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EX-32.1 - EXHIBIT321 - CONSTITUTION MINING CORPexhibit321.htm
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  September 30, 2011
 
¨
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:  000-49725
 
Goldsands Development Company
(Exact name of registrant as specified in its charter)
 
Delaware
88-0455809
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
Calle Juan Fanning 219, Miraflores, Lima, Perú
(Address of principal executive offices)
 
+51-1-446-6807
(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.   ý   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).   ý   Yes   ¨ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” and “a smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ¨                                                                                                            Accelerated filer                     ¨
Non-accelerated filer   ¨ (Do not check if a smaller reporting company)                           Smaller reporting company  ý
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨   Yes  ý No
 
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 November 14, 2011
Common Stock, $0.001 par value
 
190,187,618
 
 
 

 
 
 
 
logo
 
 
 
FORM 10-Q
GOLDSANDS DEVELOPMENT COMPANY
SEPTEMBER 30, 2011
 
 
 
 
 
 
 
Page
PART I – FINANCIAL INFORMATION
 
Item 1.
3
     
Item 2.
4
     
Item 3.
21
     
Item 4.
21
 
PART II – OTHER INFORMATION
 
Item 1.
23
     
Item 1A.
23
     
Item 2.
23
     
Item 3.
23
     
Item 4.
23
     
Item 5.
23
     
Item 6.
23
     
   
     
   
     
   
 
 
 
 
 
 
 
 
 
PART I - FINANCIAL INFORMATION
 
Item 1.     Consolidated Financial Statements.
 
 
These unaudited 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 September 30, 2011 are not necessarily indicative of the results that can be expected for the full year.
 
 
 
 
 
 
 
 
 
 
 
Goldsands Development Company
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited)

 
   
As at
30 September
2011
   
As at
31 December
2010
(Audited)
 
      $       $  
Assets
               
                 
Current
               
Cash and cash equivalents
    38,094       4,181  
Amounts receivable (Note 4)
    171,056       110,709  
Prepaid expenses
    12,476       20,072  
                 
      221,626       134,962  
                 
Equipment (Note 5)
    127,713       159,509  
                 
Website development cost (Note 6)
    -       4,167  
                 
      349,339       298,638  
                 
Liabilities
               
                 
Current
               
Accounts payable and accrued liabilities (Note 8)
    1,736,587       1,969,623  
Current portion of convertible promissory notes (Note 13)
    124,045       614,466  
Loans payable (Note 14)
    -       393,312  
Due to related parties (Note 9)
    209,160       323,065  
                 
      2,069,792       3,300,466  
                 
Convertible promissory notes (Note 13)
    403,425       2,566,986  
                 
      2,473,217       5,867,452  
                 
Stockholders’ deficiency
               
                 
Capital stock (Note 11)
               
Authorized
               
600,000,000 common shares, par value $0.001 and
               
50,000,000 preferred shares, par value $0.001
               
Issued and outstanding
               
30 September 2011 – 190,187,618  common shares, par value $0.001
               
31 December 2010 – 88,158,118 common shares, par value $0.001
    190,187       88,158  
Share subscriptions received in advance
    -       240,000  
Additional paid in capital
    43,073,116       33,448,191  
Warrants
    5,320,418       4,532,526  
Deficit, accumulated during the exploration stage
    (50,707,599 )     (43,877,689 )
                 
      (2,123,878 )     (5,568,814 )
                 
      349,339       298,638  
 
Nature, Basis of Presentation and Continuance of Operations (Note 1), Commitments (Note 18), Contingencies (Note 19) and Subsequent Event (Note 21)
 
The accompany notes are an integral part of these consolidated financial statements.
 
 
 
 
Goldsands Development Company
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited)

 
   
For the
period from
the date of
inception on
6 March
2000 to 30
September
2011
   
For the
 three month
period ended
30 September
2011
   
For the
 three month
period ended
30 September
2010
   
For the
nine month
period ended
30 September
2011
   
For the
nine month
period ended
30 September
2010
 
      $       $       $       $       $  
                                         
Expenses
                                       
Amortization expense (Notes 5 and 6)
    414,949       13,620       21,547       55,113       59,524  
Default on oil and gas deposit
    25,000       -       -       -       -  
Exploration costs (Note 7)
    6,101,078       128,988       569,556       702,525       2,351,946  
Interest (Notes 9, 13 and 14)
    6,513,796       71,241       231,991       4,247,640       2,547,005  
Investor relations
    2,645,932       42,786       176,218       144,497       381,175  
Management fees (Note 10)
    1,447,418       123,742       82,628       285,000       283,968  
Office and miscellaneous
    752,028       60,246       40,930       201,462       83,705  
Professional fees
    3,582,602       177,872       169,167       650,515       576,530  
Rent
    196,381       -       11,284       -       20,826  
Stock-based compensation (Note 12)
    10,875,124       4,850       814,172       181,896       2,686,353  
Travel
    744,985       33,055       24,911       151,601       117,670  
Write-down of equipment (Note 5)
    26,611       -       -       -       -  
Write-down of mineral property costs (Note 7)
    23,041,959       -       527,260       430,000       527,260  
                                         
Net operating loss before other items
    (56,367,863 )     (656,400 )     (2,669,664 )     (7,050,249 )     (9,635,962 )
      367,863                                  
Other items
                                       
Foreign exchange income (loss)
    107,245       53,985       5,705       62,870       33,181  
Gain on sale of oil and gas property
    307,115       -       -       -       -  
Gain on settlement of debt (Note 13)
    157,469       -       -       157,469       -  
Interest income
    12,795       -       -       -       -  
Provision for potential legal claims (Note 8)
    (65,000 )     -       -       -       -  
Project management fees
    60,000       -       -       -       -  
Recovery of mineral property costs (Note 7)
    210,070       -       -       -       -  
Warrant expense (Note 11)
    (713,500 )     -       -       -       -  
                                         
      76,194       53,985       5,705       220,339       33,181  
 
Net operating loss before income taxes
    (56,335,111 )     (602,415 )     (2,663,959 )     (6,829,908 )     (9,602,781 )
                                         
Future income tax recovery (Note 15)
    5,584,070       -       -       -       752,220  
                                         
Net loss and comprehensive loss for the period
    (50,707,599 )     (602,415 )     (2,663,959 )     (6,829,908 )     (8,850,561 )
                                         
Basic and diluted loss per common share
            (0.003 )     (0.032 )     (0.039 )     (0.109 )
                                         
Weighted average number of common shares used in per share calculations
            188,364,900       83,066,713       176,712,607       81,232,639  
 
The accompanying notes are an integral part of these consolidated financial statements.

 

 
Goldsands Development Company
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited)

 
   
For the
period from
the date of
inception on
6 March
2000 to 30
September
2011
   
For the
three month
period ended
30 September
2011
   
For the
three month
period ended
30 September
2010
   
For the
nine month
period ended
30 September
2011
   
For the
nine month
period ended
30 September
2010
 
      $       $       $       $       $  
                                         
Cash flows used in operating activities
                                       
Net loss for the period
    (50,707,599 )     (602,415 )     (2,663,959 )     (6,829,908 )     (8,850,561 )
Adjustments to reconcile loss to net cash used by operating activities
                                       
Accrued interest (Notes 9, 13 and 14)
    6,440,463       71,098       231,991       4,246,675       2,547,005  
Amortization (Notes 5 and 6)
    414,949       13,620       21,547       55,113       59,524  
Contributions to capital by related party expenses (Notes 10 and 16)
    15,000       -       -       -       -  
Future income tax recovery (Note 15)
    (5,584,070 )     -       -       -       (752,220 )
Warrant expense (Note 11)
    713,500       -       -       -       -  
Common shares issued for services
    24,199       -       -       -       -  
Warrants issued for services
    25,252       -       -       -       -  
Gain on sale of oil and gas property
    (307,115 )     -       -       -       -  
Gain of settlement of debt (Note 13)
    (157,469 )     -       -       (157,469 )     -  
Stock-based compensation (Note 12)
    10,875,124       4,850       814,172       181,896       2,686,353  
Write-down of mineral property costs (Note 7)
    23,041,959       -       527,260       430,000       1,443,895  
Write-down of equipment (Note 5)
    26,611       -       -       -       -  
Recovery of mineral property costs (Note 7)
    (210,070 )     -       -       -       -  
Changes in operating assets and liabilities
                                    -  
    (Increase) decrease in prepaid expenses
    (12,476 )     2,570       30,377       7,596       5,097  
(Increase) decrease in amounts receivable (Note 4)
    (136,781 )     14,272       (28,117 )     (60,348 )     8,146  
Increase (decrease) in accounts payable and accrued liabilities (Note 8)
    1,463,611       707,770       (121,190 )     (233,035 )     149,450  
Increase (decrease) in due to related parties (Note 9)
    (361,425 )     (523,073 )     6,404       78,545       181,034  
                                         
      (14,436,335 )     (311,308 )     (1,181,515 )     (2,280,937 )     (2,522,277 )
                                         
Cash flows used in investing activities
                                       
Acquisition of mineral property interest (Note 7)
    (887,842 )     -       (327,260 )     -       (327,260 )
Business acquisition, net of cash received (Note 20)
    (2,499,908 )     -       -       -       (1,000,000 )
Purchase of equipment (Note 5)
    (305,715 )     (1,623 )     (306 )     (19,150 )     (63,093 )
Website development costs (Note 6)
    (64,693 )     -       -       -       -  
Purchase of oil and gas property
    (642,006 )     -       -       -       -  
                                         
      (4,400,164 )     (1,623 )     (327,566 )     (19,150 )     (1,390,353 )
                                         
Cash flows from financing activities
                                       
Issuance of common shares, net of share issue costs (Note 11)
    9,465,035       267,000       2,864,141       1,650,592       3,478,391  
Increase in due to related parties (Note 9)
    87,304       -       -       -       -  
Issuance of warrants (Note 11)
    8,237,254       -       -       873,408       -  
Convertible debentures (Note 13)
    715,000       50,000       -       50,000       -  
Loans payable (Note 14)
    370,000       -       (462,000 )     -       338,000  
Share subscriptions received in advance (Note 11)
    -       (20,000 )     (1,127,000 )     (240,000 )     (70,000 )
                                         
      18,874,593       297,000       1,275,141       2,334,000       3,746,391  
                                         
Increase (decrease) in cash and cash equivalents
    38,094       (15,931 )     (233,940 )     33,913       (166,239 )
                                         
Cash and cash equivalents, beginning of period
    -       54,025       272,826       4,181       205,125  
                                         
Cash and cash equivalents, end of period
    38,094       38,094       38,886       38,094       38,886  
 
Supplemental Disclosures with Respect of Cash Flows (Note 16)
 
The accompanying notes are an integral part of these consolidated financial statements.
 

 
 
Goldsands Development Company
(An Exploration Stage Company)
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
1.             Nature, Basis of Presentation and Continuance of Operations
 
Goldsands Development Company (the “Company”) was incorporated in the State of Nevada under the name “Crafty Admiral Enterprises, Ltd.” on 6 March 2000. On 9 March 2007, the Company changed their name to “Nordic Nickel Ltd.”. The Company changed their name pursuant to a parent/subsidiary merger between the Company (as Crafty Admiral Enterprises, Ltd.) and its wholly-owned non-operating subsidiary, Nordic Nickel Ltd., which was established for the purpose of giving effect to this name change. On 15 November 2007, the Company changed its name to “Constitution Mining Corp.”. The Company changed their name pursuant to a parent/subsidiary merger between the Company (as Nordic Nickel Ltd.) and its wholly-owned non-operating subsidiary, Constitution Mining Corp., which was established for the purpose of giving effect to this name change. On 21 October 2009, the Company reincorporated in the State of Delaware. On 31 March 2011, the Company changed their name pursuant to parent/subsidiary merger between the Company (as Constitution Mining Corp.) and its wholly-owned subsidiary, Goldsands Development Company, which was established for the purpose of giving effect to this name change. The Company is in the exploration stage as its operations principally involve the examination and investigation of land that may contain valuable minerals, for the purpose of discovering the presence of ore, if any, and its extent.
 
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, and its planned principle operations have not commenced, and, accordingly, no revenue has been derived during the organization period.
 
The 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 accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, Constitution Mining Argentina SA, a company incorporated under the laws of Argentina, and Bacon Hill Invest Inc. (“Bacon Hill”), a company incorporated under the law of Panama.
 
The Company’s consolidated financial statements as at 30 September 2011 and for the nine 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 loss of $6,829,910 for the nine month period ended 30 September 2011 (30 September 2010 – $8,850,561) and has working capital deficit of $1,848,166 at 30 September 2011 (31 December 2010 – $3,165,504).
 
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 2011.  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 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.
 
 
 
 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
In 2007, the Company shifted its focus from oil and gas sector to mineral exploration.
 
Although management is currently implementing its business plan, and seeking additional sources of equity or debt financing and or a partner, there is no assurance these activities will be successful.  This raises substantial doubt about the ability of the Company to continue as a going concern.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
2.            Changes in Accounting Policies
 
On 1 January 2011, the Company adopted Accounting Standards Update (“ASU”) No. 2010-29, “Business Combination (Topic 805)”, which specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only.  The amendments of ASU No. 2010-29 also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU No. 2010-29 is effective prospectively for business combinations for which the acquisition date is on of after the beginning of the first annual reporting period beginning on or after 15 December 2010.  Early adoption is permitted.  The adoption of ASU No. 2010-29 did not have a material impact on the Company’s interim consolidated financial statements.
 
On 1 January 2011, the Company adopted ASU No. 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements”, which eliminates the requirement for SEC filers to disclose the date through which an entity has evaluated subsequent events. The adoption of ASU No. 2010-09 did not have a material impact on the Company’s interim consolidated financial statements.
 
On 1 January 2011, the Company adopted ASU No. 2010-06, “Fair Value Measurement and Disclosures (Topic 820): Improving Disclosure and Fair Value Measurements”, which requires that purchases, sales, issuances, and settlements for Level 3 measurements be disclosed.  The adoption of ASU No. 2010-06 did not have a material impact on the Company’s interim consolidated financial statements.
 
3.             Significant Accounting Policies
 
The following is a summary of significant accounting policies used in the preparation of these consolidated financial statements.
 
Principles of consolidation
 
All inter-company balances and transactions have been eliminated in these consolidated financial statements.
 
Cash and cash equivalents
 
Cash and cash equivalents include highly liquid investments with original maturities of three months or less.
 
 

 
 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011

 
 
Financial instruments
 
The carrying value of cash and cash equivalents, amounts receivable, accounts payable and amounts due to related parties approximates their fair value because of the short maturity of these instruments.  The Company’s operations are in the U.S. and Peru and virtually all of its assets and liabilities are giving rise to significant exposure to market risks from changes in foreign currency rates.  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.
 
Derivative financial instruments
 
The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
 
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.
 
Basic and diluted net income (loss) per share
 
The Company computes net income (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 income (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 is 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 September 2011, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the consolidated financial statements.
 
 

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011

 
 
Mineral property costs
 
Mineral property acquisition costs are initially capitalized as tangible assets when purchased. At the end of each fiscal quarter end, the Company assesses the carrying costs for impairment.  If proven and probable reserves are established for a property and it has been determined that a mineral property can be economically developed, costs will be amortized using the units-of-production method over the estimated life of the probable reserve.
 
Mineral property exploration costs are expensed as incurred.
 
Estimated future removal and site restoration costs, when determinable are provided over the life of proven reserves on a units-of-production basis.  Costs, which include production equipment removal and environmental remediation, are estimated each period by management based on current regulations, actual expenses incurred, and technology and industry standards.  Any charge is included in exploration expense or the provision for depletion and depreciation during the period and the actual restoration expenditures are charged to the accumulated provision amounts as incurred.
 
As of the date of these consolidated financial statements, the Company has not established any proven or probable reserves on its mineral properties and incurred only acquisition and exploration costs.
 
Although the Company has taken steps to verify title to mineral properties in which it has an interest, according to the usual industry standards for the stage of exploration of such properties, these procedures do not guarantee the Company’s title.  Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.
 
Website development costs
 
The costs of computer software developed or obtained for internal use, during the preliminary project phase, as defined under ASC 350-40, “Internal-Use Software”, will be expensed as incurred.  The costs of website development during the planning stage, as defined under ASC 350-50, “Website Development Costs”, will also be expensed as incurred.
 
Computer software, website development incurred during the application and infrastructure development stage, including external direct costs of materials and services consumed in developing the software and creating graphics and website content, will be capitalized and amortized over the estimated useful life, beginning when the software is ready for use and after all substantial testing is completed and the website is operational.
 
Segments of an enterprise and related information
 
ASC 280, “Segment Reportingestablishes 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.  The Company has evaluated this Codification and does not believe it is applicable at this time.
 
 
 
 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011

 
 
Start-up expenses
 
The Company has adopted ASC 720-15, “Start-Up Costs”, which requires that costs associated with start-up activities be expensed as incurred.  Accordingly, start-up costs associated with the Company’s formation have been included in the Company’s expenses for the period from the date of inception on 6 March 2000 to 30 September 2011.
 
Foreign currency translation
 
The Company’s functional and reporting currency is U.S. dollars.  The 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 consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
 
Use of estimates
 
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenditures during the reporting period.  Actual results could differ from these estimates.
 
Equipment
 
Equipment is recorded at cost and amortization is provided over its estimated economic life at 30% or on a straight line basis over its economic life.
 
Comparative figures
 
Certain comparative figures have been adjusted to conform to the current period’s presentation.
 
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, 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.  Adoption of ASC 718 does not change the way the Company accounts for share-based payments to non-employees, with guidance provided by ASC 505-50, “Equity-Based Payments to Non-Employees”.
 
 
 
 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
Convertible debt
 
In May 2008, the FASB issued new guidance for accounting for convertible debt instruments that may be settled in cash.  The new guidance, which is now part of ASC 470-20, “Debt with Conversion and Other Options” 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.  The new guidance was to be applied retrospectively to all periods presented upon those fiscal years.  The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
 
Consolidation
 
In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”.  SFAS No. 167, which amends ASC 810-10, “Consolidation”, prescribes a qualitative model for identifying whether a company has a controlling financial interest in a variable interest entity (“VIE”) and eliminates the quantitative model.  The new model identifies two primary characteristics of a controlling financial interest: (1) provides a company with the power to direct significant activities of the VIE, and (2) obligates a company to absorb losses of and/or provides rights to receive benefits from the VIE.  SFAS No. 167 requires a company to reassess on an ongoing basis whether it holds a controlling financial interest in a VIE.  A company that holds a controlling financial interest is deemed to be the primary beneficiary of the VIE and is required to consolidate the VIE.  SFAS No. 167, which is referenced in ASC 105-10-65, has not yet been adopted into the Codification and remains authoritative.  SFAS No. 167 was effective 1 January 2010.  The adoption of SFAS No. 167 did not have a material impact on the Company’s consolidated financial statements.
 
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 financial statements.
 
 

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income”.  This update 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 net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. As ASU 2011-05 relates only to the presentation of Comprehensive Income, the Company does not expect that the adoption of this update will have a material effect on its financial statements.
 
In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement” to amend the accounting and disclosure requirements on fair value measurements.  This ASU limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts.  Additionally, this update expands the disclosure on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs.  ASU No. 2011-04 is to be applied prospectively and is effective during interim and annual periods beginning after 15 December 2011.  The Company does not expect the adoption of this update will have a material effect on its financial statements.
 
4.            Amounts Receivable
 
Amounts receivable are non-interest bearing, unsecured and have settlement dates within one year.
 
Included in amounts receivable is $43,444 related to incidental extracted gold related to the Swiss Agreement (Note 7).
 
5.             Equipment
 
               
Net Book Value
 
   
Cost
   
Accumulated
amortization
   
30 September
2011
   
31 December
2010
(Audited)
 
      $       $       $       $  
                                 
Equipment
    305,022       177,309       127,713       159,509  
 
During the nine month period ended 30 September 2011, total additions to property and equipment were $19,150 (30 September 2010 – $63,093).
 
 

 
 
F - 10

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
6.             Website Development Cost
 
               
Net Book Value
 
   
Cost
   
Accumulated
amortization
   
30 September
2011
   
31 December
2010
(Audited)
 
                                 
                                 
Website development
    64,693       64,693       -       4,167  
 
During the nine month period ended 30 September 2011, total additions to website development were $Nil (30 September 2010 – $Nil).
 
7.            Mineral Property Costs
 
Peruvian Gold Sands – Minera Maranon
 
On 29 September 2008, the Company entered into a Mineral Right option agreement with Temasek Investments Inc. (“Temasek”) to acquire mining properties totalling 382 km2 in Northeastern Peru (the “Peruvian Agreement”).  Pursuant to this Peruvian Agreement, the Company acquired four separate options from Temasek, each providing for the acquisition of a 25% interest in certain mining properties (the “Peruvian Gold Sands”).  The Peruvian Gold Sands are owned by Minera Maranon S.A.C (“Maranon”).  Bacon Hill, a wholly-owned subsidiary of Temasek, owns 999 shares of 1,000 shares of Maranon that are issued and outstanding.  Temasek owns the single remaining share of Maranon.  The acquisition of each 25% interest in the Peruvian Gold Sands will occur through the transfer to the Company of 25% of the outstanding shares of Bacon Hill.
 
The Company may exercise the initial 25% option by fulfilling the following conditions:
 
a.  Pay a non-refundable $375,000 on the date the Peruvian Agreement is executed (paid);
b.  Issue 2,000,000 common shares within 5 business days (issued and valued at $1.01 per common share) ; and
c.  Pay an additional $375,000 prior to 28 December 2008 (paid).
 
The Company entered into an amending agreement dated 12 May 2009 (the “Peruvian Amendment”) and a second amending agreement dated 29 October 2009 (the “Second Peruvian Amendment”) with Temasek.  Under the Second Peruvian Amendment, the Company may now exercise the second 25% option resulting in the acquisition of a 50% interest in the Mineral Rights by fulfilling the following conditions as set out in the Second Peruvian Amendment:
 
a.  Exercise and complete the initial 25% option by 29 March 2009 (completed);
b.  Issue an additional 2,000,000 common shares by 29 March 2009 (issued and valued at $0.65 per common  
     share) (Notes 11 and 16);
c.  Pay an additional $750,000 by 29 October 2009 or as soon as practicable thereafter (paid); and
d.  Issue an additional 500,000 common shares by 29 October 2009 or as soon as practicable thereafter (issued   
     and valued at $1.18 per common share) (Notes 11 and 16).
 
 
 
 
F - 11

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
The Company entered into a third amending agreement dated 8 April 2010 (the “Third Peruvian Amendment”) with Temasek.  Under the Third Peruvian Amendment, the Company may now exercise the third and fourth 25% options resulting in the acquisition of a 100% interest in the Mineral Rights by fulfilling the following conditions as set out in the Third Peruvian Amendment within 5 business days of the Third Peruvian Amendment effective date:
 
a.    Pay $1,000,000 (paid on 22 April 2010);
b.    Issue an additional 6,000,000 common shares (2,000,000 issued and valued at $1.18 per common share  and 4,000,000 issued and valued at $1.05 per common share (Notes 11 and 16)); and 
c.     Issue a convertible note in the principal amount of $7,000,000 maturing on 8 April 2013 and bearing   interest at a rate of 12% per annum, payable annually, with principal payable upon maturity (the “Convertible Note”).  Any interest and principal due under the Convertible Note is convertible (at Temasek's option) into units which consist of one share of the Company's common stock and one warrant to purchase one share of the Company's common stock at an exercise price of $1.10 per share.  The conversion price per unit is fixed at $0.80 per unit (issued 8 April 2010) (Notes 11, 13 and 16).
 
The property is subject to a 2.5% net returns royalty that the Company can reduce to 1.0% upon payment of a further $2,000,000 within 90 days of the exercise and completion of the final 25% option.
 
During the year ended 31 December 2010, the Company recorded a provision for write-down of mineral property costs of $17,340,369 related to the Peruvian Gold Sands (Note 16).
 
On 18 January 2011, the Company entered into an Agreement (the “Swiss Agreement”) with Swiss Mining S.A., a limited liability company organized and incorporated under the laws of Peru (“Swiss Mining”).  Pursuant to the Swiss Agreement, Swiss Mining will carry out a test mining operation on the Company’s Peruvian properties.  The test mining operation commenced on 28 March 2011 and was performed at Swiss Mining’s own cost which was expected to be $425,000. All net returns, based on the gold price ranging from $1,300 to $1,500 per ounce, shall first be allocated 30% to the Company and 70% to Swiss Mining until the above mentioned costs of $425,000 is fully covered. Thereafter all revenues from the sale or disposition of ores shall be allocated between the Company and Swiss Mining on a 50/50 basis. The term of the Swiss Agreement shall be 6 months or for so long thereafter as minerals are produced from the Peruvian properties on a continuous basis.
 
During the nine month period ended 30 September 2011, Swiss Mining S.A. terminated the test mining operations and the Company recorded incidental extracted gold receivable of $43,444 related to the Swiss Mining Agreement (Note 4).
 
Expenditures related to the Peruvian Gold Sands for the nine month period ended 30 September 2011 consist of business development and project generation of $142,433 (30 September 2010 – $216,845, cumulative – $359,497), camp costs and field supplies of $37,371 (30 September 2010 – $78,927, cumulative – $131,131), drilling of $Nil (30 September 2010 – $123,522, cumulative – $268,816), mapping of  $Nil (30 September 2010 – $Nil, cumulative – $349), rental of $15,898 (30 September 2010 – $11,557, cumulative – $77,505), recovery of expenditures of $43,444 (30 September 2010 - $Nil, cumulative - $43,444), sampling of $Nil (30 September 2010 – $Nil, cumulative – $14,411), taxes and permitting of $Nil (30 September 2010 – $121,009, cumulative – $162,981), transportation and fuel of $93,079 (30 September 2010 – $488,034, cumulative – $990,609), and wages, consulting and management fees of $457,188 (30 September 2010 – $1,312,052, cumulative – $3,371,488).
 

 

 
F - 12

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
Peruvian Gold Sands – Minera Saramiriza
 
On 25 January 2010 (the “Effective Date”), the Company entered into an assignment agreement with Temasek (the “Minera Saramiriza Agreement”), to acquire a 100% interest in the mineral rights that are the property and title of Minera Saramiriza S.A.C (the “Saramiriza Properties”). In order for the Company to keep its interest in good standing and to exercise the option to acquire a 100% interest in the property, the Company must issue, within 30 business days from the Effective Date, 500,000 common shares of the Company (issued and valued at $0.81 per common share) to the order and direction of Temasek, which will be included in the initial 33% option payment as defined below (Notes 11 and 16).
 
The Company may exercise the initial 33% option by fulfilling the following conditions within 12 months of the Effective Date:
 
a.      Issue the initial 500,000 common shares (issued and valued at $0.81 per common share) (Notes 11 and 16);
b.      Pay $250,000 (2,500,000 units issued in lieu of cash payment) (Notes 11 and 16); and
c.      Issue an additional 1,000,000 common shares (issued and valued at $0.18 per common share) (Note 11 and 16).
 
The Company may exercise the second 33% option by fulfilling the following conditions within 24 months of the Effective Date:
 
a.      Exercise and complete the initial 33% option;
b.      Pay an additional $1,000,000; and
c.      Issue an additional 1,000,000 common shares.
 
The Company may exercise the final 34% option by fulfilling the following conditions within 36 months of the Effective Date:
 
a.      Exercise and complete the initial and second 33% options;
b.      Pay an additional $2,000,000; and
c.      Issue an additional 2,000,000 common shares.
 
The property is subject to a 2.5% net returns royalty that the Company can reduce to 1.5% upon payment of a further $2,000,000 within 90 days of the exercise and completion of the final 34% option (Note 18).
 
During the year ended 31 December 2010, the Company recorded a provision for write-down of mineral property costs of $405,000 related to the Saramiriza Properties (Note 16).
 
During the nine month period ended 30 September 2011, the Company recorded a provision for write-down of mineral property costs of $430,000 (30 September 2010 – $Nil) (Note 16).
 
The Company has not conducted exploration activities during the nine month periods ended 30 September 2011 and 2010 on this property.
 
 

 
 
F - 13

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
Seabridge Gold Claims
 
Effective 2 December 2009, the Company entered into a written Letter of Intent with Seabridge Gold Inc. (“Seabridge”) for the exclusive option to acquire a 100% interest in certain mining claims and leasehold interests in Nevada (the “Seabridge Claims”). The Company had until 15 March 2010 to conduct its due diligence (completed) and then, to proceed to enter into a more formal option agreement with Seabridge. Until then, the Letter of Intent remains binding between the parties.
 
Under the terms of the Letter of Intent, in order to exercise the Seabridge Claims, the Company, upon signing of the Letter of Intent, must pay Seabridge $200,000 (paid), which will be credited against the $1,000,000 payable as defined below.
 
Upon completion of the transfer of title to the Seabridge Claims scheduled for 31 March 2010 (the “Closing Date”) or as soon as possible thereafter, the Company must:
 
a.     Pay $1,000,000 ($200,000 paid upon signing the Letter of Intent and $25,000 paid on 26 August 2010);
b.     Issue 1,000,000 restricted common shares of the Company;
c.     Issue a secured promissory note  in the principal amount of $1,000,000 bearing interest at 8% per annum, payable in full on or before the first anniversary of the Closing Date and secured by the Seabridge Claims; and
d.     Issue a transferable convertible secured debenture in the principal amount of $1,000,000 maturing on the second anniversary of the Closing Date and bearing interest at a rate of 8% per year, payable quarterly, with principal and accrued interest convertible by Seabridge within 30 days of maturity into one share of common stock at $1.00 per share, redeemable in full, not in part, by the Company at any time upon payment of 125% of the principal and accrued interest outstanding at the time of security redemption.
 
Further, under the terms of the Letter of Intent, the Company must pay $1,000,000 and issue 2,000,000 restricted common shares, which will be held in escrow and released 36 months following issuance on or before 30 April 2010.
 
If the payment of $1,000,000 and the issuance of 2,000,000 restricted common shares of the Company, required on or before 30 April 2010, is not completed by 1 May 2010, the Company will then have to transfer all the Seabridge Claims back to Seabridge.
 
On 1 April 2010, the Company entered into an asset purchase agreement with Seabridge (the “Seabridge Agreement”). This Seabridge Agreement replaces the Letter of Intent. The completion was expected to close on 20 May 2010.  On 13 July 2010, the Company entered into an amending asset purchase agreement with Seabridge (the “Seabridge Amendment Agreement”) to the Seabridge Agreement dated 1 April 2010. Pursuant to the Seabridge Amendment Agreement, the Company agreed to pay Seabridge $302,260 (paid) for Bureau of Land Management fees and to reimburse Seabridge for all costs of maintaining the mineral properties until the closing date of the Seabridge Agreement.  The transaction was scheduled to close on or before 30 September 2010.
 
During the year ended 31 December 2010, the Company announced that it entered into a mutual agreement to terminate with Seabridge and would allocate its resources exclusively to pursue the exploration and development of its property interests in the Peruvian Gold Sands.
 
 
 
 
F - 14

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011

 
 
During the year ended 31 December 2010, the Company recorded a provision for write-down of mineral property costs of $527,260 related to the Seabridge Gold Claims (Note 16).
 
The Company has not conducted exploration activities during the nine month periods ended 30 September 2011 and 2010 on this property.
 
Atena Gold Project
 
On 12 December 2007, the Company entered into an assignment agreement (the “Atena Agreement”) to acquire the right to explore and option to purchase the 3,676 hectare Atena Gold Project located in the Salta Province of Argentina. Pursuant to the Atena Agreement, the Company was required to issue 500,000 common shares (issued and valued at $0.70 per common share) and pay $60,000 (paid). The Company could have acquired 100% of the option if it incurred a minimum of $3,740,000 in work commitment expenditures on the property and issue 7,000,000 common shares according to the following schedule:
 
a.     $240,000 in expenditures (incurred) plus a further issuance of 1,000,000 common shares (issued and valued at $1.59 per common share) on or before 15 March 2008;
b.     a further $500,000 in expenditures plus a further issuance of 2,000,000 common  shares on or before 15 March 2009 (issued and valued at $0.73 per common share) (Notes 11 and 16);
c.     a further $1,000,000 in expenditures plus a further issuance of 4,000,000 common shares on or before 15 March 2010; and
d.     a further $2,000,000 in expenditures on or before 15 March 2011.
 
The Company entered into an amending agreement dated 5 May 2009 (the “Atena Amendment”) with Proyectos Mineros S.A. (“PMSA”).  Under the Atena Amendment, the $500,000 in expenditures originally required to be made by the Company on the Atena Gold Project property by 15 March 2009 was waived upon the issuance of the 2,000,000 common shares (issued) of the Company as required under the Atena Agreement. The option is subject to a 1% net smelter returns royalty.
 
During the year ended 31 December 2009, the Company announced that it was terminating its exploration program on the Atena Gold Project and would allocate its resources exclusively to pursue the exploration and development of their property interests in Northeastern Peru, the Peruvian Agreement.
 
During the year ended 31 December 2009, the Company recorded a provision for write-down of mineral property costs of $3,530,260 related to the Atena property (Note 16).
 
Expenditures related to the Atena Gold Project for the nine month period ended 30 September 2011 consist of business development and project generation of $Nil (30 September 2010 – $Nil, cumulative – $108), camp costs and field supplies of $Nil (30 September 2010 – $Nil, cumulative – $57,011), geochemical of $Nil (30 September 2010 – $Nil, cumulative – $52,621), geology and engineering of $Nil (30 September 2010 – $Nil, cumulative – $8,123), geophysics of $Nil (30 September 2010 – $Nil, cumulative – $8,291), mapping of $Nil (30 September 2010 – $Nil, cumulative – $29,260), taxes and permitting of $Nil (30 September 2010 – $Nil, cumulative – $23,294), transportation and fuel of $Nil (30 September 2010 – $Nil, cumulative – $112,684), trenching of $Nil (30 September 2010 – $Nil, cumulative – $22,139), and wages, consulting and management fees of $Nil (30 September 2010 – $Nil, cumulative – $123,874).
 
 

 
F - 15

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
Cerro Amarillo Property
 
On 8 January 2008, the Company entered into an assignment agreement with PMSA.  Under the assignment agreement, PMSA assigned to the Company PMSA’s right to explore and option to purchase a 100% interest in Cerro Amarillo Property located in the Province of Mendoza, Argentina.  Pursuant to the terms of the assignment agreement, the Company issued 300,000 common shares (issued and valued at $0.70 per common share) and pay $10,000 (paid).  The Company could have acquired a 100% of the option if it incurred a minimum of $450,000 in work commitment expenditures on the property and issue 2,100,000 common shares according to the following schedule:
 
a.     $200,000 in expenditures plus a further issuance of 300,000 common shares on or before 8 January 2009 (issued and valued at $0.73 per common share) (Notes 11 and 16);
b.     a further $250,000 in expenditures plus a further issuance of 600,000 common shares on or before 8 January 2010;
c.     a further issuance of 600,000 common shares on or before 8 January 2011; and
d.     a further issuance of 600,000 common shares on or before 8 January 2012.
 
The Company entered into an amending agreement dated 5 May 2009 (the “Cerro Amarillo Amendment”) with PMSA.  Under the Cerro Amarillo Amendment, the $200,000 in expenditures originally required to be made by the Company on the Cerro Amarillo property by 8 January 2009 was waived upon the issuance of the 300,000 common shares (issued and valued at $0.73 per common share) of the Company as required under the Cerro Amarillo Agreement.
 
To exercise the option the Company was required to issue a further 3,000,000 common shares.  The option was subject to a 1% net smelter returns royalty.
 
The Company was also responsible for certain payments under the agreement between the underlying titleholder of the mineral property rights and PMSA (the “Cerro Amarillo Agreement”).  In order for the Company to keep its interest in good standing and to exercise the option to acquire a 100% interest in the Cerro Amarillo property, the Company had to make the following payments to the underlying titleholder and incur a minimum of $250,000 in work commitment expenditures on the property, as set forth in the Cerro Amarillo Agreement:
 
a.     Pay $20,000 by 28 February 2008 (paid);
b.     Pay additional $40,000 by 1 June 2008 (paid);
c.     Pay additional $50,000 by 1 December 2008 (paid $25,000; $25,000 accrued as at 31 December 2009);
d.     Pay additional $60,000 by 1 June 2009 (accrued as at 31 December 2009);
e.     Pay additional $100,000 by 1 December 2009;
f.      Pay additional $150,000 by 1 December 2010;
g.     Pay additional $200,000 by 1 December 2011;
h.     Pay additional $250,000 by 1 June 2012;
i.      Incur $50,000 in exploration expenditures on or before 1 December 2008 (incurred); and
j.      Incur additional $200,000 in exploration expenditures on or before 1 December 2009 (incurred; $125,070 included in accounts payable as at 31 December 2009).
 
During the year ended 31 December 2009, the Company recorded a provision for write-down of mineral property costs of $734,070 related to the Cerro Amarillo property (Note 16).
 
 
 
 
F - 16

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011

 
 
During the year ended 31 December 2010 the Company recorded a recovery of mineral property costs of $210,070 related to the Cerro Amarillo property (Note 16).
 
Expenditures related to the Cerro Amarillo Property for the nine month period ended 30 September 2011 consist of camp costs and field supplies of $Nil (30 September 2010 – $Nil, cumulative – $7,589), geochemical of $Nil (30 September 2010 – $Nil, cumulative – $1,903), geology and engineering of $Nil (30 September 2010 – $Nil, cumulative – $345), taxes and permitting of $Nil (30 September 2010 – $Nil, cumulative – $12,973), transportation and fuel of $Nil (30 September 2010 – $Nil, cumulative – $35,544), and wages, consulting and management fees of $Nil (30 September 2010 – $Nil, cumulative – $66,576).
 
Amira, Amira Norte and Esparta II
 
On 17 March 2008, the Company entered into an assignment agreement with PMSA (the “Amira Agreement”), a company related to the Company by way of a director and shareholder in common. Under the assignment agreement,  PMSA assigned to the Company PMSA’s right to explore and option to purchase a 90% interest in three mining properties referred to as “Amira”, “Amira Norte” and “Esparta II” (collectively, the “Properties”), which are located in the Province of Salta, Argentina. In order for the Company to keep its interest in good standing and to exercise the option to acquire a 90% interest in the Properties, the Company had to make the following payments to the underlying titleholder, as set forth in the Amira Agreement:
 
a.         $75,000 by 19 January 2009;
b.         a further $150,000 by 19 January 2010;
c.         a further $200,000 by 19 January 2011; and
d.         a further $1,000,000 by 19 January 2012, by means of which final payment the Option to acquire a 90%
            interest in the Properties will have been automatically exercised.
 
The Company entered into an amending  assignment agreement dated 5 May 2009 (the “Amira Amendment”)  with the owner of the Properties, whereby the payment originally due on 19 January 2009 under the Amira Agreement was due as follows:
 
a.         $25,000 on or by the end on 30 June 2009 (accrued as at 31 December 2009); and
b.         $50,000 on or before by the end of 30 September 2009 (accrued as at 31 December 2009).
 
During the year ended 31 December 2009, the Company announced that it was terminating its exploration program on the Properties and would allocate its resources exclusively to pursue the exploration and development of its property interests in Northeastern Peru, the Peruvian Agreement.
 
During the year ended 31 December 2009, the Company recorded a provision for write-down of mineral property costs of $75,000 related to the Amira Agreement (Note 16).
 
Included in accounts payable and accrued liabilities at 30 September 2011 is $75,000 (31 December 2010 – $75,000) related to a legal claim for the Amira Property (Notes 8 and 19).
 
 

 
 
F - 17

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
Expenditures related to the Amira, Amira Norte and Esparta II Properties for the nine month period ended 30 September 2011 consist of business development and project generation of $Nil (30 September 2010 – $Nil, cumulative – $18,163), camp costs and field supplies of $Nil (30 September 2010 – $Nil, cumulative – $13,065), geochemical of $Nil (30 September 2010 – $Nil, cumulative – $2,073) property assessment of $Nil (30 September 2010 – $Nil, cumulative – $6,428), transportation and fuel of $Nil (30 September 2010 – $Nil, cumulative – $74,577), and wages, consulting and management fees of $Nil (30 September 2010 – $Nil, cumulative – $100,036).
 
8.         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 at 30 September 2011 is $45,000 and $20,000 (31 December 2010 – $45,000 and $20,000) related to settlement of legal claims on incidents arising from the mineral property interests and the related legal fees, respectively.
 
Included in accounts payable and accrued liabilities at 30 September 2011 is $75,000 (31 December 2010 – $75,000) related to a legal claim for the Amira Property (Notes 7 and 19).
 
Included in accounts payable and accrued liabilities at 30 September 2011 is $27,070 (31 December 2010 – $27,070) related to a legal claim from a vendor of the Company (Note 19).
 
9.         Due to Related Parties
 
As at 30 September 2011, the amount due to related parties consists of $185,173 (31 December 2010 – $323,065) payable to directors and former directors of the Company and $23,987 (31 December 2010 – $Nil) payable to companies controlled by shareholders and directors of Maranon.  This balance is non-interest bearing, unsecured, and has no fixed terms of repayment.
 
On 13 October 2010, the Company entered into loan agreements with two directors of the Company for $20,000 cash each.  The principal balances bear interest at a rate of 10% per annum, are unsecured and have no fixed terms of repayment.  On 24 January 2011, the Company issued 410,000 units valued at $41,000 to settle the principal and interest amount of $40,000 and $1,000, respectively (Notes 11 and 16). The balance as at 30 September 2011 consists of principal of $Nil (31 December 2010 – $40,000) and accrued interest of $Nil (31 December 2010 – $1,000).
 
On 13 October 2010, the Company entered into a loan agreement with a director and officer of the Company for $20,000 cash.  The loan is non-interest bearing, unsecured and has no fixed terms of repayment.  On 24 January 2011, the Company issued 200,000 units valued at $20,000 to settle the principal and interest amount of $20,000 and $Nil, respectively. The balance as at 30 September 2011 consists of principal of $Nil (31 December 2010 – $20,000) and accrued interest of $Nil (31 December 2010 – $Nil) (Notes 11 and 16).
 
 
 
 
 
F - 18

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011

 
 
On 24 January 2011, the Company issued 1,494,500 units valued at $149,450 to settle amounts due to related parties of $151,450 (Notes 11 and 16).
 
10.          Related Party Transactions
 
During the nine month period ended 30 September 2011, the Company paid or accrued management and fees of $285,000 (30 September 2010 – $283,968, cumulative – $1,444,078) to directors and officers of the Company and companies controlled by directors and officer.
 
During the nine month period ended 30 September 2011, the Company paid or accrued professional fees and mineral exploration expenditures of $9,834 (30 September 2010 – $Nil, cumulative – $325,892) to an officer and a company controlled by the officer of the Company.
 
During the nine month period ended 30 September 2011, director and shareholder of the Company made contributions to capital for management fees and rent of $Nil (30 September 2010 – $Nil, cumulative – $12,000) and $Nil (30 September 2010 – $Nil, cumulative – $3,000) respectively.  This amount has been recorded as an increase in expenditures and an increase in additional paid-in capital (Note 16).
 
11.          Capital Stock
 
Authorized
 
The total authorized capital consists of:
 
·    600,000,000 of common shares with par value of $0.001
·    50,000,000 of preferred shares with par value of $0.001
 
Issued and outstanding
 
As at 30 September 2011, the total issued and outstanding capital stock is 190,187,618 common shares with a par value of $0.001 per common share.
 
On 26 September 2011, the Company issued 500,000 common shares at a price of $0.10 per share for total proceeds of $50,000 upon the exercise of previously outstanding share purchase warrants.
 
On 26 August 2011, the Company issued 2,170,000 common shares at a price of $0.10 per share for total proceeds of $217,000 upon the exercise of previously outstanding share purchase warrants.
 
On 24 August 2011, a total of 70,319,500 previously outstanding share purchase warrants expired.
 
On 31 March 2011, a total of 5,000,000 previously outstanding share purchase warrants were cancelled.
 
 

 
F - 19

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
On 22 March 2011, the Company issued 6,410,000 units at a price of $0.10 per unit for total proceeds of $641,000.  Each unit consists of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at the price of $0.10 for a period of eight months from the date of issuance. As at 30 September 2011, 6,160,000 share purchase warrants in this series remain outstanding.
 
On 10 February 2011, the Company issued 16,160,000 units at a price of $0.10 per unit for total proceeds of $1,616,000.  Each unit consists of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at the price of $0.10 for a period of eight months from the date of issuance. As at 30 September 2011, 14,210,000 share purchase warrants in this series remain outstanding.
 
On 27 January 2011, the Company issued 1,000,000 common shares valued at $0.18 per common share pursuant to the Minera Saramiriza Agreement (Notes 7 and 16).
 
On 24 January 2011, the Company issued 67,500,000 units in relation to the settlement of a portion of the Convertible Promissory Note Agreement of the Company in exchange for the conversion of $6,750,000 in debt at a conversion price of $0.10 per unit. Each unit consists of one share of common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase one additional common share at the price of $0.10 for a period of eight months from the date of issuance. As at 30 September 2011, no share purchase warrants in this series remain outstanding (Notes 13 and 16).
 
On 24 January 2011, the Company issued 3,865,000 units in relation to the settlement of the Loan Agreement and the Second Loan Agreement of the Company in exchange for the conversion of $386,500 in debt at a conversion price of $0.10 per unit. Each unit consists of one share of common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase one additional common share at the price of $0.10 for a period of eight months from the date of issuance. As at 30 September 2011, no share purchase warrants in this series remain outstanding (Notes 14 and 16).
 
On 24 January 2011, the Company issued 2,500,000 units in relation to the initial 33% option of the Minera Saramiriza Agreement of the Company in exchange for the conversion of $250,000 for an option payment at a conversion price of $0.10 per unit. Each unit consists of one share of common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase one additional common share at the price of $0.10 for a period of eight months from the date of issuance. As at 30 September 2011, no share purchase warrants in this series remain outstanding (Notes 7 and 16).
 
On 24 January 2011, the Company issued 1,924,500 units related to amounts due to related parties of the Company in exchange for the conversion of $192,450 in debt at a conversion price of $0.10 per unit. Each unit consists of one share of common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase one additional common share at the price of $0.10 for a period of eight months from the date of issuance. As at 30 September 2011, no share purchase warrants in this series remain outstanding (Notes 9 and 16).
 
 

 
F - 20

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
On 29 September 2010, the Company issued 5,141,421 units at a price of $0.65 per unit for total proceeds of $3,155,892, net of issue cost of $186,025. Each unit consists of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at the price of $0.80 up to 29 September 2011 (extended to 29 September 2012) commencing 29 March 2011. As at 30 September 2011, all share purchase warrants in this series remain outstanding.
 
On 29 September 2010, the Company issued 208,676 agent compensation warrants for services rendered by a private placement agent.  Each share purchase warrant entitles the holder to purchase one common share at a price of $0.80 up to 29 September 2011 (extended to 29 September 2012), commencing 29 March 2011. As at 30 September 2011, all share purchase warrants in this series remain outstanding (Note 16).
 
On 3 August 2010, the Company issued 15,000 common shares at a price of $0.70 per share for total proceeds of $10,500 upon the exercise of previously outstanding share purchase warrants.
 
On 7 June 2010, the Company issued 54,285 common shares at a price of $0.70 per share for total proceeds of $38,000 upon the exercise of previously outstanding share purchase warrants.
 
On 17 April 2010, a total of 200,000 previously outstanding share purchase warrants expired.
 
On 13 April 2010, the Company issued 4,000,000 common shares valued at $1.05 per common share pursuant to the Third Peruvian Amendment (Notes 7 and 16).
 
On 19 March 2010, the Company issued 500,000 common shares valued at $0.81 per common share pursuant to the Minera Saramiriza Agreement (Notes 7 and 16).
 
On 16 March 2010, the Company issued 391,427 common shares at a price of $0.70 per share for total proceeds of $273,999 upon the exercise of previously outstanding share purchase warrants.
 
On 1 December 2009, the Company issued 7,533,462 units at a price of $0.65 per unit for total proceeds of $4,686,496, net of issue costs of $210,254. Each unit consist of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at the price of $1.00 up to 1 December 2010 (extended to 1 December 2011), commencing 1 June 2010. As at 30 September 2011, all share purchase warrants in this series remain outstanding.
 
On 1 December 2009, the Company issued 315,775 agent compensation warrants for services rendered by a private placement agent.  Each share purchase warrant entitles the holder to purchase one common share at a price of $1.00 up to 1 December 2010 (extended to 1 December 2011), commencing 1 June 2010. As at 30 September 2011, all share purchase warrants in this series remain outstanding (Note 16).
 
On 2 November 2009, the Company issued 2,500,000 common shares valued at $1.18 per common share pursuant to the Second and Third Peruvian Amendments (Notes 7 and 16).
 
 

 
F - 21

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
On 2 September 2009, the Company issued 923,428 units at a price of $0.35 per unit for total proceeds of $323,200. Each unit consist of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at the price of $0.70 up to 2 September 2011 (extended to 2 September 2012), commencing 2 March 2010. As at 30 September 2011, all share purchase warrants in this series remain outstanding.
 
On 14 August 2009, a total of 5,007,300 previously outstanding share purchase warrants expired.
 
On 14 August 2009, a total of 350,511 previously outstanding agent compensation warrants expired.
 
On 9 July 2009, the Company issued 4,129,639 units at a price of $0.35 per unit for total proceeds of $1,445,373. Each unit consist of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at the price of $0.70 up to 9 July 2011 (extended to 9 July 2012), commencing 9 January 2010. As at 30 September 2011, 3,668,927 share purchase warrants in this series remain outstanding.
 
On 29 June 2009, the Company issued 2,000,000 common shares valued at $0.65 per common share pursuant to the Second Peruvian Amendment (Notes 7 and 16).
 
On 2 June 2009, the Company issued 2,000,000 common shares valued at $0.73 per common share pursuant to the Atena Agreement (Notes 7 and 16).
 
On 2 June 2009, the Company issued 300,000 common shares valued at $0.73 per common share pursuant to the Cerro Amarillo Agreement (Notes 7 and 16).
 
On 17 April 2009, the Company issued 200,000 units at a price of $0.80 per unit for proceeds of $160,000. Each unit consists of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at a price of $0.70 up to 17 April 2010, commencing 17 October 2009.  As at 30 September 2011, none of the share purchase warrants in this series remain outstanding.
 
On 7 April 2009, a total of 1,009,211 previously outstanding share purchase warrants were cancelled.
 
On 7 April 2009, a total of 70,645 previously outstanding agent compensation warrants were cancelled.
 

 

 
F - 22

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
Share Purchase Warrants
 
The following share purchase warrants were outstanding at 30 September 2011:
 
   
 
Exercise
price
   
 
Number
of warrants
   
Remaining
contractual life
(years)
                 
                   
Warrants
    0.10       14,210,000       0.03
Warrants
    0.10       6,160,000       0.14
Agent compensation warrants
    1.00       315,775       0.17
Warrants
    1.00       7,533,462       0.17
Warrants
    0.70       3,668,927       0.77
Warrants
    0.70       923,428       0.92
Agent compensation warrants
    0.80       208,676       1.00
Warrants
    0.80       5,141,421       1.00
                       
              38,161,689        
 
The following is a summary of warrant activities during the year ended 31 December 2010 and the nine month period ended 30 September 2011:
 
   
Number of
warrants
   
Weighted
average
exercise
 price
            $
             
Outstanding and exercisable at 1 January 2010
    13,102,304       0.88
               
Granted
    5,350,097       0.80
Exercised
    (460,712 )     0.70
Cancelled
    -       -
Expired
    (200,000 )     0.70
               
Outstanding and exercisable at 31 December 2010
    17,791,689       0.86
               
Weighted average fair value of warrants granted during the year
            0.03
 
 
 

 
F - 23

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011

 
 
   
Number of
warrants
   
Weighted
average
exercise
price
            $
             
Outstanding and exercisable at 1 January 2011
    17,791,689       0.86
               
Granted
    98,359,500       0.10
Exercised
    (2,670,000 )     0.10
Cancelled
    (5,000,000 )     0.10
Expired
    (70,319,500 )     0.10
               
Outstanding and exercisable at 30 September 2011
    38,161,689       0.46
               
Weighted average fair value of warrants granted during the period
            0.11
 
The weighted average grant date fair value of warrants issued during the nine month period ended 30 September 2011, amounted to $0.11 per warrant (31 December 2010 – $0.03). The fair value of each warrant granted was determined using the Black-Scholes Option Pricing Model and the following weighted average assumptions:
 
   
2011
   
2010
 
             
Risk free interest rate
    0.21 %     0.27 %
Expected life
 
0.67 years
   
1.00 year
 
Annualized volatility
    154.11 %     101.18 %
Expected dividends
    -       -  
 
 
 

 
F - 24

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
Modification of Warrants
 
On 15 November 2010, the Company extended the expiration date of the 17,791,689 outstanding agent compensation warrants and share purchase warrants for one additional year.  Pursuant to accounting guidance regarding equity-based payments to non-employees, the Company evaluated the value of the warrants before and after the modification to determine the incremental change in the value of the warrants.
 
 
Issuance date
 
Exercise
Price
   
Number of
warrants
 
Original
 Expiration Date
 
Extended
Expiration Date
 
    $                
                     
1 December 2009
    1.00       7,849,237  
1 December 2010
 
1 December 2011
 
9 July 2009
    0.70       3,668,927  
9 July 2011
 
9 July 2012
 
2 September 2009
    0.70       923,428  
2 September 2011
 
2 September 2012
 
29 September 2010
    0.80       5,350,097  
29 September 2011
 
29 September 2012
 
 
The fair value of the warrants as of 15 November 2010 before modification of the terms was calculated to be $267,525. The following assumptions were used to calculate the fair value of the warrants:
 
Risk free interest rate
    0.17 %
Expected life
 
0.46 year
 
Annualized volatility
    155.63 %
Expected dividends
    -  
 
The fair value of the warrants as of 15 November 2010, after modification of the terms, was calculated to be $981,025.  The following assumptions were used to calculate the fair value of the warrants:
 
Risk free interest rate
    0.40 %
Expected life
 
1.46 years
 
Annualized volatility
    112.83 %
Expected dividends
    -  
 
The incremental change in the value of the warrants is $981,025 less $267,525 or $713,500, which was recorded to warrant expense during the year ended 31 December 2010.
 

 

 
F - 25

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
Stock Options
 
The following incentive stock options were outstanding at 30 September 2011:
 
   
Exercise
price
   
Number
of options
   
Remaining
contractual life
(years)
 
    $                
                     
Options
    1.00       290,000       6.35  
Options
    0.70       460,000       7.64  
Options
    1.10       260,000       8.32  
Options
    0.72       60,000       8.77  
                         
              1,070,000          
 
The following is a summary of stock option activities during the year ended 31 December 2010 and the nine month period ended 30 September 2011:
 
   
Number of
options
   
Weighted
average
exercise
price
 
            $  
               
Outstanding and exercisable at 1 January 2010
    6,075,000       0.85  
                 
Granted
    3,300,000       1.08  
Exercised
    -       -  
Cancelled
    (4,255,000 )     0.87  
                 
Outstanding and exercisable at 31 December 2010
    5,120,000       0.98  
                 
Weighted average fair value of options granted/vested during the year
            1.00  
                 
                 
Outstanding and exercisable at 1 January 2011
    5,120,000       0.98  
                 
Granted
    -       -  
Exercised
    -       -  
Cancelled
    (4,050,000 )     1.01  
                 
Outstanding and exercisable at 30 September 2011
    1,070,000       0.88  
                 
Weighted average fair value of options granted/vested during the period
            0.16  
 
 
 
 
F - 26

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
Share Subscriptions Received in Advance
 
Share subscriptions received in advance consists of $Nil (31 December 2010 - $240,000) cash received by the Company for Nil common shares (31 December 2010 – 2,400,000) that have not yet been issued as at 30 September 2011.
 
12.       Stock-Based Compensation
 
During the year ended 31 December 2010, the Company granted 3,090,000 stock options to employees, directors and consultants of the Company, entitling the holders to purchase common shares of the Company for proceeds of $1.10 per common share expiring 22 January 2020, of which 2,490,000 were granted to employees and 600,000 were granted to non-employees of the Company.  The fair value of the portion of the options which vested in the nine month period ended 30 September 2011, estimated using Black-Scholes Option Pricing Model, was $164,313 (30 September 2010 – $1,902,213).  This amount has been expensed as stock-based compensation.
 
During the year ended 31 December 2010, the Company granted 210,000 stock options to employees, directors and consultants of the Company, entitling the holders to purchase common shares of the Company for proceeds of $0.72 per common share expiring 7 July 2020, of which Nil were granted to employees and 210,000 were granted to non-employees of the Company.  The fair value of the portion of the options which vested in the nine month period ended 30 September 2011, estimated using Black-Scholes Option Pricing Model, was $17,583 (30 September 2010 – $Nil). This amount has been expensed as stock-based compensation.
 
During the year ended 31 December 2009, the Company granted 5,440,000 stock options to employees, directors and consultants of the Company entitling the holders to purchase common shares of the Company for proceeds of $0.70 per common share expiring 20 May 2019 of which 3,240,000 were granted to employees and 2,200,000 were granted to non-employees of the Company.  The fair value of the portion of the options which vested in the nine month period ended 30 September 2011, estimated using Black-Scholes Option Pricing Model, was $Nil (30 September 2010 – $784,140). This amount has been expensed as stock-based compensation.
 
A total of 4,050,000 of the previously granted outstanding stock options of the Company were cancelled during the nine month period ended 30 September 2011 (31 December 2010 – 4,255,000).
 
The fair value of each option was estimated using Black-Scholes Option Pricing Model. The assumptions about stock-price volatility have been based exclusively on the implied volatilities of publicly traded options to buy the Company’s stock with contractual terms closest to the expected life of options granted to employees, directors or consultants.
 
The following assumptions were used for the Black-Scholes valuation of stock options granted/vested:
 
   
2011
   
2010
 
             
Risk free interest rate
    2.99 %     3.50 %
Expected life
 
9.10 years
   
9.71 years
 
Annualized volatility
    121.90 %     117.62 %
Expected dividends
    -       -  
 
 
 
 
F - 27

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
13.          Convertible Promissory Notes

On 8 April 2010, the Company entered into a convertible promissory note agreement (the “Convertible Promissory Note Agreement”) with Temasek valued at $7,000,000 pursuant to the Minera Maranon Agreement (Note 7).  The principal balance bears interest at a rate of 12% per annum payable annually, with principal payable upon maturity.  All unpaid principal, together with any unpaid and accrued interest is due and payable on the date of maturity of 8 April 2013. Any interest and principal due under the Convertible Note is convertible (at Temasek's option) into units which consist of one share of the Company’s common stock and one warrant to purchase one share of the Company's common stock at an exercise price of $1.10 per share.  The conversion price per unit is fixed at $0.80 per unit. On 24 January 2011, the Company issued 67,500,000 units valued at $6,750,000 to settle a portion of the principal and interest amount of $6,300,000 and $600,657, respectively, resulting in a gain of $150,657 (Notes 11 and 16).

On 22 September 2011, the Company entered into a convertible promissory note agreement (the “Second Convertible Promissory Note Agreement”) with Temasek valued at $30,000.  The principal balance bears interest at a rate of 12% per annum payable annually, with principal payable upon maturity on 31 October 2012.  The promissory note is convertible, at the option of the holder, into units which consist of one share of the Company’s common stock and one warrant to purchase one share of the Company's common stock at an exercise price of $0.05 per share.  The conversion price per unit is fixed at $0.05 per unit for a term of one year.

On 30 September 2011, the Company entered into a convertible promissory note agreement (the “Third Convertible Promissory Note Agreement”) with DMG Bank Trust Inc. valued at $20,000 pursuant to a private placement agreement.  The principal balance bears interest at a rate of 12% per annum payable annually, with principal payable upon maturity on 31 October 2012.  The promissory note is convertible, at the option of the holder, into units which consist of one share of the Company’s common stock and one warrant to purchase one share of the Company's common stock at an exercise price of $0.05 per share.  The conversion price per unit is fixed at $0.05 per unit for a term of one year.

During the nine month period ended 30 September 2011, the Company accrued interest of $4,246,675 (30 September 2010 – $Nil) of which $4,136,353 (30 September 2010 – $Nil) is related to amortization of debt discount (Note 16).

14.          Loans Payable

On 30 June 2010 (the “Execution Date”), the Company entered into a loan agreement (the “Loan Agreement”) with St. Lawrence Alluvial Services and Logistics Corp. for $320,000 cash.  The principal balance bears interest at a rate of 12% per annum, with interest and principal payable 90 days after the Execution Date. On 24 January 2011, the Company issued 3,350,000 units valued at $335,000 to settle the principal and interest amount of $320,000 and $15,000, respectively (Notes 11 and 16).

On 20 September 2010 (the “Second Execution Date”), the Company entered into a loan agreement (the “Second Loan Agreement”) with Quarry Capital LLC for $50,000 cash.  The principal balance bears interest at a rate of 12% per annum, with interest and principal payable 90 days after the Second Execution Date. On 24 January 2011, the Company issued 515,000 units valued at $51,500 to settle the principal and interest amount of $50,000 and $1,500, respectively (Notes 11 and 16).

The balance as at 30 September 2011 consists of principal and accrued interest of $Nil (31 December 2010 - $370,000) and $Nil (31 December 2010 - $23,312), respectively.
 
 
 
 
 
F - 28

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
15.       Income Taxes

The Company has losses carried forward for income tax purposes to 30 September 2011.  The Company has fully reserved for any benefits of these losses.  The deferred tax consequences of temporary differences in reporting items for consolidated financial statement and income tax purposes are recognized, as appropriate. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period.  Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes.
The provision for refundable federal income tax consists of the following:

   
For the nine month period ended 30 September
2011
   
For the nine month
period ended 30 September
2010
 
      $       $  
Deferred tax asset attributable to:
               
Current operations
    2,262,777       3,130,961  
Non deductible expenses
    (79,815 )     (933,330 )
Change in valuation allowance
    (2,182,962 )     (1,445,411 )
                 
Future income tax recovery
    -       752,220  
 
 

 

 
F - 29

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
The composition of the Company’s deferred tax assets as at 30 September 2011 and 31 December 2010 is as follows:

   
As at
30 September
 2011
   
As at 31
December
2010
(Audited)
 
      $       $  
                 
                 
Net income tax operating loss carryforward
    45,131,846       38,538,946  
                 
Statutory federal income tax rate
    33.55 %     33.63 %
Effective income tax rate
    0.00 %     0.00 %
                 
Future income tax assets (liabilities)
               
Tax loss carryforward
    15,142,606       12,959,644  
Less: Valuation allowance
    (15,142,606 )     (12,959,644 )
                 
Future income tax assets (liabilities)
    -       -  

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

As at 30 September 2011, the Company has an unused net operating loss carryforward balance of approximately $45,131,846 that is available to offset future taxable income.  This unused net operating loss carryforward balance for income tax purposes expires between the years 2021 to 2031.

16.       Supplemental Disclosures with Respect to Cash Flows

   
For the
period from
the date of
inception on
6 March
2000 to
30
September
2011
   
For the
three
month
period
ended 30
September
 2011
   
For the
three
month
period
ended 30
September
 2010
   
For the
nine
 month
 period
ended 30
September
2011
   
For the
nine
month
period
ended 30
September
2010
 
      $       $       $       $       $  
                                         
Cash paid during the period for interest
    78,802       -       -       -       -  
Cash paid during the period for income taxes
    -       -       -       -       -  

 

 
 
F - 30

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
During the nine month period ended 30 September 2011, director and shareholder of the Company made contributions to capital for management fees and rent of $Nil (30 September 2010 – $Nil, cumulative – $12,000) and $Nil (30 September 2010 – $Nil, cumulative – $3,000), respectively.  These amounts have been recorded as an increase in expenditures and an increase in additional paid-in capital (Note 10).

During the nine month period ended 30 September 2011, the Company recorded a total write-down of mineral property expenditures in the amount of $430,000 related to the Saramiriza Properties (Note 7).

During the nine month period ended 30 September 2011, the Company issued 1,000,000 common shares valued at $0.18 per common share pursuant to the Minera Saramiriza Agreement (Notes 7 and 11).

During the nine month period ended 30 September 2011, the Company issued 2,500,000 units valued at $250,000 to settle mineral property option payment (Notes 7 and 11).

During the nine month period ended 30 September 2011, the Company issued 1,924,500 units valued at $192,450 to settle amounts due to related parties (Notes 9 and 11).

During the nine month period ended 30 September 2011, the Company issued 67,500,000 units valued at $6,750,000 to settle a portion of the Convertible Promissory Note (Notes 11 and 13).

During the nine month period ended 30 September 2011, the Company issued 3,865,000 units valued at $386,500 to settle loans payable (Notes 11 and 14).

During the nine month period ended 30 September 2011, the Company accrued interest of $4,246,675 (30 September 2010 – $Nil) of which $4,136,353 (30 September 2010 – $Nil) is related to amortization of debt discount (Note 13).

During the year ended 31 December 2010 the Company recorded a recovery of mineral property costs of $210,070 related to the Cerro Amarillo property (Note 7).

During the year ended 31 December 2010, the Company recorded a total write-down of mineral property expenditures in the amount of $18,272,629 related to the Peruvian Gold Sands, Saramiriza Properties and Seabridge Gold Claims (Note 7).

On 29 September 2010, the Company issued 208,676 agent compensation warrants valued at $5,412 for agent services rendered (Note 11)

On 13 April 2010, the Company issued 4,000,000 common shares valued at $1.05 per common share pursuant to the Third Peruvian Amendment (Notes 7 and 11).

On 8 April 2010, the Company issued a convertible promissory note valued at $7,000,000 pursuant to the Minera Maranon Agreement. During the year ended 31 December 2010, the Company accrued $2,043,952 (31 December 2009 – $Nil) of which $1,429,486 is related to amortization of debt discount (Notes 7 and 13).

On 19 March 2010, the Company issued 500,000 common shares valued at $0.81 per common share pursuant to the Minera Saramiriza Agreement (Notes 7 and 11).
 
 

 
F - 31

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
During the year ended 31 December 2009, the Company recorded a total write-down of mineral property expenditures in the amount of $4,339,330 related to the Atena, Cerro Amarillo and Amira properties (Note 7).
 
During the year ended 31 December 2009, the Company recorded a total write-down of equipment in the amount of $26,611.

During the year ended 31 December 2009, the Company issued 315,775 agent compensation warrants valued at $262,788 for agent services rendered (Note 11).

During the year ended 31 December 2009, the Company issued 2,500,000 common shares valued at $1.18 per common share pursuant to the Second and Third Peruvian Amendments (Notes 7 and 11).

During the year ended 31 December 2009, the Company issued 2,000,000 common shares valued at $0.65 per common share pursuant to the Peruvian Agreement (Notes 7 and 11).

During the year ended 31 December 2009, the Company issued 2,000,000 common shares valued at $0.73 per common share pursuant to the Atena Agreement (Notes 7 and 11).

During the year ended 31 December 2009, the Company issued 300,000 common shares valued at $0.73 per common share pursuant to the Cerro Amarillo Agreement (Notes 7 and 11).

17.      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 September 2011, the carrying amounts of cash and cash equivalents, amounts receivables, accounts payable and amounts due to related parties approximated their estimated fair values because of the short maturity of these financial instruments.
 
 
 

 
F - 32

 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011

 
 
The carrying amount of long-term debt and other financing was $403,425.

During the year ended 31 December 2010, the Company estimated the fair value of the beneficial conversion feature of the Convertible Promissory Note at inception using both the quoted market price of the Company’s common shares and the Black-Scholes Option Pricing Model with the following assumptions: risk free interest rate of 0.46%, expected life of 1 year, expected volatility of 114% and expected dividends of 0%.  The fair value of the beneficial conversion feature was estimated at $5,862,500, and was recorded as a component of equity, of which $2,100,000 would be a Level 1 fair value and $3,762,500 would be a Level 2 fair value.

During the nine month period ended 30 September 2011, the Company estimated the fair value of the beneficial conversion feature of the Second Convertible Promissory Note at inception using both the quoted market price of the Company’s common shares and the Black-Scholes Option Pricing Model with the following assumptions: risk free interest rate of 0.10%, expected life of 1.11 years, expected volatility of 152% and expected dividends of 0%.  The fair value of the beneficial conversion feature was estimated at $30,000, and was recorded as a component of equity, of which $17,500 would be a Level 1 fair value and $12,500 would be a Level 2 fair value.

During the nine month period ended 30 September 2011, the Company estimated the fair value of the beneficial conversion feature of the Third Convertible Promissory Note at inception using both the quoted market price of the Company’s common shares and the Black-Scholes Option Pricing Model with the following assumptions: risk free interest rate of 0.13%, expected life of 1.08 years, expected volatility of 155% and expected dividends of 0%.  The fair value of the beneficial conversion feature was estimated at $20,000, and was recorded as a component of equity, of which $12,308 would be a Level 1 fair value and $7,692 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 and amounts receivable. The Company manages its credit risk relating to cash and cash equivalents by dealing only with highly-rated US financial institutions.  As at 30 September 2011, amounts receivable was comprised of Value Added Tax receivable in Peru of $127,612 (31 December 2010 – $103,054) and other receivables of $43,444 (31 December 2010 – $7,656).  As a result, credit risk is considered insignificant.

Currency Risk

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

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

The Company monitors and forecasts the values of net foreign currency cash flow and balance sheet exposures and from time to time could authorize the use of derivative financial instruments such as forward foreign exchange contracts to economically hedge a portion of foreign currency fluctuations.  Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.
 
 
 
 
 
F - 33

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
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.

18.          Commitments

The Company is subject to certain outstanding and future commitments related to its mineral property interests (Note 7).

19.          Contingencies

a.     On 30 March 2011, the Company received a formal order of investigation issued by the United States Securities and Exchange Commission (“SEC”) regarding possible violations of the securities laws by the Company, its officers, its directors and/or its employees, including securities registration requirements, financial reporting and/or market manipulation.  The Company has utilized the services of a third-party vendor who was named in the subpoena received by the Company from the SEC.  The Company is in the process of conducting an internal investigation in this matter and has been cooperating fully, and intends to cooperate fully, with the SEC. 

In the event the SEC investigation leads to action against any of the current or former directors, officers, or the Company itself, the trading price of the Company’s common shares may be adversely impacted.  In addition, the SEC investigation may result in the incurrence of significant legal expense, both directly and as the result of any indemnification obligations.  This investigation may also divert management’s attention from the operations which may cause the business to suffer.  If the Company is subject to any adverse findings, it could be required to pay damages or penalties or have other remedies imposed on the Company which could have a material adverse effect on the business.  The Company has no insurance coverage to cover any portion of the defense cost or any amounts that the Company may be required to pay in connection with the resolution of this investigation.

The Company is unable to predict the outcome of the SEC investigation at this time.  An estimate of the possible loss related to this matter cannot be made and, as a result, no liability has been accrued as at 30 September 2011.

b.     Included in accounts payable and accrued liabilities at 30 September 2011 is $75,000 (31 December 2010 – $75,000) related to a legal claim for the Amira Property (Notes 7 and 8).

c.     In April 2011, the Company received a formal claim from a vendor of the Company for $27,070 plus interest and court costs related to a lease agreement and services rendered to the Company.  As at 30 September 2011, a total of $27,070 (31 December 2010 – $27,070) was included in accounts payable and accrued liabilities of the Company (Note 8).
 
 
 
 
F - 34

 
 
Goldsands Development Company
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
30 September 2011


 
20.           Business Acquisition
In October 2009, the Company acquired 50% interest in Bacon Hill, the registered owner of 999 shares of the 1,000 shares of Maranon that are issued and outstanding.  Maranon is the beneficial owner of 100% interest in the Peruvian Gold Sands (Note 7).  The aggregate purchase price was $5,410,000 paid by $1,500,000 in cash and 4,500,000 common shares of the Company valued at $3,910,000 (Notes 7, 11 and 16). The acquisition of Bacon Hill expands the Company’s business of acquiring and exploring mineral properties.

During the year 31 December 2010, the Company completed the acquisition of the remaining 50% interest in Bacon Hill from the non-controlling interest.  The aggregate purchase price was $14,560,000 paid by $1,000,000 in cash, 6,000,000 common shares of the Company valued at $6,560,000 and convertible promissory note in the amount of $7,000,000 (Notes 7, 11, 13 and 16).

21.          Subsequent Event

Subsequent to the nine month period ended 30 September 2011 to the date the consolidated financial statements were available to be issued on 14 November 2011, the following event occurred:
 
a.     In October 2011, the Company issued convertible promissory notes valued at $135,000. The principal balances bear interest at a rate of 12% per annum payable annually, with principal payable upon maturity on 31 October 2012.  The promissory notes are convertible, at the option of the holder, into units which consist of one share of the Company’s common stock and one warrant to purchase one share of the Company's common stock at an exercise price of $0.05 per share.  The conversion price per unit is fixed at $0.05 per unit for a term of one year.
 
b.    On 7 November 2011, the Company issued 13,200,000 stock options.


 

 

 
F - 35

 
 
 
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 factor 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:
 
    
potential or pending investigations, proceedings or litigation that involves or affects us;
 
    
risk that we will not be able to remediate identified material weaknesses in our internal control over financial reporting;
 
    
risks related to failure to obtain adequate financing on a timely basis and on acceptable terms for our planned exploration and development projects;
 
    
risk that we fail to fulfill the payment obligations set forth in the agreement we entered into with Temasek Investments Inc. ("Temasek"), a company incorporated under the laws of Panama, under which we acquired three separate options, each providing for the acquisition of an approximately one-third interest in certain mineral rights to certain properties in Peru that abut the other property interests we acquire, which could result in the loss of our right to exercise the options to acquire the mineral and mining rights underlying these properties;
 
    
risk that we cannot attract, retain and motivate qualified personnel, particularly employees, consultants and contractors for our operations in Peru;
 
    
risks and uncertainties relating to the interpretation of drill results, the geology, grade and continuity of mineral deposits;
 
    
results of initial feasibility, pre-feasibility and feasibility studies, and the possibility that future exploration, development or mining results will not be consistent with our expectations;
 
    
mining and development risks, including risks related to accidents, equipment breakdowns, labor disputes or other unanticipated difficulties with or interruptions in production;
 
    
the potential for delays in exploration or development activities or the completion of feasibility studies;
 
    
risks related to the inherent uncertainty of production and cost estimates and the potential for unexpected costs and expenses;
 
    
risks related to commodity price fluctuations;
 
    
the uncertainty of profitability based upon our history of losses;
 
    
risks related to environmental regulation and liability;
 
   
risks that the amounts reserved or allocated for environmental compliance, reclamation, post-closure control measures, monitoring and on-going maintenance may not be sufficient to cover such costs;
 
 
 
 
 
 
 
    
risks related to tax assessments;
 
    
political and regulatory risks associated with mining development and exploration; and
 
    
other risks and uncertainties related to our prospects, properties and business strategy.
 
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report.  Except as required by law, we do not undertake to update or revise any of the forward-looking statements to conform these statements to actual results, whether as a result of new information, future events or otherwise.
 
As used in this Quarterly Report, the terms “Goldsands Development,” the “Company,” “we,” “us,” or “our” refer to Goldsands Development Company and our subsidiaries, unless otherwise indicated.
 
Overview
 
We were incorporated in the state of Nevada under the name Crafty Admiral Enterprises, Ltd. on March 6, 2000.  Our original business plan was to sell classic auto parts to classic auto owners worldwide through an Internet site and online store; however, we were unsuccessful in implementing the online store and were unable to afford the cost of purchasing, warehousing and shipping the initial inventory required to get the business started.  As a result, we ceased operations in approximately July 2002.
 
During our fiscal year ended December 31, 2006, we reorganized our operations to pursue the exploration, development, acquisition and operation of oil and gas properties.  On June 27, 2006, we acquired a leasehold interest in a mineral, oil and gas property located in St. Francis County, Arkansas for a cash payment of $642,006, pursuant to an oil and gas agreement we entered into on April 29, 2006 (the “Tombaugh Lease”).  Shortly after acquiring the Tombaugh Lease, we suspended our exploration efforts on the property covered by the Tombaugh Lease in order to pursue business opportunities developing nickel deposits in Finland, Norway and Western Russia.  On January 18, 2008, we assigned all of our right, title and interest in and to the Tombaugh Lease to Fayetteville Oil and Gas, Inc., which agreed to assume all of our outstanding payment obligations on the Tombaugh Lease as consideration for the assignment.  On March 9, 2007, we changed our name to better reflect our business to “Nordic Nickel Ltd.” pursuant to a parent/subsidiary merger with our wholly-owned non-operating subsidiary, Nordic Nickel Ltd., which was established for the purpose of giving effect to this name change.  We were not successful pursuing business opportunities developing nickel deposits in Finland, Norway and Western Russia and again sought to reorganize our operations in November 2007.
 
In November 2007, we reorganized our operations and changed our name to “Constitution Mining Corp.” to better reflect our current focus, which is the acquisition, exploration, and potential development of mining properties.  We entered into agreements to secure options to acquire the mineral and mining rights underlying properties located in the Salta and Mendoza provinces of Argentina (the “Argentinean Properties”) and in northeastern Peru.  In 2009, we determined that it was in our best interest to dispose of our interests in the Argentinean Properties and we are now pursuing exploration and development exclusively on our properties in Peru.
 
On October 21, 2009, we completed a reincorporation merger from the State of Nevada to the State of Delaware.
 
 
 
 
 
 
On February 24, 2011, we filed a Certificate of Ownership and Merger with the Secretary of State of Delaware to effectuate a merger whereby we merged with our wholly-owned subsidiary, Goldsands Development Company, through a parent/subsidiary merger, with us as the surviving corporation. This merger, which became effective at 11:59 p.m. on March 31, 2011 (the “Effective Time”) is pursuant to Section 253 of the General Corporation Law of Delaware. Shareholder approval for this merger was not required under Section 253 of the General Corporation Law of Delaware. Upon the Effective Time of this merger, our name changed to “Goldsands Development Company”. We decided to change our corporate name in order to reflect management’s decision during the first quarter of 2011 to expand our business plan in order to pursue opportunities to consult on development projects in the same approximate geographical area as our property interest in Peru. As a result of our operations in Peru, we have gained significant experience and knowledge as to the local processes and procedures involved in the planning of development projects in Peru and we intend to leverage and market this expertise to other companies seeking to engage in development projects in Peru.  It is our belief that changing our corporate name will minimize public perception in marketing this expertise that we are strictly a company engaged in mineral exploration.
 
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.
 
The Peru Property
 
Our property interests located in Peru are in the exploration stage and we refer to these properties as the "Peru Property."  These properties are without known reserves and the proposed plan of exploration detailed below is exploratory in nature.  These properties are described below.
 
We entered into a Mineral Right Option Agreement with Temasek Investments Inc. (“Temasek”), a company incorporated under the laws of Panama, on September 29, 2008 (the “Effective Date”), as amended and supplemented by Amendment No. 1, dated May 12, 2009 (“Amendment No. 1”), Amendment No. 2, dated October 29, 2009 (“Amendment No. 2”), and Amendment No. 3, dated April 8, 2010 (“Amendment No. 3” and collectively, the “Option Agreement”), in order to acquire four separate options from Temasek, each providing for the acquisition of a twenty-five percent interest in certain mineral rights (the “Mineral Rights”) in certain properties in Peru,  that after each of the options were exercised would result in our acquisition of an aggregate one hundred percent of the Mineral Rights.
 
 
 

 
 
 

A description of the Mineral Rights is set forth below:
 

Name
Area
(hectares)
Dept.
Province
District
Observation
Aixa 2
1000
Loreto
Datem del Marañon
Manseriche
 
Alana 10
900
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANP
Alana 11
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANP
Alana 12
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANP
Alana 13
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANP
Alana 14
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANP
Alana 15
800
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANP
Alana 16
800
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANP
Alana 17
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANP
Alana 18
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANP
Alana 19
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANP
Alana 4
900
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANP
Alana 5
700
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANP
Alana 6
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANP
Alana 7
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANP
Alana 8
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANP
Alana 9
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANP
Bianka 5
1000
Loreto
Datem del Marañon
Manseriche
 
Castalia 1
1000
Loreto
Datem del Marañon
Manseriche
 
Castalia 2
1000
Loreto
Datem del Marañon
Manseriche
 
Castalia 3
500
Loreto
Datem del Marañon
Manseriche
 
Delfina 1
900
Amazonas
Condorcanqui
Nieva
Partially overlap Zona de Amortiguamiento ANP
Delfina 2
900
Amazonas
Condorcanqui
Nieva
Partially overlap Zona de Amortiguamiento ANP
Delfina 3
1000
Amazonas
Condorcanqui
Nieva
Partially overlap Zona de Amortiguamiento ANP
Delfina 4