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, 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.)
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
2340 Robinson Street, Suite 201
Colorado Springs, Colorado 80904
_____________________________________________________________________
(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 June 30, 1999: 1,878,450
PART I. - FINANCIAL INFORMATION
GOLDEN CYCLE GOLD CORPORATION
BALANCE SHEETS
June 30, December 31,
1999 1998
(Unaudited)
_________ _________
Assets
_________________________________________
Current assets:
Cash and cash equivalents $ 171,188 $ 13,734
Short-term investments 1,280,711 1,608,871
Interest receivable and other
current assets 23,813 37,149
_________ _________
Total current assets 1,475,712 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 (36,632) (38,894)
_________ _________
16,941 24,385
Other assets 2,418 1,025
Investment in mining joint venture (Note 2) - -
_________ _________
Total assets $ 1,851,675 $ 2,041,768
Liabilities and Shareholders' Equity
_________________________________________
Accounts payable and accrued liabilities $ 3,122 $ 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 (7,138,613) (6,961,424)
Accumulated comprehensive loss (27,174) (27,174)
_________ _________
Total shareholders' equity 1,848,553 2,025,742
_________ _________
$ 1,851,675 $ 2,041,768
<FN>
See Accompanying Notes to Financial Statements
GOLDEN CYCLE GOLD CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS, COMPREHENSIVE LOSS
AND ACCUMULATED DEFICIT
FOR THE THREE AND SIX MONTHS ENDED
June 30, 1999 and 1998
(Unaudited)
Three Months Ended
June 30,
____________________
1999
1998
_________ _________
Revenue:
Distribution from mining joint
venture in excess of
carrying value $ - $ -
_________ _________
Total operating revenue - -
Expenses:
General and administrative (292,295) (191,920)
_________ _________
Operating loss (292,295) (191,920)
Other income-
Interest and other income 19,684 22,099
_________ _________
Net loss $ (272,611) $ (169,821)
_________ _________
Other comprehensive loss-
Foreign currency translation
adjustments - (5,250)
_________ _________
Comprehensive loss $ (272,611) $ (175,071)
_________ _________
Loss per share $ (0.15) $ (0.09)
Weighted average common
shares outstanding 1,878,450 1,870,050
ACCUMULATED DEFICIT:
Beginning of period $(6,866,002) $(6,435,965)
_________ _________
End of Period (7,138,613) (6,605,786)
<FN>
See Accompanying Notes to Financial Statements
GOLDEN CYCLE GOLD CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS, COMPREHENSIVE LOSS
AND ACCUMULATED DEFICIT
FOR THE THREE AND SIX MONTHS ENDED
June 30, 1999 and 1998
(Unaudited)
Six Months Ended
June 30,
____________________
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 (464,167) (352,253)
_________ _________
Operating loss (214,167) (102,253)
Other income:
Interest and other income 36,978 48,492
_________ _________
Net loss $ (177,189) $ (53,761)
_________ _________
Other comprehensive loss
Foreign currency translation
adjustments - (5,250)
_________ _________
Comprehensive loss $ (177,189) $ (59,011)
_________ _________
Loss per share $ (0.09) $ (0.03)
Weighted average common
shares outstanding 1,878,450 1,870,050
ACCUMULATED DEFICIT:
Beginning of period $(6,961,424) $(6,552,025)
_________ _________
End of Period (7,138,613) (6,605,786)
<FN>
See Accompanying Notes to Financial Statements
GOLDEN CYCLE GOLD CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
June 30, 1999 and 1998
(Unaudited)
1999 1998
__________ __________
Cash flows from operating activities:
Net Loss $ (177,189) $ (53,761)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation expense 2,262 3,446
Decrease (increase) in interest
receivable and other current
assets 13,336 (8,402)
Decrease in accounts payable
and accrued liabilities (12,904) (24,179)
__________ __________
Net cash used in
operating activities (174,495) (82,896)
__________ __________
Cash flows from investing activities:
Decrease in short-term
investments, net 328,160 332,827
Exploration & development costs - (42,403)
Decrease (increase) in other assets (1,393) 1,987
Disposal (purchases) of property and
equipment, net 5,182 (1,528)
__________ __________
Net cash provided by investing
activities 331,949 290,883
__________ __________
Effect of exchange rate changes on cash - (258)
Net increase in
cash and cash equivalents 157,454 207,729
Cash and cash equivalents, beginning of period 13,734 11,095
__________ __________
Cash and cash equivalents, end of period $ 171,188 $ 218,824
<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.
(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, 1999, the Company's share
of accumulated unrecorded losses from the Joint Venture was approximately
$9,525,000.
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 $162.4 million were outstanding at June 30, 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 used by operations was approximately $174,000 and $83,000 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 used by operations during the 1999 period increased from the 1998
period by approximately $91,000 primarily due to increased general and
administrative expenses.
The Company's working capital was approximately $1,473,000 at June 30,
1999 compared to $1,850,000 at June 30, 1998. Working capital decreased by
approximately $377,000 at June 30, 1999 compared to June 30, 1998. The
decrease was primarily due to Philippine exploration activity and operations
of the Company's Philippine subsidiary, Golden Cycle Philippines, Inc.
("GCPI"), the Company's initiative to investigate the possibilities of
conducting business in the Democratic People's Republic of Korea ("DPRK")
(North Korea) and, in part, to severance payments to the former chief
executive officer.
All work by GCPI 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 exploration buy-in had to be
completed by March 1999. During the first six months of 1999, GCPI expended
approximately $19,000 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 could justify its continued efforts to obtain
a business opportunity in the DPRK and obtain a license to do so at some
point in the future. Management believes that it is doubtful that OFAC will
grant the Company a license for possible projects in the DPRK at this time
due to the current political and economic situation. 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. There can be no assurance that this initiative 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 loss, for the six months ended June 30, of
approximately $177,000 in 1999, compared to net loss of approximately
$54,000 in the 1998 period.
The increase in net loss for the first six 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 June 30, 1999, the Company's share of accumulated unrecorded losses from
the Joint Venture was approximately $9,525,000.
The Joint Venture incurred a net loss of approximately $4.8 million for
the six months ended June 30, 1999 as compared to a net loss of $6.6 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: None
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)
August 11, 1999