UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________________
Commission file number 0-11226
GOLDEN CYCLE GOLD CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
COLORADO 84-0630963
- -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1515 South Tejon, Suite 201, Colorado Springs, Colorado 80906
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (719) 471-9013
- ---------------------------------------------------------------------
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days. YES X NO
------ -------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES NO X
------ -------
Number of Shares outstanding at June 30, 2003: 1,908,450
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
GOLDEN CYCLE GOLD CORPORATION
-----------------------------
CONSOLIDATED
BALANCE SHEETS
June 30, December 31,
2003 2002
(unaudited)
------------- ---------------
Assets
- ------
Current assets:
Cash and cash equivalents $ 556,405 $ 578,212
Short-term investments 793,339 640,788
Interest receivable and other current assets 21,604 31,762
----------- -----------
Total current assets 1,371,348 1,250,762
Assets held for sale - water rights (net) 132,680 132,680
Property and equipment, at cost:
Land 2,025 2,025
Mineral claims 20,657 20,657
Furniture and fixtures 10,056 10,056
Machinery and equipment 38,457 30,247
----------- -----------
71,195 62,985
Less accumulated depreciation (31,120) (29,452)
----------- -----------
40,075 33,533
----------- -----------
Total assets $ 1,544,103 $ 1,416,975
=========== ===========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 17,757 $ 18,252
Shareholders' equity:
Common stock, no par value,
authorized 3,500,000 shares; issued
and outstanding 1,908,450 shares at
March 31, 2002, 1,888,450
shares at December 31, 2002 7,307,854 7,116,604
------------ -----------
Additional paid-in capital 1,927,736 1,927,736
Accumulated comprehensive loss (31,538) (31,538)
------------ -----------
Accumulated deficit (7,677,706) (7,614,079)
Total shareholders' equity 1,526,346 1,398,723
----------- -----------
$ 1,544,103 $ 1,416,975
=========== ===========
2
GOLDEN CYCLE GOLD CORPORATION
-----------------------------
CONSOLIDATED
STATEMENTS OF OPERATIONS, COMPREHENSIVE LOSS
--------------------------------------------
AND ACCUMULATED DEFICIT
-----------------------
FOR THE THREE AND SIX MONTHS ENDED
June 30, 2003 and 2002
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -------------------------------
2003 2002 2003 2002
------------ ------------ ------------- -------------
Revenue:
Distribution from mining
joint venture in excess
of carrying value $ - $ - $ 250,000 $ 250,000
----------- ----------- ------------ ------------
Total revenue - - 250,000 250,000
Expenses:
Exploration (29,926) (36,026) (79,979) (54,070)
General and administrative (162,637) (114,537) (243,060) (192,805)
----------- ----------- ----------- -----------
Total expenses (192,563) (150,563) (323,039) (246,874)
----------- ----------- ----------- -----------
Operating income (loss) (192,563) (150,563) (73,039) 3,126
Other income:
Interest 4,247 8,399 9,412 19,021
----------- ----------- ------------ -----------
Net income (loss) $ (188,316) $ (142,164) $ (63,627) $ 22,147
----------- ----------- ------------ -----------
Income (loss) per share $ (0.10) $ (0.08) $ (0.03) $ 0.01
=========== =========== ============ ============
Weighted average common
shares outstanding 1,897,783 1,888,450 1,903,146 1,888,450
=========== =========== ============ ============
Dilutive shares outstanding 167,000 177,000 167,000 177,000
Fully diluted earnings per share $ * $ * $ * $ 0
=========== =========== ============ ============
ACCUMULATED DEFICIT:
Beginning of period $(7,489,390) $ (7,226,338) $ (7,614,079) $(7,390,649)
End of period $(7,677,706) $ (7,368,502) $ (7,677,706) $(7,368,502)
* Not reported as anti-dilutive due to net loss
3
GOLDEN CYCLE GOLD CORPORATION
-----------------------------
CONSOLIDATED
STATEMENTS OF CASH FLOWS
------------------------
FOR THE SIX MONTHS ENDED
June 30, 2003 and 2002
(Unaudited)
2003 2002
-------------- -------------
Cash flows from operating activities:
Net income (loss) $ (63,627) $ 22,147
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation expense 1,668 1,668
Decrease (increase) in interest receivable
and other current assets 10,158 (13,067)
Decrease in accounts payable
and accrued liabilities (495) (8,313)
----------- -----------
Net cash provided (used) by
operating activities (52,296) 2,435
----------- -----------
Net cash provided by investing activities:
Increase in short-term investments (152,551) (218,972)
Mineral property development costs - (4,581)
Purchase of property and equipment (8,210) (3,638)
----------- -----------
Net cash used in
investing activities (160,761) (227,191)
----------- -----------
Cash flows provided by financing activity:
Proceeds from issuance of common
stock, net of offering costs 191,250 -
----------- -----------
Net decrease in cash and
cash equivalents (21,807) (224,756)
Cash and cash equivalents, beginning of period 578,212 570,842
----------- -----------
Cash and cash equivalents, end of period $ 556,405 $ 346,086
=========== ===========
4
GOLDEN CYCLE GOLD CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are unaudited but, in the opinion of
management, include all adjustments, consisting solely of normal recurring
items, necessary for a fair presentation. Interim results are not necessarily
indicative of results to be expected for a full year.
These financial statements should be read in conjunction with the financial
statements and notes thereto which are included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2002. The accounting policies set
forth in those annual financial statements are the same as the accounting
policies utilized in the preparation of these financial statements, except as
modified for appropriate interim financial statement presentation.
(2) INVESTMENT IN JOINT VENTURE
The Company accounts for its investment in the Cripple Creek & Victor Gold
Mining Company (the "Joint Venture") on the equity method. During 1992, the
Company's investment balance in the Joint Venture was reduced to zero. Joint
Venture distributions in excess of the investment carrying value are recorded as
income, as the Company is not required to finance the Joint Venture's operating
losses or capital expenditures. Correspondingly, the Company does not record its
share of Joint Venture losses incurred subsequent to the reduction of its
investment balance to zero. To the extent the Joint Venture is subsequently
profitable, the Company will not record its share of equity income until the
cumulative amount of previously unrecorded Joint Venture losses has been
recouped. As of June 30, 2003, the Company's share of accumulated unrecorded
losses from the Joint Venture was $19,444,658.
(3) EARNINGS PER SHARE
Basic earnings per share are computed by dividing net earnings by the
weighted average number of shares of common stock outstanding during each
period. Diluted earnings per share are computed by dividing net earnings by the
weighted average number of common stock shares outstanding increased for
potentially dilutive common stock shares outstanding during the period.
The dilutive effect of stock options and their equivalents was calculated
using the treasury stock method.
Stock options to purchase 167,000 and 177,000 common shares were excluded
from the treasury stock method calculations because they were antidilutive
during the three months ended June 30, 2003 and June 30, 2002 respectively.
Stock options to purchase 167,000 common shares were excluded from the treasury
stock method calculations because they were antidilutive during the six months
ended June 30, 2003.
5
GOLDEN CYCLE GOLD CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(4) STOCK-BASED COMPENSATION
Stock Options: The Company applies Accounting Principles Board Opinion No.
25 and related interpretations in accounting for its stock option plans.
Accordingly, no compensation cost is recognized for stock options granted with
exercise prices equal to the fair market value of the common stock.
Had compensation cost for the Company's stock-based compensation plans been
determined on the fair value basis at the grant date for awards under those
plans consistent with FASB Statement 123, the Company's net loss and loss per
share would have been reduced to pro forma amounts indicated below:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2003 2002 2003 2002
---------- ---------- ----------- -----------
Net income (loss):
As reported $(188,316) $(142,164) $ (63,627) $ 22,147
Pro forma (257,948) (373,080) (133,259) (208,769)
Basic and diluted earnings
(loss) per share:
As reported (0.10) (0.08) (0.03) 0.01
Pro forma (0.14 (0.20) (0.07) (0.11)
Stock options representing ten thousand shares and twenty five thousand
shares respectively, were granted during the six months ended June 30, 2003 and
June 30, 2002. The fair value of each option grant was estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for options granted:
Risk-free Expected
Dividend Expected interest life (in Fair value
yield volatility rate range years) of option
-------------- -------------- -------------- -------------- --------------
Options granted during
the six months ended
June 30, 2002 0 48% 4.61% 10 $ 9.20
Options granted during the six
months ended June 30, 2003 0 53% 3.29% 10 $7.00
The Black-Scholes option-pricing model provides a mathematical
calculation of fair value using the variables above. If the model's input
factors differ in the future from those historical factors used in the model,
the "fair value of option" calculated by the model will differ from actuality.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
Liquidity and Capital Resources
The Company's principal mining investment and source of cash flows has been
its interest in the Joint Venture. The Joint Venture engages in gold mining
activity in the Cripple Creek area of Colorado. The Company's Joint Venture
co-venturer is AngloGold Colorado Inc. ("AngloGold", formerly Pikes Peak Mining
Company), a wholly-owned subsidiary of AngloGold North America Inc., which is a
wholly owned subsidiary of AngloGold Ltd.
The Company's rights and obligations relating to its Joint Venture interest
are governed by the Joint Venture Agreement. The Joint Venture is currently, and
for the foreseeable future will be, operating in the Initial Phase, as defined.
In accordance with the Joint Venture Agreement, AngloGold manages the Joint
Venture, and is required to finance all operations and capital expenditures
during the Initial Phase.
The Initial Phase will terminate after Initial Loans, as defined, have been
repaid and Net Proceeds (defined generally as gross revenues less operating
costs including AngloGold's administrative fees) of $58 million have been
distributed to the venture participants in the proportion of 80% to AngloGold
and 20% to the Company. Initial Loans generally constitute funds loaned to the
Joint Venture, and interest thereon, to finance operations and mine development
by either AngloGold or third-party financial institutions and are repayable
prior to distributions to the venture participants. AngloGold (the "Manager")
reported that Initial Loans, payable to AngloGold, of approximately $361 million
were outstanding at June 30, 2003. Under the Agreement as amended, the Joint
Venture has not earned or distributed any Net Proceeds.
After the Initial Phase, the Joint Venture will distribute metal in kind in
the proportion of 67% to AngloGold and 33% to the Company, and the venture
participants will be responsible for their proportionate share of the Joint
Venture costs.
During the Initial Phase, the Company is entitled to receive a Minimum
Annual Distribution of $250,000. Minimum Annual Distributions received after
1993 constitute an advance of Net Proceeds. Accordingly, such Net Proceeds
advances will be recouped from future Net Proceeds distributions, if any,
allocable to the Company. Based on the amount of Initial Loans payable to the
Manager and the recurring operating losses incurred by the Joint Venture,
management of the Company believes that, absent a significant and sustained
increase in the prevailing market prices for gold, it is unlikely that the
Company will receive more than the Minimum Annual Distribution from the Joint
Venture in the foreseeable future.
Cash used by operations was approximately $52,000 in the six months ended
June 30, 2003 compared to cash provided by operations of approximately $2,000
during the same period in 2002. The Minimum Annual Distribution is reflected as
an operating cash flow by reason of the fact that the Joint Venture investment
balance was reduced to zero during 1992, as discussed below under "Results of
Operations". The Minimum Annual Distribution was received from the Joint Venture
on January 15, 2003. No further distributions are expected from the Joint
Venture during the remainder of 2003.
7
The Company's working capital was approximately $1,354,000 at June 30, 2003
compared to $1,233,000 at December 31, 2002. Working capital increased by
approximately $121,000 at June 30, 2003 compared to December 31, 2002.
Management believes that the Company's working capital, augmented by the
Minimum Annual Distribution, is adequate to support operations at the current
level for the coming year, barring unforeseen events. Although there can be no
assurance, the Company anticipates the closure of its sale of certain Water
Rights to the City of Cripple Creek during the year 2003, which will provide
additional working capital. The Company anticipates that its Philippine
subsidiary will hold all work on a standby basis until the MPSA is awarded to
the claim owner. If opportunities to economically pursue or expand Philippine or
Nevada operations, or any other opportunity are available, and the Company
elects to pursue them, additional working capital may also be required. There is
no assurance that the Company will be able to obtain such additional capital, if
required, or that such capital would be available to the Company on terms that
would be acceptable. Furthermore, if any such operations are commenced, it is
not presently known when or if positive cash flow could be derived from the
properties.
Results of Operations
- ---------------------
The Company had net loss, for the three months ended June 30, 2003 of
approximately $188,000, compared to net loss for the corresponding 2002 period
of $64,000. Increase in net loss for the three months of 2003 was due to
increased general and administrative expenses. The Company had net loss, for the
six months ended June 30, 2003, of approximately $64,000, compared to net income
of approximately $22,000 in the comparable 2002 period. The decrease from net
income to net loss for the first six months of 2003 compared with the
corresponding period in 2002, was primarily due to increased exploration
activities and increased legal expenses during the 2003 period, and decreased
interest income from investments due to lower prevailing interest rates during
2003 to date.
The Company accounts for its investment in the Joint Venture on the equity
method. During 1992, the Company's investment balance in the Joint Venture was
reduced to zero. Joint Venture distributions in excess of the investment
carrying value are recorded as income as received, as the Company is not
required to finance the Joint Venture's operating losses or capital
expenditures. Correspondingly, the Company does not record its share of Joint
Venture losses incurred subsequent to the reduction of its investment balance to
zero. To the extent the Joint Venture is subsequently profitable, the Company
will not record its share of equity income until the cumulative amount of
previously unrecorded Joint Venture losses has been recouped. As of June 30,
2003, the Company's share of accumulated unrecorded losses from the Joint
Venture was $19,444,658.
The Manager reported that the Joint Venture incurred net losses of
approximately $1.1 million for the three months ended June 30, 2003 and $2.6
million for the six months ended June 30, 2003 as compared to net losses of $4.1
million and $8.6 million for the corresponding periods in 2002. There is no
assurance that the Joint Venture will be able to achieve profitability in any
subsequent period or to sustain profitability for an extended period. The
ability of the Joint Venture to sustain profitability is dependent upon a number
of factors, including without limitation, the market price of gold, which is
volatile and subject to speculative movement, a variety of factors beyond the
Joint Venture's control, and the efficiency of the Cresson mining operation.
Whether future gold prices and the results of the Joint Venture's
operations will reach and maintain a level necessary to repay the Initial Loans,
complete the Initial Phase, and thereafter generate net income cannot be
assured. Based on the amount of Initial Loans payable to the Manager and the
uncertainty of future revenues, management of the Company believes that, without
a significant and sustained increase in the prevailing market price for gold, it
is unlikely that the Company will receive more than the Minimum Annual
Distribution from the Joint Venture in the foreseeable future.
8
PART II - OTHER INFORMATION
- ---------------------------
Item 1 through 3 are not being reported due to a lack of circumstances that
require a response.
Item 4. Controls and Procedures.
--------------------------------
a. Evaluation of disclosure controls and procedures. The Company, under the
supervision and with the participation of the Company's management, including
its Chief Executive Officer, carried out an evaluation of the effectiveness of
the design and operation of the Company's disclosure controls and procedures (as
defined in Rules 240.13a-14(c) and 15d-14(c) under the Securities Exchange Act
of 1934 (the "Exchange Act") as of a date within ninety days before the filing
date of this quarterly report (the "Evaluation Date"). Based upon this
evaluation, the Chief Executive Officer concluded that, as of the Evaluation
Date, the Company's disclosure controls and procedures were effective for the
purposes of recording, processing, summarizing and timely reporting information
required to be disclosed by the Company in the reports that it files under the
Securities Exchange Act of 1934 and that such information is accumulated and
communicated to the Company's management in order to allow timely decisions
regarding required disclosure.
b. Changes in internal controls. There have been no significant changes in
the Company's internal controls or in other factors that could significantly
affect the Company's disclosure controls and procedures subsequent to the
Evaluation Date, nor were there any significant deficiencies or material
weaknesses in the Company's internal controls.
Item 5. Other Information. None.
---------------------------------
Item 6. Exhibits and Reports on Form 8-K.
------------------------------------------
Exhibit 31 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 32 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
9
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
THE GOLDEN CYCLE GOLD CORPORATION
(Registrant)
May 19, 2003 By: /s/ R. Herbert Hampton
-------------------------------------
R. Herbert Hampton
President, C.E.O. and Treasurer
(as both a duly authorized officer
of Registrant and as principal
financial officer of Registrant)
10
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
31 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
11