**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C.  20549**

 

**FORM 10-K/A**

**(AmendmentNo. 3 to Form 10-K)**

 

**(Mark One)**

**ý****    ****ANNUAL REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the fiscal year ended December 31,2004**

 

**OR**

 

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

**For the transition period from                              to                              .**

 

**Commission file number 0-11226**

 

**GOLDEN CYCLE GOLD CORPORATION**

**(Exactname of registrant as specified in its charter)**

 
| **Colorado**                                                    | ** ** | **84-0630963**                         |
|-----------------------------------------------------------------|------------|----------------------------------------|
| State or other  jurisdiction of  incorporation or organization) |       | (I.R.S. Employer    dentification No.) |
|                                                            |       |                                   |
| **Suite 201,  1515 South Tejon,  Colorado Springs, CO**    | ** ** | **80906**                              |
| (Address of principal  executive offices)                       |       | (Zip Code)                             |

 

Registrant’stelephone number, including area code:   **(719) 471-9013**

 

Securities registeredpursuant to Section 12 (g) of the Act:

 
| **(Title  of Each Class)**  | ** ** | **(Name of  Each Exchange on which registered)** |
|-----------------------------|------------|--------------------------------------------------|
| Common Stock, No  Par Value |       | Pacific Exchange                                 |

 

Securities RegisteredPursuant To Section 12 (b) of the Act:  **None**

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed by Section 13or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12months (or such shorter period that the Registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days.

ý   Yes                o  No

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K(§229.405 of this chapter) is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K.    ý

 

Indicate by check markwhether the Registrant is an accelerated filer (as defined in Rule 12b-2of the Act).

Yes o                  No ý

 

State the aggregatemarket value of the voting and non-voting common equity held by non-affiliatescomputed by reference to the price at which the common equity was last sold, orthe average bid and asked price of such common equity, as of the last businessday of the registrant’s most recently completed second fiscal quarter:$14,705,087

 

The number ofshares of the Registrant’s Common Stock outstanding as of March 28, 2005was 9,669,250.

 

 

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**EXPLANATORYNOTE**

 

This Amendment No. 3 to this Annual Report on Form 10-K/A(“Amendment 3”) is being filed in order to expand or revise certain disclosuresin the Company’s Form 10-K initially filed with the SEC on March 31,2005, as amended by Forms 10-K/A filed with the SEC on April 5, 2005 and April 29,2005 (the “Original Filing”).

 

Generally, no attempt has been made in this Amendment 3 tomodify or update other disclosures presented in the Original Filing, except asreferenced below.  This Amendment 3generally does not reflect events occurring after the filing of the Form 10-Kor modify or update those disclosures, including the exhibits to the Form 10-Kaffected by subsequent events. Information not related to the expanded or revised disclosures in theitems referenced below is unchanged and reflects the disclosures made at thetime of the Original Filing.  The followingitems have been amended:

 

      • Part I — Item 1 — Business

 

      • Part II — Item 2 — Properties

 

      • Part II — Item 9A — Controls and Procedures

 

Inaddition, Note 2 (Part (l) Revenue Recognition) to the Company’s Notes toConsolidated Financial Statements has also been amended.  Pursuant to the rules of the SEC, Item15 of Part IV has been amended to contain the consents of our independentregistered public accounting firm and currently dated certifications from ourchief executive officer and chief financial officer, as required by Sections302 and 906 of the Sarbanes-Oxley Act of 2002. The consents of the independentregistered public accounting firms and the certifications of our chiefexecutive officer and chief financial officer are attached to this Form 10-K/Aas Exhibits 23.5, 23.6, 31.6, 31.7, 32.6 and 32.7, respectively.

 

**PART I**

 

**ITEM 1. BUSINESS**

 

Golden Cycle GoldCorporation 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 “MiningProperties”) of the Golden Cycle Corporation, located in the Cripple CreekMining District of Colorado.  Unless thecontext otherwise requires, the terms “Registrant” and “Company” as well as “we”,“us” and “our”, mean Golden Cycle Gold Corporation.

 

The primary business ofthe Company has been its participation in the Cripple Creek & VictorGold Mining Company (“CC&V”), a joint venture (the “Joint Venture”) withAngloGold Ashanti (Colorado) Corp., formerly Pikes Peak Mining Company (“AngloGold”),a wholly-owned subsidiary of AngloGold Ashanti North America Inc., which, inturn, is a wholly owned 

 

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subsidiary of AngloGoldAshanti Ltd.  The Joint Venture engagesin gold mining activity in the Cripple Creek area of Colorado.

 

In addition to its JointVenture 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 agreementwith Benguet Corporation, a Philippine mining company, providing for theirjoint participation in the exploration, development and production of miningproperties in certain areas of the Philippines. All GCPI exploration work has been placed on a standby basis until aMineral Profits Sharing Agreement (“MPSA”) is awarded to the claim owner of theSagittarius Alpha Realty (“SAR”) claims. See “Golden Cycle Philippines, Inc.” for further informationregarding the proposed activities of GCPI in the Philippines.

 

During January 2002,the Company incorporated Golden Cycle Gold Exploration, Inc., awholly-owned subsidiary, to conduct exploration activities for theCompany.  As of this date the Company hasnot funded Golden Cycle Gold Exploration, Inc.

 

As of December 31,2004, the Company had 3 employees.

 

Description of MiningJoint Venture

 

The Company’s interest inthe Joint Venture was received in exchange for the Company’s rights to goldmining properties in the Cripple Creek Mining District of Colorado.  The rights and obligations of the parties arecovered by an Amended and Restated Joint Venture Agreement (the “Joint VentureAgreement”) dated and effective as of January 1, 1991, between AngloGoldand the Company.  The Joint Ventureengages in gold mining activity in the Cripple Creek area of Colorado and theCompany’s participation in the Joint Venture constitutes its primary businessactivity.  AngloGold serves as themanager (the “Manager”) of the Joint Venture. The Joint Venture’s principal mining operations are conducted at theCresson mine, where commercial production was commenced in the first half of1995.

 

The Joint VentureAgreement defines an Initial Phase that will end when (i) the InitialLoans (defined below) have been repaid and (ii) Net Proceeds (defined inthe Joint Venture Agreement generally as gross revenues less costs) in theamount of $58 million have been distributed as follows: 80% to AngloGold and20% to the Company.  After the Initial Phase,the Joint Venture will distribute metal in kind in the proportion of 67% toAngloGold and 33% to the Company.  Inaddition, the Company will generally be entitled to receive, in each yearduring the Initial Phase or until the mining of ore by the Joint Venture ceasesdue to the exhaustion of economically recoverable reserves, whichever occursfirst, an annual minimum distribution of $250,000 (a “Minimum AnnualDistribution”).  The first three MinimumAnnual Distributions in 1991, 1992 and 1993 were not deemed to be adistribution of Net Proceeds to the Company and were not applied against theCompany’s share of any Net Proceeds.  TheMinimum Annual Distributions received on January 15, 1994 and thereafterconstitute an advance on Net Proceeds and will be recouped against futureshares of Net Proceeds to the Company.

 

The Joint VentureAgreement provides that, during the period from January 1, 1991 until theend of the Initial Phase, all funds required for operations and minedevelopment by the Joint Venture will be loaned (the “Initial Loans”) to theJoint Venture by either AngloGold or, if such 

 

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loans are available at alower cost than from AngloGold, financial institutions.  Except for the Minimum Annual Distributions,the Initial Loans and interest thereon must be repaid prior to distributions ofNet Proceeds to the Joint Venturers.  Theaudited Joint Venture financial statements reported that as of December 31,2004, the Joint Venture had $365.7 million in Initial Loans payable toAngloGold.  After the Initial Phase, theJoint Venturers will contribute funds in proportion to their respectivedistributive shares.

 

The Joint Venturerecorded net income of $7.7 million for the year ended December 31, 2004compared to net losses of $0.5 million and $14.3 million for the years ended December 31,2003 and December 31, 2002, respectively. There is no assurance that the Joint Venture will be able to achieveprofitability in any subsequent period or to sustain profitability for anextended period.  The ability of theJoint Venture to sustain profitability is dependent upon a number of factorsbeyond the control of the Joint Venture, including without limitation, themarket price of gold, which is volatile and subject to speculative movement,and the extent of mineralization in the area controlled by the Joint Ventureand the efficiency of its mining operations.

 

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

 

The Joint Venturecompleted construction of the required infrastructure for the Cresson Mine andbegan mining operations in 1995, with the first Cresson Mine gold pouroccurring on February 14, 1995.  In1996, the Joint Venture completed its first full year of Cresson Mineoperations.  The development of the Eastand North Cresson mines began during the second quarter of 1999.  The Joint Venture began construction ofexpanded facilities during early 2002, completing the new truck shop, crushingfacility, expanded process facility, and expanded valley leach facility by September 2003.  The last step in the mine expansion, a $15.5million expansion of the valley fill leach facility, was completed during thefall of 2004.

 

2004 OperationalHighlights

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

 

Production

 

The 2004 Joint Venturegold production was 329,029 troy ounces (approximately 94% of budget) comparedto 283,886 troy ounces of gold (83% of budget) produced during 2003.  CC&V has corrected most of the leach padchemistry problems previously reported and is experiencing improved recoveries.  CC&V is monitoring and working to improveleach pad chemistry on a daily basis.

 

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| Cripple Creek &  Victor Gold Mining Company |
|------------------------------------------------------|
| Mine Production  for the years ended                 |
| December 31,  2004, 2003 and 2002               |

 
| ** ** | ** ** | **Millions of Ore** | ** ** | ** **     | ** ** | ** **        | ** ** |
|------------|------------|---------------------|------------|----------------|------------|-------------------|------------|
| **Year**   | ** ** | **tons mined**      | ** ** | **Ore grade**  | ** ** | **Gold produced** | ** ** |
| ** ** | ** ** | ** **          | ** ** | **(gold opt)** | ** ** | **(troy ounces)** | ** ** |
| 2004       |       | 20.3                |       | 0.024          |       | 329,029           |       |
| 2003       |       | 18.7                |       | 0.031          |       | 283,886           |       |
| 2002       |       | 14.5                |       | 0.038          |       | 224,988           |       |

 

CC&V appears to haveovercome its truck capacity problems, chiefly through improvedmaintenance.  CC&V mined 58.3 milliontons of material during the year (the expansion plan budgeted rate is 58million tons a year), including 20.3 million tons of ore and 38 million tons ofwaste.  CC&V also moved 1.3 milliontons of stockpiled ore to the crusher for a total of 59.6 million tons moved.

 

The new primary crusheroperated at plant capacity during the year, crushing 20.1 million tons duringthe year versus a budget of 20 million tons. Ore placed on the valley leach facility averaged 0.0245 troy ounces perton, containing an estimated 492,943 troy ounces of gold (an estimated 355,950recoverable ounces of gold).

 

Revenue and Costs

 

The Joint Venture soldapproximately 331,299 troy ounces of gold at an average price of $409.52 perounce producing total metal sale revenues of approximately $135.7 million.  The Joint Venture cash production costs for2004 were approximately $256 per troy ounce compared to $198.9 per troy ounceduring 2003 and a budget of $225.34 per troy ounce.  The main reason for the higher cost per ouncein 2004 compared to the budgeted cost per ounce was the reduced number ofounces produced (94% of budget) and increased variable costs such as dieselfuel.  The Joint Venture had totaloperating costs of $104.4 million, including depreciation, depletion andamortization (DD&A) of $30.7 million, and expensed exploration ofapproximately $1.4 million for the year, compared to $85.1 million, $25.8million and $2.8 million comparatively for the year ended 2003.  Interest expense on the Initial Loans wasapproximately $23.8 million ($22.4 million in the year 2003).  The Company did receive the Minimum AnnualDistribution of $250,000, which will be recouped from future shares of NetProceeds to the Company.

 

Ore Reserves andNon-reserve Mineralization

 

The Joint Venture isconducting continuing exploration and engineering feasibility work concerningfuture operations.  These activities willserve to direct future exploration drilling programs as well as futuredevelopment and project planning as part of its determination of the JointVenture reserves.  The main objective ofCC&V’s continuing exploration program for 2004 was to delineate theboundaries of two areas of mineralization in the Wild Horse Extension area andto increase the drill information available within areas which have previouslyindicated existing mineralization.  Thedecrease in current reserves is due to depletion, and was mitigated by theongoing exploration program and a decrease in the ore cutoff grade from 0.008to 0.007 troy ounce of gold per ton due primarily to improved gold prices.

 

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CC&V currentlycontrols over 85% of the patented claims within the district and 100% of theland within the year-end 2004 Ore Reserve Estimate.  All gold ore reserves and mineral resourcesare stated at 100% ownership basis although portions of the ore reserves aresubject to third party royalties which vary according to individual agreementswith the underlying property owner.

 

Each year CC&V modelsits 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 allowancesfor 2004 depletion.  In general, ninetypercent of CC&V’s ore reserves are drilled out on 150 foot spacings orless.  The ore reserves and mineralresources shown for 2004 were modeled using a $375 gold price and a 0.007 ounceper ton (opt) recoverable cutoff grade. A total of 252,654 feet of additional drilling was added (308 drillholes), and all geotechnical data remains as reported at year end 2003.  Resources remain restricted to a $425Lerchs-Grossmann shell envelope around the reserve pits.  The geostatistical modeling procedures usedby the Manager in computing the ore reserves have been reviewed by independentconsultants (Independent Mining Consultants, Inc., Mine Reserve Associates, Inc.,Mineral Resource Development Associates, Inc., and Mine DevelopmentAssociates, Inc.) over previous years, and conform to industrystandards.  The ore reserves are shown onthe table below:

 

Unaudited CC&VOre Reserve Estimate as of December 31, 2003*

Cripple Creek /Victor District

 
| ** **            | ** ** | ** **       | ** ** | **Gold**    | ** ** | **Contained** | ** ** | ** **    | ** ** | **Estimated**   | ** ** |
|-----------------------|------------|------------------|------------|-------------|------------|---------------|------------|---------------|------------|-----------------|------------|
| ** **            | ** ** | **Ore**          | ** ** | **Ounces**  | ** ** | **Gold**      | ** ** | **Estimated** | ** ** | **Recoverable** | ** ** |
| ** **            | ** ** | **Tons**         | ** ** | **Per Ton** | ** ** | **Ounces**    | ** ** | **Recovery**  | ** ** | **Ounces ****   | ** ** |
| ** **            | ** ** | **(000’S)** | ** ** | ** **  | ** ** | ** **    | ** ** | **(Percent)** | ** ** | ** **      | ** ** |
| Proven                |       | 59,433           |       | 0.037       |       | 2,175,855     |       | 65.02         | %          | 1,414,767       |       |
| Probable              |       | 71,330           |       | 0.025       |       | 1,804,783     |       | 62.04         | %          | 1,119,676       |       |
|                  |       |             |       |        |       |          |       |          |       |            |       |
| Total  Reserves, 2003 |       | 130,763          |       | 0.030       |       | 3,980,638     |       | 63.67         | %          | 2,534,443       |       |

 

Unaudited CC&VOre Reserve Estimate as of December 31, 2004*

Cripple Creek / Victor District

 
| ** **            | ** ** | ** **       | ** ** | **Gold**    | ** ** | **Contained** | ** ** | ** **    | ** ** | **Estimated**   | ** ** |
|-----------------------|------------|------------------|------------|-------------|------------|---------------|------------|---------------|------------|-----------------|------------|
| ** **            | ** ** | **Ore**          | ** ** | **Ounces**  | ** ** | **Gold**      | ** ** | **Estimated** | ** ** | **Recoverable** | ** ** |
| ** **            | ** ** | **Tons**         | ** ** | **Per Ton** | ** ** | **Ounces**    | ** ** | **Recovery**  | ** ** | **Ounces ****   | ** ** |
| ** **            | ** ** | **(000’s)** | ** ** | ** **  | ** ** | ** **    | ** ** | **(Percent)** | ** ** | ** **      | ** ** |
| Proven                |       | 52,830           |       | 0.031       |       | 1,645,844     |       | 61.54         | %          | 1,012,785       |       |
| Probable              |       | 81,469           |       | 0.027       |       | 2,231,971     |       | 61.01         | %          | 1,361,682       |       |
|                  |       |             |       |        |       |          |       |          |       |            |       |
| Total  Reserves, 2004 |       | 134,299          |       | 0.029       |       | 3,877,815     |       | 61.23         | %          | 2,374,467       |       |

 

*Note:* *The tonnage is shown inshort tons.*

 

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*      Thesegold reserve figures were estimated based on a $375 per troy ounce gold pricefor all district deposits, and are subject to various royalties.  There can be no assurance, however, that theJoint Venture can earn a profit when the market price of gold equals or exceedsthe gold price used in estimating those reserves.

 

**   Recoverabilityof contained ounces is based on heap leaching and metallurgical testing.  Recoverability rates vary by ore type.  The recoverable ounces shown are an estimateof the ounces of gold which can be economically and legally recovered based onweight proportion metallurgical averages for all deposits and do notincorporate potential losses from dilution and mining recovery.

 

The changes in the December 31,2004 ore reserve as compared to the December 31, 2003 ore reserve areprimarily the result of ore reserve depletion from 2004 mining (492,943contained troy ounces of gold and 355,950 recoverable troy ounces of gold), thechange in ore reserve modeled cutoff grade of troy ounces of gold per ton from0.008 in 2003 to 0.007 in 2004, and the addition of ore reserve ounces from theongoing exploration program.  The netresult of these changes was to increase ore tons by 3.536 million tons whiledecreasing the overall grade of the reserves by 0.01 ounce per ton.  Estimated contained troy ounces of golddecreased by 102,823, while estimated recoverable troy ounces of gold decreasedby 159,976.  The recoverable troy ouncesof gold were also negatively impacted by a 2.44% decrease in the overallestimated recoverability rates.

 

The above estimates arebased 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 IndustryGuide 7, which defines the terms as follows.

 

*Proven(Measured) Reserves*. Reserves for which (a) quantity is computed from dimensionsrevealed in outcrops, trenches, workings or drill holes; grade and/or qualityare computed from the results of detailed sampling and (b) the sites forinspection, sampling and measurement are spaced so closely and the geologiccharacter is so well defined that the size, shape, depth and mineral content ofreserves are well established.

 

*Probable(Indicated) Reserves*. Reserves for which quantity and grade and/or quality are computed frominformation similar to that used for proven (measured) reserves, but the sitesfor inspection, sampling, and measurement are farther apart or are otherwiseless adequately spaced.  The degree ofassurance, although lower than that for proven (measured) reserves, is highenough to assume continuity between points of observation.

 

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

 

The focus of the JointVenture’s 2005 exploration program is to develop additional metallurgicalinformation in mineral resource areas to enable it to change the classificationof a portion of its non-reserve mineral resources to mineral reserve ounces ofgold.  It expects to achieve this goalthrough additional infill drilling, geotech and metallurgical drilling andstudies and mining studies.  Further, theJoint Venture is exploring a new area on a widely- spaced drill hole basis withthe objective of defining a mineral resource in the area.

 

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Environmental Reclamation

 

CC&V has developed aneffective environmental protection and reclamation plan for this high-altitude,semiarid, cold-weather, year-round leaching environment.  Reclamation has continued since 1992 tosupport post mining land use for wild life, including elk.  Work continued in 2004 on the detoxificationof the Victor leach pad with a view to its eventual closure and finalreclamation.  Although the Victor leachpad has been detoxified to less than free cyanide standards for detoxification,its nitrates level remain elevated. The Joint Venture has secured totalfinancial warranties of approximately $45 million to insure its success incompleting the final reclamation of the entire property.  Ongoing compliance with federal and stateregulations includes seismic, fugitive dust, and noise monitoring for theoperation’s meeting applicable standards for ground and surface water;monitoring rain and snow fall, water and air emissions.

 

Employment

 

AngloGold provides thework force required by the Joint Venture, which has no employees.  AngloGold employment related to the JointVenture increased to 316 at December 31, 2004, from 304 at December 31,2003.  The increase in employment was aresult of completing the mine expansion.

 

Governmental Regulation

 

Like all miningoperations in the United States, the Joint Venture is subject to a multitude ofenvironmental laws and regulations promulgated by federal, state and localgovernments including, but not limited to, the Comprehensive EnvironmentalResponse, Compensation and Liability Act (“CERCLA”);  the Clean Air Act (“CAA”); the Clean WaterAct (“CWA”); the Hazardous Materials Transportation Act (“HMTA”); the ToxicSubstances Control Act (“TSCA”); Resource Conservation and Recovery Act (“RCRA”)and the Colorado Mined Land Reclamation Act. The Joint Venture’s operations are subject to comprehensive regulationby the United States Environmental Protection Agency (“EPA”), the United StatesMine Safety and Health Administration (“MSHA”) and other state and local agencies.  Failure to comply with applicable laws,regulations and permits can result in injunctive action, damages and civil andcriminal penalties.  If the Joint Ventureexpands or changes its existing operations or proposes new operations, it maybe required to obtain additional or amended permits or authorizations.  In particular, CERCLA, commonly called the “SuperfundAct”, contains stringent reporting requirements for the release or disposal ofhazardous substances, with substantial fines for noncompliance.

 

Certain solid andhazardous wastes from mining and mineral processing operations are temporarilyexempt from regulation under RCRA.  TheEPA is currently considering the promulgation of a special set of rules toregulate mining wastes under RCRA, but those may be delayed pending anticipatedCongressional re-authorization and revision of RCRA.  The effect of any future regulation on theJoint Venture’s operations cannot be determined until the legislative processis completed and new rules are issued. However, it is assumed that regulations may have a significant impact onoperations of all mining companies and increase the costs of those operations.

 

Although the Managerexpects that compliance with federal, state and local environmental 

 

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and land use laws andregulations will continue to require significant future outlays of resources,it is not possible to say with any certainty what impact such compliance mayhave on the Joint Venture’s future capital expenditures or earnings.

 

Distribution of Proceedsand Other Financial Aspects

 

The Joint Venture madepayments 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 andincluding January 15, 2005. Subsequent payments of the same amount are scheduled to be made on January 15thof each year until the conclusion of the Initial Phase, as defined in the JointVenture Agreement, or until the completion of mining.  The payments made on January 15, 1994and subsequent annual payments of $250,000 constitute an advance on NetProceeds and will be recouped by the Manager against future distributions ofnet proceeds.  After recovery by theManager of these advances, if the Company’s share (20% in the Initial Phase) ofNet Proceeds exceeds the applicable Minimum Annual Distribution after recoupingany advanced distributions, the larger amount will be distributed to theCompany.  The Joint Venture recorded netincome of $7.7 million for the year ended December 31, 2004.

 

The Company accounts forits investment in the Joint Venture on the equity method.  Joint Venture distributions in excess of theinvestment carrying value are recorded as income.  During 1992, the Company’s share of JointVenture losses exceeded the remaining carrying value of the investment and,accordingly, the investment was reduced to zero.  The Company does not record its share ofJoint Venture losses incurred subsequent to the reduction of its investmentbalance to zero.  The Company believesthat its liability for loss is limited to its loss of its equity in the JointVenture.  To the extent the Joint Ventureis subsequently profitable, the Company will not record its share of equityincome until the cumulative amount of previously unrecorded Joint Venturelosses has been recouped.

 

As a result of thereduction of the Joint Venture investment carrying value to zero during 1992,the Company has not recorded its share of the Joint Venture net income for the2004 period, $1,538,400, nor its share of the Joint Venture’s net loss for the2003 period ($93,800) or 2002 period ($2,863,600).  The Company will not record its share of anyfuture Joint Venture net income unless and until the balance of the Company’saccumulated unrecorded losses from the Joint Venture ($17,480,058 as of December 31,2004) are recovered.

 

**GOLDEN CYCLE PHILIPPINES, INC.(GCPI)**

 

GCPI and its explorationactivities were placed into a standby status in January 1999 for thereasons stated below.

 

GCPI Background

 

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

 

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Philippine pesos) ofexploration work.  The claim area liesimmediately south of the historic Masara and Hijo gold mines in the Philippinesand just north of Benguet’s Kingking copper/gold deposit.

 

First SupplementalAgreement to the BGA

 

Phase I of theexploration effort on the five Sagittarius Alpha Realty (“SAR”) claims wascompleted in May 1998.  This effortconsisted of geological mapping, grid soil sampling and analysis, and streamsediment and water analysis.  This workindicates the presence of sizable areas interpreted to be anomalous goldconcentrations.  These must be furthertested through trenching, tunneling and drilling to properly evaluate the goldpotential.  The Phase II explorationcould not be carried out as the old leased claims have not as of this date beenawarded a Mineral Production Sharing Agreement (“MPSA”) as required by the 1995Philippine Mining Law. Thus, all work on this project has been placed on astandby basis until the MPSA is awarded to Benguet, as claim owner.  Benguet has not applied for an MPSA as of March 2005.  The Company expects to expend approximately$5,000 during 2005 to maintain GCPI on a standby status.

 

**OTHER OPPORTUNITIES**

 

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

 

**Table Top**

 

The Table Top claim groupconsists of 38 wholly owned twenty acre Federal mineral claims, controlled bythe Bureau of Land Management (“BLM”), and lies within the Basin and Rangeprovince of north-central Nevada, which over the past forty years has becomeone of the world’s premier gold producing regions.  The Table Top claims are subject to anExploration Right with Option to Purchase agreement requiring the Company topay the annual assessment fees to the BLM and Humboldt County and five percentof all expenditures on the property up to a maximum amount of $500,000 to Mr. Wendt,from whom the claims were purchased.  Atpresent, the Company has paid Mr. Wendt approximately $6,500.  The Table Top property can be interpreted tolie within the “Midas” gold bearing zone striking northeast across Nevada, andalso 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.

 

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

 

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The Table Top claimscover a brecciated and silicified sediment that is poorly exposed and has onlybeen unsystematically explored and partially drill tested in the past.  The key gold mineralized feature on theproperty is a hydrothermal breccia, which contains anomalous gold, arsenic,antimony and mercury.  Goldfields MiningCorporation first staked the Table Top property in 1986 while conductingsurface exploration for an open pit type operation.  A limited rock chip sampling and reversecirculation drilling program indicated the presence of a gold mineralizedsystem.

 

The Table Top claims donot have a readily available source of power and contain no known mineralreserve or resource and are exploratory in nature.  The Company’s intended exploration targetwill be the discovery of a high grade mineralized gold vein system at depth, tobe developed by a phased exploration program. The Company does not anticipate additional exploration activity on thisproperty during 2005.

 

**Illipah**

 

The Company’s Illipahproject area can be reached by car from Ely, Nevada.  From Ely travel west on US Highway 50 forapproximately 33 miles.  You will passthe turnoff for Illipah Reservoir to your left. Continue west on US Highway 50 for another 5 miles.  Turn right, to the north on a gravelroad.  There is a stop sign at thisintersection.  Travel north for 6 milesto the project site; see adjacent map.

 

11

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****

 

The Company’s Board ofDirectors has approved a 2005 budget to drill test the Illipah claim groupslocated in White Pine County, Nevada.  This gold project is situated in easternNevada at the southern extension of the Carlin Trend that contains the largestaccumulation of gold deposits in North America. The Company’s controls 191 unpatented lode, Federal BLM mining claims(approximately 3,800 acres) over a six-mile strike length that containsfavorable stratigraphic and structural environments for the discovery of asignificant gold deposit.  The propertyis subject to advance royalty payments and a 2% Net Smelter Return (“NSR”)royalty on all mineral production.  AnNSR is a royalty, usually a percent, of smelter production less certainallowable 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 theimmediate area of Illipah is 37,000 ounces of gold from an open pit mined inthe late 1980’s and early 1990’s.  Theore was processed using heap leach technology. This gold mineralization is envisioned as a surface gold anomaly thatindicates there is a strong possibility of high-grade gold mineralization atdepth near favorable stratigraphic contacts and structures.  The geological similarities between Illipahand Newmont’s Rain Deposit (the “Rain Deposit”) located 65 miles north-northwestare striking.  The Rain Depositoriginally was mined as an open-pit, but is currently being minedunderground.  The reported resourcepotential is 2 million ounces of gold and the average grade 0.40 oz/troyAu.  An underground target similar to theRain Deposit is the concept being tested by the approved drill program thatGolden Cycle will undertake in the spring of 2005.

 

The Illipah claimscontain no known mineral reserve or resource and are exploratory innature.  Past exploration on the propertylargely focused on its near surface mineral potential, though some deeperexploration drilling was completed by two companies.  The recommended drill program for Illipahconsists of eight reverse circulation drill holes which will be angledperpendicular to the envisioned structures. The holes are designed to test the favorable stratigraphic horizons andstructural intersections at depth beneath gold anomalies on the surface.  The depths of the drill holes will range from800 to 1500 feet.  A budget of approximately$259,000 will fund the drilling, assaying of samples, personnel, expenses,application and filing for exploration permit and necessary bonding.  The Company is using generator power for its 

 

12

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current explorationprogram.  Power is available just outsidethe property’s boundary should the Company elect to pay the cost to bring it onto the property for future operations. If the Company’s initial drilling program is successful, the Companyplans to follow up with additional exploration and drilling to further definethe mineral potential of the property. As yet the Company has not attempted to quantify the costs associatedwith a potential follow up exploration program.

 

**Colorado**

 

A continuing explorationeffort is underway in the Company’s home state of Colorado, which the Companybelieves is currently being overlooked by both junior and major miningcompanies.  This exploration is focusedon a particular area in southwest Colorado where the Company has developed ageologic concept indicating the possibility of an exploration target whichmeets the Company’s criterion.  During2005, the Company will complete a regional study of the target area, includingsatellite imagery which it began in 2004, with the objective of narrowing thetarget area.  The Company is alsocontinuing its selective search in western Colorado for additional mineralprospects to undertake during 2005.

 

**ITEM2.  PROPERTIES**

 

**MINING,OIL AND GAS RIGHTS**

 

Mining Properties

 

The Joint Venture miningproperties consist of owned, leased and optioned mining claims and other landcovering more than 4,800 acres of patented mining claims in and around theCripple Creek Mining District of Teller County, Colorado and include most ofthe principal formerly-producing mines of the Cripple Creek district.  The majority of the above acreage wascontributed by the Company to the Joint Venture.  Subsequently, the Joint Venture haspurchased, leased and optioned additional acreage, and continues to do so asopportunity arises to complete the consolidation of the district.

 

The Joint Venture miningproperties are situated on the west flank of Pikes Peak, about 20 air mileswest of Colorado Springs and 65 air miles south of Denver.  The area is accessible by paved highway andsupplied by requisite utilities.  Theelevation of the properties averages slightly over 10,000 feet above sealevel.  Snow accumulations are generallylight and do not materially interfere with access to the property.

 

To a great extent, theJoint Venture mining properties lie within the boundary of a geological entityknown as a caldera or “volcanic subsidence basin” (the “Basin”).  The Basin is of rudimentary ellipticaloutline, with its long axis trending in a northwesterly direction.  It has a length of about 4-1/2 miles and awidth of about 2-1/2 miles, covering some 5,000 acres at the groundsurface.  The area of the Basin graduallynarrows with depth.  The bulk of thehistorical Cripple Creek gold production was from the underground mines withinthe Basin, with the major mines located in the southern portion of the Basin.

 

13

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****

 

To drive to the mine fromColorado Springs, Colorado, travel west on East Pikes Peak Avenue toward NorthNevada 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 ECimarron Street for 3 miles. E Cimarron Street becomes US-24 W for 22miles.  Turn left onto CO-67 for 18.7miles. 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 onto2nd Street into Victor, CO.

 

The dominant geologicfeature of the Cripple Creek & Victor Mining District is a 32-28 Madiatreme-intrusive complex hosted in Precambrian rocks located between thetowns of Cripple Creek and Victor, Colorado. The diatreme-intrusive complex is 6.4 km long, 3.2 km wide and consistsof diatremal breccia that has been intruded by stocks, dikes and discordantbreccias.  Diatremal breccia lithologiesinclude breccias composed exclusively of volcanic, Precambrian or sedimentarymaterial and any combination of the three. Early intrusions are predominantly within the alkalinephonolite-phonotephrite petrographic series and were followed by laterlamprophyres.  All rocks have undergone along history of structural and hydrothermal activity.  Gold mineralization occurs in all rock typesas disseminated and/or structurally-controlled orebodies.  Primary ore minerals include microscopicnative gold and gold tellurides.  Silveris present but is economically unimportant.

 

From the inception ofproduction in 1891 until the suspension of operations in 1960, the CrippleCreek Mining District was the major gold mining district in the UnitedStates.  It is estimated thatapproximately 21 million ounces of gold were produced in this period,principally from mines later contributed to the Joint Venture by Golden CycleGold Corporation.  The Joint Venture,including a number of joint venture partners, has added about 2.5 million troyounces of gold production to this total during the period 1985 through2004.  The Joint Venture miningproperties include most of the principal formerly producing mines in theCripple Creek district, including the Ajax, Cresson, Portland, Independence,Vindicator and Golden Cycle.  Because ofthe age of many of the mines and the fact that mining operations throughout theBasin declined and were suspended more than thirty years ago, the existing mineshafts and workings are 

 

14

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unsuitable for currentoperation without substantial rehabilitation. The Joint Venture is not currently and does not anticipate, operatingunderground.

 

Oil and Gas MineralRights

 

The oil and gasproperties of the Company are comprised of approximately 7,300 acres of mineralrights in the Penrose Area of Fremont County, Colorado.  There is no evidence of successful oil andgas development nearby, with the exception of the Florence, Colorado area.  Florence was the site of the first producingwells in Colorado in the 1860’s and the area is still producing on a limitedscale today.  Several years ago, interestwas shown in leasing very large acreages of state land about 50 to70 miles eastof the Company’s land.  No development ofthat area is visible at this time, nor is it expected in the forseeablefuture.  The oil and gas properties haveno carrying value for balance sheet purposes.

 

**ITEM 9A. CONTROLS AND PROCEDURES**

 

Disclosure controls andprocedures

 

Disclosure controls andprocedures are our controls and other procedures that are designed to ensurethat information required to be disclosed by us in the reports that we file orsubmit under the Securities Exchange Act of 1934, as amended, is recorded,processed, summarized and reported, within the time periods specified in theSecurities and Exchange Commission’s rules and forms. Disclosure controlsand procedures include, without limitation, controls and procedures designed toensure that information required to be disclosed by us in the reports that wefile under the Securities Exchange Act is accumulated and communicated to ourmanagement, including our principal executive officer and principal financialofficer, as appropriate to allow timely decisions regarding requireddisclosure.

 

As of the end of theperiod covered by this report (the “Evaluation Date”), we carried out anevaluation, under the supervision and with the participation of the Company’smanagement, including the Company’s Chief Executive Officer and the Company’sChief Financial Officer, of the effectiveness of the design and operation ofour disclosure controls and procedures pursuant to Exchange Act Rule 13a-15.Based upon that evaluation, our Chief Executive Officer and the Chief FinancialOfficer concluded that as of the Evaluation Date, our disclosure controls andprocedures were, effective in alerting them in a timely manner to materialinformation relating to the Company and its subsidiaries that is required to beincluded in the reports that we file or submit under the Securities ExchangeAct of 1934.

 

Internal control overfinancial reporting

 

Internal control overfinancial reporting is defined as a process designed by, or under thesupervision of our chief executive officer and our chief financial officer, andeffected by our board of directors, through our audit committee, to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. These include procedures that (i) 

 

15

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pertain to maintenance ofrecords in reasonable detail to accurately reflect the our transactions anddisposition of assets; (ii) provide reasonable assurance that transactionsare recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles and that receipts andexpenditures are being made only in accordance with authorizations of ourmanagement and directors; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use or dispositionof our assets that could have a material effect on our financial statements.

 

We are not required toreport management’s assessment of the effectiveness of our internal controlsover financial reporting and we have not undertaken the kind of review of suchcontrols that we would have been required to undertake if we were required tomake such a report. However, in connection with our initial review ofdisclosure controls and procedures above, we have noted certain areas in oursystems of internal control which, if left unresolved or unaddressed, couldresult in material deficiencies and weaknesses in our internal control. Theseareas include, lack of segregation of duties due to limited personnel, limitedcapability due to the size of our Company to interpret and apply United Statesgenerally accepted accounting standards, lack of adequate documentation of oursystem of internal controls, lack of formal accounting policy and proceduresand related documentation, and lack of a formal budgeting process. Although, wehave not instituted new internal control processes related to these identifiedareas, as has been characteristic of companies that have completed their reviewof internal controls and have had to report on the effect of such review, weare considering what appropriate remedial actions, if any, are necessary toimprove our systems of internal controls.

 

Within the quarter ended December 31,2004, there were no changes to our internal control over financial reportingthat materially affected, or is reasonably likely to materially affect ourinternal control over financial reporting.

 

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

 

(a)  Documents filedas part of this report:

 

(1) FinancialStatements

 
| Report  of Independent Registered Accounting Firm, Ehrhardt Keefe Steiner &  Hottman, P.C.             |   |
|-----------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                            |   |
| Report of Independent Registered  Public Accounting Firm, KPMG LLP                                              |   |
|                                                                                                            |   |
| Consolidated Balance Sheets,  December 31, 2004 and 2003                                                   |   |
|                                                                                                            |   |
| Consolidated  Statements of Operations for the Years Ended December 31, 2004, 2003 and  2002               |   |
|                                                                                                            |   |
| Consolidated Statements of Shareholders’  Equity for the Years Ended December 31, 2004, 2003 and 2002 |   |
|                                                                                                            |   |
| Consolidated  Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and  2002               |   |
|                                                                                                            |   |
| Notes to Consolidated Financial  Statements                                                                     |   |

 

16

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(2) FinancialStatement Schedules.  Financialstatement schedules are omitted because they are not applicable or the requiredinformation is shown in the financial statements or notes thereto.

 

(3)  Exhibits.

 

(Exhibit Numberreferenced to Item 601 of Regulation S-K).

 

Exhibit Index

 

23.5 Consent of EKS&HPC.

 

23.6 Consent of KPMG LLP.

 

31.6  Certification of Chief Executive Officerpursuant to the Sarbanes-Oxley Act of 2002, Section 302.

 

31.7  Certification of Chief Financial Officerpursuant to the Sarbanes-Oxley Act of 2002, Section 302.

 

32.6  Certification of Chief Executive Officerpursuant to the Sarbanes-Oxley Act of 2002, Section 906.

 

32.7  Certification of Chief Financial Officerpursuant to the Sarbanes-Oxley Act of 2002, Section 906.

 

17

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SIGNATURES

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe 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: June 29, 2005

 

18

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

Board of Directors and Stockholders

Golden Cycle Gold Corporation

Colorado Springs, Colorado

 

Wehave audited the consolidated balance sheets of Golden Cycle Gold Corporationand Subsidiaries (a Colorado corporation) as of December 31, 2004 and2003, and the related consolidated statements of operations, changes instockholders’ equity, and cash flows for the two years in the period ended December 31,2004. These consolidated financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audit.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States).  Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether theconsolidated financial statements are free of material misstatement. ******The Company is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion.  An audit alsoincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the consolidated financial statements, assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall consolidated financial statement presentation.  Webelieve that our audit provides a reasonable basis for our opinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the consolidated financial position of GoldenCycle Gold Corporation and Subsidiaries as of December 31, 2004 and 2003,and the consolidated results of its operations and its cash flows for the twoyears in the period ended December 31, 2004, in conformity with accountingprinciples generally accepted in the United States of America.

 

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

 

 

February 9, 2005

Denver, Colorado

 

19

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**Reportof Independent****Registered Public Accounting Firm**

 

Boardof Directors

GoldenCycle Gold Corporation:

 

Wehave audited the accompanying consolidated statements of operations,shareholders’ equity and comprehensive income (loss), and cash flows of GoldenCycle Gold Corporation and subsidiaries for the year ended December 31,2002.  These consolidated financialstatements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audit.

 

Weconducted our audit in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditprovides a reasonable basis for our opinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the results of operations and the cash flowsof Golden Cycle Gold Corporation and subsidiaries for the year ended December 31,2002, in conformity with U.S. generally accepted accounting principles.

 

 
|   | /s/ KPMG LLP |   |
|--------|--------------|--------|

 

 

Denver,Colorado

March 21,2003

 

20

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**GOLDEN CYCLE GOLD CORPORATION**

**AND SUBSIDIARIES**

 

ConsolidatedBalance Sheets

 
| ** **                                                                                                                             | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                                                             | ** ** | **2004**              | ** ** | **2003**              | ** ** |
| **Assets**                                                                                                                             | ** ** | ** **            | ** ** | ** **            | ** ** |
| ** **                                                                                                                             | ** ** | ** **            | ** ** | ** **            | ** ** |
| Current  assets:                                                                                                                       |       |                  |       |                  |       |
| Cash  and cash equivalents                                                                                                             |       | $                     | 457,000    |                  | $          | 202,099 |   |
| Short-term  investments (note 2)                                                                                                       |       | 1,120,273             |       | 923,669               |       |
| Interest  receivable and other current assets                                                                                          |       | 13,524                |       | 7,014                 |       |
| Prepaid  insurance                                                                                                                     |       | 24,380                |       | 24,580                |       |
| Account  receivable from sale of water rights (note 3)                                                                                 |       | —                |       | 679,098               |       |
| Total  current assets                                                                                                                  |       | 1,615,177             |       | 1,836,460             |       |
|                                                                                                                                   |       |                  |       |                  |       |
| Property  and equipment, at cost:                                                                                                      |       |                  |       |                  |       |
| Land                                                                                                                                   |       | 2,025                 |       | 2,025                 |       |
| Mineral  claims                                                                                                                        |       | 20,657                |       | 20,657                |       |
| Furniture  and fixtures                                                                                                                |       | 10,030                |       | 10,037                |       |
| Machinery  and equipment                                                                                                               |       | 31,819                |       | 33,806                |       |
|                                                                                                                                   |       | 64,531                |       | 66,525                |       |
| Less  accumulation depreciation and depletion                                                                                          |       | (33,126               | )          | (30,601               | )          |
|                                                                                                                                   |       | 31,405                |       | 35,924                |       |
| Total  assets                                                                                                                          |       | $                     | 1,646,582  |                  | $          | 1,872,384 |   |
|                                                                                                                                   |       |                  |       |                  |       |
| **Liabilities  and Shareholders’ Equity**                                                                                         |       |                  |       |                  |       |
| ** **                                                                                                                             |       |                  |       |                  |       |
| Current  liabilities:                                                                                                                  |       |                  |       |                  |       |
| Accounts  payable and accrued liabilities                                                                                              |       | $                     | 56,868     |                  | $          | 58,479 |   |
| Total  current liabilities                                                                                                             |       | 56,868                |       | 58,479                |       |
|                                                                                                                                   |       |                  |       |                  |       |
| Commitments  and contingencies (note 8)                                                                                                |       |                  |       |                  |       |
|                                                                                                                                   |       |                  |       |                  |       |
| Shareholders’  equity (note 6):                                                                                                   |       |                  |       |                  |       |
| Common  stock, no par value. Authorized 100,000,000 shares; issued and outstanding  9,669,250 shares in 2004; 9,542,250 shares in 2003 |       | 7,406,317             |       | 7,307,854             |       |
| Additional  paid-in capital                                                                                                            |       | 1,927,736             |       | 1,927,736             |       |
| Accumulated  deficit                                                                                                                   |       | (7,712,526            | )          | (7,389,944            | )          |
| Accumulated  other comprehensive loss                                                                                                  |       | (31,813               | )          | (31,741               | )          |
| Total  shareholders’ equity                                                                                                       |       | 1,589,714             |       | 1,813,905             |       |
| Total  liabilities and shareholders’ equity                                                                                       |       | $                     | 1,646,582  |                  | $          | 1,872,384 |   |

 

See accompanyingnotes to consolidated financial statements.

 

21

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**GOLDEN CYCLE GOLD CORPORATION**

**AND SUBSIDIARIES**

 

Consolidated Statements of Operations

 
| ** **                                                                    | ** ** | **For the Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                    | ** ** | **2004**                                 | ** ** | **2003** | ** ** | **2002** | ** ** |
| Revenue:                                                                      |       |                                     |       |   |   |   |   |
| Distributions  from mining joint venture in excess of carrying value (note 4) |       | $                                        | 250,000    |   | $ | 250,000 |   | $ | 250,000 |   |
|                                                                          |       |                                     |       |   |   |   |   |   |   |   |
| Expenses:                                                                     |       |                                     |       |   |   |   |   |
| General  and administrative expense                                           |       | 542,510                                  |       | 464,348 |   | 345,209 |   |
| Depreciation  expense                                                         |       | 5,286                                    |       | 1,217 |   | 3,759 |   |
| Exploration  expense                                                          |       | 54,372                                   |       | 141,851 |   | 153,934 |   |
|                                                                          |       | 602,168                                  |       | 607,416 |   | 502,902 |   |
| Operating  loss                                                               |       | (352,168                                 | )          | (357,416 | ) | (252,902 | ) |
|                                                                          |       |                                     |       |   |   |   |   |
| Other  income (expense):                                                      |       |                                     |       |   |   |   |   |
| Interest  and other income                                                    |       | 21,545                                   |       | 15,405 |   | 29,847 |   |
| Gold  bullion mark-up to market                                               |       | 8,041                                    |       | 24,229 |   | — |   |
| Gain  (loss) on assets sold (net)                                             |       | —                                   |       | 541,917 |   | (375 | ) |
|                                                                          |       | 29,586                                   |       | 581,551 |   | 29,472 |   |
| Net  income (loss)                                                            |       | $                                        | (322,582   | ) | $ | 224,135 |   | $ | (223,430 | ) |
| Basic  earnings (loss) per share                                              |       | $                                        | (0.03      | ) | $ | 0.02 |   | $ | (0.02 | ) |
|                                                                          |       |                                     |       |   |   |   |   |   |   |   |
| Diluted  earnings (loss) per share                                            |       | (0.03                                    | )          | 0.02 |   | (0.02 | ) |
|                                                                          |       |                                     |       |   |   |   |   |
| Basic  weighted average shares outstanding                                    |       | 9,597,231                                |       | 9,529,100 |   | 9,442,250 |   |
|                                                                          |       |                                     |       |   |   |   |   |
| Diluted  weighted average shares outstanding                                  |       | 9,597,231                                |       | 10,364,100 |   | 9,442,250 |   |

 

See accompanying notes to consolidated financial statements.

 

22

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**GOLDEN CYCLE GOLD CORPORATION**

**AND SUBSIDIARIES**

 

Consolidated Statements ofShareholders’ Equity and ComprehensiveIncome (Loss)

 

For the Years ended December 31, 2004, 2003, and 2002

 
| ** **                               | ** ** | ** **       | ** ** | ** **  | ** ** | ** **      | ** ** | ** **      | ** ** | **Accumulated**         | ** ** | ** ** | ** ** |
|------------------------------------------|------------|------------------|------------|-------------|------------|-----------------|------------|-----------------|------------|-------------------------|------------|------------|------------|
| ** **                               | ** ** | ** **       | ** ** | ** **  | ** ** | ** **      | ** ** | ** **      | ** ** | **other**               | ** ** | ** ** | ** ** |
| ** **                               | ** ** | ** **       | ** ** | ** **  | ** ** | ** **      | ** ** | ** **      | ** ** | **comprehensive**       | ** ** | ** ** | ** ** |
| ** **                               | ** ** | ** **       | ** ** | ** **  | ** ** | ** **      | ** ** | ** **      | ** ** | **loss – foreign** | ** ** | ** ** | ** ** |
| ** **                               | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional**  | ** ** | ** **      | ** ** | **currency**            | ** ** | ** ** | ** ** |
| ** **                               | ** ** | **Common stock** | ** ** | **paid-in** | ** ** | **Accumulated** | ** ** | **translation** | ** ** | ** **              | ** ** |
| ** **                               | ** ** | **Shares**       | ** ** | **Amount**  | ** ** | **capital**     | ** ** | **deficit**     | ** ** | **adjustment**          | ** ** | **Total**  | ** ** |
| Balance  at December 31, 2001       |       | 9,442,250        |       | $           | 7,116,604  |            | $          | 1,927,736       |       | $                       | (7,390,649 | )          | $          | (30,715 | ) | $ | 1,622,976 |   |
| Net  loss                                |       | —           |       | —      |       | —          |       | (223,430        | )          | —                  |       | (223,430   | )          |
| Foreign  currency translation adjustment |       | —           |       | —      |       | —          |       | —          |       | (823                    | )          | (823       | )          |
| Comprehensive  net loss                  |       |             |       |        |       |            |       |            |       |                    |       | (224,253   | )          |
| Balance  at December 31, 2002       |       | 9,442,250        |       | 7,116,604   |       | 1,927,736       |       | (7,614,079      | )          | (31,538                 | )          | 1,398,723  |       |
| Stock  options exercised                 |       | 100,000          |       | 191,250     |       | —          |       | —          |       | —                  |       | 191,250    |       |
| Net  income                              |       | —           |       | —      |       | —          |       | 224,135         |       | —                  |       | 224,135    |       |
| Foreign  currency translation adjustment |       | —           |       | —      |       | —          |       | —          |       | (203                    | )          | (203       | )          |
| Comprehensive  net income                |       |             |       |        |       |            |       |            |       |                    |       | 223,932    |       |
| Balance  at December 31, 2003       |       | 9,542,250        |       | 7,307,854   |       | 1,927,736       |       | (7,389,944      | )          | (31,741                 | )          | 1,813,905  |       |
| Stock  options exercised                 |       | 127,000          |       | 98,463      |       | —          |       | —          |       | —                  |       | 98,463     |       |
| Net  loss                                |       | —           |       | —      |       | —          |       | (322,582        | )          | —                  |       | (322,582   | )          |
| Foreign  currency translation adjustment |       | —           |       | —      |       | —          |       | —          |       | (72                     | )          | (72        | )          |
| Comprehensive  net loss                  |       |             |       |        |       |            |       |            |       |                    |       | (322,654   | )          |
| Balance  at December 31, 2004       |       | 9,669,250        |       | $           | 7,406,317  |            | $          | 1,927,736       |       | $                       | (7,712,526 | )          | $          | (31,813 | ) | $ | 1,589,714 |   |

 

See accompanying notes to consolidated financial statements.

 

23

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**GOLDEN CYCLE GOLD CORPORATION**

**AND SUBSIDIARIES**

 

Consolidated Statements of Cash Flows

 
| ** **                                                                            | ** ** | **For the Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                            | ** ** | **2004**                                 | ** ** | **2003** | ** ** | **2002** | ** ** |
| Cash  flows from operating activities:                                                |       |                                     |       |   |   |   |   |
| Net  income (loss)                                                                    |       | $                                        | (322,582   | ) | $ | 224,135 |   | $ | (223,430 | ) |
| Adjustments  to reconcile net income (loss) to net cash used in operating activities: |       |                                     |       |   |   |   |   |
| Depreciation  expense                                                                 |       | 5,286                                    |       | 1,217 |   | 3,759 |   |
| Increase  in market value of gold asset                                               |       | (8,041                                   | )          | (24,229 | ) | — |   |
| (Gain)  loss on disposal of assets                                                    |       | —                                   |       | (541,817 | ) | 375 |   |
| Decrease  (increase) in interest receivable and other current assets                  |       | (6,510                                   | )          | 5,605 |   | 9,994 |   |
| Decrease  (increase) in prepaid insurance                                             |       | 200                                      |       | (5,436 | ) | 505 |   |
| Increase  (decrease) in accounts payable and accrued liabilities                      |       | (1,611                                   | )          | 40,227 |   | (7,680 | ) |
|                                                                                  |       |                                     |       |   |   |   |   |
| Net  cash used in operating Activities                                                |       | (333,258                                 | )          | (300,298 | ) | (216,477 | ) |
|                                                                                  |       |                                     |       |   |   |   |   |
| Cash  flows from investing activities:                                                |       |                                     |       |   |   |   |   |
| Decrease  (increase) in short-term investments, net                                   |       | (188,563                                 | )          | (258,652 | ) | 236,516 |   |
| Proceeds  from account receivable on sale of water rights                             |       | 679,098                                  |       | — |   | — |   |
| Purchases  of property and equipment                                                  |       | (767                                     | )          | (8,210 | ) | (11,846 | ) |
|                                                                                  |       |                                     |       |   |   |   |   |
| Net  cash provided by (used in) investing activities                                  |       | 489,768                                  |       | (266,862 | ) | 224,670 |   |
|                                                                                  |       |                                     |       |   |   |   |   |
| Cash  flows provided by financing activity:                                           |       |                                     |       |   |   |   |   |
| Proceeds  on exercise of stock options                                                |       | 98,463                                   |       | 191,250 |   | — |   |
| Net  cash provided by investing activities                                            |       | 98,463                                   |       | 191,250 |   | — |   |
|                                                                                  |       |                                     |       |   |   |   |   |
| Effect  of exchange rate changes on cash                                              |       | (72                                      | )          | (203 | ) | (823 | ) |
| Net  increase (decrease) in cash and cash equivalents                                 |       | 254,901                                  |       | (376,113 | ) | 7,370 |   |
| Cash  and cash equivalents, beginning of year                                         |       | 202,099                                  |       | 578,212 |   | 570,842 |   |
| Cash  and cash equivalents, end of year                                               |       | $                                        | 457,000    |   | $ | 202,099 |   | $ | 578,212 |   |

 

Supplementaldisclosure of non-cash activity:

During 2003, theCorporation sold assets held for sale for $679,098 which was recorded as areceivable at December 31, 2003.

During 2004,77,900 shares were surrendered in cashless exercise of stock options.

 

See accompanyingnotes to consolidated financial statements.

 

24

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**Notes to****Consolidat****edFinancial Statements**

 

**(1)**       Summary of Significant AccountingPolicies

** **

GoldenCycle Gold Corporation (the Company), a Colorado corporation, acquires andexplores mining properties in Colorado, Nevada, and the Republic of thePhilippines. The Company’s principal investment consists of its joint ventureparticipation in the Cripple Creek and Victor Gold Mining Company (the JointVenture), a precious metals mining company in the Cripple Creek Mining Districtof Teller County, Colorado. In addition, during 1997 the Companyestablished Golden Cycle Philippines, Inc. (GCPI), a wholly ownedsubsidiary of the Company, in the Republic of the Philippines in order toparticipate in potential mining opportunities. In January 2002, the Company established Golden Cycle GoldExploration, Inc. (GCGE), a wholly owned subsidiary, to conductexploration activities for the Company.

 

***(a)***       Use of Estimates

*** ***

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makevarious estimates and assumptions in determining the reported amounts ofassets, liabilities, revenues, and expenses for each period presented, and inthe disclosure of commitments and contingencies. Actual results could differsignificantly from those estimates. Changes in these estimates and assumptionswill occur based on the passage of time and the occurrence of future events.

 

***(b)***       Principles of Consolidation

*** ***

Theconsolidated financial statements include the accounts of the Company and itswholly owned subsidiaries. All significant intercompany transactions andbalances have been eliminated in consolidation.

 

***(c)****      ****Cash and Cash Equivalents***

 

TheCompany considers all highly liquid instruments purchased with an originalmaturity of three months or less to be cash equivalent.

 

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

*** ***

Short-terminvestments consist of U.S. Treasury Bills and certificates of deposit. U.S.Treasury Bills that the Company has both the intent and ability to hold tomaturity are carried at amortized cost. Short-term investments also includes 310 troy ounces of gold bullionpurchased by the Company in 2002. Interest revenue and the increase or decrease in the value of the goldbullion is included in the consolidated statement of operations.

 

***(e)***        Investment in Mining Joint Venture

*** ***

TheCompany accounts for its investment in the Joint Venture on the equity method.In prior years, the Company’s share of Joint Venture losses exceeded theremaining carrying value of the investment and, accordingly, the investment wasreduced to zero. Joint Venture distributions in excess of the investmentcarrying value are recorded as income. The Company does not record its share ofJoint Venture losses incurred subsequent to the reduction of its investmentbalance to zero, as the Company has no obligation to fund operating losses. Tothe extent the Joint Venture is profitable, the Company does not record itsshare of equity income until the cumulative amount of previously unrecorded JointVenture losses have been recouped.

 

***(f)***        Mineral Exploration and Development Costs

*** ***

Mineralexploration costs are expensed as incurred. Mineral property development costsare capitalized and depleted based upon estimated proven and probablerecoverable

 

25

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reserves.The Company has no capitalized mineral property development costs at December 31,2004 or December 31, 2003.

 

TheCompany assesses the carrying value of its long-lived assets for impairmentwhenever changes in facts or circumstances indicate that they may beimpaired.  Potential impairment isestimated by comparing estimated future undiscounted cash flows expected to begenerated from such assets with their net book value. If net book value exceedsestimated cash flows, the asset is written down to fair value.  The Company has not recorded impairment costsat December 31, 2004 or December 31, 2003.

 

***(g)***       Property and Equipment

*** ***

Officefurniture, fixtures, and equipment are stated at cost and are depreciated usingthe straight-line method over estimated useful lives ranging from three to tenyears.

 

***(h)***       Foreign Currency Translation

 

TheGCPI operations’ functional currency is the local currency and, accordingly,the assets and liabilities of its Philippines operations are translated intotheir United States dollar equivalent at rates of exchange prevailing at eachbalance sheet date. Revenue and expenses are translated at average exchangerates prevailing during the periods in which such items are recognized inoperations.

 

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

 

***(i)***        Stock Options

*** ***

In December 2002, theFinancial Accounting Standards Board issued SFAS No. 148, *Accounting for Stock-Based Compensation – Transition and Disclosure*(“SFASNo. 148”).  SFAS No. 148 amendsSFAS No. 123 to provide alternative methods of transition for a voluntarychange to the fair value based method of accounting for stock-based employeecompensation.  In addition, SFAS No. 148amends the disclosures requirements of SFAS No. 123 to require prominentdisclosures in both annual and interim financial statements about the method ofaccounting for stock-based employee compensation and the effect of the methodused on reported results.  The amendmentsto SFAS No. 123 are effective for financial statements for fiscal yearsending after December 15, 2002.  Hadcompensation cost been determined under the provisions of SFAS No. 123,the following pro forma net loss and per share amounts would have beenrecorded.

 

26

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| ** **                                                                                                         | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                                               |       |     |       |     |       |     |       |
| Net  income (loss):                                                                                                |       |     |       |     |       |     |       |
| As  reported                                                                                                       |       | $        | (322,582   | )        | $          | 224,135  |       | $ | (223,430 | ) |
| Deduct:  Total stock-based employee compensation expense, determined under fair value  based method for all awards |       | (182,398 | )          | (69,600  | )          | (230,916 | )          |
| Pro  forma                                                                                                         |       | (504,980 | )          | 154,535  |       | (454,346 | )          |
|                                                                                                               |       |     |       |     |       |     |       |
| Basic  and diluted earnings (loss) per share:                                                                      |       |     |       |     |       |     |       |
| As  reported                                                                                                       |       | $        | (0.03      | )        | $          | 0.02     |       | $ | (.02 | ) |
| Pro  forma                                                                                                         |       | (0.05    | )          | 0.02     |       | (.04     | )          |

 

The fair value of eachoption grant was estimated on the date of grant using the Black-Scholes option-pricingmodel 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 2002 |       | 0                   | %          | 48                       | %          | 4.61                          | %          | 10                             |       | $                                             | 1.84       |   |
| Options  granted in 2003 |       | 0                   | %          | 38                       | %          | 4.10                          | %          | 10                             |       | $                                             | 1.39       |   |
| Options  granted in 2004 |       | 0                   | %          | 55                       | %          | 4.77                          | %          | 10                             |       | $                                             | 1.82       |   |

 

***(j)***        Income Taxes

*** ***

The Company utilizes theasset and liability method of accounting for income taxes. Under the asset andliability method, deferred tax assets and liabilities are recognized for thefuture tax consequences attributable to differences between the financialstatement carrying amounts and the tax basis of existing assets and liabilitiesusing enacted tax rates expected to apply in the years in which such temporarydifferences are expected to be recovered or settled. Changes in tax rates arerecognized in the period of the enactment date. A valuation allowance isrecognized unless tax assets are more likely than not to be realized.

 

***(k)***       Comprehensive Income

*** ***

In 1998, we adopted SFAS No. 130,*Reporting Comprehensive Income*.  SFAS No. 130 requires that allcomponents of comprehensive income (loss), including net income (loss), bereported in the financial statements in the period they are recognized.  Comprehensive income (loss) is defined as thechange in equity during a period from transactions and other events andcircumstances from non-owner sources. Net income (loss) and other comprehensive income (loss), includingforeign currency translation adjustments, shall be reported, net of theirrelated tax effect, to arrive at comprehensive income (loss).  We have disclosed comprehensive income (loss)in our consolidated financial statements accordingly.

 

***(l)***        Revenue Recognition

*** ***

The Company recognizesrevenue as Minimum Annual Distributions from the Joint Venture are received asall services necessary for revenue recognition have been previously provided tothe Joint Venture by the Company.  TheJoint Venture Agreement,

 

27

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as amended, provides for theCompany to receive a Minimum Annual Distribution of $250,000 during the InitialPhase (see Note 4).  Beginning in 1994,such Minimum Annual Distributions are potentially recoupable against theCompany’s future share of Net Proceeds, if any. Whether future gold prices and the results of the Joint Venture’soperations will reach and maintain a level necessary to repay the Initial Loans(see Note 4), complete the Initial Phase, and thereafter generate net incomefrom which Minimum Annual Distributions can be recouped, cannot be assured dueto uncertainties inherent within any mining operation.  Based on the amount of Initial Loans payableto the Manager and the uncertainty of future operating revenues, there is noassurance that the Company will receive more than the Minimum AnnualDistribution from the Joint Venture in the foreseeable future.

 

***(m)***      Per Share Information

*** ***

 Basic earnings (loss) per common share arecomputed as net income (loss) divided by the weighted average number of commonshares 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 potentialcommon shares, using the treasury stock method, outstanding during the period.

 

**(2)**       Short-Term Investments

** **

TheCompany held certificates of deposit of approximately $985,000 and $696,000 at December 31,2004 and 2003, respectively. All certificates of deposit held at December 31,2004 mature within one year. Short-term investments also include 310 troyounces of gold bullion purchased by the Company in 2002 at a cost of $102,859and is carried at market value of $135,129 at December 31, 2004 whichincludes an unrealized gain of $32,270.

 

**(3)**       Accounts Receivable From Sale of WaterRights

** **

TheCompany completed the sale of certain Water Rights it owned in Fremont County,Colorado to the City of Cripple Creek on December 31, 2003, for $679,098in the form of a receivable and resulted in a $546,418 gain.  The Company does not have any further WaterRights.

 

**(4)**       Investment in Mining Joint Venture

** **

TheCompany owns an interest in the Joint Venture with AngloGold Colorado(AngloGold). AngloGold manages the Joint Venture. The Joint Venture conductsexploration, development, and mining of certain properties in the Cripple CreekMining District, Teller County, Colorado. The Joint Venture owns or controlssurface and/or mineral rights in the Cripple Creek Mining District, certainportions of which are being actively explored and developed.

 

TheJoint Venture Agreement, as amended, generally requires AngloGold to financeoperations and capital expenditures of the Joint Venture. The Joint Venture iscurrently operating in an Initial Phase that will end when (i) the InitialLoans (defined below) have been repaid and (ii) Net Proceeds (defined inthe Joint Venture Agreement generally as gross revenues less costs) in theamount of $58 million have been distributed to the joint venturers in theproportion of 80% to AngloGold and 20% to the Company.  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 Venturewill be loaned (the “Initial Loans”) to the Joint Venture by either AngloGoldor, if such loans are available at a lower cost than from AngloGold, financialinstitutions.  As of December 31,2004, Initial Loans were approximately $365.7 million and no Net Proceedshave been distributed. Initial Loans must be repaid prior to Net Proceeds beingdistributed to the venturers. After the Initial Phase, the Joint Venturewill distribute metal in kind, 67% to AngloGold and 33% to the Company. TheAgreement also provides for the Company to receive a minimum annualdistribution of $250,000 during the

 

28

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InitialPhase. Beginning in 1994, such minimum annual distributions are recoupableagainst the Company’s future share of Net Proceeds, if any.

 

Whetherfuture gold prices and the results of the Joint Venture’s operations will reachand maintain a level necessary to repay the Initial Loans, complete the InitialPhase, and thereafter generate net income cannot be assured due touncertainties inherent within any mining operation. Based on the amount ofInitial Loans payable to the manager and the uncertainty of future operatingrevenues, there is no assurance that the Company will receive more than theMinimum Annual Distribution from the Joint Venture in the foreseeablefuture.

 

TheCompany’s share of 2004 Joint Venture net income which has not been recorded inits consolidated financial statements is approximately $1,538,000. The Company’sshare of the 2003 and 2002 Joint Venture losses, which have not beenrecorded in its consolidated financial statements is approximately $93,800 and$2,863,600, respectively. As of December 31, 2004, the Company’saccumulated unrecorded losses from the Joint Venture are approximately$17,480,000.

 

29

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The condensed balance sheets of the Joint Venture as of December 31,2004 and 2003 are summarized as follows:

 
| ** **                                     | ** ** | **2004**           | ** ** | **2003**   | ** ** |
|------------------------------------------------|------------|--------------------|------------|------------|------------|
| ** **                                     | ** ** | **(In thousands)** | ** ** |
|                                           |       |               |       |
| **Assets**                                     | ** ** | ** **         | ** ** | ** ** | ** ** |
| Inventory                                      |       | $                  | 103,235    |       | 98,433     |   |
| Other  current assets                          |       | 662                |       | 5,002      |       |
|                                           |       |               |       |       |       |
| Total  current assets                          |       | 103,897            |       | 103,435    |       |
|                                           |       |               |       |       |       |
| Fixed  assets and mine development costs, net  |       | 245,106            |       | 250,310    |       |
|                                           |       |               |       |       |       |
| Total  assets                                  |       | $                  | 349,003    |       | 353,745    |   |
|                                           |       |               |       |       |       |
| **Liabilities  and Venturers’ Deficit**   | ** ** | ** **         | ** ** | ** ** | ** ** |
| ** **                                     | ** ** | ** **         | ** ** | ** ** | ** ** |
| Current  liabilities                           |       | $                  | 13,473     |       | 14,377     |   |
| Payable  to AngloGold                          |       | 365,698            |       | 376,515    |       |
| Capital  lease obligations                     |       | 10,451             |       | 12,772     |       |
| Asset  retirement obligation                   |       | 16,716             |       | 14,786     |       |
| Other  long-term liabilities                   |       | 1,691              |       | 1,763      |       |
|                                           |       |               |       |       |       |
| Total  liabilities                             |       | 408,029            |       | 420,213    |       |
|                                           |       |               |       |       |       |
| Venturers’  deficit                       |       | (59,026            | )          | (66,468    | )          |
|                                           |       |               |       |       |       |
| Total  liabilities and Venturers’ deficit |       | $                  | 349,003    |       | 353,745    |   |

 

Thecondensed statements of operations of the Joint Venture for each of the yearsin the three-year period ended December 31, 2004 are summarized asfollows:

 
| ** **                                                                | ** ** | **2004**           | ** ** | **2003**   | ** ** | **2002**   | ** ** |
|---------------------------------------------------------------------------|------------|--------------------|------------|------------|------------|------------|------------|
| ** **                                                                | ** ** | **(In thousands)** | ** ** |
| ** **                                                                | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                                                   |       | $                  | 135,673    |       | $          | 102,645    |       | $ | 70,462 |   |
| Operating  expenses                                                       |       | (104,356           | )          | (85,138    | )          | (63,123    | )          |
| Gross  profit                                                             |       | 31,317             |       | 17,507     |       | 7,339      |       |
| Interest  expense                                                         |       | (23,813            | )          | (22,378    | )          | (20,905    | )          |
| Other  income (expense)                                                   |       | 188                |       | (514       | )          | (752       | )          |
| Income  (loss) before cumulative effect of change in accounting principle |       | 7,692              |       | (5,385     | )          | (14,318    | )          |
| Cumulative  effect of change in accounting principle                      |       | —             |       | 4,916      |       | —     |       |
|                                                                      |       |               |       |       |       |       |       |
| Net  income (loss)                                                        |       | $                  | 7,692      |       | $          | (469       | )          | $ | (14,318 | ) |

 

30

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**(5)**       Income Taxes

** **

The tax effects of temporary differences that give rise to significantportions of the deferred tax assets at December 31, 2004 and 2003 arepresented below:

 
| ** **                        | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
|                              |       |     |       |     |       |
| Deferred  tax assets:             |       |     |       |     |       |
| Net  operating loss carryforwards |       | $        | 801,000    |     | 664,000    |   |
| Exploration  expenditures         |       | 67,000   |       | 96,000   |       |
| Other                             |       | 5,000    |       | —   |       |
|                              |       | 873,000  |       | 760,000  |       |
|                              |       |     |       |     |       |
| Valuation  allowance              |       | (873,000 | )          | (760,000 | )          |
|                              |       |     |       |     |       |
| Net  deferred tax assets          |       | $        | —     |     | —     |   |

 

Areconciliation of the statutory federal income tax rate to the effective taxrate follows:

 
| ** **                     | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Statutory  federal             |       |     |       |     |       |
| Income  tax rate               |       | 34.0     | %          | 34.0     | %          |
| Effect  of:                    |       |     |       |     |       |
| State  and local Income taxes  |       | 3.30     |       | 3.30     |       |
| Other  - net                   |       | (1.96    | )          | 0.40     |       |
| Change  in valuation Allowance |       | (35.34   | )          | (37.70   | )          |
| Effective  tax rate            |       | 0.00     | %          | 0.00     | %          |

 

AtDecember 31, 2004, the Company has net operating loss carryforwards forincome tax purposes of approximately $2,148,000 which expire beginning in 2005through 2025.

 

TheCompany has not recorded an income tax benefit in 2004 or 2003 as it does notbelieve it is more likely than not that the benefit of the deferred tax assetswill be realized in the future.

 

**(6)**       Common Stock Options

** **

During1992, 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 1997Officers’ and Directors’ Stock Option Plan, and during 2002, shareholdersapproved the 2002 Stock Option Plan pursuant to which 1,000,000 and 625,000shares, respectively, of the Corporation’s common stock were reserved forissuance pursuant to options to be granted. The 1992 Plan provided for the grant of options on a discretionary basisto certain employees and consultants. Under each plan, the exercise price cannot be less than the fair marketvalue of the common stock on the date of the grant.  The expiration of the options is ten yearsfrom the date of the grant.

 

During2004, the Company granted 100,000 options to directors of the Corporation, andduring 2003 and 2002 the Company granted 50,000 and 125,000 optionsrespectively to directors of the Corporation under the above plans.

 

31

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Changes in stock options for each of the years in the three-year periodended December 31, 2004 are as follows:

 
| ** **                                             | ** ** | **Shares** | ** ** | **Option price  per share** | ** ** | **Weighted  average  exercise price** | ** ** |
|--------------------------------------------------------|------------|------------|------------|-----------------------------|------------|---------------------------------------|------------|
|                                                   |       |       |       |                        |       |                                  |       |
| Outstanding  and exercisable at December 31, 2001 |       | 760,000    |       | $                           | 1.41       |                                  | $          | 1.41 |   |
| Granted                                                |       | 125,000    |       | 2.33                        |       | 2.33                                  |       |
|                                                   |       |       |       |                        |       |                                  |       |
| Outstanding  and exercisable at December 31, 2002 |       | 885,000    |       | 1.19 – 2.33            |       | 1.52                                  |       |
| Granted                                                |       | 50,000     |       | 2.60                        |       | 2.60                                  |       |
| Exercised                                              |       | (100,000   | )          | 1.50 – 2.05            |       | 1.91                                  |       |
|                                                   |       |       |       |                        |       |                                  |       |
| Outstanding  and exercisable at December 31, 2003 |       | 835,000    |       | 1.04 – 2.60            |       | 1.46                                  |       |
| Granted                                                |       | 100,000    |       | 2.60                        |       | 2.60                                  |       |
| Exercised                                              |       | (204,900   | )          | 1.33 – 1.80            |       | 1.44                                  |       |
| Expired                                                |       | (320,100   | )          | 1.04 – 2.33            |       | 1.63                                  |       |
| Outstanding  and exercisable at December 31, 2004 |       | 410,000    |       | 1.04 – 2.60            |       | 1.92                                  |       |
|                                                        |            |            |            |                             |            |                                       |            |  |  |

 

Theweighted average remaining term of options outstanding was 6.81 and 6.35 yearsat December 31, 2004 and 2003, respectively.

 

**(7)**       Recently Issued Financial AccountingStandards:

** **

InDecember 2004, the FASB issued SFAS No. 153, *“Exchanges of Non-monetary Assets an amendment of APBNo. 29”*. This Statement amends APB Opinion No. 29, *“Accounting for Non-monetary Transactions”*toeliminate the exception for non-monetary exchanges of similar productive assetsand replaces it with a general exception for exchanges of non-monetary assetsthat do not have commercial substance. This Statement is effective for fiscal years beginning after June 15,2005. We do not believe that the adoption of SFAS No. 153 will have amaterial impact on our financial position, net earnings or cash flows.

 

InDecember 2004, the FASB issued SFAS No. 123 revised 2004, *“Share-Based Payment”*. This Statement is arevision of SFAS No. 123, *“Accountingfor Stock-Based Compensation”*, and supercedes APB No. 25, “Accountingfor Stock Issued to Employees”. The Statement requires companies to recognizein the income statement the grant-date fair value of stock options and otherequity based compensation issued to employees. This Statement is effective asof the beginning of the first interim or annual period that commences after June 15,2005. The Company cannot yet determine the impact that the adoption of SFAS No. 123revised 2004 will have on our financial position, net earnings or cash flows.

 

InNovember 2004, the FASB issued SFAS No. 151, *“Inventory Costs – An Amendment of ARB No. 43,Chapter 4”*(“SFAS 151”). SFAS 151 amends the guidance in ARB No. 43,Chapter 4, *“Inventory Pricing*,”to clarify the accounting for abnormal amounts of idle facility expense,freight, handling costs, and wasted material (spoilage). Among otherprovisions, the new rule requires that items such as idle facilityexpense, excessive spoilage, double freight, and rehandling costs be recognizedas current-period charges regardless of whether they meet the criterion of “soabnormal” as stated in ARB No. 43. Additionally, SFAS 151 requires thatthe allocation of fixed production overhead to the costs of conversion be basedon the normal capacity of the production facilities. SFAS 151 is effective forfiscal years beginning after

 

32

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June 15,2005. We are currently evaluating the effect that the adoption of SFAS 151 willhave on our results of operations or financial position, but do not expect SFAS151 to have a material effect.

 

InSeptember 2004, the FASB issued EITF Issue No. 03-1, *“The Meaning of Other-Than-Temporary Impairment andIts Application to Certain Investments”*(EITF No. 03-1). Theguidance in EITF No. 03-1 was effective for other-than-temporaryimpairment evaluations made in reporting periods beginning after June 15,2004. However, certain provisions regarding the assessment of whether animpairment is other than temporary have been delayed. The disclosurerequirements continue to be effective in annual financial statements for fiscalyears ending after December 15, 2003, for investments accounted for underSFAS No. 115 and 124. For all other investments addressed by EITF No. 03-1,the disclosures continue to be effective in annual financial statements forfiscal years ending after June 15, 2004. We do not believe that theadoption of EITF No. 03-1 will have a material impact on our financialposition, net earnings or cash flows.

 

**(8)**       Commitments and Contingencies

** **

Aspreviously reported, the Sierra Club and Mineral Policy Center filed twocomplaints in U.S. District Court for the District of Colorado against CrippleCreek & Victor Gold Mining Company (CC&V) and its Joint Venturepartners, including the Company, alleging certain violations of the U.S. CleanWater Act (CWA).

 

1.      The first ten Causes of Action in the firstof these two cases allege un-permitted discharges of pollutants into FourmileCreek and from the Roosevelt Tunnel into Cripple Creek, and discharges ofpollutants exceeding permitted amounts from the Carlton Tunnel and Arequa Gulchoutfalls; the eleventh and twelfth causes of action in that case concern a dischargepermit issued by the Colorado Water Quality Control Division in 1996 for anoutfall in Arequa Gulch.  A pre-trialconference was held on March 25, 2005, in this case, and it should beready by mid-summer for trial, though no trial date has yet been set.

 

2.      The second of these two cases relates toseeps asserted to be point-source discharges of Cresson Project drainage fromthe Moffat Tunnel Cribbing Wall and the Squaw Gulch Pond to Cripple Creek and atributary thereto in Squaw Gulch. Plantiffs assert and Defendants deny that the law requires a permit forthese seeps.  This case was set for trialon April 12, 2005, but that setting was vacated and the two casesconsolidated for trial on a date not yet set.

 

Managementis contesting both of these cases, and is coordinating its own efforts withthose of the owner and operator, Cripple Creek & Victor Gold Company (“CC&V”),and the majority owners thereof, AngloGold North America, Inc., andAngloGold Colorado Corp.  The Company isneither the owner nor operator and its interest is limited to its minorityinterest in CC&V.  Therefore, thelikelihood of an unfavorable outcome to the Company cannot be evaluated, and noestimate can be made of the amount or range of potential loss, if any, whichmight result either to the Company or to its interest in CC&V.

 

Thesuit pending at the end of 2003 in Madison County, Illinois, was recentlydismissed on stipulation.

 

TheCompany expended approximately $17,000 and $12,500 during the years 2004 and2003, respectively, defending against these suits.

 

**(9)**       Selected quarterly financial data

** **

(unaudited)

 

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| ** **                                                                    | ** ** | **2004**    | ** ** |
|-------------------------------------------------------------------------------|------------|-------------|------------|
| ** **                                                                    | ** ** | **First**   | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| ** **                                                                    | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
| Distributions  from mining joint venture in excess of carrying value (note 4) |       | $           | 250,000    |   | $ | — |   | $ | — |   | $ | — |   |
|                                                                          |       |        |       |   |   |   |   |   |   |
| Operating  income (loss)                                                      |       | 158,252     |       | (157,013 | ) | (214,486 | ) | (138,921 | ) |
|                                                                          |       |        |       |   |   |   |   |   |   |
| Net  income (loss)                                                            |       | 162,975     |       | (151,885 | ) | (207,868 | ) | (125,804 | ) |
| Net  income (loss) per share                                                  |       | 0.02        |       | (0.02 | ) | (0.02 | ) | (0.01 | ) |
| Pro  forma net income (loss) per share                                        |       | 0.02        |       | (0.04 | ) | (0.02 | ) | (0.01 | ) |
|                                                                               |            |             |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                                    | ** ** | **2003**    | ** ** |
|-------------------------------------------------------------------------------|------------|-------------|------------|
| ** **                                                                    | ** ** | **First**   | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| ** **                                                                    | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
| Distributions  from mining joint venture in excess of carrying value (note 4) |       | $           | 250,000    |   | $ | — |   | $ | — |   | $ | — |   |
|                                                                          |       |        |       |   |   |   |   |   |   |
| Operating  income (loss)                                                      |       | 119,524     |       | (192,563 | ) | (163,950 | ) | (120,427 | ) |
|                                                                          |       |        |       |   |   |   |   |   |   |
| Net  income (loss)                                                            |       | 124,689     |       | (188,316 | ) | (160,193 | ) | 447,955 |   |
| Net  income (loss) per share                                                  |       | 0.01        |       | (0.02 | ) | (0.02 | ) | 0.05 |   |
| Pro  forma net income (loss) per share                                        |       | 0.01        |       | (0.03 | ) | (0.02 | ) | 0.05 |   |
|                                                                               |            |             |            |  |  |  |  |  |  |  |  |  |  |

 

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