UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT
FOR THE TRANSITION PERIOD FROM TO
--------- -----------
COMMISSION FILE NUMBER 000-50399
BATTLE MOUNTAIN GOLD EXPLORATION CORP.
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
NEVADA 86-1066675
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
ONE EAST LIBERTY STREET, 6TH FLOOR, SUITE 9 RENO, NEVADA 89504
--------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(775) 686-6081
--------------
(REGISTRANT'S TELEPHONE NUMBER)
N/A
---
(FORMER NAME AND ADDRESS)
CHECK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED
BY SECTION 13 OR 15(D) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR
SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND
(2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
AS OF SEPTEMBER 30, 2005, THE ISSUER HAD 42,530,000 SHARES OF COMMON STOCK
OUTSTANDING, ALL OF WHICH HAVE BEEN ISSUED.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BATTLE MOUNTAIN GOLD EXPLORATION CORPORATION
(A COMPANY IN THE EXPLORATION STAGE)
CONDENSED BALANCE SHEETS
SEPTEMBER 30,
2005
(UNAUDITED)
------------
ASSETS
Current assets:
Cash and cash equivalents $ 325,932
------------
Fixed assets (net of accumulated depreciation of $332) 2,456
------------
Other Assets:
Investment in mining property 1,055,794
Deposit 295
------------
Total other assets 1,056,089
TOTAL ASSETS $ 1,384,477
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,500
Related party payables 150,000
------------
Total current liabilities 169,500
Commitments and contingencies -
STOCKHOLDERS' EQUITY:
Preferred stock: 10,000,000 shares authorized ($0.001 par value) none issued -
Common stock, ($0.001 par value):
Authorized shares - 100,000,000
Issued and outstanding shares - 42,530,000 at September 30, 2005 42,530
Additional paid-in capital 2,532,972
Subscriptions receivable (90,670)
Deficit accumulated during the exploration stage (1,269,855)
------------
Total stockholders' equity 1,214,977
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,384,477
============
The accompanying notes are an integral part of the financial statements.
BATTLE MOUNTAIN GOLD EXPLORATION CORPORATION
(A COMPANY IN THE EXPLORATION STAGE)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
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SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, INCEPTION TO
2005 2004 2005 2004 DATE
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REVENUE $ - $ - $ - $ - $ -
EXPENSES:
Depreciation (52) - (146) - (332)
Professional and consulting (30,220) (45,000) (278,188) (132,560) (480,831)
Travel and entertainment (21,202) (16,097) (34,783) (18,406) (62,555)
Rent and office (2,388) (2,914) (10,837) (9,294) (28,490)
General and administrative (12,457) (3,180) (74,422) (4,142) (107,108)
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Total operating expenses (66,319) (67,191) (398,376) (164,402) (679,316)
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Loss from operations (66,319) (67,191) (398,376) (164,402) (679,316)
OTHER INCOME (EXPENSE):
Interest Expense - - - - (448)
Financing fees (542,194) (542,194) (542,194)
Unrealized gain / (loss) - - - (24,200) (24,200)
Loss on sale of investments - - (10,082) - (23,878)
Other income - - - - 181
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Total other income / (expense) (542,194) - (552,276) (24,200) (590,539)
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Loss before income taxes (608,513) (67,191) (950,652) (188,602) (1,269,855)
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Provision for income taxes - - - - -
Net loss $ (608,513) $ (67,191) $ (950,652) $ (188,602) $(1,269,855)
====================================================================
Loss per share: basic and
diluted $ (0.01) $ (0.00) $ (0.02) $ (0.02) $ (0.04)
====================================================================
Weighted average shares basic
and diluted 41,530,000 19,050,000 41,196,667 12,563,333 28,515,714
====================================================================
The accompanying notes are an integral part of the financial statements.
BATTLE MOUNTAIN GOLD EXPLORATION CORPORATION
(A COMPANY IN EXPLORATION STAGE)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, INCEPTION TO
2005 2004 DATE
------------------------------------------
OPERATING ACTIVITIES:
Net loss $(950,652) $(188,602) $(1,269,855)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 146 - 332
Issuance of stock warrants 542,194 542,194
Unrealized loss on investments - 24,200 24,200
Loss on sale of investments 10,082 - 23,878
Increase in deposits - (295) (295)
Increase in accounts payable 30,245 10,596 42,000
------------------------------------------
Net cash used in operating activities (367,985) (154,101) (637,546)
INVESTING ACTIVITIES:
Purchases of fixed assets (264) (2,523) (2,788)
Purchase of short term investments - (114,000) (114,000)
Proceeds from sale of short term investments 25,718 - 65,922
Investment in mining properties (630,794) (325,000) (1,055,794)
------------------------------------------
Net cash used in investing activities (605,340) (441,523) (1,106,660)
FINANCING ACTIVITIES:
Proceeds from issuance of related party notes - 125,696 125,696
Principal payments on related party notes payable (148,196) - (198,196)
Proceeds from short term notes - - 150,000
Proceeds from issuance of common stock 744,330 480,000 1,992,638
------------------------------------------
Net cash provided by financing activities 596,134 605,696 2,070,138
------------------------------------------
Net increase (decrease) in cash and cash equivalents (377,191) 10,072 325,932
Cash and cash equivalents at beginning of period 703,123 - -
------------------------------------------
Cash and cash equivalents at end of period $ 325,932 $ 10,072 $ 325,932
==========================================
SUPPLEMENTAL INFORMATION
- ------------------------
During the nine months ended September 30, 2005 and 2004, the Company paid $0
interest.
The Company paid no income taxes during the nine months ended September 30, 2005
and 2004.
The Company has $90,670 receivable from a shareholder related to the issuance of
400,000 shares of the Company's
common stock.
The accompanying notes are an integral part of the financial statements.
BATTLE MOUNTAIN GOLD EXPLORATION CORPORATION
(A Company in the Exploration Stage)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
-----------------------------------------
September 30, 2005 (unaudited)
1. BASIS OF PRESENTATION
-----------------------
The accompanying unaudited interim financial statements of Battle Mountain Gold
Exploration Corporation (the "Company") have been prepared by the Company in
accordance with generally accepted accounting principles in the United States of
America, pursuant to the Securities and Exchange Commission rules and
regulations. In management's opinion, all adjustments necessary for a fair
presentation of the results for the interim periods have been reflected in the
interim financial statements. The results of operations for any interim period
are not necessarily indicative of the results for a full year. All adjustments
to the financial statements are of a normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Such disclosures are those that would
substantially duplicate information contained in the most recent audited
financial statements of the Company, such as significant accounting policies.
Management presumes that users of the interim statements have read or have
access to the audited financial statements and notes thereto included in the
Company's most recent annual report on Form 10-KSB.
Battle Mountain Exploration Corporation was incorporated under the laws of the
State of Nevada on January 7, 2004. On September 9, 2004 the Company acquired
11,640,000 shares (100%) of the issued and outstanding common stock of Battle
Mountain Gold Exploration, Inc., a Nevada corporation, ("Battle Mountain") in
exchange for 11,640,000 newly issued treasury shares of the Company's common
stock. In connection with the Exchange Agreement, certain Battle Mountain
shareholders entered into a stock purchase agreement with two of the Company's
former directors to purchase an aggregate of 11,000,000 additional common shares
of the Company. The transaction was considered to be a reverse acquisition and a
recapitalization of the Company. Therefore, the accounting history presented is
that of Battle Mountain Exploration Corporation. Further, the comparative
financial information has been restated to reflect the quarterly activity
consistent with the Company changing its fiscal year end from July 31 to
December 31 during fiscal 2004.
Certain amounts have been reclassified to conform to the current presentation.
These reclassifications did not have an impact on previously reported financial
position, cash flows, or results of operations.
2. MARKETABLE SECURITIES
----------------------
Pursuant to Statement of Financial Accounting Standards (SFAS) 115 "Accounting
for Certain Investments in Debt and Equity Securities" management determines the
appropriate classification of investment securities at the time they are
acquired and evaluates the appropriateness of such classification at each
balance sheet date.
During the previous quarter, the Company sold all of its marketable securities
resulting in a loss of $10,082.
3. MINERAL PROPERTY INTEREST
---------------------------
In October 2004, Pediment Gold LLC ("Pediment"), the Company's joint venture
with Nevada Gold Exploration Solutions, L.L.C., a Nevada limited liability
company ("NGXS"), entered into a binding letter agreement (the "Letter
Agreement") with Placer Dome U.S. Inc. ("Placer Dome") for exploration and
development on unpatented mining claims located in north-central Nevada during a
three-year period beginning on October 21, 2004 (the "Earn-In Period"). Pursuant
to the Letter Agreement, Pediment has a right to earn a 70% interest in the
mining claims after Pediment incurs an aggregate of $1 million in work
expenditures on the mining claims during the Earn-In Period.
After Pediment earns a 70% interest in the mining claims, it may be obligated to
enter into a joint venture agreement with Placer Dome. Pediment's interest in
the mining claims will be subject to Placer Dome's right to earn an additional
40% interest upon the payment of $3 million to Pediment or to convert its
interest into an interest in 5% of net returns.
4. RELATED PARTY TRANSACTIONS
----------------------------
As of September 30, 2005 the Company had outstanding operating payables due to
officers and directors in the amount of $150,000.
The Company entered into an employment agreement with a director of the Company
at a rate of $7,500 per month.
5. CAPITAL STOCK
--------------
In January 2005, 920,000 common shares of Company stock were issued at $0.50 per
share for cash of $460,000.
In September 2005, 1,500,000 common shares of Company stock were issued at $0.25
per share for cash of $284,330 and a subscription receivable of $90,670. Each
share comes with a share purchase warrant, exercisable at $0.25 for a period of
two years.
6. INCOME TAXES
-------------
The Company has adopted FASB 109 to account for income taxes. The Company
currently has no issues that create timing differences that would mandate
deferred tax expense. Net operating losses would create possible tax assets in
future years. Due to the uncertainty as to the utilization of net operating loss
carry-forwards a valuation allowance has been made to the extent of any tax
benefit that net operating losses may generate.
The Company has incurred a loss of $1,269,855 as of September 30, 2005 that can
be carried forward to offset future earnings if conditions of the Internal
Revenue Code are met. This net operating loss carry-forward will begin to expire
in the year 2024. As of September 30, 2005, due to management's doubt the loss
carry forward can be utilitized prior to expiration, the entire future tax
benefit has been offset by a valuation allowance.
7. WARRANTS
--------
Warrants were issued in conjunction with the issuance of common stock. To
estimate expense related to the issuance of warrants, we have used the
Black-Scholes option pricing model using a life equal to the maximum contractual
life. The warrants expire on various dates during September 2007.
At September 30, 2005 the fair value of these warrants was estimated to be
$542,194 and was included in additional paid in capital. The Company recognized
the costs of these warrants as financing fees, which is a component of other
expense.
The following table illustrates the warrant activity as of September 30,
2005:
2005
----
WEIGHTED
AVERAGE
EXERCISE
WARRANTS PRICE
--------- ------
Outstanding, beginning of the year - $ -
Issued 1,500,000 0.25
Exercised - -
Expired - -
--------- ------
Outstanding, end of the period 1,500,000 $ 0.25
========= ======
Currently exercisable 1,500,000 $ 0.25
========= ======
Stock warrants outstanding and exercisable as of September 30, 2005 are as
follows:
Average
Weighted Remaining Number of Weighted
Number of Average Contractual Options Average
Range of Options Exercise Life Vested Exercise
Exercise Price Outstanding Price (Years) (Exercisable) Price
- --------------- ----------- -------- ---------- ------------- ---------
0.25 1,500,000 $ 0.25 2.00 1,500,000 $ 0.25
8. LOSS PER SHARE
--------------
The Company's loss per share of common stock is based on the weighted average
number of common shares outstanding at the financial statement date consisting
of the following:
FOR THE NINE MONTHS ENDED
SEMPTEMBER 30, 2005:
BASIC LOSS PER SHARE:
Net loss $ (950,652)
Shares outstanding 41,196,667
----------------------
Loss per basic share $ (0.02)
======================
FULLY DILUTED LOSS PER SHARE:
Net loss $ (950,652)
Shares outstanding 41,196,667
----------------------
Loss per fully diluted share $ (0.02)
======================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE SET FORTH ON THE FORWARD LOOKING STATEMENTS AS A
RESULT OF THE RISKS SET FORTH IN THE COMPANY'S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION, GENERAL ECONOMIC CONDITIONS, AND CHANGES IN THE ASSUMPTIONS
USED IN MAKING SUCH FORWARD LOOKING STATEMENTS.
OVERVIEW
The Company was originally incorporated in Nevada as Hudson Ventures, Inc.
on November 30, 2001. The Company has been in the exploration stage since its
formation and has not yet realized any revenues from its planned operations.
In April 2004, the Company completed a 10 to 1 forward stock split (the
"Stock Split"). The effects of the forward stock split have been retroactively
reflected in this report unless otherwise stated.
Prior to the Acquisition (discussed below), the Company either terminated
or allowed its option agreements to expire on certain properties located in the
Yukon Territories in Canada.
On September 9, 2004, the Company completed a reverse merger transaction
with Battle Mountain Gold Exploration, Inc. ("Battle Mountain") and the Battle
Mountain shareholders. The transaction is referred to herein as the "Exchange"
or the "Acquisition." Pursuant to the Acquisition, the Company acquired
11,640,000 shares of common stock (or 100%) of Battle Mountain in exchange for
an aggregate of 11,640,000 newly issued treasury shares of the Company's common
stock.
The Company is a holding company for Battle Mountain. Through Battle
Mountain, the Company will continue to be engaged in the business of minerals
exploration, but with an emphasis on gold exploration in the State of Nevada.
Except as expressly indicated or unless the context otherwise requires, the
"Company," "we," "our," or "us" means Battle Mountain Gold Exploration Corp., a
Nevada corporation, and its subsidiary.
In connection with the Exchange, James E. McKay, Ken Tullar and Wade A.
Hodges executed stock purchase agreements to purchase 3,700,000, 1,900,000 and
1,900,000 shares, respectively, or an aggregate of 7,500,000 shares, of the
Company's common stock from Nikoloas Bekropoulos, a former Director of the
Company. Additionally Bug River Trading Corp. ("Bug River"), Mark Kucher and
Paul Taufen executed stock purchase agreements to purchase 2,000,000, 1,000,000
and 500,000 shares, respectively, or an aggregate of 3,500,000, shares of the
Company's common stock from Dana Neill Upton, the Company's former President,
Secretary, Treasurer and Director. Mark Kucher is our Chief Financial Officer
and is also the beneficial owner of the shares purchased by Bug River.
Battle Mountain was incorporated in the State of Nevada on January 7, 2004.
Battle Mountain is a mineral exploration company. Battle Mountain's exploration
efforts are primarily focused on gold in the State of Nevada.
Battle Mountain's Joint Venture with NGXS to Form Pediment
-------------------------------------------------------------------
Prior to the Company acquiring Battle Mountain, on June 8, 2004, Battle
Mountain entered into a joint venture that includes a Members Agreement and an
Operating Agreement (the "Joint Venture") with Nevada Gold Exploration
Solutions, L.L.C., a Nevada limited liability company ("NGXS"), to explore the
Nevada great basin physiographic area using proprietary water chemistry database
developed by NGXS. The Operating Agreement was amended on February 24, 2005, as
discussed below under the heading "Subsequent Events." Certain terms of such
amendment that are applicable to this heading "Battle Mountain's Joint Venture
with NGXS to Form Pediment" are incorporated herein. Pursuant to the agreements,
Battle Mountain agreed to fund an aggregate of $3,250,000 (the "Initial
Contribution") for an exploration program (the "Exploration Program") in
connection with an opportunity to earn up to a 70% interest in Pediment Gold
LLC, a newly created Nevada limited liability company ("Pediment") engaged in
gold exploration in the Nevada great basin physiographical area using a
proprietary water chemistry database developed by NGXS. Kenneth Tullar, the
President and a 20% owner of NGXS, is also the beneficial owner of 5.1% of the
Company's common stock. Wade A. Hodges, a 40% owner of NGXS, is also a Director
of the Company and the beneficial owner of 5.1% of the Company's common stock.
As discussed below under the heading "Related Party Transactions" in "Item 5.
Other Information," Mr. Tullar and Mr. Hodges each receive a flat rate of $8,000
per month per person from Pediment for services that they provide to Pediment as
well as reimbursement of their actual expenses, and for each day that they work
in the field, a per diem of $125 per day.
On August 15, 2004, Battle Mountain and NGXS amended the timing of the
payments toward the Initial Contribution. As of December 31, 2004, Battle
Mountain had paid an accumulated total of $425,000 toward the Initial
Contribution. Of the $425,000, $325,000 is a non-refundable deposit (the
"Deposit"). In January 2005, Battle Mountain paid an aggregate of $630,794 of
additional payments toward the Initial Contribution. Battle Mountain has not yet
earned an interest in Pediment. Under the Operating Agreement, as amended,
Battle Mountain will earn a 50% interest in Pediment after Pediment expends the
Deposit and the $630,794 (or an aggregate of $1,055,794). The remainder of the
Initial Contribution, as amended, is payable as follows: 1) $385,000 due on July
1, 2005, which has been extended to September 1, 2005,the expenditure of which
will give Battle Mountain a 55% interest in Pediment; 2) $385,000 due on
November 1, 2005, the expenditure of which will give Battle Mountain a 60%
interest in Pediment; and 3) $1,315,000 due on April 1, 2006, the expenditure of
which will give Battle Mountain a 70% interest in Pediment. In determining
whether Battle Mountain has funded the Exploration Program and earned an
interest in Pediment, the following costs will be included: property acquisition
costs, rentals royalties and other payments necessary to acquire and maintain
title to property; salaries, wages, employee benefits and taxes thereon;
materials, equipment and supplies; reasonable transportation; contract services
and utilities; insurance premiums; damages or losses in excess of insurance
proceeds; legal and regulatory costs and expenses; the cost of annual audits;
taxes; overhead; costs of reasonably anticipated environmental compliance; and
any other reasonable direct expenditures for the necessary and proper conduct of
operations (collectively, the "Expenditures"). Battle Mountain needs to raise
capital to complete the Initial Contribution.
NGXS will be the manager of Pediment until Battle Mountain completes the
Initial Contribution, at which time Battle Mountain will have the right to
appoint the manager. If Battle Mountain completes the Initial Contribution,
Battle Mountain will own 70%, and NGXS will own 30%, of Pediment. NGXS'
participation will be on a carried basis. NGXS will not be required to fund the
ongoing costs of additional exploration. If Battle Mountain does not complete
the Initial Contribution, any interest in Pediment that Battle Mountain may earn
will be diluted based on total expenditures made on properties by third parties
and NGXS. If Battle Mountain's interest is diluted to 25% or less, Battle
Mountain's interest will be converted to a 1.25% net smelter royalty from the
production of minerals from the properties owned by Pediment.
Pursuant to an amendment to the Operating Agreement in February 2005, the
Hot Pots and Fletcher Junction project areas will become the sole site specific
project obligations between the Company and NGXS under Pediment. Battle Mountain
received an accelerated vested 50% interest in both the Hot Pots Project and the
Fletcher Junction Project (discussed below). Battle Mountain will continue to
earn its interest in Pediment based on Battle Mountain's scheduled payment, and
Pediment's subsequent expenditure, of the Initial Contribution as set forth
above. Costs incurred relative to either the Hot Pots Project or the Fletcher
Junction Project will apply toward Battle Mountain's earn-in of an interest in
Pediment and the specific project for which costs are made. Costs incurred that
do not relate to either the Hot Pots Project or the Fletcher Junction Project
will only apply toward Battle Mountain's earn-in of an interest in Pediment.
Once Battle Mountain has completed the Initial Contribution, the Company will
have the option to earn an additional 10% interest in the Hot Pots Project or
the Fletcher Junction Project by funding $750,000 of additional work per
property.
Pediment's Lease with Tomera Ranches
-----------------------------------------
On September 16, 2004, Julian Tomera Ranches, Inc., Battle Mountain
Division ("Tomera Ranches") entered into a ten-year mining lease (the "Tomera
Lease") with Pediment covering approximately 2,225 acres of land in Humboldt
County, Nevada. The Tomera Lease is part of the Hot Pots Project. Retention of
the Tomera Lease is predicated on an initial payment of $25,000 (which Pediment
paid in September 2004), and subsequent annual payments of $15,000 per year for
three years, and $20,000 per year thereafter. In addition, Pediment is required
to pay Tomera Ranches a royalty of 3% of Net Smelter Returns from production, if
any, from the land covered by the Tomera Lease.
On September 27, 2005 the annual lease payment of $15,000 was made to
Tomera Ranches by Pediment Gold.
Pediment's Letter Agreement with Placer Dome
--------------------------------------------------
On October 20, 2004 Pediment entered into a binding letter agreement (the
"Letter Agreement") with Placer Dome U.S. Inc. ("Placer Dome") for exploration
and development during the three-year period beginning on October 21, 2004 (the
"Earn-In Period") on unpatented mining claims owned by Placer Dome and located
in Humboldt County, Nevada (the "Placer Dome Claims"). The Placer Dome Claims
are part of the Hot Pots Project and the land on which they are located is
adjacent to the land covered by the Tomera Lease. Pursuant to the Letter
Agreement, Pediment has the right to earn a 70% interest in, and to enter into a
joint venture agreement covering, the Placer Dome Claims. Retention of the
Letter Agreement is predicated on an initial payment of $3,000 (which Pediment
paid in October 2004), and an obligation to incur an aggregate of $1 million of
work expenditures on the Placer Dome Claims during the Earn-In Period as
follows: 1) $50,000 during the period from October 21, 2004 through October 21,
2005; 2) $250,000 during the period from October 21, 2005 through October 21,
2006; and 3) $700,000 during the period from October 21, 2006 through October
21, 2007. Pediment may acquire an undivided 70% interest in the Placer Dome
Claims after incurring the full amount of the work expenditures. If Pediment
acquires such interest, Pediment may be obligated to enter into a joint venture
agreement with Placer Dome covering future activities on the Placer Dome Claims.
Pediment's interest in the Placer Dome Claims will be subject to Placer Dome's
right to earn an additional 40% interest upon the payment of $3 million to
Pediment or to convert its 30% interest into an interest in 5% of net returns.
In order to retain the Letter Agreement, Pediment must pay all federal claim
maintenance fees (or perform sufficient assessment work) required to maintain
the Placer Dome Claims, and timely make all filings and recordings required in
connection therewith (collectively "Annual Maintenance"). During the Earn-In
Period, Pediment is also responsible for timely payment of all taxes levied or
assessed upon or against the Placer Dome Claims and any facilities or
improvements located thereon. Pediment may, at any time in its sole discretion,
terminate the Letter Agreement in its entirety or with respect to any portion of
the Placer Dome Claims. If Pediment terminates the Letter Agreement, Pediment
will have no further obligations other than those related to indemnifying Placer
Dome against losses related to misrepresentation of Pediment or any exploration,
development or related work conducted by Pediment on the Placer Dome Claims,
reclaiming the surface of the Placer Dome Claims, and performing remediation
work as to the subsurface of the Placer Dome Claims. If such termination occurs
prior to June 1, 2005, or after June 1 of any other year, Pediment will also be
obligated to perform Annual Maintenance for the assessment year beginning on
September 1 of the year of termination.
During September, 2005 Placer Dome agreed to defer Pediment's 2005, $50,000
work expenditure obligation and revise the required work expenditure schedule as
follows: 1) No obligation during the period from October 21, 2004 through
October 21, 2005; 2) $300,000 during the period from October 21, 2005 through
October 21, 2006; and 3) $700,000 during the period from October 21, 2006
through October 21, 2007.
Amended Operating Agreement of Pediment
-------------------------------------------
On February 24, 2005, the Company and NGXS amended the operating agreement
regarding Pediment (the "Amended Operating Agreement"). Except for changes made
in the Amended Operating Agreement, Members continue on and the Operating
Agreement remains effective for all other terms and conditions. NGXS
acknowledged that the Company, by agreeing to the terms of the Amended Operating
Agreement cured a default under the Operating Agreement that was set forth in a
notice of default dated February 11, 2005 (the "Notice of Default"). By
returning approximately $704,000 to Pediment and disbursing those funds pursuant
to the Authority for Expenditure Procedure as provided in the Amended Operating
Agreement, the Company cured a claim of breach that was set forth in a letter
dated February 17, 2005 (the "Notice of Breach"). The Company disclosed the
facts and circumstances concerning the Notice of Default and the Notice of
Breach in a Form 8-K filed with the Commission on February 18, 2005. Pursuant to
the Amended Operating Agreement, The Hot Pots Project and the Fletcher Junction
Project became the sole site specific project obligations between the Company
and NGXS under Pediment. Battle Mountain received an accelerated vested 50%
interest in both the Hot Pots Project and the Fletcher Junction Project. Under
the Amended Operating Agreement, the Company is required, on an individual
property basis, to spend $500,000 on the technical evaluation of each property
(assuming the project moves through the Discovery Drilling Stage) within twelve
months of commencement of the first drilling program to earn a 70% interest in
the project and become Operator, with NGXS being carried for a 30% interest,
subject to permitting and drill rig availability. The $500,000 to be spent on
each property reflects deductions for expenditures of approximately $310,000
made to the date of the Amended Operating Agreement for the Field Examination
Stage. Costs spent on each property during the Land Acquisition Stage, all
expenditures of the $500,000 on each property, discussed above, and third-party
farm out budgets will count towards the Company's earn-in in the specific
project for which the costs are being spent and in Pediment. The amended
operating agreement also provides for the establishment of a savings account for
Battle Mountain and specific controls regarding such savings account and
Pediment's bank account, which controls establish the instances in which funds
may be transferred into, out of and between the accounts. NGXS agreed to forgo a
3% fee for management of Pediment. All of Pediment's activities that are
conducted by Kenneth N. Tullar or Wade A. Hodges will be billed directly to
Pediment at a flat rate of $8,000 per month per person plus actual expenses. The
Company disclosed these and other material terms of the Amended Operating
Agreement in a Form 8-K filed with the Commission on February 28, 2005.
On June 20, 2005, NGXS agreed to a 90-day extension on the Company's
payment of $325,000 due to Pediment Gold, from July 1, 2005 to October 1, 2005.
On September 1, 2005 BMGX and NGXS agreed to enter into discussions and
negotiations to revise their Joint Venture Operating Agreement. In deference to
these ongoing negotiations, on September 23, 2005, NGXS agreed to suspend all
BMGX payment obligations to Pediment Gold until December 1, 2005.
Since December, Pediment staked 346 unpatented mining claims in Mineral
County, Nevada, which we refer to as the "Fletcher Junction Project." The
Fletcher Junction project is the second property to be identified as a direct
result of the successful application of the company's proprietary ground water
geochemical exploration methodology. Groundwater samples collected to date from
near-surface spring sources report highly anomalous distributions of gold and
trace element chemistry. The project area is within the volcanic-hosted Aurora
District along the Walker Lane Gold Trend, a regional alignment of major gold
deposits (Goldfields, + 4.2 million ounces; Mineral Ridge, +.6 million ounces;
Tonapah-Hasborough, +.6 million ounces; Boss, +.3 million ounces; Aurora
Mine/Esmerelda Project, +1 million ounces; Borealis Mine, +1 million ounces;
Candeleria, +1.5 million ounces; Comstock Lode, +8 million ounces). The
high-grade, gold ore deposits within the Aurora District are controlled by a
complex set of extensional structures. The same structural pattern that controls
the location of gold within the Aurora District projects beneath the Fletcher
Junction Project Area. The project area is surrounded by areas of past intense
exploration interest and scattered drilling by several companies, but the
Fletcher Junction Target Area has not been explored to date because the area is
covered by 50' to 100' of post-mineral basalt cover, which effectively precluded
the application of conventional exploration techniques short of very expensive
blind drilling. The waters have been sampled twice under a program of rigorous
quality control and confirm the presence of gold (thousands of parts per
trillion) similar to concentration levels found in the groundwater associated
with known gold mines elsewhere in Nevada. Additional geologic work has
identified quartz-carbonate vein material believed to be derived from source
areas beneath the adjacent basalt cover. Samples of this vein material have
reported values up to 2.9 ounces per ton of gold. Pediment's Project Plan of
Operations for drilling was submitted to the U.S. Forest Service in July, 2005,
field checked with Forest Service technical personnel on September 20, 2005 and
is now under final review.
Exploration drilling began on the Hot Pots Project on March 21, 2005 and
was completed on April 15, 2005. Nine vertical, reverse circulation drill holes
were drilled over a 4 square mile area for a total of almost 4,000 feet of
drilling to depths ranging from 300 to 620 feet. Depth to bedrock was shallower
than anticipated with alluvial gravel thicknesses of less than 70 feet in all
holes except one. The playa sediments and gravels were found to overlay
volcanoclastic sediments overlaying Paleozoic bedrock. Depth to the Paleozoic
bedrock surface ranged from 110 to 390 feet and oxidation extends over 300 feet
into the bedrock. Water samples from all but one of the holes reported anomalous
gold and other trace-elements and one of the holes reported 267 parts per
trillion gold, values similar to the gold and water chemistry at the nearby Lone
Tree Mine. Bedrock samples from all of the holes reported gold, from strong to
weakly anomalous values, arsenic and associated anomalous trace elements in
seven of the nine holes. Hydrothermal alteration was identified in five of the
holes. These findings, when integrated with the existing project information has
identified a roughly north south trending geological uplift, bounded on the east
and west by two north-south trending structural trends that appear to reflect
the pattern of anomalous gold and associated trace elements reported from both
the water and bedrock sampling. A soil gas chemistry (Carbon Dioxide only)
orientation survey has been initiated and preliminary data from this in-progress
survey supports the drilling, water chemistry and geophysical data as to the
location and chemically anomalous nature of these two trends.
PLAN OF OPERATION
The Company can satisfy its cash requirements for the next three months.
The Company and Nevada Gold Exploration Solutions have agreed to revise their
Joint Venture Operating Agreement and suspend all of the Company's payment
obligations to Pediment Gold LLC until December, 2005 in deference to the
ongoing discussions and negotiations on revising the Agreement. It is imperative
that the Company obtain $2,300,000 of additional financing to conduct its
business operations during the next twelve months and fully implement its
business plan. The Company has raised approximately $2,190,000 for its gold
exploration activities which it has used for payments toward the Initial
Contribution in Pediment and for expenses. During the next twelve months, the
Company, through Battle Mountain, is obligated to contribute $2,085,000 to
Pediment for the Exploration Program to retain its right to earn up to a 70%
interest in Pediment. Pediment in turn is required, during the next twelve
months, to spend $6,000 on the Placer Dome Claims (pursuant to its agreement
with Placer Dome) to retain its right to earn up to a 70% interest in the Placer
Dome Claims, to spend approximately $45,000 ) to retain the Fletcher Junction
Claims and to pay $15,000 on the Tomera Lease (pursuant to its agreement with
Tomera Ranches) to retain its rights in the Tomera Lease. The Company is taking
steps to raise equity capital or to borrow additional funds. There can be no
assurance that any new capital will be available to the Company or that adequate
funds will be sufficient for Company operations, whether from the Company's
financial markets, or other arrangements will be available when needed or on
terms satisfactory to the Company. The Company does not have any commitments
from its officers, directors or affiliates to provide funding. The failure of
the Company to obtain adequate financing may result in the Company having to
delay, curtail, scale back or forgo its operations.
The Company does not expect to purchase any plant or significant equipment
during the next twelve months. The Company will heavily rely on contract labor
to conduct its operations and does not expect a significant change in the number
of employees during the next twelve months.
RESULTS OF OPERATIONS
The Company acquired Battle Mountain in September 2004. The Acquisition is
being accounted for as a reverse merger and recapitalization whereby Battle
Mountain, the operating company which was incorporated on January 7, 2004, and
has a December 31 fiscal year end, is the continuing entity for all accounting
purposes.
THREE MONTHS ENDED SEPTEMBER 30, 2005
Revenues
- --------
The Company did not have any revenues during the three months ended
September
30, 2005.
Expenses
- --------
For the three months ended September 30,2005, the Company had total
operating expenses of $66,319, consisting of professional and consulting of
$30,220, travel and entertainment of $21,202, rent and office of $2,388, general
and administrative expenses of $12,457, and depreciation expense of $52.
Net Loss and Net Loss Per Share
- -------------------------------
Net loss was $608,513 which included $542,194 of non recurring financing
fees related to the issuance of 1,500,000 warrants to purchase an aggregate of
1,500,000 shares of our common stock. The Company incurred a basic and diluted
loss per common share of $(0.01) for the three months ended September 30, 2005.
NINE MONTHS ENDED SEPTEMBER 30, 2005
Revenues
- --------
The Company did not have any revenues during the nine months ended
September 30, 2005.
Expenses
- --------
For the nine months ended September 30, 2005, the Company had total
operating expenses of $398,376, a loss on sale of investments of $10,082, and a
non recurring finance fee of $542,194. Operating expenses consisted of
professional and consulting of $278,188, travel and entertainment of $34,783,
rent and office of $10,837, general and administrative expenses of $74,422, and
depreciation expense of $146.
Net Loss and Net Loss Per Share
- -------------------------------
Net loss was $950,652 or basic and diluted loss per common share of $(0.02)
for the nine months ended September 30, 2005.
PERIOD FROM JANUARY 7, 2004 (INCEPTION) THROUGH SEPTEMBER 30, 2005
Revenues
- --------
The Company had no revenues during the period from Inception through
September 30, 2005.
Expenses
- --------
During the period from Inception through September 30, 2005, the Company
had total operating expenses of $679,316, consisting of professional and
consulting of $480,831 travel and entertainment of $62,555, rent and office of
$28,490, general and administrative expenses of $107,108, and depreciation
expense of $332. The Company also had $590,539 in other expenses primarily
consisting of non recurring financing fees and realized and unrealized losses on
marketable securities.
Net Loss and Net Loss Per Share
- -------------------------------
Net loss was $1,269,855 for the period from Inception through September 30,
2005 or $(0.04) per share.
LIQUIDITY AND CAPITAL RESOURCES
Total current assets were $325,932 as of September 30, 2005, which
consisted of cash.
Total current liabilities were $169,500 as of September 30, 2005,
consisting of related party payables of $150,000 and accounts payable of
$19,500. Of the payables to related parties, $142,500 is accrued base
compensation for Mark Kucher.
Net cash used in operating activities was $367,985 for the nine months
ended September 30, 2005, consisting of a net loss of $950,652 that was offset
by an increase in realized loss on investments of $10,082, and an increase in
accounts payable of $30,245, an adjustment for depreciation expense of $146, and
non recurring financing fees related to the issuance of stock warrants of
$542,194.
Net cash used in investing activities was $605,340 for the nine months
ended September 30, 2005, consisting primarily of investment in mining
properties.
Net cash provided by financing activities was $596,134 for the nine months
ended September 30, 2005, due to proceeds from issuance of common stock of
$744,330 offset by principal payments of $148,196 on related party notes
payable.
It is imperative that the Company raise $2,300,000 million of additional
capital to continue its operations during the next twelve months, and to fully
implement its business plan.
In addition, we accrue salary of $7,500 per month for Mark Kucher, our
Chief Financial Officer, payable at such time as the Company is fully vested in
Pediment, which the Company expects to occur no earlier than April 1, 2006. In
September 2004, the Company completed a reverse merger transaction with Battle
Mountain and the Battle Mountain shareholders. Pursuant to the Acquisition,
Battle Mountain became a wholly-owned subsidiary of the Company and the Battle
Mountain shareholders took control over the Company. Prior to the Acquisition,
Battle Mountain entered into the Joint Venture pursuant to which Battle Mountain
is to make a $3,250,000 million dollar Initial Contribution to Pediment for an
Exploration Program by April 2006. Battle Mountain has paid an aggregate of
$1,055,794 toward the Initial Contribution. Battle Mountain will earn a 50%
interest in Pediment after Pediment spends $630,794 of the payments already made
by Battle Mountain. However, pursuant to the Amended Operating Agreement, Battle
Mountain received an accelerated vested 50% interest in the Hot Pots Project and
the Fletcher Junction Project, which became the sole site specific project
obligations between the Company and NGXS under Pediment. The Company is
required, on an individual property basis, to spend $500,000 on the technical
evaluation of the Hot Pots Project and the Fletcher Junction Project (assuming
the project moves through the Discovery Drilling Stage) within twelve months of
commencement of the first drilling program to earn a 70% interest in each
project and become Operator. Costs spent on each property during the Land
Acquisition Stage, all expenditures of the $500,000 on each property, discussed
above, and third-party farm out budgets will count towards the Company's earn-in
in the specific project for which the costs are being spent and in Pediment.
Costs incurred that do not relate to either the Hot Pots Project or the Fletcher
Junction Project will only apply toward an earn-in of an interest in Pediment.
The Company has raised approximately $2,190,000 which it has used to make
payments toward the Initial Contribution in Pediment and for expenses. At this
time, the Company has not secured or identified any sources of financing. The
Company cannot make any assurance that financing will be available on terms
favorable to the Company, or at all. The Company has no commitments from
officers, directors or affiliates to provide funding. There can be no assurance
that any new capital will be available to the Company or that adequate funds
will be sufficient for Company operations, whether from the Company's financial
markets or private sources, or that other arrangements will be available when
needed or on terms satisfactory to the Company. If adequate funds are not
available to the Company on acceptable terms, the Company may have to delay,
curtail, scale back or forgo its business operations.
RISK FACTORS
Risks Relating to Our Business
- ------------------------------
WE NEED $2,300,000 MILLION OF ADDITIONAL CAPITAL.
- -------------------------------------------------
It is imperative that we raise $2,300,000 million of additional capital to
fully implement our business plan. The Company acquired Battle Mountain which
has agreed to make an Initial Contribution for an exploration Program by April
2006. Battle Mountain has paid $1,055,794 toward the Initial Contribution. In
addition, we accrue salary of $7,500 per month for Mark Kucher, our Chief
Financial Officer, payable at such time as the Company is fully vested in
Pediment, which the Company expects to occur no earlier than April 1, 2006.
There can be no assurance that additional capital will be available to the
Company, or that, if available, it will be on terms satisfactory to the
Company's management. Any additional financing may involve dilution to the
Company's then-existing shareholders. At this time, no other additional
financing has been secured or identified. The Company has no commitments from
officers, directors or affiliates to provide funding. The failure of the Company
to obtain additional capital on terms satisfactory to the Company's management,
or at all, may cause the Company to delay, curtail, scale back or forgo its
operations.
FUTURE DISPUTES BETWEEN THE COMPANY AND NGXS REGARDING THE OPERATING AGREEMENT
- ------------------------------------------------------------------------------
OF PEDIMENT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND RESULTS OF
- -------------------------------------------------------------------------------
OPERATION.
- ----------
In February 2005, we received a Notice of Default from NGXS regarding the
Operating Agreement of Pediment after we proposed that Pediment acquire an
interest in two, rather than all eleven, land areas that Pediment identified for
land acquisition, and that Pediment begin an initial drilling program only on
the two areas. We have paid an aggregate of $1,055,794 toward the Initial
Contribution in Pediment. In February 2005, we withdrew a substantial amount of
the funds from Pediment's account. Following the withdrawal, we received a
letter from NGXS stating that NGXS was of the opinion that withdrawal was a
breach of the Operating Agreement or a resignation by us and requesting the
immediate return of the withdrawn money. The Company and NGXS have amended the
Operating Agreement. We have returned the funds to Pediment's account pursuant
to the Amended Operating Agreement and have otherwise cured the Notice of
Default and letter of breach. Our agreement with NGXS regarding Pediment may be
subject to future disputes that we may not be able to resolve. If we have future
disputes with NGXS regarding Pediment, the Hot Pots Project or the Fletcher
Junction Project, we may not be able to earn more than our 50% interest in the
Hot Pots Project, our 50% interest in the Fletcher Junction Project, or any
interest in Pediment, each of which could have a material adverse effect on our
business and results of operation.
FROM TIME TO TIME THE COMPANY INVESTS IN TRADING SECURITIES, THE VALUE OF WHICH
- -------------------------------------------------------------------------------
IS SUBJECT TO SIGNIFICANT FLUCTUATIONS.
- ---------------------------------------
From time to time the Company invests in trading securities, the value of
which is subject to significant fluctuations. Our trading securities are stated
at fair value and realized and unrealized gains and losses are included in
income.
OUR AUDITORS HAVE EXPRESSED AN OPINION THAT THERE IS SUBSTANTIAL DOUBT ABOUT OUR
- --------------------------------------------------------------------------------
ABILITY TO CONTINUE AS A GOING CONCERN.
- ---------------------------------------
In its report dated April 18, 2005, Chisholm, Bierwolf & Nilson, LLC,
Certified Public Accountants expressed an opinion that there is substantial
doubt about our ability to continue as a going concern based on our history of
operating losses since Inception, our lack of operating revenues and our
dependence on adequate financing. Our financial statements do not include any
adjustments that might result from the outcome of that uncertainty. We closed a
reverse merger transaction with Battle Mountain on September 9, 2004; however,
Battle Mountain is itself in the exploration stage and in need of additional
capital. The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from our inability
to continue as a going concern. Our continuation as a going concern is dependent
upon future events, including obtaining $2,300,000 of financing (discussed
above) to fully implement our business plan. If we are unable to continue as a
going concern, investors will lose their entire investment.
WE HEAVILY DEPEND ON JAMES E. MCKAY AND MARK KUCHER.
- ----------------------------------------------------
The success of the Company depends upon the personal efforts and abilities
of James E. McKay and Mark Kucher. Mr. McKay serves as a director of the Company
and the Company's President pursuant to a three-year employment agreement. Mr.
McKay also serves as the Company's Chief Executive Officer, Secretary and
Treasurer. Mr. McKay and the Company may voluntarily terminate the employment
agreement at any time. Mark Kucher serves as a director of the Company and the
Company's Chief Financial Officer pursuant to an employment agreement. Mr.
Kucher and the Company may voluntarily terminate the employment agreement at any
time. The loss of Mr. McKay or Mr. Kucher could have a material adverse effect
on our business, results of operations or financial condition. In addition, the
absence of Mr. McKay or Mr. Kucher will force us to seek a replacement who may
have less experience or who may not understand our business as well, or we may
not be able to find a suitable replacement.
WE ARE ENGAGED IN A BUSINESS THAT IS INHERENTLY SPECULATIVE AND RISKY.
- ----------------------------------------------------------------------
Mineral exploration and mining is subject to risks related to a substantial
or extended decline in prices of mineral commodities, property acquisition
complexities, and restrictive and/or changing political, social and/or
environmental laws and regulations. Even if we can implement our business plan
and initiate exploration and development activities, there can be no assurance
that we will find commercial quantities of minerals, or if we are able to find
such minerals, that we can remove them in a profitable manner. Because of the
inherently speculative and risky nature of the business in which we are engaged,
our Company could fail to find commercial quantities of minerals or perform
poorly, and as a result investors could lose their entire investment.
JAMES E. MCKAY, MARK KUCHER, WADE A HODGES AND KENNETH TULLAR CAN VOTE AN
- -------------------------------------------------------------------------
AGGREGATE OF 47.6% OF OUR COMMON STOCK AND CAN EXERCISE CONTROL OVER CORPORATE
- ------------------------------------------------------------------------------
DECISIONS.
- ----------
James E. McKay, Mark Kucher, Wade A Hodges, and Kenneth Tullar beneficially
own or control an aggregate of approximately 47.6% of the issued and outstanding
shares of our common stock. Accordingly, they will exercise significant
influence in determining the outcome of all corporate transactions or other
matters, including the election of directors, mergers, consolidations, the sale
of all or substantially all of our assets, and also the power to prevent or
cause a change in control. The interests of Messrs. McKay, Kucher, Hodges and
Tullar may differ from the interests of the other stockholders and thus result
in corporate decisions that are adverse to other shareholders.
Risks Relating to Our Common Stock
- ----------------------------------
THE MARKET PRICE OF OUR COMMON STOCK HISTORICALLY HAS BEEN VOLATILE.
- --------------------------------------------------------------------
The market price of our common stock historically has fluctuated
significantly based on, but not limited to, such factors as: general stock
market trends, announcements of developments related to our business, actual or
anticipated variations in our operating results, our inability to generate
revenues, and conditions and trends in the mineral exploration, development and
production industry.
Our common stock is traded on the over-the-counter Bulletin Board. In
recent years the stock market in general has experienced extreme price
fluctuations that have often been unrelated to the operating performance of the
affected companies. Similarly, the market price of our common stock may
fluctuate significantly based upon factors unrelated or disproportionate to our
operating performance. These market fluctuations, as well as general economic,
political and market conditions, such as recessions or interest rates may
adversely affect the market price of our common stock.
WE HAVE NOT CREATED A MARKET TO SUSTAIN THE SIGNIFICANT AMOUNT OF SHARES IN OUR
- -------------------------------------------------------------------------------
PUBLIC FLOAT.
- -------------
We have not created a market for our common stock. We may not have adequate
time to create such a market prior to the time our shareholders resell their
shares. If our shareholders resell their shares before we can create a market,
it may exert downward pressure on the price of our common stock.
OUR COMMON STOCK IS SUBJECT TO THE"PENNY STOCK" RULES OF THE SECURITIES AND
- -----------------------------------------------------------------------------
EXCHANGE COMMISSION WHICH LIMITS THE TRADING MARKET IN OUR COMMON STOCK, MAKES
- ------------------------------------------------------------------------------
TRANSACTIONS IN OUR COMMON STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN
- --------------------------------------------------------------------------
INVESTMENT IN OUR COMMON STOCK.
- -------------------------------
Our common stock is considered a "penny stock" as defined in Rule 3a51-1
promulgated by the Securities and Exchange Commission (the "Commission" or the
"SEC") under the Exchange Act. In general, a security which is not quoted on
NASDAQ or has a market price of less than $5 per share where the issuer does not
have in excess of $2,000,000 in net tangible assets is considered a penny stock.
The Commission's Rule 15g-9 regarding penny stocks impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally persons
with net worth in excess of $1,000,000 or an annual income exceeding $200,000 or
$300,000 jointly with their spouse). For transactions covered by the rules, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Thus, the rules affect the ability of broker-dealers to sell our common
stock should they wish to do so because of the adverse effect that the rules
have upon liquidity of penny stocks. Unless the transaction is exempt under the
rules, under the Securities Enforcement Remedies and Penny Stock Reform Act of
1990, broker-dealers effecting customer transactions in penny stocks are
required to provide their customers with (i) a risk disclosure document; (ii)
disclosure of current bid and ask quotations if any; (iii) disclosure of the
compensation of the broker-dealer and its sales personnel in the transaction;
and (iv) monthly account statements showing the market value of each penny stock
held in the customer's account. As a result of the penny stock rules the market
liquidity for our common stock may be adversely affected by limiting the ability
of broker-dealers to sell our common stock and the ability of purchasers to
resell our common stock.
In addition, various state securities laws impose restrictions on
transferring "penny stocks" and as a result, investors in our common stock may
have their ability to sell their shares of the common stock impaired.
THE COMPANY HAS NOT PAID ANY CASH DIVIDENDS.
- --------------------------------------------
The Company has paid no cash dividends on its common stock to date and it
is not anticipated that any cash dividends will be paid to holders of the
Company's common stock in the foreseeable future. While the Company's dividend
policy will be based on the operating results and capital needs of the business,
it is anticipated that any earnings will be retained to finance the future
expansion of the Company.
CRITICAL ACCOUNTING ESTIMATES
Our discussion and analysis of our financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with accounting principals generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues (if
any) and expenses, and related disclosure of any contingent assets and
liabilities. On an on-going basis, we evaluate our estimates. We base our
estimates on various assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
We estimated the financing fees related to the issuance of warrants and
options to purchase our common stock using the Black-Scholes pricing model using
various volatility assumptions.
Going Concern
- -------------
We have been in the exploration stage since our formation and have not yet
realized any revenues from our planned operations. The accompanying financial
statements have been prepared assuming we will continue as a going concern. As
shown in the accompanying financial statements, we have incurred a net loss of
$1,269,855 for the period from Inception through September 30, 2005 and have had
no sales. These conditions among others create an uncertainty as to our ability
to continue as a going concern, particularly in the event that we cannot obtain
$2,300,000 million of additional financing to fully implement our business plan
and to continue with our current operations. Our future is dependent upon our
ability to obtain financing and upon future profitable operations from the
development of mineral properties. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts of and classification of liabilities that might be
necessary in the event we cannot continue in existence.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our Chief Executive
Officer and Chief Financial Officer, after evaluating the effectiveness of the
Company's "disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period
covered by this quarterly report (the "Evaluation Date"), have concluded that as
of the Evaluation Date, our disclosure controls and procedures are adequately
designed to ensure that material information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act of 1934
is recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms
(b) Changes in internal control over financial reporting. There were no
significant changes in our internal control over financial reporting during our
most recent fiscal quarter that materially affected, or were reasonably likely
to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to, and its property is not the subject of, any
pending legal proceeding.
ITEM 2. CHANGES IN SECURITIES
In February 2005, we amended the terms of a sale of stock that we made in
November 2004. In November 2004, we sold an aggregate of 450,000 shares of
common stock to four individual investors for an aggregate of $450,000 (or $1.00
per share). In February 2005, we changed the terms of the sale to provide for
900,000 shares for an aggregate of $450,000 (or approximately $0.50 per share).
In April 2005, we agreed to accept $100,000 less of an investment from one of
the investors. As a result of these changes in the original terms of the sale,
we received $350,000 for an aggregate of 700,000 shares. The spouse of Mark
Kucher, the Company's Chief Financial Officer and a Director of the Company,
purchased 40,000 of these shares.
This re-pricing of the private placement sale of shares of our Common Stock
was done to more accurately and consistently reflect actual market price and
conditions of our common shares, maintain investors' interest in our private
placements and to continue to offer investors what the Company believes an
equitable investment opportunity.
In September 2005 the Company, by private placement, issued 1,500,000
restricted shares of our common stock at $0.25 per share for an aggregate total
subscription of $375,000. Each share comes with a share purchase warrant,
exercisable at $0.25 for a period of two years.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
The Company has filed an Amendment to our Schedule 14-C and an Amendment to
our 2004 10-KSB with the SEC and intends to schedule a shareholders' meeting
upon completion of the review process by the SEC.
ITEM 5. OTHER INFORMATION
Related Party Transactions
- --------------------------
The Company has entered into a consulting agreement with James E. McKay,
pursuant to which Mr. McKay serves as the Company's President. Mr. McKay
receives a base salary of $7,500 per month, three (3) weeks of paid vacation,
and an option to purchase 500,000 shares of the Company's common stock at an
exercise price of $0.99 per share that vested in its entirety on May 31,2005.
Wade A. Hodges is a Director of the Company, the beneficial owner of 5.1%
of the Company's stock and owns a forty percent (40%) membership interest in
NGXS. As contemplated by the Joint Venture, Battle Mountain and NGXS formed
Pediment to explore the Nevada great basin physiographic area using a
proprietary water chemistry database developed by NGXS. Mr. Hodges provides
geological services to the Joint Venture. He currently receives a flat rate of
$8,000 per month from Pediment for services that he provides to Pediment as well
as reimbursement of his actual expenses, and for each day that he works in the
field, a per diem of $125 per day. The Company and NGXS came to the current
terms regarding Mr. Hodges's payment as part of the Amended Operating Agreement
entered into in February 2005. During the period covered by this report, Mr.
Hodges was receiving $8000 per month, the $125 per diem and expense
reimbursement. Mr. Hodges received an aggregate of $40,014.40 for services that
he provided to the Joint Venture during the period covered by this report.
Kenneth Tullar, the beneficial owner of 5.1% of the Company's common stock,
owns a twenty percent (20%) membership interest in NGXS. Mr. Tullar provides
geological services to the Joint Venture. He currently receives a flat rate of
$8,000 per month from Pediment for services that he provides to Pediment as well
as reimbursement of his actual expenses, and for each day that he works in the
field, a per diem of $125 per day. The Company and NGXS came to the current
terms regarding Mr. Tullar's payment as part of the Amended Operating Agreement
entered into in February 2004. During the period covered by this report, Mr.
Tullar was receiving $8000 per month, the $125 per diem and expense
reimbursement. Mr. Tullar received an aggregate of $29,730.62 for services that
he provided to the Joint Venture during the period covered by this report. In
April the Company's Board of Directors granted Mr. Tullar an option to purchase
200,000 shares of the Company's common stock at an exercise price of $0.40 per
share that vested in its entirety on April 15, 2005.
The Company entered into an employment agreement with Mark Kucher pursuant
to which Mr. Kucher serves as the Company's Chief Financial Officer and as a
Director of the Company. The terms of the agreement provide that it is
retroactively effective on January 1, 2004. Mr. Kucher receives a base salary of
$7,500 per month, effective retroactively from January 2004 that is not payable
until the Company is fully vested in Pediment. Mr. Kucher has the option to
receive his salary in shares, at market value, at any time. Mr. Kucher also
receives three weeks of paid vacation. The agreement provides for the grant of
an option to Mr. Kucher to purchase 500,000 shares of the Company's common stock
that vests one year after commencement of Mr. Kucher's employment with the
Company, provided that if the Company terminates Mr. Kucher's employment prior
to such time, the option will automatically vest in its entirety on the date of
termination. On December 15, 2004, in satisfaction of the obligation to grant an
option to Mr. Kucher, the Company's Board of Directors granted Mark Kucher an
option to purchase 500,000 shares of the Company's common stock at an exercise
price of $0.99 per share, which option vested in its entirety on May 31, 2005.
In December 2004, the Company granted options to James E. McKay and Mark D.
Kucher pursuant to their employment agreements to purchase 500,000 shares of the
Company's common stock with an exercise price of $0.99 per share and a vesting
date of May 31, 2005. Mr. McKay serves as the Company's President pursuant to
his employment agreement. Mr. Kucher serves as the Company's Chief Executive
Officer and Chairman of the Company's board of directors pursuant to his
employment agreement. In April 2005, the Company's board of directors amended
the terms of their options to vest in their entirety on April 15, 2005, at an
amended exercise price of $0.40 per share. The Company claims an exemption from
registration afforded by Section 4(2) of the Act since the foregoing grants did
not involve a public offering, the recipients had access to information that
would be included in a registration statement, took the shares for investment
and not resale and the Company took appropriate measures to restrict transfer.
In April 2005, the Company's board of directors approved the grant of
options to each of its directors to purchase 300,000 shares (or an aggregate of
1,500,000 shares) of the Company's common stock with an exercise price of $0.40
per share and a vesting date of April 15, 2005.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit No. Description
31.1* Certificate of the Chief Executive Officer pursuant
Section 302 of the Sarbanes-Oxley Act of 2002
31.2* Certificate of the Chief Financial Officer pursuant
Section 302 of the Sarbanes-Oxley Act of 2002
32.1* Certificate of the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2* Certificate of the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
* Filed Herein.
b) Reports on Form 8-K
None, but the Company filed one Amendment to its SHCEDULE 14-C and one
Amendment to its 2004 10-KSB during the quarter for which this report is filed.
Subsequent to the close of the quarter for which this report is filed, the
Company has not filed any additional reports.
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.
BATTLE MOUNTAIN GOLD EXPLORATION CORP.
DATE: November 4, 2005 By: /s/ James E. McKay
-------------------
James E. McKay,
Chief Executive Officer