10-Q 1 bullion_10q-033108.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2008 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to____________ Commission File No. 333-85414 BULLION RIVER GOLD CORP. (Exact name of registrant as specified in its charter) NEVADA 98-0377992 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3500 Lakeside Court, Suite 200 Reno, Nevada 89509 (Address of Principal Executive Offices) Registrant's Telephone Number, including Area Code: (775) 324-4881 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [ ] Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes [ ] No [X] Indicate the number of shares outstanding of each issuer's classed of common stock, as of the latest practicable date: 90,583,219 issued and outstanding as of May 16, 2008. BULLION RIVER GOLD CORP. TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM 10-Q FOR PERIOD ENDED MARCH 31, 2008 PART I FINANCIAL INFORMATION PAGE Item 1 Consolidated Financial Statements (Unaudited): 3 Consolidated Balance Sheets 4 Consolidated Statements of Operations and Comprehensive Income (Loss) 5 Consolidated Statements of Cash Flows 6 Notes to the Consolidated Financial Statements 7 Item 2 Management's Discussion and Analysis and Results of Operations 21 Item 4T Controls and Procedures 24 PART II OTHER INFORMATION 25 Item 1 Legal Proceedings 25 Item 1A Risk Factors 26 Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 27 Item 3 Defaults Upon Senior Securities 27 Item 4 Submission of Matters to a Vote of Security Holders 27 Item 5 Other Information 27 Item 6 Exhibits 28 Signatures 29 Certificates 2 ITEM 1. FINANCIAL STATEMENTS. The Financial Statements of the Registrant required to be filed with this 10-Q Quarterly Report were prepared by management, and commence on the following page, together with related Notes. In the opinion of management, the Financial Statements fairly present the financial condition of the Registrant. 3 BULLION RIVER GOLD CORP. CONSOLIDATED BALANCE SHEETS AS AT MARCH 31, 2008 AND DECEMBER 31, 2007 MARCH 31, DECEMBER 31, 2008 2007 ------------ ------------ (Unaudited) (Audited) ASSETS Current Assets: Cash $ 72,858 $ -- Accounts receivable 189,193 -- Inventory in process 305,003 364,821 Prepaids and other current assets 270,562 334,976 Supplies inventory 22,868 12,321 ------------ ------------ Total current assets 860,484 712,118 ------------ ------------ Property and equipment, net 2,772,159 2,953,139 ------------ ------------ Other assets: Deposits 62,259 69,946 Restricted reclamation deposits 168,677 167,081 ------------ ------------ Total other assets 230,936 237,027 ------------ ------------ TOTAL ASSETS $ 3,863,579 $ 3,902,284 ============ ============ LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accounts payable and accrued liabilities $ 3,947,586 $ 4,446,617 Bank overdraft -- 35,477 Customer deposits -- 15,822 Short term loans 2,147,264 2,775,814 Forward sales contracts 3,589,296 3,456,337 Current portion of convertible debt, net of discount 5,624,216 5,023,047 Current portion of capital lease obligations 167,548 195,757 Interest payable on convertible debt 312,157 566,850 ------------ ------------ Total current liabilities 15,788,067 16,515,721 ------------ ------------ Long term liabilities: Convertible debt, net of discount -- 67,944 Capital lease obligations 104,281 125,522 Reclamation obligations 115,127 115,127 ------------ ------------ Total long term liabilities 219,408 308,593 ------------ ------------ Total liabilities 16,007,475 16,824,314 ------------ ------------ Shareholders' deficit: Common stock; authorized 200,000,000 shares, $0.001 par value. Issued and outstanding 84,474,862 and 63,286,239, respectively. 84,475 63,286 Additional paid in capital 33,289,107 28,799,981 Shares subscribed 1,766,500 2,549,000 Accumulated deficit (47,283,978) (44,334,297) ------------ ------------ Total shareholders' deficit (12,143,896) (12,922,030) ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 3,863,579 $ 3,902,284 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. 4 BULLION RIVER GOLD CORP. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDING MARCH 31, 2008 AND 2007 THREE MONTHS ENDED MARCH 31, -------------------------------- 2008 2007 ------------ ------------ (Unaudited) (Unaudited) Revenues: Precious metal sales $ 1,087,934 $ 352,610 Cost of goods sold: Direct production expenses 1,232,278 708,235 ------------ ------------ Gross loss (144,344) (355,625) ------------ ------------ Operating expenses: Exploration and development 289,492 2,080,942 General and administrative 1,072,808 1,232,682 Stock based compensation 14,532 81,229 Depreciation and accretion 180,980 152,951 ------------ ------------ Total operating expenses 1,557,812 3,547,804 ------------ ------------ Loss from operations (1,702,156) (3,903,429) ------------ ------------ Other income (expense): Interest income 1,599 17,375 Interest expense (874,015) (799,843) Loss on forward sales (612,274) -- Gain/(Loss) on settlement of debt 237,165 (5,964) Non-operating income, net -- 2,549 ------------ ------------ Total other income (expense) (1,247,525) (785,883) ------------ ------------ Net loss before income taxes (2,949,681) (4,689,312) Income taxes -- -- ------------ ------------ Net loss (2,949,681) (4,689,312) Other comprehensive income (loss): Unrealized holding loss -- (14,019) ------------ ------------ NET COMPREHENSIVE LOSS $ (2,949,681) $ (4,703,331) ============ ============ Basic and diluted loss per share $ (0.04) $ (0.08) ============ ============ Weighted average shares outstanding 80,225,820 60,418,216 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. 5 BULLION RIVER GOLD CORP. CONSOLIDATED CASH FLOW STATEMENTS FOR THE THREE MONTHS ENDING MARCH, 2008 AND 2007 THREE MONTHS ENDED MARCH 31, ----------------------------- 2008 2007 ----------- ----------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the period $(2,949,681) $(4,689,312) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 180,980 151,468 Accretion expense -- 1,483 Amortization related to debt discounts 547,657 550,747 Equity instruments issued for services and expenses 565,153 206,753 (Gain)/Loss on settlement of debt (237,165) 5,963 Changes in operating assets and liabilities: (Increase) decrease in: Accounts receivable and other receivable (189,193) -- Inventory in process 59,818 (683,584) Prepaids and other current assets 64,414 3,195 Supplies inventory (10,547) 14,860 Deposits 6,091 99,791 (Decrease) increase in: Accounts payable and accrued liabilities (415,240) 421,918 Customer Deposits (15,822) -- Forward sales contracts 548,222 -- Interest payable on convertible debt 261,769 38,432 ----------- ----------- Net cash used in operating activities (1,583,544) (3,878,286) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment -- (753,044) ----------- ----------- Net cash used in investing activities -- (753,044) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Bank overdraft (35,477) -- Payments on capital leases (49,450) (64,515) Proceeds from short term loans 250,000 750,000 Payments on short term loans (955,000) -- Proceeds from sale of convertible debt -- 1,400,000 Proceeds from sale of common shares 2,760,000 2,644,000 Offering costs (313,671) (171,025) ----------- ----------- Net cash received from financing activities 1,656,402 4,558,460 ----------- ----------- Increase (decrease) in cash 72,858 (72,870) Cash, beginning of the period -- 146,509 ----------- ----------- CASH, END OF PERIOD $ 72,858 $ 73,639 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 16,565 $ 43,506 Cash paid for income taxes $ -- $ -- NON-CASH FINANCING ACTIVITIES Non-cash dividend issued to select warrant holders $ -- $ 105,080 The accompanying notes are an integral part of these consolidated financial statements. 6

BULLION RIVER GOLD CORP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2008 NOTE 1 - ORGANIZATION AND NATURE OF OPERATION NATURE OF OPERATIONS Bullion River Gold Corp ("the Company") was incorporated under the laws of the State of Nevada on June 29, 2001 under the original name "Dynasty International Corporation". The company was a specialty retailer of home water quality testing kits and water purification devices until December 9, 2003 when it changed its business direction to the exploration of gold and silver in the western United States. On January 20, 2004, the Company changed its name to "Bullion River Gold Corp." On December 9, 2003, five current Nevada subsidiaries of Bullion River Gold were incorporated and sold to Bullion River Gold. These subsidiaries are Antone Canyon Mining Corp., Cimarron Mining Corp., Corcoran Canyon Mining Corp., North Fork Mining Corp., and Thomas Creek Mining Corp. On September 30, 2004 the Company acquired all of the issued and outstanding shares of French Gulch (Nevada) Mining Corporation, which was incorporated in the State of Nevada on September 30, 2004. These subsidiaries are collectively referred to as the "Subsidiaries". Bullion River Gold Corp has an authorized capital of 200,000,000 common shares with a par value of $0.001. As of March 31, 2008 there were 84,474,862 common shares issued and outstanding. The Company was in the exploration stage through the third quarter ending September 30, 2006. In November 2006, the Company entered the development stage when the French Gulch mine completed its test mining phase and began producing gold. The Company's first sale of gold from its production occurred in late October 2006. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"), and contain all adjustments which, in the opinion of management, are necessary for fair presentation of the interim financial information. Certain balances in the 2007 consolidated financial statements have been reclassified to conform to the 2008 consolidated financial statement presentation. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated. PRODUCTION AND DEVELOPMENT COST ACCOUNTING Production costs are direct costs associated with the extraction and processing of ore grade material in order to produce sellable precious metals and are used to compute inventory valuation and cost of sales expense. Development costs are all costs associated with the advancement and support of the mine operating infrastructure and are expensed in the period incurred due to insufficient exploration and development of the French Gulch mine allowing a proven and probable reserve. INVENTORY FOR SALE Ounces of precious metals in inventory are stated at the lower of cost or market value. 7 SUPPLY INVENTORIES Materials and supplies related to underground mine development are stated at cost (first-in, first-out). ACCOUNTING ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, contingent liabilities, revenues and expenses at the date and for the periods that the financial statements are prepared. Actual results could differ from those estimates. CONCENTRATIONS Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and certificates of deposit held in U.S. banks that have deposit insurance thus limiting the amount of credit exposure. 100% of revenues consisted of sales to two companies. REVENUE RECOGNITION Precious metal sales are recognized when the title passes to the purchaser and delivery occurs. INCOME TAXES Income tax expense is based on pre-tax financial accounting income. The Company will recognize deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and the laws that are expected to be in effect when the differences are expected to be recovered. BASIC AND DILUTED NET LOSS PER COMMON SHARE Basic loss per share includes no dilution and is computed by dividing net loss by the weighted average number of outstanding common shares during the year. Diluted earnings per share would reflect the potential dilution of securities that would occur if securities or other contracts (such as stock options and warrants) to issue common stock were exercised or converted into common stock. At March 31, 2008, the Company had 905,000 options outstanding and 56,171,905 warrants outstanding. At March 31, 2007, the Company had 2,040,000 options outstanding and 43,092,849 warrants outstanding. As the Company has experienced net losses during the periods ended March 31, 2008 and 2007, no common stock equivalents have been included in the diluted earnings per share calculation as the effect would be anti-dilutive. LEASES Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases, net of any incentives received by the Company from the leasing company, are charged to the statement of operations and comprehensive loss on a straight-line basis over the period. Other leases are accounted for as capital leases. FIXED ASSETS All assets are stated at historical cost. Depreciation is computed over the estimated useful life of the depreciable assets using the straight-line method. The useful lives for fixed assets are estimated as follows with no salvage value: Furniture 3 to 5 years Equipment 2 to 7 years Computer Hardware 3 years Computer Software 2 years Buildings 10 years On-Road Vehicles 5 years The fixed assets are reviewed each year to determine whether any events or circumstances indicate that the carrying amount of the assets may not be recoverable. Such review is performed based on estimated undiscounted cash flows compared with the carrying value of the assets. If the future cash flows (undiscounted and without interest charges) are less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value. 8 As of July 1, 2006 the cost threshold for a purchase to be considered for capitalization was raised from $1,000 to $2,500. All items capitalized prior to July 1, 2006 will remain capitalized until they are fully depreciated or have been subject to a write-down due to impairment. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) reflects changes in equity that result from transactions and economic events from non-owner sources. Comprehensive income for the period ended March 31, 2007 represents unrealized holding losses associated with Company investments in available for sale securities accounted for in accordance with FASB Statement 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. MINERAL PROPERTY OPTION PAYMENTS AND EXPLORATION COSTS The Company will expense all operating 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. IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company recognizes impairment of long-lived assets in the event that the net book value of such assets exceeds the future undiscounted cash flows attributed to such assets. No impairment of long-lived assets was recognized for the periods ended March 31, 2008 and 2007. CLOSURE, RECLAMATION AND REMEDIATION COSTS Current laws and regulations require certain closure, reclamation and remediation work to be done on mineral properties as a result of exploration, development and operating activities. The Company periodically reviews the activities performed on its mineral properties and makes estimates of closure, reclamation and remediation work that will need to be performed as required by those laws and regulations and makes estimates of amounts that are expected to be incurred when the closure, reclamation and remediation work is expected to be performed. Future closure, reclamation and environmental related expenditures are difficult to estimate in many circumstances due to the early stages of investigation, uncertainties associated with defining the nature an extent of environmental contamination, the uncertainties relating to specific reclamation and remediation methods and costs, application and changing of environmental laws, regulations and interpretation by regulatory authorities and the possible participation of other potentially responsible parties. The Company has estimated costs associated with the closure, reclamation and related environmental expenditures of the French Gulch and North Fork properties, which have been reflected in its financial statements in accordance with the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 143 ("SFAS 143"), "Accounting for Asset Retirement Obligations", which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. See Note 10 for a summary of the Company's reclamation obligations. STOCK OPTIONS In December 2004, the Financial Accounting Standard Board ("FASB") issued SFAS 123R, "Share-Based Payments" ("SFAS No. 123R"), a revision of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), which requires companies to measure all employee stock-based compensation awards using a fair value method and record such expense in their financial statements. The Company adopted this standard effective January 1, 2006 and elected the modified-prospective transition method. Under the modified-prospective transition method, awards that are granted, modified, repurchased or cancelled after the date of adoption should be measured and accounted for in accordance with SFAS No. 123R. The Company had 905,000 and 2,040,000 options outstanding as of March 31, 2008 and 2007, respectively, which resulted in charges attributable to the Three month period ended March 31, 2008 and 2007 in the amount of $14,532 and $81,229 respectively. 9 CONVERTIBLE DEBT EITF 00-27 states that the effective conversion price based on the proceeds received for or allocated to the convertible instrument should be used to compute the intrinsic value, if any, of the embedded conversion option. As a result of this consensus, an issuer should first allocate the proceeds received in a financing transaction that includes a convertible instrument to the convertible instrument and any other detachable instruments included in the exchange (such as detachable warrants) on a relative fair value basis. Then, the Issue 98-5 model should be applied to the amount allocated to the convertible instrument, and an effective conversion price should be calculated and used to measure the intrinsic value, if any, of the embedded conversion option. The Company has adopted this accounting practice for all convertible debt issued to date. The convertible debt and related discounts are summarized in footnote 9. NOTE 3 - INVENTORIES Inventories consist of the following as at March 31, 2008 and December 31, 2007: MARCH 31, DECEMBER 31, 2008 2007 -------- -------- Gold bullion $ -- $ -- Precious metal in process 305,003 364,821 Supplies 22,868 12,321 -------- -------- Total inventories $327,871 $377,142 ======== ======== Metal-in-process inventory contained approximately 332 ounces of as of March 31, 2008 and 437.8 ounces as of December 31, 2007. NOTE 4 - PROPERTY AND EQUIPMENT The following is a summary of the Company's property and equipment as of March 31, 2008 and December 31, 2007: MARCH 31, DECEMBER 31, 2008 2007 ----------- ----------- Mine equipment $ 3,240,205 $ 3,240,205 Vehicles 251,744 251,744 Office equipment 192,008 192,008 Buildings 65,287 65,287 ----------- ----------- Total 3,749,244 3,749,244 Accumulated depreciation (1,283,349) (1,102,369) ----------- ----------- Net 2,465,895 2,646,875 Land 110,203 110,203 Construction in progress 196,061 196,061 ----------- ----------- Property and equipment, net $ 2,772,159 $ 2,953,139 =========== =========== Depreciation expense for the periods ended March 31, 2008 and 2007 was $180,980 and $151,468 respectively. NOTE 5 - RESTRICTED RECLAMATION DEPOSITS The following is a summary of the Company's restricted reclamation deposits at March 31, 2008 and December 31, 2007: 10 ------------------------------------------------------------------------------------------------------- DECEMBER 31, MARCH 31, MINERAL PROPERTY OBLIGEE (S) INCEPTION DATE 2007 CHANGES 2008 ------------------------------------------------------------------------------------------------------- French Gulch Bureau of Land Management June 2005 $ 11,500 $ - $ 11,500 French Gulch Shasta County December 2005 77,881 1,596 79,477 French Gulch California Regional Water Control Board December 2005 29,900 - 29,900 North Fork US Forest Service March 2004 29,800 - 29,800 Antone Canyon US Forest Service March 2005 3,300 - 3,300 Corcoran Canyon USDAFS April 2004 2,600 - 2,600 Corcoran Canyon Bureau of Land Management April 2004 6,700 - 6,700 Wenban Spring Bureau of Land Management March 2005 5,400 - 5,400 ------------------------------------------------------------------------------------------------------- $ 167,081 $ - $168,677 =======================================================================================================

NOTE 6 - DERIVATIVE INSTRUMENTS The Company accounts for its forward sales of gold in conformity with the following statements issued by the Financial Accounting Standards Board ("FASB"): Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB No. 133," SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," and SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities". These standards establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. A derivative may be specifically designated as a hedge of financial risk exposures of anticipated transactions if, both at the inception of the hedge and throughout the hedge period, the changes in fair value of the contract substantially offset the effect of commodity price changes on the anticipated transactions and if it is probable that the transactions will occur. Pursuant to such a designation, the income effect of the change in derivative values was previously accounted for in other comprehensive income based upon the Company's valuation of the associated financial gain or loss. Any change arising from the determination of the derivative's effectiveness is accounted for as a charge to current operations. The Company has not designated its gold forward sales contracts entered into in 2008 as effective hedges. Accordingly the hedge accounting rules of SFAS No.133 are not being applied and the period-end mark-to-market of these contracts is immediately reflected on the income statement of the Company and the cumulative effect is reflected as an asset or liability on the balance sheet. NOTE 7 - LOANS PAYABLE During the six months ending June 30, 2007, the Company issued six short term notes raising a total of $2,650,000. The principal amounts bear an interest rate of zero (0.00%), and were originally due on or before September 30, 2007. There is no penalty for prepayment of any amount. The notes also include one detached warrant to purchase one common share per one dollar ($1) of principal; each warrant has a life of two years and has an exercise price of $0.75. The Company is currently delinquent on these loans. In June and July 2007, the Company issued an additional short term notes with a principal amount of $720,000. The principal amount bears an annual interest rate of fourteen percent (14.00%), and is due and payable on or before September 30, 2007. There is no penalty for prepayment of any amount. The note also includes one detached warrant to purchase one common share per two dollars ($2) of principal; each warrant has a life of two years and has an exercise price of $0.75. 11 In July 2007 $550,000 of the short term notes were converted into forward gold sales. In January 2008 the Company paid $735,000 in principal payments. In February and March 2008 the company issued additional notes in the amount of $250,000 and repaid principal in the amount of $220,000 for a net increase of $30,000 in short term notes. The short term loan balances at March 31, 2008 and December 31, 2007, are summarized below: MARCH 31, DECEMBER 31, 2008 2007 ----------- ----------- Short term loans 3,025,814 $ 2,820,000 Fair value of detached warrants (621,120) (621,120) Discount amortization to date 621,120 621,120 Principal Payments (955,000) (95,000) Accrued interest 76,450 50,814 =========== =========== Short term loans, net 2,147,264 $ 2,775,814 =========== =========== NOTE 8 - CONVERTIBLE DEBT The following is a summary of the Company's convertible debt outstanding for the period ending March 31, 2008 and December 31, 2007: MARCH 31, 2008 DECEMBER 31, 2007 ----------------------------------------------- ----------------------------------------------- Secured Unsecured Secured Unsecured Debentures Debentures Total Debentures Debentures Total ----------- ----------- ----------- ----------- ----------- ----------- Convertible debt $ 4,000,000 $ 2,860,948 $ 6,860,948 $ 4,000,000 $ 2,860,948 $ 6,860,948 ----------- ----------- ----------- ----------- ----------- ----------- Discount: Relative fair value of detached warrants (1,033,570) (856,454) (1,890,024) (1,033,570) (856,454) (1,890,024) Intrinsic value of conversion benefit (2,966,430) (1,310,555) (4,276,985) (2,966,430) (1,310,555) (4,276,985) Discount amortization to date 3,251,935 1,678,342 4,930,277 2,989,586 1,407,466 4,397,052 ----------- ----------- ----------- ----------- ----------- ----------- Net discount on convertible debt (748,065) (488,667) (1,236,732) (1,010,414) (759,543) (1,769,957) ----------- ----------- ----------- ----------- ----------- ----------- Convertible debt, net 3,251,935 2,372,281 5,624,216 2,989,586 2,101,405 5,090,991 of discount ----------- ----------- ----------- ----------- ----------- ----------- Less current portion 3,251,935 2,372,281 5,624,216 (2,921,642) (2,101,405) (5,023,047) ----------- ----------- ----------- ----------- ----------- ----------- Long term convertible debt, net of discount $ -- $ -- $ -- $ 67,944 $ -- $ 67,944 =========== =========== =========== =========== =========== ===========

The Company has issued two types of convertible debt instruments (debentures), secured and unsecured. The secured debentures are secured by the ownership of French Gulch Nevada Mining Corp and bear interest at a rate of 10% per annum, paid quarterly. Interest may be paid in cash or stock at a fixed price of $0.25 per share for the secured debentures. For the secured debenture, the decision of mode of payment is made by mutual consent of the Company and the holder or its assigns. The conversion price is adjusted for stock splits, stock dividends, and equity issuances by the Company. On July 18, 2007 the Company adjusted the 12 conversion terms of the secured convertible debt and the strike price of the detached warrants from $0.75 to $0.25 and $0.33, respectively, due to a stock offering which caused the change per the debenture agreements. As a result of this modification the Company recognized an incremental increase to the discount on convertible debentures in the amount of $1,707,527. This increase is being amortized to interest expense over the remaining life of the debenture. The holders of the secured debentures agreed to waive the adjustment provision related to another equity offering on July 18, 2007 of $0.15 per common share. The other debenture agreements are unsecured and bear interest at a rate of 12% per annum, paid quarterly. Interest may be paid in cash or stock at a fixed price of $0.75 per share. The control of settlement terms of interest for the unsecured debentures is held exclusively by the Company. The unsecured debentures have a maturity date of two years from the date of the agreement and may be converted into common stock at the option of the holder any time prior to maturity at a fixed price of $0.75 for the unsecured debentures. The conversion price is adjusted for stock splits, stock dividends, and equity issuances by the Company. The Company is required to reserve sufficient shares for the conversion of both the principal and any interest and has signed a registration agreement that it will use it's best efforts to register those shares. The registration rights agreement does not include any penalties or other monetary remedies. The Company has sufficient authorized common shares to provide for the conversion of the debentures and any interest that may accrue. If settlement of all of the convertible debt were to have occurred on March 31, 2008 the Company would have paid up to $7,173,122 in cash or have issued up to 20,821,853 shares of common stock which would have had a market value of $5,205,463. Over the remaining life of the outstanding convertible debt the Company may pay for settlement up to $7,584,280 in cash or issue up to 21,953,370 shares of common stock. NOTE 9 - RECLAMATION OBLIGATIONS The Company became subject to and adopted SFAS No. 143, Accounting for Asset Retirement Obligations, which establishes a uniform methodology for accounting for estimated reclamation and abandonment costs. At December 31, 2005, the Company recognized a reclamation liability for the estimated reclamation costs related to the French Gulch and North Fork properties. The related costs were expensed since neither of the properties were in production or had proven or probable mineral reserves at the time. The accretion of the reclamation obligation liability is recorded as a separate operating expense in the Company's statement of operations with a corresponding increase in the reclamation liability. Below are the reclamation obligation and accretion details at March 31, 2008. FRENCH GULCH In connection with the reclamation permit obtained in December 2005, the Company estimated reclamation costs to be $71,200 based on the operating plan for the French Gulch property. The total reclamation obligation at March 31, 2008 is $71,200. NORTH FORK The Company put the initial reclamation permit in place in March 2004 with a supplemental permit in May 2005 based on its updated operating plan. In connection with these permits, the Company estimated reclamation costs to be $31,841 at December 31, 2005 for the North Fork property. Total reclamation obligation at March 31, 2008 is $31,841. The following is a description of the changes to the Company's reclamation liability and expenses at March 31, 2008: 13 Estimated reclamation obligation at December 31, 2007: French Gulch $ 75,472 North Fork 33,629 -------- Reclamation obligation before 2008 accretion 109,101 -------- Changes in reclamation obligation for the Three month period ending March 31, 2008: French Gulch accretion expense -- North Fork accretion expense -- -------- Increase in reclamation obligation -- -------- Total reclamation obligation at March 31, 2008 $109,101 ======== NOTE 10 - STOCK OPTIONS AND WARRANTS On December 20, 2006, the Company granted 1,840,000 options exercisable for the purchase of one share of common stock each with an exercise price when vested of $0.50. On February 28 and May 23, 2007 the Company issued 200,000 and 75,000 additional options, respectively. During the three months ending March 31, 2008, 439,278 options expired due to voluntary termination of employees. For the year ending December 31, 2007, immediately vested options totaled 794,722. During the three month period ending March 31, 2008, an additional 25,418 options became vested and 169,304 vested options were canceled for a total of 650,836. The remaining 101,664 will vest completely over periods of three to thirty-five months. All stock options have been issued under an equity compensation plan approved by the directors and the shareholders of the Company. These stock options are not yet registered. The Company estimated the fair value of options and warrants using the Black-Scholes Option Price Calculation. The Company used the following assumptions in estimating fair value for the initial grant on December 20, 2006: the risk-free interest rate of 4.6%, the volatility rate used is 74%; and the expected life of the options is ten years. The Company also assumed that no dividends would be paid on common stock. The Company used the following assumptions in estimating fair value for the options granted on February 28, 2007: the risk-free interest rate of 4.56%, the volatility rate used is 72.5%; and the expected life of the options is ten years. The Company also assumed that no dividends would be paid on common stock. The Company used the following assumptions in estimating fair value for the options granted on May 23, 2007: the risk-free interest rate of 4.85%, the volatility rate used is 71.1%; and the expected life of the options is ten years. The Company also assumed that no dividends would be paid on common stock. At March 31, 2008, the Company had the following stock options outstanding: Weighted Average Exercise Options Price ---------- -------- Outstanding December 31, 2007 1,344,278 $ 0.50 Granted -- -- Canceled (439,278) (0.50) Exercised -- -- ---------- -------- Outstanding on March 31, 2008 905,000 $ 0.50 ========== ======== Exercisable on March 31, 2008 650,836 $ 0.50 ========== ======== 14 At March 31, 2008, the Company had the following consolidated warrants outstanding: --------------------------------------------------------------- Period of Issuance Period of Expiration Total Warrants --------------------------------------------------------------- 2nd quarter - 2005 2nd quarter - 2008 4,702,114 4th quarter - 2005 4th quarter - 2008 1,500,000 2nd quarter - 2006 2nd quarter - 2008 5,155,671 3rd quarter - 2006 3rd quarter - 2008 5,632,336 4th quarter - 2006 3rd quarter - 2008 800,000 4th quarter - 2006 4th quarter - 2008 3,015,839 1st quarter - 2007 1st quarter - 2009 4,598,670 2nd quarter - 2007 1st quarter - 2009 555,025 2nd quarter - 2007 2nd quarter - 2009 500,000 3rd quarter - 2007 3rd quarter - 2009 8,202,916 4th quarter - 2007 4th quarter - 2009 6,626,001 1st quarter -2008 1st quarter - 2010 14,883,333 --------------------------------------------------------------- Total Warrants Outstanding 56,171,905 =============================================================== The following is a summary of the Company's stock warrants at March 31, 2008 and changes during the period: Weighted Average Exercise Warrants Price ----------- -------- Outstanding on December 31, 2007 56,377,763 $ 0.65 Granted 14,883,333 0.35 Canceled/Expired (15,089,191) 0.75 Exercised -- -- ----------- -------- Outstanding on March 31, 2008 56,171,905 $ 0.54 =========== ======== On March 31, 2007, the Company amended the terms of three outstanding warrant agreements to purchase a total of 975,000 shares of common stock. The warrants were originally purchased in 2004 as part of an equity unit sale. The original exercise price of $1.50 per share and expiration date of April 15, 2007 were changed to $0.75 per share and March 31, 2007. Due to this modification the Company recorded a non-cash dividend of $105,080. The Company estimated the fair value of the dividend by computing the difference between the original and amended warrant terms at the modification date using the Black-Scholes pricing model with the following assumptions: dividend yield is zero percent for both; expected volatility is 62.7% for the original and 55.4% for the amended; risk free interest rate of 5.16% for both; and expected lives of 66 days for the original and 51 days for the amended. NOTE 11- SIGNIFICANT EVENTS The following is a summary of significant events related to the Company's properties that have transpired during the previous years, including the current period ended March 31, 2008. 15 FRENCH GULCH (NEVADA) MINING CORP. On May 19, 2005, the Company exercised it option with the Washington Niagara Mining Partnership to purchase the patented and unpatented mining claims, the mill, and other personal property included in that agreement. Upon exercise of the option French Gulch gained all rights incident to ownership of real property allowed by law, including the right to develop and mine the property. The Company was in compliance with the terms of the option agreement as of December 31, 2005. The Company has a verbal agreement with the Washington Niagara Mining Partnership to delay payments under the original terms of the option agreement. As of March 31, 2008, the Company had delayed its December 2007 option payment of $175,000. The Company has staked 66 (sixty-six) unpatented claims in the French Gulch district to properly secure and encompass areas of known gold mineralization. The Company has named these newly staked claims, along with the Washington -Niagara property, the "French Gulch" properties. The 66 claims staked by French Gulch are 100%-owned by French Gulch. All claim maintenance fees and taxes were current as of March 31, 2008. On August 31, 2005, the Company entered an agreement with the Stump Family Trust ("Stump") giving French Gulch the exclusive right to explore, develop, and mine the property. The property is located in Shasta County, California, adjacent to the French Gulch property, and consists of 1 patented lode mining claim ("Colorado Quartz Mine"). The option agreement is for an initial term of ten years and expires on July 21, 2015. The Company was in compliance with all terms of the purchase option as of March 31, 2008. On August 7, 2006, Bullion River Gold Corp entered into a secured convertible debenture agreement with Elton Participation Group. To secure the agreement the Company pledged 100% of its ownership, including all stock and assets, of French Gulch (Nevada) Mining Corp. All claim maintenance fees and taxes for the property were current as of March 31, 2008. NORTH FORK MINING CORP. The Company was in compliance with the terms of the option agreements with Mugwump Mining and Forest Mine as of December 31, 2005. The Company has a verbal agreement with owners to delay payments under the original terms of the option agreement. As of March 31, 2008, the Company had delayed its December 2007 option payments of $5,000 each. All claim maintenance fees and taxes for the property were current as of March 31, 2008. ANTONE CANYON PROPERTY The Company was in compliance with the terms of the option agreement with Antone Canyon LLC as of March 31, 2008. All claim maintenance fees for the property were current as of March 31, 2008. CORCORAN CANYON MINING CORP. The option agreement with Landore Resources expired on February 28, 2006. At that time, the Company started negotiations with the owner to purchase the property as required by the terms set forth in the original agreement noted above. Two partial payments of $20,000 were made on February 28 and March 30, 2006. On May 19, 2006 the Company made a final payment of $160,000 to take ownership of the property. On June 16, 2006 the Company and Silver Quest Resources LTD and Silver Quest Resources (US) LTD (together "Silver Quest") entered into a joint venture. Silver Quest was required to pay the Company $10,000 within five days of execution of the agreement. Within 60 days from the date of the agreement Silver Quest was to receive TSXV acceptance and at that time pay the Company $30,000 and 100,000 common shares of Silver Quest Resources LTD to keep the option in good standing. 16 Silver Quest can acquire an initial 51% interest in the property by making cash payments of $250,000, issuing 400,000 shares, and incurring $1,500,000 in exploration and development expenditures over a three year period. Silver Quest has a further option to increase its interest to 75%, by paying an additional $1.0 million, issuing an additional 500,000 shares, and incurring an additional $1.75 million (U.S.) in expenditures. At March 31, 2008, Silver Quest was in compliance with all of the terms of the option agreement with the Company. All claim maintenance fees for the property were current as of March 31, 2008. CIMARRON MINING CORP. As of August 23, 2006, the Company and Brancote US, owner of the majority of the Cimarron claims, have allowed the option agreement for the property to expire as of that date because both parties were unable to come to an agreement with the holder of the remaining claims in the middle of the claim block. WENBAN SPRING MINING CORP. As of December 31, 2005, the Company has paid claim maintenance fees to the BLM on 20 claims. Re-staking on the remaining 218 claims was completed on December 8, 2005. The Company filed and made payment in full to the BLM for all fees in the first quarter of 2006. On January 19, 2006, the Company entered into an option agreement with Senator Minerals "Senator", a Vancouver based mineral exploration company (TSX-V: SNR) for two properties, the Cortez South and the Gold Valley property, located in Lander County. These two properties are directly adjacent to the south of the Wenban Spring property. The Cortez South property consists of 30 mineral claims and the Gold Valley property consists of 24 mineral claims. The terms of the agreement include: $10,000 in cash for each property, which was paid on January 20, 2006 and 125,000 restricted shares of Bullion River common stock for each property which were issued on May 1, 2006. Bullion River is obliged to spend $150,000 in exploration including all maintenance fees over the next two years in order to obtain a 51 % ownership in the claims. By spending another $200,000, Bullion River can increase its ownership to 76 %. After that, the partners have to spend on a $350,000 to $110,000 basis (Bullion River to Senator) or get diluted accordingly. Once a partner has less than 10% ownership, it can elect a three percent NSR. The properties are so-called `grassroots' properties, no significant exploration has been done to this point. All claim maintenance fees for the property were current as of March 31, 2008. MISSION MINE On February 18, 2006, the Company entered into an exploration agreement with an option to purchase the "Mission Mine" from TKM Corporation (the "Agreement") . The property consists of 26 unpatented lode mining claims situated in Riverside County, California. In order to maintain this agreement, the Company was required to make certain payments under the Agreement. On May 2, 2008 the Company received a letter from TKM Corp. claiming that the Company did not make all required payments (as previously disclosed as being made by the Company) and because of the Company's failure to match an offer set forth in October 2007 the Agreement is null and void. Further, TKM Corp. demands that the Company refrain from referencing any ownership rights or options in the Mission Mine in its public filings. The Company will investigate the purported breach of the Agreement and determine what rights, if any, remain under the Agreement in favor of the Company. NOTE 12 -INCOME TAXES In July 2006, the FASB issued FASB Interpretation No. 48, "ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES -- AN INTERPRETATION OF FASB STATEMENT NO. 109" ("FIN 48"), which clarifies the accounting and disclosure for uncertainty in tax positions, as defined. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. The Company is subject to the provisions of FIN 48 as of January 1, 2007, and has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material impact on the Company's financial condition, results of operations, cash flows or net operating loss carry-forwards. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to FIN 48. In addition, the Company did not record a cumulative effect adjustment related to the adoption of FIN 48. The Company is subject to audit by the IRS and various states for the prior 3 years 17 The Company's policy for recording interest and penalties associated with taxes is to recognize it as a component of income tax expense. NOTE 13 - RELATED PARTY TRANSACTIONS No member of management, executive officer or stockholder has had any direct or indirect interest in any transaction to which Bullion River or any of its subsidiaries was a party with the exception of the following: On October 23, 2006, the Company received $75,000 from Susan Jeffs, a former Company board member, for her participation in a convertible debenture the Company completed November 8, 2006. As part of the option agreement between North Fork and a company controlled by the former Bullion River president, North Fork granted a net smelter royalty of 1.5% on the 42 unpatented mineral claims to the former company president. No transactions have resulted from this agreement. On January 18, 2007, the Company entered into an agreement with Centennial Development, Inc., a company controlled by the Company's former president, for a short term loan. The loan was for a principal balance of $200,000 with a stated annual interest rate of 14%. The principal and interest were repaid in full on February 15, 2007. On January 23, and June 14, 2007 the Company issued 2,269 and 2,734 common shares, respectively, at $0.75 per share to Susan Jeffs, a former director of the Company, for interest owed on convertible debt. On December 21, 2007, the Company received $75,000 from Susan Jeffs, a former Company board member, for her participation in a unit offering the Company completed on January 2, 2008. On March 18, 2008 the Company issued 9,042 common shares at $0.75 per share to Susan Jeffs, a former director of the Company, for interest owed on convertible debt. NOTE 14 - GOING CONCERN As shown in the accompanying financial statements, the Company has incurred significant operating losses since inception, and as of March 31, 2008 the company has limited financial resources to support it until such time that it is able to generate positive cash flow from commercial operations. The Company's ability to implement its business plan and exploration program in the near term is dependent upon its ability to secure financing through debt, private loans, private placement of funds, and operating revenue. However, there is no assurance that the Company will be able to obtain additional financing from investors or private lenders or that operating revenues will provide sufficient positive cash flow to sustain operations. The Company's ability to achieve and maintain profitability and positive cash flow is dependent upon its ability to establish a profitable mineral property, generate revenues from commercial production, and control exploration costs. There is no assurance that the Company will be able to find projects meeting their specifications for mineralization or that the projects will have large enough tonnage potential or that the Company will commence commercial production should they find projects meeting their required specifications. Based upon current plans, the Company expects to incur operating losses in future periods. The financial statements do not include any adjustments that might result from the outcome of any the above uncertainties. These factors raise doubt about the Company's ability to continue as a going concern. 18 NOTE 15 - SUBSEQUENT EVENTS On March 24, 2008 the Company received a letter from the Internal Revenue Service stating that French Gulch (Nevada) Mining Corp. owes $221,626 in taxes, interest and penalties for the tax period ending December 31, 2007. On May 8, 2008, the Company received a letter from the IRS indicating that a 120 day extension on its payment was granted. During this time the Company will review the merits of this claim, determine whether the Company has reasonable cause to remove or reduce the assessed penalties, and if necessary, attempt to negotiate a settlement of any taxes owed. Effective April 15, 2008, Susan Jeffs resigned as member of the board of directors of Bullion River Gold Corp. There were no disagreements between or among Ms. Jeffs and the Company or any officer or director of the Company. On April 16, 2008, the Company and one of its subsidiaries, French Gulch Mining Corp., received a letter written on behalf of Stuart and Bianca Bennett and Northern California River Watch (collectively "Citizens") requesting that the Company waive service of process to accept a complaint which has been filed against the Company and French Gulch Mining Corp. for alleged violations of the Federal Resource Conservation and Recovery Act ("RCRA") 42 U.S.C. ss. 6901 et seq. at the Washington Mine site. To date, neither the Company nor French Gulch Mining Corp. has been served with the complaint, but the Citizens have filed their complaint seeking relief under the Federal Water Pollution Control Act (33 U.S.C. ss.1251) and under provisions of the the Resource Conservation and Recovery Act (42 U.S.C. ss.6901) for the Company's alleged contamination of soil and groundwater near the French Gulch Mine. If the Company is served with the complaint the Company will deny all claims and vigorously defend the action. Effective April 21, 2008, Mr. Peter Kuhn resigned as president, principal executive officer, principal financial officer and secretary of the Company. Mr. Kuhn also resigned as the chairman of the board and as a director of the Company. Mr. Kuhn's resignation was not the result of any disagreement with or dispute over issues involving the management of the Company. Upon the resignation of the Mr. Kuhn, Mr. Tim Callaway was appointed as the chief executive officer, secretary and director of the Company effective May 6, 2008. Also, upon the resignation of the Mr. Kuhn, Dr. Rene Juchler was appointed as the principal financial officer and director of the Company effective May 6, 2008. During April 2008 the Company issued 5,871,666 shares of common stock in fulfillment of subscriptions received prior to March 31, 2008. On April 29, 2008 the Company received two letters from the Internal Revenue Service stating that French Gulch (Nevada) Mining Corp. owes $507,910 in taxes, interest and penalties for the tax period ending December 31, 2007. On May 8, 2008, the Company received a letter from the IRS indicating that a 120 day extension on its payment was granted. During this time the Company will review the merits of this claim, determine whether the Company has reasonable cause to remove or reduce the assessed penalties, and if necessary, attempt to negotiate a settlement of any taxes owed. On February 18, 2006, the Company entered into an exploration agreement with an option to purchase the "Mission Mine" from TKM Corporation (the "Agreement") . The property consists of 26 unpatented lode mining claims situated in Riverside County, California. In order to maintain this agreement, the Company was required to make certain payments under the Agreement. On May 2, 2008 the Company received a letter from TKM Corp. claiming that the Company did not make all required payments (as previously disclosed as being made by the Company) and because of the Company's failure to match an offer set forth in October 2007 the Agreement is null and void. Further, TKM Corp. demands that the Company refrain from referencing any ownership rights or options in the Mission Mine in its public filings. The Company will investigate the purported breach of the Agreement and determine what rights, if any, remain under the Agreement in favor of the Company. As of May 7, 2008, the Company agreed to reduce the exercise price of certain outstanding warrants to purchase shares of its common stock (the "Repriced Warrants"). The Repriced Warrants, representing the right to purchase shares of common stock of the Company, had original exercise prices ranging from $0.40 to $0.75. The Company agreed to reduce the exercise prices of the warrants to $0.05. The Company received $570,000 from the exercise of the Repriced Warrants 19 and issued 11,400,000 shares of common stock, $0.001 par value, to the Repriced Warrant holders. The shares issued upon the exercise of the Repriced Warrants are not subject to a current registration statement or any registration rights and were issued as restricted securities. The Repriced Warrant holders are accredited investors, and the Company relied on the exemption from registration under Regulation D, Section 506 of the Securities Act of 1933, as amended (the "Act") in issuing the shares. On May 15, 2008, the Company closed on the sale of its common stock under a private placement agreement with two accredited investors whereby the Company sold an aggregate of 47,400,000 shares of the Company's common stock, $0.001 par value, at a price of $0.05 per share, for an aggregate purchase price of $2,370,000 (the "Financing"). The Financing was completed on May 15, 2008. The common stock was sold to two accredited investors, and the Company relied on the exemption from registration under Regulation D, Section 506 of the Act in issuing and selling the shares. There are no registration rights associated with the shares of common stock and the shares were issued as restricted securities. The foregoing description of the private placement agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Private Placement Agreement, a copy of which is filed as Exhibit 10.5 to this current report on Form 8-K filed on May 16, 2008 and incorporated by reference herein. 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS STATEMENTS INCLUDED IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, AND IN FUTURE FILINGS BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION, IN THE COMPANY'S PRESS RELEASES AND IN ORAL STATEMENTS MADE WITH THE APPROVAL OF AN AUTHORIZED EXECUTIVE OFFICER WHICH ARE NOT HISTORICAL OR CURRENT FACTS ARE "FORWARD-LOOKING STATEMENTS" AND ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL EARNINGS AND THOSE PRESENTLY ANTICIPATED OR PROJECTED. YOU ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON ANY SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE MADE. THE FOLLOWING IMPORTANT FACTORS, AMONG OTHERS, IN SOME CASES HAVE AFFECTED AND IN THE FUTURE COULD AFFECT THE COMPANY'S ACTUAL RESULTS AND COULD CAUSE THE COMPANY'S ACTUAL FINANCIAL PERFORMANCE TO DIFFER MATERIALLY FROM THAT EXPRESSED IN ANY FORWARD-LOOKING STATEMENT: (I) THE EXTREMELY COMPETITIVE CONDITIONS THAT CURRENTLY EXIST IN THE MARKET FOR COMPANIES SIMILAR TO THE COMPANY AND (II) LACK OF RESOURCES TO MAINTAIN THE COMPANY'S GOOD STANDING STATUS AND REQUISITE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. THE FOREGOING LIST SHOULD NOT BE CONSTRUED AS EXHAUSTIVE AND THE COMPANY DISCLAIMS ANY OBLIGATION SUBSEQUENTLY TO REVISE ANY FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS OR TO REFLECT THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED EVENTS. THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THEIR EXPLANATORY NOTES INCLUDED AS PART OF THIS QUARTERLY REPORT. FORWARD LOOKING STATEMENTS The Company makes forward-looking statements in this report and may make such statements in future filings with the Securities and Exchange Commission. The Company may also make forward-looking statements in its press releases or other public shareholder communications. The Company's forward-looking statements are subject to risks and uncertainties and include information about its expectations and possible or assumed future results of operations. When the Company uses any of the words "believes", "expects", "anticipates", "estimates" or similar expressions, it is making forward-looking statements. To the extent available, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all of its forward-looking statements. While the Company believes that its forward-looking statements are reasonable, you should not place undue reliance on any such forward-looking statements, which speak only as of the date made. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond the Company's control or are subject to change, actual results could be materially different. Factors that might cause such a difference include, without limitation, the following: the Company's inability to generate sufficient cash flow to meet its current liabilities, the inability of the Company to find suitable new acquisitions or the expense or difficulty of integrating such acquisitions with current Company operations, adverse results in any of the Company's material lawsuits, the possible failure of revenues to offset additional costs associated with its new business model, the potential lack of product acceptance, the Company's potential inability to introduce new products to the market, the potential failure of customers to meet purchase commitments, the potential loss of customer relationships, the potential failure to receive or maintain necessary regulatory approvals, the extent to which competition may negatively affect prices and sales volumes or necessitate increased sales expenses, the failure of negotiations to establish original equipment manufacturer agreements or strategic alliances and the other risks and uncertainties set forth in this report. Other factors not currently anticipated by management may also materially and adversely affect the Company's results of operations. Except as required by applicable law, the Company does not undertake any obligation to publicly release any revisions which may be made to any forward-looking statements to reflect events or circumstances occurring after the date of this report. 21 COMPANY OVERVIEW Bullion River Gold Corp. ("the Company") is a US based mining company in the development stage. While commercial production was announced at the French Gulch Mine by prior management the project has not achieved positive cash flow and significant capital investment in environmental permit expansion, mine exploration, development and equipment purchases will be necessary to determine the future economics of the French Gulch Mine. During the quarter ending March 31, 2008 mining continued at the French Gulch Mine but at reduced rates due to financial constraints. On April 28,2008 over 26 employees were laid off leaving a total site crew of approximately 20 employees. An underground diamond drilling (core drilling) program was started during the quarter and some results are expected to be announced during the quarter ending June 30,2008. Recovered gold grades for the quarter ending March 31, 2008 were consistent with the prior quarter with March 2008 being our highest grade month to date at .82 ounces of gold recovered per ton processed. 999 fine ounces of gold were recovered during the quarter ending March 31, 2008. During the quarter ending March 31, 2008 the Company's other properties were primarily on care and maintenance with minimal work performed. LOOKING FORWARD: There can be no assurance the Company can continue to acquire investment capital to continue operations. Based upon and subject to availability of capital, the Company intends to hire additional employees during the second quarter to work at the French Gulch Mine. With the same assumptions regarding the availability of capital, the Company intends to increase and extend the current underground core drilling program and increase underground mine development. The Company intends to re-evaluate all other exploration projects we currently have and consider the possibility of joint ventures or other means of development. OTHER RISKS: There are additional significant risks which could affect the future of Bullion River Gold Corp. and the development of the French Gulch Mine including but not limited to: ENVIRONMENTAL PERMITS: While the Company believes it is substantially in compliance with its major environmental permits the following permits need to be acquired, revised, or expanded: 1. NPDES Permits, in process of acquiring. Allows direct discharge of clean water. 2. Title 27 waste to land permits, in process of making application to California Water Quality. 3. Air Quality Permit, in process of determining if we need this permit and if so applying for one. 4. Reclamation Plan, need to update to reflect increased level of activity at site. It is possible that Shasta Co. may require an environmental Impact Report prior to approving revised Reclamation Plan. Because of continuously changing state and federal environmental laws reclamation costs could be materially understated. There is no assurance these permits will be issued or revised which could have a material adverse effect on operations at the French Gulch Mine. LEGAL PROCEEDINGS: In additional to other matters disclosed under Item 1 Legal Proceeding herein the Company believes that there may be other creditors who have or are in the process of obtaining default judgments against the Company for money owed. The Company is technically in default for the lack of payment on the North Fork Mine and French Gulch. On the North Fork and French Gulch the sellers have verbally extended the terms however there is no written agreement concerning the defaults and the sellers could proceed with their rights against the Company. On February 18, 2006, the Company entered into an exploration agreement with an option to purchase the "Mission Mine" from TKM Corporation (the "Agreement") . The property consists of 26 unpatented lode mining claims situated in Riverside County, California. In order to maintain this agreement, the Company was required to make certain payments under the Agreement. On May 2, 2008 the Company received a letter from TKM Corp. claiming that the Company did not make all required payments (as previously disclosed as being made by the Company) and because of the Company's failure to match an offer set forth in October 2007 the Agreement is null and void. Further, TKM Corp. demands that the Company refrain from referencing any ownership rights or options in the Mission Mine in its public filings. The Company will investigate the purported breach of the Agreement and determine what rights, if any, remain under the Agreement in favor of the Company. 22 The Company has settled and is in the process of settling labor payment disputes with past employees who reported under payment for overtime and other issues. The overall dollar amount of these settlements when and if made is not known at this time but could be significant. FORWARD GOLD SALES: The Company has not delivered gold according to the terms of some of the forward gold sale agreements to which it is a party and may be noticed of defaults thereunder in the foreseeable future. SHORT TERM LOANS: The Company may be in default under the repayment terms of some of its short term loan agreements with various parties. SIGNIFICANT DECREASE IN MARKET PRICE OF THE STOCK: The average market price for the Company's stock has dropped significantly over the last three quarters which could cause the activation of Anti-Dilution clauses in some prior sales of securities. This in turn could require issuing a significant number of new shares which in turn could cause excessive dilution to existing shareholders. SHORT TERM LACK OF MANAGEMENT: Because of a serious illness and subsequent surgery and recuperation period for Peter Kuhn, our former Executive officer and Chief accounting officer, the Company was without an active Chief Executive Officer or Chief Accounting Officer for a period of 8 weeks. During this time period legal notices, bills or default notices may not have been reviewed or recorded or advanced to legal counsel. This could cause delays in responding timely to legal notices, bills or default notices. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2008 (Q1/08) vs. THREE MONTHS ENDED MARCH 31, 2007 (Q1/07) During Q1/08 the Company generated $1.09 million in revenue from the sales of precious metals, an increase of $736K over the same period in 2007. The revenue was offset with cost of sales of $1.23 million for a gross loss of $144K. Gross loss for the period is $211K favorable as compared to the same period in 2007. The Company's total operating expenses were $1.6 million for Q1/08, a favorable decrease of $1.99 million over the same period in 2007. The decrease in total expenses is comprised of a decrease in exploration and development expenses of $1.79 million, a decrease in general and administrative expenses of $0.16 million and a decrease in stock based compensation of $0.07 million. These decreases were partially offset by an increase in depreciation and accretion expenses of $0.03 million Exploration and development expenses totaled $0.3 million for Q1/08 as compared to $2.08 million for the same period last year, a decrease of $1.79 million or 86%. The increase in net non-operating expenses of $0.46 million was primarily attributable to loss on forward sales of $0.48 million. LIQUIDITY AND FINANCIAL CONDITION CASH AND WORKING CAPITAL The Company had a cash balance of $72,858 on March 31, 2008. For the three month period ending March 31, 2008, the Company had a net cash inflow of $72,858 which was made up of the following: o The Company used $1.58 million in operating activities. This operating cash outflow represents a net loss for the period of $2.95 million; reduced by $1.06 million of non-cash expenses; increased by a net increase in operating assets of $0.07 million; and reduced by an increase in operating liabilities of $0.38 million. o The Company had no cash outflow in investment activities. o The Company had cash inflow from financing activities totaling $1.66 million from a net increase in equity of $2.76 million; a net increase in debt of $0.25 million; offset by payments on short term loans of $0.96 million, offering costs of $0.31 million, gross lease payments of $49,450 and decrease in bank overdraft of $35,477. 23 At March 31, 2008, the Company had a working capital deficit of $14.9 million. The increase in working capital of $0.88 million from December 31, 2007 was due to a decrease in current liabilities of $0.73 and an increase in current assets of $0.15 million. The decrease in current liabilities is primarily attributable to decreases in short term loans, accounts payable and accrued liabilities, and interest payable on convertible debt, partially offset by an increase in current portion of convertible debt. The Company has an accumulated deficit of $47.28 million since inception and has a shareholder's deficit of $12.14 million. The Company has no contingencies or long-term agreements except for its commitments under its option agreements, premises, and leases. INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY The Company's production operations and mineral exploration programs are limited and restricted by the amount of working capital that the Company has and is able to raise from debt and equity financing. The Company anticipates continuing to rely on loans payable, equity sales of common shares, and/or joint ventures with other exploration companies in order to fund further exploration and production programs. Acquiring additional financing would be subject to a number of factors, including the market prices for gold and silver, investor acceptance of the Company's mineral claims, and investor sentiment. These factors may make the timing, amount, terms or conditions of additional financing unavailable to the Company. ITEM 4T. CONTROLS AND PROCEDURES DISCLOSURE CONTROLS AND PROCEDURES Under the supervision and with the participation of our management, including our former chief executive officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered by this report. Based upon that evaluation, our chief executive officer concluded that our disclosure controls and procedures were not effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (a) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (b) accumulated and communicated to our management, including our chief executive officer, as appropriate to allow timely decisions regarding disclosure. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the quarter ended March 31, 2008 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting. ADDITIONAL DISCLOSURE CONCERNING CONTROLS AND PROCEDURES. We currently believe that the Company has material weaknesses in its disclosure controls and procedures. We will work in the coming weeks and months to address such weaknesses. We believe that the out-of-pocket costs, the diversion of management's attention from running the day-to-day operations and operational changes caused by the need to make changes in our internal control and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) could be significant and still we may not achieve significant improvements in our internal controls and procedures. If the time and costs associated with such compliance exceed our current expectations, our results of operations and the accuracy and timeliness of the filing of our annual and periodic reports may be materially adversely affected and could cause investors to lose confidence in our reported financial information, which could have a negative affect on the trading price of our common stock. 24 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On or around December 3, 2007, Holt of California filed a complaint in Superior Court of California, County of Sacramento naming the Company, North Fork Mining Corp. ("North Fork"), and Peter M. Kuhn as defendants. The complaint alleges causes of action for breach of contract, open book account, goods rented and delivered, and quantum valebant. The allegations of all the causes of action are based on an alleged "Sale Charge Agreement," which the plaintiff alleges that Bullion River and North Fork used to rent certain equipment in 2006 and 2007 for which they have failed to make full payment. The complaint also alleges that Peter M. Kuhn executed a personal guarantee in 2004 by which he promised to be legally responsible for all sums and account balances due to plaintiff from Bullion River and North Fork, including collection charges and attorney's fees and costs. A sum of $137,855.90 is alleged to be past due, and the plaintiff also claims entitlement to certain additional sums for repossession of the equipment, and interest, for a total of $150,610.15. On or about February 6, 2008, the court may have entered a default in the case. It is the intention of new management to attempt to determine if a default had been entered and to work out a resolution regarding the matter directly with Holt of California or its counsel. On April 16, 2008, the Company and one of its subsidiaries, French Gulch Mining Corp., received a letter written on behalf of Stuart and Bianca Bennett and Northern California River Watch (collectively "Citizens") requesting that the Company waive service of process to accept a complaint which has been filed against the Company and French Gulch Mining Corp. for alleged violations of the Federal Resource Conservation and Recovery Act ("RCRA") 42 U.S.C. ss. 6901 et seq. at the Washington Mine site. To date, neither the Company nor French Gulch Mining Corp. has been served with the complaint, but the Citizens have filed their complaint seeking relief under the Federal Water Pollution Control Act (33 U.S.C. ss.1251) and under provisions of the the Resource Conservation and Recovery Act (42 U.S.C. ss.6901) for the Company's alleged contamination of soil and groundwater near the French Gulch Mine. If the Company is served with the complaint the Company will deny all claims and vigorously defend the action. On March 24, 2008 the Company received a letter from the Internal Revenue Service stating that French Gulch (Nevada) Mining Corp. owes $221,626 in taxes, interest and penalties for the tax period ending December 31, 2007. On May 8, 2008, the Company received a letter from the IRS indicating that a 120 day extension on its payment was granted. During this time the Company will review the merits of this claim, determine whether the Company has reasonable cause to remove or reduce the assessed penalties, and if necessary, attempt to negotiate a settlement of any taxes owed. On April 29, 2008 the Company received two letters from the Internal Revenue Service stating that French Gulch (Nevada) Mining Corp. owes $507,910 in taxes, interest and penalties for the tax period ending December 31, 2007. On May 8, 2008, the Company received a letter from the IRS indicating that a 120 day extension on its payment was granted. During this time the Company will review the merits of this claim, determine whether the Company has reasonable cause to remove or reduce the assessed penalties, and if necessary, attempt to negotiate a settlement of any taxes owed. On February 18, 2006, the Company entered into an exploration agreement with an option to purchase the "Mission Mine" from TKM Corporation (the "Agreement") . The property consists of 26 unpatented lode mining claims situated in Riverside County, California. In order to maintain this agreement, the Company was required to make certain payments under the Agreement. On May 2, 2008 the Company received a letter from TKM Corp. claiming that the Company did not make all required payments (as previously disclosed as being made by the Company) and because of the Company's failure to match an offer set forth in October 2007 the Agreement is null and void. Further, TKM Corp. demands that the Company refrain from referencing any ownership rights or options in the Mission Mine in its public filings. The Company will investigate the purported breach of the Agreement and determine what rights, if any, remain under the Agreement in favor of the Company. 25 The Company has received information suggesting that I-5 Rentals or Dan Hagus ("I-5") may have filed a lawsuit against it for recovery of sums allegedly owed under an equipment lease. The Company has not been served with the alleged complaint and hence does not have a copy or know its contents in detail. However it understands I-5 alleges it is due approximately $265,000 under the lease. New management has initiated dialogue with counsel for I-5 to attempt to resolve the matter without litigation, and has been informed as of the date of this filing that the lawsuit will be dismissed without serving the Company, in exchange for a partial payment which has been made to I-5 and an agreement to pay the remaining balance on an agreed-upon schedule. ITEM 1A. RISK FACTORS There are additional significant risks which could affect the future of Bullion River Gold Corp. and the development of the French Gulch Mine including but not limited to: ENVIRONMENTAL PERMITS: While the Company believes it is substantially in compliance with its major environmental permits the following permits need to be acquired, revised, or expanded: 5. NPDES Permits, in process of acquiring. Allows direct discharge of clean water. 6. Title 27 waste to land permits, in process of making application to California Water Quality. 7. Air Quality Permit, in process of determining if we need this permit and if so applying for one. 8. Reclamation Plan, need to update to reflect increased level of activity at site. It is possible that Shasta Co. may require an environmental Impact Report prior to approving revised Reclamation Plan. Because of continuously changing state and federal environmental laws reclamation costs could be materially understated. There is no assurance these permits will be issued or revised which could have a material adverse effect on operations at the French Gulch Mine. LEGAL PROCEEDINGS: In additional to other matters disclosed under Item 1 Legal Proceeding herein the Company believes that there may be other creditors who have or are in the process of obtaining default judgments against the Company for money owed. The Company is technically in default for the lack of payment on the North Fork Mine, French Gulch and Mission Mine. On the North Fork and French Gulch the sellers have verbally extended the terms however there is no written agreement concerning the defaults and the sellers could proceed with their rights against the Company. On February 18, 2006, the Company entered into an exploration agreement with an option to purchase the "Mission Mine" from TKM Corporation (the "Agreement") . The property consists of 26 unpatented lode mining claims situated in Riverside County, California. In order to maintain this agreement, the Company was required to make certain payments under the Agreement. On May 2, 2008 the Company received a letter from TKM Corp. claiming that the Company did not make all required payments (as previously disclosed as being made by the Company) and because of the Company's failure to match an offer set forth in October 2007 the Agreement is null and void. Further, TKM Corp. demands that the Company refrain from referencing any ownership rights or options in the Mission Mine in its public filings. The Company will investigate the purported breach of the Agreement and determine what rights, if any, remain under the Agreement in favor of the Company. The Company has settled and is in the process of settling labor payment disputes with past employees who reported under payment for overtime and other issues. The overall dollar amount of these settlements when and if made is not known at this time but could be significant. FORWARD GOLD SALES: The Company has not delivered gold according to the terms of some of the forward gold sale agreements to which it is a party and may be noticed of defaults thereunder in the foreseeable future. SHORT TERM LOANS: The Company may be in default under the repayment terms of some of its short term loan agreements with various parties. 26 SIGNIFICANT DECREASE IN MARKET PRICE OF THE STOCK: The average market price for the Company's stock has dropped significantly over the last three quarters which could cause the activation of Anti-Dilution clauses in some prior sales of securities. This in turn could require issuing a significant number of new shares which in turn could cause excessive dilution to existing shareholders. SHORT TERM LACK OF MANAGEMENT: Because of a serious illness and subsequent surgery and recuperation period for Peter Kuhn, our former Executive officer and Chief accounting officer, the Company was without an active Chief Executive Officer or Chief Accounting Officer for a period of 8 weeks. During this time period legal notices, bills or default notices may not have been reviewed or recorded or advanced to legal counsel. This could cause delays in responding timely to legal notices, bills or default notices. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS During the three months ended March 31, 2008, the Company issued the following securities which were not registered under the Securities Act of 1933, as amended (the "Securities Act") by reason of the exemption afforded under Section 4(2) of the Securities Act. Except as stated below, no underwriting discounts or commissions were paid with respect to any of the following transactions. The offers and sales of the following securities were exempt from the registration requirements of the Securities Act, under Rule 506 insofar as: (1) the investor was accredited within the meaning of Rule 501(a); (2) the transfer of the securities were restricted by the Company in accordance with Rule 502(d); (3) there were no more than 35 non-accredited investors in any transaction within the meaning of Rule 506(b), after taking into consideration all prior investors under Section 4(2) of the Securities Act within the twelve months preceding the transaction; and (4) none of the offers and sales were effected through any general solicitation or general advertising within the meaning of Rule 502(c). On January 2, 2008 the Company received $1,500,000 in cash related to subscriptions to purchase 10,000,000 restricted equity units at $0.15 per unit in a private offering. Each unit consists of one share of common stock and one warrant to purchase one share of common stock for $0.25. The warrants sold under this offering expire two years from the initial date of the warrant. On January 15, 2008 the Company issued 70,024 shares of common stock registered on Form S-8 to Richardson & Patel LLP for legal services that were not in connection with the offer or sale of the Company's securities. On January 16, 2008 the Company received $2,500,000 in cash related to subscriptions to purchase 10,000,000 restricted equity units at $0.25 per unit in a private offering. Each unit consists of one share of common stock and one warrant to purchase one common share for $0.45. The warrants sold under this offering expire two years from the initial date of the warrant. On February 29, 2008 the Company sold 400 ounces of gold in the form of internationally redeemable gold certificates and a warrant to purchase to purchase 800,000 shares of common stock of the Company. The purchase price for the gold certificates and warrant is $340.000. The warrant sold in this transaction will expire on December 31, 2009. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. During the quarter of the fiscal year covered by this report, the Company reported all information that was required to be disclosed in a report on Form 8-K. 27 ITEM 6. EXHIBITS. 3.1 Articles of Incorporation filed as an Exhibit to the Company's registration statement on Form SB-2 filed on May 13, 2002, and incorporated herein by reference. 3.2 Bylaws filed as an Exhibit to the Company's registration statement on Form SB-2 filed on May 13, 2002, and incorporated herein by reference. 3.3 Certificate of Amendment to Articles of Incorporation changing the Issuer's name to Bullion River Gold Corp. filed as an Exhibit to Bullion River Gold's registration statement on Form 10-KSB filed on April 14, 2004 and incorporated herein by reference. 10.1 Form of Warrant filed as an attached exhibit to Bullion River Gold's Form 8-K (Current Report) filed on January 8, 2008, and incorporated herein by reference. 10.2 Form of Unit Purchase Agreement filed as an attached exhibit to Bullion River Gold's Form 8-K (Current Report) filed on January 8, 2008, and incorporated herein by reference. 10.3 Form of Warrant filed as an attached exhibit to Bullion River Gold's Form 8-K (Current Report) filed on January 28, 2008, and incorporated herein by reference. 10.4 Form of Unit Purchase Agreement filed as an attached exhibit to Bullion River Gold's Form 8-K (Current Report) filed on January 28, 2008, and incorporated herein by reference. 10.5 Form of Unit Purchase Agreement filed as an attached exhibit to Bullion River Gold's Form 8-K (Current Report) filed on January 28, 2008, and incorporated herein by reference. 31.1* Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1* Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2* Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Filed Herewith. 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURE TITLE DATE --------- ----- ---- Chief Executive Officer, Secretary and /S/ TIM CALLAWAY Member of the Board of Directors May 20, 2008 ------------------------- Principal Financial Officer, and /S/ DR. IUR. RENE JUCHLER Member of the Board of Directors May 20, 2008 ------------------------- 29

BULLION RIVER GOLD CORP 10-Q