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| MYNG.OB > SEC Filings for MYNG.OB > Form 10-Q on 19-Aug-2009 | All Recent SEC Filings |
19-Aug-2009
Quarterly Report
Golden Eagle International, Inc. is referred to herein as "we", "our" or "us".
Forward-looking statements and risks
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with our financial statements and related notes appearing elsewhere in this Form 10-Q and our Annual Report on Form 10-K for our fiscal year ended December 31, 2008.
The statements contained in this quarterly report on Form 10-Q that are not historical are "forward-looking statements" that involve a number of risks and uncertainties. These forward-looking statements include, among others, the following:
o our business and growth strategies;
o our ability to successfully and economically explore for minerals;
o our ability to clarify through the Nevada state courts our position relative to the operation of the Jerritt Canyon Mill after the termination of our mill operating agreement by Queenstake Resources USA, Inc. and to recover amounts owed to us for our prior operations;
o our exploration and development prospects, projects and programs;
o anticipated trends in our business;
o our future results of operations;
o the risk of operations in Bolivia, a country that is no longer supportive of foreign investment, especially investment from the United States;
o our liquidity and ability to finance our activities;
o market conditions in our industries; and
o the impact of environmental and other governmental regulation.
These statements may be found under "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operation", "Business and Properties" and other sections of this quarterly report. Forward-looking statements are typically identified by use of terms such as "may", "will", "could", "should", "expect", "plan", "project", "intend", "anticipate", "believe", "estimate", "predict", "potential", "pursue", "target" or "continue", the negative of such terms or other comparable terminology, although some forward-looking statements may be expressed differently.
The forward-looking statements contained in this quarterly report are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management's assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this quarterly report are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to a number of factors, including:
o the failure to obtain sufficient capital resources to fund our operations;
o an inability to obtain the necessary permits to conduct our operations;
o unsuccessful exploration activities;
o a decline in prices of the commodities that we may produce at the Jerritt Canyon mill (if we are able to produce any);
o the current worldwide economic climate which has reduced the availability of liquidity and credit available to companies, especially those without revenues or engaged in natural resources operations;
o incorrect estimates of required capital expenditures;
o unexpected increases in the cost of our operations as a result of general economic conditions or time delays;
o impact of environmental and other governmental regulation, including delays in obtaining permits; and
o hazardous and risky operations;
o the possibility that we will not be restored to the Jerritt Canyon mill operations by Court order after having been terminated as the operator of that mill on June 10, 2009, that the court will order damages against us or will fail to order Queenstake to pay the amounts due to us;
o the possibility that we will not be able to successfully enter into a joint venture or other relationship with an industry partner that has gold resources for milling at our Gold Bar mill in Nevada;
o that conditions in Bolivia will not improve sufficiently in the near future to allow us to successfully explore, mine, process or otherwise develop our potential mineral resources that we believe exist on our Zones A and C on our mining concessions in the Ascension Gold-Copper Trend in eastern Bolivia.
You should also consider carefully the statements under "Risk Factors" and other sections of this quarterly report, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements.
All forward-looking statements speak only as of the date of this quarterly report. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
Golden Eagle International, Inc. is referred to herein as "we", "our", or "us".
Overview
Our corporate headquarters are in Salt Lake City, Utah.
Up until June 10, 2009 we were engaged in contract gold milling operations in the state of Nevada in the United States. We had entered into an agreement with Queenstake Resources USA, Inc. ("Queenstake USA"), a wholly-owned subsidiary of Yukon-Nevada Gold Corp., to operate the Jerritt Canyon gold mill located 50 miles north of Elko, Nevada. However, on June 10, 2009 that agreement was abruptly terminated by Queenstake USA with 3 hours notice and we were compelled to engage in litigation in the Fourth District Court for Elko County, Nevada, which is still pending, to enforce our contractual rights. The suit includes cross claims for damages and performance obligations. (See, Item II, Part 1, Legal Proceedings below.)
We have also been actively engaged in the search for, and negotiations with, a company with sufficient oxide gold resources with which we could joint venture, or enter into another business relationship, that would result in the rehabilitation and reconditioning of our Gold Bar mill located 25 miles northwest of Eureka, Nevada, but we have not been successful in entering into any such arrangement.
In addition, we have been involved in the business of minerals exploration, mining and milling operations in Bolivia through our Bolivian-based wholly-owned subsidiary, Golden Eagle International, Inc. (Bolivia); however we are engaged in no operations in Bolivia at this time as certain of those operations are suspended pending changes in the social/political and mine taxing environments in Bolivia while we have terminated our interest in other Bolivian projects
We own two gold mills, neither of which is operating at the present time. The Gold Bar mill is collateral for a note payable to an unaffiliated party in the original principal amount of $220,000, which note was not paid when due:
Mill Location Status
Gold Bar Mill Eureka, Nevada Owned
C Zone Mill Ascension de Guarayos, Bolivia Owned
As of June 30, 2009, we owned the following mineral prospects in Bolivia, all of
which are inactive:
Precambrian Shield (1)
Precambrian prospect 17,731 acres Owned
Buen Futuro claim 2,500 acres Owned
Cobra claim 22,500 acres Owned
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(1) On March 1, 2009, we elected to reduce our mining concessions in the Precambrian Shield in eastern Bolivia from 136,500 acres to 42,731 acres. We retained the Buen Futuro claims containing the A Zone on which we have generated the most drill and other sampling data, as well as the Gran Serpiente claims on which the C Zone gold mill and mine are located. We also retained the highly prospective Cobra claims on the northern end of the Ascension Gold-Copper Trend.
We entered into an agreement with Queenstake USA to operate the Jerritt Canyon gold mill located 50 miles north of Elko, Nevada on October 14, 2008. From mid September until March 23, 2009 we performed maintenance and environmental regulatory compliance functions at the mill and assisted the mill owner, Queenstake USA, in securing approval from the Nevada Division of Environmental Protection (NDEP) to restart milling operations at Jerritt Canyon. On March 25, 2009 approval was granted by the NDEP to recommence operations at the Jerritt Canyon mill. On April 1, 2009 we begin production operations at the Jerritt Canyon mill. On May 31, 2009 we voluntarily suspended operations at the Jerritt Canyon mill due to the fact that the deadline of May 31, 2009 established by the Nevada Division of Environmental Protection (NDEP) for the installation of a mercury emissions control system on the mill's roasters had not been met due to financial difficulties incurred by Queenstake USA. On June 10, 2009 Queenstake USA terminated our mill operating agreement at the Jerritt Canyon mill. (See, Item II, Part 1, Legal Proceedings below.)
For the years ended December 31, 2008 and 2007, we reported net losses of $1,696,382 and $6,377,636, respectively. Our financial results over the past two years have been impacted by the shutdown of our Bolivian production operations and the obligations we have incurred in performing our contact with Queenstake USA. These results have carried forward through our second quarter results ending on June 30, 2009.
Any future financing will be used to:
(a) support our litigation efforts regarding the abrupt (and we believe wrongful) termination of our mill operating agreement at the Jerritt Canyon gold mill in central Nevada;
(b) refurbish and recommence gold milling operations at our Gold Bar mill located near Eureka, Nevada to the extent that we are able either to find a partner or financing entity what will support the Gold Bar mill as a toll milling operation, or a property owner that wants to use the Gold Bar mill for its own production;
(c) to the extent the political, security and tax situation in Bolivia permits us to do so: (i) maintain the infrastructure at our C Zone operations in eastern Bolivia; and (ii) continue exploration and feasibility studies on our A Zone claims in eastern Bolivia; and
(d) to maintain our corporate obligations.
Assets.
As of June 30, 2009, we had total net assets of $7,557,245 compared to total
assets of $6,123,914 as of December 31, 2008. These assets include current
assets, such as cash and prepaid expenses. Our current assets increased to
$1,955,427 as of June 30, 2009 from $209,392 as of December 31, 2008.
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Current Assets June 30, 2009 December 31, 2008
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Cash and cash equivalents $86,508 $54,883
Net accounts receivable(1) 1,785,338 84,482
Prepaid expenses 83,581 70,027
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Total current assets $455,432 $209,392
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(1) Net accounts receivable are all due from Queenstake Resources, USA, Inc. for the reimbursement of expenses related to the operation of the Jerritt Canyon mill as well as our cost-plus administration fee. Accounts receivable totaled $2,231,672 less $446,334 for an allowance for uncollectible accounts for a net receivable from Queenstake Resources USA of $1,785,338.
---------------------------------------------------------------------------------- Fixed Assets June 30, 2009 December 31, 2008 ---------------------------------------------------------------------------------- Mining equipment $494,798 $733,353 Gold Bar mill and plant (idle) 3,980,000 3,980,000 Mine development costs 752,339 752,339 Mineral properties 1,372,977 1,414,997 Office equipment 63,676 137,356 Vehicles 22,000 116,182 Accumulated depreciation and depletion and (1,083,972) (1,219,705) Impairment ---------------------------------------------------------------------------------- Fixed assets net $5,601,818 $5,914,522 ---------------------------------------------------------------------------------- |
Capital Expenditures and Requirements Our capital commitments are set out below: ----------------------------------------------------------------------------------- Contractual Cash Obligations Total Less than 1 year 1 to 3 years 3 to 5 years ----------------------------------------------------------------------------------- Accounts payable and accrued $1,803,363 $1,803,363 $- $- expenses Deferred wages 216,960 216,960 - - Other notes payable 220,000 220,000 - - Related party payable 75,000 75,000 - - Accrued interest 70,634 70,634 - - Debentures payable 131,000 81,000 50,000 - Derivative liability 226,618 226,618 - - Exploration & production Buen 301,000 - 301,000 - Futuro Production penalties 180,000 36,000 72,000 72,000 consulting fees Mining claim fees 246,860 49,372 98,744 98,744 Building leases 2,007 2,007 - - ----------------------------------------------------------------------------------- Total contractual cash $3,473,442 $2,780,954 $521,744 $170,744 obligations ----------------------------------------------------------------------------------- |
We have material capital commitments that will likely require us to obtain adequate financing to meet these obligations. Because of our lack of liquidity we may be unable to pay these capital commitments and as such they are subject to risks of default which could result in the forfeiture of property and mining claim rights. The occurrence of any such risks will negatively affect our operations and potential revenues. These commitments are:
1. Our accounts payable and accrued expenses of $1,803,363, which include trade
payables and general obligations. These obligations will either become due
within the next month, are currently due, or are in some cases more than 90
days past due. Of the total accounts payable amount, $1,492,741 is related
to accounts and wages payable incurred as the operator of the Jerritt Canyon
mill. We are reliant on payments from Queenstake Resources USA, Inc. to meet
these obligations. At the time of this filing, Queenstake has not made
payments to us to cover these obligations incurred on their behalf. We have
filed a complaint against Queenstake Resources USA to obtain payment to
retire these obligations. A more detail description of this action is
contained under part II, Item 1, Legal Proceedings. We are in litigation
with Queenstake USA at the present time and do not expect to receive the
cash for the amount due until the litigation is resolved, and then only to
the extent that Queenstake USA is capable of making payment to us, or to the
extent we are able to hold its parent liable for its debts. To the extent
that we do not receive the cash payments from Queenstake USA timely, we will
likely have to write the collectible balance to zero and reverse the
accounting entry into income - which will reduce our revenues during this
period by more than $1.785 million. It should be noted that the production
costs incurred during the six month period is greater than the amount of
cash received from Queenstake USA (although less than the amount we believe
is due to us). We have an obligation to pay these expenses notwithstanding
Queenstake USA's failure to make payment to us.
2. Our deferred wages are payable to our officers in the United States in the amount of $150,541 and to employees in Bolivia in the amount of $66,419.
3. We have notes payable, including:
a. A note totaling $220,000 payable to Casco Credit with and interest rate of 12% which matured on March 24, 2009. We did not pay this note when it was due. The creditor has not demanded payment or declared default. At the option of the holder, the holder may declare a default which will result in the note beginning to accrue interest at a default rate of 5% per month. This note is secured by the Gold Bar mill located 25 miles north of Eureka, Nevada, and the holder can seek to foreclose against this asset. As of June 30, 2009, we had accrued $13,019 in interest on this note.
b. On April 11, 2007, we entered into a convertible note with our Chief Financial Officer with an effective date of February 6, 2007, which represents the date we verbally made this commitment. The note covered the payment of contractual retention bonuses payable in our common shares to our Chief Financial Officer, Tracy A. Madsen. This note was for $50,000, had a term of 2 years, and was convertible into 5,555,555 shares of our common stock at the closing price for our common stock on February 6, 2007, which was $.009. As the market price and the conversion price on the date of commitment were the same, no beneficial conversion feature was applied. Our Board of Directors elected to use a convertible promissory note to meet this retention bonus commitment because we did not have sufficient common stock available and any grant of our Series B shares to this officer would have granted him a favorable treatment and a beneficial conversion interest that would have violated our Code of Conduct and Ethics. As of June 30, 2009 we accrued interest totaling $10,035. On February 6, 2009 the maturity date of this note was extended until May 9, 2009. On May 9, 2009, this note was again extended through November 9, 2009. On April 1, 2009 an additional $25,000 in stock payable per Mr. Madsen's employment contract was added to this note for a total $75,000.
4. As of June 30, 2009, we had four Convertible Debentures outstanding totaling $131,000. Each of these debentures carries an interest rate of 8% per annum payable at maturity and matures two years from the date of the debenture; or in the case of one debenture totaling $52,000, the maturity date is one year from the date of the debenture. Each debenture, and its accrued interest, is convertible into restricted shares of our common stock at any time by the holder of the debenture. If converted into restricted common stock, the conversion shall be at 50% of the average closing price of our common stock for the five trading days prior to the date of the debenture, or 50% of the average closing price for our common stock for the five trading days prior to the notice of conversion within the first 120 days immediately following the purchase of the debenture, whichever is less provided that the minimum conversion price is not less than $.002 per share. These debentures are convertible into 372,583,333 shares of our restricted common stock. As these debentures carry a conversion rate that is less than market rate the rules of beneficial conversion apply. The difference between the conversion rate and the market rate is classified as a discount on the note and accreted over the term of the debenture, which in this case is 24 months. The face amount of the outstanding debentures is $131,000. On the balance sheet they have been discounted by $78,177 to $52,823. The discounted amount is accreted over the term of the debenture or in its entirety if the debenture is converted during the term. During the six month period ended June 30, 2009, $136,218 was accreted to financing costs.
In consideration for additional investments, four Convertible Debentures were approved for conversion into shares of our Series D contingent convertible preferred stock on June 30, 2009. Those debenture holders, and the additional consideration that they invested, were set out in a Current Report on Form 8-K filed by us dated July 8, 2009.
5. The Company has authorized for issuance 2,000,000,000 shares of common stock at $0.0001 par value. At June 30, 2009 the Company had 1,834,784,719 common shares issued and outstanding. In addition to the issued shares, the Company has Convertible Series B Preferred shares, Convertible Debentures and Stock options outstanding that could convert into 448,488,051 additional shares as of June 30, 2009 (see Note C - earnings (loss) per common share). If each of the equity instruments were exercised for conversion to common stock, the Company does not have enough authorized shares to satisfy each of the equity conversions. Pursuant to Emerging Issues Task Force ("EITF") No. 00-19, this creates a situation that does not allow the Company to satisfy these obligations with stock, and therefore, the Company would have to settle the conversions in cash creating a derivative liability. As a result, the Company has recorded a derivative liability to account for the shortfall and potential liability if amounts were demanded for conversion.
As of June 30, 2009, the balance of the derivative liability was $226,618, which is the value of the shortage of 283,272,870 shares at the market price at June 30, 2009. The derivative is expensed and revalued at the end of each period financial statements are prepared, based on the market price at the end of the period. The Company is currently in the process of increasing its authorized shares to compensate for the shortfall.
6. Our obligation to pay accrued interest on Items 2-4 in the amount of $70,634. Interest on these notes is expensed each quarter and accrued.
7. Our obligation for monthly lease payments of $1,619 per month for our Salt Lake City, Utah office, which terminated on July 31, 2009. We have the option of canceling the remaining lease by paying of one additional month's rent, which as of the filing of this quarterly report we had not elected to do. Additionally, we have an obligation to make monthly lease payments of $188 per month for our Santa Cruz, Bolivia office on a month-to-month basis. We are also obligated to pay $200 per month for our Santa Cruz, Bolivia warehouse rent on a month-to-month basis. We are currently evaluating the possibility of extending this lease.
8. Our obligation to pay to the Bolivian government mining claim fees for 2009 through 2014. We paid the 2009 claim fees in February of 2009 in the amount of $49,372. We allowed some of our claims to lapse and we renewed those claims which we felt held the greatest potential for future exploration and development. We will continue to evaluate whether to pay the claim fees in future years, depending on the political, social, tax and other factors in Bolivia. If we choose not to pay the fees, we will lose our right to the claims and our capital investment in those claims which expire will be forfeited.
9. Our commitment to make $2 million in production expenditures for the Buen Futuro prospect by November 23, 2005. Because we were not in production by that date, we have paid a penalty of $3,000 per month and must continue to do so until we are in production at Buen Futuro. We were also required to pay a consulting fee of $3,000 per month in cash and $2,000 per month in common stock to the seller of the property as a consulting fee until May 31, 2008. As of June 30, 2009, we owed $60,000 in production penalties, $19,000 in management fees payable in cash which are included in our accounts payable. Additionally, we owe $10,000 in management fees payable in stock to Dr. Michael Biste, one of the co-sellers of the property which is also included in our accounts payable. We are obligated to make these payments notwithstanding the political, social, and taxing situation in Bolivia and whether or not we maintain the underlying claims and concessions. The co-sellers of the property (including Dr. Biste) have not made demand for payment on us.
10. Our obligation incurred in connection with the acquisition of the Buen Futuro prospect to spend $1 million in exploration over the three-year period ending December 12, 2006. We believe our expenditures of $699,000 in the region qualify to be applied against this obligation, leaving a remaining obligation of $301,000. We are in breach of our obligation to the sellers of the property inasmuch as we have not made our exploration expenditures as required by the contract. We are unable to make these expenditures because of our financial condition, and we are unwilling to make these expenditures because of the political, social, and taxing situation in Bolivia. The co-sellers of the property have not made demand on us.
11. Our obligation to pay Livstar Management Services (Livstar), 5% of the compensation (not including reimbursement of expenses incurred) we received as a result of our mill operating agreement with Queenstake USA through a settlement agreement entered into on October 31, 2008, which amended a Consulting Agreement entered into on June 2, 2007, which replaced an earlier agreement dated April 18, 2007. As of June 30, 2009, we owed Livstar $37,203 which is included in our accounts payable. These commissions are only payable upon receipt of payment from Queenstake USA. We cannot offer any assurance when, if ever, we will receive payments from Queenstake USA.
12. Our obligation to pay Blane Wilson, our Chief Operating Officer, 3% of the compensation (not including reimbursement of expenses incurred) we receive as a result of our agreement with Queenstake USA, and 3% of any revenues that may be generated from our Gold Bar mill, as part of his employment contract. As of June 30, 2009, we owed Mr. Wilson $28,722 under this agreement, which is included in our accounts payable. These commissions are only payable upon receipt of payment from Queenstake USA. We cannot offer any assurance when, if ever, we will receive payments from Queenstake USA.
Costs to maintain our properties have higher priority than other current capital requirements. As a result, we have delayed payment to some of our other creditors.
We have ongoing financing requirements pertaining to constructing the infrastructure necessary to continue our operations in the C Zone on our Precambrian properties, and then to later initiate operations on the A Zone Buen Futuro project. We no longer intend to move our Gold Bar mill and plant from Nevada to Bolivia; we may attempt to sell that asset or continue our ongoing efforts to enter into a joint venture or toll refining arrangement regarding its operation. We are unable to make these expenditures because of our financial condition, and we are unwilling to make these expenditures because of the political, social, and taxing situation in Bolivia.
Many of the foregoing obligations are past due, and we may not be able to timely pay others that become due in the near future. Should we be unable to generate sufficient revenues through business operations, or raise additional funding from outside investors, industry participants, or other sources, we will be forced to attempt to negotiate extensions to certain of our obligations or take other actions to protect our interest in our properties. Since Queenstake USA unilaterally and abruptly (and we believe wrongfully) terminated its operating agreement with us, we are no longer engaged in any operations and (therefore) we cannot expect to receive any revenues from operations (although we are seeking . . .
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