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 March 31, 2006
[ ] 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 March 31, 2006, the issuer had 42,530,000 shares of common stock
issued and outstanding.
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
MARCH 31, 2006
---------------
CURRENT ASSETS:
- --------------
Cash and cash equivalents $ 64,674
Total current assets 64,674
---------------
FIXED ASSETS (NET OF ACCUMULATED DEPRECIATION OF $436) 2,352
---------------
OTHER ASSETS
- ------------
Investment in mining properties 1,258,726
Deposits 295
---------------
Total other assets 1,259,021
---------------
Total assets $ 1,326,047
===============
CURRENT LIABILITIES
- -------------------
Accounts payable $ 58,807
Related party payables 234,576
---------------
Total current liabilities 293,383
---------------
COMMITMENT AND CONTINGENCIES -
- --------------------------- ---------------
STOCKHOLDER'S EQUITY
- --------------------
Preferred stock: 10,000,000 shares authorized
($0.001 par value) none issued -
Common stock: 100,000,000 shares authorized
($0.001 par value) 42,530,000 shares
issued and outstanding at March 31, 2006 42,530
Paid in capital 2,370,690
Deficit accumulated during the exploration stage (1,380,556)
---------------
Total stockholder's equity 1,032,664
---------------
Total liabilities and equity $ 1,326,047
===============
The accompanying notes are in integral part of the financial statements
THREE MONTHS ENDED
MARCH 31 INCEPTION
2006 2005 TO DATE
------------ ------------ ------------
REVENUE
- -------
Revenue $ - $ - $ -
EXPENSES
- --------
Depreciation (52) (47) (436)
Professional and consulting (147,187) (112,859) (681,760)
Travel and entertainment (12,477) (8,150) (76,713)
Rent and office (7,253) (2,645) (57,600)
General and administrative (14,238) (38,195) (135,790)
------------ ------------ ------------
Total operating expenses (181,207) (161,896) (952,299)
------------ ------------ ------------
Loss from operations (181,207) (161,896) (952,299)
OTHER INCOME (EXPENSES)
- -----------------------
Interest expense - - (448)
Financing costs - - (379,912)
Unrealized loss - (10,600) (24,200)
Loss on sale of investments - - (23,878)
Other income - - 181
------------ ------------ ------------
Total other income (expense) - (10,600) (428,257)
------------ ------------ ------------
Loss before income taxes (181,207) (172,496) (1,380,556)
------------ ------------ ------------
Provision for taxes - - -
Net loss $ (181,207) $ (172,496) $ (1,380,556)
============ ============ ============
Loss per common share: basic and diluted $ (0.01) $ (0.01) $ (0.02)
============ ============ ============
Weighted average shares
basic and fully diluted 42,530,000 40,830,000 31,801,852
============ ============ ============
The accompanying notes are in integral part of the financial statements
THREE MONTHS ENDED
MARCH 31 INCEPTION
2006 2005 TO DATE
---------- ---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net loss $ (181,207) $ (172,496) $ (1,380,556)
Adjustments to reconcile net loss to cash used
in operating activities:
Depreciation 52 47 436
Issuance of stock warrants - - 379,912
Unrealized loss on investments - 10,600 24,200
Loss on sale of investments - - 23,878
(Increase) in deposits - - (295)
Decrease in prepaid expenses 1,188 - -
Increase in related party payable 67,248 - 184,576
Increase in accounts payable 29,604 6,645 58,808
---------- ---------- ------------
Net cash used in operating activities (83,115) (155,204) (709,041)
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Purchase of property and equipment - - (2,788)
Purchase of short term investments - - (114,000)
Proceeds from sale of short term investments - - 65,921
Investment in mining properties (98,825) (630,794) (1,258,726)
---------- ---------- ------------
Net cash used in investing activities (98,825) (630,794) (1,309,593)
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from issuance of related party notes payable - - 50,000
Principal payments on related party notes payable - (153,428) (150,000)
Proceeds from short term notes - - 150,000
Proceeds from issuance of common stock - 460,000 2,033,308
---------- ---------- ------------
Net cash provided by financing activities - 306,572 2,083,308
---------- ---------- ------------
Net increase (decrease) in cash and cash equivalents (181,940) (479,426) 64,674
Cash and cash equivalents at beginning of period 246,614 703,123 -
---------- ---------- ------------
Cash and cash equivalents at end of period $ 64,674 $ 223,697 $ 64,674
========== ========== ============
SUPPLEMENTAL INFORMATION AND NON CASH TRANSACTIONS
- --------------------------------------------------
During the three months ended March 31, 2006, and 2005, the Company paid $0 in
interest.
The Company paid no income taxes during the three months ended March 31, 2006,
and 2005.
BATTLE MOUNTAIN GOLD EXPLORATION CORPORATION
(A Company in the Exploration Stage)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
-----------------------------------------
March 31, 2006
(unaudited)
1. BASIS OF PRESENTATION
-----------------------
The accompanying unaudited interim financial statements of Battle Mountain Gold
Exploration Corporation (the "Company") have been prepared by the Company in
accordance with generally accepted accounting principles in the United States of
America, pursuant to the Securities and Exchange Commission rules and
regulations. In management's opinion, all adjustments necessary for a fair
presentation of the results for the interim periods have been reflected in the
interim financial statements. The results of operations for any interim period
are not necessarily indicative of the results for a full year. All adjustments
to the financial statements are of a normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Such disclosures are those that would
substantially duplicate information contained in the most recent audited
financial statements of the Company, such as significant accounting policies.
Management presumes that users of the interim statements have read or have
access to the audited financial statements and notes thereto included in the
Company's most recent annual report on Form 10-KSB.
Battle Mountain Exploration Corporation was incorporated under the laws of the
State of Nevada on January 7, 2004. On September 9, 2004 the Company acquired
11,640,000 shares (100%) of the issued and outstanding common stock of Battle
Mountain Gold Exploration, Inc., a Nevada corporation, ("Battle Mountain" in
exchange for 11,640,000 newly issued treasury shares of the Company's common
stock. In connection with the Exchange Agreement, certain Battle Mountain
shareholders entered into a stock purchase agreement with two of the Company's
former directors to purchase an aggregate of 11,000,000 additional common shares
of the Company. The transaction was considered to be a reverse acquisition and a
recapitalization of the Company. Therefore, the accounting history presented is
that of Battle Mountain Exploration Corporation.
2. INVESTMENT IN JOINT VENTURE
------------------------------
The Company has a joint venture agreement with Nevada Gold Exploration Solutions
LLC ("NGXS"), a related party; that formed Pediment Gold LLC (Pediment) to
engage in gold exploration in Nevada using a proprietary water chemistry
database developed by NGXS. Pediment's operations have been focused in two areas
known as the Fletcher Junction Project Area located in Mineral County, Nevada
and the Hot Pots Project Area located in Humboldt County, Nevada. Included in
the Hot Pots Project Area are approximately 2,225 acres that Pediment leases for
mining on a ten year basis that began in September 2004. Pediment also has a
cancelable binding letter agreement with Placer Dome U.S. Inc. for exploration
and future development for a three year period that began in October 2004
related to the Hot Pots Project Area.
On November 26, 2005 the Company entered into Letter of Intent to acquire 100%
of Pediment as noted in the Form 8-Kfiled as of December 1, 2005 contingent upon
the completion of the IAMGOLD Asset Purchase transaction which closed on April
26, 2006. For the three months ended March 31, 2006 the Company contributed
$98,825 to Pediment.
3. RELATED PARTY TRANSACTIONS
----------------------------
As of March 31, 2006 the Company had outstanding operating payables due to Mark
Kucher in the amount of $234,576 of which $62,500 is accrued and unpaid salary
during the quarter ended March 31, 2006 at a base rate of $250,000 per annum.
4. INCOME TAXES
-------------
The Company has adopted FASB 109 to account for income taxes. The Company
currently has no issues that create timing differences that would mandate
deferred tax expense. Net operating losses would create possible tax assets in
future years. Due to the uncertainty as to the utilization of net operating loss
carry-forwards an evaluation allowance has been made to the extent of any tax
benefit that net operating losses may generate.
The Company has incurred a loss of $1,380,556 as of March 31, 2006 that can be
carried forward to offset future earnings if conditions of the Internal Revenue
Code are met. This net operating loss carry-forward will begin to expire in the
year 2024. As of March 31, 2006, due to management's doubt the loss carry
forward can be utilitized prior to expiration, the entire future tax benefit has
been offset by a valuation allowance.
5. LOSS PER SHARE
----------------
The Company's loss per share of common stock is based on the weighted average
number of common shares outstanding at the financial statement date consisting
of the following:
MARCH 31,
2006
----
BASIC LOSS PER SHARE:
- ---------------------
Net loss (numerator) $ (181,207)
Shares outstanding (denominator) 42,530,000
------------
Loss per basic share $ (0.01)
============
FULLY DILUTED LOSS PER SHARE:
- -----------------------------
Net loss (numerator) $ (181,207)
Shares outstanding (denominator) 42,530,000
Loss per basic share $ (0.01)
============
6. SUBSEQUENT EVENTS
------------------
On April 26, 2006, the Company closed the previously announced purchase of the
IAMGOLD gold royalty assets ("IAMGOLD Assets") for total consideration of
$21,850,000 of which $13,850,000 was paid in cash with the remainder funded by
the issuance of a $2,000,000 convertible subordinated secured debenture and
12,000,000 shares of common stock to IAMGOLD.
The assets purchased consist of twelve net smelter royalty interests including
royalties from four currently operating mines: Williams Mine in Ontario, Canada;
Joe Mann Mine in Quebec, Canada; Don Mario Mine in Bolivia; and El Limon Mine in
Nicaragua. The remainder of the royalty assets are in various stages of
development and may or may not end up producing royalty revenue for the Company.
The royalties purchased are described in the table below:
Property Ownership Royalty Status Description
Williams Mine Teck Cominco Limited (50%), 0.72% NSR Operating The Williams Mine is one of the largest gold
Barrick Gold Corporation producers in Canada. It is an open-pit and
(50%) underground operation, and in 2005, produced
375,000 ounces of gold. The mine has reserves
of 1.6 million oz and its mine life is estimated
at 5 years.
El Limon Mine Glencairn Gold Corporation 3.0% NSR Operating El Limon is a fully mechanized underground mine
(95%), Inversiones Mineras and produced 39,000 ounces of gold in 2005. The
S.A. (5%) mine has reserves of 223,000 and the mine life is
estimated at 5 years.
Don Mario Mine Orvana Minerals Corporation 3.0% NSR Operating The Don Mario is an open-pit and underground
mine in eastern Bolivia that produced 69,000
ounces of gold in 2005. With current reserves of
368,000oz, the mine life is estimated at 5
years; however, the results of recent drilling
show significant additional production potential.
Joe Mann Mine Campbell Resources 1.0% NSR on The Joe Mann Mine produced 29,000 ounces of gold
Incorporated Gold Production Operating in 2005. The mine's reserves total 26,000oz and
operations are likely to continue through 2006.
Dolores Reserve Minefinders Corporation 1.25% NSR on Operations to In February 2006, Minefinders received an
Gold Production begin mid- optimized bankable feasibility study and approved
2007 the mine construction on the Dolores Project.
The 18,000 tpd mine plan estimates recovery of
1.44 million ounces of gold over a 12 year mine
life.
Relief Canyon Newgold Incorporated 4.0% NSR In Permitting Newgold is moving towards placing the most
Mine promising mining targets into production during
2006 and then using the profits from these
operations to fund expanded exploration and
development of the entire property. Past
drilling has indicated 1,650,000 tones of gold
ore averaging 0.06 oz/t and Newgold's current
resource model estimates 521,000 contained ounces
at 0.015 oz/t cutt-off.
La India Glencairn Gold Corporation 3.0% NSR Resource Located approx. 40km east of the El Limon Mine,
Resource (95%), Inversiones Mineras Development the La India district consists of three mineral
S.A. (5%) concessions totaling 9,330 hectares. Indicated
mineral resources are 205,000 ounces and inferred
mineral resources are 336,000 ounces.
Seguenega Orezone Resources 3.0% NSR Resource The Sega Project is an advanced exploration
Property Incorporated Development project in northern Burkino Faso with indicated
resources of 4,844,000 tonnes grading 1.99g/t
(310,600 ounces) and inferred resources of
1,413,000 tonnes grading 1.61 g/t
(73,000 ounces).
Marmato Mineros Nacionales S.A. 5.0% NSR Exploration A collection of properties located in the Marmato
Properties district, a significant and well establish mining
district in Columbia.
Night Hawk Lake Selkirk Metals Corporation 2.5% NSR Exploration Exploration property in northern Ontario; no
Property (40%), East West Resource exploration activity since 2002.
Corporation (40%), Canadian
Golden Dragon Resources
Limited (20%)
Lluvia del Oro Grupo Bacis, S.A. DE C.V. 3.0% NSR Care and Former open-pit mine; currently on care and
Mine Maintenance maintenance.
Vueltas de Rio Rio Narcea Gold Mines 2.0% NSR Reclamation Mining ceased March 2004; reclamation is in
Mine Limited progress.
Related to the above acquisition the Company entered into the following debt and
equity transactions in April 2006:
PRIVATE PLACEMENT
The Company issued approximately 11.4 million shares of common stock at $0.31
per share for cash proceeds of approximately $3,500,000. Each share has an
attached warrant exercisable for one additional common share at $0.31 per share
expiring on April 12, 2011.
In connection with the private placement, Macquarie Bank Limited received
1,935,000 shares of common stock at $0.31 for total consideration of $599,850
related to fees for the bridge loan facility. Additionally, the CEO received a
total of 2,512,096 shares of common stock at $0.31 for total consideration of
$778,750. The total is comprised of $232,500 in forgiveness of previously
accrued operating payables and $546,250 in accordance with the CEO's employment
agreement. The shares issued to the CEO have attached warrants exercisable for
one additional share of common stock at $0.31 per share expiring on April 12,
2011.
David Atkinson, a consultant in the acquisition, received 500,000 shares of
common stock at $0.31 for total consideration of $155,000. Each share has an
attached warrant exercisable for one additional common share at $0.31 per share
expiring on April 12, 2011. Further, the Company is in final negotiations for
Mr. Atkinson to become the Company's Chief Financial Officer.
GOLD LOAN FACILITY
On April 10, 2006 the Company received an 11,750 ounce gold loan facility from
Macquarie Bank. The Company sold the gold on the open market at $587.90 per
ounce on April 10, 2006 for total proceeds of $6,907,825. The gold loan facility
calls for the Company to repay Macquarie Bank in sixteen quarterly installments
of 907 ounces beginning May 15, 2006 with a final installment of 488 ounces due
on May 15, 2010 for a total of 15,000 ounces. The loan is collateralized by the
royalty assets obtained in the IAMGOLD acquisition.
BRIDGE LOAN
The Company entered into a bridge loan agreement with Macquarie Bank for
$4,000,000. The bridge loan carries a 12% annual interest rate and is due
December 31, 2006. The loan carries a one-time extension option through March
31, 2007. The loan is collateralized by the royalty assets obtained in the
IAMGOLD acquisition.
IAMGOLD ISSUANCE
On April 26, 2006 the Company issued 12,000,000 shares of common stock at $0.50
per share for total consideration of $6,000,000 in exchange for the acquired
royalty assets. The price of the shares reflects the initial agreed upon value
of the assets acquired. Additionally, the Company entered into a subordinated
convertible bond debenture with IAMGOLD for a total of $2,000,000. The bond
carries an interest rate of 6% per annum and is due on April 25, 2008. Principal
and interest payments are due semi-annually and may be paid in cash or in shares
of common stock of the Company. Additionally, IAMGOLD may, at any time within
the period, convert the outstanding principal and accrued interest into shares
of common stock of the Company at $0.50 per share.
PEDIMENT GOLD
On May 5, 2006 the Company tentatively agreed to relinquish its interest in
Pediment Gold LLC amid its changing focus from being an exploration Company. As
of the date of this filing the final terms of the agreement had not been
reached.
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.
The following discussion contains certain statements that may constitute
forward-looking statements. Any statements that refer to expectations,
projections or other characterization of future events or circumstances, and
especially those which include variations of the words "believes," "intends,"
"estimates," "anticipates," "expects," "plans," or similar words or variations
thereof, are likely to be forward-looking statements, and as such, are likely to
concern matters involving risk, uncertainty, unpredictability and other factors
that could materially and adversely affect the outcome or results indicated by
or inferred from the statements themselves. Therefore, the reader is advised
that the following discussion should be considered in light of the discussion of
risks and other factors contained in this report and in the Company's other
filings with the Securities and Exchange Commission, and that no statements
contained in the following discussion or in this report should be construed as a
guarantee or assurance of future performance or future results.
OVERVIEW
Since its inception in January 2004 Battle Mountain Gold Exploration
Corporation's (the "Company") focus has been on mineral exploration, with an
emphasis on gold discovery in the State of Nevada. The primary gold exploration
efforts are driven by the application of a hydro-geochemical testing program to
evaluate ground water chemistry that can identify the presence of gold and
associated minerals and elements in gravel-covered pediment locations, most of
which have not been tested due to the substantial costs associated with older
testing methods.
The mineral exploration and gold discovery efforts have been through our joint
venture, Pediment Gold LLC (Pediment). As of March 31, 2006 the Company had no
proven or probable reserves.
On November 28, 2005, the Company announced an agreement to acquire two
wholly-owned subsidiaries of IAMGOLD Corporation (TSE/AMEX: IMG/IAG), which hold
title to a portfolio of gold royalty assets, consisting of twelve net smelter
gold royalty interests. The asset purchase was completed on April 26, 2006 (See
additional discussion in Plan of Operations section). As a result of the
acquisition, the Company will be focusing its efforts on managing and expanding
the gold royalty portfolio, and will discontinue its focus on direct mineral
exploration. The Company's management believes this important acquisition
represents the Company's foundation in building a significant international
portfolio of gold royalty assets.
PLAN OF OPERATION
Since late November 2005, the Company has changed its focus from direct mineral
exploration with emphasis on gold exploration in the State of Nevada, through
its joint venture in Pediment, to acquiring and developing gold royalty assets
throughout the world. This is achieved by obtaining net smelter royalty rights
from currently operating gold mines and other sites in various stages of
exploration and development. A net smelter royalty ("NSR") is defined as the
right to receive a percentage of the gross revenue from a resource extraction
operation. NSR's can either be based on a fixed or variable percentage of the
gross revenue the mining operator receives from the sale of mineral product from
the property.
On April 26, 2006 the Company closed the previously announced purchase of the
IAMGOLD gold royalty assets (IAMGOLD Assets) for total consideration of
$21,850,000. The assets purchased consist of twelve net smelter royalty
interests including royalties from four currently operating mines: Williams Mine
in Ontario, Canada; Joe Mann Mine in Quebec, Canada; Don Mario Mine in Bolivia;
and El Limon Mine in Nicaragua. The remainder of the royalty assets are in
various stages of development and may or may not end up producing royalty
revenue for the Company. The royalties purchased are described in the table
below:
Property Ownership Royalty Status Description
Williams Mine Teck Cominco Limited (50%), 0.72% NSR Operating The Williams Mine is one of the largest gold
Barrick Gold Corporation producers in Canada. It is an open-pit and
(50%) underground operation, and in 2005, produced
375,000 ounces of gold. The mine has reserves
of 1.6 million oz and its mine life is estimated
at 5 years.
El Limon Mine Glencairn Gold Corporation 3.0% NSR Operating El Limon is a fully mechanized underground mine
(95%), Inversiones Mineras and produced 39,000 ounces of gold in 2005. The
S.A. (5%) mine has reserves of 223,000 and the mine life is
estimated at 5 years.
Don Mario Mine Orvana Minerals Corporation 3.0% NSR Operating The Don Mario is an open-pit and underground
mine in eastern Bolivia that produced 69,000
ounces of gold in 2005. With current reserves of
368,000oz, the mine life is estimated at 5
years; however, the results of recent drilling
show significant additional production potential.
Joe Mann Mine Campbell Resources 1.0% NSR on The Joe Mann Mine produced 29,000 ounces of gold
Incorporated Gold Production Operating in 2005. The mine's reserves total 26,000oz and
operations are likely to continue through 2006.
Dolores Reserve Minefinders Corporation 1.25% NSR on Operations to In February 2006, Minefinders received an
Gold Production begin mid- optimized bankable feasibility study and approved
2007 the mine construction on the Dolores Project.
The 18,000 tpd mine plan estimates recovery of
1.44 million ounces of gold over a 12 year mine
life.
Relief Canyon Newgold Incorporated 4.0% NSR In Permitting Newgold is moving towards placing the most
Mine promising mining targets into production during
2006 and then using the profits from these
operations to fund expanded exploration and
development of the entire property. Past
drilling has indicated 1,650,000 tones of gold
ore averaging 0.06 oz/t and Newgold's current
resource model estimates 521,000 contained ounces
at 0.015 oz/t cutt-off.
La India Glencairn Gold Corporation 3.0% NSR Resource Located approx. 40km east of the El Limon Mine,
Resource (95%), Inversiones Mineras Development the La India district consists of three mineral
S.A. (5%) concessions totaling 9,330 hectares. Indicated
mineral resources are 205,000 ounces and inferred
mineral resources are 336,000 ounces.
Seguenega Orezone Resources 3.0% NSR Resource The Sega Project is an advanced exploration
Property Incorporated Development project in northern Burkino Faso with indicated
resources of 4,844,000 tonnes grading 1.99g/t
(310,600 ounces) and inferred resources of
1,413,000 tonnes grading 1.61 g/t
(73,000 ounces).
Marmato Mineros Nacionales S.A. 5.0% NSR Exploration A collection of properties located in the Marmato
Properties district, a significant and well establish mining
district in Columbia.
Night Hawk Lake Selkirk Metals Corporation 2.5% NSR Exploration Exploration property in northern Ontario; no
Property (40%), East West Resource exploration activity since 2002.
Corporation (40%), Canadian
Golden Dragon Resources
Limited (20%)
Lluvia del Oro Grupo Bacis, S.A. DE C.V. 3.0% NSR Care and Former open-pit mine; currently on care and
Mine Maintenance maintenance.
Vueltas de Rio Rio Narcea Gold Mines 2.0% NSR Reclamation Mining ceased March 2004; reclamation is in
Mine Limited progress.
On December 9, 2005, the Company announced the signing of a letter of intent to
acquire a 100% ownership interest in its joint venture, Pediment. In accordance
with the terms of the agreement, the Company funded an additional $150,000 for
completion of the 2005 field reconnaissance program and work related to the
Fletcher Junction and Hot Pots Project Areas (See 8-K filed as of December 1,
2005). For the three months ended March 31, 2006 the Company contributed $98,825
to Pediment to fund its continuing operations.
In April 2006, in line with the Company's current focus on developing its
royalty asset portfolio, we have decided to separate from our interest in
Pediment. As of the date of this filing no formal agreement has been reached
with Nevada Gold Exploration Solutions related to the terms of the separation.
The Company will be focusing its efforts going forward on managing the recently
acquired royalty portfolio, and looking for additional royalty acquisitions on a
selective basis.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 2006, our cash position decreased by approximately $182,000
from December 31, 2005. The cash outflows were primarily due to the continued
funding and prior commitments of our exploration activities through Pediment and
our efforts, including increased travel and legal and consulting fees, to
acquire the IAMGOLD Assets.
The Company has historically been unable to meet its needs through operations,
however; we have been successful at raising capital through equity offerings to
fund our previous exploration operations and our current focus on royalty
acquisition and development. In this regard, we have completed the following
transactions subsequent to March 31, 2006:
The Company issued approximately 11.4 million shares of common stock at $0.31
per share for cash proceeds of approximately $3,500,000. Each share has an
attached warrant exercisable for one additional common share at $0.31 per share
expiring on April 12, 2011.
On April 10, 2006 the Company received an 11,750 ounce gold loan facility from
Macquarie Bank Limited. The Company sold the gold on the open market at $587.90
per ounce on April 10, 2006 for total proceeds of $6,907,825. The gold loan
facility calls for the Company to repay Macquarie Bank in sixteen quarterly
installments of 907 ounces beginning May 15, 2006 with a final installment of
488 ounces due on May 15, 2010 for a total of 15,000 ounces. The loan is
collateralized by the royalty assets obtained in the IAMGOLD acquisition.
The Company entered into a bridge loan facility with Macquarie Bank Limited for
$4,000,000. The bridge loan carries a 12% annual interest rate and is due
December 31, 2006. The loan carries a one-time extension option through March
31, 2007. The loan is collateralized by the royalty assets obtained in the
IAMGOLD acquisition.
On April 26, 2006 the Company issued 12,000,000 shares of common stock to
IAMGOLD Corporation at $0.50 per share for total consideration of $6,000,000 in
exchange for the acquired royalty assets. The price of the shares reflects the
initial agreed upon value of the assets acquired. Additionally, the Company
entered into a subordinated convertible bond debenture with IAMGOLD for a total
of $2,000,000. The bond carries an interest rate of 6% per annum and is due on
April 25, 2008. Principal and interest payments are due semi-annually and may be
paid in cash or in shares of common stock of the Company. Additionally, IAMGOLD
may, at any time within the period, convert the outstanding principal and
accrued interest into shares of common stock of the Company at $0.50 per share.
In April 2006 the Company's CEO, Mark Kucher, agreed to relieve $232,500 in
operating payables in exchange for 750,000 shares of common stock.
The Company used a majority of the above funding efforts to complete its
acquisition of the IAMGOLD royalty assets. As a result of the acquisition we
believe our cash flow, from operations, will be sufficient to cover our planned
operations, including the servicing of the above debt obligations
RESULTS OF OPERATIONS
The Company has been in the exploration stage since its inception and has not
yet realized any revenues from its planned operations, however, as a result the
recent acquisition of IAMGOLD's gold royalty assets, the Company will begin to
recognize revenue going forward.
Accounts payable and related party payable increased approximately $30,000 and
$67,000 respectively as of March 31, 2006 as compared to December 31, 2005.
These increases are primarily due to legal and other fees related to the
acquisition of the IAMGOLD royalty assets and the accrual of our CEO's salary of
approximately $20,800 per month.
The Company's net loss increased by approximately $9,000 for the 3 months ended
March 31, 2006 as compared to the 3 months ended March 31, 2005. The increase in
the net loss was primarily due to increased professional fees of a non-recurring
nature related to the acquisition of the IAMGOLD royalty assets.
RISK FACTORS
OUR AUDITORS PREVIOUSLY ISSUED GOING CONCERN OPINIONS ON OUR FINANCIAL
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STATEMENTS
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In its reports dated March 11, 2006 and April 18, 2005, Chisholm, Bierwolf &
Nilson, LLC, 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
third-party financing. Our financial statements do not include any adjustments
that might result from the outcome of that uncertainty. The accompanying
financial statements have been prepared assuming that the Company will continue
as a going concern. In spite of our recent financing activities, and
availability of certain cash resources, our continuation as a going concern will
continue to be dependent upon future events, including third party debt and
equity financing and revenues generated from our acquired royalty assets. If we
are unable to continue as a going concern, investors will lose their entire
investment.
WE HEAVILY DEPEND ON MARK KUCHER.
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The success of the Company depends upon the personal efforts and abilities of
Mark Kucher. Mark Kucher serves as sole director and officer of the Company,
including 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. Kucher could have a material adverse
effect on our business, results of operations or financial condition. In
addition, the absence of 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 INVOLVED IN AN INDUSTRY THAT IS INHERENTLY SPECULATIVE AND RISKY.
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Historically, we have been involved in mineral exploration which 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. In the future, we
will derive a majority of our revenues from royalty interests we hold in the
mining industry. Because of the inherently speculative and risky nature of the
industry in which we are engaged, our Company could be negatively impacted by
many factors in the mining industry, and specifically the mining companies,
mining properties and ventures upon which we rely to derive our royalty
payments. Such factors may include: political risk in the countries in which our
assets are located, labor disputes at the mine sites, a decline in the price of
gold, significant environmental or regulatory restrictions, insufficient
reserves, and natural disasters such as floods or earthquakes, among other
factors, and as a result investors could lose their entire investment.
MARK KUCHER, WADE A HODGES AND KENNETH TULLAR CAN VOTE AN
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AGGREGATE OF 30% OF OUR COMMON STOCK AND CAN EXERCISE CONTROL OVER CORPORATE
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DECISIONS.
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Mark Kucher, Wade A Hodges, and Kenneth Tullar beneficially own or control an
aggregate of approximately 30% of the issued and outstanding shares of our
common stock. Accordingly, they could 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. 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. Moreover, Mssrs. Hodges and Tullar have
recently resigned from the Company's management and are pursuing their own
mining ventures, all unrelated to the Company.
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 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.
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 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 estimated the financing fees related to the issuance of warrants and options
to purchase our common stock using a lattice pricing model using various
volatility assumptions.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our Chief Executive
Officer and Chief Financial Officer, after evaluating the effectiveness of the
Company's "disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period
covered by this quarterly report (the "Evaluation Date"), have concluded that as
of the Evaluation Date, our disclosure controls and procedures are adequately
designed to ensure that material information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act of 1934
is recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms
(b) There were no significant changes in our internal control over
financial reporting during our most recent fiscal quarter that materially
affected, or were reasonably likely to materially affect, our internal control
over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to, and its property is not the subject of, any
pending legal proceeding.
ITEM 2. CHANGES IN SECURITIES
In February 2005, we amended the terms of a sale of stock that we made in
November 2004. In November 2004, we sold an aggregate of 450,000 shares of
common stock to four individual investors for an aggregate of $450,000 (or $1.00
per share). In February 2005, we changed the terms of the sale to provide for
900,000 shares for an aggregate of $450,000 (or approximately $0.50 per share).
In April 2005, we agreed to accept $100,000 less of an investment from one of
the investors. As a result of these changes in the original terms of the sale,
we received $350,000 for an aggregate of 700,000 shares. The spouse of Mark
Kucher, the Company's Chief Financial Officer and a Director of the Company,
purchased 40,000 of these shares.
This re-pricing of the private placement sale of shares of our Common Stock was
done to more accurately and consistently reflect actual market price and
conditions of our common shares, maintain investors' interest in our private
placements and to continue to offer investors what the Company believes an
equitable investment opportunity.
In September 2005 the Company, by private placement, issued 1,500,000 restricted
shares of our common stock at $0.25 per share for an aggregate total
subscription of $375,000. Each share comes with a share purchase warrant,
exercisable at $0.25 for a period of two years.
Subsequent to March 31, 2006 we issued approximately 11.4 million shares of
common stock at $0.31 per share for cash proceeds of approximately $3,500,000.
Each share has an attached warrant exercisable for one additional common share
at $0.31 per share expiring on April 12, 2011. Macquarie Bank Limited received
1,935,000 share of common stock at $0.31 for total consideration of $599,850
related to fees associated with the aforementioned bridge loan facility.
Additionally, the CEO received a total of 2,512,096 shares of common stock at
$0.31 for total consideration of $778,750. The total is comprised of $232,500 in
forgiveness of previously accrued operating payables and $546,250 in accordance
with the CEO's employment agreement. The shares issued to the CEO have attached
warrants exercisable for one additional share of common stock at $0.31 per share
expiring on April 12, 2011.
David Atkinson, a consultant in the acquisition, received 500,000 shares of
common stock at $0.31 for total consideration of $155,000. Each share has an
attached warrant exercisable for one additional common share at $0.31 per share
expiring on April 12, 2011. Further, the Company is in final negotiations for
Mr. Atkinson to become the Company's Chief Financial Officer.
On April 26, 2006 the Company issued 12,000,000 shares of common stock at $0.50
per share for total consideration of $6,000,000 to IAMGOLD Corporation, in
exchange for the acquired royalty assets. The price of the shares reflects the
initial agreed upon value of the assets acquired.IAMGOLD Corporation now owns
17% of the issued and outstanding shares of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit No. Description
31.1* Certificate of the Chief Executive Officer pursuant
Section 302 of the Sarbanes-Oxley Act of 2002
31.2* Certificate of the Chief Financial Officer pursuant
Section 302 of the Sarbanes-Oxley Act of 2002
32.1* Certificate of the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2* Certificate of the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
* Filed Herein.
b) Reports on Form 8-K
During the quarter for which this report is filed, the Company a filed
report on Form 8-K on March 7, 2006.
Subsequent to the close of the quarter for which this report is filed, the
Company has filed additional reports on Form 8-K on April 12, 2006 and April 27,
2006.
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: May 17, 2006 By: /s/ Mark Kucher
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Mark Kucher,
Chief Executive Officer