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EX-31.2 - EX312 - SOUTH AMERICAN GOLD CORP.ex312.htm
EX-32.1 - EX321 - SOUTH AMERICAN GOLD CORP.ex321.htm
EX-32.2 - EX322 - SOUTH AMERICAN GOLD CORP.ex322.htm
EX-31.1 - EX311 - SOUTH AMERICAN GOLD CORP.ex311.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C.  20549
 
Form 10-K
 
ý    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended  June 30, 2012
 
¨    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                    to _________.
 
Commission file number:  000-52156

South American Gold Corp.
(Exact name of registrant as specified in its charter)
 
Nevada
 
98-0486676
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
3645 E. Main Street, Suite 119, Richmond, IN     47374
(Address of principal executive offices)            (Zip Code)
Registrant’s telephone, including area code:   (765) 356-9726
 
Securities registered under Section 12(b) of the Exchange Act:  None.
 
Securities registered under Section 12(g) of the Exchange Act:
 
Common Stock, $0.001 par value
 
Not Applicable
(Title of class)
 
(Name of each exchange on which registered)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes  ¨  No ý
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  ¨  No ý
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý  No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes   ¨  No ¨
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an 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   ¨ (Do not check if a smaller reporting company)
Smaller reporting company ý
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ¨  No ý
 
As of October 8,2012, the aggregate market value of the Company’s common equity held by non-affiliates computed by reference to the closing price of $0.0043 was:  $383,611
 
The number of shares of our common stock outstanding as of September 15, 2012 was: 89,211,890
 
Documents Incorporated by Reference:  None
 
 

 
 
 

 
FORM 10-K
SOUTH AMERICAN GOLD CORP.
JUNE 30, 2012
 
 
PART I
 
  Page
   
Item 1.          Business.
5
Item 1A.       Risk Factors.
13
Item 1B.       Unresolved Staff Comments.
22
Item 2.          Properties.
23
Item 3.          Legal Proceedings.
41
Item 4.          Mine Safety Disclosure
41
 
PART II
 
 
PART III
 
 
PART IV
 
61
   
 
 
 
 

 
 
 

 
Cautionary Note Regarding Forward Looking Statements
 
This annual report contains forward-looking statements as that term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” “intends,” and other variations of these words or comparable words.  In addition, any statements that refer to expectations, projections or other characterizations of events, circumstances or trends and that do not relate to historical matters are forward-looking statements.  These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control.  Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements.  These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
 
Important factors that may cause the actual results to differ from the forward-looking statements, projections or other expectations include, but are not limited to, the following:
 
  
risk that we will not be able to remediate identified material weaknesses in our disclosure controls and procedures and internal control over financial reporting;
 
●  
risks related to failure to obtain adequate financing on a timely basis and on acceptable terms for our contemplated acquisition and exploration and development projects;
 
●  
risk that changes to Colombian and American, mining laws, which include a comprehensive overhaul of rules applicable to companies engaged in mining activities, will adversely impact our operations in the USA, or potential operations in other geographical areas we may choose to operate in
 
●  
risk that we cannot attract, retain and motivate qualified personnel, particularly employees, consultants and contractors for our operations in Colombia, the United States or other areas
 
●  
risks and uncertainties relating to the interpretation of drill results, the geology, grade and continuity of mineral deposits;
 
●  
results of initial feasibility, pre-feasibility and feasibility studies, and the possibility that future exploration, development or mining results will not be consistent with our expectations;
 
●  
mining and development risks, including risks related to accidents, equipment breakdowns, labor disputes or other unanticipated difficulties with or interruptions in production;
 
●  
the potential for delays in exploration or development activities or the completion of feasibility studies;
 
●  
risks related to the inherent uncertainty of production and cost estimates and the potential for unexpected costs and expenses;
 
●  
risks related to commodity price fluctuations;
 
  
the uncertainty of profitability based upon our history of losses;
 
●  
risks related to environmental regulation and liability;
 
risks that the amounts reserved or allocated for environmental compliance, reclamation, post-closure control measures, monitoring and on-going maintenance may not be sufficient to cover such costs;
 
risks related to tax assessments;
 
●  
political and regulatory risks associated with mining development and exploration; and
 
●  
other risks and uncertainties related to our prospects, properties and business strategy.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report.  Except as required by law, we do not undertake to update or revise any of the forward-looking statements to conform these statements to actual results, whether as a result of new information, future events or otherwise.
 
 

 


 
As used in this annual report, “South American,” the “Company,” “we,” “us,” or “our” refer to South American Gold Corp., unless otherwise indicated.
 
If you are not familiar with the mineral exploration terms used in this report, please refer to the definitions of these terms under the caption “Glossary” at the end of Item 15 of this report.
 
 
 

 
 

 
PART I
 
ITEM 1.    Business.
 
Overview
 
We were incorporated in the state of Nevada on March 25, 2005 and previously operated under the name Grosvenor Explorations Inc.  Effective October 18, 2010, we changed our name to “South American Gold Corp.” pursuant to a parent/subsidiary merger with our wholly-owned non-operating subsidiary, South American Gold Corp., which was established for the purpose of giving effect to this name change.  Our current primary focus is the acquisition, exploration, and potential development of mining properties.

In January 2008, we entered into an assignment agreement where we were assigned a 100% interest in a 7-unit claim block containing 92.8 hectares located in Vietnam, referred to herein as the “Kon Tum Gold Claim.”  The Kon Tum Gold Claim has been staked and recorded with the Mineral Resources Department of Energy and Mineral Resources of the government of the Republic of Vietnam. 

In September 2010, we appointed a new CEO and CFO of the Company, and in the first quarter 2011 two new directors and two vice presidents of geology and operations, respectively.

In light of some of the potential opportunities recently presented to our management to acquire interests in certain mineral claims and mining rights on properties located in Colombia, South America, our management decided in the last quarter of 2010 to reassess its proposed plan for exploration for the Kon Tum Gold Claim and the overall desirability of maintaining an ownership interest in mineral claims and mining rights located in Vietnam.  We reviewed current economic conditions within Vietnam and globally and concluded that it is more likely that favorable economic trends can be sustained over an extended period of time within Colombia, as compared to Vietnam.  Our management also believes that the emergence of a strong mineral exploration industry within Colombia will make it easier for us to attract, retain and motivate qualified personnel and access the equipment necessary for exploration.  For the foregoing reasons, our management has determined that it would be in our best interest to focus our efforts exclusively on the acquisition and development of mining properties in Colombia, a geographical area in which our management believes offers a more promising opportunity for our company.

We reviewed our available alternatives and canvassed a number of qualified parties in an attempt to dispose of our interests in the Kon Tum Gold Claim for value.  As a result of our inability to locate an interested party to enter into a transaction to dispose of our interests in the Kon Tum Gold Claim for value and a determination that further canvassing of the market would likely be fruitless, we made a determination to abandon our interests in the Kon Tum Gold Claim and in 2011 into a transaction to dispose of our interests in the Kon Tum Gold Claim for value and a determination that further canvassing of the market would likely be fruitless, we made a determination to abandon our interests in the Kon Tum Gold Claim and in 2011sent a notice indicating such to the appropriatesent a notice indicating such to the appropriate governmental body in Vietnam.  

In 2011, management elected to expand our geographic focus beyond Colombia to include North and Central America, using the experience and industry contacts of our management team. This resulted in the Company acquiring mineral property interests by acquisition, lease or option in Nevada and Arizona, the Lucky Boy Silver and GB-2 prospects, respectively, and subsequent to our fiscal year end the Baltimore project

During 2011, we conducted exploration activities in Colombia in the Narino province both at the Santa Cruz gold project and surrounding areas, developed industry and governmental contacts, retained local consultants, and review of mining and business laws and regulations. We consider Colombia highly prospective for gold exploration, development and production. However in a management review of activities and potential in Colombia in the fourth quarter of calendar 2011, it became apparent that with the combined high-cost of operating in Colombia, the government announcements of a comprehensive overhaul of mining laws, and the government announcing no new concessions would be granted until that overhaul was completed,  it was decided to scale back our activities in Colombia. The announced overhaul originally was to be completed by February 2012, was then delayed until August 2012, and as of this filing, it is unknown when it will be finalized. We maintain a small office in Copacabana, Antioquia in Colombia and continue to monitor regularly developments in the country.
 
 

 
 

 

We are considered an exploration or exploratory stage company because our business plan is to engage in  the examination, investigation and exploration of land that we believe may contain valuable minerals, for the purpose of discovering the presence of ore, if any, and its extent.  There is no assurance that a commercially viable mineral deposit will exist on any of the properties or properties underlying any mineral property interests that we have or may acquire in the future.  In order to make any final evaluation as to the economic and legal feasibility of placing any exploration project into production, a great deal of exploration is required.  We possess no known reserves of any type of mineral, have not discovered an economically viable mineral deposit and there is no assurance that we will ever discover one.  If we cannot acquire or locate mineral deposits, or if it is not economical to recover any mineral deposits that we do find, our business and operations will be materially and adversely affected and we may have to cease operations.

Substantially all of our assets will be used commercializing mining rights and mineral claims located within a limited geographical area.  Accordingly, any adverse circumstances that affect these areas would affect us and your entire investment in shares of our common stock.  If any adverse circumstances were to arise, we would need to consider alternatives, both in terms of our prospective operations and for the financing of our activities.  Management cannot provide assurance that we will ultimately achieve profitable operations or become cash-flow positive, or raise additional debt and/or equity capital.  If we are unable to raise additional capital, we will continue to experience liquidity problems and management expects that we will need to curtail operations, liquidate assets, seek additional capital on less favorable terms and/or pursue other remedial measures including ceasing operations.  We may also consider entering into a joint venture arrangement to provide the required funding to acquire and  explore any mineral property interests.  We have not undertaken any efforts to locate a joint venture participant.  Even if we determine to pursue a joint venture participant, there is no assurance that any third party would enter into a joint venture agreement with us in order to fund the acquisition and exploration of mineral property interests.  If we enter into a joint venture arrangement, we would likely have to assign a percentage of any mineral property interest we may hold to the joint venture participant.  For more information on the risks involved in this offering, see “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”
 
Agreement with Minera Kata S.A. for Acquisition of Equity Interest in Kata Enterprises Inc.
 
On February 25, 2011 (the “Effective Date”), we entered into a Stock Purchase Agreement with Minera Kata S.A., a corporation organized under the laws of the Republic of Panama (“Seller”), as amended and supplemented by Amendment No. 1 (the “Amendment”) dated April 25, 2011 (collectively, the “Agreement”), and acquired from Seller twenty-five percent (25%) of the outstanding capital stock (the “25% Stake”) of Kata Enterprises Inc., a corporation organized under the laws of the Republic of Panama (“Kata”), with an option to acquire from Seller the remaining seventy-five percent (75%) of the outstanding capital stock of Kata in exchange for total consideration of $550,000.  We paid Seller partial consideration of $500,000 in cash (the “Closing Payment”) on the Effective Date and the remaining $50,000 in cash upon execution of the Amendment.

In November 2010, Kata entered into an agreement to acquire, through its subsidiary, an eighty-five percent (85%) interest in certain mining concessions located in the Nariño province of Colombia covering the area that is the subject of the IKE-10421X concession application (the “Mining Concessions”), but has not successfully closed that transaction as of this time (the “Kata Transaction”).  Kata is an entity that has nominal operations.  Our understanding was that closing of the Kata Transaction was conditioned upon the transferor of the Mining Concessions receiving acceptance of an application for a concession contract, executing a concession contract with Ingeominas (the entity authorized by the Colombian Ministry of Mines and Energy to grant mining concession contracts), registration of that contract at the National Mining Registry and securing the requisite approvals and governmental consents for the transfer of the Mining Concessions to Kata’s subsidiary. We could not provide any assurance that Kata, through its subsidiary, would be able to successfully close the Kata Transaction. In the event that Kata, through its subsidiary, failed to close the Kata Transaction and if by February 25, 2012 failed to have the Mining Concessions registered in the National Mining Registry of Colombia in favor of Kata’s subsidiary, the Agreement provides that Seller would have been obligated to deliver to the Company one-hundred percent (100%) of the outstanding capital stock of Kata (the “100% Stake”)  without any additional consideration being paid.  In such event, we would not have acquired any direct or indirect interest in the Mining Concessions and not be entitled to recover any of our exploration expenditures of other expenses incurred in connection with acquiring the 25% Stake, other than our entitlement, indirectly through our subsidiary, to the return of the $500,000 Closing Payment.
 
 
 

 



Under the terms of the Agreement, if we exercised all of the options to purchase in the Agreement and acquire the entire 100% Stake, we would pay Seller an aggregate of $4,000,000 in cash and issue to Seller 4,000,000 shares of our common stock in order to acquire one hundred percent (100%) of the outstanding capital stock of Kata.  

Amendment No. 2 to Stock Purchase Agreement

On November 28, 2011, the Company entered into Amendment No. 2 to the Stock Purchase Agreement (“the Second Amendment”) with Minera Kata S.A., a corporation organized under the laws of the Republic of Panama (“Seller.”) Pursuant to the terms of the Agreement, the Company acquired from Seller twenty-five percent (25%) of the outstanding capital stock (the “25% Stake”) of Kata Enterprises, Inc.(“Kata”), and was granted certain options under which the Company could increase its ownership interest to acquire the remaining seventy-five percent (75%) of the outstanding capital stock of Kata. Kata Enterprises S.A.S., a corporation organized under the laws of the Republic of Colombia, is a wholly owned subsidiary of Kata and own eighty-five percent (85%) of the outstanding capital stock of Minera Nariño S.A.S., a corporation organized under the laws of the Republic of Colombia (“Minera Nariño.”)

The Agreement provided that Seller would be obligated to deliver to the Company one-hundred percent (100%) of the outstanding capital stock of Kata (the “100% Stake”) without any additional consideration being paid should Minera Nariño fails to close the Kata Transaction and failed by February 25, 2012 to have the Mining Concessions registered in the National Mining Registry of Colombia in favor of Minera Nariño. The Second Amendment modified the Agreement to extend the obligation of Seller to deliver the 100% Stake to include any termination of the agreement underlying the Kata Transaction and required the Company to pay Seller consideration of $10,000 should any of the conditions required for Seller to deliver to the Company the 100% Stake. Except for the foregoing changes, there were no other changes made by the Second Amendment to the Agreement.

The foregoing description of the Agreement does not purport to be complete is qualified in its entirety by reference to Exhibit 10.1 to the Form 8-K filed on March 2, 2011 and Exhibit 10.2 to the Form 8-K filed on April 29, 2011, each incorporated herein by reference

Termination Agreement

After the Colombian government began to make changes in its administration of the mining sector in late 2011 and early 2012, which may include the establishment of new government agencies and regulations and potentially adversely impact the Company by resulting in further delays in implementing plans and increased compliance costs. When the Agreement was initially entered into, the parties did not anticipate that an extended period of time would be required to secure approval of the IKE-10421X concession application. The Company has received no assurances that the approval of the IKE-10421X concession application is imminent. For the foregoing reasons, the Company determined that it would be in its best interest to abandon its plan to acquire an interest in the mining and mineral rights underlying any prospective concession contact to be granted on the basis of the IKE-10421X concession application if Seller would return the $500,000 cash payment it received from the Company when the Agreement was entered into on February 25, 2011 (the “Closing Payment”).

On November 18, 2011, Minera Nariño entered into a Termination and Transaction Agreement (the “Termination Agreement”) which resulted in the termination of the agreement under which it had a right to acquire the Mining Concession which were the subject of the IKE-10421 concession application should the Kata Transaction have successfully closed. Pursuant to the terms of the Termination Agreement, the Closing Payment was transferred to Kata Enterprises S.A.S. Also on November 18, 2011, Kata Enterprises S.A.S. entered into an agreement and acquired in exchange for approximately $750 USD the remaining fifteen percent (15%) of the remaining outstanding capital stock of Minera Nariño, which resulted in the acquisition by Kata Enterprises S.A.S. of all of the outstanding stock of Minera Nariño. The Company completed its purchase accounting at this time for the transaction.
 
 
 

 

 

 
Description of Property Underlying the IKE-10421X Concession Application
 
For further description of our activities at the Santacruz Gold project and nearby areas please see “Property” section below.
 
Expansion to the United States

The Company in 2011 decided to expand our geographic focus beyond Colombia to include North and Central America. This resulted in the acquisition of the Lucky Boy Silver and GB-2 Gold projects further described under “Property” below. Both projects may be considered early-stage exploration projects that we consider prospective Silver and Gold prospects respectively. We primarily targeting the western United States projects with former production or located in historic mining districts.

The Mining Industry and the Exploration Process

The mining industry is dominated by large companies who can finance through cash flows and outside financing the development costs to put mines into production, and subject to inherent uncertainty due to various factors including fluctuating short term commodity prices, expensive and changing government regulations, and as a mineral deposit depletes during production there is a constant need to develop new deposits.

Junior mining companies focus on the acquisition of mineral properties or mineral property interests, and seek to add value through exploration, often employing a project generative business model whereby the objective is to joint-venture, sell or lease to larger and better capitalized companies. Success is dependent on various factors ( see “Risk Factors” below) including in particular capable and experienced technical personnel.

Our exploration process is designed to acquire, explore and evaluate exploration properties in an economically and technically efficient manner. We have formulated general and specific exploration plans as described herein, and subject to our ability to raise sufficient funding to implement, we intend to implement our exploration plans though timing may vary for each property according to our priorities for each.

Generally we expect our exploration work on a given property to proceed in a three phase process. The first phase typically begins with research of available geologic literature, interviews when possible with industry professionals familiar with the potential project, and any general information available on the project. We conduct initial site visits and reconnaissance exploration, and based on recommendations may augment this with geologic mapping, geophysical and geochemical testing, examination of existing workings including tunnels, shafts, prospect pits, dump material and tailings ponds, and surface outcrops. If we identify potential mineralized zone, we may dig trenches for sampling and further examination of the vein, and identify potential drill targets. Simultaneously we must determine the requisite permitting for these and subsequent activities.

Currently our projects may be considered in Phase I. We  note that subsequent to the end of our fiscal year ending June 30,2012 we acquired an interest in the Baltimore Silver project.

During Phase II we would engage in more advanced geologic mapping, geochemical and geophysical surveys if recommended, exploration drilling, all designed to determine the presence or probability of mineralization of potential economic importance, Preliminary development cost information and bulk samples for metallurgical testing may also occur during this period. Certain projects with former production may include bulk sampling in Phase I.

Phase III would be advancing upon results of Phase I and Phase II to more precisely determine the depth, width, length, tonnage, value per ton of any deposit identified  This would be accomplished through additional drilling, metallurgical testing, developing further technical, economic, regulatory and logistical data to support a pre-feasibility or feasibility report.

The permitting process is a key determinant in the development of timetables for exploring a project, which may be outside the control of the company. This can be partially mitigated by beginning the permitting process early, and careful selection of personnel to deal with these issues.
 
 
 

 
 

 

Effect of Existing or Probable Governmental Regulations on the Business
 
Overview
 
USA
 
The United States has a system of laws and regulations affecting the mining industry on the Federal, State and often local county level. The system is three-fold based on either unpatented mining claims, granted by the Federal government, state mineral leases, or operations on private land. Numerous environmental laws and regulations implemented generally by the federal Environmental Protection Agency (“EPA”) and state agencies generally stem from the 1972 Clean Air and Water act. In general these regulations govern air and water quality issues, supplemented by health and safety concerns regulated by MSHA (mine safety and health administration).Since mining requires water usage, and discharge, at most stages whether exploration drilling, or mill processing or materials, water discharge is a key environmental issue to be dealt with, as well as any surface disturbance on federal mining claims in particular. Numerous permits and bonding requirements can be required before the commencement of even basic exploration activities
 
Our business is subject to extensive federal, state and local laws and regulations governing development, production, labor standards, occupational health, waste disposal, and the use of toxic substances, environmental regulations, mine safety and other matters. The Company is subject to potential risks and liabilities occurring as a result of mineral exploration and production. Insurance against environmental risk (including potential liability for pollution or other hazards as a result of the disposal of waste products occurring from exploration and production) is not generally available to the Company (or to other companies in the minerals industry) at a reasonable price. To the extent that the Company becomes subject to environmental liabilities, the satisfaction of any such liabilities would reduce funds otherwise available to the Company and could have a material adverse effect on the Company. Laws and regulations intended to ensure the protection of the environment are constantly changing, and are generally becoming more restrictive.
 
All operating and exploration plans have been made in consideration of existing governmental regulations. Regulations that most affect operations are related to surface water quality and access to public lands. An approved plan of operations (POO) and a financial bond are usually required before exploration or mining activities can be conducted on public land that is administered by the United States Bureau of Land Management (BLM) or United States Forest Service (USFS).
 
No major Federal permits are required for the Baltimore Silver mine because the operations are on private land and there are no process discharges to surface waters. However, any exploration program conducted by the Company on unpatented mining claims, usually administered by the BLM or USFS, requires a POO to be submitted. Our exploration programs on public land can be delayed for significant periods of time (one to two years) because of the slow permitting process applied by the USFS. State regulations must also be considered even for basic exploration activities.
 
The Company will be subject to the rules of the U.S. Department of Labor, Mine Safety and Health Administration (MSHA) for any project put into operation. When an underground mine or mill is operating, MSHA performs a series of regular quarterly inspections to verify compliance with mine safety laws, and can assess financial penalties for violations of MSHA regulations. A typical mine citation order for a violation that is not significant or substantial it may be a few hundred dollars.
 
When the Company plans an exploration drilling program on public lands, it must submit a POO to either the BLM or USFS. Compilation of the plan can take several days of professional time and a reclamation bond is usually required to start drilling once the plan is approved. Bond costs vary directly with surface disturbance area, but a small, single set-up drilling program may require  a bond amount of  $5,000. If a plan requires road building, the bond amount can increase significantly. Upon completion of site reclamation and approval by the managing agency, the bond amount is returned to the Company.
 
State agencies may have their own requirements regarding surface disturbance, water discharge or reclamation requirements.
 
 
 

 

 
 
 
The Company complies with local building codes and ordinances as required by law.
 
Colombia
 
Existing and Probable Governmental Regulation
 
Mining in Colombia is governed by the Mining Law 685 of 2001. It was modified by Law 1382 of February 9, 2010, which was declared unconstitutional through ruling C-366 of the Constitutional Court, but it will remain in force as Colombian law until September 2013. The mining authorities in Colombia are as follows:

·  
Ministry of Mines and Energy (“MME”).
 
·  
INGEOMINAS (Colombian Institute of Geology and Mining): The MME had delegated the administration of mineral resources to INGEOMINAS and some Department (Provincial) Mining Delegations.  INGEOMINAS has two departments, the Geological Survey, and the Mines Department which is responsible for all mining contracts except where responsibility for the administration has been passed to the Departmental (Provincial) Mining Delegations.
 
·  
Departmental Mining Delegations (Gobernaciones Delegadas): Administers mining contracts in the Departments with the most mining activity.
 
·  
Mining Energy Planning Unit (UPME): Provides technical advice to the MME regarding planning for the development of the mining and energy sector and maintains the System of Colombian Mining Information (SIMCO).

All mineral resources belong to the state and can be explored and exploited by means of concession contracts granted by the state.  Under the Mining Law of 2001, there is a single type of concession contract covering exploration, construction and mining which is valid for 30 years and can be extended for another 20 years.

Concession contract areas are defined on a map with reference to a starting point (punto arcifinio) and distances and bearings, or by map coordinates.

A surface tax (canon superficiario) has to be paid annually in advance during the exploration and construction phases of the concession contract.  This is defined as 1 minimum daily wage per hectare per year for years 1 to 5, 1.25 minimum daily wages per hectare per year for years 6 and 7, and 1.5 minimum daily wages per hectare per year since year 8 and henceforth according to an interpretation by the MME. Based on this calculation the fee per hectare currently is US$10.29, or a total of US$18,892 for the area covered by concession application IKE-10421X.

The application process for a concession contract is as follows:
 
1.  
Application submitted.
 
2.  
Technical study by the mining authority to determine whether there is any overlap with other contracts or applications. The applicant is notified.
 
3.  
Under the modifications to the Mining Law of 2010, the surface tax has to be paid within three days of the notification of the technical study of free areas.
 
4.  
Once the surface tax is paid, the contract is prepared and signed.
 
5.  
The contract is inscribed in the National Mining Register.
 
Once the concession is approved, if at all, we intend to apply for permission to reclassify sections of the property that are currently classified as a forest reserve. We have already begun preparatory work for this process.
 
 
 

 
- 10 -



 
The concession contract has three phases:
 
 
1.
Exploration Phase.
 
·  
Starts once the contract is inscribed in the National Mining Registry.
 
·  
Valid for 3 years plus up to 4 extensions of 2 years each, for a maximum of 11 years.
 
·  
Annual surface tax payable.
 
·  
Requires an annual Environmental Mining Insurance Policy for 5% of the value of the planned exploration expenditure for the year.
 
·  
Present a mine plan (PTO) and an Environmental Impact Study (or EIA) for the next phase.
 
·  
Need of Environmental License only when the exploration activities comprise the construction of roads.
 
 
2.
Construction Phase.

·  
Valid for 3 years plus a 1 year extension.
·  
Annual surface tax payments continue as in Exploration Phase.
·  
Requires an annual Environmental Mining Insurance Policy for 5% of the value of the planned investment as defined in the PTO for the year.
·  
Environmental License issued on approval of Environmental Impact Study.
·  
Environmental License required to initiate the construction activities.

 
3.
Exploitation Phase.

·  
Valid for 30 years minus the time taken in the exploration and construction phases, and is renewable for 30 years.
·  
Annual Environmental Mining Insurance Policy required.
·  
No annual surface tax.
·  
Pay royalty based on regulations at time of granting of the Contract.
 
 
 
 
 
 
- 11 -

 
 
 
 
 
Royalties payable to the state are 4% of gross value at the mine mouth for gold and silver and 5% for copper (Law 141 of 1994, modified by Law 756 of 2002).  .
 
The most important changes in the Mining Law of 2010 are:
 
·  
The exploration phase can now be up to 11 years, rather than 5 years.
·  
The contract length is reduced to 50 years (30 years + 20 year extension) from 60 years (30 + 30).
·  
The surface tax is the same for all sizes of concession, and increases from year 6.
·  
The surface tax for year 1 has to be paid within three days of notification of the free areas.
·  
Once an application or contract is dropped or expires for whatever reason, the area does not become free for staking again for a period of 30 days.
 
As indicated above, the modification set forth in Law 1382 of February 9, 2010 to Mining Law 685 of 2001 was declared unconstitutional through ruling C-366 of the Constitutional Court, but it will remain in force as Colombian law until September 2013.  We are unable to ascertain the impact of this change and other future changes to the current mining laws at this time, which include a comprehensive overhaul of rules applicable to companies engaged in mining activities.  In addition, the Colombian government recently imposed a temporary moratorium on new application approvals.
 
Competition
 
We are an exploration stage mineral resource exploration company that competes with other mineral resource exploration companies for financing and for the acquisition of mineral properties. Many of the mineral resource exploration companies with whom we compete have greater financial and technical resources than those available to us. Accordingly, these competitors may be able to spend greater amounts on acquisitions of mineral properties of merit, on exploration of their mineral properties and on development of their mineral properties. In addition, they may be able to afford more geological expertise in the targeting and exploration of mineral properties. This competition could result in competitors having mineral properties of greater quality and interest to prospective investors who may finance additional exploration and development. This competition could adversely impact on our ability to achieve the financing necessary for us to acquire mineral property interests and conduct exploration activities. We will also compete with other mineral exploration companies for financing from a limited number of investors that are prepared to make investments in mineral exploration companies. The presence of competing mineral exploration companies may adversely impact on our ability to raise additional capital in order to fund our exploration programs if investors are of the view that investments in competitors are more attractive based on the merit of the mineral properties under investigation and the price of the investment offered to investors. We will also  compete with other mineral companies for available resources, including, but not limited to, professional geologists, camp staff, mineral exploration supplies and drill rigs.
 
Intellectual Property
 
We do not own, either legally or beneficially, any patent or trademark.
 
Employees
 
Our Chief Executive Officer, Raymond DeMotte, and our Chief Financial Officer, Cristian Gomez, are presently providing us with consulting services on a full-time basis, and our Vice President’s of Operations and Geology on an as-needed basis.  We engage contractors on an as-needed basis to assist us in conducting exploration activities, planning for exploration and reviewing other exploration properties for diligence purposes in determining whether to pursue acquisitions; currently in addition to our officers, we have three geologists, and one mine engineer, that we engage as needed on our projects.
 
Research and Development Expenditures
 
We have not incurred any research or development expenditures since our incorporation.
 
Subsidiaries
 
We own a 100% interest in the issued and outstanding stock of Kata Enterprises Inc., a corporation organized under the laws of the Republic of Panama, which in turn owns a subsidiary in Colombia.
 
 
 

 
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ITEM 1A. Risk Factors.
 
You should carefully consider the following risk factors in evaluating our business and us.  The factors listed below represent certain important factors that we believe could cause our business results to differ.  These factors are not intended to represent a complete list of the general or specific risks that may affect us.  It should be recognized that other risks may be significant, presently or in the future, and the risks set forth below may affect us to a greater extent than indicated.  If any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected.  You should also consider the other information included in this Annual Report and subsequent quarterly reports filed with the SEC.
 
Risk Factors
 
Risks Associated With Our Business
 
Our accountants have raised substantial doubt with respect to our ability to continue as a going concern.
 
As noted in our financial statements, we have incurred a net loss of $4,559,104 for the period from inception on March 25, 2005 to June 30, 2012 and have presently no source of revenue.  At June 30, 2012, we had a working capital deficit of $261,895.  As of June 30, 2012, we had cash and cash equivalents in the amount of US $87.  We will have to raise additional funds in order to sustain any level of operations and commence any recommended exploration activities.
 
The audit report of Madsen & Associates, CPA’s Inc.’s for the fiscal year ended June 30, 2012 contained a paragraph that emphasizes the substantial doubt as to our continuance as a going concern.  This is a significant risk that we may not be able to generate or raise enough capital to remain operational for an indefinite period of time.
 
We have a limited operating history and have incurred losses that we expect to continue into the future.
 
We have never had any revenues from our operations. In addition, we have a very limited operating history upon which an evaluation of our future success or failure can be made.  We have only recently taken steps in a plan to engage in the acquisition of interests in exploration and development properties, and it is too early to determine whether such steps will prove successful.  Our business plan is in its early stages and faces numerous regulatory, practical, legal and other obstacles.  At this early stage of our operation, we also expect to face the risks, uncertainties, expenses and difficulties frequently encountered by companies at the start-up stage of their business development.  We cannot be sure that we will be successful in addressing these risks and uncertainties, and our failure to do so could have a materially adverse effect on our financial condition.
 
No assurances can be given that we will be able to successfully complete the purchase of any mineral property interests,  Our ability to achieve and maintain profitability and positive cash flow over time will be dependent upon, among other things, our ability to (i) identify and acquire properties or interests therein that ultimately have probable or proven mineral reserves, (ii) sell such mining properties or interests to strategic partners or third parties or commence the production of a mineral deposit, (iii) produce and sell minerals at profitable margins and (iv) raise the necessary capital to operate during this possible extended period of time.  At this stage in our development, it cannot be predicted how much financing will be required to accomplish these objectives.
 
We have no known reserves and we may not find any mineral reserves or, if we find mineral reserves, the deposits may be uneconomic or production from those deposits may not be profitable.
 
Our due diligence activities have been limited, and to a great extent, have relied upon information provided to us by third parties.  We have not established that any of the properties for which we intend to acquire an interest contain adequate amounts of gold or other mineral reserves to make mining any of these properties economically feasible to recover that gold or other mineral reserves, or to make a profit in doing so.  If we do not, our business will fail.  If we cannot find economic mineral reserves or if it is not economic to recover the mineral reserves, we will have to cease operations.
 
 
 

 
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Our business will be harmed if we are unable to manage growth.
 
Our business may experience periods of rapid growth that will place significant demands on our managerial, operational and financial resources.  In order to manage this possible growth, we must continue to improve and expand our management, operational and financial systems and controls.  We will need to hire, train and manage our employee base.  We must carefully manage our mining exploration activities.  No assurance can be given that we will be able to timely and effectively meet such demands.
 
We may not be able to attract and retain qualified personnel necessary for the implementation of our business strategy and mineral exploration programs.
 
Our future success depends largely upon the continued service of board members, executive officers and other key personnel.  Our success also depends on our ability to continue to attract, retain and motivate qualified personnel, particularly employees, consultants and contractors for our operations.  Personnel represent a significant asset, and the competition for such personnel is intense in the mineral exploration industry.  We may have particular difficulty attracting and retaining key personnel in the initial phases of our operations.
 
Our officers and directors may have outside interests diverting their attention from our business.
 
Our officers and directors may have outside interests in that they are and may become affiliated with other mining companies.  If the demands of these other mining companies require significant business time of our officers and directors, it is possible that our officers and directors may not be able to devote sufficient time to the management of our business, as and when needed. If our management is unable to devote a sufficient amount of time to manage our operations, our business will fail.
 
As some of our officers  are located outside of the United States, you may have no effective recourse against our us or our management for misconduct and may not be able to enforce judgment and civil liabilities against our officers, directors, experts and agents.
 
Some of our officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.
 
Indemnification of officers and directors.
 
Our Articles of Incorporation and Bylaws contain broad indemnification and liability limiting provisions regarding our officers, directors and employees, including the limitation of liability for certain violations of fiduciary duties.  Our stockholders therefore will have only limited recourse against the individuals.
 
Because frequently entire areas covered by  applications for a concession contract in Colombia transferor to may contain an area classified as a forestry reserve, there is a risk that exploration and mining activities causing any significant surface disturbance cannot be undertaken, should we acquire an interest in any such concessions

Under Colombia law, only prospecting activities which would not result in any significant surface disturbance can be undertaken in an area classified as a forestry reserve.  In order to commence any exploration and mining activities causing any significant surface disturbance in the area that is the subject of a concession contract, it will be necessary to initiate a proceeding before the competent environmental authority to reclassify the entire area, or a portion thereof, that is the subject of the Mining Concessions so that it is no longer classified as a forestry reserve.  We cannot provide any assurance, that efforts to declassify a portion or all of the subject area as a forestry reserve will be successful.  Assuming a concession contract is acquired, but we are unable to succeed in reclassifying a portion or all of the area that is the subject of the Mining Concessions so that it is no longer classified as a forestry reserve, we will be unable to commence any exploration or mining activities causing any significant surface disturbance on the area subject to the Mining Concessions.. In the event this were to occur, there is a substantial risk that we would not be entitled to any return of any amount paid to Seller upon execution of the any transaction. In addition, even if any effort to reclassify the entire area that is the subject of the Mining Concessions so that it is no longer classified as a forestry reserve is successful, there may be significant delay adversely impacting our prospects. We have no ending application for any mining concessions in Colombia.
 
 

 
 
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Any foreign activities are subject to additional inherent risks.

We currently have no significant assets or operations outside the United States. Because we seek to conduct operations internationally, we may be subject to political and economic risks such as:

 
the effects of local political, labor and economic developments and unrest;
 
 
significant or abrupt changes in the applicable regulatory or legal climate;

 
exchange controls and export restrictions;
 
 
expropriation or nationalization of assets with inadequate compensation;

 
currency fluctuations and repatriation restrictions;
 
 
invalidation of governmental orders, permits or agreements;

 
renegotiation or nullification of existing concessions, licenses, permits and contracts;
 
 
corruption, demands for improper payments, expropriation, and uncertain legal enforcement and physical security;

 
disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations;
 
 
fuel or other commodity shortages;

 
illegal mining;
 
 
laws or policies of foreign countries and the United States affecting trade, investment and taxation;
 
 
civil disturbances, war and terrorist actions; and

 
seizures of assets.

Consequently, our exploration, development and production activities outside of the United States may be substantially affected by factors beyond our control, any of which could materially adversely affect our financial condition or results of operations

We have no experience in Southeastern Europe in general, and specifically in mining and alternative energy sectors
 
We are currently evaluating potential opportunities to conduct business activities in Southeastern Europe, including potential acquisition of precious metal and industrial mineral projects, and to enter into the alternative energy sectors, in the region. While our management has international business experience, it has limited experience in this region, thus any such entry into this market may contain higher risks of success than other others where we seek to operate in.
 
 

 
 
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Risks Associated With Mining

There is no assurance that we can establish the existence of any mineral reserve on any mineral property interest we may acquire in commercially exploitable quantities. Until we can do so, we cannot earn any revenues from operations and if we do not do so we will lose all of the funds that we expend on exploration. If we do not discover any mineral resource in a commercially exploitable quantity, our business will fail.
 
We cannot provide any assurance that any mineral property interest we may acquire will contain any commercially exploitable mineral reserve. If we cannot establish the existence of any commercially exploitable mineral reserve, our business will fail.  A mineral reserve is defined by the SEC in its Industry Guide 7 (which can be viewed over the Internet at http://www.sec.gov/divisions/corpfin/forms/industry.htm#secguide7) as that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. The probability of an individual prospect ever having a “reserve” that meets the requirements of the SEC’s Industry Guide 7 is extremely remote; in all probability any mineral resource property that we may acquire will not contain any ‘reserve’ and any funds that we spend on exploration will probably be lost.
 
Even if we do eventually discover a mineral reserve on any mineral property interest we may hold, there can be no assurance that we will be able to develop any such properties into producing mines and extract those reserves. Both mineral exploration and development involve a high degree of risk and few properties that are explored are ultimately developed into producing mines.  If we do discover mineral reserves in commercially exploitable quantities on any mineral property interest we may hold, we will be required to expend substantial sums of money to establish the extent of the reserve, develop processes to extract it and develop extraction and processing facilities and infrastructure.
 
The commercial viability of an established mineral deposit will depend on a number of factors including, by way of example, the size, grade and other attributes of the mineral deposit, the proximity of the reserve to infrastructure such as a smelter, roads and a point for shipping, government regulation and market prices. Most of these factors will be beyond our control, and any of them could increase costs and make extraction of any identified mineral deposit unprofitable.
 
Mineral operations are subject to applicable law and government regulation. Even if we discover a mineral reserve in a commercially exploitable quantity, these laws and regulations could restrict or prohibit the exploitation of that mineral deposit.  If we cannot exploit any mineral deposit that we might discover on any mineral property interest we may hold, our business may fail.
 
Both mineral exploration and extraction require permits from various foreign, federal, state, provincial and local governmental authorities and are governed by laws and regulations, including those with respect to prospecting, mine development, mineral production, transport, export, taxation, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. There can be no assurance that we will be able to obtain or maintain any of the permits required for the continued exploration or for the construction and operation of a mine on any mineral property interest we may hold at economically viable costs. If we cannot accomplish these objectives, our business could fail.
 
Current laws and regulations could be amended making it more difficult for us to comply with them, as amended.  For example, changes to Colombian mining laws, which include a comprehensive overhaul of rules applicable to companies engaged in mining activities, could adversely impact our operations in Colombia. Further, there can be no assurance that we will be able to obtain or maintain all permits necessary for our future operations, or that we will be able to obtain them on reasonable terms. To the extent such approvals are required and are not obtained, we may be delayed or prohibited from proceeding with planned exploration or development activities.
 
We face substantial governmental regulation and environmental risk.

Our business is subject to extensive U.S. and foreign, federal, state and local laws and regulations governing development, production, labor standards, occupational health, waste disposal, and use of toxic substances, environmental regulations, mine safety and other matters.
 
 
 

 
 
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We are required to reclaim properties after mining is completed and specific requirements vary among jurisdictions. In some cases, we may be required to provide financial assurances as security for reclamation costs, which may exceed our estimates for such costs. The historical operations of entities and properties we may acquire could have been alleged to have generated environmental contamination. We could also be held liable for worker exposure to hazardous substances. There can be no assurances that we will at all times be in compliance with all environmental, health and safety regulations or that steps to achieve compliance would not materially adversely affect our business.

In addition to existing regulatory requirements, legislation and regulations may be adopted or permit limits reduced at any time that result in additional operating expense, capital expenditures or restrictions and delays in the mining, production or development of our properties. Mining accidents and fatalities, whether or not at our mines or related to gold or silver mining, may increase the likelihood of additional regulation or changes in law. In addition, enforcement or regulatory tools and methods available to governmental regulators such as the U.S. Environmental Protection Agency which have not been used, could in the future be used against us. Federal or state environmental or mine safety regulatory agencies may any future  mines we may develop or acquire to be temporarily or permanently closed, which may have a material adverse effect on future cash flows, results of operations, or financial condition.

From time to time, the U.S. Congress considers proposed amendments to the General Mining Law of 1872, as amended, which governs mining claims and related activities on federal lands. The extent of any future changes is not known and the potential impact on us as a result of U.S. Congressional action is difficult to predict. Changes to the General Mining Law, if adopted, could adversely affect our ability to economically develop mineral reserves on federal lands. Although we are not currently mining on federal land, exploration and future mining could occur on federal land.

The Clean Water Act requires permits for operations that discharge into waters of the United States. Such permitting has been a frequent subject of litigation by environmental advocacy groups, which has resulted, and may in the future result, in declines in such permits or extensive delays in receiving them. This may result in delays in, or in some instances preclude, the commencement or continuation of development or production operations. Adverse outcomes in lawsuits challenging permits or failure to comply with applicable regulations could result in the suspension, denial, or revocation of required permits, which could have a material adverse impact on our cash flows, results of operations, or financial condition.

Federal legislation  and implementing regulations adopted and administered by the U.S, Environmental Protection Agency, U.S. Forest Service, Bureau of Land management, Fish and Wildlife Service, Army Corps of Engineers, Mine Safety and health Administration, and other federal agencies, and legislation such as the federal Clean Water Act, Clean Air Act, National Environmental Policy Act, Endangered Species Act, and Comprehensive Environmental Response and Liability Act (CERCLA), all can have a direct bearing on U.S Exploration, Development and Mining operations.

If we establish the existence of a mineral reserve on any mineral property interest we may acquire, we will require additional capital in order to develop the property into a producing mine. If we cannot raise this additional capital, we will not be able to exploit the reserve and our business could fail.
 
If we do discover a mineral reserve on any mineral property interest we may acquire, we will be required to expend substantial sums of money to establish the extent of the reserve, develop processes to extract it and develop extraction and processing facilities and infrastructure.  Although we may derive substantial benefits from the discovery of a reserve, there can be no assurance that it will be large enough to justify commercial operations, nor can there be any assurance that we will be able to raise the funds required for development on a timely basis.  If we cannot raise the necessary capital or complete the necessary facilities and infrastructure, our business may fail.
 
 
 

 
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We may not have access to all of the supplies and materials we need to begin exploration that could cause us to delay or suspend operations.
 
Competition and unforeseen limited sources of supplies in the industry could result in occasional spot shortages of supplies, such as explosives, and certain equipment, such as bulldozers and excavators, that we might need to conduct exploration.  We have not attempted to locate or negotiate with any suppliers of products, equipment or materials.  Provided we are successful in securing additional financing, we will attempt to locate products, equipment and materials.  If we cannot find the products and equipment we need, we will have to suspend our exploration plans until we do find the products and equipment we need.
 
Because mineral exploration activities are subject to political, economic and other uncertainties, situations may arise that could have a significantly adverse material impact on us.
 
Our ongoing and proposed activities will be subject to political, economic and other uncertainties, including the risk of expropriation, nationalization, renegotiation or nullification of existing contracts, mining licenses and permits or other agreements, changes in laws or taxation policies, currency exchange restrictions, changing political conditions and international monetary fluctuations.  Future government actions concerning the economy, taxation, or the operation and regulation of nationally important facilities such as mines could have a significant effect on our plans and on our ability to operate.  No assurances can be given that our plans and operations will not be adversely affected by future developments in those jurisdictions where we may hold property interests.
 
The titles to some of our properties may be defective or challenged.

Unpatented mining claims constitute a significant portion of our undeveloped property holdings, the validity of which could be uncertain and may be contested. Although we have conducted title reviews of our property holdings, title review does not necessarily preclude third parties from challenging our title. In accordance with mining industry practice, we do not generally obtain title opinions until we decide to develop a property. Therefore, while we have attempted to acquire satisfactory title to our undeveloped properties, some titles may be defective.

Because we do not plan to secure any title insurance in the future, we are vulnerable to loss of title.
 
We do not plan to maintain insurance against title. Title on mineral properties and mining rights involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyance history characteristic of many mining properties.  Disputes over land ownership are common, especially in the context of resource developments.  We cannot give any assurance that title to any such properties we may acquire will not be challenged or impugned and cannot be certain that we will have acquired valid title to these mining properties. The possibility also exists that title to future prospective properties may be lost due to an omission in the claim of title.  As a result, any claims against us may result in liabilities we will not be able to afford, resulting in the failure of our business.
 
The mining industry is highly competitive and if we cannot continue to acquire interests in properties to explore for mineral reserves, we may be required to reduce or cease operations.
 
The mineral exploration, development, and production industry is largely unintegrated. We compete with other exploration companies looking for mineral resource properties. While we compete with other exploration companies in the effort to locate and license mineral resource properties, we will not compete with them for the removal or sales of mineral products if we should eventually discover the presence of them in quantities sufficient to make production economically feasible. Readily available markets exist worldwide for the sale of gold and other mineral products. Therefore, we will likely be able to sell any gold or mineral products that we identify and produce.
 
We compete with many companies possessing greater financial resources and technical facilities. This competition could adversely affect our ability to acquire suitable prospects for exploration in the future as well as our ability to recruit and retain qualified personnel. Accordingly, there can be no assurance that we will acquire any interest in mineral resource properties that might yield reserves or result in commercial mining operations. 
 
 
 

 
 
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Because we are subject to various governmental regulations and environmental risks, we may incur substantial costs to remain in compliance.
 
Our planned activities are subject to laws and regulations regarding environmental matters, the abstraction of water, and the discharge of mining wastes and materials. Any significant mining operations will have some environmental impact, including land and habitat impact, arising from the use of land for mining and related activities, and certain impact on water resources near the project sites, resulting from water use, rock disposal and drainage run-off.  We may be required by government regulations to obtain insurance against environmental risks.  It is possible that we not be able to obtain any required insurance policies or experience significant delays and costs in obtaining such insurance.  No assurances can be given that these issues relating to environmental matters will not cause our operations in the future to fail.
 
The government in those jurisdictions where we may hold property interests could require us to remedy any negative environmental impact.  The costs of such remediation could cause us to fail.  Future environmental laws and regulations could impose increased capital or operating costs on us and could restrict the development or operation of any mines.
 
We will in the future, engage consultants to assist us with addressing the various regulatory and governmental agencies, and the rules and regulations of such agencies, in connection with our planned activities.  No assurances can be given that we will be successful in our efforts.  Further, in order for us to operate and grow our business, we need to continually conform to the laws, rules and regulations of such country and local jurisdiction where we operate.  It is possible that the legal and regulatory environment pertaining to the exploration and development of mining properties will change.  Uncertainty and new regulations and rules could dramatically increase our cost of doing business, or prevent us from conducting our business; both situations could cause us to fail.
 
Mineral exploration and development is subject to extraordinary operating risks. We do not currently insure against these risks. In the event of a cave-in or similar occurrence, our liabilities may exceed our resources, which could cause our business to fail.
 
Mineral exploration, development and production involve many risks which even a combination of experience, knowledge and careful evaluation may not be able to overcome. Our proposed operations will be subject to all the hazards and risks inherent in the exploration, development and production of reserves, including liability for pollution, cave-ins or similar hazards against which we cannot insure or against which we may elect not to insure. Any such event could result in work stoppages and damage to property, including damage to the environment. We do not currently maintain any insurance coverage against these operating hazards. The payment of any liabilities that arise from any such occurrence could cause us to fail.
 
Mineral prices are subject to dramatic and unpredictable fluctuations.
 
We expect to derive revenues, if any, from the extraction and sale of precious and base metals such as gold. The price of those commodities has fluctuated widely in recent years, and is affected by numerous factors beyond our control including international, economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates, global or regional consumptive patterns, speculative activities and increased production due to new extraction developments and improved extraction and production methods. The effect of these factors on the price of base and precious metals, and, therefore, the economic viability of any of our exploration projects, cannot accurately be predicted.
 
Risks Relating to our Common Stock
 
Trading on the over-the-counter market may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.
 
Our common stock is quoted on the over the counter market of the Financial Industry Regulatory Authority, reported under OTC markets (the “OTCQB”).  Trading in stock quoted on the OTC is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects.  This volatility could depress the market price of our common stock for reasons unrelated to operating performance.  Moreover, the OTCQB is not a stock exchange, and trading of securities on the OTCBB is often more sporadic than the trading of securities listed on a quotation system like Nasdaq or a stock exchange like Amex.  These factors may result in investors having difficulty reselling any shares of our common stock.
 
 
 

 
 
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Because our common stock is quoted and traded on the OTCQB, short selling could increase the volatility of our stock price.
 
Short selling occurs when a person sells shares of stock which the person does not yet own and promises to buy stock in the future to cover the sale.  The general objective of the person selling the shares short is to make a profit by buying the shares later, at a lower price, to cover the sale.  Significant amounts of short selling, or the perception that a significant amount of short sales could occur, could depress the market price of our common stock. In contrast, purchases to cover a short position may have the effect of preventing or retarding a decline in the market price of our common stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of our common stock.  As a result, the price of our common stock may be higher than the price that otherwise might exist in the open market.  If these activities are commenced, they may be discontinued at any time.  These transactions may be effected on the OTCQB or any other available markets or exchanges.  Such short selling if it were to occur could impact the value of our stock in an extreme and volatile manner to the detriment of our shareholders who may seek to sell the “restricted” shares purchased in this offering; provided the shareholder meets the requirements of Rule 144 promulgated under the Securities Act.
 
We have never paid dividends and have no plans to in the future.
 
Holders of shares of our common stock are entitled to receive such dividends as may be declared by our board of directors.  To date, we have paid no cash dividends on our shares of common stock and we do not expect to pay cash dividends on our common stock in the foreseeable future.  We intend to retain future earnings, if any, to provide funds for operation of our business.  Therefore, any return investors in our common stock will have to be in the form of appreciation, if any, in the market value of their shares of common stock.
 
Our Securities may no tbe  currently eligible for sale under Rule 144 and any future sales of our securities may be adversely affected by our failure to file all reports required by the Exchange Act.
 
Rule 144 as promulgated under the Securities Act is not available for the resale of securities initially issued by a shell company (reporting or non-reporting) or a former shell company, unless certain conditions are satisfied. We are a former shell company. As a result, our securities cannot be resold under Rule 144 unless certain conditions are met. These conditions are:

·  
the issuer of the securities has ceased to be a shell company;
·  
the issuer is subject to the reporting requirements of section 13 or 15(d) of the Exchange Act;
·  
the issuer has filed all reports and other materials required to be filed by Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months, other than Form 8-K reports; and
·  
one year has elapsed since the issuer has filed current ‘‘Form 10 information’’ with the Commission reflecting its status as an entity that is no longer a shell company.
 
Because the SEC imposes additional sales practice requirements on brokers who deal in our shares that are penny stocks, some brokers may be unwilling to trade them. This means that you may have difficulty in reselling your shares and may cause the price of the shares to decline.
 
Our stock is a penny stock. The SEC has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations and the broker-
 
 
 

 
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dealer and salesperson compensation information must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.
 
In addition to the “penny stock” rules promulgated by the SEC, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative, low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.  These factors may result in an investor who satisfies the conditions of Rule 144 promulgated under the Securities Act being unable or having difficulty liquidating his or her “restricted” shares purchased in this offering.
 
Our stock price is likely to be highly volatile because of several factors, including a limited public float.
 
The market price of our common stock is likely to be highly volatile because there has been a relatively thin trading market for our stock, which causes trades of small blocks of stock to have a significant impact on our stock price.  You may not be able to resell shares of our common stock following periods of volatility because of the market’s adverse reaction to volatility.
 
Other factors that could cause such volatility may include, among other things:
 
·  
actual or anticipated fluctuations in our operating results;
 
·  
the absence of securities analysts covering us and distributing research and recommendations about us;
 
·  
we expect our actual operating results to continue to fluctuate;
 
·  
we may have a low trading volume for a number of reasons, including that a large amount of our stock is closely held;
 
·  
overall stock market fluctuations;
 
·  
economic conditions generally and in the mining industries in particular;
 
·  
announcements concerning our business or those of our competitors or vendors;
 
·  
our ability to raise capital when we require it, and to raise such capital on favorable terms;
 
·  
changes in financial estimates by securities analysts or our failure to perform as anticipated by the analysts;
 
·  
conditions or trends in the industry;
 
 
 
 
 
 
- 21 -

 
 
 
 
 
·  
litigation;
 
·  
changes in market valuations of other similar companies;
 
·  
announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships or joint ventures;
 
·  
future sales of common stock;
 
·  
actions initiated by the SEC or other regulatory bodies;
 
·  
existence or lack of patents or proprietary rights;
 
·  
departure of key personnel or failure to hire key personnel; and
 
·  
general market conditions.

Any of these factors could have a significant and adverse impact on the market price of our common stock.  In addition, the stock market in general has at times experienced extreme volatility and rapid decline that has often been unrelated or disproportionate to the operating performance of particular companies.  These broad market fluctuations may adversely affect the trading price of our common stock, regardless of our actual operating performance.
 
ITEM 1B.     Unresolved Staff Comments.
 
None.
 

 
- 22 -

 

 
 
Columbia
 
We maintain a small office in Medellin, Colombia, and continue to monitor developments in the political and economic situation, in particular the mining industry. We have acquired through our Kata acquisition and our own efforts, a database of information related to the Narino province (departmento) to guide us on due diligence on any projects we may seek to acquire in the country, though we do not plan to enter into any definitive agreement in 2012, or the first half of 2013 unless a clear mining law and regulations are in place in the country, that we would have sufficient working capital, and that any project presented to us met our acquisition criteria and an acceptable price.

Overview : Santa Cruz Gold Project and Narino Province

 In 2010 the Company decided to extend its geographic focus to include Colombia, and in 2011 spent considerable time in business development and exploration activities in the Narino province of Colombia, including an agreement concerning the Santa Cruz Gold project. In November 2011 due to uncertainties in regard to the Colombian mining laws  we acquired one hundred percent of Kata Enterprises, Inc., as described below, and terminated its agreements related to the Santa Cruz Gold project. We have built a database of information on the historic mining district of Narino, and remain interested in our prior target areas of exploration.  The below description of our activities in Narino and the information acquired is outlined, however the reader is cautioned we at present have no mineral property interest in Colombia.

Agreement with Minera Kata S.A. for Acquisition of Equity Interest in Kata Enterprises Inc.
 
On February 25, 2011 (the “Effective Date”), we entered into a Stock Purchase Agreement with Minera Kata S.A., a corporation organized under the laws of the Republic of Panama (“Seller”), as amended and supplemented by Amendment No. 1 (the “Amendment”) dated April 25, 2011 (collectively, the “Agreement”), and acquired from Seller twenty-five percent (25%) of the outstanding capital stock (the “25% Stake”) of Kata Enterprises Inc., a corporation organized under the laws of the Republic of Panama (“Kata”), with an option to acquire from Seller the remaining seventy-five percent (75%) of the outstanding capital stock of Kata in exchange for total consideration of $550,000.  We paid Seller partial consideration of $500,000 in cash (the “Closing Payment”) on the Effective Date and the remaining $50,000 in cash upon execution of the Amendment.

In November 2010, Kata entered into an agreement to acquire, through its subsidiary, an eighty-five percent (85%) interest in certain mining concessions located in the Nariño province of Colombia covering the area that is the subject of the IKE-10421X concession application (the “Mining Concessions”), but has not successfully closed that transaction as of this time (the “Kata Transaction”).  Kata is an entity that has nominal operations.  Our understanding was that closing of the Kata Transaction was conditioned upon the transferor of the Mining Concessions receiving acceptance of an application for a concession contract, executing a concession contract with Ingeominas (the entity authorized by the Colombian Ministry of Mines and Energy to grant mining concession contracts), registration of that contract at the National Mining Registry and securing the requisite approvals and governmental consents for the transfer of the Mining Concessions to Kata’s subsidiary. We could not provide any assurance that Kata, through its subsidiary, would be able to successfully close the Kata Transaction. In the event that Kata, through its subsidiary, failed to close the Kata Transaction and if by February 25, 2012 failed to have the Mining Concessions registered in the National Mining Registry of Colombia in favor of Kata’s subsidiary, the Agreement provides that Seller would have been obligated to deliver to the Company one-hundred percent (100%) of the outstanding capital stock of Kata (the “100% Stake”)  without any additional consideration being paid.  In such event, we would not have acquired any direct or indirect interest in the Mining Concessions and not be entitled to recover any of our exploration expenditures of other expenses incurred in connection with acquiring the 25% Stake, other than our entitlement, indirectly through our subsidiary, to the return of the $500,000 Closing Payment.
 
 

 
 
- 23 -


 
 

 
Under the terms of the Agreement, if we exercised all of the options to purchase in the Agreement and acquire the entire 100% Stake, we would pay Seller an aggregate of $4,000,000 in cash and issue to Seller 4,000,000 shares of our common stock in order to acquire one hundred percent (100%) of the outstanding capital stock of Kata.  

Amendment No. 2 to Stock Purchase Agreement

On November 28, 2011, the Company entered into Amendment No. 2 to the Stock Purchase Agreement (“the Second Amendment”) with Minera Kata S.A., a corporation organized under the laws of the Republic of Panama (“Seller.”) Pursuant to the terms of the Agreement, the Company acquired from Seller twenty-five percent (25%) of the outstanding capital stock (the “25% Stake”) of Kata Enterprises, Inc.(“Kata”), and was granted certain options under which the Company could increase its ownership interest to acquire the remaining seventy-five percent (75%) of the outstanding capital stock of Kata. Kata Enterprises S.A.S., a corporation organized under the laws of the Republic of Colombia, is a wholly owned subsidiary of Kata and own eighty-five percent (85%) of the outstanding capital stock of Minera Nariño S.A.S., a corporation organized under the laws of the Republic of Colombia (“Minera Nariño.”)

The Agreement provided that Seller would be obligated to deliver to the Company one-hundred percent (100%) of the outstanding capital stock of Kata (the “100% Stake”) without any additional consideration being paid should Minera Nariño fails to close the Kata Transaction and failed by February 25, 2012 to have the Mining Concessions registered in the National Mining Registry of Colombia in favor of Minera Nariño. The Second Amendment modified the Agreement to extend the obligation of Seller to deliver the 100% Stake to include any termination of the agreement underlying the Kata Transaction and required the Company to pay Seller consideration of $10,000 should any of the conditions required for Seller to deliver to the Company the 100% Stake. Except for the foregoing changes, there were no other changes made by the Second Amendment to the Agreement.

The foregoing description of the Agreement does not purport to be complete is qualified in its entirety by reference to Exhibit 10.1 to the Form 8-K filed on March 2, 2011 and Exhibit 10.2 to the Form 8-K filed on April 29, 2011, each incorporated herein by reference

Termination Agreement

After the Colombian government began to make changes in its administration of the mining sector in late 2011 and early 2012, which may include the establishment of new government agencies and regulations and potentially adversely impact the Company by resulting in further delays in implementing plans and increased compliance costs. When the Agreement was initially entered into, the parties did not anticipate that an extended period of time would be required to secure approval of the IKE-10421X concession application. The Company has received no assurances that the approval of the IKE-10421X concession application is imminent. For the foregoing reasons, the Company determined that it would be in its best interest to abandon its plan to acquire an interest in the mining and mineral rights underlying any prospective concession contact to be granted on the basis of the IKE-10421X concession application if Seller would return the $500,000 cash payment it received from the Company when the Agreement was entered into on February 25, 2011 (the “Closing Payment”).

On November 18, 2011, Minera Nariño entered into a Termination and Transaction Agreement (the “Termination Agreement”) which resulted in the termination of the agreement under which it had a right to acquire the Mining Concession which were the subject of the IKE-10421 concession application should the Kata Transaction have successfully closed. Pursuant to the terms of the Termination Agreement, the Closing Payment was transferred to Kata Enterprises S.A.S. Also on November 18, 2011, Kata Enterprises S.A.S. entered into an agreement and acquired in exchange for approximately $750 USD the remaining fifteen percent (15%) of the remaining outstanding capital stock of Minera Nariño, which resulted in the acquisition by Kata Enterprises S.A.S. of all of the outstanding stock of Minera Nariño. The Company completed its purchase accounting at this time for the transaction.
 
 
 

 
 
- 24 -


 
 

 
Description of Property Underlying the IKE-10421X Concession Application
 
In connection with our consideration of entering into the Agreement described above, which resulted in our acquisition of the 25% Stake in Kata with an option to acquire the remaining 75% of the outstanding capital stock of Kata, we conducted a legal, financial and business review of the financial condition, assets, liabilities and business of Kata and its subsidiary entities.  The description that follows is the product of our due diligence of the property underlying the Mining Concessions that was the subject of the IKE-10421X concession application.

We caution that we do not presently have any interest, directly or indirectly, in the property underlying the IKE-10421X concession application described herein, which we also refer to as the “Santacruz Gold Project”.  Our field work in the Santacruz Gold project area was undertaken in order to gather data for the purpose of placing us in a better position to develop and execute a plan for exploration and development of the Santacruz Gold Project, should we be successful in acquiring an indirect interest in a mining concession contract underlying the Santacruz gold project. We acquired a 25% equity interest in Kata, with an option to increase our ownership interest to 100%. Kata, through its subsidiary owns an 85% equity interest in Minera Narino, which has a contractual right, subject to the satisfaction of certain conditions, to acquire a mining concession contract covering the Santacruz Gold Project.
 
We subsequently negotiated as described above to acquire the remaining seventy five per cent (75%), and the underlying agreements with the Colombian subsidiary with the concession applicants were also terminated. In November 2011 we acquired the remaining seventy five per cent interest(75%) for $10,000, and terminated the underlying agreements with the Santa Cruz Gold project owners.
 
The information contained herein is presented to describe activities conducted during the fiscal year ending June 30,2012, and the type of information gathered for our database of information acquired in the acquisition of Kata or developed internally.
 
Location and Access

The Mining Concessions consist of one concession application IKE-10421X that covered an area of approximately covers an area of 1836 hectares. It is located in the south central part of the Nariño Department in southwestern Colombia. It is located in the municipality of Santa Cruz de Guachavez within the western drainage of the Western Cordillera (Cordillera Occidental).
 
The area of the property is accessible from Pasto via Highway 25 southwest to El Pedregal, 33 kilometers, and continuing west on highway 10 to Túquerres, 36 kilometers. At Túquerres a secondary road is followed north for 14 kilometers to Balalaika. A 13 kilometers improved road from Balalaika to the north reaches Guachaves. From Guachaves a 25 kilometer road partly to the southwest and turning to the northwest for the last 6 to 7 kilometers gives access to El Paraiso, a small settlement in the northern portion of the concession.
 
In the event that all conditions had been satisfied enabling Kata, through its subsidiary, to successfully close the Kata Transaction and acquire the Mining Concessions, it would have acquired an 85% interest in the executed concession contract that is the subject of concession application IKE-10421X.  Our ownership interest in the concession contract would have occurred, if at all, indirectly through our ownership of an equity interest in Kata.
 
 
 

 
- 25 -

 
 
 

 
Set forth below is a map showing the general location of the area that is the subject of concession application IKE-10421X.
 
 
 
 
grpahic1
 
 
 
 

 
- 26 -

 
 
 
 

 
Set forth below is a map showing more specifically the location of the area that is the subject of concession application IKE-10421X.  The IKE-10421X concession application covered an area that surrounds the concession FHRG-01, which is exclusive of and not part of the area covered by concession application IKE-10421X.  Maps were prepared based on data derived from maps from prior exploration conducted by the Japan International Cooperation Agency (“JICA”) from 1981 to 1983 as well as our initial field observations.
 
 
graphic2

 
 
 
 

 
 
- 27 -

 
 
 

 
Previous Exploration History
 
The larger district area where the concession application IKE-10421X is located was part of geological evaluation done by the JICA from 1981 to 1983. JICA did most of the geologic mapping with some adjustments that are currently shown in the Geologic map of Colombia.
 
The main objective of the work by the Japanese group, JICA, was to develop targets for mineral exploration that would potentially lead to the discovery of mineral deposits. As part of the program, extensive geochemical exploration was conducted in the area. The sampling involved soil and rock sampling. The reported results indicated  zinc and arsenic anomalies in various locations in the area under study, with arsenic and zinc anomalies being considered indicators above buried veins. The area has extensive soil cover. Soil samples were collected from an average depth of 160 cm and ranged from 70 to 320 cm.
 
The only mine with recorded history of production in the district where IKE-10421X is located is El Diamante Mine. Detailed work by JICA to evaluate the vein mineralization in the district was done at El Diamante Mine which at the time was producing gold from ore at the surface and at one level. The Japanese mission mapped the area to locate the veins and drilled 15 diamond drill holes at that mine and adjacent areas. Our CEO,VP of Operations and VP Geology visited the El Diamante in 2011 an conducting underground site inspection on several occasions.

We have not independently verified the results shown by the JICA study and such information is included for the limited purpose of understanding of the district area.  We caution that such information is not indicative in any way of results that may be obtained from the area covered by concession application IKE-10421X.

Regional Geology of the District

Southern Colombia, where Nariño Department is located, is dominated by uplifted rocks that form the Andes Mountains. In Colombia the Andes Mountains splits into three branches. Most of the area in Western Nariño Department is the Western Cordillera (Cordillera Occidental).

Rocks in the area are Cretaceous to Tertiary sandstones, shales, and andesitic and basaltic volcanics intruded by Eocene diorite and granodiorite plutons. Rocks intruded by the igneous rocks show the effects of contact metamorphism. The granodiorite intrusive is a complex that was active over a long period. Age determinations range from Eocene 40.5 million years ago to Miocene 6.5 million years ago.

The dominant structural trend is a series of major north-northeast trending faults which have left lateral slip that created northwest trending shear zones that became the host to gold bearing polymetallic veins.

The area has a young topography with steep sloped “V” shaped valleys and covered by dense vegetation where the land is not developed for agriculture.

 
 

 
 
- 28 -

 
 
 
 

 
Set forth below is a map showing the geology of portions of the Guachaves District at the location of the concession IKE-10421X. The orange lines are the traces of veins as interpreted by JICA based on their geochemical work referenced above and for this reason the Company can provide no assurance as to the accuracy of the information or the manner in which it was compiled by JICA.  The original map was prepared by JICA.
 
 
graphic3
 
 
 
 

 

 
- 29 -

 
 
 

 
Geology
 
The mines in the area are located in a zone of northwest trending faults and shear zones that form clusters up to five (5) kilometers long and are hosted within volcanic rocks intruded by the Eocene Piedrancha granodiorite batholith and within the granodiorite itself. The volcanic rocks are basalts, basaltic andesite, andesite agglomerates and brecciated tuffs. Most of the volcanic rocks are metamorphosed as a result of contact metamorphism to a chlorite- rich greenstone that may be classified as hornfels. The entire IKE-10421X concession application is located over the granodiorite pluton complex.
 
The structures containing the veins are NW-SE trending faults zones. These structures are cross faults to the general north-northeast fabric of the Western Cordillera.
 
The mineral deposits in the general area studied by JICA are epithermal and deposited by the action of the hydrothermal fluids in several depositional periods. The paragenesis (sequence of deposition) according to the JICA study is as follows. 1) Deposition of pyrite and arsenopyrite; 2) Deposition of gold and silver as electrum; 3) Deposition of the base metals minerals sphalerite, chalcopyrite and galena; and 4) Deposition of additional silver as pyrargyrite, argentite and polybasite. Silica deposition as quartz was continuous throughout most of the mineral deposition periods. Rock alteration is typical of hydrothermal epithermal deposits and varies from sericite-montmorillonite within and adjoining the gold/sulfide mineralization to kaolin-chlorite on the outer edges. The alteration does not extend far from the mineralized veins.
 
The JICA reports do not describe any of the mines or prospects located within the IKE-10421X concession application. Some of these mines are located in their maps but without a description of them. The JICA maps show NW-SE trending veins in the IKE-10421X concession application. This information is included for an understanding of the general area within which the concession is found, has not been independently verified, and we caution that such information is not indicative of any identified deposits in the concession area of interest.
 
Reserves and Mineralized Material
 
At this time, we have no direct knowledge of mining activity within the boundaries of the IKE-10421X concession application.
 
The only drilling in the area was done by JICA in 1981 and 1982. We have no information that suggests that there has been no drilling anywhere within IKE-10421X concession application.
 
There are no reserves or mineralized material identified on the IKE-10421X concession application.
 
History, Exploration and Exploration Plan
 
After the first visit to the district where the concession application is located, it was determined to create the initial database as a baseline to evaluate the area of interest. Beginning in December 2010, we, as part of our due diligence process, began data compilation and review, and site visits began in 2011. Initial site visits included beginning work on geologic mapping and surveying, and sampling of nearby properties in the area to gain additional knowledge of the geological characteristics of the area. This reconnaissance work was be ongoing in 2011as much of the property position has had only limited historical exploration. In February 2011, samples were taken from nearby properties.
 
Reconnaissance work within the concession application area was started in early April 2011. The work program included mapping and sampling the concession and nearby properties, including the El Desquite mine and other mines that are encountered during the our Phase I exploration program, with emphasis on locating the identified geochemical anomalies indicated by the JICA work. This was required because of the humus accumulation over the 25 years since the JICA study. The areas within the IKE-10421X concession application and in proximity of El Desquite and Las Delicias mines are the principal exploration targets of the current program. The work was aimed at locating favorable areas for exploration drilling. This work was planned to include taking stream sediment and soil samples, geochemical analyses, and interpretation of results. This work commenced in April 2011 but exploration worked ceased in the third quarter of the period ending June 30, 2012. To date, we have taken  assays from the nearby Diamante mine and assay results are under review and will be used to guide future efforts to determine projections of geological structures onto the concession application area.  Field work has also provided basis for updated maps and geological maps.  We incurred expenditures on exploration in the year ended June 30, 2011 of  $481,730 and $188,833 in the year ended June 30,2012..
 
 
 

 
 
- 30 -



 
Field reconnaissance work, which we began earlier in 2011, had been ongoing to cover the 1,800 + hectare area (approx. 7 square miles). The initial focus is on geologic mapping and confirming historical data from government studies conducted in the 1980s. To date, this work confirmed the location of several former and current artisanal mines and workings within the project boundaries. In addition, we have been evaluating and sampling the nearby Las Delicias and El Diamante mines to increase our knowledge of the general area. In particular, the intent is to locate projections of veins from the two producing mines from adjacent properties onto the Santacruz Gold project . In the Cerro Los Churros area of the proposed Santacruz concession area, five old workings were identified.  Mineralization was identified in the form of quartz veins with associated arsenopyrite and iron oxide, in part derived from alteration of basic rock-forming minerals and oxidation of pyrite in the veins and adjacent rock
 
We believe that an inactive small mine, known as Mina San Antonio, lies within the proposed concession area, but there is no specific recorded production from this mine that we have been able to ascertain . Evidence shows the mine was operated as an open-pit facility and that it contained several underground workings. Sampling at the Mina San Antonio has proved inconclusive to date.
 
We conducted surveying at the El Chitan area mine within the proposed concession. The Chitan I mine is inactive while the adjacent Chitan 2 mine and the nearby Narvaez area have artisanal mining occurring, with workings all being found along one vein at El Chitan mines and probably a different vein at Narvaez. The veins are located along faults and the adjacent wall rock shows phyllic alteration with a high sericite, pyrite and quartz content, and the accessible veins are narrow under 0.3 m. Preliminary channel sampling was conducted at El Chitan 1 and 2 mines and the Narvaez mine and surface outcrops in accessible areas with (fire) assays performed by SGS Peru. This work was conducted according to quality control procedures supervised by our Vice President of Exploration.  The results of this limited sampling are set forth below.
 
Vn = vein, w= wallrock, Poligonal Guia refers to surface outcrops
 
Sample #
Localization
Sample
Type
Width (m)
Au
Ppb
Au
g/t
Ag
Ppm
R00147
Poligonal Guia Narvaez 1
Channel
(vn)
0.15
542
--
1.12
R00148
Poligonal Guia Narvaez 1
Channel
(w)
1.10
699
--
1.96
R00153
Poligonal Guia Narvaez 1
Channel
(vn)
0.10
398
--
.034
R00166
Poligonal Guia Narvaez 2
Channel
(vn)
0.15
2256
--
0.45
R00167
Poligonal Guia Narvaez 2
Channel
(vn)
0.15
> 5000
10.42
3.02
R00175
Mina Narvaez
Channel
(vn)
0.40
485
--
25.00
R00176
Mina Narvaez
Channel
(vn)
0.70
122
--
0.45
R00177
Mina Narvaez
Stockpile
   
720
--
1.67
R00179
Mina Chitan 1
Channel
(vn)
0.25
2159
--
6.71
R00181
Mina Chitan 2
Channel
(vn)
0.15
383
--
0.20
R00182
Mina Chitan 3
Channel
(vn)
0.30
> 5000
21.85
12.00
 
(Note sampling methodology used included over 5000 parts PPB (Parts Per Billion) as the upper range)(vn=vein)
 
 
 

 
 
- 31 -

 
 

 
Exploration work, advanced  knowledge of the area, including surveying and geologic mapping activities, determining prime areas for soil sediment sampling and re-sampling prospect pits that have been located. Our primary objective during Phase I exploration was identifying drill targets, preparing logistical arrangements for a drilling plan, continuing work for securing approval of the mining concession application which had been submitted and preparation for data to support our subsequent applications for regulatory approval of exploration activities, and review data of prior exploration in the area along with field work to verify historical data, particularly information on JICA maps indicating clusters of veins on the western portion within the concession. We planned to establish semi-permanent base camps in the concession before January 2012. Our Phase II exploration phase, subject to results and timing of the completion Phase I exploration and regulatory approvals, includes a 6,000 meter planned drill program. We estimated drilling costs, including assays and review work, to be $200 a meter, thus the program before secondary charges would require $1.2 million in working capital to fund.  We  have forecasted ongoing exploration activities at $150,000 to $300,000 per quarter for the following 18 months exclusive of our projected drilling program.  We were forecasting subject to capital availability and timing of regulatory approvals required to explore in the area, a budget of approximately $2.1 to $3.0 million dollars for the Santacruz Gold project over the following 18 months.  We were planning to duplicate exploration efforts of the prior Japanese studies by auger drilling and currently reviewing the permissibility of such work under Colombian prospecting rules. It will also be required to conduct certain environmental and community studies during this period leading to permission for exploration drilling, with minimum cost estimates of such studies at $150,000.
 
Our current cash on hand was insufficient to complete any of the planned exploration activities and the full implementation of our planned exploration program is dependent on our ability to secure sufficient financing,
 
Future Acquisition and Exploration Plans
 
We continue to evaluate any projects presented, and our office in Colombia regularly monitors and reports on the political and economic situation in the country. We do not expect in 2012 or the first half of 2013 to acquire any projects in Colombia by acquisition, lease, option, or joint –venture of letter of intent. We are unable to forecast past the first half of 2013 without knowledge of the type of new mining law and organizational arrangements are implemented by the government for the mining industry.
 
We estimate minimum base costs for office maintenance, administrative, and any due diligence activities for the upcoming year to be in the range of $10,000 to $36,000 in period July 2012 through June 2013. We do maintain Colombia as part of our geographic focus for our long term development.  Colombia is a high-cost country to operate in, thus any future acquisitions would be highly subject to our ability to raise significant financing, which is not assured.
 
We have conducted reconnaissance exploration on various locations in the Nariño Mining district primarily to develop better understanding of the geology of the district and to consider in the future further acquisitions in the area, which would be contingent on securing sufficient financing and regulatory approvals, neither of which can be assured.  We anticipate that general exploration activities required to identify, evaluate and acquire new prospects would require additional consulting, travel and sampling expense of $150,000 exclusive of acquisition costs.

USA

We rent on a month to month basis office space totaling 900 square feet of office space.

Our mining properties and mineral property interests are in the United States are:

GB 2 Gold

On December 14, 2011, the Company entered into a Mining Lease and Agreement (the “GB2 Lease”) with Marilyn Bashore (“Bashore”) to lease nine unpatented mining claims situated in Yavapai County, Arizona (the “Property”).

The GB2 Lease granted the Company the exclusive right to prospect, explore, develop and mine the Property for gold, silver and other minerals. Under the terms of the Lease, the Company paid Bashore an initial payment of $500 and is required to pay Bashore an annual lease payment of $750 plus a 2% net smelter return on any production. The Company is required under the terms of the Lease to perform a minimum of $900 in annual assessment work on the Property. The GB2 Lease is for a fifteen (15) year term, but shall continue into perpetuity to the extent that minerals are produced and continue to be produced on the Property.
 
 
 

 
 
- 32 -

 
 

 

Also on December 14, 2011, the Company purchased from Bashore one unpatented mining claim situated in Yavapai County (the “Claim”). As consideration for the Claim, the Company paid Bashore $1,000. There was no purchase agreement documenting the Company’s acquisition of the Claim and the Claim was sold, transferred and conveyed by Bashore to the Company by executing and delivering to the Company a quitclaim deed.

Property Description and Location

Leased Claims

The nine unpatented mining claims underlying the GB2 Lease cover approximately one hundred and eighty (180) acres and are located in the Black Rock Mining District of Yavapai County, Arizona. Set forth below are the claim reference numbers.
Claim Reference Numbers

BLM Recording Number
 
County Recording Number
GB 1
AMC
393641
 
8 4608
 
P 313
GB 3
 
393643
 
8 4608
 
P 315
GB 4
 
393644
 
8 4608
 
P 316
GB 5
 
393645
 
8 4608
 
P 317
GB 6
 
393646
 
8 4608
 
P 318
GB 7
 
393647
 
8 4608
 
P 319
GB 8
 
393648
 
8 4608
 
P 320
GB 23
 
393931
 
8 4608
 
P 983
GB 25
 
393930
 
8 4608
 
P 984

Owned Claims

The single Claim acquired by the Company has a BLM recording number of AMC 3993932 and county recording number of 84608P-982.
 
 
 
 
 
 
- 33 -

 

 
Location
 
The Black Rock Mining District is located in the southeast part of Yavapai County between the east foothills of the Bradshaw Mountains and the Agua Fria River. The following map shows the general location of the leased and owned unpatented mining claims we acquired in Yavapai County, Arizona:
 
 
graphic4
 
 
 
Access

The Property is readily accessed from Wickenberg, Arizona (approximately sixty five miles northwest of Phoenix, Arizona), which lies on Federal Highway 93. Wickenberg is the nearest large town that has services necessary for mineral exploration and mining. From Wickenberg, paved Constellation Highway is followed about two miles, thence sixteen miles of dirt road lead to the Property. Unimproved tracks provide access to the claim group. Road access to the east side of the Property is limited.

History

The Yavapai County area of Arizona is an area of historic gold prospecting and production activities. However, the Company is not aware of any recorded history of production from the Property underlying the Lease or the Claim.
 
 
 
 
 
- 34 -

 
 

Climate, Local resources, Infrastructure, Physiography

Climate

The climate is semi-arid with roughly 12.2 inches/year precipitation, mostly in late winter. The Property can be accessed year-round because of the mild climate, good road access, and low elevation of about 1200 meters above mean sea level.

Water Rights, Power, and Mining Personnel

The status of water rights at the Property is uncertain. The amount of water in the vicinity of the Property is adequate for exploratory drilling in the winter, but may not be adequate for mineral processing. The nearest power lines are about 16 miles distant. Mining personnel are not available locally.

The most important natural feature on the Property is tertiary sandstones on the north end of the property.

Tailings Storage Areas, Waste Disposal Areas, and Plant Sites

The Company has not identified private land adjacent to the Property or within close proximity that could be used for potential storage areas, waste disposal or processing sites. There is public land in the vicinity, but it is unknown whether permits would be granted for such uses. There is evidence of old tailings on the project which have not been sampled.
 
Permitting

Preliminary geological mapping, sampling, and geophysical surveys can be conducted without any permits. A Plan of Operations (“POO”) will have to be filed and approved by the Bureau of Land Management before mechanized work such as access work or drilling can be undertaken on the Property. There is no cost to file a POO with the Bureau of Land Management. Water for drilling would need to be hauled into the property according to initial site visits. Permits are often granted in a short period of time as long as they do not significantly impact existing water rights or unduly degrade riparian areas.

Further mining exploration and exploitation activities are subject to federal, state and local laws, regulations and policies, including laws regulating surface disturbance, water discharge, and the removal of natural resources from the ground and the discharge of materials into the environment. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Exploration and exploitation activities are also subject to federal, state and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of exploration methods and equipment. The Company is unable to quantify at this time the potential cost of such regulations and permitting.(see also “Risk Factors ).

Infrastructure

There is no ascertainable infrastructure on the Property at present.

No adits or trenches have been identified on the property.
 
 
 
 
 
 
- 35 -

 

 
Regional Geology

The Property lies on the southern margin of Arizona’s Transition Zone physiographic province. The majority of the area is underlain by Precambrian gneiss, and at the north end of district Tertiary sandstone predominate. Historical information refers to complex igneous and metamorphic host rocks in the general area.

Geology and Mineralization

The Property is characterized by the Precambrian gneiss, with the westerly part exposed hornblende diorite porphyry-type mineralization identified form initial examination of the breccias pipes #4, #5 and #6. The host rock is mostly composed of Proterozoic formations intruded by younger igneous rocks.
 

graphic5
 
 
 

 
 
- 36 -

 
 

 

Metallurgical

No metallurgical testing has been conducted.

Reserves

There are no established probable or proven reserves on the Property. Our due diligence activities have been limited, and to a great extent, have relied upon information provided to us by third parties. We have not established and cannot provide any assurance that any of the properties underlying the Lease or the Claim contain adequate, if any, amounts of gold or other mineral reserves to make mining economically feasible to recover that gold or other mineral reserves, or to make a profit in doing so.

Project Exploration Plan

The project area is an early stage prospect with potential identified to date from reconnaissance exploration. The initial objective is to identify the presence of and extent of breccia pipes on the Property. This will require an initial work plan of geologic mapping, surface sampling and soil analysis, after which a more comprehensive plan would be developed with an objective of identifying drill targets and developing a Plan of Operation to be filed with the BLM for permission to conduct such an exploration program.

We estimate the initial work plan described above to require an estimated five thousand dollars ($5,000) for geological consulting, travel expenses, and sampling analysis costs.

Lucky Boy Silver Project

graphic6
 
 
 
 
 
 
 
- 37 -

 
 
 
 
 
graphic7
 
 
graphic8
 

 
In December 2011, we staked five unpatented mining claims in the Walker Lane Mineral Belt in western Nevada which we are referring to as the “Lucky Boy Silver Project”.

In connection with the consideration of whether to stake these unpatented mining claims, we conducted a diligence review of the Lucky Boy Silver Project. The description of the Lucky Boy Silver Project contained herein is the product of our due diligence from an initial site visits and certain historical information publicly available which we have not been able to independently verify.
 
 
 
 

 
 
- 38 -

 
 
 
 
 
Land Status

We staked the following five unpatented mining claims in December 2011 covering approximately 100 acres of the Lucky Boy Silver Project:

Claim
BLM Recording No.
LB#1
NMC 1062491
LB#2
NMC 1062492
LB#3
NMC 1062493
LB#4
NMC1062494
LB#5
NMC 1062495

History

The Lucky Boy Mine was discovered in 1906 by Guy E. Pritchard, and the unpatented claims staked are adjacent to the private land on which the mine was situated, however historic information does not indicate any production from the unpatented mining claims staked by us.
 
Accessibility, Climate, Local resources, Infrastructure, Physiography

Topography, Elevation, Accessibility, Climate

The climate is semi-arid and the project area can be accessed year-round because of the mild climate, reasonably good road access, and low elevation of about 1200 meters above mean sea level.

Water Rights, Power, and Mining Personnel

The status of water rights at the Lucky Boy Silver Project is uncertain. The amount of water in the vicinity of the project area appears adequate for exploratory drilling, but probably not for mineral processing. The nearest power lines are about within 1 km. Mining personnel are not available locally, though Nevada has an extensive mining industry causing us to believe that regional sources of personnel may be available.

Tailings Storage Areas, Waste Disposal Areas, and Plant Sites

We do not control nearby private land adjacent to the Lucky Boy Silver Project or within close proximity that could be used for potential storage areas, waste disposal or processing sites.

Permitting

Preliminary geological mapping, sampling, and geophysical surveys can be conducted without any permits. A Plan of Operations (“POO”) will have to be filed and approved by the Bureau of Land Management before mechanized work such as access work or drilling can be undertaken on the Property. There is no cost to file a POO with the Bureau of Land Management. If water for drilling is to be drawn from the nearby Miller Tunnel, a temporary water withdrawal permit might be required from the State of Nevada and definitely form current property owners. These permits are often granted in a short period of time as long as they do not significantly impact existing water rights or unduly degrade riparian areas. The alternative is to truck in water for drilling purposes which increases costs.
Further mining exploration and exploitation activities are subject to federal, state and local laws, regulations and policies, including laws regulating surface disturbance, water discharge, and the removal of natural resources from the ground and the discharge of materials into the environment. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Exploration and exploitation activities are also subject to federal, state and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of exploration methods and equipment. We are unable to quantify at this time the potential cost of such regulations and permitting.
 
 
 

 
 
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Infrastructure

There are reported working in the area including nearby shafts, however at present it has not been determined whether underground workings extended onto the project.

Regional Geology

The Lucky Boy Silver Project is located in the Walker Lane Mineral Belt in western Nevada. Rocks in the region encompassing the project areas range from Triassic age sediments to recent alluvium filling the basins. The western side of the region is dominated by Cretaceous age intrusive rocks forming the Wassuk Range.

The Walker Lane is a major northwest-southeast-trending fault zone which displays right lateral movement that ranges from 30 to 40 miles in its central portion, and hosts a variety of precious metal and base metal mineral deposits (as well as geothermal activity) along its length. Late Cenozoic faults of the central Walker Lane form a complex array of variably oriented structures characterized by coeval strike-slip and dip-slip motions.

The rock formations for the project areas fit into the regional setting described for Mineral County - About 30,000 feet of structurally complex calcareous, clastic, and volcanic rocks of Triassic and Jurassic age exposed in the central part of the county are flanked on the south by a few thousand feet of calcareous and clastic rocks of Cambrian, Ordovician, and Permian age. Intrusive into this sequence are granitic rocks, chiefly quartz monzonite, which are probably satellitic to the composite Sierra Nevada Batholith of Cretaceous age.
 
Lucky Boy Project Geology

The Lucky Boy Silver Project area lies along a fault zone which has Triassic Excelsior Formation to the south against Cretaceous granite to the north. Although alteration and mineralization appears to be primarily skarn-type (most likely related to some phase of the major intrusive that comprises the surrounding Wassuk Range) most of the major contacts noted during field reconnaissance are faults.

Lucky Boy Project Mineralization

Bodies of skarn are along a fault controlled contact between limestone and intrusive with ore lenses raking steeply west, Ore minerals reported were tetrahedrite, chalcopyrite, galena, azurite, and malachite, though the company has not verified this through systematic sampling.

Mineralization is contact skarn apparently along faults juxtaposing the Cretaceous intrusive rocks and Triassic Excelsior Formation limestone.

Metallurgical

No metallurgical testing has been conducted.

Reserves

There are no established probable or proven reserves on Lucky Boy Silver Project.
 
 
 
 
 
 
- 40 -


 
Project Exploration Plan

Initial exploration work will entail geologic mapping, data compilation and review, and to the extent justified surface sampling and sampling from accessible underground areas. Reconnaissance exploration indicates that there may limited potential from surface, exploration, drilling and underground access is key to determining future potential of the Lucky Boy Silver Project.

Our exploration plan would be divided into three phases, and execution of these plans is dependent on results from earlier phases and the availability of capital. The key strategic objective is to determine whether the mineralization extends at depth with a sufficient grade to permit a preliminary assessment to the potential for commercial mining. Initial funding required for exploration is estimated at $50,000 to cover consulting fees and expenses, systematic soil and surface sampling, identification of nearby properties that may be acquired to improve access, and develop a plan for drilling any established targets. Historical information suggests that there are may not be prospective for positive results from near-surface exploration, hence the company exploration plan would be focused on two key objectives (a) determine mineralization at depth ( in excess of 1500 feet) or identify parallel structures to areas of historic mining. If drill targets are established, we would foresee a Phase II exploration plan of $450,000, but the implementation of such plan is contingent on us securing sufficient financing which cannot be assured.

REAL ESTATE.

None.

PATENTS.

None.

 
None.
 
 
Pursuant to Section 1503(a) of the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. As we do not have producing operations in the United States, we may not be considered an operator at this time. Notwithstanding, we are not an operator of a mine in the United States, we confirm during the fiscal year ended June 30, 2012, the Company had no violations of mandatory health or safety standards that could significantly and substantially (S&S citations) contribute to the cause and effect a mine safety or health hazard under section 104 of the Federal Mine Safety and Health Act of 1977.
 
There were no legal actions, mining-related fatalities, or similar events in relation to the Company’s United States operations requiring disclosure pursuant to Section 1503(a) of the Dodd-Frank Act.
 
 
 
 
 

 
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PART II
 
 
 
Market Prices
 
Our common stock is currently quoted on the OTC  QB electronic quotation system.  Our shares are quoted on the OTC electronic quotation system under the symbol “SAGD”.  Prior to January 2011, our shares are quoted on the OTC pink sheets electronic quotation system under the symbol “SAGD”.
 
 
The market for our common stock is limited, volatile and sporadic.  The following table sets forth the range of high and low bid quotations for our common stock for each of the periods indicated as reported by the OTC QB or OTC pink sheets.  These quotations below reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
 
Fiscal Year Ended June 30, 2012
 
 
High
Low
Fiscal Quarter Ended:
   
September 31, 2011
$0.47
$0.46
December 31, 2011
$0.40
$0.20
March 31, 2012
$0.20
$0.20
June 30, 2012
$0.20
$0.0026
     
Fiscal Year Ended June 30, 2011
 
 
High
Low
Fiscal Quarter Ended:
   
September 31, 2010
$0.36
$0.0001
December 31, 2010
$1.00
$0.30
March 31, 2011
$0.68
$0.00
June 30, 2011
$0.68
$0.00
     
 
Holders of Common Stock
 
As of September 6, 2012, we had approximately seventeen (17) holders of record of our common stock.  Several other shareholders hold shares in street name.
 
Dividend Policy
 
To date, we have not declared or paid cash dividends on our shares of common stock.  The holders of our common stock will be entitled to non-cumulative dividends on the shares of common stock, when and as declared by our board of directors, in its discretion.  We intend to retain all future earnings, if any, for our business and do not anticipate paying cash dividends in the foreseeable future.
 
Any future determination to pay cash dividends will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements, general business conditions and such other factors as our board of directors may deem relevant.
 
Securities Authorized for Issuance under Equity Compensation Plans
 
 
Our board of directors adopted the South American Gold Corp. 2010 Incentive Compensation Plan (the “Incentive Plan”) on November 9, 2010.  The purpose of the Incentive Plan is to provide incentives that will attract and retain the best available directors, employees and appropriate third parties who can provide us with valuable services.  These purposes may be achieved through the grant of non-qualified stock options (“NSOs”), incentive stock options (“ISOs”), stock appreciation rights (“SARs”), restricted stock awards, performance stock awards and phantom stock awards.
 
 
 

 
- 42 -


 

 
A maximum of 5,000,000 of shares of our common stock may be issued under the Incentive Plan.  As of June 30, 2012, 2,700,000 shares were then subject to outstanding awards and 2,300,000 shares remain available under the Incentive Plan for future equity grants.  The adoption of the Incentive Plan received stockholder approval at the annual meeting of the shareholders on January 19, 2011.
 
The following paragraphs provide a summary of the principal features of the Incentive Plan and its operation.  The following summary does not purport to be complete and is qualified in its entirety by reference to the Incentive Plan.
 
Oversight. The authority to control and manage the operation and administration of the Incentive Plan is vested in a committee (the “Committee”).  For purposes of the power to grant awards to directors, the Committee consists of the entire Board.  For other plan purposes, the plan is administered by a committee designated by the Board to administer the Plan and will be the Compensation Committee of the Board.  The Committee is constituted to permit the plan to comply with the provisions of Rule 16b-3 under the Securities Exchange Act of 1934, as amended or any successor rule, and Section 162(m) of the Code.
 
Eligibility.  Directors, employees, and appropriate third parties who can provide valuable services to us are eligible to participate in the Incentive Plan.
 
Types of Grants.  Awards under the Incentive Plan may be in the form of  options, which may be NSOs or ISOs, SARs, restricted stock awards, performance stock awards and phantom stock awards, as described below.
 
Stock options.  Stock options are rights to purchase a specified number of shares of common stock for a purchase price of not less than 100% of the fair market value of the common stock on the date of grant. A stock option may be in the form of a non-qualified stock option or an incentive stock option.  NSOs may be granted to non-employee directors, officers and key employees of the Company and any of its subsidiaries, and to appropriate third parties who can provide valuable services to us.  ISOs may only be granted to our officers and employees.  Any option designated as an ISO must comply with the requirements of Section 422 of the Code.  The other restrictions and conditions relating to an option grant will be established by the Committee and set forth in the award agreement.
 
SARs.  SARs refer to a grant of the right to receive, upon exercise, the difference between the fair market value of a share of common stock on the date of exercise and the grant price of the SAR.  The grant price will not be less than 100% of the fair market value of the common stock on the date of grant.  The difference between the fair market value on the date of exercise and the grant price, multiplied by the number of SARs exercised (the “spread”), will be paid at the discretion of the Committee, in cash, in shares of common stock of equivalent value, or in some combination thereof. The terms and conditions of the SARs will be established by the Committee and set forth in the award agreement.
 
Restricted Stock award.  A restricted stock award is an award of stock which may contain transferability or forfeiture provisions including a requirement of future services and such other restrictions and conditions as may be established by the Committee and set forth in the award agreement.
 
Performance Stock Awards.  Performance stock awards entitle a grantee to receive shares of common stock if predetermined conditions are satisfied.  The Committee will determine the eligible employees and appropriate third parties to whom and the time or times at which performance stock awards will be made, the number of shares to be awarded, the time or times within which such awards may be subject to forfeiture and any other terms and conditions of the awards.
 
Phantom Stock Awards.  Phantom stock awards entitle a grantee to receive cash payments based upon the fair market value of shares of common stock if predetermined conditions are satisfied.  The Committee will determine the eligible employees and appropriate third parties to whom and the time or times at which phantom stock awards will be made, the number of shares to be covered by the award, the time or times within which such awards may be subject to forfeiture and any other terms and conditions of the awards.
 
Performance Goals.  Restricted stock awards, performance stock awards and phantom stock awards may be based on the satisfaction of performance goals established by the Committee.  The performance goals, which may include specified targets based on certain financial and other measures (determined with respect to the Company, a subsidiary or a business unit), are detailed in the Incentive Plan.
 
 
 
 

 
 
- 43 -



 
Adjustments Upon Change in Capitalization.  If any stock dividend is declared upon the common stock, or if there is any stock split, stock distribution, or other recapitalization with respect to the common stock, resulting in a split or combination or exchange of shares, the Committee will make or provide for such adjustment in the number of and class of shares that may be delivered under the Plan, and in the number and class of and/or price of shares subject to outstanding awards as it may, in its discretion, deem to be equitable.
 
The following table sets forth certain information regarding the Incentive Plan as of June 30, 2012:
 
Plan category
  
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
 
(a)
  
Weighted-average exercise
price of outstanding options,
warrants and rights
 
(b)
  
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
 
(c)
             
Equity compensation plans approved by stockholders
  
2,700 ,000
  
$0.59
  
2,300,000
Equity compensation plans not approved by stockholders
  
-
  
-
  
-
Total
  
2,700,000
  
$0.59
  
2,300,000

Recent Issuances of Unregistered Securities
 
During the year ended June 30, 2012, the Company did not issue any shares of its common stock.
 
 
Not applicable.
 
 
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements reflecting our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” appearing elsewhere in this Annual Report on Form 10-K.
 
Overview
 
We were incorporated in the state of Nevada on March 25, 2005 and previously operated under the name Grosvenor Explorations Inc.  Effective October 18, 2010, we changed our name to “South American Gold Corp.” pursuant to a parent/subsidiary merger with our wholly-owned non-operating subsidiary, South American Gold Corp., which was established for the purpose of giving effect to this name change.  Our current focus is the acquisition, exploration, and potential development of mining properties in Colombia.  
 
In connection with our consideration of entering into the Agreement described above, which resulted in our acquisition of the 25% Stake in Kata with an option to acquire the remaining 75% of the outstanding capital stock of Kata, we conducted a legal, financial and business review of the financial condition, assets, liabilities and business of Kata and its subsidiary entities. In November 2011 we acquired the remaining 75% interest in Kata.
 
 
 

 
 
- 44 -

 

 

We currently do not have any interest, directly or indirectly, in mining properties located in Colombia and our acquisition of an interest in the Mining Concession described herein was subject to the certain conditions and contingencies.   Our operations and field work to date have been undertaken in order to gather data for the purpose of placing us in a better position to develop and execute a plan for exploration and development of the property underlying the IKE-10421X concession application described herein, which we also refer to as the “Santacruz Gold Project”, and guide us to other potential acquisitions in the Narino province..
 
As a part of our business plan, we intend to seek out and acquire interests in other mineral exploration properties which, in the opinion of our management, offer attractive mineral exploration opportunities.  We have during the fiscal year ending June 30, 2012 acquired mineral property interests in Arizona, Nevada and Montana; we have also begun due diligence activities with the objective of additional properties in the United States and Southeastern Europe.

We are an exploration stage mining company and while our objective is to develop profitable mining operations, currently we produce no cash flow from operations. Junior exploration stage mining companies generally seek to acquire mineral properties and mineral property interests, to explore, develop or joint-venture. Value is added through exploration and discovery of the potential for commercial mineralization on properties, and by joint venturing, selling or leasing properties. Companies at our stage generally use equity or equity-type financing, with pure debt financing generally only available from producing operations or upon completion of a bankable feasibility study.

Our business plan is highly contingent on our ability to secure financing under acceptable terms which is not assured.

For the Years Ended June 30, 2012 and 2011
 
Revenues
 
We have not generated any revenues from operations since our inception.  We do not anticipate earning revenues until such time that we are able, if at all, to locate a commercially exploitable mineral deposit and either enter into commercial production or sell any mineral properties we may acquire.
 
Operating Expenses
 
We incurred operating expenses in the amount of $$461,772 for the year ended June 30, 2012, as compared to operating expenses of $3,878,089 for the year ended June 30, 2011.  The decrease in our operating expenses for the year ended June 30, 2012, as compared to the year ended June 30, 2011, relates to decreased expenditures associated impairment of good will and stock option grants, with a decrease in operations and exploration costs incurred as we operated in areas of lower cost.  Expenses for management fees, legal and accounting services, professional fees and other general and administrative expense also decreased with the reduced activities in Colombia after December 2011, and management taking over more functions from outside consultants.
 
We reported stock based compensation of $1,566,348 during the year ended June 30, 2011, as compared to $0 for the year ended June 30, 2012.  The decrease in stock based compensation during the year ended June 30, 2012, as compared to the prior year, is attributable to no stock option grants to executive officers, directors and consultants during the reporting period.
 
We incurred exploration costs of $188,833 during the year ended June 30, 2012, as compared to $468,433 for the year ended June 30, 2011.  The decrease resulted primarily from more exploration efforts conducted in the USA and less in Colombia, a location of high-cost exploration expense.
 
We reportedgeneral and administrative fees of $266,485  for the year ended June 30, 2012, compared to $$549,098 for the year ended June 30, 2011.The decrease in generaland administrative expensesis primarily attributable to reduce operations in Colombia, and officers of the company performing more administrative work in-house.  
 
 
 
 

 
- 45 -



 
Other Items
 
We reported other income of $6,113 for the year ended June 30, 2012, as compared to other net income of $6,601 in the year ended June 30, 2011.  Other income was attributable to interest received on bank deposits.  The Company had a gain on foreign currency transactions of $10,570 for the year.
 
Net Loss
 
As a result of the above, for the year ended June 30, 2012, we reported a net loss of $454,949, as compared to a net loss of $3,871,488 for the year ended June 30, 2011.  The decrease in our net loss was primarily attributable to decreased operating expenses incurred during the reporting period, which is described above.
 
Basic and Diluted Loss per Share
 
As a result of the above, the basic and diluted loss per common share was $0.00 for the year ended June 30, 2012 and $0.00 for the year ended June 30, 2011.
 
Liquidity and Capital Resources
 
At June 30, 2012, we had cash of $32,359 (June 30, 2010 - $120,537) and a working capital deficit of $261,895 (June 30, 2011 $131,725).
 
We anticipate spending approximately $11,667 in general and administrative expenses per month for the next twelve months, for a total anticipated general and administrative expenditures $140,000 over the next twelve months. These anticipated expenditures are closely related to the level of activities we have contemplated in our business plan.  The general and administrative expenses for the year will consist primarily of professional fees for the audit and legal work relating to our regulatory filings throughout the year, as well as transfer agent fees, general management and office expenses. General support activities, additional organizational supervision of subsidiaries in the process of acquisition or contemplated to be acquired, and general management costs contribute to the forecast  in general and administrative expenditures.  We currently forecast ongoing exploration activities at $411,667 for the upcoming 12 months exclusive of any projected drilling programs.  We are forecasting subject to capital availability and timing of regulatory approvals required to explore in the area, a budget of approximately $1 million over the next 18 months.  
 
Our current cash on hand is insufficient to be able to fully implement our business plan as planned.  Based on our current cash position, we are presently unable to engage in any exploration activities as planned.  Accordingly, we must obtain additional financing in order to maintain operations.  We believe that convertible debt financing will partial contribute to funding the company.  We anticipate that additional funding would need to be in the form of equity financing from the sale of additional shares of our common stock.  We anticipate seeking additional funding in the form of equity financing from the sale of our common stock, but cannot provide any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund our exploration program or maintain operations for any period of time.  In the absence of such financing, we will not be able to commence our exploration program may be forced to cease operations, liquidate assets, seek additional capital on less favorable terms and/or pursue other remedial measures.
 
We may consider entering into a joint venture arrangement to provide the required funding to explore the properties underlying the mineral property interests we intend to acquire.  We have not undertaken any efforts to locate a joint venture participant.  Even if we determine to pursue a joint venture participant, there is no assurance that any third party would enter into a joint venture agreement with us in order to fund exploration of the properties underlying the mineral property interests we intend to acquire.  If we enter into a joint venture arrangement, we would likely have to assign a percentage of our interest in our any mineral property interests we may acquire to the joint venture participant. The company will also seek to reduce, settle or extend accounts payable to reduce overall liabilities.
 
Net cash used in operating activities for the year ended June 30, 2012 was $442,475, as compared to net cash used in operating activities of $773,576 for the year ended June 30, 2011.  Our net loss of $458.949 for the year ended June 30, 2012 was the primary reason for our negative operating cash flow, which was offset by an increase in accounts payable of $11,720.
 
 
 
 

 
 
- 46 -


 
 

 
 
Net cash provided from investing activities for the year ended June 30, 2012 was $349,748, as compared to net cash used in operating activities of $551,657 for the year ended June 30, 2011.  Net cash provided from investing activities resulted from the recovery of deposits made in connection with the Kata transaction.
 
Net cash provided by financing activities for the year ended June 30, 2012 was $0, as compared to net cash provided by financing activities of $1,443,936 for the year ended June 30, 2011.  Net cash provided by financing activities for the year ended June 30, 2011 relating to proceeds of $1,500,000 received from a private equity offering and $141,200 for the cancellation of stock.
 
Off Balance Sheet Arrangements
 
We do not have any off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have material current or future effects on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses.
 
Going Concern
 
We have incurred net losses for the period from inception on March 25, 2005 to June 30, 2012 of $4,559,103 and have no source of revenue.  The continuity of our future operations is dependent on our ability to obtain financing and upon future acquisition, exploration and development of profitable operations from our mineral properties.  These conditions raise substantial doubt about our ability to continue as a going concern.
 
 Critical Accounting Policies
 
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis.  The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.  We believe the following critical accounting estimates affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:
 
The Company implementing its business plan routinely acquires mineral properties and mineral property interests, and expends funds evaluating and exploring such properties and property interests. We must periodically test accumulated costs related to acquisition for impairment. Should a property become a development project, similar impairment tests must be conducted, and an estimate of rehabilitation costs is required.
 
 
Not applicable.
 
 
The financial statements are listed in Part IV Item 15 of this Annual Report on Form 10-K and are incorporated by reference in this Item 8.
 
 
None.
 
 
 

 
- 47 -


 

 
 
 
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
 
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2012.  This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer, Mr. Raymond DeMotte, and our Chief Financial Officer, Mr. Cristian Gomez.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2012, our disclosure controls and procedures are not effective.  Our conclusion is based primarily on the material weakness in internal control over financial reporting which was disclosed in our Annual Report on Form 10-K for the year ended June 30, 2010 and our failure to complete the process of remediating these weaknesses by the end of the period covered by this Annual Report.
 
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
 
Management’s Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
 
·  
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
 
·  
Provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
 
·  
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
 
All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
 
In connection with the filing of our Annual Report on Form 10-K, our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2012.  In making this assessment, our management used the criteria set forth by Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework.  Based on our assessment using those criteria, management believes that, as of June 30, 2012, our internal control over financial reporting is not effective based on those criteria.  
 
Our conclusion is based primarily on our inability to have completed sufficient written policies and procedures relating to our redesigned accounting processes and related controls by the end of the period covered by this Annual Report.
 
 
 
 

 
 
- 48 -


 
 
Changes in Internal Control Over Financial Reporting
 
As of June 30, 2010, we identified material weaknesses in our internal controls over financial reporting due to the occurrence of a significant number of out-of-period adjustments and the magnitude of such that were identified during the quarterly closing process for the periods ended December 31, 2009 and March 31, 2010, which we believed primarily stemmed from the fact that we had limited accounting and financial staff during the year ended June 30, 2010 which did not possess the requisite qualifications.  We described in our Quarterly Report on Form 10-Q for the period ended March 31, 2011 the remedial actions we took to address our previously disclosed material weaknesses in internal control over financial reporting.
 
During the period ending June 30, 2011, we made the following changes in our internal controls over financial reporting, that have materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting:
 
We completed the process of redesigning our accounting processes and related controls to provide greater assurance that our accounting and related financial disclosures can be completed accurately and in a timely manner.  We are in the process of developing sufficient written policies and procedures relating to our redesigned accounting processes and related controls.  We began implementing these measures in the third and fourth quarters of fiscal 2011. We expected these remedial actions to be effectively implemented by the end of the second quarter of however we have not completed  an accounting manual, and now do not expect this action to be completed until second quarter of fiscal year 2013.
 
If the remedial measures described above are insufficient to address any of the identified material weaknesses or are not implemented effectively, or if additional deficiencies arise in the future, material misstatements in our interim or annual financial statements may occur in the future. Among other things, any unremediated material weaknesses could result in material post-closing adjustments in future financial statements.
 
 
None.
 
 
 
 
 
 
 
 
 

 
- 49 -


 
 
 
PART III
 
 
Our Directors are elected annually and hold office until the next annual meeting of our stockholders or until their successors are elected and qualified. Officers are elected annually and serve at the discretion of the Board of Directors. Board vacancies are filled by a majority vote of the Board.  
 
The following information sets forth the names of our current director and executive officers, their ages and their present positions.
 
Name
 
Age
 
Position
 
Served Since
             
Raymond DeMotte (1)(2)
 
56
 
Chief Executive Officer, President & Director
 
2010
Cristian Gomez
 
32
 
Chief Financial Officer
 
2012
Rene von Boeck
 
75
 
Vice President of Exploration
 
2011
Francis Xavier Reinhold Delzer (1)(2)
 
76
 
Vice President of Operations and Director
 
2011/2012
Quinn Bastian (1)(2)
 
65
 
Director
 
2011

(1)           Member of Audit Committee
(2)           Member of Compensation Committee

On August 30, 2012, Ms. Beatriz Duque Montoya, a director the Company resigned as a director of the Company.

Raymond DeMotte.  Mr. DeMotte was appointed to serve as our Chief Executive Officer, President and as a member of our board of directors on September 3, 2010.  Mr. DeMotte served as Vice President of Business Development and as a director of Boulder Hill Mines, Inc., a private mineral exploration company based in Idaho, since June 2008 through December 2011.  .  Mr. DeMotte served as President and CEO of Sterling Mining Company from November 1998 to May 2008 and served as a director of Sterling Mining Company from November 2008 to February 2009. Earlier in his career Mr. De Motte worked for Bechtel and Mckesson.  Mr. DeMotte is a director and serves on the audit committee for Silverfield Resources, Inc. and Wescan Uranium, Inc.  Mr. DeMotte holds a Bachelor of Science in International Business Administration from the American College of Switzerland and a Master of Business Administration in International Management from Golden Gate University in San Francisco, California. Mr. DeMotte is a member of the Canadian Institute of Mining, Metallurgy and Petroleum, the American Historical Association, the American Philological Association, the Society of Mining Engineers (SME).

We believe that Mr. DeMotte’s extensive business expertise, his experience in the mining industry, and his role as President and Chief Executive Officer gives him the qualifications and skills to serve as a Director.

Cristian Gomez.  Mr. Gomez was appointed to serve as our Chief Financial Officer, Secretary, and Treasurer on May 1,2012Mr. Gomez earned a Bachelor of Commerce degree in Business Management with a finance major from Ryerson University, Toronto ,Canada in 2007. Mr. Gomez was an account manager at RBC Financial Group from December 2007 to February 2009; Marketing Manager at Banks Schwartz and Levine, Medllin, Colombia, March 2009 to October 2010; and has served as a Financial Consultant at Greenhill Administrative Services based in Colombia, since November 2010

We believe that Mr. Gomez’s experience in finance and accounting, and his role as Chief Financial Officer, Secretary, and Treasurer gives him the qualifications and skills to serve as a Director.

Rene von Boeck.  Mr. von Boeck was appointed to serve as our Vice President of Exploration on February 11, 2011.  Since 2006, Mr. von Boeck has served as a consulting mining and exploration geologist for a several companies including Northland Resources, Fortuna Silver Mines, Shoshone Silver Mining Company, Sterling Mining de México SA de CV and CCT Capital.  Mr. Von Boeck work for Shoshone Silver Mining Company included geological consulting work during the first quarter of 2006, management of their drill program from September 2007 to October 2007 and general consulting work during 2008. Mr. Von Boeck work for Sterling Mining de México SA de CV included property evaluations, management of drill programs and tunnel rehabilitation in 2006 and he worked on a property evaluation report in the first and third quarter of 2007.  Mr. Von Boeck’s work prior to 2006 includes working as a senior geologist for a number of mining companies in all phases of mining exploration, resource evaluation and due diligence studies of mines that were targets for potential acquisitions.
 
 
 

 
 
- 50 -


 

 
Francis Xavier Reinhold Delzer.  Mr. von Delzer was appointed to serve as our Vice President of Operations on February 11, 2011, and as Director of the Company on August 29,2012.  Mr. Delzer has been active in the mining industry since 1962 and from 1962 to 1975 held multiple supervisory positions in the mining industry for companies with operations in Chile, Ecuador, Venezuela, Peru and Brazil. Mr. Delzer is a licensed professional engineer in Kentucky and West Virginia.  From 2001 to 2003, Mr. Delzer served as the Commissioner of the Kentucky Department of Mines and Minerals.  Since 2003, Mr. Delzer has served as a mining consultant to several companies assisting with various tasks including the mining permit application process and mining property inspections to verify tonnage production and recovery.  Companies for which Mr. Delzer has provided mining consulting services to since 2003 include Elm Street Resources (2003 to 2005; February 2008 to October 2008; and August 2010 to present), Sterling Mining, Inc. (April 2006 to December 2006), Bunker Hill Mining (March 2007 to December 2007) and Stagg Resources Consultants (October 2007 to November 2007).

We believe Mr. Delzer’s extensive experience in the mining industry qualifies him to serve as a director of the company.

Quinn Bastian. Mr. Bastian was appointed as a member of our Board of Directors on February 17, 2011.  Mr. Bastian served from 2005 to 2007 as Vice President of Finance of International Minerals Corporation, a Canadian mineral resource company.  Since 2008, Mr. Bastian has served as Chief Financial Officer of Boulder Hills Mines, Inc., a private mineral exploration company based in Idaho, with responsibility for accounting, financial records, and systems reporting. From 2000 to the present, Mr. Bastian has operated his own consulting practice, Quinn Bastian Associates.   As a consultant, Mr. Bastian has been retained to provide services in the general areas of accounting, business plans, financing, mergers and acquisitions, and reengineering. 

We believe that Mr. Bastian’s experience in the mining industry in particular Latin America and over 30 years in business with an emphasis in finance and accounting gives him the qualifications to serve as a Director.

Involvement in Certain Legal Proceedings
 
Mr. DeMotte served as President and CEO of Sterling Mining Company from November 1998 to May 2008, and served as a director of Sterling Mining Company from November 2008 to February 2009.  In March 2009, Sterling Mining Company filed a voluntary petition for reorganization relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Idaho.  
 
Family Relationships
 
There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.
 
 
 
 

 
 
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Audit Committee
 
Our Audit Committee appoints our independent auditors, reviews audit reports and plans, accounting policies, financial statements, internal controls, audit fees, and certain other expenses and oversees our accounting and financial reporting process.  Specific responsibilities include selecting, hiring and terminating our independent auditors; evaluating the qualifications, independence and performance of our independent auditors; approving the audit and non-audit services to be performed by our auditors; reviewing the design, implementation, adequacy and effectiveness of our internal controls and critical accounting policies; overseeing and monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters; reviewing any earnings announcements and other public announcements regarding our results of operations, in conjunction with management and our public auditors.
 
The Audit Committee is comprised of three Directors.  The Audit Committee held one meetings during the year-ended June 30, 2012.  The members of our Audit Committee are Quinn Bastian, Beatriz Montoya Duque (who resigned from the Board of Directors in August 2012) and Cristian Gomez.  Our board of directors determined that Mr. Bastian qualifies as an “audit committee financial expert,” as defined under the rules and regulations of the Securities and Exchange Commission and is considered independent. In August the board agreed the whole board would serve as the Audit Committee.
 
Under the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by our independent accountants must be approved in advance by the Audit Committee to assure that such services do not impair the accountants’ independence.  The Audit Committee may delegate authority to pre-approve audit and non-audit services to any member of the Audit Committee, but may not delegate such authority to management.
 
For the fiscal year ended June 30, 2012, the Audit Committee:
 
·  
reviewed and discussed with management our audited consolidated financial statements for the fiscal year ended June 30, 2012;
 
·  
discussed with Madsen & Associates, CPA’s Inc., our independent registered public accounting firm for fiscal year 2012, the matters the Audit Committee is required to discuss pursuant to Statement on Auditing Standards No. 61 (Communications with Audit Committees), which includes, among other items, matters related to the conduct of the audit of our consolidated financial statements; and
 
·  
received the written disclosures and the letter from Madsen & Associates, CPA’s Inc. required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and has discussed with Madsen & Associates, CPA’s Inc. any relationships that may impact its independence, and satisfied itself as to the independent registered public accounting firm’s independence.
 
Based on the review and discussions referred to above, the Audit Committee recommended to the board of directors that our audited consolidated financial statements for the fiscal year ended June 30, 2012 be included in this Annual Report on Form 10-K for the fiscal year ended June 30, 2012 for filing with the Securities and Exchange Commission.
 
Section 16(a) Beneficial Ownership Reporting
 
Section 16(a) of the Securities Act of 1934, as amended, requires our executive officers and directors, and persons who own more than ten percent (10%) of our common stock, to file with the Securities and Exchange Commission reports of ownership of, and transactions in, our securities and to provide us with copies of those filings.  To our knowledge, based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during the year ended June 30, 2011, all filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with.
 
Code of Ethics and Conduct
 
On January 13, 2006, our Board of Directors has adopted a Code of Ethics and Conduct that is applicable to our Chief Executive Officer, President, Chief Financial Officers, Chief Accounting Officer, Secretary and Treasurer and persons designated as Senior Officials by the Board of Directors.  Our Code of Ethics and Conduct is intended to ensure that our employees act in accordance with the highest ethical standards.  The Code of Ethics and Conduct was filed as an exhibit to our Annual Report on Form 10-K for the fiscal year ended June 30, 2010 and is incorporated herein by reference.
 
 

 
 
- 52 -


 

 
 
The following table presents information concerning the total compensation of the Company’s Chief Executive Officer, Chief Financial Officer and the other most highly compensated officers during the last fiscal year (the “Named Executive Officers”) for services rendered to the Company in all capacities for the years ended June 30, 2012 and 2011:
Summary Compensation Table

Name
Year
Salary
($)
 
Bonus
($)
Stock
Awards
($)
Option
Awards
($) (1)
Non-Equity
Incentive Plan
Compensation
Non-qualified
Deferred
Compensation
Earnings
All Other
Compensation
($)
 
Total
($)
                   
Raymond Demotte
Chief Executive Officer, President and Director
2012
2011
68,450 (2)
56,500 (2)
-
-
-
-
-
540,120 (5)
   
-
-
68,450
596,620
                   
Christian Gomez
Chief Financial Officer (3)
2012
4,200
           
4,200
                   
Camilo Velasquez
Former Chief Financial Officer, Secretary, Treasurer and Director
2012
2011
49,000
25,500
-
-
-
-
-
270,060 (5)
   
-
-
49,000
286,560
 
                   
Rene von Boeck
Vice President of Exploration
2012
2011
10,869
48,513
-
-
-
-
-
108,024 (5)
   
-
-
10,869
156,337
                   
Francis Xavier Reinhold Delzer
Vice President of Operations and Director
2012
2011
7,510
19,103
-
-
-
-
108,024 (5)
   
-
-
7,510
127,127
-
                   
Felimon Lee
Former CEO & President (3)
2011
-
-
-
-
-
-
-
-
   
-
-
-
-
         ___________
(1)  
The amounts in the table reflect the grant date fair value of options and stock awards to the named executive officer in accordance with Accounting Standards Codification Topic 718.  The ultimate values of the options and stock awards to the executives generally will depend on the future market price of our common stock, which cannot be forecasted with reasonable accuracy. The actual value, if any, that an optionee will realize upon exercise of an option will depend on the excess of the market value of the common stock over the exercise price on the date the option is exercised.  See the “Outstanding Equity Awards at Fiscal Year-End” table below for information regarding all outstanding awards.
 
(2)  
During fiscal 2011, Mr. DeMotte received a total of $56,500 in cash compensation for his service as our President and CEO, of which $34,000 was paid in consulting fees directly to Mr. DeMotte and $22,500 was paid in consulting fees to Brookville Enterprises, Inc. (“Brookville”), a company under the control of Mr. DeMotte.
 
(3)  
Mr. Gomez was appointed the Chief Financial Officer of the Company on May 1,2012..
 
(4)  
Mr. Lee resigned as our Chief Executive Officer and President on September 3, 2010 and as a director on November 16, 2010.
 
(5)  
The Option awards were valued using the Black Scholes method and do not correspond to cash value. All options granted at a strike price of $.59 per share.
 
 
 

 
 
- 53 -

 
 
 
Compensation Components

Salary. We compensate our executive officers for their service by payment of consulting fees, which are included under the column entitled “Salary” in the “Summary Compensation Table”.
 
Bonuses.  At this time, we do not compensate our executive officers by the payment bonus compensation.
 
Stock Options.  Stock option awards are determined by the Board of Directors and Compensation Committee based on numerous factors, some of which include responsibilities incumbent with the role of each executive to the Company and tenure with the Company.
 
At no time during the last fiscal year was any outstanding option repriced or otherwise modified.  There was no tandem feature, reload feature, or tax-reimbursement feature associated with any of the stock options we granted to our executive officers or otherwise.
 
The following table sets forth (a) the aggregate number of shares subject to options granted under the Company’s Incentive Plan during the year-ended June 30, 2011 to persons who served as executive officers and (b) the per share exercise price of such options.

Stock Option Grants in Fiscal 2011
 
Name of Individual or Group
 
Number of  Options
Granted
 
Per Share
Exercise Price
Raymond DeMotte
 
1,000,000
 
$0.59
Camilo Velasquez
 
500,000
 
$0.59
Rene von Boeck
 
200,000
 
$0.59
Francis Xavier Reinhold Delzer
 
200,0000
 
$0.59

There were no stock options granted in fiscal 2012.

Consulting Agreements
 
On June 24, 2011 (the “Effective Date”), we entered into a Consulting Agreement with Camilo Velasquez (“Velasquez”), and a Consulting Agreement with Brookville (collectively, the “Consulting Agreements”).  Each of the Consulting Agreements are materially the same.  The Consulting Agreements supersede and replace all prior compensatory agreements, understandings and commitments that previously existed between the respective parties to the Consulting Agreements.  Raymond DeMotte, our President and Chief Executive Officer, and a director, is the sole shareholder, officer, and director of Brookville.
 
 
 

 
 
- 54 -

 
 
 

Pursuant to the terms of the Consulting Agreements, Velasquez was retained to serve as the our Chief Financial Officer and Brookville was retained to have Raymond De Motte serve as the our President and Chief Executive Officer.  As compensation for such services, Velasquez will receive a monthly fee of $6,000.00 and Brookville will receive an monthly fee of $7,500.00; provided, however, that each fee may be increased (but not decreased without the consultant's express written consent) at the discretion of the Board or Compensation Committee of the Board, to reflect, among other matters, cost of living increases and performance results.  In addition, Velasquez and Brookville will each be entitled to receive the standard benefits enjoyed by our other top executives, and reimbursement for reasonable travel, professional memberships, lodging, entertainment, promotion and other ordinary and necessary business expenses.  The Consulting Agreements are for an initial term of one year and will be automatically be extended for an additional one-year period on each anniversary of the Effective Time (restoring the initial one-year term), unless terminated pursuant to the terms of the Consulting Agreements.       

In February 2012 Brookville voluntarily discounted its monthly billing to $3,500, or by $4,000, per month, thus the CEO’s current compensation is $3,500 per month, through September 2012.  In April 2012 Mr. Velasquez resigned as Chief Financial Officer to pursue personal interests, and Mr. Cristian Gomez was appointed to replace Mr. Velasquez. Mr. Gomez has no employment agreement, and bills for his time as CFO at a rate of $1,000 per month.

If the Consulting Agreements are terminated by us for a reason other than Cause, Death, or Disability (as defined in the Consulting Agreements) or by the consultant for Good Reason, the consultant will receive:

·  
any earned but unpaid compensation for time worked;
·  
any expense reimbursement payments for expenses incurred prior to termination; and
·  
a lump-sum payment equal to the total compensation earned by consultant in the three months immediately prior to the date of termination

If the Consulting Agreements are terminated by us for Cause, by the consultant without Good Reason, or on account of the consultant’s death or disability, our sole obligation will be to pay any accrued obligations if the consultant has been with us less than twelve months, otherwise payments will be the same as if the Consulting Agreements had been terminated by us for a reason other than Cause, Death, or Disability, or by the consultant for Good Reason (as described above), unless by unanimous vote, the Compensation Committee elects under the circumstances to pay the three months compensation described above regardless of the time that the consultant has been with us.

“Cause” is defined as a termination by us based upon consultant’s:

·  
Persistent failure to perform duties consistent with a commercially reasonable standard of care (other than due to a physical or mental impairment or due to an action or inaction directed by us that would otherwise constitute Good Reason);
·  
Willful neglect of duties (other than due to a physical or mental impairment or due to an action or inaction directed by us that would otherwise constitute Good Reason);
·  
Conviction of, or pleading  nolo contendere to, criminal or other illegal activities involving dishonesty;
·  
Material breach of this Agreement; or
·  
Failure to materially cooperate with or impeding an investigation authorized by the Board.

“Good Reason” is defined as a termination by the consultant based upon the occurrence of any of the following:

·  
a material diminution in consultant’s position or title, or the assignment of duties to consultant that are materially inconsistent with consultant’s position or title;
·  
a material diminution in consultant’s monthly base compensation or bonus opportunity;
·  
within six (6) months immediately preceding or within one (1) year immediately following a Change in Control: (A) a material adverse change in consultant’s status, authority or responsibility; (B) a requirement that consultant report to a corporate officer or consultant instead of reporting directly to the Board; (C) a material diminution in the budget over which consultant has managing authority; or (D) a material change in the geographic location of consultant’s principal place of service with us; or
·  
a material breach by us of any of its obligations under the Consulting Agreement.
 
 
 

 
 
- 55 -



 
Outstanding Equity Awards
 
Fiscal Year-Ended June 30, 2012
 
The following table presents information concerning the outstanding equity awards for the Named Executive Officers as of June 30, 2012, each of which was granted to the Named Executive Officers during fiscal 2021:
 
Option Awards
Name
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Equity Incentive
Plan Awards:
Number of Securities
Underlying
Unexercised
Unearned Options
(#)
Option
Exercise
Price
($)
Option
Expiration
Date
           
Raymond Demotte
Chief Executive Officer, President and Director
1,000,000
-
-
$0.59
03/21/2021
           
Camilo Velasquez
Former Chief Financial Officer, Secretary, Treasurer
500,000
-
-
$0.59
03/21/2021
           
Rene von Boeck
Vice President of Exploration
200,000
-
-
$0.59
03/21/2021
           
Francis Xavier Reinhold Delzer
Vice President of Operations
200,000
-
-
$0.59
03/21/2021

OPTION EXERCISES AND STOCK VESTED
2012
 
There were no stock options that were exercised by the named executive officers in fiscal 2012. There were no outstanding awards of restricted stock in fiscal 2012.

Compensation of Directors
 
Set forth below is a summary of the compensation paid to each person that served as a director that was not an executive officer or employee during the fiscal year ended June 30, 2012.
 
 
 
 

 
 
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Directors not serving as executive officers may be paid a monthly director fee of $1,000 and $250 for each committee meeting attended., however to conserve cash no fees have been charged in 2012.  All travel and lodging expenses associated with corporate matters are reimbursed by us, if and when incurred.
 
Director Compensation Table
 
 
 
 
 
Name
 
 
Fees earned
or paid in cash
($) (4)
 
 
 
Stock
awards ($)
 
 
 
Option
awards ($)
 
Non-equity
 incentive plan
compensation ($)
Non-qualified
deferred
compensation
earnings
($)
 
 
All other
compensation ($)
 
 
 
Total
($)
               
Ray DeMotte (1)
$0
$
$ -0-
$ -0-
$ -0-
$68,500
$68,500
               
Francis Xavier Delzer (2)
$0
$-0-
$ -0-
$ -0-
$ -0-
$7,510
$7,510
               
Quinn Bastian
$3,300
$-0-
$ -0-
$ -0-
$ -0-
$ -0-
$3,300
               
Beatriz Duque Montoya (3)
$5,763
$-0-
$ -0-
$ -0-
$ -0-
$ -0-
$5,763
 
(1)  
 
Mr. Demotte is the Chief Executive Officer of the Company.  All other compensation includes Mr. Demotte’s compensation for his services as an officer as discussed in the Executive Compensation Table above.
 
(2)  
 Mr. Delzer is the Vice President of Operations of the Company.  All other compensation includes Mr. Delzer’s compensation for his services as an officer as discussed in the Executive Compensation Table above.
 
(3)  
 Ms. Montoya resigned as a director on August 20, 2012.
 
(4)  
Mr. Bastian and Ms. Duque each were paid a consulting fee of $75 per each hour of service provided for work outside of the scope of  their service as directors.
 
 
 
 
 
- 57 -

 
 
 
 
ITEM 12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 
The following table sets forth, as of September 15, 2012, the number and percentage of outstanding shares of common stock beneficially owned by (a) each person known by us to beneficially own more than five percent of such stock, (b) each director of the Company, (c) each named officer of the Company, and (d) all our directors and executive officers as a group. We have no other class of capital stock outstanding.
 
 
Amount and Nature of Beneficial Ownership
   
 
Name and Address of Beneficial Owner (1)
 
Shares
Owned (2)
Options
Exercisable
Within 60 Days (3)
Percent of
Class
Directors and Executive Officers
       
Raymond DeMotte
2,000,000
1,000,000
3.3%
Cristian Gomez
0
0
0.0%
Quinn Bastian
125,000
200,000
0.4%
Francis Xavier Reinhold Delzer
125,000
200,000
0.4%
Rene von Boeck
125,000
200,000
0.4%
All current directors and executive officers as a group (five persons)
2,375,000
1,600,000
4.5%
       
More Than 5% Beneficial Owners
     
Western Continental Inc
Spokane, WA
10,000,000
 
11.2%

(1)
Unless otherwise provided, the address of each person is c/o 3645 E. Main Street, Suite 119, Richmond, IN 47374.
 
(2)
Except as otherwise indicated, all shares shown in the table are owned with sole voting and investment power.
 
(3)
This column represents shares not included in “Shares Owned” that may be acquired by the exercise of options within 60 days of September 15, 2012.
 
The above beneficial ownership information is based on information furnished by the specified persons and is determined in accordance with Rule 13d-3 under the Exchange Act, as required for purposes of this annual report; accordingly, it includes shares of South American Gold Corp. common stock that are issuable upon the exercise of stock options exercisable within 60 days of September 15, 2012. Such information is not necessarily to be construed as an admission of beneficial ownership for other purposes.
 
 
 
 
 
 
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ITEM 13.    Certain Relationships and Related Transactions, and Director Independence.
 
None of our directors or executive officers, nor any proposed nominee for election as a director, nor any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any members of the immediate family (including spouse, parents, children, siblings, and in-laws) of any of the foregoing persons has any material interest, direct or indirect, in any transaction since the beginning of our last fiscal year on July 1, 2011 or in any presently proposed transaction which, in either case, has or will materially affect us.
 
Director Independence

Our board of directors undertook its annual review of the independence of the directors and considered whether any director had a material relationship with us or our management that could compromise his ability to exercise independent judgment in carrying out his responsibilities.  As a result of this review, the Board affirmatively determined that Quinn Bastian is an  independent director as such term is used under defined under FINRA Marketplace Rules.

 
The following table is a summary of the fees billed to us by Madsen & Associates, CPA’s Inc. for professional services for the fiscal year ended June 30, 2012 and for professional services for the fiscal year ended June 30, 2011:
 
             
   
Fiscal
2012 Fees
   
Fiscal
2011 Fees
 
Fee Category
           
Audit Fees
  $ 38,525     $ 12,560  
Audit-Related Fees
    -       -  
Tax Fees
    -       -  
All Other Fees
    -       -  
                 
Total Fees
  $ 38,525     $ 4,500  
 
Audit Fees. Consists of fees billed for professional services rendered for the audit of our consolidated financial statements and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by our independent registered public accounting firms in connection with statutory and regulatory filings or engagements.
 
 
 

 
 
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Audit-Related Fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.” These services include employee benefit plan audits, accounting consultations in connection with acquisitions, attest services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards.
 
Tax Fees. Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and international tax compliance, tax audit defense, customs and duties, mergers and acquisitions, and international tax planning.
 
All Other Fees. Consists of fees for products and services other than the services reported above.
 
Our practice is to consider and approve in advance all proposed audit and non-audit services to be provided by our independent registered public accounting firm.
 
The audit report of Madsen & Associates, CPA’s Inc. on the consolidated financial statements of the Company for the year ended June 30, 2012 did not contain an adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles, except that the audit reports on the consolidated financial statements of the Company for the fiscal years ended June 30, 2012 and June 30, 2012 contained an uncertainty about the Company’s ability to continue as a going concern.
 
During our fiscal years ended June 30, 2012 and 2011, there were no disagreements with Madsen & Associates, CPA’s Inc. on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to Madsen & Associates, CPA’s Inc.’s satisfaction would have caused it to make reference to the subject matter of such disagreements in connection with its reports on the consolidated financial statements for such periods.
 
During our fiscal years ended June 30, 2012 and 2011, there were no reportable events (as described in Item 304(a)(1)(v) of Regulation S-K).
 

 
 
 

 
 
- 60 -

 
 

 
PART IV
 
 
(a)(1)
 
Index to Financial Statements
 
Page (s)
     
Report of Independent Registered Public Accounting Firm
 
F-1
       
Financial Statements:
   
     
 
Consolidated Balance Sheets - June 30, 2012 and 2011
 
F-2
       
 
Consolidated Statements of Operations for the Years Ended June 30, 2012 and 2011 and from Inception on May 25, 2005 to June 30, 2012
 
F-3
       
 
Consolidated Statements of Cash Flows for the Years Ended June 30, 2012 and 2011 and from Inception on May 25, 2005 to June 30, 2012
 
F-4
       
 
Consolidated Statements of Changes in Stockholders’ Equity from Inception on May 25, 2005 to June 30, 2012
 
F-5
       
Notes to Consolidated Financial Statements
 
F-6

 
 
 
 
 
 

 
- 61 -

 
 
 
MADSEN & ASSOCIATES CPA’s, INC.
684 East Vine Street, #3
Certified Public Accountants
Murray, Utah 84107
 
Telephone 801-268-2632
 
Fax 801-262-3978

To the Board of Directors and
Stockholders of South American Gold Corp. and Subsidiaries
(An Exploration Stage Company)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying consolidated balance sheets of South American Gold Corp. and Subsidiaries (An Exploration Stage Company) (The Company) as of June 30, 2012 and 2011, and the related consolidated statements of operations and comprehensive income, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended June 30, 2012, and for the period from May 25, 2005 (date of inception) to June 30, 2012. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the company’s internal control over financial reporting.   Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of South American Gold Corp. and Subsidiaries (An Exploration Stage Company) as of June 30, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2012, and the period from May 25, 2005 (date of inception) to June 30, 2012, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company will need additional working capital to service its debt and for its planned activity, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in the notes to the consolidated financial statements. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 
/s/  Madsen & Associates CPA's, Inc."                                      
     “Madsen & Associates CPA’s, Inc.”
 
Murray, Utah
October 10, 2012

 
 
 

 
 
 
SOUTH AMERICAN GOLD CORP. AND SUBSIDIARIES
 
(An Exploration Stage Company)
 
Consolidated Balance Sheets
 
             
   
June 30,
   
June 30,
 
   
2012
   
2011
 
             
Assets
           
Current Assets
           
Cash and cash equivalents
  $ 87     $ 120,537  
Prepaid Expenses
    2,000     $ -  
Total current assets
    2,087       120,537  
                 
Equipment net of depreciation
    -       1,657  
                 
Deposit
    -       532,140  
                 
Total Assets
    2,087       654,334  
                 
Liabilities and Stockholders' Equity (Deficit)
               
Current Liabilities
               
Accounts payable
    263,982       252,262  
Due to related parties
    -       -  
Total Liabilities
    263,982       252,262  
                 
                 
Stockholders' Equity (Deficit)
               
Common stock, $0.001 par value, 450,000,000 shares
authorized, 79,211,890 & 79,211,890 issued & outstanding
as of June 30, 2012 and 2011, respectively
    79,212       79,212  
Additional paid-in capital
    3,972,464       3,158,181  
Accumulated other comprehensive income
    -       27,332  
Deficit accumulated during the exploration stage
    (4,313,571 )     (3,854,622 )
                 
Total Stockholders' Equity (Deficit)
    (261,895 )     (589,897 )
                 
Non-controlling interest
    -       991,968  
                 
Total stockholders' equity (deficit)
    (261,895 )     402,072  
                 
Total liabilities and stockholders' equity (deficit)
  $ 2,087     $ 654,334  
                 
                 
                 
The accompanying notes are an integral part of these financial statements
 
 
 
 
 

 
 

 
 
SOUTH AMERICAN GOLD CORP. AND SUBSIDIARIES
 
(Exploration Stage Company)
 
Statements of Operations and Comprehensive Income
 
                   
                   
   
For the Year
Ended June 30,
   
For the Year
Ended June 30,
   
For the
Period
May 25, 2005
(Inception) to
 
   
2012
   
2011
   
June 30, 2012
 
                   
                   
Revenues
  $ -     $ -     $ -  
                         
Operating Expenses
                       
Exploration Expense
    188,833       481,730       689,531  
Stock Based Compensation
    -       1,566,348       1,566,348  
Impairment loss on Goodwill
    4,797       1,280,913       1,285,710  
Depreciation
    1,657               1,657  
General & Administrative Expense
    266,485       549,098       1,025,281  
Total Operating Expense
    461,772       3,878,089       4,568,527  
                         
Income (loss) from operations
    (461,772 )     (3,878,089 )     (4,568,527 )
                         
Other Income (Expense)
                       
Interest Expense
    (3,290 )     -       (3,290 )
Interest income
    6,113       6,601       12,713  
Total Other Income
    2,823       6,601       9,423  
                         
Net Loss
    (458,949 )     (3,871,488 )     (4,559,104 )
                         
Other comprehensive income (loss)
                       
Foreign currency translation adjustment
    (27,332 )     6,833       8,339  
Foreign currency translation adjustment attributable to non-controlling interest
     attributable to non-controlling interest
    -       20,499       (8,339 )
Total other comprehensive income (loss)
    (27,332 )     27,332       0  
                         
Comprehensive income (loss)
    (486,281 )     (3,844,156 )     (4,559,104 )
                         
Net Loss
    (458,949 )     (3,871,488 )     (4,559,104 )
                         
Net loss attributable to non-controlling interest
    -       (245,532 )     (245,532 )
                         
Net loss attributable to South American Gold Corp.
  $ (458,949 )   $ (3,625,956 )   $ (4,313,572 )
                         
Net loss per common share outstanding,
                 
basic and diluted
  $ -     $ -          
                         
Weighted average shares outstanding of common
                 
 stock, basic and diluted
    79,211,890       159,626,137          
                         
                         
                         
The accompanying notes are an integral part of these financial statements
 
 
 
 
 
 
 
 
 
SOUTH AMERICAN GOLD CORP. AND SUBSIDIARIES
 
(Exploration Stage Company)
 
Consolidated Statement of Cash Flows
 
                   
                   
               
For the period
 
   
For the Year Ended
   
For the Year Ended
   
May 25, 2005
 
   
June 30,
   
June 30,
   
(inception) to
 
   
2012
   
2011
   
June 30, 2012
 
                   
                   
Cash Flows Used in Operating Activities:
                 
 Net Income (Loss)
    (458,949 )     (3,871,488 )     (4,559,103 )
Adjustments to reconcile net loss to net cash used in operations
      -  
 Expenses paid by shareholders
    -       -       39,000  
 Stock Based Compensation
    -       1,566,348       1,566,348  
 Impairment loss on goodwill
    4,797       1,280,913       1,285,710  
 Depreciation
    1,657       -       1,657  
                         
 Changes in operating assets and liabilities
                    -  
 Prepaid Expenses
    (2,000 )             (2,000 )
 Due to related parties
            -       -  
 Accounts Payable
    11,720       250,651       389,577  
                         
 Net Cash Provided by (Used In) Operating Activities
    (442,775 )     (773,576 )     (1,278,811 )
                         
                         
Net Cash Used In Investing Activities
                       
Equipment
    -       (1,657 )     (1,657 )
Business Acquisition
    349,657       (550,000 )     (200,343 )
                         
Net Cash Provided by (Used In) Investing Activities
    349,657       (551,657 )     (202,000 )
                         
Cash Flows From Financing Activities:
                       
Advances from loan from related party
    -       (6,064 )     -  
Share Subscriptions Received in Advance
    -       -       -  
Proceeds from issuance of common stock
    -       1,450,000       1,506,450  
                         
Net Cash Provided by (Used In) Financing Activities
    -       1,443,936       1,506,450  
                         
Effect of Foreign Currency on Cash
    (27,333 )     1,780       (25,553 )
                         
Net Increase (Decrease) in Cash
    (120,451 )     120,483       87  
                         
Cash at Beginning of Period
    120,537       54       -  
                         
Cash at End of Period
    87       120,537       87  
                         
Supplemental disclosure of cash flow information:
                 
                         
Expenses paid by shareholders
            -       39,000  
Shares issued for debt
    -       -       125,595  
                         
                         
                         
                         
                         
The accompanying notes are an integral part of these financial statements
 
 
 
 
 
 
 
SOUTH AMERICAN GOLD CORP. AND SUBSIDIARIES
 
(Exploration Stage Company)
 
Statement of Stockholders' Equity (Deficit)
 
For the period May 25, 2005 (Inception) to June 30, 2012
 
                                       
                         
Accumulated
           
               
Additional
       
Other
       
Total
 
   
Common Stock
   
Paid-in
   
Accumulated
 
Comprehensive
 
Non-controlling
   
Stockholders'
 
   
Shares
   
Amount
   
Capital
   
Deficit
 
Loss
 
Interest
   
Equity / (Deficit)