VetaNova Inc. - Quarter Report: 2009 January (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
FOR THE THREE AND NINE MONTH PERIODS
ENDED JANUARY 31, 2009

Discussion of Operations & Financial Condition

Yukon Gold has no source of revenue, operates at a loss and expects operating losses to continue as long as it remains in an exploration stage and perhaps thereafter. As at January 31, 2009, we had accumulated losses of $14,759,693. These losses raise substantial doubt about our ability to continue as a going concern. Our ability to emerge from the exploration stage and conduct mining operations is dependent, in large part, upon our raising additional equity financing.

As of the date of the filing of this report, the Company has very limited cash on hand. Management has undertaken initiatives to obtain short term financing, which may include financing backed by a pledge of some or all of our exploration property assets. The Company also is simultaneously exploring opportunities to effect business combinations or joint ventures involving additional mining assets that may provide opportunities for greater long-term financing. Management also has taken steps to reduce operating costs, including reductions in staff, cancellation of consulting contracts, deferral of payments under renegotiated agreements, deferred all exploration activity and deferral of the annual and special meeting of shareholders.

The Company’s current obligations exceed its cash on hand. In particular, the Company was obligated to pay Revenue Canada approximately $98,740 (CDN$121,105) as flow-through interest and penalty in connection with “flow through” funds accepted by the Company from investors in prior periods. Subsequent to the period covered by this report, on February 27, 2009 the Company paid $8,153(CDN$10,000) towards this amount. The Company also owes Atna Resources Ltd. $183,449 (CDN$225,000) payable on or before April 30, 2009 in order to maintain the Company’s interest in the Marg Property. The Company has certain payment obligations coming due in the near future, as more particularly described in Note 9 “Commitments and contingencies” to the quarterly financial statements for the period ended January 31, 2009 and under the heading “Contractual Obligations and Commercial Commitments”, below.

Due to current difficult economic conditions and increased competition among small mineral exploration stage companies for available sources of capital, it has become relatively more difficult to raise financing than in the previous operating years of the Company. The continued depletion of current cash and cash equivalents to meet ongoing administrative expenses and other continuing obligations is a material concern of management. The continued operation of the Company is dependent on raising additional financing to meet commitments and obligations and there can be no assurance that such financing can be obtained on a timely basis or on favorable terms or at all. The Company was not able to raise additional capital during the quarter ended January 31, 2009 or subsequently to date.

As a result of current general economic conditions, the Company’s ability to attract investment and/or obtain financing is extremely limited. If we fail to obtain financing, the Company may be forced to cease doing business.

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Caution Regarding Forward-Looking Statements

Certain statements contained in this MD&A constitute forward-looking statements. The use of any of the words “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “forecast”, “intend”, “likely”, “may”, “plan”, “potential”, “predict”, “project”, “pursue”, “seek”, “should”, “will”, “would” and similar expressions identify forward-looking statements. The foregoing is not an exhaustive list and other statements which are not limited to reciting historical fact may include forward-looking statements without being specifically identified by such words. Examples of forward-looking statements in this MD&A include but are not limited to discussion of ability to raise capital, to reduce costs, of regulatory compliance matters and plans for continued operations. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements.

Forward-looking statements are based on the Company’s assumptions, expectations, estimates and projections regarding its prospects, business and the economic environment in which it operates as of the date of the MD&A. The Company believes the expectations reflected in those forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. These statements are current only as of the date of this MD&A. Except as specifically required by applicable law, the Company does not intend or undertake to update or revise any forward-looking statements to reflect subsequent information, events, results or circumstances.

Actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors set forth below and under the section entitled “Risk Factors”:

• low cash and cash equivalents on hand;
• the Company’s ability to raise capital;
• liabilities inherent in the Company’s operations;
• competition for, among other things, limited sources of capital;
• fluctuations in foreign exchange or interest rates and stock market volatility; and
• the other factors discussed under “Risk Factors”.

The above list of factors should not be construed as exhaustive.

SELECTED INFORMATION

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Revenues

No revenue was generated by the Company's operations during the nine month and three month period ended January 31, 2009 and January 31, 2008 respectively.

Net Loss

The Company's expenses are reflected in the Consolidated Statements of Operations under the category of Operating Expenses. To meet the criteria of United States generally accepted accounting principles (“GAAP”), all exploration and general and administrative costs related to projects are charged to operations in the year incurred.

The significant components of expense that have contributed to the total operating expense are discussed as follows:

(a) General and Administrative Expense

Included in operating expenses for the three months ended January 31, 2009 is general and administrative expense of $150,071 as compared to $942,711 for the three months ended January 31, 2008. General and administrative expense for the nine month period ended January 31, 2009 was $839,688 as compared with $1,409,684 for the nine month period ended January 31, 2008. General and administrative expense represents approximately 34.41% of the total operating expense for the three months ended January 31, 2009 and approximately 77.66% of the total operating expense for the three months ended January 31, 2008. The reduction in general and administration expense during the three months ended January 31, 2009 is due to management effort to reduce costs in light of the difficult current economic conditions.

(b) Project Expense

Included in operating expenses for the three months ended January 31, 2009 is project expenses of $208,022 as compared with $265,211 for the three months ended January 31, 2008. Project expenses for the nine month period ended January 31, 2009 was $1,931,660 as compared with $3,263,022 for the nine month period ended January 31, 2008. Project expense is a significant expense and it represents approximately 47.69% of the total operating expense for the three months ended January 31, 2009 and approximately 21.85% of the total operating expense for the three months ended January 31, 2008. Due to lower cash availability, project expenses during the current nine month period were significantly less than the prior similar period.

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Exploration Expenditures at the Company's Properties

Mount Hinton

The Mount Hinton Property is adjacent to the Keno Hill Mining Camp in central Yukon Territory. It consists of 186 staked claims under the Yukon Quartz Mining Act, covering approximately 9300 acres.

On April 2, 2007 the Company accepted a proposed work program, budget and cash call schedule for the Mount Hinton project which was revised on May 15, 2007, totaling $2,152,317 (CDN$2,105,200) for the 2007 Work Program. The Company had approximately $70,304 (CDN$75,000) on deposit left over from the 2006 cash call schedule. On May 15, 2007 the Company paid $180,164 (CDN$200,000), on June 15, 2007 the Company paid $202,684 (CDN$225,000), being two of the four cash call payments. Due to delays in the drilling program the third payment of $635,123 (CDN$600,000) which was due on July 31, 2007 was changed to August 31, 2007. On August 15, 2007 the Company paid $97,259 (CDN$91,880) towards the third cash call payment for the Mount Hinton 2007 Work Program. On August 31, 2007 the Company reallocated $537,864 (CDN$508,120) being the balance of the third cash call payment from cash call funds previously allocated to the Marg Project. These re-allocated funds were not needed for the Marg Project. The fourth payment of $428,919 (CDN$405,200) which was originally due on August 15, 2007 was changed to and paid on September 15, 2007.

By letter agreement dated August 17, 2006, the Hinton Syndicate agreed to allow the Company to defer a portion of the Work Program expenditure scheduled to be incurred by December 31, 2006. The agreement to defer such Work program expenditures was due to the mechanical break-down of drilling equipment and the unavailability of replacement drilling equipment at the Mount Hinton site. As a result, the Company was allowed to defer the expenditure of approximately $220,681 (CDN$235,423) until December 31, 2007. The Company had incurred that expenditure in addition to the expenditure for January 1 to December 31, 2007 as at October 31, 2007. All other Property Payments and Work Program expenditures due have been made and incurred.

By letter agreement dated February 29, 2008, the Company gave notice to the Hinton Syndicate that all of the Work Program expenditures scheduled to be incurred by December 31, 2008 would be deferred until December 31, 2009. Subsection 2.2(f) of the Hinton Option Agreement provides that if Yukon Gold has earned at least 25% of the right, title and interest in the Property as provided for in Subsection 2.2(e) of the Hinton Option Agreement and is unable to meet its next year's Work Program expenditures as set out in Section 2.2 of the Hinton Option Agreement, it shall be entitled to extend the time required to incur the Work Program expenditures from year to year by giving notice to the Hinton Syndicate to such effect; provided that the full amount of the Work Program expenditures has been incurred by December 31, 2009.

Provided all Property Payments have been made that are due prior to the Work Program expenditure levels being attained, YGC shall have earned a:

25% interest upon completion of Work Program expenditures of $1,222,992 (CDN$1,500,000)

50% interest upon completion of Work Program expenditures of $2,038,320 (CDN$2,500,000)

75% interest upon completion of Work Program expenditures of $4,418,421 (CDN$5,225,000)

YGC earned a 50% interest in the claims covered by the Hinton Option Agreement as at October 31, 2007. In some cases, payments made to service providers include amounts advanced to cover the cost of future work. These advances are not loans but are considered "incurred" exploration expenses under the terms of the Hinton Option Agreement. Section 2.2(a) of the Hinton Option Agreement defines the term, “incurred” as follows: “Costs shall be deemed to have been “incurred” when YGC has contractually obligated itself to pay for such costs or such costs have been paid, whichever should first occur.” Consequently, the term, “incurred” includes amounts actually paid and amounts that YGC has obligated itself to pay. Under the Hinton Option Agreement there is also a provision that YGC must have raised and have available the Work Program funds for the period from July 7, 2005 to December 31, 2006, by May 15 of 2006. This provision was met on May 15, 2006.

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All Property Payments and Work Program expenditures have been made and incurred.

The Hinton Option Agreement contemplates that upon the earlier of: (i) a production decision or (ii) investment of $4,418,421 (CDN$5,225,000) or (iii) YGC has a minority interest and decides not to spend any more money on the project, YGC's relationship with the Hinton Syndicate will become a joint venture for the further development of the property. Under the terms of the Hinton Option Agreement, the party with the majority interest would control the joint venture. Although YGC had earned a 50% interest as at October 31, 2007, if the relationship is converted to a joint venture currently, YGC's interest would automatically be reduced to a 45% interest in the joint venture (by the terms of the Hinton Option Agreement) and the Hinton Syndicate would control the joint venture. Once the 75% interest is earned, as described above, YGC has a further option to acquire the remaining 25% interest in the mineral claims for a further payment of $4,076,641 (CDN$5,000,000).

The Hinton Option Agreement provides that the Hinton Syndicate receive a 2% “net smelter returns royalty.” In the event that we exercise our option to buy the entire interest of the Hinton Syndicate (which is only possible if we have reached a 75% interest, as described above) then the "net smelter returns royalty" would become 3% and the Hinton Syndicate would retain this royalty interest only. The “net smelter returns royalty” is a percentage of the gross revenue received from the sale of the ore produced from our mine less certain permitted expenses.

The Hinton Option Agreement entitles the Hinton Syndicate to recommend for appointment (but not nominate) one member to the board of directors of Yukon Gold.

The Hinton Syndicate members each have the option to receive their share of property payments in stock of Yukon Gold at a 10% discount to the market. YGC and Yukon Gold also have the option to pay 40% of any property payment due after the payment on January 2, 2006 with common stock of Yukon Gold. As of July 7, 2006, Yukon Gold issued to the Hinton Syndicate 43,166 shares of its common stock, based upon a valuation adopted by the board of Yukon Gold of $1.24 (CDN$1.39) per share, as partial payment of the July 7, 2006 Property Payment. On July 7, 2006 the Company issued 43,166 common shares and paid $80,501 (CDN$90,000) in cash in settlement of the property payment due on July 7, 2006 on the Mount Hinton Property. The shares represented 40% of the total $134,168 (CDN$150,000) payment and were valued at $1.24 (CDN$1.39) each. On July 7, 2007 the Company issued 136,364 common shares in settlement of a property payment on the Mount Hinton property. The shares represent $57,252 (CDN$60,000) which is 40% of the contracted payment and were valued at $0.42 (CDN$0.44) each. On July 7, 2008, the Company issued 476,189 common shares in settlement of a property payment on the Mount Hinton property. These shares represent $58,887 (CDN$60,000) which is 40% of the contracted payment and were valued at $0.126 (CDN$0.126) each. The balance of the property payment in the amount of $88,331 (CDN$90,000) was paid in cash.

The Hinton Option Agreement pertains to an “area of interest” which includes the area within ten kilometers of the outermost boundaries of the 273 mineral claims, which constitute our mineral properties. Either party to the Hinton Option Agreement may stake claims outside the 273 mineral claims, but each must notify the other party if such new claims are within the “area of interest.” The non-staking party may then elect to have the new claims included within the Hinton Option Agreement. As of December 11, 2006, there were an additional 24 claims staked, known as the “Gram Claims” which became subject to the Hinton Option Agreement. On June 16, 2008 an additional 18 claims were staked (#25-#42), known as the “Gram Claims”, at a cost of $8,679 (CDN$8,887), which became subject to the Hinton Option Agreement.

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The Hinton Option Agreement provides both parties (YGC and the Hinton Syndicate) with rights of first refusal in the event that either party desires to sell or transfer its interest.

Under the Hinton Option Agreement, the Hinton Syndicate is responsible for any environmental liability claims arising from the status of the property prior to the effective date of the Hinton Option Agreement.

Under the terms of the Hinton Option Agreement three of the syndicate members are entitled to bid on work we propose to carry out and if their price is competitive they are entitled to do the work. There is no requirement in the Hinton Option Agreement that these parties perform exploration work.

Marg Property

In March 2005, the Company acquired rights to purchase 100% of the Marg Property, which consists of 402 contiguous mineral claims covering approximately 20,000 acres located in the Mayo Mining District of the Yukon Territory of Canada. Title to the claims is registered in the name of YGC.

The Company assumed the rights to acquire the Marg Property under a Property Purchase Agreement (“Agreement”) with Atna Resources Ltd. (“Atna”). Under the terms of the Agreement the Company paid $119,189 (CDN$150,000) cash and 133,333 common shares as a down payment. The Company made payments under the Agreement for $43,406 (CDN$50,000) cash and an additional 133,333 common shares of the Company on December 12, 2005; $86,805 (CDN$100,000) cash and an additional 133,334 common shares of the Company on December 12, 2006. On December 12, 2007 the Company paid $98,697 (CDN$100,000) being the next payment due.

The Company has agreed to make subsequent payments under the Agreement of: $163,066 (CDN$200,000) in cash and/or common shares of the Company (or some combination thereof to be determined) on or before December 12, 2008. On December 4, 2008 the Company and Atna Resources Ltd. (“Atna”) entered into a letter agreement (the “Amendment Agreement”) amending the purchase agreement by which the Company acquired its Marg Property (the “Marg Acquisition Agreement”). Under the terms of the Marg Acquisition Agreement the Company was required to pay to Atna $163,066 (CDN$200,000) (in cash or shares of the Company’s common stock) on December 12, 2008. In lieu of making such payment, the Amendment Agreement permits the Company to pay Atna $19,980 (CDN$25,000) in cash on December 12, 2008 (paid) and $183,449 (CDN$225,000) (payable in cash or shares of the Company’s common stock) on April 30, 2009. Upon the commencement of commercial production at the Marg Property, the Company will pay to Atna $815,328 (CDN$1,000,000) in cash and/or common shares of the Company, or some combination thereof to be determined.

On April 2, 2007 the Company accepted a proposed work program, budget and cash call schedule for the Marg project. The Company has paid cash calls in the amount of $2,100,528 (CDN$2,281,880) for the 2007 Work Program. The Company had approximately $515,561(CDN $550,000) on deposit left over from the 2006 cash call schedule. On May 15, 2007 the Company paid $703,037 (CDN$750,000), on June 15, 2007 the Company paid $703,037 (CDN$750,000), and on July 15, 2007 the Company paid $703,037 (CDN$750,000) being three of the four cash call payments. The fourth and final payment of $402,244 (CDN$380,000) was paid on August 15, 2007. On August 31, 2007 the Company re-allocated $537,864 (CDN$508,120) being the balance of the third cash call payment for the Mount Hinton 2007 Work Program from cash call funds previously allocated to the Marg Project. These re-allocated funds were not needed for the Marg Project. On January 23, 2008 the Company was refunded $388,524 (CDN$390,000) as these funds were not needed for the Marg Project.

Liquidity and Capital Resources

The following table summarizes the Company's cash flows and cash in hand:

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Off-Balance Sheet Arrangement

The Company has no Off-Balance Sheet Arrangement as of January 31, 2009.

Contractual Obligations and Commercial Commitments

In addition to the contractual obligations and commitments of the Company to acquire its mineral properties as described in Note 9 to our Financial Statements included with this report, the Company has additional commitments for its office lease and to pay minimum lease payments under its capital lease. Refer to our annual financial statements for April 30, 2008 for future obligation payments.

Flow-Through and Unit Share Subscriptions

2007-2008

On August 16, 2007 the Company completed a private placement (the “Financing”) with Northern Securities Inc. (“Northern”), acting as agent. The Financing was comprised of the sale of 1,916,666 units (the “Units”) at $0.42 (CDN$0.45) per Unit (the “Unit Issue Price”) for gross proceeds of $802,101 (CDN$862,500) and the sale of 543,615 flow-through units (the “Flow-Through Units” which qualify as flow-through shares for the purposes of the Canadian Income Tax Act) at $0.49 (CDN$0.52) per Flow-Through Unit (the “Flow-Through Unit Issue Price”) for gross proceeds of $262,884 (CDN$282,680). The proceeds raised were allocated between the offering of shares and the sale of tax benefits. A liability of $35,381 was recognized for the sale of taxable benefits, which was reversed and credited to income when the Company renounced resource expenditure deduction to the investor. Each Unit consisted of one non-flow through common share (“Common Share”) and one half of one Common Share purchase warrant (each whole warrant, a “Warrant”). Each Warrant is exercisable into one Common Share until August 16, 2009 at an exercise price of $0.60 (CDN$0.60) per share. Each Flow-Through Unit consisted of one flow-through common share and one half of one Common Share purchase warrant (each whole warrant, an “FT Warrant”). Each FT Warrant is exercisable into one Common Share until August 16, 2009 at an exercise price of $0.70 (CDN$0.70) per share. The Company paid Northern a commission equal to 8% of the aggregate gross proceeds which amounted to $85,199 (CDN$91,614) and issued 153,333 “Unit Compensation Options” and 43,489 “FT Unit Compensation Options”. Each Unit Compensation Option is exercisable into one Unit at the Unit Issue Price until August 16, 2009. Each FT Unit Compensation Option is exercisable into one Common Share and one half of one FT Warrant at the Flow-Through Unit Issue Price until August 16, 2009. The Company reimbursed Northern expenses of $18,600 (CDN $20,000).

On November 16, 2007 the Company completed the second tranche of the Financing with Northern acting as agent. The second tranche of the Financing was comprised of the sale of 2,438,888 units (the “Units”) at $0.46 (CDN$0.45) per Unit (the “Unit Issue Price”) for gross proceeds of $1,127,028 (CDN$1,097,500) and the sale of 1,071,770 flow through units (the “Flow-Through Units”) at $0.53 (CDN$0.52) per Flow-Through Unit (the “Flow-Through Unit Issue Price”) for gross proceeds of $572,315 (CDN$557,320) . The proceeds raised were allocated between the offering of shares and the sale of tax benefits. A liability of $77,043 was recognized for the sale of taxable benefits, which was reversed and credited to income when the Company renounced resource expenditure deduction to the investor. The closing represented the final tranche of a $2,816,673 (CDN$2.8 million) private placement with Northern announced on July 24, 2007. Each Unit consists of one non-flow through common share (“Common Share”) and one half of one Common Share purchase warrant (each whole warrant, a “Warrant”). Each Warrant is exercisable into one Common Share until November 16, 2009 at an exercise price of $0.60 (CDN$0.60) per share. Each Flow-Through Unit consists of one flow-through common share and one half of one Common Share purchase warrant (each whole warrant, an “FT Warrant”). Each FT Warrant is exercisable into one Common Share until November 16, 2009 at an exercise price of $0.70 (CDN$0.70) per share. Yukon Gold paid Northern a commission equal to 8% of the aggregate gross proceeds and issued 195,111 “Unit Compensation Options” and 85,741 “FT Unit Compensation Options”. Each Unit Compensation Option is exercisable into one Common Share and one half of one Common Share purchase warrant at the Unit Issue Price until November 16, 2009. Each full Common share purchase warrant is exercisable at $0.60 (CDN$0.60) . Each FT Unit Compensation Option is exercisable into one Common share and one half of one Common share purchase warrant at the Flow-Through Unit Issue Price. Each full Common share purchase warrant is exercisable at $0.70 (CDN$0.70) .

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2008-2009

On July 23, 2008 the Company closed a non-brokered private placement of up to $976,563 (CDN$1,000,000). The Company completed the sale of 4,134,000 common shares on a flow-through basis at a price of $0.15 (CDN$0.15) per share for gross proceeds of $613,778 (CDN$620,100). The Company paid a 5% finders fee on this private placement. The private placement was exempt from registration under the Securities Act of 1933, pursuant to an exemption afforded by Regulation S. The flow through shares were issued at market without any additional price charged for sale of taxable benefits. The proceeds of the Financing are being used for the exploration and development of Yukon Gold's properties.

Consulting Agreements

On August 15, 2007 the Company entered into an investor relations marketing agreement with a consultant for a one year term, with the option to renew for an additional 12 months. In return for services rendered, the Company will pay the consultant $1,992 (CDN$2,000) per month. On August 31, 2007 the Company paid $3,787 (CDN$4,000) being the first and last payments of the contract. On September 15, 2007 the Company paid $1,941 (CDN$2,000) and on October 15, 2007 the Company paid $2,048 (CDN$2,000), being the second and third payments respectively. On November 15, 2007 the Company paid $2,030 (CDN$2,000) being the fourth payment of the contract. On December 14, 2007 the Company paid $1,967 (CDN$2,000) and on January 15, 2008 the Company paid $1,967 (CDN$2,000), being the fifth and sixth payments of the contract respectively. In addition, the consultant has been granted an option to purchase 125,000 shares of the Company at $0.45 (CDN$0.45) per share, with the option vesting in equal quarterly amounts of 31,250 shares on November 15, 2007, February 15, 2008, May 15, 2008 and August 15, 2008, and the first exercise date being August 15, 2008 and an expiry date of August 15, 2010. On February 12, 2008 the Company terminated the contract and the Company received a refund on March 11, 2008 of $1,295(CDN$1,300) previously paid on August 31, 2007 to cover the last payment of the one year term. The 31,250 options granted under the contract to vest on each of May 15, 2008 and August 15, 2008 respectively were also cancelled.

On December 5, 2007 the Company entered into an agreement with a consultant to create investor awareness for a period of six months, commencing on December 5, 2007 for a fee of $20,000 and 300,000 restricted common shares to be issued in equal tranches of 50,000 shares at the end of each month during the term of the agreement. On December 6, 2007 the Company received conditional approval from the TSX to issue the 300,000 restricted shares as per the terms of the agreement. The consulting fee of $20,000 was paid on December 11, 2007. The Company had accrued the expense of $22,000 for 100,000 shares to be issued to January 31, 2008. Due to non-performance of the agreement by the consultant, the Company has obtained legal opinion that it is not obligated to issue any of the restricted 300,000 common shares. The consulting expense accrual for $22,000 set up during the quarter ended January 31, 2008 was reversed and credited back to income during the quarter ended April 30, 2008. The Company has also paid the requisite fee to the TSX for cancellation of all of these shares.

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Effective as of December 15, 2007 the Company entered into a consulting agreement with Ronald Mann (the “Mann Agreement”), pursuant to which Mr. Mann was retained as the Company's President and Chief Executive Officer. The board of directors of the Company appointed Mr. Mann to fill a vacancy on the board of directors, also effective as of December 15, 2007. The Mann Agreement has a one-year term commencing on December 15, 2007, and is automatically renewable thereafter, unless terminated pursuant to the terms of the Mann Agreement. Pursuant to the Mann Agreement, the parties agreed that Mr. Mann and the Company shall indicate their respective intentions to renew the term after the passage of eight (8) months from the date of the Mann Agreement. Pursuant to the Mann Agreement, Mr. Mann will receive an annual consulting fee of $122,299 (CDN$150,000). In addition, Mr. Mann received 500,000 warrants to purchase shares of the Company's common stock (the “Mann Warrants”). The Mann Warrants shall have a term of 5 years and an exercise price of $0.20 (CDN$0.24) . 250,000 of the Mann Warrants were fully vested upon issuance, and the remaining 250,000 vested 6 months from the date of issuance, on June 15, 2008. On December 12, 2008 the Company accepted Ronald Mann’s resignation as Chief Executive Officer and President and as a Director, and as an Officer and Director of YGC, the Company’s wholly-owned subsidiary. There were no disagreements between the Company and Mr. Mann with regards to the Company’s operations or public disclosures. The Company agreed to pay Mr. Mann severance of $20,384 (CDN$25,000), payable in two installments. $10,192 (CDN$12,500) was paid on December 12, 2008 and the balance of $10,192 (CDN$12,500) is due on April 15, 2009.

As of December 18, 2007 the Company entered into a consulting agreement with Cletus Ryan (the “Ryan Agreement”) pursuant to which Mr. Ryan was retained as the Company's Vice President, Corporate Development. The Ryan Agreement has a six-month term commencing on December 18, 2007 and is automatically renewable thereafter, unless terminated pursuant to the terms of the Ryan Agreement. Pursuant to the Ryan Agreement, Mr. Ryan will receive an annual consulting fee of $97,839 (CDN$120,000). In addition, Mr. Ryan received 200,000 options to purchase shares of the Company's common stock (the “Ryan Options”). The Ryan Options were fully vested upon the date of issuance and have an exercise price of $0.20 (CDN $0.24) . On March 7, 2008 the Company renewed the Ryan Agreement for an additional six months. On December 18, 2008 the Company advised Mr. Ryan by letter agreement that they would not be renewing the original consulting agreement however agreed to compensate him for his services on a month-to-month basis for a fee of $6,523 (CDN$8,000) per month. The letter agreement further states that either party may terminate the agreement with 15 days notice.

On February 11, 2008 by letter engagement agreement the Company contracted the services of a Corporate Secretarial company to fill the role of Mrs. Lisa Rose during her maternity leave for a monthly fee of $1,101 (CDN$1,350) plus eligible expenses.

On February 18, 2008 the Company and YGC, its wholly-owned subsidiary, signed a surface drilling contract with a diamond drilling company for the Marg Project to commence on or about June 18, 2008. On February 18, 2008 the Company paid $148,928 (CDN$150,000) as a deposit per the terms of the contract. During the quarter ended July 31, 2008 the Company paid $281,581 (CDN$288,339) to the contractor. During the quarter ended October 31, 2008 the Company paid $224,283 (CDN$270,149) to the contractor and on August 30, 2008 the drilling program was demobilized. The balance of the deposit in the amount of $8,362 (CDN$10,256) is being held by the diamond drilling company as a deposit on the 2009 drilling program.

On March 10, 2008 the Company entered into a contract with a global mining consultancy business for a scoping study and to prepare a report pursuant to the terms of Canadian National Instrument 43-101, regarding the Marg Deposit at an estimated cost of $76,675 (CDN$81,300). The Company paid $18,579 (CDN$18,713) at April 30, 2008. During the quarter ended July 31, 2008 the Company paid an additional $41,042 (CDN$42,027). During the quarter ended October 31, 2008 the Company paid a further $17,054 (CDN$20,542) to the consultant. During the quarter ended January 31, 2009, the Company paid a final $28,698 (CDN$35,198) to the consultant and advised the consultant that the Company wished to cease work on the project at this time.

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On March 25, 2008 the Company entered into a consulting agreement with Gary Cohoon (the “Cohoon Agreement”) pursuant to which Mr. Cohoon was retained as Vice-President, Exploration, of the Company. The Cohoon Agreement has a one-year term commencing on March 25, 2008 and is automatically renewable thereafter, unless terminated pursuant to its terms. Pursuant to the Cohoon Agreement, Mr. Cohoon will receive an annual consulting fee of $114,146 (CDN$140,000). Additionally, Mr. Cohoon received 200,000 options to purchase shares of the Company's common stock (the “Cohoon Options”). The Cohoon Options fully vested upon issuance and have an exercise price of $0.18 (CDN$0.22) . Effective January 1, 2009 Mr. Cohoon has been billing the Company at an hourly rate only for time spent.

On April 10, 2008 by letter agreement the Company procured the services of Galina Morozova through a contract position as a Geologist with YGC, the Company’s wholly-owned subsidiary commencing April 15, 2008 until August 31, 2008. Ms. Morozova received $6,454 (CDN$6,500) per month until the project began at the Marg Property on approximately June 15, 2008, whereupon Ms. Morozova received $405 (CDN$500) per day plus expenses for the duration of the term of the letter agreement. The contract position ended on August 28, 2008.

On April 29, 2008 the Company entered into a letter agreement with R. Andrew Hureau for a contract position as Senior Geologist with YGC, the Company’s wholly-owned subsidiary. Mr. Hureau’s position commenced on May 1, 2008 at a rate of $623 (CDN$750) per day plus expenses. The letter agreement states that the term is on commencement and for the duration of drilling on the Marg Project, approximately mid June, 2008 to the end of August, 2008, on a regular schedule. The contract position ended on September 3, 2008.

On May 5, 2008 the Company entered into an investor relations agreement (the “Equicom Agreement”) with Equicom Group Inc. (“Equicom”) pursuant to which Equicom was retained to provide the Company with general marketing and business consulting services for an initial term of one year, then renewable thereafter. Equicom will receive an annual work fee of $49,813 (CDN$60,000), payable in monthly installments of $4,151 (CDN$5,000). The initial prorated retainer in the amount of $4,248 (CDN$4,350) and the June 1-30, 2008 installment of $4,883 (CDN$5,000) were made on May 30, 2008. On July 1, 2008 the installment covering July 1-31, 2008 of $4,883 (CDN$5,000) was paid. By letter on July 23, 2008 the Company terminated the Equicom Agreement with such termination taking effect September 18, 2008. During the quarter ended October 31, 2008, the Company paid on August 1, 2008 $4,151 (CDN$5,000) and on September 1, 2008 $2,491 (CDN$3,000) being the balance payments on the contract.

On May 16, 2008 the Company entered into a consulting agreement (the “Clarke Agreement”) with Clarke Capital Group Inc. (“Clarke”) pursuant to which Clarke was retained to provide the Company with investor relations and business communications services for an initial term of 6 months, renewable thereafter for an additional 6 month term. Upon execution of the Clarke Agreement the Company paid Clarke $14,648 (CDN$15,000). Clarke will also receive a monthly work fee of $2,906 (CDN$3,500) during the term of the agreement. Upon renewal, Clarke will receive an additional payment of $8,302 (CDN$10,000). Pursuant to the Clarke Agreement, the Company issued Clarke 50,000 shares of common stock on July 14, 2008, with an additional 50,000 shares issuable upon renewal. The Company paid the June and July installments on their respective due dates. During the quarter ended October 31, 2008 the Company paid the August, September and October installments on their due dates. On December 20, 2008 the Company and the consultant mutually agreed to terminate the consulting agreement entered into on May 16, 2008, effective November 30, 2008. The Company paid Clarke a final work fee of $1,631 (CDN$2,000) on December 31, 2008.

On May 20, 2008 YGC, the Company’s wholly-owned subsidiary entered into a service provision agreement with a company to provide cooking and first aid services on the Marg Property from June 15, 2008 to September 30, 2008. On June 4, 2008 the Company paid a $9,766 (CDN$10,000) advance to the service provider as per the terms of the agreement. During the quarter ended July 31, 2008 the Company also paid $15,178 (CDN$15,543) to the service provider. During the quarter ended October 31, 2008 the Company paid an additional $24,233 (CDN$29,189) and the contractor refunded the balance of the advance in the amount of $382 (CDN$460) to the Company.

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On July 28, 2008 the Company entered into a consulting agreement with First Canadian Capital (“First Canadian”) pursuant to which First Canadian will provide general marketing and business consulting services for an initial term of one year, renewable thereafter. The Company will pay First Canadian $4,892 (CDN$6,000) per month. The Company paid the first three months of such fees in advance. In addition on July 28, 2008 the Company issued 250,000 stock options to buy the Company’s shares at a purchase price of $0.12 (CDN$0.15) per share. The stock options shall vest over the initial term of the agreement. During the quarter ended January 31, 2009, on December 12, 2008 the Company and First Canadian mutually agreed to terminate the agreement effective October 31, 2008 and all stock options were cancelled effective January 31, 2009.

Changes in Officers and Directors

On December 11, 2008 the Company accepted the resignation of G.E. “Ted” Creber as a Director.

On December 12, 2008 the Company accepted Ronald Mann’s resignation as Chief Executive Officer and President and as a Director, and as an Officer and Director of YGC, the Company’s wholly-owned subsidiary. There were no disagreements between the Company and Mr. Mann with regards to the Company’s operations or public disclosures. The Company agreed to pay Mr. Mann severance of $20,384 (CDN$25,000), payable in two installments. $10,192 (CDN$12,500) was paid on December 12, 2008 and the balance of $10,192 (CDN$12500) is due on April 15, 2009.

On December 12, 2008 the Company appointed J.L. Guerra, Jr. President and Chief Executive Officer of both the Company and YGC. Mr. Guerra, Jr. is also the Chairman of the Company’s Board of Directors.

Normal Course Issuer Bid

On November 12, 2008 the Company filed a Form 8-K to disclose that the Company has commenced a normal course issuer bid to purchase up to 1,682,531 shares of its common stock, representing approximately 5% of the Company’s outstanding shares. Blackmont Capital Corporation, based in Vancouver, British Columbia, was engaged to conduct the bid. While the Company has not rescinded the issuer bid, the Company is reconsidering its position with respect to the bid. As of the date of this report, the Company has no intention or ability to make any normal course issuer bids. If the Company effectuates the bid, the Company will pay prevailing market prices for the shares. Purchases pursuant to the bid will be made through the facilities of the Toronto Stock Exchange, subject to the rules of the Toronto Stock Exchange and applicable rules promulgated under the Securities Exchange Act of 1934, as amended. The bid will terminate on the earlier of November 13, 2009, or the date on which all of the shares to be acquired under the bid have been purchased. During the quarter ended January 31, 2009 the Company has not made any normal course issuer bids.

Annual and Special Meeting of Shareholders

On November 7, 2008 the Company received written permission from the TSX to extend the meeting date of their Annual and Special Meeting of Shareholders to January 31, 2009. During the quarter ended January 31, 2009 the Company did not hold its Annual and Special Meeting of Shareholders.

Subsequent Events

On February 2, 2009 the Toronto Stock Exchange (the "TSX") issued a letter to the Company stating that it is reviewing the eligibility of our common shares for continued listing on the TSX. As of the date of this report, the Company is not in compliance with certain of the listing standards of the TSX. The Company has been granted 210 days from the date of the letter to regain compliance with these requirements. In the event the Company is unable to meet TSX standards, its shares will likely cease to be listed.

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On February 18, 2009 the Company entered into an engagement letter with PricewaterhouseCoopers LLP to provide tax consulting services and paid a retainer of $20,383 (CDN$25,000).

On March 11, 2009 the Company cancelled 150,000 stock options held by a former director.

On November 7, 2008 the Company received written permission from the TSX to extend the meeting date of their Annual and Special Meeting of Shareholders to January 31, 2009. As of the date of this report, the Company has not held its Annual and Special Meeting of Shareholders.

Critical Accounting Policies

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements, the reported amount of revenues and expenses during the reporting period and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, particularly those related to the determination of the estimated Canadian exploration tax credit receivable and accrued liabilities. To the extent actual results differ from those estimates, our future results of operations may be affected. Besides this critical accounting policy on use of estimates, we believe the following critical accounting policy affects the preparation of our consolidated financial statements.

Acquisition, Exploration and Evaluation Expenditures

The Company is an exploration stage mining company and has not yet realized any revenue from its operations. It is primarily engaged in the acquisition and exploration of mining properties. Mineral property exploration costs are expensed as incurred. Mineral property payments are capitalized only if the Company is able to allocate any economic value beyond proven and probable reserves. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs incurred to develop such property will be capitalized. For the purpose of preparing financial information, the Company is unable to allocate any economic value beyond proven and probable reserves and hence all property payments are considered to be impaired and accordingly written off to project expense. All costs associated with a property that has the potential to add to the Company’s proven and probable reserves are expensed until a final feasibility study demonstrating the existence of proven and probable reserves is completed. No costs have been capitalized in the periods covered by these financial statements. Once capitalized, such costs will be amortized using the units-of-production method over the estimated life of the probable reserve.

Mineral property acquisition costs will also be capitalized in accordance with the FASB Emerging Issues Task Force (“EITF”) Issue 04-2 when management has determined that probable future benefits consisting of a contribution to future cash inflows have been identified and that adequate financial resources are available or are expected to be available as required to meet the terms of property acquisition and budgeted exploration and development expenditures. Mineral property payments are expensed as incurred if the criteria for capitalization is not met.

To date, mineral property exploration costs have been expensed as incurred. As of the date of these financial statements, the Company has incurred only property payments and exploration costs, which have been expensed. To date the Company has not established any proven or probable reserves on its mineral properties

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CONTROLS AND PROCEDURES

DISCLOSURE AND FINANCIAL CONTROLS AND PROCEDURES

In connection with the Company's compliance with securities laws and rules, its board of directors evaluated the Company's disclosure controls and procedures. The board of directors has concluded that the Company's disclosure controls and procedures are effective. There have been no significant changes in these controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Internal financial controls and procedures have been designed under the supervision of the Company's board of directors. The internal financial controls provide reasonable assurance regarding the reliability of the Company's financial reporting and preparation of financial statements in accordance with generally accepted accounting principals. There have been no significant changes in these controls or in other factors that could significantly affect these controls since they were instituted, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II-OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

None.

Item 1A.

RISK FACTORS

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Item 6.

EXHIBITS & REPORTS ON FORM 8-K

Exhibits

Current Report on Form 8-K “Item 5.01 -Departure of Directors or Certain Officers” dated December 11, 2008

Current Report on Form 8-K “Item 8.01 -Other Events” dated November 12, 2008

Current Report on Form 8-K “Item 1.01 -Entry into an Amendment of a Material Definitive Agreement”, dated December 4, 2008

SIGNATURE

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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