PINX:FCGD Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10- Q
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the quarterly period ended June 30,2012
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________ to __________

Commission File Number:  000-51203
First Colombia Gold Corp.
(Exact name of registrant as specified in its charter)

Nevada
98-0425310
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

Carrera 49, No 51-11, Suite 402, Copacabana, Antioquia, Colombia
(Address of principal executive offices)
 
888-224-6561
(Registrant’s telephone number, including area code)
 
_______________________________________________________________________
(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 Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  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 “a smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer     o
Accelerated filer                     o
Non-accelerated filer       o
(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 xNo

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
 
Class
 
Outstanding at June 30,2012
Common Stock, $0.00001 par value
 
43,503,585

 
 
 

 
 

 

 

 

 
FORM 10-Q
FIRST COLOMBIA GOLD CORP.
JUNE 30,2012
 
 
 
 
 
Page
 
PART I – FINANCIAL INFORMATION
 
Item 1.
3
     
Item 2.
4
     
Item 3.
24
     
Item 4.
24
     
PART II – OTHER INFORMATION
     
Item 1.
25
     
Item 1A.
25
     
Item 2.
25
     
Item 3.
25
     
Item 4.
125
     
Item 5.
25
     
Item 6.
25
     
   
     
   

 
 
 

 
 
- 2 -

 
 
 

 

PART I - FINANCIAL INFORMATION

Item 1.   Interim Consolidated Financial Statements


These unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended June 30, 2012 are not necessarily indicative of the results that can be expected for the full year.

 
 
 
 
 
 
 
 
 
 

 
- 3 -

 

 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)

 
   
As at
30 June
2012
   
As at
31 December
2011
(Audited)
 
    $       $  
Assets
             
               
Current
             
Cash and cash equivalents
    15,044       2,194  
                 
Mineral property interests (Note 3)
    65,500       65,500  
                 
Property and equipment (Note 4)
    6,593       8,391  
                 
      87,137       76,085  
                 
Liabilities
               
                 
Current
               
Accounts payable and accrued liabilities (Note 5)
    435,739       400,797  
Convertible promissory notes (Note 6)
    56,101       13,422  
                 
      491,840       414,219  
                 
Stockholders’ deficiency
               
Common stock (Note 8)
               
Authorized
               
200,000,000 common shares, par value $0.00001 and
               
200,000,000 blank check preferred shares, par value $0.001
               
Issued and outstanding
               
30 June 2012 – 43,503,585 common shares, par value $0.00001
               
31 December 2011 – 41,503,585 common shares, par value $0.00001
    435       415  
Additional paid in capital
    18,495,411       18,439,254  
Deficit, accumulated during the exploration stage
    (18,900,549 )     (18,777,803 )
                 
      (404,703 )     (338,134 )
                 
      87,137       76,085  

Nature, Basis of Presentation and Continuance of Operations (Note 1), Commitments and Contingencies (Note 9) and Subsequent Events (Note 15)
 
The accompanying notes are an integral part of the interim consolidated financial statements.
 
 

 
F - 1

 

First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)

 
   
For the period
from the date
of inception on
5 September 1997
to 30 June 2012
   
For the
 three month
period ended
30 June 2012
   
For the
 three month
 period ended
30 June 2011
   
For the
six month
period ended
30 June 2012
   
For the
six month
period ended
30 June 2011
 
      $       $       $       $       $  
                                         
Expenses
                                       
Amortization – equipment (Note 4)
    43,016       899       898       1,798       1,798  
Amortization – website development costs
    40,001       -       -       -       -  
Bank charges and interest (Note 6)
    1,595,503       21,648       318,042       34,455       631,396  
Consulting and management fees (Note 7)
    5,307,682       9,750       100,142       18,750       139,142  
Foreign exchange (gain) loss
    19,657       -       (1,583 )     -       (789 )
Investor communication and promotion
    632,571       -       -       -       -  
Office and administrative
    109,694       13       59       17       59  
Professional fees
    845,424       28,970       51,462       31,131       61,397  
Rent
    57,016       300       -       600       -  
Stock-based compensation
    22,399       -       -       -       -  
Telephone
    54,659       -       -       -       -  
Transfer agent and filing fees
    88,078       12,504       2,088       18,495       2,745  
Travel and accommodation
    377,754       -       -       -       -  
Website maintenance
    86,000       -       -       -       -  
Mineral property expenditures (Note 3)
    5,071,685       9,750       50,700       17,500       50,700  
                                         
Net operating loss before other items
    (14,351,139 )     (83,834 )     (521,808 )     (122,746 )     (886,448 )
                                         
Other items
                                       
Forgiveness of debt
    39,000       -       -       -       -  
Gain on sale of oil and gas property
    10,745       -       -       -       -  
Interest income
    102,561       -       -       -       -  
Recovery of expenses
    4,982       -       -       -       -  
Write-down of assets
    (5,026,611 )     -       -       -       -  
                                         
Net operating loss before income taxes
    (19,220,462 )     (83,834 )     (521,808 )     (122,746 )     (886,448 )
                                         
Future income tax recovery
    2,319,871       -       -       -       -  
                                         
Net operating loss from continuing operations
    (16,900,591 )     (83,834 )     (521,808 )     (122,746 )     (886,448 )
                                         
Discontinued operations (Note 13)
    (1,999,958 )     -       -       -       -  
                                         
Net operating loss and comprehensive loss for the period
    (18,900,549 )     (83,834 )     (521,808 )     (122,746 )     (886,448 )
                                         
Basic and diluted loss per common share
            (0.00 )     (0.01 )     (0.00 )     (0.02 )
                                         
Weighted average number of common shares used in per share calculations
            42,075,014       39,503,585       41,790,878       38,876,188  

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

 
 
F - 2

 

First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)

 
       
For the period
from the date of inception on 5 September 1997
to 30 June 2012
     
For the
three month
period ended
30 June 2012
     
For the
three month
period ended
 30 June 2011
     
For the
six month
period ended
 30 June 2012
     
For the
six month
period ended
 30 June 2011
 
      $       $       $       $       $  
                                         
Cash flows used in operating activities
                                       
Net loss for the period
    (16,900,591 )     (83,834 )     (521,808 )     (122,746 )     (886,448 )
Adjustments to reconcile loss to net cash used by operating activities
                                       
Amortization
    83,017       899       898       1,798       1,798  
Accrued interest
    1,579,837       21,261       316,420       33,856       629,242  
Consulting fees
    40,200       -       -       -       -  
Forgiveness of debt
    (24,000 )     -       -       -       -  
Future income tax recovery
    (2,319,871 )     -       -       -       -  
Gain on sale of oil and gas property
    (10,745 )     -       -       -       -  
Mineral property acquisition and write-down
    6,816,000       -       -       -       -  
Stock-based compensation
    3,609,399       -       -       -       -  
Changes in operating assets and liabilities
                                       
Accounts payable and accrued liabilities
    384,385       38,886       108,582       34,942       81,284  
Due to related parties
    51,274       -       50,415       -       50,700  
                                         
Net cash used in continuing operating activities
    (6,691,095 )     (22,788 )     (45,493 )     (52,150 )     (123,424 )
                                         
Net cash used in discontinued operations
    (186,440 )     -       -       -       -  
                                         
Cash flows from financing activities
                                       
Cost of repurchase of common stock
    (1,000 )     -       -       -       -  
Convertible loan
    102,500       27,500       -       65,000       -  
Warrants exercised
    100,000       -       -       -       -  
Issuance of common stock, net of share issue costs
    8,311,915       -       -       -       100,000  
                                         
Net cash used from continuing financing activities
    8,513,415       27,500       -       65,000       100,000  
 
Cash flows used in investing activities
                                       
Oil and gas property
    20,745       -       -       -       -  
Mineral property exploration
    (48,609 )     -       -       -       -  
Purchase of equipment
    (53,550 )     -       -       -       -  
Website development cost
    (40,000 )     -       -       -       -  
                                         
Net cash used in continuing investing activities
    (121,414 )     -       -       -       -  
                                         
Net cash used in discontinued operations
    (1,499,422 )     -       -       -       -  
                                         
Increase (decrease) in cash and cash equivalents
    15,044       4,712       (45,493 )     12,850       (23,424 )
                                         
Cash and cash equivalents, beginning of period
    -       10,332       92,088       2,194       70,019  
                                         
Cash and cash equivalents, end of period
    15,044       15,044       46,595       15,044       46,595  

Supplemental Disclosures with Respect to Cash Flows (Note 12)
 
The accompanying notes are an integral part of the interim consolidated financial statements.
 

 
F - 3

 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012


1.     Nature, Basis of Presentation and Continuance of Operations

First Colombia Gold Corp. (the “Company”) was incorporated under the laws of the State of Nevada, U.S.A. under the name “Gondwana Energy, Ltd.” on 5 September 1997. On 23 January 2007, the Company changed its name to “Finmetal Mining Ltd.”. On 27 November 2006, the Company completed the acquisition of 100% of the shares of Finmetal Mining OY (“Finmetal OY”), a company incorporated under the laws of Finland. During the fiscal year ended 31 December 2006, the Company changed its operational focus from development of oil and gas properties, to acquisition of, exploration for and development of mineral properties in Finland.

On 22 May 2008, the Company changed its name to “Amazon Goldsands Ltd.” and on 18 September 2008, the Company entered into a Mineral Rights Option Agreement and concurrently re-focused on the acquisition of, exploration for and development of mineral properties located in Peru. On 29 November 2010, the Company changed its name to “First Colombia Gold Corp.”. The Company changed its name pursuant to a parent/subsidiary merger between the Company (as Amazon Goldsands Ltd.) and its wholly-owned non-operating subsidiary, First Colombia Gold Corp., which was established for the purpose of giving effect to this name change. In 2011 the Company expanded geographic focus to include North America, acquiring two mineral property interests while terminating its agreements related to the mineral property located in Peru in September 2011.

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 in securing and establishing a new business. Its planned principle operations have not commenced and no revenue has been derived during the organization period.

The accompanying interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Finmetal OY, since its date of acquisition on 27 November 2006 and the results of Beardmore Holdings, Inc. (“Beardmore”), a company incorporated under the laws of Panama, to the date of disposal on 21 September 2011 (Note 13).

The accompanying interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) applicable to exploration stage enterprises, and are expressed in U.S. dollars. The Company’s fiscal year end is 31 December.

The Company’s interim consolidated financial statements as at 30 June 2012 and for the six month 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 had a net loss of $122,746 for the six month period ended 30 June 2012 (30 June 2011 - $886,448) and has a working capital deficit of $476,796 as at 30 June 2012 (31 December 2011 - $412,025).

 

 

 
F - 4

 

 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012


Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes that the Company’s capital resources should be adequate to continue operating and maintaining its business strategy during the fiscal year ending 31 December 2012. However, if the Company is unable to raise additional capital in the near future, due to the Company’s liquidity problems, management expects that the Company will need to curtail operations, liquidate assets, seek additional capital on less favorable terms and/or pursue other remedial measures. These interim consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

2.     Significant Accounting Policies

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

Principles of consolidation

All inter-company balances and transactions have been eliminated in these interim consolidated financial statements.

Cash and cash equivalents

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As at 30 June 2012, the Company had cash and cash equivalents in the amount of $15,044 (31 December 2011 - $2,194).

Property and equipment

Furniture, computer equipment, office equipment and computer software are carried at cost and are amortized over their estimated useful lives at rates as follows:

Furniture, computer and office equipment
    30 %
Computer software
    100 %

The property and equipment is written down to its net realizable value if it is determined that its carrying value exceeds estimated future benefits to the Company.

Mineral property costs

Mineral property acquisition costs are initially capitalized as tangible 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.
 
 
 
 
 
F - 5

 
 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012


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

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

Segments of an enterprise and related information

ASC 280, “Segment Reporting” establishes guidance for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. ASC 280 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

Environmental costs

Environmental expenditures that are related to current operations are charged to operations or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are charged to operations. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. Generally, the timing of these accruals coincides with the earlier of completion of a feasibility study or the Company’s commitments to a plan of action based on the then known facts.

Foreign currency translation

The Company’s functional and reporting currency is U.S. dollars. The interim consolidated financial statements of the Company are translated to U.S. dollars in accordance with ASC 830, “Foreign Currency Matters.” Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. The Company has not, to the date of these interim consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
 
 
 
 
 
F - 6

 
 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012


Stock-based compensation

Effective 1 January 2006, the Company adopted the provisions of 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, the financial statements for the periods prior to 1 January 2006 have not been restated to reflect the fair value method of expensing share-based compensation. The adoption of ASC 718 did 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”.

Basic and diluted net loss per share

The Company computes net loss per share in accordance with ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.   Diluted EPS excluded all dilutive potential shares if their effect was anti-dilutive.

Comprehensive loss

ASC 220, “Comprehensive Income” establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at 30 June 2012, the Company had no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the interim consolidated financial statements.

Income taxes

Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with ASC 740, “Income Taxes”, which requires the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits 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 bases, and for tax losses and credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides for deferred taxes for the estimated future tax effects attributable to temporary differences and carry-forwards when realization is more likely than not.

 
 
 
 
F - 7

 
 

First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012


Long-lived assets impairment

Long-term assets of the Company are reviewed for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable, pursuant to guidance established in ASC 360-10-35-15, “Impairment or Disposal of Long-Lived Assets”.  Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets will be written down to fair value. Fair value is generally determined using a discounted cash flow analysis.

Asset retirement obligations

The Company has adopted ASC 410, “Assets 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 a 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.  As at 30 June 2012, the Company did not have any asset retirement obligations.

Financial instruments

The carrying value of cash and cash equivalents, accounts payable and current portion of convertible promissory notes approximates their fair value because of the short maturity of these instruments. The Company’s financial risk is the risk that arises from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.

Convertible debt

The Company has adopted ASC 470-20, “Debt with Conversion and Other Options” and applies this guidance retrospectively to all periods presented upon those fiscal years. ASC 470-20 requires the liability and equity components to be separately accounted for in a manner that will reflect the entity’s nonconvertible debt borrowing rate. The Company will allocate a portion of the proceeds received from the issuance of convertible notes between a liability and equity component by determining the fair value of the liability component using the Company’s nonconvertible debt borrowing rate. The difference between the proceeds of the notes and the fair value of the liability component will be recorded as a discount on the debt with a corresponding offset to paid-in capital. The resulting discount will be accreted by recording additional non-cash interest expense over the expected life of the convertible notes using the effective interest rate method.

Comparative figures

Certain comparative figures have been adjusted to conform to the current period’s presentation.

 
 

 
 
F - 8

 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012



Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Actual results may differ from those estimates.

Changes in Accounting Policies

Effective 1 January 2012, the Company adopted Accounting Standard Update (“ASU”) 2011-12, “Comprehensive Income”, which amends certain pending paragraphs in ASU No. 2011-05, “Presentation of Comprehensive Income”, to effectively defer only those changes that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income for annual and interim financial statements for public, private, and non-profit entities.  As ASU No. 2011-12 relates only to the presentation of comprehensive income, the adoption of this ASU did not have a material effect on the Company’s interim consolidated financial statements.

Effective 1 January 2012, the Company adopted ASU No. 2011-05, “Presentation of Comprehensive Income”, which presents an entity with the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In both choices, an entity is required to present each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income.  This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity/deficit.  The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.   As ASU No. 2011-05 relates only to the presentation of comprehensive income, the adoption of this ASU did not have a material effect on the Company’s interim consolidated financial statements.

Effective 1 January 2012, the Company adopted ASU No. 2011-04, “Fair Value Measurement” to amend the accounting and disclosure requirements on fair value measurements.  This ASU limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts.  Additionally, this update expands the disclosure on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs.   The adoption of this ASU did not have a material effect on the Company’s interim consolidated financial statements.

 
 

 
 
F - 9

 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012


Recent Accounting Pronouncements

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

3.     Mineral Property Interests

Boulder Hill Claims

On 16 December 2011, the Company entered into a Purchase and Sale Agreement (the “BHM Purchase”) with Boulder Hill Mines, Inc., an Idaho corporation (“Boulder Hill”), to purchase from Boulder Hill three unpatented mining claims situated in Lincoln County, Montana (the “Boulder Hill Claims”) by making the following considerations to Boulder Hill (Note 9):

·    
Issue 500,000 restricted shares of the Company’s common stock by 21 December 2011 (issued on 16 December 2011 and valued at $15,000) (Notes 8 and 12);

·    
Pay $25,000 in cash by 16 December 2012; and

·    
Pay $25,000 in cash by 16 December 2013.

Boulder Hill Project

On 30 September 2011, the Company entered into a non-binding letter of intent (“LOI”) with Boulder Hill to acquire by way of an assignment from Boulder Hill all of its rights, responsibilities and obligations under a state mineral lease and agreement (the “Option Agreement”) dated 15 July 2008 by and among Boulder Hill, James Ebisch (“James”) and Ryan Riech (“Riech”).

James and Riech, under the terms of the Option Agreement, hold the mining and mineral rights to a certain Montana State Metallferrous Gold Lease entered into with the State of Montana (the “Montana Gold Lease”) under which Boulder Hill was granted the exclusive right to prospect, explore, develop and mine for gold, silver and other minerals on a property situated in Lincoln County, Montana (the “Property”). The Montana Gold Lease is for a 10 year term and is subject to the 5% net smelter return (“NSR”) due to the State of Montana. The Option Agreement was amended on 1 August 2011 to reflect James as the sole owner of the Montana Gold Lease.
 
 

 

 
F - 10

 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012


On 16 December 2011 (the “Effective Date”), the Company entered into an Assignment and Assumption Agreement (“BHM Assignment”) with Boulder Hill and James, whereby Boulder Hill transferred and assigned the Company all of its right, title and interest, in, to and under the Option Agreement and the Company assumed the assignment of the Option Agreement agreeing to be bound, the same extent as Boulder Hill, to the terms and conditions of the Option Agreement.

The BHM Assignment required the Company to make the following considerations to Boulder Hill (Note 9):

·    
Issue 500,000 restricted shares of the Company’s common stock by 21 December 2011 (issued on 16 December 2011 and valued at $15,000) (Notes 8 and 12);

·    
Pay $25,000 in cash by 16 December 2012; and

·    
Pay $25,000 in cash by 16 December 2013.

The Option Agreement and the BHM Assignment provide that the Company will have exercised the option to acquire an undivided 100% of James’ right, title and interest in and to the Montana Gold Lease after incurring an aggregate of $210,000 in exploration expenditures, paying James an aggregate of $80,000 plus five percent (5%) of any joint-venture and buyout payments (the “JVBP”) and paying filing fees over the term of the Option Agreement.

The Option Agreement provides that the cash payments payable to James shall be made according to the following schedule (Note 9):

·   
$20,000 on or before 14 October 2012 plus 5% of any JVBP, of which an initial payment of $3,000 is to be made on or before 30 October 2011 ($3,000 paid on 12 January 2012);

·   
$15,000 on or before 15 July 2013 plus 5% of any JVBP;

·   
$20,000 on or before 15 July 2014 plus 5% of any JVBP; and

·   
$25,000 on or before 15 July 2015 plus 5% of any JVBP.

The Option Agreement and claim purchase agreement require that the exploration expenditures of an aggregate of not less than $210,000 on the Property shall be incurred as follows (Note 9):

·   
On or before 16 December 2012, incur not less than an aggregate of $49,000 in exploration expenditures ($7,583 incurred) (Notes 5 and 12); and

·   
On or before 13 December 2013, incur not less than an aggregate of $210,000 in exploration expenditures.

In addition to the foregoing cash payments and exploration expenditures, in order to maintain James’ leasehold interest in the Property the Company will be responsible for paying filing fees over the term of the Option Agreement and Boulder Hill Agreement and the following (Note 9):
 
 
 
 
 
F - 11

 
 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012



·  
Make advance royalty payments to James of $25,000 per year, commencing on 15 July 2015 and continuing on 15 July each and every year thereafter for so long as the Company retains its leasehold interest in the Property; and

·  
Incur a minimum of $100,000 of annual exploration expenditures on the Property on or before 15 July each and every year after 15 July 2011, which could be offset by exploration expenditures in excess of $100,000 in any prior annual period.

South Idaho Silver Project

On 7 December 2011 (the “Effective Date”), the Company entered into an Assignment and Assumption Agreement (the “CCS Assignment”) with Castle Creek Silver Inc. (“Castle Creek”), an Idaho corporation, and Robert Ebisch (“Robert”) to acquire by way of assignment from Castle Creek all of its rights, responsibilities and obligations under an Option to Purchase and Royalty Agreement (the “Purchase Agreement”) dated 15 July 2011, by and between Castle Creek and Robert.  Castle Creek, under the Purchase Agreement, had the option to acquire an undivided 100% of the right, title and interest of Robert in the unpatented mining claims owned and situated in Owyhee County, Idaho (the “Property”).

Pursuant to the terms of the CCS Assignment, Castle Creek transferred and assigned the Company all of its right, title and interest, in, to and under the Purchase Agreement and the Company assumed the assignment of the Purchase Agreement agreeing to be bound, the same extent as Castle Creek, to the terms and conditions of the Purchase Agreement.

The Company agreed to make the following considerations to Castle Creek (Note 9):

·  
Issue 1,000,000 restricted shares of the Company’s common stock by 12 December 2011 (issued on 7 December 2011 and valued at $30,000) (Notes 8 and 12);

·  
Pay $50,000 by 7 December 2012; and

·  
Castle Creek will be entitled to a 1% NSR from any ore produced from the Property. At any time from the Effective Date, the Company has the right to acquire the 1% NSR payable to Castle Creek for $250,000.

The Purchase Agreement and assignment of Castle Creek’s right, title and interest, in, to and under the Purchase Agreement provide that the Company will have exercised the option to acquire an undivided 100% of Robert’s right, title and interest in and to the Property after incurring an aggregate of $210,000 in exploration expenditures, paying Robert an aggregate of $80,000 plus 5% of any JVBP.

The Purchase Agreement provides that the cash payments payable to Robert shall be made according to the following schedule (Note 9):

·  
$2,500 on or before 31 January 2012 plus 5% of any JVBP (paid on 31 January 2012);

·  
$2,500 on or before 15 September 2012 plus 5% of any JVBP;
 
 
 
 
 
 
F - 12

 
 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012



·  
$5,000 on or before 15 September 2013 plus 5% of any JVBP;

·  
$10,000 on or before 15 September 2014 plus 5% of any JVBP;

·  
$15,000 on or before 15 September 2015 plus 5% of any JVBP;

·  
$20,000 on or before 15 September 2016 plus 5% of any JVBP; and

·  
$25,000 on or before 15 September 2017 plus 5% of any JVBP.

The Purchase Agreement provides that the exploration expenditures of an aggregate of not less than $210,000 on the Property shall be incurred as follows (Note 9):

·  
On or before 15 April 2012, incur not less than an aggregate of $10,000 in exploration expenditures ($10,167 incurred) (Notes 5 and 12);

·  
On or before 15 September 2012, incur not less than an aggregate of $20,000 in exploration expenditures;

·  
On or before 15 September 2013, incur not less than an aggregate of $100,000 in exploration expenditures; and

·  
On or before 15 September 2014, incur not less than an aggregate of $210,000 in exploration expenditures.

In addition to the foregoing cash payments, exploration expenditures and filing fees, in order to maintain its interest in the Property the Company will be responsible for the following (Note 9):

·  
Make advance royalty payments to Robert of $25,000 per year, commencing on 15 September 2015 and continuing on 15 September each and every year thereafter for so long as the Company retains its interest in the Property; and

·  
Incur a minimum of $100,000 of annual exploration expenditures on the Property on or before 15 September each and every year after 15 September 2015, which could be offset by exploration expenditures in excess of $100,000 in any prior annual period.

Temasek Properties

Effective 18 September 2008 (the “Effective Date”), the Company entered into a Mineral Right Option Agreement with Temasek Investments Inc. (“Temasek”), a company incorporated under the laws of Panama (the “Temasek Agreement”), whereby the Company could acquire four separate options from Temasek, each providing for the acquisition of a 25% interest in certain mineral rights in Peru potentially resulting in the acquisition of 100% of the mineral rights (the “Mineral Rights”). The Mineral Rights were owned by Rio Santiago Minerales S.A.C. (“Rio Santiago”). Beardmore, a wholly-owned subsidiary of Temasek, owned 999 shares of the 1,000 shares of Rio Santiago that were issued and outstanding. Temasek owned the single remaining share of Rio Santiago. The acquisition of each 25% interest in the Mineral Rights would occur through the transfer to the Company of 25% of the outstanding shares of Beardmore (Note 13).
The Company exercised the initial 25% option to acquire a 25% interest in the Mineral Rights by paying $250,000, issuing 2,500,000 common shares of the Company (Notes 8, 12 and 13) and paying an additional $250,000 to Temasek.
 
 
 
 
 
F - 13

 
 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012



The Company entered into an amending agreement dated 12 May 2009 with Temasek related to the Temasek Properties, further amended pursuant to an agreement dated 3 February 2010 (the “Second Amending Temasek Agreement”).  The Company exercised the second 25% option resulting in the acquisition of a 50% interest in the Mineral Rights by exercising and completing the initial 25% option, issuing 3,500,000 additional common shares of the Company (Notes 8, 12 and 13) and paying an additional $750,000 to Temasek.

The Company entered into an amending agreement dated 25 June 2010 (the “Amendment Effective Date”) with Temasek related to the Temasek Properties (the “Third Amending Temasek Agreement”), whereby the Company now could exercise the third and fourth 25% options resulting in the acquisition of a 100% interest in the Mineral Rights by fulfilling the following conditions within ten business days from the Amendment Effective Date:

·  
Exercise and complete the initial and second 25% options (completed);

·  
Issue 11,000,000 additional common shares of the Company to Temasek (5,000,000 common shares issued on 9 March 2010) (Notes 8 and 12);

·  
Pay an additional $250,000 to Temasek (paid); 

·  
Issue a convertible note for $250,000 to Temasek (the “$250,000 Convertible Note”) (issued).  The $250,000 Convertible Note had a term of ninety days and will accrue interest at a rate of 12% per annum.  Both principal and interest under the $250,000 Convertible Note were payable upon maturity (Note 6); and

·  
Issue a convertible note for $3,250,000 to Temasek (the “$3,250,000 Convertible Note”) (issued).  The $3,250,000 Convertible Note had a term of three years and will accrue interest at a rate of 12% per annum. Interest would be payable annually and the principal was payable upon maturity (Note 6).

Temasek became a significant shareholder of the Company through the issuance of the 6,000,000 common shares on exercise of the option to acquire the initial and second 25% interests in the Mineral Rights and an additional 5,000,000 common shares on exercise of the partial payment toward the exercise of the option to acquire the third 25% interest.

On 21 September 2011, the Company entered into a Settlement and Mutual Release Agreement (the “Settlement Agreement”) with Temasek,  which resulted in the Company’s relinquishment and transfer to Temasek of its 50%  interest in the outstanding capital stock of Beardmore, which indirectly holds, through its subsidiary Rio Santiago, the Mineral Rights to certain properties located in Peru, in exchange for Temasek releasing the Company from all of its outstanding obligations under the terms of the Temasek Agreement and its subsequent amendments entered into between the parties.

 
 
 

 
 
F - 14

 
 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012


Under the terms of the Settlement Agreement, the $250,000 Convertible Note and the $3,250,000 Convertible Note have been cancelled and the Company is no longer obligated to issue Temasek 6,000,000 shares of its common stock in exchange for the Company’s relinquishment and transfer to Temasek of its 50% interest in the outstanding capital stock of Beardmore.  The Company is not entitled to recover any consideration previously paid to Temasek or any mineral property exploration expenditures incurred in connection with the exploration and development of the properties underlying the Mineral Rights.  The Settlement Agreement included a mutual release of all claims arising out of or relating to the Temasek Agreement (Notes 6 and 13).

By execution of the Settlement Agreement, the Company no longer has any interest, directly or indirectly, in any mineral or mining rights to properties located in Peru; and, as a result, deconsolidated mineral property interests in the amount of $6,981,553 during the year ended 31 December 2011 related to Rio Santiago (Note 13).

During the year ended 31 December 2011, the Company incurred $50,700 in exploration expenditures related to the Temasek Properties, which are included in discontinued operations for the year ended 31 December 2011 (Note 13).  During the year ended 31 December 2011, the Company also recorded a write down of mineral property interests of $5,000,000.

Minera Properties

On 28 July 2011, the Company signed a non-binding letter of intent to acquire all of the issued and outstanding capital stock of Minera San Ignacio SAS (“Minera”), a corporation incorporated under the General Corporate Law of Colombia, from Sapo Holdings, S.A. (“Sapo”). Minera is an entity that has nominal operations with the right to acquire ownership in certain mineral claims and mining rights to properties with an approximate size of 1,000 hectares located in the municipality of Buenos Aires in the Cauca province located in southern Colombia.

Under the terms of the letter of intent with Sapo, the Company would be required to pay $500,000 to Sapo, issue 1,000,000 common shares of the Company to Sapo and issue an unsecured promissory note to Sapo in the amount of $500,000 with a term of one year and interest rate of 12% per annum.

The letter of intent provided for the Company to have the option to return to Sapo all of the issued and outstanding capital stock of Minera in exchange for cancellation of the promissory note anytime up to one year after the closing date.  During the year ended 31 December 2011, the Company terminated the letter of intent with Sapo.

4.     Property and Equipment
 
               
Net Book Value
 
   
Cost
   
Accumulated
Amortization
   
30 June 2012
   
31 December 2011
(Audited)
 
      $       $       $       $  
                                 
Furniture, computer and office equipment
    47,433       40,840       6,593       8,391  
 
 
 
 
 
F - 15

 
 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012


During the six month period ended 30 June 2012, total additions to property and equipment were $Nil (30 June 2011 - $Nil).

5.    Accounts Payable and Accrued Liabilities

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

Included in accounts payable and accrued liabilities as at 30 June 2012 is an amount due to a former officer of the Company of $4,126 (31 December 2011 – $5,031). This amount is non-interest bearing, unsecured and have no fixed terms of repayment (Note 7).

Included in accounts payable and accrued liabilities as at 30 June 2012 is an amount due to a director of the Company of $1,517 (31 December 2011 – $Nil). This amount is non-interest bearing, unsecured and have no fixed terms of repayment (Note 7).

Included in accounts payable and accrued liabilities as at 30 June 2012 is an amount due to an officer of the Company of $1,450 (31 December 2011 – $Nil). This amount is non-interest bearing, unsecured and have no fixed terms of repayment (Note 7).

Included in accounts payable and accrued liabilities as at 30 June 2012 are mineral property acquisition costs of $2,812 (31 December 2011 – $3,000) related to the Boulder Hill Project (Notes 3 and 12).

Included in accounts payable and accrued liabilities as at 30 June 2012 are exploration expenditures of $26,929 (31 December 2011 – $2,500) related to the South Idaho Silver Project (Notes 3 and 12).

During the year ended 31 December 2011, the Company deconsolidated accounts payable of $49,141 related to Rio Santiago (Note 13).

6.     Convertible Promissory Notes

a.    
On 25 June 2010, the Company issued the $250,000 Convertible Note to Temasek bearing interest at a rate of twelve percent (12%) per annum on any unpaid principal balance, unsecured, with principal and interest amounts due upon maturity on 25 September 2010 (Note 3).

Temasek has the option to convert any portion of the unpaid principal and/or accrued interest into conversion units (the “Temasek Units”) at any time up to 25 September 2010 at $0.25 per Temasek Unit. Each Temasek Unit consists of one common share of the Company and one share purchase warrant. Each warrant entitles Temasek to purchase an additional common share of the Company at an exercise price of $0.50 per share commencing six (6) months after the date of issuance until one year from the date of issuance.
 
 

 

 
F - 16

 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012


On 21 September 2011, the Company entered into the Settlement Agreement with Temasek whereby the $250,000 Convertible Note was cancelled (Notes 3 and 13).  During the six month period ended 30 June 2012, the Company accrued interest expense of $Nil (30 June 2011 - $92,027), of which $Nil relates to the amortization of debt discount (30 June 2011 - $77,151) (Note 12).

b.  
On 25 June 2010, the Company issued the $3,250,000 Convertible Note to Temasek bearing interest at a rate of 12% per annum on any unpaid principal balance, unsecured, with interest amount payable annually and principal amount due upon maturity on 25 June 2013 (Note 3).

Temasek has the option to convert any portion of the unpaid principal and/or accrued interest into Temasek Units at any time up to 25 June 2013 at $0.25 per Temasek Unit. Each Temasek Unit consists of one common share of the Company and one share purchase warrant. Each warrant entitles Temasek to purchase an additional common share of the Company at an exercise price of $0.50 per share commencing 6 months after the date of issuance until one year from the date of issuance.

On 21 September 2011, the Company entered into the Settlement Agreement with Temasek whereby the $3,250,000 Convertible Note was cancelled (Notes 3 and 13).  During the six month period ended 30 June 2012, the Company accrued interest expense of $Nil (30 June 2011 - $537,215), of which $Nil relates to the amortization of debt discount (30 June 2011 - $343,817) (Note 12).

c.  
On 23 November 2011, the Company issued a convertible note to Asher Enterprises, Inc. (“Asher”) in the amount of $37,500, bearing interest at a rate of eight percent (8%) per annum on any unpaid principal balance, unsecured, with principal and interest amounts due and payable upon maturity on 28 August 2012 (the “Asher Note”).  Any amount of principal or interest amount not paid on 28 August 2012 (the “Default Amount”) shall bear interest of twenty-two percent (22%) per annum commencing on 28 August 2012 to the date the amount is paid.

Asher has the option to convert any portion of the unpaid principal balance into the Company’s common shares at any time commencing 6 months after the date of issuance up to the later of 28 August 2012 or the date of the Default Amount is paid, at a conversion price equal to fifty-eight percent (58%) of the market price for the common shares during the ten (10) trading days prior to the conversion.

The Asher Note contains a provision limiting the number of shares of common stock into which the Asher Note is convertible to 4.99% of the outstanding shares of the Company’s common stock. However, the provision in the Asher Note may be waived by Asher upon sixty-one (61) days’ prior notice. The Company has a right of prepayment of the Asher Note anytime from the date of the Asher Note until one hundred eighty (180) days thereafter, subject to a prepayment penalty in the amount of 130% to 150% of the outstanding principal and interest of the Asher Note based on the date of prepayment.

The fair value of the beneficial conversion feature was estimated at $27,155 and was recorded as additional paid-in capital.  On 4 June 2012, the Company issued 2,000,000 restricted common shares to Asher valued at $2,600 upon conversion of Asher Note, reducing the principal amount to $34,900 (Note 8).  During the six month period ended 30 June 2012, the Company accrued interest expense of $20,132 (30 June 2011 - $Nil), of which $18,648 relates to the amortization of debt discount (30 June 2011 - $Nil) (Note 12).
 
 
 
 

 
 
F - 17

 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012


 
d.  
On 16 March 2012,  the Company issued a convertible note to Asher in the amount of $37,500, bearing interest at a rate of 8% per annum on any unpaid principal balance, unsecured, with principal and interest amounts due and payable upon maturity on 20 December 2012 (the “Asher Note #2”). Any amount of principal or interest amount not paid on 20 December 2012 (the “Default Amount #2”) shall bear interest of 22% per annum commencing on 20 December 2012 to the date the amount is paid.

Asher has the option to convert any portion of the unpaid principal balance into the Company’s common shares at any time commencing 6 months after the date of issuance up to the later of 20 December 2012 or the date of the Default Amount #2 is paid, at a conversion price equal to 58% of the market price for the common shares during the 10 trading days prior to the conversion.

The Asher Note #2 contains a provision limiting the number of shares of common stock into which the Asher Note #2 is convertible to 4.99% of the outstanding shares of the Company’s common stock. However, the provision in the Asher Note #2 may be waived by Asher upon 61 days’ prior notice. The Company has a right of prepayment of the Asher Note #2 anytime from the date of the Asher Note #2 until 180 days thereafter, subject to a prepayment penalty in the amount of 140% to 150% of the outstanding principal and interest of the Asher Note #2 based on the date of prepayment.

The fair value of the beneficial conversion feature was estimated at $27,155 and was recorded as additional paid-in capital.  During the six month period ended 30 June 2012, the Company accrued interest expense of $11,257 (30 June 2011 - $Nil), of which $10,377 relates to the amortization of debt discount (30 June 2011 - $Nil) (Note 12).

e.  
On 6 June 2012, the Company issued a convertible note to Asher in the amount of $27,500, bearing interest at a rate of 8% per annum on any unpaid principal balance, unsecured, with principal and interest amounts due and payable upon maturity on 6 March 2013 (the “Asher Note #3”). Any amount of principal or interest amount not paid on 6 March 2013 (the “Default Amount #3”) shall bear interest of 22% per annum commencing on 6 March 2013 to the date the amount is paid.

Asher has the option to convert any portion of the unpaid principal balance into the Company’s common shares at any time commencing 6 months after the date of issuance up to the later of 6 March 2013 or the date of the Default Amount #3 is paid, at a conversion price equal to fifty-one percent (51%) of the market price for the common shares during the 10 trading days prior to the conversion.

The Asher Note #3 contains a provision limiting the number of shares of common stock into which the Asher Note #3 is convertible to 4.99% of the outstanding shares of the Company’s common stock. However, the provision in the Asher Note #3 may be waived by Asher upon 61 days’ prior notice. The Company has a right of prepayment of the Asher Note #3 anytime from the date of the Asher Note #3 until 180 days thereafter, subject to a prepayment penalty in the amount of 140% of the outstanding principal and interest of the Asher Note #3 based on the date of prepayment.

The fair value of the beneficial conversion feature was estimated at $26,422 and was recorded as additional paid-in capital.  During the six month period ended 30 June 2012, the Company accrued interest expense of $2,467 (30 June 2011 - $Nil), of which $2,323 relates to the amortization of debt discount (30 June 2011 - $Nil) (Note 12).
 
 
 
 
 
F - 18

 
 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012



   
30 June 2012
   
31 December 2011
(Audited)
 
      $       $  
                 
Asher Note
    30,954       13,422  
Asher Note #2
    21,601       -  
Asher Note #3
    3,546       -  
                 
      56,101       13,422  

7.     Due to Related Parties and Related Party Transactions

Included in accounts payable and accrued liabilities as at 30 June 2012 is an amount due to a former officer of the Company of $4,126 (31 December 2011 – $5,031). This amount is non-interest bearing, unsecured and have no fixed terms of repayment (Note 5).

Included in accounts payable and accrued liabilities as at 30 June 2012 is an amount due to a director of the Company of $1,517 (31 December 2011 – $Nil). This amount is non-interest bearing, unsecured and have no fixed terms of repayment (Note 5).

Included in accounts payable and accrued liabilities as at 30 June  2012 is an amount due to an officer of the Company of $1,450 (31 December 2011 – $Nil). This amount is non-interest bearing, unsecured and have no fixed terms of repayment (Note 5).

During the six month period ended 30 June 2012, the Company paid or accrued $1,750 (30 June 2011 – $Nil) for consulting fees to an officer of the Company.

During the six month period ended 30 June 2012, the Company paid or accrued $1,517 (30 June 2011 – $Nil) for consulting fees to a director of the Company.

During the six month period ended 30 June 2012, the Company paid or accrued $Nil (30 June 2011 - $9,000) for consulting fees to a director of the Company.

During the six month period ended 30 June 2012, the Company paid or accrued $Nil (30 June 2011 - $22,642) for accounting and financial fees to a former officer of the Company.

During the six month period ended 30 June 2012, the Company paid or accrued $Nil (30 June 2011 - $10,000) for consulting fees to a former officer and director of the Company.

During the year ended 31 December 2011, the Company deconsolidated amounts due to related parties of $158,538 related to Rio Santiago (Note 13).

 
 

 
 
F - 19

 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012


8.    Common Stock

Authorized

The total authorized capital consists of

·  
200,000,000 common shares with par value of $0.00001
·  
200,000,000 blank check preferred shares with par value of $0.001

Issued and outstanding

As at 30 June 2012, the total issued and outstanding capital stock is 43,503,585 common shares with a par value of $0.00001 per share.

On 4 June 2012, the Company issued 2,000,000 restricted common shares valued at $2,600 upon conversion of Asher Note (Note 6).

On 16 December 2011, the Company issued a total of 1,000,000 common shares valued at $30,000 as consideration to Boulder Hill pursuant to the BHM Purchase and BHM Assignment (Notes 3 and 12).  The fair value is equal to the market price of the Company’s stock on the date of the transaction.

On 7 December 2011, the Company issued 1,000,000 common shares valued at $30,000 as consideration to Castle Creek pursuant to the CCS Assignment (Notes 3 and 12).  The fair value is equal to the market price of the Company’s stock on the date of the transaction.

On 14 February 2011, the Company issued 1,000,000 common shares upon the exercise of share purchase warrants with an exercise price of $0.10 per warrant for total proceeds of $100,000.

On 14 December 2010, the Company issued 1,500,000 common shares upon the exercise of share purchase warrants with an exercise price of $0.10 per warrant for total proceeds of $150,000.

On 30 November 2010, the Company issued 150,000 common shares upon the exercise of share purchase warrants with an exercise price of $0.10 per warrant for total proceeds of $15,000.

On 25 March 2010, the Company issued 18,750,000 units at a price of $0.10 per unit (the “Units”) for proceeds of $1,775,000, net of share issue costs of $100,000.  Each Unit consists of one common share with par value $0.00001 and one share purchase warrant.  Each share purchase warrant entitles the holder to purchase one common share at a price of $0.10 commencing six months from the closing date of the offering up to 25 March 2011.  During the year ended 31 December 2011, 1,000,000 of the related share purchase warrants in this series were exercised.  As at 30 June 2012, none of the related share purchase warrants in this series remain outstanding.

On 9 March 2010, the Company issued 5,000,000 common shares valued at $1,250,000 ($0.25 per common share) pursuant to the Temasek Agreement (Notes 3 and 12). The fair value is equal to the market price of the Company’s stock on the date of the transaction.
 
 
 
 
 
F - 20

 
 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012

 
 
During the year ended 31 December 2009, the Company issued 3,500,000 common shares valued at a $385,000 ($0.11 per common share) pursuant to the Temasek Agreement (Notes 3, 12 and 13). The fair value is equal to the market price of the Company’s stock on the date of the transaction.

During the year ended 31 December 2009, the Company issued 140,000 common shares for total proceeds of $18,900 ($0.15 per common share), net of share issue costs of $2,100.

During the year ended 31 December 2009, the Company issued 5,272,333 common shares for total proceeds of $711,765 ($0.15 per common share), net of share issue costs of $79,085.

During the year ended 31 December 2008, a total of 167,500 stock options expired.

During the year ended 31 December 2008, the Company issued 2,500,000 common shares valued at $625,000 ($0.25 per common share) pursuant to the Temasek Agreement (Notes 3, 12 and 13). The fair value is equal to the market price of the Company’s stock on the date of the transaction.

During the year ended 31 December 2008, the Company completed a one new for twenty old common share reverse stock split. The Company’s share transactions, including the weighted average number of common shares outstanding calculation for purposes of determining earnings per share, have been restated retroactively to reflect all of the above corporate capital transactions in these interim consolidated financial statements.

Stock options

The following stock options are outstanding as at 30 June 2012 (31 December 2011 – 400,000):

   
Number of
options
   
Exercise
price
   
Remaining life
(years)
 
          $          
                     
Options
    75,000       0.07       0.41  
Options
    250,000       0.07       1.45  
Options
    75,000       0.15       9.34  
                         
      400,000                  

During the year ended 31 December 2007, the Company adopted the Stock Incentive Plan (the “Plan”), which provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, performance shares and performance units, and stock awards to officers, directors or employees of, as well as advisers and consultants to, the Company.

All stock options and rights are to vest over a period determined by the Board of Directors and expire not more than ten years from the date granted. Pursuant to the Plan, the maximum aggregate number of shares that may be issued for awards is 500,000 and the maximum aggregate number of shares that may be issued for incentive stock options is 500,000.
 
 
 
 
 
F - 21

 
 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012


During the year ended 31 December 2007, the Company granted 167,500 options to officers, directors and consultants of the Company to purchase common shares of the Company at a price of $25 per common share on or before 17 April 2017 and vesting as to one-quarter of the common shares under the stock option on 17 April 2007 and one-quarter every six months thereafter in accordance with the terms and conditions of the Company’s Plan.  During the year ended 31 December 2008, all of the related stock options in this series were forfeited.

During the year ended 31 December 2011 the Company granted 250,000 options at a price of $0.07 per share expiring on 10 December 2013, 75,000 options at a price of $0.07 per share expiring on 28 November 2012 and 75,000 options at a price of $0.15 per share expiring on 31 October 2021.  All of these stock options vest immediately.

The Company had no stock option activities during the six month periods ended 30 June 2012 and 2011.

Warrants

As at 30 June 2012, there were Nil (31 December 2011 - Nil) share purchase warrants outstanding.

The following is a summary of warrant activities during the six month periods ended 30 June 2012 and 2011:

   
Number of
warrants
   
Weighted average exercise price
 
            $  
               
Outstanding and exercisable at 1 January 2012
    -       -  
                 
Granted
    -       -  
Exercised
    -       -  
Expired
    -       -  
                 
Outstanding and exercisable at 30 June 2012
    -       -  
                 
Weighted average fair value of warrants granted during the period
            -  
                 
Outstanding and exercisable at 1 January 2011
    17,100,000       0.10  
                 
Granted
    -       -  
Exercised
    (1,000,000 )     0.10  
Expired
    (16,100,000 )     0.10  
                 
Outstanding and exercisable at 30 June 2011
    -       -  
                 
Weighted average fair value of warrants granted during the period
            -  
 
 
 
 
 
F - 22

 
 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012



9.     Commitments and Contingencies

a.     
The Company is committed to making various cash payments and incurring exploration expenditures related to the Boulder Hill Claims, Boulder Hill Project and South Idaho Silver Project (Note 3).

b.     
In November 2011, the Company entered into a contract, commencing 1 December 2011, with each of an unrelated individual and an unrelated company, to provide consulting services, subject to the supervision of the Company’s Chief Executive Officer, related to the exploration and development of mineral properties, operational activities and international business operations for a monthly payment of $2,500 each.

10.  Geographic Areas

Prior to the operations of acquisition and exploration of mineral properties, the Company’s areas of operations were primarily in the South America. Since the commencement of acquisition and exploration of mineral properties, during the year ended 31 December 2006, the Company’s principal mineral property activities have been in Finland. During the year ended 31 December 2008, the Company re-focused its acquisition and exploration of mineral properties operations to Peru. During the year ended 31 December 2011, the Company re-focused its activities to Colombia and the United States.  As at 30 June 2012, the Company does not have any material assets outside of the United States.

The breakdown of net loss by geographic area for the six month periods ended 30 June 2012 and 2011 is as follows:

   
United States
   
Finland
   
Total
 
    $     $       $  
                     
2012
    (122,746 )     -       (122,746 )
2011
    (886,448 )     -       (886,448 )

The breakdown of assets by geographic area as at 30 June 2012 is as follows:

   
United States
   
Finland
   
Total
 
      $       $       $  
                         
Current assets
    15,044       -       15,044  
Equipment
    6,593       -       6,593  
Mineral property interests
    65,500       -       65,500  
                         
      87,137       -       87,137  

 
 

 
 
F - 23

 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012


The breakdown of assets by geographic area as at 31 December 2011 is as follows:

   
United States
   
Finland
   
Total
 
      $       $       $  
                         
Current assets
    2,194       -       2,194  
Equipment
    8,391       -       8,391  
Mineral property interests
    65,500       -       65,500  
                         
      76,085       -       76,085  

11.  Income Taxes
 
The Company has losses carried forward for income tax purposes to 30 June 2012. The Company has fully reserved for any benefits of these losses.  The deferred tax consequences of temporary differences in reporting items for financial statement and income tax purposes are recognized, as appropriate.  Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carry-forward period.  Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes.

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

   
For the
six month
period ended
30 June 2012
   
For the
six month
period ended
30 June 2011
 
      $       $  
                 
Refundable federal tax asset (liability) attributable to:
               
Current operations
    (41,734 )     (299,362 )
Less: Change in valuation allowance
    41,734       299,362  
                 
Future income tax recovery
    -       -  
 
 

 

 
F - 24

 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012


The tax effects of temporary differences that give rise to future income tax assets and liabilities are as follows:

   
As at
30 June 2012
   
As at
31 December 2011
(Audited)
 
      $       $  
                 
Statutory federal income tax rate
    30% - 34 %     30% - 34 %
                 
Non-capital loss carryforwards
    5,299,328       5,257,594  
Less: Valuation allowance
    (5,299,328 )     (5,257,594 )
                 
Future tax assets (liabilities)
    -       -  

The Company has net operating losses for United States tax purposes of approximately $15,655,410 available to offset against taxable income in future years, which, if unutilized, will expire up to 2032.  Additionally, the Company has net operating losses for Finland tax purposes of approximately $188,363, available to offset against taxable income in future years, which, if unutilized, will expire up to 2022.

12.  
Supplemental Disclosures with Respect to Cash Flows

Included in accounts payable and accrued liabilities as at 30 June 2012 are mineral property acquisition costs of $29,741 (31 December 2011 – $5,500) related to the Boulder Hill Project and the South Idaho Silver Project (Notes 3 and 5).

During the six month period ended 30 June 2012, the Company accrued a total interest expense of $33,856 (30 June 2011 – $629,242) related to the convertible debentures, of which $31,348 relates to the amortization of debt discount (30 June 2011 – $420,968) (Note 6).

   
For the
period from
the date of
inception on
5 September 1997
to 30 June 2012
   
For the
six month
period ended
30 June 2012
   
For the
six month
period ended
30 June 2011
 
      $       $       $  
                         
Supplemental cash flows information
                       
Interest expense
    1,906       -       -  
Foreign exchange (gain) loss
    21,787       -       (789 )
Income taxes paid
    -       -       -  

 
 

 

 
F - 25

 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012



   
For the period
from the date
of inception on
5 September 1997
to 30 June 2012
   
For the
six month
period ended
30 June 2012
   
For the
six month
period ended
30 June 2011
 
      $       $       $  
                         
Supplemental disclosure of non-cash investing and financing
                       
Common shares issued for oil and gas property ($25 per share)
    10,000       -       -  
Common shares issued for services ($6 per share)
    50,000       -       -  
Donated consulting services
    16,200       -       -  
Common shares cancelled and returned
    (2 )     -       -  
Common shares issued for equity acquisition of Finmetal ($25.60 per share)
    1,280,000       -       -  
Restricted shares issued ($24.80 per share)
    2,418,000       -       -  
Common shares issued for finder’s fee ($10 per unit)
    254,500       -       -  
Warrants issued
    100,421       -       -  
Common shares issued for finder’s fee for mineral property interests ($26.80 per share)
    536,000       -       -  
Common shares issued for acquisition of mineral rights (deemed at $0.25 per share)
    1,875,000       -       -  
Common shares issued for acquisition of mineral rights (deemed at $0.11 per share)
    385,000       -       -  
Common shares issued for acquisition of mineral rights (deemed at $0.03 per share)
    60,000       -       -  
Common shares issued upon conversion of promissory note ($0.00105 per share)
    2,600       2,600       -  

13.  Investment in Beardmore Holdings, Inc.
 
Acquisition of Interest in Beardmore

In January 2009, the Company acquired a 25% interest in Beardmore.  Beardmore is the registered owner of 999 shares of the 1,000 shares of Rio Santiago that are issued and outstanding.  Rio Santiago is the beneficial owner of 100% interest in certain mineral rights in Peru.  The aggregate purchase price was $1,125,000, in which the Company paid $500,000 in cash and issued 2,500,000 common shares valued at $625,000 (Notes 3, 8 and 12).

The Company follows ASC 810-10 and fully consolidates the assets, liabilities, revenues and expenses of Beardmore.  A valuation of certain assets was completed and the Company internally determined the fair value of others assets and liabilities.  In determining the fair value of acquired assets, standard valuation techniques were used including market and income approach.

 
 

 
 
F - 26

 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012


In January 2009, the purchase price allocation has been determined as follows:
 

Assets purchased:
     
Cash and cash equivalents
  $ 578  
Mineral property interests
    6,927,792  
         
Total assets acquired
  $ 6,928,370  
         
Liabilities assumed:
       
Accounts payable and accrued liabilities
  $ 49,797  
Due to related parties
    58,702  
Future income tax liabilities
    2,319,871  
         
Total liabilities assumed
  $ 2,428,370  
         
Non-controlling interest:
  $ 3,375,000  
         
Purchase price
  $ 1,125,000  
 
During the year ended 31 December 2010, the Company acquired an additional 25% interest in Beardmore from the non-controlling interest.  The aggregate purchase price was $1,135,000 paid by $750,000 in cash (paid on 22 March 2010) and 3,500,000 common shares of the Company valued at $385,000 (issued on 23 June 2009) (Notes 3, 8 and 12).  This resulted in a net decrease in non-controlling interest of $1,125,000.

Deconsolidation of Interest in Beardmore

During the year ended 31 December 2011, the Company entered into a Settlement Agreement with Temasek which resulted in the Company’s relinquishment and transfer to Temasek of its 50% interest in the outstanding capital stock of Beardmore, in exchange for Temasek releasing the Company from all of its outstanding obligations under the terms of the Temasek Agreement and its subsequent amendments entered into between the parties on 18 September 2008.  By execution of the Settlement Agreement, the Company no longer has any interest, directly or indirectly, in any mineral or mining rights to properties located in Peru (Note 3).

Under the terms of the Settlement Agreement, the $250,000 Convertible Note and the $3,250,000 Convertible Note have been cancelled and the Company is no longer obligated to issue Temasek 6,000,000 shares of its common stock in exchange for the Company’s relinquishment and transfer to Temasek of its 50% interest in the outstanding capital stock of Beardmore.  The Settlement Agreement included a mutual release of all claims arising out of or relating to the Option Agreement (Notes 3 and 6).

 
 

 
 
F - 27

 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012


The Company deconsolidated its interest in Beardmore on 21 September 2011 as a result of the Settlement Agreement and recognized a loss in the amount of $1,720,970, determined as follows:

      $  
         
Convertible notes forgiven by Temasek (Note 6)
    2,802,904  
Non-controlling interest in Beardmore
    2,250,000  
Net assets of Beardmore:
       
Mineral property interests (Note 3)
    (6,981,553 )
Accounts payable and accrued liabilities (Note 5)
    49,141  
Due to related parties (Note 7)
    158,538  
         
Loss on deconsolidation
    (1,720,970 )

The assets, liabilities and results of operations of Beardmore have been separately reported as discontinued operations in the consolidated balance sheets and statements of operations.  Previously reported consolidated financial statements for the year ended 31 December 2010 and 2009 have been revised to reflect this presentation.

14.  Fair Value of 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 30 June 2012, the carrying amounts of cash and cash equivalents, accounts payable and convertible promissory notes approximated their estimated fair values because of the short maturity of these financial instruments.

As at 30 June 2012, the carrying amount of long-term debt and other financing was $Nil (31 December 2011 - $Nil).
 
 
 
 

 
 
F - 28

 
 
First Colombia Gold Corp.
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited – Prepared by Management)
30 June 2012



The fair value of the beneficial conversion feature was estimated at $53,577 (31 December 2011 - $27,155), and was recorded as a component of equity, of which $53,577 (31 December 2011 - $27,155) would be a Level 1 fair value and $Nil (31 December 2011 - $Nil) would be a Level 2 fair value.

Credit Risk

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

Currency Risk

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

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

Liquidity Risk

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

Other Risks

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

15.  Subsequent Events

There were no subsequent events from the date of the six month period ended 30 June 2012 to the date the interim consolidated financial statements were available to be issued on 10 August 2012.

 

 

 
F - 29

 


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may,” “should,” “could,” “will,” “plan,” “future,” “continue,” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate.
 
Important factors that may cause the actual results to differ from the forward-looking statements, projections or other expectations include, but are not limited to, the following:

●   
risk that we will not be able to remediate identified material weaknesses in our internal control over financial reporting and disclosure controls and procedures;
●   
risk that we are not able  to meet the requirements of  agreements under which we acquired our options to acquire mineral property interests, including any cash payments to the optionor or any exploration obligations that we have regarding these properties, which could result in the loss of our right to exercise these options to acquire certain mining and mineral rights underlying these properties;
●   
the risk that we will be unable to pay our debt obligations as they become due or comply with the covenants contained in agreements with debt holders;
●   
risk that we will be unable to secure additional financing in the near future in order to commence and sustain our planned exploration work and be forced to cease our exploration and development program;
●   
risk that we cannot attract, retain and motivate qualified personnel, particularly employees, consultants and contractors for our operations in the United States;
●   
risks and uncertainties relating to the interpretation of drill results, the geology, grade and continuity of mineral deposits;
●   
results of initial feasibility, pre-feasibility and feasibility studies, and the possibility that future exploration, development or mining results will not be consistent with our expectations;
●   
mining and development risks, including risks related to accidents, equipment breakdowns, labor disputes or other unanticipated difficulties with or interruptions in production;
●   
the potential for delays in exploration or development activities or the completion of feasibility studies;
●   
risks related to the inherent uncertainty of production and cost estimates and the potential for unexpected costs and expenses;
●   
risks related to commodity price fluctuations;
●   
the uncertainty of profitability based upon our history of losses;
●   
risks related to failure to obtain adequate financing on a timely basis and on acceptable terms for our planned exploration and development projects;
●   
risks related to environmental regulation and liability;
●   
risks that the amounts reserved or allocated for environmental compliance, reclamation, post-closure control measures, monitoring and on-going maintenance may not be sufficient to cover such costs;
●   
risks related to tax assessments;
●   
political and regulatory risks associated with mining development and exploration; and
●   
other risks and uncertainties related to our prospects, properties and business strategy.

 
 

 
- 4 -

 
 
 

 
The foregoing list is not an exhaustive list of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on our forward-looking statements.
 
As used in this Quarterly Report, the terms “we,” “us,” “our,” “ the Company”, and “First Colombia” mean First Colombia Gold Corp. and our subsidiaries unless otherwise indicated.
 
Corporate History
 
We were incorporated in the State of Nevada under the name Gondwana Energy, Ltd. on September 5, 1997, and previously operated under the name Finmetal Mining Ltd. and Amazon Goldsands Ltd.  Our operations have historically focused on the acquisition and development of mineral property interests in varying locations, including Finland and Peru. The current focus of our business and operations is on the  development of our mineral property interests on properties located in the western United States and we are evaluating mineral property interests and seeking opportunities in other geographical areas, including Colombia and Bolivia, to potentially acquire.
 
As described in more detail below, we no longer have any interest in any properties located in northeastern Peru.  For reasons which include our inability to secure sufficient financing to be able to cure our default on notes we used to finance our acquisition of the property interests in Peru, we reached an agreement to relinquish our entire interest in the property interests in Peru in exchange for the cancellation of such notes and related outstanding obligations.
 
In 2011 we reviewed potential properties for acquisition in Colombia, and expanded our focus to North America which resulted in our acquiring certain mineral property interests in Montana and Idaho. Company personnel and consultants are actively planning our exploration plans, conducting site visits, and reviewing several projects for potential acquisition.
 
Exploration Stage Company
 
We are considered an exploration or exploratory stage company because we are involved in the examination and investigation of land that we believe may contain valuable minerals, for the purpose of discovering the presence of ore, if any, and its extent.  There is no assurance that a commercially viable mineral deposit exists on any of the properties underlying our mineral property interests, and a great deal of further exploration will be required before a final evaluation as to the economic and legal feasibility for our future exploration is determined.  We have no known reserves of any type of mineral.  To date, we have not discovered an economically viable mineral deposit on any of the properties underlying our mineral property interests, and there is no assurance that we will discover one.  If we cannot acquire or locate mineral deposits, or if it is not economical to recover any mineral deposits that we do find our business and operations will be materially and adversely affected.
 
Description of our Mineral Property Interests
 
South Idaho Silver Project
 
On December 7, 2011 (the “Effective Date”), we entered into a Assignment and Assumption Agreement (“Assignment Agreement”) with Castle Creek Silver Inc. (“Castle Creek”), an Idaho corporation, and Robert Ebisch (“Ebisch”). Castle Creek and Ebisch are parties to an Option to Purchase and Royalty Agreement dated July 15, 2011 (the “Option Agreement”), for Castle Creek’s option to acquire an undivided 100% of the right, title and interest of Ebisch in and to the PB 7, 9, 11, 12, 23, 25, 27, and 29 lode mining claims (IMC #’s, respectively, 196852, 196854, 196856, 196857, 196866, 196867, 196868, and 196869), situated in Owyhee County, Idaho, (hereinafter together with any form of successor or substitute mineral tenure called the “South Idaho Silver Project”). Pursuant to the terms of the Assignment Agreement, Castle Creek transferred and assigned us all of its right, title and interest, in, to and under the Option Agreement and we assumed the assignment of the Option Agreement agreeing to be bound, the same extent as Castle Creek, to the terms and conditions of the Option Agreement. As consideration for the Assignment Agreement, we issued Castle Creek 1,000,000 restricted shares of our common stock and are obligated to pay Castle Creek $50,000 in cash within twelve (12) months of the Effective Date, which is December 7, 2012, and Castle Creek will be entitled to a 1% net smelter return (“NSR”) from any ore produced from the South Idaho Silver Project. At any time from the Effective Date, we have the right to acquire the 1% NSR payable to Castle Creek for $250,000.
 
 
 

 
- 5 -

 


 
The Assignment Agreement includes customary representations and warranties. Under the terms of the Assignment Agreement, Castle Creek and Ebisch have agreed to indemnify us from claims resulting from any breach or inaccuracy of any representation or warranty made by Castle Creek or Ebisch in the Assignment Agreement and for any breaches of any representations, warranties, obligations, terms or covenants of either Castle Creek or Ebisch under or pursuant to the Option Agreement.

The Option Agreement and assignment of Castle Creek’s right, title and interest, in, to and under the Option Agreement provide that we will have exercised the option to acquire an undivided 100% of Ebisch’s right, title and interest in and to the South Idaho Silver Project after incurring an aggregate of $210,000 in exploration expenditures, paying Ebisch an aggregate of $80,000 plus five per cent (5%) of any joint-venture and buyout payments (hereafter referred to as “JV&BP”) and paying filing fees over the term of the Option Agreement. The Option Agreement provides that the cash payments payable to Ebisch shall be made according to the following schedule:

·    
$2,500 on or before January 31, 2012 plus five per cent (5%) of any JV&BP;( this payment has been made)
·    
$2,500 on or before September 15, 2012 plus five per cent (5%) of any JV&BP;
·    
$5,000 on or before September 15, 2013 plus five per cent (5%) of any JV&BP;
·    
$10,000 on or before September 15, 2014 plus five per cent (5%) of any JV&BP;
·    
$15,000 on or before September 15, 2015 plus five per cent (5%) of any JV&BP;
·    
$20,000 on or before September 15, 2016 plus five per cent (5%) of any JV&BP; and
·    
$25,000 on or before September 15, 2017 plus five per cent (5%) of any JV&BP.

The Option Agreement provides that the exploration expenditures of an aggregate of not less than $210,000 on the South Idaho Silver project shall be incurred as follows:

·    
on or before April 15, 2012, incur not less than an aggregate of $10,000 in exploration expenditures; (these expenditures have been made)
·    
on or before September 15, 2012, incur not less than an aggregate of $20,000 in exploration expenditures;
·    
on or before September 15, 2013, incur not less than an aggregate of $100,000 in exploration expenditures; and
·    
on or before September 15, 2014, incur not less than an aggregate of $210,000 in exploration expenditures.

In addition to the foregoing cash payments, exploration expenditures and filing fees, we will be responsible for the following, in order to maintain our interest in the South Idaho Silver Project:

·    
make advance royalty payments to Ebisch, commencing on September 15, 2015 and continuing on the 15th day of September each and every year thereafter for so long as we or our assigns retains an interest in the South Idaho Silver Project, of $25,000 per year; and
·    
incur a minimum of $100,000 of annual exploration expenditures on the South Idaho Silver Project on or before September 15th each and every year after September 15, 2015, which could be offset by exploration expenditures in excess of $100,000 in any prior annual period.

In connection with our consideration of entering into the Assignment Agreement, we conducted a diligence review of the South Idaho Silver Project. The description of property contained herein is the product of our due diligence of the South Idaho Silver Project underlying the Option Agreement.
 
 

 
 
- 6 -

 


Property Description and Location

The general location of the South Idaho Silver Project is identified on the map below:
 

 
graphic1
 
Location, Area, and Type of Mineral Tenure
 
The South Idaho Silver Project lies about 80 km south of Boise, Idaho on the flanks of the Snake River Plain, a vast graben-like physiographic region. The South Idaho Silver Project lies in Sections 14 and 15, Township 6 South, Range 1 West, Boise Meridian, Owyhee County, Idaho. Mineral rights are held by eight federal unpatented lode mining clams. These cover approximately 160 acres (65 hectares).
 
 
 

 
 
- 7 -

 
 
 

 
PROPERTY CORNER COORDINATES- UTM NAD 27 CONUS
 
NORTHING
 
EASTING
4750115
 
545650
4750115
 
546100
4749755
 
546100
4749755
 
547000
4749215
 
547000
4749215
 
546550
4749125
 
546550
4749125
 
546370
4749575
 
546370
4749575
 
545650

 
The eight unpatented mining claims are numbered PB 7 (IMC # 196852), PB 9 (IMC # 196854), PB 11 (IMC # 196856), PB 12 (IMC # 196857), PB 23 (IMC # 196866), PB 25 (IMC # 196867), PB 27 (IMC # 196868), and PB 29 (IMC # 196869).
 
Our ability to explore and mine the South Idaho Silver Project depends on the validity of title to the South Idaho Silver Project. The South Idaho Silver Project consists of unpatented mining claims. Maintenance of rights to unpatented mining claims contain certain requirements including sufficiency of mineral discovery, proper posting and marking of boundaries, failure to meet statutory guidelines, assessment work and possible conflicts with other claims. We have not obtained a title opinion nor title insurance on the underlying unpatented claims at this exploration stage.
 
Accessibility, Climate, Local resources, Infrastructure, Physiography
 
Topography, Elevation, and Vegetation
 
The South Idaho Silver Project is a steeply-incised drainage that drops about two hundred meters from the peneplain that lies to the immediate north. The elevation of the South Idaho Silver Project is about 1200 meters above mean sea level. Vegetation consists primarily of sagebrush and short grasses.
 
Accessibility
 
The South Idaho Silver Project is readily accessible from Nampa, Idaho, which lies on Federal Interstate Highway 84. Nampa is the nearest large town that has services necessary for mineral exploration and mining. From Nampa, paved State Highway 78 is followed about 70 km to the south to the Oreana turnoff. From there, about 5 km of paved road and 10 km of dirt road lead to the property. Unimproved tracks provide access to the claim group. Road access to the south side of the South Idaho Silver Project is limited. Mechanized work there may require construction of a temporary creek crossing, although one unimproved road crosses the South Idaho Silver Project at a ford.
 
 
 

 
 
- 8 -

 

 
Climate
 
The climate is semi-arid with roughly 150 mm/year precipitation. Summer temperatures may rise to 40 degrees centigrade while winter temperatures may fall to as low as -10 degrees centigrade. The South Idaho Silver Project is commonly subject to strong winds. The South Idaho Silver Project can be accessed year-round because of the mild climate, good road access, and low elevation of about 1,200 meters above mean sea level.
 
Water Rights, Power, and Mining Personnel
 
The status of water rights at the South Idaho Silver Project is uncertain. The amount of water in the vicinity of the South Idaho Silver Project is adequate for exploratory drilling, but probably not for mineral processing. The nearest power lines are about 10 km distant. Mining personnel are not available locally.
 
The most important natural feature on the South Idaho Silver Project is a perennial stream called castle creek. During the summer, it has estimated that it flows at a minimum rate of several hundred gallons per minute. A temporary water withdrawal permit from the State of Idaho would be required for drill water. If such a permit would be granted, water might be pumped to any drill site, with a substantial cost savings on water truck rental and driver wages. There is no assurance such a permit would be granted, and if granted requirements to such a permit would be cost-effective.
 
Tailings Storage Areas, Waste Disposal Areas, and Plant Sites
 
We have not identified private land adjacent to the South Idaho Silver Project or within close proximity that could be used for potential storage areas, waste disposal or processing sites. There is public land in the vicinity, but it is unknown whether permits would be granted for such uses.
 
Previous Exploration History
 
There is no verifiable information that the South Idaho Silver Project was a producing property in the past. Prior site visits indicate that up to one hundred meters of historic underground workings exist on the South Idaho Silver Project. These may have been completed approximately 100 years ago. It is unknown the state of repair of these workings and the extent of accessibility. No mineralized material or reserves have been identified or quantified on the South Idaho Silver Project. No known production has come from the South Idaho Silver Project.
 
In 2008, two private individuals located various mining claims in the area including those described herein and leased to a private exploration company, Castle Creek, which retained a professional geologist whose site visits and data review are the primary source of the historical information described herein.
 
Geological Setting and Local Geology
 
The South Idaho Silver Project lies upon the margins of the Snake River Plain, a vast graben-like, Cenozoic Age structure that covers a large part of southern Idaho. Regionally, several mineral districts lie along the margin of the Snake River Plain.
 
The geology consists primarily of a Late Cretaceous Age granodiorite which hosts veins and breccia bodies that contain gold, silver, lead, zinc, copper sulfide mineralization. The granodiorite and breccias are covered locally by Tertiary Age, post-mineral basalts. The breccia bodies are the primary target on the South Idaho Silver Project. What are believed to be high-grade veins are of secondary interest.
 
Property Geology
 
Granite is widespread and covered locally by post-mineral basalts. Faulting consists primarily of extensional block-faulting. The granite commonly contains large xenoliths of schist. Locally, the granite has undergone argillic and silicic alteration. Veins and breccias of interest on the Property are granite-hosted. A detailed geologic map has not yet been completed on the South Idaho Silver Project.
 
 
 

 
- 9 -

 


 
Potential Deposit Type
 
Two potential deposit types are of interest at the South Idaho Silver Project. The first of these is the hydrothermal breccias that are found in several areas. The extent of this type of mineralization is uncertain. The second potential deposit type is high-grade quartz/sulfide veins that may be genetically associated to the breccias. An exploration program has been planned to identify steeply-dipping pipe-like bodies of quartz/sulfide mineralization. Both types of mineralization are probably of epithermal origin. Little data on the potential deposit types is available because the South Idaho Silver Project is in such an early stage of contemporary exploration.
 
Mineralization
 
Rock samples taken primarily from a sulfide-rich, siliceous hydrothermal breccia and associated rocks on the south side of the Property in 2008 by the prior owner give indication of the presence of gold and silver mineralization within a hydrothermal breccia. The breccia is hosted by altered granodiorite. The breccia contains locally massive pyrite, galena, sphalerite, arsenopyrite, chalcopyrite within a siliceous, sulfide-bearing matrix. Clasts within the breccia consist of dark grey rhyolite with semi-massive sulfides, massive pyrite with base metal sulfides and massive arsenopyrite, and light-grey quartz. Besides gold and silver, the mineralization contains anomalous arsenic, copper, lead, and zinc mineralization.
 
The geologic controls on this breccia mineralization is uncertain. The breccia lies in the vicinity of the intersection of two topographic lineaments which control the orientation of the Property. The length, width, depth, and continuity of both the breccia mineralization and sporadic vein mineralization is uncertain.
 
Metallurgical
 
No metallurgical testing has been conducted.
 
Reserves
 
There are no established probable or proven reserves on the South Idaho Silver Project.
 
Exploration
 
Only a limited amount of work has been completed on the South Idaho Silver Project. This work has been confined primarily to rock sampling at historic prospects. The rock samples taken were grab samples indicating mineralization that are not representative of any specific length or width of mineralization. They do not reflect the average grade of mineralization on any of the mineralized zones sampled. The rock sampling completed thus far has shown primarily that mineralization of interest is found in several areas of the South Idaho Silver Project. The geologic and geochemical surveys completed on the South Idaho Silver Project have been done a professional geologist.
 
We are not aware of any drilling that has been completed on the South Idaho Silver Project.
 
Exploration Plan
 
Our primary exploration plan in this under-explored area is to discover and focus on areas of known Au (Gold)/Ag (Silver) breccias mineralization; emphasizing exploration near the approximate intersection of northerly and easterly-trending topographic linears.
 
The above strategies would greatly limit the areas to be investigated by geophysics and possible subsequent drilling, which is anticipated to result in cost savings. However, all prospects in the area should have at least a cursory examination.
 
 
 
 

 
 
- 10 -

 

Comprehensive underground mapping and sampling of accessible historic mine workings is recommended. This will help determine the extent and average grade of mineralization on the property. Geophysics may also be necessary to enhance target definition. An IP/Resistivity survey is recommended to delineate sub-surface sulfide mineral distribution. Gold/Silver mineralization found thus far often correlates positively with sulfide content.
 
On the eight-claim South Idaho Silver Project, several areas of structural intersections should be evaluated using electrical geophysical methods. These should be followed-up by drilling to test for any depth extension of the mineralization. An itemized budget for this work is shown below:
 
   
Proposed Budget
 
       
Geologist
 
$
45,000
 
Geotech
 
$
20,000
 
Geophysics
 
$
25,000
 
Field Expenses
 
$
10,000
 
Lease Payments
 
$
25,000
 
Bond
 
$
10,000
 
Site Prep/Reclamation
 
$
10,000
 
Water Truck
 
$
18,000
 
Assays
 
$
25,000
 
Drilling (1,200 meters @ $135/meter)
 
$
162,000
 
         
TOTAL
 
$
350,000
 

 
This work plan may be accomplished in a two-phase plan with the initial budget of $210,000 required meet work requirements required in the Option Agreement, for the period from 2012 to 2014.
 
In the quarter ended June 30, 2012 the Company continued its review of historical data and planning its 2012 exploration work. This work has commenced with planning additional staking of unpatented mining claims, review with geologists the work program, and review of the proposed budget against current estimates. Field work in the second quarter was partially delayed to reconnaissance exploration work (see “Montana” below) on Montana during the quarter.
 
 
 
 

 
- 11 -

 


 
Our current cash on hand is insufficient to complete any of the planned exploration activities and the full implementation of any planned exploration program is dependent on our ability to secure sufficient financing. We can provide no assurance that we will secure sufficient financing. In the absence of such financing, we will not be able to pursue our planned exploration program and may not be able to maintain the option to acquire the South Idaho Silver Project or underlying mining claims in good standing. If we do not fulfill the terms of the Assignment Agreement or Option Agreement, then our ability to commence or continue operations could be materially limited. We also may be forced to abandon the South Idaho Silver Project. If we are unable to raise additional capital within the next twelve months, we will experience liquidity problems and management expects that we will need to curtail operations, liquidate assets, seek additional capital on less favorable terms and/or pursue other remedial measures. We may consider entering into a joint venture arrangement to provide the required funding to explore the South Idaho Silver Project. We have not undertaken efforts to locate a joint venture participant and there is no assurance that any third party would enter into a joint venture agreement with us in order to fund exploration of the South Idaho Silver Project. If we were to enter into a joint venture arrangement, we would likely have to assign a percentage of our interest in South Idaho Silver Project to the joint venture participant. We have begun the process of reviewing the data base of information we have acquired on the project, and a preliminary review of requirements to begin implementation of the proposed exploration plan. Company personnel are reviewing requirements for the Plan of Operation (POS) that will need to be filed prior to certain exploration activities.
 
Boulder Hill Project
 
Purchase and Sale Agreement of Unpatented Mining Claims
 
On December 16, 2011, we entered into a Purchase and Sale Agreement (“Purchase Agreement”) with Boulder Hill Mines Inc., an Idaho corporation (“Boulder Hill”) relating to the purchase from Boulder Hill of three unpatented mining claims situated in Lincoln County, Montana (the “Claims”). As consideration for the Claims, we issued Boulder Hill 500,000 restricted shares of our common stock, are obligated to pay Boulder Hill $25,000 in cash within twelve (12) months of the Effective Date, which is December 16, 2012, and $25,000 in cash within twenty-four (24) months of the Effective Date, which is December 16, 2013. Boulder Hill sold, transferred and conveyed the Claims by executing and delivering quitclaim deeds to us.
 
The Purchase Agreement includes customary representations and warranties. Under the terms of the Purchase Agreement, Boulder Hill has agreed to indemnify us from claims resulting from any breach or inaccuracy of any representation or warranty made by Boulder Hill in the Purchase Agreement.
 
Assignment and Assumption of Lease Agreement
 
On December 16, 2011 (the “Effective Date”), we entered into an Assignment and Assumption Agreement (“Assignment Agreement”) with Boulder Hill, and Jim Ebisch (“Ebisch”). Boulder Hill and Ebisch are parties to an Option to Purchase and Royalty Agreement dated July 15, 2008, as amended on August 1, 2011 (the “Option Agreement”) which granted to Boulder Hill an option to acquire an undivided 100% of the right, title and interest of Ebisch in and to that certain Montana State Metallferrous Gold Lease M-1974-06 dated August 21,2006 he entered into with the State of Montana (the “Montana Gold Lease”) under which Ebisch was granted the exclusive right to prospect, explore, develop and mine for gold, silver and other minerals on property situated in Lincoln County, Montana. The Montana Gold Lease is for a ten (10) year term and is subject to the 5% net smelter return due to the State of Montana. Pursuant to the terms of the Assignment Agreement, Boulder Hill transferred and assigned us all of its right, title and interest, in, to and under the Option Agreement and we assumed the assignment of the Option Agreement agreeing to be bound, the same extent as Boulder Hill, to the terms and conditions of the Option Agreement. As consideration for the Assignment Agreement, we issued Boulder Hill 500,000 restricted shares of our common stock and are obligated to pay Boulder Hill $25,000 in cash within twelve (12) months of the Effective Date, which is December 16, 2012, and $25,000 in cash within twenty-four (24) months of the Effective Date, which is December 16, 2013.
 
 
 
 

 
 
- 12 -

 


 
Under the terms of the Assignment Agreement, Boulder Hill and Ebisch have agreed to indemnify us from claims resulting from any breach or inaccuracy of any representation or warranty made by Boulder Hill or Ebisch in the Assignment Agreement and for any breaches of any representations, warranties, obligations, terms or covenants of either Boulder Hill or Ebisch under or pursuant to the Option Agreement.
 
The Option Agreement and assignment of Boulder Hill’s right, title and interest, in, to and under the Option Agreement provide that we will have exercised the option to acquire an undivided 100% of Ebisch’s right, title and interest in and to the Montana Gold Lease after incurring an aggregate of $210,000 in exploration expenditures, paying Ebisch an aggregate of $80,000 plus five per cent (5%) of any joint-venture and buyout payments (hereafter referred to as ”JV&BP”) and paying filing fees over the term of the Option Agreement. Our responsibility for the foregoing exploration expenditures and cash payments is inclusive of exploration expenditures incurred by Boulder Hill to the present and payments previously made by Boulder Hill to Ebisch under the terms of the Option Agreement.
 
The Option Agreement provides that the cash payments payable to Ebisch shall be made according to the following schedule:
 
·    
$20,000 on or before October 14, 2012 plus five per cent (5%) of any joint-venture and buyout payments (hereafter referred to as “JV&BP”), (of which an initial payment of $3,000 has been made)
·    
$15,000 on or before July 15, 2013 plus five per cent (5%) of any JV&BP;
·    
$20,000 on or before July 15, 2014 plus five per cent (5%) of any JV&BP; and
·    
$25,000 on or before July 15, 2015 plus five per cent (5%) of any JV&BP.
 
The Option Agreement provides that the exploration expenditures of an aggregate of not less than $210,000 on the property underlying the Montana Gold Lease shall be incurred as follows:
 
·    
on or before December 16, 2012, incur not less than an aggregate of $49,000 in exploration expenditures; and
·    
on or before December 13, 2013, incur not less than an aggregate of $210,000 in exploration expenditures.
 
In addition to the foregoing cash payments and exploration expenditures, we will be responsible for paying filing fees over the term of the Option Agreement and the following in order to maintain Ebisch’s interest in the Montana Gold Lease:
 
·    
make advance royalty payments to Ebisch, commencing on July 15, 2015 and continuing on the 15th day of July each and every year thereafter for so long as the Company or its assigns retains its interest in the in order to maintain Ebisch’s interest in the Montana Gold Lease, of $25,000 per year; and
·    
incur a minimum of $100,000 of annual exploration expenditures on the property underlying the in order to maintain Ebisch’s interest in the Montana Gold Lease on or before July 15th each and every year after July 15, 2011, which could be offset by exploration expenditures in excess of $100,000 in any prior annual period.
 
Description of Boulder Hill Project
 
In connection with our consideration of entering into the foregoing agreements, we conducted a diligence review. The Claims and the property that is subject to the Montana Gold Lease is being referred to by us as the “Boulder Hill Project.” The description of the property underlying the Boulder Hill Project that is contained herein is the product of the Company’s due diligence review.
 
 
 
 

 
 
- 13 -

 

 
Location  The general location of the Boulder Hill is  on the map below:
 
graphic2
 
The Boulder Hill Project consists of approximately 60 acres comprised of three unpatented mining claims (the “Claims”) and an option to acquire certain rights under a contiguous lease with the State of Montana (Montana State Metaliferrous Gold Lease M-1974-06, the “Montana Gold Lease”) of approximately 114 acres located in Lincoln County, Montana. The property underlying the Claims and Montana Gold Lease lie in Township 29 North, Range 27 West, Montana Principal Meridian.
 
Land Status
 
Mineral rights on federal unpatented lode mining claims can be held indefinitely as long as the annual claim maintenance payments are current. At the present time, all of the required annual claim maintenance payments for the Claims have been made. The initial term on the Montana Gold Lease is for a ten-year period commencing on August 21, 2006, which may be renewable. The total area consisting of the Boulder Hill Project consists of approximately 174 acres. The total annual property maintenance costs due the state and federal government for the Boulder Hill Project is currently about $800/year.
 
 
 
 

 
 
- 14 -

 

 
 
History
 
The Boulder Hill Project contains several historic prospect pits and adits, which we believe were excavated in the late 19th century or early 20th century. Bright white quartz veins with low gold contents attracted early prospectors to the Boulder Hill Project area. In 1995 during a regional reconnaissance conducted by Jim Ebisch, these original mine workings were sampled. Quartz vein samples from these historic workings were found in 1995 to contain low-grade gold; however, one prospect pit further down the hill, also originally sampled at the same time, contained altered, siliceous metasediments that have a far different appearance than that of the bright white quartz veins. These metasediments, poorly exposed in the prospect pit, were found to contain gold grades much higher than that of the bright white quartz veins that attracted historic attention. We have not independently verified this information and can provide no assurance that any of our exploration work will result in similar results.
 
Regional Geology
 
The Boulder Hill Project is located within an area that includes the Belt Basin of the northwestern United States. Mineralization is hosted by the Precambrian Age Prichard Formation. The Boulder Hill Project lies near the crest of the Wolf Creek Anticline. The rocks exposed in that area are thought to belong to the G Member of the Prichard Formation. The Boulder Hill Project also lies immediately south of the Wolf Creek Fault, an important regional structure.
 
Boulder Hill Project Geology
 
Structurally the Boulder Hill Project is on the downthrown side of the Wolf Creek fault, and the project is considered by us as a stratiform sulfide target within the Middle Prichard Formation in Lincoln County, Montana.
 
Our exploration plan at the Boulder Hill Project is designed to target what are believed to be Stratabound gold occurrences. Poorly-exposed gold mineralization found during the aforementioned reconnaissance exploration at the Boulder Hill Project within a prospect trench in 1995 is in contrast to the bright white quartz veins that were of historic interest. The rocks containing the gold mineralization found in 1995 consisted of silicified, sericitized, and pyritic to locally gossanous metasediments. We have not independently verified this historical information and can provide no assurance that any of our exploration work will result in similar results.
 
Project Infrastructure, Access and Power
 
The Boulder Hill Project is located in an area of low-lying hills, away from residential areas. A paved road, a power line, and a railway line passes within one mile of the subject area. An improved gravel road passes by northwestern portion of the property. Skid trails lead to the area where the gold mineralization was found during the 1995 exploration and a subsequent follow-up site visit in 2008 by Mr. Ebisch. There are no accessible tunnels or shafts on the subject area. The source of water for proposed drilling is currently uncertain, which may require initial hauling of water for drilling purposes.
 
Reserves
 
There are no established probable or proven reserves on the property underlying the Boulder Hill Project. Our due diligence activities have been limited, and to a great extent, have relied upon information provided to us by third parties. We have not established and cannot provide any assurance that any of the properties underlying the Boulder Hill Project contain adequate, if any, amounts of gold or other mineral reserves to make mining economically feasible to recover that gold, or other mineral reserves, or to make a profit in doing so.
 
Proposed Exploration Plan
 
Several phases of exploration work will be necessary to move forward this project. Each successive phase of work is contingent upon the results of previous phases. The first phase will require geological mapping and sampling. Concurrent with this work, excavation of trenches on the underlying property will be necessary to expose and sample mineralization of interest. Geophysics may also be done on the property if the mineralization found by trenching has characteristics that lend to detection by geophysical methods. The total cost of this work is estimated to be $49,500.
 
 
 
 

 
- 15 -

 


 
The second phase of work will involve limited drilling, consisting of 3-5 diamond drill holes. These will test for near-surface strata bound gold. The total cost of this work is estimated to be $214,500.
 
The third phase of work will involve the drilling of one-two deep drill holes, each with an estimated depth of 1,500 feet. These will test for deep strata bound gold close to the Wolf Creek Fault. The total cost of this work is estimated to be $338,000.
 
Our current cash on hand is insufficient to complete any of the activities set forth in our planned exploration program. We have postponed the commencement of exploration drilling and development program until such time that we are able to secure sufficient financing. We can provide no assurance that we will be successful in securing sufficient financing. Provided we are able to secure sufficient financing, we anticipate that we will incur the following costs for the next twelve months:
 
Proposed Exploration Budget
 
Stage 1 (Trenching and Geophysics)
 
Permitting and Bonding
 
$
6,500
 
Trench rehabilitation, new trenching, surveying and sampling
 
$
9,500
 
Supervision, geologic mapping and reporting
 
$
10,000
 
Analyses (100 samples @ $40 each)
 
$
4,000
 
Geophysics & Reclamation
 
$
15,000
 
Administration & overhead @ 10%
 
$
4,500
 
Subtotal
 
$
49,500
 

Stage 2 (Shallow Drilling)
 
Permitting and Bonding
 
$
10,000
 
Surface diamond drilling 3-5 holes @ 400 ft depth average @ $70/ft
 
$
140,000
 
Site Preparation & Reclamation
 
$
10,000
 
Supervision, core logging, sampling and reporting
 
$
25,000
 
Analyses (100 samples @ $50 each)
 
$
5,000
 
Core Handling/Storage
 
$
5,000
 
Administration & overhead @ 10%
 
$
19,500
 
Subtotal
 
$
214,500
 

 
 
 

 
- 16 -

 
 
 
 
Stage 3 (Deep Drilling)
 
Permitting and Bonding
 
$
5,000
 
Surface diamond drilling 2 holes @ 1,500 feet each @$90/foot
 
$
270,000
 
Site Preparation & Reclamation
 
$
3,000
 
Supervision, core logging, sampling, and reporting
 
$
20,000
 
Analyses (100 samples @$50/each)
 
$
5,000
 
Core Handling/Storage
 
$
5,000
 
Administration & overhead @ 10%
 
$
30,800
 
         
Subtotal
 
$
338,800
 
         
Grand Total of all 3 Steps
 
$
602,800
 
 
This exploration plan may change or be terminated depending on the results from each stage of exploration.
 
The Company is reviewing the initial project information to update for implementation b