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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
(Mark One)
 
x
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

o
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _ _ _ _ _ _ _ _ _ _  to _ _ _ _ _ _ _ _ _ _

Commission file number 0-27355

CIGMA METALS CORPORATION
(Exact name of registrant as specified in its charter)

Florida
 
98-0203244
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)

c.Velazquez 150, Madrid, Spain
 
E-28002
(Address of principal executive offices)
 
(Zip Code)
 
(+34) 60 900 1424
(Registrant’s telephone number, including area code)
 
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES ¨ NO x
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES  ¨ NO x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨ (do not check if a smaller reporting company)
Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o NO x
 
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark, whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by court.
YES o NO ¨
 
APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 59,500,000 shares of Common Stock were outstanding as of November 26, 2012.
 


 
1

 

CIGMA METALS CORPORATION

This quarterly report contains statements that plan for or anticipate the future and are not historical facts. In this report these forward looking statements are generally identified by words such as “anticipate,” “plan,” “believe,” “expect,” “estimate,” and the like. Because forward looking statements involve future risks and uncertainties, these are factors that could cause actual results to differ materially from the estimated results. These risks and uncertainties are detailed in Part 1 – Financial Information - Item 1. “Financial Statements” and Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The Private Securities Litigation Reform Act of 1995, which provides a “safe harbor” for such statements, may not apply to this Report.

PART 1 – FINANCIAL INFORMATION
Page
     
Item 1.
 
     
 
3
 
4
 
5
 
6
 
10
 
11
     
Item 2.
16
Item 3.
27
Item 4T.
27
 
   
PART II – OTHER INFORMATION
 
 
   
Item 1.
27
Item 1A.
27
Item 2.
28
Item 3.
28
Item 4.
28
Item 5.
28
Item 6.
28
     
30


Item 1. Financial Statements

CIGMA METALS CORPORATION
(An exploration stage enterprise)

Consolidated Balance Sheets
September 30, 2012 and December 31, 2011
(Expressed in U.S. Dollars)

   
September 30
   
December 31
 
   
(Unaudited) 2012
   
2011
 
   
 
       
ASSETS
           
Current
           
Cash
  $ 144,869     $ 71,647  
Available-for-sale securities
    41,476       40,426  
Cost method investments
    177,266       177,266  
Prepaid expenses and other assets
    31,006       5,600  
Total current assets
    394,617       294,939  
                 
Mineral properties
    500,000       500,000  
Total assets
  $ 894,617     $ 794,939  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current liabilities
               
Accounts payable and accrued expenses
  $ 25,913     $ 15,218  
Accounts payable - related party
    22,428       44,789  
Total current liabilities
    48,341       60,007  
                 
Stockholders' Equity
               
Common stock
               
Authorized
               
100,000,000 common shares, par value $0.0001
               
Issued and outstanding:
               
59,500,000 (2011 - 54,500,000) common shares
    5,950       5,450  
Additional paid in capital
    11,342,494       11,092,994  
Accumulated deficit during the development stage
    (10,422,276 )     (10,282,570 )
Accumulated other comprehensive income (loss)
    (79,892 )     (80,942 )
Stockholders' equity
    846,276       734,932  
                 
Total liabilities and stockholders' equity
  $ 894,617     $ 794,939  

The accompanying notes are an integral part of these consolidated financial statements.
 
 
CIGMA METALS CORPORATION
                             
(An exploration stage enterprise)
                             
Consolidated Statements of Operations
                             
(Expressed in U.S. Dollars)
 
Cumulative
                         
(Unaudited)
 
January 13
   
Three months
   
Three months
   
Nine months
   
Nine months
 
   
1989 (inception)
   
Ended
   
Ended
   
Ended
   
Ended
 
   
September 30
   
September 30
   
September 30
   
September 30
   
September 30
 
   
2012
   
2012
   
2011
   
2012
   
2011
 
                               
Expenses
                             
Administrative and general
  $ 987,523     $ 16,251     $ 7,982     $ 38,323     $ 38,927  
Exploration costs
                                       
- HaldeyGold Project - partnership
    796,261       -       -       -       -  
- HaldeyGold Project - other
    185,126       -       -       -       -  
- Tugojakovsk Project
    453,821       -       -       -       -  
- Kazakhstan
    5,077,672       -       -       -       -  
- Mexico
    33,139       8,889       1,500       29,139       4,000  
Impairment of mineral properties
    1,009,597       -       -       -       -  
Interest, bank charges and foreign currency exchange (gains) losses
    120,744       1,103       9,969       1,694       7,074  
Professional fees
    845,431       13,952       -       21,944       2,560  
Property investigation costs
    119,717       -       -       -       -  
Management and consulting fees
    2,158,515       18,780       9,110       48,606       48,445  
Loss before other items
    11,787,546       58,975       28,561       139,706       101,006  
                                         
Other income (loss)
                                       
Writedown of available-for-sale securities
    (148,180 )     -       -       -       -  
Writedown of investment in partnership interest
    (190,601 )     -       -       -       -  
Gain (loss) on sale of assets
    (12,342 )     -       -       -       -  
Gain (loss) on sale of available-for-sale securities
    361,704       -       -       -       71,737  
Gain (loss) on disposition of subsidiary
    958,591       -       -       -       -  
Interest income
    265,359       -       1,413       -       7,364  
Total other income (loss)
    1,234,531       -       1,413       -       79,101  
Net income (loss) before non-controlling interest
    (10,553,015 )     (58,975 )     (27,148 )     (139,706 )     (21,905 )
Non-controlling interest
    130,739       -       -       -       -  
Net income (loss) for the period
  $ (10,422,276 )   $ (58,975 )   $ (27,148 )   $ (139,706 )   $ (21,905 )
                                         
Basic and diluted income (loss) per share
          $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )
Weighted average number of common shares outstanding
            54,945,652       54,500,000       54,650,183       54,500,000  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
Cigma Metals Corporation
Consolidated Statements of Comprehensive Income (loss)
(Expressed in U.S. Dollars)
(Unaudited)

                           
Cumulative
 
 
 
Three Months Ended
   
Nine Months Ended
   
January 13
 
   
September 30
   
September 30
   
September 30
   
September 30
   
1989 (inception) to
 
   
2012
   
2011
   
2012
   
2011
   
September 30, 2012
 
Net income (loss) for the period
  $ (58,975 )   $ (27,148 )   $ (139,706 )   $ (21,905 )   $ (10,422,276 )
Other comprehensive loss
                                       
Cumulative translation adjustment
    -       -       -       -       -  
Unrealized gains (losses) on available-for-sale securities
    (2,540 )     (7,417 )     1,050       (60,340 )     (79,892 )
Comprehensive income (loss)
  $ (61,515 )   $ (34,565 )   $ (138,656 )   $ (82,245 )   $ (10,502,168 )

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

CIGMA METALS CORPORATION & SUBSIDIARIES
(An exploration stage enterprise)

Consolidated Statements of Stockholders' Equity (Deficiency) and
Comprehensive Income (Loss)
January 13, 1989 (inception) to September 30, 2012
(Expressed in U.S. Dollars)
(Unaudited)                                          
                                           
                           
Accumulated
   
Accumulated
   
Total
 
               
Additional
   
Advances for
   
other
   
(deficit) during
   
stockholders'
 
   
Common stock
   
paid-in
   
Stock
   
comprehensive
   
exploration
   
equity
 
   
Shares
   
Amount
   
capital
   
Subscriptions
   
income (loss)
   
stage
   
(deficiency)
 
Issuance of common stock for
                                         
- for services on August 2, 1989
    2,000,000     $ 200     $ 800     $ -     $ -     $ -     $ -  
- Net (loss) for the year
    -       -       -       -       -       (1,000 )     (1,000 )
Components of comprehensive income (loss)
                                                       
Balance, December 31, 1991 to 1997
    2,000,000       200       800       -       -       (1,000 )     (1,000 )
Issuance of common stock for
                                                       
- for mineral property rights on April 2, 1998
    12,000,000       1,200       (600 )     -       -       -       600  
- Net (loss) for the year
    -       -       -       -       -       (600 )     (600 )
Components of comprehensive income (loss)
                                                       
Balance, December 31, 1998
    14,000,000       1,400       200       -       -       (1,600 )     -  
Issuance of common stock for
                                                       
- cash on March 31, 1999
    14,000,000       1,400       698,600       -       -       -       700,000  
- Net (loss) for the year
    -       -       -       -       -       (141,392 )     (141,392 )
Components of comprehensive income (loss)
                                                       
Balance, December 31, 1999
    28,000,000       2,800       698,800       -       -       (142,992 )     558,608  
- Net (loss) for the year
    -       -       -       -       -       (211,182 )     (211,182 )
Components of comprehensive income (loss)
                                                       
- Unrealized gains (losses) on available-for-sale securities
    -       -       -       -       (77,734 )     -       (77,734 )
Balance, December  31, 2000
    28,000,000       2,800       698,800       -       (77,734 )     (354,174 )     269,692  
- Net (loss) for the year
    -       -       -       -       -       (25,510 )     (25,510 )
Components of comprehensive income (loss)
                                                       
- Unrealized gains (losses) on available-for-sale securities
    -       -       -       -       (17,803 )     -       (17,803 )


Balance, December  31, 2001
    28,000,000       2,800       698,800       -       (95,537 )     (379,684 )     226,379  
- Net (loss) for the year
    -       -       -       -       -       (20,943 )     (20,943 )
Components of comprehensive income (loss)
                                                       
- Unrealized gains (losses) on available-for-sale securities
    -       -       -       -       48,407       -       48,407  
Balance, December  31, 2002
    28,000,000       2,800       698,800       -       (47,130 )     (400,627 )     253,843  
- Net (loss) for the year
    -       -       -       -       -       (17,631 )     (17,631 )
Components of comprehensive income (loss)
                                                       
- Unrealized gains (losses) on available-for-sale securities
    -       -       -       -       (3,723 )     -       (3,723 )
Balance, December  31, 2003
    28,000,000       2,800       698,800       -       (50,853 )     (418,258 )     232,489  
Cash advanced on stock subscriptions
    -       -       -       1,000,000       -       -       1,000,000  
- Net (loss) for the year
    -       -       -       -       -       (657,031 )     (657,031 )
Components of comprehensive income (loss)
                                                       
- Unrealized gains (losses) on available-for-sale securities
    -       -       -       -       (31,020 )     -       (31,020 )
Balance, December  31, 2004
    28,000,000       2,800       698,800       1,000,000       (81,873 )     (1,075,289 )     544,438  
Issuance of common stock for
                                                       
- cash on May 20, 2005
    2,000,000       200       999,800       (1,000,000 )     -       -       -  
- cash on December 13, 2005
    700,000       70       349,930       -       -       -       350,000  
Cash advanced on stock subscriptions
    -       -       -       300,000       -       -       300,000  
- Net (loss) for the year
    -       -       -       -       -       (888,224 )     (888,224 )
Components of comprehensive income (loss)
                                                       
- Recognition of other than temporary decline in market value of available-for-sale securities
    -       -       -       -       81,873       -       81,873  
Balance, December 31, 2005
    30,700,000       3,070       2,048,530       300,000       -       (1,963,513 )     388,087  
Issuance of common stock for
                                                       
- cash on March 30, 2006
    800,000       80       299,920       (300,000 )     -       -       -  
- cash on May 12, 2006
    6,540,000       654       3,269,346       -       -       -       3,270,000  
- cash on May 26, 2006
    1,460,000       146       729,854       -       -       -       730,000  
Grant of options to employees and directors
    -       -       366,844       -       -       -       366,844  
- Net (loss) for the year
    -       -       -       -       -       (1,545,617 )     (1,545,617 )
Components of comprehensive income (loss)
                                                       
- Unrealized gains (losses) on available-for-sale securities
    -       -       -       -       (15,488 )     -       (15,488 )


Balance, December  31, 2006
    39,500,000       3,950       6,714,494       -       (15,488 )     (3,509,130 )     3,193,826  
Issuance of common stock for
                                                       
- finders fee in March/April 2007
    200,000       20       136,980       -       -       -       137,000  
- finders fee in June 2007
    200,000       20       95,980       -       -       -       96,000  
- cancel finder’s fee in March/April 2007
    (200,000 )     (20 )     (136,980 )     -       -       -       (137,000 )
- Net (loss) for the period
    -       -       -       -       -       (1,909,808 )     (1,909,808 )
Components of comprehensive income (loss)
                                                       
- Cumulative translation adjustment
    -       -       -       -       8,101       -       8,101  
- Unrealized gains (losses) on available-for-sale securities
    -       -       -       -       (73,864 )     -       (73,864 )
Balance, December 31, 2007
    39,700,000       3,970       6,810,474       -       (81,251 )     (5,418,938 )     1,314,255  
Issuance of common stock for
                                                       
- shares to be issued
    -       -       449,842       158       -       -       450,000  
- finders fee in January 2008
    300,000       30       113,970       -       -       -       114,000  
- cash in June 2008
    6,500,000       650       1,949,350       -       -       -       1,950,000  
- cash in October 2008
    1,600,000       160       399,840       -       -       -       400,000  
- Net (loss) for the period
    -       -       -       -       -       (3,482,651 )     (3,482,651 )
Components of comprehensive income (loss)
                                                       
- Cumulative translation adjustment
    -       -       -       -       18,746       -       18,746  
- Unrealized gains (losses) on available-for-sale securities
    -       -       -       -       (43,593 )     -       (43,593 )
Balance, December 31, 2008
    48,100,000       4,810       9,723,476       158       (106,098 )     (8,901,589 )     720,757  
Issuance of common stock for
                                                       
- shares to be issued
    -       -       (449,842 )     (158 )     -       -       (450,000 )
- cash in February 2009
    500,000       50       99,950       -       -       -       100,000  
- cash in March 2009
    1,000,000       100       199,900       -       -       -       200,000  
- cash in July 2009
    3,900,000       390       1,169,610       -       -       -       1,170,000  
- Net (loss) for the period
    -       -       -       -       -       (2,235,893 )     (2,235,893 )
Components of comprehensive income (loss)
                                                       
- Cumulative translation adjustment
    -       -       -       -       (197,162 )     -       (197,162 )
- Unrealized gains (losses) on available-for-sale securities
    -       -       -       -       175,994       -       175,994  


Balance, December 31, 2009
    53,500,000       5,350       10,743,094       -       (127,266 )     (11,137,482 )     (516,304 )
Issuance of common stock for
                                                       
- for mineral property rights on March 31, 2010
    1,000,000       100       349,900       -       -       -       350,000  
- Net income for the period
    -       -       -       -       -       917,649       917,649  
Components of comprehensive income (loss)
                                                       
- Cumulative translation adjustment
    -       -       -       -       170,315       -       170,315  
- Unrealized gains (losses) on available-for-sale securities
    -       -       -       -       (57,632 )     -       (57,632 )
Balance, December 31, 2010
    54,500,000       5,450       11,092,994       -       (14,583 )     (10,219,833 )     864,028  
- Net loss for the period
    -       -       -       -       -       (62,737 )     (62,737 )
Components of comprehensive income (loss)
                                                       
- Unrealized gains (losses) on available-for-sale securities
    -       -       -       -       (66,359 )     -       (66,359 )
Balance, December 31, 2011
    54,500,000       5,450       11,092,994       -       (80,942 )     (10,282,570 )     734,932  
Issuance of common stock for
                                                       
- cash in August 2012 at $0.05 per share
    4,000,000       400       199,600       -       -       -       200,000  
- settlement of indebtedness in September 2012 at $0.05 per share
    1,000,000       100       49,900       -       -       -       50,000  
- Net loss for the period
    -       -       -       -       -       (139,706 )     (139,706 )
Components of comprehensive income (loss)
                                                       
- Unrealized gains (losses) on available-for-sale securities
    -       -       -       -       1,050       -       1,050  
Balance, September 30, 2012
    59,500,000     $ 5,950     $ 11,342,494     $ -     $ (79,892 )   $ (10,422,276 )   $ 846,276  

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

CIGMA METALS CORPORATION
 
Cumulative
             
(An exploration stage enterprise)
 
January 13
   
Nine months
   
Nine months
 
Consolidated Statements of Cash Flows
 
1989 (inception)
   
Ended
   
Ended
 
(Expressed in U.S. Dollars)
 
to September 30
   
September 30
   
September 30
 
(Unaudited)
 
2012
   
2012
   
2011
 
                   
Cash flows used in operating activities
                 
Net income (loss) for the period
  $ (10,422,276 )   $ (139,706 )   $ (21,905 )
Adjustments to reconcile net income (loss) to net cash used in operating activities
                       
- depreciation
    51,626       -       -  
- stock compensation expense on stock option grants
    366,844       -       -  
- accrued interest on notes receivable
    (19,901 )     -       (7,365 )
- issuance of common stock for mineral property rights
    600       -       -  
- expenses satisfied with issuance of common stock
    238,639       27,639       -  
- partnership exploration costs
    1,125,711       -       -  
- writedown of investment in partnership interest
    190,601       -       -  
- writedown of available for sale securities
    148,180       -       -  
- realized gain on sale of available-for-sale investments
    (361,704 )     -       (71,737 )
- gain on disposition of subsidiary
    (958,591 )     -       -  
- impairment of mineral properties
    1,009,597       -       -  
- minority interest in income (loss) of subsidiary
    (130,739 )                
- realized loss on sale of equipment
    12,342       -       -  
Changes in working capital assets and liabilities, net of disposal of subsidiary
                       
- decrease (increase) in trade and other receivables
    (11,180 )     -       -  
- decrease (increase) in prepaid expenses and other assets
    (55,495 )     (25,406 )     (3,092 )
- increase (decrease) in accounts payables and accrued liabilities
    261,693       10,695       (15,434 )
- increase (decrease) in accounts payables related party
    44,788       -       -  
- increase (decrease) in deposits
    -       -       -  
Net cash used in operating activities
    (8,509,265 )     (126,778 )     (119,533 )
                         
Cash provided by (used in) investing activities
                       
- collections on notes receivable
    200,000       -       -  
- purchase equipment
    (217,093 )     -       -  
- proceeds from sale of equipment
    35,717       -       -  
- proceeds from disposition of subsidiary, net of cash deposit
    1,452,949       -       -  
- investment in available-for-sale securities
    (337,342 )     -       -  
- proceeds from disposition of marketable securities
    422,132       -       82,887  
- investment in partnership interest
    (1,316,312 )     -       -  
- acquisition of mineral property costs
    (2,550,000 )     -       -  
Net cash provided by (used in) investing activities
    (2,309,949 )     -       82,887  
                         
Cash flows from financing activities
                       
- issuance of common stock
    10,370,001       200,000       -  
- loan proceeds
    1,160,255       -       -  
- loan payments
    (633,396 )     -       -  
Net cash provided by financing activities
    10,896,860       200,000       -  
                         
Effect of exchange rate changes on cash and cash equivalents
    67,223       -       -  
Increase (decrease) in cash and cash equivalents
    144,869       73,222       (36,646 )
Cash and cash equivalents, beginning of period
    -       71,647       223,334  
Cash and cash equivalents, end of period
  $ 144,869     $ 144,869     $ 186,688  
                         
Supplement Disclosures of Cash Information:
                       
Interest paid (net of amounts capitalized)
          $ -     $ -  
Income taxes paid
          $ -     $ -  

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

CIGMA METALS CORPORATION
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.  
Nature of Business and Going Concern

Cigma Metals Corporation (the “Company”) was formed on January 13, 1989, under the laws of the State of Florida as “Cigma Ventures Corporation.” On April 17, 1999 the Company changed its name to “Cigma Metals Corporation.” The Company is in the business of location, acquisition, exploration and, if warranted, development of mineral properties. The Company’s current focus is on the exploration and development of its mineral concessions in Mexico. The Company has not yet determined whether its properties contain mineral reserves that may be economically recoverable and has not generated any operating revenues to date.

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The general business strategy of the Company is to acquire mineral properties either directly or through the acquisition of operating entities. The Company has incurred recurring operating losses since inception, has not generated any operating revenues to date and used cash of $126,778 from operating activities in 2012.

The Company requires additional funds to meet its obligations and maintain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in this regard are to raise equity financing through private or public equity investment in order to support existing operations and expand its business. There is no assurance that such additional funds will be available to the Company when required or on terms acceptable to the Company. These consolidated financial statements do not include any adjustments that might result from this uncertainty.

2.  
Significant Accounting Policies

a)  
Principles of Accounting:

The Company follows accounting standards set by the Financial Accounting Standards Board, referred to as the “FASB”. The FASB sets accounting principles generally accepted in the United States (“GAAP”) that the Company follows to ensure they consistently report their financial condition, results of operations, and cash flows. References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification, referred to as “ASC”.

These consolidated financial statements have been prepared in accordance with GAAP and include the accounts of the Company and its 100% owned subsidiaries Exploraciones Cigma S.A. de C.V. (“Exploraciones Cigma”) and Cigma Metals (BVI) Limited (“Cigma BVI”), collectively, they are referred to herein as “the Company”. Significant inter-company accounts and transactions have been eliminated.

b)  
Accounting Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 and assumptions.
 
c)
Cash Equivalents
 
Cash equivalents comprise certain highly liquid instruments with a maturity of three months or less when purchased. The Company did not have any cash equivalents at September 30, 2012 and December 31, 2011.
 

d)  
Marketable securities

Non-derivative financial assets that do not meet the definition of loans and receivables are classified as available-for-sale and comprise principally all of the Company’s strategic investments in entities not qualifying as subsidiaries or associates. The Company’s available-for-sale securities consist of shares of common stock of three small cap publicly traded companies at both September 30, 2012 and December 31, 2011, and are stated at fair value. Any unrealized holding gains or losses in these securities are included in the determination of accumulated other comprehensive income (loss). If a loss in value in the available-for-sale securities is considered to be other than temporary, it is recognized in the determination of net income. Cost is based on the specific identification method for the individual securities to determine realized gains or losses.

On sale of available-for-sale investments, the cumulative amount recognized in other comprehensive loss/income is reclassified from accumulated other comprehensive loss/income to profit or loss.

Investee companies where no quoted market price in an active market is available are accounted for under the cost method of accounting. Under this method, the Company’s share of the earnings or losses of such Investee companies is not included in the Consolidated Balance Sheet or Statement of Operations. However, impairment charges are recognized in the Consolidated Statement of Operations. If circumstances suggest that the value of the Investee Company has subsequently recovered, such recovery is not recorded.
 
Cost method investments at September 30, 2012, consist of an investment in a privately held corporation headquartered in Europe.

e)  
Mineral Properties and Exploration Expenses

The Companies policy is to account for its mineral properties on a cost basis whereby all direct costs, net of pre-production revenue, relative to the acquisition of the properties are capitalized. All sales and option proceeds received are first credited against the costs of the related property, with any excess credited to earnings. Once commercial production has commenced, the net costs of the applicable property will be charged to operations using the unit-of-production method based on estimated proven and probable recoverable reserves. The net costs related to abandoned properties are charged to operations.

Exploration costs are charged to operations as incurred until such time that proven reserves are discovered. From that time forward, the Company will capitalize all costs to the extent that future cash flow from mineral reserves equals or exceeds the costs deferred. The deferred costs will be amortized over the recoverable reserves when a property reaches commercial production. As at September 30, 2012 and December 31, 2011, the Company did not have proven reserves. Exploration activities conducted jointly with others are reflected at the Company's proportionate interest in such activities.

The Company reviews the carrying values of its mineral properties on a regular basis by reference to the project economics including the timing of the exploration and/or development work, the work programs and the exploration results experienced by the Company and others. The review of the carrying value of any producing property will be made by reference to the estimated future operating results and net cash flows. When the carrying value of a property exceeds its estimated net recoverable amount, provision is made for the decline in value.

The recoverability of the amounts shown for mineral properties is dependent on the confirmation of economically recoverable reserves, confirmation of the Company’s interest in the underlying mineral claims, the ability of the Company to obtain the necessary financing to successfully complete their development and the attainment of future profitable operations or proceeds from disposition.

Estimated costs related to site restoration programs during the commercial development stage of the property are accrued over the life of the project.

f)  
Stock-based compensation

The Company accounts for share-based payments under the fair value method of accounting whereby stock-based compensation cost is measured at the grant date based on the fair value of the common stock on the award date.
 
 
g)  
Interest Expense

Interest expense was approximately $0 in 2012 (2011 - $329) respectively.

h)  
Foreign Currency Translations and Transactions

The Company and Cigma Metals (BVI) Limited’s reporting currency is the U.S. Dollar. Exploraciones Cigma S.A. de C.V. is a foreign operation and its functional currency is the Mexico Peso. Certain contractual obligations in these consolidated financial statements are stated in the Mexican Peso. The Mexican Peso to U.S. dollar exchange rate at September 30, 2012 was U.S. $0.0777 to 1 Peso.
 
The Company translates foreign assets and liabilities of its subsidiaries, other than those denominated in U.S. dollars, at the rate of exchange at the balance sheet date. Income and Expenses are translated at the average rate of exchange throughout the year. Gains or losses from these translations are reported as a separate component of other comprehensive income (loss) until all or a part of the investment in the subsidiaries is sold or liquidated. The translation adjustments do not recognize the effect of income tax because the Company expects to reinvest the amounts indefinitely in operations.

Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency foreign exchange loss in the consolidated statements of operations and were not material in 2012 or 2011 or in the cumulative period ending September 30, 2012.
 
i)  
Concentration of Credit Risk

Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents. The Company places its cash with high credit quality financial institutions in Canada. The Company occasionally has cash deposits in excess of federally insured limits. The Company did not have funds deposited in banks beyond the insured limits as of September 30, 2012 and December 31, 2011.

j)  
Long-Lived Assets Impairment

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, in accordance with GAAP. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition.

k)  
Comprehensive income

The Company has adopted FASB ASC 220, Reporting Comprehensive Income, which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its Consolidated Statement of Stockholders’ Equity and Comprehensive Income (Loss). Comprehensive income comprises equity except those resulting from investments by owners and distributions to owners. Comprehensive income comprises equity except those resulting from investments by owners and distributions to owners.

l) 
Fair Value of Financial Instruments and Risks

Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value.

The carrying value of cash, accounts payable and accrued expenses (including related parties) approximate their fair value because of the short-term nature of these instruments.

Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.
 

The Company operates outside of the United States of America and is exposed to foreign currency risk due to the fluctuation between the currency in which the Company operates in and the U.S. dollar.

m) 
Income Taxes

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Income taxes recognized in a company’s financial statements are in accordance with GAAP. GAAP prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Estimated interest and penalties related to recording uncertain tax positions when recorded are included as a component of income tax expense on the consolidated statement of operations. The Company has not recorded any liabilities for uncertain tax positions or any related interest and penalties. The Company’s tax returns are open to review by federal tax authorities from 2007 to current.

n)  
Earnings (Loss) Per Share

Earnings (loss) per share is computed by dividing net income or loss available to common stockholders by the weighted average number of common shares outstanding during the year including common stock issued effective the date committed. Common stock issuable is considered outstanding as of the original approval date for the purposes of earnings per share computations. Diluted loss per common share is computed by dividing net loss by the sum of (a) the basic weighted average number of shares of common stock outstanding during the period and (b) additional shares that would have been issued and potentially dilutive securities and is equivalent to basic income (loss) per share for 2012 and2011 and because there were no potentially dilutive securities outstanding at September 30, 2012 and December 31, 2011.

o)  
Fair Value Measurement

Fair value is defined in GAAP as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. As presented in the tables below, this hierarchy consists of three broad levels:

Level 1:  Valuations consist of unadjusted quoted prices in active markets for identical assets and liabilities and has the highest priority;

Level 2:  Valuations rely on quoted prices in markets that are not active or observable inputs over the full term of the asset or liability;

Level 3:  Valuations are based on prices or third party or internal valuation models that require inputs that are significant to the fair value measurement and are less observable and thus have the lowest priority.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Certain assets and liabilities are reported at fair value on a recurring basis in the Company’s Balance Sheet. The following methods and assumptions were used to estimate the fair values:

Available-for-sale securities The Company’s available-for-sale securities consist of shares of common stock of three small cap publicly traded companies at September 30, 2012 and December 31, 2011, respectively, and are stated at fair value, which is based on Level 1 inputs under the Fair Value hierarchy consisting of quoted prices in active markets for identical shares. A reconciliation of the Available-for-sale securities is included in Note 3.
 

p)  
New Accounting Pronouncements

At present, there are no pronouncements that the Company expects will have a material impact on these consolidated financial statements.

3.  
Available-for-sale securities

   
Cost $
   
Other-than –
temporary
losses $
   
Gross
unrealized
gains $
   
Gross
unrealized
losses $
   
Accumulated
unrealized
gains/(losses) $
   
Market
value $
 
December 31, 2010
    132,518       -       73,833       (88,416 )     (14,583 )     117,935  
Change in year
    (11,150 )     -       (73,833 )     7,474       (66,359 )     (77,509 )
December 31, 2011
    121,368       -       -       (80,942 )     (80,942 )     40,426  
Change in year
    -       -       -       1,050       1,050       1,050  
September 30, 2012
    121,368       -       -       (79,892 )     (79,892 )     41,476  

4.  
Mineral Properties and Exploration Expenses

The Company, through its wholly owned subsidiary, Exploraciones Cigma S.A. de C.V. holds a 100% interest in a mineral concession located in the State of Guerrero, Mexico.

Mexico

On March 9, 2010, the Company signed a property purchase agreement with Alphamin Resources Corp. (“Alphamin”) regarding the sale and transfer by Alphamin of a 100% interest in the Aurora II (title No. 235480) mining concession located in the State of Guerrero, Mexico, to the Company, in consideration for $150,000 and 1,000,000 common shares of Cigma. Alphamin will retain a 1.5% Net Smelter Returns Royalty on production from the Property. On June 11, 2010 the Company’s wholly owned Mexican subsidiary, Exploraciones Cigma, S.A. de C.V., filed the Assignment Agreement for the Aurora II mining concession between Alphamin’s wholly -owned Mexican subsidiary, Exploraciones La Plata, S.A. de C.V. and Exploraciones Cigma, S.A. de C.V. with the Mexican Public Registry of Mining.

On August 1, 2012, we signed a property purchase agreement with Alphamin regarding the sale and transfer by Alphamin of a 100% interest in the Aurora (title No. 238662), Aurora Fraccion 1 (title No. 238663), La Huerta (title No. 231940), La Pastoria (title No. 232204), and Lupita (title No. 232725) mining concessions located in the State of Guerrero, Mexico, to us, in consideration for MXN $20,000. Alphamin will retain a 1.5% Net Smelter Returns Royalty on production from the Aurora and Aurora Fraccion mining concessions.

5.  
Stock Options

Effective December 1, 2006, subject to shareholder approval, the Board of Directors of the Company ratified, approved and adopted a Stock Option Plan (“SOP”) for the Company in order to provide additional incentive for its directors, officers, employees and service providers. The maximum amount of shares that can be issued under the SOP in any calendar year cannot exceed 20% of the issued and outstanding common shares on a non-diluted basis; to any one optionee within a 12 month period shall not exceed 5% of the of the issued and outstanding common shares on a non-diluted basis; to any one consultant within a 12 month period shall not exceed 2% in the aggregate of the issued and outstanding common shares on the date of grant on a non-diluted basis; and to all eligible participants who undertake investor relations activities shall not exceed 2% in the aggregate of the total number of issued and outstanding common shares on the date of grant on a non-diluted basis. The exercise price of each such stock option shall not be less than the fair market value of a share at the time of grant. The term of the options granted under the plan shall not exceed five years from the date of the grant.

There were no stock options granted during 2012 and 2011 and none were outstanding at September 30, 2012 and December 31, 2011.
 

6.  
Common Stock

The Company intends to finance activities by raising capital through the equity markets.

On August 24, 2012, the Company entered into a subscription agreement for 4,000,000 shares of common stock at a purchase price of $0.05 per share for gross aggregate proceeds of $200,000. Pursuant to the subscription agreement, the Investor has represented that they are not a U.S. person, as such term is defined in Regulation S.

In September 2012, the Company issued 1,000,000 shares of common stock of the Company valued at $50,000 in settlement of amounts owing to creditors. The shares were issued to an individual who resides outside the United States of America. The transactions were recorded at the exchange amount being the value established and agreed to by the related party.

7.  
Related Party Transactions

Related party transactions not disclosed elsewhere in these consolidated financial statements:

Due to related party, as at September 30, 2012 and December 31, 2011, represents amounts due to directors of the Company for consulting fees and/or various expenses incurred on behalf of the Company. All amounts owing to related parties is unsecured, non-interest bearing and have no fixed terms of repayment.

8.  
Non-Cash Investing and Financing Activities

In August 2011, the note receivable, resulting from the January 2010 sale of the Company’s 100% interest in its Kazakhstan subsidiary (“Dostyk LLP”) to Copperbelt AG, along with the accrued interest, $177,442 was converted into 272,989 common shares of Copperbelt AG at $0.65 per share.

In September 2012, the Company issued 1,000,000 shares of common stock of the Company valued at $50,000 in settlement of amounts owing to creditors. The shares were issued to an individual who resides outside the United States of America. The transactions were recorded at the exchange amount being the value established and agreed to by the related party.
 
Item 2. 
Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

This portion of the Quarterly Report provides management’s discussion and analysis of the financial condition and results of operations to enable a reader to assess material changes in financial condition and results of operations as at and for the nine months ended September 30, 2012, in comparison to the corresponding prior-year period. This MD&A has been prepared as of November 26, 2012. This MD&A is intended to supplement and complement the unaudited interim consolidated financial statements and notes thereto, prepared in accordance with US GAAP, for the nine months ended September 30, 2012 and 2011 (collectively, the “Financial Statements”), which are included in this Quarterly Report. The reader is encouraged to review the Financial Statements in conjunction with your review of this MD&A. This MD&A should be read in conjunction with both the annual audited consolidated financial statements for the year ended December 31, 2011 and the related annual MD&A included in the December 31, 2011, Form 10-K on file with the US Securities and Exchange Commission. Certain notes to the Financial Statements are specifically referred to in this MD&A and such notes are incorporated by reference herein. All dollar amounts in this MD&A are in US dollars, unless otherwise specified.

For the purposes of preparing this MD&A, we consider the materiality of information. Information is considered material if: (i) such information results in, or would reasonably be expected to result in, a significant change in the market price or value of Cigma Metals Corporation’s shares; or (ii) there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision or if it would significantly alter the total mix of information available to investors. Materiality is evaluated by reference to all relevant circumstances, including potential market sensitivity.
 

Forward-Looking Statements

Except for the historical information presented in this document, the matters discussed in this Form 10-Q for the nine months ended September 30, 2012, contain forward-looking statements which involve assumptions and our future plans, strategies, and expectations. These statements are generally identified by the use of words such as “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project,” or the negative of these words or other variations on these words or comparable terminology. These statements are expressed in good faith and based upon a reasonable basis when made, but there can be no assurance that these expectations will be achieved or accomplished.

Such forward-looking statements include statements regarding, among other things, (a) the potential markets for our products, our potential profitability, and cash flows (b) our growth strategies (c) our future financing plans and (d) our anticipated needs for working capital. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as in this Form 10-Q generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the matters described in this Form 10-Q generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. In addition to the information expressly required to be included in this filing, we will provide such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.

Although forward-looking statements in this report reflect the good faith judgment of our management, forward-looking statements are inherently subject to known and unknown risks, business, economic and other risks and uncertainties that may cause actual results to be materially different from those discussed in these forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission (the “SEC”), which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect our actual results may vary materially from those expected or projected.

Except where the context otherwise requires and for purposes of this 10-Q only, “we,” “us,” “our,” “Company,” and “our Company,” refer to Cigma Metals Corporation, a Florida corporation, and its consolidated subsidiaries.

Business Development

We were incorporated under the laws of the State of Florida on January 13, 1989, as “Cigma Ventures Corporation.” On April 17, 1999, we changed our name to “Cigma Metals Corporation” and are in the business of locating, acquiring, exploring and, if warranted, developing mineral properties.

Through our Mexican subsidiary, Exploraciones Cigma SA de CV (“Exploraciones Cigma”) we are engaged in the exploration of gold and silver mining properties located in the Mexico, and have not yet determined whether our properties contain mineral reserves that may be economically recoverable.

Our general business strategy is to acquire mineral properties either directly or through the acquisition of operating entities. Our continued operations and the recoverability of mineral property costs is dependent upon the existence of economically recoverable mineral reserves, confirmation of our interest in the underlying properties, our ability to obtain necessary financing to complete the development and upon future profitable production.

Since 1999 we have acquired and disposed of a number of properties. We have not been successful in any of our exploration efforts to establish reserves on any of the properties that we owned or in which we have or have had an interest.
 

We currently have interest in six (6) properties, none of which contain any reserves. Please refer to “Description of Properties.” The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As discussed in Note 1 to the consolidated financial statements, we have not generated revenue and have experienced recurring losses from operations since inception, and have a working capital deficit. We will not generate revenues even if any of our exploration programs indicate that a mineral deposit may exist on our properties. Accordingly, we will be dependent on future financings in order to maintain our operations and continue our exploration activities. These conditions raise substantial doubt about our ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We have not been involved in any bankruptcy, receivership or similar proceedings.

Our Principal Products and Their Markets

We are a junior mineral exploration company. Our strategy is to concentrate our investigations into: (i) existing operations where an infrastructure already exists; (ii) properties presently being developed and/or in advanced stages of exploration which have potential for additional discoveries; and (iii) grass-roots exploration opportunities.

We are currently concentrating our property exploration activity on our interest located in Mexico.

Our properties are in the exploration stage only and are without a known body of mineral reserves. Development of the properties will follow only if satisfactory exploration results are obtained. Mineral exploration and development involves a high degree of risk and few properties that are explored are ultimately developed into producing mines. There is no assurance that our mineral exploration and development activities will result in any discoveries of commercially viable bodies of mineralization. The long-term profitability of our operations will be, in part, directly related to the cost and success of our exploration programs, which may be affected by a number of factors.

Significant Developments for the Nine Months Ended September 30, 2012 and Subsequent Events

For the nine months ended September 30, 2012, we recorded exploration expenses of $29,139 compared to $4,000 in fiscal 2011. The following is a breakdown of the exploration expenses by property: Mexico $29,139 (2011 - $4,000).

On August 1, 2012, we signed a property purchase agreement with Alphamin regarding the sale and transfer by Alphamin of a 100% interest in the Aurora (title No. 238662), Aurora Fraccion 1 (title No. 238663), La Huerta (title No. 231940), La Pastoria (title No. 232204), and Lupita (title No. 232725) mining concessions located in the State of Guerrero, Mexico, to us, in consideration for MXN $20,000. Alphamin will retain a 1.5% Net Smelter Returns Royalty on production from the Aurora and Aurora Fraccion mining concessions.

On August 24, 2012, we entered into a subscription agreement for 4,000,000 shares of our common stock at a purchase price of $0.05 per share for gross aggregate proceeds of $200,000. The shares were issued to a company which resides outside the United States of America (in accordance with the exemption from registration requirements afforded by Regulation S).

In September 2012, we issued 1,000,000 shares of our common stock valued at $50,000 in settlement of amounts owing to creditors. The shares were issued to an individual who resides outside the United States of America (in accordance with the exemption from registration requirements afforded by Regulation S).The transactions were recorded at the exchange amount, being the value established and agreed to by the related parties

Properties

Office Premises

We conduct our activities from our principal and technical office located at Mision Santa Ana 5232, Fracc. Las Misiones CP 82133, Mazatlan, Sinaloa, Mexico. We believe that these offices are adequate for our purposes. The telephone number is +1 (669) 980-9176. Management believes that this space will meet our needs for the next 12 months. We do not own any real property or significant assets.
 

Mining and Exploration Properties

Our strategy is to concentrate our efforts on: (i) existing operations where an infrastructure already exists; (ii) properties presently being developed and/or in advanced stages of exploration which have potential for additional discoveries; and (iii) grass-roots exploration opportunities.

We are currently concentrating our property exploration activities in Mexico.

Our properties are in the exploration stage only and are without a known body of mineral reserves. Development of the properties will follow only if satisfactory exploration results are obtained. Mineral exploration and development involves a high degree of risk and few properties that are explored are ultimately developed into producing mines. There is no assurance that our mineral exploration and development activities will result in any discoveries of commercially viable bodies of mineralization. The long-term profitability of our operations will be, in part, directly related to the cost and success of our exploration programs, which may be affected by a number of factors.

We currently have an interest in six (6) properties and are currently focusing our efforts on our property located in northern Guerrero State, Mexico. We have conducted only preliminary exploration activities to date and may discontinue such activities and dispose of the properties if further exploration work is not warranted.

Former Properties

Russian Federation

Haldeevskaya License

On August 30, 2004, we signed a Joint Activity Agreement with OOO Science Industrial Corporation Geosphera (“Geosphera”), a company registered in Russia, to form a partnership to explore the Haldeevskaya license located in the Tomsk district of the Tomsk region of the Russian Federation, 25 km east of the city of Tomsk. Geosphera will earn a 51% interest in the partnership by contributing the license for the Haldeevskaya area and the geological data. The license and the geological data have been valued at $52,000. The terms of the agreement provided that we were to earn a 49% interest in the partnership by paying $50,000. However, we increased our interest in the partnership to 80% (Geosphera - 20%) by funding $350,000 of exploration expenditures on the licensed property in 2004. Geosphera is the manager of the project.

Pursuant to the terms of the Joint Activity Agreement, and for the purpose of conducting further financing and exploration work, a company, HaldeyGold Ltd. (“HaldeyGold”), was registered with the Ministry of the Russian Federation for Taxes and Levies on January 19, 2005. The Haldeevskaya mineral exploration license along with all relevant geological data was transferred by the partnership to HaldeyGold on March 16, 2005. We have an 80% (Geosphera 20%) interest in HaldeyGold.

On April 22, 2005, December 31, 2005, July 7, 2006 and December 29, 2006, we and Geosphera agreed to amend the Haldeevskaya Joint Activity Agreement dated August 30, 2004 resulting in a revision of the 2006 exploration expenditure commitment from $460,000 to $289,743 and the 2005 exploration expenditure commitment from $300,000 to $250,000. We also agreed to fund $400,000 toward the 2007 HaldeyGold exploration budget. No funds were spent on the HaldeyGold project in 2007. Our investment in the HaldeyGold partnership interest is as follows: Capital invested - $981,387, Exploration expenses incurred - $796,261, write-down of investment in partnership interest - $185,126.

The Haldeevskaya exploration licence has expired on December 31, 2007.

Tugojakovsk License

On June 17, 2005, as amended December 31, 2005, July 7, 2006 and December 29, 2006, we signed a Joint Activity Agreement to form a partnership to explore the Tugojakovsk Project, located in the Tomsk Oblast Region of the Russian Federation. Under the terms of the agreement: (1) we acquired an 80% share of the project in exchange for contributing $126,440 in 2005; and (2) we committed to finance the project in 2006 by providing $329,375 in accordance with an approved budget. We committed to finance the project in 2007 by providing $400,000 in accordance with an approved budget. Geosphera’s ownership interest cannot be reduced below 20%. Geosphera will contribute the license for Tugojakovsk and all geological information on this subsoil area which is owned by Geosphera, as well as professional knowledge, skills and business contacts.
 

Pursuant to the terms of the Joint Activity Agreement, a company will be registered in the Russian Federation in order to conduct further financing and exploration work on the Tugojakovsk license area. Once the joint venture company is registered with the Ministry of the Russian Federation for Taxes and Levies, the Partnership will transfer the Tugojakovsk mineral exploration license along with all relevant geological data to the new joint venture company. We will have an 80% (Geosphera 20%) interest in the new company. The new company was not registered.

Our investment in the Tugojakovks project is as follows: Capital invested - $453,821, Exploration expenses incurred - $453,821.

The Tugojakovsk exploration license expired on December 1, 2009.

Republic of Kazakhstan

Maykubinsk Exploration and Mining License

Through our wholly-owned subsidiary, Dostyk (sold in 2010), we held a high potential Maykubinsk exploration and mining license (the “Maykubinsk License”) located in Pavlodar Oblast Region in Kazakhstan. According to Kazakhstan Mining Law an exploration and mining licence (also called a Contract with the Government) could be obtained by any private or corporate body, including those with 100% of foreign ownership, through an open tender published by government. If the licence is already issued then it could be acquired through direct negotiations with the owner and re-registered by State authorities. We acquired Dostyk from Eureka Mining Ltd (“Eureka”), a UK based public company.
The Dostyk acquisition steps were as follows:

We acquired 100% of the shares of Dostyk through a share purchase agreement with Eureka in following steps and conditions:

·  
On January 27, 2007, we were granted 51% interest in Dostyk in return for a commitment to spend US$300,000 for exploration pursuant to the Maykubinsk Licence;
·  
We obtained the rights to a further 20% interest in Dostyk by spending an additional US$700,000 for exploration pursuant to the Maykubinsk Licence;
·  
We obtained the rights to a further 19% interest in Dostyk by spending an additional US$1,000,000 for exploration pursuant to the Maykubinsk Licence, to increase our interest in Dostyk to 90%; and
·  
We paid Eureka US$400,000 to obtain the remaining 10% interest in Dostyk.

During December 2009, we agreed to sell our ownership interest in our Kazakhstan subsidiary to a third party for $1,500,000. The only significant asset owned by the subsidiary is the mineral exploration license described in these financial statements. The agreement for the sale of the subsidiary for less than the $2,509,597 carrying value of the subsidiaries’ mineral property was an indication that the value of the mineral property has been impaired and capitalized costs of $1,009,597 were written off in 2009. The sale was concluded in 2010 and the purchase price of $1,500,000 was received in 2010.

Current Properties

Mexico

We hold six (6) mining concessions located in Guerrero State, Mexico. They are 100% owned by our Mexican subsidiary, Exploraciones Cigma, S.A. de C.V. The concessions define two Projects, the El Violín Project and the Pinzan Morado Project. The El Violín Project is centered on geographic co-ordinates 99º18’W, 17º20’ N and has a surface area of 4098 hectares. It is located 230 km south-southeast of Mexico City, D.F., and about 30 km southeast of Chilpancingo de Los Bravos, the State capital. The Pinzan Morado Project is centered on geographic co-ordinates 100º49’W, 18º18’ N, has a surface area of 91,559 hectares and is located 165 km northwest of Chilpancingo.
 

Mining Concessions that define the “El Violín” Project, Municipios of Mochitlán and Quechultenango, Guerrero, Mexico (1:50,000 INEGI map sheets E14C38, E14C39).

Concession
Title Number
File Number
Title Date
Surface area in Ha.
La Huerta
231940
033/09856
05/23/08
1470.0246
La Pastoria
232204
033/09857
07/04/08
1207.8195
Lupita
232725
033/09832
10/15/08
1420.1978
Total
     
4098.0419

Mining Concessions that define the “Pinzan Morado” Project, Municipios of Coyuca de Catalán and Zirándaro Guerrero, Mexico (1:50,000 INEGI map sheets E14A74, E14A84). The concessions are subject to a 1.5% NSR, payable to Exploraciones La Plata, S.A. de C.V., the Mexican subsidiary of Alphamin.

Concession
Title Number
File Number
Title Date
Surface area in Ha.
Aurora II
235480
033/09795
12/04/09
1946.6488
Aurora
238662
033/09787
10/11/11
89558.6322
Aurora Fraccion I
238663
033/09787
10/11/11
54.1121
Total
     
91,559.3931

El Violín

El Violín overlaps part of the Mixteca Terrane of Southern Mexico. The basement of the Mixteca Terrane is the polydeformed Paleozoic Acatlán Metamorphic Complex. The metamorphic rocks are unconformably overlain by the Middle Jurassic Chapolapa Formation which consists of two members: (i) the Green Member, mainly consisting of andesitic volcanic rocks, and (ii) the Purple Member which consists of conglomerates, breccias, rhyolite tuff-breccias, dacite, zinc-rich massive sulfides, iron formations, slate and sandstone. The Purple Member grades upwards and laterally into Tecocoyunca Group sediments, consisting of conglomerate, redbed sandstone and mudstone. The Middle Jurassic rocks are unconformably overlain by conglomerates, limestones, sandstones and tuffs of the Early Cretaceous Zicapa Formation. These grade upwards into reef limestones of the Morelos Formation. Uplift in the latest Cretaceous-Tertiary resulted in deposition of Mexcala red bed sediments unconformably on top of the Morelos Limestone, and intrusion of continental granites with their related porphyry systems.

In 2001, the Servicio Geologico Mexicano published 1:50,000 geological maps and geochemical surveys for 1:50,000 maps E14C38 and E14C39. In 2007, El Violín Project was explored by Alphamin for porphyry systems (Lupita concession) and zinc-rich massive sulfide deposits (La Huerta and Pastoría concessions). Work completed includes stream sediment geochemistry, soil geochemistry, prospecting and rock geochemistry. Prior to the financial crisis of 2008, several promising targets for further exploration, including drilling, were identified.

Pinzan Morado

The Pinzan Morado Project overlaps part of the Zihuatanejo Subterrane of the Guerrero Terrane, a complex, shallow marine island-arc assemblage that ranges from Middle Jurassic to Late Cretaceous in age. Rocks of the Guerrero Terrane are prospective for several types of metallic mineral deposits, including volcanogenic massive sulfides, sedimentary exhalative deposits (SEDEX), porphyry deposits, iron skarns and the more recently recognized iron-oxide-copper gold deposits. The Pinzán Morado Project is centered on the Placeres de Oro intrusive complex, a late Cretaceous to Early Tertiary pluton 23 km long and 9 to 3 km wide that is genetically and spatially related to a significant porphyry gold-copper system. To the west, the pluton uplifts a window (10 km long by 1 to 3 km wide) of the middle Jurassic Carucuaro Metamorphic Complex, the hostrocks for pyritic gold veins mined by local gambusinos (independent miners) and processed at the Pinzán Morado facility. Elsewhere on the concession, the country rocks are mainly shallow marine sediments and limestones that host numerous iron-rich mineral occurrences.

In 2002, the Servicio Geologico Mexicano published 1:50,000 geological maps and geochemical surveys for 1:50,000 maps E14A74 and E14A84. In 2007, Alphamin completed stream sediment sampling of part of the Property after applying for the mineral rights. Several promising anomalies for gold and base metals were identified, but no further work was done.
 

Results of Operations

Nine Months Ended September 30, 2012 (Fiscal 2012) versus Nine Months Ended September 30, 2011 (Fiscal 2011)

For the nine months ended September 30, 2012, we recorded a loss of $139,706 or $0.00 per share, compared to a loss of $21,905 or $0.00 per share in 2011.

General and administrative expenses – For the nine months ended September 30, 2012, we recorded general and administrative expenses of $139,709 (fiscal 2011 - $101,006). The fiscal 2012 amount includes professional fees - accounting $11,168 (fiscal 2011 – $2,560) and legal $10,776 (fiscal 2011 - $0). Recent developments in capital markets have restricted our access to debt and equity financing. As a result, we reduced our 2012 capital spending requirements in light of the current and anticipated, global economic environment.

Exploration expenditures - For the nine months ended September 30, 2012, we recorded total exploration costs of $29,139 compared to $4,000 in fiscal 2011. The following is a breakdown of the exploration expenses by property: Mexico totalled $29,139 (2011 - $4,000).

Capital Resources and Liquidity

September 30, 2012 versus December 31, 2011:

Recent developments in capital markets have restricted access to debt and equity financing for many companies. Our exploration properties are in the exploration stage, have not commenced commercial production and consequently we have no history of earnings or cash flow from our operations. As a result, we are reviewing our 2012 exploration and capital spending requirements in light of the current and anticipated, global economic environment.

We currently finance our activities primarily by the private placement of securities. There is no assurance that equity funding will be accessible to us at the times and in the amounts required to fund our activities. There are many conditions beyond our control which have a direct bearing on the level of investor interest in the purchase of our securities. We may also attempt to generate additional working capital through the operation, development, sale or possible joint venture development of our properties; however, there is no assurance that any such activity will generate funds that will be available for operations. Debt financing has not been used to fund our property acquisitions and exploration activities and we have no current plans to use debt financing. We do not have “standby” credit facilities, or off-balance sheet arrangements and it does not use hedges or other financial derivatives. We have no agreements or understandings with any person as to additional financing.

At September 30, 2012, we had cash of $144,869 (December 31, 2011 - $71,647) and a working capital of $346,276 (December 31, 2011 working capital - $234,932) respectively. Total liabilities as of September 30, 2012, were $48,341 as compared to $60,007 on December 31, 2011, a decrease of $11,666.

On August 24, 2012, we entered into a subscription agreement for 4,000,000 shares of common stock at a purchase price of $0.05 per share for gross aggregate proceeds of $200,000. Pursuant to the subscription agreement, the Investor has represented that they are not a U.S. person, as such term is defined in Regulation S.

In September 2012, we issued 1,000,000 shares of common stock valued at $50,000 in settlement of amounts owing to creditors. The shares were issued to an individual who resides outside the United States of America. The transactions were recorded at the exchange amount, being the value established and agreed to by the related parties.

Our general business strategy is to acquire mineral properties either directly or through the acquisition of operating entities. Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America and applicable to a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As discussed in Note 1 to the consolidated financial statements, we have incurred recurring operating losses since inception, have not generated any operating revenues to date and used cash of $126,778 from operating activities in 2012. We require additional funds to meet our obligations and maintain our operations. We do not have sufficient working capital to (i) pay our administrative and general operating expenses through December 31, 2013 and (ii) to conduct our preliminary exploration programs. Without cash flow from operations, we may need to obtain additional funds (presumably through equity offerings and/or debt borrowing) in order, if warranted, to implement additional exploration programs on our properties. While we may attempt to generate additional working capital through the operation, development, sale or possible joint venture development of our properties, there is no assurance that any such activity will generate funds that will be available for operations. Failure to obtain such additional financing may result in a reduction of our interest in certain properties or an actual foreclosure of our interest. We have no agreements or understandings with any person as to such additional financing.
 

Our exploration properties have not commenced commercial production and we have no history of earnings or cash flow from our operations. While we may attempt to generate additional working capital through the operation, development, sale or possible joint venture development of our property, there is no assurance that any such activity will generate funds that will be available for operations.

Cash Flow

Operating activities: We used cash of $126,778 during the nine months ended September 30, 2012 (2011 - $119,533). The following is a breakdown of cash used for operating activities:

· accrued interest on notes receivable $0 (2011 - $7,365);
· expenses satisfied with the issuance of common stock $27,639 (2011 - $0)
· gain on sale of available-for-sale securities $0 (2011 - $71,737);

Changes in prepaid expenses and other assets resulted in an increase of $25,406 (2011 - increase $3,092). There was an increase in accounts payable and accrued liabilities of $10,695 (2011 decrease of $15,434).

Investing Activities: During the nine months ended September 30, 2012 investing activities consisted of proceeds from the sale of available-for-sale securities $0 (2011 - $82,887).

Financing Activities: We intend to finance our activities by raising capital through the equity markets. Proceeds from the sale of common stock were $200,000 (2011 - $0).

Dividends

We have neither declared nor paid any dividends on our common stock. We intend to retain our earnings to finance growth and expand our operations and do not anticipate paying any dividends on our common stock in the foreseeable future.

Asset-Backed Commercial Paper

We have no asset-backed commercial paper.

Fair Value of Financial Instruments and Risks

Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value.

The carrying value of cash, accounts payable and accrued expenses, accounts payable-related parties, and deposits approximate their fair value because of the short-term nature of these instruments. Available for sale securities are recorded at the current market value.

Management is of the opinion that we are not exposed to significant interest or credit risks arising from these financial instruments.

We operate outside of the United States of America, primarily in Mexico and are exposed to foreign currency risk due to the fluctuation between the currency in which we operate in and the U.S. dollar.


Share Capital

At November 26, 2012, we had:

·  
Authorized share capital of 100,000,000 common shares with par value of $0.0001 each.
·  
59,500,000 common shares were issued and outstanding as at Novembe