RIVERSIDE RESOURCES INC.

Transcription

1 Consolidated Financial Statements September 30, 2011 and 2010 Index Auditors Report Consolidated Balance Sheets Consolidated Statements of Operations and Deficit Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements

2 INDEPENDENT AUDITORS' REPORT To the Shareholders of Riverside Resources Inc. We have audited the accompanying consolidated financial statements of Riverside Resources Inc. (An Exploration Stage Enterprise) which comprise the consolidated balance sheets as at September 30, 2011 and 2010 and the consolidated statements of operations and deficit, and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

3 Opinion In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Riverside Resources Inc. as at September 30, 2011 and 2010 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. Emphasis of Matter Without qualifying our opinion, we draw attention to Note 2 in the consolidated financial statements which describes conditions and matters that indicate the existence of a material uncertainty that may cast significant doubt about Riverside Resources Inc. s ability to continue as a going concern. DAVIDSON & COMPANY LLP Vancouver, Canada Chartered Accountants January 30, 2012

4 Consolidated Balance Sheets as at September Assets Current assets: Cash $ 554,997 $ 14,845 Short-term Investments (Note 4) 11,744,585 2,957,929 Taxes receivable 296,435 96,692 Other receivable 851, ,886 Prepaid expenses 104, ,974 13,551,817 3,363,326 Equipment (Note 5) 252,100 44,419 Deposits (Note 14) 162,713 - Restricted Cash (Note 6(e)) 41,075 40,715 Mineral Properties (Note 6) 2,716,758 3,081,330 Liabilities and Shareholders' Equity $ 16,724,463 $ 6,529,790 Current liabilities: Accounts payable and accrued liabilities (Note 9) $ 499,278 $ 182,411 Shareholders' equity: Share capital (Note 7(b)) 19,542,667 10,518,479 Contributed surplus (Note 7(b)) 1,531, ,541 Deficit (4,849,356) (5,109,641) Nature of Operations (Note 1) Going Concern (Note 2) Commitments (Note 14) Subsequent Events (Note 15) On behalf of the Board: 16,225,185 6,347,379 $ 16,724,463 $ 6,529,790 James Clare Director Brian Groves Director James Clare Brian Groves The accompanying notes are an integral part of these consolidated financial statements.

5 Consolidated Statements of Operations and Deficit for the year ended September Expenses Amortization $ 41,421 $ 9,383 Computer expenses 7,523 1,019 Consulting fees 235, ,797 Dues and subscriptions 15,888 15,208 Filing fees 31,008 22,533 Foreign exchange 42,607 11,007 Insurance 25,828 24,327 Investor relations 220, ,625 Office expenses 35,489 23,689 Professional development 9,149 5,981 Professional fees 132, ,137 Property investigation and evaluation 16, ,471 Rent 140,150 82,500 Stock-based compensation (Note 7(d)) 584, ,273 Telecommunications 19,614 24,063 Travel and entertainment 48,990 54,999 (1,606,572) (1,347,012) Other income/(expense) Interest income 79,199 26,572 Realized gain on sale of short-term investments - 50,500 Unrealized gain/(loss) on short-term investments 936,619 (500) Other income 293,458 60,265 Property income 612,438 9,612 Write-down of mineral properties (54,857) - 1,866, ,449 Net income/(loss) and comprehensive income/(loss) for the year 260,285 (1,200,563) Deficit, beginning of the year (5,109,641) (3,909,078) Deficit, end of the year $ (4,849,356) $ (5,109,641) Earnings/(Loss) per share - basic and diluted $ 0.01 $ (0.05) Weighted average number of common shares outstanding - basic 30,349,372 22,158,360 - diluted 32,614,992 22,158,360 The accompanying notes are an integral part of these consolidated financial statements.

6 Consolidated Statements of Cash Flows for the year ended September OPERATING ACTIVITIES Net income/(loss) for the year $ 260,285 $ (1,200,563) Items not involving cash Amortization 41,421 9,383 Stock-based compensation 584, ,273 Unrealized loss/(gain) on short-term investments (936,619) 500 Write-down of mineral properties 54,857 - Change in non-cash working capital items: Prepaid expenses 24,589 (82,194) Tax receivable (199,743) 17,862 Other receivables (624,029) (96,762) Accounts payable and accrued liabilities 245,935 5,257 (548,611) (987,244) INVESTING ACTIVITIES Acquisition of equipment (252,357) (44,308) Mineral interest acquisition and exploration (1,272,317) (1,159,954) Restricted cash (360) 1,677 Short term investments (6,056,318) 653,017 Deposits (162,713) - (7,744,065) (549,568) FINANCING ACTIVITIES Share capital, net of issuance costs 8,832,828 1,469,934 8,832,828 1,469,934 Change in cash 540,152 (66,878) Cash, beginning of the year 14,845 81,723 Cash, end of the year $ 554,997 $ 14,845 Supplemental Disclosures with respect to Cash Flows (Note 11) The accompanying notes are an integral part of these consolidated financial statements.

7 1. Nature of Operations: Riverside Resources Inc. (the Company ) was incorporated under the laws of British Columbia, Canada on July 4, 2006 and is primarily engaged in the acquisition, exploration and development of mineral properties located in, United States and Canada. On June 28, 2007, the Company incorporated a subsidiary, Riverside Resources, S.A., de C.V. in. On March 24, 2009, the Company incorporated a subsidiary, RRI Exploration Inc. in Nevada, United States. On November 4, 2010, the Company incorporated a subsidiary, RRI Holdings Limited, under the laws of British Columbia in Canada. On May 18, 2011, the Company incorporated a subsidiary, Riverside Resources (BC) Inc., under the laws of British Columbia in Canada. 2. Going Concern: These consolidated financial statements have been prepared on a going-concern basis, which presumes the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. The Company reported a net income of $260,285 for the year ended September 30, 2011 and has an accumulated deficit of $4,849,356. The Company reported a net loss of $1,200,563 for the year ended September 30, 2010 and has an accumulated deficit of $5,109,641 at September 30, The Company also has working capital of $13,052,539 as at September 30, 2011 (September 30, $3,180,915). The Company s ability to continue operations is uncertain and is dependent upon the ability of the Company to obtain necessary financing to meet the Company s liabilities and commitments as they become payable, the successful acquisition of an interest in assets or a business and the ability to generate future profitable production or operations or sufficient proceeds from the disposition thereof. The outcome of these matters cannot be predicted at this time. These consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue operations. 3. Significant Accounting Policies: These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. The significant accounting policies adopted by the Company are as follows: (a) Principles of Consolidation These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Riverside Resources, S.A., de C.V., RRI Exploration Inc., RRI Holdings Limited, and Riverside Resources (BC) Inc. All inter-company transactions and balances have been eliminated upon consolidation.

8 3. Significant Accounting Policies: (cont d ) (b) Foreign Currency Translation Amounts recorded in foreign currency are translated into Canadian dollars as follows: (i) Monetary assets and liabilities, at the rate of exchange in effect as at the balance sheet date; (ii) Non-monetary assets and liabilities, at the exchange rates prevailing at the date of the transaction; and (iii) Gains and losses arising from the translation of foreign currency are included in the determination of net loss. The Company s subsidiaries represent integrated foreign operations. Monetary assets and liabilities are translated at the rate of exchange at the balance sheet date and non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at the exchange rates approximating those in effect on the date of the transactions. Exchange gains and losses arising on translation are included in the statement of operations. (c) Short-term Investments Short-term investments include Canadian guaranteed investment certificates that have maturities of three months or more when purchased with a major Canadian Banking Institution, and held-for-trading securities. (d) Equipment Equipment is carried at cost less accumulated amortization. Amortization is calculated using the declining balance method at the following annual rates: Computer hardware 45% Computer software 100% Exploration equipment 20% Furniture & fixtures 20% Vehicles 30% Leasehold improvement is amortized using the straight line method over the term of the lease. (e) Mineral Properties The Company records mineral property interests, which consist of the right to explore for mineral deposits, at cost. The Company records deferred exploration costs, which consist of costs attributable to the exploration of mineral property interests, at cost. All direct and indirect costs relating to the acquisition and exploration of these mineral property interests are capitalized on the basis of specific claim blocks until the mineral property interests to which they relate are placed into production, the mineral property interests are disposed of through sale or where management has determined there to be an impairment. If a mineral property interest is abandoned, the mineral property interests and deferred exploration costs will be written off to operations in the period of abandonment.

9 3. Significant Accounting Policies: (cont d ) (e) Mineral Properties (cont d ) On an ongoing basis, the capitalized costs are reviewed on a property-by-property basis to consider if there is any impairment on the subject property. Management s determination for impairment is based on: 1) whether the Company s exploration programs on the mineral property interests have significantly changed, such that previously identified resource targets are no longer being pursued; 2) whether exploration results to date are promising and whether additional exploration work is being planned in the foreseeable future; or 3) whether remaining lease terms are insufficient to conduct necessary studies or exploration work. The recorded cost of mineral property interests is based on cash paid and the assigned value of share consideration issued (where shares are issued) for mineral property interest acquisitions and exploration costs incurred. The recorded amount may not reflect recoverable value, as this will be dependent on future development programs, the nature of the mineral deposit, commodity prices, adequate funding and the ability of the Company to bring its projects into production. (f) Asset Retirement Obligations An asset retirement obligation is a legal obligation associated with the retirement of tangible long-lived assets that the Company is required to settle. This would include obligations related to future removal of property and equipment, and site restoration costs. The Company recognizes the fair value of a liability for an asset retirement obligation in the year in which it is incurred when a reasonable estimate of fair value can be made. The carrying amount of the related long-lived asset is increased by the same amount as the liability. The Company currently does not have any significant asset retirement obligations. (g) Impairment of Long-Lived Assets The Company follows the recommendations of the Canadian Institute of Chartered Accountants ( CICA ) Handbook Section 3063, Impairment of Long-Lived Assets. Section 3063 establishes standards for recognizing, measuring and disclosing impairment of long-lived assets held for use. The Company conducts its impairment test on long-lived assets when events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment is recognized when the carrying amount of an asset to be held and used exceeds the undiscounted future net cash flows expected from its use and disposal. If there is an impairment, the impairment amount is measured as the amount by which the carrying amount of the asset exceeds its fair value, calculated using discounted cash flows when quoted market prices are not available. (h) Loss per Share The Company uses the treasury stock method to compute the dilutive effect of options, warrants and similar instruments. Under this method the dilutive effect on loss per share is recognized on the use of the proceeds that could be obtained upon exercise of options, warrants and similar instruments. It assumes that the proceeds would be used to purchase common shares at the average market price during the year. For the years presented, this calculation proved to be anti-dilutive.

10 3. Significant Accounting Policies: (cont d ) (h) Loss per Share (cont d ) Weighted average number of common shares outstanding - basic 30,349,372 22,158,360 Incremental common shares from outstanding in the money and vested options and warrants 2,265,620 - Weighted average number of common shares outstanding diluted 32,614,992 22,158,360 Earnings (loss) per common share Basic and diluted $ 0.01 $ (0.05) Basic loss per common share is calculated using the weighted-average number of shares outstanding during the year. (i) Use of Estimates The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of estimates include the carrying value and recoverability of mineral properties, inputs used in the calculation of stock-based compensation and agents warrants and the valuation allowance applied to future income taxes. Actual results could differ from those estimates, and would impact future results of operations and cash flows. (j) Income Taxes The Company follows the asset and liability method of accounting for income taxes. Under the asset and liability method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided against future tax assets when it is more likely than not that the tax asset will not be utilized. (k) Stock-Based Compensation The fair value of stock options granted is determined using the Black-Scholes option pricing model and is recorded as stock-based compensation over the vesting period of the stock options. Upon the exercise of the stock options, the related fair value of the stock options is reallocated from contributed surplus to share capital.

11 3. Significant Accounting Policies: (cont d ) (l) Financial Instruments All financial instruments are classified into one of five categories: held-for-trading, held-to-maturity investments, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments and derivatives are measured in the balance sheet at fair value except for loans and receivables, held-to maturity investments and other financial liabilities which are measured at amortized cost. Subsequent measurement and changes in fair value will depend on their initial classification. Held-for-trading financial assets are measured at fair value and changes in fair value are recognized in net income. Available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive income until the instrument is derecognized or impaired. The Company has classified its cash, restricted cash and short-term investments as held-for-trading. Other receivables are classified as loans and receivables, and accounts payable and accrued liabilities are classified as other liabilities, which are measured at amortized cost. (m) Comparative Figures Certain comparative figures have been reclassified to conform to the current year s presentation. Future Accounting Changes International Financial Reporting Standards ( IFRS ) The Canadian Accounting Standards Board ( AcSB ) in 2006 published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with International Financial Reporting Standards ( IFRS ) over a five-year transitional period. In February 2008 the AcSB announced that 2011 is the changeover date for publicly-accountable enterprises to use IFRS, replacing Canada s own GAAP. The date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, The transition date of October 1, 2010 will require the restatement for comparative purposes of amounts reported by the Company for the year ended September 30, 2011.

12 4. Short-term Investments: Short-term investments, which consist primarily of investments in Guaranteed Investment Certificates, are investments with maturities of three months or more when purchased. Short-term investments also include the marketable securities received as a result of property option agreements (Note 6). As of September 30, 2011, the fair values of the short-term investments are as follows: Guaranteed investment certificates $ 8,971,627 $ 2,909,429 Held-for-trading securities 2,772,958 48,500 $ 11,744,585 $ 2,957, Equipment: Cost Accumulated Amortization Net Book Value 2010 Additions Additions Computer Hardware $ 36,332 $ 28,404 $ 64,736 $ 20,111 $ 12,795 $ 32,906 $ 16,221 $ 31,830 Computer Software 30,284 6,091 36,375 29,241 4,089 33,330 1,043 3,045 Exploration Equipment 24,622 93, ,830 2,462 8,653 11,115 22, ,715 Furniture & Fixtures 5,550 13,690 19, ,904 2,459 4,995 16,781 Leasehold Improvement - 3,494 3,494-1,373 1,373-2,121 Vehicles - 107, ,470-15,862 15,862-91,608 $ 96,788 $ 252,357 $ 349,145 $ 52,369 $ 44,676 $ 97,045 $ 44,419 $ 252,100

13 6. Mineral Properties: Chapalota La Ventosa Penoles Cerro Azul Sugarloaf Peak USA Libertad El Pedernal Tajitos Maravillas Cont'd Acquisition costs $ 9,901 $ - $ 952,986 $ 29,254 $ 42,487 $ - $ 29,084 $ 108,463 $ 5,341 Exploration costs: Assaying Camp costs Data acquisition Depreciation ,633 - Field costs - - 6, , Geological consulting 1,248-59,887 14,191 33, ,018 2,850 Geophysics Trenching & sampling - - 4, Support & transport 4,541-20,805 1,261 3,730-1,474 25, Total current exploration costs 5,789-91,977 15,452 37,551 4,205 2,712 57,465 3,640 Professional fees: Professional consulting 9, ,350 12,000 7,500-7,833 5,000 - Legal fees 8, ,614 2,892 11,358 6,828 5,346 2,452 2,019 Rent , Insurance & others , Total current professional fees 18,858 1,542 67,063 15,991 19,487 8,004 14,278 14,260 3,195 Total costs incurred during the year 34,548 1,542 1,112,026 60,697 99,525 12,209 46, ,188 12,176 Balance, Opening 37,687-1,259,968 84,821 1,035,438 51,435 35, ,327 41,139 Property written off - (1,542) (53,315) Recoveries (72,235) - (855,762) (142,354) (1,134,963) (48,161) (81,886) - - Balance, End of the year $ - $ - $ 1,516,232 $ 3,164 $ - $ 15,483 $ - $ 498,515 $ - Cumulative costs: Acquisition $ 38,476 $ 33,256 $ 1,428,608 $ 74,414 $ 313,703 $ 48,678 $ 37,892 $ 171,082 $ 14,306 Exploration 115,335 33, , , , ,550 29, ,188 35,751 Professional 44,424 23, ,102 24,708 76,985 30,993 14,343 35,245 3,258 Property written off - (1,542) (53,315) Recoveries (198,235) (89,047) (947,418) (222,217) (1,134,963) (180,738) (81,886) - - $ - $ - $ 1,516,232 $ 3,164 $ - $ 15,483 $ - $ 498,515 $ -

14 6. Mineral Properties: (cont d ) Cont'd Clemente La Catrina La Escondida El Indio Coatan Sierra Salada Sierrita Prieta Pozo Prieto Cerritos Total Acquisition costs $ 12,282 $ 22,079 $ 34,136 $ 18,509 $ 16,802 $ 6,443 $ 17,557 $ 16,298 $ 13,429 $ 1,335,051 Exploration costs: Assaying ,943 8,537-3,513-17,387 Camp costs Data acquisition ,965 Depreciation ,255 Field costs 1, ,877 Geological consulting 100,965 11,986 22,653 16,116 7,462 65,038 3,514 22, ,558 Geophysics 24, ,782 Trenching & sampling ,259 Support & transport 22,850 4,972 7,677 5,315 5,513 21, , ,673 Total current exploration costs 151,557 17,485 30,865 21,740 16,160 96,546 4,989 36, ,491 Professional fees: Professional consulting 32,000 12,333 11, , ,849 Legal fees 891 5,420 9, ,336 Rent ,556 Insurance & others 522 5,941 5, ,650 Total current professional fees 34,392 24,596 27,272 1,222 1,322 3, ,391 Total costs incurred during the year 198,231 64,160 92,273 41,471 34, ,387 23,179 53,642 14,321 2,186,933 Balance, Opening 54,086 55,972 76,125 10,388 11,889 8, ,081,330 Property written off (54,857) Recoveries - (76,337) (84,950) (2,496,648) Balance, End of the year $ 252,317 $ 43,795 $ 83,448 $ 51,859 $ 46,173 $ 114,630 $ 23,179 $ 53,642 $ 14,321 $ 2,716,758 Cumulative costs: Acquisition $ 24,611 $ 23,745 $ 45,334 $ 20,107 $ 25,181 $ 11,822 $ 17,557 $ 16,298 $ 13,429 $ 2,358,499 Exploration 193,030 71,594 95,570 30,488 19,518 99,176 4,989 36, ,871,053 Professional 34,676 24,793 27,494 1,264 1,474 3, ,854 Property written off (54,857) Recoveries - (76,337) (84,950) (3,015,791) $ 252,317 $ 43,795 $ 83,448 $ 51,859 $ 46,173 $ 114,630 $ 23,179 $ 53,642 $ 14,321 $ 2,716,758

15 6. Mineral Properties: (cont d ) For the year ended September 30, 2010 Chapalota La Ventosa Penoles Cerro Azul Sugarloaf Peak USA Libertad El Pedernal Tajitos Cont'd Acquisition costs $ 9,971 $ 12,499 $ 202,334 $ 29,595 $ 78,793 $ - $ 6,790 $ 57,885 Exploration costs: Assaying 3, , ,916 Camp costs , ,409 Data acquisition - - 6, , Depreciation ,571 Drilling , Field costs ,867 3, ,716 Geological consulting 16,698-20,260 4, , , ,587 Surveys & geophysics Support & transport 7,695-23,684 1,946 49,285 4,094 2,414 44,920 Total current exploration costs 28,094-51,582 6, ,323 7,699 14, ,333 Professional fees: Professional consulting 3,500 2,000 20,450 3,750 8, ,000 Legal fees ,282 1, , ,995 Rent ,756 Insurance & others - - 3,762-1, ,273 Total current professional fees 4,651 3,142 57,646 5,738 11,031 2, ,024 Total costs incurred during the year 42,716 15, ,562 42, ,147 9,884 21, ,242 Balance, Opening - - 1,040, , ,291 96,381 14,515 69,085 Recoveries (5,029) (15,641) (91,656) (79,863) - (54,830) - - Balance, End of the year $ 37,687 $ - $ 1,259,968 $ 84,821 $ 1,035,438 $ 51,435 $ 35,812 $ 318,327 Cumulative costs: Acquisition $ 28,575 $ 33,256 $ 475,622 $ 45,160 $ 271,216 $ 48,678 $ 8,808 $ 62,619 Exploration 109,546 33, , , , ,345 26, ,723 Professional 25,566 22, ,039 8,717 57,498 22, ,985 Recoveries (126,000) (89,047) (91,656) (79,863) - (132,577) - - $ 37,687 $ - $ 1,259,968 $ 84,821 $ 1,035,438 $ 51,435 $ 35,812 $ 318,327

16 6. Mineral Properties: (cont d ) For the year ended September 30, 2010 Cont'd Maravillas Clemente La Catrina La Escondida El Indio Coatan Sierra Salada Total Acquisition costs $ 6,533 $ 12,329 $ 1,666 $ 11,198 $ 1,598 $ 8,379 $ 5,379 $ 444,949 Exploration costs: Assaying 2,529 6,272 4,703 3,809 1, ,435 Camp costs ,920 Data acquisition ,485 Depreciation ,924 Drilling ,153 Field costs 34 1, ,668 Geological consulting 19,005 22,140 17,636 46,875 5,562 3,237 1, ,256 Surveys & geophysics ,991 4, ,275 Support & transport 7,448 10,503 6,999 8,904 1, , ,639 Total current exploration costs 29,381 41,473 54,109 64,705 8,748 3,358 2, ,755 Professional fees: Professional consulting ,450 Legal fees ,015 Rent ,665 Insurance & others ,546 Total current professional fees ,676 Total costs incurred during the year 35,977 54,086 55,972 76,125 10,388 11,889 8,243 1,457,380 Balance, Opening 5, ,870,969 Recoveries (247,019) Balance, End of the year $ 41,139 $ 54,086 $ 55,972 $ 76,125 $ 10,388 $ 11,889 $ 8,243 $ 3,081,330 Cumulative costs: Acquisition $ 8,965 $ 12,329 $ 1,666 $ 11,198 $ 1,598 $ 8,379 $ 5,379 $ 1,023,448 Exploration 32,111 41,473 54,109 64,705 8,748 3,358 2,630 2,275,562 Professional ,463 Recoveries (519,143) $ 41,139 $ 54,086 $ 55,972 $ 76,125 $ 10,388 $ 11,889 $ 8,243 $ 3,081,330

17 6. Mineral Properties: (cont d ) Title to mineral property interests involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristic of many mineral claims. The Company has investigated title to all of its mineral property interests and, to the best of its knowledge, title to all of its interests are in good standing. The mineral property interests in which the Company has committed to earn an interest are located in, United States, and Canada. The terms and commitments of the Company with respect to its mineral properties are subject to change if and when the Company and its partners mutually agree to new terms and conditions. (a) Chapalota, Sinaloa, On June 17, 2011, the Company signed a Definitive Agreement with Guerrero Exploration Inc. ( Guerrero Exploration ) whereby Guerrero Exploration can acquire up to a 70% interest in the Chapalota Property. The Option will consist of an initial option under which the Guerrero Exploration can earn up to a 60% interest in the property and an additional option which will permit Guerrero Exploration to earn up to an additional 10% in the property subject to certain conditions. The initial option can be exercised by completing the following: i. Incurring $4,000,000 of cumulative exploration expenditures on the property over a three-year period as follows: - $500,000 on or before the first anniversary of the Definitive Agreement; - $1,750,000 (cumulative) on or before the second anniversary of the Definitive Agreement; and - $4,000,000 (cumulative) on or before the third anniversary of the Definitive Agreement. ii. Payment of $200,000 in cash and issuance of 1,250,000 Guerrero Exploration shares over a three-year period as follows: - $50,000 in cash and 150,000 common shares upon signing of the Definitive Agreement (Paid and issued); - An additional $25,000 in cash and 150,000 common shares on or before the date that is 6 months from the effective date of the Definitive Agreement (issued subsequent to the year-end); - An additional $25,000 in cash and 150,000 common shares on or before the date that is 12 months from the effective date of the Definitive Agreement; - An additional $25,000 in cash and 150,000 common shares on or before the date that is 18 months from the effective date of the Definitive Agreement; - An additional $25,000 in cash and 150,000 common shares on or before the date that is 24 months from the effective date of the Definitive Agreement; - An additional $25,000 in cash and 250,000 common shares on or before the date that is 30 months from the effective date of the Definitive Agreement; and - An additional $25,000 in cash and 250,000 common shares on or before the date that is 36 months from the effective date of the Definitive Agreement.

18 6. Mineral Properties: (cont d ) (a) Chapalota, Sinaloa, (cont d ) Upon exercise of the initial option, Guerrero Exploration can exercise the additional option by: i. Providing the Company with written notice a minimum of 60 days following exercise of the initial option that it wishes to purchase the addition option; ii. Incurring an additional $1,500,000 in expenditures on the property on or before the second anniversary date of the exercise of the initial option; and iii. Paying the Company, at the Company s election, $500,000 or the equivalent in common shares of Guerrero Exploration within 30 days of providing the Company with notice that Guerrero Exploration has incurred the expenditures set out above. (b) La Ventosa, Oaxaca, On November 17, 2010, Arcus Development Group Inc. and the Company agreed to terminate the La Ventosa Property option agreement. On January 31, 2011, the Company decided not to continue with this property and all associated expenditures have been written off to operations. (c) Penoles, Durango, On January 31, 2008, the Company optioned the Penoles property. On December 23, 2010, the Company and its Mexican Partner agreed on a third amendment. The amended terms and conditions require the Company to complete the following: i. Payment of US$25,000 and issuance of 20,000 shares upon acceptance of the agreement by the TSX Venture Exchange (Paid and issued). ii. iii. Incurring US$1,650,000 of cumulative exploration expenditures on the property over a five-year period as follows: - Minimum of US$650,000 by the second anniversary of the effective date of the option agreement (Incurred); - Minimum of US$1,050,000 (cumulative) by July 31, 2012; and - Minimum of US$1,650,000 (cumulative) by the fifth anniversary of the effective date of the option agreement. Payment of US$425,000 in cash and issuance of a maximum of 2,160,000 common shares of the Company over a five-year period as follows: - US$12,500 in cash and a maximum of 30,000 common shares six months from the initial date of the agreement (Paid and issued); - An additional US$12,500 and a maximum of an additional 30,000 common shares 12 months from the initial date of the agreement (Paid and issued);

19 6. Mineral Properties: (cont d ) (c) Penoles, Durango, (cont d ) - An additional US$12,500 and a maximum of an additional 50,000 common shares 18 months from the initial date of the agreement (Paid and issued); - An additional US$12,500 and a maximum of an additional 50,000 common shares 24 months from the initial date of the agreement (Paid and issued); - An additional US$12,500 and a maximum of an additional 100,000 common shares 30 months from the initial date of the agreement (Paid and issued); - An additional US$12,500 and a maximum of an additional 100,000 common shares 36 months from the initial date of the agreement (Paid and issued); - An additional US$25,000 and a maximum of an additional 100,000 common shares 42 months from the initial date of the agreement (Paid and issued); - An additional US$25,000 and a maximum of an additional 100,000 common shares 48 months from the initial date of the agreement; - An additional US$150,000 and a maximum of an additional 100,000 common shares 54 months from the initial date of the agreement; and - An additional US$150,000 and a maximum of an additional 1,500,000 common shares 60 months from the initial date of the agreement. The optionor will receive a 2% NSR which can be reduced to 1.5% by paying US$500,000. On May 30, 2008, the Company s subsidiary was assigned an option agreement dated April 18, 2008 for properties named Jesus Maria, Primera Amplacion De Jesus Maria and San Rafael, adjacent to the El Capitan property. The Company can earn a 100% interest in these properties by making the following cash payments: - US$25,000 upon signing of the agreement (Paid); - An additional US$50, months from the initial date of the agreement (Paid); - An additional US$25, months from the initial date of the agreement (Paid); - An additional US$25, months from the initial date of the agreement (Paid); - An additional US$50, months from the initial date of the agreement (Paid); - An additional US$50, months from the initial date of the agreement (Paid); and - An additional US$575, months from the initial date of the agreement (Paid). On October 5, 2010 the Company received the title for an additional concession named Purisima 1. On May 25, 2011, the Company signed a Definitive Agreement with Sierra Madre Developments Inc. ( Sierra Madre ) whereby Sierra Madre can acquire up to a 70% interest in the Penoles Property. The Option will consist of an initial option under which Sierra Madre can earn up to a 51% interest in the property, and an additional option which will permit Sierra Madre to earn up to an additional 19% interest in the property subject to certain conditions.

20 6. Mineral Properties: (cont d ) (c) Penoles, Durango, (cont d ) On June 30, 2011, the Company and Sierra Madre signed an amendment to the initial option agreement. The amended terms and conditions require Sierra Madre to complete the following: i. Incurring $3,000,000 of cumulative exploration expenditures on the property over a two-year period as follows: - $500,000 on or before the date that is 6 months from May 31, 2011, the effective date of the Definitive Agreement (Incurred); - $1,750,000 (cumulative) on or before the date that is 12 months from the effective date of the Definitive Agreement; and - $3,000,000 (cumulative) on or before the date that is 24 months from the effective date of the Definitive Agreement. ii. Cash payments of $220,000 over a two-year period as follows: - $50,000 upon signing of the Definitive Agreement (Paid); - An additional $70,000 on or before February 4, 2012; and - An additional $100,000 on or before the date that is 24 months from the effective date of the Definitive Agreement. iii. Cash payments of US$2,850,000 as follows: - US$575,000 on or before July 31, 2011 (Paid); - US$100,000 on TSX-V Approval Date, August 4, 2011 (Paid); - US$150,000 on or before December 31, 2011 (Outstanding); - US$100,000 on or before February 4, 2012; - US$275,000 on or before June 30, 2012; and - US$1,650,000 on or before December 31, iv. Payments of $2,250,000 in cash and/or the equivalent in Sierra Madre shares over a two-year period as follows: - $125,000 in cash and/or the equivalent in Sierra Madre shares on or before three Business Days after the TSX-V Approval Date (Issued 712,826 Sierra Madre shares); - $250,000 in cash and/or the equivalent in Sierra Madre shares on or before February 4, 2012; - $375,000 in cash and/or the equivalent in Sierra Madre shares on or before the date that is 12 months from the effective date of the Definitive Agreement; and - $1,500,000 in cash and/or the equivalent in Sierra Madre shares on or before the date that is 24 months from the effective date of the Definitive Agreement.

21 6. Mineral Properties: (cont d ) (c) Penoles, Durango, (cont d ) Upon exercise of the initial option, Sierra Madre shall have the option to acquire an additional 14% interest in the property, or, if Sierra Madre chooses to increase the first six month expenditures to $1,500,000, it will be able to acquire an additional 19% interest. The additional option can be exercised as follows: i. Providing the Company with written notice a minimum of 60 days prior to exercise of the initial option that it wishes to pursue the additional option; ii. Incurring an additional $5,000,000 in expenditures on the property as follows: - $2,500,000 on or before the first anniversary date of the exercise of the initial option; and - An additional $2,500,000 on or before the second anniversary date of the exercise of the initial option, such expenditures to include a minimum total of 15,000 meters of drilling on the property; iii. Paying the Company $30,000 in cash on or before the first anniversary date of the exercise of the initial option; and iv. Paying the Company $750,000 in cash and/or the equivalent in Sierra Madre common shares on or before the second anniversary of the date of the exercise of the initial option. (d) Cerro Azul, Guerrero, On April 11, 2008, the Company filed for a mineral exploration concession in the Guerrero Gold Belt of southern and has claimed a 100% interest, with no underlying royalties, in the Cerro Azul Project. The title to the concession interest was received February 25, On June 4, 2010, the Company signed an option agreement with Guerrero Exploration whereby Guerrero Exploration can earn a 60% interest in the Cerro Azul Property by completing the following: i. Incurring $300,000 of cumulative exploration expenditures on the property over a two-year period as follows: - $200,000 on or before the first anniversary of the option agreement (Incurred); and - An additional $100,000 on or before the second anniversary of the option agreement (Incurred). ii. Payment of $40,000 in cash and issuance of 1,600,000 Guerrero Exploration shares (1) over a two-year period as follows: - $40,000 in cash and 400,000 common shares upon signing of the option agreement (Paid and issued); - An additional 400,000 common shares within 6 months of the option agreement (Issued); - An additional 200,000 common shares within 12 months of the option agreement (Issued);

22 6. Mineral Properties: (cont d ) (d) Cerro Azul, Guerrero, (cont d ) - An additional 300,000 common shares within 18 months of the option agreement (Issued subsequent to the year-end); and - An additional 300,000 common shares within 24 months of the option agreement (Issued subsequent to the year-end). (1) As the share price of Guerrero Exploration at its Initial Public Offerings on TSX-V was conducted at a price lower than anticipated in the option agreement, the number of shares in all the share payments is increased on a prorated basis to compensate for the lower share price. Upon receiving the final issuance of 600,000 Guerrero Exploration shares on December 20, 2011, subsequent to the year-end, Guerrero Exploration completed the requirements to earn a 60% interest in the project. Future work on the property will proceed under a Joint Venture between the Company and Guerrero Exploration. The joint venture agreement is currently being negotiated. (e) Sugarloaf Peak, Arizona, USA On April 11, 2008, the Company signed an option agreement to acquire a 100% interest in the Sugarloaf Peak Gold Deposit located west of Quartzsite, Arizona, USA from a private Arizona based company, with the following terms: i. Payment of US$35,000 in cash upon acceptance of the TSX Venture Exchange (Paid). ii. iii. Incur US$1,500,000 of cumulative exploration expenditures on the properties over a four-year period as follows: - Minimum of US$100,000 by the first anniversary of the agreement (Incurred); - Minimum of US$300,000 (cumulative) by the second anniversary of the agreement (Incurred); - Minimum of US$700,000 (cumulative) by the third anniversary of the agreement (Incurred); and - Minimum of US$1,500,000 (cumulative) by the fourth anniversary of the agreement. Pay US$265,000 in cash over a four-year period as follows: - US$50,000 on the date that is 12 months after the signature date (Paid); - US$50,000 on the date that is 24 months after the signature date (Paid); - US$75,000 on the date that is 36 months after the signature date (Paid by Choice Gold); - US$90,000 on the date that is 48 months after the signature date. The Property is subject to a 1.5% NSR which can be reduced to 0.5% for US$1,000,000 at any time during the agreement. The Company was required by the Bureau of Land Management to post a reclamation bond of US$39,537 (CDN$41,075) for the drill program completed late 2009, which has been included as restricted cash on the balance sheet.

23 6. Mineral Properties: (cont d ) (e) Sugarloaf Peak, Arizona, USA (cont d ) On March 16, 2011, the Company signed an option agreement with Choice Gold Corp. ( Choice Gold ) whereby Choice Gold can acquire a 100% interest in the Sugarloaf Peak Property by completing the following: i. Incurring $5,500,000 of cumulative exploration expenditures on the property and completing the deliverables as follows: ii. - $2,000,000 on or before the date that is 12 months from the effective date; - $5,500,000 (cumulative) and an independent resource estimate on or before the date that is 24 months from the effective date; and - An independent scoping study on or before the date that is 36 months from the effective date. Payment of $1,750,000 in cash and issuance of 13,600,000 Choice Gold shares over a three-year period as follows: - $250,000 in cash and 4,300,000 common shares upon the receipt of the approval of the option agreement (Paid and issued); - An additional 4,300,000 common shares upon completion of the first financing milestone (Issued); - An additional $250,000 in cash and 2,500,000 common shares on or before the date that is 12 months from the effective date; - An additional $500,000 in cash and 1,000,000 common shares on or before the date that is 24 months from the effective date; and - An additional $750,000 in cash and 1,500,000 common shares on or before the date that is 36 months from the effective date. At any time after 12 months from the effective date, Choice Gold may elect to accelerate the exercise of the option by making cash payment of $1.5 million and issuing common shares with a total value of $2 million to the Company. If the acceleration option is exercised Choice Gold shall not be required to deliver an independent resource estimate or independent scoping study. The common shares of Choice Gold are currently listed on the CNX. In the event that the common shares of Choice Gold are not listed and trading on the TSX-V on or before September 7, 2011, Choice Gold agrees to issue the Company 250,000 shares on the date and every three months thereafter until the earlier of September 7, 2012 and the occurrence of the listing on the TSX-V. 250,000 Choice Gold shares were issued to the Company subsequent to the year-end as Choice Gold had yet to be listed on the TSX-V.

24 6. Mineral Properties: (cont d ) (f) Libertad, Sonora, On June 19, 2008, the Company signed an option agreement to acquire a 100% interest in the Destierro gold property in western Sonora,, for US$400,000 in cash payments payable to the optionors as follows: - US$10,000 in cash upon signing of the agreement (Paid); - An additional US$15,000 in cash by the first anniversary of the agreement (Paid); - An additional US$25,000 in cash by the second anniversary of the agreement (Paid); - An additional US$50,000 in cash by the third anniversary of the agreement (Paid by Geologix); and - An additional US$300,000 in cash by the fourth anniversary of the agreement. In anticipation of executing the above noted option agreement on May 19, 2008, the Company also applied for an additional mineral exploration concession surrounding the Destierro Property and received title to this concession on August 19, On August 7, 2009, the Company signed an option agreement with Geologix Explorations Inc. ( Geologix ) whereby Geologix can acquire a 60% interest in the Libertad Property. On April 29, 2011, the Company and Geologix agreed to an amendment. The amended terms and conditions require Geologix to complete the following: i. Incurring US$3,000,000 of cumulative exploration expenditures on the property over a four-year period as follows: - Minimum of US$250,000 by June 11, 2010 (Incurred); - Minimum of US$900,000 (cumulative) by September 11, 2011 (Incurred); - Minimum of US$1,800,000 (cumulative) by June 11, 2012; and - Minimum of US$3,000,000 (cumulative) by June 11, ii. Payment of US$400,000 in cash or in the form of Geologix common shares, where the number of shares issued will be equivalent to 110% of the cash value of the required payment at the time of the share issuance, over a four-year period as follows: - US$50,000 on June 11, 2009 (Paid in cash); - An additional US$50,000 by June 11, 2010 (Paid in cash); - An additional US$50,000 by June 11, 2011 (Paid in cash); - An additional US$100,000 by June 11, 2012; and - An additional US$150,000 by June 11, Upon completion of the initial option, Geologix can acquire an additional 25% interest in the Libertad Property by incurring an additional US$2,000,000 in exploration expenditures and paying the Company US$500,000 in cash or, at the Company s election, Geologix common shares equivalent to 110% of the cash value of the required payment at the time of the share issuance, by June 11, 2015.

25 6. Mineral Properties: (cont d ) (f) Libertad, Sonora, (cont d ) On December 9, 2011, subsequent to the year-end, Geologix and the Company agreed to terminate the Libertad Property option agreement. (g) Tajitos, Sonora, Tajitos Project is made up of three concessions: El Tejo, Tajitos, and Cortez. On August 19, 2009, the Company applied to acquire 100% exploration concession interest in the El Tejo Property and received title to this concession interest on November 25, On October 26, 2009, the Company optioned the Tajitos Property from a third party. The Company may acquire a 100% interest in the Tajitos Property by completing cash payments over a four-year period as follows: - US$30,000 upon signing of the agreement (Paid); - An additional US$80,000 by the first anniversary of the agreement (Paid); - An additional US$80,000 by the second anniversary of the agreement (Paid subsequent to the year- end); - An additional US$80,000 by the third anniversary of the agreement; and - An additional US$360,000 by the fourth anniversary of the agreement. (h) Maravillas, Durango, On September 23, 2011, the Company decided not to continue with Maravillas Property and all associated expenditures have been written off to operations. (i) Clemente, Sonora, On March 5, 2010, the Company applied to acquire a 100% exploration concession interest in the Clemente Property. The title to the concession interest was received July 2, On November 19, 2010, the Company received the title for an additional concession named Clemente 2. (j) El Pedernal, La Catrina, and La Escondida (collectively the Durango Properties), Durango, The Company applied to acquire a 100% exploration concession interest in the El Pedernal Property on July 8, 2009, in the La Catrina Property on April 26, 2010, and in the La Escondida Property on April 27, They are located in Durango,. The respective title to the concession interest was received September 23, 2009, October 8, 2010, and July 16, On October 1, 2010, the Company received the title for an additional concession named La Escondida 2. On March 18, 2011, the Company signed an option agreement with Mexigold Corp. ( Mexigold ) whereby Mexigold can acquire up to a 75% interest in the Durango Properties by completing the following: