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, 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.
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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
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(Address of principal executive offices)
(775) 686-6081
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(Registrant's telephone number)
N/A
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(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 March 29, 2005, the issuer had 41,230,000 shares of common stock
outstanding, of which 2,720,000 have not been issued.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BATTLE MOUNTAIN GOLD EXPLORATION CORP.
(FORMERLY HUDSON VENTURES, INC.)
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEET
(Unuadited)
SEPTEMBER 30
2004
----------------
A S S E T S
CURRENT ASSETS
----------------
Cash $ 9,998
Short-Term Investments 65,360
Deposits 295
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TOTAL CURRENT ASSETS 75,653
FIXED ASSETS
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Property, plant and equipment, net of accumulated depreciation 2,478
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TOTAL FIXED ASSETS 2,478
OTHER ASSETS
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Investment in Mining Properties 325,000
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TOTAL OTHER ASSETS 325,000
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TOTAL ASSETS $ 403,131
================
L I A B I L I T I E S
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CURRENT LIABILITIES
-------------------
Accounts Payable and accrued liabilities $ 10,098
Note Payable-Related Party 155,533
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TOTAL CURRENT LIABILITIES 165,631
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TOTAL LIABILITIES 165,631
S T O C K H O L D E R S ' E Q U I T Y
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Preferred Stock, $.001 par value, 10,000,000 shares authorized, -
zero shares issued and outstanding
Common Stock, $.001 par value, 200,000,000 shares authorized, 38,510
38,510,000 shares issued and outstanding
Additional Paid-in-Capital 399,809
Deficit accumulated during the exploration stage (200,819)
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TOTAL STOCKHOLDERS' EQUITY 237,500
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 403,131
================
See accompanying notes to Financial Statements.
BATTLE MOUNTAIN GOLD EXPLORATION CORP.
(FORMERLY HUDSON VENTURES, INC.)
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
ACCUMULATED
JANUARY 7, 2004
THREE MONTHS ENDED (INCEPTION) THROUGH
SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2004
---------------- -------------- ---------------
REVENUES $ - $ - $ -
- --------
EXPENSES
- --------
Depreciation Expense 46 - 46
Professional & Consulting 37,500 - 117,560
Travel & Entertainment 16,097 - 20,102
Rent & Office 3,835 - 10,215
General & Administrative Expenses 3,283 - 4,245
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TOTAL EXPENSES 60,761 - 152,168
---------------- -------------- ---------------
INCOME (LOSS) FROM OPERATIONS (60,761) - (152,168)
OTHER INCOME (EXPENSE)
Interest Expense (11) - (11)
Unrealized Gains (Loss) (48,640) - (48,640)
---------------- -------------- ---------------
TOTAL OTHER INCOME (EXPENSE) (48,651) - (48,651)
---------------- -------------- ---------------
INCOME (LOSS) BEFORE TAX (109,412) - (200,819)
Tax Expense - - -
---------------- -------------- ---------------
NET INCOME ( LOSS ) $ (109,412) $ - $ (200,819)
================ ============== ===============
BASIC AND DILUTED LOSS PER COMMON SHARE $ 0.00 $ -
================ ==============
================ ==============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
USED IN PER SHARE CALCULATIONS 38,510,000 -
================ ==============
See accompanying notes to Financial Statements.
BATTLE MOUNTAIN GOLD EXPLORATION CORP.
(FORMERLY HUDSON VENTURES, INC.)
( An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
( Unaudited )
ACCUMULATED
JANUARY 7, 2004
(INCEPTION)
THREE MONTHS ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2004
---------------- -------------- ---------------
Cash Flows from Operating Activities:
- -------------------------------------
Net (Loss) for the Period $ (109,412) $ - $ (200,819)
Adjustments to Reconcile Net Loss to Net Cash
Depreciation Expense 46 - 46
Changes in operating assets and liabilities:
(Increase) Decrease in Short-Term Investments (65,360) - (65,360)
(Increase) Decrease in Deposits (295) - (295)
Increase (Decrease ) in Accounts Payable 10,098 - 10,098
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Net Cash Used In Operating Activities (164,923) - (256,330)
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Cash Flows from Investing Activities:
- -------------------------------------
Acquisition of Property, Plant and Equipment (2,524) - (2,524)
Cash Acquired in Reverse Merger 124,005 - 124,005
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Net Cash Provided by Investing Activities 121,481 - 121,481
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Cash Flows from Financing Activities:
- -------------------------------------
Proceeds from Notes Payable - Related Party 53,440 - 144,847
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Net Cash Provided By Financing Activities 53,440 - 144,847
---------------- -------------- ---------------
Net Increase ( Decrease ) in Cash 9,998 - 9,998
---------------- -------------- ---------------
Cash Balance, Beginning of Period - - -
---------------- -------------- ---------------
Cash Balance, End of Period $ 9,998 $ - $ 9,998
================ ============== ===============
Interest $ - $ - $ -
================ ============== ===============
Income Taxes $ - $ - $ -
================ ============== ===============
See accompanying notes to Financial Statements.
BATTLE MOUNTAIN GOLD EXPLORATION CORP.
(FORMERLY HUDSON VENTURES, INC.)
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(Unaudited)
1. a. BASIS OF PRESENTATION
The interim financial statements as of September 30, 2004 included herein have
been prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with United
States generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included.
b. 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 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 will be considered to be a reverse acquisition of the Company
by Battle Mountain and a recapitalization of Battle Mountain.
The Company has been in the exploration stage since its formation and has not
yet realized any revenues from its planned operations. It is primarily engaged
in the acquisition and exploration of mining properties. Upon location of a
commercial mineable reserve, the Company expects to sell, lease or actively
prepare the site for its extraction and enter a development stage.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements have, in management's opinion, been properly
prepared within reasonable limits of materiality and within the framework
of the significant accounting policies summarized below:
BATTLE MOUNTAIN GOLD EXPLORATION CORP.
(FORMERLY HUDSON VENTURES, INC.)
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(Unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiary Battle Mountain. Investments in which the Company
does not have a majority voting or financial controlling interest are accounted
for under the equity method of accounting unless its ownership constitutes less
than a 20% interest in such entity for which such investment would then be
included in the consolidated financial statements on the cost method. All
significant inter-company transactions and balances have been eliminated in
consolidation.
b) Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. Expenses are recognized when incurred. Fixed assets are stated at
cost. Depreciation and amortization are calculated using the straight-line
method and accelerated methods for income tax purposes. A total of $46 has been
recorded for depreciation in the financial statements for the three months ended
September 30, 2004.
c) Mineral Property Option Payments and Exploration Costs
The Company expenses all costs related to the maintenance and exploration of
mineral claims in which it has secured exploration rights prior to establishment
of proven and probable reserves. To date, the Company has not established the
commercial feasibility of it's exploration prospects, therefore, all costs are
being expensed.
d) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses for the reporting period. Actual
results could differ from these estimates.
e) Income Taxes
The Company has adopted Statement of Financial Accounting Standards No. 109 -
"Accounting for Income Taxes" (SFAS 109). This standard requires the use of an
asset and liability approach for financial accounting, and reporting on income
taxes. If it is more likely than not that some portion or all of a deferred tax
asset will not realized, a valuation allowance is recognized.
f) Marketable 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. The classification of those
securities and the related accounting policies are as follows:
Trading securities: Trading securities are held for resale in anticipation of
short-term (generally 90 days or less) fluctuations in market prices. Trading
securities, consisting primarily of actively traded equity securities, and are
stated at fair value. Realized and unrealized gains and losses are included in
income.
Available-for-sale-securities: Available-for-sale securities consist of
marketable equity securities not classified as trading securities. Available-
for-sale securities are stated at fair value, and unrealized holding gains and
losses, net of the related deferred tax effect, are reported as a separate
component of stockholders' equity.
Dividends on marketable equity securities are recognized in income when
declared. Realized gains and losses are determined on the basis of the actual
cost of the securities sold.
BATTLE MOUNTAIN GOLD EXPLORATION CORP.
(FORMERLY HUDSON VENTURES, INC.)
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(Unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
f) Loss Per Share
Loss per share is based on the weighted average number of common shares
outstanding during the period plus common share equivalents, such as options,
warrants and certain convertible securities. This method requires primary
earnings per share to be computed as if the common share equivalents were
exercised at the beginning of the period or at the date of issue, and as if the
funds obtained thereby were used to purchase common shares of the Company at its
average market value during the period.
3. LOANS PAYABLE-RELATED PARTY TRANSACTION
On July 31, 2004, a common officer and director loaned the Company the sum of
$10,583 which is payable on demand and bears interest at 10% per annum. As of
September 30, 2004, the unpaid balance including accrued interest of $11 was
$10,594.
On September 9, 2004 as a result of the acquisition of one hundred percent
(100%) of Battle Mountain, the Company inherited the shareholders' loans of
Battle Mountain of $136,913. These loans are payable on demand and bear no
interest. As of September 30, 2004 these shareholders loaned an additional
$8,037 and the outstanding balance was $144,950.
4. 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. As of the period ended September 30, 2004, the Company through its
subsidiary Battle Mountain had paid an aggregate of $325,000 as a non-refundable
first installment towards acquiring a 70% interest into Pediment as part of an
agreed initial contribution of $3,250,000 (the "Initial Contribution").
As of September 30, 2004, in order to earn an interest in Pediment, the Company
was required to make the following additional payments:
- $840,000 which was completed in January 2005, and upon its
expenditure, will give the Company an interest of 50%.
- $385,000 due on July 1, 2005, which, upon its expenditure, will give
the Company a 55% interest.
BATTLE MOUNTAIN GOLD EXPLORATION CORP.
(FORMERLY HUDSON VENTURES, INC.)
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(Unaudited)
4. MINERAL PROPERTY INTEREST (continued)
- $385,000 due on November 1, 2005, which, upon its expenditure, will
give the subsidiary a 60% interest.
- $1,315,000 due on April 1, 2006, which, upon its expenditure, will
give the Company a 70% interest.
The Company will earn the interests as set forth above after Pediment expends
the amount paid by the Company on operating costs.
On September 16, 2004, Pediment entered into a ten-year mining lease (the
"Mining Lease") with a rancher covering approximately 2,225 acres of land in
Humboldt County, Nevada. Pediment made an initial payment of $25,000 when it
entered into the mining lease. Retention of the Mining Lease is predicated
on annual payments of $15,000 per year for three years, and $20,000 per year
thereafter. In addition, Pediment is required to pay the rancher a royalty of 3%
of Net Smelter Returns from production, if any, from the land covered by the
Mining Lease.
5. RELATED PARTY TRANSACTIONS
On June 1, 2004, the Company entered into a consulting agreement with an
officer/director of the Company at a rate of $7,500 per month. In addition, the
board of directors has granted and approved an option for the officer/director
to purchase 500,000 shares of the Company's common stock at an exercise price of
$0.99 per share. This option will vest on May 31, 2005. The Company and the
officer/director may terminate the agreement at any time provided, however, that
if the Company terminates the agreement for any reason, or if the
officer/director and the Company mutually decide to terminate the agreement
before June 1, 2007, the Company will pay severance through June 1, 2007.
As a result of the acquisition of Battle Mountain, the Company inherited an
employment agreement with an officer/director of Battle Mountain and the
Company. The Company's board of directors has retroactively ratified the
employment agreement effective January 1, 2004. The agreement calls for payment
for services at a rate of $7,500 per month commencing from January 1, 2004, but
not payable until the Company is fully vested into Pediment. In addition, the
officer/director was granted an option to acquire 500,000 shares of the
Company's common stock at an exercise price of $0.99 per share. This option will
vest on May 31, 2005. The Company and the officer/director may terminate the
employment agreement at any time. If termination takes place prior to the one
year anniversary, the option will be accelerated so that it is fully vested and
exercisable on the date of termination.
A director of the Company provides geological services to Pediment. The director
currently receives a flat rate of $8,000 per month from Pediment for his
services 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. Prior to certain amendments
to the operating agreement in February 2005, and during the period
BATTLE MOUNTAIN GOLD EXPLORATION CORP.
(FORMERLY HUDSON VENTURES, INC.)
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(Unaudited)
5. RELATED PARTY TRANSACTIONS (continued)
covered by this report, the director received $400 per day and the $125 per
diem. As of September 30, 2004, the director had received an aggregate of
$42,500 for services that he provided to Pediment.
6. SUBSEQUENT EVENTS
In October 2004, Pediment, the Company's joint venture with 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 as follows:
- $50,000 during the period October 21, 2004 through October 21, 2005;
- $250,000 during the period October 21, 2005 through October 21, 2006;
and
- $700,000 during the period October 21, 2006 through October 21, 2007.
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.
In October 2004, the Company sold an aggregate of 900,000 shares of common stock
to an unaffiliated entity for $425,000 (or $0.4722 per share).
In January 2005, Battle Mountain, the Company's wholly-owned subsidiary, paid an
aggregate of $840,000 to Pediment. Battle Mountain had previously paid an
accumulated total of $325,000 to Pediment. Battle Mountain will earn a 50%
interest in Pediment after Pediment expends $840,000. In February 2005, Battle
Mountain and NGXS amended the operating agreement regarding Pediment which
resolved a dispute between them that had resulted in a Notice of Default from
NGXS to Battle Mountain and claims by NGXS which suggested that Battle Mountain
was in breach of the operating agreement regarding Pediment. The amended
operating agreement provides, among other things, that two of eleven areas
identified by Pediment will become the sole site specific project obligations
between Battle Mountain and NGXS under Pediment. The land covered by the Mining
Lease and the land covered by the Letter Agreement are within one of these
areas. Pediment has staked 342 unpatented mining claims in Mineral County,
Nevada within the second area. Upon expenditure of the land acquisition costs
for the two areas, the Company will own an accelerated vested 50% interest in
each of the areas for which the land acquisition costs are spent. Battle
Mountain will continue to earn its interest in Pediment based on Battle
Mountain's scheduled payments and Pediment's subsequent expenditure of the
Initial Contribution. Costs incurred relative to either of the two areas will
apply toward Battle Mountain's earn-in of an interest in Pediment and the
BATTLE MOUNTAIN GOLD EXPLORATION CORP.
(FORMERLY HUDSON VENTURES, INC.)
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(Unaudited)
6. SUBSEQUENT EVENTS (continued)
specific project for which costs are made. Costs incurred that do not relate to
either of the two areas will only apply toward Battle Mountain's earn-in of an
interest 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. The 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 members of NGXS, one of which
is a director of the Company, will be billed directly to Pediment at a flat rate
of $8,000 per month per person plus actual expenses.
In February 2005, the Company entered into subscription agreements with four
individual investors. In November 2004, these investors had previously
subscribed to purchase an aggregate of 450,000 shares of the Company's common
stock for an aggregate of $450,000 (or $1.00 per share). The effect of the
subscription agreements entered into in February 2005 was to re-price the shares
subscribed to by the investors from $1.00 per share to approximately $0.50 per
share. Pursuant to the subscription agreements entered into in November 2004 and
February 2005, the investors paid an aggregate of $450,004 in exchange for an
aggregate of 900,000 shares of the Company's common stock.
Exploration drilling began on the Hot Pots Project on March 21, 2005.
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
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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. 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 September 30, 2004, Battle
Mountain had paid an accumulated total of $325,000 toward the Initial
Contribution. The $325,000 is a non-refundable deposit (the "Deposit"). In
January 2005, Battle Mountain paid an aggregate of $840,000 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
$840,000 (or an aggregate of $1,165,000). The remainder of the Initial
Contribution, as amended, is payable as follows: 1) $385,000 due on July 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.
Subsequent Events
------------------
Pediment's Letter Agreement 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 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.
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.
Pediment has staked 342 unpatented mining claims in Mineral County, Nevada,
which claims we refer to as the "Fletcher Junction Project."
Exploration drilling began on the Hot Pots Project on March 21, 2005.
PLAN OF OPERATION
The Company can satisfy its cash requirements for the next ten (10) months.
It is imperative that the Company obtain $1,100,000 million of additional
financing to conduct its business operations during the next twelve months, and
an additional $1,315,000 million that will become due to Pediment in April 2006
for the Exploration Program (or an aggregate of $2,415,000 million) to fully
implement its business plan. The Company has raised approximately $1,815,000 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
$770,000 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 at least $50,000 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 and $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, 2004
Revenues
- --------
The Company did not have any revenues during the three months ended
September 30, 2004.
Expenses
- --------
For the three months ended September 30, 2004, the Company had total
expenses of $60,761, consisting of professional and consulting of $37,500,
travel and entertainment of $16,097, rent and office of $3,835, general and
administrative expenses of $3,283, and depreciation expense of $46.
The Company had interest expense of $11 and an unrealized loss of $48,640
for the three months ended September 30, 2004. The unrealized loss was the
result of a decrease in the value of the Company's securities held for resale.
Net Loss and Net Loss Per Share
- -------------------------------
Net loss was $109,412 (or basic and diluted loss per common share of $0.00)
for the three months ended September 30, 2004.
PERIOD FROM JANUARY 7, 2004 (INCEPTION) THROUGH SEPTEMBER 30, 2004
Revenues
- --------
The Company had no revenues during the period from Inception through
September 30, 2004.
Expenses
- --------
During the period from Inception through September 30, 2004, the Company
had total expenses of $152,168, consisting of professional and consulting of
$117,560, travel and entertainment of $20,102, rent and office of $10,215,
general and administrative expenses of $4,245, and depreciation expense of $46.
The Company had interest expense of $11 and an unrealized loss of $48,640
during the period from Inception through September 30, 2004. The unrealized
loss was the result of a decrease in the value of the Company's securities held
for resale.
Net Loss and Net Loss Per Share
- -------------------------------
Net loss was $200,819 for the period from Inception through September 30,
2004.
LIQUIDITY AND CAPITAL RESOURCES
Total current assets were $75,653 as of September 30, 2004, consisting of
short-term investments of $65,360, cash of $9,998 and deposits of $295.
Total current liabilities were $165,631 as of September 30, 2004,
consisting of demand notes payable to related party of $155,533, and accounts
payable of $10,098. Of the notes payable to related parties, $67,500 is accrued
base compensation for Mark Kucher. The Company accrues interest at a rate of 10%
per annum on $10,583 of the notes payable to related parties.
As of September 30, 2004, the Company had a working capital deficit of
$89,978.
Net cash used in operating activities was $164,923 for the three months
ended September 30, 2004, consisting of net loss of $109,412, an increase in
short-term investments of $65,360, and an increase in deposits of $295 that were
offset by an increase in accounts payable of $10,098 and an adjustment for
depreciation expense of $46.
Net cash provided by investing activities was $121,481 for the three months
ended September 30 2004, consisting of cash acquired in a reverse merger of
$124,005 that was offset by the purchase of property, plant and equipment of
$2,524.
Net cash provided by financing activities was $53,440 for the three months
ended September 30, 2004, that was entirely due to proceeds from notes payable
to related party.
It is imperative that the Company raise $1,100,000 million of additional
capital to continue its operations during the next twelve months, and an
additional $1,315,000 million that will become due to Pediment in April 2006 for
the Exploration Program (or an aggregate of $2,415,000 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. 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
$1,165,000 toward the Initial Contribution. Battle Mountain will earn a 50%
interest in Pediment after Pediment spends $840,000 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 $1,815,000 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 $2,415,000 MILLION OF ADDITIONAL CAPITAL.
- -------------------------------------------------
It is imperative that we raise $2,415,000 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 $1,165,000 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.
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 (2), rather than all eleven (11), land areas that Pediment
identified for land acquisition, and that Pediment begin an initial drilling
program only on the two (2) areas. We had paid an aggregate of $1,165,000 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. As of September 30, 2004, most of our current assets consisted of
short-term investments which represents our investment in trading securities. We
had unrealized loss of $48,640 from trading securities during the three months
ended September 30, 2004. If there are significant fluctuations in the value of
our short-term investments, it would have a direct effect on our results of
operations. If we sell our short-term investments when they have lost
significant value, it will have a material adverse effect on our business and
results of operations.
OUR 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 $2,415,000 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
- -------------------------------------------------------------------------
AGGREGATE OF 42.3% OF OUR COMMON STOCK AND CAN EXERCISE CONTROL OVER CORPORATE
- ------------------------------------------------------------------------------
DECISIONS.
- ----------
James E. McKay, Mark Kucher, Wade A Hodges and Kenneth Tullar beneficially
own an aggregate of approximately 42.3% 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
- ----------------------------------
WE ARE NOT CURRENT IN OUR FILINGS OF OUR PERIODIC REPORTS TO THE SEC WHICH HAS
- ------------------------------------------------------------------------------
RESULTED IN US RECEIVING A FIFTH LETTER "E" ON OUR TRADING SYMBOL AND MAY RESULT
- --------------------------------------------------------------------------------
IN OUR COMMON STOCK BEING DE-LISTED FROM TRADING ON THE OTCBB.
- --------------------------------------------------------------
We are not current in our filings with the SEC, and, as a result, we have
received a fifth letter "E" on our trading symbol which is now listed on the
over-the-counter Bulletin Board (the "OTCBB") as "BMGXE". We have until April
21, 2005, to become current or else our common stock will be de-listed from
trading on the OTCBB. There can be no assurance that our common stock will
continue to be listed on the OTCBB. If our common stock is de-listed from the
OTCBB, we anticipate that it will be traded on the Pink Sheets which is
generally considered to be a less liquid market than the OTCBB. In the event
that our common stock is de-listed from the OTCBB, it is likely that our common
stock will have less liquidity than it has, and will trade at a lesser value
than it does, on the OTCBB.
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 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
- -----------------------------------------------------------------------------
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 believe the following critical accounting policy affects our more
significant judgments and estimates used in the preparation of our financial
statements:
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
$152,179 for the period from Inception through September 30, 2004, and have had
no sales. We had a working capital deficit of $41,338 as of September 30, 2004.
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
$2,415,000 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.
Marketable Securities
- ---------------------
We determine the appropriate classification of investment securities at the
time they are acquired and evaluate the appropriateness of such classification
at each balance sheet date. Trading securities are held for resale in
anticipation of short-term (generally 90 days or less) fluctuations in market
prices. Trading securities, consisting primarily of actively traded equity
securities, are stated at fair value. Realized and unrealized gains and losses
are included in income. We had unrealized loss of $48,640 from trading
securities during the three months ended September 30, 2004. Available-for-sale
securities consist of marketable equity securities not classified as trading
securities. Available-for-sale securities are stated at fair value, and
unrealized holding gains and losses, net of the related deferred tax effect, are
reported as a separate component of stockholders' equity. We did not have any
holding gains or losses from available-for-sale securities during the three
months ended September 30, 2004.
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 not
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. Our board of directors is
implementing a written policy whereby our management will be required to
disclose to our outside counsel and auditors each material contract and each
issuance of our common stock or other securities.
(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 on September 9, 2004. The Company claims the exemption
from registration afforded by Rule 506 of Regulation D under the Securities Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
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.
On November 24, 2004, the Company's Board of Directors appointed
Brian Labadie and Anthony Crews as Directors.
Related Party Transactions
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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 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 $400 per day and the $125 per
diem. Mr. Hodges received an aggregate of $42,500 for services that he provided
to the Joint Venture during the period covered by this report.
Kenneth Tullar, the beneficial owner of 5.2% 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 $400 per day and the $125 per diem. Mr. Tullar received an
aggregate of $47,200 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 September 30, 2004, the Company had notes payable to related parties
of $155,533, of which $144,950 is due on demand and does not bear interest and
$10,583 is due on demand and bears interest at a rate of 10% per annum.
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(3) Employment Agreement with Mark Kucher
10.6(4) Amendment to Operating Agreement of Pediment Gold LLC
10.7* Mining Lease Agreement with Tomera Ranches, Inc.
16.1(5) 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, and
incorporated by reference.
(2) Filed as Exhibit 10.1 to the Company's Form 8-K filed with the
Commission on January 6, 2005, and incorporated by reference.
(3) Filed as Exhibit 10.5 to the Company's Form 10-QSB filed with the
Commission on January 24, 2005, and incorporated by reference.
(4) Filed as Exhibit 10.2 to the Company's Form 8-K filed with the
Commission on February 28, 2005, and incorporated by reference.
(5) Filed as Exhibit 16.1 to the Company's Form 8-K/A filed with the
Commission on January 10, 2005, and incorporated by reference.
* 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.
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: March 30, 2004 By: /s/ James E. McKay
-------------------
James E. McKay,
Chief Executive Officer