract filed as an exhibit hereto.


                                      -30-
<PAGE>

      We solicited and recently received bids from five contractors to supervise
the construction and integration of the various components necessary to commence
production at the El Chanate Project. We plan to evaluate these proposals and we
expect to reach a decision during the first calendar quarter of 2006.

See also, Item 4 above.

Item 6. Exhibits.

      10.1  Mining Contract between MSR and Sinergia Obras Civiles y Mineras,
            S.A. de C.V.

      31.1  Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
            2002 from the Company's Chief Executive Officer

      31.2  Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
            2002 from the Company's Chief Financial Officer

      32.1  Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
            2002 from the Company's Chief Executive Officer

      32.2  Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
            2002 from the Company's Chief Financial Officer


                                      -31-
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.

                                        CAPITAL GOLD CORPORATION
                                              Registrant

                                    By: /s/ Gifford A.  Dieterle
                                        ------------------------
                                        Gifford A.  Dieterle
                                        President/Treasurer

Date:  December 15, 2005


                                      -32-