UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549




FORM 10-Q




(Mark One)




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




For the quarterly period ended  March 31, 2011




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




For the transition period from  to




Commission File Number:  000-49725




Goldsands Development Company


(Exact name of registrant as specified in its charter)




Delaware
88-0455809(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)




Calle Juan Fanning 219, Miraflores, Lima, Perú(Address of principal executive offices)+51-1-446-6807(Registrant’s telephone number, including area code)_______________________________________________________________________(Former name, former address and former fiscal year, if changed since last report)




Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   ý Yes   ̈ No




Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ̈ Yes    ̈ No




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” and “a smaller reporting company” in Rule 12b-2 of the Exchange Act.




Large accelerated filer  ̈                                                                                                            Accelerated filer                    ̈


Non-accelerated filer    ̈(Do not check if a smaller reporting company)                          Smaller reporting company ý




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




Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:




Class

Outstanding at May 12, 2011Common Stock, $0.001 par value

187,517,618








Table of Contents






FORM 10-Q
 GOLDSANDS DEVELOPMENT COMPANY
 MARCH 31, 2011
  TABLE OF CONTENTS


PagePART I – FINANCIAL INFORMATIONItem 1.
Consolidated Financial Statements.
3Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
4Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
19Item 4.
Controls and Procedures.
20PART II – OTHER INFORMATIONItem 1.
Legal Proceedings.
21Item 1A.
Risk Factors.
21Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
21Item 3.
Defaults Upon Senior Securities.
21Item 4.
(Removed and Reserved).
21Item 5.
Other Information.
21Item 6.
Exhibits.
21SignaturesExhibitsCertifications










- 2 -
 Table of Contents




PART I - FINANCIAL INFORMATION




Item 1.     Consolidated Financial Statements.




Our unaudited consolidated financial statements included in this Form 10-Q are as follows:F-1
Unaudited Consolidated Balance Sheet as of March 31, 2011.F-2
Unaudited Consolidated Statements of Loss and Comprehensive Loss for the three months ended March 31, 2011, 2010 and 2009 and from inception on March 6, 2000 to March 31, 2011.F-3
Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2011, 2010 and 2009 and from inception on March 6, 2000 to March 31, 2011.F-4
Unaudited Consolidated Statements of Changes in Stockholders' Equity (Deficiency) from inception on March 6, 2000 to March 31, 2011.F-5
Notes to Unaudited Consolidated Financial Statements.




These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included.  Operating results for the interim period ended March 31, 2011 are not necessarily indicative of the results that can be expected for the full year.












- 3 -
 Table of Contents




Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Consolidated Balance Sheets
 (Expressed in U.S. Dollars)
 (Unaudited)




As at

31 March

2011


As at

31 December

2010

(Audited)$



$AssetsCurrentCash and cash equivalents


838,056



4,181Amounts receivable (Note 4)


118,473



110,709Prepaid expense


14,574



20,072971,103



134,962Equipment(Note 5)


155,656



159,509Website development cost(Note 6)


-



4,1671,126,759



298,638LiabilitiesCurrentAccounts payable and accrued liabilities (Note 8)


1,537,936



1,969,623Current portion of convertible promissory note (Note 13)


81,930



614,466Loans payable (Note 14)


-



393,312Due to related parties (Note 9)


46,306



323,0651,666,172



3,300,466Convertible promissory note(Note 13)


304,840



2,566,9861,971,012



5,867,452Stockholders’ deficiencyCapital stock (Note 11)Authorized300,000,000 common shares, par value $0.001 and50,000,000 preferred shares, par value $0.001Issued and outstanding31 March 2011 – 187,517,618  common shares, par value $0.00131 December 2010 – 88,158,118 common shares, par value $0.001


187,518



88,158Share subscriptions received in advance(Note 11)


-



240,000Additional paid in capital


39,995,694



33,448,191Warrants(Note 11)


8,078,659



4,532,526Deficit, accumulated during the exploration stage


(49,106,124
)


(43,877,689
)(844,253
)


(5,568,814
)1,126,759



298,638




Nature, Basis of Presentation and Continuance of Operations(Note 1), Commitment(Note 18), Contingencies(Note 19) and Subsequent Event (Note 21)










F - 1
 Table of Contents







Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Consolidated Statements of Loss and Comprehensive Loss
 (Expressed in U.S. Dollars)
 (Unaudited)




For the

period from

the date of

inception on 6

March 2000

to 31 March

2011


For the

three month

period ended

31 March

2011


For the

three month

period ended

31 March

2010


For the

three month

period ended

31 March

2009$



$



$



$ExpensesAmortization expense (Notes 5 and 6)


380,394



20,558



19,207



21,122Default on oil and gas deposit


25,000



-



-



-Exploration costs (Note 7)


5,624,492



225,939



190,218



482,151Interest (Notes 9, 13 and 14)


6,372,952



4,106,796



-



-Investor relations


2,552,969



51,534



93,221



259,126Management fees (Note 10)


1,231,418



69,000



111,000



74,076Office and miscellaneous


595,642



45,076



21,296



80,611Professional fees


3,115,159



183,072



145,160



161,625Rent


196,381



-



1,970



26,800Stock-based compensation (Note 12)


10,870,274



177,046



812,038



1,497,220Travel


662,966



69,582



36,936



53,007Write-down of equipment (Note 5)


26,611



-



-



-Write-down of mineral property costs (Note 7)


23,041,959



430,000



-



-Net operating loss before other items


(54,696,217
)


(5,378,603
)


(1,431,046
)


(2,665,738
)Other itemsForeign exchange income (loss)


37,074



(7,301
)


29,265



5,142Gain on sale of oil and gas property


307,115



-



-



-Gain on settlement of debt (Note 13)


157,469



157,469



-



-Interest income


12,795



-



-



-Provision for potential legal claims (Note 8)


(65,000
)


-



-



-Project management fees


60,000



-



-



-Recovery of mineral property costs (Note 7)


210,070



-



-



-Warrant expense (Note 11)


(713,500
)


-



-



-6,023



150,168



29,265



5,142Net operating loss before income taxes


(54,690,194
)


(5,228,435
)


(1,401,781
)


(2,650,596
)Future income tax recovery(Note 15)


5,584,070



-



189,567



-Net loss and comprehensive loss for the period


(49,106,124
)


(5,228,435
)


(1,212,214
)


(2,650,596
)Basic and diluted loss per common share






(0.034
)


(0.015
)


(0.045
)Weighted average number of common shares used in per share calculations



153,876,307



78,947,412



58,469,456









F - 2
 Table of Contents




Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Consolidated Statements of Cash Flows


(Expressed in U.S. Dollars)
 (Unaudited)




For the period

from the date of

inception on 6

March 2000 to 31

March 2011

(Unaudited)


For the three

month period

ended 31

March

2011


For the three

month period

ended 31

March

2010


For the three

month period

ended 31

March

2009$



$



$



$Cash flows used in operating activitiesNet loss for the period


(49,106,124
)


(5,228,435
)


(1,212,214
)


(2,650,596
)Adjustments to reconcile loss to net cash used by operating activitiesAccrued interest (Notes 9, 13 and 14)


6,299,763



4,105,974



-



-Amortization (Notes 5 and 6)


380,394



20,558



19,207



21,122Contributions to capital by related party expenses (Notes 10 and 16)


15,000



-



-



-Future income tax recovery (Note 15)


(5,584,070
)


-



(189,567
)


-Warrant expense (Note 11)


713,500



-



-



-Common shares issued for services


24,199



-



-



-Warrants issued for services


25,252



-



-



-Gain on sale of oil & gas property


(307,115
)


-



-



-Gain of settlement of debt (Note 13)


(157,469
)


(157,469
)Stock-based compensation (Note 12)


10,870,274



177,046



812,038



1,497,220Write-down of mineral property costs (Note 7)


23,041,959



430,000



-



-Write-down of equipment (Note 5)


26,611



-



-



-Recovery of mineral property costs (Note 7)


(210,070
)


-



-



-Changes in operating assets and liabilities(Increase) decrease in prepaid expenses


(14,574
)


5,498



(1,328
)


256,465(Increase) decrease in amounts receivable (Note 4)


(84,196
)


(7,764
)


41,090



30,000Increase (decrease) in accounts payable and accrued liabilities (Note 8)


1,264,960



(431,687
)


244,272



547,125Increase (decrease) in due to related parties (Note 9)


(524,280
)


(84,308
)


189,967



137,832(13,325,986
)


(1,170,587
)


(96,535
)


(160,832
)Cash flows used in investing activitiesAcquisition of mineral property interest (Note 7)


(887,842
)


-



(203,671
)


(25,000
)Business acquisition, net of cash received (Note 20)


(2,499,908
)


-



-



-Purchase of equipment (Note 5)


(299,102
)


(12,538
)


(40,643
)


(85,258
)Website development costs (Note 6)


(64,693
)


-



-



-Purchase of oil and gas property


(642,006
)


-



-



-(4,393,551
)


(12,538
)


(244,314
)


(110,258
)Cash flows from financing activitiesIssuance of common shares, net of share issue costs (Note 11)


9,198,035



1,383,592



273,999



-Increase in due to related parties (Note 9)


87,304



-



-



-Issuance of warrants (Note 11)


8,237,254



873,408



-



-Convertible debentures


665,000



-



-



-Loan payable (Note 14)


370,000



-



-



-Share subscriptions received in advance (Note 11)


-



(240,000
)


(70,000
)


240,00018,557,593



2,017,000



203,999



240,000Increase (decrease) in cash and cash equivalents


838,056



833,875



(136,850
)


(31,090
)Cash and cash equivalents, beginning of period


-



4,181



205,125



66,580Cash and cash equivalents, end of period


838,056



838,056



68,275



35,490




Supplemental Disclosures with Respect of Cash Flows(Note 16)









F - 3
 Table of Contents






Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Consolidated Statements of Changes in Stockholders’ Equity (Deficiency)


(Expressed in U.S. Dollars)


(Unaudited)




Number of

shares issued


Capital

stock


Additional

paid-in

capital


Share

subscriptions

received

in advance


Warrants


Deficit,

accumulated

during the

exploration

stage


Non-

controlling

interest


Total

stockholders’

equity

(deficiency)$



$



$



$



$



$



$Balance at 6 March 2000 (inception)Common shares issued – cash


2,000,000



2,000



1,000



-



-



-



-



3,000Net loss for the period


-



-



-



-



-



(2,291
)


-



(2,291
)Balance at 31 December 2000


2,000,000



2,000



1,000



-



-



(2,291
)


-



709Common shares issued – cash


5,000,000



5,000



42,000



-



-



-



-



47,000Net loss for the year


-



-



-



-



-



(10,571
)


-



(10,571
)Balance at 31 December 2001


7,000,000



7,000



43,000







-



(12,862
)


-



37,138Net loss for the year


-



-



-



-



-



(12,097
)


-



(12,097
)Balance at 31 December 2002


7,000,000



7,000



43,000



-



-



(24,959
)


-



25,041Net loss for the year


-



-



-



-



-



(11,019
)


-



(11,019
)Balance at 31 December 2003


7,000,000



7,000



43,000



-



-



(35,978
)


-



14,0223 for 1 forward split


14,000,000



14,000



(14,000
)


-



-



-



-



-Net loss for the year


-



-



-



-



-



(6,451
)


-



(6,451
)Balance at 31 December 2004


21,000,000



21,000



29,000



-



-



(42,429
)


-



7,5712 for 1 forward split


21,000,000



21,000



(21,000
)


-



-



-



-



-Net loss for the year


-



-



-



-



-



(18,338
)


-



(18,338
)Balance at 31 December 2005


42,000,000



42,000



8,000



-



-



(60,767
)


-



(10,767
)Common shares issued –  cash


4,000,000



4,000



76,000



-



-



-



-



80,000Contributions to capital by related party – expenses (Notes 10 and 16)


-



-



14,400



-



-



-



-



14,400Net loss for the year


-



-



-



-



-



(289,343
)


-



(289,343
)Balance at 31 December 2006


46,000,000



46,000



98,400



-



-



(350,110
)


-



(205,710
)Contributions to capital by related party – expenses (Notes 10 and 16)


-



-



600



-



-



-



-



600Common shares issued –  debt


1,145,300



1,145



21,761



-



-



-



-



22,906Common shares issued –  cash


1,437,000



1,437



501,513



-



-



-



-



502,950Stock-based compensation


-



-



625,035



-



-



-



-



625,035Net loss for the year


-



-



-



-



-



(1,218,721
)


-



(1,218,721
)Balance at 31 December 2007


48,582,300



48,582



1,247,309



-



-



(1,568,831
)


-



(272,940
)Common shares issued –  mineral properties


3,800,000



3,800



4,166,200



-



-



-



-



4,170,000Common shares issued –  cash


6,016,511



6,016



4,706,272



-



-



-



-



4,712,288Common shares issued –  services


70,645



71



49,380



-



-



-



-



49,451Value assigned to warrants


-



-



(3,739,570
)


-



3,739,570



-



-



-Share issuance costs


-



-



(517,702
)


-



237,293



-



-



(280,409
)Stock-based compensation


-



-



2,033,607



-



-



-



-



2,033,607Net loss for the year


-



-



-



-



-



(5,304,833
)


-



(5,304,833
)Balance at 31 December 2008


58,469,456



58,469



7,945,496



-



3,976,863



(6,873,664
)


-



5,107,164Common shares issued –  mineral properties (Notes 7, 11 and 16)


2,300,000



2,300



1,676,700



-



-



-



-



1,679,000Common shares issued –  cash (Note 11)


12,786,529



12,787



6,812,536



-



-



-



-



6,825,323Value assigned to warrants (Note 11)


-



-



(3,309,467
)


-



3,309,467







-



-Warrants expired (Note 12)


-



-



3,739,570



-



(3,739,570
)


-



-



-Agent compensation warrants expired    (Note 11)


-



-



237,293



-



(237,293
)


-



-



-Share issuance costs


-



-



(473,042
)


-



262,788



-



-



(210,254
)Share subscription received in advance (Note 11)


-



-



-



70,000



-



-



-



70,000Business acquisition (Notes 7, 11 and 16)


4,500,000



4,500



4,245,500



-



-



-



5,410,000



9,660,000Stock-based compensation (Note 12)


-



-



4,461,838



-



-



-



-



4,461,838Net loss for the year


-



-



-



-



-



(9,749,164
)


-



(9,749,164
)Balance at 31 December 2009


78,055,985



78,056



25,336,424



70,000



3,572,255



(16,622,828
)


5,410,000



17,843,907









F - 4
 Table of Contents







Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Consolidated Statements of Changes in Stockholders’ Equity


(Expressed in U.S. Dollars)


(Unaudited)




Number of

shares issued


Capital

stock


Additional

paid–in

capital


Share

subscriptions

received

in advance


Warrants


Deficit

accumulated

during the

exploration

stage


Non-

controlling

interest


Total

stockholders’

equity

(deficieny)$



$



$



$



$



$



$



$Balance at 31 December 2009


78,055,985



78,056



25,336,424



70,000



3,572,255



(16,622,828
)


5,410,000



17,843,907Common shares issued –  mineral properties (Notes 7, 11 and 16)


500,000



500



404,500



-



-



-



-



405,000Common shares issued –  cash (Note 11)


5,141,421



5,141



3,336,778



(70,000
)


-



-



-



3,271,919Value assigned to warrants (Note 11)


-



-



(314,809
)


-



314,809



-



-



-Modification of warrants (Note 11)


-



-



-



-



713,500



-



-



713,500Warrants expired (Note 11)


-



-



24,629



-



(24,629
)


-



-



-Share issuance costs


-



-



(191,438
)


-



5,413



-



-



(186,025
)Warrants exercised (Note 11)


460,712



461



370,859



-



(48,822
)


-



-



322,498Business acquisition (Notes 7, 11, 16 and 20)


4,000,000



4,000



(4,954,000
)


-



-



-



(5,410,000
)


(10,360,000
)Stock-based compensation (Note 12)


-



-



3,572,748



-



-



-



-



3,572,748Beneficial conversion feature (Note 13)


-



-



5,862,500



-



-



-



-



5,862,500Share subscriptions received in advance (Note 11)


-



-



-



240,000



-



-



-



240,000Net loss for the year


-



-



-



-



-



(27,254,861
)


-



(27,254,861
)Balance at 31 December 2010


88,158,118



88,158



33,448,191



240,000



4,532,526



(43,877,689
)


-



(5,568,814
)Common shares issued –  mineral properties (Notes 7, 11 and 16)


3,500,000



3,500



426,500



-



-



-



-



430,000Common shares issued –  cash (Note 11)


22,570,000



22,570



2,234,430



(240,000
)


-



-



-



2,017,000Common shares issued –settlement of debt (Note 11)


73,289,500



73,290



7,255,660



















7,328,950Value assigned to warrants (Note 11)


-



-



(3,734,913
)


-



3,734,913



-



-



-Warrants cancelled (Note 11)


-



-



188,780







(188,780
)


-



-



-Stock-based compensation (Note 12)


-



-



177,046



-



-



-



-



177,046Net loss for the period


-



-



-



-



-



(5,228,435
)


-



(5,228,435
)Balance at 31 March 2011


187,517,618



187,518



39,995,694



-



8,078,659



(49,106,124
)


-



(844,253
)











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


F - 5
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011







1.
Nature, Basis of Presentation and Continuance of Operations





Goldsands Development Company (the “Company”) was incorporated in the State of Nevada under the name “Crafty Admiral Enterprises, Ltd.” on 6 March 2000. On 9 March 2007, the Company changed their name to “Nordic Nickel Ltd.”. The Company changed their name pursuant to a parent/subsidiary merger between the Company (as Crafty Admiral Enterprises, Ltd.) and its wholly-owned non-operating subsidiary, Nordic Nickel Ltd., which was established for the purpose of giving effect to this name change. On 15 November 2007, the Company changed its name to “Constitution Mining Corp.”. The Company changed their name pursuant to a parent/subsidiary merger between the Company (as Nordic Nickel Ltd.) and its wholly-owned non-operating subsidiary, Constitution Mining Corp., which was established for the purpose of giving effect to this name change. On 21 October 2009, the Company reincorporated in the State of Delaware. On 31 March 2011, the Company changed their name pursuant to parent/subsidiary merger between the Company (as Constitution Mining Corp.) and its wholly-owned subsidiary, Goldsands Development Company, which was established for the purpose of giving effect to this name change. The Company is in the exploration stage as its operations principally involve the examination and investigation of land that may contain valuable minerals, for the purpose of discovering the presence of ore, if any, and its extent.


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





The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) applicable to exploration stage enterprises, and are expressed in U.S. dollars.  The Company’s fiscal year end is 31 December.





The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, Constitution Mining Argentina SA, a company incorporated under the laws of Argentina, and Bacon Hill Invest Inc. (“Bacon Hill”), a company incorporated under the law of Panama.





The Company’s consolidated financial statements as at 31 March 2011 and for the three month period then ended have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.  The Company had a loss of $5,228,435 for the three month period ended 31 March 2011 (31 March 2010 – $1,212,214) and has working capital deficit of $695,069 at 31 March 2011 (31 December 2010 – $3,165,504).





Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital.  Management believes that the Company’s capital resources should be adequate to continue operating and maintaining its business strategy during the fiscal year ending 31 December 2011.  However, if the Company is unable to raise additional capital in the near future, due to the Company’s liquidity problems, management expects that the Company will need to curtail operations, liquidate assets, seek additional capital on less favorable terms and/or pursue other remedial measures.  These consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.









F - 6
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011







On 27 June 2006, the Company acquired a 100% interest in an oil and gas property lease located in St. Francis County, Arkansas (the “Tombaugh Lease”) for cash payment of $642,006.   In 2007, the Company shifted its focus from oil and gas sector to mineral exploration.





Although management is currently implementing its business plan, and seeking additional sources of equity or debt financing and or a partner, there is no assurance these activities will be successful.  This raises substantial doubt about the ability of the Company to continue as a going concern.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.





2.
Changes in Accounting Policies


In February 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2010-09, “Amendments to Certain Recognition and Disclosure Requirements”, which eliminates the requirement for SEC filers to disclose the date through which an entity has evaluated subsequent events.  ASU No. 2010-09 is effective for its fiscal quarter beginning after 15 December 2010.  The adoption of ASU No. 2010-09 did not have a material impact on the Company’s consolidated financial statements.
 
 In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurement and Disclosures (Topic 820): Improving Disclosure and Fair Value Measurements”, which requires that purchases, sales, issuances, and settlements for Level 3 measurements be disclosed.  ASU No. 2010-06 is effective for its fiscal quarter beginning after 15 December 2010.  The adoption of ASU No. 2010-06 did not have a material impact on the Company’s consolidated financial statements.


3.
Significant Accounting Policies





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





Principles of consolidation





All inter-company balances and transactions have been eliminated in these consolidated financial statements.





Cash and cash equivalents





Cash and cash equivalents include highly liquid investments with original maturities of three months or less.











F - 7
 Table of Contents




Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011





Financial instruments





The carrying value of cash and cash equivalents, amounts receivable, accounts payable, amounts due to related parties, loan payable and convertible promissory note approximates their fair value because of the short maturity of these instruments.  The Company’s operations are in the U.S. and Peru and virtually all of its assets and liabilities are giving rise to significant exposure to market risks from changes in foreign currency rates.  The Company’s financial risk is the risk that arises from fluctuations in foreign exchange rates and the degree of volatility of these rates.  Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.





Derivative financial instruments





The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.





Income taxes





Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with ASC 740, “Income Taxes”, which requires the use of the asset/liability method of accounting for income taxes.  Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax losses and credit carry-forwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The Company provides for deferred taxes for the estimated future tax effects attributable to temporary differences and carry-forwards when realization is more likely than not.





Basic and diluted net loss per share





The Company computes net income (loss) per share in accordance with ASC 260 “Earnings per Share”.  ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement.  Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period.  Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method.  In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.  Diluted EPS excluded all dilutive potential shares if their effect is anti-dilutive.





Comprehensive loss





ASC 220, “Comprehensive Income”, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements.  As at 31 March 2011, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the consolidated financial statements.









F - 8
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011








Mineral property costs





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





Mineral property exploration costs are expensed as incurred.





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





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





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





Equipment





Equipment is recorded at cost and amortization is provided over its estimated economic life at 30% or on a straight line basis over its economic life.





Website development costs





The costs of computer software developed or obtained for internal use, during the preliminary project phase, as defined under ASC 350-40, “Internal-Use Software”, will be expensed as incurred.  The costs of website development during the planning stage, as defined under ASC 350-50, “Website Development Costs”, will also be expensed as incurred.





Computer software, website development incurred during the application and infrastructure development stage, including external direct costs of materials and services consumed in developing the software and creating graphics and website content, will be capitalized and amortized over the estimated useful life, beginning when the software is ready for use and after all substantial testing is completed and the website is operational.












F - 9
 Table of Contents




Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011







Segments of an enterprise and related information





ASC 280, “Segment Reporting”establishes guidance for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public.  It also establishes standards for disclosures regarding products and services, geographic areas and major customers.  ASC 280 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.  The Company has evaluated this Codification and does not believe it is applicable at this time.





Start-up expenses





The Company has adopted ASC 720-15, “Start-Up Costs”, which requires that costs associated with start-up activities be expensed as incurred.  Accordingly, start-up costs associated with the Company’s formation have been included in the Company’s expenses for the period from the date of inception on 6 March 2000 to 31 March 2011.





Foreign currency translation





The Company’s functional and reporting currency is U.S. dollars.  The consolidated financial statements of the Company are translated to U.S. dollars in accordance with ASC 830, “Foreign Currency Matters”.  Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date.  Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.  The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.





Use of estimates





The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenditures during the reporting period.  Actual results could differ from these estimates.





Comparative figures





Certain comparative figures have been adjusted to conform to the current period’s presentation.










F - 10
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011


Stock-based compensation





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





Convertible debt





In May 2008, the FASB issued new guidance for accounting for convertible debt instruments that may be settled in cash.  The new guidance, which is now part of ASC 470-20, “Debt with Conversion and Other Options” requires the liability and equity components to be separately accounted for in a manner that will reflect the entity’s nonconvertible debt borrowing rate.  The Company will allocate a portion of the proceeds received from the issuance of convertible notes between a liability and equity component by determining the fair value of the liability component using the Company’s nonconvertible debt borrowing rate.  The difference between the proceeds of the notes and the fair value of the liability component will be recorded as a discount on the debt with a corresponding offset to paid-in capital.  The resulting discount will be accreted by recording additional non-cash interest expense over the expected life of the convertible notes using the effective interest rate method.  The new guidance was to be applied retrospectively to all periods presented upon those fiscal years.  The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.


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





4.
Amounts Receivable





Amounts receivable are non-interest bearing, unsecured and have settlement dates within one year.





5.
Equipment





Net Book ValueCost


Accumulated

amortization


31 March

2011


31 December

2010

(Audited)$


$



$



$Equipment


298,410



142,754



155,656



159,509





During the three month period ended 31 March 2011, total additions to property and equipment were $12,538 (31 March 2010 - $40,643).







F - 11
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011







During the three month period ended 31 March 2011, total write-down of equipment were $Nil (31 March 2010 - $Nil) (Note 16).





6.
Website Development Cost





Net Book ValueCost


Accumulated

amortization


31 March

2011


31 December

2010

(Audited)$



$



$



$Website development


64,693



64,693



-



4,167





During the three month period ended 31 March 2011, total additions to website development were $Nil (31 March 2010 - $Nil).





7.
Mineral Property Costs





Peruvian Gold Sands – Minera Maranon





On 29 September 2008, the Company entered into a Mineral Right option agreement with Temasek Investments Inc. (“Temasek”) to acquire mining properties totalling 382 km2 in Northeastern Peru (the “Peruvian Agreement”).  Pursuant to this Peruvian Agreement, the Company acquired four separate options from Temasek, each providing for the acquisition of a 25% interest in certain mining properties (the “Peruvian Gold Sands”).  The Peruvian Gold Sands are owned by Minera Maranon S.A.C (“Maranon”).  Bacon Hill, a wholly-owned subsidiary of Temasek, owns 999 shares of 1,000 shares of Maranon that are issued and outstanding.  Temasek owns the single remaining share of Maranon.  The acquisition of each 25% interest in the Peruvian Gold Sands will occur through the transfer to the Company of 25% of the outstanding shares of Bacon Hill.





The Company may exercise the initial 25% option by fulfilling the following conditions:





a. Pay a non-refundable $375,000 on the date the Peruvian Agreement is executed (paid);
 b. Issue 2,000,000 common shares within 5 business days (issued and valued at $1.01 per common share)  (Notes 11 and 16); and
 c. Pay an additional $375,000 prior to 28 December 2008 (paid).





The Company entered into an amending agreement dated 12 May 2009 (the “Peruvian Amendment”) and a second amending agreement dated 29 October 2009 (the “Second Peruvian Amendment”) with Temasek.  Under the Second Peruvian Amendment, the Company may now exercise the second 25% option resulting in the acquisition of a 50% interest in the Mineral Rights by fulfilling the following conditions as set out in the Second Peruvian Amendment:




a. Exercise and complete the initial 25% option by 29 March 2009 (completed);


b. Issue an additional 2,000,000 common shares by 29 March 2009 (issued and valued at $0.65 per common share) (Notes 11 and 16);









F - 12
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011








c. Pay an additional $750,000 by 29 October 2009 or as soon as practicable thereafter (paid); and
 d. Issue an additional 500,000 common shares by 29 October 2009 or as soon as practicable thereafter (issued
 and valued at $1.18 per common share) (Notes 11 and 16).





The Company entered into a third amending agreement dated 8 April 2010 (the “Third Peruvian Amendment”) with Temasek.  Under the Third Peruvian Amendment, the Company may now exercise the third and fourth 25% options resulting in the acquisition of a 100% interest in the Mineral Rights by fulfilling the following conditions as set out in the Third Peruvian Amendment within 5 business days of the Third Peruvian Amendment effective date:





a. Pay $1,000,000 (paid on 22 April 2010);


b. Issue an additional 6,000,000 common shares (2,000,000 issued and valued at $1.18 per common share and 4,000,000 issued
 and valued at $1.05 per common share (Notes 11 and 16)); and


c. Issue a convertible note in the principal amount of $7,000,000 maturing on 8 April 2013 and bearing   interest at a rate of 12% per annum, payable annually, with principal payable upon maturity (the “Convertible Note”).  Any interest and principal due under the Convertible Note is convertible (at Temasek's option) into units which consist of one share of the Company's common stock and one warrant to purchase one share of the Company's common stock at an exercise price of $1.10 per share.  The conversion price per unit is fixed at $0.80 per unit (issued 8 April 2010) (Notes 11, 13 and 16).





The property is subject to a 2.5% net returns royalty that the Company can reduce to 1.0% upon payment of a further $2,000,000 within 90 days of the exercise and completion of the final 25% option.





During the year ended 31 December 2010, the Company recorded a provision for write-down of mineral property costs of $17,340,369 related to the Peruvian Gold Sands (Note 16).




On 18 January 2011, the Company entered into an Agreement (the “Swiss Agreement”) with Swiss Mining S.A., a limited liability company organized and incorporated under the laws of Peru (“Swiss Mining”).  Pursuant to the Swiss Agreement, Swiss Mining will carry out a test mining operation on the Company’s Peruvian properties.  The test mining operation commenced on 28 March 2011 and will be performed at Swiss Mining’s own costs which are expected to be $425,000. All net returns, based on the gold price ranging from $1,300 to $1,500 per ounce, shall first be allocated 30% to the Company and 70% to Swiss Mining until the above mentioned costs of $425,000 is fully covered. Thereafter all revenues from the sale or disposition of ores shall be allocated between the Company and Swiss Mining on a 50/50 basis. The term of the Swiss Agreement shall be 6 months or for so long thereafter as minerals are produced from the Peruvian properties on a continuous basis (Note 18).
 
 Expenditures related to the Peruvian Gold Sands for the three month period ended 31 March 2011 consist of business development and project generation of $80,124 (31 March 2010 - $4,977, 31 March 2009 - $126,502, cumulative - $288,246), camp costs and field supplies of $24,495 (31 March 2010 - $Nil, 31 March 2009 - $19,424, cumulative - $118,255), drilling of $Nil (31 March 2010 - $Nil, 31 March 2009 - $2,249, cumulative - $268,816), mapping of  $Nil (31 March 2010 - $Nil, 31 March 2009 - $Nil, cumulative - $349), rental of $2,770 (31 March 2010 - $Nil, 31 March 2009 - $Nil, cumulative - $64,377), sampling of $Nil (31 March 2010 - $Nil, 31 March 2009 - $1,150, cumulative - $14,411), taxes and permitting of $Nil (31 March 2010 - $Nil, 31 March 2009 - $4,811, cumulative - $162,981), transportation and fuel of $22,201 (31 March 2010 - $9,971, 31 March 2009 - $81,099, cumulative - $919,737), and wages, consulting and management fees of $96,349 (31 March 2010 - $175,270, 31 March 2009 - $180,586, cumulative - $3,010,649).





Peruvian Gold Sands – Minera Saramiriza





On 25 January 2010 (the “Effective Date”), the Company entered into an assignment agreement with Temasek (the “Minera Saramiriza Agreement”), to acquire a 100% interest in the mineral rights that are the property and title of Minera Saramiriza S.A.C (the “Saramiriza Properties”). In order for the Company to keep its interest in good standing and to exercise the option to acquire a 100% interest in the property, the Company must issue, within 30 business days from the Effective Date, 500,000 common shares of the Company (issued and valued at $0.81 per common share) to the order and direction of Temasek, which will be included in the initial 33% option payment as defined below (Notes 11 and 16).





The Company may exercise the initial 33% option by fulfilling the following conditions within 12 months of the Effective Date:





a.      Issue the initial 500,000 common shares (issued and valued at $0.81 per common share);


b.      Pay $250,000 (paid) (Notes 11 and 16); and


c.      Issue an additional 1,000,000 common shares (issued and valued at $0.18 per common share) (Note 11).









F - 13
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011







The Company may exercise the second 33% option by fulfilling the following conditions within 24 months of the Effective Date:





a.      Exercise and complete the initial 33% option;


b.      Pay an additional $1,000,000; and


c.      Issue an additional 1,000,000 common shares.





The Company may exercise the final 34% option by fulfilling the following conditions within 36 months of the Effective Date:





a.      Exercise and complete the initial and second 33% options;


b.      Pay an additional $2,000,000; and


c.      Issue an additional 2,000,000 common shares.





The property is subject to a 2.5% net returns royalty that the Company can reduce to 1.5% upon payment of a further $2,000,000 within 90 days of the exercise and completion of the final 34% option (Note 17).





During the year ended 31 December 2010, the Company recorded a provision for write-down of mineral property costs of $405,000 related to the Saramiriza Properties (Note 16).





During the three month period ended 31 March 2011, the Company recorded a provision for write-down of mineral property costs of $430,000 (31 March 2011 - $Nil) (Note 16).





The Company has not conducted exploration activities during the three months period ended 31 March 2011 and 2010 on this property.





Seabridge Gold Claims





Effective 2 December 2009, the Company entered into a written Letter of Intent with Seabridge Gold Inc. (“Seabridge”) for the exclusive option to acquire a 100% interest in certain mining claims and leasehold interests in Nevada (the “Seabridge Claims”).  T he Company had until 15 March 2010 to conduct its due diligence (completed) and then, to proceed to enter into a more formal option agreement with Seabridge. Until then, the Letter of Intent remains binding between the parties (Note 18).





Under the terms of the Letter of Intent, in order to exercise the Seabridge Claims, the Company, upon signing of the Letter of Intent, must pay Seabridge $200,000 (paid), which will be credited against the $1,000,000 payable as defined below.





Upon completion of the transfer of title to the Seabridge Claims scheduled for 31 March 2010 (the “Closing Date”) or as soon as possible thereafter, the Company must:





a.Pay $1,000,000 ($200,000 paid upon signing the Letter of Intent and $25,000 paid on 26 August 2010);
 b. Issue 1,000,000 restricted common shares of the Company;





F - 14
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011





c. Issue a secured promissory note  in the principal amount of $1,000,000 bearing interest at 8% per annum, payable in full on or before the first anniversary of the Closing Date and secured by the Seabridge Claims; and


d. Issue a transferable convertible secured debenture in the principal amount of $1,000,000 maturing on the second anniversary of the Closing Date and bearing interest at a rate of 8% per year, payable quarterly, with principal and accrued interest convertible by Seabridge within 30 days of maturity into one share of common stock at $1.00 per share, redeemable in full, not in part, by the Company at any time upon payment of 125% of the principal and accrued interest outstanding at the time of security redemption.





Further, under the terms of the Letter of Intent, the Company must pay $1,000,000 and issue 2,000,000 restricted common shares, which will be held in escrow and released 36 months following issuance on or before 30 April 2010.





If the payment of $1,000,000 and the issuance of 2,000,000 restricted common shares of the Company, required on or before 30 April 2010, is not completed by 1 May 2010, the Company will then have to transfer all the Seabridge Claims back to Seabridge.





On 1 April 2010, the Company entered into an asset purchase agreement with Seabridge (the “Seabridge Agreement”). This Seabridge Agreement replaces the Letter of Intent. The completion was expected to close on 20 May 2010.  On 13 July 2010, the Company entered into an amending asset purchase agreement with Seabridge (the “Seabridge Amendment Agreement”) to the Seabridge Agreement dated 1 April 2010. Pursuant to the Seabridge Amendment Agreement, the Company agreed to pay Seabridge $302,260 (paid) for Bureau of Land Management fees and to reimburse Seabridge for all costs of maintaining the mineral properties until the closing date of the Seabridge Agreement.  The transaction was scheduled to close on or before 30 September 2010.





During the year ended 31 December 2010, the Company announced that it entered into a mutual agreement to terminate with Seabridge and would allocate its resources exclusively to pursue the exploration and development of its property interests in the Peruvian Gold Sands.





During the year ended 31 December 2010, the Company recorded a provision for write-down of mineral property costs of $527,260 related to the Seabridge Gold Claims (Note 16).





The Company has not conducted exploration activities during the three months period ended 31 March 2011 and 2010 on this property.





Atena Gold Project





On 12 December 2007, the Company entered into an assignment agreement (the “Atena Agreement”) to acquire the right to explore and option to purchase the 3,676 hectare Atena Gold Project located in the Salta Province of Argentina.   Pursuant to the Atena Agreement, the Company was required to issue 500,000 common shares (issued and valued at $0.70 per common share) and pay $60,000 (paid). The Company could have acquired 100% of the option if it incurred a minimum of $3,740,000 in work commitment expenditures on the property and issue 7,000,000 common shares according to the following schedule (Notes 11 and 16):







F - 15
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011







a. $240,000 in expenditures (incurred) plus a further issuance of 1,000,000 common shares (issued and valued at $1.59
 per common share) on or before 15 March 2008;
 b. a further $500,000 in expenditures plus a further issuance of 2,000,000 common  shares on or before 15 March 2009
 (issued and valued at $0.73 per common share);
 c. a further $1,000,000 in expenditures plus a further issuance of 4,000,000 common shares on or before 15 March 2010; and
 d. a further $2,000,000 in expenditures on or before 15 March 2011.





The Company entered into an amending agreement dated 5 May 2009 (the “Atena Amendment”) with Proyectos Mineros S.A. (“PMSA”).  Under the Atena Amendment, the $500,000 in expenditures originally required to be made by the Company on the Atena Gold Project property by 15 March 2009 was waived upon the issuance of the 2,000,000 common shares (issued) of the Company as required under the Atena Agreement. The option is subject to a 1% net smelter returns royalty.





During the year ended 31 December 2009, the Company announced that it was terminating its exploration program on the Atena Gold Project and would allocate its resources exclusively to pursue the exploration and development of their property interests in Northeastern Peru, the Peruvian Agreement.





During the year ended 31 December 2009, the Company recorded a provision for write-down of mineral property costs of $3,530,260 related to the Atena property (Note 16).




Expenditures related to the Atena Gold Project for the three month period ended 31 Mach 2011 consist of business development and project generation of $Nil (31 March 2010 - $Nil, 31 March 2009 - $Nil, cumulative - $108), camp costs and field supplies of $Nil (31 March 2010 - $Nil, 31 March 2009 - $7,559, cumulative - $57,011), geochemical of $Nil (31 March 2010 - $Nil, 31 March 2009 - $Nil, cumulative - $52,621), geology and engineering of $Nil (31 March 2010 - $Nil, 31 March 2009 - $2,639, cumulative - $8,123), geophysics of $Nil (31 March 2010 - $Nil, 31 March 2009 - $6,680, cumulative - $8,291), mapping $Nil (31 March 2010 - $Nil, 31 March 2009 - $29,260, cumulative - $29,260), taxes and permitting of $Nil (31 March 2010 - $Nil, 31 March 2009 - $143, cumulative - $23,294), transportation and fuel of $Nil (31 March 2010 - $Nil, 31 March 2009 - $9,997, cumulative - $112,684), trenching of $Nil (31 March 2010 - $Nil, 31 March 2009 - $9,845, cumulative - $22,139), and wages, consulting and management fees of $Nil (31 March 2010 - $9,265, 31 March 2009 - $Nil, cumulative - $123,874).
  Cerro Amarillo Property





On 8 January 2008, the Company entered into an assignment agreement with  PMSA.  Under the assignment agreement,  PMSA assigned to the Company PMSA’s right to explore and option to purchase a 100% interest in Cerro Amarillo Property located in the Province of Mendoza, Argentina.  Pursuant to the terms of the assignment agreement, the Company issued 300,000 common shares (issued and valued at $0.70 per common share) and pay $10,000 (paid).  The Company could have acquired a 100% of the option if it incurred a minimum of $450,000 in work commitment expenditures on the property and issue 2,100,000 common shares according to the following schedule (Notes 11 and 16):




a. $200,000 in expenditures plus a further issuance of 300,000 common shares on or before 8 January 2009
 (issued and valued at $0.73 per common share);
 b. a further $250,000 in expenditures plus a further issuance of 600,000 common shares on or before 8 January 2010;
 c. a further issuance of 600,000 common shares on or before 8 January 2011; and
 d. a further issuance of 600,000 common shares on or before 8 January 2012.





The Company entered into an amending agreement dated 5 May 2009 (the “Cerro Amarillo Amendment”) with PMSA.  Under the Cerro Amarillo Amendment, the $200,000 in expenditures originally required to be made by the Company on the Cerro Amarillo property by 8 January 2009 was waived upon the issuance of the 300,000 common shares (issued and valued at $0.73 per common share) of the Company as required under the Cerro Amarillo Agreement.





To exercise the option the Company was required to issue a further 3,000,000 common shares.  The option was subject to a 1% net smelter returns royalty.







F - 16
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011







The Company was also responsible for certain payments under the agreement between the underlying titleholder of the mineral property rights and  PMSA (the “Cerro Amarillo Agreement”).  In order for the Company to keep its interest in good standing and to exercise the option to acquire a 100% interest in the Cerro Amarillo property, the Company had to make the following payments to the underlying titleholder and incur a minimum of $250,000 in work commitment expenditures on the property, as set forth in the Cerro Amarillo Agreement:





a. Pay $20,000 by 28 February 2008 (paid);
 b. Pay additional $40,000 by 1 June 2008 (paid);
 c. Pay additional $50,000 by 1 December 2008 (paid $25,000; $25,000 accrued as at 31 December 2009);
 d. Pay additional $60,000 by 1 June 2009 (accrued as at 31 December 2009);
 e. Pay additional $100,000 by 1 December 2009;
 f. Pay additional $150,000 by 1 December 2010;
 g. Pay additional $200,000 by 1 December 2011;
 h. Pay additional $250,000 by 1 June 2012;
 i. Incur $50,000 in exploration expenditures on or before 1 December 2008 (incurred); and
 j. Incur additional $200,000 in exploration expenditures on or before 1 December 2009 (incurred; $125,070 included in
 accounts payable as at 31 December 2009).





During the year ended 31 December 2009, the Company recorded a provision for write-down of mineral property costs of $734,070 related to the Cerro Amarillo property (Note 16).





During the year ended 31 December 2010 the Company recorded a recovery of mineral property costs of $210,070 related to the Cerro Amarillo property (Note 16).




Expenditures related to the Cerro Amarillo Property for the three month period ended 31 March 2011 consist of camp costs and field supplies of $Nil (31 March 2010 - $Nil, 31 March 2009 - $Nil, cumulative - $7,589), geochemical of $Nil (31 March 2010 - $Nil, 31 March 2009 - $Nil, cumulative - $1,903), geology and engineering of $Nil (31 March 2010 - $Nil, 31 March 2009 - $Nil, cumulative - $345), taxes and permitting of $Nil (31 March 2010 - $Nil, 31 March 2009 - $Nil, cumulative - $12,973), transportation and fuel of $Nil (31 March 2010 - $Nil, 31 March 2009 - $Nil, cumulative -$35,544), and wages, consulting and management fees of $Nil (31 March 2010 - $Nil, 31 March 2009 - $Nil, cumulative - $66,576).
  Amira, Amira Norte and Esparta II





On 17 March 2008, the Company entered into an assignment agreement with PMSA (the “Amira Agreement”), a company related to the Company by way of a director and shareholder in common. Under the assignment agreement,  PMSA assigned to the Company PMSA’s right to explore and option to purchase a 90% interest in three mining properties referred to as “Amira”, “Amira Norte” and “Esparta II” (collectively, the “Properties”), which are located in the Province of Salta, Argentina. In order for the Company to keep its interest in good standing and to exercise the option to acquire a 90% interest in the Properties, the Company had to make the following payments to the underlying titleholder, as set forth in the Amira Agreement:





a.     $75,000 by 19 January 2009;


b.     a further $150,000 by 19 January 2010;


c.     a further $200,000 by 19 January 2011; and


d.     a further $1,000,000 by 19 January 2012, by means of which final payment the Option to acquire a 90% interest


in the Properties will have been automatically exercised.





The Company entered into an amending  assignment agreement dated 5 May 2009 (the “Amira Amendment”)  with the owner of the Properties, whereby the payment originally due on 19 January 2009 under the Amira Agreement was due as follows:





a.  $25,000 on or by the end on 30 June 2009 (accrued as at 31 December 2009); and


b. $50,000 on or before by the end of 30 September 2009 (accrued as at 31 December 2009).









F - 17
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011








During the year ended 31 December 2009, the Company announced that it was terminating its exploration program on the Properties and would allocate its resources exclusively to pursue the exploration and development of its property interests in Northeastern Peru, the Peruvian Agreement.





During the year ended 31 December 2009, the Company recorded a provision for write-down of mineral property costs of $75,000 related to the Amira Agreement (Note 16).





Included in accounts payable and accrued liabilities at 31 March 2011 is $75,000 (31 December 2010 - $75,000) related to a legal claims for the Amira Property (Notes 8 and 19).




Expenditures related to the Amira, Amira Norte and Esparta II Properties for the three month period ended 31 March 2011 consist of business development and project generation of $Nil (31 March 2010 - $Nil, 31 March 2009 - $Nil, cumulative - $18,163), camp costs and field supplies of $Nil (31 March 2010 - $Nil, 31 March 2009 - $Nil, cumulative - $13,065), geochemical of $Nil (31 March 2010 - $Nil, 31 March 2009 - $Nil, cumulative - $2,073) property assessment of $Nil (31 March 2010 - $Nil, 31 March 2009 - $Nil, cumulative - $6,428), transportation and fuel of $Nil (31 March 2010 - $Nil, 31 March 2009 - $208, cumulative - $74,577), and wages, consulting and management fees of $Nil (31 March 2010 - $Nil, 31 March 2009  - $Nil, cumulative - $100,036).





8. Accounts Payable and Accrued Liabilities





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





Included in accounts payable and accrued liabilities at 31 March 2011 is $45,000 and $20,000 (31 December 2010 - $45,000 and $20,000) related to settlement of potential legal claims on incidents arising from the mineral property interests and the related legal fees, respectively.





Included in accounts payable and accrued liabilities at 31 March 2011 is $75,000 (31 December 2010 - $75,000) related to a legal claim for the Amira Property (Notes 7 and 19).





Included in accounts payable and accrued liabilities at 31 March 2011 is $27,070 (31 December 2010 - $27,070) related to a legal claim from a vendor of the Company (Notes 19 and 21).





9. Due to Related Parties





As at 31March 2011, the amount due to related parties consists of $17,306 (31 December 2010 - $323,065) payable to directors and former directors of the Company and $29,000 (31 December 2010 - $Nil) payable to companies controlled by shareholders and directors of Maranon.  This balance is non-interest bearing, unsecured, and has no fixed terms of repayment.





On 13 October 2010, the Company entered into loan agreements with two directors of the Company for $20,000 cash each.  The principal balances bear interest at a rate of 10% per annum, are unsecured and have no fixed terms of repayment.  On 24 January 2011, the Company issued 410,000 units valued at $41,000 to settle the principal and interest amount of $40,000 and $1,000, respectively. The balance as at 31 March 2011 consists of principal of $Nil (31 December 2010 – $40,000) and accrued interest of $Nil (31 December 2010 – $1,000) (Notes 11 and 16).





On 13 October 2010, the Company entered into loan agreements with a director and officer of the Company for $20,000 cash.  The loan is non-interest bearing, unsecured and has no fixed terms of repayment.  During the three month period ended 31 March 2011, the Company accrued interest expense of $Nil (31 March 2010 – $Nil). The balance as at 31 March 2011 consists of principal of $20,000 (31 December 2010 – $20,000) and accrued interest of $Nil (31 December 2010 – $Nil).









F - 18
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011







On 24 January 2011, the Company issued 1,514,500 units valued at $151,450 to settle amounts due to related parties of $151,450 (Notes 11 and 16).





10. Related Party Transactions





During the three month period ended 31 March 2011, the Company paid or accrued management and consulting fees of $69,000 (31 March 2010 – 111,000, 31 March 2009 - $74,076) to directors and officers of the Company and companies controlled by directors and officer.





During the three month period ended 31 March 2010, the Company paid or accrued professional fees and mineral exploration expenditures of $9,834 (31 March 2010 - $Nil) to an officer and a company controlled by the officer of the Company.





During the three month period ended 31 March 2010, director and shareholder of the Company made contributions to capital for management fees and rent of $Nil (31 March 2010 - $Nil, 31 March 2009 - $Nil, cumulative - $12,000) and $Nil (31 March 2010 - $Nil, 31 March 2009 - $Nil, cumulative - $3,000) respectively.  This amount has been recorded as an increase in expenditures and an increase in additional paid-in capital (Note 16).





11. Capital Stock





Authorized





The total authorized capital consists of:





·
300,000,000 of common shares with par value of $0.001


·
50,000,000 of preferred shares with par value of $0.001





Issued and outstanding





As at 31 March 2011, the total issued and outstanding capital stock is 187,517,618 common shares with a par value of $0.001 per common share.





On 31 March 2011, a total of 5,000,000 previously outstanding share purchase warrants were cancelled.





On 22 March 2011, the Company issued 6,410,000 units at a price of $0.10 per unit for total proceeds of $641,000.  Each unit consists of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at the price of $0.10 for a period of eight months from the date of issuance. As at 31 March 2011, all share purchase warrants in this series remain outstanding.





On 10 February 2011, the Company issued 16,160,000 units at a price of $0.10 per unit for total proceeds of $1,616,000.  Each unit consists of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at the price of $0.10 for a period of eight months from the date of issuance. As at 31 March 2011, all share purchase warrants in this series remain outstanding.









F - 19
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011








On 27 January 2011, the Company issued 1,000,000 common shares valued at $0.18 per common share pursuant to the Minera Saramiriza Agreement (Note 7).





On 24 January 2011, the Company issued 67,500,000 units in relation to the settlement of a portion of the Convertible Promissory Note Agreement of the Company in exchange for the conversion of $6,750,000 in debt at a conversion price of $0.10 per unit. Each unit consists of one share of common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase one additional common share at the price of $0.10 for a period of eight months from the date of issuance. As at 31 March 2011, all share purchase warrants in this series remain outstanding (Notes 13 and 16).





On 24 January 2011, the Company issued 3,865,000 units in relation to the settlement of the Second Loan Agreement and the Third Loan Agreement of the Company in exchange for the conversion of $386,500 in debt at a conversion price of $0.10 per unit. Each unit consists of one share of common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase one additional common share at the price of $0.10 for a period of eight months from the date of issuance. As at 31 March 2011, 1,365,000 share purchase warrants in this series remain outstanding (Notes 14 and 16).





On 24 January 2011, the Company issued 2,500,000 units in relation to the initial 33% option of the Minera Saramiriza Agreement of the Company in exchange for the conversion of $250,000 for an option payment at a conversion price of $0.10 per unit. Each unit consists of one share of common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase one additional common share at the price of $0.10 for a period of eight months from the date of issuance. As at 31 March 2011, no share purchase warrants in this series remain outstanding (Notes 7 and 16).





On 24 January 2011, the Company issued 1,924,500 units related to amounts due to related parties of the Company in exchange for the conversion of $192,450 in debt at a conversion price of $0.10 per unit. Each unit consists of one share of common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase one additional common share at the price of $0.10 for a period of eight months from the date of issuance. As at 31 March 2011, all share purchase warrants in this series remain outstanding (Notes 9 and 16).





On 29 September 2010, the Company issued 5,141,421 units at a price of $0.65 per unit for total proceeds of $3,155,892, net of issue cost of $186,025. Each unit consists of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at the price of $0.80 up to 29 September 2011 (extended to 29 September 2012) commencing 29 March 2011. As at 31 March 2011, all share purchase warrants in this series remain outstanding.





On 29 September 2010, the Company issued 208,676 agent compensation warrants for services rendered by a private placement agent.  Each share purchase warrant entitles the holder to purchase one common share at a price of $0.80 up to 29 September 2011 (extended to 29 September 2012), commencing 29 March 2011. As at 31 March 2011, all share purchase warrants in this series remain outstanding (Note 16).





On 3 August 2010, the Company issued 15,000 common shares at a price of $0.70 per share for total proceeds of $10,500 upon the exercise of previously outstanding share purchase warrants. As at 31 March 2011, 3,668,927 share purchase warrants in this series remain outstanding.









F - 20
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011








On 7 June 2010, the Company issued 54,285 common shares at a price of $0.70 per share for total proceeds of $38,000 upon the exercise of previously outstanding share purchase warrants. As at 31 March 2011, 3,668,927 share purchase warrants in this series remain outstanding.





On 17 April 2010, a total of 200,000 previously outstanding share purchase warrants expired.





On 13 April 2010, the Company issued 4,000,000 common shares valued at $1.05 per common share pursuant to the Minera Maranon Agreement (Notes 7 and 16).





On 19 March 2010, the Company issued 500,000 common shares valued at $0.81 per common share pursuant to the Minera Saramiriza Agreement (Notes 7 and 16).





On 16 March 2010, the Company issued 391,427 common shares at a price of $0.70 per share for total proceeds of $273,999 upon the exercise of previously outstanding share purchase warrants. As at 31 March 2011, 3,668,927 share purchase warrants in this series remain outstanding.





On 1 December 2009, the Company issued 7,533,462 units at a price of $0.65 per unit for total proceeds of $4,686,496, net of issue costs of $210,254. Each unit consist of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at the price of $1.00 up to 1 December 2010 (extended to 1 December 2011), commencing 1 June 2010. As at 31 March 2011, all share purchase warrants in this series remain outstanding.





On 1 December 2009, the Company issued 315,775 agent compensation warrants for services rendered by a private placement agent.  Each share purchase warrant entitles the holder to purchase one common share at a price of $1.00 up to 1 December 2010 (extended to 1 December 2011), commencing 1 June 2010 (Note 16). As at 31 March 2011, all share purchase warrants in this series remain outstanding.





On 2 November 2009, the Company issued 2,500,000 common shares valued at $1.18 per common share pursuant to the Peruvian Agreement (Notes 7 and 16).





On 2 September 2009, the Company issued 923,428 units at a price of $0.35 per unit for total proceeds of $323,200. Each unit consist of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at the price of $0.70 up to 2 September 2011 (extended to 2 September 2012), commencing 2 March 2010. As at 31 March 2011, all share purchase warrants in this series remain outstanding.





On 14 August 2009, a total of 5,007,300 previously outstanding share purchase warrants expired.





On 14 August 2009, a total of 350,511 previously outstanding agent compensation warrants expired.





On 9 July 2009, the Company issued 4,129,639 units at a price of $0.35 per unit for total proceeds of $1,445,373. Each unit consist of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at the price of $0.70 up to 9 July 2011 (extended to 9 July 2012), commencing 9 January 2010. As at 31 March 2011, 3,668,927 share purchase warrants in this series remain outstanding.









F - 21
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011







On 29 June 2009, the Company issued 2,000,000 common shares valued at $0.65 per common share pursuant to the Peruvian Agreement (Notes 7 and 16).





On 2 June 2009, the Company issued 2,000,000 common shares valued at $0.73 per common share pursuant to the Atena Agreement (Notes 7 and 16).





On 2 June 2009, the Company issued 300,000 common shares valued at $0.73 per common share pursuant to the Cerro Amarillo Agreement (Notes 7 and 16).





On 17 April 2009, the Company issued 200,000 units at a price of $0.80 per unit for proceeds of $160,000. Each unit consists of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at a price of $0.70 up to 17 April 2010, commencing 17 October 2009.  As at 31 March 2011, none of the share purchase warrants in this series remain outstanding.





On 7 April 2009, a total of 1,009,211 previously outstanding share purchase warrants were cancelled.




On 7 April 2009, a total of 70,645 previously outstanding agent compensation warrants were cancelled.





Share Purchase Warrants





The following share purchase warrants were outstanding at 31 March 2011:





Exerciseprice


Number

of warrants


Remaining

contractual life

(years)$Warrants


0.10



70,789,500



0.47Warrants


0.10



16,160,000



0.53Warrants


0.10



6,410,000



0.64Agent compensation warrants


1.00



315,775



0.67Warrants


1.00



7,533,462



0.67Warrants


0.70



3,668,927



1.27Warrants


0.70



923,428



1.42Agent compensation warrants


0.80



208,676



1.50Warrants


0.80



5,141,421



1.50111,151,189












F - 22
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011







The following is a summary of warrant activities during the year ended 31 December 2010 and the three month period ended 31 March 2011:





Number of warrants


Weighted average exercise price$Outstanding and exercisable at 1 January 2010


13,102,304



0.88Granted


5,350,097



0.80Exercised


(460,712
)


0.70Cancelled


-



-Expired


(200,000
)


0.70Outstanding and exercisable at 31 December 2010


17,791,689



0.86Weighted average fair value of warrants granted during the year






0.03Outstanding and exercisable at 1 January 2011


17,791,689



0.86Granted


98,359,500



0.10Exercised


-



-Cancelled


(5,000,000
)


0.10Expired


-



-Outstanding and exercisable at 31 March 2011


111,151,189



0.22Weighted average fair value of warrants granted during the period






0.11





The weighted average grant date fair value of warrants issued during the three month period ended 31 March 2011, amounted to $0.11 per warrant (31 December 2010 - $0.03). The fair value of each warrant granted was determined using the Black-Scholes warrant pricing model and the following weighted average assumptions:





2011


2010Risk free interest rate


0.21
%


0.27
%Expected life

0.67 years



1.00 yearsAnnualized volatility


154.11
%


101.18
%Expected dividends


-



-












F - 23
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011







Modification of Warrants





On 15 November 2010, the Company extended the expiration date of the 17,791,689 outstanding  agent compensation warrants and share purchase warrants for one additional year.  Pursuant to accounting guidance regarding equity-based payments to non-employees, the Company evaluated the value of the warrants before and after the modification to determine the incremental change in the value of the warrants.





Issuance date
Exercise

Price
Number of

warrants
Original

Expiration Date
Extended

Expiration Date$1 December 2009
1.00
7,849,237
1 December 2010
1 December 20119 July 2009
0.70
3,668,927
9 July 2011
9 July 20122 September 2009
0.70
923,428
2 September 2011
2 September 201229 September 2010
0.80
5,350,097
29 September 2011
29 September 2012





The fair value of the warrants as of 15 November 2010 before modification of the terms was calculated to be $267,525. The following assumptions were used to calculate the fair value of the warrants:





Risk free interest rate


0.17
%Expected life

0.46 yearsAnnualized volatility


155.63
%Expected dividends


-





The fair value of the warrants as of 15 November 2010, after modification of the terms, was calculated to be $981,025.  The following assumptions were used to calculate the fair value of the warrants:





Risk free interest rate


0.40
%Expected life

1.46 yearsAnnualized volatility


112.83
%Expected dividends


-





The incremental change in the value of the warrants is $981,025 less $267,525 or $713,500, which was recorded to warrant expense during the year ended 31 December 2010.










F - 24
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011







Stock Options





The following incentive stock options were outstanding at 31 March 2011:





Exercise

price


Number

of options


Remaining

contractual life

(years)$Options


1.00



290,000



6.85Options


0.70



460,000



8.14Options


1.10



260,000



8.82Options


0.72



60,000



9.271,070,000





The following is a summary of stock option activities during the year ended 31 December 2010 and the three month period ended 31 March 2011:





Number of

options


Weighted

average

exercise

price$Outstanding and exercisable at 1 January 2010


6,075,000



0.85Granted


3,300,000



1.08Exercised


-



-Cancelled


(4,255,000
)


0.87Outstanding and exercisable at 31 December 2010


5,120,000



0.98Weighted average fair value of options granted/vested  during the year






1.00Outstanding and exercisable at 1 January 2011


5,120,000



0.98Granted


-



-Exercised


-



-Cancelled


(4,050,000
)


1.01Outstanding and exercisable at 31 March 2011


1,070,000



0.88Weighted average fair value of options granted/vested  during the period






0.16










F - 25
 Table of Contents






Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011







Share Subscriptions Received in Advance





Share subscriptions received in advance consists of $Nil (31 December 2010 - $240,000) cash received by the Company for Nil common shares (31 December 2010 – 2,400,000) that have not yet been issued as at 31 March 2011.





12. Stock-Based Compensation





During the year ended 31 December 2010, the Company granted 3,090,000 stock options to employees, directors and consultants of the Company, entitling the holders to purchase common shares of the Company for proceeds of $1.10 per common share expiring 22 January 2020, of which 2,490,000 were granted to employees and 600,000 were granted to non-employees of the Company.  The fair value of the portion of the options which vested in the three month period ended 31 March 2011, estimated using Black-Scholes model, was $164,363 (31 March 2010 - $572,172).  This amount has been expensed as stock-based compensation.





During the year ended 31 December 2010, the Company granted 210,000 stock options to employees directors and consultants of the Company, entitling the holders to purchase common shares of the Company for proceeds of $0.72 per common share expiring 7 July 2020, of which Nil were granted to employees and 210,000 were granted to non-employees of the Company.  The fair value of the portion of the options which vested in the three month period ended 31 March 2011, estimated using Black-Scholes model, was $12,683 (31 March 2010 - $Nil). This amount has been expensed as stock-based compensation.




During the year ended 31 December 2009, the Company granted 5,440,000 stock options to employees, directors and consultants of the Company entitling the holders to purchase common shares of the Company for proceeds of $0.70 per common share expiring 20 May 2019 of which 3,240,000 were granted to employees and 2,200,000 were granted to non-employees of the Company.  The fair value of the portion of the options which vested in the year, estimated using Black-Scholes model, was $Nil (31 March 2010 - $239,866). This amount has been expensed as stock-based compensation.


A total of 4,050,000 of the previously granted outstanding stock options of the Company were cancelled during the three month period ended 31 March 2011 (31 December 2010 – 4,255,000) (Note 11).





The fair value of each option was estimated on the date of grant using Black-Scholes option pricing model. The assumptions about stock-price volatility have been based exclusively on the implied volatilities of publicly traded options to buy the Company’s stock with contractual terms closest to the expected life of options granted to employees, directors or consultants.





The following assumptions were used for the Black-Scholes valuation of stock options granted/vested:





2011


2010Risk free interest rate


3.21
%


3.50
%Expected life

9.11 years


9.71 yearsAnnualized volatility


119.50
%


117.62
%Expected dividends


-



-












F - 26
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011







13.
Convertible Promissory Note





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





During the three month period ended 31 March 2011, the Company accrued interest of $4,105,974 (31 March 2010 - $Nil) of which $4,037,854 (31 March 2010 - $Nil) is related to amortization of debt discount.





14.
Loans Payable





On 1 April 2010 (the “Execution Date”), the Company entered into a loan agreement (the “Loan Agreement”) with St. Lawrence Alluvial Services and Logistics Corp. for $800,000 cash.  The principal balance bears interest at a rate of 12% per annum, with interest and principal payable 90 days after the Execution Date.  The Company repaid outstanding balance during the year ended 31 December 2010.





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





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





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












F - 27
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011







15. Income Taxes





The Company has losses carried forward for income tax purposes to 31 March 211.  The Company has fully reserved for any benefits of these losses.  The deferred tax consequences of temporary differences in reporting items for consolidated financial statement and income tax purposes are recognized, as appropriate. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period.  Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes.


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





For the three

month

period ended

31 March

2011


For the three

month

period ended

31 March

2010$



$Deferred tax asset attributable to:Current operations


1,758,915



472,107Amortization


(6,758
)


(6,447
)Stock based compensation


(60,196
)


(276,093
)Change in valuation allowance


(1,691,961
)


-Future income tax recovery


-



189,567





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





As at 31

March

2011


As at 31 December

2010

(Audited)$



$Net income tax operating loss carryforward


43,569,777



38,538,946Statutory federal income tax rate


33.63
%


33.63
%Effective income tax rate


0.00
%


0.00
%Future income tax assets (liabilities)Tax loss carryforward


14,651,605



12,959,644Less: Valuation allowance


(14,651,605
)


(12,959,644
)Future income tax assets (liabilities)


-



-











F - 28
 Table of Contents








Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011








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





As at 31 March 2011, the Company has an unused net operating loss carryforward balance of approximately $43,569,777 that is available to offset future taxable income.  This unused net operating loss carryforward balance for income tax purposes expires between the years 2021 to 2031.





16. Supplemental Disclosures with Respect to Cash Flows





For the

period from

the date of

inception on

6 March

2000 to 31

March 2011

(Unaudited)


For the

three

month

period

ended 31

March

2011


For the

three

month

period

ended31

March

2010


For the

three

month

period

ended 31

March

2009$



$



$



$Cash paid during the period for interest


78,802



-



-



-Cash paid during the period for income taxes


-



-



-



-





During the three month period ended 31 March 2011, director and shareholder of the Company made contributions to capital for management fees and rent of $Nil (31 March 2010 - $Nil, 31 March 2009 - $Nil, cumulative - $12,000) and $Nil (31 March 2010 - $Nil, 31 March 2009 - $Nil, cumulative - $3,000), respectively.  These amounts have been recorded as an increase in expenditures and an increase in additional paid-in capital (Note 10).


During the three month period ended 31 March 2011, the Company recorded a total write-down of mineral property expenditures in the amount of $430,000 related to the Saramiriza Properties (Note 7).





During the three month period ended 31 March 2011, the Company issued 75,789,500 units valued at $7,578,950 to settle mineral property option payment, convertible promissory note, loans payable and due to related parties amounts (Notes 7, 9, 11, 13 and 14).


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





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





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











F - 29
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011







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





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





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





During the year ended 31 December 2009, the Company recorded a total write-down of equipment in the amount of $26,611 (Note 5).





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





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





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





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





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





17. Fair Value of  Financial Instruments





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





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





Level 1:
classification is applied to any asset or liability that has a readily available quoted market price from an active market where there is significant transparency in the executed/quoted price.Level 2:
classification is applied to assets and liabilities that have evaluated prices where the data inputs to these valuations are observable either directly or indirectly, but do not represent quoted market prices from an active market.Level 3:
classification is applied to assets and liabilities when prices are not derived from existing market data and requires us to develop our own assumptions about how market participants would price the asset or liability.











F - 30
 Table of Contents








Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011





As at 31 March 2011, the carrying amounts of cash and cash equivalents, amounts receivables, accounts payable, amounts due to related parties and other liabilities approximated their estimated fair values because of the short maturity of these financial instruments.





The carrying amount of long-term debt and other financing was $304,840. During the year ended 31 December 2010, the Company estimated the fair value of the beneficial conversion feature of the convertible promissory note at inception using both the quoted market price of the Company’s common shares and the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 0.46%, expected life of 1 year, expected volatility of 114% and expected dividends of 0%.  The fair value of the beneficial conversion feature was estimated at $5,862,500, and was recorded as a component of equity, of which $2,100,000 would be a Level 1 fair value and $3,762,500 would be a Level 2 fair value.





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 March 2011, amounts receivable was comprised of Value Added Tax receivable in Peru of $113,401 (31 December 2010 - $103,054) and other receivables of $5,072 (31 December 2010 - $7,656).  As a result, credit risk is considered insignificant.





Currency Risk





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





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





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





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.









F - 31
 Table of Contents





Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011







18. Commitments





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





19. Contingencies





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





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





The Company is unable to predict the outcome of the SEC investigation at this time.  An estimate of the possible loss related to this matter cannot be made and, as a result, no liability has been accrued as at 31March 2011.





b. Included in accounts payable and accrued liabilities at 31 March 2011 is $75,000 (31 December 2010 - $75,000) related to a
 legal claim for the Amira Property (Notes 7 and 8).
  c. In April 2011, the Company received a formal claim from a vendor of the Company for $27,070 plus interest and court costs related to a lease agreement and services rendered to the Company.  As at 31 March 2011, a total of $27,070 (31 December 2010 - $27,070) was included in accounts payable and accrued liabilities of the Company (Notes 8 and 21).





20. Business Acquisition





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









F - 32
 Table of Contents








Goldsands Development Company


(formerly Constitution Mining Corp.)


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


31 March 2011







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


21. Subsequent Event





Subsequent to the three month period ended 31 March 2011 to the date the consolidated financial statements were available to be issued on 13 May 2011, the following event occurred:





a. In April 2011, the Company received a claim from a vendor of the Company for $27,070 plus interest and court costs related to a lease agreement and services rendered to the Company.  As at 31 March 2011, a total of $27,070 was included in accounts payable and accrued liabilities of the Company (Notes 8 and 19).















F - 33
 Table of Contents





Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.




This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may,” “should,” “could,” “will,” “plan,” “future,” “continue,” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements.  These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control.  Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements.  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  A wide variety of factor could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs.  There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate.




Important factors that may cause the actual results to differ from the forward-looking statements, projections or other expectations include, but are not limited to, the following:




●
potential or pending investigations, proceedings or litigation that involves or affects us;




●
risk that we will not be able to remediate identified material weaknesses in our internal control over financial reporting and disclosure controls and procedures;




●
risks related to failure to obtain adequate financing on a timely basis and on acceptable terms for our planned exploration and development projects;




●
risk that we fail to fulfill the payment obligations set forth in the agreement we entered into with Temasek Investments Inc. ("Temasek"), a company incorporated under the laws of Panama, under which we acquired three separate options, each providing for the acquisition of an approximately one-third interest in certain mineral rights to certain properties in Peru that abut the other property interests we acquire, which could result in the loss of our right to exercise the options to acquire the mineral and mining rights underlying these properties;




●
risk that we cannot attract, retain and motivate qualified personnel, particularly employees, consultants and contractors for our operations in Peru;




●
risks and uncertainties relating to the interpretation of drill results, the geology, grade and continuity of mineral deposits;




●
results of initial feasibility, pre-feasibility and feasibility studies, and the possibility that future exploration, development or mining results will not be consistent with our expectations;




●
mining and development risks, including risks related to accidents, equipment breakdowns, labor disputes or other unanticipated difficulties with or interruptions in production;




●
the potential for delays in exploration or development activities or the completion of feasibility studies;




●
risks related to the inherent uncertainty of production and cost estimates and the potential for unexpected costs and expenses;




●
risks related to commodity price fluctuations;




●
the uncertainty of profitability based upon our history of losses;




●
risks related to environmental regulation and liability;




●
risks that the amounts reserved or allocated for environmental compliance, reclamation, post-closure control measures, monitoring and on-going maintenance may not be sufficient to cover such costs;









- 4 -
 Table of Contents







●
risks related to tax assessments;




●
political and regulatory risks associated with mining development and exploration; and




●
other risks and uncertainties related to our prospects, properties and business strategy.




Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report.  Except as required by law, we do not undertake to update or revise any of the forward-looking statements to conform these statements to actual results, whether as a result of new information, future events or otherwise.




As used in this Quarterly Report, the terms “Goldsands Development,” the “Company,” “we,” “us,” or “our” refer to Goldsands Development Company and our subsidiaries, unless otherwise indicated.




Overview




We were incorporated in the state of Nevada under the name Crafty Admiral Enterprises, Ltd. on March 6, 2000.  Our original business plan was to sell classic auto parts to classic auto owners worldwide through an Internet site and online store; however, we were unsuccessful in implementing the online store and were unable to afford the cost of purchasing, warehousing and shipping the initial inventory required to get the business started.  As a result, we ceased operations in approximately July 2002.




During our fiscal year ended December 31, 2006, we reorganized our operations to pursue the exploration, development, acquisition and operation of oil and gas properties.  On June 27, 2006, we acquired a leasehold interest in a mineral, oil and gas property located in St. Francis County, Arkansas for a cash payment of $642,006, pursuant to an oil and gas agreement we entered into on April 29, 2006 (the “Tombaugh Lease”).  Shortly after acquiring the Tombaugh Lease, we suspended our exploration efforts on the property covered by the Tombaugh Lease in order to pursue business opportunities developing nickel deposits in Finland, Norway and Western Russia.  On January 18, 2008, we assigned all of our right, title and interest in and to the Tombaugh Lease to Fayetteville Oil and Gas, Inc., which agreed to assume all of our outstanding payment obligations on the Tombaugh Lease as consideration for the assignment.  On March 9, 2007, we changed our name to better reflect our business to “Nordic Nickel Ltd.” pursuant to a parent/subsidiary merger with our wholly-owned non-operating subsidiary, Nordic Nickel Ltd., which was established for the purpose of giving effect to this name change.  We were not successful pursuing business opportunities developing nickel deposits in Finland, Norway and Western Russia and again sought to reorganize our operations in November 2007.




In November 2007, we reorganized our operations and changed our name to “Constitution Mining Corp.” to better reflect our current focus, which is the acquisition, exploration, and potential development of mining properties.  Since November 2007, we have entered into agreements to secure options to acquire the mineral and mining rights underlying properties located in the Salta and Mendoza provinces of Argentina (the “Argentinean Properties”) and in northeastern Peru.  In 2009, we determined that it was in our best interest to dispose of our interests in the Argentinean Properties and we are now pursuing exploration and development exclusively on our properties in Peru.




On October 21, 2009, we completed a reincorporation merger from the State of Nevada to the State of Delaware.









- 5 -
 Table of Contents







On February 24, 2011, we filed a Certificate of Ownership and Merger with the Secretary of State of Delaware to effectuate a merger whereby we merged with our wholly-owned subsidiary, Goldsands Development Company, through a parent/subsidiary merger, with us as the surviving corporation. This merger, which became effective at 11:59 p.m. on March 31, 2011 (the “Effective Time”) is pursuant to Section 253 of the General Corporation Law of Delaware. Shareholder approval for this merger was not required under Section 253 of the General Corporation Law of Delaware. Upon the Effective Time of this merger, our name changed to “Goldsands Development Company”. We decided to change our corporate name in order to reflect management’s decision during the first quarter of 2011 to expand our business plan in order to pursue opportunities to consult on development projects in the same approximate geographical area as our property interest in Peru. As a result of our operations in Peru, we have gained significant experience and knowledge as to the local processes and procedures involved in the planning of development projects in Peru and we intend to leverage and market this expertise to other companies seeking to engage in development projects in Peru.  It is our belief that changing our corporate name will minimize public perception in marketing this expertise that we are strictly a company engaged in mineral exploration.




We are considered an exploration or exploratory stage company because we are involved in the examination and investigation of land that we believe may contain valuable minerals, for the purpose of discovering the presence of ore, if any, and its extent.  There is no assurance that a commercially viable mineral deposit exists on any of the properties underlying our mineral property interests, and a great deal of further exploration will be required before a final evaluation as to the economic and legal feasibility for our future exploration is determined.  We have no known reserves of any type of mineral.  To date, we have not discovered an economically viable mineral deposit on any of the properties underlying our mineral property interests, and there is no assurance that we will discover one.  If we cannot acquire or locate mineral deposits, or if it is not economical to recover any mineral deposits that we do find, our business and operations will be materially and adversely affected.





The Peru Property




Our property interests located in Peru are in the exploration stage and we refer to these properties as the "Peru Property."  These properties are without known reserves and the proposed plan of exploration detailed below is exploratory in nature.  These properties are described below.




We entered into a Mineral Right Option Agreement with Temasek Investments Inc. (“Temasek”), a company incorporated under the laws of Panama, on September 29, 2008 (the “Effective Date”), as amended and supplemented by Amendment No. 1, dated May 12, 2009 (“Amendment No. 1”), Amendment No. 2, dated October 29, 2009 (“Amendment No. 2”), and Amendment No. 3, dated April 8, 2010 (“Amendment No. 3” and collectively, the “Option Agreement”), in order to acquire four separate options from Temasek, each providing for the acquisition of a twenty-five percent interest in certain mineral rights (the “Mineral Rights”) in certain properties in Peru,  that after each of the options were exercised would result in our acquisition of an aggregate one hundred percent of the Mineral Rights.




A description of the Mineral Rights is set forth below:







Name
Area

(hectares)
Dept.
Province
District
ObservationAixa 2
1000
Loreto
Datem del Marañon
MansericheAlana 10
900
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 11
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 12
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 13
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 14
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 15
800
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 16
800
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANP












- 6 -
 Table of Contents








Alana 17
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 18
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 19
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 4
900
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 5
700
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 6
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 7
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 8
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 9
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPBianka 5
1000
Loreto
Datem del Marañon
MansericheCastalia 1
1000
Loreto
Datem del Marañon
MansericheCastalia 2
1000
Loreto
Datem del Marañon
MansericheCastalia 3
500
Loreto
Datem del Marañon
MansericheDelfina 1
900
Amazonas
Condorcanqui
Nieva
Partially overlap Zona de Amortiguamiento ANPDelfina 2
900
Amazonas
Condorcanqui
Nieva
Partially overlap Zona de Amortiguamiento ANPDelfina 3
1000
Amazonas
Condorcanqui
Nieva
Partially overlap Zona de Amortiguamiento ANPDelfina 4
700
Amazonas
Condorcanqui
Nieva
Partially overlap Zona de Amortiguamiento ANPDelfina 5
1000
Amazonas
Condorcanqui
Nieva
Partially overlap Zona de Amortiguamiento ANPMika 1
600
Loreto
Datem del Marañon
MansericheMika 10
900
Loreto
Datem del Marañon
Manseriche
Partially overlap Zona de Amortiguamiento ANPMika 2
1000
Loreto
Datem del Marañon
MansericheMika 3
900
Loreto
Datem del Marañon
MansericheMika 4
1000
Loreto
Datem del Marañon
MansericheMika 5
1000
Loreto
Datem del Marañon
MansericheMika 6
1000
Loreto
Datem del Marañon
MansericheMika 7
900
Loreto
Datem del Marañon
MansericheMika 8
1000
Loreto
Datem del Marañon
Manseriche
Partially overlap Zona de Amortiguamiento ANPMika 9
1000
Loreto
Datem del Marañon
MansericheRosalba 1
900
Loreto
Datem del Marañon
MansericheRosalba 2
900
Loreto
Datem del Marañon
MansericheRosalba 3
1000
Loreto
Datem del Marañon
MansericheRosalba 4
1000
Loreto
Datem del Marañon
MansericheRosalba 5
1000
Loreto
Datem del Marañon
Manseriche - Barranca





We exercised the initial twenty-five percent option, which provided for the acquisition of a twenty-five percent interest in the Mineral Rights, by paying Temasek a total of $750,000 and issuing 2,000,000 shares of our common stock to Temasek, on or about October 23, 2008 in accordance with the terms of the Option Agreement.




We exercised the second twenty-five percent option, resulting in our acquisition of an aggregate of a fifty percent interest in the Mineral Rights, by paying Temasek an additional $750,000 and issuing an additional 2,500,000 shares of our common stock to Temasek, on or about November 2, 2009 in accordance with the terms of the Option Agreement.




On April 23, 2010, we announced that we completed the exercise of the third and fourth twenty-five percent options, resulting in our acquisition of an aggregate 100% interest in the Mineral Rights, by fulfilling the following conditions:




·
Payment to Temasek of US$1,000,000;




·
Issuance to Temasek of a total of 6,000,000 shares of our common stock (of which Temasek acknowledged that 2,000,000 shares were previously issued to Temasek in November 2009); and




·
Issuance of a convertible note for US$7,000,000 (the “Convertible Note”) payable to the order and the direction of Temasek.









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On January 24, 2011, $6,300,000 of the principal of the Convertible Note was extinguished and converted into units (the “Units”) using the conversion price of $0.10 per Unit. Each Unit consists of one (1) share of common stock, par value $0.001 per share (“Common Stock”) and one (1) warrant to purchase one (1) share of Common Stock (“Warrant”). Each Warrant is exercisable for a period of eight (8) months from the date of issuance at a price of $0.10 per share.  The $700,000 remaining principal of the Convertible Note outstanding has a term of three years and accrues interest at a rate of 12% per annum. Interest under the Convertible Note is payable annually and the principal is payable upon maturity. Any interest and principal due under the Convertible Note is convertible (at Temasek's option) into units which consist of one (1) share of our common stock and one (1) warrant to purchase one (1) share of our common stock at an exercise price of $1.10 per share.  The conversion price per unit is fixed at $0.80 per unit.




In connection with our acquisition of an aggregate 100% interest in the Mineral Rights, Temasek is entitled to an annual 2.5% net returns royalty related to the Mineral Rights.




The Mineral Rights are owned by Compañía Minera Marañón S.A.C. (“Minera Marañón”).  Bacon Hill Invest Inc. (“Bacon Hill”), a corporation incorporated under the laws of Panama, owns 999 shares of the 1,000 shares of Minera Marañón that are issued and outstanding.  The single remaining share of Minera Marañón by Temasek as nominee and on trust for our exclusive and sole benefit and interest.  Temasek is obligated at all times to exercise all rights in respect of the share of Minera Marañón it holds strictly in accordance with our instructions.  The acquisition of 100% interest in the Mineral Rights occurred through the transfer by Temasek to us of all of the outstanding shares of Bacon Hill.




Expansion of Peru Property




On January 25, 2010 (the “Effective Date”), we entered into a Mineral Rights Option Agreement (the “Option Agreement”) with Temasek.  Pursuant to the Option Agreement, we acquired three separate options from Temasek, each providing for the acquisition of an approximately one-third interest in certain mineral rights (the “Mineral Rights”), in certain properties in Peru that abut the other property interests we own in Peru described above.  Pursuant to the Option Agreement, the exercise of all three options would result in our acquisition of one hundred percent of the Mineral Rights.  The Mineral Rights are currently owned by Minera Saramiriza S.A.C. (“Minera Saramiriza”), a corporation incorporated under the laws of Peru.  Woodburn Investments, Inc. (“Woodburn”), a wholly-owned subsidiary of Temasek, owns 999 shares of the 1,000 shares of Minera Saramiriza that are issued and outstanding.  Temasek owns the single remaining share of Woodburn.  Our acquisition of each thirty-three percent interest in the Mineral Rights is structured to occur through the transfer to us of thirty-three percent of the outstanding shares of Woodburn upon the exercise of each of the three options.




A description of the Mineral Rights is set forth below:




Name
Area (ha)
Department
Province
District
ObservationAixa 1
1000
Loreto
Datem del Marañon
MansericheAlana 1
600
Loreto
Datem del Marañon
Manseriche-Morona
Overlaps

010188704, 010188604, 010188504Alana 2
600
Loreto
Datem del Marañon
Manseriche- MoronaAlana 3
800
Loreto
Datem del Marañon
Manseriche
Overlaps 010045107Casandra 1
1000
Loreto
Datem del Marañon
Barranca-MansericheCasandra 2
1000
Loreto
Datem del Marañon
Barranca- MoronaCasandra 3
900
Loreto
Datem del Marañon
Barranca- MoronaCasandra 4
1000
Loreto
Datem del Marañon
BarrancaCasandra 5
1000
Loreto
Datem del Marañon
Barranca










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We may exercise the initial option to acquire a thirty-three percent interest in the Mineral Rights by fulfilling the following conditions:




·
Issuance of 500,000 shares of our common stock to Temasek within thirty (30) days from the Effective Date (issued March 19, 2010);




·
Payment of $250,000 to Temasek within twelve months of the Effective Date (paid on January 24, 2011); and




·
Issuance of 1,000,000 shares of our common stock to Temasek or its designee within twelve months of the Effective Date (issued January 27, 2011).




During the reporting period, we exercised the initial thirty-three percent option and acquired a thirty-three percent interest in the Mineral Rights by paying to Temasek the balance of the consideration required to exercise the initial thirty-three percent option.  Since the execution of the Option Agreement, we have satisfied the requirement to pay $250,000 by the issuance of 2,500,000 shares and warrants and have issued 1,500,000 shares of our common stock to Temasek in accordance with the terms of the Option Agreement.




We may exercise the second option to acquire the second, thirty-three percent interest in the Mineral Rights, resulting in the acquisition of a sixty-six percent interest in the Mineral Rights, by fulfilling the following conditions:




·
Exercise of the initial option to acquire a thirty-three percent interest in the Mineral Rights;




·
Payment of an additional $1,000,000 to Temasek within twenty-four months of the Effective Date (January 25, 2012); and




·
Issuance of an additional 1,000,000 shares of our common stock to Temasek or its designee within twenty-four months from the Effective Date (January 25, 2012).




We may exercise the third option to acquire the final, thirty-four percent interest in the Mineral Rights, resulting in the acquisition of a one-hundred percent interest in the Mineral Rights, by fulfilling the following conditions:




·
Exercise of the first and  second options to acquire an aggregate sixty-six percent interest in the Mineral Rights;




·
Payment of an additional $2,000,000 to Temasek within thirty-six months of the Effective Date (January 25, 2013); and




·
Issuance of an additional 2,000,000 shares of our common stock to Temasek or its designee within thirty-six months from the Effective Date (January 25, 2013).




Upon our acquisition of a 100% interest in the Mineral Rights, Temasek is entitled to an annual 2.5% net returns royalty.  However, if we pay Temasek an additional $2,000,000 within ninety (90) days of its acquisition of a 100% interest in the Mineral Rights, Temasek will only be entitled to an annual 1.0% net returns royalty from us.




If we exercise the second, thirty-three percent option, resulting in the acquisition of a sixty-six percent interest in the Mineral Rights, but fail to exercise the final option and fail to acquire a 100% interest in the Mineral Rights, we and Temasek will form a joint venture in which we will be wholly responsible for developing a feasible mining project and all necessary facilities and Temasek shall retain a carried free interest in the mining rights.  If we do not develop a feasible mining project within three years of the Effective Date, we will be required to pay Temasek an advance minimum mining royalty of $500,000 per year, which will be deducted from Temasek's net return royalty.







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Exploration Program




Shortly after our initial acquisition of the property interests in Peru in September 2008, we commenced the initial stages of our exploration and development program and carried out the following activities:




·
Completed an initial social base line study to document all surface rights owners and people resident in the project area;




·
Implemented a community relations program to inform local communities of the project and what potential opportunities that may exist for community involvement in the implementation phases of the development program;




·
Submitted a Declaración de Impacto Ambiental to the Ministry of Mines and Energy in Peru and received approval to start the exploration;




·
Completed the field work for the Evaluación de Impacto Ambiental semidetallado which, if approved by the Peruvian Ministry of Mines & Energy, will allow us to undertake extensive drilling and bulk sampling programs;




·
Acquired churn drilling equipment for further evaluation and development of resources;




·
Set-up an operational base in the project area in the town of Saramiriza to continuously review the exploration program and prior experiences gained operating in this difficult terrain;




·
Contracted various consulting firms and experienced and knowledgeable individuals with specific skills in the exploration of alluvial deposits to assist us with the exploration and development of the Peru property; and




·
Commissioned and subsequently received a preliminary master plan which indicated the size and scope of our projected operations and areas where more information is required.




The principle objective of our planned exploration and development program is to bring a dredge and appropriately matched floating plant onto the property to assist us in conducting trial mining tests which requires that we undertake the following actions:




·
Drill an area on the property where known mineralization exists at closely-spaced centers in accordance with mining industry standards;




·
Extend the resource though a wider-spaced program of reconnaissance drilling so as to indicate the potential size of the deposit;




·
Perform additional geotechnical and metallurgical studies to complement existing information in order to prepare the optimum processing route to be adopted in the exploitation phase; and




·
Prepare scoping, prefeasibility, and full feasibility studies.




In the first quarter of 2009, a churn drill and ancillary equipment were purchased in the United States and shipped to Peru.  The equipment cost approximately $85,000 and we acquired such funds through the issuance of securities in private equity offerings.  After the process of importation and transport to site, the initial phase of the drilling program on the project commenced in late July 2009.  Drilling capabilities were increased by the purchase of a second-hand bangka drilling rig at a cost of $15,000.







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Gold bearing gravels were intersected in virtually all of the twenty-six (26) holes drilled as part of this initial drilling program with the better mineralized horizons returning values in the 60 to 200 mg/m3range (generally, grades in excess of 60 mg/m3 are considered economically viable) with reconnaissance holes up to 15 km apart indicating the widespread distribution of gold throughout the Marañón basin.




Concurrent with the drilling, pitting was carried out at locations where significant gold mineralization was encountered in drilling.  Pitting on the same site as one of the bangka holes gave comparable gold values for the bulk sample from the pit and the bangka drill sample, 213 mg/m3 and 208 mg/m3 respectively, indicating that bangka drilling appears to be an effective evaluation method.  In addition, river bank gravel outcrops and artisanal mine workings have been channel sampled and sedimentological studies have been carried out.  Again, virtually all samples taken in these programs have contained some level of gold.  Channel sampling of exposures in artisanal workings in paleo channels indicate average grades in the range of 120 to 350 mg/m3with local accumulations of gold up to 550 mg/m3.




In the fourth quarter of 2009, we retained the services of an internationally recognized alluvial expert to direct and monitor the on-going exploration program, review results and ensure procedures conform to industry standards.




Detailed processing of the heavy mineral concentrates from the samples indicated a relationship between gold values and magnetite content, the two minerals being deposited together in “alluvial traps” (paleo channels) within the Marañón’s immense braided river system.  The association of the gold with magnetic minerals provides a potential means of locating concentrations of mineralization.  During the first quarter of 2010, we completed ground magnetic surveys over areas where mineralized gravels have been identified in order to obtain a “magnetic fingerprint”.




Based on the results from the initial phase of the drilling program and the ground magnetic surveys, we planned a Phase II drilling campaign that commenced in April 2010 and was recently completed in October 2010.  In preparation for commencing this second phase of drilling activity, we further increased our drilling capabilities by purchasing two additional bangka drills that were manufactured and delivered to the property site in April 2010.  The objective of this drilling was to determine if we can define reserves of sufficient size to sustain a fleet of high capacity dredges and floating plants in the future.  The Phase II drilling campaign cost approximately US$500,000 to complete.  The Phase II 100-hole program consisted of definition drilling within a 2.5 square kilometer grid “GSDG1” situated over a large paleo channel that was successfully drilled during the 26-hole initial phase of the drilling program referenced above.  The grid was comprised of 4 lines, equally spaced at 250 meters apart.  Along each line, holes were drilled every 100 meters to depths of up to 15 meters.  Bulk samples collected by excavating small pits and shafts were used for metallurgical testing as well as to confirm drill results.




As a result of the Phase II drilling campaign, we have been able to identify three large, variable-grade systems of mineralization.  These systems lie near the surface and are at least 100 meters wide, an average of 2.5 meters deep and no less than 600 meters in length.  The first system of gold mineralization, which we refer to as “HBD-33”, was discovered near the mid-point of GSDG1. Five holes were drilled using hand Banka drills at 20-meter spacing. The drilling yielded average gold grades of 159.3mg/cubic meter (within a range of 101.1 to 216.0 mg/cubic meter).  The width of the potential pay horizons averages 3.07 meters (10.07 feet) with a range of 2.2 meters to 4.70 meters. The gold is contained in volcanic-quartz type fluvial gravels beneath an average of only 2.73 meters (8.95 feet) of sandy overburden.  The second system of gold mineralization, which we refer to as “HBD-XX” trends northeast-southwest through GSDG1. Drilling, at 30-meter spacing, during the Phase II program outlined an average grade of 86 mg/cubic meter along a linear 110 meter (361 feet) channel with an average width of 40 meters (131 feet).  The third system of gold mineralization returned values as high as 286.5 mg/m3 over a width of 60m and a thickness of 2.0 meters.







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In the absence of significant additional drilling, we will be unable to quantify the boundaries of the alluvial gold mineralization and identify concentrations associated with paleo channels.  We caution that results we received from the Phase II drilling campaign do not in any way indicate the presence of a commercially viable mineral deposit.  Our exploration program is building data in order to compile an estimate of probable reserves and make a later determination as to whether a commercially viable mineral deposit exists on the properties underlying our mineral property interests in Perú.  A great deal of further exploration is required before a final evaluation as to the economic and legal feasibility of future exploration is determined.




Based on these results, we sought to implement a small-scale test mining operation on the 2.5 square kilometer grid that was the subject of our Phase II drilling campaign as a preliminary step towards determining the feasibility of full-scale production.  We believe that a pilot operation should deliver important data that reflects on the potential dredging and gold separation possibilities of this project.  A small-scale test mining operation will also be helpful to determine if the proposed gold separation equipment is viable in the project's environment and if the recoverable grades of gold are sufficient to sustain such an operation.




On January 18, 2011, we entered into an Agreement (the “Agreement”) with Swiss Mining S.A., a limited liability company organized and incorporated under the laws of Perú (“Swiss Mining”). Pursuant to the Agreement, Swiss Mining will carry out a test mining operation on the MIKA 2 concession located in the Peruvian Province of Datem del Marañon, District of Manseriche (the “MIKA 2 Concession”). The area encompassing the MIKA 2 concession is the 2.5 square kilometer grid that was the subject of the our Phase II drilling campaign.




Swiss Mining will be responsible and liable for all work, services, labor, materials, equipment, supplies and other related costs necessary to implement the test mining operation. The costs related to this test mining operation, which is expected to involve the processing of approximately 150,000 cubic meters of placer material, are anticipated to be approximately US $425,000. The parties have agreed to an allocation of revenues, if any, from the sale or other disposition of ores, concentrates or minerals produced from the MIKA 2 concession (“Net Returns”) equal to thirty percent (30%) to us and seventy percent (70%) to Swiss Mining until the agreed upon costs of US $425,000 are fully covered. Thereafter, any Net Returns beyond this cost recovery shall be divided equally between Swiss Mining and us on a 50/50 basis. Notwithstanding the foregoing, we agree to negotiate a different allocation of Net Returns so long as Swiss Mining has not recovered its costs of US $425,000 should the price of gold drop below US $1,300 per ounce or increase above $1,500 per ounce for at least 5 consecutive business days.




The test mining operation commenced on March 28, 2011 and we anticipate it will continue for a duration of six months. Under the terms of the Agreement, we have the right to monitor, at our own expense, all activities performed by Swiss Mining or its subcontractors under this Agreement including, but not be limited to, the right to make site inspections at any time, to bring experts and consultants onsite to examine or evaluate work in progress or completed work, to examine the books, ledgers, documents, papers, and records pertinent to this Agreement and to observe personnel in every phase of their performance of the related work.




Initial results from the test mining operation appear to be favorable, but we caution that these results have not been independently verified and could be the product of isolated hot spots indicating higher than usual gold yields in the material mined.  For this reason, we are not going to extrapolate any data based upon the yields to date or reach any conclusions about potential alluvial gold yields based on the limited data we have received from just a few weeks from the test mining operation.  We will require significantly more data in order to determine whether the objectives of the test mining operations have been satisfied.









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In the event that the foregoing test mining operation on the MIKA 2 concession provides data that reflects positively on the potential dredging and gold separation possibilities of this project, we plan to design a Phase III drilling campaign to expand the Phase II drill program beyond the initial 2.5 square kilometer exploration area to other areas of suspected high mineralization within the Peru Property consisting of a total of 461 square kilometers in order to further define the resource and potential of the project.  However, the implementation of any further drilling activity is dependent on our ability to a secure additional financing.  If we are unable to secure additional financing for these activities, we will be unable to commence a Phase III drilling campaign until such time that we are able to secure sufficient financing.




In addition to the foregoing drilling program, we intend to carry out the geophysical evaluation of the property and plan to continue drilling and test pitting for a period of at least 18 months. We are also conducting mine development planning, process design, and other engineering studies will be conducted with a view toward completing a feasibility study within a twenty-four month period.  Permitting is anticipated to be initiated as early in the exploration and development cycle as possible, so that trial or pilot dredging can be started as soon as feasibility has been established.




In May 2010, we initiated the process for expanding our drill permits and also are concluding the Environmental Impact permit, which will allow us to explore the entire area that comprises the Peru Property and allow for drilling of up to 428 additional holes.




While we have commenced our planned exploration program, we must secure additional financing in order to be able to sustain drilling activity beyond the scope of the foregoing test mining operation and commence a Phase III drilling campaign or we will be forced to cease our exploration and development program.  We anticipate that we will incur the following exploration costs for the year ending December 31, 2011:




Activity
$USDPROJECT COSTS:Property-related costs
12,000Environmental/Social permits
159,300Exploration
108,000Field costs
84,000Travel expenses
134,000Administration on site
174,000ADMINISTRATION
279,600TOTAL
$950,900





Results of Operations for the Three Months Ended March 31, 2011 and 2010




Revenues




We have not generated any revenues from operations since our inception. On March 28, 2011, we commenced a test mining operation on the MIKA 2 Concession.  We engaged Swiss Mining to carry out this test mining operation.  The parties have agreed to an allocation of revenues, if any, from the sale or other disposition of ores, concentrates or minerals produced from the MIKA 2 concession (“Net Returns”) equal to thirty percent (30%) to us and seventy percent (70%) to Swiss Mining until the agreed upon costs of US $425,000 are fully covered. Thereafter, any Net Returns beyond this cost recovery shall be divided equally between Swiss Mining and us on a 50/50 basis.  Due to the commencement and progress of the test mining operation, we anticipate that we will generate some revenue in the second quarter of 2011 attributable to the production and sale of gold from this test mining operation.









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Operating Expenses




We incurred operating expenses in the amount of $5,378,603 for the three months ended March 31, 2011, as compared to operating expenses of $1,431,046 for the three months ended March 31, 2010.  The substantial increase in our operating expenses for the three months ended March 31, 2011, as compared to the three months ended March 31, 2010, is primarily attributable to a significant increase in interest expense incurred during the reporting period.  We accrued interest expense of $4,106,796 for the three months ended March 31, 2011, as compared to interest expense of $0 during the three months ended March 31, 2010.  This significant increase in interest during the reporting period was primarily attributable to interest accrued at the rate of 12% per annum and the immediate recognition of interest on the debt discount on a $7,000,000 convertible promissory note (“Convertible Promissory Note”) issued to Temasek Investment Inc. (“Temasek”) in April 2010 as part of the consideration required for our acquisition of 100% of the mining and mineral rights underlying the Peru Property.  In January 2011, an aggregate of $7,578,950 in debt, including $6,300,000 of the initial principal balance evidenced by the Convertible Promissory Note, was extinguished in exchange for the issuance of units (the “Units”) consisting of one (1) share of our common stock, par value $0.001 per share (“Common Stock”) and one (1) warrant to purchase one (1) share of our Common Stock using the conversion price of $0.10 per Unit.  As a result of this exchange of debt for equity, we anticipate that we will incur reduced interest expenditures subsequent to this reporting period.




We recorded the write down of mineral property acquisition costs in the amount of $430,000 for the three months ended March 31, 2011, as compared to write down of mineral property acquisition costs of $0 for the three months ended March 31, 2010.  During the three months ended March 31, 2011, we recorded a provision for write-down of mineral property costs of $430,000 related to the Saramiriza Properties.  We are actively exploring these properties located in Peru, both directly and indirectly through test mining programs with third parties, and intend to continue to explore these properties to our fullest capabilities.  However, there can be no assurance that we will be able to do so in the future due to the change in business climate and other legal factors.  Consequently, we recorded a provision for write-down of mineral property costs resulting in a carrying value of $0.




We incurred exploration costs of $225,939 for the three months ended March 31, 2011, and exploration costs of $190,218 during the three months ended March 31, 2010.  Exploration costs incurred during the three months ended March 31, 2011 related to preparation for the test mining production as well as for the first steps of new social base line software and permits in anticipation of future full production should the results of the test mining operation be successful. Additionally, we evaluated new areas of the concessions for consideration as the next possible location to expand the test mining production area.




We incurred miscellaneous office expenditures of $45,076 for the three months ended March 31, 2011, compared to $21,296 for the three months ended March 31, 2010.  The increase is miscellaneous office expenditures is attributable to ­­­­­­­­­­­­­­­­an increase in office and miscellaneous expenses associated with our operations in Peru for 2011 over the comparable period in 2010..




Increases in operating expenses during the three months ended March 31, 2011, as compared to the three months ended March 31, 2010, was offset by decreases in stock based compensation and management fees.  We reported stock-based compensation of $177,046 for the three months ended March 31, 2011, compared to $812,038 for the three months ended March 31, 2010.  This decrease is attributable to a decrease in the number of stock options issued to employees and non-employees during the three months ended March 31, 2011.  We reported management fees of $69,000 for the three months ended March 31, 2011, compared to $111,000 for the three months ended March 31, 2010.  The decrease in management fees is attributable to a decrease in management personnel.




We incurred investor relations expenses of $51,534 for the three months ended March 31, 2011, compared to $93,221 for the three months ended March 31, 2010.  This decrease in investor relations costs during the three months ended March 31, 2011, as compared to the prior year, is attributable to the elimination of high cost investor relations programs in 2011.









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Other Items




We reported foreign exchange loss of $7,301 for the three months ended March 31, 2011, as compared to foreign exchange gain of $29,265 for the prior year.   The foreign exchange gain or loss results from the translation of monetary assets and liabilities denominated in foreign currencies. A decrease in foreign currency denominated monetary assets and liabilities in 2011 resulted in the decrease in foreign exchange gain in 2011.




We reported a gain on settlement debt of $157,469 for the three months ended March 31, 2011, as compared to $0 for the three months ended March 31, 2010.  The gain on settlement of debt was attributable to the conversion of $7,578,950  in debt owed by us into units at $0.10 per unit.




Net Loss




As a result of the above, for the three months ended March 31, 2011, we reported a net loss operating loss before and after income taxes of $5,228,435.  For the three months ended March 31, 2010 we reported a net loss operating loss before incomes taxes of $1,401,781 and a net loss of $1,212,214 for the reporting period after offsetting a future income tax recovery of $189,567.




We had a future income tax recovery of $189,567 for the three months ended March 31, 2010 as a result of  the reserves established due to our operating loss history and the tax benefits related to our mineral property costs activities.




Basic and Diluted Loss per Share




As a result of the above, the basic and diluted loss per common share was $0.034 and $0.015 for the three months ended March 31, 2011 and 2010, respectively.






Liquidity and Capital Resources




At March 31, 2011, we had cash and cash equivalents of $838,056 (December 31, 2010 - $4,181) and working capital deficit of $695,069 (December 31, 2010 - $3,165,504).




During the reporting period, we issued an aggregate of 75,789,500 units (the “Units”) to seventeen (17) accredited investors, that were also creditors, in exchange for these creditors converting and extinguishing an aggregate of $7,578,950 in debt owed by us using the conversion price of $0.10 per Unit. Each Unit consists of one (1) share of common stock of the Company, par value $0.001 per share (“Common Stock”) and one (1) warrant to purchase one (1) share of Common Stock of the Company (“Warrant”).  Each Warrant is exercisable for a period of eight (8) months from the date of issuance at a price of $0.10 per share.  As a result, we issued a total of 75,789,500 shares of Common Stock and Warrants to purchase 75,789,500 shares of the our Common Stock.




On June 30, 2010, we entered into a Loan Agreement (the “Loan Agreement”) with St. Lawrence Alluvial Services and Logistics Corp. (the “Lender”).  Under the terms of the Loan Agreement, the Lender agreed to loan us Three Hundred Twenty Thousand Dollars ($320,000) (the “Loan”).  We received the Loan on July 9, 2010 and agreed to repay the Loan within a maximum term of ninety (90) days from the execution of the Loan Agreement together with interest at a rate of twelve percent (12%) per year.  As of December 31, 2010, we had not repaid the Loan and were in default of the Loan Agreement.  During the reporting period, the Lender converted all outstanding indebtedness under the Loan Agreement into Units in accordance with the debt to equity conversions described above.









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During the twelve month period following the date of this report, it is unknown whether the test mining operation on the MIKA 2 concession will be successful and the extent to which we will be able to generate any revenue.  Our proposed plan of exploration anticipates that we will incur exploration related expenditures of$950,900over the next twelve months.  We anticipate spending approximately $200,000 in ongoing general and administrative expenses per month for the next twelve months, for a total anticipated expenditure of $2,400,000 over the next twelve months.  The general and administrative expenses for the year will consist primarily of professional fees for the audit and legal work relating to our regulatory filings throughout the year, as well as transfer agent fees and general office expenses.  We also anticipate that we may incur significant costs and expenses in connection with an SEC investigation.  We are unable, at this time, to estimate the costs and expenses we may incur or our potential liability resulting from this investigation.   If we are subject to any adverse findings, we could be required to pay damages or penalties or have other remedies imposed on us which could have a material adverse effect on our business and financial condition.  We have no insurance coverage to cover any portion of our defense cost or any amounts that we may be required to pay in connection with the resolution of this investigation.




During the reporting period, we received gross proceeds of $2,257,000 from sales of equity securities in a private placement.  Notwithstanding the aforementioned conversions of debt to equity and proceeds received from our private equity offering, our current cash on hand is insufficient to be able to make our planned exploration expenditures and to pay for our general administrative expenses over the next twelve months even without taking into account to extent to which we may incur significant costs and expenses in connection with an SEC investigation.  Accordingly, we must obtain additional financing in order to continue our plan of operations during and beyond the next twelve months. We are considering a debt financing, but ultimately believe that it will not be an alternative for funding additional phases of exploration as we do not have limited tangible assets to secure any debt financing.  We presently do not have sufficient available authorized capital to make securing additional financing in the form of equity financing from the sale of our common stock a viable option.  We intend to submit a proposal to our shareholders to amend our Certificate of Incorporation for the purpose of increasing the authorized shares of our common stock, but have not done so yet and can provide no assurance that such proposal would be supporting by our shareholders.  In the absence of such financing, we will not be able to pursue our exploration program and may not be able to maintain our mineral property interests in good standing.  If we do not fulfill the terms of any of these option agreements according to our business plan, then our ability to commence or continue operations could be materially limited.  We also may be forced to abandon our mineral property interests.   If we are unable to raise additional capital or generate revenue from our test mining operation within the next twelve months, we will experience liquidity problems and management expects that we will need to curtail operations, liquidate assets, seek additional capital on less favorable terms and/or pursue other remedial measures.  We may consider entering into a joint venture arrangement to provide the required funding to explore the properties underlying our mineral property interests.  We have not undertaken any efforts to locate a joint venture participant.  Even if we determine to pursue a joint venture participant, there is no assurance that any third party would enter into a joint venture agreement with us in order to fund exploration of the properties underlying our mineral property interests.  If we enter into a joint venture arrangement, we would likely have to assign a percentage of our interest in our mineral property interests to the joint venture participant.




Cash Used in Operating Activities




Operating activities for the three months ended March 31, 2011 and 2010 used cash of $1,170,587 and $96,535 respectively, which reflect our recurring operating losses.  Our net losses of $5,228,435 and $1,212,214 for the three months ended March 31, 2011 and 2010, respectively, were the primary reasons for our negative operating cash flow in both years.  Our reporting negative operating cash flows for the three months ended March 31, 2011 was offset by a write down of mineral property costs of $430,000, stock-based compensation of $177,046 and accrued interest of $4,105,974 for the reporting period.











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Cash Used in Investing Activities




For the three months ended March 31, 2011, we used $12,538 in investing activities, as compared to $244,314 used in investing activities during the three months ended March 31, 2010.  For the three months ended March 31, 2011, we purchased $12,538 in equipment, as compared to the three months ended March 31, 2010, in which we purchased $40,643 in equipment and expended $203,671 in connection with the acquisition of mineral property interests.




Cash from Financing Activities




As we have had no revenues since inception, we have financed our operations primarily by using existing capital reserves and through private placements of our common stock.  Net cash flows provided by financing activities for the three months ended March 31, 2011 was $2,017,000, as compared to $203,999 for the three months ended March 31, 2010.




Off Balance Sheet Arrangements




We do not have any off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses.




Going Concern




We have incurred net losses for the period from inception on March 6, 2000 to March 31, 2011 of $49,106,124 and have no source of revenue.  The continuity of our future operations is dependent on our ability to obtain financing and upon future acquisition, exploration and development of profitable operations from our mineral properties.  These conditions raise substantial doubt about our ability to continue as a going concern.




Critical Accounting Policies




In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis.  The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.  We believe the following critical accounting estimates affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:


Mineral property costs




Mineral property acquisition costs are initially capitalized as tangible assets when purchased.  At the end of each fiscal quarter end, we assess 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.









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




Although we have taken steps to verify title to mineral properties in which we have 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.




Equipment




Equipment is recorded at cost and amortization is provided over its estimated economic life at 30% or on a straight line basis over its economic life.




Website development costs





The costs of computer software developed or obtained for internal use, during the preliminary project phase, as defined under ASC 350-40, “Internal-Use Software”, will be expensed as incurred.  The costs of website development during the planning stage, as defined under ASC 350-50, “Website Development Costs”, will also be expensed as incurred.




Computer software, website development incurred during the application and infrastructure development stage, including external direct costs of materials and services consumed in developing the software and creating graphics and website content, will be capitalized and amortized over the estimated useful life, beginning when the software is ready for use and after all substantial testing is completed and the website is operational.




Segments of an Enterprise and Related Information




ASC 280, “Segment Reporting” establishes guidance for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public.  It also establishes standards for disclosures regarding products and services, geographic areas and major customers.  ASC 280 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.




Start-up Expenses




We have adopted ASC 720-15, “Start-Up Costs”, which requires that costs associated with start-up activities be expensed as incurred.  Accordingly, start-up costs associated with our formation have been included in our expenses for the period from the date of inception on March 6, 2000 to March 31, 2011.




Stock-Based Compensation




Effective 1 January 2006, we adopted the provisions of ASC 718, “Compensation – Stock Compensation”, which establishes accounting for equity instruments exchanged for employee services. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employees’ requisite service period (generally the vesting period of the equity grant).  We adopted ASC 718 using the modified prospective method, which requires us 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.  Adoption of ASC 718 does not change the way we account for share-based payments to non-employees, with guidance provided by ASC 505-50, “Equity-Based Payments to Non-Employees”.








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Foreign Currency Translation




Our functional and reporting currency is U.S. dollars.  Our consolidated financial statements are translated to U.S. dollars in accordance with ASC 830, “Foreign Currency Matters”.  Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date.  Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.  We have not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.




Use of Estimates




The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenditures during the reporting period.  Actual results could differ from these estimates.




Comparative Figures




Certain comparative figures have been adjusted to conform to the current period’s presentation.




Item 3. Quantitative and Qualitative Disclosures About Market Risk




Not Applicable.







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Item 4.    Controls and Procedures




Evaluation of Disclosure Controls and Procedures




We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2011.  This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer, Dr. Michael Stocker, and our Chief Financial Officer, Mr. Peter Wiget.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2011, our disclosure controls and procedures are not effective.  Our conclusion is based primarily on the material weakness in internal control over financial reporting which was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010, where management identified material weaknesses consisting of ineffective controls over the period-end financial close and reporting process and oversight and monitoring of certain international locations as of December 31, 2010 and lack of resources to manage the financial close process.  We are in the process of considering changes in our disclosure controls and procedures.




Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.




Limitations on the Effectiveness of Internal Controls




Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error.  Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.




Changes in Internal Control Over Financial Reporting




There have been no changes in our internal controls over financial reporting during the quarter ended March 31, 2011 that have materially affected or are reasonably likely to materially affect such controls.











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PART II – OTHER INFORMATION




Item 1.    Legal Proceedings.




During the three months ended March 31, 2011, there have been no material developments in the legal proceedings discussed in our Annual Report on Form 10-K for the period ended December 31, 2010.




Item 1A.   Risk Factors.




Not Applicable.




Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.




None.







Item 3.Defaults upon Senior Securities.




None.




Item 4.    (Removed and Reserved).




Item 5.     Other Information.




None.




Item 6.      Exhibits.




See the Exhibit Index following the signatures page of this report, which is incorporated herein by reference.













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SIGNATURES




Pursuant to the requirements 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.




Goldsands Development CompanyDate:
May 16, 2011By: /s/  Michael Stocker

Michael Stocker

Title:Chief Executive Officer and DirectorDate:
May 16, 2011By: /s/ Peter Wiget

Peter Wiget

Title:Chief Financial Officer and Director


























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GOLDSANDS DEVELOPMENT COMPANY


(the “Registrant”)


(Commission File No. 000-49725)


Exhibit Index


to Quarterly Report on Form 10-Q


for the Quarter Ended March 31, 2011









Exhibit

No.

Description

Incorporated Herein by

Reference to

Filed

Herewith10.1

Agreement, dated as of January 18, 2011, made among Swiss Mining, S.A., and the Company.

Exhibit 10.1 to the Company's Current Report on form 8-K filed January 20, 2011.31.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002



X31.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002



X32.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



X














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