PINX:TSOR Quarterly Report 10-Q Filing - 5/31/2012

Effective Date 5/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended May 31, 2012
 
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to ______
 
Commission File Number: 000-52660
 
TRESORO MINING CORP.
(Exact name of small business issuer as specified in its charter)

Nevada 20-1769847
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
15710 W. Colfax Ave, Suite 201  
Golden, CO 80401
(Address of principal executive offices) (Zip Code)

(303) 235-8099
Registrant’s telephone number, including area code
 
880 – 666 Burrard Street, Vancouver, British Columbia V6C 2G3
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes[X] No[ ]

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

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

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date. 24,473,940 shares of common stock as of July 16, 2012.



TRESORO MINING CORP.
 
Quarterly Report on Form 10-Q
For The Quarterly Period Ended
May 31, 2012
 
INDEX

PART I – FINANCIAL INFORMATION 3
   Item 1. Financial Statements 3
   Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 5
   Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
   Item 4. Controls and Procedures 13
PART II – OTHER INFORMATION 13
   Item 1. Legal Proceedings 13
   Item 1A. Risk Factors 13
   Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 15
   Item 3. Defaults Upon Senior Securities 15
   Item 4. Mine Safety Disclosures 16
   Item 5. Other Information 16
   Item 6. Exhibits 16


- 2-

FORWARD-LOOKING STATEMENTS

This quarterly 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 quarterly 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 quarterly report. Forward-looking statements in this quarterly 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 referred to under “Risk Factors” in our annual report on Form 10-K filed with the SEC on June 28, 2012.

The forward-looking statements in this quarterly report are made as of the date of this quarterly 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.


- 3 -

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

The following unaudited interim consolidated financial statements of Tresoro Mining Corp. (sometimes referred to as “we”, “us” or “our Company”) are included in this quarterly report on Form 10-Q:

  Page
Consolidated Balance Sheets as of May 31, 2012 (unaudited) and February 29, 2012 4
Unaudited Consolidated Statements of Operations for the three months ended May 31, 2012 and 2011 and for the period from inception (October 11, 2004) to May 31, 2012 5
Unaudited Consolidated Statements of Cash Flows for the three months ended May 31, 2012and 2011 and for the period from inception (October 11, 2004) to May 31, 2012 6
Unaudited Notes to Consolidated Financial Statements 7

It is the opinion of management that the unaudited interim consolidated financial statements for the three months ended May 31, 2012 and 2011 include all adjustments necessary in order to ensure that the unaudited interim consolidated financial statements are not misleading. These unaudited interim consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America. Except where noted, these unaudited interim consolidated financial statements follow the same accounting policies and methods of their application as our Company’s audited annual consolidated financial statements for the year ended February 29, 2012. All adjustments are of a normal recurring nature. These unauditedinterim consolidated financial statements should be read in conjunction with our Company’s audited annual consolidated financial statements as of and for the year ended February 29, 2012.


- 4 -

TRESORO MINING CORP.
(An Exploration Stage Company)
 
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
 
May 31, 2012
 
(UNAUDITED)

 


 

CONSOLIDATED BALANCE SHEETS
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



TRESORO MINING CORP.
(An Exploration Stage Company)
 
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)

    May 31,     February 29,  
    2012     2012  
    (unaudited)     (audited)  
ASSETS            
             
CURRENT ASSETS            
Cash and cash equivalents $  15,305   $  9,747  
Prepaid expenses   31,085     -  
             
TOTAL CURRENT ASSETS   46,390     9,747  
             
Deposit   1,176     1,176  
Property and equipment (Note 3)   12,858     15,638  
Mineral exploration properties (Note 4)   5,735,000     5,735,000  
             
TOTAL ASSETS $  5,795,424   $  5,761,561  
             
LIABILITIES AND STOCKHOLDERS’ EQUITY            
             
CURRENT LIABILITIES            
     Accounts payable and accrued liabilities (Note 5) $  1,019,776   $  993,634  
     Due to related parties (Note 6)   111,100     98,617  
     Promissory notes payable (Note 7)   2,128,361     1,882,257  
             
TOTAL LIABILITIES   3,259,237     2,974,508  
             
COMMITMENTS AND CONTINGENCIES (Notes 1, 9 and 11)            
             
STOCKHOLDERS’ EQUITY            
     Common stock (Note 8)            
     Authorized 
          140,625,000 shares of common stock, $0.001 par value
 
   
 
     Issued and outstanding 
          24,473,940 common shares (February 28, 2011 – 20,459,375)
 
24,474
   
20,459
 
     Additional paid-in capital   35,423,176     35,226,463  
     Stock payable   -     200,728  
     Deficit accumulated during exploration stage   (32,911,463 )   (32,660,597 )
             
TOTAL STOCKHOLDERS’ EQUITY   2,536,187     2,787,053  
             
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $  5,795,424   $  5,761,561  

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



TRESORO MINING CORP.
(An Exploration Stage Company)
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
(unaudited)

    For the period from  
    For the three For the three inception (October  
    months ended months ended 11, 2004) to
    May 31, May 31, May 31,  
    2012 2011 2012  
                   
GENERAL & ADMINISTRATIVE EXPENSES                  
     Write down of mineral property acquisition cost acquisition costs (Note 4) $  -   $  -   $  14,625,000  
     Amortization and depreciation   2,780     768     4,115  
     Consulting fees   -     13,000     361,200  
     Legal and accounting   95,015     31,050     1,403,844  
     Management fees (Note 6)   31,497     19,182     602,787  
     Marketing and promotion   -     32,776     251,823  
     Mineral property exploration expenditures (Note 4)   39,807     683,709     2,175,506  
     Office and miscellaneous   16,233     84,803     514,084  
     Rent   15,000     44,176     208,257  
     Salaries and benefits   -     -     9,190  
     Stock-based compensation (Note 8)   -     123,995     11,879,022  
     Loss on settlement of debt   -     -     160,406  
     Gain on sale of property and equipment   -     -     (1,188 )
                   
TOTAL GENERAL AND AMINISTRATIVE EXPENSES   (200,332 )   (1,033,459 )   (32,194,046 )
                   
OTHER ITEMS                  
     Interest expense (Note 7)   (46,529 )   (23,322 )   (712,924 )
                   
NET LOSS FOR THE PERIOD BEFORE TAXES $  (246,861 ) $  (1,056,781 ) $  (32,906,970 )
                   
       Taxes   (4,005 )   -     (4,493 )
                   
NET LOSS FOR THE PERIOD $  (250,866 ) $  (1,056,781 ) $  (32,911,463 )
                   
                   
BASIC AND DILUTED LOSS PER COMMON SHARE $  (0.01 ) $  (0.06 )    
                   
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED   23,513,935     17,319,158      

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



TRESORO MINING CORP.
(An Exploration Stage Company)
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
(unaudited)

                For the period  
    For the three     For the three     from inception  
    months ended     months ended     (October 11,  
    May 31,     May 31,     2004) to May 31,
    2012     2011     2012  
                   
CASH FLOWS FROM OPERATING ACTIVITIES                  
   Net loss for the period $  (250,866 ) $  (1,056,781 ) $  (32,911,463 )
   Adjustments to reconcile net loss to net cash used in operating                  
   activities:                  
     - Interest expense (Note 7)   46,529     23,322     703,649  
     - Amortization and depreciation (Note 3)   2,780     768     4,115  
     - Contributions to capital by related parties   -     -     24,000  
     - Gain on sale of assets   -     -     (1,188 )
     - Write down of mineral property acquisition costs   -     -     14,625,000  
     - Write down of management fees   -     (27,885 )   (88,170 )
     - Stock-based compensation (Note 8)   -     123,995     11,879,022  
     - Non-cash gain on settlement of debt   -     -     (120,843 )
     - Non-cash loss on settlement of debt   -     -     160,406  
   Changes in operating assets and liabilities                  
     - Increase in accounts receivable   -     (9,626 )   -  
     - Increase in deposits   -           (1,176 )
     - (Increase) decrease in prepaid expenses   (31,085 )   28,359     (31,085 )
     - Increase (decrease) in accounts payable and accrued liabilities   26,142     533,116     1,023,068  
     - Increase (decrease) in due to related parties   12,483     34,507     336,074  
                   
NET CASH USED IN OPERATING ACTIVITIES   (194,017 )   (350,225 )   (4,398,591 )
                   
CASH FLOWS FROM INVESTING ACTIVITIES                  
   Website   -     -     (9,167 )
   Acquisition of mineral property interests (Note 4)   -     (75,000 )   (1,360,000 )
   Acquisition of property and equipment (Note 3)   -     -     (8,078 )
                   
NET CASH FLOWS USED IN INVESTING ACTIVITIES   -     (75,000 )   (1,377,245 )
                   
CASH FLOWS FROM FINANCING ACTIVITIES                  
   Advance from related parties (Note7)   -     42,200     764,283  
   Other promissory notes (Note 7)   304,575     -     2,255,129  
   Repayment of related parties   -     -     (25,398 )
   Repayment of other promissory notes (Note 7)   (105,000 )   -     (578,773 )
   Common shares issued for cash / subscribed for cash   -     260,000     3,375,900  
                   
NET CASH PROVIDED BY FINANCING ACTIVITIES   199,575     302,200     5,791,141  
                   
INCREASE (DECREASE) IN CASH   5,558     (123,025 )   15,305  
                   
CASH, BEGINNING OF PERIOD   9,747     126,134     -  
                   
CASH, END OF PERIOD $  15,305   $  3,109   $  15,305  
                   
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION              
     Cash paid for interest $  -   $  -   $  127,733  
     Cash paid for income taxes $  -   $  -   $  -  
     Non-cash investing and financing activities:                  
       Donated rent and services $  -   $  -   $  240,000  
       Shares issued for exploration expenses and mineral properties $  -   $  -   $  1,900,000  
       Shares issued on settlement of debts $  -   $  60,000   $  658,322  

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



TRESORO MINING CORP.
(An Exploration Stage Company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2012
(Expressed in U.S. Dollars)
(Unaudited)


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 interim consolidated financial statements as at May 31, 2012, and for the period then ended have been prepared 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 losses since inception of $32,911,463. 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.

Unaudited Interim Consolidated Financial Statements
The accompanying unaudited consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. They do not include all information and footnotes required by United States generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. However, except as disclosed herein, there has been no material changes in the information disclosed in the notes to the consolidated financial statements for the year ended February 29, 2012 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. The interim unaudited consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made.



TRESORO MINING CORP.
(An Exploration Stage Company)
 
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2012
(Expressed in U.S. Dollars)
(Unaudited)
 
 
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION (continued)

Operating results for the three months ended May 31, 2012 are not necessarily indicative of the results that may be expected for the year ending February 28, 2013.

Reclassifications
Certain comparative figures on the balance sheet as of February 29, 2012 have been reclassified in order to conform to the current year’s financial statement presentation with no effect on earnings.

In the prior year, the Company recorded website in the amount of, $9,167 and property and equipment of $6,471 separately, this has been reclassified and combined as property and equipment. Additionally, $21,416 due to related parties which was previously included in accounts payable is now reported separately in the balance sheet as due to related parties. The reclassification had no impact on the Company’s financial condition, results of operations or cash flows.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Basis of Presentation
The accounting and reporting policies of the Company conform to 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 interim 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 intangible assets when purchased. At the end of each fiscal quarter, 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 interim 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.
(An Exploration Stage Company)
 
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2012
(Expressed in U.S. Dollars)
(Unaudited)
 
 
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

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 May 31, 2012 and February 29, 2012 that exceeded federally insured limits. The Company had $1,176 in restricted cash as of May 31, 2012 (February 29, 2012 - $1,176).

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 at May 31, 2012, the fair value of cash and cash equivalents, amounts receivables, accounts payable, 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.
(An Exploration Stage Company)
 
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2012
(Expressed in U.S. Dollars)
(Unaudited)
 
 
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

NOTE 3 – PROPERTY AND EQUIPMENT

          Accumulated     Net Book Value  
          Depreciation/     May 31,     February 29,  
    Cost     Amortization     2012     2012  
                         
Furniture and fixtures $  649   $  116   $  533   $ 561  
Website   9,167     2,500     6,667     9,167  
Machinery and equipment   6,837     1,179     5,658     5,910  
                         
  $  16,653   $  3,795   $  12,858   $ 15,638  

During the three months ended May 31, 2012 and 2011, total additions to property and equipment were $Nil (inception (October 11, 2004) through May 31, 2012 - $9,761).

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




    TRESORO MINING CORP.
    (An Exploration Stage Company)
     
    NOTES TO FINANCIAL STATEMENTS
    MAY 31, 2012
    (Expressed in U.S. Dollars)
    (Unaudited)


    NOTE 4 – MINERAL EXPLORATION PROPERTIES (continued)
       
  • 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 May 31, 2012, no technical report has been prepared).;

       
    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 (Note 11);

  • 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.

    During the three months ended May 31, 2012, the Company incurred mineral properties exploration expenditures of $39,807 (2011 - $683,709).



    TRESORO MINING CORP.
    (An Exploration Stage Company)
     
    NOTES TO FINANCIAL STATEMENTS
    MAY 31, 2012
    (Expressed in U.S. Dollars)
    (Unaudited)
     
     
    NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
     
    Accounts payable and accrued liabilities are non-interest bearing, unsecured and have settlement dates within one year.
     
    NOTE 6 – DUE TO RELATED PARTIES AND RELATED PARTY TRANSACTIONS
     
    The amounts charged to the Company for 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.
     
    The balance due to related parties of $111,100 at May 31, 2012 (February 29, 2012 - $77,201) is due to directors, and a company controlled by a director and/or shareholder of the Company and is unsecured, non-interest bearing and payable on demand.
     
    During the three months ended May 31, 2012, the Company paid or accrued management fees of $31,497 to directors of the Company (2011 - $19,182).
     
    NOTE 7 – PROMISSORY NOTES PAYABLE
     
    The promissory note payable of $2,128,361 at May 31, 2012 (February 29, 2012 - $1,882,257) consists of principal and accrued interest of $1,942,838 (February 29, 2012 - $1,743,263) and $185,523 (February 29, 2012 - $138,994), respectively. As of May 31, 2012, $2,128,361 (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.
     
    NOTE 8 – CAPITAL 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 (Note 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 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.



    TRESORO MINING CORP.
    (An Exploration Stage Company)
     
    NOTES TO FINANCIAL STATEMENTS
    MAY 31, 2012
    (Expressed in U.S. Dollars)
    (Unaudited)


    NOTE 8 – CAPITAL STOCK (continued)

    Issued and Outstanding (continued)
    The total issued and outstanding capital stock is 24,473,940 commons shares with par value of $0.001 per share. The Company’s common stock issuances during the three months ended May 31, 2012 as follows:

    1.

    On March 22, 2012, 4,014,565 common shares of the company, valued at $200,728, were issued to settle the stock payable balance as of February 29, 2012. 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 recognizing a loss on debt settlement of $80,291.

    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. 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 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 was 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.

    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 was 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 was 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.

    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) 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.



    TRESORO MINING CORP.
    (An Exploration Stage Company)
     
    NOTES TO FINANCIAL STATEMENTS
    MAY 31, 2012
    (Expressed in U.S. Dollars)
    (Unaudited)


    NOTE 8 – CAPITAL STOCK (continued)

    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 three month period ended May 31, 2012 is summarized as follows:

              Weighted average exercise     Weighted average remaining  
        Number of options     price per share     in contractual life (in years)  
                       
    Balance, February 28, 2011   1,512,500     2.00     3.75 years  
    Granted   93,750     2.00     -  
    Expired – cancelled   (668,750 )   2.00     -  
    Exercised   -     -     -  
                       
    Balance, February 29, 2012   550,000     2.00     2.75 years  
    Granted   -     -     -  
    Expired – cancelled   (12,500 )   2.00     -  
    Exercised   -     -     -  
                       
    Balance, May 31, 2012   537,500     2.00     2.50 years  

    A total of 537,500 stock options are exercisable as at May 31, 2012.

    NOTE 9 – COMMITMENTS AND CONTINGENCIES

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

    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 has 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 Guayables Gold Project in Columbia. It is the Company’s position that the allegations of default re 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 interest underlying the project as set forth in the Option Agreement.



    TRESORO MINING CORP.
    (An Exploration Stage Company)
     
    NOTES TO FINANCIAL STATEMENTS
    MAY 31, 2012
    (Expressed in U.S. Dollars)
    (Unaudited)


    NOTE 9 – COMMITMENTS AND CONTINGENCIES (continued)

    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.

    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.



    TRESORO MINING CORP.
    (An Exploration Stage Company)
     
    NOTES TO FINANCIAL STATEMENTS
    MAY 31, 2012
    (Expressed in U.S. Dollars)
    (Unaudited)


    NOTE 9 – COMMITMENTS AND CONTINGENCIES (continued)

    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.



    TRESORO MINING CORP.
    (An Exploration Stage Company)
     
    NOTES TO FINANCIAL STATEMENTS
    MAY 31, 2012
    (Expressed in U.S. Dollars)
    (Unaudited)
     
     
    NOTE 10 – SEGMENT 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 period ended May 31, 2012 is as follows:

        United States     Colombia     Total  
                       
    Net loss $  223,448   $  27,418   $  250,866  
                       
    Current assets $  43,926   $  2,464   $  46,390  
    Deposit   -     1,176     1,176  
    Property and equipment and website   -     12,858     12,858  
    Other assets   -     5,735,000     5,735,000  
                       
    Total assets $  43,926   $  5,751,498   $  5,795,424  

    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   $  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 period ended May 31, 2011 is as follows:

        United States     Colombia     Total  
    Net loss $  476,266   $  580,427   $  1,056,693  
    Current assets $  38,105   $  2,081   $  40,186  
    Property and equipment   -     6,443     6,443  
    Other assets   -     5,490,000     5,490,000  
    Total assets $  166,238   $  5,437,917   $  5,536,629  

    NOTE 11 – SUBSEQUENT EVENTS

    The following event occurred during the period from the date of the three month period ended on May 31, 2012 to the date the financial statements were available to be issued on July 20, 2012:

    On July 9, 2012, the Company received an extension to July 31, 2012 for payment of the option payment due on July 14, 2012 to the Underlying Property Owner under the Underlying Option Agreement related to the Guayabales Property (Note 4).


    - 5-

    Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

    The following discussion of our financial condition, changes in financial condition and results of operations for the three months ended May 31, 2012 and 2011 should be read in conjunction with our unaudited interim consolidated financial statements and related notes for the three months ended May 31, 2012 and 2011. The following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those referred to under the heading “Risk Factors” in Item 1A. to Part I of our Annual Report on Form 10-K for the fiscal year ended February 29, 2012.

    Overview of Our Business

    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 quarterly 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.

    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 May 31, 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:



    - 6 -

    • 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);

  • 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 (Payment extended to July 31, 2012 see Exhibit 10.14);

  • 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.


    - 7 -

    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:

    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.”

    Plan of Operations

    Our Plan of Operations for the next twelve months is to pursue Phase I of the recommended exploration program on the Guayabales Property, as described in more detail in our Annual Report on Form 10-K for the year ended February 28, 2011, under “Item 1. Business – Mineral Properties – Guayabales Property, Colombia – Company’s Planned Exploration Program.”

    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.


    - 8 -

    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 at May 31, 2012, we had cash of $15,305 and a working capital deficit of $(3,212,847). 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.

    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:







     

    For the three
    months ended
    May 31,
    2012
    (unaudited)
     

    For the three
    months ended
    May 31,
    2011
    (unaudited)
      For the period
    from inception
    (October 11,
    2004) to
    May 31,
    2012
    (unaudited)
                       
    GENERAL & ADMINISTRATIVE EXPENSES                  
       Write down of mineral property acquisition costs $  -   $  -   $  14,625,000  
       Amortization and depreciation   2,780     768     4,115  
       Consulting fees   -     13,000     361,200  
       Legal and accounting   95,015     31,050     1,403,844  
       Management fees   31,497     19,182     602,787  
       Marketing and promotion   -     32,776     251,823  
       Mineral property exploration expenditures   39,807     683,709     2,175,506  
       Office and miscellaneous   16,233     84,803     514,084  
       Rent   15,000     44,176     208,257  
       Stock-based compensation   -     123,995     11,879,022  
       Loss on settlement of debt   -     -     160,406  
       Salaries and benefits   -     -     9,190  
       Gain on sale of property and equipment   -     -     (1,188 )
                       
    TOTAL GENERAL & ADMINISTRATIVE EXPENSES   200,332     1,033,549     32,194,046  
                       
    OTHER ITEMS                  
       Interest expense   (46,529 )   (23,322 )   (712,924 )
                       
    NET LOSS FOR THE PERIOD BEFORE TAXES $  (246,861 ) $  (1,056,781 ) $  (32,906,970 )
         Taxes   (4,005 )   -     (4,493 )
    NET LOSS FOR THE PERIOD $  (250,866 ) $  (1,056,781 ) $  (32,911,463 )


    - 9 -

    Three Months Ended May 31, 2012 Compared to Three Months Ended May 31, 2011

    During the three months ended May 31, 2012 and May 31, 2011 we did not generate any revenue.

    During the three months ended May 31, 2012 we incurred general and administrative expenses of $200,332 compared to $1,033,459 incurred during the three months ended May 31, 2011. The major components of our general and administrative expenses for the three months ended May 31, 2012 and 2011 consisted of the following:

    • consulting fees of $Nil in 2012 (2011 - $13,000), which decreased between 2011 and 2012 due to a reduced level of exploration activity in Colombia;

    • legal and accounting fees of $95,015 in 2012 (2011 – $31,050), which increased between 2011 and 2012 due to legal actions related to the Guayabales property;

    • management fees of $31,497 in 2012 (2011 - $19,182), which increased between 2011 and 2012 due to one additional director;

    • marketing and promotion costs of $Nil in 2012 (2011 - $32,776), which decreased between 2011 and 2012 as we decreased focus on these activities;

    • mineral property exploration expenditures of $39,807 in 2012 (2011 - $683,709), which decreased between 2011 and 2012 due to decreased exploration activity on the Guayabales property;

    • office and miscellaneous expenses of $16,233 in 2012 (2011 – $84,803), which decreased between 2011 and 2012 due to decreased activity on the Guayabales property;

    • rent of $15,000 in 2012 (2011 - $44,176) which decreased from 2011 to 2012 as we decreased our activity on the Guayabales property; and

    • stock-based compensation of $Nil in 2012 (2011 - $123,995), which decreased between 2011 and 2012 due to reduced issuance of stock options.

    Our general and administrative expenses incurred during the three months ended May 31, 2012 compared to the three months ended May 31, 2011 decreased primarily due to a decrease in exploration activity on the Guayabales property offset somewhat by increased legal fees for legal actions related to the Guayabales property.

    During the three months ended May 31, 2012, we recorded interest expense in the amount of $(46,529) (2011: $(23,322)) and taxes of $(4,005) ( 2011-$Nil).

    As a result of the above, our net loss during the three months ended May 31, 2012 was $(250,866) (2011-$(1,056,781)).

    Liquidity and Capital Resources

    As at May 31, 2012, our current assets were $46,390 (February 29, 2012 - $9,747) and our current liabilities were $3,259,237 (February 29, 2012 - $2,974,508), which resulted in a working capital deficit of $(3,212,847) compared to a working capital deficit of $(2,964,761) at February 29, 2012.

    Total Stockholders’ equity decreased from $2,787,053 at February 29, 2012 to $2,536,187 at May 31, 2012.

    Cash Flows Used in Operating Activities

    We have not generated positive cash flows from operating activities. For the three months ended May 31, 2012, net cash flows used in operating activities was ($194,017) consisting primarily of a net loss of ($250,866). Net cash flows used in operating activities was adjusted by $46,529 in accrued interest on the promissory notes and $2,780 in depreciation of property and equipment. Net cash flows used in operating activities was further changed by ($31,085) in increase in prepaid expenses, $26,142 in increase of accounts payable and accrued liabilities, and $12,483 in increase in due to related parties.


    - 10 -

    For the three months ended May 31, 2011, net cash flows used in operating activities was ($350,137) consisting primarily of a net loss of ($1,056,693). Net cash flows used in operating activities was adjusted by $23,322 in accrued interest on the promissory notes, depreciation of $768, a write down of management fees of $(27,885) and $123,995 in stock based compensation. Net cash flows used in operating activities was further changed by ($9,626) in increase in accounts receivable, $28,359 for decrease in prepaid expenses, $533,116 for increase in accounts payable and accrued liabilities and $34,507 in increase due to related parties.

    Cash Flows Used in Investing Activities

    For the three months ended May 31, 2012, net cash flows used in investing activities was $Nil compared to net cash flows used in investing activities during the three months ended May 31, 2011 of ($75,000). This change was primarily as a result of option payments to Mercer Canada for the Guayabales Property in 2011.

    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 three months ended May 31, 2012, net cash flows provided from financing activities was $199,575 compared to $302,200 for the three months ended May 31, 2011. Cash flows from financing activities for the three months ended May 31, 2012 consisted of $304,575 in advances on promissory notes and $105,000 in repayment on promissory notes. Cash flows from financing activities for the three months ended May 31, 2011 consisted of $42,200 in advances on promissory notes and $260,000 for 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”.

    Critical Accounting Policies and Estimates

    Our condensed interim financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) applied on a consistent basis. 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, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

    We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

    Basis of Presentation

    The accounting and reporting policies of the Company conform to U.S. GAAP applicable to exploration stage enterprises. The functional currency is the U.S. dollar, and the 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. 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.


    - 11 -

    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 May 31, 2012.

    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.

    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 May 31, 2012 and February 29, 2012 that exceeded federally insured limits.

    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.

    Financial Instruments

    The fair value of the Company’s financial assets and financial liabilities approximate their carrying values due to the immediate or short-term maturity of these financial instruments.


    - 12 -

    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 May 31, 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.

    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”.

    Recently Issued Accounting Pronouncements

    In June 2011, the FASB issued ASU 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. 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. As ASU 2011-05 relates only to the presentation of Comprehensive Income, the Company does not expect that the adoption of this update will have a material effect on its consolidated financial statements.

    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.


    - 13 -

    Off-Balance Sheet Arrangements

    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 is material to investors.

    Item 3. Quantitative and Qualitative Disclosures about Market Risk

    As a “smaller reporting company” (as defined in Item 10(f)(1) of Regulation S-K), our Company is not required to provide information required by this Item.

    Item 4. Controls and Procedures

    Disclosure Controls and Procedures

    We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our principal executive officer, Gary Powers, and our principal financial officer, William Thomas, to allow for timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for our Company.

    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 May 31, 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 May 31, 2012.

    Changes in Internal Control over Financial Reporting

    There have not been any changes in our internal control over financial reporting that occurred during our fiscal quarter ended May 31, 2012 that have materially affected, or are likely to materially affect, our internal control over financial reporting.

    PART II – OTHER INFORMATION

    Item 1. 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.

    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.


    - 14 -

    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.

    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.


    - 15 -

    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 1A. Risk Factors

    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.

    In addition to the other information set forth in this report, you should carefully consider the factors discussed under the heading “Risk Factors” in Item 1A. to Part I of our Annual Report on Form 10-K for the fiscal year ended February 29, 2012, which could materially affect our business, financial condition or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us, or that we currently consider to be immaterial, may also prove to be material and adversely affect our business, financial condition and/or operating results.

    Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

    Not applicable.

    Item 3. Defaults Upon Senior Securities

    None.


    - 16 -

    Item 4. Mine Safety Disclosures

    Not applicable.

    Item 5. Other Information

    None

    Item 6. Exhibits

    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 (19)
    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 (19)
    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)
    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)
    10.14 Letter Agreement for Extension of July 14, 2012 Payment to July 31, 2012 between Mercer Two Panama Corp. and Comunidad Minera Guayabales, dated July 9, 2012 *
     
    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) *


    - 17 -

    Exhibit  
    Number Description of Exhibit
    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.

    (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.

    (19)

    Incorporated by reference from our Form 10-K, filed with the SEC on June 28, 2012.



    SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

      TRESORO MINING CORP.
         
         
      By: /s/ William D. Thomas
        William D. Thomas
        Chief Financial Officer, Secretary, Treasurer and a
        Director
        (Principal Financial Officer and Principal Accounting
        Officer)
        Date: July 19, 2012


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