**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

Washington D. C. 20549 

**FORM 10-Q**

**QUARTERLY REPORT UNDER SECTION 13 or 15 (d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

For the quarterly period ended May 31, 2011

*Commission file number 000-23561*

**PAN AMERICAN GOLDFIELDS LTD.**

(Exact name of small business issuer as specified in its charter) 

| Delaware

 

84-1431797

(State or other jurisdiction of incorporation)

 

(IRS Employer Identification Number)

 

 

906 – 595 Howe Street

Vancouver, BC

V6C 2T5

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (604) 681-1163

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes [X]       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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 

Large accelerated filer [_] 

 

Accelerated filer [_] 

 

Non-accelerated filer [_] 

 

Smaller reporting company [X]

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

Yes [_]  No [X]

As of June 30, 2011, the registrant had 61,667,579 shares of common stock issued and outstanding.

Page 1 

**PART 1 – FINANCIAL INFORMATION**

**ITEM 1. FINANCIAL STATEMENTS**

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

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

**May 31, 2011**

Page 2 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Consolidated Balance Sheets**

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

 

**May 31, 2011**

**February 28, 2011**

 

**(Unaudited)**

**(Audited)**

**Assets**

 

 

 

 

 

 

 

 

 

**Current**

 

 

 

 

Cash and cash equivalents

$

502,239 

$

407,912 

Accounts receivable

 

375,376 

 

409,692 

Prepaid expenses

 

104,516 

 

136,141 

Deposits

 

- 

 

150,000 

 

 

982,131 

 

1,103,745 

 

 

 

 

 

**Equipment (note 4)**

 

215,220 

 

217,875 

 

 

 

 

 

**Total assets**

$

1,197,351 

$

1,321,620 

 

 

 

 

 

**Liabilities**

 

 

 

 

 

 

 

 

 

**Current**

 

 

 

 

Accounts payable and accrued liabilities

$

1,432,991 

$

1,690,208 

Loans payable (note 8)

 

6,481 

 

12,876 

Promissory notes (note 7)

 

961,927 

 

884,022 

 

 

 

 

 

**Total liabilities**

 

2,401,399 

 

2,587,106 

 

 

 

 

 

**Stockholders’ deficiency**

 

 

 

 

**Capital stock**

 

 

 

 

Preferred stock

 

 

 

 

Authorized: 20,000,000 shares without par value (note 9)

 

 

 

 

Issued: nil

 

 

 

 

Common stock

 

 

 

 

Authorized: 200,000,000 shares without par value

 

 

 

 

Issued: 59,618,827 (2011 –54,003,827) (note 10)

 

31,907,679 

 

30,750,401 

Additional paid-in capital 

 

15,389,180 

 

15,262,405 

Stock subscriptions 

 

568,554 

 

781,000 

Accumulated deficit from prior operations

 

(2,003,427)

 

(2,003,427)

Accumulated deficit during the development stage

 

(47,268,285)

 

(46,293,923)

Accumulated other comprehensive income

 

202,251 

 

238,058 

**Total stockholders’ deficiency**

 

(1,204,048)

 

(1,265,486)

 

 

 

 

 

**Total liabilities and stockholders’ deficiency**

$

1,197,351 

$

1,321,620 

Going-concern (note 3)

Commitments (notes 6 and 12)

Subsequent events (note 15)

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

Page 3 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Consolidated Statements of Operations and Comprehensive Income (Loss)**

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

**(Unaudited)**

 

 

 

 

 

 

**Period from**

 

 

 

 

 

 

**March 1, 2004**

 

 

 

 

 

 

**(Inception of**

 

 

 

 

 

 

**Development**

 

 

**Three Months Ended May 31**

 

**Stage)**

 

 

**2011**

 

**2010**

 

**to May 31, 2011**

 

 

 

 

 

 

 

**Net sales**

$

328,128 

$

191,341 

$

2,011,561 

**Cost of goods sold**

 

153,946 

 

113,429 

 

1,012,299 

**Gross profit**

 

174,182 

 

77,912 

 

999,262 

 

 

 

 

 

 

 

**Expenses**

 

 

 

 

 

 

General and administrative

 

894,496 

 

644,771 

 

20,480,434 

Mineral exploration

 

55,393 

 

258,760 

 

9,295,877 

Impairment of mineral property costs

 

168,105 

 

668,941 

 

17,478,379 

 

 

 

 

 

 

 

**Operating loss**

 

(943,812)

 

(1,494,560)

 

(46,255,428)

 

 

 

 

 

 

 

**Other income (expenses)**

 

 

 

 

 

 

Deposit on equipment written off

 

- 

 

(24,875)

 

(25,300)

Foreign exchange loss

 

(29,048)

 

(1,762)

 

(378,826)

Interest expense

 

(20,259)

 

(17,866)

 

(5,334,441)

Other income

 

4,092 

 

46,645 

 

263,114 

Gain on disposal of assets

 

- 

 

15,283 

 

15,130 

Gain on sale of assets

 

- 

 

- 

 

4,388,374 

Gain on settlement of debt 

 

14,665 

 

- 

 

59,092 

 

 

 

 

 

 

 

**Net loss**

 

(974,362)

 

(1,477,135)

 

(47,268,285)

 

 

 

 

 

 

 

**Other comprehensive income (loss)**

 

 

 

 

 

 

Foreign exchange translation adjustment

 

(35,807)

 

17,076 

 

202,251 

 

 

 

 

 

 

 

**Total comprehensive loss**

$

(1,010,169)

$

(1,460,059)

$

(47,066,034)

 

 

 

 

 

 

 

**Total loss per share** – basic and diluted

$

(0.02)

$

(0.03)

 

 

 

 

 

 

 

 

 

**Weighted average number of shares of**

 

58,132,033 

 

53,819,044 

 

 

**common stock** – basic and diluted

 

 

 

 

 

 

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

Page 4 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Consolidated Statements of Cash Flows**

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

**(Unaudited)**

 

 

**Three Months Ended May 31**

 

**Period From March 1, 2004 (Inception of Development Stage)**

**To May 31**

 

 

**2011**

 

**2010**

 

**2011**

**Operating activities**

 

 

 

 

 

 

Net loss

$

(974,362)

$

(1,477,135)

$

(47,268,285)

Adjustments to reconcile net (loss) to net cash flows

 

 

 

 

 

 

Write-off of note receivable 

 

- 

 

- 

 

57,500 

Impairment of mineral property costs 

 

150,000 

 

- 

 

13,795,000 

Shares issued for consulting services

 

- 

 

- 

 

510,590 

Shares issued for interest costs

 

- 

 

- 

 

82,500 

Amortization

 

11,921 

 

14,250 

 

317,304 

Discount on convertible debenture

 

- 

 

- 

 

569,549 

Deposit on equipment written off

 

- 

 

24,875 

 

25,300 

Gain on disposal of assets

 

- 

 

(15,283)

 

(15,130)

Gain on sale of assets

 

- 

 

- 

 

(4,389,954)

Gain on settlement of debt

 

(14,665)

 

- 

 

(100,907)

Stock-based compensation

 

370,675 

 

228,054 

 

11,337,286 

Beneficial conversion feature

 

- 

 

- 

 

4,081,091 

Net change in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expense

 

36,156 

 

31,927 

 

(95,932)

Accounts receivable

 

24,874 

 

(52,668)

 

(10,671)

Deposits

 

- 

 

- 

 

(194,809)

Notes payable

 

- 

 

- 

 

109,337 

Accounts payable and accrued liabilities

 

(175,427)

 

(1,242,066)

 

6,561,524 

**Cash used in operating activities**

 

(570,828)

 

(2,488,046)

 

(14,628,707)

**Investing activity**

 

 

 

 

 

 

Sale of equipment

 

- 

 

- 

 

33,316 

Purchase of property and equipment

 

- 

 

- 

 

(602,473)

**Cash used in investing activity**

 

 

 

 

 

(569,157)

**Financing activities**

 

 

 

 

 

 

Proceeds from loans payable

 

- 

 

- 

 

288,067 

Proceeds from notes payable

 

- 

 

- 

 

3,162,196 

Proceeds from convertible debentures

 

- 

 

- 

 

7,462,500 

Proceeds from exercise of options

 

- 

 

- 

 

78,000 

Proceeds from exercise of warrants

 

- 

 

- 

 

3,144,377 

Repayment of loans payable

 

(6,395)

 

(39,688)

 

(274,705)

Repayment of notes payable

 

- 

 

(27,422)

 

(586,620)

Repayment of convertible debentures

 

- 

 

- 

 

(2,051,047)

Stock subscriptions

 

670,904 

 

- 

 

1,602,162 

Issuance of common stock (net)

 

- 

 

- 

 

2,756,994 

**Cash provided by financing activities**

 

664,509 

 

(67,110)

 

15,581,924 

**Inflow (outflow) of cash and cash equivalents**

 

93,681

 

(2,555,156)

 

384,060

**Effect of foreign currency translation on cash**

 

646 

 

(22,439)

 

96,102 

**Cash and cash equivalents, beginning**

 

407,912 

 

3,377,404 

 

22,077 

**Cash and cash equivalents, ending**

$

502,239 

$

799,809 

$

502,239 

Supplemental cash flow information (note 14)

 

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

Page 5 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Notes to the Consolidated Financial Statements**

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

**Three Months Ended May 31, 2011**

**1.**

**BASIS OF PRESENTATION**

Pan American Goldfields Ltd. (formerly Mexoro Minerals, Ltd and Sunburst Acquisitions IV, Inc.) ("Panam" or the “Company”) was incorporated in the state of Delaware on March 23, 2010 and on July 2, 2010 changed its name to Pan American Goldfields Ltd. pursuant to an agreement and plan of merger between the Company and Mexoro Minerals Ltd. The Company was formed to seek out and acquire business opportunities. Between 1997 and 2003, the Company was engaged in two business acquisitions and one business opportunity, none of which generated a significant profit or created sustainable business. All were sold or discontinued. The Company had previously been pursuing various business opportunities and, effective March 1, 2004, the Company changed its operations to mineral exploration. Currently, the main focus of the Company’s operations are in Mexico and Argentina.

In February 2011, we entered into an agreement with Compañia Minera Alto Rio Salado S.A., a private Argentine entity, for the acquisition of the 15,000 hectares Cerro Delta Project in northwest La Rioja Province, Argentina. The agreement became effective in March 2011. Under the terms of the agreement, we are required to pay $150,000 upon signing (paid) the agreement, $200,000 on the first anniversary, $500,000 on the second anniversary, $750,000 on the third anniversary, $1.2 million on the fourth anniversary, and $2.2 million on the fifth anniversary of the signing, with a final option payment of $5 million to purchase a 100% interest in the Cerro Delta project payable on the sixth anniversary of the signing. The vendor will retain a 1% NSR.

On February 12, 2009, the Company entered into a joint venture through a definitive agreement for development of its Cieneguita project with Minera Rio Tinto, S.A. de C.V. (“MRT”), a private company duly incorporated pursuant to the laws of Mexico, which is controlled by the chairman of the Company. The purpose of the joint venture is to put the Cieneguita property into production. Pursuant to the agreement, MRT is to provide the necessary working capital to begin and maintain mining operations at Cieneguita, which are estimated to be $3,000,000. MRT plans to spend 100% of the money to earn 74% of the net cash flow from production (notes 5 and 6). The Company will receive 20% of the net cash flows from production. Accordingly, the Company is considered to be a development stage company.

On May 25, 2004, the Company completed a “Share Exchange Agreement” with Sierra Minerals and Mining, Inc. (“Sierra Minerals”), a Nevada corporation, which caused Sierra Minerals to become a wholly-owned subsidiary of the Company. Sierra Minerals held certain rights to properties in Mexico that the Company now owns or has an option to acquire. Through Sierra Minerals, the Company entered into a joint venture agreement with MRT. In August 2005, the Company cancelled the joint venture agreement in order to directly pursue mineral exploration opportunities through a wholly-owned Mexican subsidiary, Sunburst Mining de Mexico S.A. de C.V. (“Sunburst de Mexico”). On August 25, 2005, the Company, Sunburst de Mexico and MRT entered into agreements providing Sunburst de Mexico the right to explore and exploit certain properties in Mexico. In December 2005, the Company and Sunburst de Mexico entered into a new agreement with MRT (the “New Agreement”) (note 6). On January 20, 2006, Sierra Minerals was dissolved.

Page 6 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Notes to the Consolidated Financial Statements**

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

**Three Months Ended May 31, 2011**

**2.**

**SIGNIFICANT ACCOUNTING POLICIES**

(a)

Recent accounting pronouncements

(i)

On June 16, 2011, the FASB issued ASU 2011-05, which revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the presentation options in ASC 220 and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The ASU does not change the items that must be reported in other comprehensive income. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  The Company does not expect the provisions of ASU 2011-05 to have a material effect on the financial position, results of operations or cash flows of the Company, as the Company currently presents a continuous statement of operations and comprehensive income (loss).

(ii)

On May 12, 2011, the FASB issued ASU 2011-04. The ASU is the result of joint efforts by the FASB and IASB to develop a single, converged fair value framework.  Thus, there are few differences between the ASU and its international counterpart, IFRS 13. This ASU is largely consistent with existing fair value measurement principles in U.S. GAAP, however it expands ASC 820’s existing disclosure requirements for fair value measurements and makes other amendments.  The ASU is effective for interim and annual periods beginning after December 15, 2011.  The Company does not expect the provisions of ASU 2011-05 to have a material effect on the financial position, results of operations or cash flows of the Company.

(iii)

In May 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-19, Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates. The amendments in this Update are effective as of the announcement date of March 18, 2010. Implementation of ASU 2010-19 did not have a material effect on the financial position, results of operations or cash flows of the Company.

(iv)

In April 2010, the FASB issued ASU 2010-17, Revenue Recognition-Milestone Method (Topic 605): Milestone Method of Revenue Recognition. The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption. Implementation of ASU 2010-17 did not have a material effect on the financial position, results of operations or cash flows of the Company.

(v)

In January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. This amendment to Topic 810 clarifies, but does not change, the scope of current US GAAP. It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes the potential conflict between guidance in that Subtopic and asset derecognition and gain or loss recognition guidance that may exist in other US GAAP. An entity will be required to follow the amended guidance beginning in the period that it first adopts FAS 160 (now included in Subtopic 810-10). For those entities that have already adopted FAS 160, the amendments are effective at the beginning of the first interim or annual reporting period ending on or after December 15, 2009. The amendments should be applied retrospectively to the first period that an entity adopted FAS 160. Implementation of ASU 2010-02 did not have a material effect on the financial position, results of operations or cash flows of the Company.

Page 7 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Notes to the Consolidated Financial Statements**

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

**Three Months Ended May 31, 2011**

**2.**

**SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**

(a)

Recent accounting pronouncements (continued)

(vi)

In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260. Effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. Implementation of ASU 2010-01 did not have a material effect on the financial position, results of operations or cash flows of the Company.

(vii)

In September 2009, the FASB issued Update No. 2009-13, “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” (ASU 2009-13). It updates the existing multiple-element revenue arrangements guidance currently included under ASC 605-25, which originated primarily from the guidance in EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF 00-21). The revised guidance primarily provides two significant changes: 1) eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and 2) eliminates the residual method to allocate the arrangement consideration. In addition, the guidance also expands the disclosure requirements for revenue recognition. ASU 2009-13 will be effective for the first annual reporting period beginning on or after June 15, 2010, with early adoption permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption. Implementation of Update No. 2009-13 did not have a material effect on the financial position, results of operations or cash flows of the Company.

(viii)

In September 2009, the FASB issued ASC 105, formerly FASB Statement No. 168, the FASB Accounting Standards Codification (“Codification”) and the Hierarchy of Generally Accepted Accounting Principles (“GAAP”), a replacement of FASB Statement No. 162 (“SFAS 168”). SFAS 168 establishes the Codification as the single source of authoritative GAAP in the United States, other than rules and interpretive releases issued by the SEC. The Codification is a reorganization of current GAAP into a topical format that eliminates the current GAAP hierarchy and establishes instead two levels of guidance — authoritative and non-authoritative. All non-grandfathered, non-SEC accounting literature that is not included in the Codification will become non-authoritative. The FASB’s primary goal in developing the Codification is to simplify user access to all authoritative GAAP by providing all the authoritative literature related to a particular accounting topic in one place. The Codification was effective for interim and annual periods ending after September 15, 2009. As the Codification was not intended to change or alter existing GAAP, it did not have a material impact on the Company’s financial statements.

Page 8 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Notes to the Consolidated Financial Statements**

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

**Three Months Ended May 31, 2011**

**2.**

**SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**

(a)

Recent accounting pronouncements (continued)

(ix)

Effective July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurements and Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments to ASC 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities. ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material impact on the Company’s results of operations or financial condition.

(x)

Effective June 30, 2009, the Company adopted three accounting standard updates which were intended to provide additional application guidance and enhanced disclosures regarding fair value measurements and impairments of securities. They also provide additional guidelines for estimating fair value in accordance with fair value accounting. The first update, as codified in ASC 820-10-65, provides additional guidelines for estimating fair value in accordance with fair value accounting. The second accounting update, as codified in ASC 320-10-65, changes accounting requirements for other-than-temporary-impairment (OTTI) for debt securities by replacing the current requirement that a holder have the positive intent and ability to hold an impaired security to recovery in order to conclude an impairment was temporary with a requirement that an entity conclude it does not intend to sell an impaired security and it will not be required to sell the security before the recovery of its amortized cost basis. The third accounting update, as codified in ASC 825-10-65, increases the frequency of fair value disclosures. These updates were effective for fiscal years and interim periods ended after June 15, 2009. The adoption of these accounting updates did not have a material impact on the Company’s financial statements.

(xi)

Effective June 30, 2009, the Company adopted a new accounting standard for subsequent events, as codified in ASC 855-10. The update modifies the names of the two types of subsequent events either as recognized subsequent events (previously referred to in practice as Type I subsequent events) or non-recognized subsequent events (previously referred to in practice as Type II subsequent events). In addition, the standard modifies the definition of subsequent events to refer to events or transactions that occur after the balance sheet date, but before the financial statements are issued (for public entities) or available to be issued (for nonpublic entities). The update did not result in significant changes in the practice of subsequent event disclosures, and therefore the adoption did not have a material impact on the Company’s financial statements.

Page 9 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Notes to the Consolidated Financial Statements**

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

**Three Months Ended May 31, 2011**

**3.**

**GOING CONCERN**

The accompanying financial statements have been prepared on a going concern basis. The Company has a history of operating losses and will need to raise additional capital to fund its planned operations. As at May 31, 2011, the Company had a cumulative loss, during its development period, of $47,268,285 (February 28, 2011 - $46,293,923). These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The Company intends to reduce its cumulative loss through the attainment of profitable operations from its investment in Mexican and Argentine mining ventures (Note 6). In addition, the Company has conducted private placements of convertible debt and common stock (Note 10), which have generated a portion of the initial cash requirements for its planned mining ventures (Note 6).

In March 2011, the Company completed a private placement of 6,560,000 units at $0.20 per unit, for total proceeds of $1,312,000. Each unit consisted of one share of common stock and a warrant to purchase one share of common stock. Each warrant is exercisable for one share of common stock at an exercise price of $0.30 per share for a period of two years from the closing date.

In September 2009, the Company entered into private placement subscription agreements, as thereafter amended, with certain U.S. accredited investors and certain non-U.S. investors for 12,500,000 unregistered shares of common stock with 100% warrant coverage at a purchase price of $0.20 per unit. The warrants have an exercise price of $0.30 per share with a two-year term and will not be exercisable until 12 months after their date of issuance. The Company received aggregate gross proceeds, prior to any expenses, from the private placement of $2,500,000.

In July 2009, the Company signed a definitive agreement to sell its Guazapares project located in southwest Chihuahua, Mexico to Paramount Gold de Mexico, SA de C.V., the Mexican subsidiary of Paramount Gold and Silver Corp. (“Paramount”) for a total consideration of up to $5,300,000. The purchase price is to be paid in two stages. The first payment of $3,700,000 was released from escrow in February 2010, as the transfer of the 12 claims to Paramount was completed. An additional payment of $1,600,000 is due if, within 36 months following execution of the letter of agreement (July 10, 2009), either (i) Paramount Gold de Mexico SA de C.V. is sold by Paramount, either through a stock sale or a sale of substantially all of its assets, or (ii) Paramount’s San Miguel project is put into commercial production.

In February 2009, the Company signed a definitive agreement with MRT which was amended in December 2009, to provide funding of up to $8,000,000 to the Company to initiate production at its Cieneguita property, complete a feasibility study, as well to continue the exploration of its properties (Note 6).

Page 10 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Notes to the Consolidated Financial Statements**

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

**Three Months Ended May 31, 2011**

**4.**

**EQUIPMENT**

 

May 31,

2011

February 28,

2011

 

Cost

Accumulated Depreciation

Net Book

Net Book

Value

Value

 

 

 

 

 

Software

$          24,980

$          18,063

$          6,917

$        6,734

Machinery

310,734

130,255

180,479

180,423

Vehicles

100,438

83,206

17,232

19,773

Computers

31,198

30,599

599

930

Office equipment

18,210

8,217

9,993

10,015

 

$        485,560

$        270,340

$        215,220

$        217,875

**5.**

**JOINT VENTURE WITH MRT**

On February 12, 2009, the Company entered into a joint venture through a definitive agreement for development of its Cieneguita project with MRT. The purpose of the joint venture is to put Cieneguita property into production. As per the agreement, MRT is to provide the necessary working capital to begin and maintain mining operations estimated to be $3,000,000. MRT will spend 100% of the funds in exchange for a 75% interest in the net cash flow from production. The agreement was amended in December 2009 for MRT to earn a 74% interest in the net cash flow from production (Note 6). The agreement limits the mining of the mineralized material that is available from the surface to a depth of 15 meters or approximately 10% of the mineralized material found as of the date of the definitive agreement. The Company incurs no obligations to the joint venture’s creditors as the operations and working capital requirements are controlled by MRT and as such, the Company has concluded that it is not the primary beneficiary of the joint venture. Accordingly, the Company’s share of income and expenses are reflected in these financial statements under the proportionate consolidation method.

The Company’s proportionate share of revenues was $328,128 and proportionate share of the net profit was $53,065 for the three months ended May 31, 2011. The Company’s proportionate share of accounts receivable of the joint venture was $158,885 at May 31, 2011. The joint venture did not have any other assets or liabilities at May 31, 2011.

**6.**

**MINERAL PROPERTIES**

The Company incurred exploration expenses as follows in the three months ended May 31, 2011:

** **

Cieneguita

Cerro Delta

Total 

 

 

 

 

Geological, geochemical, geophysics 

$   10,977 

$    25,515 

$    36,492 

Travel 

2,924 

- 

2,924 

Consulting 

3,828 

10,552 

14,380 

Equipment 

575 

- 

575 

General 

1,022 

- 

1,022 

 

$    19,326 

$    36,067 

$    55,393 

Page 11 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Notes to the Consolidated Financial Statements**

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

**Three Months Ended May 31, 2011**

**6.**

**MINERAL PROPERTIES (CONTINUED)**

The Company incurred exploration expenses as follows in the three months ended May 31, 2010:

** **

Sahuayacan

Cieneguita

Encino Gordo

New Projects

Total 

 

 

 

 

 

 

Drilling and sampling 

$      66,907 

$              - 

$               - 

$               - 

$     66,907 

Geological, geochemical, geophysics 

93,130 

- 

- 

1,129 

94,259 

Land use permits 

9,906 

30,627 

- 

- 

40,533 

Travel 

2,424 

2,932 

25 

- 

5,381 

Consulting 

7,483 

18,740 

849 

- 

27,072 

Equipment 

1,004 

1,397 

291 

- 

2,692 

General 

8,085 

13,285 

546 

- 

21,916 

 

$   188,939 

$    66,981 

$       1,711 

$       1,129 

$   258,760 

Since May 2004, the Company has held interests in gold exploration properties in Mexico. 

In August 2005, the Company formed its wholly owned subsidiary, Sunburst de Mexico, which allowed the Company to take title to the properties in the name of Sunburst de Mexico. On August 25, 2005, the Company entered into property agreements with MRT, which provided Sunburst de Mexico options to purchase the mineral concessions of the Cieneguita and Guazapares properties and the right of refusal on three Encino Gordo properties. The Company also entered into an exploration and sale agreement, in October 2006, with Minera Emilio S.A. de C.V. for the mineral concessions of the Sahuayacan property.

In August 2005, the parties also entered into an operator’s agreement, that gave MRT the sole and exclusive right and authority to manage the Cieneguita property, and a share option agreement which granted MRT the exclusive option to acquire up to 100% of all outstanding shares of Sunburst de Mexico if the Company did not comply with the terms of the property agreements. The operator’s agreement and share option agreement were subsequently cancelled when the Company and Sunburst de Mexico entered into a new contract with MRT as described below under “Encino Gordo”.

In February 2009, the Company entered into a development agreement with MRT, which was amended in December 2009. Pursuant to the terms of the development agreement, as amended, MRT agreed to invest up to $8,000,000 to put the first phase of the Cieneguita project into production and to complete a feasibility study. The first phase of production is limited to the mining of the mineralized material that is available from the surface to a depth of 15 meters (“First Phase Production”). In exchange, the Company assigned MRT an interest to 74% of the net cash flows from First Phase Production and MRT will earn a 54% ownership interest by spending up to $4,000,000 to take the Cieneguita project through the feasibility stage.

Page 12 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Notes to the Consolidated Financial Statements**

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

**Three Months Ended May 31, 2011**

**6.**

**MINERAL PROPERTIES (CONTINUED)**

The material provisions of the property agreements are as follows:

**Cieneguita**

MRT assigned to Sunburst de Mexico, with the permission of the Cieneguita property’s owner, Corporativo Minero, S.A. de C.V. (“Corporativo Minero”), all of MRT’s rights and obligations acquired under a previous agreement (the Cieneguita option agreement), including the exclusive option to acquire the Cieneguita property for a price of $2,000,000. Prior to assigning the Cieneguita property to the Company, MRT had paid $350,000 to Corporativo Minero. As the Cieneguita property was not in production by May 6, 2006, Sunburst de Mexico was required to pay $120,000 to Corporativo Minero to extend the contract. Corporativo Minero agreed to reduce the obligation to $60,000, of which $10,000 was paid in April 2006 and the balance paid on May 6, 2006. The Company made this payment to Corporativo Minero and the contract was extended.

The Company has the obligation to pay a further $120,000 per year for the next 13 years and the balance of the payments in the 14th year, until the total amount of $2,000,000 is paid. The Company renegotiated the payment due May 6, 2007, to $60,000 payable on November 6, 2007, which was paid, and the balance of $60,000 was paid on December 20, 2007. The Company paid $60,000 on May 12, 2008, of the $120,000 due on May 6, 2008, and the balance was paid in June 2008. The Company paid $30,000 each for a total of $120,000 on May 22, 2009, June 26, 2009, September 4, 2009 and November 20, 2009. In 2010, the Cieneguita project was put into production under the development agreement as described above and the payment terms were changed based on the following formula: 

If the Cieneguita property is put into production, the Company must pay the Cieneguita owners $20 per ounce of gold produced from the Cieneguita property to the total of $2,000,000 due. In the event that the price of gold is above $400 per ounce, the property payments payable to the Cieneguita owners from production will be increased by $0.10 for each dollar increment over $400 per ounce. The total payment of $2,000,000 does not change with fluctuations in the price of gold. Non-payment of any portion of the $2,000,000 total payment will constitute a default. In such case, the Cieneguita owners will retain ownership of the concessions, but the Company will not incur any additional default penalty.

Based on production at Cieneguita, the joint venture paid $120,000 during the fiscal year ended February 28, 2011 and $30,000 during the three months ended May 31, 2011 to the Cieneguita owners. As of May 31, 2011, Corporativo Minero has been paid a total of $980,000 for the Cieneguita property. The Company is not in default on its payments for the Cieneguita property.

Page 13 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Notes to the Consolidated Financial Statements**

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

**Three Months Ended May 31, 2011**

**6.**

**MINERAL PROPERTIES (CONTINUED)**

On February 12, 2009, the Company entered into a definitive agreement for development of the Cieneguita project with MRT. The definitive agreement covered project financing of up to $9,000,000. The major points of the agreement were as follows:

(i)

MRT and/or its investors will subscribe for $1,000,000 of a secured convertible debenture at 8% interest (payable in stock or cash). The debenture was convertible into units at $0.60 per unit. Each unit comprised two common shares and one warrant. Each warrant is exercisable at $0.50 per share for a period of three years. The placement will be used for continued exploration of the Company’s properties and general working capital. 

(ii)

MRT is to provide the necessary working capital to begin and maintain mining operations estimated to be $3,000,000 used for the purpose of putting the Cieneguita property into production. MRT will spend 100% of the money to earn 75% of the net cash flow from production. The agreement will limit the mining to the mineralized material that is available from surface to a depth of 15 meters or approximately 10% of the mineralized material found to date.

(iii)

MRT will spend up to $5,000,000 to take the Cieneguita property through the feasibility stage. In doing so, MRT will earn a 60% interest in Panam’s rights to the property. After the expenditure of the $5,000,000 all costs will be shared on a ratio of 60% to MRT and 40% to Panam. If the Company elects not to pay its portion of costs after the $5,000,000 has been spent, the Company’s position shall revert to a 25% carried interest on the property.

To generate funding for the Company’s continued operations, the Company issued $1,500,000 of convertible debentures in March 2009, of which an aggregate of $880,000 was issued to Mario Ayub, a director of the Company, and to his affiliated entity, MRT. Pursuant to the terms of the convertible debentures, the holders irrevocably converted the debentures into a 10% ownership interest in the Cieneguita project and a 10% interest in the net cash flow from First Phase Production.

In December 2009, Mario Ayub and MRT agreed to resell an aggregate 4% ownership interest in the Cieneguita project back to the Company, along with 4% of the net cash flow from First Phase Production, in return for $550,000. In a private transaction not involving the Company, the other holders contributed their remaining 6% ownership interest in the Cieneguita project to a newly formed entity, Marje Minerals SA (“Marje Minerals”).

The Company amended the development agreement and its agreements with the debenture holders in December 2009. According to the amended development agreement, the ownership interest in the Cieneguita project and the net cash flows from the First Phase Production are held by the Company, MRT and Marje Minerals as follows:

**Holder**

**Ownership Percentage**

**Net Cash Flow Interest From First Phase Production**

**Net Cash Flow Interest Following First Phase Production**

MRT

54% (1)

74%

54% (1)

Marje Minerals

6%

6%

6%

Panam

40%

20%

40%

(1) To be earned by MRT by spending $4,000,000 to take the Cieneguita project through the feasibility stage.

Any additional costs for the First Phase Production and the feasibility study for the Cieneguita project, after MRT invests $8,000,000, will be shared by the Company, MRT and Marje Minerals on a pro-rata basis based on their respective ownership percentages in the Cieneguita project.

Page 14 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Notes to the Consolidated Financial Statements**

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

**Three Months Ended May 31, 2011**

**6.**

**MINERAL PROPERTIES (CONTINUED)**

The major terms of the amended development agreement with MRT and Marje Minerals are as follows:

(i)

MRT purchased $1,000,000 of secured convertible debentures at 8% interest (payable in stock or cash). The proceeds from this investment were used for continued exploration and development of the Cieneguita project and general working capital. On November 5, 2009, MRT exercised its conversion rights on the debenture and MRT was issued 3,333,333 common shares and a warrant to purchase 1,666,667 shares of common stock at an exercise price of $0.50 per share.

(ii)

MRT agreed to provide the necessary working capital to begin and maintain mining operations, estimated to be $3,000,000, to put the first phase of the Cieneguita project into production. In exchange for these funds, the Company assigned MRT an interest to 74% of the net cash flow from First Phase Production. The agreement limits the mining during First Phase Production to the mineralized material that is available from the surface to a depth of 15 meters.

(iii)

MRT committed to spend up to $4,000,000 to take the Cieneguita project through the feasibility stage. In doing so, the Company assigned MRT a 54% interest in its rights to the Cieneguita project. After the expenditure of the $4,000,000, all costs will be shared on a pro rata ownership basis (i.e. 54% to MRT, 40% to the Company and 6% to Marje Minerals). If any party cannot pay its portion of the costs after the $4,000,000 has been spent, then their ownership position in the Cieneguita project will be reduced by 1% for every $100,000 invested by the other owners. The Company’s ownership interest in the Cieneguita project, however, cannot be reduced below 25%. In addition, the Company has the right to cover Marje Minerals’ pro rata portion of costs if they cannot pay their portion of the costs. In return, the Company will receive 1% of Marje Minerals’ ownership position in the Cieneguita project for every $100,000 the Company invests on their behalf.

(iv)

The MRT agreement was contingent on the Company repaying its debenture to Paramount. In March 2009, the Company repaid $1,000,000, or approximately two-thirds of the debt, and Paramount released a security interest it had on the Cieneguita project. In October 2009, the Company repaid the remaining amount of the debt and Paramount released its security interests on the Sahuayacan, Guazapares and Encino Gordo properties.

**Encino Gordo**

On December 8, 2005, the Company and Sunburst de Mexico entered into a “New Agreement” with MRT to exercise their option under the sale and purchase of the mining concessions agreement, dated August 18, 2005, to obtain two mining concessions in the Encino Gordo region. The New Agreement also provided the Company the option to obtain three additional concessions in the Encino Gordo region.

The following are additional material terms of the New Agreement:

(a)

The share option agreement with MRT was cancelled;

(b)

The Company granted MRT the option to buy all of the outstanding shares of Sunburst de Mexico for $100 if the Company failed to transfer $1,500,000 to Sunburst de Mexico by April 30, 2006. On April 6, 2006, MRT agreed to waive its option to purchase the shares of Sunburst de Mexico and also waived the Company’s obligation to transfer $1,500,000 to Sunburst de Mexico. The property agreements were modified to change the net smelter return (“NSR”) to a maximum of 2.5% for all properties covered by the agreements. The property agreements contained NSRs ranging from 0.5% to 7%;

Page 15 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Notes to the Consolidated Financial Statements**

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

**Three Months Ended May 31, 2011**

**6.**

**MINERAL PROPERTIES (CONTINUED)**

(c)

The Company agreed to issue 2,000,000 shares of the Company’s common stock to MRT within four months of the date of signing of the New Agreement. These shares were issued to MRT and its assignee at the market value of $1.05 per share on February 23, 2006, and $2,100,000 was charged to operations for the year ended February 28, 2006. This issuance fulfilled the Company’s payment obligations under the previous property agreements;

(d)

The Company agreed to issue 1,000,000 additional shares of the Company’s common stock to MRT if and when the Cieneguita Property is put into production and reaches 85% of production capacity over a 90-day period, as defined in the New Agreement; and

(e)

The operator’s agreement with MRT was cancelled.

Sunburst de Mexico purchased two of the Encino Gordo concessions from MRT for a price of 1,000 pesos (approximately US$100), and MRT assigned to Sunburst de Mexico a first right of refusal to acquire three additional Encino Gordo concessions. The total payments to acquire 100% of these three additional concessions were as follows: $10,000 on June 30, 2006 (paid); $25,000 on December 31, 2006 (paid), $50,000 on December 31, 2007 ($20,000 of this payment was made on January 3, 2008 and the balance was paid on February 29, 2008) and $75,000 on December 31, 2008 (the payment was not made and the Company was in default). In August 2009, the Company decided to surrender the Encino Gordo 2 mining concession eliminating any future concession payments on these properties.

**Sahuayacan**

In May 2010, the Company management decided to drop the Sahuayacan properties due to lack of economic thicknesses and grades of gold mineralization encountered in the drilling program eliminating any future concession payments on these properties.

**Cerro Delta**

In February 2011, the Company management entered into an agreement with Compania Minera Alto Rio Salado S.A., a private Argentine entity, for the acquisition of the 15,000 hectare Cerro Delta project in northwest La Rioja Province, Argentina. The agreement became effective in March 2011. Under the terms of the agreement, the Company must pay $150,000 upon signing (paid), and $200,000 on the first anniversary, $500,000 on the second anniversary, $750,000 on the third anniversary, $1.2 million on the fourth anniversary, and $2.2 million on the fifth anniversary of the signing, with a final option payment of $5 million to purchase a 100% interest in the Project payable on the sixth anniversary of the signing. The vendor will retain a 1% NSR.

Page 16 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Notes to the Consolidated Financial Statements**

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

**Three Months Ended May 31, 2011**

**7.**

**PROMISSORY NOTES**

As at May 31, 2011, the Company had $961,927 (February 28, 2011 - $884,022) of promissory notes outstanding, comprising the following: 

(a)

During the year ended February 29, 2008, the Company converted accounts payable of $465,994 (Swiss Franc (“CHF”) 565,000) into promissory notes. The Company had an implied obligation to pay the accounts payable in CHF as the funds to pay the expense came from Swiss investors in CHF. Accordingly, the promissory notes were issued in CHF. The notes consisted of one warrant for each CHF 5.00 of notes issued, exercisable at $1.00 each. The principal and interest on the notes became due and payable on April 30, 2008. The Company has not repaid the promissory notes as of May 31, 2011 and is in default. The principal and interest on the notes due and payable as of May 31, 2011 was $921,486. The interest rate payable during the default period is 12%.

(b)

During the quarter ended May 31, 2011, the Company entered into an agreement to convert $17,778 of the promissory notes including accrues interest by issuing 55,000 shares of the Company’s common stock (Note 10).

(c)

$11,130 of promissory notes is due to related parties that were to be repaid over a 12 month period as part of a debt settlement agreement. These notes bear no interest (Note 13). The Company has not made the monthly payments according to the settlement agreement and is in default.

(d)

$12,049 of promissory notes is due to an associate of a related party that bear no interest and have no repayment terms.

(e)

$17,262 of promissory notes bear no interest and have no repayment terms.

Page 17 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Notes to the Consolidated Financial Statements**

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

**Three Months Ended May 31, 2011**

**8.**

**LOANS PAYABLE**

As at May 31, 2011, there were loans payable in the amount of $6,481 (February 28, 2011 - $12,876), which are all current. The loans are repayable in monthly instalments of $3,272 (February 28, 2011 – $3,272), including interest of 7.50% per annum.

**9.**

**PREFERRED STOCK**

The Company is authorized to issue 20,000,000 shares of preferred stock. The Company’s board of directors is authorized to divide the preferred stock into series, and with respect to each series, to determine the preferences and rights and qualifications, limitations or restrictions thereof, including the dividend rights, conversion rights, voting rights, redemption rights and terms, liquidation preferences, sinking fund provisions, and the number of shares constituting the series and the designations of such series. The board of directors could, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting rights of the holders of common stock, which issuance could have certain anti-takeover effects.

**10.**

**COMMON STOCK**

In April 2011, the Company agreed to issue 423,753 of its common stock pursuant to a debt settlement agreement. The shares were valued at the time of the debt settlement agreement of $0.28 per share. 

In April 2011, the Company converted subscription proceeds of $347,000 and issued 1,735,000 shares of common stock in a private placement. The subscribers to the subscription proceeds have agreed to purchase one unit for each $0.20 of subscription proceeds. Each unit consists of one share of the Company’s common stock and one warrant each exercisable at $0.30, which expires in two years.

In March 2011, the Company converted subscription proceeds of $665,000 and issued 3,325,000 shares of common stock in a private placement. The subscribers to the subscription proceeds have agreed to purchase one unit for each $0.20 of subscription proceeds. Each unit consists of one share of the Company’s common stock and one warrant each exercisable at $0.30, which expires in two years.

In March 2011, the Company and a note holder agreed to cancel $17,778 in outstanding debt in exchange for 55,000 shares of the Company’s common stock.

In March 2011, the Company issued 500,000 shares of common stock and warrants to purchase 500,000 shares of common stock at $0.30, expiring on December 31, 2002, to a consultant.

In May 2010, the Company converted subscription proceeds of $50,000 and issued 250,000 shares of common stock in a private placement. The subscribers to the subscription proceeds have agreed to purchase one unit for each $0.20 of subscription proceeds. Each unit consists of one share of the Company’s common stock and one warrant each exercisable at $0.30, which expires in two years.

In December 2009, the Company converted subscription proceeds of $2,275,000 and issued 11,375,000 shares of common stock in a private placement. The subscribers to the subscription proceeds have agreed to purchase one unit for each $0.20 of subscription proceeds. Each unit consists of one share of Company’s common stock and one warrant each exercisable at $0.30, which expires in four years.

In November 2009, the Company received subscription proceeds of $65,000 and issued 325,000 shares of common stock in a private placement. The subscribers to the subscription proceeds have agreed to purchase one unit for each $0.20 of subscription proceeds. Each unit consists of one share of Company’s common stock and one warrant each exercisable at $0.30, which expires in four years. 

In November 2009, MRT converted the $1,000,000 debentures into units of $0.60 each. Each unit comprises 2 common shares and 1 warrant. Each warrant is exercisable at $0.50 per share for a period of 3 years. The Company issued 3,333,333 shares and 1,666,667 warrants to MRT.

Page 18 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Notes to the Consolidated Financial Statements**

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

**Three Months Ended May 31, 2011**

**10.**

**COMMON STOCK (CONTINUED)**

In October 2009, the Company received subscription proceeds of $20,000 and issued 100,000 shares of common stock in a private placement. The subscribers to the subscription proceeds have agreed to purchase one unit for each $0.20 of subscription proceeds. Each unit consists of one share of Company’s common stock and one warrant each exercisable at $0.30, which expire in four years.

In September 2009, the Company received subscription proceeds of $40,000 and issued 200,000 shares of common stock in a private placement. The subscribers to the subscription proceeds have agreed to purchase one unit for each $0.20 of subscription proceeds. Each unit consists of one share of Company’s common stock and one warrant each exercisable at $0.30, which expire in four years.

In July 2009, the Company received subscription proceeds of $100,000 and issued 500,000 shares of common stock in a private placement. The subscribers to the subscription proceeds have agreed to purchase one unit for each $0.20 of subscription proceeds. Each unit consists of one share of Company’s common stock and one warrant each exercisable at $0.30, which expire in four years.

In June 2009, the Company converted $622,500 of debt into subscription proceeds and issued 2,075,000 common shares. The subscribers to the subscription proceeds have agreed to purchase one unit for each $0.60 of debt. Each unit consists of two shares of Company’s common stock and one warrant each exercisable at $0.50, which expires on December 31, 2010.

In June 2009, the Company issued 1,000,000 shares of common stock to an officer of the Company as bonus. The Company recorded the shares at their fair value of $0.28 per share for a total of $280,000.

In May 2009, the Company converted $128,742 of debt into subscription proceeds and issued 429,141 common shares. The subscribers to the subscription proceeds have agreed to purchase one unit for each $0.60 of debt. Each unit consists of two shares of Company’s common stock and one warrant each exercisable at $0.50, which expires on December 31, 2010.

In May 2009, the Company converted $121,258 of stock subscriptions and issued 404,193 common shares. The subscribers have agreed to purchase one unit for each $0.60 of stock subscriptions. Each unit consists of two shares of Company’s common stock and one warrant each exercisable at $0.50, which expires on December 31, 2010.

In May 2009, the Company issued 42,837 shares for $13,500 of investors’ relations services as per the agreement.

In April 2009, the Company issued 2,250,000 shares under an escrow agreement as security against convertible debentures issued in the amount of $250,000. In October 2009, the Company defaulted on the terms of the agreement of the convertible debentures and released the shares from escrow in settlement of the convertible debentures.

In March and April 2009, the Company issued 700,000 shares pursuant to amended convertible debenture agreement and financing arrangements.

Page 19 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Notes to the Consolidated Financial Statements**

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

**Three Months Ended May 31, 2011**

**11.**

**STOCK COMPENSATION PROGRAM**

On March 18, 2009, the board of directors approved the granting of stock options according to the 2009 Nonqualified Stock Option Plan (“2009 Option Plan”) whereby the board is authorized to grant to employees and other related persons stock options to purchase an aggregate of up to 6,000,000 shares of the Company's common stock. Subject to the adoption of the 2009 Option Plan, the options were granted and vest, pursuant to the terms of the 2009 Option Plan, in six equal instalments, with the first instalment vesting at the date of grant, and the balance vesting over 2 1⁄2 years, every six months.

In the three months ended May 31, 2011, the Company awarded 1,600,000 options to purchase common shares (2010 – nil) and recorded stock-based compensation expense for the vesting options of $146,175 (2010 - $228,054). The following weighted average assumptions were used for the Black-Scholes option-pricing model to value stock options granted in 2012 and 2011:

 

2012

 

2011

Expected volatility

110.11%

 

110.36%

Weighted-average volatility

110.11%

 

110.36%

Expected dividend rate

-

 

-

Expected life of options in years

10

 

3 -10

Risk-free rate

3.38%

 

2.95%

There were no capitalized stock-based compensation costs at May 31, 2011 or May 31, 2010. 

The summary of option activity under the 2009 Option Plan as of May 31, 2011, and changes during the period then ended, is presented below:

**Options**

 

**Weighted**

**Average**

**Exercise**

**Price**

 

**Number of**

**Shares**

 

**Weighted-**

**Average**

**Remaining**

**Contractual**

**Term**

**Aggregate**

**Intrinsic**

**Value**

 

 

 

 

 

 

 

 

Balance at March 1, 2011

 

$0.46

 

6,735,000 

 

 

 

Options granted

 

0.29

 

1,600,000 

 

 

 

Options exercised

 

 

 

 

 

 

 

Options cancelled/forfeited

 

0.60

 

(2,045,000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at May 31, 2011

 

$0.35

 

6,290,000 

 

8.36

$32,550

 

 

 

 

 

 

 

 

Exercisable at May 31, 2011

 

$0.42

 

3,967,500 

 

7.35

$25,750

 

 

 

 

 

 

 

 

The weighted-average grant-date fair value of options granted during the three months ended May 31, 2011 was $0.27 and $nil, respectively.

Page 20 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Notes to the Consolidated Financial Statements**

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

**Three Months Ended May 31, 2011**

**11.**

**STOCK COMPENSATION PROGRAM (CONTINUED)**

A summary of the status of the Company’s nonvested options as of May 31, 2011, and changes during the three months ended May 31, 2011, is presented below: 

 

**Non-vested options**

 

 

** **

**Shares**

 

 

**Weighted-average**

**Grant-Date**

**Fair Value**

 

 

** **

 

 

Non-vested at February 28, 2011

 

1,376,666 

 

$0.26

Granted

 

1,600,000 

 

0.27

Vested

 

(454,166) 

 

0.26

Cancelled/forfeited

 

(95,001)

 

0.16

 

 

 

 

 

Non-vested at May 31, 2011

 

2,427,499 

 

0.26

As of May 31, 2011, there was an estimated $519,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 2009 nonqualified stock option plan. That cost is expected to be recognized over a weighted-average period of approximately 2.09 years.

On April 29, 2011, the Company repriced the exercise price of 1,125,000 vested stock options by reducing the exercise prices of $0.36 and $0.44 to $0.28. As a result, the Company recorded incremental stock-based compensation of $6,000 during the three months ended May 31, 2011.

Page 21 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Notes to the Consolidated Financial Statements**

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

**Three Months Ended May 31, 2011**

**12.**

**WARRANTS**

As at May 31, 2011, the Company had a total of 31,386,733 warrants (February 28, 2011 – 25,826,733) outstanding to purchase common stock. Each warrant entitles the holder to purchase one share of the Company’s common stock. The Company has reserved 31,386,733 shares of common stock in the event that these warrants are exercised.

During the three months ended May 31, 2011, the Company received $nil from warrants exercised. 

The following table summarizes the continuity of the Company’s share purchase warrants: 

 

**Number of**

**Warrants**

**Weighted Average Exercise Price**

 

 

 

 

Balance, February 28, 2010

25,380,900 

$

0.43 

Issued

3,000,000 

 

0.25 

Cancelled/expired

(2,554,167)

 

0.44 

Exercised

- 

 

- 

 

 

 

 

Balance, February 28, 2011

25,826,733 

$

0.41 

 

 

 

 

Issued

5,560,000 

 

0.30 

Cancelled

- 

 

- 

Exercised

- 

 

- 

 

 

 

 

May 31, 2011

31,386,733 

$

0.39 

 

 

 

 

As at May 31, 2011, the following share purchase warrants were outstanding:

**Number of Warrants**

**Exercise Price**

 

**Expiry Date**

 

 

 

 

3,000,000

$ 0.25

 

July 26, 2012

166,666

   0.30

 

May 8, 2012

1,125,000

   0.30

 

July 23, 2011 to November 5, 2011

11,375,000

   0.30

 

December 30, 2011

500,000

  0.30

 

December 31, 2012

3,325,000

  0.30

 

March 17, 2013

1,735,000

  0.30

 

April 13, 2013

300,000

   0.36

 

July 23, 2011

200,000

   0.40

 

March 24, 2012

600,000

   0.50

 

August 15, 2012

5,000,000

   0.50

 

December 24, 2012

1,666,667

   0.50

 

November 5, 2012

200,000

   0.65

 

June 30, 2012

1,793,400

   0.75

 

April 2012 to August, 2013

200,000

   1.30

 

June 30, 2012

200,000

$ 2.00

 

June 30, 2012

31,386,733

 

 

 

Page 22 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Notes to the Consolidated Financial Statements**

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

**Three Months Ended May 31, 2011**

**13.**

**RELATED PARTY TRANSACTIONS**

For the three months ended May 31, 2011, the Company paid or accrued management and directors fees of $91,000 (May 31, 2010 - $81,000) to certain officers and directors. The Company also paid or accrued $256,350 (May 31, 2010 - $3,765) to certain officers and directors for finders’ fee, travel, office and other related expenses. 

The Company also paid consulting fees of $24,000 (May 31, 2010 - $nil) to a company owned by a director.

As at May 31, 2011, accounts payable of $474,294 (May 31, 2010 - $263,679) was owing to directors and officers of the Company and $1,826 (May 31, 2010 - $nil) was owing to a company controlled by a director. In addition, promissory notes of $11,130 (May 31, 2010 - $9,944) were owed to a company controlled by a director (Note 7).

All related party transactions are in the normal course of business at the exchange amount agreed to by each party.

**14.**

**SUPPLEMENTAL CASH FLOW INFORMATION**

 

 

Quarter ended May 31, 2011

 

Quarter ended May 31, 2010

 

Period From Inception of Development Stage (March 1, 2004) to 

May 31, 2011

 

 

 

 

 

 

 

Interest paid

$

- 

$

- 

$

310,053 

Common stock issued on conversion of debt

 

10,000 

 

- 

 

4,203,000 

Common stock issued on settlement of notes payable

 

17,778 

 

- 

 

3,151,100 

Common stock issued for interest costs

 

- 

 

- 

 

82,500 

Common stock issued for financing costs

 

- 

 

- 

 

145,000 

Common stock issued for mineral property costs

 

- 

 

- 

 

580,000 

Common stock issued for bonuses 

 

- 

 

- 

 

512,750 

Shares issued for services

$

127,500 

$

- 

$

638,090 

**15.**

**SUBSEQUENT EVENTS**

In June 2011, the Company converted subscription proceeds of $300,000 and issued 1,500,000 shares of common stock in a private placement. The subscribers to the subscription proceeds have agreed to purchase one unit for each $0.20 of subscription proceeds. Each unit consists of one share of the Company’s common stock and one warrant each exercisable at $0.30, which expires in two years.

On June 27, 2011, the Company entered into a binding letter agreement (the “Letter Agreement”) with Minera Rio Tinto, S.A. de C.V. an entity organized under the laws of the United Mexican States (“MRT”) and Marje Minerals S.A., an entity organized under the laws of the United Mexican States (“MM”), concerning the restructuring of the prior agreements between the parties, including their respective ownership interests in the Company’s Cieneguita project.

Page 23 

**PAN AMERICAN GOLDFIELDS LTD.**

**(A Development Stage Company)**

**Notes to the Consolidated Financial Statements**

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

**Three Months Ended May 31, 2011**

**15.**

**SUBSEQUENT EVENTS (CONTINUED)**

The Letter Agreement provides that the parties will commence to use their best efforts to negotiate, finalize and execute definitive agreements, which will amend and restate the existing agreements between the parties related to the Cieneguita project. The definitive agreements are expected to be completed by August 27, 2011. Additionally, the terms of the Letter Agreement are binding on the parties, and restate the existing agreements between the parties. The Letter Agreement is governed by California law, and may be terminated by mutual written consent of the parties or by either the Company or MRT if the restructuring contemplated by the Letter Agreement is enjoined by a court or a governmental body. Pending completion of the definitive agreements, the Company can commence preliminary work and analyses on the Cieneguita project and propose preliminary work plans and budgets for the same, which shall be subject to the approval of MRT, which approval shall not be unreasonably withheld or delayed.

Under the Letter Agreement, the parties agreed to restructure their respective ownership interests in the Cieneguita project as follows:

**Holder**

**Ownership %**

**Net Cash Flow % First 15 meters**

**Net Cash Flow % for the rest of the project**

MRT

20%

74%

20%

MM

0%

6%

0%

Company

80%

20%*

80%

The Company and MRT shall be responsible for the cost of the feasibility study on a pro rata basis based on their respective amended ownership percentages of the Cieneguita project.

And, the Company will issue MM 3,333,333 shares of its restricted common stock in exchange for its 6% interest in the Cieneguita project.

MM will also assume approximately $490,000 in debt of the Company in consideration for receiving half of all monthly net cash flows that the Company is entitled from the first 15 meters, until the sooner of December 31, 2012 or until MM receives $490,000 from these cash flows.

In June 2011, the Company issued 125,000 shares to a consultant pursuant to a consulting agreement.

In June 2011, the Company issued the 423,752 shares pursuant to the April 2011 debt settlement agreement. 

Page 24 

**ITEM 2.**

**MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**Cautionary Statement Regarding Forward-Looking Statements**

Certain statements contained in this Form 10-Q, including statements in the following discussion which are not statements of historical fact, constitute "forward-looking statements". These statements, which may be identified by words such as “plans”, “intends”, "anticipates", “hopes”, “seeks”, “will”, "believes", "estimates", "should", "expects" and similar expressions include our expectations and objectives regarding our present and future financial position, operating results and business strategy. These statements reflect the current views of management with respect to future events and are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from those described in such forward-looking statements. Numerous factors and future events could cause us to change such plans and objectives or fail to successfully implement such plans or achieve such objectives, or cause such present and future operations to fail to produce revenues, income or profits. Such risks and uncertainties include those set forth under this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Form 10-Q and in our Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”). These forward-looking statements represent beliefs and assumptions only as of the date of this report. We undertake no obligation to update the forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information. No statements contained in the following discussion should be construed as a guarantee or assurance of future performance or future results. We advise you to carefully review the reports and documents we file from time to time with the SEC, particularly our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K.

 

**Overview**

We are a development stage company and have generated only limited revenues from our Cieneguita project to date, and have not yet generated or realized any revenue from our other two exploration projects. As of May 31, 2011, we had $502,239 in our bank account.

In June 2011, we entered into a binding letter agreement (the “Letter Agreement”) with Minera Rio Tinto, S.A. de C.V. an entity organized under the laws of the United Mexican States (“MRT”) and Marje Minerals S.A., an entity organized under the laws of the United Mexican States (“MM”), concerning the restructuring of the prior agreements between the parties, including their respective ownership interests in the Company’s Cieneguita project in Chihuahua State, Mexico.

The Letter Agreement provides that the parties will commence to use their best efforts to negotiate, finalize and execute definitive agreements, which will amend and restate the existing agreements between the parties related to the Cieneguita project. The definitive agreements are expected to be completed by August 27, 2011. Additionally, the terms of the Letter Agreement are binding on the parties, and restate the existing agreements between the parties. Pending completion of the definitive agreements, we can commence preliminary work and analyses on the Cieneguita project and propose preliminary work plans and budgets for the same.

Under the Letter Agreement, the parties agreed to restructure their respective ownership interests in the Cieneguita project as follows:

**Holder**

**Ownership %**

**Net Cash Flow % First 15 meters**

**Net Cash Flow % for the rest of the project**

MRT

20%

74%

20%

MM

0%

6%

0%

Company

80%

20%*

80%

The Company and MRT shall be responsible for the cost of the feasibility study on a pro rata basis based on their respective amended ownership percentages of the Cieneguita project.

In March 2011, we appointed Bruno Le Barber as a member of the board of directors. Mr. Le Barber has extensive financial expertise and is a co-founder of Vortex Capital (“Vortex”), a Hong Kong based gold fund. Previously he was a Vice President at Morgan Stanley in London where he advised trading desks and a large investor base while publishing macro-economic studies. Mr. Le Barber was also a global technical strategist with ABN Amro in Paris.He manages Vortex together with Emilio Alvarez, former Executive Director, Equity Research with Morgan Stanley in London.

In February 2011, we entered into an agreement with Compania Minera Alto Rio Salado S.A., a private Argentine entity, for the acquisition of the 15,000-hectare Cerro Delta project in northwest La Rioja Province, Argentina. Under the terms of the agreement, the Company must pay $150,000 upon signing (paid), $200,000 on the first anniversary, $500,000 on the second anniversary, $750,000 on the third anniversary, $1.2 million on the fourth anniversary, and $2.2 million on the fifth anniversary of the signing, with a final option payment of $5 million to purchase a 100% interest in the Cerro Delta project payable on the sixth anniversary of the signing. The vendor will retain a 1% net smelter revenue (“NSR”).

Page 25 

In conjunction with the acquisition of the Cerro Delta project, we completed a private placement of 6,560,000 units at $0.20 per unit, for total proceeds of $1,312,000. Each unit consists of one share of common stock and a warrant to purchase one share of common stock. Each warrant is exercisable for one share of common stock at a conversion price of $0.30 for a period of two years from the closing date.

In October 2010, we appointed Miguel F. Di Nanno President and Chief Operating Officer, replacing George Young effective as of October 15, 2010. Mr. Young remains on our board of directors. Mr. Di Nanno has experience in mining and energy exploration and most recently served as president of Somuncurah S.R.L. and AupaS.A., both exploration and development firms focused in Argentina. He has also previously served as the chief operating officer of the Grosso Group, an exploration and new mining business development firm and as the representative and country manager in Argentina for Palladon Ventures Ltd., a gold and silver exploration company. He has a degree in Mining Engineering – Ore Dressing from the National University of San Juan. 

In July 2010, we appointed Neil Maedel, Randy Buchamer and Gary Parkison to our board of directors. Mr. Maedel is an investment banker specializing in international resource projects; Mr. Buchamer has extensive experience in business administration and finance; and Mr. Parkison is qualified geologist and project manager with expertise in exploration and development of minerals and metals projects. All of the newly appointed directors have technical and financial industry experience base that will assist us with operations and our planned listing on either the Toronto Stock Exchange or the TSX Venture Exchange, consistent with our status as a producing resource company.

In July 2010, we reincorporated from the State of Colorado to the State of Delaware. The reincorporation was effected pursuant to an agreement and plan of merger (the “Merger Agreement”), by and between us and Pan American Goldfields Ltd., a Colorado corporation (formerly Mexoro Minerals Ltd.), with Pan American being the surviving corporation. Accordingly, the rights of our shareholders are now governed by Delaware General Corporation Law and the certificate of incorporation and bylaws of Pan American are filed with the State of Delaware.

In May 2010, management decided to drop the Sahuayacan project due to lack of economic thicknesses and grades of gold mineralization encountered in the drilling program, eliminating any future concession payments for this project.

Our continued existence and plans for future growth depend on the receipt of funds from our partner MRT from the ongoing operations at the Cieneguita mine operations. Should there be an interruption in this cash flow it will be necessary to obtain additional capital to operate either through the issuance of additional debt or equity. 

For the quarter ended May 31, 2011, the joint venture with MRT, as described further below, generated net cash flows from the tuning and start-up operations of approximately $265,000 of which $53,000 is attributable to us under the joint venture agreement. We originally received guidance from MRT that we should expect net cash flow of approximately $140,000 per month beginning December 2010 rising to more than $200,000 per month by May 2011. However due to the current drought, a lack of water supply has sharply reduced the amount of mined material that can be processed. As a consequence the income expected has not been received to date. Operations are currently at pit #3 where metals contained in the material recovered so far have averaged approximately 1.2 grams per ton Au, 90 grams per to Ag, 0.04% Cu, 0.35% Pb and 0.65% Zn. MRT however initially experienced difficulty in reducing a portion of the mined material to a particle size that would allow for optimum recovery of contained gold, silver and base metals. To achieve the desired grinding – comminution capacity, MRT has recently installed a ball mill which is rated at 750 tons per day and pulverizes the larger material as it is produced. Once the drought ends as expected with the beginning of the June rainy season, and assuming the already established processing capability and recoveries, we expect the overall production capacity to rise to approximately 700 tons per day on a sustained basis, and that recently improved metal recoveries, which have increased significantly due to the grinding circuit improvements and changes in reagent, will also be maintained. Despite the improvements there remains significant risk to us for this type of extracting of mineralized material because we will not have established reserves at Cieneguita until an independent feasibility study is complete. Consequently, we do not know if the extraction and processing of mineralized material from the Cieneguita property will result in any cash flows for us. 

Accordingly, for the 12-month period from June 2011 through May 2012, we need to raise additional capital to pursue our business plan of preparing a feasibility study and acquiring, exploring and developing additional high impact mineral properties and to provide a buffer for the possibility that the expected net cash flow currently generated by MRT is interrupted. 

During this period, we will need to receive from production at the Cieneguita operations a minimum of $1,250,000 for general and administrative costs. As continuous operations have only recently begun, we cannot ascertain how reliable this income will be. This does not include any capital needed to pay our accounts payables and to execute our exploration programs as described below.

Page 26 

**Plan of Operation**

*Summary*

Our business plan is to proceed with the exploration and development of our Mexican and Argentine mineral properties to determine whether they contain commercially exploitable reserves of gold, silver or other metals. 

In the event that our exploration and development program finds exploration targets that warrant additional exploration work, including exploration by drilling, we will not have enough cash available to fund an expanded exploration program. If we decide to expand our exploration and development program, we would need to raise additional capital to meet these needs. We currently do not have any sources of additional capital available to us and we may not have any in the future. The failure to raise additional capital would severely curtail our ability to conduct any additional exploration work that might be warranted because of the results of our current exploration program. 

On June 28, 2011, we appointed Neil Maedel as chairman of the board.

On May 3, 2011, we appointed Dr. Alexander Becker as advisor to the board of directors, who has a PhD in Structural Geology and an extensive history as an exploration geologist, to assist us with the selection and development of exploration projects.

In February 2011, we entered into an agreement with Compania Minera Alto Rio Salado S.A., a private Argentine entity, for the acquisition of the 15,000-hectare Cerro Delta project in northwest La Rioja Province, Argentina. Under the terms of the agreement, the Company must pay $150,000 upon signing (paid), $200,000 on the first anniversary, $500,000 on the second anniversary, $750,000 on the third anniversary, $1.2 million on the fourth anniversary, and $2.2 million on the fifth anniversary of the signing, with a final option payment of $5 million to purchase a 100% interest in the Cerro Delta project payable on the sixth anniversary of the signing. The vendor will retain a 1% NSR.

In conjunction with the acquisition of the Cerro Delta project, we completed a private placement of 6,560,000 units at $0.20 per unit, for total proceeds of $1,312,000. Each unit consists of one share and one share purchase warrant. Each warrant is convertible into one share at a conversion price of $0.30 for a period of two years from the closing date.

In March 2011, we appointed Bruno Le Barber as a member of the board of directors. Mr. Le Barber has extensive financial expertise and is a co-founder of Vortex, a Hong Kong based gold fund. Previously he was a Vice President at Morgan Stanley in London where he advised trading desks and a large investor base while publishing macro-economic studies. Mr. Le Barber was also a global technical strategist with ABN Amro in Paris. He manages Vortex together with Emilio Alvarez, former Executive Director, Equity Research with Morgan Stanley in London.

In October 2010, we appointed Miguel F. Di Nanno as president, replacing George Young effective as of October 15, 2010. Mr. Young remains on our board of directors. Mr. Di Nanno has experience in mining and energy exploration and most recently served as president of Somuncurah S.R.L. and AupaS.A., both exploration and development firms focused in Argentina. He has also previously served as the chief operating officer of the Grosso Group, an exploration and new mining business development firm and as the representative and country manager in Argentina for Palladon Ventures Ltd., a gold and silver exploration company. He has a degree in Mining Engineering – Ore Dressing from the National University of San Juan.

In July 2010, we appointed Neil Maedel, Randy Buchamer and Gary Parkison to our board of directors. Mr. Maedel is an investment banker specializing in international resource projects; Mr. Buchamer has extensive experience in business administration and finance; and Mr. Parkison is qualified geologist and project manager with expertise in exploration and development of minerals and metals projects. All of the newly appointed directors have technical and financial industry experience base that will assist us with operations and our planned listing on either the Toronto Stock Exchange or the TSX Venture Exchange, consistent with our status as a producing resource company.

In July 2010, we reincorporated from the State of Colorado to the State of Delaware. The reincorporation was effected pursuant to an agreement and plan of merger (the “Merger Agreement”), by and between us and Pan American Goldfields Ltd., a Colorado corporation (formerly Mexoro Minerals Ltd.), with Pan American being the surviving corporation. Accordingly, the rights of our shareholders are now governed by Delaware General Corporation Law and the certificate of incorporation and bylaws of Pan American are filed with the State of Delaware.

In May 2010, Mr. Francisco “Barry” Quiroz and Mr. John Clair resigned from our board of directors. Neither director resigned as a result of a disagreement with us on any matter relating to our operations, policies or practices.

In September 2009, we entered into private placement subscription agreements, as thereafter amended, with certain U.S. accredited investors and certain non-U.S. investors for the private placement of 12,500,000 unregistered shares of the common stock with 100% warrant coverage at a purchase price of $0.20 per unit. The warrants have an exercise price of $0.30 per share, a two-year term and will not be exercisable until 12 months after their date of issuance. As a result of the sale of all the unregistered shares, we received aggregate gross proceeds, prior to any expenses, of $2,500,000 from the private placement.

Page 27 

In August 2009, we dropped one of our properties in the Encino Gordo concessions, Encino Gordo 2. Management determined that the property payments due to the concession holder were too expensive and we decided to not make the required option payment. There is currently no plan to renegotiate the payments for this property.

In May 2009, we entered into a letter of agreement and in July 2009, we signed the definitive agreement to sell our Guazapares project, located in south western Chihuahua, Mexico to Paramount Gold de Mexico, SA de C.V., and the Mexican subsidiary of Paramount Gold and Silver Corp. (“Paramount”) for a total consideration of up to $5.3 million. The Guazapares project is comprised of 12 claims close to Paramount’s San Miguel discovery. The purchase price is to be paid in two stages, with the first payment of $3.7 million released from escrow in February 2010, as the transfer of the 12 claims to Paramount was completed. An additional payment of $1.6 million is due if, by July 10, 2012, either (i) Paramount sells its Mexican subsidiary or (ii) Guazapares is put into production. The definitive agreement closed in October 2009 and a 5.7% commission was paid on the closing of the sale.

In February 2009, we entered into a development agreement with MRT, which we amended in December 2009. Pursuant to the terms of the development agreement, as amended, MRT has agreed to invest up to $8 million to initiate the first phase of production and to complete a feasibility study on the Cieneguita project. The first phase of production is limited to the mining of the mineralized material that is available from the surface to a depth of 15 meters (“First Phase Production”). In exchange, we assigned MRT a 74%interest of the net cash flows from First Phase Production and a 54% ownership interest in the Cieneguita project.

To fund our continued operations, we issued $1.5 million of convertible debentures in March 2009, of which an aggregate of $880,000 was issued to Mario Ayub, one of our directors, and to his affiliated entity, MRT. Pursuant to the terms of the convertible debentures, the holders irrevocably converted the debentures into a 10% ownership interest in the Cieneguita project and a 10% interest in the net cash flow from First Phase Production. In December 2009, Mario Ayub and MRT agreed to resell an aggregate 4% ownership interest in the Cieneguita project back to us, along with 4% of the net cash flow from First Phase Production, in return for $550,000. In a private transaction not involving us, the other holders contributed their remaining 6% ownership interest in the Cieneguita project to MM.

As a result of our amended development agreement and our agreements with the debenture holders, the ownership interest in the Cieneguita project and the net cash flows from the First Phase Production are held by us, MRT and MM as follows: 

**Holder**

**Ownership Percentage**

**Net Cash Flow Interest From First Phase Production**

**Net Cash Flow Interest Following First Phase Production**

MRT

54%

74%

54%

Marje Minerals

6%

6%

6%

Pan American

40%

20%

40%

Any additional costs for the First Phase Production and the feasibility study for the Cieneguita project, after MRT invests $8 million, will be shared by us, MRT and Marje Minerals on a pro-rata basis based on their respective ownership percentages in the Cieneguita project.

The major terms of the development agreement with MRT and Marje Minerals are as follows: 

·

MRT purchased $1 million of secured convertible debentures at 8% interest (payable in stock or cash). The proceeds from this investment were used for continued exploration and development of the Cieneguita project and general working capital. In November 2009, MRT exercised its conversion rights on the debenture and MRT was issued 3,333,333 common shares and a warrant to purchase 1,666,667 shares of common stock at an exercise price of $0.50 per share.

·

MRT agreed to provide the necessary working capital to begin and maintain mining operations, estimated to be $3 million, to put the first phase of the Cieneguita project into production. In exchange for these funds, we assigned MRT an interest to 74% of the net cash flow from First Phase Production. The agreement limits the mining during First Phase Production to the mineralized material that is available from the surface to a depth of 15 meters.

·

MRT committed to spend up to $4 million to take the Cieneguita project through the feasibility stage. In doing so, we assigned MRT a 54% interest in our rights to the Cieneguita project. After the expenditure of the $4 million, all costs will be shared on a pro-rata ownership basis (i.e. 54% to MRT, 40% to us and 6% to Marje Minerals). If any party cannot pay its portion of the costs after the $4 million has been spent, then their ownership position in the Cieneguita project will be reduced by 1% for every $100,000 invested by the other owners. Our ownership interest in the Cieneguita project, however, cannot be reduced below 25%. In addition, we have the right to cover Marje Minerals’ pro rata portion of costs if they cannot pay their portion of the costs. In return, we will receive 1% of Marje Minerals’ ownership position in the Cieneguita project for every $100,000 we invest on their behalf.

Page 28 

·

The MRT agreement was contingent on our repaying a debenture to Paramount. In March 2009, we repaid $1 million, or approximately two-thirds of the debt, and Paramount released a security interest it had on the Cieneguita project. In October 2009, we repaid the remaining amount of the debt, and Paramount released its security interests on the Sahuayacan, Guazapares and Encino Gordo properties.

In June 2011, we entered into a binding Letter Agreement with MRT and MM, concerning the restructuring of the amended development agreements between the parties, including their respective ownership interests in the Company’s Cieneguita project.

The Letter Agreement provides that the parties will commence to use their best efforts to negotiate, finalize and execute definitive agreements, which will amend and restate the existing agreements between the parties related to the Cieneguita project. The definitive agreements are expected to be completed by August 27, 2011. Additionally, the terms of the Letter Agreement are binding on the parties, and restate the existing agreements between the parties. Pending completion of the definitive agreements, we can commence preliminary work and analyses on the Cieneguita project and propose preliminary work plans and budgets for the same.

Under the Letter Agreement, the parties agreed to restructure their respective ownership interests in the Cieneguita project as follows:

**Holder**

**Ownership %**

**Net Cash Flow % First 15 meters**

**Net Cash Flow % for the rest of the project**

MRT

20%

74%

20%

MM

0%

6%

0%

Company

80%

20%*

80%

The Company and MRT shall be responsible for the cost of the feasibility study on a pro rata basis based on their respective amended ownership percentages of the Cieneguita project.

In September 2009, we hired George Young as our chief operating officer, Salil Dhaumya as our chief financial officer and Manuel Flores as our operations manager. In November 2009, Mr. Young was appointed president upon the resignation of Francisco “Barry” Quiroz. In October 2010, we appointed Miguel F. Di Nanno as president replacing Mr. Young. Other than these employees, all of the employees we hire are contracted from third parties specializing in providing employees for Mexican companies. In using third party contractors we minimize our exposure to Mexican employment law and all liabilities are undertaken by the third party contractors providing the services. We pay a flat rate to the third parties for their services.

In February 2009 we entered into a development agreement with MRT to provide us with immediate funding to initiate production at our Cieneguita property, to complete a feasibility study and to continue the exploration of its properties. The development agreement was amended in December 2009 and calls for project funding of up to $8 million to be spent on First Phase Production and to complete a feasibility study. To date, MRT has contributed $1 million in working capital and has spent additional funds on initiating production on the Cieneguita project through the building of a floatation circuit mill.

Our continued existence and plans for future growth depend on our ability to obtain the additional capital necessary to operate either through the generation of revenue or the issuance of additional debt or equity. Additionally, if our exploration during that time period is successful, we may need to raise additional capital to fund those exploration programs. At this time, we cannot assess with any accuracy our total capital needs to fund an expanded exploration program beyond our basic program.

For the 12-month period from June 2011 through May 2012, we need to raise additional capital to maintain operations. We will need a minimum of $1,500,000 for general and administrative costs. This does not include any capital needed to pay our accounts payables and to execute our exploration programs as detailed below.

In the event that we do discover a mineral deposit on one of our properties, of which there is no guarantee, we would need to expend substantial amounts of capital to put any of our properties into production, if so warranted. The amount of such expenditures is indeterminable at this time as our exploration and development program has not advanced far enough to provide us with results to determine this information.

Such expenditures depend upon the size of the mineralized body, the grade of the mineralized body and the type of mining that is required to extract any minerals that may be found. Regardless, we do not have enough capital available to us to make any such expenditure that would be required to put any mineral property into production, and we therefore would have to raise the additional capital or, if possible, enter into a joint venture for the production phase. If we were to form a joint venture, we cannot assess what our final position in the project would be. We do not have any sources of capital available to us at this time to fund such a project if one should be discovered.

Page 29 

In the event that we should find a mineable reserve, it is management’s intention to contract the mining and milling of any mineralized reserves out to third parties. We do not have any known reserves at this time.

**Exploration Projects – Current Status**

To date the Sierra Madre gold exploration program has been focused on advancing current exploration projects to the next exploration stage. During most of 2008 and 2009, exploration activities were concentrated on four projects: Sahuayacan, Encino Gordo, Guazapares and Cieneguita. However, exploration activities during fiscal 2010 and 2011 were focused on the Cieneguita project. We dropped the Sahuayacan project due to lack of economic thicknesses and grades of gold mineralization encountered in the drilling program eliminating any future concession payments on these properties. As well, we sold our Guazapares concessions to Paramount in the fiscal year ended February 28, 2010. To date most of the data gathered during our field campaigns and drilling programs is completely compiled and is being evaluated. The next exploration stages for the Cieneguita and Encino Gordo projects are in the planning process.

The exploration program for Cerro Delta project is under planning and we intend to start the drilling program at the end of 2011. An initial drilling campaign is estimated at a cost of $700,000. 

Over the next 12 months, we intend to explore our three projects, Cieneguita, Encino Gordo and Cerro Delta, to determine whether there are economically attractive concentrations of gold and gold-silver mineralization. We intend to hire additional employees but do not plan to make any purchase of equipment over the next 12 months. At this time, though, the exploration program is only planned for the next 12 months, which we will undertake when the necessary capital has been raised to complete these programs. We do not have any sources of capital identified at this time and no assurance can be given that we will be able to complete the proposed exploration program.

The following map illustrates the locations of the Cieneguita and Encino Gordo projects in Mexico:

Page 30 

To date most of the data gathered during our field campaigns and drilling programs is completely compiled and is being evaluated.

Location of Cerro Delta Project in La Rioja Province, Argentina:

**Cieneguita**

The main activities in the Cieneguita project are set forth below:

·

100 diamond drill holes completed for a total of 20,215 meters of drilling.

·

Broad mineralized intercepts including 111.5 meters with 1.24 g/t Au, 99.6 g/t Ag, 0.45% Pb and 0.73% Zn (C-21) and 94 meters with 1.21 g/t Au, 79.8 g/t Ag, 0.78% Pb and 1.2% Zn (CI-30).

·

Mineralization at Cieneguita has been traced over 900 meters along strike and still remains open to the southwest and to depth.

·

Exploration ongoing; infill drilling program has been designed to expand the size of the mineralized material.

We have conducted a series of exploration programs at Cieneguita since March 2007. The drilling exploration program commenced in December 2007 with one drill rig and a second rig was added in July 2008. The drilling was completed in December 2008.

Assay results and an analysis of the drilling and exploration work are compiled and described in our recently filed Technical Report on National Instrument Form 43-101 (“NI 43-101”), which was completed following the end of fiscal 2010, and is in compliance with the standards and requirements of Canadian security regulatory authorities. The NI 43-101 report is also available on our website, www.panamericangoldfields.com. Two different styles of mineralization have been identified: precious (gold-silver) and base (lead-zinc-silver) metal mineralization, with higher gold-silver grades starting on surface and lead-zinc-silver mineralization intercepted at depth and to the west of the Cieneguita deposit. We interpret the Cieneguita deposit as a diatreme breccia body where disseminated oxide and sulphide mineralization is mainly hosted by quartz-sericite altered diatreme breccias and lapilli tuffs.

Page 31 

The mineralized body is shaped like a funnel which has been flattened laterally, measuring over 900 meters by 300 meters as defined by the drill results. We have completed a cross section‐based geological model and have calculated inferred mineralized material of 15.249 million tons with 2.62 g/t Au equivalent based on assays that were composited using the sum of the dollar values for Au, Ag, Pb and Zn in each drill interval. Three-year trailing average prices used were: gold = $727.22 per ounce, silver = $13.66 per ounce, lead = $1.00 per pound, zinc = $1.36 per pound. A cut-off of $30 was applied and weighted averages calculated for each above-cut-off interval. These intervals were projected between drill holes and between sections to produce resource blocks, which were then compiled using weighted averages to produce a total tonnage and grade with a dollar value per ton.

Mineralization intersected in CI‐34 (46 meters with 4.68 grams per ton gold, 87.67 grams per ton silver, 0.24% lead and 0.22% zinc) and CI‐29 (51 meters with 0.5 grams per ton gold, 55.03 grams per ton silver, 0.34% lead and 0.46% zinc), both collared in the western portion of Cieneguita suggests that mineralization still remains open to west, southwest and to depth in the western part of the Cieneguita deposit. No assurance may be given, though, that additional mineralized material will be found in these areas.

Included in the Technical Report is an updated NI 43-101 compliant resource estimate of 1.1 million measured and indicated gold equivalent ounces and 0.02 million inferred gold equivalent ounces at the Cieneguita project. The estimate includes 20,087,000 measured and indicated tons grading 1.54 g/t gold equivalent and 453,000 inferred tons grading 1.47 g/t gold equivalent.

**Cieneguita Deposit In Situ Resource Within Optimized Pit Shell @ 0.8 g/t AuEq Cut-Off**

**Classification**

**Tonnes**

**Au**

**g/t**

**Ag**

**g/t**

**Cu**

**%**

**Pb**

**%**

**Zn**

**%**

**AuEq**

**g/t**

**Au**

**oz**

**Ag**

**oz**

**AuEq**

**oz**

Measured

3,128,000

0.71

61.8

0.03

0.24

0.29

1.86

71,400

6,215,000

186,600

Indicated

16,959,000

0.74

50.0

0.03

0.21

0.25

1.69

403,500

27,262,000

920,900

**Meas&Ind**

**20,087,000**

**0.74**

**51.8**

**0.03**

**0.21**

**0.26**

**1.71**

**474,900**

**33,477,000**

**1,107,500**

Inferred

453,000

0.99

34.2

0.02

0.13

0.17

1.63

14,400

498,000

23,800

*This figure is showing the geological units and distribution of the 100 drill holes.*

Page 32 

**Current Operations**

Previously reported water supply problems are ongoing as a continued drought has curtailed the processing of ore despite the installation of a five kilometer line to a second water source. Metal recoveries have been dramatically improved by the addition of a ball mill to further grind the mined material, just as changes in reagents used improved the recovery of the free gold particles or gold-bearing minerals in the flotation process. During the period from March 2011 to May 2011, $1,641,000 worth of concentrate was sold. The cost of mining and processing was $770,000, while other operating expenses, totaled a further $515,000. Other expenses including property royalties totaled $90,000 leaving a net operating cash flow for the joint venture of $266,000. Costs continue to decline significantly as efficiencies of scale take effect and operational improvements are made. It is also projected that costs per ounce produced will decrease with the increase in production.

Because of the favourable mapping, sampling and drilling results in Cieneguita, we initiated a brownfield exploration program aimed at locating additional mineralization within our properties. The exploration process around the main mineralization zone at Cieneguita has identified two areas of porphyry style mineralization 500 meters to south of the current known mineralization. These two areas known as Piedras Blancas and Piedra Amarilla are exhibiting the same size, characteristics, and intensity of alteration-mineralization on surface as encountered at Cieneguita. No assurance, though, may be given that any positive exploration results will come from these similarities.

A figure exhibiting main geological and mineralization features on the Piedras Blancas and Piedra Amarilla areas is shown below.

There are no known reserves on the Cieneguita property.

Page 33 

**Encino Gordo**

During fiscal 2007, the Company carried out a detailed and property scale mapping and sampling program outlining numerous gold, silver and gold-copper coincident geochemical anomalies. Phase 1 of the exploration program was undertaken in an effort to define the style and characteristics of the mineralization areas indicated by the geochemical anomalies. Within this stage several gold and sulphide mineralization areas including pyrite and chalcopyrite have been identified within an over 500 meters stockwork area and fault-veins structure.

All information and field evidence gathered during the mapping and sampling process suggest the presence of “porphyry” style alteration and mineralization characterized by the presence of concentric alteration patterns (potassic alteration grading outward to quartz-sericite and propylitic alteration), coincident Cu, Au and Mo geochemical anomalies and a multiple-event of veining. No assurance can be given, though, that we will find such a deposit, if at all. We own two concessions and have an option to acquire two other concessions from MRT, subject to a 2.5% NSR and making the scheduled project payments. 

In August 2009, we dropped one of our concessions in the Encino Gordo project, Encino Gordo 2. We determined that the payments due to the concession holder were too expensive and it was not in our best interests to keep the concession. There is no plan, currently, to try and negotiate the payments for this project. There are no known reserves on the Encino Gordo project.

There are no known reserves on the Encino Gordo project.

 

**Cerro Delta Project**

The Cerro Delta project is drill ready and we intend to begin drilling in the fourth quarter of 2011.

 

**Proposed 2010/2011 Program: Exploration Projects – Potential and Next Exploration Stage**

Over the next 12 months, we intend to explore our Cieneguita project to determine whether there are economically attractive concentrations of gold and gold-silver mineralization. We do not intend to hire any additional employees or to make any purchase of equipment over the next twelve months, as we intend to rely upon current personnel for the exploration work being conducted. At this time, though, the exploration program is only planned for the next 12 months, which we will undertake when the necessary capital has been raised to complete these programs. We do not have any sources of capital indentified at this time and no assurance can be given that we will be able to complete the proposed exploration program. 

The following exploration program, assuming the necessary capital is available, has been planned:

**Cieneguita**

The recent exploration activities in Cieneguita have shown that additional exploration is warranted. We have made the following determinations to date:

·

Infill drilling displays continuity of mineralization and overall grades.

·

Mineralization extends 900 meters along strike, is up to 300 meters wide and is open to the Southwest and open to depth.

***Figure is showing main mineralization zones on the Cieneguita project. Areas in red are exhibiting mineralization areas where grades is >1.5 g/t Au***

Page 34 

The known mineralized material on the Cieneguita property combined with the assay results from drilling and the new areas found 500 meters away from Cieneguita are providing the possibility to increase the size of the mineralized material. No assurance may be given, though, that the size of the mineralized zone will increase. Considering the latest results and findings the proposed work program for Cieneguita will include:

·

Completing the infill drilling program by doing an additional 10,000 meters of drilling to expand inferred resources;

·

Continue conducting metallurgical tests;

·

Complete feasibility study and;

·

Commencing exploration drilling program at the Piedras Blancas project.

The proposed exploration budget for the Cieneguita project for 2012 will be conducted based on proportionate share ownership as per the Letter Agreement. We intend to start the process for completing a bankable feasibility study on Cieneguita. The feasibility work will also include exploration on the two new areas to the south of the Cieneguita property. 

There are no known reserves on the Cieneguita property.

 

**Encino Gordo**

With the signing of the letter agreement with MRT, we have resolved to focus our efforts on starting the feasibility study at Cieneguita and we are also planning for preliminary drilling program at Cerro Delta. Accordingly, we have not planned an exploration program at Encino Gordo as yet.

 

**Cerro Delta Project**

The Cerro Delta project is drill ready and we intend to begin drilling in the fourth quarter of fiscal 2012.

 

**New Properties-Target Generation and Growth Strategy**

A fundamental component of our business strategy is to advance all of our properties to the drilling stage and implement a strong generative and property acquisition program through a well-established and consistent financial and funding process.

The proposed generative program contemplates four main directions:

1.

A new targets generation program that may create a pipeline of quality properties providing a steady stream of new prospect and/or projects for us to explore, farm-out and/or joint venture.

2.

A property acquisition program aimed to identify and acquire at low cost (whenever possible) early- to mid-stage properties on selected locations along the main gold-silver belts in the Americas.

3.

A focus on medium-size gold-silver deposits (minimum deposits containing 2,000,000 ounces of Au Eq.)

4.

The new targets generation and property acquisition program may be initially focused on the Sierra Madre belt and Central Mexico. It may be extended further south in other countries if conditions and project’s potential warranted.

The proposed exploration program is to be undertaken by our exploration team using in-house knowledge in combination for support and guidance of high-quality consultant with expertise in the region. The new targets generation program is aimed to feed our project pipeline for two “at drilling stage and/or near drilling stage” projects per year. We do not have the necessary working capital at this time to implement this target generation program.

 

*Phase I - Target Generation*

**Objectives**

·

Identify two to four target areas (approximately 20 x 30 kilometers) which have potential to host small- to medium-size gold and/or gold-silver deposits.

·

Identify one or two specific opportunities with close to drill ready targets. For example, identify old workings or existing mines with good upside potential.

·

Time frame: six months.

*Key Steps and Exploration Tools*

After initial evaluations of potential gold and gold-silver deposits, it has become evident that the acquisition and evaluation of more detailed geological maps and geochemistry with field follow-up is critically important in identifying new areas of mining potential. Careful and selective use of such data may be the most immediate and cost-effective way to focus exploration efforts toward prospective gold-silver areas.

Page 35 

Key steps may include mainly the following activities, among other considerations:

·

Acquiring geological maps 1:250,000 and 1:50,000 (from Servicio Geologico Mexicano and Servicio Geologico Minero de Argentina); 

·

Generating geological and mineral occurrences base maps;

·

Identifying key host rocks;

·

Completing structural interpretation from known geology, TM imagery, and geophysical data (if available);

·

Integrating mineral occurrences, alteration, lithology and structures;

·

Completing initial targeting using the above compilation; and

·

Selecting and prioritizing targets.

We do not have the necessary working capital at this time to implement this target generation program.

 

**RESULTS OF OPERATIONS**

**Three months ended May 31, 2011 compared to the three months ended May 31, 2010.**

In this discussion of the Company’s results of operations and financial condition, amounts, other than per-share amounts, have been rounded to the nearest thousand dollars.

*Revenues*

The Company earned its 20% proportionate net cash flows of $53,000 (2010 - $23,000) from the joint venture with MRT from the gold production during the three months ended May 31, 2011. Other than the revenue from the joint venture with MRT, we did not have commercial production of any of our properties in the three months ended May 31, 2011. We can not provide any assurances that we will continue to earn revenues of any significance from the joint venture with MRT, if ever. We are presently in the exploration stage of our business. We can provide no assurance that we will discover commercially exploitable levels of mineral resources on our properties or, if such resources are discovered, that we will enter into commercial production of our mineral properties.

*Operating Costs*

We incurred operating costs of $103,000 (May 31, 2010 – $49,000) during the three months ended May 31, 2011 as a portion of the operating costs of production at Cieneguita in the joint venture with MRT. 

*Expenses*

Our operating expenses decreased to $1,118,000 for the three months ended May 31, 2011 compared to $1,572,000 for the three months ended May 31, 2010. The decrease is primarily attributable to lower mineral exploration and lower impairment of mineral property costs. 

General and administrative expenses increased to $894,000 in the three months ended May 31, 2011 compared to $645,000 in the three months ended May 31, 2010. The increase during the current three month period is attributable to higher travel and promotion related expenses and stock-based compensation. The non-cash stock-based compensation expense amounted to $361,000 in 2011 compared to $228,000 in 2010. The amount for the three-month period in 2011 had $146,000 of stock-based compensation expense relating to options granted to officers, directors, consultants and $87,000 of stock-based compensation relating to warrants and $128,000 stock-based compensation in the form of shares issued to a consultant. The amount for the corresponding period in 2010 relates to stock options granted to officers, directors and consultants and $82,000 of stock-based compensation relating to warrants.

Accounting and legal fees decreased to $24,000 in the three months ended May 31, 2011 compared to $60,000 in the three months ended May 31, 2010. The decrease was primarily attributable to lower legal costs.

Mineral exploration in the three months ended May 31, 2011 decreased to $55,000 compared to $259,000 for the three months ended May 31, 2010 as the Company started a preliminary exploration program on Cerro Delta project. 

*Loss*

Our net loss decreased to $974,000 for the three months ended May 31, 2011 compared to $1,477,000 for the three months ended May 31, 2010. As described above, the decrease in our loss was attributable to lower mineral exploration and lower impairment of mineral property costs offset by higher general and administration expenses.

We anticipate that we will continue to incur a loss until such time as we can achieve significant revenues from sale of gold recovered from our Mexican mineral properties, if ever. There is no assurance that we will achieve any significant revenues from sale of gold.

Page 36 

**LIQUIDITY AND CAPITAL RESOURCES**

Since inception, we have undergone two unsuccessful business combinations, which have caused us to incur significant liabilities and have resulted in the accumulation of a substantial deficit during the exploration stage. 

As of May 31, 2011, we had total assets of $1,197,000, total liabilities of $2,401,000 and a deficit of $47,268,000 accumulated during the development stage.

 

**Cash and Working Capital**

We had cash and cash equivalents of $502,000 as of May 31, 2011, compared to cash of $408,000 at February 28, 2011 and $800,000 at May 31, 2010. We had working capital deficit of $1,419,000 as of May 31, 2011, compared to a working capital deficit of $1,483,000 as of February 28, 2011 and working capital deficit of $980,000 as of May 31, 2010.

During the first quarter of 2011, we did not increase the activities for our exploration program considerably but have continued to incur corporate administrative expenses, for which, we were unable to raise sufficient funds to pay many of our suppliers. Our accounts payable and accrued liabilities decreased from $1,690,000 as of February 28, 2011 to $1,433,000 in the first quarter of 2011, most of which are being carried forward from 2010. Of the $1,433,000 accounts payable and accrued liabilities as of May 31, 2011, $334,000 related to exploration expenses.

We will require additional financing during the current fiscal year according to our planned exploration activities. We are in the process of determining our plan to carry out exploration and administration activities on our Mexican mineral properties in the current fiscal year. We also anticipate spending approximately $1,600,000 during the next 12 months on general and administrative costs. At this time we do not have the necessary capital to initiate the exploration program and to cover general and administrative costs.

We will need to raise additional working capital to maintain basic operations. We plan to raise those funds through the sale of equity or debt. Other than our definitive agreements signed with MRT, we do not have any  other sources to raise additional capital for the Company at this time and no assurance may be given that we will be able to find sources to raise additional capital. Failure to raise any additional capital would most likely require us to cease operations and abandon all of our exploration properties.

The amount of working capital could be adversely affected further in the event claims are made against us alleging that certain shares we previously issued pursuant to Form S-8 registration statements constituted an illegal public offering because the company was a “shell company” at the time and, as a result, was not eligible to use Form S-8 for registration of shares under the Securities Act of 1933. In August and October of 2005, the Company issued shares of common stock to an officer of the Company, as compensation for consulting services. The two share issuances were for a combined total of 30,000 shares and each of the share issuances was made pursuant to a registration statement on Form S-8 under the Securities Act of 1933. Although the Company believes these shares were properly issued, a claim could be made that issuance of the shares constituted an illegal public offering because the Company was a “shell company” at the time. Shell companies  [i.e. companies which have no or nominal operations and either (i) no or nominal assets; (ii) assets consisting solely of cash and cash equivalents; or (iii) assets consisting of any amount of cash and cash equivalents and nominal other assets] are not eligible to use Form S-8 for registration under the Securities Act of 1933. If either of these transactions did violate federal securities laws, subsequent purchasers of the shares may have claims against us for damages or for rescission of their purchase transaction and recovery of the full subscription price paid, together with interest. As of the date of this quarterly report, no one has made or threatened any claim against us alleging violation of the federal securities laws. In the event such claims were successfully asserted, there is no assurance that we would have sufficient funds available to pay and it is likely that we would be required to use funds currently designated as working capital for that purpose. That would substantially reduce the amount of working capital available for other purposes and, in that event, we could be forced to cease or discontinue certain operations and to liquidate certain assets to pay our liabilities, including, but not limited to, rescission claims.

**Cash Used in Operating Activities**

Cash used in operating activities decreased to $571,000 for the three months ended May 31, 2011 compared to $2,488,000 for the three months ended May 31, 2010. The cash used in operating activities was primarily for general and administrative expenses.

 

**Financing Activities**

Cash provided by financing activities amounted to $665,000 for the three months ended May 31, 2011 compared to cash used by financing activities of $67,000 for the three months ended May 31, 2010. The cash provided by financing activities was from the private placement.

We anticipate continuing to rely on equity sales of our common stock or issuance of debt in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing shareholders. 

Page 37 

**Going Concern**

Our financial statements have been prepared on a going concern basis, which assumes the realization of assets and settlement of liabilities in the normal course of business. Our ability to continue as a going concern depends upon our ability to generate profitable operations in the future and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that we will be able to continue as a going concern. Our financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.

We have a history of operating losses and will need to raise additional capital to fund our planned operations. As at May 31, 2011, we had working capital deficiency of $1,419,000 (May 31, 2010– working capital deficiency of $980,000) and an accumulated deficit during the exploration stage of $47,268,000 (May 31, 2010 - $44,533,000). These conditions raise substantial doubt about our ability to continue as a going concern.

There is no assurance that our operations will be profitable. We have conducted private placements of convertible debt and common stock, which have generated funds to satisfy all of the initial cash requirements of its planned Mexican mining ventures. Our continued existence and plans for future growth depend on our ability to obtain the additional capital necessary to operate either through the generation of revenue or the issuance of additional debt or equity.

 

**Off-Balance Sheet Arrangements**

We currently do not have any off-balance sheet arrangements which have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our investors.

 

**ITEM 3.**

**QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK**

Not applicable.

 

**ITEM 4**

**CONTROLS AND PROCEDURES**

*Evaluation of Disclosure Controls and Procedures*

The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company's controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its chief executive and chief financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to chief executive and chief financial officers to allow timely decisions regarding disclosure.

On September 21, 2009, we hired Salil Dhaumya as our chief financial officer which has improved the effectiveness of our disclosure controls and procedures. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our certifying officer, to allow timely decisions regarding the required disclosure.

*Changes in Internal Control over Financial Reporting*

There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

**PART II - OTHER INFORMATION**

Other than disclosed herein, all other sections in Part II are inapplicable to us.

Page 38 

**ITEM 1. LEGAL PROCEEDINGS**

Other than as disclosed herein, neither we nor our properties are the subject of any pending legal proceedings and no such proceeding is known to be contemplated by any governmental authority. We are not aware of any legal proceedings in which any of our directors, officers or affiliates, any owner of record or beneficially of more than 5% of any class of our voting securities, or any associate of any such director, officer, affiliate or security holder is a party adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries.

**ITEM 6.**

**EXHIBITS**

The following exhibits are filed in reference: 

Exhibit

Number

Description

 

 

 

 

31.1

Certification of Principal Executive Officer of Pan American Goldfields Ltd. pursuant to Rule 13a-14(a)/15d-14(a).*

 

 

31.2

Certification of Chief Financial Officer of Pan American Goldfields Ltd. pursuant to Rule 13a-14(a)/15d-14(a).*

 

 

32.1

Certification of Principal Executive Officer of Pan American Goldfields Ltd. pursuant to 18 U.S.C. Section 1350.*

 

 

32.2

Certification of Chief Financial Officer of Pan American Goldfields Ltd. pursuant to 18 U.S.C. Section 1350.*

 

 

*filed herewith

Page 39 

**SIGNATURES**

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 

**Pan American Goldfields Ltd.**

 

/S/ Miguel Di Nanno

Name:  Miguel Di Nanno

Title: President

Date:  July 13, 2011

Page 40 

**EXHIBIT 31.1**

**CERTIFICATION OF**

**PRINCIPAL EXECUTIVE OFFICER**

I, Miguel Di Nanno, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Pan American Goldfields****Ltd.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. 

Date:  July 13, 2011

/S/ Miguel Di Nanno

___________________________________Name:   Miguel Di Nanno

Title: President

Page 41 

**EXHIBIT 31.2**

**CERTIFICATION OF**

**PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER**

I, Salil Dhaumya, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Pan American Goldfields****Ltd.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. 

Date:  July 13, 2011

/S/ Salil Dhaumya 

___________________________________Name:   Salil Dhaumya

Chief Financial Officer

Page 42 

**EXHIBIT 32.1**

**Certification Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to**

**Section 906 of the Sarbanes-Oxley Act of 2002**

I, Miguel Di Nanno, Principal Executive Officer of Pan American Goldfields****Ltd. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1)

the Quarterly Report on Form 10-Q of the Company for the quarter ended May 31, 2011 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  July 13, 2011

/S / Miguel Di Nanno

_________________________________ 

Miguel Di Nanno

Title: President

Page 43 

**EXHIBIT 32.2**

**Certification Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to**

**Section 906 of the Sarbanes-Oxley Act of 2002**

I, Salil Dhaumya, Principal Financial and Accounting Officer of Pan American Goldfields****Ltd. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1)

the Quarterly Report on Form 10-Q of the Company for the quarter ended May 31, 2011 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  July 13, 2011

/S /Salil Dhaumya

_________________________________ 

Salil Dhaumya

Title: Chief Financial Officer

Page 44 |
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