**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 

| **x**                                                                  |   | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                        SECURITIES EXCHANGE ACT OF 1934**     |
|------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------|
| **For the fiscal year ended December 31,                        2007** |
| **OR**                                                                 |
| **o**                                                                  |   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                        SECURITIES EXCHANGE ACT OF 1934** |

**For        the transition period from**            **to**

          

**Commission file number: 001-09385**

 

 

**GOLDEN CYCLE GOLD CORPORATION**

(Exact        Name of Registrant as Specified in its Charter)

 

| **Colorado**                                                                      |   | **84-0630963**                       |
|-----------------------------------------------------------------------------------|--------|--------------------------------------|
| (State of other jurisdiction of incorporation or                    organization) |   | (I.R.S. Employer Identification No.) |
|                                                                              |   |                                 |
| **Suite 201, 1515 South Tejon**                                                   |   |                                 |
| **Colorado Springs, Colorado**                                                    |   | **80906**                            |
| (Address of Principal Executive Offices)                                          |   | (Zip Code)                           |

 

**(719) 471-9013**

(Registrant’s Telephone Number, including Area Code)

 

         

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

 

 

| Title of Each Class | Name of Each Exchange on Which Registered |
|---------------------|-------------------------------------------|

| **Common Stock, No Par Value** | **NYSE Arca** |
|--------------------------------|---------------|

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:**None**

 

 

Indicate        by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of        the Securities Act. Yeso    Nox

Indicate        by check mark if the registrant is not required to file reports pursuant to Section 13 or        Section 15(d) of the Act.

| Yeso   | Nox |
|------------------|-----|

Indicate        by checkmark whether the registrant (1) filed all reports required to be filed by Section        13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. Yesx Noo

         

Indicate        by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is        not contained herein, and will not 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-K or any amendment to the Form 10-K.o

Indicate        by check mark whether the registrant is a large accelerated filer, an accelerated filer, or        a non-accelerated filer. See definition of “Accelerated filer and large accelerated        filer” in Rule 12b-2 of the Exchange Act (Check one):

|   | Large Accelerated Filero | Accelerated Filero |
|--------|--------------------------|--------------------|

|   | Non-Accelerated Filerx | Smaller Reporting Companyo |
|--------|------------------------|----------------------------|

Indicate        by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the        Act). YesoNox

State        the aggregate market value of the voting and non-voting common equity held by        non-affiliates computed by reference to the price at which the common equity was last sold,        or the average bid and asked price of such common equity, as of the last business day of        the registrant’s most recently completed second fiscal quarter:        $42,292,153

The        number of shares of the Registrant’s Common Stock outstanding as of March 14, 2008        was 9,769,250.

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**TABLE OF CONTENTS**

 

|                       |              |          |              |                                                                                                                                                          |              |    |
|-----------------------|--------------|----------|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|----|
| **Item of Form 10-K** |    | **Page** |
| **Part I**            |    |          |    |                                                                                                                                                          |    |    |
|                       |    | 1.       |    | Business                                                                                                                                                 |    | 1  |
|                       |    | 1A.      |    | Risk Factors                                                                                                                                             |    | 11 |
|                       |    | 1B.      |    | Unresolved Staff Comments                                                                                                                                |    | 14 |
|                       |    | 2.       |    | Properties                                                                                                                                               |    | 14 |
|                       |    | 3.       |    | Legal Proceedings                                                                                                                                        |    | 16 |
|                       |    | 4.       |    | Submission of Matters to a Vote of                    Security Holders                                                                                   |    | 16 |
|                       |              |          |              |
| **Part II**           |    |          |    |                                                                                                                                                          |    |    |
|                       |    | 5.       |    | Market for Registrant’s Common                    Equity, Related Stockholder Matters and Issuer Purchases of Equity                    Securities |    | 17 |
|                       |    | 6.       |    | Selected Financial Data                                                                                                                                  |    | 20 |
|                       |    | 7.       |    | Management’s Discussion and                    Analysis of Financial Condition and Results of Operations                                           |    | 20 |
|                       |    | 7A.      |    | Quantitative and Qualitative Disclosure                    About Market Risk                                                                             |    | 25 |
|                       |    | 8.       |    | Financial Statements and Supplementary                    Data                                                                                           |    | 25 |
|                       |    | 9.       |    | Changes in and Disagreements with                    Accountants on Accounting and Financial Disclosures                                                 |    | 25 |
|                       |    | 9A.      |    | Controls and Procedures                                                                                                                                  |    | 26 |
|                       |    | 9B.      |    | Other Information                                                                                                                                        |    | 26 |
|                       |              |          |              |
| **Part III**     |    |          |    |                                                                                                                                                          |    |    |
|                       |    | 10.      |    | Directors and Executive Officers and                    Corporate Governance                                                                             |    | 27 |
|                       |    | 11.      |    | Executive Compensation                                                                                                                                   |    | 29 |
|                       |    | 12.      |    | Security Ownership of Certain Beneficial                    Owners and Management and Related Stockholder Matters                                        |    | 32 |
|                       |    | 13.      |    | Certain Relationships and Related                    Transactions, and Director Independence                                                             |    | 36 |
|                       |    | 14.      |    | Principal Accounting Fees and                    Services                                                                                                |    | 38 |
|                       |              |          |              |
| **Part IV**      |    |          |    |                                                                                                                                                          |    |    |
|                       |    | 15.      |    | Exhibits and Financial Statement                    Schedules                                                                                            |    | 38 |
|                       |    |          |    | Exhibit Index                                                                                                                                            |    | 39 |
|                       |    |          |    | Signatures                                                                                                                                               |    | 40 |

 

i

 

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**FORWARD-LOOKING STATEMENTS**

 

This annual report on Form 10-K and the exhibits attached hereto contain        “forward-looking statements” within the meaning of the Private Securities        Litigation Reform Act of 1995. Such forward looking statements concern the Company’s        anticipated results and developments in the Company’s operations in future periods,        planned exploration and development of its properties, plans related to its business and        other matters that may occur in the future. These statements relate to analyses and other        information that are based on forecasts of future results, estimates of amounts not yet        determinable and assumptions of management.

 

Any statements that express or involve discussions with respect to        predictions, expectations, beliefs, plans, projections, objectives, assumptions or future        events or performance (often, but not always, using words or phrases such as        “expects” or “does not expect”, “is expected”,        “anticipates” or “does not anticipate”, “plans”,        “estimates” or “intends”, or stating that certain actions, events        or results “may”, “could”, “would”, “might”        or “will” be taken, occur or be achieved) are not statements of historical fact        and may be forward-looking statements. Forward-looking statements are subject to a variety        of known and unknown risks, uncertainties and other factors which could cause actual events        or results to differ from those expressed or implied by the forward-looking statements.        Some of the important risks and uncertainties that could affect forward-looking statements        are described further under Item 1 “Description of the Business,” Item 1A.        “Risk Factors,” and Item 7 “Management’s Discussion and Analysis of        Financial Condition and Results of Operation” of this annual report. Should one or        more of these risks or uncertainties materialize, or should underlying assumptions prove        incorrect, actual results may vary materially from those anticipated, believed, estimated        or expected. We caution readers not to place undue reliance on any such forward-looking        statements, which speak only as of the date made. We disclaim any obligation subsequently        to revise any forward-looking statements to reflect events or circumstances after the date        of such statements or to reflect the occurrence of anticipated or unanticipated        events.

 

We qualify all the forward-looking statements contained in this annual        report by the foregoing cautionary statements.

 

**PART        I**

 

**ITEM 1.        BUSINESS**

 

Golden Cycle Gold Corporation was incorporated under the laws of the State        of Colorado on May 19, 1972 for the purpose of acquiring and developing the mining        properties (the “Mining Properties”) of the Golden Cycle Corporation, located        in the Cripple Creek Mining District of Colorado. Unless the context otherwise requires,        the terms “Registrant” and “Company” as well as “we”,        “us” and “our”, mean Golden Cycle Gold Corporation.

 

The primary business of the Company has been its participation in the        Cripple Creek & Victor Gold Mining Company (“CC&V”), a joint venture        (the “Joint Venture”) with AngloGold Ashanti (Colorado) Corp., formerly Pikes        Peak Mining Company, (“AngloGold”). The Joint Venture engages in gold mining        activity in the Cripple Creek area of Colorado.

 

In addition to its Joint Venture activities, the Company incorporated Golden        Cycle Philippines, Inc. (“GCPI”), a wholly-owned subsidiary, under the laws of        the Philippines on November 12, 1996. GCPI entered into an agreement with Benguet        Corporation, a Philippine mining company, providing for their joint participation in the        exploration, development and production of mining properties in certain areas of the        Philippines. All GCPI exploration work has been placed on a standby basis until a Mineral        Profits Sharing Agreement (“MPSA”) is awarded to the claim owner of the        Sagittarius Alpha Realty (“SAR”) claims. See the section below entitled        “Golden Cycle Philippines, Inc.” for further information regarding the proposed        activities of GCPI in the Philippines.

 

During January 2002, the Company incorporated Golden Cycle Gold Exploration,        Inc., a wholly-owned subsidiary, to conduct exploration activities for the Company. As of        this date the Company has not funded Golden Cycle Gold Exploration, Inc.

 

|   | As of December 31, 2007, the Company had 2                        employees. |
|--------|------------------------------------------------------------------------------|

 

 

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**Agreement and Plan of Merger with AngloGold Ashanti        Limited**

 

On January 11, 2008, the Company entered into an Agreement and Plan of        Merger (the “Agreement”) with AngloGold Ashanti Limited, a corporation        organized under the laws of the Republic of South Africa, AngloGold Ashanti USA        Incorporated, a Delaware corporation, and GCGC LLC, a Colorado limited liability company        and a direct wholly-owned subsidiary of AngloGold Ashanti USA Incorporated. Under the terms        of the Agreement, the Company agreed to be acquired by AngloGold Ashanti through a        transaction in which the Company’s shareholders will receive consideration consisting        of 0.29 American Depositary Shares of AngloGold Ashanti Limited for each issued and        outstanding share of the Company’s common stock, rounded up to the next whole ADS,        each whole ADS representing one ordinary share, par value 25 South African cents per share,        of AngloGold Ashanti Limited. The Agreement is subject to the approval of the holders of        two-thirds of the issued and outstanding shares of the Company’s common stock        entitled to vote.

 

For a description of the terms and conditions of the Agreement and the        merger, see the disclosure under Item 12 “Security Ownership of Certain Beneficial        Owners and Management and Related Stockholder Matters – Changes in        Control.”

 

**Description of Mining Joint Venture**

 

The Company’s interest in the Joint Venture was received in exchange        for the Company’s rights to gold mining properties in the Cripple Creek Mining        District of Colorado. The rights and obligations of the parties are covered by an Amended        and Restated Joint Venture Agreement (the “Joint Venture Agreement”) dated and        effective as of January 1, 1991, between AngloGold and the Company. The Joint Venture        engages in gold mining activity in the Cripple Creek area of Colorado and the        Company’s participation in the Joint Venture constitutes its primary business        activity. AngloGold serves as the manager (the “Manager”) of the Joint Venture.        The Joint Venture’s principal mining operations are conducted at the Cresson mine,        where commercial production was commenced in the first half of 1995.

 

The Joint Venture completed construction of the required infrastructure for        the Cresson Mine and began mining operations in 1995, with the first Cresson Mine gold pour        occurring on February 14, 1995. In 1996, the Joint Venture completed its first full year of        Cresson Mine operations. The development of the East and North Cresson mines began during        the second quarter of 1999. The Joint Venture began construction of expanded facilities        during early 2002, completing the new truck shop, crushing facility, expanded process        facility, and expanded valley leach facility by September 2003. The last step in the mine        expansion, a $15.5 million expansion of the valley fill leach facility, was completed        during the fall of 2004. The East Cresson surface mine (Altman) completed mining in the        fourth quarter 2007. The North Cresson (Wildhorse) mine began operations in first quarter        2007.

 

The Joint Venture is currently operating under what is termed in the Joint        Venture Agreement as the “Initial Phase.” The Joint Venture Agreement states        that the Initial Phase will end when: (i) the Initial Loans (as defined below) have been        repaid, (ii) a cash reserve has been established to fund accrued reclamation and severance        tax obligations, plus an amount approximating nine months of estimated operating costs,        plus an amount approximating twelve months of estimated capital costs, and (iii) Net        Proceeds (defined in the Joint Venture Agreement generally as gross revenues less costs) in        the amount of $58 million have been distributed as follows: 80% to AngloGold and 20% to the        Company.

 

In each year during the Initial Phase or until the mining of ore by the        Joint Venture ceases due to the exhaustion of economically recoverable reserves, whichever        occurs first, the Company is generally entitled to receive an annual minimum distribution        of $250,000 (a “Minimum Annual Distribution”) from the Joint Venture. The first        three Minimum Annual Distributions in 1991, 1992 and 1993 were not deemed to be a        distribution of Net Proceeds to the Company and were not applied against the        Company’s share of any Net Proceeds. The Minimum Annual Distributions received on        January 15, 1994 and thereafter constitute an advance on Net Proceeds and will be recouped        against future shares of Net Proceeds to the Company.

 

After the Initial Phase, the Joint Venture will distribute metal in kind in        the proportion of 67% to AngloGold and 33% to the Company.

 

2

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The Joint Venture Agreement provides that, during the period from January 1,        1991 until the end of the Initial Phase, all funds required for operations and mine        development by the Joint Venture will be loaned (the “Initial Loans”) to the        Joint Venture by either AngloGold or, if such loans are available at a lower cost than from        AngloGold, financial institutions. Except for the Minimum Annual Distributions, the Initial        Loans and interest thereon must be repaid prior to distributions of Net Proceeds to the        Joint Venturers. The audited Joint Venture financial statements reported that as of        December 31, 2007, the Joint Venture had $310.8 million in Initial Loans payable to        AngloGold. After the Initial Phase, the Joint Venturers will contribute funds in proportion        to their respective distributive shares.

 

The Joint Venture recorded net income of $58.9 million for the year ended        December 31, 2007 compared to net income of $38.4 and $9.5 million for the years ended        December 31, 2006 and December 31, 2005, respectively. There is no assurance that the Joint        Venture will be able to achieve profitability in any subsequent period or to sustain        profitability for an extended period. The ability of the Joint Venture to sustain        profitability is dependent upon a number of factors beyond the control of the Joint        Venture, including without limitation, the market price of gold, which is volatile and        subject to speculative movement, and the extent of mineralization in the area controlled by        the Joint Venture and the efficiency of its mining operations. For further discussion of        these and other risks affecting profitability, see Item 1A. “Risk Factors”        below.

 

Whether future gold prices and the results of the Joint Venture’s        operations will reach and maintain a level necessary to repay the Initial Loans, complete        the Initial Phase, and thereafter generate net income cannot be assured.

 

**2007        Operational Highlights**

 

As the Joint Venture’s Manager, AngloGold provides the Company with        detailed information on the activities and operations of the Joint Venture. The following        description of the Joint Venture’s operation is derived from reports made available        by the Manager, upon whom reliance is placed.

 

***Production***

 

In 2007, Joint Venture gold production was 281,822 troy ounces compared to        283,486 troy ounces of gold produced during 2006. CC&V experienced a prolonged drought        over the fourteen months leading into June 2006. The drought caused reduced pregnant pond        levels within the Valley Leach Facility (“VLF”), which caused CC&V to        reduce the flow rates through the gold recovery circuit, which in turn resulted in reduced        fluid movement through the leach facility, and ultimately reduced daily gold recoveries.        During 2007, CC&V addressed the water shortage by approximately doubling the amount of        water available to the mine, from 1,000 gallons per minute to 2,000 gallons per minute.        Further, the mine received precipitation at more historically average rates during 2007.        Nonetheless, the inventory of recoverable gold ounces in inventory on the VLF grew during        the year (+76,427 troy ounces), ending at 627,767 recoverable troy ounces of        gold.

 

During 2007, CC&V mined 22,811,308 tons of ore, including 491,596 tons        run of mine ore (ore which was sufficiently fine after blasting and mining and therefore        not sent through the crusher circuit), containing an estimated 559,783 troy ounces of gold        of which 358,249 are estimated to be recoverable. The average recoverable ore grade mined        during 2007 was 0.025 troy ounces per ton of ore. The average strip ratio overburden to ore        mine was 1.35. The mining and crushing operations are performing at a 22 million ore ton        per year pace in spite of numerous truck and shovel maintenance challenges. Variable mining        costs continue to escalate, in part due to increased mining volumes; however, commodity        costs are the primary driver of increased costs at CC&V. Commodity costs have been        increasing, and continue to increase, resulting in higher overall costs per troy ounce of        gold produced. Mine personnel continue to seek efficiencies and to manage costs to minimize        the impact upon cost per ounce. CC&V mined a total of 53.5 million tons of material        during the year.  The crushing facility operated at above plant design capacity        (20 million tons/year) during the year, crushing 22.3 million tons during the        year.

 

***Revenue and Costs***

 

During 2007, the Joint Venture sold 279,458 troy ounces of gold at an        average price of $697 per ounce producing total gold sale revenues of approximately $194.8        million. The Joint Venture cash production costs for 2007 were approximately $269 per troy        ounce compared to $246 per troy ounce during 2006 and a budget of $270 per troy ounce. The        main reason for the higher cost per ounce in 2007 compared to the cost per ounce during        2006 was the increase in the price of commodities consumed in operations during 2007. The        Joint Venture had total operating costs of $103 million, including depreciation, depletion,        amortization and reclamation expenses of $25.4 million and

 

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accretion expense of $1.8 million for the year. This compares to $98.3        million, $26.5 million and $1.4 million for the year ended 2006.

 

Interest expense on the Initial Loans was approximately $32.8 million        (compared to $34.4 and $29.2 million in the years 2006 and 2005, respectively). In 2007,        the Company received its Minimum Annual Distribution of $250,000 which will be recouped        from future shares of Net Proceeds to the Company.

 

***Ore Reserves and Non-reserve Mineralization***

 

The Joint Venture focused on development, exploration and engineering        feasibility work concerning future operations. The main objective of CC&V’s        continuing exploration program for 2007 was to drill the west wall of the East Cresson        (Altman) to determine the feasibility of expanding the mine in that direction, to continue        the expansion of the Control Point and Schist Island mineral deposits and to expand        information on the gold mineralization in the Globe Hill area with particular emphasis on        metallurgical and geotechnical data, and to further increase the drill information        available within areas which have previously indicated existing mineralization.

 

CC&V currently controls over 85% of the patented claims within the        district and 100% of the land within the year-end 2007 total mineral resource. All gold ore        reserves and mineral resources are stated at 100% ownership basis, although portions of the        ore reserves are co-tenant claims and portions are subject to third party royalties which        vary according to individual agreements with the underlying property owner.

 

Each year CC&V models its gold ore reserves to incorporate the results        of its exploration program, new geologic information, revised metallurgical recoveries,        revised gold price, new geotechnical data, new pit designs, new operating costs and/or        allowances for depletion. All ore reserves for 2007 were modeled using a $550 gold price,        the same gold price that was used to model the reserves shown for 2006. The cutoff grade        for reserves remained unchanged from 2006 at a recoverable cutoff of 0.007 ounces per        ton.

 

The year-end, district-wide, central drill hole database contains 8,924        drill holes (6% core and 94% reverse circulation rotary) with a total footage of 5,049,895        feet. Samples are collected from the reverse circulation drills at five foot intervals and        split with a rotary, wet splitter. Coarse exploration drill samples are collected as two        splits. One split (analytical sample) is sent for analysis, and the second split is kept as        a coarse replicate (metallurgical sample). Individual samples are dried, split into one 300        gram sample, pulverized to 95% minus 150 mesh, blended and fire assayed (FA) using a one        assay-ton charge. Prior to 1996, all samples greater than 0.010 opt FA were also analyzed        for cyanide soluble gold using a shake leach method (SL). As of 1996, all samples are        analyzed using both FA and SL assay methods.

 

Resource shells were changed to a $700 Lerchs-Grossman envelope around the        reserve pits for 2007 resource estimates from the $650 price of gold used in 2006 ore        resource estimates. The geostatistical modeling procedures used by the Manager in computing        the ore reserves have been reviewed by independent consultants (AMEC, Inc., Independent        Mining Consultants, Inc., Mine Reserve Associates, Inc., Mineral Resource Development        Associates, Inc., and Mine Development Associates, Inc.) over previous years, and conform        to industry standards. The ore reserves are shown on the table below:

 

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Cripple        Creek & Victor Gold Mining District

Unaudited        CC&V Ore Reserve Estimate as of December 31, 2007*

 

|                                     | Ore                Tons                (000's) | Gold                Ounces                Per Ton | Contained                Gold                Ounces |
|-------------------------------------|------------------------------------------------|---------------------------------------------------|-----------------------------------------------------|
|                                     |                                                |                                                   |                                                     |
| Proven                              |                                           | 118,904                                           |                                                | 0.028 |   | 3,338,792 |   |
| Probable                            |                                           | 52,455                                            |                                                | 0.027 |   | 1,414,237 |   |
|                                     |                                                |                                              |                                                     |
| Total Reserves,                2007 |                                           | 171,359                                           |                                                | 0.028 |   | 4,753,029 |   |
|                                     |                                                |                                              |                                                     |
| Change from 2006                    |                                           | 29,127                                            |                                                |  |   | 910,554 |  |
|                                     |                                                |                                              |                                                     |

Unaudited        CC&V Ore Reserve Estimate as of December 31, 2006*

 

|                                     | Ore                Tons                (000's) | Gold                Ounces                Per Ton | Contained                Gold                Ounces |
|-------------------------------------|------------------------------------------------|---------------------------------------------------|-----------------------------------------------------|
|                                     |                                                |                                                   |                                                     |
| Proven                              |                                           | 102,995                                           |                                                | 0.027 |   | 2,797,639 |   |
| Probable                            |                                           | 39,237                                            |                                                | 0.027 |   | 1,044,836 |   |
|                                     |                                                |                                                   |                                                     |
| Total Reserves,                2007 |                                           | 142,232                                           |                                                | 0.027 |   | 3,842,475 |   |
|                                     |                                                |                                                   |                                                     |

 

 

| *Note: The tonnage is shown in short tons.* |
|---------------------------------------------|

 

*          These gold        reserve figures were estimated based on a $550 per troy ounce gold price for all district        deposits for the 2007 estimates and a $550 per troy ounce gold price for the 2006        estimates, and are subject to various royalties. There can be no assurance, however, that        the Joint Venture can earn a profit when the market price of gold equals or exceeds the        gold price used in estimating those reserves.

 

**        Recoverability of        contained ounces is based on heap leaching and metallurgical testing. Recoverability rates        vary by ore type. The recoverable ounces shown are an estimate of the ounces of gold which        can be economically and legally recovered based on weight-proportion metallurgical averages        for all deposits and do not incorporate potential losses from dilution and mining        recovery.

 

The above estimates are based upon drill data and are a combination of        “proven” and “probable” reserves. The classifications of        “proven” and “probable” are taken from the Securities and Exchange        Commission’s Industry Guide 7, which defines the terms as follows.

 

*Proven (Measured) Reserves*. Reserves for which        (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill        holes; grade and/or quality are computed from the results of detailed sampling and (b) the        sites for inspection, sampling and measurement are spaced so closely and the geologic        character is so well defined that the size, shape, depth and mineral content of reserves        are well established.

 

*Probable (Indicated) Reserves*. Reserves for        which quantity and grade and/or quality are computed from information similar to that used        for proven (measured) reserves, but the sites for inspection, sampling, and measurement are        farther apart or are otherwise less adequately spaced. The degree of assurance, although        lower than that for proven (measured) reserves, is high enough to assume continuity between        points of observation.

 

The ore reserve figures set forth above are estimates and no assurance can        be given that any particular level of recovery of gold from ore reserves will in fact be        realized.

 

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The increase in the December 31, 2007 ore reserves (an estimated 1,471,007        contained troy ounces of gold, with an estimated 779,316 recoverable troy ounces of gold)        is primarily a result of additional exploration drill results used in the 2007 ore reserve        model.

 

***2008 Exploration Program***

 

The focus of the Joint Venture’s 2008 exploration program is to expand        existing ore reserves, particularly in the Schist Island, Control Point and Globe Hill        areas, and develop additional metallurgical information in mineral resource areas to enable        it to change the classification of a portion of its non-reserve mineral resources to        mineral reserve ounces of gold. It expects to achieve this goal through additional infill        drilling, geotechnical drilling, and metallurgical drilling. Further, the Joint Venture is        conducting exploration drilling in additional areas on a widely- spaced drill hole basis        with the objective of defining additional mineral resources in the area.

 

***Industry Trends***

 

The dominant trend our industry has been facing is increasing gold prices.        The increasing gold price trend has been interrupted periodically by corrections of varying        magnitude. It appears to Company management that the various national and international        economic trends such as increasing demand for gold, decreasing mine production of gold,        weakness in the US dollar and instability in various countries around the world will        continue for the immediate future. Company management believes the long term trend of        increasing gold prices will continue to favorably impact the economics of its Joint        Venture’s operations. The industry continues to be impacted by increasing costs such        as diesel and natural gas. Company management expects continued cost pressures over        time.

 

***Environmental Reclamation***

 

CC&V has developed an effective environmental protection and reclamation        plan for this high-altitude, semiarid, cold-weather, year-round leaching environment.        Reclamation has continued since 1992 to support post mining land use for wildlife,        including elk. The Joint Venture has secured financial warranties of approximately $45        million with the Colorado Mined Land Reclamation Board to secure reclamation of mining        disturbances arising from the CC&V Joint Venture’s mining activities, and will        likely be required to post additional sums to accommodate further mining at the Cresson        site. Ongoing compliance with federal and state regulations includes seismic, fugitive        dust, noise ground and surface water; as well as monitoring rain and snow fall, water and        air emissions.

 

***Employment***

 

AngloGold provides the work force required by the Joint Venture, which has        no employees. The number of AngloGold employees provided to the Joint Venture increased to        345 at December 31, 2007, from 327 at December 31, 2006.

 

***Governmental Regulation***

 

Like all mining operations in the United States, the Joint Venture is        subject to a multitude of environmental laws and regulations promulgated by federal, state        and local governments including, but not limited to, the Comprehensive Environmental        Response, Compensation and Liability Act (“CERCLA”); the Clean Air Act; the        Clean Water Act; the Hazardous Materials Transportation Act; the Toxic Substances Control        Act; Resource Conservation and Recovery Act (“RCRA”) and the Colorado Mined        Land Reclamation Act. The Joint Venture’s operations are subject to comprehensive        regulation by the United States Environmental Protection Agency (“EPA”), the        United States Mine Safety and Health Administration and other state and local agencies.        Failure to comply with applicable laws, regulations and permits can result in injunctive        action, damages and civil and criminal penalties. If the Joint Venture expands or changes        its existing operations or proposes new operations, it may be required to obtain additional        or amended permits or authorizations. In particular, CERCLA, commonly called the        “Superfund Act”, contains stringent reporting requirements for the release or        disposal of hazardous substances, with substantial fines for noncompliance.

 

Certain solid and hazardous wastes from mining and mineral processing        operations are temporarily exempt from regulation under RCRA. The EPA is currently        considering the promulgation of a special set of rules to regulate mining wastes under        RCRA, but those may be delayed pending anticipated Congressional re-authorization and        revision of RCRA. The effect of any future regulation on the Joint Venture’s        operations cannot be determined until

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the        legislative process is completed and new rules are issued. However, it is assumed that        regulations may have a significant impact on operations of all mining companies and        increase the costs of those operations.

 

Although the Manager expects that compliance with federal, state and local        environmental and land use laws and regulations will continue to require significant future        outlays of resources, it is not possible to state with any certainty what impact such        compliance may have on the Joint Venture’s future capital expenditures or        earnings.

 

***Distribution of Proceeds and Other Financial        Aspects***

 

The Joint Venture made payments of the Minimum Annual Distribution of        $250,000 to the Company on June 13, 1991, January 15, 1992, and January 15 of each        subsequent year, to and including January 15, 2008. Subsequent payments of the same amount        are scheduled to be made on January 15th of each year until the conclusion of the Initial        Phase, as defined in the Joint Venture Agreement, or until the completion of mining,        whichever occurs first. The payments made on January 15, 1994 and subsequent annual        payments of $250,000 constitute an advance on Net Proceeds and will be recouped by the        Manager against future distributions of Net Proceeds. After recovery by the Manager of        these advances, if the Company’s share (20% in the Initial Phase) of Net Proceeds        exceeds the applicable Minimum Annual Distribution after recouping any advanced        distributions, the larger amount will be distributed to the Company. The Joint Venture        recorded net income of $58.9 million for the year ended December 31, 2007.

 

The Company accounts for its investment in the Joint Venture on the equity        method. Joint Venture distributions in excess of the investment carrying value are recorded        as income. During 1992, the Company’s share of Joint Venture losses exceeded the        remaining carrying value of the investment and, accordingly, the investment was reduced to        zero. The Company does not record its share of Joint Venture losses incurred subsequent to        the reduction of its investment balance to zero. The Company believes that its liability        for loss is limited to its loss of its equity in the Joint Venture. To the extent the Joint        Venture is subsequently profitable, the Company will not record its share of equity income        until the likelihood of receiving cash with the income is more certain. The likelihood of        receiving cash distributions is impacted by numerous variables, including the market price        of gold bullion, the efficiency of CC&V’s operations, and costs of commodities.        Based on the amount of the Initial Loans repayable to AngloGold Ashanti (Colorado) Corp.,        the Company is not likely to receive distributions in excess of the Minimum Annual Payment        in the foreseeable future.

 

The        Company’s share of the Joint Venture net income, which has not been recorded in its        consolidated financial statements, is approximately $11.8 million, $7.7 million and $1.9        million in 2007, 2006 and 2005, respectively. The Company’s accumulated unrecorded        losses from the Joint Venture were $7.9 million as of December 31, 2006. As such, as of        December 31, 2007, the Company’s accumulated unrecorded losses from the Joint Venture        were eliminated and the Company recorded Joint Venture equity of $3.9 million. As of        December 31, 2007 the receipt of cash distributions from the Joint Venture is highly        uncertain as the Joint Venture’s Initial Loans totaling $310,823,000 have not been        repaid nor is it anticipated they will be repaid in the foreseeable future based on        anticipated future cash flows from the Joint Venture’s operations.

 

As a        result, the Company has accounted for this uncertainty by creating a 100% valuation        allowance against the Joint Venture equity interest of $3.9 million. It is anticipated by        management that this valuation allowance against the Joint Venture equity will remain until        it is determined by management that the collectibility of the investment in the form of        future cash distributions becomes probable.

 

**Golden Cycle Philippines, Inc. (GCPI)**

 

GCPI and its exploration activities were placed into a standby status in        January 1999 for the reasons stated below. 

 

***GCPI Background***

 

In January 1997, GCPI signed a comprehensive exploration agreement (the        “BGA Agreement”) with Benguet Corporation (“Benguet”), which        provided that all costs and participation will be shared 50/50 by the parties. In October        1997, the two companies signed the First Supplemental Agreement to the BGA Agreement, which        added 1,050 acres of mineral claims held by Benguet to the BGA. Under the terms of this        supplemental agreement, GCPI will earn a 50% interest in these claims in exchange for        funding the first $250,000 (about 10 million Philippine pesos)

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of exploration work. The claim area lies immediately south of the historic        Masara and Hijo gold mines in the Philippines and just north of Benguet’s Kingking        copper/gold deposit.

 

***First Supplemental Agreement to the BGA***

 

Phase I of the exploration effort on the five Sagittarius Alpha Realty        (“SAR”) claims was completed in May 1998. This effort consisted of geological        mapping, grid soil sampling and analysis, and stream sediment and water analysis. This work        indicates the presence of sizable areas interpreted to be anomalous gold concentrations.        These must be further tested through trenching, tunneling and drilling to properly evaluate        the gold potential. The Phase II exploration could not be carried out as the old leased        claims have not as of this date been awarded a Mineral Production Sharing Agreement        (“MPSA”) as required by the 1995 Philippine Mining Law. Thus, all work on this        project has been placed on a standby basis until the MPSA is awarded to Benguet, as claim        owner. Benguet has not applied for an MPSA as of January 2008. The Company expects to        expend approximately $6,000 during 2008 to maintain GCPI on a standby status.

 

**Other        Opportunities**

 

During 2001, the Company acquired two claim groups in Nevada: the Table Top        and the Illipah gold prospects. During first quarter of 2002, the Company incorporated a        wholly owned subsidiary, Golden Cycle Gold Exploration, Inc. (“GCX”), to        independently direct the exploration efforts for these claim groups. As of this report, the        Company has not yet funded GCX. Finally, the Company has an on-going exploration program in        southwest Colorado.

 

***Table Top***

 

To drive to the Table Top claims from Winnemucca, Nevada, travel north on US        Highway 95 for approximately one mile. Turn west, to the left, on Highway 49 towards Jungo,        NV, a ghost town. At approximately 4 miles turn left towards an industrial plant and        proceed to the railroad tracks. Turn right on the road that parallels the railroad and        travel approximately 6 miles. At a culvert under the railroad tracks, turn right to the        project area, see adjacent map.

 

 

The Table Top claim group consists of 38 wholly owned Federal mineral        claims, controlled by the Bureau of Land Management (“BLM”), and lies within        the Basin and Range province of north-central Nevada, which over the past forty years has        become one of the world’s premier gold producing regions. The Table Top claims are        subject to an Exploration Right with Option to Purchase agreement requiring the Company to        pay the annual assessment fees to the BLM and Humboldt County and five percent of all        expenditures on the property up to a maximum amount of

 

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$500,000        to Mr. Wendt, from whom the claims were originally purchased. At present, the Company        has paid Mr. Wendt approximately $8,000. The Table Top property can be interpreted to        lie within the “Midas” gold bearing zone striking northeast across Nevada, and        also as a part of a north-south trend containing the Sleeper Mine, Sandman, Florida Canyon,        Rochester and Relief Canyon. The property is located ten miles west of Winnemucca,        Nevada.

 

The Table Top claims cover brecciated and silicified sediment that is poorly        exposed and has only been unsystematically explored and partially drill tested in the past.        The key gold mineralized feature on the property is a hydrothermal breccia, which contains        anomalous gold, arsenic, antimony and mercury. Goldfields Mining Corporation first staked        the Table Top property in 1986 while conducting surface exploration for an open pit type        operation. A limited rock chip sampling and reverse circulation drilling program indicated        the presence of a gold mineralized system.

 

The Table Top claims do not have a readily available source of power,        contain no known mineral reserve or resource, and are exploratory in nature. The        Company’s intended exploration target will be the discovery of a high grade        mineralized gold vein system at depth, to be developed by a phased exploration program. The        Company does not anticipate additional exploration activity on this property during        2008.

 

***Illipah***

 

The Company entered into an agreement, effective August 23, 2006, with        Tornado Gold International Corporation (TOGI-Q) (“Tornado”) pursuant to which        Tornado acquired certain mining claims referred to as the Illipah claims. Tornado paid the        Company $50,000 upon execution of the agreement. Under the agreement Tornado paid the        Company an additional $50,000 and 50,000 shares of Tornado common stock which was due        within ninety days of the date of the agreement, an additional 100,000 shares of Tornado        common stock which was due within one hundred eighty days of the date of the agreement and        (in March 2008) an additional 200,000 shares which were due within one year of the date of        the agreement. Upon execution of the agreement, Tornado assumed Golden Cycle’s        obligations in an underlying exploration and mining lease agreement on the claims, and        granted to Golden Cycle a production royalty of two percent of net smelter returns on all        rents and mineral production from the property. Tornado has the option, exercisable at any        time prior to commercial production on any of the Illipah claims, to reduce Golden Cycle        production royalties from two percent to one percent by paying Golden Cycle, at Golden        Cycle’s option, either $1 million, or its equivalent in gold bullion at the August        23, 2006 closing price of gold on the New York Commodity Exchange. Tornado also agreed to        undertake an exploration program on the Illipah property and related area of interest, and        incur exploration and development expenditures of at least $750,000 within two years, of        which $250,000 must be expended during the first year of the agreement. In the event of a        default under the agreement by Tornado, Golden Cycle may reacquire the Illipah claims under        certain circumstances.

 

The Illipah project area can be reached by car from Ely, Nevada. From Ely        travel west on US Highway 50 for approximately 33 miles. You will pass the turnoff for        Illipah Reservoir to your left. Continue west on US Highway 50 for another 5 miles. Turn        right, to the north on a gravel road. There is a stop sign at this intersection. Travel        north for 6 miles to the project site, see adjacent map.

 

The Illipah project area can be reached by car from Ely, Nevada. From Ely        travel west on US Highway 50 for approximately 33 miles. You will pass the turnoff for        Illipah Reservoir to your left. Continue west on US Highway 50 for another 5 miles. Turn        right, to the north on a gravel road. There is a stop sign at this intersection. Travel        north for 6 miles to the project site, see adjacent map.

 

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This gold project is situated in eastern Nevada at the southern extension of        the Carlin Trend that contains the largest accumulation of gold deposits in North America.        The Illipah claims consist of 191 unpatented Federal BLM lode mining claims (approximately        3,800 acres) over a six-mile strike length that contains favorable stratigraphic and        structural environments for the discovery of a significant gold deposit. The property is        subject to advance royalty payments and a 2% Net Smelter Return (“NSR”) royalty        on all mineral production. An NSR is a royalty, usually a percent, of smelter production        less certain allowable costs such as smelting and transportation to the smelter. The NSR        royalty is reduced to 1% if $2,000,000 in advance royalties is paid.

 

Past production from the immediate area of Illipah is 37,000 ounces of gold        from an open pit mined in the late 1980’s and early 1990’s. The ore was        processed using heap leach technology. This gold mineralization is envisioned as a surface        gold anomaly that indicates there is a strong possibility of high-grade gold mineralization        at depth near favorable stratigraphic contacts and structures. The geological similarities        between Illipah and Newmont’s Rain Deposit (the “Rain Deposit”) located        65 miles north-northwest are striking. The Rain Deposit originally was mined as an        open-pit, but is currently being mined underground. The reported resource potential is 2        million ounces of gold and the average grade 0.40 oz/troy Au.

         

The Illipah claims contain no known mineral reserve or resource and are        exploratory in nature. Past exploration on the property largely focused on its near surface        mineral potential, though some deeper exploration drilling was completed by two companies.        The Company used generator power for its 2005 exploration program. Power is available just        outside the property’s boundary should Tornado or the Company elect to pay the cost        to bring it on to the property for future operations.

 

***Colorado***

         

The Company’s continuing exploration effort in the Company’s        home state of Colorado was largely placed on hold during 2006 and 2005 while the Company        focused on its exploration priority at that time, the Illipah exploration project until        Tornado acquired the Illipah claims. The Company has developed a geologic concept        indicating the possibility of an exploration target which meets the Company’s        criterion in southwest Colorado. During 2007 the Company completed a regional study of the        target area, including satellite imagery which it began in 2004, with the objective of        narrowing the target area to two or three definable locations in which initial mineral        sampling could be initiated.

 

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**ITEM 1A.        RISK FACTORS**

 

An investment in our securities involves risks and uncertainties. These        risks and uncertainties could cause our actual results to differ materially from our        historical results or the results contemplated by any forward-looking statement contained        in this Annual Report on Form 10-K or that we make in other filings with the Securities and        Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 or in        other public statements. You should consider the following factors carefully, in addition        to the other information contained in this Form 10-K, before deciding to purchase, sell or        hold our securities.

         

**Risks        Relating to Our Company and Industry**

 

***The exploration of mineral properties is highly speculative in nature        and is frequently unproductive. We cannot be certain that our acquisition, exploration, and        development activities will be commercially successful.***

 

Other than our interest in CC&V, we do not have any properties with        current or planned gold production. Exploration for minerals is highly speculative. Most        exploration projects do not result in the discovery of mineable deposits of ore. Moreover,        any mineralization discovery may not be of sufficient quantity or quality to be mined        profitably. We use the evaluation work of professional geologists, geophysicists, and        engineers for estimates in determining whether to commence or continue mining. These        estimates generally rely on scientific and economic assumptions, which may not be correct.        As a result of these uncertainties, we may expend substantial amounts of funds on        exploration or mining projects that may ultimately result in failure to locate gold        minerals sufficient to justify commercial mining operations.

         

***Due to the nature of mining activities, we face risks of delays and        increased costs resulting from environmental, technical, and geological        factors**.*

 

Mining activities are subject to substantial operating hazards, including        weather, environmental conditions, unforeseen technical difficulties, unusual or unexpected        geological formations, equipment breakdowns or malfunctions and work interruptions. There        may also be limited availability of water, which is essential to milling operations. The        occurrence of any of these events could delay or interrupt production, increase production        costs, or result in liability for us. Our results of operation could therefore be adversely        affected as well.

         

***We        face strong competition in our industry and may not be able to compete        effectively.***

Our industry consists of numerous companies which compete in the acquisition        and development of mining properties. Many of these companies are significantly larger than        us or CC&V. They may also enjoy access to more capital resources than we do. Our        competitors may be able to engage in more exploration activities, acquire rights to more        properties with potential quantities of gold, and more easily obtain the funds necessary to        conduct production activities. Accordingly, we may not be able to compete effectively with        these companies.

***The mining and mineral processing industries are subject to extensive        governmental regulations which can impose significant costs and burdens.***

Our mining activities, including those of CC&V, are subject to extensive        federal, state, and local regulations governing air and water quality, mine reclamation,        solid and hazardous waste handling and disposal, and occupational safety. Although we are        not aware of any circumstances which would cause CC&V or any of our other properties to        be in violation of any of these regulations, there can be no assurance that we and CC&V        will be able to be in compliance with such regulations in the future. Factors that may lead        to our inability to comply with regulations include, for example, future changes in        regulations, increased cost of compliance, and our financial condition in the future.        Failure to comply with the regulations can result in injunctive action, damages, and civil        and criminal penalties, all of which could adversely affect our business.

 

In addition, as of December 31, 2007, CC&V had posted a bond of        approximately $45 million with the Colorado Mined Land Reclamation Board to secure        reclamation of mining disturbances arising from the CC&V Joint Venture’s mining        activities, and will likely be required to post additional sums to accommodate further        mining at the Cresson site.

 

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***We        are subject to risks related to our Philippine activities.***

We have entered into an agreement with a Philippine mining company, Benguet        Corporation. The operating agreement stipulates that our Philippine subsidiary, Golden        Cycle Philippines, Inc., would manage the exploration, development and/or mining of certain        designated properties in the Philippines. We have never before engaged in mining activities        in the Philippines. Moreover, since our inception in 1972, we have never served as manager        of any mining project in the United States or any foreign country. Consequently, we will,        in connection with activities in the Philippines, be subject to the risks and uncertainties        inherent in any new business enterprise, such as the ability to hire and retain qualified        personnel and to raise sufficient capital. Further, we may also be subject to certain risks        of doing business in foreign countries, such as political instability, unfamiliarity with        local laws, and currency exchange risk. Currently all the activities of the Philippines        subsidiary are on hold pending approval of a Mineral Production Sharing Agreement by the        Philippine government. The Company wrote off the remaining value of its investment in the        Philippine subsidiary during 2006. If opportunities to economically pursue activities in        the Philippines are available, and if we elect to pursue them, additional capital may be        required. There is no assurance that we will be able to obtain the additional capital, if        required, or that such capital would be available to us on terms which would be        acceptable.

         

***We        are dependent on the efforts of key personnel and may be harmed if we are unable to retain        these individuals.***

The success of our business depends, in large part, upon the skills and        efforts of a small group of key personnel, including R. Herbert Hampton, our President,        Chief Executive Officer, and Treasurer. If we are not successful in retaining such key        personnel, or attracting similarly qualified individuals, our business may be harmed. We do        not maintain “key man” life insurance on any of our key personnel. Therefore,        the loss of our key personnel could adversely impact our ability to execute our business        plan, which may adversely affect our results of operations.

         

***We could be deemed an “investment company” under the        Investment Company Act of 1940. This would impose significant restrictions on us and would        be likely to have a material adverse impact on our financial condition and results of        operations.***

Our principal assets include our equity interest and participation in the        Joint Venture. Our interest in the Joint Venture could be deemed an “investment        security” for purposes of the Investment Company Act. In the event that such interest        is determined to have a value that comprises 40% or more of our total assets, we could be        deemed to be an investment company under the Investment Company Act, unless an exemption        from registration were available or we were to obtain an order of the SEC excluding or        exempting us from registration under the Investment Company Act.

 

If anything were to happen which would cause us to be deemed an investment        company, the Investment Company Act would impose significant restrictions on us, including        severe limitations on our ability to borrow money, to issue additional capital stock and to        transact business with affiliates. In addition, because our operations are very different        from those of the typical registered investment company, regulation under the Investment        Company Act could affect us in other ways that are extremely difficult to predict. In sum,        if we were deemed to be an investment company it could become impractical for us to        continue our business as currently conducted and our financial condition and results of        operations could suffer materially.

 

**Risks        Relating to the Cripple Creek****Joint Venture**

***Because we rely on CC&V for substantially all of our revenues and        cash flow, our business will be harmed if CC&V’s operation is negatively        impacted.***

Our participation in CC&V constitutes our primary business. Gold        production at CC&V accounted for all of our total gold production in fiscal years ended        December 31, 2007 and December 31, 2006. Substantially all of our revenues and cash flow        are derived from this gold production. Our results of operations, cash flow, and financial        condition could be materially adversely affected if production at the Cresson mine is        disrupted due to unforseeable events such as labor interruptions, technical problems, or        environmental factors, such as seismic events.

         

In addition, AngloGold has the ability to reduce CC&V’s gold        production, even without our consent. AngloGold, as the manager of the CC&V Joint        Venture, develops, revises and implements budget and plans for the Joint Venture. As the        67% majority shareholder in the Joint Venture, AngloGold can adopt or change any plan or        budget for the Joint Venture. We cannot assure you that AngloGold will not reduce        CC&V’s planned gold production in the future which will materially and adversely        affect our profitability.

 

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***CC&V is substantially dependent on AngloGold for its operating        funds and may not be able to continue operations if such funds are no longer        available.***

The exploration and development of CC&V’s properties are governed        by the terms of the Joint Venture agreement, which grants operational responsibility and        management authority in the Joint Venture to AngloGold. If AngloGold, whose proportionate        share of the Joint Venture’s costs is much larger than ours, is not in a position to        furnish (or otherwise chooses not to furnish) any operating funds required by the Joint        Venture, it is unlikely that the Joint Venture would continue in operation. Because        CC&V constitutes our primary operating asset, such an event would adversely affect our        results of operations and financial condition. Should AngloGold withdraw from the CC&V        Joint Venture, our primary source of annual operating revenues would cease and, unless we        find a new Joint Venture partner, our ability to continue as a going concern would be        severely impaired. It is uncertain that we would be able to find a new Joint Venture        partner, or that terms satisfactory to us could be negotiated with the new        partner.

         

***CC&V has had a history of losses prior to 2004. Because        CC&V’s profitability depends on the price of gold, it may incur losses again in        the future.***

During fiscal years ended December 31, 2007, 2006, and 2005 the CC&V        Joint Venture recorded net income of $58.9 million, $38.4 million, and $9.5 million        respectively. However, in previous years, CC&V incurred substantial losses during each        year of operation except 1996. There is no assurance that CC&V will be able to achieve        profitability in any subsequent period or to sustain profitability for an extended period.        The ability of CC&V to operate on a profitable basis depends, to a large degree, on the        market price for gold. The market price of gold is volatile, subject to speculative        movement and is affected by numerous factors beyond our control, including international,        economic and political conditions, levels of supply and demand, the inventory levels        maintained by gold producers and others and, to a lesser degree, inventory carrying costs        (primarily interest charges) and international exchange rates. Whether gold prices will        maintain a level that will enable CC&V to operate profitability on a continuing basis        cannot be assured.

         

***It is unlikely that we will receive Net Proceeds from CC&V in the        foreseeable future.***

Based on the amount of the Initial Loans payable by CC&V to AngloGold        ($310.8 million as of December 31, 2007) which must be repaid prior to the distribution of        any Net Proceeds to us, and the amount of income which the Joint Venture can reasonably be        expected to generate over the next several years, we believe that, absent a significant and        sustained increase in the price of gold and an improvement in the efficiency of the        operations of the Joint Venture, it is unlikely that we will receive more than the Minimum        Annual Distributions from CC&V for the foreseeable future based on the current terms of        the Joint Venture Agreement. Therefore, even if CC&V achieves profitability for a        sustained period, it is unlikely that this would have any impact on our cash flow for the        foreseeable future.

         

***CC&V’s gold ore reserve figures are estimated based on a        number of assumptions and may yield less gold under actual production conditions than the        Joint Venture currently estimates.***

CC&V has prepared gold ore reserve estimates in accordance with industry        practice and SEC Industry Guide Number 7. Ore reserve estimates are based on prepared        mining plans; however actual reserves and/or production may vary from the estimates. Key        assumptions used in the estimation may prove to be inaccurate (such as future gold prices,        gold recovery rates, cut-off grades and operating costs). Reserve estimates require        revision based on actual experience or new information. Experience may require changes or        adjustments to the mining plans in a way which adversely impacts the ore reserve estimates.        Future gold prices may decline, operating costs may increase, gold recoveries may decrease        to a point which would make mining of lower grade mineralization uneconomical.

**Risks        Relating to the Market**

 

***Our stock price has been and could continue to be        volatile.***

The market price of our Common Stock has been subject to significant        fluctuations. The securities markets have experienced, and are likely to experience in the        future, significant price and volume fluctuations which could negatively affect the market        price of our Common Stock without regard to our actual operating performance. In addition,        the trading price of our Common Stock could be subject to significant fluctuations in        response to:

 

|   | **•** | actual or anticipated variations in our quarterly operating                        results; |
|--------|------------|---------------------------------------------------------------------------------------------|

|   | **•** | public announcements by us or other industry                        participants; |
|--------|------------|-----------------------------------------------------------------------------------|

|   | **•** | factors affecting the gold market; |
|--------|------------|------------------------------------|

 

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|   | **•** | changes in national or regional economic conditions;                        and |
|--------|------------|---------------------------------------------------------------------------------|

|   | **•** | general market conditions. |
|--------|------------|----------------------------|

 

**Other        Risks**

 

***The Company has entered into an Agreement and Plan of Merger with        AngloGold Ashanti Limited.***

 

On January 11, 2008, the Company entered into an Agreement and Plan of        Merger (the “Agreement and Plan of Merger”) with AngloGold Ashanti Limited, a        corporation organized under the laws of the Republic of South Africa, AngloGold Ashanti USA        Incorporated, a Delaware corporation, and GCGC LLC, a Colorado limited liability company        and a direct wholly-owned subsidiary of AngloGold Ashanti USA Incorporated. Under the terms        of the Agreement and Plan of Merger, the Company agreed to be acquired by AngloGold Ashanti        Limited through a transaction in which the Company’s shareholders will receive        consideration consisting of 0.29 American Depositary Shares of AngloGold Ashanti Limited        for each issued and outstanding share of the Company’s common stock, rounded up to        the next whole ADS, each whole ADS representing one ordinary share, par value 25 South        African cents per share, of AngloGold Ashanti Limited. The transaction is subject to mutual        customary conditions to closing, including approval of the holders of two-thirds of the        issued and outstanding shares of the Company’s common stock entitled to        vote.

 

Because the Agreement and Plan of Merger is subject to a number of closing        conditions, many of which are beyond its control, the Company cannot guarantee that the        Agreement and Plan of Merger and the merger will be consummated as anticipated, if at all.        In addition, the Agreement and Plan of Merger allows for both parties to terminate the        Agreement and Plan of Merger upon the occurrence of certain events, including, in the case        of AngloGold Ashanti, upon the occurrence of a “material adverse effect” (as        defined in the Agreement and Plan of Merger) with respect to the Company. The Company        cannot guarantee that these events will not occur and that either the Company or AngloGold        Ashanti Limited will not terminate the Agreement and Plan of Merger. While termination by        AngloGold Ashanti Limited under certain circumstances may entitle the Company to a        termination fee of $1,440,000, AngloGold Ashanti is entitled to terminate under conditions        that do not trigger the termination fee. Additionally, termination of the Agreement and        Plan of Merger by the Company under certain conditions will require the Company to        reimburse AngloGold Ashanti Limited for its transaction expenses up to ($500,000) and will        require the Company to pay a $5,760,000 termination fee to AngloGold Ashanti.

 

If the Agreement and Plan of Merger and the transaction fail to close or        close under different terms and conditions than currently contemplated, a shareholder in        the Company’s common stock may not realize the full, anticipated benefits of the        transaction, if at all.

 

If the Agreement and Plan of Merger is terminated and the merger is not        consummated, the Company may be unable to pay the costs and expenses of negotiating and        documenting the Agreement and Plan of Merger, including administrative, accounting, and        legal expenses, and the Company may be unable to pay ongoing general and administrative        expenses without raising additional capital through debt or equity financings, which could        potentially dilute shareholder interests. If the Company terminates the Agreement and Plan        of Merger and is forced to pay the $5,760,000 termination fee, the Company may be unable to        meet its ongoing liabilities and the Company would likely be required to raise additional        capital. There is no assurance that the Company will be able to raise such additional        capital, if required, or that such capital would be available to the Company on terms that        would be acceptable.

 

For a description of the terms and conditions of the Agreement and Plan of        Merger and the merger, see the disclosure under Item 12 “Security Ownership of        Certain Beneficial Owners and Management and Related Stockholder Matters – Changes in        Control.”

 

**ITEM 1B.        UNRESOLVED SEC STAFF COMMENTS**

 

|   | None. |
|--------|-------|

 

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**ITEM 2.        PROPERTIES**

 

**Mining,        Oil And Gas Rights**

 

***Mining Properties***

         

The Joint Venture mining properties consist of owned, leased and optioned        mining claims and other land covering more than 4,800 acres of patented mining claims in        and around the Cripple Creek Mining District of Teller County, Colorado and include most of        the principal formerly-producing mines of the Cripple Creek district. The majority of the        above acreage was contributed by the Company to the Joint Venture. Subsequently, the Joint        Venture has purchased, leased and optioned additional acreage, and continues to do so as        opportunity arises to complete the consolidation of the district.

 

The Joint Venture mining properties are situated on the west flank of Pikes        Peak, about 20 air miles west of Colorado Springs and 65 air miles south of Denver. The        area is accessible by paved highway and supplied by requisite utilities. The elevation of        the properties averages slightly over 10,000 feet above sea level. Snow accumulations are        generally light and do not materially interfere with access to the property.

 

To a great extent, the Joint Venture mining properties lie within the        boundary of a geological entity known as a caldera or “volcanic subsidence        basin” (the “Basin”). The Basin is of rudimentary elliptical outline,        with its long axis trending in a northwesterly direction. It has a length of about 4-1/2        miles and a width of about 2-1/2 miles, covering some 5,000 acres at the ground surface.        The area of the Basin gradually narrows with depth. The bulk of the historical Cripple        Creek gold production was from the underground mines within the Basin, with the major mines        located in the southern portion of the Basin.

 

 

To drive to the mine from Colorado Springs, Colorado, travel west on East        Pikes Peak Avenue toward North Nevada Avenue / I-25 BR / US-87 / US-85 for less than 1        mile. Turn left onto S. Nevada Avenue / I-25 BR S / US-87 S / US-85 S at a half mile. Turn        right onto E Cimarron Street for 3 miles. E Cimarron Street becomes US-24 W for 22 miles.        Turn left onto CO-67 for 18.7 miles. Turn left onto CO-67 / S 2ND ST. Continue to follow        CO-67 for 5 miles. Stay straight to go onto Victor Avenue for less than 1 mile. Turn right        onto 2nd Street into Victor, CO.

 

The dominant geologic feature of the Cripple Creek & Victor Mining        District is a 32-28 Ma diatreme-intrusive complex hosted in Precambrian rocks located        between the towns of Cripple Creek and Victor, Colorado. The diatreme-intrusive complex is        6.4 km long, 3.2 km wide and consists of diatremal breccia that has been intruded by        stocks, dikes and discordant breccias. Diatremal breccia lithologies include breccias        composed exclusively of volcanic, Precambrian or sedimentary material to any combination of        the three. Early intrusions are predominantly within the alkaline phonolite-phonotephrite        petrographic series and were followed by later lamprophyres. All rocks have undergone a        long history or structural and hydrothermal activity. Gold mineralization occurs in all        rock types as disseminated and/or structurally-controlled orebodies. Primary ore minerals        include microscopic native gold and gold tellurides. Silver is present but is economically        unimportant.

 

 

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From the inception of production in 1891 until the suspension of operations        in 1960, the Cripple Creek Mining District was the major gold mining district in the United        States. It is estimated that approximately 21 million ounces of gold were produced in this        period, principally from mines later contributed to the Joint Venture by Golden Cycle Gold        Corporation. The Joint Venture, including a number of Joint Venture partners, has added        about 3.4 million troy ounces of gold production to this total during the period 1985        through 2007. The Joint Venture mining properties include most of the principal formerly        producing mines in the Cripple Creek district, including the Ajax, Cresson, Portland,        Independence, Vindicator and Golden Cycle. Because of the age of many of the mines and the        fact that mining operations throughout the Basin declined and were suspended more than        thirty years ago, the existing mine shafts and workings are unsuitable for current        operation without substantial rehabilitation. The Joint Venture is not currently and does        not anticipate, operating underground.

 

***Oil        and Gas Mineral Rights***

 

The oil and gas properties of the Company are comprised of approximately        7,300 acres of mineral rights in the Penrose Area of Fremont County, Colorado. There is no        evidence of successful oil and gas development nearby, with the exception of the Florence,        Colorado area. Florence was the site of the first producing wells in Colorado in the        1860’s and the area is still producing on a limited scale today. Several years ago,        interest was shown in leasing very large acreages of state land about 50 to70 miles east of        the Company’s land. No development of that area is visible at this time, nor is it        expected in the foreseeable future. The oil and gas properties have no carrying value for        balance sheet purposes.

 

**ITEM 3.        LEGAL PROCEEDINGS**

 

The Company, owner of a 33% interest in Cripple Creek & Victor Gold        Company (“CC&V”), and the owner of the other 67% interest therein,        AngloGold (Colorado) Corp., now AngloGold Ashanti (Colorado) Corp., and its direct parent        AngloGold North America Inc., now AngloGold Ashanti North America Inc., were sued together        with CC&V, the owner and operator of the Cresson Project, by the Sierra Club and        Mineral Policy Center in 2001. The Plaintiffs asserted numerous violations of the U.S.        Clean Water Act which went to trial in the United States District Court for the District of        Colorado early in 2006, resulting in a judgment in favor of all Defendants and against all        Plaintiffs on all claims, as well as an award of costs and attorneys fees incurred after        the point in time at which the Plaintiffs knew or should have known that their        “dogged pursuit of factually unsupported claims” was unreasonable.

The Plaintiffs appealed both the judgment and the fee award to the United        States Court of Appeals in Denver. Briefs were timely filed by the Plaintiffs in that        court, but the parties reached an agreement to settle all disputes before the Defendants        commenced briefing, and the cases have been dismissed. The settlement preserved the        Defendants’ complete success on all of the alleged violations of the Clean Water Act,        and left each of the parties responsible for their own fees and costs. So long as judicial        review of the judgment and the monetary award remained possible, the Company did not record        a receivable for any of its costs, then approximately $130,000.

**ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

|   | The Company did not submit any matters to a vote of security                    holders during the fourth quarter of 2007. |
|--------|----------------------------------------------------------------------------------------------------------------------------|

 

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**PART        II**

 

**ITEM 5.        MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER        PURCHASES OF EQUITY SECURITIES**

 

**Market Information**

 

The Company’s Common Stock was listed and traded on the Pacific        Exchange since 1987 (except during the period from July 6, 1994 to August 30, 1994), and        from July 1, 1983 until June 30, 1992 was quoted on NASDAQ. As of March 6, 2006 the        Company’s listing was moved to the NYSE-Arca, upon the acquisition of the Pacific        Exchange by the NYSE. The Company’s trading symbol is GCGC on the NYSE-Arca. The        following table shows the high and low bid price per share on the Pacific Exchange,        NYSE-Arca Exchange, or the Over the Counter market, for each calendar quarter since January        1, 2006.

 

| Price Range                For:                 | HIGH   | LOW               |
|-------------------------------------------------|--------|-------------------|
|                                                 |
| Quarter ended                December 31, 2007  |   | $14.97            |   | $7.10 |   |
| Quarter ended September 30,                2007 |   | 8.15              |   | 5.95 |   |
| Quarter ended June 30,                2007      |   | 7.35              |   | 5.48 |   |
| Quarter ended March 31,                2007     |   | 7.35              |   | 5.00 |   |
|                                            |
| Quarter ended December 31,                2007  |   | $  7.90 |   | $6.30 |   |
| Quarter ended September 30,                2007 |   | 8.50              |   | 5.25 |   |
| Quarter ended June 30,                2007      |   | 11.00             |   | 3.65 |   |
| Quarter ended March 31,                2007     |   | 4.20              |   | 3.40 |   |

 

Bid        prices are between dealers and do not include mark-ups, markdowns, or commissions, nor do        they necessarily represent actual transactions. On March 5, 2008, our common stock closed        at $10.60 per share as quoted on the NYSE-Arca Exchange.

 

**Holders of the Company’s Common Stock**

 

The number of holders of record of the Company’s Common Stock as of        March 13, 2008 was 676. The number of beneficial owners for whom shares are held in        “street name” as of March 13, 2008 is believed to be more than 500.

 

**Dividends**

 

The Company has not paid any dividends. The Company effected a five-for-one        stock split effective July 2004 following shareholder approval of an increase in the        authorized shares of the Company’s Common Stock from 3.5 million to 100 million at        the 2004 annual meeting of shareholders. The Company does not have plans to pay any        dividends.

 

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**Equity Compensation Plans**

 

The following table shows information for all equity compensation        plans:

 

|                                      | Number of Securities to                be Issued Upon Exercise                of Outstanding Options,                Warrants and Rights | Weighted-Average                Exercise Price of                of Outstanding Options,                Warrants and Rights                (excluding securities                referenced in column a) | Number of Securities                Remaining Available for                Future Issuance Under                Equity Compensation                Plans (Excluding                Securities Referenced in                the First Column |
|--------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                      |
| Plan Category                        |                                                                                                                                     |
|                                 |                                                                                                                                     |
| Equity                Compensation   |                                                                                                                                     |                                                                                                                                                                                                         |                                                                                                                                                                                                                                        |  |   |  |   |
| Plans Approved                by     |                                                                                                                                     |
| Security Holders                     |                                                                                                                                     | 585,000                                                                                                                                                                                                 |                                                                                                                                                                                                                                        | $4.55 |   | — |   |
|                                 |                                                                                                                                     |
| Equity                Compensation   |                                                                                                                                     |
| Plans Not Approved                by |                                                                                                                                     |
| Security Holders                     |                                                                                                                                     | —                                                                                                                                                                                                 |                                                                                                                                                                                                                                        | — |   | — |   |
|                                 |                                                                                                                                          |                                                                                                                                                                                                         |                                                                                                                                                                                                                                             |
| Total                                |                                                                                                                                     | 585,000                                                                                                                                                                                                 |                                                                                                                                                                                                                                        | $4.55 |   | — |   |
|                                 |                                                                                                                                          |                                                                                                                                                                                                         |                                                                                                                                                                                                                                             |

 

During 1992, the Company’s Board of Directors adopted a        Directors’ Stock Option Plan (the Directors’ Plan) and a 1992 Stock Option Plan        (the 1992 Plan). All options available under the Directors’ Plan were granted prior        to December 31, 1994. During 1997, shareholders approved the 1997 Officers’ and        Directors’ Stock Option Plan, and during 2002, shareholders approved the 2002 Stock        Option Plan pursuant to which 1,000,000 and 625,000 shares, respectively, of the        Corporation’s common stock were reserved for issuance pursuant to options to be        granted. The 1992 Plan provided for the grant of options on a discretionary basis to        certain employees and consultants. Under each plan, the exercise price cannot be less than        the fair market value of the common stock on the date of the grant. The expiration of the        options is ten years from the date of the grant.

 

**Recent Sales of Unregistered Securities and Purchases of Equity        Securities by the Issuer and Affiliated Purchasers**

 

There were no sales of unregistered securities or stock repurchases by the        Company or any affiliated purchasers during the year ended December 31, 2007.

 

18

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**Performance Graph**

 

19

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**ITEM        6. SELECTED FINANCIAL DATA**

 

|                                                                | 2007   | 2006                             | 2005   | 2004                             | 2003   |
|----------------------------------------------------------------|--------|----------------------------------|--------|----------------------------------|--------|
|                                                           |        |                                  |        |                                  |        |
| Revenues(1)                                                    |   | $    250,000 |   | $    250,000 |   | $    250,000 |   | $    250,000 |   | $   250,000 |   |
| Other income                                                   |   | 166,000                          |   | 166,000                          |   | 61,000 |   | 30,000 |   | 581,000 |   |
| Expenses                                                       |   | 1,005,000                        |   | 1,513,000                        |   | 913,000 |   | 602,000 |   | 607,000 |   |
| Share of Mining                Joint                           |   |
|      Venture                Losses(2) |   | —                          |   | —                          |   | — |   | — |   | — |   |
| Net income                (Loss)                               |   | (588,000                         | )      | (1,097,000                       | )      | (602,000 | ) | (322,000 | ) | 224,000 |   |
| Net income                (Loss)                               |   |
|      Per                Share         |   | (0.06                            | )      | (0.11                            | )      | (0.06 | ) | (0.03 | ) | 0.02 |   |
| Total Assets                                                   |   | 767,000                          |   | 803,000                          |   | 1,125,000 |   | 1,647,000 |   | 1,872,000 |   |
| Long term                obligations                           |   | —                          |   | —                          |   | — |   | — |   | — |   |

 

(1)        Revenues are comprised of        the Minimum Annual Distribution. See Item 7 “Management’s Discussion and        Analysis of Financial Condition and Results of Operation” below, and Notes to the        consolidated financial statements for a description of the accounting for the Minimum        Annual Distribution.

 

(2)        The Joint Venture        recorded net income of $58.9 million for the year ended December 31, 2007, net income of        $38.4 million for the year ended December 31, 2006, and net income of $9.5 million for the        year ended December 31, 2005. The Company’s share of the Joint Venture net income,        which has not been recorded in its consolidated financial statements, is approximately        $11.8 million, $7.7 million and $1.9 million in 2007, 2006 and 2005, respectively. The        Company’s accumulated unrecorded losses from the Joint Venture were $7.9 million as        of December 31, 2006. As such, as of December 31, 2007, the Company’s accumulated        unrecorded losses from the Joint Venture were eliminated and the Company recorded Joint        Venture equity of $3.9 million. As of December 31, 2007 the receipt of cash distributions        from the Joint Venture is highly uncertain as the Joint Venture’s Initial Loans        totaling $310,823,000 have not been repaid nor is it anticipated they will be repaid in the        foreseeable future based on anticipated future cash flows from the Joint Venture’s        operations.

 

As a        result, the Company has accounted for this uncertainty by creating a 100% valuation        allowance against the Joint Venture equity interest of $3.9 million. It is anticipated by        management that this valuation allowance against the Joint Venture equity will remain until        it is determined by management that the collectibility of the investment in the form of        future cash distributions becomes probable.

 

**ITEM 7.        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF        OPERATIONS**

 

**Overview**

 

Our financial statements consolidate the operations of our wholly-owned        subsidiary, Golden Cycle Philippines, Inc., with those of Golden Cycle Gold Corporation.        Golden Cycle Philippines, Inc. has minimal costs and assets and Golden Cycle Gold        Exploration, Inc. had no operations or assets during the year ended December 31,        2007.

 

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Currently, our primary mining investment and source of cash flows is our 33%        interest in the CC&V Joint Venture. The Joint Venture engages in gold mining activity        in the Cripple Creek area of Colorado. The Company’s Joint Venture co-venturer is        AngloGold. In addition to our interest in the Joint Venture, we own two gold mineral        prospects which we are not actively exploring at present.

 

Our rights and obligations relating to our Joint Venture interest are        governed by the Joint Venture Agreement. The Joint Venture is currently, and for the        foreseeable future will be, operating in the Initial Phase, as defined in the Joint Venture        Agreement. In accordance with the Joint Venture Agreement, AngloGold manages the Joint        Venture and is required to finance all operations and capital expenditures during the        Initial Phase. See “Description of Mining Joint Venture” above.

 

On January 11, 2008, the Company entered into an Agreement and Plan of        Merger (the “Agreement and Plan of Merger”) with AngloGold Ashanti Limited, a        corporation organized under the laws of the Republic of South Africa, AngloGold Ashanti USA        Incorporated, a Delaware corporation, and GCGC LLC, a Colorado limited liability company        and a direct wholly-owned subsidiary of AngloGold Ashanti USA Incorporated. Under the terms        of the Agreement and Plan of Merger, the Company agreed to be acquired by AngloGold Ashanti        through a transaction in which the Company’s shareholders will receive consideration        consisting of 0.29 American Depositary Shares of AngloGold Ashanti Limited for each issued        and outstanding share of the Company’s common stock, rounded up to the next whole        ADS, each whole ADS representing one ordinary share, par value 25 South African cents per        share, of AngloGold Ashanti Limited. The Agreement is subject to the approval of the        holders of two-thirds of the issued and outstanding shares of the Company’s common        stock entitled to vote.

 

For a description of the terms and conditions of the Agreement and Plan of        Merger and the merger, see the disclosure under Item 12 “Security Ownership of        Certain Beneficial Owners and Management and Related Stockholder Matters – Changes in        Control.”          

 

**Liquidity and Capital Resources**

 

Our working capital was $648,000 at December 31, 2007 compared to $757,000        at December 31, 2006. Cash used in operations was $171,000 in 2007 compared to $362,000        during 2006. Working capital decreased by approximately $109,000 at December 31, 2007        compared to December 31, 2006 primarily due to net losses in the 2007 period. The decrease        in cash used in operations during 2007 was primarily due to decreased net loss during the        2007 period.

 

We believe that the Company’s working capital, augmented by the        Minimum Annual Distribution of $250,000 from the Joint Venture, is adequate to support        operations at the current level for the coming year, barring unforeseen events. We        anticipate that our Philippine subsidiary will hold all work on a standby basis until the        MPSA is awarded to the claim owner. If opportunities to economically pursue or expand        Philippine, Nevada, Colorado operations, or any other opportunity discussed above (see Item        1, Other Opportunities) are available, and we elect to pursue them, additional working        capital may also be required.

         

If the Agreement and Plan of Merger is terminated and the merger is not        consummated as is currently contemplated, the Company may be unable to pay the costs and        expenses of negotiating and documenting the Agreement, including administrative,        accounting, and legal expenses, and the Company may be unable to pay ongoing general and        administrative expenses without raising more capital through debt or equity financings,        which could potentially dilute shareholder interests. If the Company terminates the        Agreement and is forced to pay the $5,760,000 termination fee under certain circumstances,        the Company may be unable to meet its ongoing liabilities and the Company would likely be        required to raise additional capital.

 

There is no assurance that we will be able to obtain such additional        capital, if required, or that such capital would be available to the Company on terms that        would be acceptable. Furthermore, if we were to commence such operations, it is not        presently known when or if a positive cash flow could be derived from the        operations.

         

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**Results of Operations**

 

***Fiscal Year ended December 31, 2007 Compared to Fiscal Year Ended        December 31, 2006***

 

We recorded net loss of approximately $588,000 for the year ended December        31, 2007 compared to a net loss of approximately $1,097,000 for the year ended December 31,        2006. The decrease in net loss during the 2007 period was primarily due to the decrease in        stock-based compensation expense of $462,000 for 2007 compared to $792,000 recorded upon        the June 5, 2006 automatic grant of stock options in accordance with the Company’s        Stockholder approved plan. The net loss for 2007 excluding the above stock-based        compensation expense would have been approximately $127,000 compared to $305,000 for the        year 2006. The approximately $178,000 decreased loss during 2007 compared to 2006,        excluding the impact of the above stock based compensation, was primarily a result of        decreased salaries ($26,000), decreased legal fees ($157,000), and increased gold bullion        appreciation ($27,000) during the 2007 period, partially offset by increased revenue        ($23,500) in the 2006 period, compared to the 2007 period, from the sale of the        Company’s Illipah gold prospect.

 

The Joint Venture recorded net income for the year ended December 31, 2007        of approximately $58.9 million compared to net income of $38.4 and $9.5 million for the        years ended December 31, 2006 and December 31, 2005 respectively. The primary reason for        the Joint Venture’s improved performance in both 2007 and 2006 over the previous        years’ performance was the increase in the prevailing price for gold bullion during        each year. The Joint Venture’s average gold bullion sales prices per troy ounce were:        $691 during 2007, $603 during 2006 and $445 during 2005.

 

***Fiscal Year ended December 31, 2006 Compared to Fiscal Year Ended        December 31, 2005***

 

We recorded net loss of approximately $1,097,000 for the year ended December        31, 2006 compared to a net loss of approximately $602,000 for the year ended December 31,        2005. The increase in net loss during the 2006 period was primarily due to stock-based        compensation expense of $792,000 recorded upon the June 5, 2006 automatic grant of stock        options in accordance with the Company’s Stockholder approved plan. The net loss for        2006 excluding the above stock- based compensation expense would have been approximately        $305,000. The decreased loss during 2006 represented by the $305,000 was largely due to        decreased exploration expenses associated with the Illipah exploration drilling program of        approximately $255,000, increased revenue of $100,000 from the Illipah gold prospect sale,        elimination of holding costs of $50,000 on the Illipah gold prospect, and increased        administrative costs, specifically legal fees.

 

**Critical Accounting Policies and Estimates**

 

We account for our investment in the Joint Venture on the equity method.        Joint Venture distributions in excess of the investment carrying value are recorded as        revenue, as we are not required to finance the Joint Venture’s operating losses or        capital expenditures. Correspondingly, we have not recorded our share of Joint Venture        income or losses incurred subsequent to the reduction of the Company’s Joint Venture        investment balance to zero in 1992. The Company has not recorded its share of the Joint        Venture net income for the 2007 period ($11.8 million) nor its share of the Joint        Venture’s net income for the 2006 ($7.7 million) or 2005 ($1.9 million) periods due        to an accumulation of unrecorded losses attributable to its share of the Joint Venture        ($7,910,000 as of December 31, 2006) operations. As of December 31, 2007, the        Company’s accumulated unrecorded losses from the Joint Venture were reduced to zero.        The Company did not record as income its share of Joint Venture net income in excess of its        accumulated unrecorded losses due to the uncertainty of receiving matching cash        distributions, and the fact that if such cash distributions were received, they would        likely be in the distant future. As of December 31, 2007, the Company recorded Joint        Venture equity of $3,868,400 which has a 100% valuation allowance against it. At the        current prevailing price of gold we do not expect receiving cash distributions from the        Joint Venture in excess of the Minimum Annual Distribution ($250,000 per year) for the        foreseeable future.

 

***Use of Estimates***

 

The preparation of financial statements in conformity with accounting        principles generally accepted in the United States of America requires management to make        various estimates and assumptions in determining the reported amounts of assets,        liabilities, revenues, and expenses for each period presented, and in the disclosure        of

 

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commitments and contingencies. Actual results could differ significantly        from those estimates. Changes in these estimates and assumptions will occur based on the        passage of time and the occurrence of future events.

 

***Principles of Consolidation***

 

The consolidated financial statements include the accounts of the Company        and its wholly owned subsidiaries. All significant inter-company transactions and balances        have been eliminated in consolidation.

 

***Cash and Cash Equivalents***

 

The Company considers all highly liquid instruments purchased with an        original maturity of three months or less to be cash equivalent.

 

***Short-Term Investments***

 

Short-term investments consist primarily of certificates of deposit.        Short-term investments also include 310 troy ounces of gold bullion purchased by the        Company in 2002. Interest revenue and the increase or decrease in the value of the gold        bullion is included in the consolidated statement of operations.

 

***Marketable Equity Securities***

 

The Company’s investments in marketable equity securities are        classified as available-for-sale and are carried at fair value, which is based upon quoted        prices of the securities owned. The cost of marketable equity securities sold is determined        by the specific identification method. Changes in market value are recorded in accumulated        other comprehensive income within stockholders’ equity, unless a decline in market        value is considered other than temporary, in which case the decline is recognized as a loss        in the consolidated statement of operations. The Company had marketable equity securities        with fair values of $16,500 and $0 respectively, and cost of $58,500 and $0, respectively,        at December 31, 2007 and December 31, 2006. Golden Cycle has accumulated other        comprehensive income for unrealized holding losses of $42,000 and $0 at December 31, 2007        and December 31, 2006, respectively, related to our marketable equity        securities.

 

***Investment in Mining Joint Venture***

 

The Company accounts for its investment in the Joint Venture on the equity        method. In prior years, the Company’s share of Joint Venture losses exceeded the        remaining carrying value of the investment and, accordingly, the investment was reduced to        zero. Joint Venture distributions in excess of the investment carrying value are recorded        as income. The Company has not recorded its share of Joint Venture losses incurred        subsequent to the reduction of its investment balance to zero, as the Company has no        obligation to fund operating losses. To the extent the Joint Venture is profitable, the        Company records its share of equity income. However, the Company currently offsets the        Joint Venture equity income with an allowance account due to the uncertainty that the        actual receipt of cash distributions by the Company attributable to current year increases        in joint venture equity will occur given that those cash distributions are far in the        future due to the necessity of repaying the Joint Venture’s Initial Loans.

 

***Mineral Exploration and Development Costs***

 

Mineral exploration costs are expensed as incurred. Mineral property        development costs are capitalized and depleted based upon estimated proven and probable        recoverable reserves. The Company has no capitalized mineral property development costs at        December 31, 2007 or December 31, 2006.

 

The Company assesses the carrying value of its long-lived assets for        impairment whenever changes in facts or circumstances indicate that they may be impaired.        Potential impairment is estimated by comparing estimated future undiscounted cash flows        expected to be generated from such assets with their net book value. If net book value        exceeds estimated cash flows, the asset is written down to fair value. The Company has not        recorded impairment costs at December 31, 2007 or December 31, 2006.

 

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***Property and Equipment***

 

Office furniture, fixtures, and equipment are stated at cost and depreciated        using the straight-line method over estimated useful lives ranging from three to ten        years.

 

***Foreign Currency Translation***

 

The GCPI operations’ functional currency is the local currency and,        accordingly, the assets and liabilities of its Philippines operations are translated into        their United States dollar equivalent at rates of exchange prevailing at each balance sheet        date. Revenue and expenses are translated at average exchange rates prevailing during the        periods in which such items are recognized in operations.

 

Gains and losses arising from translation of the consolidated financial        statements of GCPI operations are included in accumulated other comprehensive income (loss)        in shareholders’ equity. Amounts in this account are recognized in the consolidated        statements of operations when the related net foreign investment is reduced. Gains and        losses on foreign currency transactions are included in the consolidated statements of        operations.

 

***Stock Options***

 

The Company adopted SFAS 123R using the modified prospective method. Under        this method, compensation cost recognized in the years ended December 31, 2007 and 2006        include: a) compensation cost for all stock-based payments granted prior to, but not yet        vested as of January 1, 2006, based on the grant-date fair value estimated in accordance        with the original provisions of SFAS 123, and b) compensation cost for all stock-based        payments granted subsequent to January 1, 2006, based on the grant-date fair value        estimated in accordance with the provisions of SFAS 123R. The results for prior periods        have not been restated.

 

***Income Taxes***

 

The Company utilizes the asset and liability method of accounting for income        taxes. Under the asset and liability method, deferred tax assets and liabilities are        recognized for the future tax consequences attributable to differences between the        financial statement carrying amounts and the tax basis of existing assets and liabilities        using enacted tax rates expected to apply in the years in which such temporary differences        are expected to be recovered or settled. Changes in tax rates are recognized in the period        of the enactment date. A valuation allowance is recognized unless tax assets are more        likely than not to be realized. Golden Cycle adopted FIN 48 on January 1, 2007 and it has        not had an impact on its financial position, results of operations or cash flows. For more        information see Notes to the Financial Statements, note 6, “Recently Issued Financial        Accounting Standards”.

***Comprehensive Income***

 

In 1998, the Company adopted SFAS No. 130,*Reporting Comprehensive Income*. SFAS No. 130        requires that all components of comprehensive income (loss), including net income (loss),        be reported in the financial statements in the period they are recognized. Comprehensive        income (loss) is defined as the change in equity during a period from transactions and        other events and circumstances from non-owner sources. Net income (loss) and other        comprehensive income (loss), including foreign currency translation adjustments, shall be        reported, net of their related tax effect, to arrive at comprehensive income (loss). We        have recorded a ($42,000) mark to market on the decrease in the market value of Tornado        common stock and disclosed comprehensive income (loss) in our consolidated financial        statements accordingly.

 

***Revenue Recognition***

 

The Company recognizes revenue as Minimum Annual Distributions from the        Joint Venture are received as all services necessary for revenue recognition have been        previously provided to the Joint Venture by the Company. The Joint Venture Agreement, as        amended, provides for the Company to receive a minimum annual distribution of $250,000        during the Initial Phase. Beginning in 1994, such Minimum Annual Distributions are        recoupable against the Company’s future share of Net Proceeds, if any. Whether future        gold prices and the results of the Joint Venture’s operations will reach and maintain        a level necessary to repay the Initial Loans (see Note 3), complete the Initial Phase, and        thereafter generate net income from which Minimum Annual Distributions can be recouped,        cannot be assured due to uncertainties inherent within any mining operation. Based on the        amount of Initial Loans payable to

 

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the        Manager and the uncertainty of future operating revenues, there is no assurance that the        Company will receive more than the Minimum Annual Distribution from the Joint Venture in        the foreseeable future.

 

***Per Share Information***

 

Basic earnings (loss) per common share are computed as net income (loss)        divided by the weighted average number of common shares outstanding during the period.        Diluted earnings (loss) per common share are computed as net income (loss) divided by the        weighted average number of common shares and potential common shares, using the treasury        stock method, outstanding during the period.

 

**Off-Balance Sheet Arrangements**

 

The Company does not have any off-balance sheet arrangements that have or        are reasonably likely to have a current or future effect on our financial condition,        changes in financial condition, revenues or expenses, results of operations, liquidity,        capital expenditures or capital resources that is material to investors.

 

**Tabular Disclosure of Contractual Obligations**

 

|   | The following table summarizes the Company’s current                        contractual obligations. |
|--------|------------------------------------------------------------------------------------------------------------|

 

|                                            |        | Payment due by                period |
|--------------------------------------------|--------|--------------------------------------|
|                                       |        |
||
|                                            |        |                                      |  |  |  |
| Long-Term Debt                Obligations  |   | —                              |   | — |   | — |   | — |   | — |   |
| Capital Lease                Obligations   |   | —                              |   | — |   | — |   | — |   | — |   |
| Operating Lease                Obligations |   | —                              |   | — |   | — |   | — |   | — |   |
| Purchase                obligations        |   | —                              |   | — |   | — |   | — |   | — |   |
| Other Long-Term                Liabilities |   | $71,164                              |   | $71,164 |   | — |   | — |   | — |   |
|                                            |        |                                      |  |  |  |
|      Total        |   | $71,164                              |   | $71,164 |   | — |   | — |   | — |   |
|                                            |        |                                      |  |  |  |

 

The        total contractual obligation of the Company is its Employment Agreement with        Mr. Hampton which expires in August 2008.

 

| **ITEM 7A.** | **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET                        RISK** |
|--------------|---------------------------------------------------------------------------------------|

         

We do not hedge, sell forward or otherwise commit any asset on a contingency        basis. We do not normally commit to multi-year contracts other than employment agreements        and office space rental (see Notes to Consolidated Financial Statements, Note 8,        Commitments and Contingencies). The Joint Venture, in the course of normal business,        periodically executes long term supply contracts to limit its exposure to various supply        risks. The Joint Venture has not previously hedged or sold forward gold or other assets for        the joint account.

 

**ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

 

|   | The financial statements and supplementary data required by                        this item are included herein in Item 15. |
|--------|------------------------------------------------------------------------------------------------------------------------------|

 

**ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL        DISCLOSURE**

 

During fiscal years 2007 and 2006, we have had no disagreements with our        independent auditors regarding accounting or financial disclosure matters.

 

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**ITEM 9A.        CONTROLS AND PROCEDURES**

 

**Disclosure Controls and Procedures**

 

Disclosure controls and procedures are our controls and other procedures        that are designed to ensure that information required to be disclosed by us in the reports        that we file or submit under the Securities Exchange Act of 1934, as amended (the        “Exchange Act”), is recorded, processed, summarized and reported, within the        time periods specified in the Securities and Exchange Commission’s rules and forms.        Disclosure controls and procedures include, without limitation, controls and procedures        designed to ensure that information required to be disclosed by us in the reports that we        file under the Exchange Act is accumulated and communicated to our management, including        our principal executive officer and principal financial officer, as appropriate to allow        timely decisions regarding required disclosure.

 

At the end of the period covered by this report, an evaluation was carried        out under the supervision of and with the participation of the Company’s management,        including the Chief Executive Officer (“CEO”) and Chief Financial Officer        (“CFO”), of the effectiveness of the design and operations of the        Company’s disclosure controls and procedures (as defined in Rule 13a – 15(e)        and Rule 15d – 15(e) under the Exchange Act). Based on that evaluation the CEO and        the CFO have concluded that as of the end of the period covered by this report, the        Company’s disclosure controls and procedures were adequately designed and effective        in ensuring that: (i) information required to be disclosed by the Company in reports that        it files or submits to the Securities and Exchange Commission under the Exchange Act is        recorded, processed, summarized and reported within the time periods specified in        applicable rules and forms and (ii) material information required to be disclosed in our        reports filed under the Exchange Act is accumulated and communicated to our management,        including our CEO and CFO, as appropriate, to allow for accurate and timely decisions        regarding required disclosure.

 

**Management’s Report on Internal Control over Financial        Reporting**

Management is responsible for establishing and maintaining adequate internal        control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act, for the        Company. In fulfilling this responsibility, estimates and judgments by management are        required to assess the expected benefits and related costs of control procedures. The        objectives of internal control include providing management with reasonable, but not        absolute, assurance that assets are safeguarded against loss from unauthorized use or        disposition, and that transactions are executed in accordance with management’s        authorization and recorded properly to permit the preparation of consolidated financial        statements in conformity with accounting principles generally accepted in the United States        of America.

Financial management has documented and evaluated the effectiveness of the        internal control of the Company as of December 31, 2007 pertaining to financial reporting        in accordance with the framework and criteria established in “Internal Control        – Integrated Framework” issued by the Committee of Sponsoring Organizations of        the Treadway Commission. As a result of the evaluation, management concluded that as of        December 31, 2007, the Company’s internal control over financial reporting was        effective in providing reasonable assurance regarding the reliability of financial        reporting and the preparation of financial statements for external purposes in accordance        with generally accepted accounting principles. Our management reviewed the results of their        assessment with the Audit Committee.

This annual report does not include an attestation report of the        Company’s registered public accounting firm regarding internal control over financial        reporting. Management’s report was not subject to attestation by the Company’s        registered public accounting firm pursuant to temporary rules of the Securities and        Exchange Commission that permit the Company to provide only management’s report in        this annual report.

**Changes in Internal Control Over Financial Reporting**

Within the year ended December 31, 2007, there were no changes to our        internal control over financial reporting that materially affected, or is reasonably        likely, or are reasonably likely, to materially affect our internal control over financial        reporting.

 

**ITEM 9B.        OTHER INFORMATION**

 

|   | None. |
|--------|-------|

26

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**PART        III**

 

**ITEM 10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**

 

The Company’s directors hold office until the next annual meeting of        the stockholders and the election and qualification of their successors. Officers are        elected annually by the Board of Directors and serve at the discretion of the Board of        Directors.

         

The following table and information that follows sets forth, as of December        31, 2007,the names, and positions of the Company’s directors and executive        officers:

 

|                     |                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |               |
|--------------------------|-----------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|
| **Name**                 | **Current Office with****Company**            | **Principal Occupation****Last Five Years**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | **Director Since** |
|                          |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                    |
| Taki N. Anagnoston, M.D. | Director                                      | Private security analyst and investor, real estate investor                        and developer, medical doctor in private practice for more than forty                        years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 2004               |
|                     |                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |               |
| Donald L. Gustafson      | Director                                      | Vice President, Exploration of the Corporation from Aug 1,                        2004 to Nov 31, 2006; Consulting Economic Geologist from 1998 and                        consultant to the Corporation through June

2004; Director of Gold Summit Exploration since 2001;                        Director of Green River Geology Co PTY LTD since                        2004;               President                        and Chief Operating Officer, Quest International Minerals, 1996-1998;                        Homestake Mining Company from 1975-1990 and Vice President Exploration of                        Homestake International Minerals, 1985-1990 | 2004               |
|                     |                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |               |
| R. Herbert Hampton       | President, Chief Executive Officer, Treasurer | President, Chief Executive Officer and Treasurer of the                        Corporation since April 1999; Vice President, Finance From August 1, 1993                        to April 1999; Secretary and Treasurer of the Corporation from May 1994 to                        April 1999; and an employee of the Corporation since October 1,                        1992.                                                                                                                                                                                                                                                                                                                                                                        | 1999               |
|                     |                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |               |
| James C. Ruder           | Chairman of the Board, Director               | Chairman of Board of the Corporation since June 2003 and of                        Golden Cycle Exploration since June 2002; Private security analyst and                        investor, primarily in gold and gold mining equities for more than twenty                        years.                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 2003               |
| Robert T. Thul           | Director                                      | Independent Certified Public Accountant from 1985 to                        present. Treasurer of Golden Cycle Gold Corporation from 1973 to                        1983.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 2003               |

 

The        following is a description of the business background of the directors and executive        officers of the Company.

 

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***R.        Herbert Hampton (61) – Chief Executive Officer, Treasurer***

 

Mr. Hampton has been an employee of the Company since October 1, 1992.        Mr. Hampton was Secretary and Treasurer to the Company from May 1994 to April 1999 and        Vice President, Finance from August 1, 1993 to April 1999. Since April 1999,        Mr. Hampton has been the Company’s President, Chief Executive Officer and        Treasurer. Mr. Hampton received a Bachelor of Science in Accounting from Brigham Young        University in 1972 and a Masters of Business Administration from University of Utah in        1980.

 

***James C. Ruder (78) – Chairman of the Board,        Director***

 

Mr. Ruder has been Chairman of the Board of the Company since June        2003. Mr. Ruder has been Chairman of the Board to Golden Cycle Exploration since June        2002. Mr. Ruder has been a private security analyst and investor, primarily in gold        and gold mining equities, for the past twenty years. Mr. Ruder received Bachelor of        Arts from Stanford University in 1951 and a Master of Business Administration from Stanford        University Graduate School of Business in 1953.

 

***Robert T. Thul (62) – Director***

 

Mr. Thul was the Treasurer of Golden Cycle from 1973 to 1983.        Mr. Thul has been a self-employed independent certified public accountant from 1985 to        the present. Mr. Thul received Bachelor of Arts from Saint Norbert College in 1969 and        a Masters of Business Administration from University of Colorado in 1990.

 

***Donald L. Gustafson (69) – Director***

 

Mr. Gustafson is a self-employed geologic consultant since December        2006. Mr. Gustafson was the vice president, exploration of the Company from August 1,        2004 to November 31,2006. Mr. Gustafson was a consulting economic geologist from 1998        and consultant to the Company through June 2004. Mr. Gustafson has been a director of        Gold Summit Exploration since 2001 and a director of Green River Geology Co PTY LTD since        2004. He was president and chief operating officer of Quest International minerals from        1996-1998. Mr. Gustafson was vice president exploration of Homestake International        Minerals from 1985-1990. Mr. Gustafson received a Bachelors of Arts in Geology and        Mineralology in 1963 and a Masters of Science in Geology from the University of Colorado in        1965.

 

***Taki N. Anagnoston, M.D. (76) – Director***

 

Mr. Anagnoston has been a medical doctor in solo private practice since        1965. Mr. Anagnoston is also a private security analyst and investor and real estate        investor and developer. Mr. Anagnoston received a Bachelor of Science from Otterbein        College in 1954 and MD Universtity of Cincinatti 1958 became OBGYN Specialist        1962.

 

**Legal Proceedings**

None of the Corporation’s directors, officers, or affiliates, or any        beneficial owner of record of more than 5% of the Corporation’s common stock, or any        associate of such persons, is a party adverse to the Corporation or has a material adverse        interest to the Corporation.

**Family Relationships**

 

None of our Directors are related by blood, marriage, or adoption to any        other Director, executive officer, or other key employees. To our knowledge, there are no        arrangements or understandings between any of our officers and any other person, including        Directors, pursuant to which the officer was selected to serve as an officer.

**Section 16(a) Beneficial Ownership Reporting Compliance**

Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and the        rules issued thereunder, the Corporation’s directors, executive officers and 10%        shareholders are required to file with the Securities and Exchange Commission and the        NYSE-Arca reports of ownership and changes in ownership of the Corporation’s Common        Stock. Copies of such forms are required to be furnished to the Corporation. Based solely        on its review of the copies of such reports, or written representations that no reports        were required, the Corporation believes that during the fiscal

 

28

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year        ended December 31, 2007, its directors, executive officers and 10% shareholders complied        with the Section 16(a) requirements.

**Audit Committee**

Pursuant to Paragraph 16 of the Corporation’s By-Laws, the Board of        Directors has created a separately designated standing Audit Committee established in        accordance with Section 3(a)(58)(A). The Committee is comprised of Messrs. Robert T.        Thul (Chairman), James C. Ruder, and Dr. Taki N. Anagnoston, and is empowered to        supervise the auditing of the accounts of the Corporation. Its primary duties and        responsibilities are to:  monitor the integrity of the Corporation’s financial        reporting process and systems of internal controls regarding finance, accounting, and legal        compliance; monitor the independence and performance of the Corporation’s independent        auditors; provide an avenue of communication among the independent auditors, management and        the Board of Directors; and performing other duties and functions deemed appropriate by the        Board. The Corporation’s Board of Directors has determined that Mr. Robert T.        Thul is a “financial expert” as defined by the NYSE-Arca and the SEC. The Audit        Committee charter is available on the Corporation’s website, www.goldencycle.com. The        Audit Committee met four times during the fiscal year ended December 31, 2007.

**Code        of Ethics**

The Corporation has adopted a Code of Ethics that applies to its management        (including its Chief Executive Officer and any other accounting officer, controller or        persons performing similar functions) and its directors. The Code of Ethics is also        available on the Corporation’s website, www.goldencycle.com. In the event that we        amend our Code of Ethics or grant a waiver from its restrictions to a person covered by the        Code of Ethics, we intend to provide this information on our website.

**Shareholder Communication with the Board of Directors**

Historically, the Corporation has not adopted a formal process for        stockholder communications with the Board. Nevertheless, every effort has been made to        ensure that the views of stockholders are heard by the Board, or individual directors as        applicable, and that appropriate responses are provided to the stockholder in a timely        manner. Stockholders wishing to communicate at any time with the Board of Directors, or a        specific member of the Board, may do so by writing the Board or a specific member of the        Board by delivering correspondence in person or by mail to:  The Board of Directors,        c/o Wilma L. Delacruz, Corporate Secretary, 1515 South Tejon, Suite 201, Colorado Springs,        Colorado 80906. Communication(s) directed to the Board or a specific Board member will be        relayed to the intended Board member(s).

**ITEM 11.        EXECUTIVE COMPENSATION**

 

**Summary        Compensation Table**

The following table sets forth information on the compensation earned by        Mr. R. Herbert Hampton, the current Chief Executive Officer. The Chief Executive        Officer is the highest paid officer of the Corporation.

|                                          |   |     |   |       |   |      |   |       |   |       |    |             |   | **Change** **in** |   |                   |    |      |
|-----------------------------------------------|--------|----------|--------|------------|--------|-----------|--------|------------|--------|------------|---------|------------------|--------|------------------------|--------|------------------------|---------|-----------|
|                                          |   |     |   |       |   |      |   |       |   |       |    |             |   | **Pension**            |   |                   |    |      |
|                                          |   |     |   |       |   |      |   |       |   |       |    |             |   | **Value** **and** |   |                   |    |      |
|                                          |   |     |   |       |   |      |   |       |   |       |    |             |   | **Non-**               |   |                   |    |      |
|                                          |   |     |   |       |   |      |   |       |   |       |    | **Non-Equity**   |   | **Qualified**          |   |                   |    |      |
|                                          |   |     |   |       |   |      |   |       |   |       |    | **Incentive**    |   | **Deferred**           |   |                   |    |      |
|                                          |   |     |   |       |   |      |   | **Stock**  |   | **Option** |    | **Plan**         |   | **Compensation**       |   | **All** **Other** |    |      |
| **Name**                                      |   | **Year** |   | **Salary** |   | **Bonus** |   | **Awards** |   | **Awards** |    | **Compensation** |   | **Earnings**           |   | **Compensation**       |    | **Total** |
| **(a)**                                       |   | **(b)**  |   | **(c)**    |   | **(d)**   |   | **(e)**    |   | **(f)**    |    | **(g)**          |   | **(h)**                |   | **(i)**                |    | **(j)**   |
| R. Herbert HamptonPrincipal Executive Officer |   | 2007     |   | $          | 98,823 |      | $      | —    |   | $          | — |             | $      | —                |   | $                      | — |      | $ |    |   | $ | — |   | $ | 98,823 |
|                                          |   | 2006     |   | $          | 95,375 |      | $      | —    |   | $          | — |             | $      | 158,250                |   | $                      | — |      | $ |    |   | $ | — |   | $ | 253,625 |
|                                               |        |          |        |            |        |           |        |            |        |            |         |                  |        |                        |        |                        |         |           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

29

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**Compensation Discussion and Analysis**

***Contract with R. Herbert Hampton***

Compensation for R. Herbert Hampton is currently provided pursuant to a        three-year contract with Mr. Hampton, which terminates on August 1, 2008.        Mr. Hampton’s current compensation consists of base salary payments of        approximately $95,375 per year. Salary compensation is paid for executive services rendered        by Mr. Hampton for the Corporation. Mr. Hampton serves as the Company’s        President, Chief Executive Officer, and Treasurer. Stock option based compensation was        granted to Mr. Hampton in his capacity as a Director of the Company. The Compensation        Committee will review Mr. Hampton’s compensation next year in anticipation of        the expiration of the current contract. Mr. Hampton’s compensation is based on        the types and levels of services provided, noting that he is responsible for all the        functions of the Company. Mr. Hampton’s compensation has been adjusted annually        only for a cost of living allowance computed in accordance with the US Government’s        published CPI for the past six years. The Compensation committee recognizes the        Company’s limited resources, and has therefore limited salary increases.

**Grants        of Plan-Based Awards**

The Company did not grant options to Mr. Hampton during fiscal        2007.

**Outstanding Equity Awards at Fiscal Year-End**

|                                          |   | **Option** **Awards**                                                                         |   | **Stock** **Awards**                                                                            |   |
|-----------------------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------|--------|
| **Name**                                      |   | **Number** **of****Securities****Underlying****Unexercised****Options****(#)****Exercisable** |   | **Number** **of****Securities****Underlying****Unexercised****Options****(#)****Unexercisable** |   | **Equity****Incentive****Plan****Awards:****Number** **of****Securities****Underlying****Unexercised****Unearned****Options****(#)** |   | **Option****Exercise****Price** **($)** |   | **Option****Expiration****Date** |   | **Number****of** **Shares****or** **Units****of** **Stock****Held** **That****Have** **Not****Vested****(#)** |   | **Market****Value** **of****Shares** **or****Units** **of****Stock** **That****Have** **Not****Vested****($)** |   | **Equity****Incentive****Plan****Awards:****Number** **of****Unearned****Shares,****Units** **or****Other****Rights** **That****Have** **Not****Vested****(#)** |   | **Equity****Incentive****Plan****Awards:****Market** **or****Payout****Value** **of****Unearned****Shares,****Units** **or****Other** **Rights****That** **Have****Not** **Vested****($)** |   |
| **(a)**                                       |   | **(b)**                                                                                            |   | **(c)**                                                                                              |   | **(d)** |   | **(e)** |   | **(f)** |   | **(g)** |   | **(h)** |   | **(i)** |   | **(j)** |   |
| R. Herbert HamptonPrincipal Executive Officer |   | —                                                                                            |   | —                                                                                              |   | — |   | $ | — |   | — |   |   |   | $ |   |   |   |   | $ |   |   |
|                                               |        |                                                                                                    |        |                                                                                                      |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

**Option        Exercises and Stock Vested**

The following table sets forth certain information with respect to the value        of stock options held by Mr. R. Herbert Hampton at fiscal year end.

|                                          |   | **Option Awards**                                                                 |   | **Stock Awards**                                                 |    |
|-----------------------------------------------|--------|-----------------------------------------------------------------------------------|--------|------------------------------------------------------------------|---------|
| **Name**                                      |   | **Number** **of****Shares** **Acquired****on** **Exercise****(#)** |   | **Value** **Realized****on** **Exercise** **($)** |    | **Number** **of****Shares** **Acquired****on** **Vesting****(#)** |   | **Value** **Realized****on** **Vesting** **($)** |   |
| **(a)**                                       |   | **(b)**                                                                           |   | **(c)**                                                          |    | **(d)** |   | **(e)** |   |
| R. Herbert HamptonPrincipal Executive Officer |   | 25,000                                                                            |   | $                                                                | 125,000 |   | — |   | $ | — |   |
|                                               |        |                                                                                   |        |                                                                  |         |  |  |  |  |  |  |

 

----

|   | (1) | Mr. Hampton holds options entitling him to purchase                        225,000 shares of the Corporation’s Common Stock. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------|

30

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**Pension Benefits**

The Corporation does not have a pension benefit plan.

Pursuant to a resolution of the Company’s board of directors, the        Company has agreed to pay Mr. Hampton severance following the closing of the proposed        merger with AngloGold Ashanti in a lump sum amount equal to $8,404 per month from the        closing of the merger through August 1, 2008. For a description of the terms and        conditions of the Agreement and the contemplated transaction, see the disclosure under Item        12 “Security Ownership of Certain Beneficial Owners and Management and Related        Stockholder Matters – Changes in Control.”

 

**Deferred Compensation**

 

The Corporation does not have deferred compensation.

 

**Director Compensation**

 

| **Name**                               |   | **Fees****Earned** **or****Paid** **in****Cash****($)** |   | **Stock****Awards****($)** |   | **Option****Awards****($)** |   | **Non-Equity****Incentive** **Plan****Compensation****($)** |    | **Change** **in****Pension** **Value****and****Nonqualified****Deferred****Compensation****Earnings** |   | **All** **Other****Compensation****($)** |   | **Total****($)** |    |
|----------------------------------------|--------|-------------------------------------------------------------------|--------|----------------------------|--------|-----------------------------|--------|------------------------------------------------------------------|---------|-----------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|------------------|---------|
| **(a)**                                |   | **(b)**                                                           |   | **(c)**                    |   | **(d)**                     |   | **(e)**                                                          |    | **(f)**                                                                                                         |   | **(g)**                                       |   | **(h)**          |    |
| James                    C. Ruder      |   | $                                                                 | 10,400 |                       | $      | —                     |   | $                                                                | 115,500 |                                                                                                            | $      | —                                       |   | $                | — |   | — |   | $ | 125,900 |   |
| Taki                    N. Anagnoston  |   | 7,400                                                             |   | —                    |   | 115,500                     |   | —                                                          |    | —                                                                                                         |   | —                                       |   | 122,900          |    |
| Robert                    T. Thul      |   | 10,400                                                            |   | —                    |   | 115,500                     |   | —                                                          |    | —                                                                                                         |   | —                                       |   | 125,900          |    |
| Donald                    L. Gustafson |   | 6,000                                                             |   | —                    |   | 115,500                     |   | —                                                          |    | —                                                                                                         |   | —                                       |   | 121,500          |    |
|                                   |   |                                                              |   |                       |   |                        |   |                                                             |    |                                                                                                            |   |                                          |   |             |    |   |   |   |   |   |   |

 

The compensation payable to directors is established periodically by the        Board. During 2007, each non- management member of the Board was paid a fee of $3,000 for        each meeting attended (telephonic meetings excluded) with the Chairman of the Board        entitled to an additional fee of $3,000 per year. Directors are also entitled to        reimbursement of expenses incurred in connection with such attendance. Members of the Audit        Committee are entitled to a fee of $350 for each formal committee meeting with the Chairman        of the Audit Committee entitled to an additional fee of $3,000 per year.

Under the terms of the 2002 Stock Option Plan, on June 5th of each year,        each director of the Corporation will automatically receive an option to purchase 25,000        shares of the Corporation’s Common Stock at an exercise price equal to the fair        market value of such stock on such date, until such director or executive officer has        received options to purchase an aggregate of 125,000 shares of Common Stock under such        plan. To date, options to purchase 625,000 shares of the Corporation’s Common Stock        have been granted under the plan, of which 585,000 are currently outstanding. During 2007,        with the exception of Mr. R. Herbert Hampton, all directors received options under the        plan. The 2002 Stock Option Plan was completed with the June 2007 stock option grants. No        further stock option grants are available under the plan.

**Employment Contracts**

The Corporation has a three-year employment contract with its President,        Mr. R. Herbert Hampton, which pays an annual salary of $85,000, adjusted annually by        the consumer price index, ($100,848 annual rate as of March 2008) and expires on        August 1, 2008.

**Compensation Committee Interlocks and Insider        Participation**

No person who served as a member of the Compensation Committee during fiscal        2007 was a current or former officer or employee of the Corporation or engaged in certain        transactions with the Corporation required to be disclosed by regulations of the SEC.        Additionally, there were no compensation committee “interlocks” during 2007,        which generally means that no executive officer of the Corporation served as a director or        member of the

 

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compensation committee of another entity, which had an executive officer        serving as a director or member of the Corporation’s Compensation        Committee.

**Compensation Committee Report**

The Golden Cycle Gold Corporation Compensation Committee oversees the        Corporation’s compensation reporting process on behalf of the Board of Directors. The        Committee has three members, each of whom is “independent” as defined by        applicable SEC, NYSE-Arca and auditing standards. The Committee operates under a written        charter, adopted by the Board in April 2004 and revised by the Board in October of        2007.

The Committee assists the Board of Directors by overseeing the (1) annual        review of director and executive officer compensation policies and goals, (2) determining        the compensation of directors and executive officers, (3) and providing accurate public        disclosure of the Corporation’s compensation.

In the course of providing its oversight responsibilities regarding the        Corporation’s compensation of directors and executive officers in 2007, the Committee        reviewed and discussed with management the Compensation Discussion and Analysis included in        this annual report.

Based on the Committee’s review of the Compensation Discussion and        Analysis and discussions with the Board of Directors and the Corporation’s        management, the Committee recommended that the Compensation Discussion and Analysis be        included in this annual report.

**Submitted by the following members of the Compensation Committee of the        Board of Directors:**

Robert        T. Thul

Dr. Taki N. Anagnoston

James C.        Ruder

 

**ITEM 12.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER        MATTERS**

 

**Security        Ownership of Certain Beneficial Owners**

 

The following table sets forth the number and percentage of outstanding        shares of the Company’s common stock beneficially owned as of March 18, 2008        by:

         

|    | •  | each director and named executive officer of the                        Company;                        |
|--------------|--------------|---------------------------------------------------------------------------------------------------------|
|         |         |                                                                                                    |
|         | •  | all directors and executive officers of the Company as a                        group; and         |
|         |         |                                                                                                    |
|         | •  | beneficial owners of 5 percent or more of the                        Company’s common stock. |

         

As of March 18, 2008, 9,769,250 shares of the Company’s common stock        were issued and outstanding.

         

For purposes of the following table a person or group of persons is deemed        to have beneficial ownership of any shares of the Company’s common stock as of a        given date which such person or group of persons has the right to acquire within        60 days after March 18, 2008 upon exercise of vested portions of stock        options.

         

32

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|                                                                      |   |                   |          |   |                        |   |       |   |
|---------------------------------------------------------------------------|--------|------------------------|---------------|--------|-----------------------------|--------|------------|--------|
|                                                                      |   | **Number of Shares**   |          |   |                        |   |
| **Beneficial Owner**                                                      |   | **Beneficially Owned** |          |   | **Percentage of Ownership** |   |
|                                                                      |   |                   |          |   |                        |   |       |   |
| MIDAS Fund, Inc.(1)                                                       |   |                   | 1,964,500     |   |                        |   | 20.1%      |   |
| 11 Hanover Square                                                         |   |                   |          |   |                        |   |       |   |
| New York, NY 10005                                                        |   |                   |          |   |                        |   |       |   |
| David W. Tice & Associates, LLC(2)                                    |   |                   | 1,298,265     |   |                        |   | 13.2%      |   |
| Prudent Bear Funds, Inc.8140 Walnut Hill Lane, Ste 300Dallas, Texas 75231 |   |                   |          |   |                        |   |       |   |
| R. Herbert Hampton(3)                                                     |   |                   | 338,510       |   |                        |   | 3.3%       |   |
| Donald L. Gustafson(4)                                                    |   |                   | 85,000        |   |                        |   | 0.9%       |   |
| James Ruder(5)                                                            |   |                   | 101,000       |   |                        |   | 1.0%       |   |
| Dr. Taki Anagnoston(6)                                               |   |                   | 559,280       |   |                        |   | 5.7%       |   |
| Robert Thul(7)                                                            |   |                   | 100,125       |   |                        |   | 1.0%       |   |
| **Directors and Officers as a Group**                                     |   |                   | **1,183,915** |   |                        |   | **11.43%** |   |

         

|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    |   | MIDAS Fund, Inc. is a registered, open-end, investment                        company and is an advisory client of Midas Management Corporation (MMC).                        Mr. Thomas B. Winmill, a former director of Golden Cycle, is President                        of MIDAS Fund, Inc., and its investment manager. MMC is a wholly owned                        subsidiary of Winmill & Co. Incorporated (Winco). Mr. Bassett                        S. Winmill owns 100% of the outstanding voting stock of Winco and is the                        principal shareholder of Winco. MMC, Winco and Mr. Bassett S. Winmill                        each disclaim any economic interest or beneficial ownership in the                        securities shown above owned by advisory clients of Winco                        subsidiaries. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (2)    |   | David W. Tice & Associates, LLC is a registered                        investment advisor and Prudent Bear Funds, Inc. is a registered investment                        company. Prudent Bear Funds, Inc. includes two operating portfolios,                        Prudent Bear Fund and Prudent Global Income Fund. David W. Tice and                        Associates, LLC is the investment adviser to Prudent Bear Funds,                        Inc.                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (3)    |   | R. Herbert Hampton is an officer and director of Golden                        Cycle. Beneficial ownership includes 56,110 shares of common stock and                        225,000 stock options exercisable to acquire common stock.                        57,400 shares of common stock beneficially owned by R. Herbert Hampton                        and his siblings are held by the Estate of Rex H. Hampton.                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (4)    |   | Donald L. Gustafson is a director of Golden Cycle.                        Beneficial ownership includes 85,000 stock options exercisable to acquire                        common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (5)    |   | James Ruder is a director of Golden Cycle. Beneficial                        ownership includes 1,000 shares of common stock and 100,000 stock                        options exercisable to acquire common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (6)    |   | Dr. Taki Anagnoston is a director of Golden Cycle.                        Beneficial ownership includes 484,280 shares of the common stock and                        75,000 stock options exercisable to acquire common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (7)    |   | Robert Thul is a director of Golden Cycle. Beneficial                        ownership includes 125 shares of common stock and 100,000 stock                        options exercisable to acquire common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

 

**Changes in Control**

 

On January 11, 2008, the Company entered into an Agreement and Plan of        Merger (“Agreement and Plan of Merger”) with AngloGold Ashanti Limited, a        corporation organized under the laws of the Republic of South Africa (the        “Parent”), AngloGold Ashanti USA Incorporated, a Delaware corporation, and GCGC        LLC, a Colorado limited liability company and a direct wholly owned subsidiary of AngloGold        Ashanti USA Incorporated (collectively, “AngloGold Ashanti”).

 

Under the terms of the Agreement and Plan of Merger, the Company agreed to        be acquired by AngloGold Ashanti through a transaction in which the Company’s        shareholders will receive consideration consisting of American Depositary Shares (each, an        “ADS”) of Parent under the terms and subject to the conditions set forth in the        Agreement and Plan of Merger (the “Transaction”).

 

The Board of Directors of the Company, upon determination of the fairness        from a financial point of view of the Transaction by PI Financial (US) Corp., has        determined that the Transaction is fair to and in the best interests of the Company and its        shareholders and has recommended that the Company’s shareholders approve the        Transaction.

 

Under the terms of the Agreement and Plan of Merger, it is proposed that the        Transaction will be implemented as a statutory merger under Colorado law, pursuant to which        the Company will merge with and into GCGC LLC with GCGC LLC continuing as the surviving        entity in the merger.

33

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Under the terms and subject to the conditions set forth in the Agreement and        Plan of Merger (a) each issued and outstanding share of the Company’s common stock        shall be automatically converted into the right to receive 0.29 (the “Exchange        Ratio”) ADSs rounded up to the next whole ADS, with each whole ADS representing one        ordinary share, par value 25 South African cents per share, of Parent; and (b) each        unexpired and unexercised option to purchase the Company’s common stock granted under        the Company’s stock option plans, whether vested or unvested, to be automatically        converted into an option to purchase a number of ADSs equal to the number of the        Company’s shares that could have been purchased (assuming full vesting) under such        option multiplied by the Exchange Ratio (rounded down to the nearest whole number of ADSs)        at a price per ADS equal to the per-share option exercise price specified in the Company        option divided by the Exchange Ratio (rounded up to the nearest whole cent). Such        substituted option shall otherwise be subject to the same terms and conditions as the        option to purchase the Company’s shares that it was issued in respect of.

 

Each of the Company and AngloGold Ashanti has made customary        representations, warranties and covenants in the Agreement and Plan of Merger.

 

The Transaction is subject to mutual customary conditions to closing,        including: (i) the Company obtaining approval of the holders of two-thirds of the issued        and outstanding shares of the Company’s common stock entitled to vote; (ii) no        governmental action, suit or proceeding that would prohibit, restrain, enjoin or restrict        the consummation of the Transaction; (iii) a Form F-4 registration statement registering        the ADSs to be issued in the Transaction with the U.S. Securities and Exchange Commission        shall have become effective in accordance with the provisions of the Securities Act of        1933, as amended; (iv) ADSs to be issued in the Transaction shall have been approved for        listing on the New York Stock Exchange; and (v) all necessary governmental approvals shall        have been obtained or applicable waiting periods shall have expired (including the approval        of the South African Reserve Bank).

 

AngloGold Ashanti’s obligation to close the Transaction is subject to        the additional customary conditions to closing, including: (i) no breach of a        representation or warranty by the Company that would give rise, in aggregate to a        “material adverse effect” (as defined in the Agreement and Plan of Merger);        (ii) no material adverse effect shall have occurred to the Company (not caused by or within        the control of AngloGold Ashanti); (iii) the Company shall have performed or complied in        all material respects with each of its obligations under the Agreement and Plan of Merger;        (iv) delivery of tax representations and opinions, auditor comfort letters and        officers’ certificates; and (v) evidence reasonably satisfactory to AngloGold Ashanti        that the aggregate amount of all unpaid costs and expenses incurred by the Company in        connection with the Agreement and Plan of Merger and the Transactions at closing is not in        excess of $200,000. The Company’s obligation to close the Transaction is subject to        the additional customary conditions to closing, including: (i) no breach of a        representation or warrant by AngloGold Ashanti that would give rise in the aggregate to a        material adverse effect; (ii) AngloGold Ashanti shall have performed or complied in all        material respects with each of its obligations under the Agreement and Plan of Merger; and        (iii) delivery of tax representations and opinions, auditor comfort letters and        officers’ certificates.

 

The Agreement and Plan of Merger contains a “no shop”        restriction on the Company’s ability to solicit third party proposals, provide        information to and engage in discussions and negotiations with third parties. The no shop        provision is subject to a “fiduciary out” provision that allows the Company,        under certain circumstances and in compliance with certain obligations, to provide        information and participate in discussions and negotiations with respect to written third        party acquisition proposals submitted after the date of the Agreement and Plan of Merger        that the Board of Directors believes in good faith to be bona fide and determines in good        faith, after consultation with its outside counsel and receipt of the written opinion of an        independent investment bank that the third party acquisition proposal constitutes a        “superior proposal” (as defined in the Agreement and Plan of Merger),        constitutes a “superior proposal”.

 

As noted above, the Company’s board of directors unanimously        recommended that the Company’s shareholders approve the Agreement and Plan of Merger.        Subject to limited exceptions, the Agreement and Plan of Merger prohibits the        Company’s board of directors from withdrawing or amending in a manner adverse to        AngloGold Ashanti its recommendation. However, under limited circumstances and subject to        certain conditions, the Company may make an “adverse recommendation change” (as        defined in the Agreement and Plan of Merger) if: (i) the Company receives a bona fide        written acquisition proposal from a third party (and such acquisition proposal was not        initiated, solicited or knowingly encouraged or facilitated in violation of the Agreement        and Plan of Merger), (ii) the board of directors of the Company determines in good faith,        after consultation with its outside counsel and receipt of the written opinion of an        independent investment bank that the third party acquisition proposal constitutes a        “superior

34

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proposal” and (iii) the Company provides written notice to AngloGold        Ashanti advising that it is contemplating making such an adverse recommendation change and        specifying the material facts and information constituting the basis for such contemplated        determination;*provided that*prior to        making an adverse recommendation change, at the request of AngloGold Ashanti, during a four        business day period, the Company shall negotiate in good faith with respect to any changes        or modifications to the Agreement and Plan of Merger which would allow the Board of        Directors of the Company not to make such adverse recommendation change consistent with its        fiduciary duties. Notwithstanding an adverse recommendation change, the Company shall        submit the Agreement and Plan of Merger to its shareholders at the shareholder meeting for        the purpose of adopting the Agreement and Plan of Merger, with such disclosures as shall be        required by applicable law.

 

Either party may terminate the Agreement and Plan of Merger (i) by mutual        agreement, (ii) if the Transaction has not closed on or before June 30, 2008, provided that        such party has fulfilled its obligations under the Agreement and Plan of Merger; (iii) any        governmental action, suit or proceeding would prohibit, restrain, enjoin or restrict the        consummation of the Transaction; or (iv) the Company shareholders fail to approve the        Transaction. In addition, AngloGold Ashanti may terminate the Agreement and Plan of Merger        under certain circumstances, including if: (i) the Company’s Board of Directors makes        an “adverse recommendation change”; (ii) the Company breaches its “no        shop” obligations; (iii) the Company breaches a representation or warranty giving        rise to a “ material adverse effect”; (iv) a “material adverse        effect” occurs with respect to the Company (not caused by or within the control of        AngloGold Ashanti); and (v) the Company fails to satisfy its conditions to closing. The        Company may terminate the Agreement and Plan of Merger under certain circumstances,        including if: (i) AngloGold Ashanti breaches a representation or warranty giving rise to a        “material adverse effect”; or (ii) the Company accepts a “superior        proposal” and pays the break fee described below.

 

In connection with a termination of the Agreement and Plan of Merger, (a)        the Company may be required to pay a fee of $5,760,000 to AngloGold Ashanti if: (i) the        Transaction has not closed on or before June 30, 2008, provided that AngloGold Ashanti has        fulfilled its obligations under the Agreement and Plan of Merger and is prepared to close;        (ii) the Company has breached its no-shop covenants or obligation to hold a shareholder        meeting; (iii) the Company terminates to accept a “superior proposal”; (iv) the        Company’s board of directors make an “adverse recommendation change”, the        Company shareholders fail to approve the Transaction or the Transaction has not closed        before June 30, 2008 and, in each case, an acquisition transaction with respect to the        Company is closed within 18 months of the termination of the Agreement and Plan of Merger;        or (v) the Company breaches a representation or warranty giving rise to a “material        adverse effect” or fails to comply in all material respects with its covenants and        agreements in the Agreement and Plan of Merger, or (b) AngloGold Ashanti may be required to        pay a fee of $1,440,000 to the Company if: (i) the Transaction has not closed on or before        June 30, 2008, provided that the Company has fulfilled its obligations under the Agreement        and Plan of Merger and is prepared to close or (ii) AngloGold Ashanti breaches a        representation or warranty giving rise to a “material adverse effect” or fails        to comply in all material respects with its covenants and agreements in the Agreement and        Plan of Merger. In addition, the Company shall pay AngloGold Ashanti the reasonable,        documented costs and expenses incurred by AngloGold Ashanti in connection with the        Agreement and Plan of Merger and the Transaction up to an amount equal to $500,000 in the        event that AngloGold Ashanti terminates the Agreement and Plan of Merger as the result of        an Adverse Recommendation Change, which amount shall be credited towards any termination        fee payable to AngloGold Ashanti in connection with such termination.

 

The foregoing description of the Agreement and Plan of Merger does not        purport to be complete and is qualified in its entirety by reference to the Agreement and        Plan of Merger. The Agreement and Plan of Merger is filed as an Exhibit to the        Company’s current report on Form 8-K, as filed with the Securities and Exchange        Commission on January 15, 2008. The Agreement and Plan of Merger contains representations        and warranties that the parties to the Agreement and Plan of Merger made to and solely for        the benefit of each other, and the assertions embodied in such representations and        warranties are qualified by information contained in confidential disclosure schedules that        the parties exchanged in connection with execution of the Agreement and Plan of Merger.        Accordingly, investors and stockholders should not rely on such representations and        warranties as characterizations of the actual state of facts or circumstances, since they        were only made as of the date of the Agreement and Plan of Merger and are modified in        important part by the underlying disclosure schedules.

 

Additionally, on January 11, 2008, AngloGold Ashanti entered into        shareholder support agreements with each of the following shareholders:

         

35

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|   | 1. | David W. Tice &                        Associates, Inc. |
|--------|----|-------------------------------------------------------------|

 

|   | 2. | OCM Gold Fund |
|--------|----|---------------|

 

|   | 3. | Rex H. Hampton Jr. |
|--------|----|--------------------|

 

|   | 4. | Estate of Rex H.                        Hampton |
|--------|----|-------------------------------------------------|

|   | 5. | Dr. Taki N.                        Anagnoston |
|--------|----|----------------------------------------------------|

 

|   | 6. | James C. Ruder |
|--------|----|----------------|

 

|   | 7. | Robert T. Thul |
|--------|----|----------------|

 

|   | 8. | Donald L.                        Gustafson |
|--------|----|--------------------------------------------|

 

|   | 9. | Midas Fund, Inc./Midas                        Management Corporation |
|--------|----|----------------------------------------------------------------------|

         

The aforementioned shareholders represent an aggregate of approximately        44.2% of the Company’s outstanding common stock. Each of aforementioned shareholders        has agreed, in their capacities as stockholders, upon the terms and subject to the        conditions set forth in their respective shareholder support agreements, to vote all shares        of common stock beneficially owned by such stockholder in accordance with the terms of such        shareholder support agreements, as terms principally stating that all shares of common        stock beneficially owned will be voted in favor of the Agreement and Plan of        Merger.

 

**ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

         

Except as disclosed below, none of our directors, named executive officers        or more-than-five-percent shareholders, nor any associate or affiliate of the foregoing,        have any interest, direct or indirect, in any transaction, during the fiscal year-ended        December 31, 2007, or in any proposed transactions which has materially affected or will        materially affect us.

 

Certain members of the Company’s board of directors and executive        officers of the Company have interests in the proposed Agreement and Plan of Merger with        AngloGold Ashanti that differ from, or are in addition to, their interests as shareholders        of the Company. The Company’s board of directors was aware of these interests and        considered them, among other matters, in approving the Agreement and Plan of Merger. These        interests are described below.

 

**Shareholder Support Agreements**

 

As described above under Item 12 “Security Ownership of Certain        Beneficial Owners and Management and Related Stockholder Matters – Change in        Control,” in connection with the Agreement and Plan of Merger, AngloGold Ashanti        required that each of Messrs. Hampton, Anagnoston, Ruder, Thul and Gustafson and their        respective affiliates enter into shareholder support agreements in which, among other        things, they each severally agree to grant an irrevocable proxy to AngloGold Ashanti to        vote their shares of the Company’s common stock:

         

|   | •  | in favor of (i) the merger, the adoption of the                        Agreement and Plan of Merger and the approval of its terms and each of the                        other transactions contemplated by the Agreement and Plan of Merger and                        (ii) any other matter necessary to the consummation of the merger and                        the other transactions contemplated by the Agreement and Plan of                        Merger; |
|--------|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

 

 

36

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|   | •  | against any other merger agreement or merger (other than the                        Agreement and Plan of Merger with AngloGold Ashanti and the merger with an                        indirect subsidiary of AngloGold Ashanti), consolidation, combination, sale                        of substantial assets, reorganization, recapitalization, dissolution,                        liquidation or winding up of or by the Company or any of its subsidiaries                        or any other acquisition proposal;                                                                                                                                                                                             |
|--------|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | •  | against any amendment of the Company’s articles of                        incorporation or by-laws or other proposal or transaction involving the                        Company or any of its subsidiaries, which amendment or other proposal or                        transaction would in any manner impede, frustrate, prevent or nullify the                        merger with an indirect subsidiary of AngloGold Ashanti, the merger                        agreement or any of the other transactions contemplated by the Agreement                        and Plan of Merger or change in any manner the voting rights of any class                        of capital stock of the Company; and |
|   |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | •  | against any action that would result in a breach of any                        representation, warranty or covenant made by the Company in the Agreement                        and Plan of Merger.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

         

Messrs. Hampton, Anagnoston, Ruder, Thul and Gustafson and their        respective affiliates beneficially owned approximately 0.6 percent, 5.0 percent,        less than 0.1 percent, less than 0.1 percent and zero percent, respectively,        of the shares of Golden Cycle common stock outstanding as of March 18, 2008 (excluding        shares of the Company’s common stock which such person had the right to acquire as of        such date upon exercise of stock options).

 

**Indemnification and Insurance of the Company’s Directors and        Officers**

 

The Agreement and Plan of Merger requires the surviving company in the        merger to indemnify the Company’s directors and officers and to honor all rights to        indemnification and exculpation existing in favor of a director or officer of the Company        and its subsidiaries under the Company’s articles of incorporation and by-laws as in        effect on the date of the Agreement and Plan of Merger for a period of six years after the        effective time of the merger and to maintain for a period of three years after the closing        date of the merger director and officer liability insurance for the benefit of the        Company’s officers and directors with respect to acts or omissions occurring prior to        the closing date.

 

**Stock        Options**

 

In connection with the merger, each unexpired and unexercised option to        purchase the Company’s common stock granted under the Company’s stock option        plans, whether vested or unvested, will be automatically converted into an option to        purchase a number of AngloGold Ashanti ADSs equal to the number of shares of the        Company’s common stock that could have been purchased (assuming full vesting) under        such option multiplied by the exchange ratio of 0.29 (rounded down to the nearest whole        number of AngloGold Ashanti ADSs) at a price per AngloGold Ashanti ADS equal to the per        share option exercise price specified in the Company option divided by the exchange ratio        of 0.29 (rounded up to the nearest whole cent). Each substituted option shall otherwise be        subject to the same terms and conditions as the option to purchase the Company’s        common stock that it was issued in respect of. Prior to the closing of the merger, each        director and officer of the Company will voluntarily tender his resignation and, under the        terms of the option plans pursuant to which the Company’s stock options were issued,        each substituted option will therefore expire six months following the closing of the        merger.

 

**Severance Pay**

 

Pursuant to a resolution of the Company’s board of directors, the        Company has agreed to pay Mr. Hampton severance following the closing of the merger in        a lump sum amount equal to $8,404 per month from the closing of the merger through        August 31, 2008.

 

37

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**ITEM        14. PRINCIPAL ACCOUNTING FEES AND SERVICES**

 

**Audit        Fees**

 

The fees paid by the Corporation to Ehrhardt Keefe Steiner & Hottman        (“EKS&H”) for services provided:

         

|                                                                                                          | 2007   | 2006       |
|----------------------------------------------------------------------------------------------------------|--------|------------|
| 1)  Audit fees, including audits of                our annual financial statements,            |   | $22,500(a) |  | $21,100 |   |
|     review of our                quarterly financial statements and statutory audits |   |
|     of                our foreign subsidiaries.                                      |   |
| 2)  Audit-related                fees                                                          |   | 7,500(b)   |  | 6,900 |   |
| 3)  Tax fees                (including tax compliance and advice)                              |   | —    |   | 4,400 |   |
| 4)  All other                fees                                                              |   | 293(c)     | ( | 6,629 | * |
|                                                                                                          |   |            |  |  |  |

(a) Represents billing of $22,500 for the 2006 audit

(b) Includes billings related to the first, second and third quarter        reviews

(c) represents $293 of out-of-pocket expenses

         

* Includes $3,850 related to assistance with a potential merger with        Fronteer Development Group, Inc., $1,500 related to research of potential phantom income,        $800 related to the Illipah sale and $479 of out-of-pocket expenses.

 

The Audit Committee determined that the provision of tax preparation        services by EKS&H is compatible with maintaining the independence of EKS&H,        however, decided to engage the services of Stockman Kast Ryan & Co, LLP for the        preparation of the Company’s 2006 and 2007 State and Federal income tax        returns.

 

**Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of        Independent Auditor**

 

The Audit Committee’s policy is to pre-approve all audit and non-audit        services provided by the independent auditors. These services may include audit services,        audit IT-related services, tax services and other services. Pre-approval is generally        granted for up to one year and any pre-approval is detailed as to the particular service        and generally subject to a specific budget. The independent auditors and management are        required to report to the full Audit Committee regarding the extent of services provided by        the independent auditors in accordance with this pre-approval, and the fees for the        services performed to date. During 2007 and 2006, the Audit Committee pre-approved the        EKS&H audit services for quarterly review of four quarterly periods.

 

**PART        IV**

 

**ITEM 15.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES**

 

**Documents Filed as Part of This Report**

 

**Documents Filed as Part of This        Report**

| Financial                Statements | Page   |
|-------------------------------------|--------|
| (a)                                 |   | Report of                Independent Registered Accounting Firm, |   |  |   |
|                                     |   | Ehrhardt Keefe Steiner &                Hottman, P.C. |   | 41 |   |
| (b)                                 |   | Consolidated Balance Sheets,                December 31, 2007 and 2006 |   | 42 |   |
| (c)                                 |   | Consolidated Statements of                Operations for the Years |   |  |   |
|                                     |   | Ended December 31, 2007,                2006 and 2005 |   | 43 |   |
| (d)                                 |   | Consolidated Statements of                Shareholders' Equity for the Years |   |  |   |
|                                     |   | Ended December 31, 2007,                2006 and 2005 |   | 44 |   |
| (e)                                 |   | Consolidated Statements of                Cash Flows for the Years |   |  |   |
|                                     |   | Ended December 31, 2007,                2006 and 2005 |   | 45 |   |

 

38

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| (f) |   | Notes to Consolidated                Financial Statements |   | 46 |   |
|-----|--------|-----------------------------------------------------------|--------|----|--------|

**Financial Statement        Schedules**

        Financial        statement schedules are omitted because they are not applicable or the required information        is shown in the financial statements or notes thereto.

**Exhibit Index**

| 3.1. |   | Articles of                Incorporation, as amended, effective June 15, 2004, (incorporated by reference to                Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter                ended March 31, 2006) |
|------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.2 |   | Articles of                Amendment to the Articles of Incorporation of Golden Cycle Gold Corporation                (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed May                12, 2006. |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.3. |   | By-laws                (incorporated by reference to Exhibit 2 to the Company’s Form 10 dated May                19, 1983). |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------|

| 10.1. |   | Amended and                Restated Joint Venture Agreement between AngloGold Ashanti (Colorado) Inc. and the                Company dated as of January 1, 1991 (incorporated by reference to Exhibit 1 to the                Company’s Current Report on Form 8-K dated June 17, 1991). |
|-------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.2 |   | 1997                Officers’ & Directors’ Stock Option Plan (incorporated by reference                to Appendix A of the Company’s Definitive Proxy Statement dated April 30,                1997). |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.3 |   | 2002 Stock                Option Plan (incorporated by reference to Appendix A of the Company’s                Definitive Proxy Statement dated April 27, 2001). |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.5 |   | Employment                Agreement dated December 2, 2004 with R. Herbert Hampton (incorporated by reference                to Exhibit 1 to the Company’s Form 8-K dated December 3, 2004). |
|------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.6 |   | Agreement of                Plan of Merger dated January 11, 2008 by and between the Company and AngloGold                Ashanti Limited (incorporated by reference to the Company’s Form 8-K dated                January 15, 2008). |
|------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.7 |   | Form of                Shareholder Agreement between AngloGold Ashanti and principal shareholders of the                Company (incorporated by reference to the Company’s Form 8-K dated January                15, 2008). |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.8 |   | Engagement                Letter dated December 18, 2007, by and between the Company and PI Financial (USA)                Corp. (incorporate by reference to the Company’s Form 8-K dated January 15,                2008). |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 21.1. |   | Subsidiary of                the Company: Golden Cycle Philippines Inc. incorporated in the Republic of the                Philippines. |
|-------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

| 21.2. |   | Subsidiary of                the Company: Golden Cycle Gold Exploration Inc. incorporated in the state of                Nevada. |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------|

| 23.1 |   | Consent of                Ehrhardt Keefe Steiner & Hottman P.C. |
|------|--------|---------------------------------------------------------------------|

| 31.1 |   | Certification                of Chief Executive Officer and Principal Financial and Accounting Officer pursuant                to the Sarbanes-Oxley Act of 2002, Section 302 |
|------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 32.1 |   | Certification                of Chief Executive Officer and Principal Financial and Accounting Officer aaaa                pursuant to the Sarbanes-Oxley Act of 2002, Section 906. |
|------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

39

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**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, thereto duly authorized.

 

\s\ R. Herbert Hampton____________________

R. Herbert Hampton, President, Chief Executive Officer, and Treasurer        (Principal Executive Officer, Principal Financial Officer, and Principal Accounting        Officer)

 

Date:   March 18, 2008

 

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 in the        capacities and on the dates indicated.

 

| \s\ R. Herbert Hampton                        ___________________________________ | March 18, 2008 |
|-----------------------------------------------------------------------------------|----------------|

| R. Herbert Hampton, President, Chief | Date |
|--------------------------------------|------|

Executive Officer, and Treasurer

(Principal Executive Officer, Principal

Financial Officer, and Principal Accounting

Officer)

 

| \s\ James C. Ruder                        ___________________________________ | March 18, 2008 |
|-------------------------------------------------------------------------------|----------------|

| James C. Ruder, Director | Date |
|--------------------------|------|

 

 

| \s\ Robert T. Thul                        ___________________________________ | March 18, 2008 |
|-------------------------------------------------------------------------------|----------------|

| Robert T. Thul, Director | Date |
|--------------------------|------|

 

 

| \s\ Dr. Taki N. Anagnoston                        ___________________________________ | March 18, 2008 |
|--------------------------------------------------------------------------------------------|----------------|

| Dr. Taki N. Anagnoston, Director | Date |
|---------------------------------------|------|

 

 

| \s\ Donald L. Gustafson                        ___________________________________ | March 18, 2008 |
|------------------------------------------------------------------------------------|----------------|

| Donald L. Gustafson, Director | Date |
|-------------------------------|------|

 

 

 

40

 

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**REPORT        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

 

Board of        Directors and Stockholders

Golden        Cycle Gold Corporation

Colorado        Springs, Colorado

 

We have        audited the accompanying consolidated balance sheets of Golden Cycle Gold Corporation and        Subsidiaries (a Colorado Corporation) as of December 31, 2007 and 2006, and the related        consolidated statements of operations, changes in stockholders' equity and comprehensive        income (loss), and cash flows for the years ended December 31, 2007, 2006 and 2005. These        consolidated financial statements are the responsibility of the Company's management. Our        responsibility is to express an opinion on these consolidated financial statements based on        our audits.

 

We        conducted our audits in accordance with the 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 consolidated 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 circumstances, 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. An audit also includes examining, on a        test basis, evidence supporting the amounts and disclosures in the financial statements,        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 financial position of Golden Cycle Gold Corporation and Subsidiaries        as of December 31, 2007 and 2006, and the consolidated results of their operations and        their cash flows for the years ended December 31, 2007, 2006 and 2005 in conformity with        accounting principals generally accepted in the United States of America.

 

 

|   | **/s/ Ehrhardt Keefe Steiner & Hottman                        P.C.** |
|--------|--------------------------------------------------------------------------|

 

 

March        18, 2008

Denver,        Colorado

 

 

 

 

41

 

----

 

| **GOLDEN CYCLE GOLD CORPORATION**

**AND SUBSIDIARIES**

                         

Consolidated Balance Sheets                                                                  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  

                                                                                                                                                                         |
|                                                                                                                                                                                  |   | December 31, |   | December 31, |
| **Assets**                                                                                                                                                                            |   | **2007** |   | **2006** |
| Current assets:                                                                                                                                                                       |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                             | $ | 25,617 | $ | 53,142 |
| Short-term investments (note 2)                                                                                                                                                       |   | 658,514 |   | 677,944 |
| Interest receivable and other current assets                                                                                                                                          |   | 48,677 |   | 19,168 |
| Prepaid insurance                                                                                                                                                                     |   | 21,597 |   | 25,203 |
| Total current assets                                                                                                                                                                  |   | 754,405 |   | 775,457 |
| Property and equipment, at cost:                                                                                                                                                      |   |   |   |   |
| Land                                                                                                                                                                                  |   | 2,025 |   | 2,025 |
| Mineral claims                                                                                                                                                                        |   | 8,657 |   | 20,657 |
| Furniture and fixtures                                                                                                                                                                |   | 9,354 |   | 9,354 |
| Machinery and equipment                                                                                                                                                               |   | 21,516 |   | 21,516 |
|                                                                                                                                                                                  |   | 41,552 |   | 53,552 |
| Less accumulated depreciation                                                                                                                                                         |   | (28,491) |   | (26,131) |
|                                                                                                                                                                                  |   | 13,061 |   | 27,421 |
| Total assets                                                                                                                                                                          | $ | 767,466 | $ | 802,878 |
|                                                                                                                                                                                  |   |   |   |   |
| **Liabilities and Shareholders’ Equity**                                                                                                                                        |   |   |   |   |
| Current liabilities:                                                                                                                                                                  |   |   |   |   |
| Accounts payable and accrued liabilities                                                                                                                                              | $ | 106,835 |   | 18,373 |
| Total current liabilities                                                                                                                                                             |   | 106,835 |   | 18,373 |
|                                                                                                                                                                                  |   |   |   |   |
| Commitments and contingencies (note 7)                                                                                                                                                |   |   |   |   |
| Shareholders’ equity (note 5):                                                                                                                                                  |   |   |   |   |
| Common stock, no par value. Authorized 100,000,000 shares;                        issued and outstanding 9,769,250 shares in 2007 and 9,744,250 shares in                        2006 |   | 7,544,429 |   | 7,499,429 |
| Additional paid-in capital                                                                                                                                                            |   | 3,189,799 |   | 2,728,273 |
| Accumulated deficit                                                                                                                                                                   |   | (10,000,086) |   | (9,411,686) |
| Accumulated other comprehensive loss                                                                                                                                                  |   | (73,511) |   | (31,511) |
| Total shareholders’ equity                                                                                                                                                      |   | 660,631 |   | 784,505 |
|                                                                                                                                                                                  |   |   |   |   |
| Total liabilities and shareholders' equity                                                                                                                                            | $ | 767,466 | $ | 802,878 |

 

See accompanying        notes to consolidated financial statements.

 

 

42

 

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| **GOLDEN CYCLE GOLD CORPORATION**

**AND SUBSIDIARIES**

 

Consolidated Statements of Operations

  |  |
|----------------------------------------------------------------------------------------------------------------|--|

|                                                                                                | For the Years Ended December 31, |
|-----------------------------------------------------------------------------------------------------|----------------------------------|
|                                                                                                |                             | **2007** |   | **2006** |   | **2005** |
| Revenue:                                                                                            |                             |   |   |   |   |   |
| Distributions from mining joint venture in excess of                        carrying value (note 3) | $                                | 250,000 | $ | 250,000 | $ | 250,000 |
| Expenses:                                                                                           |                             |   |   |   |   |   |
| General and administrative expense                                                                  |                             | 992,963 |   | 1,502,938 |   | 603,044 |
| Depreciation expense                                                                                |                             | 2,360 |   | 2,224 |   | 3,973 |
| Exploration expense                                                                                 |                             | 9,259 |   | 8,410 |   | 305,661 |
|                                                                                                |                             | 1,004,582 |   | 1,513,572 |   | 912,678 |
| Operating loss                                                                                      |                             | (754,582) |   | (1,263,572) |   | (662,678) |
| Other income:                                                                                       |                             |   |   |   |   |   |
| Interest and other income                                                                           |                             | 27,107 |   | 30,787 |   | 35,667 |
| Gold bullion mark to market                                                                         |                             | 62,575 |   | 35,650 |   | 24,986 |
| Gain on assets sold (net)                                                                           |                             | 76,500 |   | 100,000 |   | — |
|                                                                                                |                             | 166,182 |   | 166,437 |   | 60,653 |
| Net loss                                                                                            | $                                | (588,400) | $ | (1,097,135) | $ | (602,025) |
| Basic loss per share                                                                                | $                                | (0.06) | $ | (0.11) | $ | (0.06) |
| Diluted loss per share                                                                              | $                                | (0.06) | $ | (0.11) | $ | (0.06) |
|                                                                                                |                             |   |   |   |   |   |
| Basic weighted average shares outstanding                                                           |                             | 9,760,346 |   | 9,744,250 |   | 9,738,086 |
|                                                                                                |                             |   |   |   |   |   |
| Diluted weighted average shares outstanding                                                         |                             | 9,760,346 |   | 9,744,250 |   | 9,738,086 |

 

See accompanying        notes to consolidated financial statements.

 

 

43

 

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| **GOLDEN CYCLE GOLD CORPORATION**

**AND SUBSIDIARIES**

Consolidated Statements of Shareholders’ Equity and                        Comprehensive Income (Loss)

For the Years ended December 31, 2007, 2006, and                        2005

                          |  |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|

|                                    | **Common stock** |       | **Additional**

**paid-in**

**capital** |   | **Accumulated**

**deficit** |   | **Accumulated**

**other**

**comprehensive**

**loss–foreign**

**currency**

**translation**

**adjustment** |   | **Total** |
|-----------------------------------------|------------------|------------|------------------------------------------|--------|------------------------------|--------|----------------------------------------------------------------------------------------------------------------------|--------|-----------|
| **Shares**                              |             | **Amount** |
| Balance at December 31, 2004            | 9,669,250        | $          | 7,406,317                                | $      | 1,927,736                    | $      | (7,712,526)                                                                                                          | $      | (31,813)  | $ | 1,589,714 |
| Stock options exercised                 | 75,000           |       | 93,112                                   |   | —                      |   | —                                                                                                              |   | —   |   | 93,112 |
| Net loss                                | —          |       | —                                  |   | —                      |   | (602,025)                                                                                                            |   | —   |   | (602,025) |
| Foreign currency translation adjustment | —          |       | —                                  |   | —                      |   | —                                                                                                              |   | 302       |   | 302 |
| Comprehensive net loss                  |             |       |                                     |   |                         |   |                                                                                                                 |   |      |   | (601,723) |
| Balance at December 31, 2005            | 9,744,250        |       | 7,499,429                                |   | 1,927,736                    |   | (8,314,551)                                                                                                          |   | (31,511)  |   | 1,081,103 |
| Net loss                                | —          |       | —                                  |   | —                      |   | (1,097,135)                                                                                                          |   | —   |   | (1,097,135) |
| Non-cash stock-based compensation       | —          |       | —                                  |   | 791,597                      |   | —                                                                                                              |   | —   |   | 791,597 |
| Non-cash compensation liability accrual |             |       |                                     |   |                         |   |                                                                                                                 |   |      |   |   |
| Reclassified to contributed capital     | —          |       | —                                  |   | 8,940                        |   | —                                                                                                              |   | —   |   | 8,940 |
| Balance at December 31, 2006            | 9,744,250        |       | 7,499,429                                |   | 2,728,273                    |   | (9,411,686)                                                                                                          |   | (31,511)  |   | 784,505 |
| Stock options exercised                 | 25,000           |       | 45,000                                   |   | —                      |   | —                                                                                                              |   | —   |   | 45,000 |
| Non-cash stock-based compensation       | —          |       | —                                  |   | 461,526                      |   | —                                                                                                              |   | —   |   | 461,526 |
| Net loss                                | —          |       | —                                  |   | —                      |   | (588,400)                                                                                                            |   | —   |   | (588,400) |
| Other comprehensive loss                | —          |       | —                                  |   | —                      |   | —                                                                                                              |   | (42,000)  |   | (42,000) |
| Comprehensive net loss                  |             |       |                                     |   |                         |   |                                                                                                                 |   |      |   | (630,400) |
| Balance at December 31, 2007            | 9,769,250        | $          | 7,544,429                                | $      | 3,189,799                    | $      | (10,000,086)                                                                                                         | $      | (73,511)  | $ | 660,631 |
|                                    |             |       |                                     |   |                         |   |                                                                                                                 |   |      |

See accompanying        notes to consolidated financial statements.

 

44

 

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| **GOLDEN CYCLE GOLD CORPORATION**

**AND SUBSIDIARIES**

 

Consolidated Statement of Cash Flows |  |
|-------------------------------------------------------------------------------------------------------|--|

|                                                                                               |   | For the Years Ended December 31, |
|----------------------------------------------------------------------------------------------------|--------|----------------------------------|
|                                                                                               | 2007   |                             | 2006 |   | 2005 |
| Cash flows from operating activities:                                                              |   |                             |   |   |   |   |
| Net loss                                                                                           | $      | (588,400)                        | $ | (1,097,135) | $ | (602,025) |
| Adjustments to reconcile net loss to net cash used in                        operating activities: |   |                             |   |   |   |   |
| Depreciation expense                                                                               |   | 2,360                            |   | 2,224 |   | 3,973 |
| Gain on sale of Illipah                                                                            |   | (76,500)                         |   | — |   | — |
| Increase in market value of gold asset                                                             |   | (62,575)                         |   | (35,650) |   | (24,986) |
| Stock based compensation expense                                                                   |   | 461,526                          |   | 791,597 |   | — |
| Non-cash Compensation liability accrual reclassified to                        contributed capital |   | —                          |   | 8,940 |   | — |
| Write-down of investment in subsidiary                                                             |   | —                          |   | (2,964) |   | — |
| Decrease (increase) in interest receivable and other current                        assets         |   | 491                              |   | (3,415) |   | (2,229) |
| Decrease (increase) in prepaid insurance                                                           |   | 3,606                            |   | (376) |   | (447) |
| Increase (decrease) in accounts payable and accrued                        liabilities             |   | 88,462                           |   | (25,435) |   | (13,060) |
| Net cash used in operating activities                                                              |   | (171,030)                        |   | (362,214) |   | (638,774) |
|                                                                                               |   |                             |   |   |   |   |
| Cash flows from investing activities:                                                              |   |                             |   |   |   |   |
| Decrease in short-term investments, net                                                            |   | 98,505                           |   | 249,297 |   | 256,632 |
| Purchases of property and equipment, net                                                           |   | —                          |   | (1,110) |   | (1,103) |
| Net cash provided by investing activities                                                          |   | 98,505                           |   | 248,187 |   | 255,529 |
|                                                                                               |   |                             |   |   |   |   |
| Cash flows provided by financing activity:                                                         |   |                             |   |   |   |   |
| Proceeds on exercise of stock options                                                              |   | 45,000                           |   | — |   | 93,112 |
| Net cash provided by financing activities                                                          |   | 45,000                           |   | — |   | 93,112 |
|                                                                                               |   |                             |   |   |   |   |
| Effect of exchange rate changes on cash                                                            |   | —                          |   | — |   | 302 |
|                                                                                               |   |                             |   |   |   |   |
| Net decrease in cash and cash equivalents                                                          |   | (27,525)                         |   | (114,027) |   | (289,831) |
| Cash and cash equivalents, beginning of year                                                       |   | 53,142                           |   | 167,169 |   | 457,000 |
| Cash and cash equivalents, end of year                                                             | $      | 25,617                           | $ | 53,142 | $ | 167,169 |

 

See accompanying        notes to consolidated financial statements.

 

45

 

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**GOLDEN        CYCLE GOLD CORPORATION**

**AND        SUBSIDIARIES**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

| **(1)** | **Summary of Significant Accounting Policies** |
|---------|------------------------------------------------|

Golden Cycle Gold Corporation (the Company), a Colorado corporation,        acquires and explores mining properties in Colorado, Nevada, and the Republic of the        Philippines. The Company’s principal investment consists of its joint venture        participation in the Cripple Creek and Victor Gold Mining Company (the Joint Venture), a        precious metals mining company in the Cripple Creek Mining District of Teller County,        Colorado. In addition, during 1997 the Company established Golden Cycle Philippines,        Inc. (GCPI), a wholly owned subsidiary of the Company, in the Republic of the Philippines        in order to participate in potential mining opportunities. In January 2002, the Company        established Golden Cycle Gold Exploration, Inc. (GCGE), a wholly owned subsidiary, to        conduct exploration activities for the Company.

|   | ***(a)*** | ***Use of Estimates*** |
|--------|-----------|------------------------|

The preparation of financial statements in conformity with accounting        principles generally accepted in the United States of America requires management to make        various estimates and assumptions in determining the reported amounts of assets,        liabilities, revenues, and expenses for each period presented, and in the disclosure of        commitments and contingencies. Actual results could differ significantly from those        estimates. Changes in these estimates and assumptions will occur based on the passage of        time and the occurrence of future events.

|   | ***(b)*** | ***Principles of Consolidation*** |
|--------|-----------|-----------------------------------|

The consolidated financial statements include the accounts of the Company        and its wholly owned subsidiaries. All significant inter-company transactions and balances        have been eliminated in consolidation.

|   | ***(c)*** | ***Cash and Cash Equivalents*** |
|--------|-----------|---------------------------------|

The Company considers all highly liquid instruments purchased with an        original maturity of three months or less to be cash equivalent.

|   | ***(d)*** | ***Short-Term Investments*** |
|--------|-----------|------------------------------|

Short-term investments consist primarily of certificates of deposit.        Short-term investments also include 310 troy ounces of gold bullion purchased by the        Company in 2002. Interest revenue and the increase or decrease in the value of the gold        bullion is included in the consolidated statement of operations.

|   | ***(e)*** | ***Marketable Equity Securities*** |
|--------|-----------|------------------------------------|

The Company’s investments in marketable equity securities are        classified as available-for-sale and are carried at fair value, which is based upon quoted        prices of the securities owned. The cost of marketable equity securities sold is determined        by the specific identification method. Changes in market value are recorded in accumulated        other comprehensive income within stockholders’ equity, unless a decline in market        value is considered other than temporary, in which case the decline is recognized as a loss        in the consolidated statement of operations. The Company had marketable equity securities        with fair values of $16,500 and $0 respectively, and cost of $58,500 and $0, respectively,        at December 31, 2007 and December 31, 2006. Golden Cycle has accumulated other        comprehensive income for unrealized holding losses of $42,000 and $0 at December 31, 2007        and December 31, 2006, respectively, related to our marketable equity        securities.

         

46

----

|   | ***(f)*** | ***Investment in Mining Joint Venture*** |
|--------|-----------|------------------------------------------|

The Company accounts for its investment in the Joint Venture on the equity        method. In prior years, the Company’s share of Joint Venture losses exceeded the        remaining carrying value of the investment and, accordingly, the investment was reduced to        zero. Joint Venture distributions in excess of the investment carrying value are recorded        as income. The Company has not recorded its share of Joint Venture losses incurred        subsequent to the reduction of its investment balance to zero, as the Company has no        obligation to fund operating losses. To the extent the Joint Venture is profitable, the        Company records its share of equity income. However, the Company currently offsets the        Joint Venture equity income with an allowance account due to the uncertainty that the        actual receipt of cash distributions by the Company attributable to current year increases        in joint venture equity will occur given that those cash distributions are far in the        future due to the necessity of repaying the Joint Venture’s Initial Loans.

|   | ***(g)*** | ***Mineral Exploration and Development                        Costs*** |
|--------|-----------|------------------------------------------------------------------------|

Mineral exploration costs are expensed as incurred. Mineral property        development costs are capitalized and depleted based upon estimated proven and probable        recoverable reserves. The Company has no capitalized mineral property development costs at        December 31, 2007 or December 31, 2006.

The Company assesses the carrying value of its long-lived assets for        impairment whenever changes in facts or circumstances indicate that they may be impaired.        Potential impairment is estimated by comparing estimated future undiscounted cash flows        expected to be generated from such assets with their net book value. If net book value        exceeds estimated cash flows, the asset is written down to fair value. The Company has not        recorded impairment costs at December 31, 2007 or December 31, 2006.

|   | ***(h)*** | ***Property and Equipment*** |
|--------|-----------|------------------------------|

Office furniture, fixtures, and equipment are stated at cost and depreciated        using the straight-line method over estimated useful lives ranging from three to ten        years.

|   | ***(i)*** | ***Foreign Currency Translation*** |
|--------|-----------|------------------------------------|

The GCPI operations’ functional currency is the local currency and,        accordingly, the assets and liabilities of its Philippines operations are translated into        their United States dollar equivalent at rates of exchange prevailing at each balance sheet        date. Revenue and expenses are translated at average exchange rates prevailing during the        periods in which such items are recognized in operations.

Gains and losses arising from translation of the consolidated financial        statements of GCPI operations are included in accumulated other comprehensive income (loss)        in shareholders’ equity. Amounts in this account are recognized in the consolidated        statements of operations when the related net foreign investment is reduced. Gains and        losses on foreign currency transactions are included in the consolidated statements of        operations.

|   | ***(j)*** | ***Stock Options*** |
|--------|-----------|---------------------|

On June 5, 2007, the Company’s one active stock-based compensation        plan was completed and closed with the issue of 100,000 stock options to four directors.        Four of the Company’s directors were granted 25,000 stock options each on June 5,        2007 at the prevailing market price of $6.25 per share. One director exercised options for        25,000 shares of the Company’s stock May 10, 2007 for proceeds to the Company of        $45,000. There were no stock options exercised during the 2006 period. The Company accounts        for stock option grants in accordance with FASB Statement 123(R), Share-Based Payment.        Compensation costs related to share-based payments in the amount of $461,526

         

47

----

and $791,597 were recognized in the consolidated statements of operations        for the periods ended June 30, 2007 and 2006 respectively.

         

The Company adopted SFAS 123R using the modified prospective method. Under        this method, compensation cost recognized in the years ended December 31, 2007 and 2006        include: a) compensation cost for all stock-based payments granted prior to, but not yet        vested as of January 1, 2006, based on the grant-date fair value estimated in accordance        with the original provisions of SFAS 123, and b) compensation cost for all stock-based        payments granted subsequent to January 1, 2006, based on the grant-date fair value        estimated in accordance with the provisions of SFAS 123R. The results for prior periods        have not been restated.

         

The adoption of SFAS 123R increased the Company’s net loss for the        twelve months ended December 31, 2007 and December 31, 2006 by $461,525 and $791,597        respectively. This expense increased the basic and diluted loss per share by $0.05 for the        twelve months ended December 31, 2007 and $0.08 for the twelve months ended December 31,        2006. The Company did not recognize a tax benefit from stock-based compensation expense        because the Company considers it is more likely than not that the related deferred tax        assets, which have been reduced by a full valuation allowance, will not be        realized.

         

The following illustrates the effect on net income and earnings per share if        the fair value based method had been applied to the prior comparable period.

|                                                                                                                                              |   | Twelve Months EndedDecember 31, |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|
|                                                                                                                                              |   | 2005                            |
|                                                                                                                                              |   |                            |
| Reported net loss                                                                                                                                 | $      | (602,025)                       |
| Stock-based employee compensation under the fair value based                    method prior to adoption of SFAS 123R, net of related tax effects |   | (244,360)                       |
|                                                                                                                                              |   |                            |
| Pro forma net loss                                                                                                                                | $      | (846,385)                       |
|                                                                                                                                              |   |                            |
| Loss                    per share:                                                                                                                |   |                            |
| Basic – as                    reported                                                                                                      | $      | (0.06)                          |
| Basic – pro                    forma                                                                                                        | $      | (0.09)                          |
| Diluted – as                    reported                                                                                                    | $      | (0.06)                          |
| Diluted – pro                    forma                                                                                                      | $      | (0.09)                          |

 

The Company recognized compensation expense of $461,525 and $791,597 for the        twelve months ended December 31, 2007 and December 31, 2006 respectively for employee stock        options that prior to January 1, 2006 would not have been recognized under APB 25. The        following summarizes the activity of the Company’s stock options for the twelve        months ended December 31, 2007:

 

48

----

|                             |   |     |   |     |   | Weighted    |   |      |
|----------------------------------|--------|----------|--------|----------|--------|-------------|--------|-----------|
|                             |   |     |   | Weighted |   | Average     |   |      |
|                             |   |     |   | Average  |   | Remaining   |   | Aggregate |
|                             |   |     |   | Exercise |   | Contractual |   | Intrinsic |
|                             |   | Shares   |   | Price    |   | Term        |   | Value (1) |
| Number of shares under option:   |   |     |   |     |   |        |   |      |
| Outstanding at January 1, 2006   |   | 510,000  | $      | 3.69     |   |        |   |      |
| Granted                          |   | 100,000  |   | 6.25     |   |        |   |      |
| Exercised                        |   | (25,000) |   | 1.80     |   |        |   |      |
| Canceled or expired              |   | -        |   | -        |   |        |   |      |
| Outstanding at December 31, 2007 |   | 635,000  | $      | 4.55     |   | 6.65        | $      | 3,129,750 |
| Exercisable at December 31, 2007 |   | 585,000  | $      | 4.55     |   | 6.65        | $      | 3,129,750 |

|   | (1) | The intrinsic value of a stock option is the amount by which                        the current market value of the underlying stock exceeds the exercise price                        of the option. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

As of December 31, 2007, there are no unvested stock options outstanding. As        of December 31, 2007, there was no unrecognized compensation expense related to unvested        stock options.

         

The fair value of each option grant was estimated on the date of grant using        the Black-Scholes option-pricing model with the following weighted average assumptions used        for options granted:

|                    |   | Dividend

yield |   | Expected

volatility |   | Risk-free

interest

rate |   | Expected

life (in

years) |   | Weighted-

average

fair value

of option |
|-------------------------|--------|-----------------|--------|----------------------|--------|---------------------------|--------|----------------------------|--------|-------------------------------------------|
|                    |   |            |   |                 |   |
|                    |   |            |   |                 |   |
|                    |   |            |   |                 |   |
|                    |   |            |   |                 |   |                      |   |                       |   |                                      |
| Options granted in 2005 |   | 0%              |   | 70%                  |   | 4.05%                     |   | 10                         |   | $1.95                                     |
| Options granted in 2006 |   | 0%              |   | 61%                  |   | 5.03%                     |   | 10                         |   | $6.33                                     |
| Options granted in 2007 |   | 0%              |   | 61%                  |   | 4.75%                     |   | 10                         |   | $4.62                                     |

|   | ***(k)*** | ***Income Taxes*** |
|--------|-----------|--------------------|

The Company utilizes the asset and liability method of accounting for income        taxes. Under the asset and liability method, deferred tax assets and liabilities are        recognized for the future tax consequences attributable to differences between the        financial statement carrying amounts and the tax basis of existing assets and liabilities        using enacted tax rates expected to apply in the years in which such temporary differences        are expected to be recovered or settled. Changes in tax rates are recognized in the period        of the enactment date. A valuation allowance is recognized unless tax assets are more        likely than not to be realized. Golden Cycle adopted FIN 48 on January 1, 2007 and it has        not had an impact on its financial position, results of operations or cash flows. For more        information see Notes to the Financial Statements, note 6, “Recently Issued Financial        Accounting Standards”.

|   | ***(l)*** | ***Comprehensive Income*** |
|--------|-----------|----------------------------|

In 1998, the Company adopted SFAS No. 130,*Reporting Comprehensive Income*. SFAS No. 130        requires that all components of comprehensive income (loss), including net income (loss),        be reported in the financial statements in the period they are recognized. Comprehensive        income (loss) is defined as the change in equity during a period from transactions and        other events and circumstances from non-owner sources. Net income

         

49

 

----

(loss) and other comprehensive income (loss), including foreign currency        translation adjustments, shall be reported, net of their related tax effect, to arrive at        comprehensive income (loss). We have recorded a ($42,000) decrease in the fair market value        of Tornado common stock and disclosed comprehensive income (loss) in our consolidated        financial statements at December 31, 2007.

|   | ***(m)*** | ***Revenue Recognition*** |
|--------|-----------|---------------------------|

The Company recognizes revenue as Minimum Annual Distributions from the        Joint Venture are received as all services necessary for revenue recognition have been        previously provided to the Joint Venture by the Company. The Joint Venture Agreement, as        amended, provides for the Company to receive a minimum annual distribution of $250,000        during the Initial Phase (see Note 3). Beginning in 1994, such Minimum Annual Distributions        are recoupable against the Company’s future share of Net Proceeds, if any. Whether        future gold prices and the results of the Joint Venture’s operations will reach and        maintain a level necessary to repay the Initial Loans (see Note 3), complete the Initial        Phase, and thereafter generate net income from which Minimum Annual Distributions can be        recouped, cannot be assured due to uncertainties inherent within any mining operation.        Based on the amount of Initial Loans payable to the Manager and the uncertainty of future        operating revenues, there is no assurance that the Company will receive more than the        Minimum Annual Distribution from the Joint Venture in the foreseeable future.

|   | ***(n)*** | ***Per Share Information*** |
|--------|-----------|-----------------------------|

Basic earnings (loss) per common share are computed as net income (loss)        divided by the weighted average number of common shares outstanding during the period.        Diluted earnings (loss) per common share are computed as net income (loss) divided by the        weighted average number of common shares and potential common shares, using the treasury        stock method, outstanding during the period.

| **(2)** | **Short-Term Investments** |
|---------|----------------------------|

The Company held certificates of deposit of approximately $285,000 and        $380,000 at December 31, 2007 and 2006, respectively. All certificates of deposit held        at December 31, 2007 mature within one year. Short-term investments also include 310        troy ounces of gold bullion purchased by the Company in 2002 at a cost of $102,859 and is        carried at market value of $258,340 at December 31, 2007. The Company has reflected        unrealized gains of $62,575, $35,650, and $24,986 for the years ended December 31, 2007,        2006 and 2005, respectively, in the consolidated statement of operations.

| **(3)** | **Investment in Mining Joint Venture** |
|---------|----------------------------------------|

The Company owns an interest in the Joint Venture with AngloGold Ashanti        (Colorado) Corp. (AngloGold). AngloGold manages the Joint Venture. The Joint Venture        conducts exploration, development, and mining of certain properties in the Cripple Creek        Mining District, Teller County, Colorado. The Joint Venture owns or controls surface and/or        mineral rights in the Cripple Creek Mining District, certain portions of which are being        actively explored and developed.

The Joint Venture Agreement, as amended, generally requires AngloGold to        finance operations and capital expenditures of the Joint Venture. The Joint Venture is        currently operating in an Initial Phase. The Joint Venture Agreement defines an Initial        Phase that will end when (i) the Initial Loans (defined below) have been repaid (ii) a cash        reserve has been established to fund accrued reclamation and severance tax obligations,        plus an amount approximating nine months of estimated operating costs, plus an amount        approximating twelve months of estimated capital costs, and (iii) Net Proceeds (defined in        the Joint Venture Agreement generally as gross revenues less costs) in the amount of $58        million have been distributed as follows: 80% to

         

50

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AngloGold and 20% to the Company. After the Initial Phase, the Joint Venture        will distribute metal in kind in the proportion of 67% to AngloGold and 33% to the Company.        In addition, the Company will generally be entitled to receive, in each year during the        Initial Phase or until the mining of ore by the Joint Venture ceases due to the exhaustion        of economically recoverable reserves, whichever occurs first, an annual minimum        distribution of $250,000 (a "Minimum Annual Distribution"). The first three Minimum Annual        Distributions in 1991, 1992 and 1993 were not deemed to be a distribution of Net Proceeds        to the Company and were not applied against the Company's share of any Net Proceeds. The        Minimum Annual Distributions received on January 15, 1994 and thereafter constitute an        advance on Net Proceeds and will be recouped against future shares of Net Proceeds to the        Company. As of December 31, 2007, Initial Loans were approximately $310.8 million        and no Net Proceeds have been distributed.

Whether future gold prices and the results of the Joint Venture’s        operations will reach and maintain a level necessary to repay the Initial Loans, complete        the Initial Phase, and thereafter generate net income cannot be assured due to        uncertainties inherent within any mining operation. Based on the amount of Initial Loans        payable to the manager and the uncertainty of future operating revenues, there is no        assurance that the Company will receive more than the Minimum Annual Distribution from the        Joint Venture in the foreseeable future.

The Company’s share of the Joint Venture net income, which has not        been recorded in its consolidated financial statements, is approximately $11.8 million,        $7.7 million and $1.9 million in 2007, 2006 and 2005, respectively. The Company’s        accumulated unrecorded losses from the Joint Venture were $7.9 million as of December 31,        2006. As such, as of December 31, 2007, the Company’s accumulated unrecorded losses        from the Joint Venture were eliminated and the Company recorded Joint Venture equity of        $3.9 million. As of December 31, 2007 the receipt of cash distributions from the Joint        Venture is highly uncertain as the Joint Venture’s Initial Loans totaling        $310,823,000 have not been repaid nor is it anticipated they will be repaid in the        foreseeable future based on anticipated future cash flows from the Joint Venture’s        operations.

         

As a result, the Company has accounted for this uncertainty by creating a        100% valuation allowance against the Joint Venture equity interest of $3.9 million. It is        anticipated by management that this valuation allowance against the Joint Venture equity        will remain until it is determined by management that the collectibility of the investment        in the form of future cash distributions becomes probable.

 

51

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The condensed balance sheets of the Joint Venture as of December 31,        2007 and 2006 are summarized as follows:

         

|                                                                       | **Assets**                                    |    | 2007      |           | 2006      |
|----------------------------------------------------------------------------|-----------------------------------------------|---------|-----------|----------------|-----------|
|                                                                       |                                          |    |      | (In thousands) |      |
| Current assets:                                                            |                                          |    |      |           |
|                                                                       | Cash and cash equivalents                     | $       | 1         | $              | 1         |
|                                                                       | Inventory                                     |    | 46,360    |           | 42,615    |
|                                                                       | Other current assets                          |    | -         |           | 1,037     |
|                                                                       | Prepaid expenses                              |    | 766       |           | -         |
| Total current assets                                                       |                                          | 47,127  |      | 43,653         |
|                                                                       |                                          |    |      |           |      |
| Property, plant, and equipment                                             |                                          |    |      |           |
|                                                                       | Land and mineral properties                   |    | 19,085    |           | 27,768    |
|                                                                       | Mine development not currently being depleted |    | 9,854     |           | -         |
|                                                                       | Structures and equipment                      |    | 461,469   |           | 438,378   |
|                                                                       | Construction - work-in-progress               |    | 595       |           | 2,112     |
|                                                                       |                                          |    | 491,003   |           | 468,258   |
|                                                                       | Accumulated depreciation, depletion,          |    |      |           |      |
|                                                                       | and amortization                              |    | (319,676) |           | (292,151) |
| Property, plant, and equipment, net                                        |                                          | 171,327 |      | 176,107        |
| Inventories                                                                |                                          | 187,986 |      | 148,761        |
| Total assets                                                               | $                                             | 406,440 | $         | 368,521        |
|                                                                       |                                          |    |      |           |      |
|                                                                       | **Liabilities**                               |    |      |           |      |
|                                                                       |                                          |    |      |           |      |
| Current liabilities                                                        |                                          |    |      |           |
|                                                                       | Accounts payable                              | $       | 9,951     | $              | 9,060     |
|                                                                       | Accrued liabilities                           |    | 3,841     |           | 3,494     |
|                                                                       | Current portion of capital lease obligations  |    | 2,670     |           | 2,734     |
| Total current liabilities                                                  |                                          | 16,462  |      | 15,288         |
|                                                                       |                                          |    |      |           |      |
| Loans payable to AngloGold Ashanti (Colorado)                        Corp. |                                          | 310,823 |      | 333,843        |
|                                                                       |                                          |    |      |           |      |
| Capital lease obligations                                                  |                                          | 2,498   |      | 5,168          |
|                                                                       |                                          |    |      |           |      |
| Asset retirement obligation                                                |                                          | 29,681  |      | 24,029         |
| Other long-term liabilities                                                |                                          | 8       |      | 1,867          |
| Venturers' equity:                                                         |                                          |    |      |           |
|                                                                       | Venturers' investments                        |    | 60,062    |           | 60,062    |
|                                                                       | Accumulated deficit                           |    | (13,094)  |           | (71,736)  |
| Total venturers' equity (deficit)                                          |                                          | 46,968  |      | (11,674)       |
| Total liabilities and venturers' equity                                    | $                                             | 406,440 | $         | 368,521        |

 

         

52

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The condensed statements of operations of the Joint Venture for each of the        years in the three-year period ended December 31, 2007 are summarized as        follows:

|                                                            |   | **2007**       |   | **2006** |   | **2005** |
|-----------------------------------------------------------------|--------|----------------|--------|----------|--------|----------|
|                                                            |   | (In thousands) |
|                                                            |   |           |   |     |   |     |
| Revenue                                                         | $      | 194,848        | $      | 172,827  | $      | 145,347  |
| Operating expenses                                              |   |           |   |     |   |     |
|   Production                        costs                  |   | 75,805         |   | 70,437   |   | 75,662   |
|   Depreciation, depletion, amortization,                   |   |           |   |     |   |     |
|      and                        reclamation |   | 25,418         |   | 26,454   |   | 30,151   |
|   Accretion expense                                        |   | 1,769          |   | 1,398    |   | 1,113    |
|                                                            |   | 102,992        |   | 98,289   |   | 106,926  |
| Mineral exploration                        expense              |   | -              |   | -        |   | 17       |
| Total operating costs                                           |   | 102,992        |   | 98,289   |   | 106,943  |
|                                                            |   |           |   |     |   |     |
| Income from operations                                          |   | 91,856         |   | 74,538   |   | 38,404   |
| Other Expenses:                                                 |   |           |   |     |   |     |
|   Interest expense                                         |   | (32,757)       |   | (34,408) |   | (29,243) |
|   Other income (expense)                                   |   | (207)          |   | (1,738)  |   | 299      |
|                                                            |   |           |   |     |   |     |
| Net                        income                               | $      | 58,892         | $      | 38,392   | $      | 9,460    |

         

| **(4)** | **Income Taxes** |
|---------|------------------|

The tax effects of temporary differences that give rise to significant        portions of the deferred tax assets at December 31, 2007 and 2006 are presented        below:

|                    |                             |                      |        |      | 2007      |        |     | 2006      |
|-------------------------|----------------------------------|---------------------------|-------------|-----------|-----------|-------------|----------|-----------|
| Deferred tax assets:    |                             |                      |        |      |      |        |
|                    | Net operating loss carryforwards |                      | $           | 1,113,000 |      |        | 967,000  |
|                    | Exploration expenditures         |                      |        | 11,000    |      |        | 145,000  |
|                    | FAS 123R non-qualified           |                      |        |      |      |        |     |
|                    | stock options                    |                      |        | 464,000   |      |        | 293,000  |
|                    | Other                            |                      |        | -         |      |        | 1,000    |
|                    |                             | Total deferred tax assets |        |      | 1,588,000 |        |     | 1,406,000 |
|                    |                             |                      |        |      |      |        |     |      |
| Deferred tax liability: |                             |                      |        |      |      |        |
|                    | Gold bullion mark to market      |                      |        | (96,000)  |      |        | (73,000) |
|                    | Tornado Stock- Mark to Market    |                      |        | 37,000    |      |        | -        |
|                    |                             | Total deferred tax assets |        |      | 1,529,000 |        |     | 1,333,000 |
|                    |                             |                      |        |      |      |        |     |      |
| Valuation allowance     |                             |                      | (1,529,000) |      |      | (1,333,000) |
|                    |                             | Net deferred tax assets   |        | $         | -         |        |     | -         |

         

         

53

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A reconciliation of the statutory federal income tax rate to the effective        tax rate follows:

|               |            |                |         | 2007   |   | 2006   |
|--------------------|-----------------|---------------------|--------------|--------|--------|--------|
| Statutory federal  |            |                |         |
|               | income tax rate | 34.00%              |         | 34.00% |
|               | Effect of:      |                |         |   |   |
|               |            | State and local     |         |   |   |
|               |            |                | income taxes | 3.05%  |   | 3.05%  |
|               |            | Other - net         | 0.21%        |   | 0.10%  |
|               |            | Change in valuation |         |   |   |
|               |            |                | allowance    | 36.84% |   | 36.95% |
| Effective tax rate | 0.00%           |                | 0.00%        |
|                    |                 |                     |              |        |        |        |  |

At December 31, 2007, the Company has net operating loss carryforwards        for income tax purposes of approximately $3,003,379 which expire beginning in 2008 through        2027.

The Company has not recorded an income tax benefit in 2007 or 2006 as it        does not believe it is more likely than not that the benefit of the deferred tax assets        will be realized in the future.

|   | **(5)** | **Common Stock Options** |
|--------|---------|--------------------------|

During 1992, the Company’s Board of Directors adopted a        Directors’ Stock Option Plan (the Directors’ Plan) and a 1992 Stock Option Plan        (the 1992 Plan). All options available under the Directors’ Plan were granted prior        to December 31, 1994. During 1997, shareholders approved the 1997 Officers’ and        Directors’ Stock Option Plan, and during 2002, shareholders approved the 2002 Stock        Option Plan pursuant to which 1,000,000 and 625,000 shares, respectively, of the        Corporation’s common stock were reserved for issuance pursuant to options to be        granted. The 1992 Plan provided for the grant of options on a discretionary basis to        certain employees and consultants. Under each plan, the exercise price cannot be less than        the fair market value of the common stock on the date of the grant. The expiration of the        options is ten years from the date of the grant.

During 2007, the Company granted 100,000 options to directors of the        Corporation, and during 2006 and 2005 the Company granted 125,000 options each year to        directors of the Corporation under the above plans.

Changes in stock options for each of the years in the three-year period        ended December 31, 2007 are as follows:

 

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|                           |              |      |    | Shares   |        | Option price

per share |   | Weighted

average

exercise price |
|--------------------------------|-------------------|-----------|---------|----------|-------------|-------------------------|--------|-----------------------------------|
|                           |              |      |    |     |        |
|                           |              |      |    |     |        |
|                           |              |      |    |     |        |                    |   |                              |
| Outstanding and exercisable at |              |      |    |     |        |                    |
|                           | December 31, 2004 |      | 410,000 | $        | 1.04 - 2.60 |                    | $1.92  |
|                           |              | Granted   |    | 125,000  |        | 2.50                    |   | 2.50                              |
|                           |              | Exercised |    | (75,000) |        | 1.04 - 1.50             |   | 1.24                              |
|                           |              | Expired   |    | (75,000) |        | 2.33 - 2.60             |   | 2.51                              |
|                           |              |      |    |     |        |                    |   |                              |
| Outstanding and exercisable at |              |      |    |     |        |                    |
|                           | December 31, 2005 |      | 385,000 | $        | 1.04 - 2.60 |                    | 2.13   |
|                           |              | Granted   |    | 125,000  |        | 8.50                    |   | 8.50                              |
|                           |              |      |    |     |        |                    |   |                              |
| Outstanding and exercisable at |              |      |    |     |        |                    |
|                           | December 31, 2006 |      | 510,000 | $        | 1.04 - 8.50 |                    | 3.69   |
|                           |              | Granted   |    | 100,000  |        | 6.25                    |   | 6.25                              |
|                           |              | Exercised |    | (25,000) |        | 1.80                    |   | 1.80                              |
|                           |              |      |    |     |        |                    |   |                              |
| Outstanding and exercisable at |              |      |    |     |        |                    |
|                           | December 31, 2007 |      | 585,000 | $        | 1.04 - 8.50 |                    | $4.55  |

 

The weighted average remaining term of options outstanding was 6.65 and 6.81        years at December 31, 2007 and 2006, respectively.

| **(6)** | **Recently Issued Financial Accounting                        Standards:** |
|---------|----------------------------------------------------------------------------|

In December 2007, the FASB issued SFAS No. 141 (revised 2007),        “Business Combinations” (“SFAS No. 141R”), which replaces FASB        Statement No. 141. SFAS No. 141R establishes principles and requirements for how an        acquirer recognizes and measures in its financial statements the identifiable assets        acquired, the liabilities assumed, any non controlling interest in the acquiree and the        goodwill acquired, and establishes that acquisition costs will be generally expensed as        incurred. This statement also establishes disclosure requirements which will enable users        to evaluate the nature and financial effects of the business combination. SFAS No. 141R is        effective as of the beginning of an entity’s fiscal year that begins after December        15, 2008, which will be the Company’s year beginning January 1, 2009. The Company is        currently evaluating the potential impact, if any, of the adoption of SFAS No. 141R on the        Company’s financial statements.

         

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling        Interests in Consolidated Financial Statement-amendments of ARB No. 51” (“SFAS        No. 160”). SFAS No. 160 states that accounting and reporting for minority interests        will be recharacterized as noncontrolling interests and classified as a component of        equity. The SFAS No. 160 also establishes reporting requirements that provide sufficient        disclosures that clearly identify and distinguish between the interests of the parent and        the interests of the noncontrolling owners. This statement is effective as of the beginning        of an entity’s first fiscal year beginning after December 15, 2008, which corresponds        to the Company’s year beginning January 1, 2009. The Company is currently evaluating        the potential impact, if any, of the adoption of SFAS No. 160 on the Company’s        financial statements.

         

In February 2007, the Financial Accounting Standards Board        (“FASB”) issued Statement of Financial Accounting Standard No. 159, “The        Fair Value Option For Financial Assets and Financial Liabilities” (SFAS No. 159).        SFAS No. 159 permits entities to choose to measure many financial instruments and certain        other items at fair value. The provisions of SFAS No. 159 are effective for Golden Cycle as        of January 1, 2008. Golden Cycle has not yet determined

         

55

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the impact of adopting SFAS No. 159 on its financial position, results of        operations or cash flows.

         

In September 2006, the FASB issued Statement of Financial Accounting        Standard No. 157 “Fair Value Measurements” (SFAS No. 157). SFAS No. 157        clarifies that fair value is the price that would be received to sell an asset or paid to        transfer a liability in an orderly transaction between market participants at the        measurement date in the most advantageous market for the asset or liability. SFAS No. 157        clarifies that the transaction to sell an asset or transfer a liability is a hypothetical        transaction at a measurement date, considered from the perspective of a market participant        that holds the asset or owes the liability. SFAS No. 157 states that fair value is a        market-based measurement, not an entity specific measurement and that market assumptions        should be based upon independent observations of the reporting entity over a reporting        entity’s observations about market participant assumptions. SFAS No. 157 states that        market participant assumptions should include risk, restrictions on asset sales,        non-performance risk, but that quoted market prices for financial instruments should not be        adjusted for the size of a position relative to trading volume (block discounts). SFAS No.        157 expands disclosures about, among other things, the use of fair value to measure assets        and liabilities in interim and annual periods, including the use of unobservable inputs,        and the effect of fair value on earnings and changes in net assets. SFAS No. 157 is        effective for financial statements issued for fiscal years beginning after November 15,        2007, and interim periods within those fiscal years. Golden Cycle adopted SFAS No. 157 on        January 1, 2007 and it has not had an impact on its financial position, results of        operations or cash flows.

         

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting        for uncertainty in Income Taxes,” (“FIN 48”) an interpretation of FASB        Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a        recognition threshold and measurement attribute for the financial statement recognition and        measurement of a tax position taken or expected to be taken in a tax return. The        interpretation requires that the entities recognize in the financial statements, the impact        of a tax position, if that position is more likely than not of being sustained on audit,        based on the technical merits of the position. FIN 48 also provides guidance on        de-recognition, classification, interest and penalties, accounting in interim periods and        disclosure. The provisions of FIN 48 are effective beginning January 1, 2007 with the        cumulative effect of the change in accounting principle recorded as an adjustment to the        opening balance of retained earnings. Golden Cycle adopted FIN 48 on January 1, 2007 and it        has not had an impact on its financial position, results of operations or cash        flows.

         

In February 2006, the FASB issued SFAS No. 155, “Accounting for        Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140”        (SFAS No. 155”). SFAS No. 155 resolves issues addressed in SFAS No. 133        Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interest in        Securitized Financial Assets.” SFAS No. 155 became effective January 1, 2007 and is        applicable based upon the nature and extent of any new derivatives entered into after that        date. Golden Cycle adopted SFAS No. 155 on January 1, 2007 and it has not had an impact on        its financial position, results of operations or cash flows.

         

| **(7)** | **Commitments and Contingencies** |
|---------|-----------------------------------|

|   | ***(a)*** | ***Litigation*** |
|--------|-----------|------------------|

The Company, owner of a 33% interest in Cripple Creek & Victor Gold        Company ("CC&V"), and the owner of the other 67% interest therein, AngloGold (Colorado)        Corp., now AngloGold Ashanti (Colorado) Corp., and its direct parent AngloGold North        America Inc., now AngloGold Ashanti North America Inc., were sued together with CC&V,        the owner and operator of the Cresson Project, by the Sierra Club and Mineral Policy Center        in 2001. The Plaintiffs asserted numerous violations of the U.S. Clean Water Act which went        to trial in the United States District Court for the District of Colorado early in 2006,        resulting in a judgment in favor of all Defendants and against all Plaintiffs on all        claims, as well as an award of costs and attorneys

         

56

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fees incurred after the point in time at which the Plaintiffs knew or should        have known that their "dogged pursuit of factually unsupported claims" was        unreasonable.

The Plaintiffs appealed both the judgment and the fee award to the United        States Court of Appeals in Denver. Briefs were timely filed by the Plaintiffs in that        court, but the parties reached an agreement to settle all disputes before the Defendants        commenced briefing, and the cases have been dismissed. The settlement preserved the        Defendants' complete success on all of the alleged violations of the Clean Water Act, and        left each of the parties responsible for their own fees. So long as judicial review of the        judgment and the monetary award remained possible, the Company did not record a receivable        for any of its own fees, then approximately $130,000. The settlement eliminated the        possibility of recovering any of the Company’s fees or costs.

|   | ***(b)*** | ***Illipah sale contingency*** |
|--------|-----------|--------------------------------|

Should Tornado Gold International Inc. (“Tornado Gold”) fail to        complete the conditions of its purchase of the Illipah property, Golden Cycle may be        entitled to full possession of the property and later market the property again. Tornado        Gold is required to provide Golden Cycle a report of the completion of its first        year’s (ending August 23, 2007) exploration program totaling more than $250,000 in        exploration and development expenses. During the second twelve months of the contract which        concludes August 23, 2008, Tornado is responsible for the minimum annual royalty payment        and the Bureau of Land Management and County claim maintenance fees which it paid. Further,        Tornado is required to expend an additional $500,000 in exploration and developments        expenses on the Illipah property bringing the total required exploration and development        expenditures to a total of $750,000 during the first two years. Tornado has not yet        expended the required exploration funds in compliance with the agreement.

         

|   | **(8)** | **Subsequent Events** |
|--------|---------|-----------------------|

         

On January 11, 2008, the Company entered into an Agreement and Plan of        Merger, dated January 11, 2008 (the “Agreement and Plan of Merger”), with        AngloGold Ashanti Limited, a corporation organized under the laws of the Republic of South        Africa, AngloGold Ashanti USA Incorporated, a Delaware corporation, and GCGC LLC, a        Colorado limited liability company and a direct wholly-owned subsidiary of AngloGold        Ashanti USA Incorporated. Under the terms of the Agreement and Plan of Merger, the Company        agreed to be acquired by AngloGold Ashanti through a transaction in which the        Company’s shareholders will receive consideration consisting of 0.29 American        Depositary Shares (“ADS”) of AngloGold Ashanti Limited for each issued and        outstanding share of the Company’s common stock, rounded up to the next whole ADS,        each whole ADS representing one ordinary share, par value 25 South African cents per share,        of AngloGold Ashanti Limited. The Agreement is subject to the approval of two-thirds of the        Company’s shareholders entitled to vote.

         

For a description of the terms and conditions of the Agreement and Plan of        Merger and the contemplated transaction, see the disclosure under Item 12 “Security        Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters        – Changes in Control.”

 

57

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**(9)** **Selected        quarterly financial data**

(unaudited)

|                        |   |           |   |            | 2007   |           |   |            |
|-----------------------------|--------|----------------|--------|-----------------|--------|----------------|--------|-----------------|
|                        |   | First

Quarter |   | Second

Quarter |   | Third

Quarter |   | Fourth

Quarter |
|                        |   |           |   |            |
| Distributions from mining   |   |           |   |            |   |           |   |            |
| joint venture in excess     |   |           |   |            |   |           |   |            |
| of carrying value (note 4)  | $      | 250,000        | $      | -               | $      | -              | $      | -               |
|                        |   |           |   |            |   |           |   |            |
| Operating income (loss)     |   | 130,877        |   | (605,471)       |   | (86,419)       |   | (193,569)       |
|                        |   |           |   |            |   |           |   |            |
| Other income                |   | 73,758         |   | 4,796           |   | 33,488         |   | 54,140          |
|                        |   |           |   |            |   |           |   |            |
| Net income (loss)           |   | 204,635        |   | (600,675)       |   | (52,931)       |   | (139,429)       |
| Net income (loss) per share |   | 0.02           |   | (0.06)          |   | (0.01)         |   | (0.01)          |
| Pro forma net income (loss) |   |           |   |            |   |           |   |            |
| per share                   |   | 0.02           |   | (0.06)          |   | (0.01)         |   | (0.01)          |
|                        |   |           |   |            |   |           |   |            |
|                        |   |           |   |            |   |           |   |            |
|                        |   |           |   |            | 2006   |           |   |            |
|                        |   | First

Quarter |   | Second

Quarter |   | Third

Quarter |   | Fourth

Quarter |
|                        |   |           |   |            |
| Distributions from mining   |   |           |   |            |   |           |   |            |
| joint venture in excess     |   |           |   |            |   |           |   |            |
| of carrying value (note 4)  | $      | 250,000        | $      | -               | $      | -              | $      | -               |
|                        |   |           |   |            |   |           |   |            |
| Operating income (loss)     |   | 40,243         |   | (1,071,681)     |   | (82,557)       |   | (149,577)       |
|                        |   |           |   |            |   |           |   |            |
| Net income (loss)           |   | 66,701         |   | (1,053,636)     |   | (77,874)       |   | (32,326)        |
| Net income (loss) per share |   | 0.01           |   | (0.11)          |   | (0.01)         |   | (0.00)          |
| Pro forma net income (loss) |   |           |   |            |   |           |   |            |
| per share                   |   | 0.01           |   | (0.11)          |   | (0.01)         |   | (0.00)          |
|                        |   |           |   |            |   |           |   |            |
|                        |   |           |   |            |   |           |   |            |
|                        |   |           |   |            | 2005   |           |   |            |
|                        |   | First

Quarter |   | Second

Quarter |   | Third

Quarter |   | Fourth

Quarter |
|                        |   |           |   |            |
| Distributions from mining   |   |           |   |            |   |           |   |            |
| joint venture in excess     |   |           |   |            |   |           |   |            |
| of carrying value (note 4)  | $      | 250,000        | $      | -               | $      | -              | $      | -               |
|                        |   |           |   |            |   |           |   |            |
| Operating income (loss)     |   | 138,885        |   | (164,566)       |   | (322,861)      |   | (314,136)       |
|                        |   |           |   |            |   |           |   |            |
| Net income (loss)           |   | 146,486        |   | (154,505)       |   | (313,041)      |   | (280,965)       |
| Net income (loss) per share |   | 0.02           |   | (0.02)          |   | (0.03)         |   | (0.03)          |
| Pro forma net income (loss) |   |           |   |            |   |           |   |            |
| per share                   |   | 0.02           |   | (0.04)          |   | (0.03)         |   | (0.03)          |

         

         

58

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