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 March 31, 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
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(Exact name of registrant as specified in its charter)
COLORADO 84-0630963
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1515 South Tejon, Suite 201, Colorado Springs, Colorado 80906
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (719) 471-9013
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(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 XX NO
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Number of Shares outstanding at March 31, 2003: 1,908,450
PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
GOLDEN CYCLE GOLD CORPORATION
-----------------------------
CONSOLIDATED
BALANCE SHEETS
March 31,
2003 December 31,
(unaudited) 2002
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Assets
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Current assets:
Cash and cash equivalents $ 476,250 $ 578,212
Short-term investments 1,039,056 640,788
Interest receivable and other current assets 35,512 31,762
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Total current assets 1,550,818 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 31,045 30,247
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63,783 62,985
Less accumulated depreciation (30,286) (29,452)
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33,497 33,533
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Total assets $ 1,716,995 $ 1,416,975
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 2,333 $ 18,252
Shareholders' equity:
Common stock, no par value,
authorized 3,500,000 shares; issued
and outstanding 1,888,450 shares at
December 31, 2002, 1,908,450
shares at March 31, 2003 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 (7,489,390) (7,614,079)
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Total shareholders' equity 1,714,662 1,398,723
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$ 1,716,995 $ 1,416,975
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2
GOLDEN CYCLE GOLD CORPORATION
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CONSOLIDATED
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
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FOR THE THREE MONTHS ENDED
March 31, 2003 and 2002
(Unaudited)
March 31, March 31,
2003 2002
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Revenue:
Distribution from mining
joint venture in excess
of carrying value $ 250,000 $ 250,000
Expenses:
General and administrative (130,476) (96,311)
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Operating income 119,524 153,689
Other income 5,165 10,622
Net income $ 124,689 $ 164,311
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Income per share $ 0.07 $ 0.09
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Weighted average common
shares outstanding 1,901,783 1,888,450
============ ============
Dilutive shares outstanding 157,000 -
Fully diluted earnings per share $ 0.06 $ 0.09
============ ============
ACCUMULATED DEFICIT:
Beginning of period $ (7,614,079) $ (7,390,649)
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End of period (7,489,390) (7,226,338)
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3
GOLDEN CYCLE GOLD CORPORATION
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CONSOLIDATED
STATEMENTS OF CASH FLOWS
------------------------
FOR THE THREE MONTHS ENDED
March 31, 2003 and 2002
(Unaudited)
2003 2002
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Cash flows from operating activities:
Net income $ 124,689 $ 164,311
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 834 835
Decrease (increase) in interest receivable
and other current assets (3,750) 11,697
Decrease in accounts payable
and accrued liabilities (15,919) (10,095)
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Net cash provided by operating activities 105,854 166,748
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Cash flows from investing activities:
Increase in short-term investments, net (398,268) (409,976)
Purchase of equipment (798) (2,730)
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Net cash used in investing activities (399,066) (412,706)
Cash flows provided by financing activity:
Proceeds from issuance of common
stock, net of offering costs 191,250 -
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Net decrease in cash and
cash equivalents (101,962) (245,958)
Cash and cash equivalents, beginning of period 578,212 570,842
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Cash and cash equivalents, end of period $ 476,250 $ 324,884
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GOLDEN CYCLE GOLD CORPORATION
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NOTES TO FINANCIAL STATEMENTS
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(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 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 March 31, 2003, the Company's share of accumulated unrecorded
losses from the Joint Venture was $19,232,258.
(3) EARNINGS PER SHARE
Earnings per share are computed by dividing net earnings by the weighted
average number of shares of common stock outstanding during each period. There
were 157,000 shares of dilutive securities outstanding during the three months
ended March 31, 2003. There were 177,000 shares of dilutive securities
outstanding during the year ended December 31, 2002, not reported in loss per
share, as they would be anti-dilutive due to net loss.
(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.
5
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 at the grant dated for awards under those plans
consistent with the FASB Statement 123, the Company's net loss and loss per
share would have been reduced to pro forma amounts indicated below:
2002 2001 2000
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Net income (loss):
As reported $(223,430) $ (93,482) $ 34,332
Pro forma (454,346) (205,233) (111,668)
Basic and diluted earnings (loss) per share:
As reported (.12) (0.05) 0.02
Pro forma (.22) (0.11) (0.06)
No stock options were granted during the three months ended either March
31, 2003 or March 31, 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 three months ended
March 31, 2002 0 4.61% 10 $
Options granted during the
three months ended March 31,
2003 0 4.10% 10
The Black-Scholes option-pricing model provides a mathematical calculation
of fair value using the variables above which the Company does not believe
represents the fair value in an exchange transaction between unrelated parties.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
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Liquidity and Capital Resources
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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 $356.5
million were outstanding at March 31, 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 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 provided by operations was approximately $106,000 in the three months
ended March 31, 2003 compared to cash provided by operations of approximately
$167,000 during the same period in 2002. Prior to 1993, the $250,000 Minimum
Annual Distribution was classified as an investing cash flow; beginning in 1993,
the Minimum Annual Distribution was 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 $1,548,000 at March 31,
2003 compared to $1,233,000 at December 31, 2002. Working capital increased by
approximately $315,000 at March 31, 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 a positive cash flow could be derived from the
properties.
Results of Operations
---------------------
The Company had net income, for the three months ended March 31, 2003, of
approximately $125,000, compared to net income of approximately $164,000 in the
comparable 2002 period.
The decrease in net income for the first three months of 2003 compared with
the corresponding period in 2002 was primarily due to increased exploration
activities 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 March 31,
2003, the Company's share of accumulated unrecorded losses from the Joint
Venture was $19,232,258.
The Manager reported that the Joint Venture incurred a net loss of
approximately $1.5 million for the three months ended March 31, 2003 as compared
to a net loss of $4.4 million for the corresponding period 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
8
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
currently near recent historically low levels, 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 operating 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.
PART II - OTHER INFORMATION
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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.
99.1 - Certification of Chief Financial Officer
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
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R. Herbert Hampton
President, C.E.O. and Treasurer
(as both a duly authorized officer
of Registrant and as principal
financial officer of Registrant)
CERTIFICATION OF PERIODIC REPORT
I, R. Herbert Hampton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Golden Cycle Gold
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant, and I have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
10
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
May 19, 2003 /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)
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EXHIBIT INDEX
Exhibit No. Description
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99.1 Certification of Chief Financial Officer
12