SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

            [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

                    FOR THE FISCAL YEAR ENDED JULY 31, 2005

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

                           Commission File No. 0-13078

                            CAPITAL GOLD CORPORATION
                            ------------------------
                 (Name of Small business issuer in its charter)

      State of Nevada                                  13-31805030
      --------------------------------------           --------------
      (State or other jurisdiction of                  (I.R.S. Employer
      Incorporation or organization)                   Identification No.)

76 Beaver Street, 26th Floor, New York, New York                           10005
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)

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

Securities registered under Section 12(b) of the Exchange Act: none
Securities registered under Section 12(g) of the Exchange Act: Common Stock, par
value $.001 per share

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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulations S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

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

State issuer's revenues (consisting solely of interest income and immaterial
miscellaneous other income) for its most recent fiscal year. $46,000.

The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the average between the closing bid
($0.228) and asked ($0.23) price of the issuer's Common Stock as of November 1,
2005, was $6,551,896 based upon the average between the closing bid and asked
price ($0.229) multiplied by the 28,610,900 shares of the issuer's Common Stock
held by non-affiliates. (In computing this number, issuer has assumed all record
holders of greater than 5% of the common equity and all directors and officers
are affiliates of the issuer.).

The number of shares outstanding of each of the issuer's classes of common
equity as of November 1, 2005: 95,969,214

                   DOCUMENTS INCORPORATED BY REFERENCE: None.

          Transitional Small Business Disclosure Format: Yes [ ] No [X]


<PAGE>

                            CAPITAL GOLD CORPORATION
                                   Form 10-KSB
                                  July 31, 2005

Table of Contents                                                           Page

Glossary                                                                    (ii)

                                     Part I

Item 1.    Description of Business.                                         1
Item 2.    Description of Property.                                         14

Item 3.    Legal Proceedings.                                               21

Item 4.    Submission of Matters to a Vote of                               21
           Security Holders.

                                     Part II

Item 5.    Market for Common Equity,                                        22
           Related Stockholder Matters and Small Business Issuer
           Purchases of Equity Securities.
Item 6.    Management's Discussion and Analysis of Financial                24
           Condition and Results of Operations; Plan of Operations.
Item 7.    Financial Statements.                                            32

Item 8.    Changes in and Disagreement with Accountants                     32
           on Accounting and Financial Disclosure.
Item 8A    Controls and Procedures.                                         32
Item 8B    Other Information.                                               32

                                    Part III

Item 9.    Directors, Executive Officers, Promoters                         33

           and Control Persons; Compliance with
           Section 16(a) of the Exchange Act.
Item 10.   Executive Compensation.                                          35

Item 11.   Security Ownership of Certain Beneficial                         36

           Owners and Management and Related
           Stockholder Matters.
Item 12.   Certain Relationships and Related Transactions.                  38

Item 13.   Exhibits                                                         39

Item 14.   Principal Accountant Fees and Services                           41
Signatures                                                                  42
Supplemental Information                                                    N/A
Financial Statements                                                        F-1


<PAGE>

                           GLOSSARY OF TECHNICAL TERMS

Caliche:                Sediment cemented by calcium carbonate near surface.

Diorite:                Igneous Rock

Dikes:                  Tabular, vertical bodies of igneous rock.

Fissility:              Shattered, broken nature of rock

Fracture Foliations:    Fracture pattern in rock, parallel orientation,
                        resulting from pressure.

Heap Leaching:          Broken and crushed ore on a pile subjected to
                        dissolution of metals by leach solution.

Hydrometallurgical
Plant:                  A metallurgical mineral processing plant that uses water
                        to leach or separate and concentrate elements or
                        minerals.

Intercalated:           Mixed in

Litho static Pressure:  Pressure brought on by weight of overlaying rocks.

Major
Intrusive Center:       An area where large bodies of intrusive igneous rock
                        exist and through which large amounts of mineralizing
                        fluids rose.

Mesothermal:            A class of hydrothermal ore deposit formed at medium
                        temperatures and a depth over one mile in the earth's
                        crust.

Microporphyritic
Latite:                 Extremely fine grained siliceous igneous rock with a
                        distribution of larger crystals within.

Mudstone:               Sedimentary bed composed primarily of fine grained
                        material such as clay and silt.

Mineral Deposit or
Mineralized             Material: A mineralized rock mass which has been
                        intersected by sufficient closely spaced drill holes and
                        or underground sampling to support sufficient tonnage
                        and average grade of metal(s) to warrant further
                        exploration-development work. This deposit does not
                        qualify as a commercially mineable ore body (Reserves),
                        as prescribed under Commission standards, until a final
                        and comprehensive economic, technical and legal
                        feasibility study based upon the test results is
                        concluded.

PPM:                    Part per million.

Pyritized:              Partly replaced by the mineral pyrite.


                                       ii
<PAGE>

Reverse Circulation
Drilling (or R.C.
Drilling):              Type of drilling using air to recover cuttings for
                        sampling through the middle of the drilling rods rather
                        than the outside of the drill rods, resulting in less
                        contamination of the sampled interval.

Sericitized:            Rocks altered by heat, pressure and solutions resulting
                        in formation of the mineral sericite, a very fine
                        grained mica.

Siltstone:              A sedimentary rock composed of clay and silt sized
                        particles.

Silicified:             Partly replaced by silica.

Stockwork Breccia:      Earth's crust broken by two or more sets of parallel
                        faults converging from different directions.

Stockwork:              Ore, when not in strata or in veins but in large masses,
                        so as to be worked in chambers or in large blocks.

Surface Mine:           Surface mining by way of an open pit without shafts or
                        underground working.


                                      iii
<PAGE>

                                     PART I

Item 1.  Description of Business

Through a wholly-owned subsidiary and an affiliate, Capital Gold Corporation
(the "Company," "we" or "us") owns 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 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
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 of 2003. Since completion of the 2003 Study, the price
of gold and production costs have increased and equipment choices have broadened
from those identified in the 2003 Study.

The 2005 Study primarily addresses 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 6,
            if justified by gold prices at that time,

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

      o     revised the process of equipment selection and

      o     evaluated the newly acquired water well for processing the ore

Pursuant to the 2005 Study, our 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
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 tones 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.
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.


                                       1
<PAGE>

                                 Sonora, Mexico

El Chanate

In June 2001, we purchased 100% of the issued and outstanding stock of Minera
Chanate, S.A. de C.V. from AngloGold North America Inc. and AngloGold (Jerritt
Canyon) Corp. Minera Chanate's assets at the time of the closing of the purchase
consisted of 106 exploitation and exploration concessions in the States of
Sonora, Chihuahua and Guerrero, Mexico. By June of 2002, after property reviews
and to minimize tax payments, the 106 had been reduced to 12 concessions. To
cover certain non-critical gaps between concessions, three new concessions were
located, and the number of concessions is now 16. These concessions are
contiguous, totaling approximately 3,544 hectares (8,756 acres or 13.7 square
miles). We sometimes refer to these concessions as the El Chanate concessions.
Although there are 16 concessions, we only plan to mine two of these concessions
at the present time. We sometimes refer to the planned operations on these two
concessions as the El Chanate project We also own outright 466 hectares (1,151
acres or 1.8 square miles) of surface rights at El Chanate and no third party
ownership or leases exist on this fee land or the El Chanate concessions. For
more detailed information on the El Chanate concessions please see "Item 2.
Description of Property." In the future, assuming adequate funding is available,
we plan on conducting exploration activities on some of the other concessions.

Pursuant to the terms of the agreement with Anglo Gold, in December 2001, we
made a $50,000 payment to AngloGold. AngloGold will be entitled to receive the
remainder of the purchase price by way of an ongoing percentage of net smelter
returns of between 2% and 4% plus a 10% net profits interest (until the total
net profits interest payment received by AngloGold equals $1,000,000).
AngloGold's right to a payment of a percentage of net smelter returns and the
net profits interest will terminate at such point as they aggregate $18,018,355.
In accordance with the agreement, the foregoing payments are not to be construed
as royalty payments. Should the Mexican government or other jurisdiction
determine that such payments are royalties, we could be subjected to and would
be responsible for any withholding taxes assessed on such payments.

Under the terms of the agreement, we have granted AngloGold the right to
designate one of its wholly-owned Mexican subsidiaries to receive a one-time
option to purchase 51% of Minera Chanate (or such entity that owns the El
Chanate concessions at the time of option exercise). That option is exercisable
over a 180 day period commencing at such time as we notify AngloGold that we
have made a good faith determination that we have gold-bearing ore deposits on
any one of the identified groups of El Chanate concessions, when aggregated with
any ore that we have mined, produced and sold from such concessions, of in
excess of 2,000,000 troy ounces of contained gold. The exercise price would
equal twice our project costs on the properties during the period commencing on
December 15, 2000 and ending on the date of such notice. Based on current
information available to us, we do not believe a deposit of the size that would
trigger these back-in rights is likely to be identified at El Chanate.

In February 2002, Minera Santa Rita S. de R.L. de C.V., one of our wholly-owned
Mexican affiliates ("Santa Rita"), now the leasee of the El Chanate concessions,
as discussed below, entered into a joint venture agreement with Grupo Minero FG
S.A. de C.V. to explore, evaluate and develop the El Chanate concessions. Grupo
Minero FG S.A. de C.V., referred to as FG, is a private Mexican company that
owns and operates the La Colorada open-pit gold mine outside of Hermosillo in
Sonora, Mexico.

Effective March 31, 2004, the joint venture agreement with FG was terminated. In
consideration of FG's contributions to the venture of $457,455, we issued to FG
2,000,000 restricted shares of our Common Stock valued at $800,000 and Santa
Rita issued to FG a participation certificate entitling FG to receive


                                       2
<PAGE>

five percent of the Santa Rita's annual dividends, when declared. The
participation certificate also gives FG the right to participate, but not to
vote, in the meetings of Santa Rita's Board of Managers, Technical Committee and
Partners. Santa Rita also received a right of first refusal to carry out the
works and render construction services required to effectuate the El Chanate
project. This right of first refusal is not applicable where a funding source
for the project determines that others should render such works or services.

FG has assigned or otherwise transferred to Santa Rita all permits, licenses,
consents and authorizations (collectively, "authorizations") for which FG had
obtained in its name in connection with the development of the El Chanate
project to the extent that the authorizations are assignable. To the extent that
the authorizations are not assignable or otherwise transferable, FG has given
its consent for the authorizations to be cancelled so that they can be re-issued
or re-granted in Santa Rita's name. The foregoing has been completed.

In March 2002, we and our wholly-owned subsidiary, Leadville Mining & Milling
Holding Corporation ("Holding") sold all of the issued and outstanding shares of
stock of Minera Chanate to an unaffiliated party for a purchase price of
US$2,131,616, payable in three installments. We received the final installment
on December 9, 2002. In connection with the sale of Minera Chanate stock, we
incurred approximately $174,000 in commissions.

During March 2002, prior to the sale of Minera Chanate and pursuant to the FG
joint venture agreement, Minera Chanate, in a series of transactions, sold all
of its surface land and mining claims to Oro de Altar S. de R. L. de C.V.
("Oro"), another of our wholly-owned subsidiaries. Oro, in turn, leased the
foregoing land and mining claims to Minera Santa Rita.

We anticipate that the development of our El Chanate project will cost between
$17.5 and $18.5 million. In February 2005, we raised approximately $6.1 million
in a private placement and we mandated Standard Bank Plc. (formerly, Standard
Bank London Limited) as the exclusive arranger of a project finance facility of
up to US$10 million for our El Chanate project. This mandate is not a commitment
to provide the funding. Funding is subject to satisfactory completion of due
diligence, approvals from Standard Bank's credit committee and execution of
definitive documentation. We anticipate a decision from Standard Bank in early
November 2005. We will need this finance facility or comparable funding from
another source to develop the El Chanate project and commence production. We
believe that the net proceeds from the private placement and the anticipated
funds from Standard will not be adequate to complete construction and commence
mining operations. Please see "Part II, Item 6, Management's Discussion and
Analysis of Financial Condition and Results of Operations; Liquidity and Capital
Resources; Plan of Operations" for more information on the Standard Bank
mandate, the private offering and our plans to raise additional funds.

In May 2005, we acquired rights to the El Charro concession for approximately
$25,000 and a royalty of 1.5% of net smelter return. We acquired the El Charro
concession because it is surrounded entirely by our other concessions.

Leadville, Colorado Properties

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.
For the past three years, 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,


                                       3
<PAGE>

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. See "Part II,
Item 6, Management's Discussion and Analysis of Financial Condition and Results
of Operations; Results of Operations."

      Competition

The acquisition of gold properties and their exploration and development are
subject to intense competition. Companies with greater financial resources,
larger staffs, more experience and more equipment for exploration and
development may be in a better position than us to compete for such mineral
properties. Our lack of revenues and limited financial resources further hinder
our ability to acquire additional mineral properties.

      Human Resources

As of November 1, 2005, we had nine full time employees and/or consultants,
including our current officers and one administrative personnel in the US and,
in Mexico, a General Project Manager, an Administration Manager and an
Environmental Manager and one part-time consultant in Mexico..

      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 risk factors discussed
below, 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.


                                       4
<PAGE>

Risk Factors

The risks described below should not be considered to be comprehensive and
all-inclusive. Additional risks that we do not yet know of or that we currently
think are immaterial may also impair our business operations. If any events
occur that give rise to the following risks, our business, financial condition,
cash flow or results of operations could be materially and adversely affected,
and as a result, the trading price of our Common Stock could be materially and
adversely impacted. These risk factors should be read in conjunction with other
information set forth in this report, including our Consolidated Financial
Statements and the related Notes.

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.

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 $18.5 million. We also anticipate non-mine related
operating expenses of approximately $1.4 million. In February 2005, we raised
approximately $6.1 million in a private placement and we mandated Standard Bank
Plc. (formerly, Standard Bank London Limited) as the exclusive arranger of a
project finance facility of up to US$10 million for our El Chanate project. This
mandate is not a commitment to provide the funding. Funding is subject to
satisfactory completion of due diligence, approvals from Standard Bank's credit
committee and execution of definitive documentation. We will need this finance
facility or comparable funding from another source to develop the El Chanate
project and commence production. The net proceeds from the private placement and
the anticipated funds from Standard will not be adequate to complete
construction, commence mining operations and cover administrative expenses (see,
""Part II, Item 6, Management's Discussion and Analysis of Financial Condition
and Results of Operations; Liquidity and Capital Resources; Plan of Operations"
). For the above reasons, we may 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
(see the next risk factor), the sale of a royalty interest in the future
production from the 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.


                                       5
<PAGE>

      If our stockholders do not approve an amendment to our Articles of
      Incorporation to increase the number of shares we are authorized to issue,
      we will be unable to raise additional needed funds through the sale of
      equity securities and it may make it more difficult to attract independent
      directors and key employees.

As of November 1, 2005, we have approximately 95,969,214 shares of Common Stock
outstanding and approximately 51,213,367 shares reserved for future issuance
under outstanding options, warrants and our mandate with Standard Bank Plc.,
leaving only approximately 2,817,419 shares of Common Stock available for future
issuances. We have scheduled a special meeting of our stockholders to be held on
November 18, 2005 to approve an amendment to our Articles of Incorporation to
increase the number of our authorized shares. As discussed in the risk factors
above, we will need to raise additional funds. In addition, we will need
additional shares for other corporate purposes including, possibly, attraction
of independent directors and key employees. If our stockholders do not approve
this amendment, we most likely will not be able to raise additional needed funds
through the sale of equity securities. As a result, we would 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
herein have been prepared on the basis of accounting principles applicable to a
going concern. Our auditors' report on the consolidated financial statements
contained herein 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 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, "Part II, Item 6, Management's Discussion
and Analysis of Financial Condition and Results 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 discussion with a US supplier to acquire a crushing system,
including conveyors, that consists of new equipment. We plan to use this
equipment at our Mexican concessions. 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, "Part II, Item 6, 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 our gold. Such equipment is subject to the risk of more frequent
breakdowns and need for repair than new equipment. If


                                       6
<PAGE>

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.

      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 El
Chanate, 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 October 31, 2005,
the fixed price for gold on the London Exchange has fluctuated between $411.10
and $478.50 per ounce. Gold prices are affected by numerous factors beyond our
control, including:


                                       7
<PAGE>

      o     the level of interest rates,

      o     the rate of inflation,

      o     central bank sales,

      o     world supply of gold and

      o     stability of exchange rates.

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

      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 mandate with 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.


                                       8
<PAGE>

      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.

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.


                                       9
<PAGE>

      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 2005. 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

      o     possible legal liability.

Industrial accidents could have a material adverse effect on our future business
and operations. Although as we move forward in the development of our
concessions 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.


                                       10
<PAGE>

      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 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.

      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.


                                       11
<PAGE>

      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. 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.

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.


                                       12
<PAGE>

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

As of November 1, 2005, approximately 55,040,500 shares of our Common Stock,
constituted "restricted securities" as defined in Rule 144 under the Securities
Act of 1933. Approximately 50.6 % of these shares have been registered for
public resale and we have agreed to register an additional 5,440,000 of these
shares. In addition, we have registered 30,902,004 shares of Common Stock
issuable upon the exercise of outstanding warrants and 4,711,363 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 conversion price and exercise price 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 warrants for an additional 14.6 million shares and
to register 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 may 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.


                                       13
<PAGE>

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 2.  Description of Property

El Chanate Properties - Sonora, Mexico

Through our wholly-owned subsidiary, Oro de Altar S. de R. L. de C.V., and our
affiliate, Santa Rita, we own 100% of the following 16 mining concessions, all
of which are located in the Municipality of Altar, State of Sonora Republic of
Mexico.

      -------------------------------------------
      Concession Name              Title No.            Hectares
      -------------------------------------------------------------------
    1 San Jose                       200718               96.0000
      -------------------------------------------------------------------
    2 Las Dos Virgen                 214874              132.2350
      -------------------------------------------------------------------
    3 Rono I                         206408               82.1902
      -------------------------------------------------------------------
    4 Rono 3                         214224              197.2180
      -------------------------------------------------------------------
    5 La Cuchilla                    211987              143.3481
      -------------------------------------------------------------------
    6 Elsa                           212004            2,035.3997
      -------------------------------------------------------------------
    7 Elisa                          214223               78.4717
      -------------------------------------------------------------------
    8 Ena                            217495              190.0000
      -------------------------------------------------------------------
    9 Eva                            212395              416.8963
      -------------------------------------------------------------------
   10 Mirsa                          212082               20.5518
      -------------------------------------------------------------------
   11 Olga                           212081               60.5890
      -------------------------------------------------------------------


                                       14
<PAGE>

   12 Edna                           212355               24.0431
      -------------------------------------------------------------------
   13 La Tira                        219624                1.7975
      -------------------------------------------------------------------
   14 La Tira 1                      219623               18.6087
      -------------------------------------------------------------------
   15 Los Tres                       223634                 8.000
      -------------------------------------------------------------------
   16 El Charro                     206,404               40.0000
      -------------------------------------------------------------------
                                Total                  3,543.3491

At the El Chanate Project, our current planned mining activities, will involve
mining on two concessions, San Jose and Las Dos Virgens. We will utilize four
other concessions for processing mined ores. In the future, provided we have
adequate funding, we plan to explore some or all of these concessions to
determine whether or not further activity is warranted.

[Graphic of a map showing geographic location of our Mexican concessions is
depicted in the printed material.]

Surface Property Ownership

Anglo Gold purchased surface property ownership, consisting of 466 Hectares in
Altar, Sonora, on January 27, 1998. The ownership was conveyed to our
subsidiary, Oro de Altar S.A. de C.V., in 2002. Santa Rita, one of our
wholly-owned Mexican affiliates, has a lease on the property for the purpose of
mining the Chanate gold deposit. The purchase transaction was recorded as public
deed 19,591 granted by Mr. Jose Maria Morera Gonzalez, Notary Public 102 of the
Federal District, registered at the Public Registry of Property of Caborca,
Sonora, under number 36026, book one, volume 169 of the real estate registry
section on May 7, 1998.


                                       15
<PAGE>

General information and location

The El Chanate project is located in the State of Sonora, Mexico, 37 kilometers
northeast of the town of Caborca. It is accessible by paved and all weather dirt
roads typically traveled by pickup trucks and similar vehicles. Driving time
from Caborca is approximately 40 minutes. Access from Caborca to the village of
16 de September is over well maintained National highways. Beyond the 16 de
September village, routes to the property are currently over well traveled
gravel and sandy desert roads suitable for lightweight vehicles. We acquired
rights for a service road to allow immediate access for mine construction
activities. This service road access was acquired from the village of 16 de
September, and construction of this road is now complete. However, this road
will likely require some up grading before large crushing and processing
equipment can safely be moved to the mine site. In addition to this service
road, we have negotiated long term access that does not pass through the village
of 16 de September. However, an issue has arisen with regard to whether the land
owner from whom we acquired this right had adequate title to this land. In the
event that we are unable to obtain adequate title to this land, we will continue
to rely on the existing access through the Village of 16 de September.

The project is situated on the Sonora desert in a hot and windy climate,
generally devoid of vegetation with the exception of cactus. The terrain is
generally flat with immense, shallow basins, scattered rock outcropping and low
rocky hills and ridges. The desert floor is covered by shallow, fine sediment,
gravel and caliche. The main body of the known surface gold covers and
irregularly shaped area of approximately 1,800 feet long by 900 feet wide.
Several satellite mineral anomalies exist on surfaces which have not been
thoroughly explored. Assays on chip samples taken from trenches at these
locations by us indicate the presence of gold mineralization.

The general El Chanate mine area has been mined for gold since the early 19th
century. A number of old underground workings exist characterized by narrow
shafts, to a depth of several tens of feet and connecting drifts and cross cuts.
No information exists regarding the amount of gold taken out; however,
indications are that mining was conducted on a small scale.

Geology

The project area is underlain by sedimentary rocks of the Late Jurassic - Early
Cretaceous Bisbee Group, and the Late Cretaceous Chanate Group, which locally
are overlain by andesites of the Cretaceous El Charro volcanic complex. The
sedimentary strata are locally intruded by andesitic sills and dikes, a
microporphyritic latite and by a diorite stock. The sedimentary strata are
comprised of mudstone, siltstone, sandstone, conglomerate, shale and limestone.
Within the drilled resource area, a predecessor exploration company
differentiated two units on the basis of their position relative to the Chanate
fault. The upper member is an undifferentiated sequence of sandstone,
conglomerate and lesser mudstone that lies above the Chanate fault and it is
assigned to the Escalante Formation of the Middle Cretaceous Chanate Group. The
lower member is comprised of mudstone with mixed in sandstone lenses and thin
limestone interbreds; it lies below the Chanate fault and is assigned to the
Arroyo Sasabe Formation of the Lower Cretaceous Bisbee Group. The Arroyo Sasabe
formation overlies the Morita Formation of the Bisbee Group. Both the Escalante
and Arroyo Sasabe formations are significantly mineralized proximal to the
Chanate fault, while the Morita Formation is barren.


                                       16
<PAGE>

The main structural feature of the project area is the Chanate fault, a 7km long
(minimum) northwest-striking, variably southwest-dipping structure that has been
interpreted to be a thrust fault. The Chanate fault is overturned
(north-dipping) at surface, and is marked by brittle deformation and shearing
which has created a pronounced fracture foliation and fissility in the host
rocks. In drill holes the fault is often marked the presence of an andesite
dike. Reports prepared by a predecessor exploration company describe the fault
as consisting of a series of thrust ramps and flats; however, geologic cross
sections which we have reviewed but did not prepare may negate this
interpretation.

Alteration/Mineralization

A predecessor exploration company has defined a 600 meter long, 300 meter wide,
120 meter thick zone of alteration that is centered about the Chanate fault. The
strata within this zone have been silicified and pyritized to varying degrees.
In surface outcrop the mineralized zone is distinguished by its bleached
appearance relative to unmineralized rock. The mineralized zone contains only
single digit ppm (parts per million) levels of gold. Dense swarms of veinlets
form thick, mineralized lenses, within a larger area of sub-economic but
anomalous gold concentrations. Drill hole data indicates that the mineralized
lenses are sub-horizontal to gently southwest-dipping and are grossly parallel
to the Chanate fault. The fault zone itself is also weakly mineralized, although
strata in the near hanging wall and footwall are appreciably mineralized.

Work to Date

The El Chanate property has been the site of small scale mining of high grade
quartz veins (La Cuchilla mine) during the last century. Modern exploration
includes work by Phelps Dodge in the 1980's as part of a copper exploration
program. Kennecott conducted geologic mapping and geochemical sampling in 1991
and dropped the property. A Mexican subsidiary of AngloGold explored the
property intermittently between 1992 and 1997, and has conducted extensive
surface geologic mapping, geochemical sampling, geophysical studies and
drilling, including 11,000 meters of trenching, over 14 line-kilometers of
induced polarization geophysical surveys, 61 line-kilometers of VLF-magnetometry
geophysical surveys, 87 line-kilometers of enzyme leach geochemical surveys and
34,000 meters of R.C. drilling in 190 holes and 1080 meters of diamond drilling
in 9 holes. That company also commissioned various consultant studies concerning
petrography, fluid inclusions, air photo interpretation and structural analyses,
and conducted some metallurgical test work.

In April and May 2002, to confirm previous results obtained by third parties and
to provide specifically located metallurgical test samples, we drilled six
diamond core holes totaling 1,508 feet into the main mineralized zone at El
Chanate. Management believes that the diamond drill results generally confirmed
the previous results and, in June 2002 and January 2003, we drilled an
additional 45 reverse circulation holes totaling 9,410 feet. This reverse
circulation drill program confirmed previous results and also expanded certain
mineralized areas. In May 2004 three core holes were drilled for a total of
2,155 feet. The total number of holes is now 256. Of these, 235 are reverse
circulation drill holes and 21 are diamond drill holes. Detailed check assays
were obtained both for core samples and for reverse drill samples that initially
assayed greater than 0.3 gm/tonne. Chemex Labs, Vancouver, Canada, preformed
both the initial and the check assays, and the check assays supported the
initial assay results.

In August 2002, we retained SRK's (a global engineering company) Denver,
Colorado office to conduct a scoping engineering study for the El Chanate
Project. This study was completed in October 2002 and concluded that the El
Chanate Project deserved additional work and that the property contained
important gold mineralization. The base case for this study assumed a gold price
of $320.


                                       17
<PAGE>

Following SRK's positive conclusion, in February 2003, we retained M3
Engineering of Tucson, Arizona to begin work on a feasibility study. M3
completed the study in August 2003. Based on 253 drill holes and more than
22,000 gold assays, this study (the "2003 Study") provides details for an open
pit gold mine. The 2003 Study indicates that at a gold price of $325, the
initial open pit project contains proven and probable reserves of 358,000 ounces
of gold contained within 13.5 million metric tonnes of ore with an average grade
of 0.827 grams/tonne. It estimated that the mine could recover approximately
48,000 - 50,000 ounces of gold per year or 248,854 ounces over a five year mine
life.

In October 2005, M3 completed an update of the 2003 Study (The "2005 Study").
The 2005 Study primarily addresses 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 6, if
      justified by gold prices at that time,

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

o     revised the process of equipment selection and

o     evaluated the newly acquired water well for processing the ore

Pursuant to the 2005 Study, the mine life will be six years as opposed to a
previous five years, and the ore reserve is 367,880 ounces of gold present in
the ground. Of this, we anticipate recovering approximately 264,846 ounces of
gold over a six year life of the mine. In the 2005 Study, the contained reserve
ounces increased by 9,880 ounces, and the recovered gold increased by 16,846
ounces. The targeted cash cost per the 2003 Study was less than $230 per ounce.
Cash costs per ounce in the 2005 Study are $259. The 2005 Study contains the
same mining rate as the 2003 Study of 7,500 metric tonnes per day of ore. We
have commissioned an engineering study to analyze the benefits of expand
production rates beyond 7,500 metric tones per day of ore. The 2005 Study takes
into consideration a new crushing system using new machines as opposed to the
used and restored equipment 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. In addition, the 2005 Study
assumes that 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 2005 Study assumes a mining production rate of 2.6 million tonnes of ore per
year or 7,500 tonnes per day. The processing plant will operate 365 days per
year. The processing plan for this open pit heap leach gold project calls for
crushing the ore to 100% minus 3/8 inch. Carbon columns will be used to recover
the gold.

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%.


                                       18
<PAGE>

El Chanate Project

<TABLE>
<CAPTION>
                                 Reserves and Production Summary
                            (2005 Updated Feasibility Study Page 1-1)
----------------------------------------------------------------------------------------------------------
                                                 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
     Operating Days/Year              7,500 Mt/d*                           8,250 t/d
     Gold Plant Average Recovery      365 Days per year                     365 Days per year
     Average Annual Production        69.2%                                 69.2%
     Total Gold Produced              1.4 Million grams                     44,390 Oz per year
                                      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 another year will likely be
required for reclamation. The 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. The cash cost may decrease as the
production rate increases. Total 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 range between
$339 per ounce at a gold price of $417 per ounce and $353 per ounce at a gold
price of $459 per ounce. 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 of the 2005 Study. Between January 1,
2005 and October 31, 2005, the fixed price for gold on the London Exchange has
fluctuated between $411.10 and $478.50 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. We
anticipate that we will have to raise additional funds as the net proceeds of
our February 2005 private placement and the potential project finance facility
of up to US$10 million will not be adequate to complete mine construction. To
the extent that


                                       19
<PAGE>

additional funds are required, we intend 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. 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" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations; Results of Operations."

Management believes the El Chanate project will benefit substantially from
rising gold prices, which are currently above $450 per ounce. Mineralized
material previously below operating cut-off gold grades could possibly become
economic if future engineering studies support lowering the cutoff grade due to
gold prices substantially above the $375 per ounce used in the 2005 Study to
define the proven and probable reserves mentioned above. We are currently
looking at equipment and processing techniques that may be capable of supporting
higher production rates that may be justified due to rising gold prices.
However, the new crushing system will likely have to be modified to handle the
additional tonnage required for expanding our production. The crushing system
that we hope to acquire, with certain modifications, is expected to have a
capacity beyond the 7,500 metric tons per day that are initially planned.

In this regard, Metcon Research Inc. of Tucson, Arizona completed gold recovery
studies on existing samples at fine grind sizes of 100 mesh, 150 mesh and 200
mesh. These studies were undertaken to determine whether extraction by fine
grinding is economical given the increased price of gold. Generally, fine
grinding, while more expensive, will achieve higher gold recoveries than the
heap leach method recommended in the feasibility study. Metcon found that
increasing amounts of gold were recovered at finer grind sizes. However in May
2004, M3, who conducted the feasibility study, reported that at El Chanate, heap
leaching remains the most economical and optimal method of extracting gold at
current prices.

In May 2004, three core holes were drilled at El Chanate to define gold grades,
to obtain metallurgical samples from siltstone hosted ores, and to evaluate
previous deep drilling results by Anglo Gold in the Los Dos Virgens Zone. Two of
the core holes tested and confirmed the presence of gold in the deep Los Dos
Virgens Zone that lies below the level of the planned open pit. This zone was
previously identified by Anglo Gold's reverse circulation drilling and, with
increasing gold prices, we are analyzing with core drilling the conditions that
might allow an enlarged open pit to include ores from the Los Dos Virgens zone.
The third core hole was drilled in the main high grade part of the deposit to
obtain ore samples for metallurgical column testing from siltstone host rocks.

The latest metallurgical column test studies were completed earlier this year at
Metcon's laboratory in Tucson Arizona to determine the optimal conditions at El
Chanate for recovering gold from within siltstone host rocks using heap leach
technology. The siltstone drill core samples are being tested at crush sizes of
100 percent -3/8 inch and 100 percent -1/4 inch, and these column tests showed
recovery rates of 42% and 46% respectively. With rising gold prices, management
believes the ore reserves may increase beyond the level currently published in
the 2005 Study. Although we are optimistic about the results, there can be no
assurance that improved gold recoveries will result in an increase in reserves.

In January 2004, we received permits from the Mexican Department of
Environmental Affairs and Natural Resources necessary to begin construction of
the El Chanate project. The permits were extended in June 2005. Pursuant to the
extensions, once we file a notice that work has commenced, we will have one year
to prepare the site and construct the mine and seven years to mine and process
ores from the site. These permits also cover the operation of a heap-leach gold
recovery system.


                                       20
<PAGE>

In 2005, we acquired 15 year rights of way for the current access road, and we
acquired the right to purchase 81 hectares of land near the main highway. We
have use of the land; however, our actual purchase of the land is conditioned
upon the Ejido (local cooperative) privatizing the land, before the acquisition
is finalized. We subsequently purchased an extension of our rights-of-way from
15 to 30 years. We have completed an access road on this land that will provide
access for water and power lines. However, this road will likely require some up
grading before heavy equipment can be moved to the mine site. In addition to
this road, we acquired a water concession, and our water well is located within
a large regional aquifer that, we believe, is capable of producing a sustained
flow in excess of 300 gallons per minute, which is the flow rate we estimate to
be required for processing gold ore at El Chanate

As discussed above, we are considering acquiring a new crushing system capable
of producing 7,500 metric tons per day of ore. We also retained Golder
Associates, - a geotechnical engineering firm, for the detailed engineering of
the leach pads and ponds. This design is included in the 2005 Study.

Our Current Plans for the El Chanate Project

Construction of the access road is complete and equipment can be moved to the
property. Some road up grading will likely be required before very large
equipment is moved to a final location. A crushing and conveying system has been
selected and we plan purchase this equipment once project funding is complete.

 Once financing is available we plan to commence construction on the crushing,
heap leaching, carbon handling and refining portions of the project. Also
included in the construction phase will be installation of power and water
lines. These construction phase activities will require some additional detailed
engineering, but major parts of the project are turnkey and already have
existing detailed engineering drawings. Some buildings for an office, chemical
laboratory, warehouse and truck shops also will be built as part of the
construction phase. Please see "Part II, Item 6, Management's Discussion and
Analysis of Financial Condition and Results of Operations; Liquidity and Capital
Resources; Plan of Operations for the anticipated costs of our activities over
the next 12 months.

Item 3.  Legal Proceedings

We are not presently a party to any material litigation.

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

No matters were submitted to a vote of our shareholders during the fourth
quarter of fiscal 2004.

We have scheduled a special meeting of our stockholders to be held on November
18, 2005. At this meeting, our stockholders will be asked to approve the
following:

      1.    an amendment to our Articles of Incorporation to increase the
            authorized number of shares of capital stock from 150,000,000 shares
            to 200,000,000 shares; and

      2.    a change in our state of incorporation from Nevada to Delaware, to
            be effected by a merger of the Company with and into Capital Gold
            Corporation, a newly-formed Delaware corporation and one of our
            wholly-owned subsidiaries.


                                       21
<PAGE>

                                     PART II

Item 5. Market for Common Equity, Related Stockholder Matters and Small Business
Issuer Purchases of Equity Securities.

(a) Marketing Information -- The principal U.S. market in which our common
shares (all of which are of one class, $.001 par value Common Stock) are traded
or will trade is in the over-the-counter market (Bulletin Board Symbol: "CGLD").
Our stock is not traded or quoted on any Automated Quotation System.

The following table sets forth the range of high and low closing bid quotes of
our Common Stock per quarter for the past two fiscal years and the first quarter
of the current fiscal year as reported by the OTC Bulletin Board (which reflect
inter-dealer prices without retail mark-up, mark-down or commission and may not
necessary represent actual transactions).

                          MARKET PRICE OF COMMON STOCK

                                                     Bid

Quarter Ending                                 High  and   Low
--------------                                 ---------------

----------------------------------------------------------------
October 31, 2005                               0.26        0.172
----------------------------------------------------------------
July 31, 2005                                  0.24        0.16
----------------------------------------------------------------
April 30, 2005                                 0.40        0.17
----------------------------------------------------------------
January 31, 2005                               0.39        0.23
----------------------------------------------------------------
October 31, 2004                               0.33        0.19
----------------------------------------------------------------

----------------------------------------------------------------
July 31, 2004                                  0.31        0.20
----------------------------------------------------------------
April 30, 2004                                 0.58        0.27
----------------------------------------------------------------
January 31, 2004                               0.65        0.23
----------------------------------------------------------------
October 31, 2003                               0.28        0.20
----------------------------------------------------------------

(b) Holders -- The approximate number of record holders of our Common Stock, as
of November 1, 2005 amounts to 1,211 inclusive of those brokerage firms and/or
clearing houses holding our common shares for their clientele (with each such
brokerage house and/or clearing house being considered as one holder). The
aggregate number of shares of Common Stock outstanding is 95,969,214 as of
November 1, 2005.

(c) Dividends - We had not paid or declared any dividends upon our Common Stock
since inception and, by reason of our present financial status and our
contemplated financial requirements, do not contemplate or anticipate paying any
dividends upon our Common Stock in the foreseeable future.

During the quarter ended July 31, 2005, we issued the following shares of our
Common Stock pursuant to the exemption from registration provided by Section
4(2) of the Securities Act of 1933: Related parties exercised 227,273 options
for gross proceeds of $5,000. 300,000 options were exercised by others as
payments of accounts payable in the amount of $36,000. The Company also issued
5,440,000 shares of its common stock as liquidated damages in connection with
not timely listing our stock on the Toronto Stock Exchange.


                                       22
<PAGE>

We did not repurchase any of our securities during the fiscal year ended July
31, 2005.

The following table gives information about our Common Stock that may be issued
upon the exercise of options, warrants and rights under all of our equity
compensation plans as of July 31, 2005.

<TABLE>
<CAPTION>
                                                                Number of                                   Number of securities
                                                            Securities to be                                remaining available
                                                               Issued upon            Weighted-average      for future issuance
                                                               Exercise of            exercise price of         under equity
                                                               Outstanding               outstanding         compensation plans
                                                            Options, warrants         options, warrants    (excluding securities
                   Plan Category                               and rights                and rights       reflected in column (a))
===================================================      =======================      ================= ============================
                                                                   (a)                       (b)                    (c)
                                                         =======================      ================= ============================
<S>                                                              <C>                     <C>                        <C>
Equity compensation plans approved by security
holders:                                                              -0-                $   -0-                     N/A
                                                              ============                ========               ==========
Equity compensation plans not approved by security                 90,909                $  .022                     N/A
holders:                                                        2,702,000                   .25                      N/A
                                                                  550,000                   .05                      N/A
                                                                3,120,454                   .50                      N/A
                                                                  100,000                   .24                      N/A
                                                                1,250,000                   .21                      N/A
                                                               27,200,004                   .30                      N/A
                                                                  500,000                   .22                      N/A
                                                                1,000,000                   .32                      N/A
                                                                  100,000                   .41                      N/A
                                                              ============                ========               ==========

Total                                                          36,613,367                $  .31                      N/A
                                                              ============                ========               ==========
</TABLE>


                                       23
<PAGE>

Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our financial statements and
related notes included elsewhere in this report.

Result of Operations

      Fiscal year ended July 31, 2005 compared to fiscal year ended July 31,
2004

Revenues

We generated no revenues from mining operations during the fiscal year ended
July 31, 2005 and 2004. There were de minimis non-operating revenues during the
fiscal year ended July 31, 2005 and 2004 of approximately $46,005 and $4,000,
respectively. These non-operating revenues primarily represent interest income.

Costs and Expenses

Over all costs and expenses during the fiscal year ended July 31, 2005 were
$2,051,687 an increase of $11,882 or 0.6% from the fiscal year ended July 31,
2004. The primary reason for the increase during the fiscal year ended July 31,
2005 was increases in mine and in selling, general and administrative expenses
offset by a reduction in stock based compensation and no impairment loss
incurred during the year ending July 31, 2005.

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 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. At July 31, 2004, we further reduced the net carrying
value to $0, which approximates our management's estimate of fair value.

Mine expenses during the fiscal year ended July 31, 2005 were $851,374 an
increase of $178,324 or 26% from the fiscal year ended July 31, 2004. We believe
that the increase in mine expenses resulted primarily from increased
professional and engineering and consulting costs as well as continuing
development of the mine.

Selling, general and administrative expenses during the fiscal year ended July
31, 2005 were $1,005,038 an increase of $317,316 or 46% from the fiscal year
ended July 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 and public relations costs incurred
in connection with fund raising efforts during the fiscal year ended July 31,
2005.


                                       24
<PAGE>

Stock based compensation during the fiscal year ended July 31, 2005 was $187,844
compared to $379,033 for the fiscal year ended July 31, 2004. This decrease
resulted from a reduction in the amount of options granted and common stock
issued for services rendered during the fiscal year ended July 31, 2005.

Loss on Joint Venture for the fiscal year ended July 31, 2005 was $0 compared to
$800,000 for the fiscal year ended July 31, 2004. The Joint Venture was
terminated during the quarter ended April 30, 2004.

Loss on the write-off of minority interest was $0 for the fiscal year ended July
31, 2005 compared to $150,382 for the fiscal year ended July 31, 2004. Since the
Joint Venture was terminated during the quarter ended April 30, 2004 there is no
longer a minority interest.

Net Loss

As a result, our net loss for the fiscal year ended July 31, 2005 was
$2,005,682, which was $932,908 or 32% less than our net loss for the fiscal year
ended July 31, 2004 which was $2,938,590.

Loss from Changes in Foreign Exchange Rates

During the fiscal year ended July 31, 2005, we recorded equity adjustments from
foreign currency translations of approximately $29,000. 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 July 31, 2005, we had working capital of $4,239,991. Our plans over the
next 12 months primarily include the cost of engineering, water and construction
of the El Chanate open-pit gold mine in Mexico and general administrative costs
in New York.

Our planned activities over the next twelve months in Mexico, in order of
priority, are as set forth below. 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. The following costs are
derived from the 2005 Study.

             Activity                                             Estimated Cost

Mexico

Crushing                                                               5,600,000
Heap leaching                                                          2,100,000
Carbon handling & refining                                               900,000
Power system                                                             650,000
Water system                                                             730,000

Trucks and other mining equipment                                        460,000

Engineering and planning                                               1,100,000


                                       25
<PAGE>

Ancillaries (building, shops, lab and road)                            1,100,000

Owner's costs                                                          3,200,000

Working capital                                                        1,700,000

General and administrative                                               350,000
                                                                    ------------

    Sub-total                                                       $ 17,890,000
                                                                    ------------

New York and Colorado

General, administrative and professional expenses                      1,380,000
                                                                    ------------

                                    Total                           $ 19,270,000
                                                                    ------------

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 fiscal year ended July 31, 2005 was from the sale and issuance
of equity securities for net proceeds of approximately $7,338,316. As discussed
below, in February 2005, we completed a private placement, netting approximately
$6.2 million, and mandated Standard Bank Plc. as the exclusive arranger of a
project finance facility of up to US$10 million for our El Chanate gold mining
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 is exercisable for one share of
our Common Stock, at an exercise price equal 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.

Pursuant to our agreement with the purchasers we filed a registration statement
with the Securities and Exchange Commission and 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.


                                       26
<PAGE>

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 July 2005, we issued 5,440,000 shares to the selling
stockholders.

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 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. If Standard Bank
determines to proceed with the funding, we will be required to pay certain
additional fees 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 registered for public resale.
We also will be required to register the shares issuable upon exercise of the
additional 14,600,000 warrants if and when these warrants are issued.

This mandate is not a commitment to provide the funding. Funding is subject to
satisfactory completion of due diligence, approvals from Standard Bank's credit
committee and execution of definitive documentation.

If Standard determines not to provide the funding, we will be required to obtain
such funding from another source. In addition, as discussed above, we estimate
that we will need between $17.5 and $18.5 million to complete a mine at the El
Chanate concessions. Accordingly, the net proceeds from the 2005 private
placement and the anticipated funds from Standard Bank will not be adequate to
complete construction and commence mining operations. We also anticipate
non-mine related operating expenses over the next 12 months of approximately
$1.4 million.


                                       27
<PAGE>

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, if needed, 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" in Part I, Item 1. Description of Business."

Our ability to raise additional funds through the sale of equity securities is
hampered by the limited number of remaining shares that are authorized but not
issued or reserved for issuance. We have only approximately 2,817,419 shares of
Common Stock available for future issuances. We have scheduled a special meeting
of our stockholders to be held on November 18, 2005 to approve an amendment to
our Articles of Incorporation to increase the number of our authorized shares.
If our stockholders do not approve this amendment, we most likely will not be
unable to raise additional needed funds through the sale of equity securities.
Please see the risk factor "If our stockholders do not approve an amendment to
our Articles of Incorporation to increase the number of shares we are authorized
to issue, we will be unable to raise additional needed funds through the sale of
equity securities and it may make it more difficult to attract independent
directors and key employees" in Part I, Item 1.
Description of Business."

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.

We own properties in Leadville, Colorado that we have written off. 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.


                                       28
<PAGE>

Equipment Disposition

In June 2005, we purchased used crushing equipment for approximately $325,500.
We spent about $68,329 disassembling, transporting and inspecting the equipment.
However, in late summer 2005, we determined to use new rather than used crushing
equipment. As a result, we plan to sell this used equipment and we have
commissioned an agent to obtain potential buyers.

Contractual Obligations as of July 31, 2005

Lease Commitments

We occupy office space in New York City under a non cancelable operating lease
that commenced on September 1, 2002 and terminates on August 31, 2007. In
addition to base rent, the lease calls for payment of utilities and other
occupancy costs.

Approximate future minimum payments under this lease are as follows:

Year Ending July 31,
          2006                        $   51,000
          2007                            51,000
          2008                             4,200
------------------------------------------------
                                      $  106,200
                                      ==========

Rent expense under the office lease in New York City was approximately $63,000
and $57,000 for the years ended July 31, 2005 and 2004, respectively.

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


                                       29
<PAGE>

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.

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.


                                       30
<PAGE>

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.

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 July 31, 2005.


                                       31
<PAGE>

Item 7. Financial Statements.

For the Financial Statements required by Item 7 see the Financial Statements
included at the end of this Form 10-KSB.

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.

There have been no changes in or disagreements with accountants with respect to
accounting and/or financial disclosure.

Item 8A. 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 annual
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.


Item 8B. Other Information.

None.


                                       32
<PAGE>

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.

The following table sets forth certain information concerning the directors and
executive officers of the Company:

                               First
                               Became
Name                    Age    Director   Position

Gifford A. Dieterle     73      9/22/82   President, Treasurer, Chief Financial
                                          Officer & Chairman of the Board

Robert Roningen         70      9/14/93   Director, Senior Vice President,
                                          Secretary

Jack V. Everett         84      1/25/95   Director, Vice President - Exploration

Roger A. Newell         62      8/28/00   Director, Vice President -
                                          Development

Jeffrey W. Pritchard    47      1/27/00   Director, Vice President -
                                          Investor Relations

J. Scott Hazlitt        53                Vice President - Mine Development

Directors are elected at the meeting of shareholders called for that purpose and
hold office until the next stockholders meeting called for that purpose or until
their resignation or death. Officers of the corporation are elected by the
directors at meetings called by the directors for its purpose.

GIFFORD A. DIETERLE, President, Treasurer, Chief Financial Officer and Chairman
of the Board of Directors of the Company. Mr. Dieterle was appointed President
in September 1997. He has been the Company's Chairman, Treasurer and Chief
Financial Officer since 1981. His highest educational degree is a M.S. in
Geology obtained from New York University. From 1977 until July 1993, he was
Chairman, Treasurer, and Executive Vice-President of Franklin Consolidated
Mining Company. From 1965 to 1987, he was lecturer in geology at the City
University of N.Y. (Hunter Division). Mr. Dieterle has been Secretary-Treasurer
of South American Minerals Inc. since 1997 and a director of that company since
1996.

ROBERT RONINGEN, Senior Vice President, Secretary and Director, has been engaged
in the practice of law as a sole practitioner and is a self-employed consultant
geophysicist in Duluth, Minnesota. From 1988 to August 1993, he was an officer
and director of Franklin Consolidated Mining Company, Inc. He graduated from the
University of Minnesota in 1957 with a B.A. in geology and in 1962 with a degree
in Law.


                                       33
<PAGE>

JACK V. EVERETT, Vice President - Exploration and Director, has been a
consulting mining geologist since 1971, with expertise in all phases of
exploration for base and precious metals. Following his 1947 graduation from
Michigan State University, he was District Geologist for Pickands Mather &
Company on the Cuyuna Iron Range, Minnesota. From 1951 to 1970, he was Chief
Geologist and Exploration Manager for W.S. Moore Company, Duluth, Minnesota an
iron mining company with gold and base metal sulfide holdings in the U.S. and
Canada.

ROGER A. NEWELL, Vice President - Development and Director, has been in the
mining industry for over 30 years. From 1974 through 1977, he was a geologist
with Kennecott Copper Corporation. From 1977 through 1989, he served as
Exploration Manager/Senior Geologist for the Newmont Mining Corporation and,
from 1989 through 1995, was the Exploration Manager for Gold Fields Mining
Company. He was Vice President Development, for Western Exploration Company from
1997 through 2000. He has been self-employed as a geologist since 2001. His
highest educational degree is a Ph.D. in mineral exploration from Stanford
University.

JEFFREY W. PRITCHARD, Vice President - Investor Relations and Director, has
worked for the Company since 1996. He has been in the marketing/public relations
field since receiving a Bachelor's degree from the State University of New York
in 1979. Jeff has served as the Director of Marketing for the New Jersey Devils
(1987-1990) and as the Director of Sales for the New York Islanders (1985-1987).
He also was an Executive Vice President with Long Island based Performance
Network, a marketing and publishing concern from 1990 through 1995.

J. SCOTT HAZLITT, Vice President - Mine Development, has been in the mining
business since 1974. He has worked primarily in mine feasibility, development,
and mine operations. Mr. Hazlitt was a field geologist for ARCO Syncrude
Division at their CB oil Shale project in 1974 and 1975. He was a contract
geologist for Pioneer Uravan and others from 1975 to 1977. He was a mine
geologist for Cotter Corporation in 1978 and 1979, and was a mine geologist for
ASARCO from 1979 to 1984. He served as Vice President of Exploration for Mallon
Minerals from 1984 to 1988. From 1988 to 1992, Mr. Hazlitt was a project
geologist and Mine Superintendent for the Lincoln development project. From 1992
to 1995, he was self-employed as a consulting mining geologist in California and
Nevada. He was Mine Operations Chief Geologist for Getchell Gold from 1995 to
1999. His work experience has included precious metals, base metals, uranium,
and oil shale. Mr. Hazlitt has served as mine manager at our Hopemore Mine in
Leadville, Colorado starting in November 1999. Since 2001, he has focused on
development of our El Chanate concessions. His highest educational degree is
Master of Science from Colorado State University. He is a registered geologist
in the state of California.

Key Consultant

DAVID LODER has been the General Manager of our El Chanate project since March
2005. Mr. Loder is a registered professional mining engineer with over 30 years
experience in the mining industry, spending the last 15 years managing open-pit
gold heap leach operations. He has been a General Manager responsible for the
overall planning and start-up for open-pit gold mining operations in Sonora,
Mexico and elsewhere in Latin America. From 2003 to 2004, he was general manager
of the Bellavista mine owned by Glencairn Gold in Costa Rica. From 1995 to 2001,
Mr. Loder was general manager of the Santa Gertrudis mine owned by Campbell
Resources in Sonora, Mexico. Mr. Loder is a Registered Professional Engineer in
the United States and Canada.


                                       34
<PAGE>

Compliance with Section 16(a) of The Securities Exchange Act of 1934

To our knowledge, based solely on a review of such materials as are required by
the Securities and Exchange Commission, no officer, director or beneficial
holder of more than ten percent of our issued and outstanding shares of Common
Stock failed to timely file with the Securities and Exchange Commission any form
or report required to be so filed pursuant to Section 16(a) of the Securities
Exchange Act of 1934, except that Mr. Newell filed a Form 4 late on one occasion
with regard to a transaction that occurred during fiscal 2005 and Mr. Hazlitt
recently filed a Form 5 reporting two transactions that should have been filed
on Form 4. The Form 5 also reports information that would have been contained in
a Form 3. Mr. Hazlitt did not make any filings under Section 16(a) prior to the
filing of the Form 5 because there was a question of fact as to whether Mr.
Hazlitt is required to make filings under Section 16(a).

Audit Committee Financial Expert

We do not have a financial expert. We believe that the cost of retaining a
financial expert at this time is too prohibitive given our current financial
condition and lack of operating revenues.

Code of Ethics

We adopted a Code of Ethics that applies to our officers, directors and
employees, including our principal executive officer, principal financial
officer and principal accounting officer. The Code of Ethics is publicly
available in the Management section on our Website at www.capitalgoldcorp.com.
If we make any substantive amendments to this code of ethics or grant any
waiver, including any implicit waiver, from a provision of the code to our chief
executive officer, principal financial officer or principal accounting officer,
we will disclose the nature of such amendment or waiver on that Website or in a
report on Form 8-K.

Item 10. Executive Compensation

The following table shows all the cash compensation paid or to be paid by the
Company or any of its subsidiaries, as well as certain other compensation paid
or accrued, during the fiscal years indicated, to the Chief Executive Officer
for such period in all capacities in which he served. Information concerning the
Chief Executive Officer relates to Gifford Dieterle.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                        Long-Term Compensation
                                                               ------------------------------------------
                              Annual Compensation                     Awards              Payouts
                       -------------------------------------   -------------------   --------------------
        (a)             (b)       (c)      (d)        (e)        (f)         (g)       (h)         (i)
-------------------    ----     ------   ------    ---------     ---       -------   -------    ---------
                                                     Other     Restrict-                         All Other
                                                    Annual     ed Stock               LTIP      Compensa
Name and Principal                        Bonus     Compen-     Award      Options   Payouts     -tion
    Position           Year     Salary     ($)     sation($)     ($)         SARs      ($)         (i)
-------------------    ----     ------   ------    ---------     ---       -------   -------    ---------
<S>                    <C>     <C>       <C>          <C>        <C>       <C>         <C>         <C>
Gifford A. Dieterle    2005    123,000     -0-        -0-        -0-         -0-       -0-         -0-
Chief Executive        2004    104,000   20,000       -0-        -0-       250,000     -0-         -0-
Officer                2003     70,856   23,400       -0-        -0-         -0-       -0-         -0-
</TABLE>

The following table sets forth information with respect to the Company's
Executive Officers concerning the grants of options and Stock Appreciation
Rights ("SAR") during the past fiscal year:


                                       35
<PAGE>

                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
                                Individual Grants

(a)                      (b)             (c)            (d)             (e)
--------------------------------------------------------------------------------
                                   Percent of Total
                                   Options/SARs
                       Options/    Granted to
                       SARs        Employee in     Exercise or Base   Expiration
Name                   Granted     Fiscal Year     Price  ($/SH)      Date
--------------------------------------------------------------------------------

Gifford A. Dieterle       0             0%              $. 0            N/A
Robert N. Roningen        0             0%              $ .0            N/A
Jack V.  Everett          0             0%              $ .0            N/A
Roger A. Newell           0             0%              $ .0            N/A
Jeffrey W. Pritchard      0             0%              $ .0            N/A

The following table sets forth information with respect to the Company's
Executive Officers concerning exercise of options during the last fiscal year
and unexercised options and SARs held as of the end of the fiscal year:

         Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR

(a)                        (b)           (c)         (d)               (e)
--------------------------------------------------------------------------------
                                                                   Value of
                                                  Number of        Unexercised
                                                  Unexercised      In-the-Money
                                                  Options/SARs     Option/SARs
                        Shares                    at FY-End(#)     at FY-End(#)
                        Acquired on    Value      Exercisable/     Exercisable/
     Name               Exercise (#)   Realized   Unexercisable    Unexercisable
--------------------------------------------------------------------------------
Gifford A. Dieterle         --            --        1,500,000        $  75,000
Robert N. Roningen          --            --          750,000        $  75,000
Jeffrey W. Pritchard        --            --          622,727        $  75,000
Roger A. Newell           227,227       50,000        750,000        $ 135,000
Scott Hazlitt             400,000      132,000        325,000        $  97,500

Directors are not compensated for acting in their capacity as Directors.
Directors are reimbursed for their accountable expenses incurred in attending
meetings and conducting their duties.

For information on compensation arrangements with our executive officers, please
see "Part III, Item 12. Certain Relationships and Related Transactions" below.

Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.

The following table sets forth as of November 1, 2005, the number and percentage
of outstanding shares of Common Stock beneficially owned by:

      o     Each person, individually or as a group, known to us to be deemed
            the beneficial owners of five percent or more of our issued and
            outstanding Common Stock;

      o     each of our Directors and the Named Executives; and

      o     all of our officers and Directors as a group.

As of the foregoing date, there were no other persons, individually or as a
group, known to us to be deemed the beneficial owners of five percent or more of
the issued and outstanding Common Stock.


                                       36
<PAGE>

This table is based upon information supplied by Schedules 13D and 13G, if any,
filed with the Securities and Exchange Commission, and information obtained from
our directors and named executives. For purposes of this table, a person or
group of persons is deemed to have "beneficial ownership" of any shares of
Common Stock which such person has the right to acquire within 60 days of
November 1, 2005. For purposes of computing the percentage of outstanding shares
of Common Stock held by each person or group of persons named in the table, any
security which such person or persons has or have the right to acquire within
such date is deemed to be outstanding but is not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person. Except as
indicated in the footnotes to this table and pursuant to applicable community
property laws, we believe, based on information supplied by such persons, that
the persons named in this table have sole voting and investment power with
respect to all shares Common Stock which they beneficially own. Unless otherwise
noted, the address of each of the principal stockholders is care of us at 76
Beaver Street, 26th floor, New York, NY10005.

Name and Address                       Amount & Nature
of Beneficial                          of Beneficial         Approximate
Owner                                  Ownership             Percentage(1)(2)
----------                             ---------             -----------------
Gifford A. Dieterle*                   2,650,000(2)                 2.7%

Jack Everett*                          1,000,000                    1.0%
534 Observatory Drive
Colorado Springs, CO 80904

Robert Roningen*                       2,200,000 (2)(3)             2.3%
2955 Strand Road
Duluth, MN 55804

Jeffrey W. Pritchard*                  956,354(2)                   1.0%

Roger A Newell*                        1,477,273(2)                 1.5%
1781 South Larkspur Drive
Golden, CO 80401

Scott Hazlitt*                         1,025,000(2)                 1.1%
949 F Street
Salida. CO 81201

RAB Special Situations
  (Master) Fund Limited                17,600,000(4)                16.9%
1 Adam Street
London, WC2N 6LE, UK

SPGP                                   20,370,000(5)                19.3%
17, Avenue Matignon
75008 Paris, France

Caisse de Depot et Placement
du Quebec                              5,280,000(6)                 5.4%
1000, place Jean-Paul-Riopelle
Montreal, Quebec, H2Z 2B3


                                       37
<PAGE>

All Officers and
Directors as a
Group (6)                              9,308,627(2)(3)              9.5%
---------------------------------

*  Officer and/or Director of Capital Gold.

(1)   Based upon 95,969,214 shares issued and outstanding as of November 1,
      2005.

(2)   For Messrs. Dieterle, Roningen, Pritchard, Newell and Hazlitt, includes,
      respectively, 1,500,000 shares, 750,000 shares, 622,727 shares, 750,000
      shares and 325,000 shares issuable upon exercise of options and/or
      warrants.

(3)   Includes shares owned by Mr. Roningen's wife and children.

(4)   The shares are held of record by Credit Suisse First Boston LLC. Includes
      shares issuable upon exercise of warrants to purchase an aggregate of
      8,000,000 shares. The warrants are not exercisable if, as a result of an
      exercise, the holder would then become a "ten percent beneficial owner" of
      our Common Stock, as defined in Rule 16a-2 under the Securities Exchange
      Act of 1934. The Approximate Percentage column takes into account the
      shares issuable upon exercise of these warrants. We have been advised that
      William P. Richards is the Fund Manager for RAB Special Situations
      (Master) Fund Limited, with dispositive and voting power over the shares
      held by RAB Special Situations (Master) Fund Limited.

(5)   Includes shares issuable upon exercise of warrants to purchase an
      aggregate of 9,600,000 shares. We have been advised that Guy-Philippe
      Bertin, Fund Manager, is a natural person with voting and investment
      control over shares of our Common Stock beneficially owned by SPGP.

(6)   The shares are held of record by Fiducie Desjardins. Includes shares
      issuable upon exercise of warrants to purchase an aggregate of 2,400,000
      shares. We have been advised that Francois Perron has dispositive power
      and Anne Genevieve Beique has voting power over the shares held by Caisse
      de Depot et Placement du Quebec.

Item 12.  Certain Relationships and Related Transactions.

During the fiscal years ended July 31, 2005 and 2004, we paid Roger Newell
$68,000 and $62,000, respectively, for professional geologist and management
services rendered to us plus expenses. During the fiscal years ended July 31,
2005 and 2004, we paid Scott Hazlitt $96,000 per year, for professional
geologist and mine management services rendered to us, plus expenses. During the
fiscal years ended July 31, 2005 and 2004, we paid Jack Everett consulting fees
of $56,900 and $47,600, respectively. During the fiscal year ended July 31, 2005
and 2004, we paid Robert Roningen legal fees of $6,625 and $6,900, respectively.

In May 2004, we issued 250,000 Common Stock options each to Messrs. Dieterle,
Roningen, Pritchard, Everett and Newell exercisable at $.22 per share expiring
on May 25, 2007.

On May 28, 2005, Roger Newell exercised 227,273 outstanding options at $0.022
per share.


                                       38
<PAGE>

The Company utilizes Caborca Industrial S.A. de C.V., a Mexican corporation 100%
owned by Messrs. Dieterle and Pritchard, two of our officers and directors for
mining support services. These services include but are not limited to the
payment of mining salaries and related costs. Caborca Industrial bills us for
these services at cost. Mining expenses charged by it amounted to approximately
$24,000 for the year ended July 31, 2005.

Item 13. Exhibits.

Exhibits

   3.a      Certificate of Incorporation of Company(1)

   3.b      Amendments to Certificate of Incorporation of Company (1)(5)

   3.c      By-Laws of Company (1)

   4.2      Form of Warrant for Common Stock of the Company issued in February
            2005 private placement.(8)

   4.3      Form of Warrant for Common Stock of the Company issued to Standard
            Bank.(9)

   10.a     Mining Claims (1)

   10.b     Stock Purchase Option Agreement from AngloGold (2)

   10.c     Letter of Intent with International Northair Mines Ltd. (2)

   10.d     March 30, 2002 Minera Chanate Stock Purchase and Sale and Security
            Agreement (Sale by us and Holding of all of the stock of Minera
            Chanate) (In Spanish).(3)

   10.e     English summary of March 30, 2002 Minera Chanate Stock Purchase and
            Sale and Security Agreement.(3)

   10.f     Agreement between Santa Rita and Grupo Minero FG.(4)

   10.g     Amendment to Agreement between Santa Rita and Grupo Minero FG.(6)

   10.h     Termination Agreement between Santa Rita and Grupo Minero FG.(7)

   10.i     English Summary of El Charro agreement(10)

   21.1     Subsidiaries of the Company

   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


                                       39
<PAGE>

      (1)   Previously filed as an exhibit to the Company's Registration
            Statement on Form S-18 (SEC File No. 2-86160-NY) filed on or about
            November 10, 1983, and incorporated herein by this reference.

      (2)   Previously filed as an exhibit to the Company's Quarterly Report on
            Form 10-QSB for the quarter ended January 31, 2001 filed with the
            Commission on or about March 16, 2001, and incorporated herein by
            this reference.

      (3)   Previously filed as an exhibit to the Company's Quarterly Report on
            Form 10-QSB for the quarter ended April 30, 2002 filed with the
            Commission on or about June 20, 2002, and incorporated herein by
            this reference.

      (4)   Previously filed as an exhibit to the Company's Quarterly Report on
            Form 10-QSB for the quarter ended January 31, 2002 filed with the
            Commission on or about March 25, 2002, and incorporated herein by
            this reference.

      (5)   Previously filed as an exhibit to the Company's Current Report on
            Form 8-K filed with the Commission on or about April 11, 2003, and
            incorporated herein by this reference.

      (6)   Previously filed as an exhibit to the Company's Current Report on
            Form 8-K filed with the Commission on or about January 22, 2004, and
            incorporated herein by this reference.

      (7)   Previously filed as an exhibit to the Company's Current Report on
            Form 8-K filed with the Commission on or about April 12, 2004, and
            incorporated herein by this reference.

      (8)   Previously filed as an exhibit to the Company's Current Report on
            Form 8-K filed with the Commission on or about February 10, 2005,
            and incorporated herein by this reference.

      (9)   Previously filed as an exhibit to Amendment No. 1 to the Company's
            Registration Statement on Form SB-2 filed with the Commission on or
            about June 27, 2005, and incorporated herein by this reference.

      (10)  Previously filed as an exhibit to the Company's Quarterly Report on
            Form 10-QSB for the quarter ended April 30, 2005 filed with the
            Commission on or about June 20, 2005, and incorporated herein by
            this reference.

Statements contained in this Form 10-KSB as to the contents of any agreement or
other document referred to are not complete, and where such agreement or other
document is an exhibit to this Report or is included in any forms indicated
above, each such statement is deemed to be qualified and amplified in all
respects by such provisions.


                                       40
<PAGE>

Item 14. Principal Accountant Fees And Services.

Wolinetz, Lafazan & Company, P.C. ("WL"), Certified Public Accountants, are the
Company's independent auditors that examined the financial statements of the
Company for the fiscal years ended July 31, 2005 and 2004. WL has performed the
following services and has been paid the following fees for these fiscal years.

Audit Fees

WL billed $55,000 and $40,000 for the audit of our financial statements for the
fiscal years ended July 31, 2005 and 2004 and their review of the financial
statements included in our filing of quarterly reports on form 10-QSB during
these fiscal years.

Audit-Related Fees

WL was not paid any additional fees for the fiscal years ended July 31, 2005 or
2004 for assurance and related services reasonably related to the performance of
the audit or review of our financial statements.

Tax Fees

WL billed $7,000 for the fiscal years ended July 31, 2005 and 2004 for
professional services rendered for tax compliance, tax advice and tax planning.

All Other Fees

WL was paid no other fees for professional services during the fiscal years
ended July 31, 2005 and 2004.

Audit Committee Pre-Approval Policies

The Board of Directors, which performs the equivalent functions of an audit
committee, currently does not have any pre-approval policies or procedures
concerning services performed by WL. All the services performed by WL that are
described above were pre-approved by the Board of Directors. Less than 50% of
the hours expended on WL's engagement to audit our financial statements for the
fiscal years ended July 31, 2005 and 2004 were attributed to work performed by
persons other than WL's full-time, permanent employees.


                                       41
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                    CAPITAL GOLD CORPORATION

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

Dated: Dated: November 14, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

SIGNATURES                         TITLE                       DATE
----------                         -----                       ----

/s/ Gifford A. Dieterle            President,                  November 14, 2005
-----------------------------      Treasurer,
Gifford A. Dieterle                Principal Financial
                                   and Accounting
                                   Officer and Chairman
                                   of the Board of Directors


/s/ Jack V. Everett                Director                    November 14, 2005
-----------------------------
Jack V. Everett


/s/ Robert N. Roningen             Director                    November 14, 2005
-----------------------------
Robert N. Roningen


/s/ Roger A. Newell                Director                    November 14, 2005
-----------------------------
Roger A. Newell


/s/ Jeffrey W. Pritchard           Director                    November 14, 2005
-----------------------------
Jeffrey W. Pritchard


                                       42
<PAGE>

                            SUPPLEMENTAL INFORMATION

Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act.

NOT APPLICABLE.


                                       43
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Stockholders of
Capital Gold Corporation
New York, New York

We have audited the accompanying consolidated balance sheet of Capital Gold
Corporation and Subsidiaries (A Development Stage Enterprise) ("the Company") as
of July 31, 2005, and the related consolidated statements of operations, changes
in stockholders' equity and cash flows for each of the two years in the period
ended July 31, 2005 and for the period September 17, 1982 (Inception) to July
31, 2005. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstance, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. Also, an audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Capital
Gold Corporation and Subsidiaries as of July 31, 2005 and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended July 31, 2005 and for the period September 17, 1982 (Inception)
to July 31, 2005 in conformity with accounting principles generally accepted in
the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company is a development stage enterprise
whose operations have generated recurring losses since its inception. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans regarding these matters are described in Note
17. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

                                               WOLINETZ, LAFAZAN & COMPANY, P.C.

Rockville Centre, New York
October 25, 2005


<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                           CONSOLIDATED BALANCE SHEET
                                  July 31, 2005

                                     ASSETS

Current Assets:

  Cash and Cash Equivalents                                        $  4,281,548
  Loans Receivable - Affiliate                                           31,419
  Prepaid Expenses                                                       18,991
  Marketable Securities                                                 150,000
  Other Current Assets                                                   40,849
                                                                   ------------

       Total Current Assets                                           4,522,807
                                                                   ------------

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

Property & Equipment - net                                              650,941
                                                                   ------------

Intagible Assets - net                                                   17,842
                                                                   ------------

Other Assets:
  Other Investments                                                      21,220
  Deferred Financing Costs                                              100,000
  Mining Reclamation Bonds                                               35,550
  Other                                                                  43,802
  Other Deposits                                                         80,000
  Security Deposits                                                       9,605
                                                                   ------------
     Total Other Assets                                                 290,177
                                                                   ------------

Total Assets                                                       $  5,551,871
                                                                   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts Payable                                                 $     92,040
  Accrued Expenses                                                      190,776
                                                                   ------------
     Total Current Liabilities                                          282,816
                                                                   ------------

Commitments and Contingencies
Stockholders' Equity:
  Common Stock, Par Value $.001 Per Share;
    Authorized 150,000,000 shares; Issued and
    Outstanding 95,969,218 Shares                                        95,969
  Additional Paid-In Capital                                         31,851,724
  Deficit Accumulated in the Development Stage                      (26,583,811)
  Deferred Financing Costs                                             (252,541)
  Accumulated Other Comprehensive Income                                157,714
                                                                   ------------

  Total Stockholders' Equity                                          5,269,055
                                                                   ------------

Total Liabilities and Stockholders' Equity                         $  5,551,871
                                                                   ============

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


                                      F-2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                             For the Period
                                                 For the Year Ended        September 17, 1982
                                                      July 31,                 (Inception)
                                            -----------------------------          To
                                                2005             2004        July 31, 2005
                                            ------------     ------------     ------------
<S>                                         <C>              <C>              <C>
Revenues                                    $         --     $         --     $         --
                                            ------------     ------------     ------------
Costs and Expenses:
 Mine Expenses                                   851,374          673,050        7,663,908
 Write-Down of Mining, Milling and Other
   Property and Equipment                             --          300,000        1,299,445
 Selling, General and Administrative
   Expenses                                    1,005,038          687,722        9,862,967
 Stock Based Compensation                        187,844          379,033        9,409,847
 Depreciation and Amortization                     7,431               --          375,157
                                            ------------     ------------     ------------
     Total Costs and Expenses                  2,051,687        2,039,805       28,611,324
                                            ------------     ------------     ------------

Loss from Operations                          (2,051,687)      (2,039,805)     (28,611,324)
                                            ------------     ------------     ------------

Other Income (Expense):
 Interest Income                                  42,483            4,074          795,998
 Miscellaneous                                     3,522               --           36,199
 Financing Fees                                       --               --               --
 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                                --         (800,000)        (901,700)
 Loss on Option                                       --               --          (50,000)
 Loss on Other Investments                            --           (3,697)          (3,697)
 Loss on Write -Off of Minority Interest              --         (150,382)        (150,382)
                                            ------------     ------------     ------------
        Total Other Income (Expense)              46,005         (950,005)       1,741,125
                                            ------------     ------------     ------------

Loss Before Minority Interest                 (2,005,682)      (2,989,810)     (26,870,199)
Minority Interest                                     --           51,220          286,388

                                            ------------     ------------     ------------
Net Loss                                    $ (2,005,682)    $ (2,938,590)    $(26,583,811)
                                            ============     ============     ============

Net Loss Per Common Share - Basic and
Diluted                                     $      (0.03)    $      (0.06)
                                            ============     ============

Weighted Average Common Shares
Outstanding                                   75,123,922       51,584,715
                                            ============     ============
</TABLE>


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


                                      F-3
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
         FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2005

<TABLE>
<CAPTION>
                                                                            Deficit
                                                                          Accumulated
                                           Common Stock       Additional    In The
                                      ---------------------    Paid-In    Development
                                        Shares      Amount     Capital       Stage         Total
                                      ----------   --------   ----------  -----------   -----------
<S>                                    <C>         <C>        <C>           <C>         <C>
Balance
  September 17, 1982
  (Inception)                                 -0-  $     -0-  $       -0-   $     -0-   $        -0-

Initial Cash
  Officers - At $.001 Per Share        1,575,000      1,575           --          --          1,575

  Other Investors -
    At $.001 Per Share                 1,045,000      1,045           --          --          1,045

Initial - Mining Claims -
  Officer - At $.002 Per Share           875,000        875          759          --          1,634

Common Stock Issued For:
  Cash At $.50 Per Share                 300,000        300      149,700          --        150,000

Net Loss                                      --         --           --      (8,486)        (8,486)
                                      ----------   --------   ----------    --------    -----------

Balance - July 31, 1983                3,795,000      3,795      150,459      (8,486)       145,768

Common Stock Issued For:
  Cash Pursuant to Initial Offering
  At $1.50 Per Share, Net of
  Offering Costs of $408,763           1,754,741      1,755    2,221,594          --      2,223,349

Net Income                                    --         --           --      48,890         48,890
                                      ----------   --------   ----------    --------    -----------

Balance - July 31, 1984                5,549,741      5,550    2,372,053      40,404      2,418,007

Net Income                                    --         --           --      18,486         18,486
                                      ----------   --------   ----------    --------    -----------

Balance - July 31, 1985                5,549,741      5,550    2,372,053      58,890      2,436,493

Common Stock Issued For:
  Mineral Lease At $1.00 Per Share           100         --          100          --            100

Net Income                                    --         --           --       4,597          4,597
                                      ----------   --------   ----------    --------    -----------

Balance - July 31, 1986                5,549,841      5,550    2,372,153      63,487      2,441,190
</TABLE>


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


                                      F-4
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
         FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2005

<TABLE>
<CAPTION>
                                                                    Deficit
                                                                  Accumulated
                               Common Stock        Additional       In The
                           ---------------------     Paid-In      Development
                            Shares      Amount       Capital         Stage          Total
                           ---------   ---------   -----------    -----------    -----------
<S>                        <C>         <C>         <C>            <C>            <C>
Net Loss                          --   $      --   $        --    $  (187,773)   $  (187,773)
                           ---------   ---------   -----------    -----------    -----------

Balance - July 31, 1987    5,549,841       5,550     2,372,153       (124,286)     2,253,417

Common Stock Issued For:
  Services Rendered At
    $1.00 Per Share           92,000          92        91,908             --         92,000

Net Loss                          --          --            --       (328,842)      (328,842)
                           ---------   ---------   -----------    -----------    -----------

Balance - July 31, 1988    5,641,841       5,642     2,464,061       (453,128)     2,016,575

Net Loss                          --          --            --       (379,852)      (379,852)
                           ---------   ---------   -----------    -----------    -----------

Balance - July 31, 1989    5,641,841       5,642     2,464,061       (832,980)     1,636,723

Common Stock Issued For:
  Cash:
    At $.70 Per Share        269,060         269       194,219             --        194,488
    At $.50 Per Share        387,033         387       199,443             --        199,830
  Services:
    At $.50 Per Share         68,282          68        34,073             --         34,141
  Commissions:
    At $.70 Per Share         15,000          15           (15)            --             --

Commissions Paid                  --          --        (2,100)            --         (2,100)

Net Loss                          --          --            --       (529,676)      (529,676)
                           ---------   ---------   -----------    -----------    -----------

Balance - July 31, 1990    6,381,216       6,381     2,889,681     (1,362,656)     1,533,406

Common Stock Issued For:
  Cash At $.60 Per Share     318,400         319       180,954             --        181,273

Net Loss                          --          --            --       (356,874)      (356,874)
                           ---------   ---------   -----------    -----------    -----------

Balance - July 31, 1991    6,699,616       6,700     3,070,635     (1,719,530)     1,357,805
</TABLE>


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


                                      F-5
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
         FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2005

<TABLE>
<CAPTION>
                                                                                         Deficit
                                                                                        Accumulated
                                              Common Stock             Additional         In The
                                       ----------------------------      Paid-In        Development
                                          Shares          Amount         Capital           Stage            Total
                                       ------------    ------------    ------------     ------------     ------------
<S>                                    <C>             <C>             <C>              <C>              <C>
Common Stock Issued For:
  Cash:
    At $.30 Per Share                       114,917    $        115    $     34,303     $         --     $     34,418
    At $.50 Per Share                         2,000               2             998               --            1,000
    At $.60 Per Share                        22,867              23          13,698               --           13,721
    At $.70 Per Share                        10,000              10           6,990               --            7,000
    At $.80 Per Share                         6,250               6           4,994               --            5,000
    At $.90 Per Share                         5,444               5           4,895               --            4,900
  Services:
    At $.32 Per Share                        39,360              39          12,561               --           12,600
    At $.50 Per Share                        92,353              93          46,084               --           46,177
  Exercise of Options:
    At $.50 Per Share By
      Related Party                         100,000             100          49,900               --           50,000

Net Loss                                         --              --              --         (307,477)        (307,477)
                                       ------------    ------------    ------------     ------------     ------------

Balance - July 31, 1992                   7,092,807           7,093       3,245,058       (2,027,007)       1,225,144

Common Stock Issued For:
  Cash:
    At $.30 Per Share                       176,057    $        176    $     51,503     $         --     $     51,679
    At $.50 Per Share                       140,000             140          69,964               --           70,104
    At $.60 Per Share                        10,000              10           5,990               --            6,000
    At $.70 Per Share                        17,000              17          11,983               --           12,000
    At $1.00 Per Share                       50,000              50          49,950               --           50,000
  Services:
    At $.50 Per Share                       495,556             496         272,504               --          273,000
  Commissions:
    At $.50 Per Share                        20,220              20             (20)              --               --

Commissions Paid                                 --              --          (1,500)              --           (1,500)

Net Loss                                         --              --              --         (626,958)        (626,958)
                                       ------------    ------------    ------------     ------------     ------------

Balance - July 31, 1993                   8,001,640           8,002       3,705,432       (2,653,965)       1,059,469
</TABLE>


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


                                      F-6
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
         FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2005

<TABLE>
<CAPTION>
                                                                                         Deficit
                                                                                        Accumulated
                                              Common Stock             Additional         In The
                                       ----------------------------      Paid-In        Development
                                          Shares          Amount         Capital           Stage            Total
                                       ------------    ------------    ------------     ------------     ------------
<S>                                    <C>             <C>             <C>              <C>              <C>
Common Stock Issued For:
  Cash:
    At $.30 Per Share                       249,330    $        150    $     43,489     $         --     $     43,639
    At $.50 Per Share                       377,205             377         189,894               --          190,271
Services:
    At $.30 Per Share                       500,000             500         149,500               --          150,000
    At $.50 Per Share                       130,000             130          71,287               --           71,417
    At $.50 Per Share
      By Related Party                       56,000             156          77,844               --           78,000
    At $.70 Per Share                         4,743               4           3,316               --            3,320
  Exercise of Options For Services:
    At $.50 Per Share                        35,000              35          17,465               --           17,500
    At $.50 Per Share
     By Related Party                       150,000             150          74,850               --           75,000

Net Loss                                         --              --              --         (665,909)        (665,909)
                                       ------------    ------------    ------------     ------------     ------------
Balance - July 31, 1994                   9,503,918           9,504       4,333,077       (3,319,874)       1,022,707

Common Stock Issued For:
  Cash:
    At $.30 Per Share                       150,000    $        150    $     49,856     $         --     $     50,006
    At $.40 Per Share                       288,200             288         115,215               --          115,503
    At $.50 Per Share                       269,611             270         132,831               --          133,101
    At $.60 Per Share                       120,834             121          72,379               --           72,500
    At $.70 Per Share                        23,000              23          16,077               --           16,100
Services:
    At $.40 Per Share                       145,000             145          60,755               --           60,900
    At $.50 Per Share                        75,000              75          34,925               --           35,000
Exercise of Options For:
  Cash:
  At $.50 Per Share
    By Related Party                        350,000             350         174,650               --          175,000
Services:
  At $.50 Per Share                          35,000              35          17,465               --           17,500

Commissions Paid                                 --              --          (1,650)              --           (1,650)

Net Loss                                         --              --              --         (426,803)        (426,803)
                                       ------------    ------------    ------------     ------------     ------------

Balance - July 31, 1995                  10,960,563          10,961       5,005,580       (3,746,677)       1,269,864
</TABLE>


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


                                      F-7
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
         FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2005

<TABLE>
<CAPTION>
                                                                                         Deficit
                                                                                        Accumulated
                                              Common Stock             Additional         In The
                                       ----------------------------      Paid-In        Development
                                          Shares          Amount         Capital           Stage            Total
                                       ------------    ------------    ------------     ------------     ------------
<S>                                    <C>             <C>             <C>              <C>              <C>
Common Stock Issued For:
  Cash:
    At $.40 Per Share                        75,972    $         76    $     30,274     $         --     $     30,350
    At $.50 Per Share                       550,423             550         270,074               --          270,624
    At $.60 Per Share                       146,773             147          87,853                            88,000
    At $.70 Per Share                        55,722              56          38,949                            39,005
    At $.80 Per Share                       110,100             110          87,890                            88,000

Services:
    At $.40 Per Share                       104,150             104          38,296               --           38,400
    At $.50 Per Share                        42,010              42          20,963               --           21,005
    At $.60 Per Share                         4,600               5           2,755                             2,760
    At $.70 Per Share                       154,393             155         107,920                           108,075

  Commissions:
     At $.35 Per Share                       23,428              23             (23)
     At $.50 Per Share                       50,545              50             (50)
     At $.60 Per Share                        2,000               2              (2)
     At $.70 Per Share                       12,036              12             (12)

  Exercise of Options:
    Cash:
      At $.35 Per Share
        By Related Party                     19,571              20           6,830                             6,850

    Services:
      At $.35 Per Share
        By  Related Party                   200,429             200          69,950               --           70,150
      At $.50 Per Share                      95,000              95          47,405               --           47,500

Compensation Portion of
  Options                                        --              --         261,500               --          261,500

Net Loss                                         --              --              --         (956,043)        (956,043)
                                       ------------    ------------    ------------     ------------     ------------

Balance - July 31, 1996                  12,607,715          12,608       6,076,152       (4,702,720)       1,386,040
</TABLE>


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


                                      F-8
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
         FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2005

<TABLE>
<CAPTION>
                                                                                         Deficit
                                                                                        Accumulated
                                              Common Stock             Additional         In The
                                       ----------------------------      Paid-In        Development
                                          Shares          Amount         Capital           Stage            Total
                                       ------------    ------------    ------------     ------------     ------------
<S>                                    <C>             <C>             <C>              <C>              <C>
Common Stock Issued For:
  Cash:
    At $.35 Per Share                        50,000    $         50    $     17,450     $         --     $     17,500
    At $.40 Per Share                       323,983             324         128,471               --          128,795
    At $.50 Per Share                       763,881             762         381,174               --          381,936
    At $.60 Per Share                        16,667              17           9,983               --           10,000
    At $.70 Per Share                         7,143               7           4,993               --            5,000
    At $.80 Per Share                        28,750              29          22,971               --           23,000

  Services:
    At $.50 Per Share                       295,884             296         147,646               --          147,942

  Commissions:
     At $.35 Per Share                       44,614              45             (45)
     At $.40 Per Share                       41,993              42             (42)
     At $.50 Per Share                       37,936              38             (38)

  Expense:
     At $.35 Per Share                        8,888               9           3,099                             3,108
     At $.40 Per Share                        9,645              10           3,848                             3,858

  Property and Equipment
      At $.60 Per Share                       7,500               8           4,492                             4,500

  Exercise of Options
    Services:
      At $.35 Per Share
        By Related Party                    136,301             136          47,569                            47,705

Net Loss                                         --              --              --         (805,496)        (805,496)
                                       ------------    ------------    ------------     ------------     ------------

Balance - July 31, 1997                  14,380,900          14,381       6,847,723       (5,508,216)       1,353,888
</TABLE>


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


                                      F-9
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
         FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2005

<TABLE>
<CAPTION>
                                                                                         Deficit
                                                                                        Accumulated
                                              Common Stock             Additional         In The
                                       ----------------------------      Paid-In        Development
                                          Shares          Amount         Capital           Stage            Total
                                       ------------    ------------    ------------     ------------     ------------
<S>                                    <C>             <C>             <C>              <C>              <C>
Common Stock Issued For:
  Cash:
    At $.20 Per Share                        10,000    $         10    $      1,990     $         --     $      2,000
    At $.25 Per Share                       100,000             100          24,900               --           25,000
    At $.27 Per Share                        45,516              46          12,244               --           12,290
    At $.28 Per Share                       150,910             151          41,349               --           41,500
    At $.30 Per Share                        60,333              60          18,040               --           18,100
    At $.31 Per Share                         9,677              10           2,990               --            3,000
    At $.32 Per Share                        86,750              87          27,673               --           27,760
    At $.33 Per Share                       125,364             125          41,245               --           41,370
    At $.35 Per Share                        75,144              75          26,225               --           26,300
    At $.38 Per Share                        49,048              49          18,311               --           18,360
    At $.40 Per Share                       267,500             268         106,732               --          107,000
    At $.45 Per Share                        65,333              65          29,335               --           29,400
    At $.50 Per Share                       611,184             610         304,907               --          305,517

Services:
    At $.23 Per Share                        48,609              49          11,131               --           11,180

Exercise of Options:
  Services:
     At $.22 Per Share                       82,436              82          18,054               --           18,136
     At $.35 Per Share                      183,846             184          64,162               --           64,346

Compensation:
     At $.22 Per Share                      105,000             105          22,995               --           23,100
     At $.35 Per Share                       25,000              25           8,725               --            8,750

Commissions:
     At $.22 Per Share                       67,564              68             (68)              --
     At $.35 Per Share                      291,028             291            (291)              --

Net Loss                                         --              --              --         (807,181)        (807,181)
                                       ------------    ------------    ------------     ------------     ------------

Balance - July 31, 1998                  16,841,142          16,841       7,628,372       (6,315,397)       1,329,816
</TABLE>


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


                                      F-10
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
         FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2005

<TABLE>
<CAPTION>
                                                                                         Deficit
                                                                                        Accumulated
                                              Common Stock             Additional         In The
                                       ----------------------------      Paid-In        Development
                                          Shares          Amount         Capital           Stage            Total
                                       ------------    ------------    ------------     ------------     ------------
<S>                                    <C>             <C>             <C>              <C>              <C>
Common Stock Issued For:
  Cash:
    At $0.20 Per Share                       12,500    $         13    $      2,487     $         --     $      2,500
    At $0.22 Per Share                       45,454              45           9,955               --           10,000
    At $0.25 Per Share                      248,788             249          61,948               --           62,197
    At $0.27 Per Share                      132,456             132          35,631               --           35,763
    At $0.28 Per Share                      107,000             107          30,493               --           30,600
    At $0.29 Per Share                       20,000              20           5,780               --            5,800
    At $0.30 Per Share                       49,333              49          14,751               --           14,800
    At $0.32 Per Share                      152,725             153          48,719               --           48,872
    At $0.33 Per Share                      149,396             149          49,151               --           49,300
    At $0.35 Per Share                      538,427             538         187,912               --          188,450
    At $0.40 Per Share                       17,000              17           6,783               --            6,800
    At $0.50 Per Share                       53,000              53          26,447               --           26,500
    At $0.55 Per Share                        6,000               6           3,294               --            3,300
    At $0.65 Per Share                       33,846              34          21,966               --           22,000
    At $0.68 Per Share                       13,235              13           8,987               --            9,000
    At $0.70 Per Share                      153,572             154         107,346               --          107,500
    At $0.90 Per Share                       57,777              58          51,942               --           52,000
    At $1.00 Per Share                       50,000              50          49,950               --           50,000
    At $1.10 Per Share                      150,000             150         164,850               --          165,000

Expenses:
    At $0.21 Per Share                       37,376              37           7,812               --            7,849
    At $0.30 Per Share                       19,450              19           5,816               --            5,835
    At $0.36 Per Share                       34,722              35          12,465               --           12,500

Commission:
    At $0.21 Per Share                      158,426             158            (158)              --               --
    At $0.25 Per Share                       28,244              28             (28)              --               --
    At $0.30 Per Share                      132,759             133            (133)              --               --
    At $0.35 Per Share                       40,000              40             (40)              --               --

Services:                                    95,238              95          19,905               --           20,000
    At $0.25 Per Share                       17,000              17           4,233               --            4,250
    At $0.30 Per Share                      145,941             146          43,636               --           43,782
    At $0.50 Per Share                       71,808              72          35,832               --           35,904
</TABLE>


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


                                      F-11
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
         FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2005

<TABLE>
<CAPTION>
                                                                                         Deficit
                                                                                        Accumulated
                                              Common Stock             Additional         In The
                                       ----------------------------      Paid-In        Development
                                          Shares          Amount         Capital           Stage            Total
                                       ------------    ------------    ------------     ------------     ------------
<S>                                    <C>             <C>             <C>              <C>              <C>
Compensation portion of Cash
  Issuances                                      --    $         --    $    618,231     $         --     $    618,231

Compensation Portion of
  Options                                        --              --         304,900               --          304,900

Exercise of Options:
  Cash
    At $0.10 Per Share                      510,000             510          50,490               --           51,000

Services:
    At $0.70 Per Share                      100,000             100          69,900               --           70,000

Net Loss                                         --              --              --       (1,964,447)      (1,964,447)
                                       ------------    ------------    ------------     ------------     ------------

Balance - July 31, 1999                  20,222,615          20,221       9,689,625       (8,279,844)       1,430,002

Common Stock Issued For:
  Cash:
    At $.18 Per Share                        27,778              28           4,972               --            5,000
    At $.20 Per Share                       482,500             483          96,017               --           96,500
    At $.21 Per Share                        47,500              47           9,953               --           10,000
    At $.22 Per Share                       844,821             845         185,012               --          185,857
    At $.30 Per Share                       100,000             100          29,900               --           30,000
    At $.35 Per Share                       280,000             280          97,720               --           98,000
    At $.37 Per Share                        56,000              56          19,944               --           20,000
    At $.38 Per Share                       100,000             100          37,900               --           38,000
    At $.40 Per Share                       620,000             620         247,380               --          248,000
    At $.42 Per Share                        47,715              48          19,952               --           20,000
    At $.45 Per Share                       182,445             182          81,918               --           82,100
    At $.50 Per Share                       313,000             313         156,187               --          156,500
    At $.55 Per Share                       122,778             123          67,377               --           67,500
    At $.58 Per Share                        12,069              12           6,988               --            7,000

Expenses:
    At $.20 Per Share                         4,167               4             829               --              833
    At $.22 Per Share                        46,091              46          10,094               --           10,140

Compensation Portion                             --              --          94,430               --           94,430
</TABLE>


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


                                      F-12
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
         FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2005

<TABLE>
<CAPTION>
                                                                                         Deficit
                                                                                        Accumulated
                                              Common Stock             Additional         In The
                                       ----------------------------      Paid-In        Development
                                          Shares          Amount         Capital           Stage            Total
                                       ------------    ------------    ------------     ------------     ------------
<S>                                    <C>             <C>             <C>              <C>              <C>
Exercise of Options:
  Services:
     At $.25 Per Share                       30,000    $         30    $      7,470     $         --     $      7,500
     At $.40 Per Share                       95,000              95          37,905               --           38,000
     At $.50 Per Share                       25,958              26          12,954               --           12,980

Commissions:
     At $.20 Per Share                       26,750              27             (27)              --               --
     At $.22 Per Share                       86,909              87             (87)              --               --

Exercise of Options:
  Cash:
     At $.10 Per Share                      100,000             100           9,900               --           10,000

Exercise of Options:
  Services:
     At $.22 Per Share                      150,000             150          32,850               --           33,000

Stock Based Compensation                         --              --         221,585               --          221,585

Net Loss                                         --              --              --       (1,530,020)      (1,530,020)
                                       ------------    ------------    ------------     ------------     ------------

Balance - July 31, 2000
  (Unconsolidated)                       24,024,096          24,023      11,178,748       (9,809,864)       1,392,907

Common Stock Issued For:
  Cash:
    At $.15 Per Share                       120,000             120          17,880               --           18,000
    At $.17 Per Share                        80,000              80          13,520               --           13,600
    At $.18 Per Share                       249,111             249          44,591               --           44,840
    At $.19 Per Share                        70,789              71          13,379               --           13,450
    At $.20 Per Share                     1,322,500           1,323         261,677               --          263,000
    At $.21 Per Share                        33,810              34           7,066               --            7,100
    At $.22 Per Share                     2,472,591           2,473         541,497               --          543,970
    At $.23 Per Share                        65,239              65          14,935               --           15,000
    At $.24 Per Share                       123,337             123          29,477               --           29,600
    At $.25 Per Share                       610,400             611         151,884               --          152,495
    At $.26 Per Share                       625,769             626         162,074               --          162,700
    At $.27 Per Share                       314,850             315          84,695               --           85,010
    At $.28 Per Share                         7,143               7           1,993               --            2,000
    At $.30 Per Share                        33,333              33           9,967               --           10,000
    At $.35 Per Share                       271,429             272          94,728               --           95,000
    At $.38 Per Share                       453,158             453         169,547               --          170,000
    At $.40 Per Share                       300,000             300         119,700               --          120,000
    At $.50 Per Share                        10,000              10           4,990               --            5,000
</TABLE>


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


                                      F-13
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
         FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2005

<TABLE>
<CAPTION>
                                                                               Deficit
                                                                              Accumulated     Accumulated
                                     Common Stock             Additional         In The          Other
                             ----------------------------      Paid-In        Development    Comprehensive
                                Shares          Amount         Capital           Stage       Income (Loss)       Total
                             ------------    ------------    ------------     ------------    ------------    ------------
<S>                          <C>             <C>             <C>              <C>              <C>            <C>
Compensation Portion:                  --    $         --    $     24,000     $         --    $         --    $     24,000

Expenses:
    At $.27 Per Share              30,000              30           8,070               --              --           8,100

Services:
    At $0.20 Per Share             33,850              34           6,736               --              --           6,770
    At $0.23 Per Share             15,000              15           3,435               --              --           3,450
    At $0.11 Per Share             87,272              87           9,513               --              --           9,600
    At $0.34 Per Share             50,000              50          16,950               --              --          17,000

Compensation Portion:                  --              --          21,777               --              --          21,777

Commission:
    At $0.11 Per Share            266,500             267            (267)              --              --              --
    At $0.20 Per Share             26,150              26             (26)              --              --              --
    At $0.22 Per Share             15,000              15             (15)              --              --              --

Compensation Portion:                  --              --          36,595               --              --          36,595

Exercise of Options:
  Cash:
    At $0.02 Per Share By
      Related Party               225,000             225           4,725               --              --           4,950
    At $0.10 Per Share            200,000             200          19,800               --              --          20,000

Expenses:
    At $0.02 Per Share By
      Related Party                53,270              53           1,120               --              --           1,173

Compensation Portion:                  --              --          25,463               --              --          25,463

Commission:
      At $0.02 Per Share          350,000             350            (350)              --              --              --

Compensation Portion:                  --              --         132,300               --              --         132,300

Commission:
      At $0.05 Per Share        1,000,000           1,000          (1,000)              --              --              --

Compensation Portion:                  --              --         400,000               --              --         400,000

Stock Based Compensation               --              --       7,002,500               --              --       7,002,500
                                                                                                              ------------
</TABLE>


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


                                      F-14
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
         FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2005

<TABLE>
<CAPTION>
                                                                               Deficit
                                                                              Accumulated     Accumulated
                                     Common Stock             Additional         In The          Other
                             ----------------------------      Paid-In        Development    Comprehensive
                                Shares          Amount         Capital           Stage       Income (Loss)       Total
                             ------------    ------------    ------------     ------------    ------------    ------------
<S>                          <C>             <C>             <C>              <C>              <C>            <C>
Comprehensive Loss:
Net Loss                               --              --              --       (9,418,266)             --      (9,418,266)

Equity Adjustment from
  Foreign Currency
  Translation                          --              --              --               --            (493)           (493)
                                                                                                              ------------

Total Comprehensive
  Loss                                 --              --              --               --              --      (9,418,759)
                             ------------    ------------    ------------     ------------    ------------    ------------

Balance - July 31, 2001        33,539,597          33,540      20,633,674      (19,228,130)           (493)      1,438,591

Common Stock Issued
  For:
    Cash:
      At $.022 Per Share        1,400,976           1,401          29,420               --              --          30,821
      At $.08 Per Share           250,000             250          19,750               --              --          20,000
      At $.10 Per Share           980,000             980          97,020               --              --          98,000
      At $.11 Per Share           145,456             145          15,855               --              --          16,000
      At $.115 Per Share          478,260             478          54,522               --              --          55,000
      At $.12 Per Share           500,000             500          59,500               --              --          60,000
      At $.125 Per Share           40,000              40           4,960               --              --           5,000
      At $.14 Per Share            44,000              44           6,116               --              --           6,160
      At $.15 Per Share           383,667             384          57,166               --              --          57,550
      At $.18 Per Share            25,000              25           4,475               --              --           4,500

Commissions:
  At $.115 Per Share               69,565              70             (70)              --              --              --
  At $.22 Per Share               100,000             100            (100)              --              --              --
  At $.08 Per Share                20,625              21             (21)              --              --              --
  At $.14-$.22 Per Share          282,475             282            (282)              --              --              --

Services:
  At $.10 Per Share                35,950              36           3,559               --              --           3,595

Exercise of Options:
  Non Cash:
    At $.022 Per Share by
      Related Party:              227,273             227           4,773               --              --           5,000

Exercise of Options:
  Cash:
    At $.022 Per Share by
      Related Parties             909,092             909          19,091               --              --          20,000
    At $.022 Per Share by
      Others                    1,205,929           1,206          25,325               --              --          26,531
</TABLE>


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


                                      F-15
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
         FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2005

<TABLE>
<CAPTION>
                                                                               Deficit
                                                                              Accumulated     Accumulated
                                     Common Stock             Additional         In The          Other
                             ----------------------------      Paid-In        Development    Comprehensive
                                Shares          Amount         Capital           Stage       Income (Loss)       Total
                             ------------    ------------    ------------     ------------    ------------    ------------
<S>                          <C>             <C>             <C>              <C>              <C>            <C>
Additional Paid-In Capital
  Arising From Investment
  In Joint Venture Subsidiary
  by Minority Interest                 --              --          51,934               --              --          51,934

Stock Based Compensation               --              --         222,338               --              --         222,338
                                                                                                              ------------

Comprehensive Loss:
  Net Loss                             --              --              --         (492,148)             --        (492,148)

  Equity Adjustment from
    Foreign Currency
    Translation                        --              --              --               --          (6,753)         (6,753)
                                                                                                              ------------

Total Comprehensive
  Loss                                 --              --              --               --              --        (498,901)
                             ------------    ------------    ------------     ------------    ------------    ------------

Balance - July 31, 2002        40,637,865          40,638      21,309,005      (19,720,278)         (7,246)      1,622,119

Common Stock Issued for:
  Cash:
    At $.022 Per Share            250,000             250           5,250               --              --           5,500
    At $.10 Per Share              50,000              50           4,950               --              --           5,000
    At $.12 Per Share           1,250,000           1,250         148,750               --              --         150,000
    At $.14 Per Share             235,714             236          32,764               --              --          33,000
    At $.15 Per Share           1,016,865           1,017         151,513               --              --         152,530

Exercise of Options:
  Cash:
    At $.022 Per Share by
      Related Party               922,727             923          19,377               --              --          20,300
    At $.05 Per Share by
      Related Party               200,000             200           9,800               --              --          10,000
    At $.05 Per Share by
      Others                      100,000             100           4,900               --              --           5,000

Services:
  At $4.00 Per Share               14,363              13          57,378               --              --          57,391

Additional Paid-In Capital
  Arising from Investment
  In Joint Venture Subsidiary
  By Minority Interest                 --              --         159,919               --              --         159,919

Stock Based
  Compensation                         --              --         288,623               --              --         288,623
                                                                                                              ------------

Comprehensive Loss:
  Net Loss                             --              --              --       (1,919,261)             --      (1,919,261)

  Equity Adjustment from
    Foreign Currency
    Translation                        --              --              --               --          60,879          60,879
                                                                                                              ------------

Total Comprehensive
  Loss                                 --              --              --               --              --      (1,858,382)
                             ------------    ------------    ------------     ------------    ------------    ------------

Balance - July 31, 2003        44,677,534          44,677      22,192,229      (21,639,539)         53,633         651,000
</TABLE>


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


                                      F-16
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
         FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2005

<TABLE>
<CAPTION>
                                                                               Deficit
                                                                              Accumulated     Accumulated
                                     Common Stock             Additional         In The          Other
                             ----------------------------      Paid-In        Development    Comprehensive
                                Shares          Amount         Capital           Stage       Income (Loss)       Total
                             ------------    ------------    ------------     ------------    ------------    ------------
<S>                          <C>             <C>             <C>              <C>              <C>            <C>
Common Stock Issued for:
  Cash:
    At $.05 Per Share             150,000             150           7,350               --              --           7,500
    At $.11 Per Share             245,455             245          26,755               --              --          27,000
    At $.12 Per Share           5,929,565           5,929         705,318               --              --         711,247
    At $.13 Per Share             349,691             350          45,110               --              --          45,460
    At $.14 Per Share             346,284             346          48,133               --              --          48,479
    At $.15 Per Share             368,665             369          54,931               --              --          55,300
    At $.16 Per Share             593,750             594          94,406               --              --          95,000
    At $.17 Per Share             145,000             145          24,505               --              --          24,650
    At $.18 Per Share              55,554              56           9,944               --              --          10,000
    At $.20 Per Share             365,000             365          72,635               --              --          73,000
    At $.23 Per Share              45,439              45          10,405               --              --          10,450
    At $.24 Per Share              74,166              74          17,726               --              --          17,800
    At $.25 Per Share              80,000              80          19,920               --              --          20,000

Exercise of Options:
  Cash:
    At $.02 Per Share by
      Related Party               250,000             250           5,250               --              --           5,500
    At $.05 Per Share by
      Related Party             1,415,000           1,415          69,338               --              --          70,753
    At $.12 Per Share by
      Related Party                97,826              98          11,152               --              --          11,250
    At $.02 Per Share by
      Related Party               272,727             273           5,327               --              --           5,600
    At $.05 Per Share by
      Related Party               300,000             300          14,700               --              --          15,000

Services:
  At $.12 Per Share                 7,500               8             892               --              --             900

Additional Paid-In Capital
  Arising from Investment
  In Joint Venture Subsidiary
  By Minority Interest                 --              --         100,156               --              --         100,156

Stock Based Compensation:
    Related Parties                    --              --         314,000               --              --         314,000
    Other                              --              --          65,033               --              --          65,033

Common Stock Issued
  In Connection with
  Termination of Joint
  Venture                       2,000,000           2,000         798,000               --              --         800,000
                                                                                                              ------------

Comprehensive Loss:
  Net Loss                             --              --              --       (2,938,590)             --      (2,938,590)

  Equity Adjustment from
    Foreign Currency
    Translation                        --              --              --               --         (24,894)        (24,894)

Unrealized Gain on
  Marketable Securities                --              --              --               --          60,000          60,000

Total Comprehensive
  Loss                                 --              --              --               --              --      (2,903,484)
                             ------------    ------------    ------------     ------------    ------------    ------------

Balance - July 31, 2004        57,769,156    $     57,769    $ 24,713,215     $(24,578,129)   $     88,739    $    281,594
</TABLE>


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


                                      F-17
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - (Continued)
         FOR THE PERIOD SEPTEMBER 17, 1982 (INCEPTION) TO JULY 31, 2005

<TABLE>
<CAPTION>
                                                                              Deficit
                                                                             Accumulated   Accumulated
                                        Common Stock          Additional        In The         Other      Deferred
                                   ----------------------      Paid-In       Development   Comprehensive  Financing
                                     Shares       Amount       Capital          Stage      Income (Loss)     Costs        Total
                                   ----------    --------    ------------    ------------    ----------    ---------    ----------
<S>                                <C>           <C>         <C>             <C>             <C>           <C>          <C>
Common Stock Issued for:
  Cash:

    At $.10 Per Share                 175,000         175          17,325              --            --           --        17,500
    At $.11 Per Share                 381,763         382          41,612              --            --           --        41,994
    At $.12 Per Share               2,378,493       2,379         283,042              --            --           --       285,421
    At $.13 Per Share                 582,307         582          75,118              --            --           --        75,700
    At $.14 Per Share                  35,714          36           4,964              --            --           --         5,000
    At $.15 Per Share                 101,333         101          15,099              --            --           --        15,200
    At $.20 Per Share                  25,000          25           4,975              --            --           --         5,000
    At $.25 Per Share              27,200,004      27,200       6,772,801              --            --           --     6,800,001
       Shares issued for
          Cash Through Private
          Placement Private
          Placement costs                                        (637,991)                                        --      (637,991)

Services:
  At $.11 Per Share                   188,173         188          20,511              --            --           --        20,699
  At $.12 Per Share                    71,334          71           8,489              --            --           --         8,560

Exercise of Options:
  Cash:
    At $.022 Per Share by
      Related Party                   227,273         227           4,773              --            --           --         5,000
    At $.05 Per Share by
      Related Party                   400,000         400          19,600              --            --           --        20,000
    At $.05 Per Share by
      Other                           250,000         250          12,250              --            --           --        12,500
    At $.22 Per Share by
      Other                           250,000         250          54,750              --            --           --        55,000
  Services
 At $.12 Per Share by
      Other                           300,000         300          35,700              --            --           --        36,000

Commissions:
  At $.12 Per Share                   193,666         194            (194)             --            --           --            --

Non Registration Penalty:
  At $.19 Per Share                 5,440,000       5,440          (5,440)             --            --           --            --

Stock Based Compensation                                          158,584                                                  158,584

Deferred Financing Costs                   --          --         252,541              --            --     (252,541)
                                                                                                                        ----------
Net Loss                                   --          --              --      (2,005,682)           --           --    (2,005,682)

  Equity Adjustment from
    Foreign Currency
    Translation                            --          --              --              --        28,976           --        28,976

Unrealized Gain on
  Marketable Securities                    --          --              --              --        40,000           --        40,000
                                                                                                                        ----------
Total Comprehensive
  Loss                                                                                                                  (1,936,707)
                                                                                                                        ----------

----------------------------------------------------------------------------------------------------------------------------------
Balance - July 31, 2005            95,969,216    $ 95,969    $ 31,851,724    $(26,583,811)   $  157,715    $(252,541)   $5,269,055
                                   ==========    ========    ============    ============    ==========    =========    ==========
</TABLE>


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


                                      F-18
<PAGE>

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

<TABLE>
<CAPTION>
                                                                        For The                 For The Period
                                                                       Year Ended             September 17, 1982
                                                                        July 31,                 (Inception)
                                                              ----------------------------            To
                                                                  2005            2004          July 31, 2005
                                                              ------------    ------------       ------------
<S>                                                           <C>             <C>                <C>
Cash Flow From Operating Activities:
  Net Loss                                                    $ (2,005,682)   $ (2,938,590)      $(26,583,811)
  Adjustments to Reconcile Net Loss to
    Net Cash (Used) By Operating Activities:
     Depreciation and Amoritzation                                   7,431              --            375,157
     Gain on Sale of Subsidiary                                                                    (1,907,903)
     Minority Interest in Net Loss of Subsidiary                        --         (51,220)          (286,388)
     Write-Down of Impaired Mining, Milling and Other
       Property and Equipment                                           --         300,000          1,299,445
      Gain on Sale of Property and Equipment                                                          (46,116)
      Loss on Write-Off of Investment                                                                  10,000
      Loss on Joint Venture                                             --         800,000            901,700
      Loss on Write-Off of Minority Interest                            --         150,382            150,382
     Value of Common Stock Issued for Services                      29,260             900          2,843,153
     Stock Based Compensation                                      158,584         379,033          9,380,587
     Changes in Operating Assets and Liabilities:
       (Increase) Decrease in Prepaid Expenses                     (54,299)          1,533            (62,793)
       (Increase) Decrease in Other Current Assets                 (10,601)        (15,270)           (40,849)
       (Increase) in Other Deposits                                (80,000)             --            (80,000)
       (Increase) in Security Deposits                              (1,170)             --             (9,605)
       Increase (Decrease) in Accounts Payable                      39,953         (43,941)           120,222
       Increase (Decrease) in Accrued Expenses                      74,703          (6,199)            68,232
                                                              ------------    ------------       ------------

Net Cash (Used) By Operating Activities                         (1,841,821)     (1,423,372)       (13,868,587)
                                                              ------------    ------------       ------------

Cash Flow From Investing Activities:
  (Increase) in Other Investments                                  (11,330)          2,992            (21,220)
  Purchase of Mining, Milling and Other Property and
    Equipment                                                     (657,683)             --         (2,363,333)
  Purchase of Mining Concession                                    (25,324)             --            (25,324)
  Investment in Intangibles                                        (18,531)             --            (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 Provided By (Used) In Investing Activities               (712,868)          2,992           (419,221)
                                                              ------------    ------------       ------------
</TABLE>


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


                                      F-19
<PAGE>

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

                                   (Continued)

<TABLE>
<CAPTION>
                                                                        For The                 For The Period
                                                                      Year Ended              September 17, 1982
                                                                        July 31,                 (Inception)
                                                              ----------------------------            To
                                                                  2005            2004          July 31, 2005
                                                              ------------    ------------       ------------
<S>                                                           <C>             <C>                <C>
Cash Flow From Financing Activities:
  Advances to Affiliate                                             (3,571)         (7,668)           (31,419)
  (Increase) Decrease in Loans Receivable - Others                   2,065          16,300                 --
  Prodeeds of Borrowings - Officers                                                                    18,673
  Repayment of Loans Payable - Officers                                                               (18,673)
  Prodeeds of Note Payable                                                                             11,218
  Payments of Note Payable                                                                            (11,218)
  Proceeds From Issuance of Common Stock                         6,700,325       1,253,988         18,735,924
  Commissions on Sale of Common Stock                                                                  (5,250)
  Finance costs associated with Issuance of Common Stock          (100,000)                          (100,000)
  Expenses of Initial Public Offering                                                                (408,763)
  Capital Contributions - Joint Venture Subsidiary                                 100,156            304,564
  Purchase of Certificate of Deposit - Restricted                                                      (5,000)
  (Purchase) of Mining Reclamation Bonds                                                              (30,550)
                                                              ------------    ------------       ------------

Net Cash Provided By Financing Activities                        6,598,819       1,362,776         18,459,506
                                                              ------------    ------------       ------------

Effect of Exchange Rate Changes                                     28,975          19,637            109,850
                                                              ------------    ------------       ------------

Increase (Decrease) In Cash and Cash Equivalents                 4,073,105         (37,967)         4,281,548

Cash and Cash Equivalents - Beginning                              208,443         246,410
                                                              ------------    ------------       ------------

Cash and Cash Equivalents - Ending                            $  4,281,548    $    208,443       $  4,281,548
                                                              ============    ============       ============

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

  Cash Paid For Income Taxes                                  $         --    $      4,095       $     32,155
                                                              ============    ============       ============

Non-Cash Financing Activities:
  Issuances of Common Stock as Commissions
    on Sales of Common Stock                                  $     23,240    $         --       $    440,495
                                                              ============    ============       ============

  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    $         --       $     36,000
                                                              ============    ============       ============
</TABLE>


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


                                      F-20
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                July 31, 2005

NOTE 1 - Basis of Presentation

      Capital Gold Corporation ("Capital Gold", "the Company", "we" or "us") was
incorporated in February 1982 in the State of Nevada. During March 2003 the
Company's stockholders approved an amendment to the Articles of Incorporation to
change its name from Leadville Mining and Milling Corp. to Capital Gold
Corporation. The Company owns rights to property located in the California
Mining District, Lake County, Colorado and in the State of Sonora, Mexico and is
engaged in the exploration for gold and other minerals from it's properties.
Substantially all of the Company's mining activities are now being performed in
Mexico. The Company is a development stage enterprise.

      On June 29, 2001 the Company exercised an option and purchased from
AngloGold North America Inc. and AngloGold (Jerritt Canyon) Corp. 100% of the
issued and outstanding stock of Minera Chanate, S.A. de C.V., a subsidiary of
those two companies. Minera Chanate's assets consisted of certain exploitation
and exploration concessions in the States of Sonora, Chihuahua and Guerrero,
Mexico. We sometimes refer to these concessions as the El Chanate Concessions.

      Pursuant to the terms of the agreement, on December 15, 2001, the Company
made a $50,000 payment to AngloGold. AngloGold will be entitled to receive the
remainder of the purchase price by way of an ongoing percentage of net smelter
returns of between 2% and 4% plus 10% net profits interest (until the total net
profits interest payment received by AngloGold equals $1,000,000). AngloGold's
right to a payment of a percentage of net smelter returns and the net profits
interest will terminate at such point as they aggregate $18,018,355. In
accordance with the agreement, the foregoing payments are not to be construed as
royalty payments. Should the Mexican government or other jurisdiction determine
that such payments are royalties, we could be subject to and would be
responsible for any withholding taxes assessed on such payments.

      Under the terms of the agreement, the Company has granted AngloGold the
right to designate one of its wholly-owned Mexican subsidiaries to receive a
one-time option to purchase 51% of Minera Chanate (or such entity that owns the
Minera Chanate concessions at the time of option exercise). That Option is
exercisable over a 180 day period commencing at such time as the Company
notifies AngloGold that it has made a good faith determination that it has
gold-bearing ore deposits on any one of the identified group of El Chanate
Concessions, when aggregated with any ore that the Company has mined, produced
and sold from such concessions, of in excess of 2,000,000 troy ounces of
contained gold. The exercise price would equal twice the Company's project costs
on the properties during the period commencing on December 15, 2000 and ending
on the date of such notice.

      The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. However, the Company is a development
stage enterprise and since its inception has had no mining revenues and has
incurred recurring losses aggregating $26,583,811. These factors raise
substantial doubt about the Company's ability to continue as a going concern. As
indicated in Note 17, the Company is in the process of raising additional
capital and financing. Continuation of the Company is dependent on
(1)consummation of financings, (2) achieving sufficiently profitable operations
(3) subsequently maintaining adequate financing


                                      F-21
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2005

NOTE 1 - Basis of Presentation - (Continued)

arrangements and (4) its exiting the development stage. The achievement and/or
success of the Company's planned measures, however, cannot be determined at this
time. These financial statements do not reflect any adjustments relating to the
recoverability and classification of assets carrying amounts and classification
of liabilities should the Company be unable to continue as a going concern.

NOTE 2 - Summary of Significant Accounting Policies

      Principals of Consolidation

      The consolidated financial statements include the accounts of Capital Gold
Corporation and its wholly owned and majority owned subsidiaries. The Company
accounted for its Mexican joint venture operation through the date of
dissolution (see Note 5) as a subsidiary since it controlled the decision making
process and it owned 69% of the venture. All significant intercompany accounts
and transactions are eliminated in consolidation.

      Cash and Cash Equivalents

      The Company considers highly liquid investments with original maturities
of three months or less from the date of purchase to be cash equivalents. Cash
and cash equivalents include money market funds and short term U.S. treasury
bonds.

      Marketable Securities

      The Company accounts for its investments in marketable securities in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities".

      Management determines the appropriate classification of all securities at
the time of purchase and re-evaluates such designation as of each balance sheet
date. The Company has classified its marketable equity securities as available
for sale securities and has recorded such securities at fair value. The Company
uses the specific identification method to determine realized gains and losses.
Unrealized holding gains and losses are excluded from earnings and, until
realized, are reported as a separate component of stockholders' equity.

      Mining, Milling and Other Property and Equipment

      Mining, milling and other property and equipment is reported at cost. It
is the Company's policy to capitalize costs incurred to improve and develop the
mining and milling properties. General exploration costs and costs to maintain
rights and leases are expensed as incurred. Management of the Company
periodically reviews the recoverability of the capitalized mineral properties
and mining equipment. Management takes into consideration various information
including, but not limited to, historical production records taken from previous
mine operations, results of exploration activities conducted to date, estimated
future prices and reports and opinions of outside geologists, mine engineers,
and consultants. When it is determined that a project or property will be
abandoned or its carrying value


                                      F-22
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2005

NOTE 2 - Summary of Significant Accounting Policies (Continued)

has been impaired, a provision is made for any expected loss on the project or
property.

      Depletion of mining and milling improvements will be computed at cost
using the units of production method. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets.

      Other Intangible Assets

      Purchased intangible assets consisting of rights of way and easements are
carried at cost less accumulated amortization. Amortization is computed using
the straight-line method over the economic lives of the respective assests,
generally five years. It is the Company's policy to asses periodically the
carrying amount of its purchased intangible assets to determine if there has
been an impairment to their carrying value. Impairments of other intangible
assets are determined in accordance with SFAS 144. There was no impairment at
July 31, 2005.

      Impairment of Long-Lived Assets

      In accordance with SFAS 144, "Accounting for the Impairment and Disposal
of Long-Lived Assets" the Company reviews its 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 the Company performed a review of
its Colorado mine and mill improvements and determined that an impairment loss
should be recognized. Accordingly, at July 31, 2002 the Company reduced by
$999,445 the net carrying value of certain assets relating to its Leadville,
Colorado facility to $300,000 and further reduced the net carrying value to $0
at July 31, 2004, which approximated management's estimate of fair value.

      Fair Value of Financial Instruments

      The carrying value of the Company's financial instruments, including cash
and cash equivalents, loans receivable and accounts payable approximated fair
value because of the short maturity of these instruments.

      Revenue Recognition

      Revenues, if any, from the possible sales of minerals will be recognized
by the Company only upon receipt of final settlement funds from the purchaser.

      Foreign Currency Translation

      Assets and liabilities of the Company's Mexican subsidiaries are
translated to US dollars using the current exchange rate for assets and
liabilities. Amounts on the statement of operations are translated at the
average exchange rates during the year. Gains or losses resulting from foreign
currency translation are included as a component of other comprehensive income
(loss).

      Comprehensive Income (Loss)

      Comprehensive income (loss) which is reported on the accompanying
consolidated statement of stockholders' equity as a component of accumulated
other comprehensive income (loss) consists of accumulated foreign translation
gains and losses and net unrealized gains and losses on available-for-sale
securities.


                                      F-23
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2005

NOTE 2 - Summary of Significant Accounting Policies (Continued)

      Income Taxes

      The Company records deferred income taxes using the liability method as
prescribed under the provisions of SFAS No. 109. Under the liability method,
deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the financial statement and income
tax bases of the Company's assets and liabilities. An allowance is recorded,
based upon currently available information, when it is more likely than not that
any or all of the deferred tax assets will not be realized. The provision for
income taxes includes taxes currently payable, if any, plus the net change
during the year in deferred tax assets and liabilities recorded by the Company.

      Stock-Based Compensation

      The Company accounts for stock-based compensation to its employees using
the intrinsic value method in accordance with provisions of the Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations which requires the recognition of
compensation expense over the vesting period of the option when the exercise
price of the stock option granted is less than the fair value of the underlying
common stock. Additionally, the Company complies with the disclosure provisions
of Statement of Financial Accounting Standards No. 123 "Accounting for Stock
Based Compensation" ("SFAS 123") and provides pro forma disclosure of net loss
and loss per share as if the fair value method has been applied in measuring
compensation expense for stock options granted. Stock-based compensation related
to options and warrants granted to non-employees is recognized using the fair
value method in accordance with SFAS 123 and Emerging Issues Task Force ("EITF")
No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services".
Compensation costs are amortized in a manner consistent with Financial
Accounting Standards Board Interpretation No. 28 (FIN No. 28), "Accounting for
Stock Appreciation Rights and Other Variable Stock Option or Award Plans". The
Company uses the Black-Scholes options pricing model to value options,
restricted stock grants and warrants granted to non-employees.

      Reclassifications

      Certain items in these financial statements have been reclassified to
conform to the current period presentation. These reclassifications had no
impact on our results of operations, stockholders' equity (deficit) or cash
flows.

      Net Loss Per Common Share

      The computation of basic net loss per share of common stock is computed by
dividing net loss for the period by the weighted average number of common shares
outstanding during that period.


                                      F-24
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2005

NOTE 2 - Summary of Significant Accounting Policies (Continued)

Because the Company is incurring losses, the effect of stock options and
warrants is antidilutive. Accordingly, the Company's presentation of diluted net
loss per share is the same as that of basic net loss per share.

      Concentrations of Credit Risk

      Financial instruments that potentially subject the Company to significant
concentrations of credit risk consists principally of cash and cash equivalents
and marketable securities. The Company maintains cash balances at financial
institutions which exceed the Federal Deposit Insurance Corporation limit of
$100,000 at times during the year.

      Use of Estimates

      The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.

      Environmental Remediation Costs

      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 the Company's estimates of reclamation liabilities, if
any, could change as a result of changes in regulations, extent of environmental
remediation required, means of reclamation or cost estimates. Ongoing
environmental compliance costs, including maintenance and monitoring costs, are
expensed as incurred. There were no environmental remediation costs accrued at
July 31, 2005.

      Recently Issued Accounting Pronouncements

      In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment". SFAS 123 (R)addresses the accounting for share-based
payment transactions in which an enterprise receives employee services in
exchange for (a) equity instruments of the enterprise or (b) liabilities that
are based on the fair value of the enterprise's equity instruments. SFAS 123 (R)
requires an entity to recognize the grant-date fair-value of stock options and
other equity-based compensation issued to employees in the income statement. The
revised statement generally requires that an entity account for those
transactions using the fair-value-based method and eliminates the intrinsic
value method of accounting in APB 25, which was permitted under SFAS No. 123, as
originally issued.

      The revised statement requires entities to disclose information about the
nature of the share-based payment transactions and the effects of those
transactions on the financial statements.


                                      F-25
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2005

NOTE 2 - Summary of Significant Accounting Policies (Continued)

      SFAS No. 123 ( R ) is effective for small business issuer's financial
statements for the first interim or annual reporting period after December 15,
2005, with early adoption encouraged.

      The Company is currently evaluating the impact that this statement will
have on its financial condition or results of operations.

      Emerging Issue Task Force (EITF) Issue 04-08, "The Effect of Contingently
Convertible Instruments on Diluted Earnings Per Share". The EITF reached a
consensus that contingently convertible instruments, such as contingently
convertible debt, contingently convertible preferred stock, and other such
securities should be included in diluted earnings per share (if dilutive)
regardless of whether the market price trigger has been met. The consensus is
effective for reporting periods after December 15, 2004.

      The adoption of this pronouncement did not have a material effect on the
Company's financial statements.

      In May 2005, the FASB issued Statement of Financial Accounting Standards
No. 154, "Accounting Changes and Error Corrections--a replacement of APB Opinion
No. 20 and FASB Statement No. 3" ("SFAS 154"). 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 transaction provision.
When a pronouncement includes specific transaction provisions, those provisions
should be followed. SFAS 154 is effective for accounting changes and corrections
of errors made in fiscal years beginning after December 15, 2005. Consequently,
the Company will adopt the provisions of SFAS No. 154 for its fiscal year
beginning July 1, 2006. Management currently believes that adoption of the
provisions of SFAS No. 154 will not have a material impact on the Company's
consolidated financial statements.

      In January 2003, the Financial Accounting Standards Board (FASB) issued
interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities"
(VIEs), which is an interpretation of Accounting Research Bulletin (ARB) No. 51,
"Consolidated Financial Statements". FIN 46, as revised by FIN 46R in December
2003, addresses the application of ARB No. 51 to VIEs, and generally would
require assets, liabilities and results of activity of a VIE be consolidated
into the financial statements of the enterprise that is considered the primary
beneficiary. FIN 46R shall be applied to all VIEs by the end of the first
reporting period ending after December 15, 2004. The Company has determined that
FIN 46R has no material impact on its financial statements.


                                      F-26
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2005

NOTE 3 - 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            $150,000
         (See Notes 10 & 13)                                   ========

NOTE 4 - Property and Equipment

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

Equipment Held for Resale                 $  393,829
Equipment                                     73,845
Water Well                                   141,244
Vehicle                                       34,656
Office Equipment                              12,266
Furniture                                      1,843
                                          ----------

Total                                        657,683

Less: accumulated depreciation                (6,742)
                                          ----------

Fixed assets, net                         $  650,941
                                          ==========

Depeciation expense for the year ending July 31, 2005 was $6,742 as compared to
$0 for the same period last year. The increase was due to the acquisition of
assets related to the Mexico operations.

NOTE 5 - Intangible Assets

Investment in Right of way                $   18,531

Less: accumulated amortization                  (689)
                                          ----------
Intangible assets, net                    $   17,842
                                          ==========

Amortization expense for the year ending July 31, 2005 was $689 as compared to
$0 for the same period last year. The increase was due to the investment in a
right of way.


                                      F-27
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2005

NOTE 6 - Joint Venture

      On February 23, 2002, Minera Santa Rita S. de R.L. de C.V., one of our
wholly-owned Mexican subsidiaries, entered into a joint venture agreement with
Grupo Minero FG S.A. de C.V. to explore, evaluate and develop the El Chanate
concessions. Grupo Minero FG S.A. de C.V., referred to as FG, is a private
Mexican company.

      Pursuant to the agreement with FG, the venture was to be conducted in five
phases. The first two phases entailed continued exploration and evaluation of
the mining potential of lots within the concessions.

      Pursuant to the agreement, FG has paid us $75,000 to participate in the
venture and contributed an additional $75,000 towards the first phase of the
venture for which it received a 30% interest in the venture. The balance of the
costs for Phase one and the costs for Phase two were to be split equally between
the parties.

      On April 6 and 8, 2004, effective March 31, 2004, Minera Santa Rita S. de
R.L. de C.V. ("MSR"), one of our wholly-owned Mexican affiliates, and FG
executed an agreement (the "Termination Agreement") terminating their joint
venture agreement (the "JV Agreement") with regard to the El Chanate project in
Mexico.

      Pursuant to the Termination Agreement, the parties have terminated
amicably the JV Agreement and have released each other from all obligations
under the JV Agreement. In consideration of FG's contributions to the venture of
$457,455, we issued to FG 2,000,000 restricted shares of our common stock valued
at $800,000 and MSR issued to FG a participation certificate entitling FG to
receive five percent of the MSR's annual dividends, when declared. In connection
with the issuance of these 2,000,000 shares, the Company recognized a charge to
operations of $800,000. Additionally, the Company has recognized a loss of
$150,382 on the write off of the joint venture minority interest. The
participation certificate also gives FG the right to participate, but not to
vote, in the meetings of MSR's Board of Managers, Technical Committee and
Partners. MSR also received a right of first refusal to carry out the works and
render construction services required to effectuate the El Chanate project. This
right of first refusal is not applicable where a funding source for the project
determines that others should render such works or services.

      FG has assigned or otherwise transferred to MSR all permits, licenses,
consents and authorizations (collectively, "authorizations") for which FG had
obtained in its name in connection with the development of the El Chanate
project to the extent that the authorizations are assignable. To the extent that
the authorizations are not assignable or otherwise transferable, FG has given
its consent for the authorizations to be cancelled so that they can be re-issued
or re-granted in MSR's name. The foregoing has been accomplished.


                                      F-28
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2005

NOTE 7 - Sale of Subsidiary Stock

      On March 20, 2002, the Company sold all of the issued and outstanding
shares of stock of its wholly-owned subsidiary, Minera Chanate S.A. de C.V.
("Minera Chanate"), to an unaffiliated party for a purchase price of $2,131,616,
payable in three installments. We received the first installment of $639,485 and
paid commissions of $51,159 in March 2002. A second payment of $497,377 plus
interest at the rate of 4.5% per annum was paid in August 2002. A third payment
of $994,754 plus interest at the rate of 4.5% per annum, was paid in December
2002. Commissions of $41,733 and $80,821 were paid in connection with the second
and third installments, respectively. In connection with the above transaction
the Company recognized a gain of $1,907,903.

      During March 2002, prior to the sale of Minera Chanate and pursuant to the
FG joint venture agreement (see Note 6), Minera Chanate, in a series of
transactions, sold all of its surface land and mining claims to Oro de Altar S.
de R.L. de C.V. ("Ora"), another of our wholly-owned subsidiaries. Ora, in turn,
leased the foregoing land and mining claims to MSR.

NOTE 8 - Mining Reclamation Bonds

      These represent certificates of deposit that have been deposited as
security for Mining Reclamation Bonds in Colorado. They bear interest at rates
varying from 4.35% to 5.01% annually and mature at various dates through 2010.

NOTE 9 - 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. (see Note 1).

      The Company acquired an additional mining concession - El Charro. El
Charro lies 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.

NOTE 10 - Loans Receivable - Affiliate

      Loans receivable - affiliate consist of expense reimbursements from a
publicly-owned corporation in which the Company has an investment. 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 (see Note 3 & 13).


                                      F-29
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2005

NOTE 11 - Other Investments

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

NOTE 12 - 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, 2003                                      53,633
        Equity Adjustments from Foreign
          Currency Translation                                    (24,894)
      Unrealized Gains on Marketable
        Securities                                                 60,000
                                                               ----------
      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
                                                               ==========

NOTE 13 - Related Party Transactions

      In August 2002 the Company purchased marketable equity securities of a
related company. The Company recorded approximately $9,300 and $12,300 in
expense reimbursements including office rent from this entity for the years
ended July 31, 2005 and 2004, respectively (see Notes 3 and 10). 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 $24,000 for the year ended July 31, 2005.

NOTE 14 - 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 year ended July 31, 2005, the Company issued 3,679,610 shares for
gross proceeds of $445,815. During the year ended July 31, 2005 the Company
issued 259,507 shares of common stock for services


                                      F-30
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2005

NOTE 14 - Stockholders' Equity (Continued)

rendered valued at $29,260. During the year ended July 31, 2005 the Company
issued 193,666 shares of common stock valued at $23,240 as commissions on the
sale of common stock. During the year ended July 31, 2005 the Company granted
options to purchase 550,000 shares of common stock. The Company recognized
approximately $159,000 of stock based compensation relating to the options
granted.

Pursuant to a 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 is exercisable for one
share of our common stock, at an exercise price equal to $.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 $.25 per share.
Such placement agent warrants are valued at approximately $414,000 using the
Black-Scholes option pricing method.

Pursuant to our agreement with the investors, we filed with the Securities and
Exchange Commission a registration statement covering resales of the foregoing
shares and shares issuable upon the exercise of the foregoing warrants
(collectively, the "registrable shares"). 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.

In addition, we agreed to have our common stock listed for trading on the
Toronto Stock Exchange or the TSX Venture Exchange.

If our common stock was not listed for trading on the Toronto Stock Exchange or
the TSX Venture Exchange or the registration statement was not declared
effective by the SEC within 180 days after February 8, 2005, then we would be
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. In addition, if the registration statement is not
declared effective by the SEC within 180 days after February 8, 2005 or, after
the registration statement is declared effective by the SEC, subject to certain
exceptions, sales of all shares so registered cannot be made pursuant to the
registration statement, then 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 the registration statement
is declared effective or sales of the registrable shares can again be made
pursuant to the registration statement, as the case may be. As of August 8, 2005
our listing on the Toronto Stock Exchange was not complete. Therefore, on August
11, 2005 we issued approximately 5,440,000


                                      F-31
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2005

NOTE 14 - Stockholders' Equity (Continued)

shares of our common stock, which represented 20% of the number of shares
acquired in the private placement.

During the year ended 7/31/05, the Company issued 500,000 shares of common stock
upon the exercise of options for gross proceeds of $67,500.In addition 627,273
shares of common stock were issued upon exercise of options by related parties
for gross proceeds of $25,000. We also issued 300,000 shares of common stock
upon exercise of options for payment of accounts payable of $36,000.

    Stock Options

A summary of stock option activity for the years ended July 31, 2005 and 2004
are as follows:

                                   Options Outstanding
                               ---------------------------        Weighted
                                Number of      Price Range         Average
                                 Shares         Per Share      Exercise Price
                               -----------     -----------     --------------

Outstanding - July 31, 2003     10,096,916        .022-.50             .11

Options Granted:
  Related Parties                1,500,000             .21             .21
  Others                           300,000         .12-.21             .15

Exercised:
  Related Parties                 (572,727)       .022-.05             .04
  Others                        (1,762,826)       .022-.12             .05
  Expired                       (2,672,727)       .022-.05             .03
                               -----------     -----------        --------

Outstanding - July 31, 2004      6,888,636       $.022-.50        $    .11

Options Granted:
  Related Parties                  550,000         .05-.12            .09
  Others                        30,902,004         .25-.30            .29

Exercised:
  Related Parties                 (627,273)       .022-.05            .037
  Others                          (800,000)        .05-.22            .129
  Expired                         (300,000)        .22-.25            .23
                               -----------     -----------        --------
Outstanding - July 31, 2005     36,613,367       $.022-.50        $    .30
                               ===========     ===========        ========


                                      F-32
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2005

NOTE 14 - Stockholders' Equity (Continued)

      Options to purchase 36,613,367 shares of common stock were exercisable at
July 31, 2005 at a weighted average exercise price of $.30 with a weighted
average contractual life of 1.23 years as follows:

      Options Outstanding and Exercisable by Price Range as of July 31, 2005 is
as follows:

<TABLE>
<CAPTION>
                                    Options Outstanding                        Options Exercisable
                     ------------------------------------------------     ----------------------------
                                        Weighted
                                         Average          Weighted                         Weighted
Range of Exercise       Number          Remaining          Average          Number          Average
      Prices         Outstanding    Contractual Life   Exercise Price     Exercisable   Exercise Price
-----------------    -----------    ----------------   --------------     -----------   --------------
<S>                  <C>                  <C>               <C>            <C>               <C>
    $    .022            90,909             .51             $.022              90,909        $ .022
          .05           550,000             .51               .05             550,000           .05
          .24           100,000            0.92               .24             100,000           .24
          .21         1,250,000            1.83               .21           1,250,000           .21
          .05           500,000             .51               .05             500,000           .05
          .25         2,702,000            1.50               .25           2,702,000           .25
          .30        27,200,004            1.50               .30          27,200,004           .30
          .22           500,000             .51               .22             500,000           .22
          .32         1,000,000            1.50               .32           1,000,000           .32
          .41           100,000            0.92               .41             100,000           .41
          .50         3,120,454            1.50               .50           3,120,454           .50
    ---------        ----------           -----             -----          ----------        ------

    $.022-.50        36,613,367            1.23             $ .30          36,613,367        $  .30
    =========        ==========           =====             =====          ==========        ======
</TABLE>

      The Company recognized approximately $158,584 and $348,000 of stock-based
compensation expense during the years ended July 31, 2005 and 2004 respectively,
relating to options granted.

      Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company has
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes options pricing model with the following weighted-average
assumptions: risk-free interest rate of 3.1%; volatility factor of the expected
market price of the Company's common stock of .7-1.0; and a weighted-average
expected life of the option of 3 years.

      The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company' stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.

      Had compensation cost for stock options granted been determined based on
the fair value at the grant date consistent with the provisions of SFAS 123, the
Company's net loss and net loss per share for the year ended July 31, 2005 would
not change, since there was no issuances of employees stock options during the
year.


                                      F-33
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2005

NOTE 14 - Stockholders' Equity (Continued)

      The effects of applying the pro forma disclosures of SFAS 123 are not
likely to be representative of the effects on reported net earnings for future
years.

      Authorized Common Stock

      In September 1993 the Company's shareholders approved an increase in the
authorized common stock from 100,000,000 shares to 150,000,000 shares.

      Effective April 11, 1998 the Company underwent a 1 for 10 reverse split
with all fractions being rounded up into new common stock.

      All references to common stock are restated to reflect the 1 for 10
reverse split.

NOTE 15 - Income Taxes

      For income tax purposes, the Company has available net operating loss
carryforwards ("NOL") at July 31, 2005 of approximately $13,711,000 to reduce
future federal taxable income, if any The NOL's expire at various dates through
2025. There may be certain limitations as to the future annual use of the NOLs
due to certain changes in the Company's ownership.

      Income tax benefit attributable to net loss differed from the amounts
computed by applying the statutory Federal Income tax rate applicable for Each
period as a result of the following:

                                                        Year Ended July 31,
                                                   --------------------------
                                                      2005            2004
                                                   ----------      ----------
   Computed "expected" tax benefit                 $4,661,620      $4,107,880
   Decrease in tax benefit resulting from net
     operating loss for which no benefit is
     currently available                            4,661,620       4,107,880
                                                   ----------      ----------
                                                   $       --      $       --
                                                   ==========      ==========

      The Company has deferred tax assets of approximately $4,661,620 at July
31, 2005 resulting primarily from net operating loss carryforwards. The Deferred
tax assets have been fully offset by a valuation allowance resulting from the
uncertainty surrounding their future realization. The difference between the
federal statutory rate of 34% and the Company's effective tax rate of 0% is due
to an increase in the valuation allowance of $553,740 and $754,363 in 2005 and
2004, respectively.


                                      F-34
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2005

NOTE 16 - Loss on Option

      In March 2004 the Company obtained exclusive non-refundable options to
purchase an ore crusher and related assets for a total cost of $700,000. The
Company paid $50,000 for these options, which ultimately expired. Accordingly,
the Company realized a loss of $50,000.

NOTE 17 - Liquidity and Going Concern Uncertainty

      The Company is a development stage enterprise with no mining revenues and
has incurred recurring losses amounting to $26,583,811 through July 31, 2005.
The Company incurred net losses of $2,005,682 and $2,938,590 during the years
ended July 31, 2005 and 2004, respectively. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern(see
Note 1).

      There can be no assurance that sufficient funds required during the next
year or thereafter will be generated from operations or that funds will be
available from external sources such as debt or equity financings or other
potential sources. The lack of additional capital resulting from the inability
to generate cash flow from operations or to raise capital from external sources
would force the Company to substantially curtail or cease operations and would,
therefore, have a material adverse effect on its business. Furthermore, there
can be no assurance that any such required funds, if available, will be
available on attractive terms or that they will not have a significant dilutive
effect on the Company's existing stockholders.

      The accompanying consolidated financial statements do not include any
adjustments related to the recoverability or classification of asset carrying
amounts or the amounts and classification of liabilities that may result should
the Company be able to continue as a going concern.

      During the year ended July 31, 2005, the Company has successfully obtained
external financing through sales of its stock and exercise of options as well as
capital contributions.

      The Company has developed a plan to address liquidity and fund a full
scale mining operation in Mexico in several ways, namely:

      o     Continue to raise capital through the sale or exercise of equity
            securities.

      o     Bank financing (see "Note 19 - Project Finance Facility" below.

      o     Obtain outside financing to fund operations.

      o     Strategic Partner Joint Venturing.

      o     Other means.

      There is no assurance, however, that any of the Company's proposed plans
to obtain financing, raise capital and otherwise fund operations will prove
successful. The Company's ability to continue as a going concern is dependent
upon its ability to obtain sufficient funding as discussed above and its
inability to do so will delay or cease the Company's planned operations as
discussed above.


                                      F-35
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2005

NOTE 18 - Commitments and Contingencies

      Minera Chanate Option

      Under the terms of the Minera Chanate purchase agreement, Capital Gold has
granted AngloGold's designee to receive a one-time option to purchase 51% of
Minera Chanate (or such entity that owns the Minera Chanate concessions at time
of exercise) based upon the achievements of certain events (see Note 1).

      Lease Commitments

      The Company occupies office space in New York City under a non cancelable
operating lease that commenced on September 1, 2002 and terminates on August 31,
2007. In addition to base rent, the lease calls for payment of utilities and
other occupancy costs.

      Approximate future minimum payments under this lease are as follows:

      Year Ending July 31,

             2006                           51,000
             2007                           51,000
             2008                            4,200
                                          --------

                                          $106,200
                                          ========

      Rent expense under the office lease in New York City was approximately
$63,000 and $57,000 for the years ended July 31, 2005 and 2004, respectively.

      Land Easement

      On May 25, 2005 Minera Santa Rita S. de R.L. de C.V entered into an
agreement for an irrevocable access easement and an irrevocable fluids
(electricity, gas, water and others) easement.

Term of the agreement is 5 years, extendable for 1-year additional terms, upon
MSR's request. Terms suspendible by force majeure or Acts of God; and extendable
for duration of suspension.

In consideration, $18,000 paid upon the signing of the agreement and yearly
advance payments equal to 2 annualized general minimum wages (365 X 2 general
minimum wages) in force in Altar, Sonora, Mexico. Said yearly payments to be
made on September 1 of each year, using the minimum wage in effect on that day
for the calculation of the amount payable. These payments are to be made for as
long as the construction and production mining works and activities of MSR are
being carried out, and are to cease as soon as said works and activities are
permanently stopped.


                                      F-36
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2005

NOTE 18 - Commitments and Contingencies (Continued)

      El Charro

      In May 2005, we acquired rights to the El Charro concession for
approximately $25,000 and a royalty of 1.5% of net smelter return. We acquired
the El Charro concession because it is surrounded entirely by our other
concessions.

      Lack of Insurance

      The Company currently has no insurance in force at its mining properties
and it cannot be certain that it can cover the risks associated with its mining
operations or that it will be able to maintain insurance to cover these risks at
economically feasible premiums.

      Purchase of House

      On July 5, 2005, Oro de Altar purchased a house located in Caborca, Sonora
for the sum of $116,000 US Dollars. The Company has made payments of $80,000
with additional installments of $6,000 each for the remaining balance payable on
the first of each month beginning August 1, 2005 and ending January 3, 2006.
Title to the property does not transfer until full payments have been made.
Therefore the initial payments have been classified as Other Deposits on the
balance sheet.

NOTE 19 - 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 US$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. 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 other
assets as prepaid debt issuance costs on


                                      F-37
<PAGE>

                            CAPITAL GOLD CORPORATION
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 31, 2005

NOTE 19 - Project Finance Facility (Continued)

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 the registration
statement (discussed above in "February 2005 Private Placement") 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 20 - Subsequent Events

On September 22, 2005, the Board of Directors, subject to stockholder approval,
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, subject to stockholder
approval, recommended that the Company reincorporate in the State of Delaware.
Stockholders will vote on these proposals at a special meeting of stockholders
to be held on November 18, 2005.


                                      F-38