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 October 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
For the transition period from to
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Commission file number 000-50399
BATTLE MOUNTAIN GOLD EXPLORATION CORP.
--------------------------------------
(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 January 20, 2005, the issuer had 39,860,000 shares of common stock
outstanding, 1,350,000 of which have not been issued as of the filing of
this report.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BATTLE MOUNTAIN GOLD EXPLORATION CORP.
(FORMERLY HUDSON VENTURES, INC.)
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
ASSETS
------
October 31,
2004
-----------
CURRENT ASSETS (Unaudited)
Cash $ 509,492
Deposits 295
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Total Current Assets 509,787
PROPERTY & EQUIPMENT (net) 2,431
OTHER ASSETS
Investment in Mining Properties 325,000
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Total Other Assets 325,000
Total Assets $ 837,218
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------
CURRENT LIABILITIES
Accounts Payable $ 6,423
Notes Payable - Related Party 153,831
Total Current Liabilities 160,254
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Total Liabilities 160,254
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STOCKHOLDERS' EQUITY
Preferred Stock; 10,000,000 Shares authorized
at $.001 par value; zero shares issued and
outstanding -
Common Stock; 200,000,000 Shares
Authorized at $.001 Par Value; 39,410,000
Shares Issued and Outstanding 39,410
Additional Paid-in-Capital 823,910
Accumulated (Deficit) Earnings (186,356)
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Total Stockholders' Equity 676,964
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 837,218
==========
BATTLE MOUNTAIN GOLD EXPLORATION CORP.
(FORMERLY HUDSON VENTURES, INC.)
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Accumulated
January 7,
For the three months ended 2004 (Inception)
October 31, October 31, through
2004 2003 October 31, 2004
--------------- ---------------- ----------------
REVENUES $ - $ - $ -
--------------- ---------------- ----------------
EXPENSES
- --------
Depreciation Expense 93 - 93
Professional & Consulting 143,735 - 143,735
Travel & Entertainment 21,254 - 21,254
Rent & Office 17,589 - 17,589
General & Administrative Expenses 3,407 - 3,407
--------------- ---------------- ----------------
TOTAL EXPENSES 186,078 - 186,078
--------------- ---------------- ----------------
OTHER INCOME (EXPENSE)
- ----------------------
Interest Expense (278) - (278)
--------------- ---------------- ----------------
TOTAL OTHER INCOME (EXPENSE) (278) - (278)
--------------- ---------------- ----------------
INCOME (LOSS) BEFORE TAX (186,356) - (186,356)
Tax Expense - - -
--------------- ---------------- ----------------
NET INCOME (LOSS) $ (186,356) $ - $ (186,356)
================ ================ ================
LOSS PER SHARE $ (0.00) $ -
================ ================
WEIGHTED AVERAGE SHARES
OUTSTANDING 38,510,000 -
================ ================
BATTLE MOUNTAIN GOLD EXPLORATION CORP.
(FORMERLY HUDSON VENTURES, INC.)
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Accumulated
January 7,
For the three months ended 2004 (Inception)
October 31, October 31, through
2004 2003 October 31, 2004
--------------- ---------------- ----------------
Cash Flows from Operating Activities:
Net Income $ (186,356) $ - (186,356)
Adjustments to Reconcile Net Income to Net Cash:
Depreciation Expense 93 - 93
Changes in Operating Assets & Liabilities:
(Increase) Decrease in Deposits (295) - (295)
Increase (Decrease) in Accounts Payable 6,423 - 6,423
Net Cash Provided (Used) by Operating Activities (180,135) - (180,135)
--------------- ---------------- ----------------
Cash Flows from Investing Activities:
Cash Acquired in Reverse Merger 124,005 - 124,005
Net Cash Provided (Used) by Investing Activities 124,005 - 124,005
--------------- ---------------- ----------------
Cash Flows from Financing Activities:
Proceeds from Issuance of Common Stock 425,000
Proceeds from Notes Payable - Related Party 140,622 - 565,622
--------------- ---------------- ----------------
Net Cash Provided (Used) by Financing Activities 565,622 - 565,622
--------------- ---------------- ----------------
Increase (Decrease) in Cash 509,492 - 509,492
Cash and Cash Equivalents at Beginning of Period - - -
--------------- ---------------- ----------------
Cash and Cash Equivalents at End of Period $ 509,492 $ - $ 509,492
=============== ================ ================
Interest $ - $ - $ -
=============== ================ ================
Income Taxes $ - $ - $ -
=============== ================ ================
BATTLE MOUNTAIN GOLD EXPLORATION CORP.
(FORMERLY HUDSON VENTURES, INC.)
(An Exploration Stage Company)
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
OCTOBER 31, 2004
(Unaudited)
(Stated in U.S. Dollars)
BATTLE MOUNTAIN GOLD EXPLORATION CORP.
(FORMERLY HUDSON VENTURES, INC.)
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
OCTOBER 31, 2004
(Unaudited)
(Stated in U.S. Dollars)
1. UNUDITED INFORMATION
The information furnished herein was taken from the books and records of the
Company without audit. However, such information reflects all adjustments which
are, in the opinion of management, necessary to properly reflect the results of
the interim period presented. The information presented is not necessarily
indicative of the results from operations expected for the full fiscal year.
2. REVERSE MERGER
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 pursuant to an Exchange Agreement requiring
the approval of at least eighty (80%) percent of the Battle Mountain
shareholders.
On September 9, 2004 in connection with the Exchange Agreement, certain
Battle Mountain shareholders entered into stock purchase agreements with two of
the company's former directors to purchase an aggregate of 11,000,000 additional
common shares of the Company.
BATTLE MOUNTAIN GOLD EXPLORATION CORP.
(FORMERLY HUDSON VENTURES, INC.)
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
OCTOBER 31, 2004
(Unaudited)
(Stated in U.S. Dollars)
3. MINERAL PROPERTY INTEREST
The Company had previously entered into two option agreements, dated January 21,
2002 and January 22, 2002, and amended December 31, 2002 and June 1, 2003,
respectively, to acquire a 90% interest in a total of thirteen mineral claims
located in the Whitehorse and Watson Lake Mining Districts in Yukon Territories,
Canada. Management allowed one of these options to lapse and terminated the
other option before June 30, 2004.
The Company inherited a joint venture agreement with Nevada Gold Exploration
Solutions ("NGXS") to form Pediment Gold LLC ("Pediment") to engage in gold
exploration in Nevada using a proprietary water chemistry database developed by
NGXS. During the period ended October 31, 2004 the Company through its
subsidiary Battle Mountain paid a total $325,000 as a non-refundable first
installment towards acquiring a 70% interest into Pediment for $3,250,000.
As of October 31, 2004, in order to earn an interest in Pediment, the Company
was required to make the following additional payments:
- $840,000 which was paid on January 4, 2005, for a 50% interest;
- $385,000 due on July 1, 2005 which will give the Company a 55% interest;
- $385,000 due on November 1,2004 which will give the Company a 60% interest.
- $1,315,000 due on April 1,2006 which will give the Company a 70% interest.
In October 2004, Pediment 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, at which time
Pediment will 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. SUBSEQUENT EVENTS
On January 4, 2005, Battle Mountain, the wholly-owned subsidiary, paid $840,000
and earned a 50% interest in Pediment. The subsidiary paid a total of $325,000
for the period ended October 31, 2004 and the $840,000 payment gave an aggregate
of $1,165,000 for the 50% interest.
On November 24, 2004 the Company entered into an agreement with four (4)
investors to purchase an aggregate of 450,000 shares of stock at an aggregate
price of $450,000 (or $1.00 per share).
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.
During the Company's fiscal year ended July 31, 2004, the Company either
terminated or allowed its option agreements to expire on certain properties
located in the Yukon Territories in Canada.
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.
On September 9, 2004, the Company completed a reverse merger transaction
with Battle Mountain Gold Exploration, Inc. ("Battle Mountain") and the Battle
Mountain shareholders. Pursuant to the Agreement, 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 transaction is referred to as the "Exchange" or the "Acquisition."
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. A
reference to the Company includes a reference to Battle Mountain unless
otherwise stated.
Along with the execution of the Agreement, 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
Registrant's former President, Secretary, Treasurer and Director. Mark Kucher,
our Chief Financial Officer, is 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 a proprietary water chemistry
database developed by NGXS. Kenneth Tullar, the President and a 20% owner of
NGXS, is also the beneficial owner of 5.3% of the Company's common stock. As
discussed below under the heading "ITEM 5. OTHER INFORMATION", Wade A. Hodges, a
Director of the Company and the beneficial owner of 5.3% of the Company's common
stock, owns 40% of NGXS and receives from the Joint Venture $400 plus a per diem
of $125 for each day that he provides geological services to the Joint Venture.
The Joint Venture calls for Battle Mountain's participation with NGXS in the
exploration, evaluation and, if justified, the development and mining of mineral
resources. Pursuant to the Joint Venture, Battle Mountain agreed to fund an
aggregate of $3,250,000 (the "Initial Contribution") for an exploration program
(the "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 the gold exploration in the Nevada great basin
physiographical area using a proprietary water chemistry database developed by
NGXS.
On January 5, 2005, Battle Mountain earned a 50% interest in Pediment after
paying an aggregate of $1,165,000 toward an aggregate payment of $3,250,000 (the
"Initial Contribution"). The remainder of the Initial Contribution, as amended
on August 15, 2004, is payable as follows: 1) $385,000 due on July 1, 2005; 2)
$385,000 due on November 1, 2005; and 3) $1,315,000 due on April 1, 2006.
Battle Mountain's ability to complete the Initial Contribution is contingent on
Battle Mountain raising approximately $2.1 million dollars. NGXS will be the
operator of Pediment until Battle Mountain completes the Initial Contribution,
at which time Battle Mountain will become the operator. If Battle Mountain
completes the Initial Contribution, Battle Mountain will own 70%, and NGXS will
own 30%, of Pediment which will own the properties generated by the Program,
except those that may be quitclaimed to Battle Mountain. NGXS' participation
will be on a carried basis. NGXS will not be required to fund the ongoing costs
of additional exploration. Once Battle Mountain has completed the Initial
Contribution, Battle Mountain will have the option to earn an additional 10%
interest in each property owned by Pediment by funding $750,000 of additional
work per property. NGXS will retain the option, but not the obligation, to
conduct such additional work. 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 the Property 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.
Pediment's Joint Venture with Placer Dome
----------------------------------------------
On October 20, Pediment 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 (the
"Property") during the three-year period beginning on October 21, 2004 (the
"Earn-In Period"). Pursuant to the Letter Agreement, Pediment has the right to
earn a 70% interest in the Property and to enter into a joint venture agreement
covering the Property. 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
Property 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 Property after incurring the full amount of the
work expenditures. If Pediment acquires such interest, Pediment is obligated to
enter into a joint venture agreement with the mining company that currently owns
the Property. Pediment's interest in the Property is subject to the mining
company'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 unpatented mining claims (the "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 Property 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 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
Property, reclaiming the surface of the Property, and performing remediation
work as to the subsurface of the Property. 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.
PLAN OF OPERATION
The Company can satisfy its cash requirements for the next three (3)
months. It is imperative that the Company obtain $966,000 of additional
financing to conduct its business operations during the next twelve months, and
an additional $1,315,000 million that will become due in April 2006 for the
exploration Program (or an aggregate of $2,281,000 million) to fully implement
its business plan. The Company has raised approximately $1,400,000 during the
last twelve (12) months of which it used $1,165,000 to acquire a 50% interest in
Pediment and approximately $141,600 for expenses. 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.
During the next twelve (12) months, the Company, through Battle Mountain, is
obligated to contribute $770,000 to Pediment for the exploration Program.
Pediment, in turn, is required to spend at least $50,000 on the Property during
the next twelve (12) months. 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 is in its exploration stage as it has not generated any revenues
from its planned operations. The Company acquired Battle Mountain on September
9, 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, is the continuing entity for all accounting
purposes.
THREE MONTHS ENDED OCTOBER 31, 2004
The Company had no revenues during the three months ended October 31, 2004.
For the three months ended October 31, 2004, the Company had total expenses
of $186,078, consisting of consulting and professional fees of $143,735, travel
& entertainment of $21,254, rent & office of $17,589, general and administrative
of $3,407, and depreciation of $93.
Interest expense was $278 for the three months ended October 31, 2004.
The Company had a net loss of $186,356 (or net loss per share of $0.00) for
the three months ended October 31, 2004.
LIQUIDITY AND CAPITAL RESOURCES
Total current assets were $509,787 as of October 31, 2004, consisting of
cash of $509,492 and prepaid assets of $295. Subsequent to the period covered by
this report, the Company received an aggregate of $450,000 from investors and
paid $840,000 toward a 50% interest that it earned in Pediment.
Total current liabilities were $160,254 as of October 31, 2004, consisting
of notes payable to related party of $153,831, and accounts payable of $6,423.
As of October 31, 2004, the Company had notes payable to related parties of
$153,831, of which $135,681 was owed to Mark Kucher, the Company's Chief
Financial Officer and a Director of the Company, and $18,150 was owed to James
McKay, the Company's Chief Executive Officer and a Director of the Company. The
notes payable to related parties are due on demand and do not bear interest. The
amount owed to Mr. Kucher includes $75,000 of accrued base compensation.
As of October 31, 2004, the Company had net working capital of $349,533.
Net cash used in operating activities was $180,135 for the three months
ended October 31, 2004, consisting of net loss of $186,356 and an increase in
deposits of $295 that were offset by a increase in accounts payable of $6,423
and an adjustment for depreciation expense of $93.
Net cash provided by investing activities was $124,005 for the three months
ended October 31, 2004, which consisted solely of cash acquired in a reverse
merger.
Net cash provided by financing activities was $565,622 for the three months
ended October 31, 2004, consisting of proceeds from the issuance of common stock
of $425,000 and notes payable to related party of $140,622. During the period
ended October 31, 2004, the Company received $425,000 in cash for the purchase
of 900,000 shares of the Company's common stock. The Company has not issued the
shares as of the date of this report.
It is imperative that the Company raise $966,000 million of additional
capital to continue its operations during the next twelve (12) months, and an
additional $1,315,000 million which will become due in April 2006 for the
exploration Program (or an aggregate of $2,281,000 million) 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. On
June 8, 2004, Battle Mountain entered into the Joint Venture that obligates
Battle Mountain to make a $3.25 million dollar Initial Contribution to Pediment
for an exploration Program by April 2006. Battle Mountain has paid an aggregate
of $1,165,000 toward the Initial Contribution and, as a result of these
payments, earned a 50% interest in Pediment. In October 2004, Pediment entered
into a Letter Agreement with Placer Dome for exploration and development on
unpatented mining claims located in north-central Nevada during the three-year
period beginning on October 21, 2004. Pursuant to the Letter Agreement, Pediment
has the right to earn a 70% interest in the Property and to enter into a joint
venture agreement covering the Property. 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 Property during the Earn-In Period which ends on October 21,
2007. Pediment is required to incur at least $50,000 of these work expenditures
during the next twelve (12) months. The Company has raised approximately
$1,400,000 during the last twelve (12) months of which it used $1,165,000 to
acquire a 50% interest in Pediment and approximately $141,600 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 TO RAISE $2,281,000 MILLION OF ADDITIONAL CAPITAL.
- -------------------------------------------------------------
It is imperative that we raise $2,281,000 million of additional capital to
fully implement our business plan. The Company acquired Battle Mountain which is
obligated to make a $3.25 million dollar Initial Contribution for an exploration
program by April 2006. Battle Mountain has paid $1,165,000 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.
In October 2004, Pediment entered into a Letter Agreement with Placer Dome for
exploration and development on unpatented mining claims located in north-central
Nevada during the three-year period beginning on October 21, 2004. Retention of
the Letter Agreement is predicated on Pediment incurring an aggregate of $1
million of work expenditures on the Property during the Earn-In Period which
ends on October 21, 2007. The Company has raised approximately $1,400,000 during
the last twelve (12) months of which it used $1,165,000 to acquire a 50%
interest in Pediment and approximately $141,600 for expenses. 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 or scale back its operations.
OUR FORMER AUDITORS HAVE EXPRESSED AN OPINION THAT THERE IS SUBSTANTIAL DOUBT
- -----------------------------------------------------------------------------
ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
- -------------------------------------------------------
In its report dated November 4, 2004, Morgan & Company, Chartered
Accountants ("Morgan") 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 $2,281,000 of financing (discussed
above) to fully implement our business plan. If we are unable to continue as a
going concern, you will lose your 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 you could lose your entire investment.
JAMES E. MCKAY, MARK KUCHER, WADE A HODGES AND KENNETH TULLAR CAN VOTE AN
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AGGREGATE OF 43.7% OF OUR COMMON STOCK AND CAN EXERCISE CONTROL OVER CORPORATE
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DECISIONS.
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James E. McKay, Mark Kucher, Wade A Hodges and Kenneth Tullar beneficially
own an aggregate of approximately 43.7% of the issued and outstanding shares of
our common stock. Accordingly, they will exercise control 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
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THE MARKET PRICE OF OUR COMMON STOCK HISTORICALLY HAS BEEN VOLATILE.
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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 oftentimes have 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,
interest rates or international currency fluctuations 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
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PUBLIC FLOAT.
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We have approximately 15,870,000 shares of common stock in our public
float; however, 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
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EXCHANGE COMMISSION WHICH LIMITS THE TRADING MARKET IN OUR COMMON STOCK, MAKES
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TRANSACTIONS IN OUR COMMON STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN
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INVESTMENT IN OUR COMMON STOCK.
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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 (none of which conditions
the Company meets) 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.
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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 believe the following critical accounting policy affects our more
significant judgments and estimates used in the preparation of our financial
statements:
Going Concern
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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
$186,356 for the period from Inception to October 31, 2004, and have had no
sales. This condition among others creates an uncertainty as to our ability to
continue as a going concern, particularly in the event that we cannot obtain
$2,281,000 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 were adequate and
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 1) recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms; and 2) accumulated and
communicated to them as appropriate to allow timely decisions regarding required
disclosure.
(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
(c) In December 2004, The Company issued an aggregate of 11,640,000 shares
of common stock in a transaction that was not registered under the Securities
Act of 1933 (the "Securities Act") to the former Battle Mountain shareholders
pursuant to the Exchange whereby Battle Mountain became a wholly-owned
subsidiary of the Company. The Company claims the exemption from registration
afforded by Rule 506 of Regulation D under the Securities Act.
In October 2004, the Company sold an aggregate of 900,000 shares of common
stock in a transaction that was not registered under the Securities Act to an
unaffiliated entity for an aggregate of $425,000 (or $0.4722 per share). As of
the filing of this report the shares have not been issued to this investor. The
Company claims an exemption from registration afforded by Section 4(2) of the
Act since the foregoing issuance will not involve a public offering, the
recipient had access to information that would be included in a registration
statement, will take the shares for investment and not resale and the Company
will take appropriate measures to restrict transfer. The Company also claims an
exemption from registration afforded by Regulation S under the Securities Act.
In November 2004, the Company sold an aggregate of 430,000 shares of common
stock in a transaction that was not registered under the Securities Act to three
(3) individual investors for an aggregate of $430,000 (or $1.00 per share). As
of the filing of this report the shares have not been issued to these investors.
The Company claims an exemption from registration afforded by Section 4(2) of
the Act since the foregoing issuances will not involve a public offering, the
recipients had access to information that would be included in a registration
statement, will take the shares for investment and not resale and the Company
will take appropriate measures to restrict transfer. The Company also claims an
exemption from registration afforded by Regulation S under the Securities Act.
Also in November 2004, the Company sold 20,000 shares of common stock in a
transaction that was not registered under the Securities Act to the spouse of
Mark Kucher. Mr. Kucher is the Company's Chief Financial Officer and a Director
of the Company. As of the filing of this report the shares have not been issued
to this investor. The Company claims an exemption from registration afforded by
Section 4(2) of the Act since the foregoing issuance will not involve a public
offering, the recipient had access to information that would be included in a
registration statement, will take the shares for investment and not resale and
the Company will take took appropriate measures to restrict transfer. The
Company also claims an exemption from registration afforded by Regulation S
under the Securities Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
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 vests in its entirety on May 31, 2005.
Wade A. Hodges, a Director of the Company, 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 will provide geological services to the Joint Venture in
consideration for $400 per day plus a per diem of $125 per day. Mr. Hodges
received an aggregate of $31,500 for services that he provided to the Joint
Venture during the period covered by this report.
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 (3) 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 vests in its entirety on May 31, 2005,
provided that if the Company terminates Mr. Kucher's employment prior to May 31,
2005, the option will automatically vest in its entirety on the date of
termination. Although Mr. Kucher's employment commenced on January 1, 2004,
under the terms of the employment agreement, Mr. Kucher agreed to receive the
option with the later vesting date of May 31, 2005.
As of October 31, 2004, the Company had notes payable to related parties of
$153,831, of which $135,681 was owed to Mark Kucher, the Company's Chief
Financial Officer and a Director of the Company, and $18,150 was owed to James
McKay, the Company's Chief Executive Officer and a Director of the Company. The
notes payable to related parties are due on demand and do not bear interest. The
amount owed to Mr. Kucher includes $75,000 of accrued base compensation.
On September 9, 2004, Nikoloas Bekropoulos and Philip Stanley Taneda
resigned as Directors of the Company and Mark Kucher resigned as the Chief
Executive Officer, President, Secretary and Treasurer. On that same day, the
Company's Board of Directors, via unanimous written consent appointed James E.
McKay as the Company's Chief Executive Officer, President, Secretary and
Treasurer, and as a Director of the Company. The Company's Board of Directors
also appointed Wade A. Hodges as a Director of the Company on September 9, 2004.
Subsequent Events
On November 24, 2004 the Company entered into an agreement with four (4)
investors to purchase an aggregate of 450,000 shares of stock at an aggregate of
$450,000 (or $1.00 per share).
On January 4, 2005, the Company dismissed Morgan & Company, Chartered
Accountants ("Morgan") as the principal independent accountant and engaged
Chisholm, Bierwolf & Nilson, LLC, Certified Public Accountants ("Chisholm") as
its principal independent public accountant for the fiscal year ended July 31,
2005. The disclosure required by Item 304 of regulation S-B was included in the
Form 8-K filed with the Commission on January 6, 2005, and the Form 8-K/A filed
on January 10, 2005, to include Morgan's letter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit No. Description
2.1(1) Exchange Agreement
10.1(1) Exploration Agreement with Nevada Gold Exploration
Solutions, LLC, including Members' Agreement and Operating
Agreement regarding Pediment Gold, LLC
10.2(1) Amended Initial Contribution Schedule
10.3(1) Employment Agreement with James E. McKay
10.4(2) Short Form of Exploration and Development Agreement of
Pediment Gold, LLC
10.5* Employment Agreement with Mark Kucher
16.1(3) Letter from Morgan & Company, Chartered Accountant
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
(1) Filed as Exhibits 2.1, 10.1, 10.2 and 10.3, respectively, to the
Company's Form 8-K filed with the Commission on November 19, 2004.
(2) Filed as Exhibit 10.1 to the Company's Form 8-K filed with the
Commission on January 6, 2005.
(3) Filed as Exhibit 16.1 to the Company's Form 8-K/A filed with the
Commission on January 10, 2005.
* Filed Herein.
b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter for
which this report is filed.
The Company filed the following three (3) reports on Form 8-K subsequent to
the quarter for which this report is filed:
(1) Report of Form 8-K filed with the Commission on November 19, 2004, to
report a reverse merger transaction that included an entry into a
material definitive agreement, an acquisition of assets, a change in
control, and the departure and appointment of directors and officers.
(2) Report of Form 8-K filed with the Commission on January 6, 2005, to
report the entry into material definitive agreements, completion of
the acquisition of assets, unregistered sale of equity securities, a
change in certifying accountant, and the appointment of directors.
(3) Report of Form 8-K/A filed with the Commission on January 10, 2005, to
include as an exhibit a letter from Morgan & Company, Chartered
Accountants, regarding the change in certifying accountants.
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: January 21, 2005 By: /s/ James E. McKay
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James E. McKay,
Chief Executive Officer