PRELIMINARY NOTE
The accompanying condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. In the opinion of management, the accompanying interim financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position as of September 30, 2005, and our results of operations and cash flows for the nine-month periods ended September 30, 2005. The results of operations for the nine-month periods ended September 30, 2005 are not necessarily indicative of the results for a full-year period. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Audit for the year ended December 31, 2004.
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity - Galaxy Minerals, Inc. and Subsidiary (f/k/a Golden Sand Eco-Protection, Inc.) (“the Company”) (an exploration stage company) is a Florida corporation formed in December 1999, originally to provide memorial products and services through the Internet. On February 23, 2004, there was a change of control of the Company when the previous majority owner sold 7,550,000 shares, representing approximately 91% of the then issued common shares of the Company to Yellow Jacket Investments Limited, a British Virgin Islands company. Following the reverse acquisition of Yellow Jacket Finance Limited (a British Virgin Islands company) on April 20, 2004, the Company is engaged in the acquisition, development and exploitation of mineral assets.
Merger - The acquisition of Yellow Jacket Finance Limited was effected through a share exchange. The Company issued 241 million shares of its common stock in exchange for the entire share capital of Yellow Jacket Finance Limited. The transaction has been reflected in the accounts of the Company as a merger. The aggregate par value of the 241 million shares issued by the Company has been applied first against additional paid-in capital, with the balance to deficit. Prior year financial statements have been restated to show the activity of Yellow Jacket Finance Limited.
Basis of Consolidation - The consolidated financial statements include the accounts of Galaxy Minerals, Inc. and its wholly-owned subsidiary, Yellow Jacket Finance Limited. All material intercompany balances and transactions were eliminated in the consolidation.
Unaudited Consolidated Financial Statements - The unaudited consolidated financial statements as of and for the three and nine months ended September 30, 2005 and 2004, have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.
GALAXY MINERALS, INC AND SUBSIDIARY
(AN EXPLORATION COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2005 AND 2004
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the dated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Income Taxes - The Company follows Statement of Financial Accounting Standards No. 109 (FAS 109), “Accounting for Income Taxes.” FAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of the difference in events that have been recognized in the Company's financial statements compared to the tax returns.
Basic And Fully Diluted Net Loss Per Common Share - The Company follows the provisions of FASB Statement No. 128 (SFAS No. 128), “Earnings Per Share.” SFAS No. 128 requires companies to present basic earnings per share (EPS) and diluted EPS, instead of primary and fully diluted EPS presentations that were formerly required by Accounting Principles Board Opinion No. 15, “Earnings Per Share.” Basic EPS is computed by dividing net income or loss by the weighted average number of common shares outstanding during each year.
Exploration Stage Company - The Company has been devoting its efforts to activities such as acquiring minerals rights, raising capital, establishing sources of information, and developing plans for the exploration of its minerals rights. The Company has not yet generated any revenues and, as such, it is considered an exploration stage company.
Mineral Properties - Costs of acquisition, exploration, carrying, and retaining unproven properties are expensed as incurred.
NOTE 2. INCOME TAXES
At September 30, 2005, the Company had a net operating loss carry forward of approximately $14,100,000 and a capital loss carryforward of approximately $146,000. The net operating loss may be carried forward to offset federal income taxes in various future years through year 2024 and the capital loss may be carried forward to future years through 2009. During the year 2003, there was a significant ownership change in the Company as defined in Section 382 of the Internal Revenue Code. As a result of these changes, the Company's ability to utilize net operating losses available before the ownership change is restricted to a percentage of the market value of the Company at the time of the ownership change. Therefore, substantial net operating loss carry forwards will, in all likelihood, be reduced or eliminated in future years due to the change in ownership.
SFAS No. 109 provides for the recognition and measurement of deferred income tax benefits based on the likelihood of their realization in future years. A valuation allowance must be established to reduce deferred income tax benefits if it is more likely than not that, a portion of the deferred income tax benefits will not be realized. It is management's opinion that the entire deferred tax benefit of $3,270,637 resulting from the net operating loss carry forward may not be recognized in future years. Therefore, a valuation allowance equal to the deferred tax benefit of $3,270,637 has been established, resulting in no deferred tax benefit as of the balance sheet date.
GALAXY MINERALS, INC AND SUBSIDIARY
(AN EXPLORATION COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2005 AND 2004
NOTE 3. GOING CONCERN AND MANAGEMENT'S PLANS
As reflected in the accompanying financial statements, the Company incurred net losses of approximately $4,520,000 for the nine months ended September 30, 2005, and has an accumulated deficit of $17,642,426. The ability of the Company to continue as a going concern is dependent upon its ability to obtain financing and achieve profitable operations. Although the Company completed a financing via a stock swap with Langley Park Investments Plc of the UK on September 30, 2004 and a securities purchase agreement with GCA Strategic Investment Fund Limited on May 9, 2005, the Company cannot be sure of meeting its cash requirements until such time as it begins operations. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
The Company’s business of acquiring and exploring minerals rights is contingent upon its ability to secure adequate financing. Management believes that this financing will be necessary in order for the Company to continue. The Company is actively pursuing several forms of equity financing, although there can be no assurances that we will be successful in procuring such financing or that it will be available on terms acceptable to the Company.
NOTE 4. COMMITMENTS AND CONTINGECIES
The Company rents executive office space and warehouse space in a business park through one of its shareholders, Stealth Enterprises, Inc. The Company occupies approximately 200 square feet, for a monthly rental fee of $2,500.
Oatman/Lexington Mines
On October 31, 2004, the Company entered into a joint venture agreement with Searchlight Exploration, LLC (Searchlight), an Arizona limited liability company, an entity controlled by one of the Company’s shareholders and which owns the Oatman/Lexington Mines. The Oatman/Lexington Mines consist of 7 patented (privately-owned land where owner can mine or convey rights to the property and 76 unpatented (government-owned land where the government has conveyed the right to mine the property) mining claims in and around Oatman, Arizona. Pursuant to a joint venture agreement the Company has the right to take samples and explore at this mine and must put at least $100,000 of the work into the exploration and sampling at this mine. Under the agreement the Company pays $10,000 per quarter for the rights under this agreement. If the Company fails to make these payments, Searchlight has the right to terminate this agreement and disallow further exploration at the mine.
Bonanza Project
On October 31, 2004, the Company entered into a joint venture agreement with Searchlight, who owns Bonanza Mine. The Bonanza Mine consist of approximately 4,000 acres of land located in Mohave County, Arizona. Pursuant to a joint venture agreement, the Company has the right to take samples and explore at this mine and must put at least $100,000 of work into the exploration and sampling at this mine. Under the agreement the Company pays $10,000 per quarter for the rights. If the Company fails to make these payments, Searchlight has the right to terminate this agreement and disallow further exploration at the mine.
GALAXY MINERALS, INC AND SUBSIDIARY
(AN EXPLORATION COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2005 AND 2004
As of September 30, 2005, the Company had no commitments with respect to the development of its mineral assets.
On May 9, 2005, the Company entered into a securities purchase agreement with GCA Strategic Investment Fund Limited (“GCA Fund”), pursuant to which GCA Fund agreed to purchase Convertible Secured Promissory Notes not to exceed $6,000,000. Upon execution of the agreement GCA Fund purchased $2,200,000 of notes, which provided the Company with $1,870,000 in cash. The Company paid a finders fee of $273,000 in connection with this transaction. GCA Fund has the right to exchange the notes for common stock and stock warrants. On May 9, GCA Fund was issued warrants to purchase 9,705,882 shares of common stock.
NOTE 5. STOCKHOLDERS’ EQUITY
Pursuant to a resolution of the Directors, on April 15, 2004, the Company affected a 4-for-1 reverse stock split of its common stock. There were 8,270,000 shares of Common Stock outstanding prior to the reverse stock split. Immediately following the reverse stock split, there were 2,067,500 shares issued and outstanding. The prior year financial statements have been restated to reflect the reverse stock split.
On March 16, 2005, the Company declared a 20% stock dividend for the stockholders of record as of March 31, 2005. The financial statements have been retroactively restated to reflect the 20% stock dividend.
NOTE 6. JOINT VENTURE
On February 14, 2004, Yellow Jacket Finance Limited (“YJF”) and Stealth Enterprises, Inc. (“Stealth”) entered into a Memorandum of Joint Venture Agreement (“JV Agreement”). Under the terms of the JV Agreement, YJF and Stealth agreed to share the net proceeds from the exploitation of 52 mineral claims, totaling 1,040 acres, in Santa Cruz County, Arizona in the ratio 51:49. The minerals claims are owned by Stealth. Although YJF agreed to procure loans of up to $1.1 million for the exploitation of the Yellow Jacket and Phoenix mines, the Company expects to be able to fund the exploration from its own resources and has released YJF from its commitment. YJF, in turn, has released Yellow Jacket Investments Limited from its commitment to YJF. The Company acquired YJF on April 26, 2004, in a transaction accounted for as a reverse merger.
Because the Company has a 51% interest in the extracted minerals and no ownership of the mine, Stealth owns 100 percent of the mine, the joint venture is not consolidated in the financial statements of the Company. Instead, the actual costs of exploration and extraction have been recorded in the financial statements.
NOTE 7. CONSULTING FEES AND DIRECTORS FEES
On January 27, 2005, the Company issued 250,000 restricted shares in consideration for consulting services rendered. In addition, on the same day, 1,000,000 restricted and 1,500,000 restricted shares were issued to two of the three directors of the Company in consideration for directors' fees. The value of the Company's stock on January 27, 2005, was $0.27. The entire implied cost of the consulting fees and directors' fees of $675,250 was recognized as an expense in the statement of operations for the quarter.
GALAXY MINERALS, INC AND SUBSIDIARY
(AN EXPLORATION COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2005 AND 2004
On February 17, 2005, the Company issued 5,800,000 shares in consideration for consulting services pursuant to a 2004 compensation agreement. The shares were issued at par value, $.001. The entire implied cost of the consulting fees of $5,800 was recognized as an expense in the statement of operations for the quarter.
On March 28, 2005, the Company issued 1,000,000 restricted shares to a director of the Company in consideration of directors’ fees. The value of the Company’s stock on March 28, 2005 was $0.19. The entire implied cost of director’s fees of $130,000 was recognized as an expense in the statement of operations for the quarter.
On March 29, 2005, the Company issued 8,600,000 shares in consideration for consulting services pursuant to a 2004 compensation agreement. In addition, on the same day the Company issued 50,000 shares for legal services rendered. The shares were issued at par value, $.001. The entire implied cost of $8,650 of services rendered was recognized as an expense in the statement of operations for the quarter.
On April 8, 2005 the Company issued 500,000 shares in consideration for consulting services regarding the acquisition of mineral rights. The value of the Company’s stock on April 8, 2005 was $0.105. The entire implied cost of $52,500 was recognized as an expense in the statement of operations for the quarter.
On May 20, 2005 the Company issued 59,500,000 shares in consideration for consulting services regarding the acquisition of mineral rights. The value of the Company’s stock on May 20, 2005 was $0.35. The entire implied cost of $2,082,500 was recognized as an expense in the statement of operations for the quarter.
NOTE 8. MARKETABLE SECURITIES
The Company classifies marketable securities in two categories: trading securities and available-for-sale securities. Trading securities are measured at fair value, with unrealized gains and losses included in income. Available-for-sale securities are measured at fair value, with net unrealized gains and losses reported in other comprehensive income. Available-for-sale securities that are restricted are reflected at cost in the balance sheet. When the restriction will lift within one year, the securities are then measured at fair value, with net unrealized gains and losses reported in other comprehensive income. The Company’s marketable equity securities have been classified as available-for-sale securities. Fair values for marketable securities are based on quoted market prices. The following is a summary of the Company’s investment in marketable equity securities as of September 30, 2005:
| | | | | | | Unrealized | | | Estimated | |
| Securities | | | Cost | | | Losses | | | Fair Value | |
| | | | | | | | | | | |
| Langley Park Investments Plc | | $ | 308,842 | | | ($ 208,730 | ) | $ | 100,112 | |
| Trading securities | | | | | | | | | | |
| | | | | | | | | | | |
| Langley Park Investments Plc | | $ | 1,837,005 | | | ($ 948,810 | ) | $ | 888,195 | |
| Restricted until July 15, 2006 | | | | | | | | | | |
GALAXY MINERALS, INC AND SUBSIDIARY
(AN EXPLORATION COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2005 AND 2004
NOTE 9. FIXED ASSETS
The company has paid for equipment, fixtures and improvements to be utilized at the mining sites. As of September 30, 2005 none of the fixed assets were placed in service.
ITEM 2 Managements Discussion and Analysis or Plan of Operation
The following discussion should be read together with our financial statements and the notes to those financial statements included elsewhere in this Quarterly Report, as well as our Annual Report on Form 10-KSB for the year ended December 31, 2004.
Summary Overview
We are an exploration stage company involved in the exploration for natural minerals in several mines, at which we own some or all of the minerals rights to mine. Through our subsidiary, we have the minerals rights to mine four different mines. To date, we have conducted exploratory activities at several of these locations but have not mined any minerals from the mines, other than samples, and have not derived any revenues from our current business operations, and have not had revenues in our last two fiscal years ended December 31, 2004, and 2003.
Plan of Operation
Our plans for the mining of these projects has not materially changed since the filing of our Annual Report on Form 10-KSB for the year ended December 31, 2004. For our exploration activities at the properties, we continue to evaluate the results from the exploration and the surface sampling at the four mines. Based on the geological reports of Parkinson Geologic, we believe the placement of a pilot plant, which is a tool that extracts minerals from the rocks in the mine, at the Yellow Jacket and Phoenix Mine would be advantageous at this time and plan to put one in place as soon as the proper preparations can be made for the installment of the plant. We are also in the process of determining the optimal method for determining the size of our mineral reserve at the other mining locations. At the same time, we are evaluating other minerals opportunities with a view to diversifying our activities.
On May 9, 2005, we entered into a Securities Purchase Agreement (the “Agreement”) with GCA Strategic Investment Fund Limited (“GCA Fund”), pursuant to which GCA Fund agreed to purchase Convertible Secured Promissory Notes (the “Notes”) from us, in an amount up to a total of $6,000,000. Under the Agreement, GCA Fund will purchase the Notes at our request until a total of $6,000,000 in Notes has been purchased.
Upon the execution of the Agreement, on May 9, 2005, at our request, GCA purchased Notes totaling $2,200,000. Under the terms of the Agreement and the Notes, we only receive 85% of our requested amount in cash. Therefore, on May 9, 2005, we received $1,870,000 from GCA Fund in exchange for the Note totaling $2,200,000. GCA Fund has also given us written confirmation of their intention to purchase an additional $300,000 Note as soon as we are able to increase our authorized common stock. We believe this $1,870,000 will be sufficient to fund our operations for the next six to twelve months. We cannot request that GCA Fund purchase additional notes unless we are current in our public company reporting obligations and a registration statement covering the securities underlying the convertible promissory notes has been declared effective by the Securities and Exchange Commission. We do not currently meet these requirements and therefore cannot request additional note purchases from GCA Fund.
On July 5, 2005, we filed a Registration Statement on Form SB-2 to register an indeterminate number of shares of our common stock issuable upon conversion of the secured convertible note and exercise of the warrants held by GCA. On July 29, 2005, we received the first set of comments to our Registration Statement from the Securities and Exchange Commission and we are in the process of responding to those comments. Our response to those comments was delayed due to the situation with our independents auditors, which is discussed below.
As part of the comments the Securities and Exchange Commission has also requested that we file amended Exchange Act filings to make any changes required in those filings to make them consistent with any we make to our amended Registration Statement. As explained above, we have not completed our responses to the Securities and Exchange Commission’s comments and, therefore, do not know exactly what changes will be necessary to our Registration Statement and what amended Exchange Act periodic filings will need to filed with parallel changes. However, we do anticipate we will file amendments to some of our recent periodic filings.
As a result of both our management and our consultants spending time on reviewing our past Exchange Act filings in response to the Securities and Exchange Commissions comments, as well as the situation with our auditors, we failed to timely file our Quarterly Report on Form 10-QSB for the quarter ended June 30, 2005, and, therefore, on September 20, 2005, our common stock was de-listed from the Over the Counter Bulletin Board and is currently trading on the Pink Sheets. We hope to make all the filings necessary to get re-listed on the Over the Counter Bulletin Board during the first or second quarter of 2006. Although we don’t anticipate any problems with our application to get re-listed, there is always the chance that we will not be able to successfully get re-listed on the Over the Counter Bulletin Board.
Change in Employees
We do not have any plans to change our number of employees in the foreseeable future. We plan to continue to utilize independent contractors for the exploration activities, to locate possible new mineral rights opportunities, and for some of our general business affairs.
Explanatory Paragraph in Report of Our Independent Certified Public Accountants
Our independent accountants have included an explanatory paragraph in their most recent report, stating that our audited financial statements for the period ending December 31, 2004, were prepared assuming that we will continue as a going concern. However, they note that we were an exploration stage company and have suffered recurring losses from operations and recurring deficiencies in working capital that raise substantial doubt about our ability to continue as a going concern.
Our independent accountants included the explanatory paragraph based primarily on an objective test of our historical financial results. Our going concern paragraph may be viewed by some shareholders and investors as an indication of financial instability, and it may impair our ability to raise capital.
The following analysis compares the results of operations for the three-month period ended September 30, 2005 to the comparable period ended September 30, 2004
Results of Operations
Introduction and Plan of Operation
Results for the three months ended September 30, 2005, are much different than our results for the three months ended September 30, 2004, due to the fact that following our acquisition of Yellow Jacket Finance Limited in April 2004, we spent significant amounts in the three months ended September 30, 2004, to acquire mineral rights at various mines, as further described above and in our Annual Report for the year ended December 31, 2004. During the three months ended September 30, 2005, we did not spend any funds for the acquisition of new mineral rights, but instead incurred costs related to the exploration activities at those mines. Our financial statements for the quarter ended September 30, 2005, reflect this change in our activities. While we had no revenues for the quarter ended September 30, 2005, we incurred exploration stage costs due primarily to the costs associated with the consultants who assist us with the exploration activities at the mines where we have mineral rights, and therefore we continue to operate at a substantial loss. Our operations consist primarily of the initial exploration of our mineral rights. We do not anticipate having any revenues in the foreseeable future and our activities until that time will continue to be primarily the acquisition and exploration of mining claims.
Revenues and Loss from Operations
Our revenues, exploration expenses, operating expenses, and loss before taxes for the quarter ended September 30, 2005, as compared to the quarter ended September 30, 2004, are as follows:
| | | Quarter Ended | | Quarter Ended | |
| | | September 30, 2005 | | September 30, 2004 | |
| | | | | | |
| Revenues | | $ | - | | $ | - | |
| Minerals property acquisition costs | | | - | | | 7,120,000 | |
| Exploration costs | | | 49,809 | | | - | |
| Laboratory fees | | | - | | | - | |
| Professional and consulting fees | | | 376,376 | | | 2,421,681 | |
| Interest expenses | | | - | | | - | |
| Rent | | | 6,072 | | | - | |
| General and administrative | | | 49,789 | | | 204 | |
| Impairment of investment | | | - | | | 2,132,774 | |
Total exploration stage expenses | | | 482,046 | | | 11,854,659 | |
| Total other expenses | | | 34,264 | | | - | |
| Loss before taxes and other Gains (Losses) | | | (447,782 | ) | | (11,854,659 | ) |
Taxes, Joint Venture Interests, and Net Loss
Our taxes, income from joint venture interest, and net loss for the quarter ended September 30, 2005, as compared to the quarter ended September 30, 2004, are as follows:
| | | Quarter Ended | | Quarter Ended | |
| | | September 30, 2005 | | September 30, 2004 | |
| | | | | | |
| Income tax provision | | $ | - | | $ | - | |
| Minority interest in joint venture | | | (38,981 | ) | | 9 | |
| Net loss | | | (486,763 | ) | | (11,854,650 | ) |
Our net loss for the three months ended September 30, 2005, was ($486,763) compared to ($11,854,650) for the three months ended September 30, 2004. The significant decrease in our net loss was due to the fact that during the three months ended September 30, 2004, we had significant costs associated with the acquisition of mineral rights, which accounted for $7,120,000 of our exploration stage expenses for that quarter. In comparison, we did not have any costs associated with the acquisition of mineral rights in the quarter ended September 30, 2005. For this quarter, our exploration stage expenses accounted for $482,046 of our net loss. The majority of our exploration stage expenses for this period were professional and consulting fees, which accounted for $376,376, or 86%, of our exploration stage expenses. Since we only have one employee, we are dependent on outside consultants for locating and assisting in the acquisition of new mineral rights, as well the maintenance and operations of our exploration activities at the mines where we have mineral rights. The recovery of loss on the sale of marketable securities (unrealized) for the three months ended September 30, 2005, totaled $34,264. This relates to the increase in fair market value of the Company’s trading securities.
The following analysis compares the results of operations for the nine-month period ended September 30, 2005 to the comparable period ended September 30, 2004
Results of Operations
Introduction and Plan of Operation
For the same reasons as set forth above, our results for the nine months ended September 30, 2005, are significantly different than our results for the nine months ended September 30, 2004. We had no revenues for the nine months ended September 30, 2005, but we incurred exploration stage costs due primarily to the costs associated with our exploration activities, and the consultants who assist us with the exploration activities, at the mines where we have mineral rights, and therefore we continue to operate at a substantial loss. Our operations consist primarily of the initial exploration of our recently acquired mining claims. We do not anticipate having any revenues in the foreseeable future and our activities until that time will continue to be primarily the acquisition and initial exploration of mining claims.
Revenues and Loss from Operations
Our revenues, exploration expenses, operating expenses, and loss before taxes for the nine months ended September 30, 2005, as compared to the nine months ended September 30, 2004, are as follows:
| | | Nine Months Ended | | Nine Months Ended | |
| | | September 30, 2005 | | September 30, 2004 | |
| | | | | | |
| Revenues | | $ | - | | $ | - | |
| Minerals property acquisition costs | | | - | | | 7,120,000 | |
| Exploration costs | | | 2,349,668 | | | 79,350 | |
| Laboratory expenses | | | 1,121 | | | - | |
| Professional and consulting fees | | | 1,914,474 | | | 2,723,899 | |
| Interest expenses | | | - | | | - | |
| Rent | | | 20,072 | | | - | |
| General and administrative | | | 104,929 | | | 414 | |
| Impairment of investment | | | - | | | 2,312,774 | |
| Total exploration stage expenses | | | 4,390,264 | | | 12,236,437 | |
Total other expenses | | | (88,366 | ) | | - | |
| Loss before taxes and other Gains (Losses) | | | (4,478,630 | ) | | (12,236,437 | ) |
Taxes, Joint Venture Interests, and Net Loss
Our taxes, income from joint venture interest, and net loss for the nine months ended September 30, 2005, as compared to the nine months ended September 30, 2004, are as follows:
| | | Nine months Ended | | Nine months Ended | |
| | | September 30, 2005 | | September 30, 2004 | |
| | | | | | |
| Income tax provision | | $ | - | | $ | - | |
| Minority interest in joint venture | | | (38,981 | ) | | 38,981 | |
| Net loss | | | (4,517,611 | ) | | (12,197,456 | ) |
Our net loss for the nine months ended September 30, 2005, was ($4,517,611) compared to ($12,197,456) for the nine months ended September 30, 2004. As noted above, the significant decrease in our net loss was due to the fact that during the nine-month period ended September 30, 2004, we spent $7,120,000 for the acquisition of the minerals rights. In addition, due to the fact we had just recently acquired the mineral rights, during the nine-month period ended September 30, 2004, we only had $79,350 in exploration costs at those mines. During the nine months ended September 30, 2005, we had $2,349,668 in exploration costs at the mines, which was associated with our exploration activities at the mines. Our professional and consulting fees for the two nine-month periods remained fairly consistent ($1,914,474 for the nine months ended September 30, 2005, compared to $2,723,899 for the nine months ended September 30, 2004). During the nine months ended September 30, 2004, we had an impairment of investment expense of $2,312,774, which related to the write down of the carrying value of the Langley shares received pursuant to the stock swap arrangements with Langley Park Investments Plc to GBP0.31 per share. The recovery of loss on the sale of marketable securities (unrealized) for the nine months ended September 30, 2005, totaled $330,356. This relates to the increase in fair market value of the Company’s trading securities.
Liquidity and Capital Resources
Introduction
We have not generated any revenue to date from our exploration stage activities as a company in the mining industry. We have primarily financed our activities from loans from our shareholders and the $1,870,000 we received from GCA Fund in exchange for the Note totaling $2,200,000, as detailed above. Substantially all of the shareholder loans were drawn and expensed in the second quarter of 2004.
Our cash, total assets, and total liabilities as of September 30, 2005, as compared to the previous quarter ended June 30, 2005, are as follows:
| | | As of | | As of | |
| | | September 30, | | June 30, | |
| | | 2005 | | 2005 | |
| | | | | | |
| Cash and cash equivalents | | $ | 1,185,351 | | $ | 1,820,386 | |
| Total current assets | | | 1,285,463 | | | 1,951,233 | |
| Total assets | | | 2,312,682 | | | 3,788,238 | |
| Total current liabilities | | | 13,836 | | | 27,800 | |
Our cash and cash equivalents have decreased primarily due to the expenditure of funds for exploration costs and consulting fees. The difference between our current assets and our total assets is a result of the stock swap arrangements with Langley Park Investments PLC. Under the terms of the stock swap we exchanged some of our common stock for common stock of Langley Park Investments PLC. That stock, based on the current market price of Langley Park Investment PLC, is valued at $888,195.
Cash Requirements
On May 9, 2005, we closed a financing arrangement for up to $6,000,000 in financing. The terms of this financing deal are further detailed herein and in our previous filings. On May 9, 2005, upon the closing of this financing we received $1,870,000 in exchange for a $2,200,000 principal amount convertible promissory note. We believe this financing deal will provide us the cash necessary to operate for the next three to six months.
Sources and Uses of Cash
Operations
Net cash used by exploration stage activities operations was ($500,879) for the nine months ended September 30, 2005, as compared to ($202,787) for the same period in 2004. Negative operating cash flows during the nine months ended September 30, 2005, were created primarily by corporate fixed and overhead expenses.
Investing
Net cash provided by investing activities was $251,623 and $0, for the nine months ended September 30, 2005 and 2004, respectively. Investing activities for the nine months ended September 30, 2005, consisted primarily of proceeds from the sale of marketable securities, which equaled $390,647. Our purchase of fixed assets for this nine-month period, including property, plant, and equipment, totaled ($139,024).
Financing
Net cash provided by financing activities was $1,977,668 and $203,995, for the nine months ended September 30, 2005 and 2004, respectively. In the nine months ended September 30, 2005, financing activities primarily included proceeds from sale of a $2,200,000 principal amount convertible debenture, for which we received $1,870,000, and proceeds from the sales of common stock of $68,687. Net cash provided by financing activities during the nine months ended September 30, 2004, included a capital contribution from an officer totaling $7,604, and loans to us from a shareholder totaling $235,372.
Debt Instruments, Guarantees, and Related Covenants
As of September 30, 2005 we had the $2,200,000 convertible debenture outstanding. Under the terms of the financing arrangement, if we do not timely pay the debenture in accordance with its terms it begins to accrue interest at a rate of twelve percent (12%) per annum. The holder also has the option, at any time, to convert the amounts due under the debenture into shares of our common stock. The number of shares of common stock to be issued upon each conversion shall be determined by dividing the amount to be converted by the conversion price in effect on the date a notice of conversion is delivered to us. The conversion price is equal to 95% of the average of the three lowest closing bid prices for the twenty (20) trading days immediately prior to the date of the related notice of conversion. As of September 30, 2005, we did not have additional outstanding debt instruments, guarantees, or related covenants.
Critical Accounting Policies
The Company accounts for its stock-based compensation arrangements with employees in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. As such, compensation expense under fixed term option plans is recorded at the date of grant only to the extent that the market value of the underlying stock at the date of grant exceeds the exercise price. The Company recognizes compensation expense for stock options, common stock and other equity instruments issued to non-employees for services received based upon the fair value of the services or equity instruments issued, whichever is more reliably determined. Stock compensation expense is recognized as the stock option is earned, which is generally over the vesting period of the underlying option.
ITEM 3 Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer (or those persons performing similar functions), after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended) as of a date within 90 days of the filing of this quarterly report (the “Evaluation Date”), have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures were effective to ensure the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls subsequent to the Evaluation Date.
Changes in Internal Control Over Financial Reporting
There have been no significant changes in our internal controls or in other factors that could significantly affect these controls since the last evaluation.
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings
In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
There have been no events that are required to be reported under this Item.
ITEM 3 Defaults Upon Senior Securities
There have been no events that are required to be reported under this Item.
ITEM 4 Submission of Matters to a Vote of Security Holders
At the 2005 Annual Meeting of Shareholders, held on July 25, 2005, the shareholders approved the following agenda items as set forth in the Company’s 14C Information Statement on file with the SEC:
1. Three individuals were elected to our Board of Directors, namely Matthew J. Symonds, Dr. Thomas P. Fry, and David L. Mayer. Mr. Symonds is an employee-director and Messrs. Fry and Mayer are outside (non-employee) directors. All three were directors prior to the meeting. The results of the voting were as follows:
| Director | Votes For | Votes Against | Votes Withheld | Abstentions | Broker Non-Votes |
| Matthew J. Symonds | 285,997,158 | -0- | -0- | -0- | -0- |
| Dr. Thomas P. Fry | 285,997,158 | -0- | -0- | -0- | -0- |
| David L. Mayer | 285,997,158 | -0- | -0- | -0- | -0- |
The other matters on which the shareholders voted, and the results of voting, were:
2. An amendment to the Articles of Incorporation to increase the authorized common stock from 500,000,000 shares, par value $0.001, to 1,000,000,000 shares, par value $0.001. This agenda item passed as follows:
| Votes For | Votes Against | Votes Withheld | Abstentions | Broker Non-Votes |
| 285,997,158 | -0- | -0- | -0- | -0- |
The amendment to the Articles of Incorporation was filed with the State of Florida on July 25, 2005, with an effective date of July 26, 2005.
A more detailed description of each agenda item at the annual shareholders meeting can be found in our Schedule 14C Information Statement dated and filed with the Securities and Exchange Commission on April 29, 2005 and our Amended Schedule 14C dated and filed with the Securities and Exchange Commission on June 14, 2005.
ITEM 5 Other Information
GCA Strategic Investment Fund Limited Financing
On July 5, 2005, in accordance with our agreement with GCA Strategic Investment Fund Limited (“GCA Fund”) we filed a Registration Statement on Form SB-2 to register an indeterminate number of shares of our common stock issuable upon conversion of the secured convertible note and exercise of the warrants held by GCA Fund. On July 29, 2005, we received the first set of comments to our Registration Statement from the Securities and Exchange Commission and we are in the process of responding to those comments. Our response to those comments was delayed due to the situation with our independent auditors, which is discussed below.
Independent Auditors
On August 5, 2005, Dohan and Company, CPA's, P.A., the independent accountants previously engaged as the principal accountants to audit our financial statements, were dismissed. The decision to change accountants was approved by the Board of Directors.
On September 13, 2005, we decided to re-engage the services of Dohan and Company, CPA’s, P.A. for the limited purpose of reviewing our financial statements for the Quarterly Report on Form 10-QSB for the period ended June 30, 2005, reviewing and assisting us with our response to the comments on, and the filing of, our amended Registration Statement, and reviewing and assisting us with filing any amended Exchange Act periodic filings that may need to be filed based on the comments from the Securities and Exchange Commission on our Registration Statement.
On October 28, 2005, the Company engaged Mantyla McReynolds, LLC, as its independent certified public accountant for all the Company’s audit work going forward, starting with this Quarterly Report on Form 10-QSB.
Amended Exchange Act Filings
As noted above, on July 29, 2005, we received comments from the Securities and Exchange Commission regarding our Registration Statement on Form SB-2. As part of those comments the Securities and Exchange Commission has requested that we file amended Exchange Act filings to make changes consistent with any we make to our amended Registration Statement. As explained above, we have not completed our responses to the Securities and Exchange Commission’s comments and, therefore, do not know exactly what changes will be necessary to our Registration Statement and what amended Exchange Act periodic filings will need to filed with parallel changes. However, we do anticipate we will file amendments to some of our recent periodic filings.
De-Listing from the Over the Counter Bulletin Board
As a result of both our management and our consultants spending time on reviewing our past Exchange Act filings in response to the Securities and Exchange Commissions filings, as well as the situation with our auditors, we failed to timely file our Quarterly Report on Form 10-QSB for the quarter ended June 30, 2005, and, therefore, on September 20, 2005, our common stock was de-listed from the Over the Counter Bulletin Board and is currently trading on the Pink Sheets. We hope to make all the filings necessary to get re-listed on the Over the Counter Bulletin Board during the first or second quarter of 2006. Although we don’t anticipate any problems with our application to get re-listed, there is always the chance that we will not be able to successfully get re-listed on the Over the Counter Bulletin Board.
Glossary of Terms
A glossary of the mining and mineral resource terms used in this Report are attached as an Exhibit to our Annual Report on Form 10-KSB for the year ended December 31, 2004.
Statement Concerning International Risks
We operate in developing markets, which may subject us to volatile conditions not present in the United States. Our business and performance could be negatively affected by a variety of factors and conditions that businesses operating in the United States generally do not contend with, such as:
• foreign currency exchange fluctuations and instability of foreign currencies;
• varying foreign governmental regulations and regulatory authority requirements;
• political or economic instability and volatility in particular countries or regions;
• limited protection for intellectual property;
• difficulties in staffing and managing international operations; and
• difficulties in collecting accounts receivable.
Our business could be exposed to risks due to civil and political unrest in third world countries such as Peru. If civil and political conditions worsen, or if instability develops in other countries within our geographic focus, our operations and financial condition could be negatively affected. In addition, we may be exposed to, and our business may be negatively affected by, foreign currency fluctuations. If we are not successful in managing these risks, our business and financial condition could be seriously harmed.
| (b) | Changes to Nominate a Director Nominee |
There have been no events that are required to be reported under this Item.
ITEM 6 Exhibits
(a) Exhibits
| 2.1 (3) | | Agreement and Plan of Reorganization dated as of April 16, 2004 between the Company and Yellow Jacket Finance Limited |
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| 3.1 (1) | | Articles of Incorporation of HeavenExpress.com Inc. |
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| 3.2 (2) | | Certificate of Amendment to the Articles of Incorporation of HeavenExpress.com Inc. filed March 4, 2002 |
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| 3.3 (5) | | Articles of Amendment to the Articles of Incorporation of HeavenExpress.com, Inc. filed September 3, 2003 |
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| 3.4 (5) | | Articles of Amendment to the Articles of Incorporation of HeavenExpress.com, Inc. filed April 7, 2004 |
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| 3.5 (1) | | Bylaws of HeavenExpress.com Inc. |
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| 4.1 (5) | | Articles of Amendment to Articles of Incorporation of Golden Sand Eco-Protection, Inc. creating Series A Convertible Preferred Stock |
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| 4.2 (4) | | 2004 Equity Compensation Plan |
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| 31.1 | | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
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| 31.2 | | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
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| 32.1 | | Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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| 32.2 | | Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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| 99.1 (6) | | Glossary of Terms Regarding Mineral Resources and Reserves |
| (1) | Incorporated by reference from our Registration Statement on Form SB-2 dated January 24, 2000 and filed with the Commission on January 27, 2000. |
| (2) | Incorporated by reference from our Current Report on Form 8-K dated and filed with the Commission on February 22, 2002. |
| (3) | Incorporated by reference from our Current Report on Form 8-K dated April 22, 2004 and filed with the Commission on April 26, 2004. |
| (4) | Incorporated by reference from our Registration Statement on Form S-8 dated April 21, 2004 and filed with the Commission on April 26, 2004. |
| (5) | Incorporated by reference from our Quarterly Report on Form 10-QSB for the quarter ended September 30, 2004, dated August 12, 2004 and filed with the Commission on August 16, 2004. |
| (6) | Incorporated by reference from our Annual Report on Form 10-KSB for the year ended December 31, 2004, dated May 5, 2005 and filed with the Commission on May 9, 2005. |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | Galaxy Minerals, Inc. |
| | (Registrant) |
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| Dated: November 14, 2005 | /s/ Matthew J. Symonds |
| | Matthew J. Symonds, President, Chief Financial Officer, and Secretary |
