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

FORM 10-Q

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

For the quarterly period ended February 29, 2012

OR

[   ] 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:000-51563

BLACK SEA METALS, INC.
(Exact Name of Registrant as Specified in its Charter)

NEVADA 98-0374224
(State of other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
421 9th Street  
Manhattan Beach, California 90266
(Address of Principal Executive Offices) (Zip Code)

(424) 247-9261
(Registrant’s Telephone Number, including Area Code)

Not Applicable
(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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X] Yes     [   ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[X] Yes     [   ] No

Indicate by check mark whether the Registrant is [   ] a large accelerated filer, [   ] an accelerated file, [   ] a non-accelerated filer, or [X] a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes [   ]     No [X]

Number of shares of issuer’s common stock outstanding as of April 16, 2012: 35,127,478


TABLE OF CONTENTS

  Page
   
PART I - FINANCIAL INFORMATION 2
   
ITEM 1. FINANCIAL STATEMENTS 2
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCUSSION ABOUT MARKET RISK 24
ITEM 4. CONTROLS AND PROCEDURES 24
   
PART II – OTHER INFORMATION 25
   
ITEM 1. LEGAL PROCEEDINGS 25
ITEM 1A. RISK FACTORS 25
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 25
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 25
ITEM 4. MINE SAFETY DISCLOSURE 25
ITEM 5. OTHER INFORMATION 25
ITEM 6. EXHIBITS 25

1


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q, and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders’ equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three months ended February 29, 2012 are not necessarily indicative of the results that can be expected for the year ending November 30, 2012.

As used in this Quarterly Report on Form 10-Q, the terms "we", "us", "our", “the Company”, “Texada” mean Black Sea Metals, Inc., unless otherwise indicated. All dollar amounts in this Quarterly Report on Form 10-Q are in U.S. dollars unless otherwise stated.

2


Black Sea Metals Inc.
(An Exploration Stage Company)

February 29, 2012

  Index
   
Balance Sheets F-1
   
Statements of Operations F-2
   
Statements of Cash Flows F-3
   
Notes to the Financial Statements F-4


Black Sea Metals Inc.
(An Exploration Stage Company)
Balance Sheets
(Expressed in US dollars)

    February 29,     November 30,  
    2012     2011  
    (unaudited)        
             
ASSETS            
             
Current Assets            
             
   Cash $  400   $  54,123  
             
Total Current Assets   400     54,123  
Deposit on mineral property option       200,000  
Investment       8,132  
Mineral property option (Note 3(b))   770,000      
             
Total Assets $  770,400   $  262,255  
             
LIABILITIES AND STOCKHOLDERS’ DEFICIT            
             
Current Liabilities            
             
   Accounts payable (Notes 4(a)) $  177,868   $  168,221  
   Accrued liabilities   26,914     5,208  
   Due to related parties (Notes 4(b))   35,244     34,424  
   Promissory notes payable (Note 5)   87,500     87,500  
             
Total Current Liabilities   327,526     295,353  
             
Nature of Operations and Continuance of Business (Note 1)            
Subsequent event (Note 12)            
             
Stockholders’ Equity (Deficit)            
             
    Preferred stock, 100,000,000 shares authorized, $0.001 par value;
       None issued and outstanding
       
             
    Common stock, 200,000,000 shares authorized, $0.001 par value;
       35,127,478 shares issued and outstanding (November 30, 2011 – 33,127,479 shares) (Note 8)
  35,127     33,127  
             
   Additional paid-in capital   2,007,065     1,272,502  
             
   Common stock subscribed   90,000     90,000  
             
   Deficit accumulated during the exploration stage   (1,689,318 )   (1,428,727 )
             
Total Stockholders’ Equity (Deficit)   442,874     (33,098 )
             
Total Liabilities and Stockholders’ Equity (Deficit) $  770,400   $  262,255  

(The accompanying notes are an integral part of these financial statements)

F-1


Black Sea Metals Inc.
(An Exploration Stage Company)
Statements of Operations
(Expressed in US dollars)
(Unaudited)

    Accumulated from     For the Three     For The Three  
    October 17, 2001     Months     Months  
    (Date of Inception)     Ended     Ended  
    to February 29,     February 29,     February 28,  
    2012     2012     2011  
                   
Revenue $  –   $  –   $  –  
                   
Operating Expenses                  
                   
   Amortization   798          
   Consulting   486,627     219,543     3,000  
   Exploration costs   20,091          
   General and administrative   829,296     36,935     33,102  
   Loss on foreign exchange   11,682     4,113     3,630  
   Mineral property exploration   3,747          
                   
Total Operating Expenses   1,352,241     260,591     39,732  
                   
Loss from Operations   (1,352,241 )   (260,591 )   (39,732 )
                   
Other Income (Expense)                  
                   
   Accretion of discount on convertible debentures   (234,000 )       (715 )
   Interest income   4,022          
   Interest on convertible debentures   (169,912 )       (6,896 )
   Interest on promissory notes   (72,353 )       (1,973 )
   Interest on related party loans   (8,500 )        
   Gain on settlement of debt   597,538         328,877  
   Loss on disposal of equipment   (2,075 )        
   Loss on write down of note receivable   (86,797 )        
   Loss on write down of oil and gas deposit   (365,000 )        
   Recovery for loan receivable           13,881  
                   
Total Other Income (Expense)   (337,077 )       333,174  
                   
Net (Loss) Income $  (1,689,318 ) $  (260,591 ) $  293,442  
                   
Net (Loss) Income Per Share – Basic and Diluted       $  (0.01 ) $  0.01  
                   
Weighted Average Shares Outstanding         34,336,270     25,464,436  

(The accompanying notes are an integral part of these financial statements)

F-2


Black Sea Metals Inc.
(An Exploration Stage Company)
Statements of Cash Flows
(Expressed in US dollars)
(Unaudited)

    Accumulated from     For the     For the  
    October 17, 2001     Three Months     Three Months  
    (Date of Inception)     Ended     Ended  
    to February 29,     February 29,     February 28,  
    2012     2012     2011  
                   
Operating Activities                  
                   
   Net (loss) income $  (1,689,318 ) $  (260,591 ) $  293,442  
                   
   Adjustments to reconcile net loss (income) to net cash
     used in operating activities:
           
       Accretion of convertible debt discount   234,000         715  
       Amortization   798          
       Gain on settlement of debt   (597,538 )       (328,877 )
       Loss on disposal of equipment   2,075          
       Provision for loan receivable           (13,881 )
       Stock-based compensation   252,657     216,563      
       Write-off of oil and gas deposit   365,000          
                   
   Changes in operating assets and liabilities:                  
       Cheques issued in excess of funds on deposit           219  
       Note receivable   (9,876 )        
       Accounts payable and accrued liabilities   476,989     31,353     31,145  
       Due to related parties   85,586     820     636  
                   
Net Cash Used in Operating Activities   (879,627 )   (11,855 )   (16,601 )
                   
Investing Activities                  
   Mineral property option payments   (250,000 )   (50,000 )    
   Acquisition of oil and gas interests   (365,000 )        
   Repayment of note receivable           13,881  
   Investment       8,132      
   Purchase of equipment   (2,873 )        
                   
Net Cash (Used In) Provided by Investing Activities   (617,873 )   (41,868 )   13,881  
                   
Financing Activities                  
       Proceeds from common stock subscribed   90,000          
       Advances from related party loan   50,000          
       Repayment of related party loan   (50,000 )        
       Proceeds from convertible debentures   585,000          
       Proceeds from promissory notes payable   452,500          
       Proceeds from issuance of common stock   370,400          
                   
Net Cash Provided by Financing Activities   1,497,900          
                   
Increase (Decrease) in Cash   400     (53,723 )   (2,720 )
                   
Cash - Beginning of Period       54,123     2,720  
                   
Cash - End of Period $  400   $  400   $  –  
                   
Supplemental Disclosures                  
   Interest paid $  8,500   $  –   $  –  
   Income taxes paid $  –   $  –   $  –  
                   
Non-cash Investing and Financing Activities                  
 Shares issued to settle debt $  638,134   $  –   $  112,997  
 Shares issued for mineral property option $  520,000   $  520,000   $  –  

(The accompanying notes are an integral part of these financial statements)

F-3



1.

Nature of Operations and Continuance of Business

     

Black Sea Metals Inc. (formerly Texada Ventures Inc.) (the “Company”) was incorporated in the State of Nevada on October 17, 2001. Effective November 2, 2011, the Company changed its name from Texada Ventures Inc. to Black Sea Metals, Inc. The Company is an Exploration Stage Company, as defined by ASC 915, Development Stage Entities. The Company’s principal business is the acquisition and exploration of oil and gas and mineral resources. The Company has not presently determined whether its properties contain mineral reserves that are economically recoverable.

     

These financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has never generated revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. As at February 29, 2012, the Company has a working capital deficit of $327,126 and has accumulated losses of $1,689,318 since inception. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

     

As at February 29, 2012, management anticipates that the minimum cash requirements to fund its proposed exploration program and continued operations for the next twelve months will be $670,000. Accordingly, the Company does not have sufficient funds to meet planned expenditures over the next twelve months, and will need to seek additional debt or equity financing to meet its planned expenditures. There is no assurance that the Company will be able to raise sufficient cash to fund its future exploration programs and operational expenditures.

     
2.

Summary of Significant Accounting Policies

     
a)

Basis of Presentation

     

These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars. The Company’s fiscal year-end is November 30.

     
b)

Interim Financial Statements

     

The interim unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended November 30, 2011, included in the Company’s Annual Report on Form 10-K filed on March 14, 2012 with the SEC.

     

The financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position at February 29, 2012, and the results of its operations and cash flows for the fiscal periods ended February 29, 2012 and 2011. The results of operations for the three months ended February 29, 2012, are not necessarily indicative of the results to be expected for future quarters or the full year.

     
c)

Use of Estimates

     

The preparation of financial statements in conformity with US generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company regularly evaluates estimates and assumptions related to its investment in mineral claims and options, the valuation of note receivable, stock-based compensation, and deferred income tax asset valuations. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

F- 4



2.

Summary of Significant Accounting Policies (continued)

     
d)

Earnings (Loss) Per Share

     

The Company computes earnings (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 earnings (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 excludes all dilutive potential shares if their effect is anti dilutive. As at February 29, 2012, the Company has 5,875,000 potentially dilutive securities outstanding. At February 29, 2012 and 2011, the effect of the Company’s outstanding common stock equivalents would have been anti-dilutive. Accordingly, only basic EPS is presented.

     
e)

Mineral Property Costs

     

The Company is engaged in the acquisition, exploration and development of mineral properties. Mineral property exploration costs are expensed as incurred. Mineral prospecting licenses and mineral property acquisition costs are initially capitalized. The Company assesses the carrying costs for impairment under ASC 360, Property, Plant and Equipment at each fiscal quarter end. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs then incurred to develop such property, are capitalized. Such costs will be amortized using the units-of-production method over the estimated useful life of the probably reserve. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations. In the event that a mineral property is acquired through the issuance of the Company’s shares, the mineral property will be recorded at the fair value of the respective property or the fair value of common shares, whichever is more readily determinable.

     

When mineral properties are acquired under option agreements with future acquisition payments to be made at the sole discretion of the Company, those future payments, whether in cash or shares, are recorded only when the Company has made or is obliged to make the payment or issue the shares.

     
f)

Stock-based Compensation

     

The Company records stock-based compensation in accordance with ASC 718, Compensation - Stock Based Compensation, and ASC 505-50, Equity Based Payments to Non-Employees using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

     
g)

Long-lived Assets

     

In accordance with ASC 360, Property, Plant and Equipment, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

     
h)

Cash and Cash Equivalents

     

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.

F- 5



2.

Summary of Significant Accounting Policies (continued)

     
i)

Financial Instruments

     

ASC 820, Fair Value Measurements requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1: Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2: Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3: Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

Our financial instruments consist principally of cash, accounts payable, amounts due to related parties, and promissory notes payable. Pursuant to ASC 820, the fair value of our cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The fair value of the convertible debentures is initially determined using “Level 2” inputs and approximate carrying value.

The Company has operations in Canada, which results in exposure to market risks from changes in foreign currency rates. The financial risk is the risk to the Company’s operations that arise 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.

Assets measured at fair value on a recurring basis were presented on the Company’s balance sheet as of February 29, 2012, as follows:

      Fair Value Measurements Using  
      Quoted Prices in     Significant              
      Active Markets     Other     Significant        
      For Identical     Observable     Unobservable     Balance as of  
      Instruments     Inputs     Inputs     February 29,  
      (Level 1)     (Level 2)     (Level 3)   2012  
                           
  Assets:                        
  Cash and cash equivalents $  400   $  –   $  –   $  400  
                           
  Total assets measured at fair value $  400   $  –   $  –   $  400  

Management believes that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

  j)

Foreign Currency Translation

     
 

The Company’s functional and reporting currency is the United States dollar. Occasional transactions may occur in a foreign currency and the Company follows ASC 830, Foreign Currency Translation. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Average monthly rates are used to translate revenues and expenses. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.

F- 6



2.

Summary of Significant Accounting Policies (continued)

     
k)

Income Taxes

     

The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

     
l)

Recent Accounting Pronouncements

     

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.


3.

Mineral Properties

     
a)

Pursuant to an agreement dated November 2, 2001, the Company acquired a 100% interest in eight mineral claims located in the Whitehorse Mining District, Yukon Territory, Canada known as the Peek claims for $2,500. The property is being held in trust for the Company by a third party.

     
b)

During 2011, the Company entered into an earn in agreement (the “Earn In Agreement”) in negotiating a mineral property option agreement with a vendor. Pursuant to the Earn In Agreement, the Company and the vendor formed a limited company incorporated under the laws of the Republic of Turkey, Karasu Texada Madencilik Limited (the “Karasu Holdco”), which is equally owned by the Company and the vendor. The Company is responsible for the costs to establish, administer and operate the Karasu Holdco. During 2011, the Company paid the vendor a $200,000 deposit, secured by a promissory note bearing interest at 5% per annum. On January 5, 2012, the Company and vendor closed the Earn In Agreement in conjunction with the Lease Agreement described below. The vendor is to lease its interest in the rare earth metals project located in Sakarya Province, Turkey (the “Karasu Property”) to the Karasu Holdco, and the Company, the vendor and Karasu Holdco entered into a Lease and Operating Agreement (the “Lease Agreement”) on January 5, 2012. The Lease Agreement provides for the exploration, development, mining and mineral exploitation of the Karasu Property for twenty years and for so long thereafter as Karasu Holdco shall (i) in each year as may be required by law, perform an amount of work on or with respect to the Karasu Property reasonably expected to satisfy the annual assessment work requirement, pay claim maintenance fees; and (ii) implement a work program.

          Under the terms of the Earn In Agreement and the Lease Agreement which closed on January 5, 2012, the Company has the option to earn a 95% royalty interest in the Karasu Property (the “Karasu Royalty Interest”). The Karasu Royalty Interest is calculated as the net value of minerals sold or extracted less costs of mining, weighing, sampling, assaying, analysis, sales brokerage, transportation and taxes. The Company has the option to earn the 95% Karasu Royalty Interest in consideration for all of the following:

  (a)

Paying $1,000,000 to the vendor:

       
 

$250,000 within 30 days of the Closing Date (paid);

 

$250,000 on or before the second anniversary date of the Closing Date; and

 

$500,000 on or before the third anniversary date of the Closing Date.

       
  (b)

Issuing 6,000,000 common shares to the vendor:

       
 

2,000,000 common shares within 10 days of the Closing Date (issued);

 

2,000,000 common shares on or before the second anniversary date of the Closing Date; and

 

2,000,000 common shares on or before the third anniversary date of the Closing Date.

       
  (c)

Funding exploration expenditures of $1,000,000 on the Property:

       
 

$250,000 on or before the first anniversary date of the Closing Date;

 

$250,000 on or before the second anniversary date of the Closing Date; and

 

$500,000 on or before the third anniversary date of the Closing Date.

F- 7



4.

Related Party Transactions

     
a)

As at February 29, 2012, accounts payable includes $3,125 (November 30, 2011 - $3,125) owing to a former director for expenses incurred on the Company’s behalf.

     
b)

As at February 29, 2012, the Company is indebted to a Director of the Company for $20,000 (November 30, 2011 - $20,000) in consulting fees and $15,244 (November 30, 2011 - $14,424) of expenditures incurred on behalf of the Company. The amounts are unsecured, non-interest bearing and due on demand.

     
c)

The Company neither owns nor leases any real or personal property. The Chief Financial Officer provides office services without charge. Such costs are immaterial to the financial statements and accordingly, have not been reflected therein.

     
5.

Promissory Notes Payable

     
a)

On March 30, 2010, the Company entered into a promissory note with a third party for $60,000, which is unsecured, non interest bearing and due on demand.

     
b)

On February 15, 2010, the Company entered into a promissory note with a third party for $27,500, which is unsecured, non interest bearing and due on demand.

     
c)

On March 25, 2009, the Company entered into a promissory note with a third party for $25,000, which is unsecured, and bears interest at 5% per annum. Interest and principal are due on demand. On October 29, 2010, the Company negotiated a debt settlement agreement with the holder of the promissory note. It was negotiated for interest to cease accruing on October 1, 2010. The Company negotiated to settle the $25,000 promissory note and $1,901 accrued interest by issuing 134,503 shares of the Company’s common stock with a fair value of $6,725 on January 4, 2011.

     
d)

On December 19, 2008, the Company entered into a promissory note with a third party for $50,000, which is unsecured, due on demand and bears interest at 5% per annum. Interest and principal are due on demand. On October 29, 2010, the Company negotiated a debt settlement agreement with the holder of the promissory note. It was negotiated for interest to cease accruing on October 1, 2010. The Company negotiated to settle the $50,000 promissory note and $4,459 accrued interest by issuing 272,295 shares of the Company’s common stock with a fair value of $13,615 on January 4, 2011.

     
e)

On October 27, 2008, the Company entered into a promissory note with a third party for $140,000, which is unsecured, due on demand and bears interest at 5% per annum. Interest and principal are due on demand. On October 29, 2010, the Company negotiated a debt settlement agreement with the holder of the promissory note. It was negotiated for interest to cease accruing on October 1, 2010. The Company negotiated to settle the $140,000 promissory note and $13,501 accrued interest by issuing 767,507 shares of the Company’s common stock with a fair value of $38,375 on January 4, 2011.

     
f)

On February 15, 2007, the Company entered into a promissory note with a third party for $50,000, which is unsecured, due on demand and bears interest at 8% per annum. Interest is payable annually due on or before February 14th of each year. On October 29, 2010, the Company negotiated a debt settlement agreement with the holder of the promissory note. It was negotiated for interest to cease accruing on October 1, 2010. The Company negotiated to settle the $50,000 promissory note and $14,509 accrued interest by issuing 322,548 shares of the Company’s common stock with a fair value of $16,127 on January 4, 2011.

     
g)

On November 20, 2006, the Company entered into a promissory note with a third party for $100,000, which is unsecured, due on demand and bears interest at 8% per annum. On September 8, 2011, the Company negotiated a debt settlement agreement with the holder of the note. The Company negotiated to settle the $100,000 promissory note and $37,984 accrued interest by issuing 689,918 shares of the Company’s common stock with a fair value of $55,193 on September 29, 2011.

F- 8



6.

Convertible Debentures

     
a)

On April 10, 2007, the Company issued a 6% convertible debenture with a principal amount of $200,000 which was due and payable on December 31, 2008. Interest is payable semi-annually beginning on September 30, 2007, and thereafter on March 31st and September 30th of each year, payable at the option of the Company in cash or shares. As at November 30, 2009, the Company had not made any interest payments and pursuant to the debenture has accrued default interest of 8% since September 30, 2007. The principal and accrued interest on the debenture may be converted at any time into shares of the Company’s common stock at a price of $0.625 per share, at the option of the holder.

     

In accordance with ASC 470-20, Debt with Conversion and Other Options, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $80,000 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible debenture. The Company records accretion expense over the term of the convertible debenture up to its face value of $200,000. On December 18, 2008, the Company entered into an amendment to the convertible debenture to extend the maturity date of the note from December 31, 2008 to December 31, 2010. As at December 18, 2008, $78,352 had been accreted increasing the carrying value of the convertible debenture to $198,352. As at December 18, 2008, the Company had accrued interest of $25,151. On December 31, 2010, the Company entered into another amendment to the convertible debenture to extend the maturity date of the note from December 31, 2010 to June 30, 2011. As at December 31, 2010, $136,185 had been accreted increasing the carrying value of the convertible debenture to $256,185. As at December 31, 2010, the Company had accrued interest of $57,721.

     

Pursuant to ASC 470-60, Troubled Debt Restructurings by Debtors, the total future cash flows of the restructured debt was compared with the carrying value of the original debt. As the total future cash flows of the restructured debt were greater than the carrying value at the date of amendment, the carrying value of the original debt at the date of modification was not adjusted. Pursuant to ASC 470-60, a new effective interest rate was computed and used to determine interest expense for the modified debenture.

     

On September 28, 2011, the Company entered into another amendment to the convertible debenture to extend the maturity date of the note from June 30, 2011, to December 31, 2011. On November 25, 2011, the Company negotiated to settle a debt settlement agreement with the holder of the convertible note. It was negotiated for interest to cease accruing on October 31, 2011. Pursuant to the agreement, the Company agreed to settle the $200,000 convertible note and $72,143 accrued interest by issuing 1,360,715 shares of the Company’s common stock with a fair value of $340,179 on November 30, 2011.

     
b)

On November 19, 2007, the Company issued a 6% convertible debenture with a principal amount of $110,000 which was due and payable on December 31, 2008. Interest is payable semi-annually beginning on May 31, 2008, and thereafter on May 31st and November 30th of each year, payable at the option of the Company in cash or shares. As at November 30, 2009, the Company had not made any interest payments and pursuant to the debenture has accrued default interest of 8% since May 31, 2008. The principal and accrued interest on the debenture may be converted at any time into shares of the Company’s common stock at a price of $0.625 per share, at the option of the holder.

     

In accordance with ASC 470-20, Debt with Conversion and Other Options, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $44,000 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible debenture. The Company records accretion expense over the term of the convertible debenture up to its face value of $110,000. On December 18, 2008, the Company entered into an amendment to the convertible debenture to extend the maturity date of the note from December 31, 2008 to December 31, 2010.

     

Pursuant to ASC 470-60, Troubled Debt Restructurings by Debtors, the total future cash flows of the restructured debt was compared with the carrying value of the original debt. As the total future cash flows of the restructured debt were greater than the carrying value at the date of amendment, the carrying value of the original debt was not adjusted. Pursuant to ASC 470-60, a new effective interest rate was computed and used to determine interest expense for the modified debenture.

     

On October 29, 2010, the Company negotiated to settle a debt settlement agreement with the holder of the convertible note. It was negotiated for interest to cease accruing on October 1, 2010. Pursuant to the agreement, the Company agreed to settle the $110,000 convertible note and $24,052 accrued interest by issuing 670,262 shares of the Company’s common stock with a fair value of $33,513 on January 4, 2011.

F- 9



6.

Convertible Debentures (continued)

     
c)

On March 11, 2008, the Company issued a 6% convertible debenture with a principal amount of $150,000 which was due and payable on December 31, 2008. Interest is payable semi-annually beginning on May 31, 2008, and thereafter on May 31st and November 30th of each year, payable at the option of the Company in cash or shares. As at November 30, 2009, the Company had not made any interest payments and pursuant to the debenture has accrued default interest of 8% since May 31, 2008. The principal and accrued interest on the debenture may be converted at any time into shares of the Company’s common stock at a price of $0.625 per share, at the option of the holder.

     

In accordance with ASC 470-20, Debt with Conversion and Other Options, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $60,000 as additional paid-in capital and an equivalent discount which will be charged to operations over the term of the convertible debenture. The Company records accretion expense over the term of the convertible debenture up to its face value of $150,000. On December 18, 2008, the Company entered into an amendment to the convertible debenture to extend the maturity date of the note from December 31, 2008 to December 31, 2010. On December 31, 2010, the Company entered into an amendment to the convertible debenture to extend the maturity date of the note from December 31, 2010 to June 30, 2011. As at December 31, 2010, $91,785 had been accreted increasing the carrying value of the convertible debenture to $181,785. As at December 31, 2010, the Company had accrued interest of $33,008.

     

Pursuant to ASC 470-60, Troubled Debt Restructurings by Debtors, the total future cash flows of the restructured debt was compared with the carrying value of the original debt. As the total future cash flows of the restructured debt were greater than the carrying value at the date of amendment, the carrying value of the original debt at the date of modification was not adjusted. Pursuant to ASC 470-60, a new effective interest rate was computed and used to determine interest expense for the modified debenture.

     

On September 8, 2011, the Company entered into a debt settlement agreement with the holder of the note. The Company negotiated to settle the $150,000 convertible note and $40,582 accrued interest by issuing 952,910 shares of the Company’s common stock with a fair value of $76,233 on September 29, 2011.

     
7.

Loan Receivable

     

The Company provided a note receivable of $93,160 to Royalty Exploration, LLC (“Royalty Exploration”) pursuant to a term sheet (the “Term Sheet”) signed on September 16, 2008 that set forth the principal terms upon which the Company would enter into a definitive agreement to acquire Royalty Exploration (the “REX Acquisition”) and commence a concurrent financing of $40,000,000. The note receivable is due upon the close of the REX Acquisition or, if the REX Acquisition is not consummated, in 12 equal monthly installments after the termination of the Term Sheet. The REX Acquisition was not consummated and the Term Sheet expired on May 31, 2009. Due to uncertainty as to the collectability of the loan at November 30, 2009, a provision was recorded to write off the entire amount.

     

During the three month period ended February 29, 2012, payments of $Nil (2011 - $13,881) were recovered and recorded as a recovery in other income.

     
8.

Common Stock

     
a)

On January 5, 2012, the Company issued 2,000,000 shares of common stock at a fair value of $0.26 per share pursuant to the Earn In Agreement and Lease Agreement described in Note 3(b).

     
b)

At February 29, 2012, the Company received subscriptions for 900,000 units at $0.10 per unit for total proceeds of $90,000. Each unit will consist of one share of common stock and one common share purchase warrant. Each warrant will be exercisable to acquire one share of common stock at an exercise price of $0.25 per share for a period of two years.

F- 10



9.

Stock Options

   

Effective November 14, 2011, the Board of Directors of the Company adopted the Company’s 2011 Stock Option Plan (the “2011 Plan”). A total of 5,000,000 shares of the Company’s common stock are available for issuance under the 2011 Plan.

   

On November 14, 2011, the Company granted stock options to purchase a total of 3,375,000 shares of common stock to various directors of the Company. The options were granted with an exercise price of $0.20 per share and expire on November 14, 2021. During the three months ended February 29, 2012, the Company recognized stock-based compensation of $216,563. The fair value of these stock options was estimated at the date of grant using the Black-Scholes option-pricing model assuming an expected life of 10 years, a risk-free rate of 2.04%, an expected volatility of 370%, and a 0% dividend yield. The weighted average fair value of stock options granted was $0.42 per option.

   

A summary of the Company’s stock option activity is as follows:


            Weighted     Aggregate  
            Average     Intrinsic  
      Number of     Exercise Price     Value  
      Options     $     $  
  Outstanding, November 30, 2011   3,375,000     0.20     742,500  
     Granted            
  Outstanding, February 29, 2012   3,375,000     0.20     742,500  
  Exercisable, February 29, 2012            

As at February 29, 2012, the weighted average remaining contractual life of the outstanding stock options is 9.72 years.

A summary of the status of the Company’s non-vested stock options as of February 29, 2012, and changes during the three months ended February 29, 2012, is presented below:

            Weighted Average  
            Grant Date  
      Number of     Fair Value  
  Non-vested stock options   Options     $  
               
  Non-vested at November 30, 2011   3,375,000     0.42  
               
  Vested        
               
  Non-vested at February 29, 2012   3,375,000     0.42  

As at February 29, 2012, there was $1,164,844 of total unrecognized compensation cost related to non-vested stock option agreements. The cost is expected to be recognized over a weighted average period of 2.71 years.

   
10.

Share Purchase Warrants

   

A summary of the changes in the Company’s common share purchase warrants is presented below:


          Exercise  
    Number of     Price  
    Warrants     $  
Balance, November 30, 2011   2,500,000     0.25  
Issued        
Balance, February 29, 2012   2,500,000     0.25  

F- 11



11.

Segment Disclosures

   

The Company operates in one operating segment, which is the acquisition and exploration of oil and gas resources and mineral resources. The Chief Executive Officer is the Company’s Chief Operating Decision Maker (“CODM”) as defined by ASC 280, Segment Report. The CODM allocates resources and assesses the performance of the Company based on the results of operations.

   
12.

Subsequent Event

   

On March 15, 2012, the Company obtained an unsecured non-interest bearing promissory note of $20,000 USD, due on demand.

F- 12


Cautionary Statement Regarding Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements”. These statements, identified by words such as “plan”, “anticipate”, “believe”, “estimate”, “should”, “expect” and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements reflect the current views of management with respect to future events and are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from those described in the forward-looking statements. Such risks and uncertainties include those set forth under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. We advise you to carefully review the reports and documents we file from time to time with the United States Securities and Exchange Commission (the “SEC”), particularly our Annual Reports on Form 10-K and our Current Reports on Form 8-K.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

The Company is engaged in the business of acquisition and exploration of mineral and resource properties. We were incorporated on October 17, 2001 under the laws of the State of Nevada. Our principal office is located at 421 – 9th Street, Manhattan Beach, CA, 90266. Our phone number is 424-247-9261. Our facsimile number is 310-374-9385.

The Company filed a Certificate of Amendment to its articles of incorporation with the Secretary of State of Nevada changing the name of the Company from Texada Ventures Inc. to Black Sea Metals, Inc. effective November 2, 2011. The Company’s common stock, previously quoted on the OTCBB under the ticker symbol “TXVN”, began trading under the ticker symbol “BLAK,” effective November 7, 2011.

OUR BUSINESS

On September 15, 2011, the Company entered into an Earn In Agreement (the “Karasu Earn In Agreement”), with Anadolun Madencilik Ltd. Sti., a limited company under the provisions of the Turkish Commercial Code (“Anadolun”), under which the Company may acquire or earn 95% of Anadolun’s interest in Anadolun’s Karasu Rare Earth Metals Project located in Sakarya Province, Turkey (the “Karasu Property”). On December 31, 2011, the Company entered into a lease agreement under which the Company acquired the right to earn a 95% of Anadolun’s interest in the Karasu Property (the “Karasu Lease Agreement”). The Karasu Earn in Agreement was amended on December 31, 2011 by the Amendment No. 1 to the Karasu Earn In Agreement (the “Karasu Earn In Agreement Amendment”). Pursuant to the Karasu Earn In Agreement, as amended by the Karasu Earn In Agreement Amendment, and the Karasu Lease Agreement, the Company can earn a 95% interest in the Karasu Property by satisfying certain conditions listed below (See Recent Corporate Developments - “Properties”).

We also have a 100% undivided interest in a group of mineral claims located in the Wheaton River District in the Yukon Territory, Canada that we refer to as the Peek Claims. We have not earned any revenues to date. Our plan of operation is to continue to carry out exploration work on these claims in order to ascertain whether they possess commercially exploitable mineral deposits. We are presently in the exploration stage of our business and we can provide no assurance that commercially viable mineral deposits exist on our claims or that we will discover commercially exploitable levels of mineral resources on our properties, or if such deposits are discovered, that we will enter into further substantial exploration programs. We will not be able to determine whether or not our mineral claims contain a commercially exploitable mineral deposit, or reserve, until appropriate exploratory work is done and an economic evaluation based on that work concludes economic viability.

Historically we have conducted our business through verbal agreements with consultants and arms-length third parties. Our verbal agreement with our geologist includes his reviewing all of the results from the exploratory work performed upon the site and making recommendations based on those results in exchange for payments equal to the usual and customary rates received by geologists performing similar consulting services.

13


We have not earned any revenues to date. Our plan of operation is to continue to carry out exploration work on the Peek Claims and the Karasu Property in order to ascertain whether they possess commercially exploitable mineral deposits. We are presently in the exploration stage of our business and we can provide no assurance that commercially viable mineral deposits exist on our current or targeted claims, that we will discover commercially exploitable levels of mineral resources on our properties, or if such deposits are discovered, that we will enter into further substantial exploration programs. We will not be able to determine whether or not our current or targeted mineral claims contain commercially exploitable deposits, or reserves, until appropriate exploratory work is done and an economic evaluation based on that work concludes economic viability.

We have not generated any revenues from operations and are dependent upon obtaining financing to pursue our plan of operation, including the transactions contemplated under the Karasu Earn In Agreement as amended by the Karasu Earn In Agreement Amendment. We can give no assurance that we will be successful in obtaining financing on terms that are acceptable to us, if at all.

RECENT CORPORATE DEVELOPMENTS

Properties

On May 20, 2011, we entered into a term sheet (the “Term Sheet”), with Anadolun, which outlined the general terms and conditions pursuant to which the Company and Anadolun agreed to enter into a definitive option under which the Company may acquire or earn 95% of Anadolun’s interest in Karasu Property. Under the Term Sheet, the Company advanced Anadolun $200,000 to fund certain expenditures related to the Karasu Property, in consideration for the obligations under the Term Sheet. Effective July 1, 2011, the Company and Anadolun entered into an amending agreement to the Term Sheet, in order to provide additional time to negotiate and finalize the definitive agreement and to close the transaction. On September 15, 2011, the Company and Anadolun entered into the Karasu Earn In Agreement pursuant to which, among other things, the Company, upon the fulfillment of certain conditions specified in the Karasu Earn In Agreement, will be granted the sole and exclusive right to earn a 95% interest representing a percentage of the net value of minerals mined or extracted, saved and sold or removed for disposal without sale from the Karasu Property. The Term Sheet, amending agreement and Karasu Earn In Agreement, are further described in the current reports filed by the Company on Form 8-K on May 25, 2011, July 6, 2011, September 15, 2011, respectively.

On September 15, 2011, we entered into the Karasu Earn In Agreement pursuant to which, among other things, the Company, upon the payment of certain obligations specified in the Karasu Earn In Agreement, will be granted the sole and exclusive right to a 95% interest in the net value of minerals mined or extracted, saved and sold or removed for disposal without sale from the Karasu Property. Under the Karasu Earn In Agreement, the Company can earn a 95% interest in the Karasu Property, by incurring $1,000,000 in exploration expenditures (in aggregate) on the Karasu Property, issuing 6,000,000 shares of common stock of the Company (in aggregate) to Anadolun, and paying Anadolun $1,000,000 (in aggregate), $200,000 of which was paid in the form of the Bridge Loan, to fund certain expenditures related to the Karasu Property.

Under the Karasu Earn In Agreement, the Company and Anadolun agreed to form Karasu Holdings Ltd. Sti., a limited company incorporated under the laws of the Republic of Turkey (“Karasu Holdco”), to be equally owned by the Company and Anadolun. Once Karasu Holdco is organized, Anadolun will transfer its interest in the Property, evidenced by license, 201100864 and License Type IV (the “License”), to Karasu Holdco. Once the License is transferred, the Company, Anadolun and Karasu Holdco will enter into the Lease Agreement.

On December 31, 2011, the Company, Anadolun and Karasu Holdco entered into the Karasu Lease Agreement and the Company and Anadolun entered into the Karasu Earn In Agreement Amendment to conform with the terms of the Karasu Lease Agreement. Under the terms of the Karasu Earn In Agreement, as amended by the Karasu Earn In Agreement Amendment and the Karasu Lease Agreement, the parties agreed as follows:

  (a)

Anadolun will maintain the License and will lease the Karasu Property and the License, as applicable, to Karasu Holdco;

     
  (b)

The Lease is granted for the purpose of exploration, development, mining and mineral exploitation of the Karasu Property for any and all minerals, metals and ores and substances containing minerals or metals, in, upon or underlying the Karasu Property;

14



  (c)

The Lease shall be for twenty (20) years from and after the Effective Date of the Lease, and for so long thereafter as Karasu Holdco shall (i) in each year as may be required by law, perform an amount of work on or with respect to the Karasu Property reasonably expected to satisfy the annual assessment work requirement, pay claim maintenance fees; and (ii) implement the Work Program (described below);

     
  (d)

Karasu Holdco shall serve as Operator (as defined in the Karasu Earn In Agreement Amendment) of the Karasu Property;

     
  (e)

The parties will establish a Project Team (as defined in the Karasu Lease Agreement) to develop and approve an Exploration Budget, Work Plan (detailing exploration, development and work on the Karasu Property)(as defined in the Karasu Lease Agreement) and make decisions related to the Karasu Property;

     
  (f)

Each of Anadolun and the Company will have the right to appoint two representatives to the Project Team;

     
  (g)

Karasu Holdco, as Operator, will have certain obligations under the Lease Agreement, including implementing the Work Plan and assisting with establishment of the Exploration Budget;

     
  (h)

The Company will fund the Exploration Expenditures (as defined in the Karasu Lease Agreement) as contemplated in the Lease Agreement and as follows:


  (A)

$250,000 on or before the first anniversary date of the Closing Date (as defined below),

     
  (B)

$250,000 on or before the second anniversary date of the Closing Date, and

     
  (C)

$500,000 on or before the third anniversary date of the Closing Date;


  (i)

Anadolun shall pay the balance of the required funds in a timely way according to an approved schedule of advances or within the time limits contemplated in the Agreement for the payment of invoices for Exploration Expenditures;

     
  (j)

If Anadolun fails to contribute its portion of the Exploration Expenditures, then the Company, shall advance additional funds towards the Exploration Expenditures and such additional advances shall be (a) carried forward to the succeeding period and qualify as Exploration Expenditures for such succeeding period or (b) loan funds to Anadolun to satisfy Anadolun’s obligations to fund Exploration Expenditures. The Company may offset payments payable to Anadolun under Cash Payments or Share Issuances under the Earn In Agreement;

     
  (k)

Karasu Holdco reserves for the benefit of the Company as a retained interest in the License, the Karasu Royalty Interest (as defined in the Karasu Lease Agreement), upon payment of Cash Consideration ($1,000,000 in aggregate paid $250,000 within 30 days of the Closing Date, $200,000 of which shall be in the form of the Bridge Loan; $250,000 on or before the second anniversary date of the Closing Date, and $500,000 on or before the third anniversary date of the Closing Date), Share Issuances (6,000,000 shares of common stock paid 2,000,000 common shares (“Shares”) of the Company within 10 days of the Closing Date, 2,000,000 Shares on or before the second anniversary date of the Closing Date, and 2,000,000 Shares on or before the third anniversary date of the Closing Date) and Exploration Expenditures, as described in the Earn In Agreement; and

     
  (l)

The Karasu Lease Agreement contains dispute resolution provisions.

The parties closed the transactions on January 5, 2012 (the “Closing Date”).

The descriptions of the Karasu Earn In Agreement Amendment and the Karasu Lease Agreement are qualified in their entirety by copies of the agreements attached to the Current Report on Form 8-K, as Exhibits 99.1 and 99.2, respectively and filed with the SEC on January 5, 2012. The description of the Karasu Earn In Agreement is qualified in its entirety by the disclosure in the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2011.

15


Appointment of New Officers and Directors

Effective November 7, 2011, David Brow resigned from the offices of President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer of the Company. Mr. Brow continues to be a member of the Board of Directors of the Company. The Company’s Board of Directors accepted Mr. Brow’s resignation and appointed Alastair Neill as a director of the Company and to the offices of President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer of the Company. Mr. Neill shall serve on the Company’s Board of Directors until the next special or annual meeting of shareholders, when he or his successor is elected and qualified, or until his earlier resignation or removal. Mr. Neill shall hold the offices of President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer for an indefinite term until his successor is chosen and qualified or until his earlier resignation or removal.

Effective November 7, 2011, James MacPherson and Markus Pekeler were appointed as directors of the Company. Mr. MacPherson was also appointed as the Chief Environmental Officer of the Company.

Stock Option Plan

On November 14, 2011, the board of directors of the Company adopted the Black Sea Metals, Inc. 2011 Stock Option Plan (the “Plan”).

Pursuant to the Plan, options to purchase shares of common stock of the Company may be granted to any person who is performing or who has been engaged to perform services of special importance to management of the Company in the operation, development and growth of the Company. The maximum number of shares with respect to which stock options may be granted under the Plan may not exceed 5,000,000 shares of common stock of the Company. The Plan is administered by the Company’s board of directors or its compensation committee, if any. The Plan expires upon the earlier of its termination by the board of directors of the Company or the date on which all of the shares of stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing options granted under the Plan have lapsed and no option shall be exercisable more than ten years after the date of grant.

The Plan permits the Company to grant incentive stock options (“Incentive Stock Options”) and non-qualified incentive stock options (“Nonstatutory Stock Options”). Each stock option grant is required to be evidenced by a stock option agreement, which shall be subject to the applicable provisions of the Plan. With respect to the grant of any Incentive Stock Options, the Plan shall be approved by shareholders of the Company within twelve (12) months of the date of adoption of the Plan by the board of directors of the Company. Any Incentive Stock Options granted prior to shareholder ratification of the Plan shall be deemed Nonstatutory Stock Options; provided, however, that if the Plan is not ratified within twelve (12) months of adoption, no Incentive Stock Options shall be granted until ratified by the shareholders of the Company.

The foregoing description of the Plan is qualified in its entirety by reference to the full text of the Plan, a copy of which is filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on November 17, 2011.

Options Granted Under the Plan

On November 14, 2011, Alastair S. Neill, President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer and a director of the Company was granted an option to purchase 1,000,000 shares of common stock of the Company under the Plan at an exercise price of $0.20 per share, which stock option shall vest based on the following schedule: 333,333 shares of common stock of the Company, 12 months after the date of the grant; 333,333 shares of common stock of the Company, 24 months after the date of the grant; and 333,334 shares of common stock of the Company, 36 months after the date of the grant.

16


On November 14, 2011, James MacPherson, Chief Environmental Officer and a Director of the Company was granted an option to purchase 1,000,000 shares of common stock of the Company under the Plan at an exercise price of $0.20 per share, which stock option shall vest based on the following schedule: 333,333 shares of common stock of the Company, 12 months after the date of the grant; 333,333 shares of common stock of the Company, 24 months after the date of the grant; and 333,334 shares of common stock of the Company, 36 months after the date of the grant.

On November 14, 2011, Markus Pekeler, a Director of the Company was granted an option to purchase 1,000,000 shares of common stock of the Company under the Plan at an exercise price of $0.20 per share, which stock option shall vest based on the following schedule: 333,333 shares of common stock of the Company, 12 months after the date of the grant; 333,333 shares of common stock of the Company, 24 months after the date of the grant; and 333,334 shares of common stock of the Company, 36 months after the date of the grant.

On November 14, 2011, David Brow, a Director of the Company was granted an option to purchase 125,000 shares of common stock of the Company under the Plan at an exercise price of $0.20 per share, which stock option shall vest based on the following schedule: 41,666 shares of common stock of the Company, 12 months after the date of the grant; 41,666 shares of common stock of the Company, 24 months after the date of the grant; and 41,667 shares of common stock of the Company, 36 months after the date of the grant.

On November 14, 2011, John Veltheer, a Director of the Company was granted an option to purchase 250,000 shares of common stock of the Company under the Plan at an exercise price of $0.20 per share, which stock option shall vest based on the following schedule: 83,333 shares of common stock of the Company, 12 months after the date of the grant; 83,333 shares of common stock of the Company, 24 months after the date of the grant; and 83,334 shares of common stock of the Company, 36 months after the date of the grant.

PLAN OF OPERATION

We have not generated any revenues since our inception.

Our current plan of operation is to continue exploration work on our mineral properties and funding our obligations under the Karasu Earn In Agreement, as amended by the Karasu Earn In Agreement Amendment, and the Karasu Lease Agreement, as described below, while seeking other business opportunities or projects which would return sufficient shareholder value. We believe the acquisition of a 95% interest in the Karasu Property presents such an opportunity to increase shareholder value in the Company.

During the exploration stage, Alastair Neill, our President, Chief Executive Officer, Chief Financial Officer, Secretary, and Treasurer, Dr. Veltheer, Mr. MacPherson and Mr. Pekeler, will only be devoting approximately twenty hours per week of their time to our business. We do not foresee this limited involvement as negatively impacting the Company over the next twelve months. All exploratory work on our Yukon mining properties, if any, is being performed by our geological consultant, Mr. Timmins, who contracts with appropriately experienced parties to complete work programs. All exploratory work on our Turkish mining properties will be conducted by our partner, Anadolun. However, if as a result of our acquisition efforts, the demands of our business require more business time of Mr. Neill or Dr. Veltheer, such as raising additional capital or addressing unforeseen issues with regard to our exploration efforts, they are prepared to adjust their timetable to devote more time to our business. In addition, we may recruit additional officers and/or directors and hire employees or additional consultants to assist us in the development of our business.

Mineral Properties

Peek Claims

We have taken a phased approach to our exploration efforts on the Peek Claims, and have received a geological report on the results of Phase III of our program with further recommendations from our geological consultant of additional activities prior to engaging in Phase IV of our plan. In his report, our geologist recommended that, prior to proceeding with Phase IV, further geological engineering should be undertaken to define the exact source areas for the known and new vein float material. Our geologist recommended reserving a total of $10,000 for a two-stage delineation program prior to commencing Phase IV of our exploration program. We proceeded with our geologist’s recommendation and completed the first phase of the delineation program during the summer exploration season of 2006. A detailed, close-spaced, soil geochemical survey over the conductors using a plugger style overburden sampling drill was recommended to locate the bed rock source of the mineralization following completion of the first phase of the delineation program.

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Our decision to proceed to Phase IV of our initial exploration program will be made based on factors such as other business opportunities, the final assay results and the recommendations of our geologist, the grades of any mineralization found, the size and extent of the mineralized zones, and the strength of metal prices in international markets. Phase IV is currently estimated to cost $120,000. Given our current working capital situation, the costs of implementing Phase IV of our exploration program, and our focus of closing the transactions contemplated in the Earn In Agreement with Anadolun in respect to the Karasu Property, we currently do not anticipate implementing Phase IV at this time. See “Liquidity and Capital Resources” below. We intend to maintain the Peek Claims pending a further exploration program decision.

Karasu

The Karasu Rare Earth Metals Project consists of a single 1480.9 ha Heavy Minerals Placer concession in Sakarya Province of Northern Turkey. Historical exploration on the property by Turkey’s Directorate General of Mineral Research and Exploration indicate excellent potential for further development of Rare Earth element extraction. We anticipate conducting an exploration program in fiscal year 2012 in the amount of $250,000.

Under the Karasu Earn In Agreement, we can earn a 95% interest in the net value of minerals mined or extracted, saved and sold or removed for disposal without sale from the Karasu Property upon satisfaction of certain conditions. Under the terms of the Karasu Lease Agreement, a project team (the “Project Team”) will be established to, among other things, develop an expenditure budget which shall include estimates for projected funding requirements during the earn in period under the Karasu Earn In Agreement and estimates of funding reasonably required to complete assessment work and pay such rentals, maintenance fees, taxes or other payments and do all such other things from the expenditure budget as may be necessary to maintain the Karasu Property and the License in good standing, including, without limitation, staking, restaking, and surveying mining claims, and applying for licenses, leases, grants, concessions, permits, patents and other rights to and interests in minerals in, or under the Karasu Property; consider and approve and, as applicable, develop all exploration programs, work programs, any feasibility study, mining plans and amendments thereto; review and approve a monthly expenditure report; review and approve annual ore reserve and resource estimates prepared by Anadolun. Anadolun shall serve as the operator of the Karasu Property and subject to the decisions of the Project Team, will have full, complete and exclusive control, charge and supervision of the Karasu Property and sole and exclusive right and authority to supervise, manage and carry out all operations, which shall include, among other things, every kind of work done by Anadolun on or in respect of the Karasu Property to plan, arrange, carry out or complete work contemplated by work programs, exploration programs and operating plans, including, without limitation, investigation, prospecting, exploring, and developing. The description of the terms of the Earn In Agreement Amendment and the Karasu Lease Agreement are qualified in their entirety by reference to exhibits 99.1 and 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2011 and January 5, 2012.

Our decision to proceed with an initial exploration program will be made based on factors such as other business opportunities, the final assay results and the recommendations of our geologists, the grades of any mineralization found, the size and extent of the mineralized zones, and the strength of metal prices in international markets. The current phase is estimated to cost $250,000. Given our current working capital situation and the costs of implementation of our exploration program, it is uncertain of we will be able to complete the exploration program. See “Liquidity and Capital Resources” below.

Should we able to raise sufficient funds for exploration, we anticipate do the following activities for the Karasu property:

  1)

prepare a 1:10,000 scale geological map

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  2)

prepare a 1:5,000 topographical map

     
  3)

conduct a 300-400 sample geochemical surface sampling program and subsequently develop element- by-element geochemical maps

     
  4)

conduct an approximate 50 sample petrographic sampling program

     
  5)

develop a list of priority drilling targets

Our expenditures toward the exploration of our mineral claims may not result in the discovery of mineral deposits. Problems such as unusual or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts. If the results of exploration do not reveal viable commercial mineralization, we may decide to abandon our claims and acquire new claims for new exploration. The acquisition of additional claims will be dependent upon having sufficient capital resources at the time in order to purchase such claims. If no funding is available, we may be forced to abandon our operations. This assessment will include an assessment of our cash reserves, the price of minerals and the market for financing of mineral exploration projects at the time of our assessment.

Planned Expenditures

We anticipate that we will require capital for the following expenses over the next twelve months relating to our continued operations:

      Planned Expenditures over the  
      Next Twelve Months  
  Category   (US$)  
  General and Administrative Expenses $150,000  
  Anadolun Payments (Earn In Agreement) $370,000  
  Professional Fees $150,000  
  TOTAL 12-MONTH BUDGET $670,000  

Pursuant to the terms of the Karasu Earn In Agreement, as amended by the Karasu Earn In Agreement Amendment and the Karasu Lease Agreement, we have funding and payment obligations as follows:

  a)

paying to Anadolun or its designee,

       
  (i)

$250,000 within 30 days of the Closing Date, ($250,000 of which has already been paid)

       
  (ii)

$250,000 on or before the second anniversary date of the Closing Date, and

       
  (iii)

$500,000 on or before the third anniversary date of the Closing Date;

       
  b)

allotting and issuing to Anadolun or its designee, as fully paid and non-assessable:

       
  (i)

2,000,000 Shares of the Company within 10 days of the Closing Date (has already been issued)

       
  (ii)

2,000,000 Shares on or before the second anniversary date of the Closing Date, and

       
  (iii)

2,000,000 Shares on or before the third anniversary date of the Closing Date; and

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  c)

funding Exploration Expenditures approved by the Project Team of $1,000,000 on the Karasu Property under the terms of the Lease Agreement as follows:

       
  (i)

$250,000 on or before the first anniversary date of the Closing Date,

       
  (ii)

$250,000 on or before the second anniversary date of the Closing Date, and

       
  (iii)

$500,000 on or before the third anniversary date of the Closing Date

As of February 29, 2012, we had accounts payable of $177,868 and accrued liabilities of $26,914, all of which are payable in the next 12 months. As of February 29, 2012, we had promissory notes with an aggregate principal amount of $87,500, outstanding and $35,244 due to related parties. Each of these are due and payable on demand or within the next 12 months. As of February 29, 2012, we had cash on hand of $400 and a working capital deficit of $327,126. We estimate that we will need additional financing of nearly $997,126 to fund exploration, operating expenses and our working capital deficit.

We do not expect our business to achieve profitability in the near future as we expect to continue to incur substantial acquisition, development and operating expenses. We cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock or debt to fund our estimated general administration, exploration and other working capital requirements.

There is no assurance that we will be able to obtain sufficient financing to fund our capital requirements. If we do not obtain the necessary financing, then our plan of operation will be scaled back according to the amount of funds available. The inability to raise the necessary financing will severely restrict our ability to continue exploration programs or acquisition activities as planned.

RESULTS OF OPERATIONS

This discussion and analysis should be read in conjunction with the accompanying financial statements and related notes. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. The discussion and analysis of the financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis the Company reviews its estimates and assumptions. The estimates were based on historical experience and other assumptions that the Company believes to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions, but the Company does not believe such differences will materially affect our financial position or results of operations.

Critical Accounting Policies

Critical accounting policies, the policies the Company believes are most important to the presentation of its financial statements and require the most difficult, subjective and complex judgments, are outlined below, are also disclosed in the Company’s Form 10-K as filed with the SEC on March 14, 2012, and have not changed significantly.

Mineral Property Costs

The Company is engaged in the acquisition, exploration and development of mineral properties. Mineral property acquisition costs are initially capitalized and continue to capitalized when management has determined that probable future benefits consisting of a contribution to future cash inflows have been identified and adequate financial resources are available or are expected to be available as required to meet the terms of property acquisition and budgeted exploration and development expenditures. Mineral property exploration costs are expensed as incurred if the criteria for capitalization are not met. In the event that a mineral property is acquired through the issuance of the Company’s shares, the mineral property will be recorded at the fair value of the respective property or the fair value of common shares, whichever is more readily determinable.

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When mineral properties are acquired under option agreements with future acquisition payments to be made at the sole discretion of the Company, those future payments, whether in cash or shares, are recorded only when the Company has made or is obliged to make the payment or issue the shares. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves and feasibility, the costs incurred to develop such property are capitalized.

Stock-based Compensation

The Company records stock-based compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

Revenue and Expenses

Summary   Three Months     Three Months  
    Ended February     Ended February  
    29     28  
    2012     2011  
Revenue   -     -  
Operating Expenses $  260,591   $  39,732  
Net Income (Loss) From Operations $  (260,591 ) $  (39,732 )

Summary of Revenue

We have not earned any revenues to date. Our plan of operation, in regards to mineral properties, is to fund our obligations under the Karasu Earn In Agreement, as amended by the Karasu Earn In Agreement Amendment, and, as warranted, continue to carry out exploration work on our claims in order to ascertain whether they possess commercially exploitable quantities of mineral deposits and to explore acquisition opportunities for acquisitions. We do not anticipate earning revenues until such time as we are able to locate and process commercially exploitable levels of mineral resources on our properties or acquire commercially viable or producing properties.

We are presently in the exploration stage of our business and we can provide no assurance that a commercially viable mineral deposit exists on our claims or that we will discover commercially exploitable levels of mineral resources on our properties, or if such deposits are discovered, that we will enter into further substantial exploration programs. We will not be able to determine whether or not our mineral claims contain a commercially exploitable mineral deposit, or reserve, until appropriate exploratory work is done and an economic evaluation based on that work concludes economic viability. Also, we cannot assure you that we will be successful in closing the transactions contemplated in the Earn In Agreement, as amended by the Karasu Earn In Agreement Amendment, with Anadolun in respect to the Karasu Property or that we will be able to acquire any other commercially viable properties or, if acquired, that we will be able to develop or operate any acquired property in a profitable manner.

Summary of Expenses

Our expenses for the three months ended February 29, 2012 and February 28, 2011, consisted of the following:

    Three Months     Three Months  
    Ended February 29     Ended February 28  
    2012     2011  
Expenses (Operating Expenses)            
     Consulting $  219,543   $  3,000  
     General and administrative $  36,935   $  33,102  
     Loss on foreign exchange $  4,113   $  3,630  

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Other Income (Expense)            
       Accretion of discount on convertible debentures   -   $  (715 )
       Interest income   -     -  
       Interest on convertible debentures   -   $  (6,896 )
       Interest on promissory notes   -   $  (1,973 )
       Interest on related party loans   -     -  
       Recovery of loan receivable   -   $  13,881  
       Gain on settlement of debt   -   $  328,877  

For the three months ended February 29, 2012, our operating expenses increased from the same period in 2011 by $220,859. This increase in operating expenses is primarily due to an increase in consulting expenses of $216,543 due to costs related to due diligence and negotiating the Karasu Earn In Agreement, as amended by the Karasu Earn In Agreement Amendment and the Karasu Lease Agreement with Anadolun.

We anticipate that operating expenses will increase as our activities and commitments under the Karasu Earn In Agreement, as amended by the Karasu Earn In Agreement Amendment, and the Karasu Lease Agreement increase. We may also add additional officers and directors with expertise to assist us with our business.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital Summary   At February 29,     At November 30,  
    2012     2011  
Current Assets $  400   $  54,123  
Current Liabilities $  (327,526 ) $  (295,353 )
Working Capital (Deficit) $  (327,126 ) $  (241,230 )

Summary of Cash Flows            
    Three Months     Three Months  
    Ended February     Ended February  
    29     28  
    2012     2011  
Net Cash Used In Operating Activities $  (11,855 ) $  (16,601 )
Net Cash (Used In) Provided by Investing Activities $  (41,868 ) $  13,881  
Net Cash Provided By Financing Activities   -     -  
Net Increase (Decrease) In Cash During Period $  (53,723 ) $  (2,720 )

As at February 29, 2012, we had cash of $400 and a working capital deficit of $327,126. The increase in our working capital deficit at February 29, 2012 from our year ended November 30, 2011 is primarily a result of increased costs associated with the Karasu Earn In Agreement and the appointment of our executive team.

On April 10, 2007, the Company issued a 6% convertible debenture with a principal amount of $200,000, which was due and payable on December 31, 2008. On December 18, 2008, the Company entered into an amendment to the convertible debenture to extend the maturity date of the note from December 31, 2008 to December 31, 2010. On December 31, 2010, the Company entered into another amendment to the convertible debenture to extend the maturity date of the note from December 31, 2010 to June 30, 2011. On September 28, 2011, the Company entered into another amendment to the convertible debenture to extend the maturity date of the note from June 30, 2011, to December 31, 2011. On November 25, 2011, the Company negotiated to settle a debt settlement agreement with the holder of the convertible note. It was negotiated for interest to cease accruing on October 31, 2011. Pursuant to the agreement, the Company agreed to settle the $200,000 convertible note and $72,143 accrued interest by issuing 1,360,715 shares of the Company’s common stock with a fair value of $340,179 on November 30, 2011

As at the Company’s fiscal year end of November 30, 2011, the Company had two 6% convertible debentures outstanding with principal amounts totaling $260,000 due and payable on December 31, 2010. Both of the convertible debentures were settled during the fiscal quarter ended February 29, 2012.

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On November 19, 2007, the Company issued a 6% convertible debenture with a principal amount of $110,000, which was due and payable on December 31, 2008. Interest is payable semi-annually beginning on May 31, 2008, and thereafter on May 31st and November 30th of each year, payable at the option of the Company in cash or shares. On December 18, 2008, the Company entered into an amendment to the convertible debenture to extend the maturity date of the note from December 31, 2008 to December 31, 2010. On October 29, 2010, the Company negotiated to settle a debt settlement agreement with the holder of the convertible note. Pursuant to the agreement, the Company agreed to settle the $110,000 convertible note and $24,052 accrued interest by issuing 670,262 shares of the Company’s common stock. It was negotiated for interest to cease accruing on October 1, 2010. On January 4, 2011, the Company issued 670,262 shares to the convertible note holder.

On March 11, 2008, the Company issued a 6% convertible debenture with a principal amount of $150,000, which was due and payable on December 31, 2008. Interest is payable semi-annually beginning on May 31, 2008, and thereafter on May 31st and November 30th of each year, payable at the option of the Company in cash or shares. On December 18, 2008, the Company entered into an amendment to the convertible debenture to extend the maturity date of the note from December 31, 2008 to December 31, 2010. On September 8, 2011, the Company entered into a debt settlement agreement with the holder of the note. The Company negotiated to settle the $150,000 convertible note and $40,582 accrued interest by issuing 952,910 shares of the Company’s common stock with a fair value of $76,233 on September 29, 2011.

As of February 29, 2012, we had promissory notes in the principal amount of $87,500 outstanding, which are due and payable on demand.

As of February 29, 2012, we had cash on hand of $400 and a working capital deficit of $327,126. We estimate that we will need additional financing of nearly $997,126 to fund exploration, operating expenses and our working capital deficit.

On March 15, 2012, subsequent to the period covered by this quarterly report, the Company obtained an unsecured non-interest bearing promissory note of $20,000, due on demand.

We do not expect our business to achieve profitability in the near future as we expect to continue to incur substantial acquisition, development and operating expenses. We will require additional funding to fund our working capital requirements. However, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock or debt to fund our estimated general administration, acquisition, exploration and other working capital requirements.

Currently, we do not have sufficient capital to implement our plan of operation over the next twelve months and there is no assurance that we will be able to obtain sufficient financing to fund our capital requirements. If we do not obtain the necessary financing, then our plan of operation will be scaled back according to the amount of funds available. The inability to raise the necessary financing will severely restrict our ability to continue exploration programs or acquisition activities as planned.

Our auditors expressed substantial doubt regarding our ability to continue as a going concern related to our financial statements for the year ended November 30, 2011, and these circumstances have not improved. The factors related to the determination of our ability to continue as a going concern include our working capital deficit, lack of foreseeable revenues from operations, need for additional capital to maintain our interest in the Peek Claims and complete the transactions contemplated by the Karasu Earn In Agreement, as amended by the Karasu Earn In Agreement Amendment, with Anadolun, and need for additional capital to fund our general and administrative requirements. Our ability to continue as a going concern is dependent on our ability to raise additional capital, complete an acquisition and conduct successful exploration activities on our properties and drive appreciation in the value of our exploration properties and assets. There is substantial doubt regarding our ability to continue as a going concern, and if we are unable to raise additional capital in a timely manner in an amount sufficient to close our acquisition of a 95% interest in the Karasu Property, we may be required to sell our Peek Claims or permit such claims to lapse. As a result, we may be forced to discontinue operations.

We have not declared or paid dividends on our shares since incorporation and do not anticipate doing so in the foreseeable future.

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OFF-BALANCE SHEET ARRANGEMENTS

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCUSSION ABOUT MARKET RISK.

Not required for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

At the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision of, and with the participation of, the Company’s management, including the Chief Executive Officer / Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, the Chief Executive Officer / Chief Financial Officer has concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q, due to material weaknesses in internal controls over financial reporting as described in our Form 10-K filed on March 14, 2012, the Company’s disclosure controls and procedures were not adequately designed and were not effective in ensuring that information required to be disclosed by the Company in its reports that it files or submits to the SEC under the Exchange Act, is recorded, processed, summarized and reported within the time period specified in applicable rules and forms.

Management has taken steps to address the material weaknesses previously identified. We engaged legal counsel who is experienced and qualified to practice before the SEC, who actively reviewed Company events and major transactions to advise management on appropriate disclosure of those events and transactions. In addition, we have engaged Lancaster & David to provide accounting consulting services and to assist in the preparation of our financial statements. Company filings with the SEC are reviewed by the Board of Directors, our management, and our SEC legal firm for proper and complete disclosure. Although the lack of sufficient working capital has had an adverse effect on significant improvement in disclosure controls and procedures, management believes that internal control over financial reporting in the future will improve the results of its evaluation of disclosure controls.

Changes in internal controls over financial reporting

During the period covered by this Quarterly Report on Form 10-Q, there were no changes in our internal control over financial reporting (as defined in Rule 13(a)-15(f) or 15(d)-15(f)) that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 1A. RISK FACTORS.

Not required for smaller reporting companies.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

Exhibit

Number

Description of Exhibits

 

 

10.1

Earn In Agreement, dated September 15, 2011 (filed as Exhibit 99.1 to the Current Report on 8-K filed with the SEC on September 15, 2011)

 

 

10.2

Lease and Operating Agreement dated December (filed as Exhibit 99.2 to the Current Report on 8-K filed with the SEC on January 5, 2012)

 

 

10.3

Amendment No. 1 to the Karasu Earn In Agreement (filed as Exhibit 99.1 to the Current Report on 8-K filed with the SEC on January 5, 2012)

 

 

31.1

Certification of Chief Executive Officer and Chief Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

32.2

Certification of Chief Executive Officer and Chief Financial Officer as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

_____________________________________

25


SIGNATURES

In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

    BLACK SEA METALS, INC.
     
     
     
  By: /s/ Alastair Neill
    Alastair Neill
    Chief Executive Officer, Chief Financial Officer
    President, Secretary, Treasurer and Director
    (Principal Executive Officer
    and Principal Accounting Officer)
     
  Date: April 16, 2012

26