UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K/A


(Amendment No. 1)





x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the Fiscal Year Ended February 28, 2011





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





For the transition period from __________ to __________





Commission file number 000-52660




TRESORO MINING CORP.


(Exact name of registrant as specified in its charter)





Nevada

20-1769847(State or other jurisdiction of incorporation of organization)

(I.R.S. Employer Identification No.)





880-666 Burrard Street, Vancouver, British Columbia  V6C 2G3


(Address of Principal Executive Offices)





(604) 681-3130


(Registrant’s telephone number, including area code)





Securities registered pursuant to Section 12(b) of the Act:  None





Securities registered pursuant to Section 12(g) of the Act:





Common Stock, Par Value $0.0001


(Title of class)




Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.o Yes x No




Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. o Yes x No




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




Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.  o Yes   o No




Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o




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
o
Accelerated filer
oNon-accelerated filer
o
Smaller reporting company
x(do not check if a smaller reporting company)




Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x




The aggregate market value of the registrant’s stock held by non-affiliates of the registrant as of August 31, 2010, computed by reference to the price at which such stock was last sold on the OTC Bulletin Board ($0.40 per share) on that date, was approximately $25,255,000.




The registrant had 17,459,369 shares of common stock outstanding as of May 31, 2011.










EXPLANATORY NOTE




This amendment on Form 10-K/A to Tresoro Mining Corp.’s (formerly Mercer Gold Corp.) Annual Report on Form 10-K for the fiscal year ended February 28, 2011, filed with the Securities and Exchange Commission on June 3, 2011, is being filed in response to the requirements of a cease trade order issued by the British Columbia Securities Commission. The purpose of this amendment is to (i) clarify under the section titled “ General ” under “ Part I of Item 1. Business ” that Tresoro Mining Corp. (the “Company”) has not established any proven or probable reserves on its mineral property interest, and (ii) revise its disclosure under the section titled “ Technical Report ” under “ Part I of Item I. Business ” to (a) remove reference to an updated Technical Report, dated February 8, 2011, and (b) remove the inadvertent disclosure that the Technical Report contains certain disclosure relating to measured, indicated and inferred mineral resource estimates for the Guayabales Project.




No other changes have been made to the Form 10-K. This Amendment No. 1 to the Form 10-K speaks as of the original filing date of the Form 10-K, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-K other than as discussed immediately above.








2





FORWARD LOOKING STATEMENTS




This annual report contains forward-looking statements that involve risks and uncertainties.  Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements.  In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology.  In evaluating these statements, you should consider various factors, including the assumptions, risks and uncertainties outlined in this annual report under “Risk Factors”.  These factors or any of them may cause our actual results to differ materially from any forward-looking statement made in this annual report.  Forward-looking statements in this annual report include, among others, statements regarding:




·
our capital needs;




·
business plans; and




·
expectations.




While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding future events, our actual results will likely vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.  Some of the risks and assumptions include:




·
our need for additional financing;




·
our exploration activities may not result in commercially exploitable quantities of ore on our mineral properties;




·
the risks inherent in the exploration for minerals such as geologic formation, weather, accidents, equipment failures and governmental restrictions;




·
our limited operating history;




·
our history of operating losses;




·
the potential for environmental damage;




·
our lack of insurance coverage;




·
the competitive environment in which we operate;




3




·
the level of government regulation, including environmental regulation;




·
changes in governmental regulation and administrative practices;




·
our dependence on key personnel;




·
conflicts of interest of our directors and officers;




·
our ability to fully implement our business plan;




·
our ability to effectively manage our growth; and




·
other regulatory, legislative and judicial developments.




We advise the reader that these cautionary remarks expressly qualify in their entirety all forward-looking statements attributable to us or persons acting on our behalf.  Important factors that you should also consider, include, but are not limited to, the factors discussed under “Risk Factors” in this annual report.




The forward-looking statements in this annual report are made as of the date of this annual report and we do not intend or undertake to update any of the forward-looking statements to conform these statements to actual results, except as required by applicable law, including the securities laws of the United States.




AVAILABLE INFORMATION




Mercer Gold Corp. files annual, quarterly and current reports, proxy statements, and other information with the Securities and Exchange Commission (the “Commission” or “SEC”).  You may read and copy documents referred to in this Annual Report on Form 10-K that have been filed with the Commission at the Commission’s Public Reference Room, 450 Fifth Street, N.W., Washington, D.C.  You may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.  You can also obtain copies of our Commission filings by going to the Commission’s website at http://www.sec.gov.




REFERENCES




As used in this annual report: (i) the terms “we”, “us”, “our”, “Mercer” and the “Company” mean Mercer Gold Corp.; (ii) “SEC” refers to the Securities and Exchange Commission; (iii) “Securities Act” refers to the United States Securities Act of 1933, as amended; (iv) “Exchange Act” refers to the United States Securities Exchange Act of 1934, as amended; and (v) all dollar amounts refer to United States dollars unless otherwise indicated.




4




TABLE OF CONTENTS




ITEM 1.
BUSINESS


5ITEM 1A.
RISK FACTORS


20ITEM 1B.
UNRESOLVED STAFF COMMENTS


26ITEM 2.
PROPERTIES


26ITEM 3.
LEGAL PROCEEDINGS


26ITEM 4.
(REMOVED AND RESERVED)


26ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES


26ITEM 6.
SELECTED FINANCIAL DATA


29ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


29ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


37ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


38ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


67ITEM 9A.
CONTROLS AND PROCEDURES


67ITEM 9B.
OTHER INFORMATION


67ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE


68ITEM 11.
EXECUTIVE COMPENSATION


71ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


74ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE


75ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES


76ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES


77





5





PART I




ITEM 1.
BUSINESS




Corporate Organization




Our company was incorporated under the laws of the State of Nevada on October 11, 2004 under the name “Ancor Resources Inc.”  On June 4, 2007, we completed a forward split of our shares of common stock on the basis of five new shares of common stock for each one share of common stock outstanding on that date and increased our authorized share capital from 75,000,000 shares of common stock to 375,000,000 shares of common stock.  On the same date, we merged with our wholly-owned subsidiary, Nu-Mex Uranium Corp., to change our name to Nu-Mex Uranium Corp.




Effective February 26, 2008, we merged with our wholly-owned subsidiary, Uranium International Corp., to change our name to Uranium International Corp.




On March 11, 2008, we completed a forward split of our shares of common stock on the basis of one and one half new shares of common stock for each one share of common stock outstanding on that date.  Due to an administrative oversight, we did not file a Certificate of Change with the Nevada Secretary of State to simultaneously increase our authorized share capital in the same ratio.  On June 8, 2010, we rectified this oversight by filing a Certificate of Change with the Nevada Secretary of State, increasing our authorized share capital from 375,000,000 shares of common stock to 562,500,000 shares of common stock.




On May 17, 2010, we filed Articles of Merger with the Nevada Secretary of State in order to merge with our wholly-owned subsidiary, Mercer Gold Corporation, and to change our name to Mercer Gold Corporation.  This name change was effected on the OTC Bulletin Board on June 9, 2010, and the name change became effective under Nevada corporate law on June 17, 2010.  We changed our name to “Mercer Gold Corporation” in furtherance of our entry into an option agreement with Mercer Gold Corporation, a private company, pursuant to which we had the option to acquire an interest in certain gold prospect mineral property concession interests located in Colombia (known as the “Guayabales Property”), as described below.




On June 2, 2010, we caused two wholly-owned subsidiary companies to be incorporated under the laws of the Republic of Panama, namely, Mercer One Panama Corp. and Mercer Two Panama Corp.  .




On April 14, 2011, we filed a Certificate of Change with the Nevada Secretary of State to give effect to a reverse split of our authorized and issued and outstanding shares of common stock on a three (3) old for one (1) new basis.  Subsequently, the directors agreed it was in the best interest of the Company to amend the reverse split to a ratio of four (4) old for one (1) new such that the Company’s authorized capital was decreased from 562,500,000 shares of common stock with a par value of $0.001 to 140,625,000 shares of common stock with a par value of $0.001.  Accordingly, on April 28, 2011 the Company filed a Certificate of Correction with the Nevada Secretary of State to effect the four (4) old for one (1) new reverse split.




Our principal offices are located at 880-666 Burrard Street, Vancouver, British Columbia  V6C 2G3, and our  telephone number is (604) 681-3130.




General





We are currently engaged in the business of exploration of precious metals with a focus on the exploration and development of gold deposits in Colombia. As of the date of this quarterly report, our mineral interest consists of an option agreement on an exploration stage property as discussed below. We have not established any proven or probable reserves on our mineral property interest. There is no assurance that a commercially viable mineral deposit exists on our property interest. Further exploration will be required before a final evaluation as to the economic and legal feasibility is determined with respect to our mineral property interest.




6




At the present time, our primary property of interest is the Guayabales Property, Colombia as described below.




Mineral Properties – Guayabales Property, Colombia




Mineral Assets Option Agreement




On April 13, 2010, we entered into a definitive Mineral Assets Option Agreement (the “Definitive Option Agreement”) with Mercer Gold Corporation, a private mining company (“MGC”), pursuant to which MGC formally granted to us an exclusive option (the “Option”) to acquire all of MGC’s current underlying option interests under a certain “Option Agreement”, dated for reference March 4, 2010 (the “Underlying Option Agreement”), as entered into between MGC and Comunidad Minera Guayabales (the “Underlying Property Owner” or “CMG”), pursuant to which MGC acquired from the Underlying Property Owner an option (the “Underlying Option”) to acquire a 100% legal, beneficial and registerable interest in and to certain mineral property concession interests which are held by way of license and which are located in the municipality of Marmato, Colombia, and which are better known and described as the “Guayabales” property (collectively, the “Guayabales Property”).  The Definitive Option Agreement replaces an underlying letter of intent by and between and MGC and us, dated April 3, 2010.




The Definitive Option Agreement provides that, in order to exercise our Option, we are obligated to:





1.
Pay to MGC $200,000 immediately upon the execution of the Definitive Option Agreement (the “Effective Date”) (paid on April 14, 2010);





2.
Issue to MGC, both prior to and after the due and complete exercise of the Option, an aggregate of up to 5,000,000 restricted shares of the Company’s common stock, as follows:


·
an initial issuance of 2,500,000 shares within two business days of the Effective Date (issued on April 15, 2010); and


·
a final issuance of 2,500,000 shares within five business days of the Company’s prior receipt of a “technical report” (as that term is defined in section 1.1 of National Instrument 43-101 of the Canadian Securities Administrators, Standards of Disclosure for Mineral Projects (“NI 43-101”) meeting certain criteria);





3.
Provide funding for or expend minimum cumulative “Expenditures” for “Exploration and Development” (as defined in the Definitive Option Agreement) work on or in connection with any of the mineral interests comprising the Property interests of not less than $11,500,000 in the following manner:


·
no less than an initial $1,500,000 of the Expenditures shall be expended on the Property by December 31, 2010 ($1,000,000 incurred);


·
no less than a further $5,000,000 of the Expenditures shall be expended on the Property by December 31, 2011($354,855 incurred); and


·
no less than a final $5,000,000 of the Expenditures shall be expended on the Property by December 31, 2012; and





4.
Pay on MGC’s behalf all underlying option, regulatory and governmental payments and assessment work required to keep the Property in good standing during the Option period (being that period from the Effective Date to the closing date in respect of the due and complete exercise of the Option as described in the Definitive Option Agreement, which shall not be later than January 13, 2013), and including, without limitation, all remaining cash payments required to be made to the Underlying Property Owner under the Underlying Option Agreement. The Company must pay the Underlying Property Owner an aggregate of $4,000,000 in the instalments by the dates specified as follows:




7




·
Pay $20,000 by October 14, 2009 (paid);


·
Pay additional $40,000 on or by 90 days from October 14, 2009 (paid);


·
Pay additional $40,000 on or by April 14, 2010 (paid);


·
Pay additional $55,000 on or by July 14, 2010 (paid);


·
Pay additional $55,000 on or by October 14, 2010 (paid);


·
Pay additional $65,000 on or by January 14, 2011 (paid);


·
Pay additional $75,000 on or by April 14, 201l (paid);


·
Pay additional $75,000 on or by July 14, 201l;


·
Pay additional $85,000 on or by October 14, 201l;


·
Pay additional $85,000 on or by January 14, 2012;


·
Pay additional $160,000 on or by July 14, 2012;


·
Pay additional $160,000 on or by January 14, 2013;


·
Pay additional $190,000 on or by July 14, 2013;


·
Pay additional $190,000 on or by January 14, 2014;


·
Pay additional $230,000 on or by July 14, 2014;


·
Pay additional $230,000 on or by January 14, 2015; and


·
Pay additional $2,245,000 on or by July 14, 2015.





On December 30, 2011, an amendment was agreed to whereby the funding forminimum cumulative “Expenditures” for “Exploration and Development” (as defined in the Definitive Option Agreement) work on or in connection with any of the mineral interests comprising the Property interests of not less than $11,500,000 was revised in the following manner:




·
no less than an initial $750,000 of the Expenditures shall be expended on the Property by December 31, 2010 ($750,000 incurred);


·
no less than a further $5,750,000 of the Expenditures shall be expended on the Property by December 31, 2011 ($604,855 incurred); and


·
no less than a final $5,000,000 of the Expenditures shall be expended on the Property by December 31, 2012.





On March 22, 2011, a further amendment was agreed to whereby the funding forminimum cumulative “Expenditures” for “Exploration and Development” (as defined in the Mercer Option Agreement) work on or in connection with any of the mineral interests comprising the Property interests was reduced from $11,500,000 to $3,000,000 to be incurred in the following manner:





·
no less than an initial $1,000,000 of the Expenditures shall be expended on the Property by December 31, 2011 ($1,000,000 incurred);


·
no less than a further $1,000,000 of the Expenditures shall be expended on the Property by December 31, 2012 ($354,855 incurred); and


·
no less than a final $1,000,000 of the Expenditures shall be expended on the Property by December 31, 2013.




8





Title to Property and Underlying Option Agreement




CMG, a Colombian legal entity, is the rightful owner of the concession contract #LH 0071-17, an exploitation license valid until March 28, 2032, that was registered on March 28, 2008 by INGEOMINAS in the Department of Caldas (registration #HHXB 01).  As described above, MGC, a privately-held, Canadian entity registered in British Colombia, entered into an Option Agreement “Underlying Option Agreement” with CMG on March 4, 2010 to acquire a 100% interest in Guayabales. The Company entered into the Definitive Option Agreement with MGC as described above to acquire the 100% interest of Guayabales subject to the terms of the Underlying Option Agreement.  No surface agreements are in place; however, CMG represents and warrants reasonable surface access to Guayabales in the Underlying Option Agreement and the Colombian Mining Code guarantees surface access.





In Colombia, all mineral rights are the property of the government of Colombia.  Obtaining a mining right does not transfer ownership of the mineral estate, but creates a temporary right to explore and benefit from minerals in exchange for royalty payments so long as the mining title remains in good standing.  Under Colombian mining law, foreign individuals and corporations have the same rights as Colombian individuals and corporations, and Colombian governmental regulatory bodies are specifically prohibited from requiring any additional or different requirements than would be required of a Colombian individual or corporation.





Subject to the Definitive Option Agreement as described above, the Company is responsible for all obligations established in the Underlying Option Agreement between MGC and CMG in order to complete the 100% acquisition of the Guayabales Property.  These obligations include cash payments; provision for allowing continued Limited Mining Rights as described below; property maintenance; and quarterly reports.  More specifically, these include:





1.
Cash Payments:  The Company is responsible to make cash payments to CMG as described above.




2.
Limited Mining Rights:The Company provides CMG with Limited Mining Rights, allowing the cooperative group of miners belonging to the entity to continue mining operations on the property.  Operations are not to exceed 80 metric tonnes per day, providing that the mining operations are restricted to geographic areas in which mining operations are currently being conducted.  The Company has the right to terminate this right to mine, by either completing the cash payment schedule described above, or by making a one time cash payment of $600,000.





3.
Property Maintenance:The Company is obligated to maintain the property in good standing, free and clear of all liens, charges and encumbrances.




4.
Property Reports:The Company is obligated to provide CMG with summary operating reports on a 3 month/quarterly schedule.




Technical Report





We received a technical report (the “Technical Report”) in accordance with the provisions of National Instrument 43-101, Standards of Disclosure for Mineral Projects (“NI 43-101”), of the Canadian Securities Administrators for the Guayabales Property, which is located in the Department of Caldas, Colombia. The complete technical report, which was authored by Dean D. Turner, C.P.G., a qualified person as defined in NI 43-101, was filed under our Company’s profile on the Canadian Securities Administrators public disclosure website, at www.sedar.com, on May 28, 2010.




9




The following information regarding the Guayabales Property is derived largely from the Technical Report.




Location and Means of Access to Property




The Guayabales Property consists of 247.85 hectares in the Marmato Mining District of Caldas Department, Colombia.  The property is located approximately 80 kilometers south of the city of Medellin (Figure 1), and is centered at approximately 1,162,000E, 1,099,000N, Colombian National Grid, Choco projection, or in geographic coordinates at latitude: 5.48oN and  longitude:  75.61oW (Figure 2).




The Guayabales Property is accessible by a combination of paved and all weather gravel roads.  From Medellin, Colombia, the property can be accessed by driving approximately 114 kilometers along the paved Pan American Highway, and then 25 kilometers through the mining town of Marmato to the Guayabales Property.  The climatic conditions of the region support mining operations year-round.









10









Infrastructure





The Marmato region has an extensive mining history, and as such, provides a skilled work force from the surrounding communities for exploration and mining labor requirements.  Water is abundant from either surface or underground sources.  Three high tension power lines (230 kV each) belonging to the Colombian national power grid are located between Marmato and the Cauca River valley to the east.  A 132 kV substation is located at Marmato, which supplies power to the community and surrounding area, including Guayabales.




11




Property Geology




A key aspect of the geology of Guayabales is the sheared and mineralized intrusive contact zone between the Tertiary age Marmato Stock and older Paleozoic age marine sediments present in the vicinity of property.  The main shear, the Encanto Zone corridor, trends roughly N60oW, is sub-vertical to steeply southwest/northwest dipping, and has widths ranging from 20 to 40 meters. Existing mine workings demonstrate approximately 500 meters of strike, and geomorphic expressions indicate approximately 1.3 kilometers of cumulative strike extent. Lesser shears and other structures are evident throughout the property and range from N 60o W to east–west in strike with sub-vertical dips. A strong rectilinear drainage pattern is present on much of the property which suggests drainages are controlled by structures parallel to the Marmato and Echandia structural trends, offset by cross-cutting faults.





Mineralization




The mineralization at Guayabales is typical of an intermediate sulfidation type gold-silver metal deposit associated with a porphyry system.  This type of mineralization is similar to that found at Marmato Mountain in La Zona Alta and La Zona Baja.  The intermediate sulfidation-type epithermal mineralization is superimposed on, and paragenetically later than the porphyry-style. Targets related to the precursor porphyry-style mineralization may have the potential to develop significant gold-copper–molybdenum mineralization. These types of deposits often have high exploration potential for surface and underground resources amenable to bulk mining techniques. Most of the precious metal mineralization in the Marmato District is associated with base metal sulfides or native precious metal species. Oxide mineralization may occur in the weathering zone above the sulfides but is limited, as is generally typical in the development of supergene oxidation in the Western Cordillera of Colombia.  The Company is primarily targeting the bulk tonnage potential of the Guayabales property. However existing underground development and resulting production at Guayabales demonstrates significant target potential for high grade mineralization amenable to selective mining techniques. Narrow, unoxidized, vein-type portions of the main Encanto Zone, as well as subparallel zones, are actively being mined by the CMG.




The Guayabales Property covers an extensive zone of mineralization and alteration at the projected northwest extension of the Marmato and Echandia structural trends.  Guayabales hosts a gold-silver mineralized corridor of shearing and veining (Encanto Zone) and high-level intrusions associated with porphyry gold (copper) mineralization (La Portada and Mill Zones).





Multiple mineralized shears are exposed in the accessible mine workings and in road cuts on the Guayabales Property.  The main prospective productive zone on the property, known as the Encanto Zone, is exposed and developed in the underground workings.  The Encanto structural corridor ranges from 20 to 40 meters in width, strikes N50o to N60oW and has a sub-vertical dip.  This mineralized zone is sympathetic to the major mineralized fault zones along strike to the southeast at Marmato and Echandia. Other mineralized structures and shears range from a few millimeters to several meters in width, are sub-vertical, and strike from east–west to N40oW.





The Encanto Zone consists of multi-phase quartz, clay-white mica, and sulfide-rich breccia.  Gold and silver mineralization occurs in quartz and sulfides as native gold, auriferous pyrite, argentite, argentiferous galena, and electrum.  At Marmato and Guayabales the precious metal-bearing minerals are controlled by late fractures that crosscut earlier pyrite, chalcopyrite and sphalerite veins. The paragenetic sequence indicates an early base-metal mesothermal assemblage formed at temperatures greater than 250 degrees centigrade, associated with quartz-sericite-pyrite alteration, crosscut by later, relatively high-temperature epithermal, precious-metal bearing assemblages associated with quartz-clay-white mica.




12





History of Previous Operations





CMG has conducted underground exploration and development activities since 1995.  They have developed and prospected a total of sixteen underground workings, with low rates of production by artisanal miners.





Two foreign companies are known to have conducted exploration programs on the property: a) Colombia Gold (“CG”) from 2005-2006, and b) Colombian Mines Corporation (“CMC”) from 2006-2009.  CG and CMC principally focused their geologic mapping and geochemical sampling programs on Encanto Zone mines and associated underground workings that are encompassed within a 500 meter by 500 meter area. Significant mineralization was also sampled in the underground workings of the Encanto Zone hanging and footwalls.  Taken together, the CMC and CG mine area sampling delineated a west-northwest trending, gold-silver mineralized corridor centered along the Encanto Zone, with dimensions of 650 meters northwest-southeast by 350 meters northeast-southwest.  Much of this mineralized corridor has not been explored.





CMC’s Encanto Zone exploration work culminated in a 17 hole diamond drill program in 2008.  The holes were located along 450 meters of projected Encanto Zone strike length, and had orientations that yielded approximate true thickness intercepts.  The drill program yielded: a) five holes that successfully intersected the main Encanto Zone across its entire width, b) four holes that initiated penetration of the main zone, but were lost before completion, c) three holes that intersected anomalous gold-silver mineralization along trend to the northwest and southeast, and d) intercepts from a number of drill holes in the hanging and footwall of the gold zone.  The CMC core drilling program successfully extended the Encanto Zone’s strike length to 500 meters, and down dip extent to 200 meters.  The zone remains open along strike and to depth, with additional exploration potential within in-parallel mineralized zones in the hanging and footwall rocks.





In addition to the Encanto Zone exploration, CMC also collected 163 chip channel samples along an access road leading to the underground mining area.  The road generally trends perpendicular to the west-northwest structural trend projecting onto the Guayabales property from Marmato-Echandia.  CMC’s sampling discovered a broad, 600 meter wide zone of fracturing, quartz veining, anomalous copper-lead geochemistry, and gold mineralization.  Taken together, CMC’s underground and road cut sampling define a 1,100 meter wide corridor of significant to anomalous gold mineralization that is on trend with Marmato-Echandia, and has the potential to host a bulk tonnage, near surface, oxide gold resource.





Small scale production continues on the property by CMG.  CMG is producing approximately 30 to 50 metric tonnes per week from multiple small adits.  Ore is processed in up to 15 separate mills operating at from 1 to 14 metric tonnes per week.  Of the ore processed on the property, gold-silver recovery is achieved by milling, gravity concentration and cyanidization.  No mercury is used on the Guayabales Property.  The late-stage fracture-controlled nature of the precious metals mineralization in the form of electrum and native gold may be a primary reason for the good recovery rates from unoxidized ores.





The Company’s Exploration Activities





The Company commenced exploration activities in April-May 2010, with programs that consisted of: 1) property-wide 1:5000 scale geological mapping accompanied by reconnaissance level rock sampling, 2) a systematic property-wide soil sampling campaign, 3) detailed (1:200 scale) road cut geological mapping and chip channel sampling, and 4) a core drilling campaign in the Encanto mine area that is ongoing.  The Company’s work over a period of approximately nine months has established the first property-wide context for the well-known intermediate sulfidation gold-silver mineralization related to the Encanto Zone, as well as porphyry related mineralization suggested by CMC’s earlier work.




13





The Company’s direct project related work expenditures through 2010 were as follows:




Guayabales 2010 Exploration ExpendituresItem

Description

Cost (US$)Geologic mapping etc.

Professional technical staff

$
158,000.00Consultants

Geologic field investigations & reports

$
21,678.00Drilling

Ongoing DDH program

$
349,445.27Drill Analysis

DDH assays

$
9,647.60Soils Geochem

Property-wide survey

$
26,802.12Rock Geochem

Property-wide, road cut, etc. surveys

$
10,295.49Geophysics

Down payment for 2011 survey

$
7,000.00Camp costs

Project field living

$
12,768.72Transport

Field travel, assay shipments, etc.

$
15,793.61Field labor

Local labor for pad building, maintenance, etc.

$
49,014.09Environmental

Required reclamation etc.

$
17,800.00Permitting

Water use permit

$
1,000.00CSR

Community supplies, education, etc.

$
9,800.00Total Approved Expenditures



$
689,044.90





Interpretations and Conclusions from Technical Report





The author of the Technical Report concluded that the mineralization at Guayabales, and the Marmato District in general, is related to the emplacement of porphyry stocks of late Miocene age. Structure is an important control on the mineralization, particularly along northwest trending shear zones. Guayabales hosts a porphyry gold (copper) system and related intermediate sulfidation gold-silver mineralization within a northwest trending structural corridor that projects across the property from the Marmato-Echandia mining complex to the southeast.





The Company’s mapping of argillic-intermediate to argillic-potassic overprinted by +- phyllic alteration assemblages, coupled with a coincident suite of zoned geochemical anomalies,  has established the 750 by 400 meter porphyry gold target. Road chip channel sampling across the gold-enriched porphyry has consistently yielded average grades in the range of 0.24 to 0.28 g/t gold.





The Encanto Zone gold-silver mineralization has long been established as a viable exploration target through the work of small scale miners, as well as substantial underground sampling programs (over 1000 meters of chip channeling) by previous operators Colombian Gold and Colombian Mines Corporation. Taken together, the CMC and CG mine area sampling delineated a west-northwest trending, gold-silver mineralized corridor centered along the Encanto Zone, with dimensions of 650 meters northwest-southeast by 350 meters northeast-southwest.  The Encanto Zone proper ranges from 20 to 40 meters in width, strikes N50◦-60◦W, and has a sub-vertical dip. CMC’s 17 hole diamond drill program increased the Encanto Zone’s down dip extent to 200 meters, with intercepts such as 21.85 meters  (9.18m est. true thickness), including 3.15 meters (1.32m est. true thickness).  The Company’s Encanto Zone drill program, has completed 1114.6 meters of drilling in four core holes.  All four of the Company’s holes intersected the Encanto Zone.   From the CMC and the Company’s drilling, the Encanto Zone remains open along strike and to depth, with additional exploration potential within in-parallel mineralized zones in the hanging and footwall rocks.




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Taken together, the geologic mapping, property-wide geochemistry, drilling, and underground and road cut sampling define a 1,100 meter wide northwest trending corridor of porphyry gold (Portada and Mills Zones) and intermediate sulfidation gold-silver  (Encanto Zone) mineralization. This northwest corridor is on trend with the Marmato mining complex to the southeast.





The Company’s 2010 exploration program focused on three principal goals: a) perform a property-wide assessment based upon geological mapping and geochemical sampling in order to provide context for the intermediate sulfidation gold-silver and porphyry gold styles of mineralization, as well as to define new exploration targets, b) conduct detailed road cut geological mapping and sampling to further refine the porphyry alteration and geochemical models and their relationship to gold mineralization, and c) initiate a drill campaign in the Encanto Zone to confirm previous CMC results, as well as to test for extensions along strike and down dip. The Company’s 2010 work achieved these primary objectives.





As a whole, the exploration database that has resulted from the Company’s 2010 programs, and previous work spanning from 2005 (Colombia Gold) through 2009 (Colombian Mines Corporation) is extensive from the perspective of early-stage mineral property evaluation. These data are judged to be reliable, as three different companies, working independently, have generated similar results over time. The author’s independent sampling and database checks, and review of the Company’s and CMC’s sample methods, preparation, analysis and chain of custody have further validated these results. In the case of Encanto Zone related exploration, the underground sampling has now been augmented by CMC’s and the Company’s  initial drill testing. While this drilling has verified, from an exploration vantage, the continuity of Encanto gold-silver mineralization along strike and to depth, detailed geologic and grade modeling will require a tighter drill spacing (i.e., 25 m or less), careful surveying, and increasing recovery rates in the mineralized zones before a 43-101 compliant resource can be estimated. Further work on determining the structural controls and three dimensional geometries of the high grade zones should be a priority. The Encanto Zone remains open along strike and down dip, with additional, but lower priority targets occurring in the hanging and footwalls of the zone. Road cut mapping and sampling north of the underground mining area has delineated a broad zone of lower grade porphyry gold mineralization. The work to date has been conducted at a density, and is of a type to identify a viable porphyry exploration target. This is especially so considering the cover of soil and vegetation that conceals the mineralization over +95% of the property. However, additional work, including geophysics (IP, magnetics, VLF-R) and drill testing will be needed to delineate the porphyry gold zones and to further determine the distribution and grade of the mineralization.





The Company has identified a number of priority exploration targets at Guayabales. The exploration targets identified by the Company define Guayabales as a property of merit, and, in the author of the Technical Report’s view, justify a significant follow-up work program as discussed below.





Recommendations and Plan of Operations





The geologic relationship of gold-silver intermediate sulfidation to porphyry gold mineralization provides metallogenic context for the exploration targets and 2011 program for the Guayabales project. The Company’s principal exploration target is a bulk-tonnage,  porphyry precious metals deposit that will be potentially amenable to open-pit mining. A second target type with upside exploration potential is the long recognized, higher-grade vein zones amenable to selective, underground mining exploitation. The potential for defining economic gold-silver mineralization of this style is clearly manifested by the presence of a number of small scale mining operations on the property.





General recommendations for the 12 month Guayabales work program are listed below:




1)
A system of umpire lab check assays should be implemented to provide additional confidence in the Company drill sample results. This QA program should concentrate on samples from mineralized intervals, but random samples of non-mineralized material should be included.


2)
A study to determine if there is a recovery versus grade sampling issue for Encanto mineralized intervals should be conducted. Efforts to improve recoveries at the rig should continue.


3)
A study of whether a coarse gold component can be identified with screen fire assay analysis of coarse rejects from mineralized Encanto Zone intervals should be conducted.


4)
Mineralized and altered zones from the CMC drilling should be re-logged and results confirmed by re-assaying the available coarse rejects.




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5)
A survey network on the property should be established as a base to accurately locate current and past drilling, all mine openings and other works related to ongoing mining, as well as to provide a reference for field mapping and setup a grid for geophysical surveying.


6)
An updated, photogrammetrically accurate topographic base should be generated,  most likely from satellite stereo imagery. The imagery must be tied to the local ground survey from 5) above.


7)
A 10,000 line-meter IP program should be carried out on a priority basis over the porphyry target area. In conjunction with this survey, magnetics and VLF-R should be performed over the entire property.


8)
The current drill program should be extended to a total of 7500 meters (approximately 1100m already drilled) in order to test priority targets.


9)
A follow-up drill program of 12,000 meters to follow-up on the results of the drill program from 8) above.


10)
Underground workings should be re-mapped and check sampled to confirm earlier results. Furthermore, additional underground channel sampling should be conducted for tunnels with limited CMC or CG data.


11)
A metallurgical testing program should be carried out on fresh samples from recent drilling to characterize recoveries from gravity techniques, direct cyanidization,  flotation with cyanidization, etc.


12)
All exploration data should be compiled into an integrated 3-D model in order to review results to date, plan future work, and as an input to 13) below.


13)
A resource estimate should be prepared for the Encanto mineralized corridor, as well as potential near-surface porphyry related mineralization.


14)
Additional property should be acquired in areas bounding the identified target areas and obvious extensions of mineralized trends.





The one year Guayabales exploration program as outlined in the 43-101 is budgeted at US$5,831,635, including land payments until the end of 2011, as follows:





2011 Guayabales Program BudgetItem

Description

Cost USDAccess

Road build/maintenance & drill pads, etc


95,000Drilling

18500 meters of core drilling


3,000,000Geological consulting

43-101 resource report


100,000Environmental

On-going clean-up req.; water treat


76,000Equipment

Field gear, generators, etc.


60,000Geochemistry

Field survey costs


90,000Geophysics

IP, VLF and magnetics surveys


52,000Assay Laboratory

Drill & geochemical analyses


665,000Line cutting

For geophysical surveys, etc.


30,000Mapping

Surface and UG


36,000Metallurgy

Contract services


80,000Other contracts

Satellite imagery, photogrammetry, etc.


25,000Permitting

Permits for roads, drilling, etc.


18,000Reclamation

Required reclamation work, drill pads, etc.


100,000Field Supplies

Sample bags, expendables, etc.


60,000Surveying

Survey base network, DH locs, etc


30,000Camp costs

Project housing, food, etc.


93,000Personnel/Labor costs

Professional staff & local labor


489,000Technical Subtotal




5,099,000Community/Social Subtotal

Health, community projects, education, etc.


62,000Communications

Cell phones, etc.


12,000Legal

Title opinion, etc.


24,000Licenses, etc.

Government requirements


12,000Land Payments

CMG 2011 payments


300,000Safety, health, training

Company and government requirements


36,000Logistics, vehicles, etc.

Travel and field expenses


130,000Personnel

Professional staff


14,000Direct Project Administration Subtotal




528,000Total




5,689,400Contingency

Estimated at 2.5%


142,235Grand Total




5,831,635





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The 2011 work program is initially focused on further drill testing of the Encanto related mineralization. Accurate surveying of drill hole and underground working locations in the Encanto mining area will allow a 3-D model of the gold-silver mineralization to be developed. Check assaying of CMC drill results, as well as underground confirmation sampling will provide additional confidence in using these data for the Encanto modeling exercise. Further, underground geologic mapping will very likely provide important new, and detailed information on the mineralizing controls of the system. Beyond the Encanto related mineralization, the geophysical surveys will provide important information on the porphyry gold system. Based upon these results, targets can be selected for drill follow-up.





The Company has subsequently decided to conduct the proposed work program over a longer period in order to adequately assess the results of work performed and to incorporate drilling results into the on-going work program.  Accordingly, the revised 12 month work program is now budgeted at approximately $1,000,000.




Competition




We operate in a highly competitive industry, competing with other mining and exploration companies, and institutional and individual  investors, which are actively seeking mineral exploration properties throughout the world together with the equipment, labour and materials required to exploit such properties.  Many of our competitors have financial resources, staff and facilities substantially greater than ours. The principal area of competition is encountered in the financial ability to cost effectively acquire prime mineral exploration prospects and then exploit such prospects.  Competition for the acquisition of mineral exploration properties is intense, with many properties available in a competitive bidding process in which we may lack technological information or expertise available to other bidders.  Therefore, we may not be successful in acquiring and developing profitable properties in the face of this competition.  No assurance can be given that a sufficient number of suitable exploration properties will be available for acquisition and development.





Applicable Laws and Regulations





Colombian Laws and Regulations





As indicated above, our primary property of interest is the Guayabales Property in Colombia.  As such, we will be subject to applicable Colombian laws and regulations.





Colombian Mining Code-General Discussion





Mineral property rights are governed by the Colombian Mining Code, which has been subject to various changes and amendments. The oldest version applicable is Law 20 promulgated in 1969.  Law 20 was superseded by decree 2655 in 1988 (the “1988 Decree”), which in turn was amended by Law 685 in 2001 (the “2001 Law”).  A recent development is the amendment of the 2001 Law by Law 1382, enacted February 9, 2010. Under Colombian mining law, the holder of surface or subsurface minerals, whether operating on government or private property, is subject to the legal requirements established under the 1988 Decree, the 2001 Law, and the new (February 2010) Law 1382.





The following discussion of applicable Colombian mining laws is subject to any amendments thereto which may be effected based upon Law 1382.  The Company has been advised that the new law excludes mining and exploration activity from the Pàramo ecosystem, which occurs above 3,200 meters elevation.  The Guayabales Property occurs within an elevation range of 1620 to 2240 meters elevation.  The Company has reviewed the Law 1382 and has determined that there is no impact on the Guayabales Property or the Company’s planned exploration program.





Under the 2001 Law, there is a single type of mineral tenure, a Concession Contract covering exploration, construction and exploitation.  The initial duration of a Concession Contract is 30 years, but may be extended for up to 30 additional years.  A Concession Contract has three distinct phases: exploration, construction, and exploitation.




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The exploration phase lasts for the first three years of the Concession Contract, but may be extended for a term of up to two years.  During this phase, the holder has the right to carry out within the given area, the studies necessary to establish the existence of the minerals.  These studies should include a determination of the existence, location, geometry, and economic viability of the mineral deposit.  In order to proceed to the construction phase, 30 days prior to the completion of the exploration phase, the Concession Contract holder must submit a building and works plan – Plan de Trabajas y Obras (a “PTO”) to the mining authority for approval and concurrently submit an environmental impact study – Estudio de Impacto Ambiental (an “EIA”) to the environmental authority.





The EIA provides the technical support parameters to obtain an environmental license.  Depending on the commodity being produced and the level of production, this study must be submitted to the Ministry of the Environment or to environmental authority of the jurisdiction in which the mining project is located (i.e. the Regional Autonomous Corporations).  The environmental license grants the necessary environmental permits, including concessions and authorizations, to make use of and profit from renewable natural resources necessary to move the project forward including resources such as water and timber.  The construction and exploitation stage cannot begin until the environmental license is obtained.





The construction phase lasts for three years, commencing on acceptance of the PTO,and may be extended for an additional year.  During this phase, the holder has the right to prepare the mining area and install the services, equipment, and fixed machinery necessary to start and carry out the extraction, storage, transportation and beneficiation of the minerals.





During the exploitation phase, the holder has the right to carry out within the given area the exploitation of minerals according to the principles, rules and criteria of accepted geology and mining engineering.  The Company is obligated to comply with all legal, technical, operative and environmental rules set forth in the mining code, with all buildings, facilities and mining assemblies designed and installed according to the approved PTO.  The exploitation phase lasts for the remaining duration of the Concession Contract.





Environmental Obligations





Exploration on a mineral tenure which exceeds prospecting, mapping and sampling, requires the submittal and approval of an Environmental Management Plan - Plan of Management Environmental (“PMA”) which must include:




(a)
the work to be done (i.e., the number of drill holes, location, direction, depth, etc);




(b)
the proposed points of diversion for water so appropriate water permits can be issued;




(c)
the location and number of settling ponds to prevent turbidity in the streams by drilling fluids; and




(d)
the location of fuel and oil storage areas, away from streams and creeks.





The preparation and filing of the PMA is normally the responsibility of the drill contractor, and is typically approved in 15 to 30 days, up to a maximum of 90 days.  There is no bond requirement for exploration PMA’s, and no site reclamation is required.  While PMA’s do not require any authorization or environmental permits, any such work carried out in areas designated as natural reserves according to Article 34 of the Code are to be governed by those rules and restrictions.





As discussed above, an EIA must be submitted before an environmental license will be issued. The EIA has to demonstrate the PTO’s environmental feasibility.  Without approval of this study and the issuance of the corresponding Environmental License, mining and exploitation cannot commence.





Chapter 20 of the Mining Code under the 2001 Law deals with the issuance of the required environmental licenses for mining titles.  Once an EIA has been submitted, the law provides that the issuance of the required environmental licenses can only be refused when:




18




(a)
the EIA does not comply with the requirement in Article 204 of the Code and specifically those foreseen in the terms of reference and/or guides, established by the competent environmental authority;




(b)
the EIA has errors or omissions that cannot be corrected by the applicant and that are required components of such study;




(c)
the level of prevention, mitigation, correction, compensation and substitution for the negative impacts of the mining project prescribed in the EIA do not comply with the substantial elements established for such effects in the guidelines; or




(d)
the omissions, errors or deficiencies of the EIA, and of the proposed measures referred to in the previous subsections, affect the total mining project.





The 2001 Law also requires a Concession Contract holder to obtain an Environmental Mining Insurance Policy.  During the exploration stage, the insured value under the policy must be 5% of the value of the planned annual exploration expenditures and during the construction phase the insured value under the policy must be 5% of the planned investment for assembly and construction under the PTO.  During the exploitation phase the insured value under the policy must be 10% of the product of the estimated annual production multiplied by the mine mouth price of the minerals being produced, as fixed annually by the Colombian government.  For licenses or agreements to be maintained under decree 2655 (the 1988 Decree), the holder has to obtain an insurance policy and the insured value must be 10% of the estimated production for the first two years as established by the PTI.  Further, the policy must be maintained during the entire term of the license or agreement.





Surface Rights And Surface Tenure





Colombian law specifically provides that the owner of a Concession Contract, exploration license or exploitation license is entitled to use so much of the surface as is necessary to carry out the activities under the given license or contract.  Under normal conditions, this requires little more than speaking with the surface owner, obtaining permission and paying a reasonable fair market price for the area actually used.  Colombian law grants exclusive temporary possession of mineral deposits and provides mandatory easements to ensure efficient exploration and exploitation of legal mining titles and further provides authority to impose appropriate easements as necessary both within and external to the limits of the mining title.  The holder of a mining title must agree with the surface owner or other party against which such easement is enforceable, including other mining title holders, upon the time, and appropriate remuneration for the use and occupancy.  Colombian law provides that the remuneration payable to the surface owner is to be based on the reasonable fair market value of the land and is not to include any value attributable to the development of the “mineral wealth”, and that it should only be for so much of the surface as is actually affected, consumed or occupied by the exploration or mining activity.  Should the use of the surface affect the value of areas not subject to the easement, this loss of value will also be taken into account when fixing the remuneration payable to the land owners.





Furthermore, since the mining industry is an activity of public interest, it is also possible for the concessionaire to request the competent mining authority for the expropriation of the lands necessary for mining activities.  The acquisition of land through expropriation is also subject to prior indemnification to the owner(s).





Taxes And Royalty Obligations





In Colombia, production of gold and silver is subject to a royalty payable to the state equal to 4% of the gross value of the minerals calculated at the mine mouth for gold, subject to certain deductions and adjustments.  CMG has represented and warranted in the Underlying Option Agreement on March 4, 2010 that they are obligated to pay all associated royalty payments related to their current exploitation.  The Company is not liable for any of the royalty payments related to the current exploitation.




19





The value per gram of gold and silver at mine mouth for the estimation of royalties will be eighty per cent (80%) of the average international price for the previous month, as published in the London Metal Exchange.




Under the 2001 Law, Colombian staff of a mining company, as a whole, should receive not less than seventy percent (70%) of the total payroll of qualified or of skilled personnel in upper management or senior level staff, and no less than eighty percent (80%) of the value of total payroll of the subordinates.  Upon prior authorization, relief may be granted by the Ministry of Labour for a specified time to allow specialized training for Colombian personnel.




Other Applicable Laws and Regulations




In addition to the Guayabales Property in Colombia, we have certain mineral property interest in Sweden as described above.  If we determine to advance our interests on these properties, we will be subject to Swedish laws and regulations, and we will take such actions as necessary to ensure compliance therewith, including obtaining any necessary permits and complying with environmental and other applicable laws and regulations.




Research and Development Activities




No research and development expenditures have been incurred, either on our account or sponsored by customers, during the past three years.




Employees




We do not employ any persons on a full-time or on a part-time basis. William Thomas is our sole executive officer and is primarily responsible for all of our day-to-day operations. Other services are provided by outsourcing and consultant and special purpose contracts.




ITEM 1A.
RISK FACTORS




An investment in our common stock involves a number of very significant risks.  You should carefully consider the following risks and uncertainties in addition to other information in this annual report in evaluating our company and its business before purchasing shares of our common stock.  Our business, operating results and financial condition could be seriously harmed due to any of the following risks.  The risks described below may not be all of the risks facing our company.  Additional risks not presently known to us or that we currently consider immaterial may also impair our business operations.  You could lose all or part of your investment due to any of these risks.




Risks Related to Our Business




We will require significant additional financing in order to continue our exploration activities and our assessment of the commercial viability of our mineral properties.




We will need to raise additional financing to complete further exploration of our mineral properties.  Furthermore, if the costs of our planned exploration programs are greater than anticipated, we may have to seek additional funds through public or private share offerings or arrangements with corporate partners.  There can be no assurance that we will be successful in our efforts to raise these require funds, or on terms satisfactory to us.  The continued exploration of our mineral properties and the development of our business will depend upon our ability to establish the commercial viability of our mineral properties and to ultimately develop cash flow from operations and reach profitable operations.  We currently are in the exploration stage and we have no revenue from operations and we are experiencing significant negative cash flow.  Accordingly, the only other sources of funds presently available to us are through the sale of equity.  We presently believe that debt financing will not be an alternative to us as all of our properties are in the exploration stage.  Alternatively, we may finance our business by offering an interest in our mineral properties to be earned by another party or parties carrying out further exploration thereof or to obtain project or operating financing from financial institutions, neither of which is presently intended.  If we are unable to obtain this additional financing, we will not be able to continue our exploration activities and our assessment of the commercial viability of our mineral properties.




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As our mineral properties do not contain any reserves or any known body of economic mineralization, we may not discover commercially exploitable quantities of ore on our mineral properties that would enable us to enter into commercial production, achieve revenues and recover the money we spends on exploration.




Our properties do not contain reserves in accordance with the definitions adopted by the SEC and there is no assurance that any exploration programs that we carry out will establish reserves.  All of our mineral properties are in the exploration stage as opposed to the development stage and have no known body of economic mineralization.  The known mineralization at these projects has not yet been determined to be economic ore, and may never be determined to be economic.  We plan to conduct further exploration activities on our mineral properties, which future exploration may include the completion of feasibility studies necessary to evaluate whether a commercial mineable orebody exists on any of our mineral properties.  There is a substantial risk that these exploration activities will not result in discoveries of commercially recoverable quantities of ore.  Any determination that our properties contain commercially recoverable quantities of ore may not be reached until such time that final comprehensive feasibility studies have been concluded that establish that a potential mine is likely to be economic.  There is a substantial risk that any preliminary or final feasibility studies carried out by us will not result in a positive determination that our mineral properties can be commercially developed.




Our exploration activities on our mineral properties may not be successful, which could lead us to abandon our plans to develop such properties and our investments in exploration.


We are an exploration stage company and have not as yet established any reserves on our properties.  Our long-term success depends on our ability to establish commercially recoverable quantities of ore on our mineral properties that can then be developed into commercially viable mining operations.  Mineral exploration is highly speculative in nature, involves many risks and is frequently non-productive.  These risks include unusual or unexpected geologic formations, and the inability to obtain suitable or adequate machinery, equipment or labor.  The success of mineral exploration is determined in part by the following factors:


·
identification of potential mineral mineralization based on superficial analysis;
  ·
availability of government-granted exploration permits;
  ·
the quality of management and geological and technical expertise; and
  ·
the capital available for exploration.


Substantial expenditures are required to establish proven and probable reserves through drilling and analysis, to develop metallurgical processes to extract metal, and to develop the mining and processing facilities and infrastructure at any site chosen for mining.  Whether a mineral deposit will be established or determined to be commercially viable depends on a number of factors, which include, without limitation, the particular attributes of the deposit, such as size, grade and proximity to infrastructure; metal prices, which fluctuate widely; and government regulations, including, without limitation, regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection.  We may invest significant capital and resources in exploration activities and abandon such investments if we are unable to identify commercially exploitable mineral reserves.  The decision to abandon a project may reduce the trading price of our common stock and impair our ability to raise future financing.  We cannot provide any assurance to investors that we will discover any mineralized material in sufficient quantities on any of our properties to justify commercial operations.  Further, we will not be able to recover the funds that we spend on exploration if we are not able to establish commercially recoverable quantities of ore on our mineral properties.




Our business is difficult to evaluate because we have a limited operating history.




In considering whether to invest in our common stock, you should consider that our inception was October 11, 2004 and, as a result, there is only limited historical financial and operating information available on which to base your evaluation of our performance.




21




We have a history of operating losses and there can be no assurances we will be profitable in the future.




We have a history of operating losses, expect to continue to incur losses, are considered to be in the exploration stage, and may never be profitable.  Further, we have been dependent on sales of our equity securities and debt financing to meet our cash requirements.  We have incurred net losses totaling $30,653,110 from October 11, 2004 (inception) to February 28, 2011.  We incurred net losses totaling $5,547,005 in the year ended February 28, 2011 and $1,264,929 in the year ended February 28, 2010.  Further, we do not expect positive cash flow from operations in the near term.  There is no assurance that actual cash requirements will not exceed our estimates.  In particular, additional capital may be required in the event that: (i) the costs to acquire additional mineral exploration claims are more than we currently anticipate; (ii) exploration costs for additional claims increase beyond our expectations; or (iii) we encounter greater costs associated with general and administrative expenses or offering costs.




Our participation in of mineral exploration prospects has required and will continue to require substantial capital expenditures.  The uncertainty and factors described throughout this section may impede our ability to economically discover mineral prospects.  As a result, we may not be able to achieve or sustain profitability or positive cash flows from operating activities in the future.




We will require additional funding in the future.




In addition to our current capital requirements, based upon our historical losses from operations, we will require additional funding in the future.  If we cannot obtain capital through financings or otherwise, our ability to execute our exploration programs will be greatly limited.  Our current plans require us to make capital expenditures for the exploration of our minerals exploration properties.  Historically, we have funded our operations through the issuance of equity and short-term debt financing arrangements.  We may not be able to obtain additional financing on favorable terms, if at all.  Our future cash flows and the availability of financing will be subject to a number of variables, including the market prices of relevant minerals.  Further, debt financing could lead to a diversion of cash flow to satisfy debt-servicing obligations and create restrictions on business operations.  If we are unable to raise additional funds, it would have a material adverse effect upon our operations.




As part of our growth strategy, we may acquire additional mineral exploration properties.




Such acquisitions may pose substantial risks to our business, financial condition, and results of operations.  In pursuing acquisitions, we will compete with other companies, many of which have greater financial and other resources to acquire attractive properties.  Even if we are successful in acquiring additional properties, such properties may not produce positive results of exploration, or we may not complete exploration of such prospects within specified time periods, which may cause the forfeiture of the lease or other interest in that prospect.  There can be no assurance that we will be able to successfully integrate acquired properties, which could result in substantial costs and delays or other operational, technical, or financial problems.  Further, acquisitions could disrupt ongoing business operations.  If any of these events occur, it would have a material adverse effect upon our operations and results from operations.




The mineral exploration industry is highly competitive and there is no assurance that we will be successful in acquiring any additional property interests which we may seek.




The mineral exploration industry is intensely competitive, and we compete with other companies that have greater resources.  Many of these companies not only explore for and produce minerals, but also market various minerals and other products on a regional, national or worldwide basis.  These companies may be able to pay more for productive mineral properties and exploratory prospects or define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit.  In addition, these companies may have a greater ability to continue exploration activities during periods of low mineral market prices.  Our larger competitors may be able to absorb the burden of present and future federal, state, local and other laws and regulations more easily than we can, which would adversely affect our competitive position.  Our ability to acquire additional properties and to explore them in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment.  In addition, because we have fewer financial and human resources than many companies in our industry, we may be at a disadvantage in bidding for exploratory prospects.




22




We are a new entrant into the mineral exploration industry without profitable operating history.




Since inception, our activities have been limited to organizational efforts, obtaining working capital and acquiring and exploring a very limited number of properties.  As a result, there is limited information upon which to base our future success.




The business of minerals exploration is subject to many risks and uncertainties, including those described in this section, and if minerals found in economic quantities, the profitability of future mining ventures depends upon factors beyond our control.  The profitability of mining mineral properties if economic quantities of minerals are found is dependent upon many factors and risks beyond our control, including, but not limited to: (i) unanticipated ground and water conditions and adverse claims to water rights; (ii) geological problems; (iii) metallurgical and other processing problems; (iv) the occurrence of unusual weather or operating conditions and other force majeure events; (v) lower than expected ore grades; (vi) accidents; (vii) delays in the receipt of or failure to receive necessary government permits; (viii) delays in transportation; (ix) labor disputes; (x) government permit restrictions and regulation restrictions; (xi) unavailability of materials and equipment; and (xii) the failure of equipment or processes to operate in accordance with specifications or expectations.




The risks associated with exploration and, if applicable, mining could cause personal injury or death, environmental damage, delays in mining, monetary losses and possible legal liability.




We are not currently engaged in mining operations because we are in the exploration phase and have not yet any proved mineral reserves.  We are in the process of applying for property and liability insurance. Cost effective insurance contains exclusions and limitations on coverage and may be unavailable in some circumstances.




The marketability of natural resources will be affected by numerous factors beyond our control which may result in us not receiving an adequate return on invested capital to be profitable or viable.




The marketability of natural resources which may be acquired or discovered by us will be affected by numerous factors beyond our control.  These factors include macroeconomic factors, market fluctuations in commodity pricing and demand, the proximity and capacity of natural resource markets and processing equipment, governmental regulations, land tenure, land use, regulation concerning the importing and exporting of minerals and environmental protection regulations.  The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital to be profitable or viable.




Mining operations are subject to comprehensive regulation, which may cause substantial delays or require capital outlays in excess of those anticipated, causing an adverse effect on our business operations.




If economic quantities of minerals are found on any of our mineral property interests by us in sufficient quantities to warrant mining operations, such mining operations are subject to federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment.  Mining operations are also subject to federal, state, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of mining methods and equipment.  Various permits from government bodies are required for mining operations to be conducted; no assurance can be given that such permits will be received.  Environmental standards imposed by federal, provincial, or local authorities may be changed and any such changes may have material adverse effects on our activities.  Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus resulting in an adverse effect on us.  Additionally, we may be subject to liability for pollution or other environmental damages which we may elect not to insure against due to prohibitive premium costs and other reasons.  To date we have not been required to spend material amounts on compliance with environmental regulations.  However, we may be required to do so in future and this may affect our ability to expand or maintain our operations.




23




Mineral exploration and development and mining activities are subject to certain environmental regulations, which may prevent or delay the commencement or continuance of our operations.




Mineral exploration and development and future potential mining operations are or will be subject to stringent federal, state, provincial, and local laws and regulations relating to improving or maintaining environmental quality.  Environmental laws often require parties to pay for remedial action or to pay damages regardless of fault.  Environmental laws also often impose liability with respect to divested or terminated operations, even if the operations were terminated or divested of many years ago.




Future potential mining operations and current exploration activities are or will be subject to extensive laws and regulations governing prospecting, development, production, exports, taxes, labor standards, occupational health, waste disposal, protection and remediation of the environment, protection of endangered and protected species, mine safety, toxic substances and other matters.  Mining is also subject to risks and liabilities associated with pollution of the environment and disposal of waste products occurring as a result of mineral exploration and production.  Compliance with these laws and regulations will impose substantial costs on us and will subject us to significant potential liabilities.




Costs associated with environmental liabilities and compliance are expected to increase with the increasing scale and scope of operations and we expect these costs may increase in the future.




We believe that our operations comply, in all material respects, with all applicable environmental regulations.  However, we are not fully insured at the current date against possible environmental risks.




Any change in government regulation/administrative practices may have a negative impact on our ability to operate and our profitability.




The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in any applicable jurisdiction may be changed, applied or interpreted in a manner which will fundamentally alter our ability to carry on business.  The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on us.  Any or all of these situations may have a negative impact on our ability to operate and/or our profitably.




We may be unable to retain key employees or consultants or recruit additional qualified personnel.




Due to our limited operating history and financial resources, we are entirely dependent on the continued service of William Thomas, our sole executive officer and a director.  Further, we do not have key man life insurance on any of our directors.  We may not have the financial resources to hire a replacement if Mr. Thomas was to resign or otherwise cease serving as an officer of our company.  The loss of service of Mr. Thomas could therefore significantly and adversely affect our operations.




Our officers and directors may be subject to conflicts of interest.




Some of our officers and directors serve only part time and may be subject to conflicts of interest.  Each may devote part of his working time to other business endeavors, including consulting relationships with other corporate entities, and may have responsibilities to these other entities.  Such conflicts may include deciding how much time to devote to our affairs, as well as what business opportunities should be presented to us.  Because of these relationships, some of our officers and directors may be subject to conflicts of interest.




24




Nevada law and our articles of incorporation may protect our directors from certain types of lawsuits.




Nevada law provides that our officers and directors will not be liable to us or our stockholders for monetary damages for all but certain types of conduct as officers and directors.  Our Bylaws permit us broad indemnification powers to all persons against all damages incurred in connection with our business to the fullest extent provided or allowed by law.  The exculpation provisions may have the effect of preventing stockholders from recovering damages against our officers and directors caused by their negligence, poor judgment or other circumstances.  The indemnification provisions may require us to use our limited assets to defend our officers and directors against claims, including claims arising out of their negligence, poor judgment, or other circumstances.




Risks Related to Our Common Stock




The trading price of our common stock on the OTC Bulletin Board has been and may continue to fluctuate significantly and stockholders may have difficulty reselling their shares.




Our common stock commenced trading on the OTC Bulletin Board on November 7, 2006 and the trading price has fluctuated.  In addition to volatility associated with securities in general, the value of your investment could decline due to the impact of any of the following factors upon the market price of our common stock: (i) disappointing results from our discovery or development efforts; (ii) failure to meet our revenue or profit goals or operating budget; (iii) decline in demand for our common stock; (iv) downward revisions in securities analysts’ estimates or changes in general market conditions; (v) technological innovations by competitors or in competing technologies; (vi) lack of funding generated for operations; (vii) investor perception of our industry or our prospects; and (viii) general economic trends.




In addition, stock markets have experienced price and volume fluctuations and the market prices of securities have been highly volatile.  These fluctuations are often unrelated to operating performance and may adversely affect the market price of our common stock.  As a result, investors may be unable to sell their shares at a fair price and you may lose all or part of your investment.




Additional issuances of equity securities may result in dilution to our existing stockholders.  Our Articles of Incorporation, as amended, authorize the issuance of 140,625,000 shares of common stock.




The Board of Directors has the authority to issue additional shares of our capital stock to provide additional financing in the future and the issuance of any such shares may result in a reduction of the book value or market price of the outstanding shares of our common stock.  If we do issue any such additional shares, such issuance also will cause a reduction in the proportionate ownership and voting power of all other stockholders.  As a result of such dilution, if you acquire shares of our common stock, your proportionate ownership interest and voting power could be decreased.  Further, any such issuances could result in a change of control.




Our common stock is classified as a “penny stock” under SEC rules which limits the market for our common stock.




Because the market price of the common stock has fluctuated and may trade at times at less than $5 per share, the common stock may be classified as a “penny stock.” SEC Rule 15g-9 under the Exchange Act imposes additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as an “established customer” or an “accredited investor.” This includes the requirement that a broker-dealer must make a determination that investments in penny stocks are suitable for the customer and must make special disclosures to the customers concerning the risk of penny stocks.  Many broker-dealers decline to participate in penny stock transactions because of the extra requirements imposed on penny stock transactions.  Application of the penny stock rules to our common stock reduces the market liquidity of our shares, which in turn affects the ability of holders of our common stock to resell the shares they purchase, and they may not be able to resell at prices at or above the prices they paid.




A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our operations.




A decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise additional capital for our operations.  Because our operations to date have been principally financed through the sale of equity securities, a decline in the price of our common stock could have an adverse effect upon our liquidity and our continued operations. A reduction in our ability to raise equity capital in the future would have a material adverse effect upon our business plan and operations, including our ability to continue our current operations.  If our stock price declines, we may not be able to raise additional capital or generate funds from operations sufficient to meet our obligations.




25




ITEM 1B.
UNRESOLVED STAFF COMMENTS




None.




ITEM 2.
PROPERTIES




We lease our principal office space located at 880-666 Burrard Street, Vancouver, British Columbia, V6C 2G3.  This office space is for the conduct of our business operations and costs us approximately $5,000 monthly.  The office and services related thereto may be cancelled at any time with a 30 day notice.  The mineral properties in which we have an interest are described above under “Item 1.  Business”.




ITEM 3.
LEGAL PROCEEDINGS




We are not a party to any material legal proceedings nor are we aware of any legal proceedings pending or threatened against us or our properties.




ITEM 4.
(REMOVED AND RESERVED)




ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES




Market for Common Equity




Shares of our common stock have been quoted on the OTC Bulletin Board since November 7, 2006. From November 7, 2006 to June 5, 2007 shares of our common stock were quoted on the OTC Bulletin Board under the symbol “ANCR”, from June 6, 2007 to March 10, 2008 under the symbol “NUMX”, from March 11, 2008 to June 8, 2010 under the symbol “URNI”, and from June 9, 2010 to date under the symbol “MRGP”.  Our symbol was changed to “MRGP” effective June 9, 2010 in connection with our name change to “Mercer Gold Corporation”, which was effective under Nevada corporate law on June 17, 2010.   We effected a reverse split at a ratio of four (4) old for one (1) new share, effective with the OTC Bulletin Board at the opening of trading on May 12, 2011 under the symbol “MRGPD”. The “D” will be placed on our ticker symbol for 20 business days. After 20 business days, our symbol will revert back to the original symbol “MRGP”.




The market for our common stock is limited, and can be volatile.  The following table sets forth the high and low bid prices relating to our common stock on the OTC Bulletin Board on a quarterly basis for the periods indicated as quoted by the NASDAQ stock market.  These quotations reflect inter-dealer prices without retail mark-up, mark-down, or commissions, and may not reflect actual transactions.




OTC Bulletin BoardQuarter Ended

High


LowFebruary 28, 2011

$
1.76


$
1.32November 30, 2010

$
2.60


$
0.80August 31, 2010

$
3.00


$
1.20May 31, 2010

$
4.20


$
1.80February 28, 2010

$
3.00


$
0.60November 30, 2009

$
1.60


$
0.80August 31, 2009

$
3.00


$
1.60May 31, 2009

$
4.00


$
1.32




26





The last reported sales price for our shares on the OTC Bulletin Board on May 27, 2011 was $0.26 per share.  As of May 31, 2011, we had 29 shareholders of record, which does not include shareholders whose shares are held in street or nominee names.




Dividend Policy




No dividends have been declared or paid on our common stock.  We have incurred recurring losses and do not currently intend to pay any cash dividends in the foreseeable future.




Securities Authorized For Issuance Under Compensation Plans




On April 5, 2010, our Board of Directors authorized and approved the adoption of our 2010 Stock Incentive Plan (the “2010 Plan”), which superseded and replaced our 2008 Stock Incentive Plan (the “2008 Plan”) and our 2009 Stock Incentive Plan (the “2009 Plan”), except that any awards previously granted under our 2008 Plan and 2009 Plan that remained outstanding at the time of the approval of our 2010 Plan were brought forward and are now covered by the terms and conditions of the 2010 Plan.  Pursuant to the 2010 Plan, the maximum number of shares which may be issued pursuant to all awards under the 2010 Plan is 3,431,875.  The table set forth below presents information relating to our equity compensation plans as of February 28, 2011.





Plan Category

Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights

(a)


Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights

(b)


Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding column (a))Equity Compensation Plans Approved by Security Holders


-0-



-0-



-0-Equity Compensation Plans Not Approved by Security Holders2010 Stock Incentive Plan


1,512,500


$
2.00



1,919,375




The purpose of the 2010 Plan is to enhance our long-term stockholder value by offering opportunities to our directors, officers, employees and eligible consultants to acquire and maintain stock ownership in order to give these persons the opportunity to participate in our growth and success, and to encourage them to remain in our service.




The 2010 Plan is to be administered by our Board of Directors or a committee appointed by and consisting of two or more members of the Board of Directors, which shall determine, among other things, (i) the persons to be granted awards under the 2010 Plan; (ii) the number of shares or amount of other awards to be granted; and (iii) the terms and conditions of the awards granted.  The Company may issue restricted shares, options, stock appreciation rights, deferred stock rights, dividend equivalent rights, among others, under the 2010 Plan.




27




An award may not be exercised after the termination date of the award and may be exercised following the termination of an eligible participant’s continuous service only to the extent provided by the administrator under the 2010 Plan.  If the administrator under the 2010 Plan permits a participant to exercise an award following the termination of continuous service for a specified period, the award terminates to the extent not exercised on the last day of the specified period or the last day of the original term of the award, whichever occurs first.  In the event an eligible participant’s service has been terminated for “cause”, he or she shall immediately forfeit all rights to any of the awards outstanding.




The foregoing summary of the 2010 Plan is not complete and is qualified in its entirety by reference to the 2010 Plan, a copy of which was filed as an exhibit to this Annual Report on Form 10-K for the year ended February 28, 2010.




Recent Sales of Unregistered Securities




Effective after the close of business on April 14, 2010, our Company completed a non-brokered private placement financing (the “Financing”) involving the sale of an aggregate of 1,025,000 units of our Company (each a “Unit”) to three subscribers at a subscription price of $2.00 per Unit, for gross proceeds of $2,050,000.  Each Unit is comprised of one common share (each a “Unit Share”) and one-half of one non-transferable common stock purchase warrant (each a “Warrant”) of our Company, with each such whole Warrant being exercisable for one additional common share of the Company (each a “Warrant Share”) at an exercise price of $4.00 per Warrant Share for a period of one year from closing.  Our Company relied on exemptions from registration under the United States Securities Act of 1933, as amended (the “Securities Act”), provided by Regulation S and Rule 506 of Regulation D thereunder in connection with the issuance of these Units, based on representations and warranties made by the purchasers of the Units in their respective subscription agreements.




Effective April 15, 2010, we issued 2,500,000 common shares of our Company to five individuals as directed by Mercer Gold Corporation pursuant to and in accordance with the terms of the Mercer Option Agreement. Our Company relied on exemptions from registration under the Securities Act provided by Regulation S and Rule 506 of Regulation D thereunder in connection with the issuance of these shares.




Effective on March 29, 2010, the Board of Directors of our Company authorized the settlement of debt with two creditors (collectively, the “Creditors”), which debt consisted of outstanding advances, loans and accrued interest and other amounts aggregating $375,000 and $25,000, respectively (collectively, the “Debt”). Our Company memorialized the incurrence of the Debt through the issuance to the Creditors of two convertible promissory notes in the principal amount of $375,000 and $25,000, respectively (the “Convertible Promissory Notes”). The terms of the Convertible Promissory Notes provided that in the event the Company was unable to repay the Debt, the Debt could be satisfied by way of conversion of the Debt into shares of our Company’s restricted common stock at the rate of $0.20 per share. The Convertible Promissory Notes were issued to two non-United States residents in reliance on Regulation S promulgated under the Securities Act. The Creditor holding the $375,000 Convertible Promissory Note entered into assignments dated March 29, 2010 (collectively, the “Assignments”) with four assignees (collectively, the “Assignees”), pursuant to which the Creditor assigned a proportionate right of its title and interest in and to its $375,000 Debt evidenced by its Convertible Promissory Note to the Assignees. Subsequently, our Company received notices of conversion (collectively, the “Notices of Conversion”), from the four Assignees as well as the Creditor holding the $25,000 Convertible Promissory Note (the “$25,000 Creditor”) pursuant to which the Assignees and the $25,000 Creditor converted their respective right, title and interest in and to Debt and the Convertible Promissory Notes into shares of common stock at the rate of $0.20 per share. Further, effective on April 5, 2010, the Board of Directors of the Company authorized the issuance of an aggregate of 2,000,000 shares of its common stock proportionately to the Assignees and the $25,000 Creditor in accordance with the terms and provisions of the Notices of Conversion and the Convertible Promissory Notes. The shares of common stock were issued to five non-United States residents in reliance on Regulation S promulgated under the Securities Act.




28




On April 4, 2011 we issued 300,000 shares of our common stock to one non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933), in an offshore transaction relying on Regulation S and/or Section 4(2) of the Securities Act of 1933 .




ITEM 6.
SELECTED FINANCIAL DATA




We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.




ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS




The following discussion should be read in conjunction with (i) our audited financial statements as at and for the years ended February 28, 2011 and 2010 and the related notes; and (ii) the section of this annual report entitled “Business” that appear elsewhere in this annual report.  The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs.  Our actual results could differ materially from those discussed in the forward looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this annual report, particularly in the section entitled “Risk Factors”.  Our financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.




Plan of Operations




Our Plan of Operations for the next twelve months is to pursue the recommended exploration program on the Guayabales Property, as described above under “Item 1.  Business – Mineral Properties – Guayabales Property, Colombia – Recommendations and Plan of Operations.”  We have decided to reduce the work program for the next 12 months while we review our forward plan in depth and estimate we will spend about $1,000,000 over the next 12 months.  Further, we expect to spend approximately $300,000 in the next 12 months in office and general expenses and professional, consulting and management fees.




Based on our current plan of operations as set forth above, we estimate that we will require approximately $1.3 million to pursue our plan of operations over the next twelve months.  As at February 28, 2011, we had cash of $126,134 and a working capital deficit of $1,311,656.  We will require additional financing to pursue our plan of operations over the next twelve months.  There can be no assurance that we will obtain any additional financing in the amounts required or on terms favorable to us. If we are unable to obtain additional financing, we may have to re-evaluate or abandon our business activities and revise our plan of operations.




We anticipate that additional funding will be in the form of equity financing from the sale of our common stock. However, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund our plan of operations going forward. In the absence of such financing, our business plan will fail. Even if we are successful in obtaining equity financing, there is no assurance that we will obtain the funding necessary to pursue our business plan. If we do not continue to obtain additional financing going forward, we will be forced to re-evaluate or abandon our plan of operations.





29





Results of Operations




We are an exploration stage company and have not generated any revenue to date.  The following table sets forth selected financial information relating to our company for the periods indicated:




For the period from the date of inception (October 11,

2004) to

February 28,


For the year ended

February 28,


For the year ended

February 28,2011


2011


2010GENERAL & ADMINISTRATIVE EXPENSESWrite down of mineral property acquisition costs

$
14,625,000


$
100,000


$
25,000Amortization


867



867



-Bank charges


22,931



18,588



660Consulting fees


327,737



148,577



(28,855
)Interest expense


534,032



415,844



56,645Legal and accounting


844,040



294,183



94,245Management fees


447,507



(24,693
)


-Marketing and promotion


208,939



156,045



1,565Mineral property exploration expenditures


1,377,598



1,354,855



-Office and miscellaneous


297,723



224,185



5,683Rent


106,153



73,162



5,959Stock-based compensation


11,811,265



2,762,720



1,091,640Transfer agent fees


49,318



22,672



12,387TOTAL GENERAL & ADMINISTRATIVE EXPENSES


30,653,110



5,547,005



1,264,929NET LOSS AND COMPREHENSIVE LOSS

$
(30,653,110
)

$
(5,547,005
)

$
(1,264,929
)





Year Ended February 28, 2011 Compared to Year Ended February 28, 2010




During the fiscal years ended February 28, 2011 and February 28, 2010 we did not generate any revenue.




30





During the fiscal year ended February 28, 2011 we incurred general and administrative expenses of $5,547,005 compared to $1,264,929 incurred during the fiscal year ended February 28, 2010.  The major components of our general and administrative expenses for our fiscal years ended February 28, 2011 and 2010 consisted of the following:




·
write down of mineral property acquisition costs of $100,000 in 2011 (2010- $25,000) relating to the termination of the Geoforum and T.A. Metals properties in Sweden;




·
consulting fees of $148,577 in 2011 (2010 – ($28,855)), which increased between 2010 and 2011 due to increased activity associated with the Guayabales property;




·
legal and accounting fees of $294,183 in 2011 (2010 - $94,245), which increased between 2010 and 2011 due to activity in negotiating and finalizing agreements related to the Guayabales property and to effect the name change of the company;




·
marketing and promotion fees of $156,045 in 2011 (2010 - $1,565), which increased between 2010 and 2011 as we increased focus on these activities;




·
mineral property exploration expenditures of $1,354,855  in 2011 (2010 - $Nil), which increased between 2010 and 2011 due to increased exploration activity on the Guayabales property in Colombia;




·
office and miscellaneous expenses of $224,185 in 2011 (2010 - $5,683), which increased between 2010 and 2011 due to increased activity relating to setting up the Guayabales property transaction and new business;




·
stock-based compensation of $2,762,720 in 2011 (2010 - $1,091,640), which increased between 2010 and 2011 due to issuance and modification of stock options as compensation during the current period.




Our net loss during the fiscal year ended February 28, 2011 was $5,547,005 compared to a net loss of $1,264,929 during the fiscal year ended February 28, 2010.




Liquidity and Capital Resources




As at the fiscal year ended February 28, 2011, our current assets were $181,944 (2010 - $385) and our current liabilities were $1,493,600 (2010 - $1,108,045), which resulted in a working capital deficiency of $1,311,656 (2010 - $1,107,660).




Total stockholders’ equity (deficiency) increased from ($1,007,660) for the fiscal year ended February 28, 2010 to $4,058,055 for the fiscal year ended February 28, 2011.




Cash Flows Used in Operating Activities




We have not generated positive cash flows from operating activities.  For the fiscal year ended  February 28, 2011, net cash flows used in operating activities was ($2,180,322) consisting primarily of a net loss of ($5,547,005).  Net cash flows used in operating activities was adjusted by $6,237 in accrued interest on the promissory notes, $867 in depreciation, $100,000 in write down of mineral property acquisition costs, $2,762,720 in stock based compensation, and ($120,843) in non-cash gain on settlement of debt.  Net cash flows used in operating activities was further changed by  ($15,690) in increase in amounts receivable, ($39,735) in increase in prepaid expenses, $291,295 in increase in accounts payable and accrued liabilities, and $70,002 in increase due to related parties.




31




We have not generated positive cash flows from operating activities.  For the fiscal year ended  February 28, 2010, net cash flows used in operating  activities was ($87,263) consisting primarily of a net loss of ($1,264,929).  Net cash flows used in operating activities was adjusted by $56,645 in accrued interest on related party promissory note, $25,000 in write down of mineral property acquisition costs, and $1,091,640 in stock based compensation.  Net cash flows used in operating activities was further changed by $1,275 in decrease of prepaid expenses, ($819) in decrease of accounts payable and accrued  liabilities, and $3,925 in increase due to related parties.




Cash Flows Used in Investing Activities




For the fiscal year ended February 28, 2011, net cash flows used in investing activities was $423,078 compared to net cash flows used in investing activities during the fiscal year ended February 28, 2010 of $125,000, in each case primarily in connection with acquisition of mineral property interests.




Cash Flows Provided by Financing Activities




We have financed our operations primarily from either advancements or the issuance of equity and debt instruments.  For the fiscal year ended February 28, 2011, net cash flows provided by financing activities was $2,729,534, compared to $160,340 for the fiscal year ended February 28, 2010.  Cash flows from financing activities for the fiscal year ended February 28, 2011 consisted primarily of $2,050,000 from common shares issued for cash as well as $910,000 from promissory notes.  Cash flows from financing activities for the fiscal year ended February 28, 2010 consisted mainly of $160,000 in advances from related parties.




We expect that working capital requirements will continue to be funded through a combination of our existing funds and further issuances of securities.  Our working capital requirements are expected to increase as we expand our exploration activities as set forth above under “Plan of Operations”.




Funding for Plan of Operations




As set forth above under “Plan of Operations”, we anticipate that we will required approximately $1.3 million over the next twelve months to pursue our Plan of Operations.  We will require additional financing in order to be able to fund our plan of operations.




Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments.  In connection with our business plan, management anticipates additional increases in exploration expenses and capital expenditures relating to: (i) exploration properties; and (ii) future exploration property acquisitions. We intend to finance these expenses with further issuances of securities, and debt issuances.  Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders.  Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.





32





Material Commitments




As set forth above under “Item 1.  Business”, we have material commitments under the following agreements:




·
the Minerals Assets Option Agreement regarding the Guayabales Property in Colombia;




·
the Definitive Geoforum Agreement regarding the Geoforum Properties in Sweden; and




·
the Definitive Trans Atlantic Agreement regarding the Trans Atlantic Properties in Sweden.




Off-Balance Sheet Arrangements




As of the date of this Annual Report, we do not have any off-balance sheet arrangements that have or are reasonably  likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.




Going Concern




The independent auditors’ report accompanying our February 28, 2011 and February 28, 2010 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.  The financial statements have been prepared “assuming that we will continue as a going concern,” which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.




Critical Accounting Policies and Estimates




The following is a summary of significant accounting policies used in the preparation of our financial statements.




Basis of Presentation




The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles (“U.S. GAAP”) applicable to exploration stage enterprises.  The functional currency is the U.S. dollar, and the financial statements are presented in U. S. dollars.




The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Mercer One Panama Corp. and Mercer Two Panama Corp. which were incorporated on June 2, 2010.  All significant inter-company transactions and account balances have been eliminated upon consolidation.




Mineral Property Expenditures




Mineral property acquisition costs are initially capitalized as tangible assets when purchased.  At the end of each fiscal quarter end, the Company assesses the carrying costs for impairment.  If proven and probable reserves are established for a property and it has been determined that a mineral property can be economically developed, costs will be amortized using the units-of-production method over the estimated life of the probable reserve.




33




Mineral property exploration costs are expensed as incurred.




Estimated future removal and site restoration costs, when determinable are provided over the life of proven reserves on a units-of-production basis.  Costs, which include production equipment removal and environmental remediation, are estimated each period by management based on current regulations, actual expenses incurred, and technology and industry standards.  Any charge is included in exploration expense or the provision for depletion and depreciation during the period and the actual restoration expenditures are charged to the accumulated provision amounts as incurred.




As of the date of these financial statements, the Company has not established any proven or probable reserves on its mineral properties and incurred only acquisition and exploration costs.




Although the Company has taken steps to verify title to mineral properties in which it has an interest, according to the usual industry standards for the stage of exploration of such properties, these procedures do not guarantee the Company’s title.  Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.




Asset Retirement Obligations




The Company has adopted ASC 410, “Asset Retirement and Environmental Obligations”, which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. ASC 410 requires the Company to record a liability for the present value of the estimated site restoration costs with corresponding increase to the carrying amount of the related long-lived assets.  The liability will be accreted and the asset will be depreciated over the life of the related assets.  Adjustments for changes resulting from the passage of time and changes to either the timing or amount of the original present value estimate underlying the obligation will be made. There were no asset retirement obligations as at February 28, 2011.




Use of Estimates




The preparation of financial statements in conformity with GAAP 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 period.  Actual results could differ from those estimates. Significant areas requiring management’s estimates and assumptions are the determination of the fair value of transactions involving common stock and financial instruments. Other areas requiring estimates include deferred tax balances and asset impairment tests.




Cash and Cash Equivalents




For the statements of cash flows, all highly liquid investments with maturity of three months or less are considered to be cash equivalents.  There were no cash and cash equivalents as of February 28, 2011 and 2010 that exceeded federally insured limits.




Net Income (Loss) per Common Share




The Company computes income (loss) per share in accordance with ASC 260, “Earnings Per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement of operations.  Basic income (loss) per share is computed by dividing net income (loss) available to common shareholders by weighted average number of outstanding common shares during the period.  Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during the period.  Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.




34




Fair Value Financial Instruments




A fair value hierarchy was established that prioritizes the inputs used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurements).




The fair values of the financial instruments were determined using the following input levels and valuation techniques:




Level 1:  classification is applied to any asset or liability that has a readily available quoted market price from an active market where there is significant transparency in the executed/quoted price.




Level 2:  classification is applied to assets and liabilities that have evaluated prices where the data inputs to these valuations are observable either directly or indirectly, but do not represent quoted market prices from an active market.




Level 3:  classification is applied to assets and liabilities when prices are not derived from existing market data and requires us to develop our own assumptions about how market participants would price the asset or liability.





As at February 28, 2011, the fair value of cash and cash equivalents, amounts receivables, accounts payable, amounts due to related parties and promissory notes payable approximate carrying value due to their short maturities. The fair value of the long term promissory note payable approximates the carrying value due to the terms of the note.




Credit Risk




Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises primarily from the Company’s cash and cash equivalents and amounts receivable. The Company manages its credit risk relating to cash and cash equivalents by dealing only with highly-rated US financial institutions.  As at 31 February 28, 2011, amounts receivable was comprised of Harmonized Sales Tax receivable of $15,690 (February 28, 2010 - $Nil).  As a result, credit risk is considered insignificant.




Currency Risk




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




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




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




35




Liquidity Risk
  Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due.  The Company manages liquidity risk by continuously monitoring actual and projected cash flows and matching the maturity profile of financial assets and liabilities.





Other Risks




Unless otherwise noted, the Company is not exposed to significant interest rate risk and commodity price risk.




Income Taxes




The Company follows the liability method of accounting for income taxes.  Under this method, deferred 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 balances.  Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment.  As at February 28, 2011, the Company had net operating loss carryforwards, however, due to the uncertainty of realization, the Company has provided a full valuation allowance for the deferred tax assets resulting from these loss carryforwards.




Foreign Currency Translation




The financial statements are presented in U.S. dollars.  In accordance with ASC 830 “Foreign Currency Matters”, foreign denominated monetary assets and liabilities are translated to their U.S. dollar equivalents using foreign exchange rates which prevailed at the balance sheet date.  Revenue and expenses are translated at average rates of exchange during the period.  Related translation adjustments are reported as a separate component of stockholders’ equity, whereas gains or losses resulting from foreign currency transactions are included in results of operations.  To February 28, 2011, the Company has not recorded any translation adjustments into stockholders’ equity.




Stock-Based Compensation




On June 1, 2006, the Company adopted ASC 718, “Compensation – Stock Compensation”, which establishes accounting for equity instruments exchanged for employee services. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employees’ requisite service period (generally the vesting period of the equity grant). The Company adopted ASC 718 using the modified prospective method, which requires the Company to record compensation expense over the vesting period for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding at the date of adoption.  Accordingly, financial statements for the periods prior to January 1, 2006 have not been restated to reflect the fair value method of expensing share-based compensation.  The adoption of ASC 718 does not change the way the Company accounts for share-based payments to non-employees, with guidance provided by ASC 505-50, “Equity-Based Payments to Non-Employees”.





36





Property and Equipment
  Property and equipment are recorded at cost and are depreciated over their estimated useful lives using the declining balance method at the following annual rates:
 
 Furniture and fixtures


10
%Machinery and equipment


10
%Computer equipment


20
%





Recently Issued Accounting Pronouncements





In December 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-28 (ASU 2010-28), Intangibles, Goodwill and Other. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The Company does not expect the provisions of ASU 2010-28 to have a material effect on the Company’s financial position, results of operations or cash flows.





In December 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-29 (ASU 2010-29), Business Combinations. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The Company does not expect the provisions of ASU 2010-29 to have a material effect on the Company’s financial position, results of operations or cash flows.




ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




We are subject to risks related to foreign currency exchange rate fluctuations.  However, they have not had a material impact on our results of operations to date.




Our functional currency is the United States dollar.  However, a significant portion of our business is transacted in other currencies (the Canadian dollar).  As a result, we are subject to exposure from movements in foreign currency exchange rates.  We do not use derivative financial instruments for speculative trading purposes, nor do we hedge our foreign currency exposure to manage our foreign currency fluctuation risk.




37


ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




Report of Independent Registered Public Accounting Firm


39Consolidated Balance Sheets


40Consolidated Statements of Operations


41Consolidated Statement of Stockholders’ Equity (Deficiency)


42Consolidated Statements of Cash Flows


44Notes to Consolidated Financial Statements


45





38





James StaffordReport of Independent Registered Public Accounting Firm

James Stafford, Inc.

Chartered Accountants

Suite 350 – 1111 Melville Street

Vancouver, British Columbia

Canada V6E 3V6

Telephone +1 604 669 0711

Facsimile +1 604 669 0754

www.jamesstafford.ca





To the Board of Directors and Stockholders of


Mercer Gold Corporation (formerly Uranium International Corp.)


(An Exploration Stage Company)





We have audited the accompanying consolidated balance sheets of Mercer Gold Corporation(formerly Uranium International Corp.) (An Exploration Stage Company) (the “Company”) as at 28 February 2011 and 2010 and the related consolidated statements of operations, cash flows and stockholder’s equity (deficiency) for the years ended 28 February 2011, 2010 and 2009.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.





We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as, evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.





In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as at 28 February 2011 and 2010 and the results of its operations and its cash flows for the years ended 28 February 2011, 2010 and 2009 in conformity with accounting principles generally accepted in the United States of America.





The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, conditions exist which raise substantial doubt about the Company’s ability to continue as a going concern unless it is able to generate sufficient cash flows to meet its obligations and sustain its operations. Management’s plans regarding those matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.







/s/ James StaffordVancouver, Canada

Chartered Accountants20 May 2011, except as to Note 13, as to which the date is 31 May 2011
 
 39





MERCER GOLD CORPORATION


(formerly Uranium International Corp.)


(An Exploration Stage Company)





CONSOLIDATED BALANCE SHEETS


(Expressed in U.S. Dollars)




February 28,

2011


February 28,

2010ASSETSCURRENT ASSETSCash and cash equivalents

$
126,134


$
-Amounts receivable


15,690



-Prepaid expenses


40,120



385TOTAL CURRENT ASSETS


181,944



385PROPERTY AND EQUIPMENT (Note 4)


7,211



-MINERAL EXPLORATION PROPERTIES(Note 5)


5,415,000



100,000TOTAL ASSETS

$
5,604,155


$
100,385LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)CURRENT LIABILITIESBank overdraft

$
-


$
340Accounts payable and accrued liabilities (Note 6)


421,486



155,191Due to related parties (Note 7)


55,877



183,388Promissory notes payable (Note 8 (a))


1,016,237



769,126TOTAL CURRENT LIABILITIES


1,493,600



1,108,045PROMISSORY NOTE PAYABLE (Note 8 (b))


52,500



-TOTAL LIABILITIES


1,546,100



1,108,045NATURE OF OPERATIONS AND BASIS OF PRESENTATION,COMMITMENTS AND CONTINGENCY AND SUBSEQUENT EVENTS (Notes 1, 11 and 13)STOCKHOLDERS’ EQUITY (DEFICIENCY)Capital stock (Note 9)Authorized140,625,000 shares of common stock, $0.001 par valueIssued and outstanding 17,159,375 common shares (February 28, 2010 – 13,509,375)


17,159



13,509Additional paid-in-capital


33,684,688



24,084,936Warrants


1,009,318



-Deficit accumulated during exploration stage


(30,653,110
)


(25,106,105
)TOTAL STOCKHOLDERS’ EQUITY (DEFICIENCY)


4,058,055



(1,007,660
)TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)

$
5,604,155


$
100,385





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




40




MERCER GOLD CORPORATION


(formerly Uranium International Corp.)


(An Exploration Stage Company)





CONSOLIDATED STATEMENTS OF OPERATIONS


(Expressed in U.S. Dollars)





For the period from the date of inception (October 11,

2004) to

February 28,


For the year

ended

February 28,


For the year

ended

February 28,


For the year

ended

February 28,2011


2011


2010


2009(Unaudited)GENERAL AND ADMINISTRATIVE EXPENSESWrite down of mineral propertyacquisition costs (Note 5)

$
14,625,000


$
100,000


$
25,000


$
-Amortization


867



867



-



-Bank charges


22,931



18,588



660



427Consulting fees (recovery) (Note 7)


327,737



148,577



(28,855
)


134,315Interest expense (Notes 6 and 8)


534,032



415,844



56,645



37,926Legal and accounting


844,040



294,183



94,245



171,811Management fees (recovery) (Notes 7 and 11)


447,507



(24,693
)


-



301,600Marketing and promotion


208,939



156,045



1,565



14,569Mineral property exploration expenditures


1,377,598



1,354,855



-



8,624Office and miscellaneous


297,723



224,185



5,683



37,111Rent


106,153



73,162



5,959



13,490Stock-based compensation (Note 9)


11,811,265



2,762,720



1,091,640



7,956,905Transfer agent fees


49,318



22,672



12,387



9,025TOTAL GENERAL AND ADMINISTRATIVE EXPENSES


30,653,110



5,547,005



1,264,929



8,685,803NET LOSS AND COMPREHENSIVE LOSS

$
(30,653,110
)

$
(5,547,005
)

$
(1,264,929
)

$
(8,685,803
)





BASIC AND DILUTED LOSS AND COMPREHENSIVE LOSS PER COMMON SHARE

$
(0.33
)

$
(0.09
)

$
(0.64
)WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED


16,984,717



13,509,375



13,509,375





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




41


MERCER GOLD CORPORATION


(formerly Uranium International Corp.)


(An Exploration Stage Company)





FOR THE PERIOD FROM INCEPTION (OCTOBER 11, 2004) TO FEBRUARY 28, 2011 (Unaudited) and


FOR THE YEARS ENDED FEBRUARY 28, 2011, 2010 and 2009 (Audited)


(Expressed in U.S. Dollars)





Common stock


Additional





Deficit accumulated during


Total stockholders’Number of

shares


Amount


Paid-in

capital


Warrants


exploration

stage


equity (deficiency)Balance, October 11, 2004 (inception)


-


$
-


$
-


$
-


$
-


$
-Common stock issued for cash

at $0.00013 per share – November 29, 2004 (Note 9)


7,500,000



7,500



(3,500
)


-



-



4,000Common stock issued for cash

at $0.00013 per share – January 10, 2005 (Note 9)


4,500,000



4,500



(2,100
)


-



-



2,400Common stock issued for cash

at $0.00013 per share – January 21, 2005 (Note 9)


2,812,500



2,812



12,188



-



-



15,000Common stock issued for cash

at $0.00013 per share – January 25, 2005 (Note 9)


375,000



375



1,625



-



-



2,000Common stock issued for cash

at $0.00013 per share – February 1, 2005 (Note 9)


46,875



47



2,453



-



-



2,500Net loss for the period


-



-



-



-



(3,051
)


(3,051
)Balance, February 28,  2005


15,234,375



15,234



10,666



-



(3,051
)


22,849Net loss for the year


-



-



-



-



(12,401
)


(12,401
)Balance, February 28, 2006


15,234,375



15,234



10,666



-



(15,452
)


10,448Contributions to capital by related parties


-



-



24,000



-



-



24,000Net loss for the year


-



-



-



-



(64,770
)


(64,770
)Balance, February 28, 2007


15,234,375



15,234



34,666



-



(80,222
)


(30,322
)Restricted common shares returned and cancelled (Note 9)


(3,750,000
)


(3,750
)


3,750



-



-



-Common shares issued per Strathmore Option

Agreement (Notes 5 and 9)


1,875,000



1,875



13,998,125



-



-



14,000,000Commons shares issued for cash

at $1.67 per share – February 26, 2008 (Note 9)


150,000



150



816,766



-



-



816,916Warrants issued for cash – February 26, 2008 (Note 9)


-



-



-



183,084



-



183,084Net loss for the year


-



-



-



-



(15,075,151
)


(15,075,151
)Balance, February 29, 2008


13,509,375



13,509



14,853,307



183,084



(15,155,373
)


(105,473
)Stock-based compensation (Note 9)


-



-



7,956,905



-



-



7,956,905Warrants expired during the year (Note 9)


-



-



183,084



(183,084
)


-



-Net loss for the year


-



-



-



-



(8,685,803
)


(8,685,803
)Balance, February 28, 2009


13,509,375


$
13,509


$
22,993,296


$
-


$
(23,841,176
)

$
(834,371
)





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




42




MERCER GOLD CORPORATION


(formerly Uranium International Corp.)


(An Exploration Stage Company)





FOR THE PERIOD FROM INCEPTION (OCTOBER 11, 2004) TO FEBRUARY 28, 2011 (Unaudited) and


FOR THE YEARS ENDED FEBRUARY 28, 2011, 2010 and 2009 (Audited)


(Expressed in U.S. Dollars)





Common stock


Additional





Deficit accumulated during


Total stockholders’Number of

shares


Amount


Paid-in capital


Warrants


exploration

stage


equity

(deficiency)Balance forward, February 28, 2009


13,509,375


$
13,509


$
22,993,296


$
-


$
(23,841,176
)

$
(834,371
)Stock-based compensation (Note 9)


-



-



1,091,640



-



-



1,091,640Net loss for the year


-



-



-



-



(1,264,929
)


(1,264,929
)Balance, February 28, 2010


13,509,375



13,509



24,084,936



-



(25,106,105
)


(1,007,660
)Common shares issued for debt – April 5, 2010

at $0.20 per share (Notes 6, 8 and 9)


2,000,000



2,000



398,000



-



-



400,000Common shares issued for cash

at $2.00 per share – April 14, 2010 (Note 9)


1,025,000



1,025



2,048,975



-



-



2,050,000Fair value of warrants– April 14, 2010 (Note 9)


-



-



(1,009,318
)


1,009,318



-



-Common shares issued per Mercer Option

Agreement (Notes 5 and 9)


2,500,000



2,500



4,997,500



-



-



5,000,000Common shares cancelled per Nose Rock Termination

Agreement – May 28, 2010 (Notes 5 and 9)


(1,875,000
)


(1,875
)


1,875



-



-



-Beneficial conversion feature (Notes 6 and 8)


-



-



400,000



-



-



400,000Stock-based compensation (Note 9)


-



-



2,762,720



-



-



2,762,720Net loss for the year


-



-



-



-



(5,547,005
)


(5,547,005
)Balance, February 28, 2011


17,159,375


$
17,159


$
33,684,688


$
1,009,318


$
(30,653,110
)

$
4,058,055





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




43




MERCER GOLD CORPORATION


(formerly Uranium International Corp.)


(An Exploration Stage Company





CONSOLIDATED STATEMENTS OF CASH FLOWS


(Expressed in U.S. Dollars)




Inception

(October 11, 2004)

to February 28,


For the year ended February 28,2011


2011


2010


2009(Unaudited)CASH FLOWS FROM OPERATING ACTIVITIESNet loss for the year

$
(30,653,110
)

$
(5,547,005
)

$
(1,264,929
)

$
(8,685,803
)Adjustments to reconcile net loss to net cash used in operating activities:- Interest expense (Notes 6 and 8)


524,363



406,237



56,645



37,864- Depreciation


867



867



-



-- Contributions to capital by related parties


24,000



-



-



-- Write down of mineral property acquisition costs (Note 5)


14,625,000



100,000



25,000



-- Write down of management fees (Notes 7 and 11)


(88,170
)


(88,170
)


-



-- Stock-based compensation (Note 9)


11,811,265



2,762,720



1,091,640



7,956,905- Non-cash gain on settlement of debt (Note 7)


(120,843
)


(120,843
)


-



-Changes in operating assets and liabilities- Decrease (increase) in amounts receivable


(15,690
)


(15,690
)


-



-- Decrease (increase) in prepaid expenses


(40,120
)


(39,735
)


1,275



(1,660
)- Increase (decrease) in accounts payable and accrued liabilities


446,486



291,295



(819
)


120,694- Increase (decrease) in due to related parties


253,390



70,002



3,925



157,663NET CASH USED IN OPERATING ACTIVITIES


(3,232,562
)


(2,180,322
)


(87,263
)


(414,337
)CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of mineral property interests (Note 5)


(1,040,000
)


(415,000
)


(125,000
)


-Acquisition of property and equipment (Note 4)


(8,078
)


(8,078
)


-



-NET CASH FLOWS USED IN INVESTING ACTIVITIES


(1,048,078
)


(423,078
)


(125,000
)


-CASH FLOWS FROM FINANCING ACTIVITIESBank overdraft


-



(340
)


340



-Advances from related parties (Note 8)


715,000



64,000



160,000



130,000Other promissory notes (Note 8)


910,000



910,000



-



-Repayment of other promissory notes (Note 8)


(294,126
)


(294,126
)


-



-Common shares issued for cash / subscribed for cash


3,075,900



2,050,000



-



-NET CASH PROVIDED BY FINANCING ACTIVITIES


4,406,774



2,729,534



160,340



130,000INCREASE (DECREASE)  IN CASH


126,134



126,134



(51,923
)


(284,337
)CASH, BEGINNING OF PERIOD


-



-



51,923



336,260CASH, END OF PERIOD

$
126,134


$
126,134


$
-


$
51,923SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS
 Cash paid for interest

$
127,733


$
127,733


$
-


$
-Cash paid for income taxes

$
-


$
-


$
-


$
-Non-cash transactions:Donated rent and services

$
24,000


$
-


$
-


$
-Shares issued for exploration expenses and mineral properties

$
19,000,000


$
5,000,000


$
-


$
-Shares issued on settlement of debts

$
450,000


$
400,000


$
-


$
50,000





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




44





MERCER GOLD CORPORATION


(formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)
 (Audited)


NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION




Mercer Gold Corporation (the “Company”) was incorporated under the laws of the State of Nevada on October 11, 2004 to promote and carry on any lawful business for which a corporation may be incorporated under the laws of the State of Nevada.  On May 24, 2007 the Company filed Articles of Merger with the Secretary of State of Nevada in order to effectuate a merger whereby the Company (as Ancor Resources, Inc.) would merge with its newly incorporated and wholly-owned subsidiary, Nu-Mex Uranium Corp. (“Nu-Mex”).  This merger became effective June 4, 2007 and the Company, being the surviving entity, changed its name to Nu-Mex Uranium Corp. On February 26, 2008 the Company filed Articles of Merger with the Secretary of State of Nevada in order to effectuate a merger whereby the Company (as Nu-Mex) would merge with its newly incorporated and wholly-owned subsidiary, Uranium International Corp. (“UIC”).  This merger became effective as of March 11, 2008 and the Company, being the surviving entity, changed its name to Uranium International Corp. On May 17, 2010 the Company filed Articles of Merger with the Secretary of State of Nevada in order to effectuate a merger whereby the Company (as UIC) would merge with its newly incorporated and wholly-owned subsidiary, Mercer Gold Corporation (“Mercer”).  This merger became effective on the OTC Bulletin Board and effective with the State of Nevada on June 17, 2010 and the Company, being the surviving entity, changed its name to Mercer Gold Corporation.  The Company intends to engage in the acquisition and exploration of mining properties.  The Company is in the exploration stage and its operations principally involve research and development, market analysis, property evaluation and other business planning activities, and no revenue has been generated to date.




Effective June 6, 2007, the Company completed a forward stock split by the issuance of 5 new shares for each 1 outstanding share of the Company’s common stock. Further, on March 11, 2008 the Company completed a forward stock split by the issuance of 1.5 new shares for each 1 outstanding share of the Company’s common stock.  Effective May 12, 2011, the Company completed a reverse stock split by the issuance of 1 new share for each 4 outstanding shares of the Company’s common stock (Notes 9 and 13). Unless otherwise noted, all references herein to number of shares, price per share or weighted average shares outstanding have been adjusted to reflect these stock splits on a retroactive basis.




The Company is an exploration stage enterprise, as defined in Accounting Standards Codification (the “Codification” or “ASC”) 915-10, “Development Stage Entities.”  The Company is devoting all of its present efforts to securing and establishing a new business and its planned principal operations have not commenced.  Accordingly, no revenue has been derived during the organization period.




Going Concern




The Company’s consolidated financial statements as at February 28, 2011, and for the year then ended have been prepared based on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.  The Company has incurred operating loses since inception of $30,653,110.  The Company requires additional funding to meet its ongoing obligations and anticipated ongoing operating losses.  The ability of the Company to continue as a going concern is dependent on raising capital to fund its initial business plan and ultimately to attain profitable operations.  Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern.  The Company intends to continue to fund its exploration business by way of private placements and advances from shareholders as may be required.




Comparative Figures




Certain comparative figures have been reclassified in order to conform to the current year’s financial statement presentation.




45





MERCER GOLD CORPORATION
 (formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)
  NOTE 2 – CHANGES IN ACCOUNTING POLICIES




In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 166, "Accounting for Transfer of Financial Assets - an amendment of FASB Statement".  SFAS No. 166 removes the concept of a qualifying special-purpose entity from ASC 860-10, "Transfers and Servicing", and removes the exception from applying ASC 810-10, "Consolidation". This statement also clarifies the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting.  SFAS No. 166, which is referenced in ASC 105-10-65, has not yet been adopted into the Codification and remains authoritative.  This statement is effective March 1, 2010.  The adoption of this guidance did not have a significant impact on the Company's consolidated financial statements.




In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)".  SFAS No. 167, which amends ASC 810-10, "Consolidation", prescribes a qualitative model for identifying whether a company has a controlling financial interest in a variable interest entity ("VIE") and eliminates the quantitative model.  The new model identifies two primary characteristics of a controlling financial interest: (1) provides a company with the power to direct significant activities of the VIE, and (2) obligates a company to absorb losses of and/or provides rights to receive benefits from the VIE.  SFAS 167 requires a company to reassess on an ongoing basis whether it holds a controlling financial interest in a VIE.  A company that holds a controlling financial interest is deemed to be the primary beneficiary of the VIE and is required to consolidate the VIE.  SFAS No. 167, which is referenced in ASC 105-10-65, has not yet been adopted into the Codification and remains authoritative.  SFAS No. 167 is effective March 1, 2010.  The adoption of this guidance did not have a significant impact on the Company's consolidated financial statements.




In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06, "Improving Disclosures about Fair Value Measurements." This update requires additional disclosure within the roll forward of activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances and settlements of assets and liabilities within Level 3 of the fair value hierarchy. In addition, the update requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Levels 2 and 3. The new disclosure requirements are effective for interim and annual periods beginning after December 15, 2009, except for the disclosure of purchases, sales, issuances and settlements of Level 3 measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010. The Company adopted ASU 2010-06 related to Levels 1 and 2 disclosures on March 1, 2010 and the adoption of this guidance did not have a significant impact on the Company's consolidated financial statements.




In February 2010, the FASB issued ASU No. 2010-11, “Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives”.  ASU No. 2010-11 clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. Specifically, only one form of embedded credit derivative qualifies for the exemption – one that is related only to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. The amendments in ASU No. 2010-11 are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after March 5, 2010. The adoption of ASU No. 2010-11 did not have a material impact on the Company’s consolidated financial statements.




46




MERCER GOLD CORPORATION


(formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)





NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




The following is a summary of significant accounting policies used in the preparation of these consolidated financial statements.




Basis of Presentation




The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles (“U.S. GAAP”) applicable to exploration stage enterprises.  The functional currency is the U.S. dollar, and the consolidated financial statements are presented in U. S. dollars.




The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Mercer One Panama Corp. and Mercer Two Panama Corp. which were incorporated on June 2, 2010.  All significant inter-company transactions and account balances have been eliminated upon consolidation.




Mineral Property Expenditures




Mineral property acquisition costs are initially capitalized as tangible assets when purchased.  At the end of each fiscal quarter end, the Company assesses the carrying costs for impairment.  If proven and probable reserves are established for a property and it has been determined that a mineral property can be economically developed, costs will be amortized using the units-of-production method over the estimated life of the probable reserve.




Mineral property exploration costs are expensed as incurred.




Estimated future removal and site restoration costs, when determinable are provided over the life of proven reserves on a units-of-production basis.  Costs, which include production equipment removal and environmental remediation, are estimated each period by management based on current regulations, actual expenses incurred, and technology and industry standards.  Any charge is included in exploration expense or the provision for depletion and depreciation during the period and the actual restoration expenditures are charged to the accumulated provision amounts as incurred.




As of the date of these consolidated financial statements, the Company has not established any proven or probable reserves on its mineral properties and incurred only acquisition and exploration costs.




Although the Company has taken steps to verify title to mineral properties in which it has an interest, according to the usual industry standards for the stage of exploration of such properties, these procedures do not guarantee the Company’s title.  Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.




Asset Retirement Obligations




The Company has adopted ASC 410, “Asset Retirement and Environmental Obligations”, which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. ASC 410 requires the Company to record a liability for the present value of the estimated site restoration costs with corresponding increase to the carrying amount of the related long-lived assets.  The liability will be accreted and the asset will be depreciated over the life of the related assets.  Adjustments for changes resulting from the passage of time and changes to either the timing or amount of the original present value estimate underlying the obligation will be made. There were no asset retirement obligations as at February 28, 2011.




47





MERCER GOLD CORPORATION
 (formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)


NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




Use of Estimates




The preparation of financial statements in conformity with U.S. GAAP 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 period.  Actual results could differ from those estimates. Significant areas requiring management’s estimates and assumptions are the determination of the fair value of transactions involving common stock and financial instruments. Other areas requiring estimates include deferred tax balances and asset impairment tests.




Cash and Cash Equivalents




For the statements of cash flows, all highly liquid investments with maturity of three months or less are considered to be cash equivalents.  There were no cash and cash equivalents as of February 28, 2011 and 2010 that exceeded federally insured limits.




Net Income (Loss) per Common Share




The Company computes income (loss) per share in accordance with ASC 260, “Earnings Per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement of operations.  Basic income (loss) per share is computed by dividing net income (loss) available to common shareholders by weighted average number of outstanding common shares during the period.  Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during the period.  Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.




Fair Value Financial Instruments




A fair value hierarchy was established that prioritizes the inputs used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurements).




The fair values of the financial instruments were determined using the following input levels and valuation techniques:




Level 1:  classification is applied to any asset or liability that has a readily available quoted market price from an active market where there is significant transparency in the executed/quoted price.




Level 2:  classification is applied to assets and liabilities that have evaluated prices where the data inputs to these valuations are observable either directly or indirectly, but do not represent quoted market prices from an active market.




Level 3:  classification is applied to assets and liabilities when prices are not derived from existing market data and requires us to develop our own assumptions about how market participants would price the asset or liability.





As at February 28, 2011, the fair value of cash and cash equivalents, amounts receivables, accounts payable, amounts due to related parties and promissory notes payable approximate carrying value due to their short maturities. The fair value of the long term promissory note payable approximates the carrying value due to the terms of the note.




48




MERCER GOLD CORPORATION


(formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)


NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




Fair Value Financial Instruments (continued)




Credit Risk




Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises primarily from the Company’s cash and cash equivalents and amounts receivable. The Company manages its credit risk relating to cash and cash equivalents by dealing only with highly-rated US financial institutions.  As at February 28, 2011, amounts receivable was comprised of Harmonized Sales Tax receivable of $15,690 (2010 - $Nil).  As a result, credit risk is considered insignificant.




Currency Risk




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




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




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




Liquidity Risk




Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due.  The Company manages liquidity risk by continuously monitoring actual and projected cash flows and matching the maturity profile of financial assets and liabilities.




Other Risks




Unless otherwise noted, the Company is not exposed to significant interest rate risk and commodity price risk.




Income Taxes




The Company follows the liability method of accounting for income taxes.  Under this method, deferred 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 balances.  Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment.  As at February 28, 2011, the Company had net operating loss carryforwards, however, due to the uncertainty of realization, the Company has provided a full valuation allowance for the deferred tax assets resulting from these loss carryforwards.




49




MERCER GOLD CORPORATION
 (formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)


NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




Foreign Currency Translation




The financial statements are presented in U.S. dollars.  In accordance with ASC 830 “Foreign Currency Matters”, foreign denominated monetary assets and liabilities are translated to their U.S. dollar equivalents using foreign exchange rates which prevailed at the balance sheet date.  Revenue and expenses are translated at average rates of exchange during the period.  Related translation adjustments are reported as a separate component of stockholders’ equity, whereas gains or losses resulting from foreign currency transactions are included in results of operations.  To February 28, 2011, the Company has not recorded any translation adjustments into stockholders’ equity.




Stock-Based Compensation




On June 1, 2006, the Company adopted ASC 718, “Compensation – Stock Compensation”, which establishes accounting for equity instruments exchanged for employee services. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employees’ requisite service period (generally the vesting period of the equity grant). The Company adopted ASC 718 using the modified prospective method, which requires the Company to record compensation expense over the vesting period for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding at the date of adoption.  Accordingly, financial statements for the periods prior to January 1, 2006 have not been restated to reflect the fair value method of expensing share-based compensation.  The adoption of ASC 718 does not change the way the Company accounts for share-based payments to non-employees, with guidance provided by ASC 505-50, “Equity-Based Payments to Non-Employees”.




Property and Equipment




Property and equipment are recorded at cost and are depreciated over their estimated useful lives using the declining balance method at the following annual rates:





Furniture and fixtures


10
%Machinery and equipment


10
%Computer equipment


20
%





Recently Issued Accounting Pronouncements




In December 2010, the FASB issued ASU 2010-28, “Intangibles, Goodwill and Other”. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The Company does not expect the provisions of ASU 2010-28 to have a material effect on the Company’s financial position, results of operations or cash flows.





In December 2010, the FASB issued ASU 2010-29, “Business Combinations”. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The Company does not expect the provisions of ASU 2010-29 to have a material effect on the Company’s financial position, results of operations or cash flows.




50




MERCER GOLD CORPORATION
 (formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)


NOTE 4 – PROPERTY AND EQUIPMENT





Net Book ValueCost


Accumulated

amortization


February 28,

2011


February 28,

2010Furniture and fixtures

$
649


$
65


$
584


$
-Machinery and equipment


6,837



684



6,153



-Computer equipment


592



118



474



-$
8,078


$
867


$
7,211


$
-





During the year ended February 28, 2011, total additions to property and equipment were $8,078 (2010 - $Nil).





NOTE 5 – MINERAL EXPLORATION PROPERTIES





(a) Guayabales Property





On April 5, 2010, the Company entered into a letter of intent (the “LOI”), dated April 3, 2010 with Mercer Gold Corp., a private Canadian corporation (“Mercer Canada”).  Pursuant to the LOI, Mercer Canada has granted to the Company an exclusive option (the “Option”) to acquire all of Mercer Canada’s current underlying option interests under an option agreement, dated March 4, 2010 (the “Underlying Option Agreement”), as entered into between Mercer Canada and Comunidad Mineral Guayabales (the “Underlying Property Owner”).  Pursuant to the Underlying Option Agreement, Mercer Canada acquired from the Underlying Property Owner an option (the “Underlying Option”) to acquire a 100% legal, beneficial and registerable interest in and to certain mineral property concession interest which are held by way of license.  The mineral property interests are located in the Municipality of Marmato, Colombia and are better known and described as the “Guayabales” property (collectively, the “Property”).





On April 13, 2010, the Company entered into a definitive Mineral Assets Option Agreement with Mercer Canada (the “Mercer Option Agreement”).  The Mercer Option Agreement replaces the previous underlying LOI.  The Mercer Option Agreement, as amended on December 30, 2010 and again on March 22, 2011, provides that, in order to exercise its Option, the Company is obligated to:





1.
Pay to Mercer Canada $200,000 immediately upon the execution of the Mercer Option Agreement (the “Effective Date”) (paid on April 14, 2010);





2.
Issue to Mercer Canada, both prior to and after the due and complete exercise of the Options, an aggregate of up to 5,000,000 restricted shares of the Company’s common stock, as follows:


·
an initial issuance of 2,500,000 shares within two business days of the Effective Date (issued on April 15, 2010) (Note 9); and


·
a final issuance of 2,500,000 shares within five business days of the Company’s prior receipt of a “technical report” (as that term is defined in section 1.1 of National Instrument 43-101 of the Canadian Securities Administrators, Standards of Disclosure for Mineral Projects (“NI 43-101”) meeting certain criteria).






51





MERCER GOLD CORPORATION
 (formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)





NOTE 5 – MINERAL EXPLORATION PROPERTIES (continued)





(a)  Guayabales Property (continued)





3.
Provide funding for or expend minimum cumulative “Expenditures” for “Exploration and Development” (as defined in the Mercer Option Agreement) work on or in connection with any of the mineral interests comprising the Property interests of not less than $3,000,000, as follows:


·
no less than an initial $1,000,000 of the Expenditures shall be expended on the Property by December 31, 2011 ($1,000,000 incurred);


·
no less than a further $1,000,000 of the Expenditures shall be expended on the Property by December 31, 2012 (354,855 incurred); and


·
no less than a final $1,000,000 of the Expenditures shall be expended on the Property by December 31, 2013.





4.
Pay on Mercer Canada’s behalf all underlying option, regulatory and governmental payments and assessment work required to keep the Property in good standing during the Option period (being that period from the Effective Date to the closing date in respect of the due and complete exercise of the Option as described in the Mercer Option Agreement, which shall not be later than January 13, 2013), and including, without limitation, all remaining cash payments required to be made to the Underlying Property Owner under the Underlying Option Agreement. The Company must pay the Underlying Property Owner an aggregate of $4,000,000 in the instalments by the dates specified as follows:





·
Pay $20,000 by October 14, 2009 (paid);


·
Pay additional $40,000 on or by 90 days from October 14, 2009 (paid);


·
Pay additional $40,000 on or by April 14, 2010 (paid);


·
Pay additional $55,000 on or by July 14, 2010 (paid);


·
Pay additional $55,000 on or by October 14, 2010 (paid);


·
Pay additional $65,000 on or by January 14, 2011 (paid);


·
Pay additional $75,000 on or by April 14, 201l (Note 13);


·
Pay additional $75,000 on or by July 14, 201l;


·
Pay additional $85,000 on or by October 14, 201l;


·
Pay additional $85,000 on or by January 14, 2012;


·
Pay additional $160,000 on or by July 14, 2012;


·
Pay additional $160,000 on or by January 14, 2013;


·
Pay additional $190,000 on or by July 14, 2013;


·
Pay additional $190,000 on or by January 14, 2014;


·
Pay additional $230,000 on or by July 14, 2014;


·
Pay additional $230,000 on or by January 14, 2015; and


·
Pay additional $2,245,000 on or by July 14, 2015.





Expenditures related to the Guayabales property for the year ended February 28, 2011 consist of business development and project generation of $1,097 (2010 - $Nil; 2009 - $Nil; cumulative - $1,097), camp costs and field supplies of $231,820 (2010 - $Nil; 2009 - $Nil; cumulative - $231,820), drilling of $325,999 (2010 - $Nil; 2009 - $Nil; cumulative - $325,999), mapping of  $28 (2010 - $Nil; 2009 - $Nil; cumulative - $28), rental of $54,033 (2010 - $Nil; 2009 - $Nil; cumulative - $54,033), sampling of $55,106 (2010 - $Nil; 2009 - $Nil; cumulative - $55,106), taxes and permitting of $1,007 (2010 - $Nil; 2009 - $Nil; cumulative - $1,007), transportation and fuel of $68,286 (2010 - $Nil; 2009 - $Nil; cumulative - $68,286), wages, consulting and management fees of $596,872 (2010 - $Nil; 2009 - $Nil; cumulative - $596,872) and legal and accounting fees of $20,607 (2010 - $Nil; 2009 - $Nil; cumulative - $20,607).




52





MERCER GOLD CORPORATION
 (formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)


NOTE 5 – MINERAL EXPLORATION PROPERTIES (continued)





(b) Geoforum Scandinavia AB Property


Effective December 9, 2008, the Company entered into a written letter option agreement with Geoforum Scandinavia AB (“Geoforum”) for the exclusive option to acquire a 100% undivided interest in four mineral properties in Sweden (the “Geoforum Properties”), subject to a 3% NSR royalty (“Geoforum Letter Option Agreement”). A payment of $25,000 was required on or before the earlier of the expiration of the due diligence period or February 28, 2009 (the “Geoforum Effective Date”) (accrued as at February 28, 2009 and paid on March 6, 2009). On October 29, 2009, the Company entered into a Formal Option Agreement with Geoforum (the “Geoforum Option Agreement”).




Under the terms of the Geoforum Option Agreement, in order to exercise the Option, the Company must:





1.
Pay $25,000 at the date of the execution of the Formal Option Agreement (the “Effective Date”) (paid on November 5, 2009);


2.
Pay an additional $25,000 upon the first twelve month anniversary of the Effective Date (the “Anniversary Date”);


3.
Pay an additional $25,000 upon each and every Anniversary Date thereafter until the Company acquires 100% undivided interest in the properties or the option is terminated;


4.
Issue 12,500 shares of the Company’s common stock upon the first Anniversary Date;


5.
Issue an additional 12,500 shares of the Company’s common stock upon the second Anniversary Date; and


6.
Incur exploration expenses of $3.7 million over the seven year period as follows;


-
$300,000 after the Effective Date and prior to the first Anniversary Date;


-
$400,000 between the first and second Anniversary Date; and


-
$3,000,000 between the third and seventh Anniversary Date.





The Company had the option to extend the period in which to incur the exploration expenses from seven years to nine years by paying Geoforum an additional $100,000.





The Board of Directors determined that it was not in the best interests of the Company and its shareholders to proceed with the acquisition and development of the Leases in accordance with the terms and provisions of the Option Agreement and the Company authorized the termination of the Option Agreement.  The Company and Geoforum agreed that the Option Agreement would be terminated and the Company and Geoforum would be released from their respective duties and obligations.  The Company has forfeited its deposit of the $50,000 paid to Geoforum which was recorded as a loss during fiscal 2011.




53




MERCER GOLD CORPORATION
 (formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)
  NOTE 5 – MINERAL EXPLORATION PROPERTIES (continued)





(c) Trans Atlantic Metals AB Property




Effective January 15, 2009, the Company entered into a written letter option agreement with Trans Atlantic Metals AG (“TAM”) and its wholly owned subsidiary, T.A. Metal, Sweden AG for exclusive options to acquire up to an 80% undivided interest in four mineral properties in Sweden (collectively, the “TAM Properties”), subject to a 3% NSR royalty (the “TAM Option”). A payment of $25,000 was required on or before the earlier of the expiration of the due diligence period or February 28, 2009 (the “TAM Effective Date”) (accrued as at February 28, 2009 and paid on March 2, 2009). On November 17, 2009, the Company entered into a Formal Option Agreement with TAM (the “TAM Option Agreement”).





Under the terms of the TAM Option Agreement, in order to exercise the first TAM Option for 51%, the Company must:





1.
Pay $25,000 at the date of execution of the Formal Option Agreement (paid on November 23, 2009);


2.
Pay an additional $25,000 on or before one year from the date of execution of this Agreement (the “Anniversary Date”);


3.
Pay an additional $25,000 upon each and every Anniversary Date thereafter until either the Company acquires 80% interest in the properties or the agreement is terminated.


4.
Issue 12,500 shares of the Company’s common stock on or before the first Anniversary Date;


5.
Issue an additional 12,500 shares of the Company’s common stock on or before the second Anniversary Date; and


6.
Incur exploration expenses of $700,000 over the next two years as follows:


-
$300,000 prior to the first Anniversary Date; and


-
$400,000 prior to the second Anniversary Date.





Following the exercise of the 51% option, in order to exercise the second Option for an additional 29% interest, the Company must incur further exploration expenses of $3,000,000 prior to the seventh Anniversary Date.





The Board of Directors determined that it was not in the best interests of the Company and its shareholders to proceed with the acquisition and development of the Leases in accordance with the terms and provisions of the Option Agreement and the Company authorized the termination of the Option Agreement.  The Company and TAM agreed that the Option Agreement would be terminated and the Company and TAM would be released from their respective duties and obligations.  The Company has forfeited its deposit of the $50,000 paid to TAM which was recorded as a loss during fiscal 2011.





(d) Nose Rock Property


Further to the Letter of Intent (“LOI”) which became effective June 18, 2007, the Board of Directors of the Company approved the Company’s entry into an Option and Joint Venture Agreement (the “Agreement”) effective September 14, 2007, with Strathmore Resources (US) Inc. (“Strathmore”).  The Agreement set out the terms upon which the Company and Strathmore were to explore and, if warranted, develop Strathmore’s Nose Rock properties.





Pursuant to the terms of the Agreement, Strathmore had granted the Company the sole and exclusive right to acquire up to a 65% interest in Strathmore’s Nose Rock properties (collectively, the “Nose Rock Properties”), located northeast of Crownpoint within the Grants Mineral Belt in the State of New Mexico on approximately 5,000 acres in consideration of:





1.
The Company paying to Strathmore $250,000 and issuing 1,875,000 common shares in the capital stock of the Company (amounts paid and common shares issued on September 14, 2007 and valued at $14,000,000) (Note 9); and


54
 
 MERCER GOLD CORPORATION
 (formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)


NOTE 5 – MINERAL EXPLORATION PROPERTIES (continued)





(d) Nose Rock Property (continued)




2.
The Company incurring a minimum of $44,500,000 in work commitment expenditures on the Nose Rock project in accordance with the following schedule:


-
$1,000,000 work commitment expenditures to be incurred in each of the first and second years from closing;


-
an additional $1,500,000 work commitment expenditures to be incurred in the third year from closing;


-
an additional $10,000,000 work commitment expenditures to be incurred in each of the fourth, fifth and sixth years from closing; and


-
an additional $11,000,000 work commitment expenditures to be incurred in the seventh year after closing.





If the Company acquired its full 65% interest (or its 49% interest if Strathmore elects to retain or earn back 16% interest), each of the Company and Strathmore would contribute to the costs with respect to the Nose Rock Properties in accordance with their proportionate share ownership in the Nose Rock Properties.





The Agreement further contemplates that, provided that the Company is not in default, (i) the Company will have acquired a 25% interest in the Nose Rock Properties once the Company had incurred $13,500,000 of its total $44,500,000 in work commitment expenditures, and (ii) the Company will have acquired an additional 40% interest in the Nose Rock Properties once the Company had incurred the remaining $31,000,000 of its total $44,500,000 in work commitment expenditures.  However, subject to the terms of the Agreement, Strathmore had the right to retain or earn back a 16% interest in the Nose Rock Properties by paying $25,000,000 to the Company.  Until the Company acquires its full 65% interest (or its 49% interest if Strathmore elects to retain or earn back a 16% interest), Strathmore will not be required to contribute to the costs of exploration or development of the Nose Rock Properties.  After the Company acquired its full 65% interest (or its 49% interest if Strathmore elects to retain or earn back 16% interest), each of the Company and Strathmore will contribute to the costs with respect to the Nose Rock Properties in accordance with their proportionate share ownership in the Nose Rock Properties. Within sixty days of the fourth anniversary of the Effective Date, an evaluation, conducted in accordance with National Instrument 43-101 of the Canadian Securities Administrator, is to be performed.





The acquisition cost of $14,250,000 provided to Strathmore was initially capitalized as a tangible asset. During the year ended February 29, 2008, the Company recorded a write down of mineral property acquisition costs of $14,250,000 related to the Nose Rock Property.





On November 18, 2008 the Company entered into a written agreement with Strathmore to terminate the Nose Rock Property Option Agreements. Pursuant to the terms of the termination agreement, the 1,875,000 common shares previously issued were required to be returned to the Company’s treasury for cancellation.  The 1,875,000 shares were returned to treasury and cancelled on May 28, 2010 (Note 9).




55




MERCER GOLD CORPORATION
 (formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)


NOTE 5 – MINERAL EXPLORATION PROPERTIES (continued)





(e) Dalton Pass




Further to the LOI dated July 11, 2007, effective October 5, 2007, the Board of Directors of the Company approved the Company’s entry into an Option and Joint Venture Agreement dated October 5, 2007 (the “Dalton Pass Property Option Agreement”) with Strathmore with respect to Strathmore’s Dalton Pass Property (the “Dalton Pass Property”).  The Dalton Pass Property consists of certain federal lode mining claims located between Church Rock and Crownpoint uranium districts of the western Grants Mineral Belt in the State of New Mexico.





Pursuant to the terms of the Dalton Pass Property Option Agreement, Strathmore has granted the Company the sole and exclusive right and option to acquire up to a 65% interest in the Dalton Pass Property, in consideration of:





1.
The Company paying Strathmore $250,000 (amounts paid on July 16, 2007); and


2.
The Company incurring a total of $16,750,000 in work commitment expenditures on the Dalton Pass Property (“Expenditures”), and additional payments of $1,000,000 in cash or stock to Strathmore in accordance with the following schedule:


-
$1,000,000 in Expenditures Costs plus $250,000 payment in cash or equivalent fair value of common stock on or before October 5, 2008;


-
an additional $2,000,000 in Expenditures plus $250,000 payment in cash or equivalent fair value of common stock on or before October 5, 2009;


-
an additional $2,750,000 in Expenditures plus $250,000 payment in cash or equivalent fair value of common stock on or before October 5, 2010;


-
an additional $3,000,000 in Expenditures plus $250,000 payment in cash or equivalent fair value of common stock on or before October 5, 2011;


-
a further $4,000,000 in Expenditures on or before October 5, 2012; and


-
a further $4,000,000 in Expenditures on or before October 5, 2013.








The Company will earn a 25% interest in the Dalton Pass Property once the Company has completed its commitments (Expenditure Costs of $8,750,000 and cash/stock of $1,000,000) on or before October 5, 2011. The Company will earn an additional 40% interest in the Dalton Pass Property once the Company has completed its additional commitments ($8,000,000 in work) on or before October 5, 2013. However, subject to the terms of the Dalton Pass Property Option Agreement, Strathmore has the right to retain or earn back a 16% interest in property by paying $8,000,000 to the Company.  Until the Company acquires its full 65% interest (or its 49% interest if Strathmore elects to retain or earn back a 16% interest), Strathmore will not be required to contribute to the costs of exploration or development of the Dalton Pass Property.  After the Company acquires its full 65% interest (or its 49% interest if Strathmore elects to retain or earn back a 16% interest), then each of the Company and Strathmore will contribute to the costs with respect to the Dalton Pass Property in accordance with their proportionate ownership interest in the Dalton Pass Property.


The acquisition cost of $250,000 paid to Strathmore was initially capitalized as a tangible asset. During the year ended February 29, 2008, the Company recorded a write down of mineral property acquisition costs of $250,000 related to the Dalton Pass Property.





On November 18, 2008 the Company entered into a written agreement with Strathmore to terminate the Dalton Pass Property Option Agreement. Upon completion of the termination agreement, all obligations of Strathmore and the Company pertaining to the Dalton Pass Property Option Agreement were terminated.




56





MERCER GOLD CORPORATION


(formerly Uranium International Corp.)


(An Exploration Stage Company





NOTES TO CONSOLIDATED STATEMENTS


FEBUARY 28, 2011


(Expressed in U.S. Dollars)




NOTE 5 – MINERAL EXPLORATION PROPERTIES (continued)





(f) Continental Property




Effective April 23, 2009, the Company entered into a Letter Agreement to purchase a total of thirteen exploration licences covering eight uranium deposits held by Continental Precious Minerals Ltd. (“Continental”) in Sweden.  The Company had until August 30, 2009 to conduct its due diligence.





The Letter Agreement called for an initial cash payment of $25,000 on signing of the Letter Agreement (paid on April 24, 2009).





Subject to the completion of due diligence satisfactory to the Company, the Letter Agreement was to have an initial closing on August 31, 2009 at which time the Company would:





-
make a cash payment of $7,500,000


-
issue and deliver 1,500,000 shares of the Company’s common stock (subject to a one year re-sale restriction)


-
issue and deliver warrants exercisable to purchase up to 250,000 shares of the Company’s common stock at the price of $4.00 per share for a period of two years from the date of issuance.





At the first anniversary of the initial closing on August 31, 2009, the Company would have had to make a further payment of $7,500,000 and Continental would have had to transfer to the Company title to the thirteen exploration licenses.





On August 31, 2009, the Company announced that the contemplated purchase of the exploration licences held by Continental would not go ahead.  During the year ended February 28, 2010, the Company recorded a write-down of mineral property acquisition costs of $25,000 related to the Letter Agreement.


NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES





Accounts payable and accrued liabilities are non-interest bearing, unsecured and have settlement dates within one year.





During the year ended February 28, 2011, the Company settled part of accounts payable through the issuance of a convertible promissory note in the amount of $25,000. The terms of the convertible promissory note provided that in the event the Company was unable to repay the debt, the debt could be satisfied by way of conversion of the debt into shares of the Company’s restricted common stock at the rate of $0.20 per share.





On March 29, 2010, the convertible promissory note in the amount of $25,000 was converted into 125,000 restricted common shares at $0.20 per share (issued on April 5, 2010) (Note 9). Interest expense of $25,000 (2010 - $Nil; 2009 - $Nil) related to the unamortized discount was recognized at the date of conversion.




57





MERCER GOLD CORPORATION
 (formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)
 NOTE 7 – DUE TO RELATED PARTIES AND RELATED PARTY TRANSACTIONS





The balance due to related parties of $55,877 at February 28, 2011 (2010 - $183,388) is due to directors, and a company controlled by a director and/or shareholder of the Company and is unsecured, non-interest bearing and payable on demand.





During the year ended February 28, 2011, the Company paid or accrued consulting and/or management fees of $133,786 to directors of the Company (2010 – $6,145; 2009 - $179,463).





The amounts charged to the Company for the services provided have been determined by negotiation among the parties and in certain cases, are covered by signed agreements.  It is the position of the management of the company that these transactions were in the normal course of operations and were measured at the exchange value which represented the amount of consideration established and agreed to by the related parties.





During the year ended February 28, 2011, the Company settled with certain directors and/or shareholders on $80,545 (2010 - $Nil) of related party debt related primarily to prior period management fee accruals for total cash consideration of $37,545 (2010 - $Nil) resulting in a gain on settlement of $43,000 (2010 - $Nil) which was recorded as a management fee recovery during the period.





On April 14, 2010, the Company paid $25,000 to a former director of the Company in settlement of $102,843 of obligations that were owed by the Company. This resulted in a gain on settlement of $77,843.





During the year ended February 28, 2011, the Company reversed the accrual of management fees of $88,170 (2010 - $Nil; 2009 - $Nil) previously due to a former CEO and director of the Company (Note 11).


NOTE 8 – PROMISSORY NOTES PAYABLE





(a) Current




The promissory note payable of $1,016,237 at February 28, 2011 (2010 - $769,126) consists of principal and accrued interest of $1,010,000 (2010 - $651,000) and $6,237 (2010 - $118,126), respectively. Of this total amount, $510,000 (2010 - $Nil) is secured by a general security agreement charging all of the Company’s present and after acquired personal property, bears interest at 10% per annum and is repayable on June 30, 2011, $400,000 (2010 - $Nil) is unsecured, bears interest at 10% per annum and is repayable on June 30, 2011 and $100,000 (2010 - $100,000) is due to a related party, is unsecured, bears no interest and has no set terms of repayment.





During the year ended February 28, 2011, the issued a convertible promissory note in the amount of $375,000 and paid cash in the amount of $303,733 to settle the promissory note payable of $551,000 and accrued interest of $127,733 (inclusive of current period interest accrual of $9,607). The terms of the convertible promissory note provided that in the event the Company was unable to repay the debt, the debt could be satisfied by way of conversion of the debt into shares of the Company's restricted common stock at the rate of $0.20 per share.





On March 29, 2010, the convertible promissory note in the amount of $375,000 was converted into 1,875,000 restricted common shares at $0.20 per share (issued on April 5, 2010) (Note 9). Interest expense of $375,000 (2010 - $Nil; 2009 - $Nil) related to the unamortized discount was recognized at the date of conversion.





(b) Non-current




On November 19, 2010, the Company issued a promissory note with a principal value of $52,500 to a former CEO and director of the Company.  The amount is unsecured, bears no interest and is due and payable on or before November 26, 2012.




58


MERCER GOLD CORPORATION
 (formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)
 
 NOTE 9 – CAPITAL STOCK





Authorized




The total authorized capital is 140,625,000 common shares with par value of $0.001 per share.  On June 4, 2007, the Company increased the authorized share capital from 75,000,000 shares of common stock to 375,000,000 shares of common stock with the same par value of $0.001 per share. On June 8, 2010, the Company filed a Certificate of Change with the Nevada Secretary of State in relation to the 1.5 for one forward split of the Company’s common shares on March 11, 2008 to effect the 1.5 for one forward split of the Company’s authorized common shares.  As a result, the Company’s authorized capital was increased from 375,000,000 shares, par value of $0.001 per share, to 562,500,000 shares, par value of $0.001 per share. Effective May 12, 2011, the Company filed a Certificate of Change and Certificate of Correction with the Nevada Secretary of State in relation to the 1 for 4 reverse stock split of the Company’s common shares to effect the 1 for 4 reverse stock split of the Company’s authorized common shares (Notes 1 and 13). As a result, the Company’s authorized capital was decreased from 562,500,000 shares, par value of $0.001 per share to 140,625,000 shares, par value of $0.001 per share.





Issued and Outstanding




On June 4, 2007, the directors of the Company approved a special resolution to undertake a forward split of the common stock of the company on a basis on 5 new common shares for 1 old common share. On February 26, 2008, and effective March 11, 2008, the directors of the company approved a special resolution to undertake a further forward split of the common stock of the company on a basis on 1.5 new common shares for 1 old share. Effective May 12, 2011, the Company effected a 1 for 4 reverse stock split (Notes 1 and 13).





All references in these consolidated financial statements to number of common shares, price per share and weighted average number of common shares have been adjusted to reflect these stock splits on a retroactive basis, unless otherwise noted.





The total issued and outstanding capital stock is 17,159,375 commons shares with par value of $0.001 per share.  The Company’s common stock issuances to date are as follows:





1.
On November 29, 2004, 7,500,000 common shares of the Company were issued to an officer and director of the Company for cash proceeds of $4,000.





2.
On January 10, 2005, 4,500,000 common shares of the Company were issued for cash proceeds of $2,400.





3.
On January 21, 2005, 2,812,500 common shares of the Company were issued for cash proceeds of $15,000.





4.
On January 25, 2005, 375,000 common shares of the Company were issued for cash proceeds of $2,000.





5.
On February 1, 2005, 46,875 common shares of the Company were issued for cash proceeds of $2,500.





6.
On May 30, 2007, 3,750,000 restricted common shares of the company were returned and subsequently cancelled by the Company.  The shares were returned to treasury for no consideration to the shareholder.





7.
On September 14, 2007, 1,875,000 common shares of the Company, valued at $14,000,000, were issued to Strathmore in accordance with the terms of the Option and Joint Venture Agreement.  On November 18, 2008, the Company entered into a written agreement with Strathmore to terminate the Nose Rock Property Option Agreements.  Pursuant to the terms of the termination agreement, the 1,875,000 common shares previously issued were required to be returned to the Company’s treasury for cancellation.  The 1,875,000 shares were returned to treasury and cancelled on May 28, 2010 (Note 5).




59





MERCER GOLD CORPORATION


(formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)
 
 NOTE 9 – CAPITAL STOCK (continued)





Issued and Outstanding (continued)




8.
On February 26, 2008, the Company issued 150,000 units at a price of $6.68 per unit for proceeds of $1,000,000.  Each unit consists of one common share and one-half non-transferable share purchase warrant. Each whole share purchase warrant entitles the holder to purchase an additional common share at a price of $8.00 up to February 26, 2009.  These warrants expired during the year ended February 28, 2009.





9.
On April 5, 2010, the Company issued 2,000,000 restricted common shares at $0.20 per share pursuant to the conversions of the convertible promissory notes in the amount of $400,000 (Notes 6 and 8).





10.
On April 14, 2010, the Company issued 1,025,000 units at a price of $2.00 per unit for proceeds of $2,050,000. Each unit consists of one common share and one-half non-transferable share purchase warrant. Each whole share purchase warrant entitles the holder to purchase an additional common share at a price of $4.00 per share up to April 14, 2011. As at February 28, 2011, 512,500 of the related share purchase warrants in this series remain outstanding.





11.
On April 15, 2010, 2,500,000 common shares of the Company, valued at $5,000,000, were issued to Mercer Canada in accordance with the terms of the Mercer Option Agreement (Note 5).





2008 Stock Option Plan




On April 2, 2008 the Board of Directors of the company ratified, approved and adopted a Stock Option Plan for the Company in the amount of 1,250,000 shares with an exercisable period up to 10 years.  In the event an optionee ceases to be employed or to provide services to the Company for reasons other than cause, any Stock Option that is vested and held by such optionee may be exercisable within up to ninety calendar days after the effective date that his position ceases.  No Stock Option granted under the Stock Option Plan is transferable.  Any Stock Option held by an optionee at the time of his death may be exercised by his estate within one year of his death or such longer period as the Board of Directors may determine.





As approved by the Board of Directors, on April 2, 2008, the Company granted 687,500 stock options to certain officers, directors and management of the Company at $7 per share for terms of ten years.  The total fair value of these options at the date of grant was estimated to be $4,134,405, and was determined using the Black-Scholes option pricing model with an expected life of 5 years, a risk free interest rate of 3.18%, a dividend yield of 0% and expected volatility of 106% and has been recorded as stock-based compensation expense during the year ended February 28, 2009.





As approved by the Board of Directors, on July 9, 2008 and August 18, 2008, the Company granted a total of 437,500 stock options to certain officers and directors of the Company at $12.00 per share for terms of ten years.  The total fair value of these options at the date of grant was estimated to be $3,822,500, and was determined using the Black-Scholes option pricing model with an expected life of 5 years, a risk free interest rate of 3.09%, a dividend yield of 0% and expected volatility of 120% and has been recorded as stock-based compensation expense during the year ended February 28, 2009.





On April 17, 2009, the Company cancelled 1,125,000 stock options previously granted to certain officers, directors and management of the Company.




60




MERCER GOLD CORPORATION


(formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)


NOTE 9 – CAPITAL STOCK (continued)





2008 Stock Option Plan (continued)





As approved by the Board of Directors, on April 17, 2009, the Company granted 687,500 stock options to certain officers, directors and management of the Company at $2.00 per share for terms of ten years.  The total fair value of these options at the date of grant was estimated to be $1,091,640 ($1.59 per stock option), and was determined using the Black-Scholes option pricing model with an expected life of 5 years, a risk free interest rate of 1.91%, a dividend yield of 0% and expected volatility of 193% and has been recorded as stock-based compensation expense during the year ended February 28, 2010.





As approved by the Board of Directors, on April 5, 2010, the Company granted 812,500 stock options to certain officers, directors and management of the Company at $2.00 per share for terms of ten years.  The total fair value of these options at the date of grant was estimated to be $1,601,828 ($1.97 per stock option), and was determined using the Black-Scholes option pricing model with an expected life of 10 years, a risk free interest rate of 4.01%, a dividend yield of 0% and expected volatility of 150% and has been recorded as stock-based compensation expense during the year ended February 28, 2011.





As approved by the Board of Directors, on April 5, 2010, the Company granted 250,000 stock options to certain consultants of the Company at $2.00 per share for terms of two years.  The total fair value of these options at the date of grant was estimated to be $436,550 ($1.75 per stock option), and was determined using the Black-Scholes option pricing model with an expected life of 2 years, a risk free interest rate of 1.18%, a dividend yield of 0% and expected volatility of 215% and has been recorded as stock-based compensation expense during the year ended February 28, 2011.





As approved by the Board of Directors, on June 14, 2010, the Company granted 75,000 stock options to a consultant of the Company at $2.00 per share for terms of ten years.  The total fair value of these options at the date of grant was estimated to be $176,178 ($2.35 per stock option), and was determined using the Black-Scholes option pricing model with an expected life of 10 years, a risk free interest rate of 3.28%, a dividend yield of 0% and expected volatility of 144% and has been recorded as stock-based compensation expense during the year ended February 28, 2011. Subsequent to the grant date, the Company entered into an amending agreement with the holder of the 75,000 existing stock options amending the expiry date from June 14, 2020 to August 1, 2012. The stock-based compensation expense related to this amendment of 75,000 stock options during the year ended February 28, 2011 was $Nil.





As approved by the Board of Directors, on August 1, 2010, the Company granted 150,000 stock options to a consultant of the Company at $2.00 per share for terms of three years.  The total fair value of these options at the date of grant was estimated to be $365,790 ($2.44 per stock option), and was determined using the Black-Scholes option pricing model with an expected life of 3 years, a risk free interest rate of 0.85%, a dividend yield of 0% and expected volatility of 187% and has been recorded as stock-based compensation expense during the year ended February 28, 2011.





As approved by the Board of Directors, on August 1, 2010, the Company granted 25,000 stock options to a consultant of the Company at $2.00 per share for terms of two years. A total of 3,125 of these stock options vested on the grant date of August 1, 2010. A total of 21,875 of these stock options vest quarterly over the two years.  The total fair value of these options which vested during the year ended February 28, 2011 was estimated to be $11,134 ($1.78 per stock option), and was determined using the Black-Scholes option pricing model with an expected life of 4 years, a average risk free interest rate of 1.24%, a average dividend yield of 0% and average expected volatility of 186% and has been recorded as stock-based compensation expense during the year ended February 28, 2011.





Effective November 30, 2010, the Board of Directors approved the termination of the 2008 Stock Option Plan and the cancellation of all related options outstanding.  Certain of the options then outstanding were then replaced by options in the Company’s newly adopted 2010 Stock Option Plan (see below).




61





MERCER GOLD CORPORATION
 (formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)





NOTE 9 – CAPITAL STOCK (continued)





2010 Stock Option Plan




Effective November 30, 2010 the Board of Directors of the Company ratified, approved and adopted a Stock Option Plan (the “2010 Stock Option Plan”) for the company in the amount of 3,431,875 shares.  In the event an optionee ceases to be employed or to provide services to the Company for reasons other than cause, any Stock Option that is vested and held by such optionee may be exercisable within up to ninety calendar days after the effective date that his position ceases.  No Stock Option granted under the Stock Option Plan is transferable.  Any Stock Option held by an optionee at the time of his death may be exercised by his estate within one year of his death or such longer period as the Board of Directors may determine.





Effective November 30, 2010, concurrent with the cancellation of the 2008 Stock Option Plan, 1,125,000 outstanding options were cancelled and immediately replaced with 1,125,000 options in the newly adopted 2010 Stock Option Plan.  The replacement options have an exercise price of $2.00 per share for terms of four years. These options vest at a rate of 25% on grant and 25% at the end of each of six, twelve and eighteen months from the date of grant.  The incremental fair value resulting from the modification / replacement of the original options was estimated to be $151,015 which will be recorded over the vesting period of the options.  A total of $37,754 relating to vested options has been recorded as stock-based compensation expense and was determined using the Black-Scholes option pricing model with an expected life of 2 years, a average risk free interest rate of 0.45%, a average dividend yield of 0% and average expected volatility of 194% and has been recorded as stock-based compensation expense during the year ended February 28, 2011.





As approved by the Board of Directors, on November 30, 2010, the Company granted 337,500 stock options under the 2010 Stock Option Plan to certain directors of the Company at $2.00 per share for terms of four years. These options vest at a rate of 25% on grant and 25% at the end of each of six, twelve and eighteen months from the date of grant.  The total fair value of these options was estimated to be $465,048 ($1.38 per stock option) was determined using the Black-Scholes option pricing model with an expected life of 4 years, a risk free interest rate of 1.16%, a dividend yield of 0% and expected volatility of 187%.  A total of $116,262 relating to vested options has been recorded as stock-based compensation expense during the year ended February 28, 2011.





As approved by the Board of Directors, on November 30, 2010, the Company granted 50,000 stock options under the 2010 Stock Option Plan to certain consultants of the Company at $2.00 per share for terms of four years. A total of 12,500 of these stock options vested on the grant date of December 1, 2010. A total of 37,500 of these stock options vest 25% at the end of each of six, twelve and eighteen months from the date of grant.  The total fair value of these options which vested during the year ended February 28, 2011 was estimated to be $17,224 ($1.38 per stock option), and was determined using the Black-Scholes option pricing model with an expected life of 4 years, a risk free interest rate of 1.16%, a dividend yield of 0% and expected volatility of 187% and has been recorded as stock-based compensation expense during the year ended February 28, 2011.





The Company’s stock option activity for the years ended February 28, 2011 and 2010 is summarized as follows:





Number of

Options


Weighted average exercise

price per share

Weighted average remaining

in contractual life (in years)Balance, February 28, 2009


1,125,000


$
8.96

9.21 yearsGranted


687,500



2.00Expired - cancelled


(1,125,000
)


8.96Exercised


-



-Balance, February 28, 2010


687,500



2.00

9.13 yearsGranted


2,825,000



2.00Expired - cancelled


(2,000,000
)


2.00Exercised


-



-Balance, February 28, 2011


1,512,500


$
2.00

3.75 years





A total of 378,125 stock options are exercisable as at February 28, 2011.




62




MERCER GOLD CORPORATION
 (formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)


NOTE 9 – CAPITAL STOCK (continued)





Share purchase warrants




As part of the private placement on April 14, 2010, the Company issued 512,500 share purchase warrants at $4.00 per share for terms of one year.  The total fair value of these warrants at the date of grant was estimated to be $1,009,318 ($1.97 per warrant), and was determined using the Black-Scholes option pricing model with an expected life of 1 year, a risk free interest rate of 0.45%, a dividend yield of 0% and expected volatility of 182%.





As of February 28, 2011, 512,500 share purchase warrants are outstanding entitling the holder to purchase a common share at a price of $4.00 per share up to April 14, 2011. These share purchase warrants have expired subsequent to the year ended February 28, 2011 (Note 13).





NOTE 10 – INCOME TAXES





The Company has losses carry forward for income tax purpose to February 28, 2011. There are no current or deferred tax expenses for the period ended February 28, 2011 due to the Company’s loss position. The Company has fully reserved for any benefits of these losses. The deferred tax consequences of temporary differences in reporting items for financial statement and income tax purposes are recognized, as appropriate. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period.  Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes.





The provision for refundable federal income tax consists of the following:





For the years endedFebruary 28, 2011


February 28, 2010Deferred tax asset attributable toCurrent operations

$
1,878,176


$
430,076Non-deductible items


(1,075,611
)


(371,158
)Less: Change in valuation allowance


(802,565
)


(58,918
)Net refundable amount

$
-


$
-





The composition of the Company’s deferred tax asset as at February 28, 2011 and February 28, 2010 are as follows:





February 28, 2011


February 28, 2010Net operation loss carry-forward

$
18,416,978


$
16,033,560Statutory federal income tax rate


33.96
%


34.00
%Deferred tax assets


6,253,975



5,451,410Less: Valuation allowance


(6,253,975
)


(5,451,410
)Net Deferred Tax Assets

$
-


$
-





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




63





MERCER GOLD CORPORATION
 (formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)


NOTE 10 – INCOME TAXES (continued)





As at February 28, 2011, the Company has an unused net operating loss carry forward balance of approximately $18,416,978 that is available to offset future taxable income. This unused net operation loss carry forward balance for income tax purposes expires as follows:





United States


Colombia$


$2025


3,051



-2026


12,401



-2027


40,770



-2028


15,075,151



-2029


728,899



-2030


173,289



-2031


1,603,662



-No expiry


-



779,75517,637,223



779,755





NOTE 11 – COMMITMENTS AND CONTINGENCY





The Company is subject to certain outstanding and future commitments related to its mineral property interests (Note 5).





During the year ended February 28, 2011, the Company wrote off amounts due to related parties of $88,170 related to the Company’s former CEO and director. Management does not consider that these amounts are payable. This write down has been recorded as a recovery of expenses and a decrease in due to related parties (Note 7).




64





MERCER GOLD CORPORATION
 (formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)


NOTE 12 – SEGMENTED INFORMATION


The Company’s only business activity is exploration and development of mineral properties.  This activity is carried out in Colombia.





The breakdown by geographic area for the period ended February 28, 2011 is as follows:





United States


Colombia


TotalTotal expenses

$
4,766,383


$
780,622


$
5,547,005Current assets

$
166,238


$
15,706


$
181,944Property and equipment


-



7,211



7,211Other assets


-



5,415,000



5,415,000Total assets

$
166,238


$
5,437,917


$
5,604,155





The breakdown by geographic area for the year ended February 28, 2010 is as follows:





United States


Colombia


TotalTotal expenses

$
1,264,929


$
-


$
1,264,929Current assets

$
385


$
-


$
385Other assets


100,000



-



100,000Total assets

$
100,385


$
-


$
100,385




65


MERCER GOLD CORPORATION
 (formerly Uranium International Corp.)
 (An Exploration Stage Company
 
 NOTES TO CONSOLIDATED STATEMENTS
 FEBUARY 28, 2011
 (Expressed in U.S. Dollars)
 NOTE 13 – SUBSEQUENT EVENTS





The following events occurred during the period from the year ended February 28, 2011 to the date the consolidated financial statements were available to be issued on May 31, 2011:





On March 30, 2011, the Company entered into a letter of intent to acquire 100% interest in mining claims owned by VCS Mining Inc. and its subsidiaries. The acquisition is conditional upon the completion of the definitive agreement. On April 15, 2011, VCS Mining Inc. and the Company have agreed that it would be in both parties’ interests to terminate the letter of intent.





On April 4, 2011, the Company issued 300,000 common shares at $0.20 per share to a former CEO and director of the Company for consulting services rendered during and subsequent to the year ended February 28, 2011.





On April 14, 2011, the Company paid $75,000 to the Underlying Property Owner under the Underlying Option Agreement related to the Guayabales property (Note 5).





On April 14, 2011, 512,500 share purchase warrants entitling the holder to purchase a common share of the Company at a price of $4.00 per common share have expired (Note 9).





Effective on May 12, 2011, the Company filed a Certificate of Change and Certificate of Correction with the Nevada Secretary of State in relation to completing a one for four reverse stock split such that the Company’s authorized common shares decreased from 562,500,000 common shares with a par value of $0.001 to 140,625,000 common shares with the same par value and the Company’s issued and outstanding common shares decreased from 68,637,500 to 17,159,375 common shares (Notes 1 and 9).





Subsequent to the year ended February 28, 2011, 375,000 stock options previously granted on April 5, 2010 to certain former directors of the Company were cancelled.




66




ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE




None.




ITEM 9A.
CONTROLS AND PROCEDURES




Evaluation of Disclosure Controls and Procedures




William Thomas, our principal executive and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of February 28, 2011. Based on this evaluation, our principal executive officer and principal financial officer has concluded that our disclosure controls and procedures were effective as of February 28, 2011.




Management’s Report On Internal Control Over Financial Reporting




Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) of the Exchange Act.




As of February 28, 2011, management assessed the effectiveness of the company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control -Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, our management concluded that, as at February 28, 2011 such internal controls and procedures were effective.




This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the company to provide only management’s report..




Changes in Internal Control over Financial Reporting




There were no changes in our internal control over financial reporting that occurred during the last quarter of our fiscal year ended February 28, 2011, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




ITEM 9B.
OTHER INFORMATION




Not applicable.




67




ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE




Our directors and executive officers and their respective ages as of the date hereof are as follows:





Name

Age

Position with the CompanyWilliam D. Thomas

59

President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and a directorGerry Jardine

59

Director




The following describes the business experience of each of our directors and executive officers, including other directorships held in reporting companies:




William D. Thomas.  Mr. Thomas has been our Chief Financial Officer, Secretary/Treasurer and a director of our company since August 18, 2008 and our President and Chief Executive Officer since May 9, 2011.  Mr. Thomas has over thirty years of experience in the finance and accounting areas for the natural resource sector.  Currently, Mr. Thomas is also the Chief Financial Officer, Secretary, Treasurer and a Director of Mainland Resources, Inc. (OTCBB:  MNLU), the Chief Financial Officer of Sono Resources Inc. (OTCBB:  GVRS) and the Chief Financial Officer of Morgan Creek Energy, Inc. (OTCBB: MCKE), Nevada corporations that trade on the OTC Bulletin Board.  Mr. Thomas has held various successive management positions with Kerr McGee Corporation’s China operations based in Beijing, China, ending in 2004 with his final position as Director of Business Services. For a brief period after leaving Kerr McGee, Mr. Thomas acted as a self-practitioner in the accounting and finance field. In July 2007 Mr. Thomas took on the role of Chief Financial Officer for two public resource companies; Hana Mining Inc. (TSX-V: HMG) and NWT Uranium Corp (TSX-V: NWT; OTCBB: NWURF). Mr. Thomas resigned from NWT Uranium Corp. and Hana Mining Inc in July, 2008 and March, 2010 respectively.




Mr. Thomas was previously general manager (1999-2002), and finance and administration manager (1996-1999), of Kerr McGee’s China operations. While in China, Mr. Thomas was responsible for finance, including Sarbanes Oxley reporting, budgeting, treasury, procurement, taxation, marketing, insurance and business development, including commercial negotiations with the Chinese partner, China National Offshore Oil Co (CNOOC), and other Chinese and joint venture partners. Mr. Thomas focused heavily on supporting exploration and development operations for three operated blocks in Bohai Bay, as well as evaluation and negotiation of new venture blocks in the East China Sea and the South China Sea. He was also responsible for the liaison with CNOOC and other Chinese oil companies, Kerr McGee US management and joint venture partners, where his main focus was to ensure cost effective and timely achievement of various approved work programs and budgets. He was also Chief Representative for Kerr McGee on the Joint Management Committee. Mr. Thomas previously worked as finance director of Kerr McGee’s UK operations based in London/Aberdeen (1992-1996), and Kerr McGee’s Canadian operations in Calgary, Alberta, Canada (1984-1992), including the predecessor company, Maxus Canada Ltd, which was acquired by Kerr McGee Ltd. Over the course of his career Mr. Thomas has been involved in all aspects of managing accounting, budgeting, human resources, administration, insurance, taxation and other business support aspects surrounding gas properties for Kerr McGee. Mr. Thomas was responsible to ensure compliance with COPAS, SEC, FASB and international accounting regulations. He participated on a team that developed the Oracle accounting system application to the Kerr McGee’s worldwide operations. He was most notably involved in that company’s initial entry into both China and the UK North Sea start ups of local and expatriate personnel that eventually developed into core areas (over $1 billion in value) for Kerr McGee, including the company’s first operated offshore oil fields in China (CFD 1-1) and the UK (Gryphon).




In his early career Mr. Thomas also held senior management positions in the finance divisions of Norcen Energy Ltd., of Calgary, Alberta (1981-1984), Denison Mines Ltd, of Ontario, Canada (1978-1981), and Algoma Steel Corporation, of Sault Ste Marie, Ontario, Canada (1977). He was also a Senior Auditor for the accounting firm, Coopers & Lybrand, in Toronto, Canada (1975-1977).




68




Mr. Thomas attained his Chartered Accountant (CA) designation from the Canadian Institute of Chartered Accountants in 1977. He holds an Honors Bachelor of Commerce and Finance from the University of Toronto, Ontario, Canada.




The Company’s Board of Directors has determined that Mr. Thomas should serve as a director given his over thirty years of experience in the finance and accounting areas for the natural resource sector and his involvement with our Company since August 2008.




Gerry Jardine.  Mr. Jardine has served as a director of our company since May 16, 2011.  Mr. Jardine has worked in corporate finance and administration for public companies for the past 30 years and has considerable experience in fund raising for public companies. Since 1989, he has been President and principal shareholder of Amcan Fiscal Consultants, a private management consulting company based in Vancouver, British Columbia. Mr. Jardine founded and has served as Director and Officer of TSX Venture Exchange, NASDAQ and OTC Bulletin Board companies primarily within the research and development, mineral resource and oil and gas sectors. His responsibilities have included acquisitions, funding, and corporate governance and investor relations functions. Mr. Jardine has also served as a director of Mainland Resources Inc. (OTCBB:  MNLU) since May 2011.




The Company’s Board of Directors has determined that Mr. Jardine should serve as a director given his experience in assisting private and public entities with finance, development and investor relations.




Term of Office




All of our directors hold office until the next annual general meeting of the shareholders or until their successors are elected and qualified.  Our officers are appointed by our board of directors and hold office until their earlier death, retirement, resignation or removal.




Significant Employees




We have no significant employees other than our sole officer and our directors.




Family Relationships




There are currently no family relationships between any of the members of our board of directors or our executive officers.




Involvement in Certain Legal Proceedings




Except as disclosed in this annual report, during the past ten years none of the following events have occurred with respect to any of our directors or executive officers:




1.
A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;




2.
Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);




69




3.
Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:




a.
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;




b.
Engaging in any type of business practice; or




c.
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;




4.
Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (3)(i) above, or to be associated with persons engaged in any such activity;




5.
Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;




6.
Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;




7.
Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:




a.
Any Federal or State securities or commodities law or regulation; or




b.
Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or




c.
Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or




8.
Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.




There are currently no legal proceedings to which any of our directors or officers is a party adverse to us or in which any of our directors or officers has a material interest adverse to us.




70




Compliance with Section 16(a) of the Exchange Act




Section 16(a) of the Exchange Act requires our directors and officers, and the persons who beneficially own more than 10% of our common stock, to file reports of ownership and changes in ownership with the SEC.  Copies of all filed reports are required to be furnished to us pursuant to Rule 16a-3 promulgated under the Exchange Act.  Based solely on the reports received by us and on the representations of the reporting persons, we believe that such persons have complied with all applicable filing requirements during the year ended February 28, 2011.




Code of Conduct




As disclosed in our current report on Form 10-K for our year ended February 28, 2009, pursuant to the written consent of our Board of Directors dated February 11, 2009, our Board of Directors adopted a number of corporate governance documents, including a code of conduct for directors.  On June 21, 2010, our Board of Directors adopted revised corporate governance documents, including a code of conduct that applies to all officers and directors.  Our code of conduct is included as an exhibit to this Annual Report on Form 10-K.




Audit Committee




As of the date of filing of this Annual Report, our entire Board of Directors serves as our Audit Committee.  We intend to appoint additional directors.  Once we appoint such additional directors, we intend to once again establish a separate Audit Committee.




ITEM 11.
EXECUTIVE COMPENSATION




Summary Compensation Table




The following table sets forth the compensation paid to any of the following individuals during our fiscal years ended February 28, 2011 and 2010: (i) any person serving as our principal executive officer during our fiscal year ended February 28, 2011; (ii) our two most highly compensated executive officers other than our principal executive officer who were serving as executive officers as of February 28, 2011; and (iii) if applicable, up to two additional individuals for whom disclosure would have been provided pursuant to (ii) above but for the fact that the individual was not serving as an executive officer of the Company as of February 28, 2011 (collectively, the “Named ExecutiveOfficers”):




71




Name and Principal Position
Year Ended Febru-ary 28,

Salary

($)


Bonus

($)


Stock

Awards

($)


Option

Awards(1)

($)


Non-Equity Incen-tive

Plan Com-pen-sation

($)


Non-Quali-fied

De-ferred Com-pen-sation Earn-ings

($)


All Other Com-pen-sation

($)


Total

($)William D. Thomas, President, CEO,
2011


52,320


Nil


Nil



124,100


Nil


Nil


Nil



176,420Secretary, Treasurer and CFO(2)
2010

Nil


Nil


Nil



198,500


Nil


Nil


Nil



198,500Rahim Jivraj, former President and CEO(4)
2011


43,830


Nil


Nil



372,300


Nil


Nil


Nil



416,1302010


N/A



N/A



N/A



N/A



N/A



N/A



N/A



N/AMarek Kreczmer, former President and CEO(4)
2011


N/A



N/A



N/A



N/A



N/A



N/A



N/A



N/A2010

Nil


Nil


Nil



397,000


Nil


Nil


Nil



397,000Devinder Randhawa,
2011

Nil


Nil


Nil


Nil


Nil


Nil


Nil


Nilformer President and CEO(5)
2010


N/A



N/A



N/A



N/A



N/A



N/A



N/A



N/AJames Stonehouse,
2011


124,541


Nil


Nil



215,965


Nil


Nil


Nil



340,506former VP Exploration(6)
2010


N/A



N/A



N/A



N/A



N/A



N/A



N/A



N/A


(1)
This amount represents the fair value of these stock options at the date of grant which was estimated using the Black-Scholes option pricing model.


(2)
Mr. Thomas has served as our Secretary, Treasurer and CFO since August 18, 2008 and as our President and CEO since May 9, 2011.


(3)
Mr. Jivraj served as our President and CEO from April 16, 2010 to March 28, 2011.


(4)
Mr. Kreczmer served as our President and CEO from July 9, 2009 to January 1, 2010.


(5)
Mr. Randhawa served as our interim President and CEO from March 31, 2010 to April 16, 2010.


(6)
Mr. Stonehouse served as our VP of Exploration from September 20, 2010 to May 9, 2011.





72





Outstanding Equity Awards as of February 28, 2011




The following table sets forth outstanding equity awards as of February 28, 2011 with respect to each of the Named Executive Officers listed in the table above:




Outstanding Equity Awards as of February 28, 2011


Option Awards


Stock AwardsName

Number of secur-ities under-lying unexer-cised options exercise-able

(#)


Number of secur-ities under-lying unexer-cised options unexer-cisable

(#)


Equity incentive plan awards: number of securi-ties under-lying unexer-cised un-earned options (#)


Option exercise price ($)


Option expira-tion date


Number of shares or units of stock that have not vested

(#)


Market value of shares or units of stock that have not vested ($)


Equity incentive plan awards: number of un-earned shares, units or other rights that have not vested (#)


Equity incentive plan awards: market or payout value of un-earned shares, units or other rights that have not vested ($)William D. Thomas


46,875



140,625


Nil


$
2.00


Dec 1/14


Nil


Nil


Nil


NilRahim Jivraj


46,875



140,625


Nil


$
2.00


Dec 1/14


Nil


Nil


Nil


NilMarek Kreczmer

Nil


Nil


Nil



N/A



N/A


Nil


Nil


Nil


NilDevinder Randhawa

Nil


Nil


Nil



N/A



N/A


Nil


Nil


Nil


NilJames Stonehouse


46,875



140,625


Nil


$
2.00


Dec 1/14


Nil


Nil


Nil


Nil




Compensation of Directors




The following table sets forth information relating to compensation paid to our directors during our fiscal year ended February 28, 2010:




73




Director Compensation During Our Year Ended February 28, 2011




Name

Fees earned or paid in cash

($)

Stock awards

($)

Option awards

($) (6)

Non-equity incentive plan compen-sation

($)

Non-qualified deferred compen-sation earnings

($)

All other compen-sation

($)

Total

($)William D. Thomas


52,320

Nil


124,100

Nil

Nil

Nil


176,420Rahim Jivraj(1)


43,830

Nil


372,300

Nil

Nil

Nil


416,130Keith Laskowski(2)


33,938

Nil


369,657

Nil

Nil

Nil


403,595James M. Stonehouse(3)


124,541

Nil


215,965

Nil

Nil

Nil


340,506Devinder Randhawa(4)

Nil

Nil

Nil

Nil

Nil

Nil

NilLorne Gertner(5)

Nil

Nil


32,295

Nil

Nil

Nil


32,295Jas Butalia(6)

Nil

Nil

Nil

Nil

Nil

Nil

NilHenry Fowlds(7)

Nil

Nil

Nil

Nil

Nil

Nil

NilRichard Cherry(8)

Nil

Nil

Nil

Nil

Nil

Nil

NilDavid Shaw(9)

Nil

Nil


372,300

Nil

Nil

Nil


372,300Edward Flood(10)

Nil

Nil


372,300

Nil

Nil

Nil


372,300Roberta Partarrieu(11)

Nil

Nil


32,295

Nil

Nil

Nil


32,295




(1)
Mr. Jivraj resigned as a director on April 25, 2011.


(2)
Mr. Laskowski resigned as a director on November 3, 2010.


(3)
Mr. Stonehouse resigned as a director on May 9, 2011.


(4)
Mr. Randhawa resigned as a director on March 28, 2011.


(5)
Mr. Gertner resigned as a director on April 27, 2011.


(6)
Mr. Butalia resigned as a director on April 5, 2010.


(7)
Mr. Fowlds resigned as a director on April 5, 2010.


(8)
Mr. Cherry resigned as a director on April 5, 2010.


(9)
Mr. Shaw resigned as a director on January 24, 2011.


(10)
Mr. Flood resigned as a director on January 26, 2011.


(11)
Mr. Partarrieu resigned as a director on February 16, 2011.




ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS




The following table sets forth certain information concerning the number of shares of our common stock owned beneficially as of May 31, 2011 by (i) each person (including any group) known to us to own more than 5% of any class of our voting securities, (ii) each of our officers and directors, and (iii) our officers and directors as a group.  Unless otherwise indicated, it is our understanding and belief that the shareholders listed possess sole voting and investment power with respect to the shares shown.




74




Title of Class

Name and Address of

Beneficial Owner

Directors and Officers

Amount and Nature of Beneficial Owner(1)


Percentage of Common Stock(2)Common Stock

William D. Thomas


187,500
(3)


1.1
%Common Stock

Gerry Jardine

Nil


NilCommon Stock

All executive officers and directors as a Group (2 persons)


187,500
(3)


1.1
%




(1)
Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares (i) voting power, which includes the power to vote, or to direct the voting of shares, and (ii) investment power, which includes the power to dispose or direct the disposition of shares.  Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares).  In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided.  In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights.


(2)
The percentage of class is based on 17,459,369 shares of common stock issued and outstanding as of May 31, 2011.


(3)
Consists of 187,500 shares of common stock and options to purchase 187,500 shares of common stock at $2.00 per share.




Changes in Control




There has not been a change in control of the Company since the beginning of the Company’s last fiscal year.




ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE




Related Party Transactions




Except as described herein, none of the following parties (each a “Related Party”) has, since the beginning of our fiscal year ended February 28, 2011, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us:




Ÿ
any of our directors or officers;




Ÿ
any person proposed as a nominee for election as a director;




Ÿ
any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our outstanding shares of common stock; or




Ÿ
any member of the immediate family (including spouse, parents, children, siblings and in- laws) of any of the above persons.





The balance due to related parties of $55,877 at February 28, 2011 (2010 - $183,388) is due to directors (William Thomas, Rahim Jivraj and James Stonehouse), and a company controlled by a director and/or shareholder of the Company (Keith Laskowski) and is unsecured, non-interest bearing and payable on demand.




75





During the year ended February 28, 2011, the Company paid or accrued consulting and/or management fees of $133,786 to directors of the Company (2010 – $6,145).





During the year ended February 28, 2011, the Company settled with Ganpat Mani, a former director, on $80,545 of related party debt related primarily to prior period management fee accruals for total cash consideration of $37,545 resulting in a gain on settlement of $43,000 which was recorded as a management fee recovery during the period.





On April 14, 2010, the Company paid $25,000 to Richard Cherry, a former director of the Company, in settlement of $102,843 of obligations that were owed by the Company. This resulted in a gain on settlement of $77,843.





On November 19, 2010, the Company issued a promissory note with a principal value of $52,500 to Rahim Jivraj, a former CEO and Director of the Company.  The amount is unsecured, bears no interest and is due and payable on or before November 26, 2012.





During the prior year ended February 28, 2010, the Company issued a promissory note payable of $100,000 (2010 - $100,000) to a related party. This amount is unsecured, bears no interest and has no set terms of repayment.




Our Board of Directors reviews any proposed transactions involving Related Parties and considerers whether such transactions are fair and reasonable an in the Company’s best interests.




ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES




James Stafford serve as our independent registered public accounting firm and audited our financial statements for the fiscal years ended February 28, 2011 and 2010.  Aggregate fees for professional services rendered to us by our auditors are set forth below:




Year Ended

February 28, 2011


Year Ended

February 28, 2010Audit Fees

$
26,898


$
24,263Audit-Related Fees

Nil


NilTax Fees

Nil


NilTotal

$
26,898


$
24,263




Audit Fees.  Aggregate fees for professional services in connection with the audit of our annual financial statements and the quarterly reviews of our financial statements included in our quarterly reports.




Audit-Related Fees.  Our auditors provided audit-related services to us in connection with the review of other regulatory filings.




Tax Fees.  Our auditors did not provide tax preparation services.




All Other Fees.  Our auditors did not provide any other services to us other than those described above.




Pre-Approval of Services by the Independent Auditor




The Audit Committee (or, at the present time, the Board of Directors, which is functioning as our Audit Committee) is responsible for the pre-approval of audit and permitted non-audit services to be performed by the Company’s independent auditor, James Stafford.  The Audit Committee will, on an annual basis, consider and, if appropriate, approve the provision of audit and non-audit services by James Stafford.  Thereafter, the Audit Committee will, as necessary, consider and, if appropriate, approve the provision of additional audit and non-audit services by James Stafford which are not encompassed by the Audit Committee’s annual pre-approval and are not prohibited by law.  The Audit Committee has approved all of the audit and permitted non-audit services performed by James Stafford in the year ended February 28, 2011.




76




ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES




The following exhibits are filed with this Annual Report on Form 10-K:




Exhibit Number

Description of Exhibit3.1

Articles of Incorporation, as amended (1)3.2

Bylaws (1)10.1

Mineral Property Staking and Purchase Agreement dated January 28, 2005 between Ancor Resources Inc. and Laurence Stephenson (1)10.2

Nose Rock Property - Option and Joint Venture Agreement between Nu-Mex Uranium Corp. and Strathmore Resources (US) Ltd. dated September 14, 2007 (2)10.3

Dalton Pass Property - Option and Joint Venture Agreement between Nu-Mex Uranium Corp. and Strathmore Resources (US) Ltd. dated October 5, 2007 (3)10.4

NWT Uranium Corp. and Nu-Mex Uranium Corp. Terminate Arrangement Agreement dated February 13, 2008 (4)10.5

Executive Services Agreement dated April 1, 2008 among the Company, Cleary Petroleum Corp. and Richard M. Cherry (5)10.6

Letter Option Agreement dated December 9, 2008 between the Company and Geoforum Scandinavia AB (6)10.7

Letter Option Agreement dated January 15, 2009 between the Company and Trans Atlantic Metals AG (7)10.8

Letter Agreement dated April 21, 2009, effective April 23, 2009, between the Company and Continental  Precious Metals Inc. (8)10.9

Option Agreement dated October 29, 2009 between the Company and Geoforum Scandinavia AB (9)10.10

Option Agreement dated November 17, 2009 between the Company and Trans Atlantic Metals AG (10)10.11

Mineral Assets Option Agreement between Mercer Gold Corp. and the Company, dated April 13, 2010 (11)10.12

2010 Stock Incentive Plan (12)10.13

Amendment to Mineral Assets Option Agreement dated December 30, 2010 (13)14.1

Code of Conduct (14)21.1

Subsidiaries of the Issuer:

Mercer One Panama Corp. (Incorporated under the laws of the Republic of Panama)

Mercer Two Panama Corp. (Incorporated under the laws of the Republic of Panama)31.1

Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a) *31.2

Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a) *32.1

Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 *





*
Filed herewith


(1)
Incorporated by reference from our Form SB-2, filed with the SEC on September 13, 2006.


(2)
Incorporated by reference from our Form 8-K, filed with the SEC on September 14, 2007.


(3)
Incorporated by reference from our Form 8-K, filed with the SEC on October 12, 2007.


(4)
Incorporated by reference from our Form 8-K, filed with the SEC on February 19, 2008.


(5)
Incorporated by reference from our Form 8-K, filed with the SEC on April 7, 2008.


(6)
Incorporated by reference from our Form 8-K, filed with the SEC on December 19, 2008.


(7)
Incorporated by reference from our Form 8-K, filed with the SEC on January 23, 2009.


(8)
Incorporated by reference from our Form 8-K, filed with the SEC on May 1, 2009.


(9)
Incorporated by reference from our Form 8-K, filed with the SEC on November 12, 2009.


(10)
Incorporated by reference from our Form 8-K, filed with the SEC on November 27, 2009.


(11)
Incorporated by reference from our Form 8-K, filed with the SEC on April 19, 2010.


(12)
Incorporated by reference from our Form 10-K, filed with the SEC on June 16, 2010.


(13)
Incorporated by reference from our Form 8-K, filed with the SEC on January 18, 2011.


(14)
Incorporation by reference from our Form 10-K, filed with the SEC on June 3, 2011.




77





SIGNATURES




Pursuant to the requirements of Section 13 and 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




TRESORO MINING CORP.Date: October 29, 2012
By:
/s/ Gary PowersGary PowersPresident & Chief Executive Officer and(Principal Executive Officer)





Date: October 29, 2012
By:
/s/ William D. ThomasWilliam D. ThomasChief Financial Officer, Secretary and Treasurer(Principal Financial Officer and Principal Accounting Officer)





In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.




Date: October 29, 2012
By:
/s/ Gary PowersGary PowersPresident, Chief Executive Officer and a Director




Date: October 29, 2012
By:
/s/ William D. ThomasWilliam D. ThomasChief Financial Officer, Secretary, Treasurer and a Director
  Date: October 29, 2012
By:
/s/ Gerry JardineGerry JardineDirector