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, 1999
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.)
2340 Robinson Street, Suite 201,
Colorado Springs, Colorado 80904
(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 XX NO
Number of Shares outstanding at May 11, 1999: 1,878,450
PART I. - FINANCIAL INFORMATION
GOLDEN CYCLE GOLD CORPORATION
BALANCE SHEETS
March 31, December 31,
1999 1998
(Unaudited)
_________ _________
Assets
_________________________________________
Current assets:
Cash and cash equivalents $ 11,711 $ 13,734
Short-term investments 1,706,947 1,608,871
Interest receivable and other
current assets 30,968 37,149
_________ _________
Total current assets 1,749,626 1,659,754
Note receivable 223,924 223,924
Assets held for sale (net) 132,680 132,680
Property and equipment, at cost:
Land 2,025 2,025
Mineral property development costs - -
Furniture and fixtures 9,331 12,356
Machinery and equipment 42,217 48,898
_________ _________
53,573 63,279
Less accumulated depreciation (36,005) (38,894)
_________ _________
17,568 24,385
Other assets 2,418 1,025
Investment in mining joint venture (Note 2) - -
_________ _________
Total assets $ 2,126,216 $ 2,041,768
Liabilities and Shareholders' Equity
_________________________________________
Accounts payable and accrued liabilities $ 5,052 $ 16,026
Shareholders' equity:
Common Stock - no par value.
Authorized 3,500,000 shares;
issued and outstanding
1,878,450 shares 7,086,604
7,086,604
Additional paid-in capital 1,927,736 1,927,736
Accumulated deficit (6,866,002) (6,961,424)
Accumulated comprehensive loss (27,174) (27,174)
_________ _________
Total shareholders' equity 2,121,164 2,025,742
_________ _________
$ 2,126,216 $ 2,041,768
<FN>
See Accompanying Notes to Financial Statements
GOLDEN CYCLE GOLD CORPORATION
STATEMENTS OF OPERATION AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED
March 31, 1999 and 1998
(Unaudited)
Three Months Ended
March 31,
____________________
1999
1998
_________ _________
Revenue:
Distribution from mining joint
venture in excess of
carrying value $ 250,000 $ 250,000
_________ _________
Total operating revenue 250,000 250,000
Expenses:
General and administrative (171,872) (160,333)
_________ _________
Operating income 78,128 89,667
Other income:
Interest and other income 17,294 26,393
_________ _________
Net income $ 95,422 $ 116,060
_________ _________
Income per share $ 0.05 $ 0.06
Weighted average common
shares outstanding 1,878,450 1,878,450
ACCUMULATED DEFICIT:
Beginning of period $(6,961,424) $(6,552,025)
_________ _________
End of Period (6,866,002) (6,435,965)
<FN>
See Accompanying Notes to Financial Statements
GOLDEN CYCLE GOLD CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
March 31, 1999 and 1998
(Unaudited)
1999 1998
__________ __________
Cash flows from operating activities:
Net Income $ 95,422 $ 116,060
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense 627 1710
Decrease (increase) in interest
receivable and other current
assets 6,181 (2,512)
Decrease in accounts payable
and accrued liabilities (10,974) (18,467)
__________ __________
Net cash provided by
operating activities 91,256 96,791
__________ __________
Cash flows (used) by investing activities:
Decrease (increase) in short-term
investments, net (98,076) 14,898
Exploration & development costs - (19,763)
Decrease (increase) in other assets (1,393) 1,859
Disposal (purchases) of property and
equipment, net 6,190 (1,418)
__________ __________
Net cash used by investing
activities (93,279) (4,424)
__________ __________
Net increase (decrease) in
cash and cash equivalents (2,023) 92,367
Cash and cash equivalents, beginning of period 13,734 11,095
__________ __________
Cash and cash equivalents, end of period $ 11,711 $ 103,462
<FN>
See Accompanying Notes to Financial Statements
GOLDEN CYCLE GOLD CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements (other than the Balance Sheet at
December 31, 1998) 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, 1998. 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.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income
(Statement No. 130), effective for years beginning after December 15, 1997.
Statement No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The Company adopted Statement No. 130 effective
January 1, 1998 and there was no significant impact on the Company's
financial statements.
(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, 1999, the Company's share
of accumulated unrecorded losses from the Joint Venture was $8,952,058.
(3) SUBSEQUENT EVENT
The Company announced March 12, 1999 that it had been advised by
Euro-Nevada Mining Corporation, Inc. ("Euro-Nevada") that Euro-Nevada had
accepted offers from shareholders owning approximately 54% of the issued and
outstanding shares of the Company, on a fully diluted basis, to sell their
shares to Euro-Nevada or its nominee for a cash purchase price of US$13.50
per share. The closing of the transaction was subject to certain conditions,
including Euro-Nevada performing due diligence satisfactory to Euro-Nevada
relating to the Company and compliance with applicable regulatory
requirements. Euro-Nevada also advised the Company it would, upon completion
of the stock purchase, promptly enter into negotiations with the Company to
execute a merger agreement to acquire the balance of the Company's shares for
a cash price of US$13.50 per share. On April 21, 1999, the Company announced
that Euro-Nevada had given notice under its March 12, 1999 letter agreement
with certain shareholders of the Company that Euro-Nevada elected to
terminate the agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS 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 Pikes Peak Mining Company ("Pikes Peak"), a
wholly-owned subsidiary of Independence Mining Company.
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, Pikes
Peak 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 Pikes Peak's administrative fees) of $58 million
have been distributed to the venture participants in the proportion of 80% to
Pikes Peak 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 Pikes Peak or third-party financial institutions
and are repayable prior to distributions to the venture participants. Pikes
Peak (the "Manager") reported that Initial Loans, payable to Pikes Peak, of
approximately $157.8 million were outstanding at March 31, 1999. 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 Pikes Peak 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 $91,000 and $97,000 in
the
1999 and 1998 periods respectively. 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 January 15,
1999. No further distributions are expected from the Joint Venture during
the remainder of 1999.
Cash provided by operations during the 1999 period decreased from the
1998 period by approximately $6,000 primarily due to increased general and
administrative expenses.
The Company's working capital was approximately $1,745,000 at March 31,
1999 compared to $2,041,000 at March 31, 1998. Working capital decreased by
approximately $296,000 at March 31, 1999 compared to March 31, 1998. The
decrease was primarily due to Philippine exploration activity and operations
of the Company's Philippine subsidiary, Golden Cycle Philippines, Inc.
("GCPI") and the Company's initiative to investigate the possibilities of
conducting business in the Democratic People's Republic of Korea ("DPRK")
(North Korea).
All work on the Sagittarius Alpha Realty claims ("SAR") exploration
project in the Philippines has been placed on a standby basis until a Mineral
Profits Sharing Agreement ("MPSA") is awarded to the claim owner, Benguet
Corporation. The Company's decision to place this effort on a standby status
was based on several factors. Benguet Corporation has agreed to an extension
of the time period for the Company to complete its exploration buy-in of the
SAR claims to a date twelve months after the date of the issuance of an MPSA.
Previously, the buy-in had to be completed by March 1999. During the first
three months of 1999, GCPI expended approximately $16,000 for operations, to
negotiate the above extension for the SAR buy-in, and finally, to place its
operations into standby status.
During 1998,the Company and its prospective partner submitted an
application for a license to conduct business in the DPRK to the US Treasury
Department's Office of Foreign Asset Control (OFAC), as this license is
required before any business can be conducted by American companies in the
DPRK. Although this license application was turned down by OFAC, the Company
believes the potential benefits justify its continued efforts to obtain a
business opportunity in the DPRK and obtain a license to do so. Possible
projects in the DPRK are still under consideration. Any future involvement
in a business opportunity in the DPRK is dependent on the outcome of the
ongoing negotiations between the US Government and the DPRK, followed by
OFAC's issuance of a license to engage in specified mining related business
ventures. The Company is pursuing efforts to establish a joint venture with
a group which has expertise in the area. There can be no assurance that any
of these initiatives will be successful.
Management believes that the Company's working capital, augmented by
the
Minimum Annual Distribution, is adequate to support operations at the current
level for several years, barring unforeseen events. 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 operations are available, or if the Company is
awarded a US Treasury license for a business opportunity in the DPRK, 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 unlikely they would generate positive cash
flow and/or profit for substantial periods, if ever.
Results of Operations
The Company had net income, for the three months ended March 31, of
approximately $95,000 in 1999, compared to net income of approximately
$116,000 in the 1998 period.
The decrease in net income for the first three months of 1999 compared
with the corresponding period in 1998 was due to increased general and
administrative expenses and decreased interest revenue during the 1999 period.
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, 1999, the Company's share of accumulated unrecorded losses from
the Joint Venture was $8,952,058.
The Joint Venture incurred a net loss of approximately $2.0 million for
the three months ended March 31, 1999 as compared to a net loss of $3.7
million for the corresponding period in 1998. The Joint Venture recorded a
net loss of $11.8 million for the year ended December 31, 1998 compared to a
net loss of $10.8 million for the year ended December 31, 1997 and with net
income of $1.93 million for the year ended December 31, 1996. Prior to 1996,
the Joint Venture incurred substantial losses during each year of operation,
including net losses of $3.65 million for the year ended December 31, 1995
and $9.35 million for the year ended December 31, 1994. 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 currently at historically low levels and 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.
Management believes that the computer systems and applications it
maintains would not have a material impact on the operations of the Company
or its revenues in the event that the systems fail to operate. However,
Management is taking necessary steps to ensure that all the Company's
hardware and software are Year 2000 compliant. The Company is communicating
with its suppliers and service providers and, although the survey is still
incomplete, has not received any indication or notification that any supplier
or service provider will not be Year 2000 compliant. The computer systems at
the Cresson mine, which provides substantially all of the Company's revenue,
have been reviewed for Year 2000 compliance. Based on this review, a number
of hardware and software issues were developed. The Manager of the Joint
Venture has developed a comprehensive plan to identify and remedy specific
problems. The Manager expects to be Year 2000 compliant and complete final
testing during September 1999. The Company will continue to monitor the
operation at Cresson to ascertain whether it has attained Year 2000
compliance.
PART II - OTHER INFORMATION
Item 1 through 4 are not being reported due to a lack of circumstances
that require a response.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits: None
b. Reports on Form 8-K: A report was filed on March 19, 1999,
Item 1, to report an agreement between Euro-Nevada Mining Corporation, Inc.
and shareholders of the Company, which, had it been consummated, would have
resulted in a change in control of the Company.
c. Reports on Form 8-K: A report was filed on May 5, 1999,
Item 1, to report that Euro-Nevada Mining Corporation, Inc. had terminated
its agreement referred to above.
d. Reports on Form 8-K: A report was filed on May 10, 1999,
Item 6, to report that Messrs. Keane, Ploesser, and Worley have decided not
to stand for re-election as directors.
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)
R. Herbert Hampton
President, C.E.O. and Treasurer
(as both a duly authorized officer
of Registrant and
as principal financial officer of
Registrant)
May 14, 1999