PINX:TSOR Annual Report 10-K Filing - 2/29/2012

Effective Date 2/29/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended February 29, 2012

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from ________________ to ________________.

Commission file number 000-52660

TRESORO MINING CORP.
(Exact name of registrant as specified in its charter)

Nevada 20-1769847
(State or other jurisdiction of incorporation of organization) (I.R.S. Employer Identification No.)

880-666 Burrard Street, Vancouver, British Columbia V6C 2G3
(Address of Principal Executive Offices)

(604) 681-3130
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $0.0001
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[   ] Yes     [X] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
[   ] Yes     [X] No

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes     [   ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.
[X] Yes     [   ] No

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not 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. [   ]

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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 [X]

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [   ]     No [X]

The aggregate market value of the registrant’s stock held by non-affiliates of the registrant as of August 31, 2011, computed by reference to the price at which such stock was last sold on the OTC Bulletin Board ($0.13 per share) on that date, was approximately $2,264,575

The registrant had 24,473,934 shares of common stock outstanding as of May 29, 2012.

__________

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FORWARD LOOKING STATEMENTS

This annual report contains forward-looking statements that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. In evaluating these statements, you should consider various factors, including the assumptions, risks and uncertainties outlined in this annual report under “Risk Factors”. These factors or any of them may cause our actual results to differ materially from any forward-looking statement made in this annual report. Forward-looking statements in this annual report include, among others, statements regarding:

  • our capital needs;

  • business plans; and

  • expectations.

While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding future events, our actual results will likely vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Some of the risks and assumptions include:

  • our need for additional financing;

  • our exploration activities may not result in commercially exploitable quantities of ore on our mineral properties;

  • the risks inherent in the exploration for minerals such as geologic formation, weather, accidents, equipment failures and governmental restrictions;

  • our limited operating history;

  • our history of operating losses;

  • the potential for environmental damage;

  • our lack of insurance coverage;

  • the competitive environment in which we operate;

  • the level of government regulation, including environmental regulation;

  • changes in governmental regulation and administrative practices;

  • our dependence on key personnel;

  • conflicts of interest of our directors and officers;

  • our ability to fully implement our business plan;

  • our ability to effectively manage our growth; and

  • other regulatory, legislative and judicial developments.

We advise the reader that these cautionary remarks expressly qualify in their entirety all forward-looking statements attributable to us or persons acting on our behalf. Important factors that you should also consider, include, but are not limited to, the factors discussed under “Risk Factors” in this annual report.

The forward-looking statements in this annual report are made as of the date of this annual report and we do not intend or undertake to update any of the forward-looking statements to conform these statements to actual results, except as required by applicable law, including the securities laws of the United States.

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AVAILABLE INFORMATION

Tresoro Mining Corp. files annual, quarterly and current reports, proxy statements, and other information with the Securities and Exchange Commission (the “Commission” or “SEC”). You may read and copy documents referred to in this Annual Report on Form 10-K that have been filed with the Commission at the Commission’s Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. You can also obtain copies of our Commission filings by going to the Commission’s website at http://www.sec.gov.

REFERENCES

As used in this annual report: (i) the terms “we”, “us”, “our”, “Tresoro” and the “Company” mean Tresoro Mining Corp.; (ii) “SEC” refers to the Securities and Exchange Commission; (iii) “Securities Act” refers to the United States Securities Act of 1933, as amended; (iv) “Exchange Act” refers to the United States Securities Exchange Act of 1934, as amended; and (v) all dollar amounts refer to United States dollars unless otherwise indicated.

__________

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TABLE OF CONTENTS

ITEM 1. BUSINESS 6
ITEM 1A. RISK FACTORS 20
ITEM 1B. UNRESOLVED STAFF COMMENTS 25
ITEM 2. PROPERTIES 25
ITEM 3. LEGAL PROCEEDINGS 25
ITEM 4. MINE SAFETY DISCLOSURES 25
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 28
ITEM 6. SELECTED FINANCIAL DATA 29
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 38
ITEM 9A. CONTROLS AND PROCEDURES 38
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 40
ITEM 11. EXECUTIVE COMPENSATION 43
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 46
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE 46
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 47
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 47

__________

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PART I

ITEM 1.             BUSINESS

Corporate Organization

Our company was incorporated under the laws of the State of Nevada on October 11, 2004 under the name “Ancor Resources Inc.” On June 4, 2007, we completed a forward split of our shares of common stock on the basis of five new shares of common stock for each one share of common stock outstanding on that date and increased our authorized share capital from 75,000,000 shares of common stock to 375,000,000 shares of common stock. On the same date, we merged with our wholly-owned subsidiary, Nu-Mex Uranium Corp., to change our name to Nu-Mex Uranium Corp.

Effective February 26, 2008, we merged with our wholly-owned subsidiary, Uranium International Corp., to change our name to Uranium International Corp.

On March 11, 2008, we completed a forward split of our shares of common stock on the basis of one and one half new shares of common stock for each one share of common stock outstanding on that date. Due to an administrative oversight, we did not file a Certificate of Change with the Nevada Secretary of State to simultaneously increase our authorized share capital in the same ratio. On June 8, 2010, we rectified this oversight by filing a Certificate of Change with the Nevada Secretary of State, increasing our authorized share capital from 375,000,000 shares of common stock to 562,500,000 shares of common stock.

On May 17, 2010, we filed Articles of Merger with the Nevada Secretary of State in order to merge with our wholly-owned subsidiary, Mercer Gold Corporation, and to change our name to Mercer Gold Corporation. This name change was effected on the OTC Bulletin Board on June 9, 2010, and the name change became effective under Nevada corporate law on June 17, 2010.

On June 2, 2010, we caused two wholly-owned subsidiary companies to be incorporated under the laws of the Republic of Panama, namely, Mercer One Panama Corp. and Mercer Two Panama Corp.

On April 14, 2011, we filed a Certificate of Change with the Nevada Secretary of State to give effect to a reverse split of our authorized and issued and outstanding shares of common stock on a three (3) old for one (1) new basis. Subsequently, the directors agreed it was in the best interest of the Company to amend the reverse split to a ratio of four (4) old for one (1) new such that the Company’s authorized capital was decreased from 562,500,000 shares of common stock with a par value of $0.001 to 140,625,000 shares of common stock with a par value of $0.001. Accordingly, on April 28, 2011 the Company filed a Certificate of Correction with the Nevada Secretary of State to effect the four (4) old for one (1) new reverse split.

On August 30, 2011, we filed Articles of Merger with the Nevada Secretary of State in order to merge with our wholly-owned subsidiary, Tresoro Mining Corp, and to change our name to Tresoro Mining Corp. This name change was effected on the OTC Bulletin Board on November 14, 2011, and the name change became effective under Nevada corporate law on September 15, 2011.

Our principal offices are located at 880-666 Burrard Street, Vancouver, British Columbia V6C 2G3, and our telephone number is (604) 681-3130.

General

We are currently engaged in the business of exploration of precious metals with a focus on the exploration and development of gold deposits in Colombia. As of the date of this Annual Report, our mineral interest consists of an option agreement on an exploration stage property as discussed below. We have not established any proven or probable reserves on our mineral property interest. There is no assurance that a commercially viable mineral deposit exists on our property interest. Further exploration will be required before a final evaluation as to the economic and legal feasibility is determined with respect to our mineral property interest.

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At the present time, our primary property of interest is the Guayabales Property, Colombia as described below.

Mineral Properties – Guayabales Property, Colombia

Mineral Assets Option Agreement

On April 13, 2010, we entered into a definitive Mineral Assets Option Agreement (the “Definitive Option Agreement”) with Mercer Gold Corporation, a private mining company (“MGC”), pursuant to which MGC formally granted to us an exclusive option (the “Option”) to acquire all of MGC’s current underlying option interests under a certain “Option Agreement”, dated for reference March 4, 2010 (the “Underlying Option Agreement”), as entered into between MGC and Comunidad Minera Guayabales (the “Underlying Property Owner” or “CMG”), pursuant to which MGC acquired from the Underlying Property Owner an option (the “Underlying Option”) to acquire a 100% legal, beneficial and registerable interest in and to certain mineral property concession interests which are held by way of license and which are located in the municipality of Marmato, Colombia, and which are better known and described as the “Guayabales” property (collectively, the “Guayabales Property”). The Definitive Option Agreement replaces an underlying letter of intent by and between and MGC and us, dated April 3, 2010.

The Definitive Option Agreement provides that, in order to exercise our Option, we are obligated to:

1.

Pay to MGC $200,000 immediately upon the execution of the Definitive Option Agreement (the “Effective Date”) (paid on April 14, 2010);

   
2.

Issue to MGC, both prior to and after the due and complete exercise of the Option, an aggregate of up to 5,000,000 restricted shares of the Company’s common stock, as follows:


 
  • an initial issuance of 2,500,000 shares within two business days of the Effective Date (issued on April 15, 2010); and

     
  • a final issuance of 2,500,000 shares within five business days of the Company’s prior receipt of a “technical report” (as that term is defined in section 1.1 of National Instrument 43-101 of the Canadian Securities Administrators, Standards of Disclosure for Mineral Projects (“NI 43-101”) meeting certain criteria (as at February 29, 2012, no technical report has been prepared));


    3.

    Provide funding for or expend minimum cumulative “Expenditures” for “Exploration and Development” (as defined in the Definitive Option Agreement) work on or in connection with any of the mineral interests comprising the Property interests of not less than $11,500,000 in the following manner:


     
  • no less than an initial $1,500,000 of the Expenditures shall be expended on the Property by December 31, 2010 (incurred);

     
  • no less than a further $5,000,000 of the Expenditures shall be expended on the Property by December 31, 2011; and

     
  • no less than a final $5,000,000 of the Expenditures shall be expended on the Property by December 31, 2012; and


    4.

    Pay on MGC’s behalf all underlying option, regulatory and governmental payments and assessment work required to keep the Property in good standing during the Option period (being that period from the Effective Date to the closing date in respect of the due and complete exercise of the Option as described in the Definitive Option Agreement, which shall not be later than January 13, 2013), and including, without limitation, all remaining cash payments required to be made to the Underlying Property Owner under the Underlying Option Agreement. The Company must pay the Underlying Property Owner an aggregate of $4,000,000 in the instalments by the dates specified as follows:


     
  • Pay $20,000 by October 14, 2009 (paid);
     
  • Pay additional $40,000 on or by 90 days from October 14, 2009 (paid);
     
  • Pay additional $40,000 on or by April 14, 2010 (paid);
     
  • Pay additional $55,000 on or by July 14, 2010 (paid);
     
  • Pay additional $55,000 on or by October 14, 2010 (paid);

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  • Pay additional $65,000 on or by January 14, 2011 (paid);
     
  • Pay additional $75,000 on or by April 14, 201l (paid);
     
  • Pay additional $75,000 on or by July 14, 201l (paid);
     
  • Pay additional $85,000 on or by October 14, 2011 (paid);
     
  • Pay additional $85,000 on or by January 14, 2012 (paid);
     
  • Pay additional $160,000 on or by July 14, 2012;
     
  • Pay additional $160,000 on or by January 14, 2013;
     
  • Pay additional $190,000 on or by July 14, 2013;
     
  • Pay additional $190,000 on or by January 14, 2014;
     
  • Pay additional $230,000 on or by July 14, 2014;
     
  • Pay additional $230,000 on or by January 14, 2015; and
     
  • Pay additional $2,245,000 on or by July 14, 2015.

    On December 30, 2010, an amendment was agreed to whereby the funding for minimum cumulative “Expenditures” for “Exploration and Development” (as defined in the Definitive Option Agreement) work on or in connection with any of the mineral interests comprising the Property interests of not less than $11,500,000 was revised in the following manner:

  • no less than an initial $750,000 of the Expenditures shall be expended on the Property by December 31, 2010 (incurred);

  • no less than a further $5,750,000 of the Expenditures shall be expended on the Property by December 31, 2011; and

     
  • no less than a final $5,000,000 of the Expenditures shall be expended on the Property by December 31, 2012.

    On March 22, 2011, a further amendment was agreed to whereby the funding for minimum cumulative “Expenditures” for “Exploration and Development” (as defined in the Mercer Option Agreement) work on or in connection with any of the mineral interests comprising the Property interests was reduced from $11,500,000 to $3,000,000 to be incurred in the following manner:

  • no less than an initial $1,000,000 of the Expenditures shall be expended on the Property by December 31, 2011 (incurred);

  • no less than a further $1,000,000 of the Expenditures shall be expended on the Property by December 31, 2012 (incurred); and

     
  • no less than a final $1,000,000 of the Expenditures shall be expended on the Property by December 31, 2013.

    Title to Property and Underlying Option Agreement

    CMG, a Colombian legal entity, is the rightful owner of the concession contract #LH 0071-17, an exploitation license valid until March 28, 2032, that was registered on March 28, 2008 by INGEOMINAS in the Department of Caldas (registration #HHXB 01). As described above, MGC, a privately-held, Canadian entity registered in British Colombia, entered into an Option Agreement “Underlying Option Agreement” with CMG on March 4, 2010 to acquire a 100% interest in Guayabales. The Company entered into the Definitive Option Agreement with MGC as described above to acquire the 100% interest of Guayabales subject to the terms of the Underlying Option Agreement. No surface agreements are in place; however, CMG represents and warrants reasonable surface access to Guayabales in the Underlying Option Agreement and the Colombian Mining Code guarantees surface access.

    In Colombia, all mineral rights are the property of the government of Colombia. Obtaining a mining right does not transfer ownership of the mineral estate, but creates a temporary right to explore and benefit from minerals in exchange for royalty payments so long as the mining title remains in good standing. Under Colombian mining law, foreign individuals and corporations have the same rights as Colombian individuals and corporations, and Colombian governmental regulatory bodies are specifically prohibited from requiring any additional or different requirements than would be required of a Colombian individual or corporation.

    Subject to the Definitive Option Agreement as described above, the Company is responsible for all obligations established in the Underlying Option Agreement between MGC and CMG in order to complete the 100% acquisition of the Guayabales Property. These obligations include cash payments; provision for allowing continued Limited Mining Rights as described below; property maintenance; and quarterly reports. More specifically, these include:

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      1.

    Cash Payments: The Company is responsible to make cash payments to CMG as described above.

         
      2.

    Limited Mining Rights: The Company provides CMG with Limited Mining Rights, allowing the cooperative group of miners belonging to the entity to continue mining operations on the property. Operations are not to exceed 80 metric tonnes per day, providing that the mining operations are restricted to geographic areas in which mining operations are currently being conducted. The Company has the right to terminate this right to mine, by either completing the cash payment schedule described above, or by making a one time cash payment of $600,000.

         
      3.

    Property Maintenance: The Company is obligated to maintain the property in good standing, free and clear of all liens, charges and encumbrances.

         
      4.

    Property Reports: The Company is obligated to provide CMG with summary operating reports on a 3 month/quarterly schedule.

    Technical Report

    We received a technical report in accordance with the provisions of National Instrument 43-101, Standards of Disclosure for Mineral Projects (“NI 43-101”), of the Canadian Securities Administrators for the Guayabales Property, which is located in the Department of Caldas, Colombia. The complete technical report, which was authored by Dean D. Turner, C.P.G., a qualified person as defined in NI 43-101, was filed under our Company’s profile on the Canadian Securities Administrators public disclosure website, at www.sedar.com, on May 28, 2010. Mr. Turner prepared an update to this technical report, dated February 8, 2011. The technical report, as updated, is referred to herein as the “Technical Report.”

    Location and Means of Access to Property

    The Guayabales Property consists of 247.85 hectares in the Marmato Mining District of Caldas Department, Colombia. The property is located approximately 80 kilometers south of the city of Medellin (Figure 1), and is centered at approximately 1,162,000E, 1,099,000N, Colombian National Grid, Choco projection, or in geographic coordinates at latitude: 5.48 oN and longitude: 75.61 oW (Figure 2).

    The Guayabales Property is accessible by a combination of paved and all weather gravel roads. From Medellin, Colombia, the property can be accessed by driving approximately 114 kilometers along the paved Pan American Highway, and then 25 kilometers through the mining town of Marmato to the Guayabales Property. The climatic conditions of the region support mining operations year-round.

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    10


    Infrastructure

    The Marmato region has an extensive mining history, and as such, provides a skilled work force from the surrounding communities for exploration and mining labor requirements. Water is abundant from either surface or underground sources. Three high tension power lines (230 kV each) belonging to the Colombian national power grid are located between Marmato and the Cauca River valley to the east. A 132 kV substation is located at Marmato, which supplies power to the community and surrounding area, including Guayabales.

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    Property Geology

    A key aspect of the geology of Guayabales is the sheared and mineralized intrusive contact zone between the Tertiary age Marmato Stock and older Paleozoic age marine sediments present in the vicinity of property. The main shear, the Encanto Zone corridor, trends roughly N60oW, is sub-vertical to steeply southwest/northwest dipping, and has widths ranging from 20 to 40 meters. Existing mine workings demonstrate approximately 500 meters of strike, and geomorphic expressions indicate approximately 1.3 kilometers of cumulative strike extent. Lesser shears and other structures are evident throughout the property and range from N 60o W to east–west in strike with sub-vertical dips. A strong rectilinear drainage pattern is present on much of the property which suggests drainages are controlled by structures parallel to the Marmato and Echandia structural trends, offset by cross-cutting faults.

    Mineralization

    The mineralization at Guayabales is typical of an intermediate sulfidation type gold-silver metal deposit associated with a porphyry system. This type of mineralization is similar to that found at Marmato Mountain in La Zona Alta and La Zona Baja. The intermediate sulfidation-type epithermal mineralization is superimposed on, and paragenetically later than the porphyry-style. Targets related to the precursor porphyry-style mineralization may have the potential to develop significant gold-copper–molybdenum mineralization. These types of deposits often have high exploration potential for surface and underground resources amenable to bulk mining techniques. Most of the precious metal mineralization in the Marmato District is associated with base metal sulfides or native precious metal species. Oxide mineralization may occur in the weathering zone above the sulfides but is limited, as is generally typical in the development of supergene oxidation in the Western Cordillera of Colombia. The Company is primarily targeting the bulk tonnage potential of the Guayabales property. However existing underground development and resulting production at Guayabales demonstrates significant target potential for high grade mineralization amenable to selective mining techniques. Narrow, unoxidized, vein-type portions of the main Encanto Zone, as well as subparallel zones, are actively being mined by the CMG.

    The Guayabales Property covers an extensive zone of mineralization and alteration at the projected northwest extension of the Marmato and Echandia structural trends. Guayabales hosts a gold-silver mineralized corridor of shearing and veining (Encanto Zone) and high-level intrusions associated with porphyry gold (copper) mineralization (La Portada and Mill Zones).

    Multiple mineralized shears are exposed in the accessible mine workings and in road cuts on the Guayabales Property. The main prospective productive zone on the property, known as the Encanto Zone, is exposed and developed in the underground workings. The Encanto structural corridor ranges from 20 to 40 meters in width, strikes N50o to N60oW and has a sub-vertical dip. This mineralized zone is sympathetic to the major mineralized fault zones along strike to the southeast at Marmato and Echandia. Other mineralized structures and shears range from a few millimeters to several meters in width, are sub-vertical, and strike from east–west to N40oW.

    The Encanto Zone consists of multi-phase quartz, clay-white mica, and sulfide-rich breccia. Gold and silver mineralization occurs in quartz and sulfides as native gold, auriferous pyrite, argentite, argentiferous galena, and electrum. At Marmato and Guayabales the precious metal-bearing minerals are controlled by late fractures that crosscut earlier pyrite, chalcopyrite and sphalerite veins. The paragenetic sequence indicates an early base-metal mesothermal assemblage formed at temperatures greater than 250 degrees centigrade, associated with quartz-sericite-pyrite alteration, crosscut by later, relatively high-temperature epithermal, precious-metal bearing assemblages associated with quartz-clay-white mica.

    History of Previous Operations

    CMG has conducted underground exploration and development activities since 1995. They have developed and prospected a total of sixteen underground workings, with low rates of production by artisanal miners.

    Two foreign companies are known to have conducted exploration programs on the property: a) Colombia Gold (“CG”) from 2005-2006, and b) Colombian Mines Corporation (“CMC”) from 2006-2009. CG and CMC principally focused their geologic mapping and geochemical sampling programs on Encanto Zone mines and associated underground workings that are encompassed within a 500 meter by 500 meter area. Significant mineralization was also sampled in the underground workings of the Encanto Zone hanging and footwalls. Taken together, the CMC and CG mine area sampling delineated a west-northwest trending, gold-silver mineralized corridor centered along the Encanto Zone, with dimensions of 650 meters northwest-southeast by 350 meters northeast-southwest. Much of this mineralized corridor has not been explored.

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    CMC’s Encanto Zone exploration work culminated in a 17 hole diamond drill program in 2008. The holes were located along 450 meters of projected Encanto Zone strike length, and had orientations that yielded approximate true thickness intercepts. The drill program yielded: a) five holes that successfully intersected the main Encanto Zone across its entire width, b) four holes that initiated penetration of the main zone, but were lost before completion, c) three holes that intersected anomalous gold-silver mineralization along trend to the northwest and southeast, and d) intercepts from a number of drill holes in the hanging and footwall of the gold zone. The CMC core drilling program successfully extended the Encanto Zone’s strike length to 500 meters, and down dip extent to 200 meters. The zone remains open along strike and to depth, with additional exploration potential within in-parallel mineralized zones in the hanging and footwall rocks.

    In addition to the Encanto Zone exploration, CMC also collected 163 chip channel samples along an access road leading to the underground mining area. The road generally trends perpendicular to the west-northwest structural trend projecting onto the Guayabales property from Marmato-Echandia. CMC’s sampling discovered a broad, 600 meter wide zone of fracturing, quartz veining, anomalous copper-lead geochemistry, and gold mineralization. Taken together, CMC’s underground and road cut sampling define a 1,100 meter wide corridor of significant to anomalous gold mineralization that is on trend with Marmato-Echandia, and has the potential to host a bulk tonnage, near surface, oxide gold resource.

    Small scale production continues on the property by CMG. CMG is producing approximately 30 to 50 metric tonnes per week from multiple small adits. Ore is processed in up to 15 separate mills operating at from 1 to 14 metric tonnes per week. Of the ore processed on the property, gold-silver recovery is achieved by milling, gravity concentration and cyanidization. No mercury is used on the Guayabales Property. The late-stage fracture-controlled nature of the precious metals mineralization in the form of electrum and native gold may be a primary reason for the good recovery rates from unoxidized ores.

    The Company’s Exploration Activities

    The Company commenced exploration activities in April-May 2010, with programs that consisted of: 1) property-wide 1:5000 scale geological mapping accompanied by reconnaissance level rock sampling, 2) a systematic property-wide soil sampling campaign, 3) detailed (1:200 scale) road cut geological mapping and chip channel sampling, and 4) a core drilling campaign in the Encanto mine area that is ongoing. The Company’s work over a period of approximately nine months has established the first property-wide context for the well-known intermediate sulfidation gold-silver mineralization related to the Encanto Zone, as well as porphyry related mineralization suggested by CMC’s earlier work.

    The Company’s direct project related work expenditures through 2010 were as follows:

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     Guayabales 2010 Exploration Expenditures 
    Item Description Cost (US$)
    Geologic mapping etc. Professional technical staff $158,000
    Consultants Geologic field investigations & reports $21,678
    Drilling Ongoing DDH program $349,445
    Drill Analysis DDH assays $9,648
    Soils Geochem Property-wide survey $26,802
    Rock Geochem Property-wide, road cut, etc. surveys $10,295
    Geophysics Down payment for 2011 survey $7,000
    Camp costs Project field living $12,768
    Transport  Field travel, assay shipments, etc. $15,794
    Field labor Local labor for pad building, maintenance, etc. $49,014
    Environmental Required reclamation etc. $17,800
    Permitting Water use permit $1,000
    CSR Community supplies, education, etc. $9,800
    Total Approved Expenditures   $689,044.

    Interpretations and Conclusions from Technical Report

    The author of the Technical Report concluded that the mineralization at Guayabales, and the Marmato District in general, is related to the emplacement of porphyry stocks of late Miocene age. Structure is an important control on the mineralization, particularly along northwest trending shear zones. Guayabales hosts a porphyry gold (copper) system and related intermediate sulfidation gold-silver mineralization within a northwest trending structural corridor that projects across the property from the Marmato-Echandia mining complex to the southeast.

    The Company’s mapping of argillic-intermediate to argillic-potassic overprinted by +- phyllic alteration assemblages, coupled with a coincident suite of zoned geochemical anomalies, has established the 750 by 400 meter porphyry gold target. Road chip channel sampling across the gold-enriched porphyry has consistently yielded average grades in the range of 0.24 to 0.28 g/t gold.

    The Encanto Zone gold-silver mineralization has long been established as a viable exploration target through the work of small scale miners, as well as substantial underground sampling programs (over 1000 meters of chip channeling) by previous operators Colombian Gold and Colombian Mines Corporation. Taken together, the CMC and CG mine area sampling delineated a west-northwest trending, gold-silver mineralized corridor centered along the Encanto Zone, with dimensions of 650 meters northwest-southeast by 350 meters northeast-southwest. The Encanto Zone proper ranges from 20 to 40 meters in width, strikes N50°-60°W, and has a sub-vertical dip. CMC’s 17 hole diamond drill program increased the Encanto Zone’s down dip extent to 200 meters, with intercepts such as 21.85 meters (9.18m est. true thickness), including 3.15 meters (1.32m est. true thickness). The Company’s Encanto Zone drill program, has completed 1114.6 meters of drilling in four core holes. All four of the Company’s holes intersected the Encanto Zone. From the CMC and the Company’s drilling, the Encanto Zone remains open along strike and to depth, with additional exploration potential within in-parallel mineralized zones in the hanging and footwall rocks.

    Taken together, the geologic mapping, property-wide geochemistry, drilling, and underground and road cut sampling define a 1,100 meter wide northwest trending corridor of porphyry gold (Portada and Mills Zones) and intermediate sulfidation gold-silver (Encanto Zone) mineralization. This northwest corridor is on trend with the Marmato mining complex to the southeast.

    The Company’s 2010 exploration program focused on three principal goals: a) perform a property-wide assessment based upon geological mapping and geochemical sampling in order to provide context for the intermediate sulfidation gold-silver and porphyry gold styles of mineralization, as well as to define new exploration targets, b) conduct detailed road cut geological mapping and sampling to further refine the porphyry alteration and geochemical models and their relationship to gold mineralization, and c) initiate a drill campaign in the Encanto Zone to confirm previous CMC results, as well as to test for extensions along strike and down dip. The Company’s 2010 work achieved these primary objectives.

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    As a whole, the exploration database that has resulted from the Company’s 2010 programs, and previous work spanning from 2005 (Colombia Gold) through 2009 (Colombian Mines Corporation) is extensive from the perspective of early-stage mineral property evaluation. These data are judged to be reliable, as three different companies, working independently, have generated similar results over time. The author’s independent sampling and database checks, and review of the Company’s and CMC’s sample methods, preparation, analysis and chain of custody have further validated these results. In the case of Encanto Zone related exploration, the underground sampling has now been augmented by CMC’s and the Company’s initial drill testing. While this drilling has verified, from an exploration vantage, the continuity of Encanto gold-silver mineralization along strike and to depth, detailed geologic and grade modeling will require a tighter drill spacing (i.e., 25 m or less), careful surveying, and increasing recovery rates in the mineralized zones before a 43-101 compliant resource can be estimated. Further work on determining the structural controls and three dimensional geometries of the high grade zones should be a priority. The Encanto Zone remains open along strike and down dip, with additional, but lower priority targets occurring in the hanging and footwalls of the zone. Road cut mapping and sampling north of the underground mining area has delineated a broad zone of lower grade porphyry gold mineralization. The work to date has been conducted at a density, and is of a type to identify a viable porphyry exploration target. This is especially so considering the cover of soil and vegetation that conceals the mineralization over +95% of the property. However, additional work, including geophysics (IP, magnetics, VLF-R) and drill testing will be needed to delineate the porphyry gold zones and to further determine the distribution and grade of the mineralization.

    The Company has identified a number of priority exploration targets at Guayabales. The exploration targets identified by the Company define Guayabales as a property of merit, and, in the author of the Technical Report’s view, justify a significant follow-up work program as discussed below.

    Recommendations and Plan of Operations

    The geologic relationship of gold-silver intermediate sulfidation to porphyry gold mineralization provides metallogenic context for the exploration targets and 2011 program for the Guayabales project. The Company’s principal exploration target is a bulk-tonnage, porphyry precious metals deposit that will be potentially amenable to open-pit mining. A second target type with upside exploration potential is the long recognized, higher-grade vein zones amenable to selective, underground mining exploitation. The potential for defining economic gold-silver mineralization of this style is clearly manifested by the presence of a number of small scale mining operations on the property.

    General recommendations for the 12 month Guayabales work program are listed below:

      1)

    A system of umpire lab check assays should be implemented to provide additional confidence in the Company drill sample results. This QA program should concentrate on samples from mineralized intervals, but random samples of non-mineralized material should be included.

      2)

    A study to determine if there is a recovery versus grade sampling issue for Encanto mineralized intervals should be conducted. Efforts to improve recoveries at the rig should continue.

      3)

    A study of whether a coarse gold component can be identified with screen fire assay analysis of coarse rejects from mineralized Encanto Zone intervals should be conducted.

      4)

    Mineralized and altered zones from the CMC drilling should be re-logged and results confirmed by re- assaying the available coarse rejects.

      5)

    A survey network on the property should be established as a base to accurately locate current and past drilling, all mine openings and other works related to ongoing mining, as well as to provide a reference for field mapping and setup a grid for geophysical surveying.

      6)

    An updated, photogrammetrically accurate topographic base should be generated, most likely from satellite stereo imagery. The imagery must be tied to the local ground survey from 5) above.

      7)

    A 10,000 line-meter IP program should be carried out on a priority basis over the porphyry target area. In conjunction with this survey, magnetics and VLF-R should be performed over the entire property.

      8)

    The current drill program should be extended to a total of 7500 meters (approximately 1100m already drilled) in order to test priority targets.

      9)

    A follow-up drill program of 12,000 meters to follow-up on the results of the drill program from 8) above.

      10)

    Underground workings should be re-mapped and check sampled to confirm earlier results. Furthermore, additional underground channel sampling should be conducted for tunnels with limited CMC or CG data.

      11)

    A metallurgical testing program should be carried out on fresh samples from recent drilling to characterize recoveries from gravity techniques, direct cyanidization, flotation with cyanidization, etc.

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      12)

    All exploration data should be compiled into an integrated 3-D model in order to review results to date, plan future work, and as an input to 13) below.

      13)

    A resource estimate should be prepared for the Encanto mineralized corridor, as well as potential near- surface porphyry related mineralization.

      14)

    Additional property should be acquired in areas bounding the identified target areas and obvious extensions of mineralized trends.

    The one year Guayabales exploration program as outlined in the 43-101 is budgeted at US$5,831,635, including land payments until the end of 2011, as follows:

     2011 Guayabales Program Budget 
    Item Description Cost USD
    Access Road build/maintenance & drill pads, etc 95,000
    Drilling 18500 meters of core drilling 3,000,000
    Geological consulting 43-101 resource report 100,000
    Environmental On-going clean-up req.; water treat 76,000
    Equipment Field gear, generators, etc. 60,000
    Geochemistry Field survey costs 90,000
    Geophysics IP, VLF and magnetics surveys 52,000
    Assay Laboratory Drill & geochemical analyses 665,000
    Line cutting For geophysical surveys, etc. 30,000
    Mapping Surface and UG 36,000
    Metallurgy Contract services 80,000
    Other contracts Satellite imagery, photogrammetry, etc. 25,000
    Permitting Permits for roads, drilling, etc. 18,000
    Reclamation Required reclamation work, drill pads, etc. 100,000
    Field Supplies Sample bags, expendables, etc. 60,000
    Surveying Survey base network, DH locs, etc 30,000
    Camp costs Project housing, food, etc. 93,000
    Personnel/Labor costs Professional staff & local labor 489,000
    Technical Subtotal   5,099,000
         
    Community/Social Subtotal Health, community projects, education, etc. 62,000
         
    Communications Cell phones, etc. 12,000
    Legal Title opinion, etc. 24,000
    Licenses, etc. Government requirements 12,000
    Land Payments  CMG 2011 payments 300,000
    Safety, health, training Company and government requirements 36,000
    Logistics, vehicles, etc. Travel and field expenses 130,000
    Personnel Professional staff 14,000
    Direct Project Administration Subtotal   528,000
         
    Total   5,689,400
    Contingency Estimated at 2.5% 142,235
         
    Grand Total   5,831,635

    The 2011 work program was initially focused on further drill testing of the Encanto related mineralization. Accurate surveying of drill hole and underground working locations in the Encanto mining area will allow a 3-D model of the gold-silver mineralization to be developed. Check assaying of CMC drill results, as well as underground confirmation sampling will provide additional confidence in using these data for the Encanto modeling exercise. Further, underground geologic mapping will very likely provide important new, and detailed information on the mineralizing controls of the system. Beyond the Encanto related mineralization, the geophysical surveys will provide important information on the porphyry gold system. Based upon these results, targets can be selected for drill follow-up.

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    The Company has subsequently decided to conduct the proposed work program over a longer period in order to adequately assess the results of work performed and to incorporate drilling results into the on-going work program. Accordingly, the revised 12 month work program for fiscal 2013 is now budgeted at approximately $1,000,000.

    During fiscal 2012, the Company has been involved with legal actions pertaining to the Guayabales property as outlined below in the section titled “ITEM 3. Legal Proceedings”. As such, the Company has focused on these legal actions to protect the Guayabales property and has conducted a minimal maintenance work program while these matters are attended. The Company has filed all required quarterly technical reports on the Guayabales property to the government, maintained and provided security coverage at the camp and warehouse which stores core samples and other technical material which was obtained during the 2011 work program, paid all option payments due to Comunidad Minera Guayabales pursuant to the Underlying Option Agreement and is currently updating the NI 43-101 technical report of the property. The Company has more than fulfilled the exploration work commitment on the Guayabales property pursuant to the option agreement with MGC, which is to be a minimum of $2,000,000 in cumulative exploration costs as of December 31, 2012.

    Competition

    We operate in a highly competitive industry, competing with other mining and exploration companies, and institutional and individual investors, which are actively seeking mineral exploration properties throughout the world together with the equipment, labour and materials required to exploit such properties. Many of our competitors have financial resources, staff and facilities substantially greater than ours. The principal area of competition is encountered in the financial ability to cost effectively acquire prime mineral exploration prospects and then exploit such prospects. Competition for the acquisition of mineral exploration properties is intense, with many properties available in a competitive bidding process in which we may lack technological information or expertise available to other bidders. Therefore, we may not be successful in acquiring and developing profitable properties in the face of this competition. No assurance can be given that a sufficient number of suitable exploration properties will be available for acquisition and development.

    Applicable Laws and Regulations

    Colombian Laws and Regulations

    As indicated above, our primary property of interest is the Guayabales Property in Colombia. As such, we will be subject to applicable Colombian laws and regulations.

    Colombian Mining Code-General Discussion

    Mineral property rights are governed by the Colombian Mining Code, which has been subject to various changes and amendments. The oldest version applicable is Law 20 promulgated in 1969. Law 20 was superseded by decree 2655 in 1988 (the “1988 Decree”), which in turn was amended by Law 685 in 2001 (the “2001 Law”). A recent development is the amendment of the 2001 Law by Law 1382, enacted February 9, 2010. Under Colombian mining law, the holder of surface or subsurface minerals, whether operating on government or private property, is subject to the legal requirements established under the 1988 Decree, the 2001 Law, and the new (February 2010) Law 1382.

    The following discussion of applicable Colombian mining laws is subject to any amendments thereto which may be effected based upon Law 1382. The Company has been advised that the new law excludes mining and exploration activity from the Pàramo ecosystem, which occurs above 3,200 meters elevation. The Guayabales Property occurs within an elevation range of 1620 to 2240 meters elevation. The Company has reviewed the Law 1382 and has determined that there is no impact on the Guayabales Property or the Company’s planned exploration program.

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    Under the 2001 Law, there is a single type of mineral tenure, a Concession Contract covering exploration, construction and exploitation. The initial duration of a Concession Contract is 30 years, but may be extended for up to 30 additional years. A Concession Contract has three distinct phases: exploration, construction, and exploitation.

    The exploration phase lasts for the first three years of the Concession Contract, but may be extended for a term of up to two years. During this phase, the holder has the right to carry out within the given area, the studies necessary to establish the existence of the minerals. These studies should include a determination of the existence, location, geometry, and economic viability of the mineral deposit. In order to proceed to the construction phase, 30 days prior to the completion of the exploration phase, the Concession Contract holder must submit a building and works plan – Plan de Trabajas y Obras (a “PTO”) to the mining authority for approval and concurrently submit an environmental impact study – Estudio de Impacto Ambiental (an “EIA”) to the environmental authority.

    The EIA provides the technical support parameters to obtain an environmental license. Depending on the commodity being produced and the level of production, this study must be submitted to the Ministry of the Environment or to environmental authority of the jurisdiction in which the mining project is located (i.e. the Regional Autonomous Corporations). The environmental license grants the necessary environmental permits, including concessions and authorizations, to make use of and profit from renewable natural resources necessary to move the project forward including resources such as water and timber. The construction and exploitation stage cannot begin until the environmental license is obtained.

    The construction phase lasts for three years, commencing on acceptance of the PTO, and may be extended for an additional year. During this phase, the holder has the right to prepare the mining area and install the services, equipment, and fixed machinery necessary to start and carry out the extraction, storage, transportation and beneficiation of the minerals.

    During the exploitation phase, the holder has the right to carry out within the given area the exploitation of minerals according to the principles, rules and criteria of accepted geology and mining engineering. The Company is obligated to comply with all legal, technical, operative and environmental rules set forth in the mining code, with all buildings, facilities and mining assemblies designed and installed according to the approved PTO. The exploitation phase lasts for the remaining duration of the Concession Contract.

    Environmental Obligations

    Exploration on a mineral tenure which exceeds prospecting, mapping and sampling, requires the submittal and approval of an Environmental Management Plan - Plan of Management Environmental (“PMA”) which must include:

      (a)

    the work to be done (i.e., the number of drill holes, location, direction, depth, etc);

         
      (b)

    the proposed points of diversion for water so appropriate water permits can be issued;

         
      (c)

    the location and number of settling ponds to prevent turbidity in the streams by drilling fluids; and

         
      (d)

    the location of fuel and oil storage areas, away from streams and creeks.

    The preparation and filing of the PMA is normally the responsibility of the drill contractor, and is typically approved in 15 to 30 days, up to a maximum of 90 days. There is no bond requirement for exploration PMA’s, and no site reclamation is required. While PMA’s do not require any authorization or environmental permits, any such work carried out in areas designated as natural reserves according to Article 34 of the Code are to be governed by those rules and restrictions.

    As discussed above, an EIA must be submitted before an environmental license will be issued. The EIA has to demonstrate the PTO’s environmental feasibility. Without approval of this study and the issuance of the corresponding Environmental License, mining and exploitation cannot commence.

    Chapter 20 of the Mining Code under the 2001 Law deals with the issuance of the required environmental licenses for mining titles. Once an EIA has been submitted, the law provides that the issuance of the required environmental licenses can only be refused when:

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      (a)

    the EIA does not comply with the requirement in Article 204 of the Code and specifically those foreseen in the terms of reference and/or guides, established by the competent environmental authority;

         
      (b)

    the EIA has errors or omissions that cannot be corrected by the applicant and that are required components of such study;

         
      (c)

    the level of prevention, mitigation, correction, compensation and substitution for the negative impacts of the mining project prescribed in the EIA do not comply with the substantial elements established for such effects in the guidelines; or

         
      (d)

    the omissions, errors or deficiencies of the EIA, and of the proposed measures referred to in the previous subsections, affect the total mining project.

    The 2001 Law also requires a Concession Contract holder to obtain an Environmental Mining Insurance Policy. During the exploration stage, the insured value under the policy must be 5% of the value of the planned annual exploration expenditures and during the construction phase the insured value under the policy must be 5% of the planned investment for assembly and construction under the PTO. During the exploitation phase the insured value under the policy must be 10% of the product of the estimated annual production multiplied by the mine mouth price of the minerals being produced, as fixed annually by the Colombian government. For licenses or agreements to be maintained under decree 2655 (the 1988 Decree), the holder has to obtain an insurance policy and the insured value must be 10% of the estimated production for the first two years as established by the PTI. Further, the policy must be maintained during the entire term of the license or agreement.

    Surface Rights And Surface Tenure

    Colombian law specifically provides that the owner of a Concession Contract, exploration license or exploitation license is entitled to use so much of the surface as is necessary to carry out the activities under the given license or contract. Under normal conditions, this requires little more than speaking with the surface owner, obtaining permission and paying a reasonable fair market price for the area actually used. Colombian law grants exclusive temporary possession of mineral deposits and provides mandatory easements to ensure efficient exploration and exploitation of legal mining titles and further provides authority to impose appropriate easements as necessary both within and external to the limits of the mining title. The holder of a mining title must agree with the surface owner or other party against which such easement is enforceable, including other mining title holders, upon the time, and appropriate remuneration for the use and occupancy. Colombian law provides that the remuneration payable to the surface owner is to be based on the reasonable fair market value of the land and is not to include any value attributable to the development of the “mineral wealth”, and that it should only be for so much of the surface as is actually affected, consumed or occupied by the exploration or mining activity. Should the use of the surface affect the value of areas not subject to the easement, this loss of value will also be taken into account when fixing the remuneration payable to the land owners.

    Furthermore, since the mining industry is an activity of public interest, it is also possible for the concessionaire to request the competent mining authority for the expropriation of the lands necessary for mining activities. The acquisition of land through expropriation is also subject to prior indemnification to the owner(s).

    Taxes And Royalty Obligations

    In Colombia, production of gold and silver is subject to a royalty payable to the state equal to 4% of the gross value of the minerals calculated at the mine mouth for gold, subject to certain deductions and adjustments. CMG has represented and warranted in the Underlying Option Agreement on March 4, 2010 that they are obligated to pay all associated royalty payments related to their current exploitation. The Company is not liable for any of the royalty payments related to the current exploitation.

    The value per gram of gold and silver at mine mouth for the estimation of royalties will be eighty per cent (80%) of the average international price for the previous month, as published in the London Metal Exchange.

    Under the 2001 Law, Colombian staff of a mining company, as a whole, should receive not less than seventy percent (70%) of the total payroll of qualified or of skilled personnel in upper management or senior level staff, and no less than eighty percent (80%) of the value of total payroll of the subordinates. Upon prior authorization, relief may be granted by the Ministry of Labour for a specified time to allow specialized training for Colombian personnel.

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    Research and Development Activities

    No research and development expenditures have been incurred, either on our account or sponsored by customers, during the past three years.

    Employees

    We do not employ any persons on a full-time or on a part-time basis. Mr. Gary Powers is our President and Chief Executive Officer, and Mr. William Thomas is our Chief Financial Officer, Secretary and Treasurer, and together they are primarily responsible for all of our day-to-day operations. Other services are provided by outsourcing and consultant and special purpose contracts.

    ITEM 1A.          RISK FACTORS

    An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this annual report in evaluating our company and its business before purchasing shares of our common stock. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. The risks described below may not be all of the risks facing our company. Additional risks not presently known to us or that we currently consider immaterial may also impair our business operations. You could lose all or part of your investment due to any of these risks.

    Risks Related to Our Business

    We will require significant additional financing in order to continue our exploration activities and our assessment of the commercial viability of our mineral properties.

    We will need to raise additional financing to complete further exploration of our mineral properties. Furthermore, if the costs of our planned exploration programs are greater than anticipated, we may have to seek additional funds through public or private share offerings or arrangements with corporate partners. There can be no assurance that we will be successful in our efforts to raise these require funds, or on terms satisfactory to us. The continued exploration of our mineral properties and the development of our business will depend upon our ability to establish the commercial viability of our mineral properties and to ultimately develop cash flow from operations and reach profitable operations. We currently are in the exploration stage and we have no revenue from operations and we are experiencing significant negative cash flow. Accordingly, the only other sources of funds presently available to us are through the sale of equity. We presently believe that debt financing will not be an alternative to us as all of our properties are in the exploration stage. Alternatively, we may finance our business by offering an interest in our mineral properties to be earned by another party or parties carrying out further exploration thereof or to obtain project or operating financing from financial institutions, neither of which is presently intended. If we are unable to obtain this additional financing, we will not be able to continue our exploration activities and our assessment of the commercial viability of our mineral properties.

    As our mineral properties do not contain any reserves or any known body of economic mineralization, we may not discover commercially exploitable quantities of ore on our mineral properties that would enable us to enter into commercial production, achieve revenues and recover the money we spends on exploration.

    Our properties do not contain reserves in accordance with the definitions adopted by the SEC and there is no assurance that any exploration programs that we carry out will establish reserves. All of our mineral properties are in the exploration stage as opposed to the development stage and have no known body of economic mineralization. The known mineralization at these projects has not yet been determined to be economic ore, and may never be determined to be economic. We plan to conduct further exploration activities on our mineral properties, which future exploration may include the completion of feasibility studies necessary to evaluate whether a commercial mineable ore body exists on any of our mineral properties. There is a substantial risk that these exploration activities will not result in discoveries of commercially recoverable quantities of ore. Any determination that our properties contain commercially recoverable quantities of ore may not be reached until such time that final comprehensive feasibility studies have been concluded that establish that a potential mine is likely to be economic. There is a substantial risk that any preliminary or final feasibility studies carried out by us will not result in a positive determination that our mineral properties can be commercially developed.

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    Our exploration activities on our mineral properties may not be successful, which could lead us to abandon our plans to develop such properties and our investments in exploration.

    We are an exploration stage company and have not as yet established any reserves on our properties. Our long-term success depends on our ability to establish commercially recoverable quantities of ore on our mineral properties that can then be developed into commercially viable mining operations. Mineral exploration is highly speculative in nature, involves many risks and is frequently non-productive. These risks include unusual or unexpected geologic formations, and the inability to obtain suitable or adequate machinery, equipment or labor. The success of mineral exploration is determined in part by the following factors:

    • identification of potential mineral mineralization based on superficial analysis;

    • availability of government-granted exploration permits;

    • the quality of management and geological and technical expertise; and

    • the capital available for exploration.

    Substantial expenditures are required to establish proven and probable reserves through drilling and analysis, to develop metallurgical processes to extract metal, and to develop the mining and processing facilities and infrastructure at any site chosen for mining. Whether a mineral deposit will be established or determined to be commercially viable depends on a number of factors, which include, without limitation, the particular attributes of the deposit, such as size, grade and proximity to infrastructure; metal prices, which fluctuate widely; and government regulations, including, without limitation, regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. We may invest significant capital and resources in exploration activities and abandon such investments if we are unable to identify commercially exploitable mineral reserves. The decision to abandon a project may reduce the trading price of our common stock and impair our ability to raise future financing. We cannot provide any assurance to investors that we will discover any mineralized material in sufficient quantities on any of our properties to justify commercial operations. Further, we will not be able to recover the funds that we spend on exploration if we are not able to establish commercially recoverable quantities of ore on our mineral properties.

    Our business is difficult to evaluate because we have a limited operating history.

    In considering whether to invest in our common stock, you should consider that our inception was October 11, 2004 and, as a result, there is only limited historical financial and operating information available on which to base your evaluation of our performance.

    We have a history of operating losses and there can be no assurances we will be profitable in the future.

    We have a history of operating losses, expect to continue to incur losses, are considered to be in the exploration stage, and may never be profitable. Further, we have been dependent on sales of our equity securities and debt financing to meet our cash requirements. We have incurred net losses totaling $(32,660,597) from October 11, 2004 (inception) to February 29, 2012. We incurred net losses totaling $(2,007,487) in the year ended February 29, 2012 and $5,547,005 in the year ended February 28, 2011. Further, we do not expect positive cash flow from operations in the near term. There is no assurance that actual cash requirements will not exceed our estimates. In particular, additional capital may be required in the event that: (i) the costs to acquire additional mineral exploration claims are more than we currently anticipate; (ii) exploration costs for additional claims increase beyond our expectations; or (iii) we encounter greater costs associated with general and administrative expenses or offering costs.

    Our participation in of mineral exploration prospects has required and will continue to require substantial capital expenditures. The uncertainty and factors described throughout this section may impede our ability to economically discover mineral prospects. As a result, we may not be able to achieve or sustain profitability or positive cash flows from operating activities in the future.

    21


    We will require additional funding in the future.

    In addition to our current capital requirements, based upon our historical losses from operations, we will require additional funding in the future. If we cannot obtain capital through financings or otherwise, our ability to execute our exploration programs will be greatly limited. Our current plans require us to make capital expenditures for the exploration of our minerals exploration properties. Historically, we have funded our operations through the issuance of equity and short-term debt financing arrangements. We may not be able to obtain additional financing on favorable terms, if at all. Our future cash flows and the availability of financing will be subject to a number of variables, including the market prices of relevant minerals. Further, debt financing could lead to a diversion of cash flow to satisfy debt-servicing obligations and create restrictions on business operations. If we are unable to raise additional funds, it would have a material adverse effect upon our operations.

    As part of our growth strategy, we may acquire additional mineral exploration properties.

    Such acquisitions may pose substantial risks to our business, financial condition, and results of operations. In pursuing acquisitions, we will compete with other companies, many of which have greater financial and other resources to acquire attractive properties. Even if we are successful in acquiring additional properties, such properties may not produce positive results of exploration, or we may not complete exploration of such prospects within specified time periods, which may cause the forfeiture of the lease or other interest in that prospect. There can be no assurance that we will be able to successfully integrate acquired properties, which could result in substantial costs and delays or other operational, technical, or financial problems. Further, acquisitions could disrupt ongoing business operations. If any of these events occur, it would have a material adverse effect upon our operations and results from operations.

    The mineral exploration industry is highly competitive and there is no assurance that we will be successful in acquiring any additional property interests which we may seek.

    The mineral exploration industry is intensely competitive, and we compete with other companies that have greater resources. Many of these companies not only explore for and produce minerals, but also market various minerals and other products on a regional, national or worldwide basis. These companies may be able to pay more for productive mineral properties and exploratory prospects or define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, these companies may have a greater ability to continue exploration activities during periods of low mineral market prices. Our larger competitors may be able to absorb the burden of present and future federal, state, local and other laws and regulations more easily than we can, which would adversely affect our competitive position. Our ability to acquire additional properties and to explore them in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. In addition, because we have fewer financial and human resources than many companies in our industry, we may be at a disadvantage in bidding for exploratory prospects.

    We are a new entrant into the mineral exploration industry without profitable operating history.

    Since inception, our activities have been limited to organizational efforts, obtaining working capital and acquiring and exploring a very limited number of properties. As a result, there is limited information upon which to base our future success.

    The business of minerals exploration is subject to many risks and uncertainties, including those described in this section, and if minerals found in economic quantities, the profitability of future mining ventures depends upon factors beyond our control. The profitability of mining mineral properties if economic quantities of minerals are found is dependent upon many factors and risks beyond our control, including, but not limited to: (i) unanticipated ground and water conditions and adverse claims to water rights; (ii) geological problems; (iii) metallurgical and other processing problems; (iv) the occurrence of unusual weather or operating conditions and other force majeure events; (v) lower than expected ore grades; (vi) accidents; (vii) delays in the receipt of or failure to receive necessary government permits; (viii) delays in transportation; (ix) labor disputes; (x) government permit restrictions and regulation restrictions; (xi) unavailability of materials and equipment; and (xii) the failure of equipment or processes to operate in accordance with specifications or expectations.

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    The risks associated with exploration and, if applicable, mining could cause personal injury or death, environmental damage, delays in mining, monetary losses and possible legal liability.

    We are not currently engaged in mining operations because we are in the exploration phase and have not yet any proved mineral reserves. We are in the process of applying for property and liability insurance. Cost effective insurance contains exclusions and limitations on coverage and may be unavailable in some circumstances.

    The marketability of natural resources will be affected by numerous factors beyond our control which may result in us not receiving an adequate return on invested capital to be profitable or viable.

    The marketability of natural resources which may be acquired or discovered by us will be affected by numerous factors beyond our control. These factors include macroeconomic factors, market fluctuations in commodity pricing and demand, the proximity and capacity of natural resource markets and processing equipment, governmental regulations, land tenure, land use, regulation concerning the importing and exporting of minerals and environmental protection regulations. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital to be profitable or viable.

    Mining operations are subject to comprehensive regulation, which may cause substantial delays or require capital outlays in excess of those anticipated, causing an adverse effect on our business operations.

    If economic quantities of minerals are found on any of our mineral property interests by us in sufficient quantities to warrant mining operations, such mining operations are subject to federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Mining operations 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 mining methods and equipment. Various permits from government bodies are required for mining operations to be conducted; no assurance can be given that such permits will be received. Environmental standards imposed by federal, provincial, or local authorities may be changed and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus resulting in an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages which we may elect not to insure against due to prohibitive premium costs and other reasons. To date we have not been required to spend material amounts on compliance with environmental regulations. However, we may be required to do so in future and this may affect our ability to expand or maintain our operations.

    Mineral exploration and development and mining activities are subject to certain environmental regulations, which may prevent or delay the commencement or continuance of our operations.

    Mineral exploration and development and future potential mining operations are or will be subject to stringent federal, state, provincial, and local laws and regulations relating to improving or maintaining environmental quality. Environmental laws often require parties to pay for remedial action or to pay damages regardless of fault. Environmental laws also often impose liability with respect to divested or terminated operations, even if the operations were terminated or divested of many years ago.

    Future potential mining operations and current exploration activities are or will be subject to extensive laws and regulations governing prospecting, development, production, exports, taxes, labor standards, occupational health, waste disposal, protection and remediation of the environment, protection of endangered and protected species, mine safety, toxic substances and other matters. Mining is also subject to risks and liabilities associated with pollution of the environment and disposal of waste products occurring as a result of mineral exploration and production. Compliance with these laws and regulations will impose substantial costs on us and will subject us to significant potential liabilities.

    Costs associated with environmental liabilities and compliance are expected to increase with the increasing scale and scope of operations and we expect these costs may increase in the future.

    23


    We believe that our operations comply, in all material respects, with all applicable environmental regulations. However, we are not fully insured at the current date against possible environmental risks.

    Any change in government regulation/administrative practices may have a negative impact on our ability to operate and our profitability.

    The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in any applicable jurisdiction may be changed, applied or interpreted in a manner which will fundamentally alter our ability to carry on business. The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on us. Any or all of these situations may have a negative impact on our ability to operate and/or our profitably.

    We may be unable to retain key employees or consultants or recruit additional qualified personnel.

    Due to our limited operating history and financial resources, we are entirely dependent on the continued service of William Thomas, our sole executive officer and a director. Further, we do not have key man life insurance on any of our directors. We may not have the financial resources to hire a replacement if Mr. Thomas was to resign or otherwise cease serving as an officer of our company. The loss of service of Mr. Thomas could therefore significantly and adversely affect our operations.

    Our officers and directors may be subject to conflicts of interest.

    Some of our officers and directors serve only part time and may be subject to conflicts of interest. Each may devote part of his working time to other business endeavors, including consulting relationships with other corporate entities, and may have responsibilities to these other entities. Such conflicts may include deciding how much time to devote to our affairs, as well as what business opportunities should be presented to us. Because of these relationships, some of our officers and directors may be subject to conflicts of interest.

    Nevada law and our articles of incorporation may protect our directors from certain types of lawsuits.

    Nevada law provides that our officers and directors will not be liable to us or our stockholders for monetary damages for all but certain types of conduct as officers and directors. Our Bylaws permit us broad indemnification powers to all persons against all damages incurred in connection with our business to the fullest extent provided or allowed by law. The exculpation provisions may have the effect of preventing stockholders from recovering damages against our officers and directors caused by their negligence, poor judgment or other circumstances. The indemnification provisions may require us to use our limited assets to defend our officers and directors against claims, including claims arising out of their negligence, poor judgment, or other circumstances.

    Risks Related to Our Common Stock

    The trading price of our common stock on the OTC Bulletin Board has been and may continue to fluctuate significantly and stockholders may have difficulty reselling their shares.

    Our common stock commenced trading on the OTC Bulletin Board on November 7, 2006 and the trading price has fluctuated. In addition to volatility associated with securities in general, the value of your investment could decline due to the impact of any of the following factors upon the market price of our common stock: (i) disappointing results from our discovery or development efforts; (ii) failure to meet our revenue or profit goals or operating budget; (iii) decline in demand for our common stock; (iv) downward revisions in securities analysts’ estimates or changes in general market conditions; (v) technological innovations by competitors or in competing technologies; (vi) lack of funding generated for operations; (vii) investor perception of our industry or our prospects; and (viii) general economic trends.

    In addition, stock markets have experienced price and volume fluctuations and the market prices of securities have been highly volatile. These fluctuations are often unrelated to operating performance and may adversely affect the market price of our common stock. As a result, investors may be unable to sell their shares at a fair price and you may lose all or part of your investment.

    24


    Additional issuances of equity securities may result in dilution to our existing stockholders. Our Articles of Incorporation, as amended, authorize the issuance of 140,625,000 shares of common stock.

    The Board of Directors has the authority to issue additional shares of our capital stock to provide additional financing in the future and the issuance of any such shares may result in a reduction of the book value or market price of the outstanding shares of our common stock. If we do issue any such additional shares, such issuance also will cause a reduction in the proportionate ownership and voting power of all other stockholders. As a result of such dilution, if you acquire shares of our common stock, your proportionate ownership interest and voting power could be decreased. Further, any such issuances could result in a change of control.

    Our common stock is classified as a “penny stock” under SEC rules which limits the market for our common stock.

    Because the market price of the common stock has fluctuated and may trade at times at less than $5 per share, the common stock may be classified as a “penny stock.” SEC Rule 15g-9 under the Exchange Act imposes additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as an “established customer” or an “accredited investor.” This includes the requirement that a broker-dealer must make a determination that investments in penny stocks are suitable for the customer and must make special disclosures to the customers concerning the risk of penny stocks. Many broker-dealers decline to participate in penny stock transactions because of the extra requirements imposed on penny stock transactions. Application of the penny stock rules to our common stock reduces the market liquidity of our shares, which in turn affects the ability of holders of our common stock to resell the shares they purchase, and they may not be able to resell at prices at or above the prices they paid.

    A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our operations.

    A decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise additional capital for our operations. Because our operations to date have been principally financed through the sale of equity securities, a decline in the price of our common stock could have an adverse effect upon our liquidity and our continued operations. A reduction in our ability to raise equity capital in the future would have a material adverse effect upon our business plan and operations, including our ability to continue our current operations. If our stock price declines, we may not be able to raise additional capital or generate funds from operations sufficient to meet our obligations.

    ITEM 1B.          UNRESOLVED STAFF COMMENTS

    None.

    ITEM 2.             PROPERTIES

    We lease our principal office space located at 880-666 Burrard Street, Vancouver, British Columbia, V6C 2G3. This office space is for the conduct of our business operations and costs us approximately $5,000 monthly. The office and services related thereto may be cancelled at any time with a 30 day notice. The mineral properties in which we have an interest are described above under “Item 1. Business”.

    ITEM 3.             LEGAL PROCEEDINGS

    On June 9, 2011, Rahim Jivraj, a former officer and director of the Company filed an action against the Company in the Supreme Court of British Columbia. The plaintiff alleges that the Company owes him certain monies for payment under an alleged promissory note as well as pursuant to certain alleged management fees, expenses and disbursements which is asserted were incurred by the plaintiff in the plaintiff's prior role as an officer and director of the Company. The Company is of the view that such allegations are without merit and intends to vigorously contest the action. On July 13, 2011, the Company filed a defence to this action and a counterclaim against the plaintiff denying that any monies are owing and seeking damages against the plaintiff for breach of contract, breach of fiduciary duty and misrepresentation.

    25


    On July 11, 2011, Mercer Gold Corp. ("Mercer BC"), a privately held British Columbia company which is owned and/or controlled by Mr. Jivraj, delivered a letter to the Company which purported to allege defaults (the “First Notice of Default”) under the Company's existing Mineral Assets Option Agreement, dated for reference effective as at April 13, 2010 (the "Option Agreement"), with Mercer BC, with respect to the Guayabales Gold Project in Columbia. It is the Company's position that the allegations of default are without merit and the letter was not valid notice of default under the Option Agreement.

    On July 19, 2011, the Company responded and advised Mercer BC as to its position with respect to each allegation of default in the First Notice of Default.

    On August 25, 2011, Mercer BC delivered a letter to the Company, which purported to terminate the Option Agreement on the basis that the alleged defaults had not been cured. The Company regards Mercer BC's position as without merit and considers the purported termination to be invalid. The Company intends to continue as operator of the mineral property interests underlying the project as set forth in the Option Agreement.

    On September 9, 2011, the Company gave notice to Mercer BC that it intends to commence arbitration proceedings to address the validity of the termination.

    On September 13, 2011, the Company filed an amended counterclaim as against Mr. Jivraj. The counterclaim seeks an order requiring Mr. Jivraj to disgorge to the Company all of his shares in Mercer BC together with restitution of all benefits he received from the Company while serving as its President. The Company also seeks damages, including aggravated and punitive damages. The counterclaim alleges that Mr. Jivraj acted in a conflict of interest, while President of the Company, by reason of his failure to divest himself of his interest in Mercer BC. It alleges that he formed a plan to use funds raised by the Company to develop the Option Agreement property interests, and then took active steps to put the Company in a position where it might default under the Option Agreement. It is alleged that he then resigned from the Company and resumed his position as President of Mercer BC in order to assist Mercer BC in reacquiring these property interests so that he could vend the property interests to another third party for new consideration. The counterclaim alleges that Mr. Jivraj has attempted to usurp a mature business opportunity belonging to the Company by assisting Mercer BC in issuing the default notice and the termination notice, in breach of fiduciary duty. In addition, the counterclaim alleges that Mr. Jivraj has interfered with the Company's economic interests using unlawful means, including fraud, deceit, conversion, slander of title and defamation. The counterclaim includes particulars of unlawful conduct, including an attempt by Mr. Jivraj to convince a Company consultant to assist him in triggering a default under the Option Agreement by ensuring that a third party service supplier was not paid.

    On September 20, 2011 the Company filed a notice of application against each of Mr. Jivraj and Mercer BC, seeking an injunction against Mr. Jivraj and Mercer BC to restrain them from interfering with the Company's activities as operator of the Guayabales Gold Project in Colombia and from interfering with the Company's rights as optionee under the Option Agreement, pending conclusion of arbitration.

    On October 3, 2011, Mercer BC filed a Response to Civil Claim, and on October 11, 2011 Mercer BC filed a Counterclaim, joining the members of the Company's Board of Directors as defendants. These pleadings have been filed in opposition to the Company's claim seeking an interlocutory injunction pending arbitration of the parties' dispute concerning Mercer BC's purported termination of the Option Agreement. The Counterclaim seeks, among other things, a declaration that the Option Agreement is void and/or rescission of the Option Agreement. The Counterclaim also seeks damages. The Company denies all of the claims made in the Counterclaim as malicious, spurious and without factual basis.

    On December 6, 2011 the British Columbia Supreme Court (the "Court") issued Reasons for Judgment (the "Reasons for Judgment") granting an injunction against both Mr. Jivraj and Mercer BC, enjoining each of them from taking any steps to interfere with the Company's role as operator of the Guayabales Gold Project located in Colombia (the "Property") and interfering with the Option Agreement, pending completion of the arbitration proceeding commenced by the Company with respect to such matter (the "Arbitration Proceeding"). The Court has also ordered that a counterclaim filed by Mercer BC in the Court shall be stayed.

    The Court rejected Mercer BC's application to stay the Arbitration Proceeding commenced by the Company. Mercer BC had argued that the Company was barred from seeking arbitration to challenge Mercer BC's termination of the Option Agreement. The Court determined that the Company was not barred and that the issues sought to be determined by the Company are appropriately advanced in the Arbitration Proceeding now being administered by the British Columbia International Commercial Arbitration Centre.

    26


    In the Reasons for Judgment, the Court has also ordered each of Mercer BC and Mr. Jivraj to disclose, within 24 hours, the names of all persons and entities with whom Mr. Jivraj has discussed a possible sale or deal concerning the Property since March 28, 2011, and to refrain from communicating with any person or entity for the purpose of discussing a possible agreement concerning the Property in a manner inconsistent with the Company's continuing role as optionee and operator of the Property, pending the Arbitration Proceeding. The Court has further restrained Mr. Jivraj from taking any steps to transfer his shares in Mercer BC and the Company to any third party.

    On December 21, 2011, Mercer BC delivered a letter to the Company providing notice of default (the “Second Notice of Default”) which purported to allege default by the Company under section 2.2(c)(i) of the Option Agreement as amended by the Company and Mercer BC on or about March 22, 2011.

    On December 29, 2011, the Company responded and advised Mercer BC that the Company disputes the validity of the Second Notice of Default, that it denies that such default has occurred and that it is submitting the question to arbitration.

    On January 9, 2012, the Company filed a notice to arbitrate the Second Notice of Default with Mercer BC and the British Columbia International Commercial Arbitration Centre pursuant to Article 16.2 of the Option Agreement (“Arbitration Proceeding #2), whereby the Company is seeking: (i) a declaration that the Second Notice of Default is invalid; (ii) in the alternative, a declaration that the Company was not in default as alleged in the Second Notice of Default; and (ii) an order requiring Mercer BC to pay to the Company costs of the arbitration.

    On January 13, 2012, the arbitrators (the “Arbitrators”) of the Arbitration Proceeding dealing with the First Notice of Default ordered the Company and Mercer BC to post $35,000 each as security for the Arbitrators’ fees. The Company complied with this order, however, Mercer BC has not.

    On February 16, 2012, the Company applied to the Arbitration Proceeding to strike portions of Mercer BC’s defense on the basis that it raised factual issues, which were beyond the jurisdiction of the Arbitration Proceeding. The Company’s application was dismissed, however, in responding to the application, Mercer BC withdrew a further allegation of default, leaving only two remaining allegations of default from the original ten grounds of default contained in the First Notice of Default.

    On February 29, 2012, the Arbitration Proceeding #2 dealing with the Second Notice of Default was settled on the basis that Mercer BC withdrew the Second Notice of Default, without prejudice to its ability to assert default on the same grounds after December 31, 2012.

    On March 5, 2012, the Arbitrators provided Mercer BC with a further 14 days to comply with the payment order, however, Mercer BC failed to comply with such order.

    On March 19, 2012, the Arbitrators declared the termination notice that was issued by Mercer BC to the Company on August 25, 2011 as invalid.

    On May 2, 2012, the Arbitrators ordered that the Arbitration Proceedings shall be suspended until such time as Mercer BC complies with its order.

    ITEM 4.             MINE SAFETY DISCLOSURES

    Not applicable.

    27



    ITEM 5.

    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

    Market for Common Equity

    Shares of our common stock have been quoted on the OTC Bulletin Board since November 7, 2006. From November 7, 2006 to June 5, 2007 shares of our common stock were quoted on the OTC Bulletin Board under the symbol “ANCR”, from June 6, 2007 to March 10, 2008 under the symbol “NUMX”, from March 11, 2008 to June 8, 2010 under the symbol “URNI”, from June 9, 2010 to date under the symbol “MRGP” and from November 14, 2011 to the present under the symbol “TSOR”.

    The market for our common stock is limited, and can be volatile. The following table sets forth the high and low bid prices relating to our common stock on a quarterly basis for the periods indicated, adjusted to give retroactive effect to stock splits.. These quotations reflect inter-dealer prices without retail mark-up, mark-down, or commissions, and may not reflect actual transactions.

    OTC Bulletin Board 
    Quarter Ended   High   Low
    February 29, 2012   $0.15   $0.03
    November 30, 2011   $0.30   $0.03
    August 31, 2011   $0.24   $0.08
    May 31, 2011   $1.80   $0.18
    February 28, 2011   $1.76   $1.324
    November 30, 2010   $2.58   $0.80
    August 31, 2010   $3.00   $1.20
    May 31, 2010   $4.20   $1.80

    The last reported sales price for our shares on the OTC Bulletin Board on June 19, 2012 was $0.031 per share. As of June 1, 2012, we had 35 shareholders of record, which does not include shareholders whose shares are held in street or nominee names.

    Dividend Policy

    No dividends have been declared or paid on our common stock. We have incurred recurring losses and do not currently intend to pay any cash dividends in the foreseeable future.

    Securities Authorized For Issuance Under Compensation Plans

    On April 5, 2010, our Board of Directors authorized and approved the adoption of our 2010 Stock Incentive Plan (the “2010 Plan”), which superseded and replaced our 2008 Stock Incentive Plan (the “2008 Plan”) and our 2009 Stock Incentive Plan (the “2009 Plan”), except that any awards previously granted under our 2008 Plan and 2009 Plan that remained outstanding at the time of the approval of our 2010 Plan were brought forward and are now covered by the terms and conditions of the 2010 Plan. Pursuant to the 2010 Plan, the maximum number of shares which may be issued pursuant to all awards under the 2010 Plan is 3,431,875. The table set forth below presents information relating to our equity compensation plans as of February 29, 2012.

    28







    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 column (a))
                 
    Equity Compensation Plans Approved by Security Holders -0- -0- -0-
                 
    Equity Compensation Plans Not Approved by Security Holders
                 
             2010 Stock Incentive Plan   550,000   $2.00   2,881,875

    The purpose of the 2010 Plan is to enhance our long-term stockholder value by offering opportunities to our directors, officers, employees and eligible consultants to acquire and maintain stock ownership in order to give these persons the opportunity to participate in our growth and success, and to encourage them to remain in our service.

    The 2010 Plan is to be administered by our Board of Directors or a committee appointed by and consisting of two or more members of the Board of Directors, which shall determine, among other things, (i) the persons to be granted awards under the 2010 Plan; (ii) the number of shares or amount of other awards to be granted; and (iii) the terms and conditions of the awards granted. The Company may issue restricted shares, options, stock appreciation rights, deferred stock rights, dividend equivalent rights, among others, under the 2010 Plan.

    An award may not be exercised after the termination date of the award and may be exercised following the termination of an eligible participant’s continuous service only to the extent provided by the administrator under the 2010 Plan. If the administrator under the 2010 Plan permits a participant to exercise an award following the termination of continuous service for a specified period, the award terminates to the extent not exercised on the last day of the specified period or the last day of the original term of the award, whichever occurs first. In the event an eligible participant’s service has been terminated for “cause”, he or she shall immediately forfeit all rights to any of the awards outstanding.

    The foregoing summary of the 2010 Plan is not complete and is qualified in its entirety by reference to the 2010 Plan, a copy of which was filed as an exhibit to our Annual Report on Form 10-K for the year ended February 28, 2010 filed with the SEC on June 16, 2010.

    Recent Sales of Unregistered Securities

    On April 4, 2011 we issued 300,000 shares of our common stock to one non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933), in an offshore transaction relying on Regulation S and/or Section 4(2) of the Securities Act of 1933 .

    On November 11, 2011, the Company completed a private placement financing involving the sale of 3,000,000 common shares of the Company to seven subscribers at a subscription price of $0.10 per share for cash proceeds of $300,000. The Company relied on exemptions from registration under the United States Securities Act of 1933, as amended, provided by Regulation S.

    Effective February 23, 2012, the Company agreed to settle a portion of promissory notes payable debts by issuing 4,014,565 common shares fair valued at $200,728 at $0.05 per share. On March 28, 2012, the Company completed the shares-for-debt private placement involving the sale of an aggregate of 4,014,565 shares of the Company at a deemed subscription price of $0.03 per share, in settlement of an aggregate of $120,437 owed by the Company to certain shares-for-debt purchasers. The Company relied on exemptions from registration under the United States Securities Act of 1933, as amended (the "Securities Act"), provided by Regulation S. As of February 29, 2012, the fair value of these shares-for-debt private placement were recorded as stock payable in shareholder’s equity.

    29


    ITEM 6.             SELECTED FINANCIAL DATA

    We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

    ITEM 7.             MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    The following discussion should be read in conjunction with (i) our audited financial statements as at and for the years ended February 29, 2012 and February 28, 2011 and the related notes; and (ii) the section of this annual report entitled “Business” that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this annual report, particularly in the section entitled “Risk Factors”. Our financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

    Plan of Operations

    Our Plan of Operations for the next twelve months is to pursue the recommended exploration program on the Guayabales Property, as described above under “Item 1. Business – Mineral Properties – Guayabales Property, Colombia – Recommendations and Plan of Operations.” We have decided to reduce the work program for the next 12 months while we review our forward plan in depth and estimate we will spend about $1,000,000 over the next 12 months. Further, we expect to spend approximately $300,000 in the next 12 months in office and general expenses and professional, consulting and management fees.

    Based on our current plan of operations as set forth above, we estimate that we will require approximately $1.3 million to pursue our plan of operations over the next twelve months. As of February 29, 2012, we had cash of $9,747 and a working capital deficit of $(2,964,761). We will require additional financing to pursue our plan of operations over the next twelve months. There can be no assurance that we will obtain any additional financing in the amounts required or on terms favorable to us. If we are unable to obtain additional financing, we may have to re-evaluate or abandon our business activities and revise our plan of operations.

    We anticipate that additional funding will be in the form of equity financing from the sale of our common stock. However, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund our plan of operations going forward. In the absence of such financing, our business plan will fail. Even if we are successful in obtaining equity financing, there is no assurance that we will obtain the funding necessary to pursue our business plan. If we do not continue to obtain additional financing going forward, we will be forced to re-evaluate or abandon our plan of operations.

    Results of Operations

    We are an exploration stage company and have not generated any revenue to date. The following table sets forth selected financial information relating to our company for the periods indicated:

    30



                          For the period  
                          from the date  
                          of inception  
                          (October 11,  
        For the year     For the year     For the year     2004) to
        ended Feburary     ended Feburary     ended Feburary     February 29,  
        29, 2012     28, 2011     28, 2010     2012  
                             
                             
    GENERAL AND ADMINISTRATIVE EXPENSES                        
     Write down of mineral property acquisition costs (Note 4) $  -   $  100,000   $  25,000   $  14,625,000  
     Amortization (Note 3)   468     867     -     1,335  
     Consulting fees (recovery) (Note 6)   33,463     148,577     (28,855 )   361,200  
     Legal and accounting   464,789     294,183     94,245     1,308,829  
     Management fees (recovery) (Notes 6 and 10)   123,783     (24,693 )   -     571,290  
     Marketing and promotion   42,884     156,045     1,565     251,823  
     Mineral property exploration expenditures (Note 4)   758,101     1,354,855     -     2,135,699  
     Office and miscellaneous   113,803     242,773     6,343     434,457  
     Rent   87,104     73,162     5,959     193,257  
     Salaries and benefits   9,190     -     -     9,190  
     Stock-based compensation (Note 8)   67,757     2,762,720     1,091,640     11,879,022  
     Loss on settlement of debt   160,406     -     -     160,406  
     Transfer agent fees   14,076     22,672     12,387     63,394  
     Gain on sale of property and equipment (Note 3)   (1,188 )   -     -     (1,188 )
                             
    TOTAL GENERAL AND ADMINISTRATIVE EXPENSES   (1,874,636 )   (5,131,161 )   (1,208,284 )   (31,993,714 )
                             
    OTHER ITEMS                        
     Interest expense (Notes 5 and 7)   (132,363 )   (415,844 )   (56,645 )   (666,395 )
                             
    NET LOSS FOR THE PERIOD BEFORE TAXES   (2,006,999 )   (5,547,005 )   (1,264,929 )   (32,660,109 )
                             
    Taxes   (488 )   -     -     (488 )
                             
    NET LOSS FOR THE PERIOD   (2,007,487 )   (5,547,005 )   (1,264,929 )   (32,660,597 )
                             
                             
    BASIC LOSS PER COMMON SHARE $  (0.11 ) $  (0.33 ) $  (0.09 )    
                             
    WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC   18,335,539     16,984,717     13,509,375      

    Year Ended February 29, 2012 Compared to Year Ended February 28, 2011

    During the fiscal years ended February 29, 2012 and February 28, 2011 we did not generate any revenue.

    During the fiscal year ended February 29, 2012 we incurred general and administrative expenses of $ 1,874,636 compared to $5,131,161 incurred during the fiscal year ended February 28, 2011. The major components of our general and administrative expenses for our fiscal years ended February 29, 2012 and February 28, 2011 consisted of the following:

    • write down of mineral property acquisition costs of $Nil in 2012 (2011- $100,000) relating to the termination of the Geoforum and Trans Atlantic Metals properties in Sweden in 2011;

    • consulting fees of $33,463 in 2012 (2011 – $148,577), which decreased between 2011 and 2012 due to a reduced level of exploration activity in Colombia;

    31


    • legal and accounting fees of $464,789 in 2012 (2011 - $294,183), which increased between 2011 and 2012 due to legal expenses incurred pursuant to legal actions relating to the Guayabales property in Colombia;

    • marketing and promotion fees of $42,884 in 2012 (2011 - $156,045), which decreased between 2011 and 2012 as we decreased focus on these activities;

    • mineral property exploration expenditures of $758,101 in 2012 (2011 - $1,354,855), which decreased between 2011 and 2012 due to a reduced level of exploration activity in Colombia;

    • office and miscellaneous expenses of $113,803 in 2012 (2011 - $242,773), which decreased between 2011 and 2012 due a reduced level of operations activity;

    • loss on settlement of debt of $160,406 ( 2011 – $Nil) which increased between 2011 and 2012 due to the settlement of debt with various creditors;

    • stock-based compensation of $67,757 in 2012 (2011 - $2,762,720), which decreased between 2011 and 2012 due to a reduction in stock option grants.

    • Our general and administrative expenses incurred during our fiscal year ended February 29, 2012 compared to our fiscal year ended February 28, 2011 decreased primarily due to a decrease in stock based compensation from $2,762,720 in 2011 to $67,757 in 2012.

    During our fiscal year ended February 29, 2012, we recorded interest expense in the amount of $(132,363) (2011: $415,844)

    As a result of the above, our net loss during the fiscal year ended February 29, 2012 was $2,007,487 (2011-$(5,547,005).

    Liquidity and Capital Resources

    As at the fiscal year ended February 29, 2012, our current assets were $9,747 (2011 - $181,944) and our current liabilities were $2,974,508 (2011 - $1,493,600), which resulted in a working capital deficiency of $2,964,761 (2011 - $1,311,656).

    Total stockholders’ equity decreased from $4,058,055 for the fiscal year ended February 28, 2011 to $2,787,053 for the fiscal year ended February 29, 2012.

    Cash Flows Used in Operating Activities

    We have not generated positive cash flows from operating activities. For the fiscal year ended February 29, 2012, net cash flows used in operating activities was ($972,012) consisting primarily of a net loss of ($2,007,487). Net cash flows used in operating activities was adjusted by $132,757 in accrued interest on the promissory notes, $468 in depreciation, $(1,188 )in gain on sale of assets,, $67,757 in stock based compensation, and $160,406 in non-cash loss on settlement of debt. Net cash flows used in operating activities was further changed by $15,690 in decrease in accounts receivable, $40,120 in decrease in prepaid expenses, $550,440 in increase in accounts payable and accrued liabilities, $70,201 in increase due to related parties and ($1,176) in increase in deposit.

    We have not generated positive cash flows from operating activities. For the fiscal year ended February 28, 2011, net cash flows used in operating activities was ($2,180,322) consisting primarily of a net loss of ($5,547,005). Net cash flows used in operating activities was adjusted by $6,237 in accrued interest on the promissory notes, $867 in depreciation, $100,000 in write down of mineral property acquisition costs, $2,762,720 in stock based compensation, and ($120,843) in non-cash gain on settlement of debt. Net cash flows used in operating activities was further changed by ($15,690) in increase in amounts receivable, ($39,735) in increase in prepaid expenses, $291,295 in increase in accounts payable and accrued liabilities, and $70,002 in increase due to related parties.

    Cash Flows Used in Investing Activities

    32


    For the fiscal year ended February 29, 2012, net cash flows used in investing activities was $329,167 compared to net cash flows used in investing activities during the fiscal year ended February 28, 2011 of $423,078, in each case primarily in connection with acquisition of mineral property interests.

    Cash Flows Provided by Financing Activities

    We have financed our operations primarily from either advancements or the issuance of equity and debt instruments. For the fiscal year ended February 29, 2012, net cash flows provided by financing activities was $1,184,792, compared to $2,729,534 for the fiscal year ended February 28, 2011. Cash flows from financing activities for the fiscal year ended February 29, 2012 consisted primarily of $300,000 from common shares issued for cash and $1,040,5540 from other promissory notes, $49,283 from advances from related parties, and a reduction for total payments of ($179,647) and ($25,398) to promissory notes and related parties, respectively. Cash flows from financing activities for the fiscal year ended February 28, 2011 consisted mainly of $2,050,000 from common shares issued for cash.

    We expect that working capital requirements will continue to be funded through a combination of our existing funds and further issuances of securities. Our working capital requirements are expected to increase as we expand our exploration activities as set forth above under “Plan of Operations”.

    Funding for Plan of Operations

    As set forth above under “Plan of Operations”, we anticipate that we will required approximately $1.3 million over the next twelve months to pursue our Plan of Operations. We will require additional financing in order to be able to fund our plan of operations.

    Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments. In connection with our business plan, management anticipates additional increases in exploration expenses and capital expenditures relating to: (i) exploration properties; and (ii) future exploration property acquisitions. We intend to finance these expenses with further issuances of securities, and debt issuances. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.

    Material Commitments

    As set forth above under “Item 1. Business”, we have material commitments under the Mineral Assets Option Agreement regarding the Guayabales Property in Columbia.

    Off-Balance Sheet Arrangements

    As of the date of this Annual Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

    Going Concern

    The independent auditors’ report accompanying our February 29, 2012 and February 28, 2011 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared “assuming that we will continue as a going concern,” which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business. These financials do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.

    33


    Critical Accounting Policies and Estimates

    The following is a summary of significant accounting policies used in the preparation of our financial statements.

    Mineral Property Expenditures

    Mineral property acquisition costs are initially capitalized as tangible assets when purchased. At the end of each fiscal quarter end, the Company assesses the carrying costs for impairment. If proven and probable reserves are established for a property and it has been determined that a mineral property can be economically developed, costs will be amortized using the units-of-production method over the estimated life of the probable reserve.

    Mineral property exploration costs are expensed as incurred.

    Estimated future removal and site restoration costs, when determinable are provided over the life of proven reserves on a units-of-production basis. Costs, which include production equipment removal and environmental remediation, are estimated each period by management based on current regulations, actual expenses incurred, and technology and industry standards. Any charge is included in exploration expense or the provision for depletion and depreciation during the period and the actual restoration expenditures are charged to the accumulated provision amounts as incurred.

    As of the date of these financial statements, the Company has not established any proven or probable reserves on its mineral properties and incurred only acquisition and exploration costs.

    Although the Company has taken steps to verify title to mineral properties in which it has an interest, according to the usual industry standards for the stage of exploration of such properties, these procedures do not guarantee the Company’s title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.

    Asset Retirement Obligations

    The Company has adopted ASC 410, “Asset Retirement and Environmental Obligations”, which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. ASC 410 requires the Company to record a liability for the present value of the estimated site restoration costs with corresponding increase to the carrying amount of the related long-lived assets. The liability will be accreted and the asset will be depreciated over the life of the related assets. Adjustments for changes resulting from the passage of time and changes to either the timing or amount of the original present value estimate underlying the obligation will be made. There were no asset retirement obligations as at February 29, 2012 as such obligations are currently the responsibility of the property owner until the Company exercises the option to purchase the Guayabales property in Colombia.

    Use of Estimates

    The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Significant areas requiring management’s estimates and assumptions are the determination of the fair value of transactions involving common stock and financial instruments. Other areas requiring estimates include deferred tax balances and asset impairment tests.

    Other Risks

    Unless otherwise noted, the Company is not exposed to significant interest rate risk and commodity price risk.

    Income Taxes

    The Company follows the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. As at February 29, 2012, the Company had net operating loss carryforwards, however, due to the uncertainty of realization, the Company has provided a full valuation allowance for the deferred tax assets resulting from these loss carryforwards.

    34


    Foreign Currency Translation

    The financial statements are presented in U.S. dollars. In accordance with ASC 830 “Foreign Currency Matters”, foreign denominated monetary assets and liabilities are translated to their U.S. dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenue and expenses are translated at average rates of exchange during the period. Related translation adjustments are reported as a separate component of stockholders’ equity, whereas gains or losses resulting from foreign currency transactions are included in results of operations. To February 29, 2012, the Company has not recorded any translation adjustments into stockholders’ equity.

    35


    Stock-Based Compensation

    On June 1, 2006, the Company adopted ASC 718, “Compensation – Stock Compensation”, which establishes accounting for equity instruments exchanged for employee services. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employees’ requisite service period (generally the vesting period of the equity grant). The Company adopted ASC 718 using the modified prospective method, which requires the Company to record compensation expense over the vesting period for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Accordingly, financial statements for the periods prior to January 1, 2006 have not been restated to reflect the fair value method of expensing share-based compensation. The adoption of ASC 718 does not change the way the Company accounts for share-based payments to non-employees, with guidance provided by ASC 505-50, “Equity-Based Payments to Non-Employees”.

    ITEM 7A.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    We are subject to risks related to foreign currency exchange rate fluctuations. However, they have not had a material impact on our results of operations to date.

    Our functional currency is the United States dollar. However, a significant portion of our business is transacted in other currencies (the Canadian dollar and the Colombian peso). As a result, we are subject to exposure from movements in foreign currency exchange rates. We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign currency exposure to manage our foreign currency fluctuation risk.

    36


    ITEM 8.             FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    Reports of Independent Registered Public Accounting Firms
     
    Consolidated Balance Sheets
     
    Consolidated Statements of Operations
     
    Consolidated Statements of Stockholders’ Equity
     
    Consolidated Statements of Cash Flows
     
    Notes to Consolidated Financial Statements

    37


     

     

     

    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)

    CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)

    February 29, 2012

    (AUDITED)

     

     

     

    REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
     
    CONSOLIDATED BALANCE SHEETS
     
    CONSOLIDATED STATEMENTS OF OPERATIONS
     
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
     
    CONSOLIDATED STATEMENTS OF CASH FLOWS
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

    To the Board of Directors and Stockholders
    Tresoro Mining Corp.

    We have audited the accompanying consolidated balance sheet of Tresoro Mining Corp. (FKA: Mercer Gold Corporation) (An Exploration Stage Company) (the “Company”) as of February 29, 2012 and the related consolidated statements of operations, stockholders’ equity and cash flows for the year ended February 29, 2012. Tresoro Mining Corp.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of Tresoro Mining Corp. (FKA: Mercer Gold Corporation) (An Exploration Stage Company) for the year ended February 28, 2011 and from inception (October 11, 2004) to February 28, 2011. Those statements were audited by other auditors whose report has been furnished to us and our opinion, in so far as it relates to the amounts included in the year ended February 28, 2011 and from inception (October 11, 2004) to February 28, 2011, is based solely on the report of other auditors.

    We conducted our audit 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 purpose 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 audit provides 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 Tresoro Mining Corp. (FKA: Mercer Gold Corporation) (An Exploration Stage Company) as of February 29, 2012 and the results of their operations and their cash flows for the year ended February 29, 2012 in conformity with accounting principles generally accepted in the United States of America.

    The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered losses from operations, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

    /s/ De Joya Griffith & Company, LLC
    Henderson, Nevada
    June 15, 2012

      2580 Anthem Village Dr., Henderson, NV 89052 Member Firm with
      Telephone (702) 563-1600 • Facsimile (702) 920-8049 Russell Bedford International
         



    JAMES STAFFORD
       
       
           James Stafford, Inc.
           Chartered Accountants
           Suite 350 – 1111 Melville Street
           Vancouver, British Columbia
           Canada V6E 3V6
           Telephone +1 604 669 0711
           Facsimile +1 604 669 0754
           www.jamesstafford.ca

    Report of Independent Registered Public Accounting Firm

    To the Board of Directors and Stockholders of
    Mercer Gold Corporation (formerly Uranium International Corp.)
    (An Exploration Stage Company)

    We have audited the accompanying consolidated balance sheets of Mercer Gold Corporation (formerly Uranium International Corp.) (An Exploration Stage Company) (the “Company”) as at 28 February 2011 and 2010 and the related consolidated statements of operations, cash flows and stockholders’ equity (deficiency) for the years ended 28 February 2011, 2010 and 2009. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

    We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as, evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.

    In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as at 28 February 2011 and 2010 and the results of its operations and its cash flows for the years ended 28 February 2011, 2010 and 2009 in conformity with accounting principles generally accepted in the United States of America.

    The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, conditions exist which raise substantial doubt about the Company’s ability to continue as a going concern unless it is able to generate sufficient cash flows to meet its obligations and sustain its operations. Management’s plans regarding those matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

               /s/ James Stafford
    Vancouver, Canada Chartered Accountants

    20 May 2011 except for Note 13, as to which the date is 31 May 2011.


    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)

    CONSOLIDATED BALANCE SHEETS
    (Expressed in U.S. Dollars)
    (Audited)

        February 29,     February 28,  
        2012     2011  
                 
    ASSETS            
                 
    CURRENT ASSETS            
         Cash and cash equivalents $  9,747   $  126,134  
         Accounts receivable   -     15,690  
         Prepaid expenses   -     40,120  
                 
    TOTAL CURRENT ASSETS   9,747     181,944  
                 
    Website   9,167     -  
    Deposit   1,176     -  
    Property and equipment (Note 3)   6,471     7,211  
    Mineral exploration properties (Note 4)   5,735,000     5,415,000  
                 
    TOTAL ASSETS $  5,761,561   $  5,604,155  
                 
    LIABILITIES AND STOCKHOLDERS’ EQUITY            
                 
    CURRENT LIABILITIES            
         Accounts payable and accrued liabilities (Note 5) $  1,015,050   $  421,486  
         Due to related parties (Note 6)   77,201     55,877  
         Promissory notes payable (and accrued interest) (Note 7 (a))   1,882,257     1,016,237  
                 
    TOTAL CURRENT LIABILITIES   2,974,508     1,493,600  
                 
    PROMISSORY NOTE PAYABLE (Note 7 (b))   -     52,500  
                 
    TOTAL LIABILITIES   2,974,508     1,546,100  
                 
    COMMITMENTS AND CONTINGENCY (Note 10)            
                 
    STOCKHOLDERS’ EQUITY            
         Common stock (Note 8)            
         Authorized 
              140,625,000 shares of common stock, $0.001 par value 
         Issued and outstanding 
              20,459,375 common shares (February 28, 2011 – 17,159,375)
      20,459     17,159  
         Additional paid-in capital   35,226,463     34,694,006  
         Stock payable   200,728     -  
         Deficit accumulated during exploration stage   (32,660,597 )   (30,653,110 )
                 
    TOTAL STOCKHOLDERS’ EQUITY   2,787,053     4,058,055  
                 
    TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $  5,761,561   $  5,604,155  

    The accompanying notes are an integral part of these consolidated financial statements.


    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)

    CONSOLIDATED STATEMENTS OF OPERATIONS
    (Expressed in U.S. Dollars)
    (Audited)

                          For the period  
                          from the date  
                          of inception  
                          (October 11,  
        For the year     For the year     For the year     2004) to  
        ended Feburary     ended Feburary     ended Feburary     February 29,  
        29, 2012     28, 2011     28, 2010     2012  
                   
    GENERAL AND ADMINISTRATIVE EXPENSES                        
       Write down of mineral property acquisition costs (Note 4) $  -   $  100,000   $  25,000   $  14,625,000  
       Amortization (Note 3)   468     867     -     1,335  
       Consulting fees (recovery) (Note 6)   33,463     148,577     (28,855 )   361,200  
       Legal and accounting   464,789     294,183     94,245     1,308,829  
       Management fees (recovery) (Notes 6 and 10)   123,783     (24,693 )   -     571,290  
       Marketing and promotion   42,884     156,045     1,565     251,823  
       Mineral property exploration expenditures (Note 4)   758,101     1,354,855     -     2,135,699  
       Office and miscellaneous   113,803     242,773     6,343     434,457  
       Rent   87,104     73,162     5,959     193,257  
       Salaries and benefits   9,190     -     -     9,190  
       Stock-based compensation (Note 8)   67,757     2,762,720     1,091,640     11,879,022  
       Loss on settlement of debt   160,406     -     -     160,406  
     Transfer agent fees   14,076     22,672     12,387     63,394  
     Gain on sale of property and equipment (Note 3)   (1,188 )   -     -     (1,188 )
                             
    TOTAL GENERAL AND ADMINISTRATIVE                        
    EXPENSES   (1,874,636 )   (5,131,161 )   (1,208,284 )   (31,993,714 )
                             
    OTHER ITEMS                        
       Interest expense (Note7)   (132,363 )   (415,844 )   (56,645 )   (666,395 )
                             
    NET LOSS FOR THE PERIOD BEFORE TAXES   (2,006,999 )   (5,547,005 )   (1,264,929 )   (32,660,109 )
                             
    Taxes   (488 )   -     -     (488 )
                             
    NET LOSS FOR THE PERIOD   (2,007,487 )   (5,547,005 )   (1,264,929 )   (32,660,597 )
                             
    BASIC LOSS PER COMMON SHARE $  (0.11 ) $  (0.33 ) $  (0.09 )    
                             
    WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC   18,335,539     16,984,717     13,509,375      

    The accompanying notes are an integral part of these consolidated financial statements.


    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)

    CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
    FOR THE PERIOD FROM INCEPTION (OCTOBER 11, 2004) TO FEBRUARY 29, 2012
    (Expressed in U.S. Dollars)
    (Audited)

                                Deficit        
                                accumulated        
        Common stock     Additional           during     Total  
        Number of           paid-in     Stock     exploration     stockholders’equity  
        shares     Amount     capital     Payable     stage     (deficit)  
                                         
    Balance, October 11, 2004 (inception)   -   $  -   $  -   $  -   $  -   $  -  
                                         
    Common stock issued for cash
        at $0.00013 per share – November 29, 2004 (Note 8)
      7,500,000     7,500     (3,500 )   -     -     4,000  
    Common stock issued for cash 
        at $0.00013 per share – January 10, 2005 (Note 8)
      4,500,000     4,500     (2,100 )   -     -     2,400  
    Common stock issued for cash 
        at $0.00013 per share – January 21, 2005 (Note 8)
      2,812,500     2,812     12,188     -     -     15,000  
    Common stock issued for cash 
        at $0.00013 per share – January 25, 2005 (Note 8)
      375,000     375     1,625     -     -     2,000  
    Common stock issued for cash 
        at $0.00013 per share – February 1, 2005 (Note 8)
      46,875     47     2,453     -     -     2,500  
    Net loss for the period   -     -     -     -     (3,051 )   (3,051 )
                                         
    Balance, February 28, 2005   15,234,375   $  15,234   $  10,666   $  -   $  (3,051 ) $  22,849  
                                         
    Net loss for the year   -     -     -     -     (12,401 )   (12,401 )
                                         
    Balance, February 28, 2006   15,234,375   $  15,234   $  10,666   $  -   $  (15,452 ) $  10,448  
                                         
    Contributions to capital by related parties   -     -     24,000     -     -     24,000  
    Net loss for the year   -     -     -     -     (64,770 )   (64,770 )
                                         
    Balance, February 28, 2007   15,234,375   $  15,234   $  34,666   $  -   $  (80,222 ) $  (30,322 )

    The accompanying notes are an integral part of these consolidated financial statements.


    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)

    CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
    FOR THE PERIOD FROM INCEPTION (OCTOBER 11, 2004) TO FEBRUARY 29, 2012
    (Expressed in U.S. Dollars)
    (Audited)

                                Deficit        
                                accumulated        
        Common stock     Additional           during     Total  
        Number of           paid-in     Stock     exploration     stockholders’equity  
        shares     Amount     capital     Payable     stage     (deficit)  
                                         
    Balance forward, February 28, 2007   15,234,375   $  15,234   $  34,666   $  -   $  (80,222 ) $  (30,322 )
                                         
    Restricted common shares returned and cancelled (Note 8)   (3,750,000 )   (3,750 )   3,750     -     -     -  
    Common shares issued per Strathmore Option Agreement (Notes 4 and 8)   1,875,000     1,875     13,998,125     -     -     14,000,000  
    Commons shares issued for cash at $6.68 per share – February 26, 2008 (Note 8)   150,000     150     999,850     -     -     1,000,000  
    Net loss for the year   -     -     -     -     (15,075,151 )   (15,075,151 )
                                         
    Balance, February 29, 2008   13,509,375   $  13,509   $ 15,036,391   $ -   $  (15,155,373 ) $  (105,473 )
                                         
    Stock-based compensation (Note 8)   -     -     7,956,905     -     -     7,956,905  
    Net loss for the year   -     -     -     -     (8,685,803 )   (8,685,803 )
                                         
    Balance forward, February 28, 2009   13,509,375   $  13,509   $  22,993,296   $ -   $  (23,841,176 ) $  (834,371 )
                                         
    Stock-based compensation (Note 8)   -     -     1,091,640     -     -     1,091,640  
    Net loss for the year   -     -     -     -     (1,264,929 )   (1,264,929 )
                                         
    Balance, February 28, 2010   13,509,375   $  13,509   $  24,084,936   $  -   $  (25,106,105 ) $  (1,007,660 )

    The accompanying notes are an integral part of these consolidated financial statements.


    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)

    CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
    FOR THE PERIOD FROM INCEPTION (OCTOBER 11, 2004) TO FEBRUARY 29, 2012
    (Expressed in U.S. Dollars)
    (Audited)

        Common stock     Additional           Deficit accumulated     Total  
        Number of           paid-in     Stock      during      stockholders’equity  
        shares     Amount     capital     Payable     exploration stage     (deficit)  
                                         
    Balance forward, February 28, 2010   13,509,375   $  13,509   $  24,084,936   $  -   $  (25,106,105 ) $  (1,007,660 )
                                         
    Common shares issued for debt – April 5, 2010 at $0.20 per share (Notes 5, 7 and 8)   2,000,000     2,000     398,000     -     -     400,000  
    Common shares issued for cash at $2.00 per share – April 14, 2010 (Note 8)   1,025,000     1,025     2,048,975     -     -     2,050,000  
    Common shares issued per Mercer Option Agreement (Notes 4 and 8) – April 15, 2010   2,500,000     2,500     4,997,500     -     -     5,000,000  
    Common shares cancelled per Nose Rock Termination Agreement – May 28, 2010 (Notes 4 and 8)   (1,875,000 )   (1,875 )   1,875     -     -     -  
    Beneficial conversion feature (Notes 5 and 7)   -     -     400,000     -     -     400,000  
    Stock-based compensation (Note 8)   -     -     2,762,720     -     -     2,762,720  
    Net loss for the year   -     -     -     -     (5,547,005 )   (5,547,005 )
                                         
    Balance, February 28, 2011   17,159,375   $  17,159   $ 34,694,006   $  -   $  (30,653,110 ) $  4,058,055  
                                         
    Common shares issued for debt – April 4, 2011 at $0.20 per share (Notes 6, 7 and 8)   300,000     300     167,700     -     -     168,000  
    Common shares issued for cash at $0.10 per share – November 11, 2011 (Note 8)   3,000,000     3,000     297,000         -     300,000  
    Stock-based compensation (Note 8)   -     -     67,757     -     -     67,757  
    Stock payable   -     -     -     200,728     -     200,728  
    Net loss for the year   -     -     -     -     (2,007,487 )   (2,007,487 )
                                         
    Balance, February 29, 2012, audited   20,459,375   $  20,459   $ 35,226,463   $  200,728   $  (32,660,597 ) $  2,787,053  

    The accompanying notes are an integral part of these consolidated financial statements.


    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company

    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Expressed in U.S. Dollars)
    (Audited)

                          For the period from  
                          the date of  
        For the year ended                 inception (October  
        Feburary     For the year ended     For the year ended     11, 2004) to  
        29, 2012     Feburary 28, 2011     Feburary 28, 2010     February 29, 2012  
                             
    CASH FLOWS USED IN OPERATING ACTIVITIES                        
       Net loss for the year $  (2,007,487 )   (5,547,005 ) $  (1,264,929 ) $  (32,660,597 )
       Adjustments to reconcile net loss to net cash used in operating activities:                      
       - Interest expense (Note 7)   132,757     406,237     56,645     657,120  
       - Amortization (Note 3)   468     867     -     1,335  
       - Contributions to capital by related parties   -     -     -     24,000  
       - Gain on sale of assets (Note 3)   (1,188 )   -           (1,188 )
       - Write down of mineral property acquisition costs (Note 4)   -     100,000     25,000     14,625,000  
       - Write down of management fees (Notes 6 and 10)   -     (88,170 )   -     (88,170 )
       - Stock-based compensation (Note 8)   67,757     2,762,720     1,091,640     11,879,022  
       - Non-cash gain on settlement of debt (Note 7)   -     (120,843 )   -     (120,843 )
       - Non-cash loss on settlement of debt (Note 7)   160,406     -     -     160,406  
       Changes in operating assets and liabilities                        
       - Decrease (increase) in accounts receivable   15,690     (15,690 )   -     -  
       - Increse in deposit   (1,176 )   -     -     (1,176 )
       - Decrease (increase) in prepaid expenses   40,120     (39,735 )   1,275     -  
       - Increase (decrease) in accounts payable and accrued liabilities   550,440     291,295     (819 )   996,926  
       - Increase (decrease) in due to related parties   70,201     70,002     3,925     323,591  
                             
    NET CASH USED IN OPERATING ACTIVITIES   (972,012 )   (2,180,322 )   (87,263 )   (4,204,574 )
                             
    CASH FLOWS USED IN INVESTING ACTIVITIES                        
       Website   (9,167 )   -           (9,167 )
       Acquisition of mineral property interests (Note 4)   (320,000 )   (415,000 )   (125,000 )   (1,360,000 )
       Acquisition of property and equipment (Note 3)   -     (8,078 )   -     (8,078 )
                             
    NET CASH FLOWS USED IN INVESTING ACTIVITIES   (329,167 )   (423,078 )   (125,000 )   (1,377,245 )
                             
    CASH FLOWS FROM FINANCING ACTIVITIES                        
       Bank overdraft   -     (340 )   340     -  
       Advances from related parties (Note 7)   49,283     64,000     160,000     764,283  
       Other promissory notes (Note 7)   1,040,554     910,000     -     1,950,554  
       Repayment of related parties   (25,398 )         -     (25,398 )
       Repayment of other promissory notes (Note 7)   (179,647 )   (294,126 )   -     (473,773 )
       Common shares issued for cash   300,000     2,050,000     -     3,375,900  
                             
    NET CASH PROVIDED BY FINANCING ACTIVITIES   1,184,792     2,729,534     160,340     5,591,566  
                             
    INCREASE (DECREASE) IN CASH   (116,387 )   126,134     (51,923 )   9,747  
                             
    CASH, BEGINNING OF PERIOD   126,134     -     51,923     -  
                             
    CASH, END OF PERIOD $  9,747   $  126,134   $  -   $  9,747  
                             
                             
    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                        
       Cash paid for interest $  -   $  127,733   $  -   $  127,733  
       Cash paid for income taxes $  -   $  -   $  -   $  -  
       Non-cash investing and financing activities:                        
         Donated rent and services $  -   $  -   $  -   $  24,000  
         Shares issued for exploration expenses and mineral properties $  -   $ 5,000,000   $  -   $  19,000,000  
         Shares issued on settlement of debts $ 208,322   $  400,000   $  -   $  658,322  

    The accompanying notes are an integral part of these consolidated financial statements.



    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)

    NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

    Tresoro Mining Corp. (the “Company”) was incorporated under the laws of the State of Nevada on October 11, 2004 to promote and carry on any lawful business for which a corporation may be incorporated under the laws of the State of Nevada. On May 24, 2007 the Company filed Articles of Merger with the Secretary of State of Nevada in order to effectuate a merger whereby the Company (as Ancor Resources, Inc.) would merge with its newly incorporated and wholly-owned subsidiary, Nu-Mex Uranium Corp. (“Nu-Mex”). This merger became effective June 4, 2007 and the Company, being the surviving entity, changed its name to Nu-Mex Uranium Corp. On February 26, 2008 the Company filed Articles of Merger with the Secretary of State of Nevada in order to effectuate a merger whereby the Company (as Nu-Mex) would merge with its newly incorporated and wholly-owned subsidiary, Uranium International Corp. (“UIC”). This merger became effective as of March 11, 2008 and the Company, being the surviving entity, changed its name to Uranium International Corp. On May 17, 2010 the Company filed Articles of Merger with the Secretary of State of Nevada in order to effectuate a merger whereby the Company (as UIC) would merge with its newly incorporated and wholly-owned subsidiary, Mercer Gold Corporation (“Mercer”). This merger became effective on the OTC Bulletin Board and effective with the State of Nevada on June 17, 2010 and the Company, being the surviving entity, changed its name to Mercer Gold Corporation. On August 30, 2011, the Company filed Articles of Merger with the Secretary of State of Nevada in order to effectuate a merger whereby the Company (as Mercer) would merge with its wholly-owned subsidiary, Tresoro Mining Corp. (“Tresoro”). This merger became effective September 15, 2011 and the Company, being the surviving entity, changed its name to Tresoro Mining Corp. The Company intends to engage in the acquisition and exploration of mining properties. The Company is in the exploration stage and its operations principally involve research and development, market analysis, property evaluation and other business planning activities, and no revenue has been generated to date.

    Effective June 6, 2007, the Company completed a forward stock split by the issuance of 5 new shares for each 1 outstanding share of the Company’s common stock. Further, on March 11, 2008 the Company completed a forward stock split by the issuance of 1.5 new shares for each 1 outstanding share of the Company’s common stock. Effective May 12, 2011, the Company completed a reverse stock split by the issuance of 1 new share for each 4 outstanding shares of the Company’s common stock (Note 8). Unless otherwise noted, all references herein to number of shares, price per share or weighted average shares outstanding have been adjusted to reflect these stock splits on a retroactive basis.

    The Company is an exploration stage enterprise, as defined in Accounting Standards Codification (the “Codification” or “ASC”) 915-10, “Development Stage Entities.” The Company is devoting all of its present efforts to securing and establishing a new business and its planned principal operations have not commenced. Accordingly, no revenue has been derived during the organization period.

    Going Concern
    The Company’s consolidated financial statements as of February 29, 2012, and for the year then ended have been prepared based on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company has incurred operating loses since inception of $32,660,597. The Company requires additional funding to meet its ongoing obligations and anticipated ongoing operating losses. The ability of the Company to continue as a going concern is dependent on raising capital to fund its initial business plan and ultimately to attain profitable operations. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern. The Company intends to continue to fund its exploration business by way of private placements and advances from shareholders as may be required. These financials do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.

    Reclassifications
    Certain comparative figures on the balance sheet have been reclassified in order to conform to the current year’s financial statement presentation with no effect on earnings.



    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)

    NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    The following is a summary of significant accounting policies used in the preparation of these consolidated financial statements.

    Basis of Presentation
    The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles (“U.S. GAAP”) applicable to exploration stage enterprises. The functional currency is the U.S. dollar, and the consolidated financial statements are presented in U. S. dollars.

    The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Mercer One Panama Corp. and Mercer Two Panama Corp. which were incorporated on June 2, 2010. All significant inter-company transactions and account balances have been eliminated upon consolidation.

    Mineral Property Expenditures
    Mineral property acquisition costs are initially capitalized as tangible assets when purchased. At the end of each fiscal quarter end, the Company assesses the carrying costs for impairment. If proven and probable reserves are established for a property and it has been determined that a mineral property can be economically developed, costs will be amortized using the units-of-production method over the estimated life of the probable reserve.

    Mineral property exploration costs are expensed as incurred.

    Estimated future removal and site restoration costs, when determinable are provided over the life of proven reserves on a units-of-production basis. Costs, which include production equipment removal and environmental remediation, are estimated each period by management based on current regulations, actual expenses incurred, and technology and industry standards. Any charge is included in exploration expense or the provision for depletion and depreciation during the period and the actual restoration expenditures are charged to the accumulated provision amounts as incurred.

    As of the date of these consolidated financial statements, the Company has not established any proven or probable reserves on its mineral properties and incurred only acquisition and exploration costs.

    Although the Company has taken steps to verify title to mineral properties in which it has an interest, according to the usual industry standards for the stage of exploration of such properties, these procedures do not guarantee the Company’s title. Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.



    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)

    NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    Asset Retirement Obligations
    The Company has adopted ASC 410, “Asset Retirement and Environmental Obligations”, which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. ASC 410 requires the Company to record a liability for the present value of the estimated site restoration costs with corresponding increase to the carrying amount of the related long-lived assets. The liability will be accreted and the asset will be depreciated over the life of the related assets. Adjustments for changes resulting from the passage of time and changes to either the timing or amount of the original present value estimate underlying the obligation will be made. There were no asset retirement obligations as of February 29, 2012 as such obligations are currently the responsibility of the property owner until the Company exercises the option to purchase the Guayabales property in Colombia ( Note 4).

    Use of Estimates
    The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Significant areas requiring management’s estimates and assumptions are the determination of the fair value of transactions involving common stock and financial instruments. Other areas requiring estimates include deferred tax balances and asset impairment tests.

    Cash and Cash Equivalents
    For the statements of cash flows, all highly liquid investments with maturity of three months or less are considered to be cash equivalents. There were no cash and cash equivalents as of February 29, 2012 and February 28, 2011 that exceeded federally insured limits. The Company had $1,176 in restricted cash as of February 29, 2012 (2011-$Nil).

    Net Income (Loss) per Common Share
    The Company computes income (loss) per share in accordance with ASC 260, “Earnings Per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic income (loss) per share is computed by dividing net income (loss) available to common shareholders by weighted average number of outstanding common shares during the period. Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.

    Fair Value Financial Instruments
    A fair value hierarchy was established that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurements).

    The fair values of the financial instruments were determined using the following input levels and valuation techniques:

    Level 1:

    classification is applied to any asset or liability that has a readily available quoted market price from an active market where there is significant transparency in the executed/quoted price.

    Level 2:

    classification is applied to assets and liabilities that have evaluated prices where the data inputs to these valuations are observable either directly or indirectly, but do not represent quoted market prices from an active market.

    Level 3:

    classification is applied to assets and liabilities when prices are not derived from existing market data and requires us to develop our own assumptions about how market participants would price the asset or liability.

    As of February 29, 2012, the fair value of cash and cash equivalents, accounts receivables, accounts payable and accrued liabilities, amounts due to related parties and promissory notes payable approximate carrying value due to their short maturities. The fair value of the long term promissory note payable approximates the carrying value due to the terms of the note.



    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)

    NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    Credit Risk
    Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises primarily from the Company’s cash and cash equivalents and accounts receivable. The Company manages its credit risk relating to cash and cash equivalents by dealing only with highly-rated US financial institutions. As a result, credit risk is considered insignificant.

    Currency Risk
    The Company is exposed to currency risk on its acquisition and exploration expenditures on its Colombian properties since it has to convert US dollars raised through equity financing in US dollars to Colombian Pesos. The Company’s expenditures will be negatively impacted if the Colombian Pesos increases versus the US dollar.

    The majority of the Company’s cash flows and financial assets and liabilities are denominated in US dollars, which is the Company’s functional and reporting currency. Foreign currency risk is limited to the portion of the Company’s business transactions denominated in currencies other than the US dollar.

    The Company monitors and forecasts the values of net foreign currency cash flow and balance sheet exposures and from time to time could authorize the use of derivative financial instruments such as forward foreign exchange contracts to economically hedge a portion of foreign currency fluctuations. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.

    Liquidity Risk
    Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk by continuously monitoring actual and projected cash flows and matching the maturity profile of financial assets and liabilities.

    Other Risks
    Unless otherwise noted, the Company is not exposed to significant interest rate risk and commodity price risk.

    Income Taxes
    The Company follows the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. As of February 29, 2012, the Company had net operating loss carryforwards, however, due to the uncertainty of realization, the Company has provided a full valuation allowance for the deferred tax assets resulting from these loss carryforwards.

    Foreign Currency Translation
    The financial statements are presented in U.S. dollars. In accordance with ASC 830 “Foreign Currency Matters”, foreign denominated monetary assets and liabilities are translated to their U.S. dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenue and expenses are translated at average rates of exchange during the period. Related translation adjustments are reported as a separate component of stockholders’ equity, whereas gains or losses resulting from foreign currency transactions are included in results of operations.



    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)

    NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

    Stock-Based Compensation
    On June 1, 2006, the Company adopted ASC 718, “Compensation – Stock Compensation”, which establishes accounting for equity instruments exchanged for employee services. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employees’ requisite service period (generally the vesting period of the equity grant). The Company adopted ASC 718 using the modified prospective method, which requires the Company to record compensation expense over the vesting period for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Accordingly, financial statements for the periods prior to January 1, 2006 have not been restated to reflect the fair value method of expensing share-based compensation. The adoption of ASC 718 does not change the way the Company accounts for share-based payments to non-employees, with guidance provided by ASC 505-50, “Equity-Based Payments to Non-Employees”.

    Property and Equipment
    Property and equipment are recorded at cost and are depreciated over their estimated useful lives using the declining balance method at the following annual rates:

    Furniture and fixtures 10%
    Machinery and equipment 10%
    Computer equipment 20%

    Recently Issued Accounting Pronouncements
    In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income”. This update amends certain pending paragraphs in ASU No. 2011-05 “Presentation of Comprehensive Income”, to effectively defer only those changes that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income for annual and interim financial statements for public, private, and non-profit entities. The Company does not expect the adoption of this update will have a material effect on its consolidated financial statements.

    In September 2011, the FASB issued ASU 2011-08, “Intangibles – Goodwill and Other” which allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. ASU 2011-08 will be effective for the Company in fiscal 2013, with early adoption permitted. The Company does not expect the adoption of this update will have a material effect on its consolidated financial statements.

    In June 2011, FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”. This ASU presents an entity with the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity/deficit. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU No. 2011-05 should be applied retrospectively and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. As ASU No. 2011-05 relates only to the presentation of comprehensive income, the Company does not expect the adoption of this update will have a material effect on its consolidated financial statements.

    In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement” to amend the accounting and disclosure requirements on fair value measurements. This ASU limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, this update expands the disclosure on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. ASU No. 2011-04 is to be applied prospectively and is effective during interim and annual periods beginning after December 15, 2011. The Company does not expect the adoption of this update will have a material effect on its consolidated financial statements.



    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)
    NOTE 3 – PROPERTY AND EQUIPMENT AND WEBSITE

                    Net Book Value        
              Accumulated     February 29,     February 28,  
        Cost     amortization     2012     2011  
                             
    Furniture and fixtures $  649   $  88   $  561   $  584  
    Website   9,167     -     9,167     -  
    Machinery and equipment   6,837     927     5,910     6,153  
    Computer equipment   -     -     -     474  
                             
    $ 16,653   $  1,015   $  15,638   $  7,211  

    During the year ended February 29, 2012, total additions to property and equipment were $Nil (February 28, 2011 - $8,078) total additions to website were $9,761 (February 28, 2011 - $Nil) and a gain of $1,188 was recognized on the disposal of a computer (February 28, 2011 – $Nil, February 28, 2010 - $Nil).

    NOTE 4 – MINERAL EXPLORATION PROPERTIES

    (a) Guayabales Property
    On April 5, 2010, the Company entered into a letter of intent (the “LOI”), dated April 3, 2010 with Mercer Gold Corp., a private Canadian corporation (“Mercer Canada”). Pursuant to the LOI, Mercer Canada has granted to the Company an exclusive option (the “Option”) to acquire all of Mercer Canada’s current underlying option interests under an option agreement, dated March 4, 2010 (the “Underlying Option Agreement”), as entered into between Mercer Canada and Comunidad Mineral Guayabales (the “Underlying Property Owner”). Pursuant to the Underlying Option Agreement, Mercer Canada acquired from the Underlying Property Owner an option (the “Underlying Option”) to acquire a 100% legal, beneficial and registerable interest in and to certain mineral property concession interest which are held by way of license. The mineral property interests are located in the Municipality of Marmato, Colombia and are better known and described as the “Guayabales” property (collectively, the “Property”).

    On April 13, 2010, the Company entered into a definitive Mineral Assets Option Agreement with Mercer Canada (the “Mercer Option Agreement”). The Mercer Option Agreement replaces the previous underlying LOI. The Mercer Option Agreement, as amended on December 30, 2010 and again on March 22, 2011, provides that, in order to exercise its Option, the Company is obligated to:

    1.

    Pay to Mercer Canada $200,000 immediately upon the execution of the Mercer Option Agreement (the “Effective Date”) (paid on April 14, 2010);

       
    2.

    Issue to Mercer Canada, both prior to and after the due and complete exercise of the Options, an aggregate of up to 5,000,000 restricted shares of the Company’s common stock, as follows:


     
  • an initial issuance of 2,500,000 shares within two business days of the Effective Date (issued on April 15, 2010) (Note 8); and

     
  • a final issuance of 2,500,000 shares within five business days of the Company’s prior receipt of a “technical report” (as that term is defined in section 1.1 of National Instrument 43-101 of the Canadian Securities Administrators, Standards of Disclosure for Mineral Projects (“NI 43-101”) meeting certain criteria) (as at February 29, 2012, no technical report has been prepared).




    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)

    NOTE 4 – MINERAL EXPLORATION PROPERTIES (continued)

    (a) Guayabales Property (continued)

    3.

    Provide funding for or expend minimum cumulative “Expenditures” for “Exploration and Development” (as defined in the Mercer Option Agreement) work on or in connection with any of the mineral interests comprising the Property interests of not less than $3,000,000, as follows:


     
  • no less than an initial $1,000,000 of the Expenditures shall be expended on the Property by December 31, 2011 ($1,000,000 incurred);

     
  • no less than a further $1,000,000 of the Expenditures shall be expended on the Property by December 31, 2012 ($1,000,000 incurred); and

     
  • no less than a final $1,000,000 of the Expenditures shall be expended on the Property by December 31, 2013


    4.

    Pay on Mercer Canada’s behalf all underlying option, regulatory and governmental payments and assessment work required to keep the Property in good standing during the Option period (being that period from the Effective Date to the closing date in respect of the due and complete exercise of the Option as described in the Mercer Option Agreement, which shall not be later than January 13, 2013), and including, without limitation, all remaining cash payments required to be made to the Underlying Property Owner under the Underlying Option Agreement. The Company must pay the Underlying Property Owner an aggregate of $4,000,000 in the instalments by the dates specified as follows:


     
  • Pay $20,000 by October 14, 2009 (paid);
     
  • Pay additional $40,000 on or by 90 days from October 14, 2009 (paid);
     
  • Pay additional $40,000 on or by April 14, 2010 (paid);
     
  • Pay additional $55,000 on or by July 14, 2010 (paid);
     
  • Pay additional $55,000 on or by October 14, 2010 (paid);
     
  • Pay additional $65,000 on or by January 14, 2011 (paid);
     
  • Pay additional $75,000 on or by April 14, 201l (paid);
     
  • Pay additional $75,000 on or by July 14, 201l (paid);
     
  • Pay additional $85,000 on or by October 14, 201l (paid);
     
  • Pay additional $85,000 on or by January 14, 2012 (paid);
     
  • Pay additional $160,000 on or by July 14, 2012;
     
  • Pay additional $160,000 on or by January 14, 2013;
     
  • Pay additional $190,000 on or by July 14, 2013;
     
  • Pay additional $190,000 on or by January 14, 2014;
     
  • Pay additional $230,000 on or by July 14, 2014;
     
  • Pay additional $230,000 on or by January 14, 2015; and
     
  • Pay additional $2,245,000 on or by July 14, 2015.

    For the year ended February 29, 2012 total mineral property exploration expenditures related to the Guayabales property were $758,101, (February 28, 2011 - $1,354,855; February 28, 2010 - $Nil) consisting of the following: business development and project generation of $Nil (February 28, 2011 - $1,097; February 28, 2010 - $Nil), camp costs and field supplies of $73,902 (2011 - $231,820; 2010 - $Nil), drilling of $267,324 (February 28, 2011 - $325,999; Feburary 28, 2010 - $Nil), mapping of $Nil (February 28, 2011 - $28; February 28, 2010 - $Nil), rental of $15,908 (February 28, 2011 - $54,033; Feburary 28, 2010 - $Nil), sampling of $52,535 (February 28, 2011 - $55,106; February 28, 2010 - $Nil), taxes and permitting of $69,607 (February 28, 2011 - $1,007; February 28, 2010 - $Nil), transportation and fuel of $50,649 (February 28, 2011 - $68,286; February 28, 2010 - $Nil), wages, consulting and management fees of $197,686 (February 28, 2011 - $596,872; February 28, 2010 - $Nil) and legal and accounting fees of $30,490 (February 28, 2011 - $20,607; February 28, 2010 - $Nil).



    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)

    NOTE 4 – MINERAL EXPLORATION PROPERTIES (continued)

    (b) Geoforum Scandinavia AB Property
    Effective December 9, 2008, the Company entered into a written letter option agreement with Geoforum Scandinavia AB ("Geoforum") for the exclusive option to acquire a 100% undivided interest in four mineral properties in Sweden (the "Geoforum Properties"), subject to a 3% NSR royalty ("Geoforum Letter Option Agreement"). A payment of $25,000 was required on or before the earlier of the expiration of the due diligence period or February 28, 2009 (the "Geoforum Effective Date") (accrued as of February 28, 2009 and paid on March 6, 2009). On October 29, 2009, the Company entered into a Formal Option Agreement with Geoforum (the "Geoforum Option Agreement").

    Under the terms of the Geoforum Option Agreement, in order to exercise the Option, the Company must:

    1.

    Pay $25,000 at the date of the execution of the Formal Option Agreement (the “Effective Date”) (paid on November 5, 2009);

    2.

    Pay an additional $25,000 upon the first twelve month anniversary of the Effective Date (the “Anniversary Date”);

    3.

    Pay an additional $25,000 upon each and every Anniversary Date thereafter until the Company acquires 100% undivided interest in the properties or the option is terminated;

    4.

    Issue 12,500 shares of the Company’s common stock upon the first Anniversary Date;

    5.

    Issue an additional 12,500 shares of the Company’s common stock upon the second Anniversary Date; and

    6.

    Incur exploration expenses of $3.7 million over the seven year period as follows;

  • $300,000 after the Effective Date and prior to the first Anniversary Date;

  • $400,000 between the first and second Anniversary Date; and

  • $3,000,000 between the third and seventh Anniversary Date.

    The Company had the option to extend the period in which to incur the exploration expenses from seven years to nine years by paying Geoforum an additional $100,000.

    The Board of Directors determined that it was not in the best interests of the Company and its shareholders to proceed with the acquisition and development of the Leases in accordance with the terms and provisions of the Option Agreement and the Company authorized the termination of the Geoforum Option Agreement. The Company and Geoforum agreed that the Geoforum Option Agreement would be terminated and the Company and Geoforum would be released from their respective duties and obligations. The Company has forfeited its deposit of the $50,000 paid to Geoforum which was recorded as a loss during fiscal 2011.

    (c) Trans Atlantic Metals AB Property
    Effective January 15, 2009, the Company entered into a written letter option agreement with Trans Atlantic Metals AG ("TAM") and its wholly owned subsidiary, T.A. Metal, Sweden AG for exclusive options to acquire up to an 80% undivided interest in four mineral properties in Sweden (collectively, the "TAM Properties"), subject to a 3% NSR royalty (the "TAM Option"). A payment of $25,000 was required on or before the earlier of the expiration of the due diligence period or February 28, 2009 (the "TAM Effective Date") (accrued as of February 28, 2009 and paid on March 2, 2009). On November 17, 2009, the Company entered into a Formal Option Agreement with TAM (the "TAM Option Agreement").

    Under the terms of the TAM Option Agreement, in order to exercise the first TAM Option for 51%, the Company must:

    1.

    Pay $25,000 at the date of execution of the Formal Option Agreement (paid on November 23, 2009);

    2.

    Pay an additional $25,000 on or before one year from the date of execution of this Agreement (the “Anniversary Date”);

    3.

    Pay an additional $25,000 upon each and every Anniversary Date thereafter until either the Company acquires 80% interest in the properties or the agreement is terminated.

    4.

    Issue 12,500 shares of the Company’s common stock on or before the first Anniversary Date;

    5.

    Issue an additional 12,500 shares of the Company’s common stock on or before the second Anniversary Date; and

    6.

    Incur exploration expenses of $700,000 over the next two years as follows:

  • $300,000 prior to the first Anniversary Date; and

  • $400,000 prior to the second Anniversary Date.




    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)

    NOTE 4 – MINERAL EXPLORATION PROPERTIES (continued)

    (c) Trans Atlantic Metals AB Property (continued)
    Following the exercise of the 51% option, in order to exercise the second Option for an additional 29% interest, the Company must incur further exploration expenses of $3,000,000 prior to the seventh Anniversary Date.

    The Board of Directors determined that it was not in the best interests of the Company and its shareholders to proceed with the acquisition and development of the Leases in accordance with the terms and provisions of the TAM Option Agreement and the Company authorized the termination of the TAM Option Agreement. The Company and TAM agreed that the TAM Option Agreement would be terminated and the Company and TAM would be released from their respective duties and obligations. The Company has forfeited its deposit of the $50,000 paid to TAM which was recorded as a loss during fiscal 2011.

    (d) Nose Rock Property
    Further to the Letter of Intent (“LOI”) which became effective June 18, 2007, the Board of Directors of the Company approved the Company’s entry into an Option and Joint Venture Agreement (the “Agreement”) effective September 14, 2007, with Strathmore Resources (US) Inc. (“Strathmore”). The Agreement set out the terms upon which the Company and Strathmore was to explore and, if warranted, develop Strathmore’s Nose Rock properties.

    Pursuant to the terms of the Agreement, Strathmore had granted the Company the sole and exclusive right to acquire up to a 65% interest in Strathmore’s Nose Rock properties (collectively, the “Nose Rock Properties”), located northeast of Crownpoint within the Grants Mineral Belt in the State of New Mexico on approximately 5,000 acres in consideration of:

    1.

    The Company paying to Strathmore $250,000 and issuing 1,875,000 common shares in the capital stock of the Company (amounts paid and common shares issued on September 14, 2007 and valued at $14,000,000) on September 14, 2007 (Note 8); and

    2.

    The Company incurring a minimum of $44,500,000 in work commitment expenditures on the Nose Rock project in accordance with the following schedule:


     
  • $1,000,000 work commitment expenditures to be incurred in each of the first and second years from closing;

     
  • an additional $1,500,000 work commitment expenditures to be incurred in the third year from closing;

     
  • an additional $10,000,000 work commitment expenditures to be incurred in each of the fourth, fifth and sixth years from closing; and

     
  • an additional $11,000,000 work commitment expenditures to be incurred in the seventh year after closing.

    If the Company acquired its full 65% interest (or its 49% interest if Strathmore elects to retain or earn back 16% interest), each of the Company and Strathmore would contribute to the costs with respect to the Nose Rock Properties in accordance with their proportionate share ownership in the Nose Rock Properties.

    The Agreement further contemplates that, provided that the Company is not in default, (i) the Company will have acquired a 25% interest in the Nose Rock Properties once the Company had incurred $13,500,000 of its total $44,500,000 in work commitment expenditures, and (ii) the Company will have acquired an additional 40% interest in the Nose Rock Properties once the Company had incurred the remaining $31,000,000 of its total $44,500,000 in work commitment expenditures. However, subject to the terms of the Agreement, Strathmore had the right to retain or earn back a 16% interest in the Nose Rock Properties by paying $25,000,000 to the Company. Until the Company acquires its full 65% interest (or its 49% interest if Strathmore elects to retain or earn back a 16% interest), Strathmore will not be required to contribute to the costs of exploration or development of the Nose Rock Properties. After the Company acquired its full 65% interest (or its 49% interest if Strathmore elects to retain or earn back 16% interest), each of the Company and Strathmore will contribute to the costs with respect to the Nose Rock Properties in accordance with their proportionate share ownership in the Nose Rock Properties. Within sixty days of the fourth anniversary of the Effective Date, an evaluation, conducted in accordance with National Instrument 43-101 of the Canadian Securities Administrator, is to be performed.

    The acquisition cost of $14,250,000 provided to Strathmore was initially capitalized as a tangible asset. During the year ended February 29, 2008, the Company recorded a write-down of mineral property acquisition costs of $14,250,000 related to the Nose Rock Property.



    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)

    NOTE 4 – MINERAL EXPLORATION PROPERTIES (continued)

    (d) Nose Rock Property (continued)
    On November 18, 2008 the Company entered into a written agreement with Strathmore to terminate the Agreement. Pursuant to the terms of the termination agreement, the 1,875,000 common shares previously issued were required to be returned to the Company’s treasury for cancellation. The 1,875,000 shares were returned to treasury and cancelled on May 28, 2010 (Note 8).

    (e) Continental Property
    Effective April 23, 2009, the Company entered into a Letter Agreement to purchase a total of thirteen exploration licences covering eight uranium deposits held by Continental Precious Minerals Ltd. (“Continental”) in Sweden. The Company had until August 30, 2009 to conduct its due diligence.

    The Letter Agreement called for an initial cash payment of $25,000 on signing of the Letter Agreement (paid on April 24, 2009).

    Subject to the completion of due diligence satisfactory to the Company, the Letter Agreement was to have an initial closing on August 31, 2009 at which time the Company would:

     
  • make a cash payment of $7,500,000
     
  • issue and deliver 1,500,000 shares of the Company’s common stock (subject to a one year re-sale restriction)
     
  • issue and deliver warrants exercisable to purchase up to 250,000 shares of the Company’s common stock at the price of $4.00 per share for a period of two years from the date of issuance.

    At the first anniversary of the initial closing on August 31, 2009, the Company would have had to make a further payment of $7,500,000 and Continental would have had to transfer to the Company title to the thirteen exploration licenses.

    On August 31, 2009, the Company announced that the contemplated purchase of the exploration licences held by Continental would not go ahead. During the year ended February 28, 2010, the Company recorded a write-down of mineral property acquisition costs of $25,000 related to the Letter Agreement.

    NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

    Accounts payable and accrued liabilities are non-interest bearing, unsecured and have settlement dates within one year.

    During the year ended February 28, 2011, the Company settled part of accounts payable through the issuance of a convertible promissory note in the amount of $25,000. The terms of the convertible promissory note provided that in the event the Company was unable to repay the debt, the debt could be satisfied by way of conversion of the debt into shares of the Company's restricted common stock at the rate of $0.20 per share.

    On March 29, 2010, the convertible promissory note in the amount of $25,000 was converted into 125,000 restricted common shares at $0.20 per share (issued on April 5, 2010) (Note 8). Interest expense of $Nil (February 28, 2011 - $25,000; February 28 2010 - $Nil) related to the unamortized discount was recognized at the date of conversion during the year ended February 28, 2011.

    NOTE 6 – DUE TO RELATED PARTIES AND RELATED PARTY TRANSACTIONS

    The balance due to related parties of $77,201 at February 29, 2012 (February 28, 2011 - $55,877) is due to a director and is unsecured, non-interest bearing and payable on demand.

    During the year ended February 29, 2012, the Company paid or accrued consulting and/or management fees of $123,783 to directors and a former director of the Company (February 28, 2011 – $133,786; February 28, 2010 - $6,145).



    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)

    NOTE 6 – DUE TO RELATED PARTIES AND RELATED PARTY TRANSACTIONS (continued)

    The amounts charged to the Company for the services provided have been determined by negotiation among the parties and in certain cases, are covered by signed agreements. It is the position of the management of the company that these transactions were in the normal course of operations and were measured at the exchange value which represented the amount of consideration established and agreed to by the related parties.

    During the year ended February 29, 2012, the Company settled with certain directors and/or shareholders on $Nil (February 28, 2011 - $80,545) of related party debt related primarily to prior period management fee accruals for total cash consideration of $Nil (February 28, 2011 - $37,545) resulting in a gain on settlement of $Nil (February 28, 2011 - $43,000) which was recorded as a management fee recovery during the period.

    On 4 April 2011, 300,000 common shares with a fair value of $168,000, were issued to a former CEO and director. Of this total amount, $7,500 is related to an advance received by the Company, $52,500 is related to settling the promissory note (Notes 7 and 8), $22,673 is related to management fees, $5,211 is related to office supplies resulting in a loss on settlement of debt of $80,115.

    On April 14, 2010, the Company paid $25,000 to a former director of the Company in settlement of $102,843 of obligations that were owed by the Company. This resulted in a gain on settlement of $77,843.

    During the year ended February 29, 2012, the Company reversed the accrual of management fees of $Nil (2011 - $88,170) previously due to a former CEO and director of the Company.

    NOTE 7 – PROMISSORY NOTES PAYABLE

    (a) Current
    The promissory notes payable of $1,875,837 at February 29, 2012 (February 28, 2011 - $1,016,237) consists of principal and accrued interest of $1,743,263 (February 28, 2011 - $1,010,000) and $138,994 (February 28, 2011 - $6,237), respectively. As of February 29, 2012, $1,882,257 is secured by a non-exclusive general security agreement charging all of the Company’s present and after acquired personal property, bears interest at 10% per annum and is due on demand.

    On February 23, 2012, the Company agreed to settle $120,437 of promissory note payable debts by issuing 4,014,565 common shares fair valued at $200,728 or $0.05 per share, recognizing a loss on settlement of debt of $80,291. As of February 29, 2012, these shares were recorded as stock payable.

    As of February 28, 2011, $510,000 was secured by a general security agreement charging all of the Company’s present and after acquired personal property, bears interest at 10% per annum and was repayable on June 30, 2011 and upon due date became due on demand, $400,000 was unsecured, bears interest at 10% per annum and was repayable on June 30, 2011 and upon due date became due on demand and $100,000 was due to a related party, was unsecured, bears no interest and had no set terms of repayment.

    During the year ended February 28, 2011, the Company issued a convertible promissory note in the amount of $375,000 and paid cash in the amount of $303,733 to settle the promissory note payable of $551,000 and accrued interest of $127,733 (inclusive of current period interest accrual of $9,607). The terms of the convertible promissory note provided that in the event the Company was unable to repay the debt, the debt could be satisfied by way of conversion of the debt into shares of the Company's restricted common stock at the rate of $0.20 per share.

    On March 29, 2010, the convertible promissory note in the amount of $375,000 was converted into 1,875,000 restricted common shares at $0.20 per share (issued on April 5, 2010) (Note 8). Interest expense of $Nil (February 28, 2011 - $375,000; February 28, 2010 - $Nil) related to the unamortized discount was recognized at the date of conversion.

    (b) Non-current
    On November 19, 2010, the Company issued a promissory note with a principal value of $52,500 to a former CEO and director of the Company. The amount is unsecured, bears no interest and is due and payable on or before November 26, 2012.

    On 4 April 2011, 300,000 common shares with a fair value of $168,000, were issued to a former CEO and director. Of this total amount, $7,500 is related to an advance received by the Company , $52,500 is related to settling the promissory note (Notes 7 and 8), $22,673 is related to management fees, $5,211 is related to office supplies resulting in a loss on settlement of debt of $80,115.



    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)

    NOTE 8 – COMMON STOCK

    Authorized
    The total authorized capital is 140,625,000 common shares with par value of $0.001 per share. On June 4, 2007, the Company increased the authorized share capital from 75,000,000 shares of common stock to 375,000,000 shares of common stock with the same par value of $0.001 per share. On June 8, 2010, the Company filed a Certificate of Change with the Nevada Secretary of State in relation to the 1.5 for one forward split of the Company’s common shares on March 11, 2008 to effect the 1.5 for one forward split of the Company’s authorized common shares. As a result, the Company’s authorized capital was increased from 375,000,000 shares, par value of $0.001 per share, to 562,500,000 shares, par value of $0.001 per share. Effective May 12, 2011, the Company filed a Certificate of Change and Certificate of Correction with the Nevada Secretary of State in relation to the 1 for 4 reverse stock split of the Company’s common shares to effect the 1 for 4 reverse stock split of the Company’s authorized common shares (Notes 1). As a result, the Company’s authorized capital was decreased from 562,500,000 shares, par value of $0.001 per share to 140,625,000 shares, par value of $0.001 per share.

    Issued and Outstanding
    On June 4, 2007, the directors of the Company approved a special resolution to undertake a forward split of the common stock of the company on a basis on 5 new common shares for 1 old common share. On February 26, 2008, and effective March 11, 2008, the directors of the company approved a special resolution to undertake a further forward split of the common stock of the company on a basis on 1.5 new common shares for 1 old share. Effective May 12, 2011, the Company effected a 1 for 4 reverse stock split (Note 1).

    All references in these consolidated financial statements to number of common shares, price per share and weighted average number of common shares have been adjusted to reflect these stock splits on a retroactive basis, unless otherwise noted.

    The total issued and outstanding capital stock is 20,459,375 commons shares with par value of $0.001 per share. The Company’s common stock issuances to date are as follows:

    1.

    On November 29, 2004, 7,500,000 common shares of the Company were issued to an officer and director of the Company for cash proceeds of $4,000.

       
    2.

    On January 10, 2005, 4,500,000 common shares of the Company were issued for cash proceeds of $2,400.

       
    3.

    On January 21, 2005, 2,812,500 common shares of the Company were issued for cash proceeds of $15,000.

       
    4.

    On January 25, 2005, 375,000 common shares of the Company were issued for cash proceeds of $2,000.

       
    5.

    On February 1, 2005, 46,875 common shares of the Company were issued for cash proceeds of $2,500.

       
    6.

    On May 30, 2007, 3,750,000 restricted common shares of the company were returned and subsequently cancelled by the Company. The shares were returned to treasury for no consideration to the shareholder.

       
    7.

    On September 14, 2007, 1,875,000 common shares of the Company, valued at $14,000,000, were issued to Strathmore in accordance with the terms of the Option and Joint Venture Agreement. On November 18, 2008, the Company entered into a written agreement with Strathmore to terminate the Nose Rock Property Option Agreements. Pursuant to the terms of the termination agreement, the 1,875,000 common shares previously issued were required to be returned to the Company’s treasury for cancellation. The 1,875,000 shares were returned to treasury and cancelled on May 28, 2010 (Note 4).

       
    8.

    On February 26, 2008, the Company issued 150,000 units at a price of $6.68 per unit for proceeds of $1,000,000. Each unit consists of one common share and one-half non-transferable share purchase warrant. Each whole share purchase warrant entitles the holder to purchase an additional common share at a price of $8.00 up to February 26, 2009. These warrants expired during the year ended February 28, 2009.




    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)

    NOTE 8 – COMMON STOCK (continued)

    Issued and Outstanding (continued)

    9.

    On April 5, 2010, the Company issued 2,000,000 restricted common shares at $0.20 per share pursuant to the conversions of the convertible promissory notes in the amount of $400,000 (Notes 5 and 7).

       
    10.

    On April 14, 2010, the Company issued 1,025,000 units at a price of $2.00 per unit for proceeds of $2,050,000. Each unit consists of one common share and one-half non-transferable share purchase warrant. Each whole share purchase warrant entitles the holder to purchase an additional common share at a price of $4.00 per share up to April 14, 2011. As of February 29, 2012, Nil (February 28, 2011 – 512,500) of the related share purchase warrants in this series remain outstanding.

       
    11.

    On April 15, 2010, 2,500,000 common shares of the Company, valued at $5,000,000, were issued to Mercer Canada in accordance with the terms of the Mercer Option Agreement (Note 4).

       
    12. On 4 April 2011, 300,000 common shares with a fair value of $168,000 were issued to a former CEO and director. Of this total amount, $7,500 is related to an advance received by the Company, $52,500 is related to settling the promissory note (Notes 7 and 8) $22,673 is related to management fees, $5,211 is related to office supplies resulting in a loss on settlement of debt of $80,115.

    13.

    On November 11, 2011, the Company issued 3,000,000 common shares of the Company for cash proceeds of $300,000.

       
    14.

    On February 23, 2012, the Company agreed to settle $120,437 of promissory note payable debts by issuing 4,014,565 common shares fair valued at $200,728 or $0.05 per share and recongizing a loss on debt settlment of $80,291. As of February 29, 2012, these shares were recorded as stock payable.

    2008 Stock Option Plan
    On April 2, 2008 the Board of Directors of the company ratified, approved and adopted a Stock Option Plan for the Company in the amount of 1,250,000 shares with an exercisable period up to 10 years. In the event an optionee ceases to be employed or to provide services to the Company for reasons other than cause, any Stock Option that is vested and held by such optionee may be exercisable within up to ninety calendar days after the effective date that his position ceases. No stock option granted under the Stock Option Plan is transferable. Any stock option held by an optionee at the time of his death may be exercised by his estate within one year of his death or such longer period as the Board of Directors may determine.

    On April 17, 2009, the Company cancelled 1,125,000 stock options previously granted to certain officers, directors and management of the Company.

    As approved by the Board of Directors, on April 17, 2009, the Company granted 687,500 stock options to certain officers, directors and management of the Company at $2.00 per share for terms of ten years. The total fair value of these options at the date of grant was estimated to be $1,091,640 ($1.59 per stock option), and was determined using the Black-Scholes option pricing model with an expected life of 5 years, a risk free interest rate of 1.91%, a dividend yield of 0% and expected volatility of 193% and has been recorded as stock-based compensation expense during the year ended February 28, 2010.

    As approved by the Board of Directors, on April 5, 2010, the Company granted 812,500 stock options to certain officers, directors and management of the Company at $2.00 per share for terms of ten years. The total fair value of these options at the date of grant was estimated to be $1,601,828 ($1.97 per stock option), and was determined using the Black-Scholes option pricing model with an expected life of 10 years, a risk free interest rate of 4.01%, a dividend yield of 0% and expected volatility of 150% and has been recorded as stock-based compensation expense during the year ended February 28, 2011.

    As approved by the Board of Directors, on April 5, 2010, the Company granted 250,000 stock options to certain consultants of the Company at $2.00 per share for terms of two years. The total fair value of these options at the date of grant was estimated to be $436,550 ($1.75 per stock option), and was determined using the Black-Scholes option pricing model with an expected life of 2 years, a risk free interest rate of 1.18%, a dividend yield of 0% and expected volatility of 215% and has been recorded as stock-based compensation expense during the year ended February 28, 2011.



    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)

    NOTE 8 – COMMON STOCK (continued)

    2008 Stock Option Plan (continued)
    As approved by the Board of Directors, on June 14, 2010, the Company granted 75,000 stock options to a consultant of the Company at $2.00 per share for terms of ten years. The total fair value of these options at the date of grant was estimated to be $176,178 ($2.35 per stock option), and was determined using the Black-Scholes option pricing model with an expected life of 10 years, a risk free interest rate of 3.28%, a dividend yield of 0% and expected volatility of 144% and has been recorded as stock-based compensation expense during the year ended February 28, 2011. Subsequent to the grant date, the Company entered into an amending agreement with the holder of the 75,000 existing stock options amending the expiry date from June 14, 2020 to August 1, 2012. The Company measured the additional compensation cost by calculating the incremental values of the modified stock options using Black-Scholes Option Model. The total fair values of the modified stock options was less than the fair values of the original Stock Options immediately before the terms were modified. The stock-based compensation expense related to this amendment of 75,000 stock options during the year ended February 28, 2011 was $Nil.

    As approved by the Board of Directors, on August 1, 2010, the Company granted 150,000 stock options to a consultant of the Company at $2.00 per share for terms of three years. The total fair value of these options at the date of grant was estimated to be $365,790 ($2.44 per stock option), and was determined using the Black-Scholes option pricing model with an expected life of 3 years, a risk free interest rate of 0.85%, a dividend yield of 0% and expected volatility of 187% and has been recorded as stock-based compensation expense during the year ended February 28, 2011.

    As approved by the Board of Directors, on August 1, 2010, the Company granted 25,000 stock options to a consultant of the Company at $2.00 per share for terms of two years. A total of 3,125 of these stock options vested on the grant date of August 1, 2010. A total of 21,875 of these stock options vest quarterly over the two years. The total fair value of these options which vested during the year ended February 28, 2011 was estimated to be $11,134 ($1.78 per stock option), and was determined using the Black-Scholes option pricing model with an expected life of 4 years, a average risk free interest rate of 1.24%, a average dividend yield of 0% and average expected volatility of 186% and has been recorded as stock-based compensation expense during the year ended February 28, 2011.

    Effective November 30, 2010, the Board of Directors approved the termination of the 2008 Stock Option Plan and the cancellation of all related options outstanding. Certain of the options then outstanding were then replaced by options in the Company’s newly adopted 2010 Stock Option Plan (see below).

    2010 Stock Option Plan
    Effective November 30, 2010 the Board of Directors of the Company ratified, approved and adopted a Stock Option Plan (the “2010 Stock Option Plan”) for the company in the amount of 3,431,875 shares with an exercisable period up to 4 years. In the event an optionee ceases to be employed or to provide services to the Company for reasons other than cause, any stock option that is vested and held by such optionee may be exercisable within up to ninety calendar days after the effective date that his position ceases. No stock option granted under the Stock Option Plan is transferable. Any stock option held by an optionee at the time of his death may be exercised by his estate within one year of his death or such longer period as the Board of Directors may determine.

    Effective November 30, 2010, concurrent with the cancellation of the 2008 Stock Option Plan, 1,125,000 outstanding options were cancelled and immediately replaced with 1,125,000 options in the newly adopted 2010 Stock Option Plan. The replacement stock options have an exercise price of $2.00 per share for terms of four years. These options vest at a rate of 25% on grant and 25% at the end of each of six, twelve and eighteen months from the date of grant. The Company measured the incremental compensation cost as the excess of the fair value of the modified options over the fair value of the original options immediately before the terms were modified. The incremental fair value resulting from the modification / replacement of the original options was estimated to be $151,015 which will be recorded over the vesting period of the options. A total of $37,754 relating to vested options has been recorded as stock-based compensation expense and was determined using the Black-Scholes option pricing model with an expected life of 2 years, a average risk free interest rate of 0.45%, a average dividend yield of 0% and average expected volatility of 194% and has been recorded as stock-based compensation expense during the year ended February 28, 2011. During the year ended February 29, 2012, a total of 700,000 of these options expired and were cancelled.



    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)

    NOTE 8 – COMMON STOCK (continued)

    2010 Stock Option Plan (continued)
    As approved by the Board of Directors, on November 30, 2010, the Company granted 337,500 stock options under the 2010 Stock Option Plan to certain directors of the Company at $2.00 per share for terms of four years. These options vest at a rate of 25% on grant and 25% at the end of each of six, twelve and eighteen months from the date of grant. The total fair value of these options was estimated to be $465,048 ($1.38 per stock option) was determined using the Black-Scholes option pricing model with an expected life of 4 years, a risk free interest rate of 1.16%, a dividend yield of 0% and expected volatility of 187%. A total of $116,262 relating to vested options has been recorded as stock-based compensation expense during the year ended February 28, 2011. During the year ended February 29, 2012, a total of 225,000 of these options expired and were cancelled.

    As approved by the Board of Directors, on November 30, 2010, the Company granted 50,000 stock options under the 2010 Stock Option Plan to certain consultants of the Company at $2.00 per share for terms of four years. A total of 12,500 of these stock options vested on the grant date of December 1, 2010. A total of 37,500 of these stock options vest 25% at the end of each of six, twelve and eighteen months from the date of grant. The total fair value of these options which vested during the year ended February 28, 2011 was estimated to be $17,224 ($1.38 per stock option), and was determined using the Black-Scholes option pricing model with an expected life of 4 years, a risk free interest rate of 1.16%, a dividend yield of 0% and expected volatility of 187% and has been recorded as stock-based compensation expense during the year ended February 28, 2011. During the year ended February 29, 2012, a total of 37,500 of these options expired and were cancelled. The total fair value of these options which vested during the year ended February 29, 2012 was estimated to be $1,506 ($0.16 per stock option), and was determined using the Black-Scholes Option Pricing Model with an expected life of 3.33 years, a risk free interest rate of 0.76%, a dividend yield of 0% and expected volatility of 207% and was recorded as stock-based compensation expense during the year ended February 29, 2012.

    As approved by the Board of Directors, on March 14, 2011, the Company granted 93,750 stock options under the 2010 Stock Option Plan to a director of the Company at $2.00 per share for terms of five years. These options vest at a rate of 25% on grant and 25% at the end of each of six, twelve and eighteen months from the date of grant. The total fair value of these options was estimated to be $126,563 ($1.35 per stock option) and was determined using the Black-Scholes Option Pricing Model with an expected life of 5 years, a risk free interest rate of 2.00%, a dividend yield of 0% and expected volatility of 145%. A total of $67,757 relating to vested options was recorded as stock-based compensation expense during the year ended February 29, 2012. During the year ended February 29, 2012, a total of 93,750 of these options expired and were cancelled.

    During the year ended February 29, 2012, 1,056,250 stock options with an exercise price of $2.00, previously granted to certain officers, directors and management of the Company, expired and were cancelled.

    The Company’s stock option activity for the years ended February 29, 2012 and February 28, 2011 is summarized as follows:

              Weighted average exercise     Weighted average remaining  
        Number of Options     price per share     in contractual life (in years)  
                       
    Balance, February 28, 2010   687,500   $ 2.00     9.13 years  
    Granted   2,825,000     2.00        
    Expired - cancelled   (2,000,000 )   2.00        
    Exercised   -     -        
                       
    Balance, February 28, 2011   1,512,500     2.00     3.75 years  
    Granted   93,750     2.00        
    Expired – cancelled   (1,056,250 )   2.00        
    Exercised   -     -        
                       
    Balance, February 29, 2012   550,000   $  2.00     2.75 years  

    A total of 412,500 stock options are exercisable as of February 29, 2012.



    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)

    NOTE 8 – COMMON STOCK (continued)

    Share purchase warrants
    As part of the private placement on April 14, 2010, the Company issued 512,500 share purchase warrants at $4.00 per share for terms of one year. The total fair value of these warrants at the date of grant was estimated to be $1,009,318 ($1.97 per warrant), and was determined using the Black-Scholes option pricing model with an expected life of 1 year, a risk free interest rate of 0.45%, a dividend yield of 0% and expected volatility of 182%.

    As of February 29, 2012, Nil (February 28, 2011 - 512,500) share purchase warrants are outstanding entitling the holder to purchase a common share at a price of $4.00 per share up to April 14, 2011. These share purchase warrants expired unexercised on April 14, 2011.

    Shares to be issued
    On February 23, 2012, the Company agreed to settle $120,437 of promissory note payable debts by issuing 4,014,565 common shares fair valued at $200,278 or $0.05 per share, recognizing a loss on settlement of debt of $80,291. As of February 29, 2012, these shares were recorded as stock payable

    NOTE 9 – INCOME TAXES

    The Company has losses carry forward for income tax purpose to February 29, 2012. There are no current or deferred tax expenses for the year ended February 29, 2012 due to the Company’s loss position. The Company has fully reserved for any benefits of these losses. The deferred tax consequences of temporary differences in reporting items for financial statement and income tax purposes are recognized, as appropriate. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period. Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes.

    The provision for refundable federal income tax consists of the following:

        For the years ended  
        February 29, 2012     February 28, 2011  
                 
    Deferred tax asset attributable to            
    Current operations $  674,967   $  1,878,176  
    Non-deductible items   (23,037 )   (1,075,611 )
    Less: Change in valuation allowance   (651,910 )   (802,565 )
                 
    Net refundable amount $  -   $  -  

    The composition of the Company’s deferred tax asset as of February 29, 2012 and February 28, 2011 are as follows:

        February 29, 2012     February 28, 2011  
                 
    Net operation loss carry-forward $  20,356,240   $  18,416,978  
    Statutory federal income tax rate   33.93%     33.96%  
    Deferred tax assets   6,905,750     6,253,975  
    Less: Valuation allowance   (6,905,750 )   (6,253,975 )
                 
    Net Deferred Tax Assets $  -   $  -  

    The potential income tax benefit of these losses has been offset by a full valuation allowance.



    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)

    NOTE 9 – INCOME TAXES (continued)

    As of February 29, 2012, the Company has an unused net operating loss carry forward balance of approximately $20,356,240 that is available to offset future taxable income. This unused net operation loss carry forward balance for income tax purposes expires as follows:

        United States     Colombia  
        $     $  
                 
    2025   3,051     -  
    2026   12,401     -  
    2027   40,770     -  
    2028   15,075,151     -  
    2029   728,899     -  
    2030   173,289     -  
    2031   1,603,662     -  
    2032   1,181,861     -  
    No expiry   -     1,537,156  
                 
        18,819,084     1,537,156  

    NOTE 10 – COMMITMENTS AND CONTINGENCY

    The Company is subject to certain outstanding and future commitments related to its mineral property interests (Note 4).

    During the year ended February 28, 2011, the Company wrote off amounts due to related parties of $88,170 related to the Company’s former CEO and director. Management does not consider that these amounts are payable. This write down has been recorded as a recovery of expenses and a decrease in due to related parties (Note 6).

    On June 9, 2011, Rahim Jivraj, a former officer and director of the Company filed an action against the Company in the Supreme Court of British Columbia. The plaintiff alleges that the Company owes him certain monies for payment under an alleged promissory note as well as pursuant to certain alleged management fees, expenses and disbursements which is asserted were incurred by the plaintiff in the plaintiff's prior role as an officer and director of the Company. The Company is of the view that such allegations are without merit and intends to vigorously contest the action. On July 13, 2011, the Company filed a defence to this action and a counterclaim against the plaintiff denying that any monies are owing and seeking damages against the plaintiff for breach of contract, breach of fiduciary duty and misrepresentation.

    On July 11, 2011, Mercer Gold Corp. ("Mercer BC"), a privately held British Columbia company which is owned and/or controlled by Mr. Jivraj, delivered a letter to the Company which purported to allege defaults (the “First Notice of Default”) under the Company's existing Mineral Assets Option Agreement, dated for reference effective as at April 13, 2010 (the "Option Agreement"), with Mercer BC, with respect to the Guayabales Gold Project in Columbia. It is the Company's position that the allegations of default are without merit and the letter was not valid notice of default under the Option Agreement.

    On July 19, 2011, the Company responded and advised Mercer BC as to its position with respect to each allegation of default in the First Notice of Default.

    On August 25, 2011, Mercer BC delivered a letter to the Company, which purported to terminate the Option Agreement on the basis that the alleged defaults had not been cured. The Company regards Mercer BC's position as without merit and considers the purported termination to be invalid. The Company intends to continue as operator of the mineral property interests underlying the project as set forth in the Option Agreement.

    On September 9, 2011, the Company gave notice to Mercer BC that it intends to commence arbitration proceedings to address the validity of the termination.



    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)

    NOTE 10 – COMMITMENTS AND CONTINGENCY (continued)

    On September 13, 2011, the Company filed an amended counterclaim as against Mr. Jivraj. The counterclaim seeks an order requiring Mr. Jivraj to disgorge to the Company all of his shares in Mercer BC together with restitution of all benefits he received from the Company while serving as its President. The Company also seeks damages, including aggravated and punitive damages. The counterclaim alleges that Mr. Jivraj acted in a conflict of interest, while President of the Company, by reason of his failure to divest himself of his interest in Mercer BC. It alleges that he formed a plan to use funds raised by the Company to develop the Option Agreement property interests, and then took active steps to put the Company in a position where it might default under the Option Agreement. It is alleged that he then resigned from the Company and resumed his position as President of Mercer BC in order to assist Mercer BC in reacquiring these property interests so that he could vend the property interests to another third party for new consideration. The counterclaim alleges that Mr. Jivraj has attempted to usurp a mature business opportunity belonging to the Company by assisting Mercer BC in issuing the default notice and the termination notice, in breach of fiduciary duty. In addition, the counterclaim alleges that Mr. Jivraj has interfered with the Company's economic interests using unlawful means, including fraud, deceit, conversion, slander of title and defamation. The counterclaim includes particulars of unlawful conduct, including an attempt by Mr. Jivraj to convince a Company consultant to assist him in triggering a default under the Option Agreement by ensuring that a third party service supplier was not paid.

    On September 20, 2011 the Company filed a notice of application against each of Mr. Jivraj and Mercer BC, seeking an injunction against Mr. Jivraj and Mercer BC to restrain them from interfering with the Company's activities as operator of the Guayabales Gold Project in Colombia and from interfering with the Company's rights as optionee under the Option Agreement, pending conclusion of arbitration.

    On October 3, 2011, Mercer BC filed a Response to Civil Claim, and on October 11, 2011 Mercer BC filed a Counterclaim, joining the members of the Company's Board of Directors as defendants. These pleadings have been filed in opposition to the Company's claim seeking an interlocutory injunction pending arbitration of the parties' dispute concerning Mercer BC's purported termination of the Option Agreement. The Counterclaim seeks, among other things, a declaration that the Option Agreement is void and/or rescission of the Option Agreement. The Counterclaim also seeks damages. The Company denies all of the claims made in the Counterclaim as malicious, spurious and without factual basis.

    On December 6, 2011 the British Columbia Supreme Court (the "Court") issued Reasons for Judgment (the "Reasons for Judgment") granting an injunction against both Mr. Jivraj and Mercer BC, enjoining each of them from taking any steps to interfere with the Company's role as operator of the Guayabales Gold Project located in Colombia (the "Property") and interfering with the Option Agreement, pending completion of the arbitration proceeding commenced by the Company with respect to such matter (the "Arbitration Proceeding"). The Court has also ordered that a counterclaim filed by Mercer BC in the Court shall be stayed.

    The Court rejected Mercer BC's application to stay the Arbitration Proceeding commenced by the Company. Mercer BC had argued that the Company was barred from seeking arbitration to challenge Mercer BC's termination of the Option Agreement. The Court determined that the Company was not barred and that the issues sought to be determined by the Company are appropriately advanced in the Arbitration Proceeding now being administered by the British Columbia International Commercial Arbitration Centre.

    In the Reasons for Judgment, the Court has also ordered each of Mercer BC and Mr. Jivraj to disclose, within 24 hours, the names of all persons and entities with whom Mr. Jivraj has discussed a possible sale or deal concerning the Property since March 28, 2011, and to refrain from communicating with any person or entity for the purpose of discussing a possible agreement concerning the Property in a manner inconsistent with the Company's continuing role as optionee and operator of the Property, pending the Arbitration Proceeding. The Court has further restrained Mr. Jivraj from taking any steps to transfer his shares in Mercer BC and the Company to any third party.

    On December 21, 2011, Mercer BC delivered a letter to the Company providing notice of default (the “Second Notice of Default”) which purported to allege default by the Company under section 2.2(c)(i) of the Option Agreement as amended by the Company and Mercer BC on or about March 22, 2011.

    On December 29, 2011, the Company responded and advised Mercer BC that the Company disputes the validity of the Second Notice of Default, that it denies that such default has occurred and that it is submitting the question to arbitration.

    On January 9, 2012, the Company filed a notice to arbitrate the Second Notice of Default with Mercer BC and the British Columbia International Commercial Arbitration Centre pursuant to Article 16.2 of the Option Agreement (“Arbitration Proceeding #2), whereby the Company is seeking: (i) a declaration that the Second Notice of Default is invalid; (ii) in the alternative, a declaration that the Company was not in default as alleged in the Second Notice of Default; and (ii) an order requiring Mercer BC to pay to the Company costs of the arbitration.



    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)

    NOTE 10 – COMMITMENTS AND CONTINGENCY (continued)

    On January 13, 2012, the arbitrators (the “Arbitrators”) of the Arbitration Proceeding dealing with the First Notice of Default ordered the Company and Mercer BC to post $35,000 each as security for the Arbitrators’ fees. The Company complied with this order, however, Mercer BC has not.

    On February 16, 2012, the Company applied to the Arbitration Proceeding to strike portions of Mercer BC’s defense on the basis that it raised factual issues, which were beyond the jurisdiction of the Arbitration Proceeding. The Company’s application was dismissed, however, in responding to the application, Mercer BC withdrew a further allegation of default, leaving only two remaining allegations of default from the original ten grounds of default contained in the First Notice of Default.

    On February 29, 2012, the Arbitration Proceeding #2 dealing with the Second Notice of Default was settled on the basis that Mercer BC withdrew the Second Notice of Default, without prejudice to its ability to assert default on the same grounds after December 31, 2012.

    On March 5, 2012, the Arbitrators provided Mercer BC with a further 14 days to comply with the payment order, however, Mercer BC failed to comply with such order.

    On March 19, 2012, the Arbitrators declared the termination notice that was issued by Mercer BC to the Company on August 25, 2011 as invalid.

    On May 2, 2012, the Arbitrators ordered that the Arbitration Proceedings shall be suspended until such time as Mercer BC complies with its order.

    NOTE 11 – SEGMENTED INFORMATION

    The Company’s only business activity is exploration and development of mineral properties. This activity is carried out in Colombia.

    The breakdown by geographic area for the year ended February 29, 2012 is as follows:

        United States     Colombia     Total  
                       
    Net loss $  1,249,618   $  757,869   $  2,007,487  
                       
    Current assets $  9,631   $  116   $  9,747  
    Deposit $  -   $  1,176   $  1,176  
    Property and equipment and website   -     15,638     15,638  
    Other assets   -     5,735,000     5,735,000  
                       
    Total assets $  9,631   $  5,750,754   $  5,761,561  

    The breakdown by geographic area for the year ended February 28, 2011 is as follows:




    TRESORO MINING CORP.
    (formerly Mercer Gold Corporation)
    (An Exploration Stage Company)
     
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Expressed in U.S. Dollars)
    (Audited)

        United States      Colombia      Total   
                       
    Net Loss $ 4,766,383    $ 780,622    $ 5,547,005   
                       
    Current assets $  166,238   $  15,706   $  181,944  
    Property and equipment   -     7,211     7,211  
    Other assets   -     5,415,000     5,415,000  
                       
    Total assets $  166,238   $  5,437,917   $  5,604,155  

    NOTE 12 – SUBSEQUENT EVENTS

    The following events occurred during the period from the year ended February 29, 2012 to the date the consolidated financial statements were available to be issued on:

    On February 23, 2012, the Company agreed to settle $120,437 of promissory notes payable debts by issuing 4,014,695 common shares fair valued at $200,728 or $0.05 per share, recognizing a loss on settlement of debt of $80,391. As of February 29, 2012, these shares were recorded as stock payable.


    ITEM 9.             CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

    On February 27, 2012, we formally informed James Stafford Chartered Accountants of their dismissal as our independent registered principal accountant.

    During our two most recent fiscal years preceding the termination of James Stafford Chartered Accountants, and through February 27, 2012, there were no disagreements with James Stafford Chartered Accountants which were not resolved on any matter concerning accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of James Stafford Chartered Accountants, would have caused James Stafford Chartered Accountants to make reference to the subject matter of the disagreements in connection with its report. James Stafford Chartered Accountants, as our principal independent accountant, did not provide an adverse opinion or disclaimer of opinion to our Company's consolidated financial statements, nor modify its opinion as to uncertainty, audit scope or accounting principles, except that the report of James Stafford Chartered Accountants for the fiscal years ended February 28, 2011 and 2010 indicated conditions which raised substantial doubt about our Company's ability to continue as a going concern.

    We provided James Stafford Chartered Accountants with a copy of this disclosure before its filing with the Securities and Exchange Commission ("SEC"). We requested that James Stafford Chartered Accountants provide us with a letter addressed to the SEC stating whether or not it agrees with the above statements. A copy of the letter provided by James Stafford Chartered Accountants was filed as Exhibit 16.1 to our Form 8-K filed on March 30, 2012.

    On February 27, 2012, the Board of Directors of our Company approved and authorized the engagement of De Joya Griffith & Company, LLC, as the principal independent accountant for our Company.

    During the two most recent fiscal years and through February 27, 2012, the Company had not consulted with De Joya Griffith & Company, LLC regarding any of the following:

    (i) The application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that may be rendered on our Company's consolidated financial statements, and De Joya Griffith & Company, LLC did not provide either a written report or oral advice to our Company that De Joya Griffith & Company, LLC concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue; or

    (ii) The subject of any disagreement, as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions, or a reportable event within the meaning set forth in Item 304(a)(1)(iv) of Regulation S-K.

    ITEM 9A.           CONTROLS AND PROCEDURES

    Evaluation of Disclosure Controls and Procedures

    Gary Powers, our principal executive officer and William Thomas, our principal financial officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of February 29, 2012. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective as of February 29, 2012.

    38


    Management’s Report On Internal Control Over Financial Reporting

    Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) of the Exchange Act.

    As of February 29, 2012, management assessed the effectiveness of the company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control -Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, our management concluded that, as at February 29, 2012 such internal controls and procedures were not effective.

    This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the company to provide only management’s report.

    Changes in Internal Control over Financial Reporting

    There were no changes in our internal control over financial reporting that occurred during the last quarter of our fiscal year ended February 29, 2012, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

    ITEM 9B.           OTHER INFORMATION

    On May 4, 2012, we received a cease trade order (the "CTO") from the British Columbia Securities Commission (the "BCSC"), the effect of which is limited to the Province of British Columbia. A copy of the BCSC's CTO was filed as an Exhibit to our Form 8-K filed with the SEC on May 10, 2012.

    By its terms, the CTO was issued as a result of the following:

    (i) Our annual information form for the year ended February 28, 2010 (the "2010 AIF"), which was filed on SEDAR pursuant to Part 6 of National Instrument 51-102 Continuous Disclosure Obligations ("NI 51-102") and section 5(c) of BC Instrument 51-509 Issuers Quoted in the U.S. Over-the-Counter Markets ("BCI 51-509"), disclosed scientific and technical information about the Guayabales property, which is a material property to the Company, that included references to a technical report dated May 28, 2010 (the "2010 Report") that contains certain disclosure relating to measured, indicated and inferred mineral resource estimates for the Guayabales Project. However, the 2010 Report does not support the disclosure or material scientific and technical information in the 2010 AIF;

    (ii) Our annual information form for the year ended February 28, 2011 (the "2011 AIF") disclosed scientific and technical information about the Guayabales property and refers to an updated technical report dated February 8, 2011 (the "2011 Report") that contains certain disclosure relating to measured, indicated and inferred mineral resources estimates for the Guayabales Project. However, the Company failed to file the 2011 Report as required by section 4.2(1)(f) of National Instrument 43-101 Standards for Disclosure for Mineral Projects ("NI 43-101");

    (iii) We included similar statements about mineral resources in our various Management Discussion and Analysis ("MD&A"), including those filed for all periods ending in 2010 through to present; and

    (iv) A research report prepared on August 17, 2010 by a third party, which received compensation from us for such report, and is linked to a September 17, 2010 news release contains estimates of mineable reserves, gold mining revenues and current value that constitute a material change in the affairs of the Company. However, we failed to immediately issue and file a news release disclosing the nature and substance of the material change and file a material change report as required under section 7.1 of NI 51-102.

    39


    As a consequence of the CTO we are now seeking legal advice in connection with this matter, are in the process of having the necessary documentation prepared, filed and/or amended and expect to be in communication with the BCSC promptly in order to determine the exact manner in which we are able to satisfy the requirements of NI 51-102, BCI 51-509 and NI 43-101.

    ITEM 10.           DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

    Our directors and executive officers and their respective ages as of the date hereof are as follows:

    Name   Age   Position with the Company
             
    Gary Powers   65   President, Chief Executive Officer and a director
             
    William D. Thomas 60 Chief Financial Officer, Secretary, Treasurer and a director
             
    Gerry Jardine   60   Director

    The following describes the business experience of each of our directors and executive officers, including other directorships held in reporting companies:

    Gary Powers. Mr. Powers has been our President, Chief Executive Officer and a director since July 26, 2011. Mr. Powers is a Canadian businessman with over 40 years experience working with public and private projects ranging from involvement in start-up developments, to holding executive positions with public and private enterprises. Mr. Powers' public sector experience includes board positions and senior management positions, as well as an Assistant Deputy Minister appointment with the Yukon Territorial Government. During his career, Mr. Powers has served as a Director and Officer of OTC Bulletin Board listed mining companies and he has been owner and/or executive of several private development companies in the mining, real estate, and energy sectors. He was also a partner in the development company that created the initial five ski runs on Blackcomb Mountain in British Columbia, Canada.

    The Company’s Board of Directors has determined that Mr. Powers should serve as a director given his experience with public and private companies and his involvement with mining companies.

    William D. Thomas. Mr. Thomas has been our Chief Financial Officer, Secretary/Treasurer and a director of our company since August 18, 2008. Mr. Thomas has over thirty years of experience in the finance and accounting areas for the natural resource sector. Currently, Mr. Thomas is also the Chief Financial Officer, Secretary, Treasurer and a Director of Mainland Resources, Inc. (OTCBB: MNLU), the Chief Financial Officer of Sono Resources Inc. (OTCBB: SRCI) and the Chief Financial Officer of Morgan Creek Energy, Inc. (OTCBB: MCKE), Nevada corporations that trade on the OTC Bulletin Board. Mr. Thomas has held various successive management positions with Kerr McGee Corporation’s China operations based in Beijing, China, ending in 2004 with his final position as Director of Business Services. For a brief period after leaving Kerr McGee, Mr. Thomas acted as a self-practitioner in the accounting and finance field. In July 2007 Mr. Thomas took on the role of Chief Financial Officer for two public resource companies; Hana Mining Inc. (TSX-V: HMG) and NWT Uranium Corp (TSX-V: NWT; OTCBB: NWURF). Mr. Thomas resigned from NWT Uranium Corp. and Hana Mining Inc in July, 2008 and March, 2010 respectively.

    Mr. Thomas was previously general manager (1999-2002), and finance and administration manager (1996-1999), of Kerr McGee’s China operations. While in China, Mr. Thomas was responsible for finance, including Sarbanes Oxley reporting, budgeting, treasury, procurement, taxation, marketing, insurance and business development, including commercial negotiations with the Chinese partner, China National Offshore Oil Co (CNOOC), and other Chinese and joint venture partners. Mr. Thomas focused heavily on supporting exploration and development operations for three operated blocks in Bohai Bay, as well as evaluation and negotiation of new venture blocks in the East China Sea and the South China Sea. He was also responsible for the liaison with CNOOC and other Chinese oil companies, Kerr McGee US management and joint venture partners, where his main focus was to ensure cost effective and timely achievement of various approved work programs and budgets. He was also Chief Representative for Kerr McGee on the Joint Management Committee. Mr. Thomas previously worked as finance director of Kerr McGee’s UK operations based in London/Aberdeen (1992-1996), and Kerr McGee’s Canadian operations in Calgary, Alberta, Canada (1984-1992), including the predecessor company, Maxus Canada Ltd, which was acquired by Kerr McGee Ltd. Over the course of his career Mr. Thomas has been involved in all aspects of managing accounting, budgeting, human resources, administration, insurance, taxation and other business support aspects surrounding gas properties for Kerr McGee. Mr. Thomas was responsible to ensure compliance with COPAS, SEC, FASB and international accounting regulations. He participated on a team that developed the Oracle accounting system application to the Kerr McGee’s worldwide operations. He was most notably involved in that company’s initial entry into both China and the UK North Sea start ups of local and expatriate personnel that eventually developed into core areas (over $1 billion in value) for Kerr McGee, including the company’s first operated offshore oil fields in China (CFD 1-1) and the UK (Gryphon).

    40


    In his early career Mr. Thomas also held senior management positions in the finance divisions of Norcen Energy Ltd., of Calgary, Alberta (1981-1984), Denison Mines Ltd, of Ontario, Canada (1978-1981), and Algoma Steel Corporation, of Sault Ste Marie, Ontario, Canada (1977). He was also a Senior Auditor for the accounting firm, Coopers & Lybrand, in Toronto, Canada (1975-1977).

    Mr. Thomas attained his Chartered Accountant (CA) designation from the Canadian Institute of Chartered Accountants in 1977. He holds an Honors Bachelor of Commerce and Finance from the University of Toronto, Ontario, Canada.

    The Company’s Board of Directors has determined that Mr. Thomas should serve as a director given his over thirty years of experience in the finance and accounting areas for the natural resource sector and his involvement with our Company since August 2008.

    Gerry Jardine. Mr. Jardine has served as a director of our company since May 16, 2011. Mr. Jardine has worked in corporate finance and administration for public companies for the past 30 years and has considerable experience in fund raising for public companies. Since 1989, he has been President and principal shareholder of Amcan Fiscal Consultants, a private management consulting company based in Vancouver, British Columbia. Mr. Jardine founded and has served as Director and Officer of TSX Venture Exchange, NASDAQ and OTC Bulletin Board companies primarily within the research and development, mineral resource and oil and gas sectors. His responsibilities have included acquisitions, funding, and corporate governance and investor relations functions. Mr. Jardine has also served as a director of Mainland Resources Inc. (OTCBB: MNLU) since May 2011.

    The Company’s Board of Directors has determined that Mr. Jardine should serve as a director given his experience in assisting private and public entities with finance, development and investor relations.

    Term of Office

    All of our directors hold office until the next annual general meeting of the shareholders or until their successors are elected and qualified. Our officers are appointed by our board of directors and hold office until their earlier death, retirement, resignation or removal.

    Significant Employees

    We have no significant employees other than our officers and our directors.

    Family Relationships

    There are currently no family relationships between any of the members of our board of directors or our executive officers.

    41


    Involvement in Certain Legal Proceedings

    Except as disclosed in this annual report, during the past ten years none of the following events have occurred with respect to any of our directors or executive officers:

      1.

    A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

           
      2.

    Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

           
      3.

    Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:

           
      a.

    Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

           
      b.

    Engaging in any type of business practice; or

           
      c.

    Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;


      4.

    Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (3)(i) above, or to be associated with persons engaged in any such activity;

           
      5.

    Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;

           
      6.

    Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

           
      7.

    Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

           
      a.

    Any Federal or State securities or commodities law or regulation; or

           
      b.

    Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or

           
      c.

    Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

           
      8.

    Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

    42


    There are currently no legal proceedings to which any of our directors or officers is a party adverse to us or in which any of our directors or officers has a material interest adverse to us.

    Compliance with Section 16(a) of the Exchange Act

    Section 16(a) of the Exchange Act requires the executive officers and directors, and persons who beneficially own more than ten percent of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. We have received copies of such forms from our executive officers and directors. During the fiscal year ended February 29, 2012, except as disclosed below, these filings were made on a timely basis:

    Name and Position Late Reports Transactions Not Timely Reported
    Gerry Jardine, Director 1 Nil
    Gary Powers, President, CEO and a director 1 1

    Code of Conduct

    As disclosed in our current report on Form 10-K for our year ended February 28, 2009, pursuant to the written consent of our Board of Directors dated February 11, 2009, our Board of Directors adopted a number of corporate governance documents, including a code of conduct for directors. On June 21, 2010, our Board of Directors adopted revised corporate governance documents, including a code of conduct that applies to all officers and directors. Our current code of conduct was included as an exhibit to our Annual Report on Form 10-K filed with the SEC on June 3, 2011.

    Audit Committee

    As of the date of filing of this Annual Report, our entire Board of Directors serves as our Audit Committee. We intend to appoint additional directors. Once we appoint such additional directors, we intend to once again establish a separate Audit Committee.

    ITEM 11.           EXECUTIVE COMPENSATION

    Summary Compensation Table

    The following table sets forth the compensation paid to any of the following individuals during our fiscal years ended February 29, 2012 and February 28, 2011: (i) any person serving as our principal executive officer during our fiscal year ended February 29, 2012; (ii) our two most highly compensated executive officers other than our principal executive officer who were serving as executive officers as of February 29, 2012; and (iii) if applicable, up to two additional individuals for whom disclosure would have been provided pursuant to (ii) above but for the fact that the individual was not serving as an executive officer of the Company as of February 29, 2012 (collectively, the “Named Executive Officers”):

    43



        Summary Compensation Table        




    Name and
    Principal
    Position
     

    Year
    Ended
    February
    29
    (28),
     




    Salary
    ($)
       




    Bonus
    ($)
       



    Stock
    Awards
    ($)
       



    Option
    Awards (1)
    ($)
      Non-
    Equity
    Incentive
    Plan
    Compensation
    ($)
        Non-
    Qualified
    Deferred
    Compensation
    Earnings
    ($)
       


    All Other
    Compensation
    ($)
       




    Total
    ($)
     
                                                         
    Gary Powers,
    President and
    CEO(2)


    2012

    2011


    43,000

    N/A




    Nil

    N/A




    Nil

    N/A




    Nil

    N/A




    Nil

    N/A




    Nil

    N/A




    Nil

    N/A




    43,000



    William D. Thomas,
    Secretary,
    Treasurer and CFO
    former President
    and CEO(3)





    2012


    2011





    61,783


    52,320









    Nil


    Nil









    Nil


    Nil









    Nil


    124,100









    Nil


    Nil









    Nil


    Nil









    Nil


    Nil









    61,783


    176,420




    Rahim Jivraj,
    former President
    and CEO(4)


    2012

    2011


    Nil

    43,830




    Nil

    Nil




    Nil

    Nil




    Nil

    372,300




    Nil

    Nil




    Nil

    Nil




    Nil

    Nil




    Nil

    416,130


    James Stonehouse,
    former VP
    Exploration and
    former President
    and CEO (5)




    2012



    2011




    Nil



    124,541








    Nil



    Nil








    Nil



    Nil








    Nil



    215,965








    Nil



    Nil








    Nil



    Nil








    Nil



    Nil








    Nil



    340,506





    (1)

    This amount represents the fair value of these stock options at the date of grant which was estimated using the Black-Scholes option pricing model.

    (2)

    Mr. Powers has served as our President and CEO since July 26, 2011.

    (3)

    Mr. Thomas served as our President and CEO from May 9, 2011 to July 26, 2011.

    (4)

    Mr. Jivraj served as our President and CEO from April 16, 2010 to March 28, 2011.

    (4)

    Mr. Stonehouse served as our VP of Exploration from September 20, 2010 to May 9, 2011 and also as our President and CEO from March 28, 2011 to May 9, 2011.

    44


    Outstanding Equity Awards as of February 29, 2012

    The following table sets forth outstanding equity awards as of February 29, 2012 with respect to each of the Named Executive Officers listed in the table above:

    Outstanding Equity Awards as of February 29, 2012
      Option Awards Stock Awards









    Name







    Number
    of
    secur
    ities
    under-
    lying
    unexer-
    cised
    options
    exercise-
    able
    (#)
    Number
    of
    secur
    ities
    under-
    lying
    unexer-
    cised
    options
    unexer-
    cisable
    (#)
    Equity
    incentive
    plan
    awards:
    number
    of
    securities
    under-
    lying
    unexer-
    cised un-
    earned
    options
    (#)














    Option
    exercise
    price
    ($)















    Option
    expiration
    date











    Number
    of shares
    or units
    of stock
    that have
    not vested
    (#)









    Market
    value of
    shares
    or units
    of stock
    that
    have not
    vested
    ($)
    Equity
    incentive
    plan

    awards:
    number
    of un-
    earned
    shares,
    units or
    other
    rights
    that
    have not
    vested
    (#)
    Equity
    incentive
    plan

    awards:
    market
    or
    payout
    value of
    un-
    earned
    shares,
    units or
    other
    rights
    that
    have not
    vested
    ($)
    William D. Thomas 140,625 46,875 Nil $2.00 Dec 1/14 Nil Nil Nil Nil
    Gary Powers Nil Nil                    Nil Nil Nil Nil Nil Nil Nil

    Compensation of Directors

    The following table sets forth information relating to compensation paid to our directors during our fiscal year ended February 29, 2012:

    Director Compensation During Our Year Ended February 29, 2012
            Non- Non-    
            equity qualified    
      Fees     incentive deferred All  
    Name earned or     plan compen- other  
      paid in Stock Option compen- sation compen-  
      cash awards awards sation earnings sation Total
      ($) ($) ($) (6) ($) ($) ($)  ($)
    William D. Thomas 61,783              Nil              Nil Nil Nil Nil 61,783
    Gary Powers 43,000              Nil              Nil Nil Nil Nil 43,000
    Gerry Jardine Nil              Nil              Nil Nil Nil Nil Nil
    Rahim Jivraj(1) Nil              Nil              Nil Nil Nil Nil Nil
    James M. Stonehouse(2) Nil              Nil              Nil Nil Nil Nil Nil
    Devinder Randhawa(3) Nil              Nil              Nil Nil Nil Nil Nil
    Lorne Gertner(4) Nil              Nil              Nil Nil Nil Nil Nil

    (1)

    Mr. Jivraj resigned as a director on April 25, 2011.

    (2)

    Mr. Stonehouse resigned as a director on May 9, 2011.

    (3)

    Mr. Randhawa resigned as a director on March 28, 2011.

    (4)

    Mr. Gertner resigned as a director on April 27, 2011.

    45



    ITEM 12.

    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

    The following table sets forth certain information concerning the number of shares of our common stock owned beneficially as of May 29, 2012 by (i) each person (including any group) known to us to own more than 5% of any class of our voting securities, (ii) each of our officers and directors, and (iii) our officers and directors as a group. Unless otherwise indicated, it is our understanding and belief that the shareholders listed possess sole voting and investment power with respect to the shares shown.



    Title of Class

    Name and Address of
    Beneficial Owner

    Amount and Nature of
    Beneficial Owner(1)
    Percentage of
    Common
    Stock(2)
    Directors and Officers
     Common Stock Gary Powers 39,559 0.1%
     Common Stock William D. Thomas 187,500 (3) 0.6%
     Common Stock Gerry Jardine Nil Nil
    Common Stock All executive officers and directors as a Group (3 persons) 133,309 (3) 0.7%

      (1)

    Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares (i) voting power, which includes the power to vote, or to direct the voting of shares, and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights.

      (2)

    The percentage of class is based on 24,473,934 shares of common stock issued and outstanding as of May 29, 2012.

      (3)

    Consists of 187,500 shares of common stock and options to purchase 187,500 shares of common stock at $2.00 per share.

    Changes in Control

    There has not been a change in control of the Company since the beginning of the Company’s last fiscal year.

    ITEM 13.           CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

    Related Party Transactions

    Except as described herein, none of the following parties (each a “Related Party”) has, since the beginning of our fiscal year ended February 29, 2012, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us:

     
  • any of our directors or officers;

         
     
  • any person proposed as a nominee for election as a director;

         
     
  • any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our outstanding shares of common stock; or

         
     
  • any member of the immediate family (including spouse, parents, children, siblings and in- laws) of any of the above persons.

    46


    The balance due to related parties of $77,201 at February 29, 2012 (2011 - $55,877) is due to directors (William Thomas,and Gary Powers) .

    During the year ended February 29, 2012, the Company paid or accrued consulting and/or management fees of $123,783 to directors of the Company (2011 – $133,786).

    Our Board of Directors reviews any proposed transactions involving Related Parties and considerers whether such transactions are fair and reasonable an in the Company’s best interests.

    ITEM 14.           PRINCIPAL ACCOUNTING FEES AND SERVICES

    James Stafford serve as our independent registered public accounting firm and audited our financial statements for the fiscal years ended February 29, 2012 and February 28, 2011. Aggregate fees for professional services rendered to us by our auditors are set forth below:

        Year Ended     Year Ended  
        February 29, 2012     February 28, 2011  
    Audit Fees   30,359   $  26,898  
    Audit-Related Fees   Nil     Nil  
    Tax Fees   Nil     Nil  
    Total $  30,359   $  26,898  

    Audit Fees. Aggregate fees for professional services in connection with the audit of our annual financial statements and the quarterly reviews of our financial statements included in our quarterly reports.

    Audit-Related Fees. Our auditors provided audit-related services to us in connection with the review of other regulatory filings.

    Tax Fees. Our auditors did not provide tax preparation services.

    All Other Fees. Our auditors did not provide any other services to us other than those described above.

    Pre-Approval of Services by the Independent Auditor

    The Audit Committee (or, at the present time, the Board of Directors, which is functioning as our Audit Committee) is responsible for the pre-approval of audit and permitted non-audit services to be performed by the Company’s independent auditor, De Joya Griffith & Company, LLC. The Audit Committee will, on an annual basis, consider and, if appropriate, approve the provision of audit and non-audit services by De Joya Griffith & Company, LL. Thereafter, the Audit Committee will, as necessary, consider and, if appropriate, approve the provision of additional audit and non-audit services by De Joya Griffith & Company, LL which are not encompassed by the Audit Committee’s annual pre-approval and are not prohibited by law. The Audit Committee has approved all of the audit and permitted non-audit services performed by De Joya Griffith & Company, LL in the year ended February 29, 2012.

    ITEM 15.           EXHIBITS, FINANCIAL STATEMENT SCHEDULES

    The following exhibits are filed with this Annual Report on Form 10-K:

    Exhibit  
    Number Description of Exhibit
    3.1 Articles of Incorporation, as amended (1)
    3.2 Certificate of Change filed with the Nevada Secretary of State on June 4, 2007 *
    3.3 Articles of Merger as filed with the Nevada Secretary of State on June 4, 2007 (2)
    3.4 Articles of Merger as filed with the Nevada Secretary of State on February 26, 2008 *
    3.5 Articles of Merger as filed with the Nevada Secretary of State on May 17, 2010 (14)
    3.6 Certificate of Change filed with the Nevada Secretary of State on June 8, 2010 (13)
    3.7 Certificate of Change filed with the Nevada Secretary of State on April 14, 2011 (17)

    47



    3.8

    Certificate of Correction filed with the Nevada Secretary of State on April 28, 2011 (17)

    3.9

    Articles of Merger as filed with the Nevada Secretary of State on August 30, 2011(18)

    3.10

    Bylaws (1)

    10.1

    Mineral Property Staking and Purchase Agreement dated January 28, 2005 between Ancor Resources Inc. and Laurence Stephenson (1)

    10.2

    Nose Rock Property - Option and Joint Venture Agreement between Nu-Mex Uranium Corp. and Strathmore Resources (US) Ltd. dated September 14, 2007 (3)

    10.3

    Dalton Pass Property - Option and Joint Venture Agreement between Nu-Mex Uranium Corp. and Strathmore Resources (US) Ltd. dated October 5, 2007 (4)

    10.4

    NWT Uranium Corp. and Nu-Mex Uranium Corp. Terminate Arrangement Agreement dated February 13, 2008 (5)

    10.5

    Executive Services Agreement dated April 1, 2008 among Uranium International Corp., Cleary Petroleum Corp. and Richard M. Cherry (6)

    10.6

    Letter Option Agreement dated December 9, 2008 between Uranium International Corp. and Geoforum Scandinavia AB (7)

    10.7

    Letter Option Agreement dated January 15, 2009 between Uranium International Corp. and Trans Atlantic Metals AG (8)

    10.8

    Letter Agreement dated April 21, 2009, effective April 23, 2009, between Uranium International Corp. and Continental Precious Metals Inc. (9)

    10.9

    Option Agreement dated October 29, 2009 between Uranium International Corp. and Geoforum Scandinavia AB (10)

    10.10

    Option Agreement dated November 17, 2009 between Uranium International Corp. and Trans Atlantic Metals AG (11)

    10.11

    Mineral Assets Option Agreement between Mercer Gold Corp. and Uranium International Corp., dated April 13, 2010 (12)

    10.12

    2010 Stock Incentive Plan (15)

    10.13

    Amendment to Mineral Assets Option Agreement dated December 30, 2010 (16)

    Subsidiaries of the Issuer:

    21.1

    Subsidiaries of the Issuer:

     

    Mercer One Panama Corp. (Incorporated under the laws of the Republic of Panama)

     

    Mercer Two Panama Corp. (Incorporated under the laws of the Republic of Panama)

     

    Certifications

    31.1

    Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a) *

    31.2

    Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a) *

    32.1

    Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 *

    101.INS

    XBRL Instance Document *

    101.SCH

    XBRL Taxonomy Extension Schema *

    101.CAL

    XBRL Taxonomy Extension Calculation Linkbase *

    101.DEF

    XBRL Taxonomy Extension Definition Linkbase *

    101.LAB

    XBRL Taxonomy Extension Label Linkbase *

    101.PRE

    XBRL Taxonomy Extension Presentation Linkbase *


    * Filed herewith
    (1)

    Incorporated by reference from our Form SB-2, filed with the SEC on September 13, 2006.

    (2)

    Incorporated by reference from our Form 10-KSB, filed with the SEC on June 13, 2007

    (3)

    Incorporated by reference from our Form 8-K, filed with the SEC on September 14, 2007.

    (4)

    Incorporated by reference from our Form 8-K, filed with the SEC on October 12, 2007.

    (5)

    Incorporated by reference from our Form 8-K, filed with the SEC on February 19, 2008.

    (6)

    Incorporated by reference from our Form 8-K, filed with the SEC on April 7, 2008.

    (7)

    Incorporated by reference from our Form 8-K, filed with the SEC on December 19, 2008.

    (8)

    Incorporated by reference from our Form 8-K, filed with the SEC on January 23, 2009.

    (9)

    Incorporated by reference from our Form 8-K, filed with the SEC on May 1, 2009.

    48



    (10)

    Incorporated by reference from our Form 8-K, filed with the SEC on November 12, 2009.

    (11)

    Incorporated by reference from our Form 8-K, filed with the SEC on November 27, 2009.

    (12)

    Incorporated by reference from our Form 8-K, filed with the SEC on April 19, 2010.

    (13)

    Incorporated by reference from our Form 8-K, filed with the SEC on June 9, 2010

    (14)

    Incorporated by reference from our Form 8-K, filed with the SEC on June 9, 2010

    (15)

    Incorporated by reference from our Form 10-K, filed with the SEC on June 16, 2010.

    (16)

    Incorporated by reference from our Form 8-K, filed with the SEC on January 18, 2011.

    (17)

    Incorporated by reference from our Form 8-K, filed with the SEC on May 12, 2011.

    (18)

    Incorporated by reference from our Form 8-K, filed with the SEC on November 4, 2011.

    49


    SIGNATURES

    Pursuant to the requirements of Section 13 and 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

    TRESORO MINING CORP.

      By: /s/ Gary Powers
        Gary Powers
        President and Chief Executive Officer
        (Principal Executive Officer)
        Date: June 26, 2012
         
         
      By: /s/ William D. Thomas
        William D. Thomas
        Chief Financial Officer, Secretary and Treasurer
        (Principal Financial Officer and Principal Accounting Officer)
        Date: June 26, 2012

    In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

    Signature Title Date
         
         
    /s/ Gary Powers President, Chief Executive Officer and Director June 26, 2012
    Gary Powers    
         
         
         
    /s/ William D. Thomas Chief Financial Officer, Secretary, Treasurer and Director June 26, 2012
    William D. Thomas    
         
         
         
    /s/ Gerry Jardine Director June 26, 2012
    Gerry Jardine    

    __________


    PINX:TSOR Annual Report 10-K Filling

    PINX:TSOR Stock - Get Annual Report SEC Filing of PINX:TSOR stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

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    PINX:TSOR Annual Report 10-K Filing - 2/29/2012
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