PINX:RMES Red Metal Resources Ltd Quarterly Report 10-Q Filing - 4/30/2012

Effective Date 4/30/2012

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

FORM 10-Q 

 
[ X ]
QUARTERLY REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: April 30, 2012

[    ]
TRANSITION REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_______to_______

Commission file number 000-52055
 
RED METAL RESOURCES LTD.
(Exact name of small business issuer as specified in its charter)
 
Nevada
(State or other jurisdiction
of incorporation or organization)
20-2138504
(I.R.S. Employer
Identification No.)
 
195 Park Avenue, Thunder Bay Ontario, Canada P7B 1B9
(Address of principal executive offices) (Zip Code)
 
(807) 345-7384
(Issuer’s telephone number)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filed,” “accelerated filer” and “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 Act). [   ] Yes [ X ] No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  As of June 14, 2012 the number of shares of the registrant’s common stock outstanding was 17,956,969.
 


 
 

 

TABLE OF CONTENTS
 
PART I—FINANCIAL INFORMATION
 
   
  Item 1.
Financial Statements.
 
    CONSOLIDATED BALANCE SHEETS
1
    CONSOLIDATED STATEMENTS OF OPERATIONS
2
    CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
3
    CONSOLIDATED STATEMENTS OF CASH FLOWS
4
    NOTES TO FINANCIAL STATEMENTS  5
  Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
8
  Item 3.
Quantitative and Qualitative Disclosures about Market Risk.
24
  Item 4.
Controls and Procedures.
24
       
PART II—OTHER INFORMATION
 
   
  Item 1.
Legal Proceedings.
24
  Item 1A.
Risk Factors.
24
  Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
24
  Item 3.
Defaults upon Senior Securities.
25
  Item 4.
Mine Safety Disclosures
25
  Item 5.
Other Information.
25
  Item 6.
Exhibits.
25
 
 
 

 
 
PART I—FINANCIAL INFORMATION
 
 
Item 1.  Financial Statements.

RED METAL RESOURCES, LTD.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS

   
April 30, 2012
   
January 31, 2012
 
   
(UNAUDITED)
       
ASSETS
           
Current assets
           
             
Cash
  $ 127,087     $ 24,467  
Prepaids and other receivables
    36,255       45,156  
Total current assets
    163,342       69,623  
                 
Equipment
    15,477       16,713  
Unproved mineral properties
    858,319       796,828  
Total assets
  $ 1,037,138     $ 883,164  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
Current liabilities
               
                 
Accounts payable
  $ 293,841     $ 206,675  
Accrued liabilities
    136,796       121,701  
Due to related parties
    1,098,280       905,562  
Notes payable to related party
    243,983       236,820  
Total liabilities
    1,772,900       1,470,758  
                 
Stockholders' deficit
               
                 
Common stock, $0.001 par value, authorized 500,000,000, 17,956,969 and 17,189,634 issued and outstanding at April 30, 2012 and January 31, 2012
    17,957       17,190  
Additional paid in capital
    5,736,278       5,466,744  
Deficit accumulated during the exploration stage
    (6,382,670 )     (5,985,007 )
Accumulated other comprehensive loss
    (107,327 )     (86,521 )
Total stockholders' deficit
    (735,762 )     (587,594 )
Total liabilities and stockholders' deficit
  $ 1,037,138     $ 883,164  

The accompanying notes are an integral part of these interim consolidated financial statements
 
 
1

 

RED METAL RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

   
Three months ended
   
From January 10,
 
   
April 30,
   
2005 (Inception)
 
   
2012
   
2011
   
to April 30, 2012
 
Revenue
                 
                   
Royalties
  $ -     $ -     $ 15,658  
Geological services
    7,804       -       7,804  
Total revenue
    7,804       -       23,462  
                         
Operating expenses
                       
Administration
    10,115       20,686       329,311  
Advertising and promotion
    22,974       40,527       550,209  
Amortization
    1,236       -       4,343  
Automobile
    4,244       5,975       97,625  
Bank charges
    1,368       2,636       24,354  
Consulting fees
    80,712       66,220       865,974  
Interest on current debt
    15,032       18,606       228,140  
IVA expense
    2,353       -       36,133  
Mineral exploration costs
    130,820       35,230       2,036,074  
Office
    8,965       3,337       61,902  
Professional development
    -       -       5,116  
Professional fees
    58,015       47,905       752,152  
Rent
    3,408       3,456       58,679  
Regulatory
    20,632       7,998       97,711  
Travel and entertainment
    21,654       13,932       314,334  
Salaries, wages and benefits
    23,595       5,020       160,306  
Stock based compensation
    -       -       527,318  
Foreign exchange  loss
    344       10,839       15,296  
Write-down of unproved mineral properties
    -       2,909       241,155  
Total operating expenses
    405,467       285,276       6,406,132  
                         
Net loss
  $ (397,663 )   $ (285,276 )   $ (6,382,670 )
                         
                         
Net loss per share - basic and diluted
  $ (0.02 )   $ (0.02 )        
                         
Weighted average number of shares outstanding - basic and diluted
    17,584,212       12,029,335          

The accompanying notes are an integral part of these interim consolidated financial statements
 
 
2

 
 
RED METAL RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)

    Common Stock Issued           Accumulated        
  
 
Number of
Shares
   
Amount
   
Additional
Paid-in
Capital
   
Accumulated
Deficit
   
Other
Comprehensive
Loss
   
Total
 
 Balance at January 10,  2005 (Inception)
    -     $ -     $ -     $ -     $ -     $ -  
  
                                               
 Net loss
    -       -       -       (825 )     -       (825 )
  
                                               
 Balance at January 31, 2005
    -       -       -       (825 )     -       (825 )
  
                                               
 Common stock issued for cash
    5,525,000       5,525       53,725       -       -       59,250  
 Common stock adjustment
    45       -       -       -       -       -  
 Donated services
    -       -       3,000       -       -       3,000  
 Net loss
    -       -       -       (12,363 )     -       (12,363 )
  
                                               
 Balance at January 31, 2006
    5,525,045       5,525       56,725       (13,188 )     -       49,062  
  
                                               
 Donated services
    -       -       9,000       -       -       9,000  
 Net loss
    -       -       -       (43,885 )     -       (43,885 )
  
                                               
 Balance at January 31, 2007
    5,525,045       5,525       65,725       (57,073 )     -       14,177  
  
                                               
 Donated services
    -       -       2,250       -       -       2,250  
 Return of common stock to treasury
    (1,750,000 )     (1,750 )     1,749       -       -       (1 )
 Common stock issued for cash
    23,810       24       99,976       -       -       100,000  
 Net loss
    -       -       -       (232,499 )     -       (232,499 )
  
                                               
 Balance at January 31, 2008
    3,798,855       3,799       169,700       (289,572 )     -       (116,073 )
  
                                               
 Common stock issued for cash
    357,147       357       1,299,643       -       -       1,300,000  
 Net loss
    -       -       -       (1,383,884 )     -       (1,383,884 )
 Foreign currency exchange loss
    -       -       -       -       (21,594 )     (21,594 )
                                                 
 Balance at January 31, 2009
    4,156,002       4,156       1,469,343       (1,673,456 )     (21,594 )     (221,551 )
                                                 
 Common stock issued for cash
    1,678,572       1,678       160,822       -       -       162,500  
 Common stock issued for debt
    3,841,727       3,843       1,148,675       -       -       1,152,518  
 Net loss
    -       -       -       (710,745 )     -       (710,745 )
 Foreign currency exchange loss
    -       -       -       -       (35,816 )     (35,816 )
  
                                               
 Balance at January 31, 2010
    9,676,301       9,677       2,778,840       (2,384,201 )     (57,410 )     346,906  
                                                 
 Common stock issued for cash
    540,000       540       134,460       -       -       135,000  
 Net loss for the year ended January 31, 2011
    -       -       -       (672,618 )     -       (672,618 )
 Foreign currency exchange loss
    -       -       -       -       (13,438 )     (13,438 )
                                                 
 Balance at January 31, 2011
    10,216,301       10,217       2,913,300       (3,056,819 )     (70,848 )     (204,150 )
                                                 
 Common stock issued for cash
    6,290,000       6,290       1,821,810       -       -       1,828,100  
 Common stock issued for debt
    433,333       433       129,567       -       -       130,000  
 Net loss for the three months ended April 30, 2011
    -       -       -       (285,276 )     -       (285,276 )
 Foreign currency exchange loss
    -       -       -       -       (11,778 )     (11,778 )
                                                 
 Balance at April 30, 2011
    16,939,634       16,940       4,864,677       (3,342,095 )     (82,626 )     1,456,896  
                                                 
 Warrants exercised for cash
    83,333       83       24,916       -       -       24,999  
 Warrants exercised for debt
    166,667       167       49,833       -       -       50,000  
 Stock options
    -       -       527,318       -       -       527,318  
 Net loss for the nine months ended January 31, 2012
    -       -       -       (2,642,912 )     -       (2,642,912 )
 Foreign currency exchange loss
    -       -       -       -       (3,895 )     (3,895 )
                                                 
 Balance at January 31, 2012
    17,189,634       17,190       5,466,744       (5,985,007 )     (86,521 )     (587,594 )
                                                 
 Warrants exercised for cash
    500,000       500       149,500       -       -       150,000  
 Common stock issued for cash
    267,335       267       120,034       -       -       120,301  
 Net loss for the three months ended April 30, 2012
    -       -       -       (397,663 )     -       (397,663 )
 Foreign currency exchange loss
    -       -       -       -       (20,806 )     (20,806 )
                                                 
 Balance at April 30, 2012
    17,956,969     $ 17,957     $ 5,736,278     $ (6,382,670 )   $ (107,327 )   $ (735,762 )
 
The accompanying notes are an integral part of these interim consolidated financial statements
 
3

 
 
RED METAL RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

   
For the three months
   
From January 10,
 
   
Ended April 30,
   
2005 (Inception)
 
   
2012
   
2011
   
to April 30, 2012
 
Cash flows used in operating activities:
                 
Net loss
  $ (397,663 )   $ (285,276 )   $ (6,382,670 )
Adjustments to reconcile net loss to net cash used in operating activities:
                 
Donated services and rent
    -       -       14,250  
Write-down of unproved mineral properties
    -       2,909       241,156  
Amortization
    1,236       -       4,343  
Stock based compensation
    -       -       527,318  
                         
Changes in operating assets and liabilities:
                       
Prepaids and other receivables
    8,901       (65,582 )     (36,255 )
Accounts payable
    87,166       (75,588 )     293,842  
Accrued liabilities
    15,095       19,993       277,520  
Due to related parties
    192,718       (139,125 )     1,436,303  
Accrued interest on notes payable to related party
    4,731       2,275       87,477  
                         
Net cash used in operating activities
    (87,816 )     (540,394 )     (3,536,716 )
                         
Cash flows used in investing activities:
                       
Purchase of fixed assets
    -       -       (19,820 )
Acquisition of unproved mineral properties
    (61,491 )     (52,839 )     (1,238,529 )
                         
Net cash used in investing activities
    (61,491 )     (52,839 )     (1,258,349 )
                         
Cash flows provided by financing activities:
                       
Cash received on issuance of notes payable to related party
    57,000       93,283       1,218,279  
Repayment of related party notes, including accrued interest
    (56,553 )     (14,382 )     (70,935 )
Proceeds from issuance of common stock
    270,301       1,828,099       3,880,150  
Net cash provided by financing activities
    270,748       1,907,000       5,027,494  
                         
Effects of foreign currency exchange
    (18,821 )     (11,778 )     (105,342 )
                         
Increase in cash
    102,620       1,301,989       127,087  
                         
Cash, beginning
    24,467       8,655       -  
                         
Cash, ending
  $ 127,087     $ 1,310,644     $ 127,087  
                         
Supplemental disclosures:
                       
     Cash paid for:
                       
Income tax
  $ -     $ -     $ -  
Interest
  $ (6,553 )   $ (1,778 )   $ (7,883 )

The accompanying notes are an integral part of these interim consolidated financial statements
 
 
4

 
 
RED METAL RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2012

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
 
Nature of Operations
Red Metal Resources Ltd. (the “Company”) was incorporated on January 10, 2005, under the laws of the State of Nevada.  On August 21, 2007, the Company acquired a 99% interest in Minera Polymet Limitada (“Polymet”), a limited liability company formed on August 21, 2007, under the laws of the Republic of Chile. The Company is involved in acquiring and exploring mineral properties in Chile.  The Company has not determined whether its properties contain mineral reserves that are economically recoverable.  

Unaudited Interim Consolidated Financial Statements
The unaudited interim financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). They do not include all information and footnotes required by GAAP for complete financial statements. Except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended January 31, 2012, included in the Company’s Annual Report on Form 10-K, filed with the SEC. The interim unaudited financial statements should be read in conjunction with those financial statements included in Form 10-K. In the opinion of management, all adjustments considered necessary for fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three month period ended April 30, 2012, are not necessarily indicative of the results that may be expected for the year ending January 31, 2013.

Recent Accounting Pronouncements
The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. It does not expect the adoption of these pronouncements to have a material impact on its financial position, results of operations or cash flows.

NOTE 2 – RELATED-PARTY TRANSACTIONS
 
The following amounts were due to related parties as at:
 
   
April 30, 2012
   
January 31, 2012
 
             
Due to a company owned by an officer
  $ 225,178     $ 190,608  
Due to a company controlled by directors
    811,793       658,950  
Due to a company controlled by a major shareholder
    55,143       51,957  
Due to an officer of Chilean subsidiary
    6,166       4,047  
Total due to related parties (a)
  $ 1,098,280     $ 905,562  
                 
Note payable to a related party (b)
  $ -     $ 56,164  
Note payable to a director (c)
    57,179       55,129  
Note payable to a chief financial officer (c)
    8,671       8,502  
Note payable to a major shareholder (c)
    111,846       53,115  
Note payable to a company controlled by directors (c)
    66,287       63,910  
Total notes payable to related parties
  $ 243,983     $ 236,820  
 
(a) Amounts due to related parties are unsecured, are due on demand and bear no interest.
(b) The note payable was due on demand, unsecured and bore interest at 6% per annum. The principle of $50,000 and accumulated interest of $6,553 were paid in full on March 13, 2012.
(c) The notes payable to related parties are due on demand, unsecured and bear interest at 8% per annum.  
 
 
5

 
 
Transactions with Related Parties
The Company incurred the following expenses with related parties during the three months ending:
 
   
April 30, 2012
   
April 30, 2011
 
Consulting fees and other business expenses paid to a company controlled by the Chief Financial Officer
  $ 78,127     $ 66,492  
Advertising and promotion, mineral exploration and other business expenses paid to a company controlled by two directors
  $ 117,532     $ 79,208  
Administration, automobile, rental, and other business expenses paid to a company controlled by a major shareholder
  $ 7,371     $ 16,525  
Administration expenses paid to an officer of the Company’s Chilean subsidiary
  $ 13,141     $ 7,018  
 
NOTE 3 – UNPROVED MINERAL PROPERTIES

The Company has four unproved mineral properties which it is currently exploring and evaluating: the Farellon, Perth, Mateo, and Veta Negra. These properties consist of both mining and exploration claims.

As of April 30, 2012, the Company had spent the total of $858,319 on acquiring and maintaining unproved mineral properties:
 
Mineral Claims  
Balance,
January 31, 2012
   
Additions
   
Property Taxes Paid / Accrued
   
Balance,
April 30, 2012
 
Farellon Project                        
Farellon Alto 1-8(1)
  $ 552,975     $ -     $ 3,226     $ 556,201  
Cecil
    41,746       -       5,847       47,593  
      594,721       -       9,073       603,794  
Perth Project
                               
Perth
    19,371       15,367       16,994       51,732  
                                 
Mateo Project
                               
Margarita
    18,195       -       452       18,647  
Che (2)
    23,895       -       572       24,467  
Irene
    47,174       -       484       47,658  
Mateo
    33,065       15,502       968       49,535  
      122,329       15,502       2,476       140,307  
Veta Negra Project
                               
Veta Negra (3)
    18,480       -       374       18,937  
Pibe(4)
    40,000       -       1,705       41,622  
      58,480       -       2,079       60,559  
Generative Claims
                               
      1,927       -       -       1,927  
                                 
Total Costs
  $ 796,828     $ 30,869     $ 30,622     $ 858,319  
 
(1) The claim is subject to a 1.5% royalty on the net sales of minerals extracted from the property to a total of $600,000. The royalty payments are due monthly once exploitation begins, and are subject to minimum payments of $1,000 per month.
(2) The claims are subject to a 1% royalty on the net sales of minerals extracted from the property to a total of $100,000. The royalty payments are due monthly once exploitation begins.
(3) The option to purchase contract has a term of 31 months with semi-annual payments totaling $107,500. The claims are subject to a 1.5% royalty on the net sales of minerals extracted to a total of $500,000. The royalty payments are due monthly once exploitation begins.
(4) The option to purchase contract has a term of 36 months with semi-annual payments totaling $500,000. The claims are subject to a 1.5% royalty on the sales of minerals extracted to a total of $1,000,000 with no monthly minimum. The payments are due once exploitation begins. 
 
 
6

 
 
NOTE 4 – COMMON STOCK

On April 12, 2012, the Company engaged in a private offering of units pursuant to which it issued 267,335 units at a price of $0.45 per unit for cash of $120,301. Each unit consists of one common share and one share purchase warrant. Each share purchase warrant is exercisable at $0.65 for two years.

On March 5, 2012, warrants to purchase 400,000 shares of common stock were exercised at $0.30 per share.  The Company received $120,000 for this exercise.

On February 7, 2012, warrants to purchase 100,000 shares of common stock were exercised at $0.30 per share.  The Company received $30,000 for this exercise.

Warrants
Balance, January 31, 2012
    7,459,666  
Granted
    267,335  
Exercised
    (500,000 )
Expired
    (40,000 )
Balance, April 30, 2012
    7,187,001  

The weighted average life and weighted average exercise price of the warrants as at April 30, 2012 is 0.98 years and $0.51, respectively.

Options
The weighted average life and weighted average exercise price of the 1,040,000 options outstanding at April 30, 2012 is 1.34 years and $0.50, respectively
 
NOTE 5 – CONTINGENCY

During the three months ended April 30, 2012, the Company received a penalty notice from the US Internal Revenue Service (“IRS”) for failure to file a certain tax form within prescribed deadline. The Company believes that it filed the questioned form on time and submitted supporting documentation to the IRS appeal department; therefore, the Company has not accrued for the penalty which was assessed for $10,000 plus accrued interest of $146.

NOTE 6 – SUBSEQUENT EVENT

On May 15, 2012, the Company decided not to pursue the option to purchase the Exon claim and furnished the owner of the claim with the cancellation notice. The claim was a part of the Veta Negra option to purchase contract (Note 3); it was a subject to semi-annual option payments totaling $45,000.
 
 
7

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Forward-Looking Statements

This quarterly report on form 10-Q filed by Red Metal Resources Ltd. contains forward-looking statements. These are statements regarding financial and operating performance and results and other statements that are not historical facts. The words “expect,” “project,” “estimate,” “believe,” “anticipate,” “intend,” “plan,” “forecast,” and similar expressions are intended to identify forward-looking statements. Certain important risks could cause results to differ materially from those anticipated by some of the forward-looking statements. Some, but not all, of these risks include, among other things:
 
general economic conditions, because they may affect our ability to raise money
 
our ability to raise enough money to continue our operations
 
changes in regulatory requirements that adversely affect our business
 
changes in the prices for minerals that adversely affect our business
 
political changes in Chile, which could affect our interests there
 
other uncertainties, all of which are difficult to predict and many of which are beyond our control
We caution you not to place undue reliance on these forward-looking statements, which reflect our management’s view only as of the date of this report. We are not obligated to update these statements or publicly release the results of any revisions to them to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. You should refer to, and carefully review, the information in future documents we file with the Securities and Exchange Commission.

General

You should read this discussion and analysis in conjunction with our interim unaudited consolidated financial statements and related notes included in this Form 10-Q and the audited consolidated financial statements and related notes included in our annual report on Form 10-K for the fiscal year ended January 31, 2012. The inclusion of supplementary analytical and related information may require us to make estimates and assumptions to enable us to fairly present, in all material respects, our analysis of trends and expectations with respect to our results of operations and financial position taken as a whole. Actual results may vary from the estimates and assumptions we make.

Overview

Red Metal is a mineral exploration company engaged in locating, and eventually developing, mineral resources in Chile. Our business strategy is to identify, acquire and explore prospective mineral claims with a view to either developing them ourselves or, more likely, finding a joint venture partner with the mining experience and financial means to undertake the development. All of our claims are in the Candelaria IOCG belt in the Chilean Coastal Cordillera.

Since the revenue we have received from our operations is very minimal, we are dependent upon the equity markets for our working capital. Despite the current market volatility, prices of copper and gold overall are moving in a positive direction and we are optimistic that we can raise equity capital under these market conditions. We completed an offering of 6,723,333 units on April 7, 2011, at $0.30 per unit. Each unit consisted of one share of our common stock and one warrant for the purchase of one share of common stock exercisable at $0.50 per share for two years. We realized net cash proceeds of $1,862,462 from this offering and the payment of $130,000 in debt. We used the cash proceeds to finance our exploration programs on the Farellon and Mateo properties.

On May 18, 2012, we held our annual meeting of stockholders. At the meeting our stockholders approved the Amended and Restated Red Metal Resources Ltd. 2011 Equity Incentive Plan (the “Amended Plan”).  Upon receipt of stockholder approval, the Amended Plan became effective.  Under the terms of the Amended Plan, the aggregate number of the Company’s shares which may be awarded to eligible persons, including officers, directors and consultants, may not exceed 10% of the aggregate number of shares issued and outstanding from time to time and the total number of shares which may be reserved for issuance to any one individual under the Amended Plan may not exceed 5% of the outstanding shares in any 12 month period. The exercise price for the shares underlying each option shall be determined by the board of directors (or a committee, if one is appointed) on the basis of the market price, as defined in the Amended Plan.
 
 
8

 

The original Red Metal Resources Ltd. 2011 Equity Incentive Plan was adopted by the board of directors on September 2, 2011. Under this plan we issued options to purchase 1,040,000 shares of our common stock to directors, officers, employees and consultants who provide services to Red Metal.  The options have an exercise price of $0.50 per share and a term of 2 years.

The Company is continuing its exploration activities, as more fully described below in the section titled, “Unproved Mineral Properties”.

Consistent with our historical practices, we continue to monitor our costs in Chile by reviewing our mineral claims to determine whether they possess the geological indicators to economically justify the capital to maintain or explore them. Currently, we have three employees in Chile and engage part time assistants during our exploration programs. Most of our support — such as, vehicles, office and equipment — is supplied under short-term contracts. The only long-term commitments that we have are for royalty payments on four of our mineral claims – Farellon, Che, Veta Negra and Pibe. These royalties are payable once exploitation begins. Two of the above claims – Veta Negra and Pibe – have option payments payable during the next three years under the option to purchase contracts.

The cost and timing of all planned exploration programs are subject to the availability of qualified mining personnel, such as consulting geologists and geo-technicians, and drillers and drilling equipment. Although Chile has a well-trained and qualified mining workforce from which to draw and few early-stage companies such as Red Metal are competing for the available resources, if we are unable to find the personnel and equipment that we need when we need them and at the prices that we have estimated today, we might have to revise or postpone our plans. 
 
Results of operations
 
summary of financial condition
 
Table 1 summarizes and compares our financial condition at the three months ended April 30, 2012, to the year-ended January 31, 2012.
 
Table 1: Comparison of financial condition
   
April 30, 2012
   
January 31, 2012
 
Working capital deficit
  $ (1,609,558 )   $ (1,401,135 )
Current assets
  $ 163,342     $ 69,623  
Unproved mineral properties
  $ 858,319     $ 796,828  
Total liabilities
  $ 1,772,900     $ 1,470,758  
Common stock and additional paid in capital
  $ 5,754,235     $ 5,483,934  
Deficit
  $ (6,382,670 )   $ (5,985,007 )
 
comparison of prior quarterly results

Table 2 and Table 3 present selected financial information for each of the past eight quarters.
 
Table 2: Summary of quarterly results (2012)
   
July 31,
2011
   
October 31,
2011
   
January 31,
2012
   
April 30,
2012
 
Revenue
                    $ 7,804  
Net loss
  $ (782,841 )   $ (1,285,535 )   $ (574,536 )   $ (397,663 )
Basic and diluted loss per share
  $ (0.05 )   $ (0.08 )   $ (0.03 )   $ (0.02 )
 
 
9

 
 
Table 3: Summary of quarterly results (2011)
   
July 31,
2010
   
October 31,
2010
   
January 31,
2011
   
April 30,
2011
 
Revenue
                       
Net loss
  $ (118,279 )   $ (154,436 )   $ (203,052 )   $ (285,276 )
Basic and diluted loss per share
  $ (0.01 )   $ (0.02 )   $ (0.02 )   $ (0.02 )
During the quarters ended July 31, 2011, October 31, 2011, and January 31, 2012, we experienced substantially higher operating expenses mainly due to the drilling program on the Farellon property and exploration campaigns on other properties, including associated travel and geological consulting expenses, which we incurred between May and September 2011, and subsequent data analysis. During the quarter ended October 31, 2011, we granted 1,040,000 stock options to certain directors, employees, and consultants that resulted in a non-cash expense of $527,318, increasing our net loss. During the quarter ended January 31, 2012, we began the due diligence review to potentially list our shares on the TSX Venture Exchange that resulted in higher legal costs. During the quarter ended April 30, 2012, we prepared an updated NI 43-101 report on our Farellon property, which resulted in increased exploration expenses, and we continued with the due diligence review relating to listing our common stock on the TSX Venture Exchange, which resulted in increased professional and regulatory fees.

Selected Financial Results

three months ended April 30, 2012 and April 30, 2011

Our operating results for the three months ended April 30, 2012 and 2011, and the changes in the operating results between those periods are summarized in Table 4.
 
Table 4: Changes in operating results
   
Three months
ended April 30,
    Changes between the periods ended  
   
2012
   
2011
   
April 30, 2012 and 2011
 
Revenue
                 
Geological services
  $ 7,804     $ -     $ 7,804  
                         
Operating Expenses
                       
Administration
    10,115       20,686       (10,571 )
Advertising and promotion
    22,974       40,527       (17,553 )
Amortization
    1,236       -       1,236  
Automobile
    4,244       5,975       (1,731 )
Bank charges
    1,368       2,636       (1,268 )
Consulting fees
    80,712       66,220       14,492  
Interest on current debt
    15,032       18,606       (3,574 )
IVA expense
    2,353       -       2,353  
Mineral exploration costs
    130,820       35,230       95,590  
Office
    8,965       3,337       5,628  
Professional fees
    58,015       47,905       10,110  
Rent
    3,408       3,456       (48 )
Regulatory
    20,632       7,998       12,634  
Travel and entertainment
    21,654       13,932       7,722  
Salaries and wages
    23,595       5,020       18,575  
Foreign exchange loss
    344       10,839       (10,495 )
Write-down of unproved mineral properties
    -       2,909       (2,909 )
Total operating expenses
    405,467       285,276       120,191  
Net loss
  $ 397,663     $ 285,276     $ 112,387  
 
Revenue. Our revenue for the three months ended April 30, 2012, was $7,804; this revenue was generated from geological services that we provided to an unaffiliated company. We did not generate any revenue during the three months ended April 30, 2011. Due to the exploration rather than production nature of our business, we do not expect to have significant operating revenue within the next year.
 
 
10

 

Operating expenses. Our operating expenses increased by $120,191 or 42%, from $285,276 for the three months ended April 30, 2011, to $405,467 for the three months ended April 30, 2012. 

The following are our most significant changes for the three months ended April 30, 2012:

 
During the three months ended April 30, 2012, we commissioned Micon International Limited to prepare an updated NI 43-101 report on our Farellon property; we also continued working on detailed mapping of the Farellon as well as the Mateo properties which resulted in mineral exploration expenditures of $130,820 as opposed to $35,230 during the same period of 2011.
 
Our salary and wage expense increased by $18,575, from $5,020 incurred during the three months ended April 30, 2011, to $23,595 incurred during the three months ended April 30, 2012. This increase was associated with extra staff we hired to keep up with the increased workload related to the exploration activities on our mineral properties.
 
Our travel and entertainment expenses increased from $13,932 to $21,654, or 55%, for the three month period ended April 30, 2012. This increase was mainly associated with our exploration activities and the preparation of the NI 43-101 report.
 
Due to higher accounting and financial advisory requirements we incurred $80,712 in consulting fees during the three months ended April 30, 2012, an increase of $14,492 compared to the three months ended April 30, 2011.
 
During the three months ended April 30, 2012, we continued with our due diligence review for the purpose of listing our common stock on the TSX Venture Exchange which resulted in an increase in our professional fees of $10,110 for the period, and an increase in regulatory fees of $12,634.
 
We restructured our administrative operations, which resulted in savings of $10,571 for the three month period ended April 30, 2012, compared to the period ended April 30, 2011.
 
Our advertising and promotion expense decreased from $40,527 to $22,974, or 43% due to decreased investor relations activities during the three months ended April 30, 2012, compared to the three months ended April 30, 2011.

Net loss. We had a net loss of $397,663 for the three months ended April 30, 2012, compared to a net loss of $285,276 for the three months ended April 30, 2011. The $112,387 increase in net loss during the period was due to the costs associated with the detailed mapping programs on our Mateo and Farellon properties as well as the preparation of an updated NI 43-101 report, which resulted in increased exploration and salary and wage expenses. These increases were offset by the revenue from geological services and a decrease in advertising and promotion activities as well as administrative fees.
 
Liquidity
 
GOING CONCERN
The consolidated financial statements included in this report have been prepared on a going concern basis, which implies that we will continue to realize our assets and discharge our liabilities in the normal course of business. We have not generated any significant revenues from mineral sales since inception, have never paid any dividends and are unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. Our continuation as a going concern depends upon the continued financial support of our shareholders, our ability to obtain necessary debt or equity financing to continue operations, and the attainment of profitable operations. Our ability to achieve and maintain profitability and positive cash flow depends upon our ability to locate profitable mineral claims, generate revenue from mineral production and control our production costs. Based upon our current plans, we expect to incur operating losses in future periods, which we plan to mitigate by controlling our operating costs and sharing mineral exploration expenses through joint venture agreements.  At April 30, 2012, we had a working capital deficit of $1,609,558 and accumulated losses of $6,382,670 since inception. These factors raise substantial doubt about our ability to continue as a going concern. We cannot assure you that we will be able to generate significant revenues in the future. Our consolidated financial statements do not give effect to any adjustments that would be necessary should we be unable to continue as a going concern and therefore be required to realize our assets and discharge our liabilities in other than the normal course of business and at amounts different from those reflected in our financial statements.
 
 
11

 

internal and external sources of liquidity
 
To date we have funded our operations by selling our securities and borrowing funds, and, to a minor extent, from mining royalties and geological services.

Sources and uses of cash

Three months ended April 30, 2012 and 2011

Table 5 summarizes our sources and uses of cash for the quarters ended April 30, 2012 and 2011.

Table 5:  Summary of sources and uses of cash
   
April 30,
 
   
2012
   
2012
 
Net cash provided by financing activities
  $ 270,748     $ 1,907,000  
Net cash used in operating activities
    (87,816 )     (540,394 )
Net cash used in investing activities
    (61,491 )     (52,839 )
Effect of foreign currency exchange
    (18,821 )     (11,778 )
Net increase in cash
  $ 102,620     $ 1,301,989  
 
Net cash provided by financing activities. During the three months ended April 30, 2012, we received $150,000 on exercise of warrants for 500,000 shares at $0.30 per share. During the same period we issued 267,335 shares at $0.45 for cash proceeds of $120,301.

We borrowed $57,000 from a shareholder, and repaid $56,553 loan including accrued interest to a company owned by a significant shareholder.

During the three months ended April 30, 2011, as part of the private offering completed on April 7, 2011, we issued 6,290,000 units at $0.30 per unit, for cash proceeds of $1,828,099, net of $58,900 in commissions paid to agents, and 433,333 units at $0.30 per unit in payment of $130,000 in debt. Each unit consists of one share of our common stock and a two-year warrant exercisable for one share of our common stock at $0.50 per share.

We borrowed $11,000 from a shareholder, $70,000 US and $10,000 Cdn (approximately $10,454 US) from our CFO and recognized foreign exchange adjustment of $1,829 on $50,000 Cdn that we borrowed during the year ended January 31, 2011, from our CEO. We also repaid $14,382 in loans including accrued interest. See Non-cash financing transactions below.
 
Non-cash financing transactions. During the three months ended April 30, 2011, as part of the private offering completed on April 7, 2011, the Company’s CEO converted loans in the amount of $50,000 into 166,666 units and the Company’s CFO converted loans in the amount of $80,000 into 266,667 units.

We did not have any non-cash financing transactions during the three months ended April 30, 2012.
 
Net cash used in operating activities. During the three months ended April 30, 2012, we used net cash of $87,816 in operating activities. We used $397,663 to cover operating costs. This use of cash was offset by increases in our accounts payable and accrued liabilities of $87,166 and $15,095, respectively.  This increase was associated mainly with our exploration activities and preparation of the updated NI 43-101 report. We also increased accounts payable to related parties by $192,718 and recorded $4,731 in accrued interest on notes payable to related parties. Our prepaids and other receivables decreased by $8,901 which also contributed to a decrease in cash used in operations.

During the three months ended April 30, 2011, we used net cash of $540,394 in operating activities. We used $285,276 to cover operating costs and increased prepaids and other receivables by $65,582 for professional fees associated with the preparation and filing of a form S-1 registration statement. We decreased accounts payable by $75,588, and accounts payable to related parties by $139,125. These uses of cash were offset by a net increase in our accrued liabilities of $19,993, mainly associated with Chilean mineral property taxes and accrued interest on our notes payable to related parties of $2,275.
 
 
12

 
 
Net cash used in investing activities. During the three months ended April 30, 2012, we spent $61,491 acquiring mineral claims and paying property taxes associated with our mineral claims.

During the three months ended April 30, 2011, we spent $52,839 acquiring mineral claims and paying property taxes associated with our mineral claims.
 
Since inception through April 30, 2012, we have invested $1,238,529 in acquiring our mineral claims and $19,820 for acquisition of other capital assets.

Unproved mineral properties

We have four active properties which we have assembled since the beginning of 2007— the Farellon, Perth, Mateo, and Veta Negra. These properties consist of both mining and exploration claims and are grouped into two district areas – Carrizal Alto area properties and Vallenar area properties.

Active properties
 
Table 6: Active properties
       
Property
Percentage, type of claim
 
Hectares
 
 
Gross area
   
Net areaa
 
Carrizal Alto area
 
Farellon
             
Farellon 1 – 8 claim
100%, mensura
    66        
Farellon 3 claim
100%, pedimento
    300        
Cecil 1 – 49 claim
100%, mensura
    230        
Cecil 1 – 40 and Burghley 1 – 60 claims
100%, mensura in process
    500        
        1,096       1,096  
Perth
                 
Perth 1 al 36 claim
100%, mensura
    109          
Lancelot I 1 al 30 claim
100%, mensura in process
    300          
Lancelot II 1 al 20 claim
100%, mensura in process
    200          
Rey Arturo 1 al 30 claim
100%, mensura in process
    300          
Merlin I 1 al 10 claim
100%, mensura in process
    60          
Merlin I 1 al 24 claim
100%, mensura in process
    240          
Galahad I 1 al 10 claim
100%, mensura in process
    50          
Galahad IA 1 al 46 claim
100%, mensura in process
    230          
Percival III 1 al 30 claim
100%, mensura in process
    300          
Tristan II 1 al 30 claim
100%, mensura in process
    300          
Tristan IIA 1 al 5 claim
100%, mensura in process
    15          
Camelot claim
100%, manifestacion
    300          
        2,404          
Overlapped claims
      (121)       2,283  
Vallenar area
 
Mateo
                 
Margarita claim
100%, mensura
    56          
Che 1 & 2 claims
100%, mensura
    76          
Irene & Irene II claims
100% ,mensura
    60          
Mateo 1, 2, 3, 9,10,12, 13, 14 claims
100%, mensura in process
    2,100          
Mateo 4 and 5 claims
100%, pedimento
    600          
        2,892          
Overlapped claims
      (469)       2,423  
                   
Veta Negra
                 
Veta Negra 1 al 7 claim
Option to purchase, mensura in process
    28          
Trixy (16 claims)
100%, mensura in process
    1,508          
Pibe
Option to purchase, mensura in process
    200          
        1,736          
Overlapped claims
      (222)       1,514  
                   
                7,316  
a Some pedimentos and manifestacions overlap other claims. The net area is the total of the hectares we have in each property (i.e. net of our overlapped claims).
 
 
 
13

 
 
Our active properties as of the date of this filing are set out in Table 6. These properties are accessible by road from Vallenar as illustrated in Figure 1.

Figure 1: Location and access to active properties.
 
 
14

 
 
Farellon Property

Drilling. During June through September 2011 we conducted a combined RC/diamond drill program on the Farellon property. The program was designed to continue to expand on the results of the 2009 drill program, as well as to continue confirming historical results along the strike. During this program we completed 11 drillholes for a total of 2,233m. Significant results of assays are presented in the
Table 7 below.

Table 7: Farellon drilling results (2011)
Drill Hole ID
Assay interval (m)
Assay grade
From
To
Length
Copper %
Gold g/t
FAR-11-001
36
49
13
2.51
0.35
FAR-11-001
78
85
7
0.43
0.04
FAR-11-002
No Significant Intersections . Zone faulted off
FAR-11-003
150
155
5
0.40
0.28
FAR-11-003
177
182
5
0.44
0.15
FAR-11-004
141
145
4
0.73
0.01
FAR-11-005
124
133
9
0.84
0.26
FAR-11-006
80
112
32
1.35
0.99
FAR-11-007
56
74
18
0.50
0.40
FAR-11-008
98
102
4
0.85
0.26
FAR-11-009
202
211.55
9.55
0.95
0.42
FAR-11-010
179.13
183
3.87
0.50
0.39
FAR-11-011
54
56
2
0.97
0.48
Figure 2 below illustrates the Farellon geology and the 2006, 2009 and 2011 drillhole collar locations as well as surface traces of mineralized vein systems:
 
 
15

 
 
Figure 2: Farellon property geology

QA/QC, sampling procedures and analytical methods. Samples were taken at intervals between 0.5 and 2 metres. Sampling started at the collar of the hole and proceeded to the toe or bottom of the drill hole.  Samples were taken at two metre intervals outside the previously identified main zone of interest.  Through the main zone of interest samples were taken at one metre intervals.   Generally, the sample recovery was good to excellent for the 2011 drilling program.
Table 7 above summarizes significant assay results.  They are reported as drill lengths as we have not established the width of the mineralized zone.
Our quality assurance, quality control (QA/QC) protocol consists of the addition of standards, blanks and laboratory duplicates to the sample stream. We inserted these into the sample series using the same number sequence as the samples themselves. One of the QA/QC check samples is inserted every 25 samples and it alternates between standards, blanks and laboratory duplicates.  

We commissioned Micon International Limited to prepare an updated technical report that complies with Canadian National Instrument 43-101 summarizing the information obtained from the above drilling program. Micon concluded that our drilling program was successful in confirming and extending the mineralization both in the down dip direction and along strike.

Samples reviewed by Micon proved to be representative of the results encountered in the drilling program; our sampling procedures undertaken at the Farellon Property conformed to CIM Exploration Best Practices Guidelines to minimize any sampling bias.

Micon has reviewed the two-phased exploration program that we have proposed. The first phase of this program would consist of a 5,000m primarily infill drilling to flesh out the structural issues that have been noted in the previous two campaigns, as well as to test the primary mineralization at depth.  We have estimated the budget for the first phase of the program to be approximately $922,000.
 
 
16

 

If the first  phase  continues  to  return  positive  results,  a  second  phase consisting of a 15,000m  drilling  program would be conducted in order to test the extent of the mineralization down to a 400m depth and estimate an initial mineral resource. The budget for the second phase of the program is approximately $5.2 million.

Micon recommended that Red Metal conduct the exploration program as proposed, subject to funding and any other matters which may cause the proposed exploration program to be altered in the normal course of its business activities, or as a result of exploration activities themselves, and made the following additional recommendations:

 
·
To add a screened metallic assay protocol to our current QA/QC procedures as a secondary check if any high grade assays of gold and copper are encountered during future exploration programs or if there is a significant difference between the primary and secondary assays for both field duplicate and check samples.
 
·
Designate a secondary assay laboratory to re-assay a portion of between 5% and 10% of the samples assayed by our current laboratory. This additional assaying procedure would act as a check on the results produced by the current laboratory.
 
·
Survey the old surface workings and, where safe to do so, the underground workings. Additionally, sample these workings where it is deemed safe. This will add a further dimension to the database and will be very useful if a resource estimate is conducted on the Farellón Project.
 
·
Build a covered facility in which to store its samples in Vallenar in order to preserve them from the effects of weather.
 
2012 mapping program: In April of 2012 we started a detailed mapping, prospecting and rock sampling program over the Farellon Property. This program is designed to extend the known mineralized zone to the north and the south and to identify where the best potential is to expand on the known mineralized zone.

Perth Property

Termination of Perth property joint venture earn-in agreement

On March 14, 2011, we entered into an agreement on the Perth property with Revonergy Inc.  Revonergy Inc. paid $35,000 on signing the agreement, which allowed Revonergy to earn a 35% interest in the Perth property if it spent a minimum of $1,450,000 on a three phase exploration program, as follows:

 
·
Successful completion of a Phase I exploration program costing at least $115,000 one year from signing
 
·
Successful completion of a Phase II exploration program costing at least $300,000 two years from signing
 
·
Successful completion of a Phase III exploration program costing at least $1,000,000 and that can justify completing a preliminary feasibility study three years from signing

Revonergy failed to complete Phase I of the exploration program within the term specified, therefore the agreement has terminated.

Mateo Property

During August through October 2011 we carried out an in-depth geological mapping and sampling program on the Mateo property.  The Mateo property has very diverse mineralization styles through the property which includes mantos, veins, breccias and porphyries with significant gold and copper. A total of 138 reconnaissance samples were collected over the property. The highest assay values returned from reconnaissance samples were 21g/t Au and 10.3% Cu but more common values were between 1-3g/t Au and 1-3% Cu. Table 8 summarizes the significant assay results.
 
 
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Table 8: significant intersections
Sample
Cu%
Au g/t
201272
7.37
1.12
202871
2.63
1.14
202852
7.11
1.18
202849
10.3
1.73
201220
4.29
2.07
201277
9.39
2.42
202850
2.58
2.46
202810
2.44
2.49
202882
2.57
3.08
202812
0.50
3.10
202815
0.62
3.57
202880
1.46
5.70
202826
5.30
6.85
201217
3.46
10.11
202813
0.69
21.72
The detailed mapping identified nine significant mineralized zones where further work is recommended.
Figure 3 below illustrates the local Mateo geology including a thematic map of 2011 reconnaissance sample locations and corresponding percent copper assay ranges.
 
Figure 3: Mateo property geology

2011 Ground Magnetic Survey

During September 2011 we engaged Quantec International Project Services Ltd. to complete a ground magnetic survey on the Mateo Property. The ground magnetic survey consisted of 70 survey lines with an E-W orientation, and two control lines with a N-S orientation. The survey lines were separated by 100m, and data was collected at 10m intervals on all lines. A total of 218.49km of magnetic data was collected. The survey outlined areas of high and low magnetic response. Areas of high magnetic response indicated the presence of elevated levels of magnetic minerals such as magnetite, pyrotite and hematite whereas areas of low magnetic response may be caused by alteration processes such as magnetite destruction or may simply indicate rock types that never had magnetic minerals.
 
 
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This ground magnetic survey demarcated the northern and western extent with a large, high magnetic anomaly with a southwest to northeast orientation. This magnetic high may correlate with the Jilguero Intermediate Intrusive formation which is only partially exposed on the property and underlies the Jurassic Punta Del Cobre volcanics and mixed sedimentary sequence.
Two possible correlations with geology are drawn when looking at the magnetic geophysical response. Firstly, all artisanal mines, reconnaissance samples and documented surface mineralization are exposed on the Western edge of the magnetic high in an area where magnetic high-low gradients are greatest transitioning from high to low. Secondly, magnetic highs appear to persist away from the main magnetic high body in a NW direction. Although these persisting magnetic highs are only small stringers in appearance they possibly correlate to dominant NW trending faults on the property that are often mineralized. Visual correlations between magnetic high/low contrasts and geology seem strong enough to suggest further exploration including sampling and drilling along the steepest gradient of magnetic high/low dropoff.

Veta Negra Property

During June and July 2011 we carried out a preliminary exploration program on the Veta Negra property. As a result of the program we discovered a defined and continuous copper mineralized manto continuing on from the main manto previously known to exist. At the conclusion of this program three mantos were traced on surface, one manto, the East Manto, was traced for 1.9km on surface before becoming buried by surface rock, a second manto, the West Manto, was traced for a one kilometer strike length and a third manto, the Far West Manto, was traced for a 500 metre strike length.

After reviewing the exploration results and considering the acquisition costs as well as future geological potential, we decided to terminate our option to purchase the Exon claim, drop three Trixy claims, as well as decrease the size of some of the remaining Trixy claims when advancing them to mining (mensura) stage.  We believe that this enables us to maintain the geological potential of the Veta Negra project and at the same time control the associated costs.

Capital resources

Our ability to acquire and explore our Chilean claims is subject to our ability to obtain the necessary funding.  We expect to raise funds through loans from private or affiliated persons and sales of our debt or equity securities. We have no committed sources of capital.  If we are unable to raise funds as and when we need them, we may be required to curtail, or even to cease, our operations.
 
Contingencies and commitments

During the three months ended April 30, 2012, the Company received a penalty notice from the IRS for failure to file certain tax form within prescribed deadline. The Company believes that it filed the questioned form on time and submitted supporting documentation to the IRS appeal department. The penalty was assessed for $10,000 plus accrued interest of $146.

Contractual Obligations and Commitments

Our commitments under the Farellon, Che, Veta Negra and Pibe contracts are the only contractual obligations that we have.  Table 9 summarizes, as of April 30, 2012, contractual obligations and commitments for the next five fiscal years.

Table 9: Contractual Obligations
   
Payments due by period
 
   
Less than 1 year
   
1 – 3 years
   
3 – 5 years
   
More than 5 years *
   
Total
 
Option payments
  $ 167,500     $ 350,000     $ -     $ -     $ 517,500  
Royalty payments
                    -       1,950,000       1,950,000  
Total
  $ 167,500     $ 350,000     $ -     $ 1,950,000     $ 2,467,500  
*The royalty payments are due once exploitation begins. As of the date of this report we have not commenced exploitation of any of our claims.

 
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Farellon royalty. We are committed to paying the vendor a royalty equal to 1.5% on the net sales of minerals extracted from the Farellon claims up to a total of $600,000. The royalty payments are due monthly once exploitation begins and are subject to minimum payments of $1,000 per month. We have no obligation to pay the royalty if we do not commence exploitation. 
 
 
Che royalty. We are committed to paying a royalty equal to 1% of the net sales of minerals extracted from the claims to a maximum of $100,000 to the former owner. The royalty payments are due monthly once exploitation begins, and are not subject to minimum payments.
 
 
Veta Negra option. On June 30, 2011, Minera Farellon agreed to sell us its option to purchase the Veta Negra and Exon claims for a total cash payment of $107,500 ($17,500 payable to Minera Farellon to exercise the option, and $90,000 payable to the vendors). On May 15, 2012, we decided to drop the option to purchase the Exon claim and furnished the owner of the claim with the cancellation notice. As of the date of this report, we must pay $57,500 payable in two installments over eight months to exercise the Veta Negra option. If we complete acquisition of the property we are committed to paying the vendor a royalty equal to 1.5% of the net sales of minerals extracted from the claim to a total maximum of $250,000. The royalty can also be bought for $250,000 at any time. The royalty payments are due monthly once exploitation begins, and are not subject to minimum payments.
 
 
Pibe option. On November 25, 2011, we entered into an option agreement to purchase the Pibe 1 - 20 mining claims for the total cash payment of $500,000. Under the option agreement we paid $40,000 on December 12, 2011, and must pay $460,000 in six installments over 36 months to exercise the option. If we complete acquisition of the property we are committed to paying the vendor a royalty equal to 1.5% of the net sales of minerals extracted from the claims to a total maximum of $1,000,000.  The payments are due once exploitation begins. 
 
Equity financing

To generate working capital, between January 31, 2010 and June 14, 2012, we issued 8,280,668 shares of our common stock and warrants for the purchase of 7,727,001 shares to raise $2,438,401 under Regulations S and D promulgated under the Securities Act of 1933.
 
Based on our operating plan, we anticipate incurring operating losses in the foreseeable future and will require additional equity capital to support our operations and develop our business plan.  If we succeed in completing future equity financing, the issuance of additional shares will result in dilution to our existing shareholders.

Debt financing

On February 22, 2010, we borrowed US $50,000 and issued a demand promissory note payable to the lender for the principal sum together with interest at 6% per annum.  On March 13, 2012, we repaid this note payable along with the interest accrued on it. See Related-party transactions below.

On March 2, 2011, we borrowed US $11,000 and issued a demand promissory note payable to the lender for the principal sum together with interest at 8% per annum.  See Related-party transactions below.

On August 25, 2011, we borrowed US $30,000 and issued a demand promissory note payable to the lender for the principal sum together with interest at 8% per annum.  See Related-party transactions below.
 
 
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On September 19, 2011, we borrowed Cdn $62,389 (equivalent to US $63,121) and issued a demand promissory note payable to the lender for the principal sum together with interest at 8% per annum.  See Related-party transactions below.

On October 25, 2011, we borrowed US $10,000 and issued a demand promissory note payable to the lender for the principal sum together with interest at 8% per annum.  See Related-party transactions below.

On December 9, 2011, we borrowed Cdn $25,000 (equivalent to US $25,293) and issued a demand promissory note payable to the lender for the principal sum together with interest at 8% per annum.  See Related-party transactions below.

On January 12, 2012, we borrowed Cdn $30,000 (equivalent to US $30,352) and issued a demand promissory note payable to the lender for the principal sum together with interest at 8% per annum.  See Related-party transactions below.

On January 30, 2012, we borrowed US $8,500 and issued a demand promissory note payable to the lender for the principal sum together with interest at 8% per annum.  See Related-party transactions below.

On March 7, 2012, we borrowed US $57,000 and issued a demand promissory note payable to the lender for the principal sum together with interest at 8% per annum.  See Related-party transactions below.

Challenges and risks
 
We do not anticipate generating any revenue over the next twelve months. We plan to fund our operations through any combination of equity or debt financing from the sale of our securities, private loans, joint ventures or through the sale of part interest in our mineral properties. Although we have succeeded in raising funds as we have needed them, we cannot assure you that this will continue in the future.  Many things, such as the continued general downturn, worldwide, of the economy or a significant decrease in the price of minerals, could affect the willingness of potential investors to invest in risky ventures such as ours. We may consider entering into a joint venture partnership with a more senior resource company to complete a mineral exploration program on other properties in Chile. If we enter into a joint venture arrangement, we would likely have to assign a percentage of our interest in our mineral claims to our joint venture partner in exchange for the funding.

Investments in and expenditures on mineral interests
 
Realization of our investments in mineral properties depends upon our maintaining legal ownership, producing from the properties or gainfully disposing of them.

Title to mineral claims involves risks inherent in the difficulties of determining the validity of claims as well as the potential for problems arising from the ambiguous conveyancing history characteristic of many mineral claims. Our contracts and deeds have been notarized, recorded in the registry of mines and published in the mining bulletin. We review the mining bulletin regularly to discover whether other parties have staked claims over our ground. We have discovered no such claims. To the best of our knowledge, we have taken the steps necessary to ensure that we have good title to our mineral claims.

Foreign exchange
 
We are subject to foreign exchange risk for transactions denominated in foreign currencies.  Foreign currency risk arises from the fluctuation of foreign exchange rates and the degree of volatility of these rates relative to the United States dollar.  We do not believe that we have any material risk due to foreign currency exchange.

Trends, events or uncertainties that may impact results of operations or liquidity
 
The economic crisis in the United States and the resulting economic uncertainty and market instability may make it harder for us to raise capital as and when we need it and have made it difficult for us to assess the impact of the crisis on our operations or liquidity and to determine if the prices we will receive on the sale of minerals will exceed the cost of mineral exploitation.  If we are unable to raise cash, we may be required to cease our operations.  Other than as discussed in this report, we know of no other trends, events or uncertainties that have or are reasonably likely to have a material impact on our short-term or long-term liquidity.
 
 
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Off-balance sheet arrangements

We have no off-balance sheet arrangements and no non-consolidated, special-purpose entities.

Related-party transactions

Table 10 describes the amounts due to related parties that were incurred during the fiscal year ended January 31, 2012, and the period ended April 30, 2012.

Table 10: Due to related parties
 
   
April 30, 2012
   
January 31, 2012
 
Due to Da Costa Management Corp.
  $ 225,178     $ 190,608  
Due to Fladgate Exploration Consulting Corporation
    811,793       658,950  
Due to Minera Farellon Limitada
    55,143       51,957  
Due to Kevin Mitchell
    6,166       4,047  
Total due to related parties
  $ 1,098,280     $ 905,562  
 
During the three months ended April 30, 2012 and 2011, we incurred the following expenses with related parties:
 
$78,127 and $66,492, respectively, in consulting and other business expenses for services provided by Da Costa Management Corp., a company owned by our CFO and treasurer
 
$117,532 and $79,208, respectively, in administration, advertising and promotion, mineral exploration, travel and other business expenses for services provided by or paid on our behalf by Fladgate Exploration Consulting Corporation, a company controlled by our directors
 
$7,371 and $16,525, respectively, in administration, automobile, rental, and other business expenses for services provided by Minera Farellon Limitada, a company owned by Richard Jeffs, the father of our president
 
$13,141 and $7,018, respectively, in administration expenses, salary and other reimbursable expenses with Kevin Mitchell, an officer of our Chilean subsidiary

Notes payable to related parties
Table 11 describes the promissory notes payable to related parties including accrued interest as at April 30, 2012, and January 31, 2012.

Table 11: Notes payable to related parties
   
April 30,
2012
   
January 31,
2012
 
Note payable to the company owned by Richard Jeffs a
  $     $ 56,164  
Notes payable to Richard Jeffs b
    111,846       53,115  
Notes payable to Caitlin Jeffs c
    57,179       55,129  
Notes payable to Fladgate Exploration Consulting Corporation c
    66,287       63,910  
Notes payable to John da Costa d
    8,671       8,502  
Total notes payable to related parties
  $ 243,983     $ 236,820  
a The principle amount of the note payable was $50,000. It was payable on demand, unsecured and bore interest at 6% per annum compounded monthly. Interest of $6,553 had accrued as at March 13, 2012, when it was repaid in full.
b The principle amount of the notes payable is $108,000. They are payable on demand, unsecured and bear interest at 8% per annum compounded monthly. Interest of $3,846 had accrued as at April 30, 2012.
cThe principle amounts of the notes payable to Caitlin Jeffs are $55,000 Cdn, they are payable on demand, unsecured and bear interest at 8% per annum compounded monthly. Interest of $1,534 had accrued as at April 30, 2012. The principle amount of the note payable to Fladgate Exploration Consulting Corporation is $62,389 Cdn; it is payable on demand, unsecured and bears interest at 8% per annum compounded monthly. Interest of $3,166 Cdn had accrued as at April 30, 2012.
d The principle amount of the note payable to John da Costa is $8,500 US, it is payable on demand, unsecured and bears interest at 8% per annum compounded monthly. Interest of $171 had accrued as at April 30, 2012.
 
 
 
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Critical Accounting Estimates
 
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect certain of the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. The most significant estimates with regard to these financial statements relate to carrying values of unproven mineral properties, determination of fair values of stock-based transactions, and deferred income tax rates.

Reclassifications
 
Certain prior-period amounts in the accompanying consolidated financial statements have been reclassified to conform to the current period’s presentation. These reclassifications had no effect on the consolidated results of operations or financial position for any period presented.
  
Financial instruments
 
Our financial instruments include cash, accounts receivable, accounts payable, accrued liabilities, accrued professional fees and accrued mineral property costs. The fair value of these financial instruments approximates their carrying values due to their short maturities.

Recently Adopted Accounting Guidance
 
The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. We do not expect the adoption of these pronouncements to have a material impact on our financial position, results of operations or cash flows.

 
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Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

As a smaller reporting company, we are not required to provide this disclosure.
 
Item 4.  Controls and Procedures.

(a) Disclosure Controls and Procedures

Caitlin Jeffs, our chief executive officer and president, and John da Costa, our chief financial officer, have evaluated the effectiveness of our disclosure controls and procedures (as the term is defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934) as of the end of the period covered by this report (the “evaluation date”).  Based on their evaluation, they have concluded that, as of the evaluation date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

(b) Changes in internal control over financial reporting