UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

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

Commission file number 000-51718

COLORADO GOLDFIELDS INC.

(Name of registrant as specified in its charter)

Nevada (State or other jurisdiction of incorporation or organization)		20-0716175 (I.R.S. Employer Identification No.)
10920 West Alameda Avenue, Suite 207 Lakewood, CO (Address of principal executive offices)		80226 (Zip Code)

(303) 984-5324
(Registrant’s telephone number, including area code)

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

Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $0.001 par value

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

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

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

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

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

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ

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

The aggregate market value of the Class A common stock of the registrant held by non-affiliates as of February 27, 2009 the last business day of the registrant’s most recently completed second fiscal quarter based on the closing sale price of the registrant’s Class A common stock on that date as reported on the Over the Counter Bulletin Board was $2,786,512.

Class		Shares Outstanding at November 17, 2009
Class A Common Stock, $0.001 Par Value		906,352,627
Class B Common Stock (Restricted), No Par Value		40,594,954

DOCUMENTS INCORPORATED BY REFERENCE

None.

 

 

TABLE OF CONTENTS

PART I			1
Item 1. Business			3
Item 1A. Risk Factors			7
Risks Relating to Our Company			7
Risks Associated with Our Common Stock in General			12
Item 2. Properties			14
Pride of the West Mill			14
The Brooklyn Mine			16
The King Solomon Mine			25
The San Juan Properties			26
Item 3. Legal Proceedings			28
Item 4. Submission of Matters to a Vote of Security Holders			31
PART II			32
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			32
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			36
Item 8. Financial Statements and Supplementary Data			42
Balance Sheets			43
Statements of Operations			44
Statements of Cash Flows			45
Statements of Stockholders’ Equity (Deficit)			46
Notes to the Financial Statements			47
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			59
Item 9A. Controls and Procedures			60
PART III			62
Item 10. Directors, Executive Officers and Corporate Governance			62
Item 11. Executive Compensation			65
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			70
Item 13. Certain Relationships and Related Transactions, and Director Independence			71
Item 14. Principal Accountant Fees and Services			72
PART IV			73
Item 15. Exhibits and Financial Statement Schedules			73
SIGNATURES			74
EXHIBIT INDEX			75
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

This document (including information incorporated herein by reference) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which involve a degree of risk and uncertainty due to various factors affecting Colorado Goldfields Inc. For a discussion of some of these factors, see the discussion in Item 1A, Risk Factors, of this report.

PART I

Forward-Looking Statements

Certain statements contained in this report (including information incorporated by reference) are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provided for under these sections. Our forward-looking statements include, without limitation:

•

Statements regarding future earnings;

•

Estimates of future mineral production and sales, for specific operations and on a consolidated or equity basis;

•

Estimates of future costs applicable to sales, other expenses and taxes for specific operations and on a consolidated basis;

•

Estimates of future cash flows;

•

Estimates of future capital expenditures and other cash needs, for specific operations and on a consolidated basis, and expectations as to the funding thereof;

•

Estimates regarding timing of future capital expenditures, construction, production or closure activities;

•

Statements as to the projected development of certain ore deposits, including estimates of development and other capital costs and financing plans for these deposits;

•

Estimates of reserves and statements regarding future exploration results and reserve replacement and the sensitivity of reserves to metal price changes;

•

Statements regarding the availability and costs related to future borrowing, debt repayment and financing;

•

Statements regarding modifications to hedge and derivative positions;

•

Statements regarding future transactions;

•

Statements regarding the impacts of changes in the legal and regulatory environment in which we operate; and

•

Estimates of future costs and other liabilities for certain environmental matters.

Where we express an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed, projected or implied by those forward-looking statements. Such risks include, but are not limited to: the ability of Colorado Goldfields to obtain or maintain necessary financing; the price of gold, silver and other commodities; currency fluctuations; geological and metallurgical assumptions; operating performance of equipment, processes and facilities; labor relations; timing of receipt of necessary governmental permits or approvals; domestic laws or regulations, particularly relating to the environment and mining; domestic and international economic and political conditions; and other risks and hazards associated with mining operations. More detailed information regarding these factors is included in Item 1, Business, Item 1A, Risk Factors, and elsewhere throughout this report. Given these uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements.

All subsequent written and oral forward-looking statements attributable to Colorado Goldfields or to persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Colorado Goldfields disclaims any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

Available Information

Colorado Goldfields maintains an internet website at www.cologold.com. Colorado Goldfields makes available, free of charge, through the Investor Information section of the web site, its Annual Reports on Form 10-K and Form 10-KSB, Quarterly Reports on Form 10-Q and Form 10-QSB, Current Reports on Form 8-K, Section 16 filings and all amendments to those reports, as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. Colorado Goldfields’ Code of Business Ethics and Conduct are available on the web site at

www.cologold.com/uploads/code_of_Business_Conduct_Ethics.pdf.

Any of the foregoing information is available in print to any stockholder who requests it by contacting Colorado Goldfields’ Investor Relations Department at 866-579-9444.

Item 1.		Business

Background

Colorado Goldfields Inc. (“we,” “us,” or the “Company”) is a mining exploration stage company engaged in the acquisition and exploration of mineral properties, primarily for gold, silver, zinc, copper and lead, and the milling and processing of ore from both owned and non-owned mining properties.

We hold 1) leases with an option to purchase and 2) an option to acquire up to an 80% undivided interest in certain properties located in San Juan County, Colorado. The lease with an option to purchase properties consist of the Brooklyn Mine, and the King Solomon Mine. The option to acquire up to an 80% undivided interest consist of the Gold King and Mogul Mine properties, and a 70% undivided interest in 19 patented mining claims in the Mayflower Mine, (“San Juan Properties”). We refer to these properties collectively as “the CGFI Properties” throughout this Report. We are presently in the exploration stage at the CGFI Properties. We have not generated revenue from mining operations.

The lease with an option to purchase the Brooklyn Mine, entered into on September 30, 2009, included the issuance of 75,000,000 restricted shares of Class A common stock in Colorado Goldfields. The shares are restricted in a lock up provision for a period of 3 years during which no sales or other conveyances may be undertaken. A work commitment averaging $200,000 per year, and a 5% Net Smelter Royalty are also included in this lease/option. The lease automatically renews in 2012 so long as ores, minerals, or metals are being produced or sold.

The Brooklyn Mine consists of approximately 600 acres of patented and unpatented claims located along the historic Brooklyn Mine and associated structures. Since its discovery around 1900, the Brooklyn Mine has consistently produced exceptionally high-grade gold ore. See our Form 8-K filed on October 6, 2009 for the complete Agreement.

The lease with an option to purchase the King Solomon Mine included the issuance of 50,000,000 restricted shares of Class A common stock in Colorado Goldfields. The shares are restricted in a lock up provision for a period of 3 years during which no sales or other conveyances may be undertaken. A work commitment of $50,000 per year, and a 3.5% Net Smelter Royalty are also included in the lease/option. The lease automatically renews in 2012 so long as ores, minerals, or metals are being produced or sold.

The King Solomon Mine is located on the southern flank of King Solomon Mountain, just a few hundred yards up the mountain from the first discovery of gold in the San Juan Mountains in Little Giant Basin. Opened in 1876, the mine was in production until 1883. See our Form 8-K filed on September 23, 2009 for the complete Agreement.

We were organized under the laws of the State of Nevada on February 11, 2004 under the name Garpa Resources Inc. On June 18, 2007, we changed our name to Colorado Goldfields Inc.

Our principal executive offices are located at 10920 West Alameda Avenue, Suite 207, Lakewood, Colorado, 80226 and our telephone number is (303) 984-5324. Our common stock is quoted on the OTC Bulletin Board System under the symbol “CGFIA.”

Our Business

As an exploration stage mining company, our activities are currently focused on exploration, geological evaluation and feasibility studies for gold and other metals and, where warranted, efforts to develop and construct mining and processing facilities. We may enter into joint ventures, partnerships or other arrangements to accomplish these activities. Additionally, we acquired the Pride of the West Mill located in Howardsville, Colorado in June 2007. The mill is currently not operational. We hope to address the issues, which are more fully described in “Exploration Costs and Plans,” with the mill in 2009-2010 and bring the mill to operating standards.

From time to time, we may also consider the acquisition of other mining companies or their mining properties.

Recent Events

In September 2009, we entered into two “Lease with an Option Purchase” agreements for 1) The Brooklyn Mine, 2) The King Solomon Mine. See “Item 2. Properties” for additional information.

In October 2009, we executed a non-binding Letter of Intent to purchase all the mining assets of Gemini Explorations Inc. (GMXS.OB) in exchange for 100 million restricted Class A common shares of Colorado Goldfields Inc. Among the properties this transaction would bring into Colorado Goldfields is the Los Chorros. This property is located in the municipality of Zaragoza in the department of Antiochia, Colombia. It lies in the El Bagre — Zaragoza mining district in the midst of Colombia’s most prolific gold producing region. This area has been the site of extensive placer mining for several decades along the Nechi River at the western foot of the Serrania de San Lucas. Exploration of the lode gold source areas of these placers in the vein deposits of these upland areas has resulted in a number of recent discoveries presently being developed into producing mines.

Artisanal miners have been working on the Los Chorros concession and have exposed some of the gold-bearing veins. Bonanza grades of 250 grams/tonne (7.2 oz./ton), a value of $7,300 per ton have been reported. Prospective grades of 15 to 20 grams/tonne (0.4 to 0.6 oz./ton), a value of $430 per ton, are the primary target on the property in work conducted by Gemini Explorations. The acquisition is subject to mutual due diligence. The due diligence period extends to November 30, 2009.

In November 2009, we reached a joint stipulation with the Division of Reclamation Mining and safety regarding the status, re-activation, and reclamation of the Pride of the West Mill. The joint stipulation allows us to amend the current permit and include procedures for commencing “toll” or “Custom” milling. The permit amendment process may take from 4 to 6 months.

Competitive Business Conditions

We compete with many companies in the mining business, including larger, more established mining companies with substantial capabilities, personnel and financial resources. There is a limited supply of desirable mineral lands available for claim-staking, lease or acquisition in the United States and other areas where we may conduct exploration activities. Because we compete with individuals and companies that have greater financial resources and larger technical staffs, we may be at a competitive disadvantage in acquiring desirable mineral properties. From time to time, specific properties or areas that would otherwise be attractive to us for exploration or acquisition are unavailable due to their previous acquisition by other companies or our lack of financial resources. Competition in the mining industry is not limited to the acquisition of mineral properties but also extends to the technical expertise to find, advance, and operate such properties; the labor to operate the properties; and the capital needed to fund the acquisition and operation of such properties. Competition may result in our company being unable not only to acquire desired properties, but to recruit or retain qualified employees, to obtain equipment and personnel to assist in our exploration activities or to acquire the capital necessary to fund our operation and advance our properties. Our inability to compete with other companies for these resources would have a material adverse effect on our results of operation and business.

General Government Regulations

Federal Lands. The Company’s property is situated adjacent to lands owned by the United States, which may require that the Company obtain certain special use permits in order to gain access to our land for exploration and mining activities.

Mining Operations. The operation of mines is governed by both federal and state laws. Federal laws, such as those governing the purchase, transport or storage of explosives, and those governing mine safety and health, also apply.

The State of Colorado likewise requires various permits and approvals before mining operations can commence, and permits and approvals that must regulate all operations. Among other things, a detailed reclamation plan must be prepared and approved, with bonding in the amount of projected reclamation costs. The bond is used to ensure that proper reclamation takes place, and the bond will not be released until that time. The Colorado Division of Reclamation, Mining and Safety is the state agency that administers the reclamation permits, mine permits and related closure plans on our property. Local jurisdictions (such as San Juan County) may also impose permitting requirements (such as conditional use permits or zoning approvals). Some permits require, or will require, monitoring, compliance, reporting, periodic renewal, or review of their conditions and may be subject to a public review process during which opposition to our proposed operations may be encountered.

The primary body of law that affects the Company’s operations in Colorado is the Mineral Rules And Regulations Of The Colorado Mined Land Reclamation Board For Hard Rock, Metal And Designated Mining Operations, first Promulgated May, 1977 Amended June-December, 1977; March-July, 1978; July-August, 1979; May, 1980; April, 1981; February-April, 1982; April, 1983; October, 1983; June, 1985; March, 1987; December, 1987; October, 1988; November, 1990; September, 1991; March, 1993; April, 1994; January, 1995; October, 1995; April, 1999, January, 2000; August, 2001;June 2005, and August 2006.

And, Title 34 Mineral Resources Article 32, Colorado Mined Land Reclamation Act. Of the Colorado Revised Statutes. The complete and current Rules may be retrieved from the Internet at:

http://mining.state.co.us/Rules%20and%20Regs.htm.

Environmental Laws. Mining activities at the Company’s properties are also subject to various environmental laws, both federal and state, including but not limited to the federal National Environmental Policy Act, CERCLA (as defined below), the Resource Recovery and Conservation Act, the Clean Water Act, the Clean Air Act and the Endangered Species Act, and certain Colorado state laws governing the discharge of pollutants and the use and discharge of water. Various permits from federal and state agencies are required under many of these laws. Local laws and ordinances may also apply to such activities as construction of facilities, land use, waste disposal, road use and noise levels.

These laws and regulations are continually changing and, as a general matter, are becoming more restrictive. Colorado Goldfields’ policy is to conduct our business in a manner that safeguards public health and mitigates the environmental effects of our business activities. To comply with these laws and regulations, we have made, and in the future may be required to make, capital and operating expenditures.

The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (CERCLA), imposes strict, joint, and several liability on parties associated with releases or threats of releases of hazardous substances. Liable parties include, among others, the current owners and operators of facilities at which hazardous substances were disposed or released into the environment and past owners and operators of properties who owned such properties at the time of such disposal or release. This liability could include response costs for removing or remediating the release and damages to natural resources. Our properties, because of past mining activities, could give rise to potential liability under CERCLA.

Under the Resource Conservation and Recovery Act (RCRA) and related state laws, mining companies may incur costs for generating, transporting, treating, storing, or disposing of hazardous or solid wastes associated with certain mining-related activities. RCRA costs may also include corrective action or clean up costs.

Mining operations may produce air emissions, including fugitive dust and other air pollutants, from stationary equipment, such as crushers and storage facilities, and from mobile sources such as trucks and heavy construction equipment. All of these sources are subject to review, monitoring, permitting, and/or control requirements under the federal Clean Air Act and related state air quality laws. Air quality permitting rules may impose limitations on our production levels or create additional capital expenditures in order to comply with the permitting conditions.

Under the federal Clean Water Act and the delegated Colorado water-quality program, point-source discharges into Waters of the State are regulated by the National Pollution Discharge Elimination System (NPDES) program. Stormwater discharges also are regulated and permitted under that statute. In Item 2, we provide more detailed discussions regarding Colorado’s positions on requirements for discharge permits and stormwater permits for Gold King Mine. Similar issues could arise for the other mines. Section 404 of the Clean Water Act regulates the discharge of dredge and fill material into Waters of the United States, including wetlands. All of those programs may impose permitting and other requirements on our operations.

The National Environmental Policy Act (NEPA) requires an assessment of the environmental impacts of major federal actions. The federal action requirement must be satisfied if the project involves federal land or if the federal government provides financing or permitting approvals. NEPA does not establish any substantive standards, but requires the analysis of any potential impacts. The scope of the assessment process depends on the size of the project. An Environmental Assessment (EA) may be adequate for smaller projects. An Environmental Impact Statement (EIS), which is much more detailed and broader in scope than an EA, is required for larger projects. NEPA compliance requirements for any of our proposed projects could result in additional costs or delays.

The Endangered Species Act (ESA) is administered by the U.S. Fish and Wildlife Service of the U.S. Department of Interior. The purpose of the ESA is to conserve and recover listed endangered and threatened species and their habitat. Under the ESA, endangered means that a species is in danger of extinction throughout all or a significant portion of its range. The term threatened under such statute means that a species is likely to become endangered within the foreseeable future. Under the ESA, it is unlawful to take a listed species, which can include harassing or harming members of such species or significantly modifying their habitat. Future identification of endangered species or habitat in our project areas may delay or adversely affect our operations.

U.S. federal and state reclamation requirements often mandate concurrent reclamation and require permitting in addition to the posting of reclamation bonds, letters of credit or other financial assurance sufficient to guarantee the cost of reclamation. If reclamation obligations are not met, the designated agency could draw on these bonds or letters of credit to fund expenditures for reclamation requirements. Reclamation requirements generally include stabilizing, contouring and re-vegetating disturbed lands, controlling drainage from portals and waste rock dumps, removing roads and structures, neutralizing or removing process solutions, monitoring groundwater at the mining site, and maintaining visual aesthetics.

Employees

There were three people employed by Colorado Goldfields as of August 31, 2009. On September 9, 2008, Todd C. Hennis resigned his positions as our Chief Executive Officer and Director for personal reasons. As of the same date, the remaining members of our Board of Directors elected Lee R. Rice to act as interim Chief Executive Officer. Effective September 10, 2008, Mr. Rice entered into an Executive Employment Agreement with the Company, which is more fully described in Item 11 Executive Compensation. Mr. Rice has been one of our Directors since July 31, 2008.

Office Facilities

Due to frequent travel, our executive staff generally offices remotely from the corporate offices in Lakewood, Colorado and we do not pay rent for the Lakewood facility. We also have an office at our Pride of the West Mill in Howardsville, Colorado in San Juan County. We believe these arrangements are and will be adequate for our needs for the foreseeable future.

Item 1A.		Risk Factors

An investment in our securities involves a high degree of risk. You should consider carefully the following risks, along with all of the other information included in this report, before deciding to buy our common stock. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also impair our business operations. If we are unable to prevent events that have a negative effect from occurring, then our business may suffer.

This report, including Management’s Discussion and Analysis or Plan of Operation, contains forward-looking statements that may be materially affected by several risk factors, including those summarized below.

Risks Relating to Our Company

We have incurred losses since our inception in 2004 and may never be profitable which raises doubt about our ability to continue as a going concern.

Since our inception in 2004, we have had nominal operations and incurred operating losses. As of August 31, 2009, our accumulated deficit since inception was approximately $9.4 million. We have substantial current obligations and at August 31, 2009, we had $1.3 million of current liabilities as compared to only $0.26 million of current assets. Since August 31, 2008, we have been unable to raise any additional capital, and as of November 18, 2009 we had minimal cash on hand. Accordingly, the Company does not have sufficient cash resources or current assets to pay these obligations, and we have been meeting many of our obligations through the issuance of our Class A common stock to our employees, consultants and advisors as payment for the goods and services.

Our management continues to search for additional financing; however, considering the difficult U.S. and global economic conditions along with the substantial problems in the capital and credit markets, there is a significant possibility that we will be unable to obtain financing to continue our operations.

As we are in the beginning stages of our exploration activities on the CGFI Properties, we expect to incur additional losses in the foreseeable future, and such losses may continue to be significant. To become profitable, we must be successful in raising capital to continue with our exploration activities and meet the requirements to exercise our options on the CGFI Properties, discover economically feasible mineralization deposits and establish reserves, successfully develop the properties and finally realize adequate prices on our minerals in the marketplace. It could be years before we receive any revenues from gold and mineral production, if ever. Thus, we may never be profitable.

These circumstances raise substantial doubt about our ability to continue as a going concern as described in an explanatory paragraph to our independent registered public accounting firm’s report on our audited financial statements as of and for the year ended August 31, 2009. If we are unable to continue as a going concern, investors will likely lose all of their investment in our company. The financial statements included in this report do not include any adjustments that might result from the outcome of this uncertainty. Please see “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources,” for further information.

Our only interest relating to mining properties is the lease or option to acquire various mining claims, the feasibility of which has not been established as we have not completed exploration or other work necessary to determine if it is commercially feasible to acquire and develop the property.

We are currently a mining exploration stage company. Our only mining assets are related to leases with options to purchase and an option to acquire up to an 80% interest in certain mining claims in San Juan County, Colorado. Additionally, in June 2007 we acquired the Pride of the West Mill, which is currently under a cease and desist order from the Colorado Division of Reclamation, Mining and Safety which prohibits operation until certain deficiencies are corrected. See “Item 2. Business and Properties” of this Report for more information regarding our mining assets.

The CGFI Properties do not have any proven or probable reserves. A “reserve,” as defined by the SEC, is that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. A reserve requires a feasibility study demonstrating with reasonable certainty that the deposit can be economically extracted and produced. We have not carried out any feasibility study with regard to the CGFI Properties. As a result, we currently have no reserves and there are no assurances that we will be able to prove that there are reserves on the CGFI Properties.

In order to keep the option on the San Juan Properties in good standing, the owners of the properties were to receive a $100,000 fee by March 15, 2009. That payment was not made. On April 6, 2009, Todd C. Hennis (the former President and CEO of the Company), and entities San Juan Corp., and Salem Minerals Inc. (which are substantially owned by Mr. Hennis), served upon the Company a Complaint seeking among other things, a $100,000 payment pursuant to the option agreement. The option on the San Juan Properties is the subject of litigation now pending in U.S. District Court, San Juan County, Colorado. See “Item 3 Legal Proceedings” for additional details.

In June 2007, we acquired the Pride of the West Mill (the “Mill”) located in Howardsville, Colorado for consideration of $900,677 plus the assumption of an estimated asset retirement obligation of $500,000 for a total cost of $1,400,677. We paid the seller cash of $250,677 and the remaining $650,000 was financed by the seller. The seller’s loan is secured by the property bearing interest at 12% per year, with all unpaid principal and interest due June 29, 2010. We will be required to obtain debt or equity financing from external sources in order to fund payment on the mortgage. In addition, as the Mill is currently inactive and under a cease and desist order issued by the Colorado Division of Reclamation, Mining and Safety due to operational deficiencies, we will require further funds to cure the deficiencies and bring the Mill back into active status. See “Item 2. Properties” of this Report for more information regarding our mining and milling assets.

Furthermore, we cannot generate any income from the Mill until such time as we (i) cure the deficiencies contained in the cease and desist order, (ii) obtain approval from the State of Colorado Mined Land Reclamation Board of a comprehensive permit amendment, and (iii) refurbish it to operational status. Please see “Item 2 — Properties — Pride of the West Mill” and “ Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for further information.

We may never find commercially viable gold or other reserves.

Mineral exploration and development involve a high degree of risk and few properties that are explored are ultimately developed into producing mines. We can not assure you that any future mineral exploration and development activities will result in any discoveries of proven or probable reserves as defined by the SEC since such discoveries are remote. Nor can we provide any assurance that, even if we discover commercial quantities of mineralization, a mineral property will be brought into commercial production. Development of our mineral properties will follow only upon obtaining sufficient funding and satisfactory exploration results.

We will require significant additional capital to continue our exploration activities, and, if warranted, to develop mining operations.

Under our lease with an option to purchase the Brooklyn Mine we are required to expend an average of $200,000 per year in the form of a work commitment.

Under our lease with an option to purchase the King Solomon Mine we are required to expend $50,000 in the form of a work commitment.

Under our Option Agreement with Mr. Hennis and San Juan Corp. (the “Optionors”), which is the subject of current litigation, we are required to expend $6,000,000 on the San Juan Properties in order to earn a 40% undivided ownership interest in the San Juan Properties. Additionally, we can earn two separate 20% ownership interests, for a total ownership interest of 80%, by expending $3,500,000 on the San Juan Properties and issuing to the Optionors 13,000,000 shares of our common stock for each 20% tranche. As of August 31, 2009, we had expended approximately $2,763,000, subject to a contingent hold-back reserve of $715,000, towards the earn-in requirements of the Option Agreement. All expenditures are subject to final audit prior to executing each ownership transfer. The Company and the optionors are establishing protocols for certain equipment and other expense treatment for purposes of the earn-in agreement. The classification of certain expenses, especially relating to the reclamation bond and other potential expenditures, remain unresolved. The final earn-in expenditure may be reduced after resolution of these issues. The properties owned by Hennis and San Juan Corp. (the “Optionors”), are the subject of pending litigation. The ultimate outcome of the litigation and our related rights to these properties is uncertain.

In November 2007, we raised approximately $3,284,500 pursuant to a private placement of securities, and as of August 31, 2009, we had expended all of the funds acquired in the private placement except approximately $318,000 placed in a CD as collateral to a letter of credit that satisfies the financial warranty requirement of the State of Colorado pursuant the permit to operate the Pride of the West Mill. Thus, we will be required to raise significantly more capital in order to develop the CGFI Properties for mining production assuming that economically viable reserves exist. There is no assurance that our investments in the CGFI Properties will be financially productive. Our ability to obtain necessary funding depends upon a number of factors, including the price of gold and other base metals and minerals which we are able to mine, the status of the national and worldwide economy and the availability of funds in the capital markets. If we are unable to obtain the required financing in the near future for these or other purposes, our exploration activities would be delayed or indefinitely postponed, we would likely lose our lease/options and option to acquire an ownership interest in the CGFI Properties and this would likely, eventually, lead to failure of our Company. Even if financing is available, it may be on terms that are not favorable to us, in which case, our ability to become profitable or to continue operating would be adversely affected. If we are unable to raise funds to continue our exploration and feasibility work on the Brooklyn, King Solomon and San Juan Properties, or if commercially viable reserves are not present, the market value of our securities will likely decline, and our investors may lose some or all of their investment.

Historical production of gold at the Brooklyn, King Solomon, and San Juan Properties may not be indicative of the potential for future development or revenue.

Historical production of gold and other metals and minerals from the mines encompassed under our Lease/Options and Option Agreement cannot be relied upon as an indication that the CGFI Properties will have commercially feasible reserves. Investors in our securities should not rely on historical operations of the CGFI Properties as an indication that we will be able to place our Properties into commercial production again. We expect to incur losses unless and until such time as our properties enter into commercial production and generate sufficient revenue to fund our continuing operations.

Fluctuating gold, metal and mineral prices could negatively impact our business plan.

The potential for profitability of our gold and other metal and mineral mining operations and the value of any mining properties we may acquire will be directly related to the market price of gold and the metals and minerals that we mine. Historically, gold and other mineral prices have widely fluctuated, and are influenced by a wide variety of factors, including inflation, currency fluctuations, regional and global demand and political and economic conditions. Fluctuations in the price of gold and other minerals that we mine may have a significant influence on the market price of our common stock and a prolonged decline in these prices will have a negative effect on our results of operations and financial condition.

Reclamation obligations on the Brooklyn, King Solomon, San Juan Properties and our Mill could require significant additional expenditures.

We are responsible for the reclamation obligations related to any exploratory and mining activities located on the Brooklyn, King Solomon, and San Juan Properties. Since we have only begun exploration activities, we cannot estimate these costs at this time. In November 2007, the Colorado Division of Reclamation, Mining and Safety transferred the mill permit into our name, and we delivered to the Division a reclamation bond in the amount of $318,154. We have currently estimated the total reclamation costs on the Mill at $571,500 and have recorded a liability in this amount as of August 31, 2009. There is a risk that the Mill reclamation costs may exceed our current estimate, and such excess could be significant. The satisfaction of current and future bonding requirements and reclamation obligations will require a significant amount of capital. There is a risk that we will be unable to fund these additional bonding requirements, and further that increases to our bonding requirements or excessive actual reclamation costs will negatively affect our financial position and results of operation.

Title to mineral properties can be uncertain, and we are at risk of loss of ownership of our property.

Our ability to explore and mine the leased and optioned properties depends on the validity of title to that property. The CGFI Properties, which are subject to our Lease/Options and Option Agreements, consist of patented and unpatented mining claims. Unpatented mining claims are effectively only a lease from the federal government to extract minerals; thus an unpatented mining claim is subject to contest by third parties or the federal government. These uncertainties relate to such things as the sufficiency of mineral discovery, proper posting and marking of boundaries, failure to meet statutory guidelines, assessment work and possible conflicts with other claims not determinable from descriptions of record. Since a substantial portion of all mineral exploration, development and mining in the United States now occurs on unpatented mining claims, this uncertainty is inherent in the mining industry. We have not obtained a title opinion on our leased properties or the San Juan Properties we have under option. Thus, there may be challenges to the title to the properties which, if successful, could impair development and/or operations.

Our ongoing operations and past mining activities of others are subject to environmental risks, which could expose us to significant liability and delay, suspension or termination of our operations.

Mining exploration and exploitation activities are subject to federal, state and local laws, regulations and policies, including laws regulating the removal of natural resources from the ground and the discharge of materials into the environment. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Exploration and exploitation activities are also subject to federal, state and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of exploration methods and equipment.

Environmental and other legal standards imposed by federal, state or local authorities are constantly evolving, and typically in a manner which will require stricter standards and enforcement, and increased fines and penalties for non-compliance. Such changes may prevent us from conducting planned activities or increase our costs of doing so, which would have material adverse effects on our business. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages that we may not be able to or elect not to insure against due to prohibitive premium costs and other reasons. Unknown environmental hazards may exist on the CGFI Properties, or we may acquire properties in the future that have unknown environmental issues caused by previous owners or operators, or that may have occurred naturally.

The CGFI Properties are subject to royalties on production.

As part of the Lease/Options for the Brooklyn and King Solomon Mines, the Company granted Net Smelter Royalties of 5% and 3.5% respectively. In addition, historical royalties may be asserted by third-parties which are currently unknown to us.

The mining claims that are subject to our Option Agreement with Todd C. Hennis and San Juan Corp. (which are the subject of current litigation), are subject to the following royalties: (i) 3.0% net smelter return royalty on Gold King Mine, (ii) 2.5% net profits interest on Gold King Mine, (iii) 2.0% net smelter return royalty on the Mayflower Group, (iv) 2.5% net profits interest in the Mayflower Group, and (v) a 2% net smelter royalty on the Gold King Mine. If we acquire an ownership interest in the San Juan Properties by exercise of our Option Agreement, and we are successful in placing the property into production, we will be obligated to pay the royalty holders the percentages of the production and net profits disclosed above. Payment of these royalties will reduce our potential revenue. Further, as the documentation existing for many of these properties dates back to the late 19th century, there may be unknown encumbrances, including royalties, on these properties. One such historical royalty assertion is currently being investigated by us.

Weather interruptions in the San Juan County, Colorado area may delay or prevent exploration on the CGFI Properties

The Brooklyn, King Solomon, and San Juan Properties are located in a mountainous, high alpine region of the Colorado Rocky Mountains. The area receives extreme winter conditions which delay or prevent exploration of the properties during the winter months.

Our industry is highly competitive, attractive mineral lands are scarce and we may not be able to obtain quality properties.

We compete with many companies in the mining industry, including large, established mining companies with capabilities, personnel and financial resources that far exceed our limited resources. In addition, there is a limited supply of desirable mineral lands available for claim-staking, lease or acquisition in the United States, and other areas where we may conduct exploration activities. We are at a competitive disadvantage in acquiring mineral properties, since we compete with these larger individuals and companies, many of which have greater financial resources and larger technical staffs. Likewise, our competition extends to locating and employing competent personnel and contractors to prospect, develop and operate mining properties. Many of our competitors can offer attractive compensation packages that we may not be able to meet. Such competition may result in our company being unable not only to acquire desired properties, but to recruit or retain qualified employees or to acquire the capital necessary to fund our operation and advance our properties. Our inability to compete with other companies for these resources would have a material adverse effect on our results of operation and business.

We depend on our Chief Executive Officer and Chief Financial Officer and the loss of these individuals could adversely affect our business.

Our company is completely dependent on our Chief Executive Officer, Lee R. Rice, and on our Chief Financial Officer, C. Stephen Guyer, both of whom are also members of our Board of Directors. As of November 18, 2009, we only employed three individuals: Messrs. Rice and Guyer and our Director of Operations. Thus, the loss of either Messrs. Rice or Guyer could significantly and adversely affect our business, and certainly the loss of both individuals on or about the same time could result in a complete failure of the Company. We do not carry any life insurance on the lives of either Messrs. Rice or Guyer.

The nature of mineral exploration and production activities involves a high degree of risk and the possibility of uninsured losses that could materially and adversely affect our operations.

Exploration for minerals is highly speculative and involves greater risk than many other businesses. Many exploration programs do not result in the discovery of economically feasible mineralization. Few properties that are explored are ultimately advanced to the stage of producing mines. We are subject to all of the operating hazards and risks normally incident to exploring for and developing mineral properties such as, but not limited to:

	•		economically insufficient mineralized material;
	•		fluctuations in production costs that may make mining uneconomical;
	•		labor disputes;
	•		unanticipated variations in grade and other geologic problems;
	•		environmental hazards;

	•		water conditions;
	•		difficult surface or underground conditions;
	•		industrial accidents; personal injury, fire, flooding, cave-ins and landslides;
	•		metallurgical and other processing problems;
	•		mechanical and equipment performance problems; and
	•		decreases in revenues and reserves due to lower gold and mineral prices.

Any of these risks can materially and adversely affect, among other things, the development of properties, production quantities and rates, costs and expenditures and production commencement dates. We currently have no insurance to guard against any of these risks. If we determine that capitalized costs associated with any of our mineral interests are not likely to be recovered, we would incur a write-down of our investment in these interests. All of these factors may result in losses in relation to amounts spent which are not recoverable.

Our operations are subject to permitting requirements which could require us to delay, suspend or terminate our operations on our mining property.

Our operations, including our planned exploration activities on our leased and optioned properties, require permits from the state and federal governments. We may be unable to obtain these permits in a timely manner, on reasonable terms or at all. If we cannot obtain or maintain the necessary permits, or if there is a delay in receiving these permits, our timetable and business plan for exploration of the Brooklyn, King Solomon, and San Juan Properties will be adversely affected.

Risks Associated with Our Common Stock in General

Trading on the OTC Bulletin Board may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.

Our common stock is quoted on the OTC Bulletin Board service of the Financial Industry Regulatory Authority (“FINRA”). Trading in stock quoted on the OTC Bulletin Board is often thin and characterized by wide fluctuations in trading prices due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on other stock exchanges such as the NASDAQ Stock Market, New York Stock Exchange or American Stock Exchange. Accordingly, our shareholders may have difficulty reselling any of their shares.

Our stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations and the FINRA’s sales practice requirements, which may limit a stockholders ability to buy and sell our stock.

Our stock is a penny stock. The SEC has adopted Rule 15g-9 which generally defines penny stock to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The term accredited investor refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customers account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability or willingness of broker-dealers to trade our securities. We believe that the penny stock rules discourage broker-dealer and investor interest in, and limit the marketability of, our common stock.

FINRA sales practice requirements may also limit a stockholders ability to buy and sell our stock.

In addition to the penny stock rules promulgated by the SEC, which are discussed in the immediately preceding risk factor, FINRA rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit the ability to buy and sell our stock and have an adverse effect on the market value for our shares.

We have never paid a cash dividend on our common stock and we do not anticipate paying any in the foreseeable future.

We have not paid a cash dividend on our common stock to date, and we do not intend to pay cash dividends in the foreseeable future. Our ability to pay dividends will depend on our ability to successfully develop one or more properties and generate revenue from operations. Notwithstanding, we will likely elect to retain any earnings, if any, to finance our growth. Future dividends may also be limited by bank loan agreements or other financing instruments that we may enter into in the future. The declaration and payment of dividends will be at the discretion of our Board of Directors.

We have not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have more limited protections against interested director transactions, conflicts of interest and similar matters.

Recent federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or The NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges and NASDAQ are those that address board of directors’ independence, audit committee oversight and the adoption of a code of ethics. While our Board of Directors has adopted a Code of Ethics and Business Conduct, we have not yet adopted any of these corporate governance measures and, since our securities are not listed on a national securities exchange or NASDAQ, we are not required to do so. It is possible that if we were to adopt some or all of these corporate governance measures, shareholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.

Item 2.		Properties

Pride of the West Mill

The Pride of the West Mill (“Mill”) is an inactive mining mill located at Howardsville, Colorado in San Juan County. The Pride of the West Mill is located on approximately 120 acres of patented mining claims on San Juan County Road 2, within a six air mile radius of the Gold King Property, the Mogul Mine Property and the Mayflower Mine Property. The physical address is 2201 County Road 2, Silverton, Colorado. No mineral is known to exist in deposit form on the property. The economic significance of the property is as a mineral processing site, with residual post-mining value. The Mill is located within the famous “San Juan Triangle” mining center of southwestern Colorado, which also includes the historic mining towns of Telluride and Ouray, and encompasses one of the most richly mineralized areas of North America. Fourteen thousand feet mountain peaks tower over the mill, which is accessible year round because of its location on county maintained access roads.

The mill has the capability to process five metals: gold, silver, copper, lead, and zinc. In operation as recently as 2004, the mill contains virtually all of its working components enclosed within one complex. The complex includes: 1) ore stockpile pad, 2) crushing plant consisting of a coarse ore bin adjacent to the stockpile area, an apron feeder, conveyor to the crushing section, a 3 foot Symons vibrating grizzly, jaw crusher, 4’x 8’ Symons rod deck screen, conveyors, a 3 foot Symons standard cone crusher, and electromagnets, 3) grinding circuit including a Macy Rod mill and a Denver Ball mill, 4) flotation circuit and ancillary equipment all in one building. The leach plant is in a separate building and is configured for 2 or 4 tank agitation leach with carbon in leach. The carbon stripping plant is in the main mill building as is the melt furnace. A separate building houses a metallurgical laboratory for sample preparation, and an assay laboratory. A large steel frame metal building houses offices and a truck shop, with living quarters for personnel upstairs.

The mill is readily accessible by heavy trucks, has a power substation in place, and has two water rights from Cunningham and Hematite Creeks with associated water pipelines on the property that are sufficient to supply the needs of the mill complex.

In March 2008, the Colorado Division of Reclamation, Mining and Safety transferred the mill permit into our name, and in connection therewith, we posted a bond in the amount of $318,154 with the Division in the form of a letter of credit. We have recorded an estimated asset retirement obligation of $571,000 in connection with our estimated future reclamation costs.

The Pride of the West Mill was (and is) the subject of a cease and desist order (“C&D”), issued by the State of Colorado Mined Land Reclamation Board due to the operational deficiencies of the previous operator (Silver Wing Company, Inc.) in the period 2002-2003.

Subject to funding, regulatory and other approvals, and other factors, we are addressing the requirements of the Cease and Desist Order and the operating permit itself now and expect to submit a comprehensive permit amendment before January 13, 2010. The permit amendment process may take approximately 4-6 months. See “Item 3. Legal Proceedings” for additional information.

During the summer of 2009, we redistributed approximately of 19,000 tons of waste rock to other areas on the property. This will clear the way for the delivery of new ore. This material is an abandoned stockpile which included approximately 12,000 tons of dump material from the Red Mountain Mining District. This material was received by a previous operator as part of a clean up program involving several entities including the EPA, Colorado Division of Minerals and Geology, and the Animas River Stakeholders group. We believed that the removal of all this material to the tailing pond is a part of the reclamation plan approved by the Colorado Division of Reclamation and Mining Safety (”DRMS”).

In October 2009, DRMS notified us that the Division did not believe that this work was performed in accordance with our permit and Cease and Desist Order. However, in November 2009, we reached an agreement with DRMS that stipulates to a $500 fine, a comprehensive permit amendment, and a general study of water conditions in the area. We presented this jointly agreed upon stipulation to the Mined Land Reclamation Board at the November 12, 2009 Board Meeting. The Board approved the joint stipulation. We are confident that the joint stipulation will not only clarify the reclamation activities performed during the summer of 2009, but also clear the way for a new comprehensive, more efficient, and productive permit.

The following table sets forth our estimated remaining costs to bring the mill into active status.

		Estimated Cost
		(amounts in thousands)
New Tailings Facility		$	221
Reactivation Costs			75
Water Improvements			100
Building Maintenance			50
Total Estimated Costs		$	446

We have been approached by operators of other mines in the vicinity to potentially process their ores. We are actively considering processing other ores in order to demonstrate the operability of the Pride of the West Mill and generate revenue until the Company can generate sufficient ore tonnage of its own to operate the mill. To that end, we are including in the comprehensive permit amendment a plan specific to “toll” or “custom” milling.

The Pride of the West Mill is subject to certain local, state and federal regulations.

The Brooklyn Mine

On September 30, 2009, we entered into a Lease with an Option to Purchase the Brooklyn Mine.

The Brooklyn properties consist of approximately 600 acres of patented and unpatented claims located along the historic Brooklyn Mine and associated structures. The Brooklyn Mine has produced exceptionally high-grade gold ore since its discovery around 1900.

The abundance of free gold associated with the ore makes historical production records difficult to interpret. However, a historic resource estimate of $13.8 million (14,535 ounces of gold times $950 per ounce) at a grade of 0.69 ounces per ton contained in two known and accessible ore shoots below the existing workings is based on well-documented and confirmed prior exploration.¹ The Brooklyn has produced some of the most spectacular specimen quality gold in the Country.

Overview of the Property

History

The mineralized veins of the property and the Brooklyn Vein in particular were discovered in the fall of 1897 by two prospectors named Fleitus and Hurlbert. The mine was then leased or purchased to two Ouray businessmen who operated the mine from 1901-1906. This constituted the first real development and production from the Brooklyn vein. Production for this time was around 1,148 oz. Au, and 3,620 oz. Ag. Sporadic production from 1909 through the years of WWI yielded 211 oz. Au, and 1,142 oz. Ag. The mine lay idle until the Depression years. The mine was operated and developed significantly under the direction of Woods and Carney from 1934 until 1942. During this time the mine produced approximately 6,766 oz. Au, and 35,979 oz. Ag.

A report produced by Carl B. Schmidt² in 1945 discussed the potential for the Brooklyn mine, but no work ensued at that time. In 1957, Frank Richardson acquired the property and re-staked the unpatented claims of the property. Richardson, in 1958-59, removed some of the remaining stope material from the depression years and produced 1,215 oz. Au, and 5,403 oz. Ag. Sporadic development work continued by Richardson throughout the 1960s, but no major ore shoots were found.

In the mid-1970s, reports surfaced by numerous geologists, notably Jack Crawford (1977)³, indicating that there was renewed interest in the potential of the property. In early 1976, Richardson leased the mine to a Ouray businessman, and this arrangement resulted in the formation of Alpha Energy and Gold. Alpha’s work on the property consisted of complete rehabilitation and exploration of the No.1 and No. 2 Levels, and drifting northeast along the Brooklyn structure in an attempt to find more ore. Alpha’s tenure on the property ended in March 1981⁴.

In 1983, the Brooklyn Mining Company was formed and exploration continued along No.2 Level and a reconnaissance survey of the entire property was conducted. The results of the sampling and mapping of the property sparked a core drilling evaluation of the down-dip continuation of the productive ore shoots that were known above the No.2 Level. The results of this exploration yielded encouraging results that these ore shoots did indeed have some continuity at depth, as suggested by the drilling campaign of the Brooklyn Mining Company.

The mine was leased from the wife of Frank Richardson in 1986, and eventually purchased in 1997, by Arnold Winters. Limited work and small-scale mining took place through the late 1990s, and the property was leased by Winters to American Mining and Consulting of Ouray in 2001 with plans for development and production. The above history was compiled from archives in the possession of Colorado Goldfileds⁵, as well as from a very thorough article by Tom Rosemeyer (2002)⁶ in Rocks and Minerals magazine on the Brooklyn mine.

The summary chronology is:

	•		1901-1906; No.1 Level driven 500’ and No.2 Level driven 400’, and No.3 Level 150’: ore mined form 2 shoots on No.1 and No. 2 Levels
	•		1934-1942; No.1 Level 1265’, No.2 Level 960’, No.3 Level 600’: ore shoot found at 700-800’, and a winze connecting 1&2 Levels at 825’
	•		1957-1959; Richardson removed stope fill from 710’ Stope
	•		1960s; No.1 Level driven to 2200’ in length with no ore encountered
	•		1978-81; No.2 Level driven to 1560’: ore shoot found near 1550’
	•		1983-85; Brooklyn Mining Company, no ore mined, core drilled below No.2 Level, survey of property generating other targets

Geology and Mineralization

The general geology of the Brooklyn mine and property consists of the Burns Formation of the Silverton Volcanic Series; also know as the Burns Latite (undifferentiated). The Burns Formation is further subdivided into an upper and lower division in other parts of the districts intra-caldera stratigraphy, but no distinction is made here through current understanding, or inference. The property is located very proximally to the western ring fault, or caldera wall, of the San Juan and the Silverton Calderas, which are expressed by the topographic dynamics of the Mineral Creek drainage for the most part.

The Brooklyn Vein has a trend of N40E, and dips to the east at around 80 degrees. The Rainbow Vein or Shear, which parallels the Brooklyn system to the north about 1,000 feet away, has a trend of N50E, with a similar sub-vertical dip. Numerous veins (mineralized faults), cross the property with trends of around N30-40W, and sub-vertical dips, such as the prominent Gloucester Vein, and other significant, but yet unnamed structures with similar trends.

As with most vein-type epithermal gold deposits, the mineralization in the Brooklyn Vein system occurs in fairly well-defined ore shoots, which are largely structurally controlled by the NW set of mineralized crossing structures. The geometry of these ore shoots, or chimneys, are currently understood to be tightly confined to the intersection these NW-SE faults with the NE-SW trending Brooklyn structure, often forming 60-100 foot strike length elliptical bodies which are elongate on the Brooklyn systems trend. Mineralization at the structural intercepts generally does not seem to permeate the cross structures for a distance of more than approximately 25 feet, but the gold grades can be significant for that distance. Current understanding does not indicate that whether or not inter-bedded volcanic stratigraphy is contributing a control to the ore deposition (i.e. litho-chemical or other), but this is common in many of the other mineral deposits in the district (i.e. Gold King mine). Mineralization occurs as pods and stringers within the Brooklyn Vein or Shear Zone, in and around the intersection with the NW-SE cross structures. Ore shoots however, do form continuous, yet apparently tightly controlled, bodies along strike, even when the visual assessment of the mineralization may not appear striking.

The general mineralogy of the Brooklyn Vein consists of gangue clays, quartz, with barite, calcite, often-massive pyrite, sphalerite, galena, and some chalcopyrite, with intergrowths of visible and free gold and late-stage telluride minerals. The alteration of the Burns Latite host is prominent and often pervasive with obvious argillic alteration and flanked by QSP along the vein(s) or fault structure(s). The Brooklyn vein is not always distinguished as a well-defined fissure quartz vein, but rather a discontinuous mineralized structure often containing pods and lenses of quartz and other mineralization in a zone of pervasively altered Burns Latite.

Exploration and Development of the Brooklyn Mine

Overview

While the Brooklyn Mine proper has been the focus of interest and has held all of the recorded production of the property, there are several other targets that are known on the property to hold significant potential, as well as other ‘blind’ targets that exploration might bring to light. A property-wide evaluation will be completed during the first year, including detailed 1) surface reconnaissance, 2) geochemical soil survey, 3) geophysical survey(s), and compilation of a central database utilizing GIS/3D software.

Surface reconnaissance

Detailed surface reconnaissance is planned to be completed through fieldwork, mapping, and sampling of any feature deemed to hold potential or offer insight into the mineralization present on the property. The work performed by John Wright and Janice Fetchenhier during the tenure of Brooklyn Mining Company (“BMC”) in the mid 1980s is an exceptional starting point for this endeavor. A geologic map of the entire property will be created and/or compiled as a part of the foundation of the project.

Geochemical soil survey

An initial geochemical soil survey is planned that encompasses the entire property, on approximately 50m x 50m grid, but site density will be considered in detail prior to implementation. A multi-element geochemical survey can, for the time and cost, provide tremendous insight into the location and characteristics of mineralization, and show elemental gradients on the property. Geochemical analyses can reveal gold in soils down to ~1 ppb with an ICP-OES or ICP-MS. It is expected to highlight known mineralized areas, give new insight into those areas, and provide a baseline for interpreting any other anomalous zones that are highlighted. Blind targets and subtle expressions of mineralization can be discovered, if present, in a survey such as this. Understanding the geochemical characteristics of the Brooklyn Vein as a known producer will provide a comparative basis for exploration of the system in general. If the survey provides useful insight and targets new potential zones, a follow-up survey could be implemented which would utilize tighter control spacing for accentuated detail.

Geophysical survey(s)

There a few types of geophysical surveys that would provide property scale knowledge that will facilitate exploration and lend insight into the subsurface properties of the rocks, faults, and veins; a magnetic survey, an audio magneto-telluric (AMT), and an induced polarization (IP) survey. A consultation with a geophysicist or geophysical firm is recommended during the winter months to define to detail the proper survey(s) to be conducted. Arrangements to conduct the survey can be implemented by the 2010 field season.

A magnetic geophysical survey is probably the most basic geophysical survey possible. It is relatively quick and straightforward. A magnetic survey simply measures any changes in the magnetic properties of the underlying geology and mineralization. This type of survey can yield insight into any magnetic gradient present, such as; lithological, alteration, structural, etc. This would be especially interesting and helpful if any of the hydrothermal alteration of the mineralization was intensely magnetite destructive for example around the “Growler Breccia Pipe”, or along mineralized faults and veins. As the Burns Formation does have magnetite in various quantities throughout its stratigraphy, this is a reasonable evaluation of the property as a whole.

If a consultation revealed the need for electrical methods of geophysical analysis, an AMT and/or induced polarization (IP) survey will need to be contracted to the appropriate party. The IP survey would highlight, to reasonable depths, any dense sulfide mineralization and conductive structures (i.e. veins) that are on the property. The AMT survey would potentially have the best chance of directly indicating mineralized veins to depths of up to ~1000 feet depending on the area.

Exploration Targets

The Brooklyn Project represents 600 plus acres of potentially mineralized ground, centered on the historic Brooklyn mine workings. Obvious attractions are near-term production and expansion of the historic resources outlined below No.2 level of the Brooklyn mine. The exploration by the Brooklyn Mining Company in 1984, by geologists Wright and Fetchenhier, provided an exemplary first assessment of the property as a whole, and ultimately tackled the first pass on addressing the potential of the entire Brooklyn property,” not just the Brooklyn Mine itself, some 25 years ago.

After field reconnaissance, there were 8 targets that were highlighted as a result of Brooklyn Mining Company’s work in 1984.⁷

Target		Comment
1. Growler		Low grade (4-8 oz.) silver in Tunnel, possible breccia pipe
2. Rainbow/Gloucester		High-grade gold on Rainbow, ore-grade on Gloucester
3. Brooklyn, No.2 Level		Down dip continuity of important ore shoots, production
4. Frankie No.1		High-grade sample, decent width, on Rainbow zone strike
5. Tabor Vein (Magnet?)		Unknown potential, free gold, hessite, ~2’ qtz vein
6. Emporium		6’ strong shear zone, 6’ chip returned 0.03 Au, 0.27 Ag opt
7. Tivoline		Unknown, follow-up based on Patent surveys
8. Venetian Discovery		Unknown, follow-up based on Patent surveys

Table 1. Exploration targets generated during field reconnaissance by John Wright and Janice Fetchenhier in 1984.

These targets were outlined very succinctly, complete with recommendations for follow-up exploration. The validity of these targets is equally as strong today, as in 1984. We will focus on targets that can expeditiously carry the project forward with significant chances of discovering larger tonnages and minable grades. Therefore, the current strategy shall focus on the Rainbow Shear Zone, the Gloucester Vein, the SW strike extensions of the Rainbow, particularly the prospects on the Frankie No.2, and the Growler target. These targets represent large, well-defined structures, with historic sample results that indicate significant potential for a substantial discovery. Plainly stated, these are the types of targets that will promote economic viability if they yield positive results.

The remaining targets that were outlined from the BMC work include the Tivoline, Tabor, Venetian, and Emporium targets. These remain viable targets, and should be addressed, but their immediate relationship to expanding near-term resources and ultimate distance from known ore bearing structures places them secondary to the other primary targets described above.

Discussion of targets for immediate work

1. The Rainbow Shear

The Rainbow Shear Zone is a strong, mineralized structure with a similar parallel trend (N50E) to that of the Brooklyn Vein (N40E) some 1000 feet to the northwest. The current theory that the NW-SE cross structures (i.e. Gloucester, and others) likely control the ore shoots along the NE-SW structures suggests that the Rainbow Shear Zone may have similar potential as that of the Brooklyn, only never explored at depth or along strike to any degree. The Gloucester cross-cut was driven to the SE along the Gloucester Vein approximately 145 feet to examine the intersection of the Gloucester Vein with the Rainbow Shear. The intersection yielded numerous and duplicate samples of anomalous to high-grade Au values.

Price (1969)⁸ made first mention of the Rainbow Shear, referring to it as the Western Shear Zone although the terminology and lack of map made this difficult to interpret, and alluded to its similarity to the Brooklyn Vein. A letter from J. Crawford (1974)⁹ referencing a meeting with Frank Richardson states that gold values of ~1.0 opt Au were present on the surface in what is assumed to be the Rainbow Trench area “above the main workings”. Crawford also states that the Rainbow Vein/Shear yields surface gold values along strike southwest all the way to US Hwy 550, and that this zone overlies a 1,200 foot wide, several thousand foot long IP anomaly outlined by Inspiration Development Company. No mention of Inspiration Development Co. occurs in any other literature reviewed for this writing, and as Price makes no mention in his 1969 report, it could be reasonably assumed that this geophysical work was done in the early 1970s.

Sampling in the Upper Rainbow adit, along the Gloucester Vein, in 1974, as shown on two maps in the CGFI archives, indicate ore grade gold values of mineable widths are present on the Rainbow structure where the Gloucester Vein intersects the Rainbow approximately 145’ from the portal (see Appendix I). The map and samples referred to in a letter by Cerro Minerals (1974) states that the Rainbow Vein returned 0.36 opt Au, and 1.66 opt Ag, over 11.5’ wide continuous rock chip sample. A second map from August 1974 also shows similar sample results of 0.28 opt Au, 2.18 opt Ag, over 3.7’, and 10’ of 0.15 opt Au, and 0.54 opt Ag., both on the Rainbow Vein proper at the intersection, and 3.5’ of 0.32 opt Au, and 0.80 opt Ag on the Gloucester Vein a few feet before the intersection with the Rainbow. There is some indication that this later map and sample information may have been for Newmont, as they were active in the San Juans at the Idarado at that time. These data also state that there is a Lower Rainbow adit that should be opened and assessed; this task will be incorporated into CGFIs exploration of the Rainbow target.

During the exploratory work performed by BMC in 1984, the Rainbow Trench was mapped and sampled, and the Rainbow Crosscut, along the Gloucester Vein, was mapped and sampled. The surface sampling returned two encouraging results, a 1.25’ sample of 0.106 opt Au, and 0.54 opt Ag, and a 0.5’ sample of 2.69 opt Au, and 4.85 opt Ag. The underground sampling along the Gloucester Vein proper yielded three samples returning over 0.30 opt Au, however with small 0.5-1.5 ft. sample widths. Sampling of the Rainbow Vein in the crosscut returned confirmatory results that were similar to historic results, such as a 10’ chip sample, intended to duplicate the 1974 Newmont sample, which returned .108 opt Au (over ~10’), and numerous other samples from 0.328 to 1.052+ opt Au.

2. Gloucester

The Gloucester target consists of the Gloucester Vein, which trends approximately N40W with a sub-vertical dip to the SW. The Gloucester Vein is explored by the Upper Rainbow adit as a drift that follows the vein into its intersection with the Rainbow Shear Zone. The Gloucester Vein represents one of the ‘cross structures’ that are recognized to control ore deposition and the formation of ore shoots along the Brooklyn Vein in the Brooklyn mine. These ‘cross structures’ are also recognized to host ore grade mineralization, generally only within limited distance of the Brooklyn, and exhibit a control on the ore grades along the stronger NE-SW structures such as the Brooklyn and Rainbow. The Gloucester Vein, or a proximal cross vein at 266’, was mined on No.2 Level of the Brooklyn mine for 125’ to the northwest (Schmidt, 1945) toward the Rainbow and produced a small tonnage (~40 tons) of +1.0 opt Au, a later mention by Rosemeyer (2002) that mining in the late 1990s was exploiting the 1230’ cross vein on No.2 Level to the tune of 2’ of 2.0 opt Au, there is detailed mention of a strong ‘cross vein’ being explored 120’ to the east of No.3 Level with high-grade ore (0.4-0.5 opt Au over 2’) in the face (Schmidt, 1945), and BMCs exploration DDH 2C-06 was aimed from No. 2 Level into the Gloucester Vein to the north of the Brooklyn workings and returned 7.2’ of 0.44 opt Au. Sampling by Fetchenhier in 1984 along the Gloucester Vein in the Upper Rainbow adit revealed three ore grade assays along the drift following the Gloucester Vein, 0.5’ of 0.380, 1.1’ of 0.652, and 1.5’ of 2.644 opt Au. Even though the Fetchenhier samples are somewhat narrow sample widths, they represent very encouraging gold values along a ‘cross structure’. Appendix I shows historic information and maps pertaining to the Rainbow and Gloucester targets.

3. Frankie No. 1-2

The Frankie target consists of a hot prospect adit on the Rainbow Shear Zone located to the southwest near US Hwy 550. Newmont’s(?) exploration of the property mentions in a letter by Crawford (1974) that the surface of the Rainbow Shear Zone returned gold values along strike ‘all the way down to US Hwy 550’. Reconnaissance by Fetchenhier in 1984 resulted in the sampling of numerous prospects and small adits on the trace of the Rainbow Shear Zone near US Hwy 550. A small adit on the Frankie No.2 claim was visited and the field notes indicate that it was a 4’x4’ prospect showing a 17” quartz vein with minor sulfides showing. The assay results were 1.42’ chip sample that ran 1.194 Au and 78.63 Ag, with a check assay of 1.376 Au, and 88.78 Ag opt. These results are extremely encouraging from several angles: the high-grade of the sample, the location of the sample on the Rainbow Shear, and the spatial distance and lower elevation of the occurrence. All of these dynamics lend potential for continuity of ore grade mineralization both along strike and down dip in these structures. The description of the sample as a “quartz vein” offers some hope that the system may become more coherent and well-defined in the structures at depth, away from the ‘condensation’ and acidifying effect often present at epizonal elevations in these systems.

4. Growler

The Growler target is located to the northeast in the property area. The Growler target has two distinct components to it; the Growler Shear Zone, and the theorized Growler Breccia Pipe. The Growler Shear Zone appears to be a shear/fault/vein structure with similar trend and characteristics to the Brooklyn and Rainbow, although this is somewhat speculative in the context f current understanding. The potential for another shear zone similar to the Brooklyn and Rainbow is mentioned in historic reports. Not much is known about the true and actual existence of such a shear zone, and should be scouted on the surface during the surface recon of the property, and detailed sampling and exploration if warranted. Sometime during the 1970s the concept of a ‘breccia pipe’, known as the Growler Breccia Pipe, became mentioned in the literature. The origin of this idea is unknown, as is any information that might support the concept is somewhat lacking. Fetchenhier (1984) discusses the mapping and sampling of the Growler Tunnel, located on the patented Growler claim, and makes mention of the tunnel stopping short of the Growler Breccia Pipe. She even goes so far as to estimate the diameter of the pipe as being an elliptical body approximately 150’x275’ which was determined by surface expression of the less resistant pipe occupying a topographical depression between unaltered Burns Latite. Obviously, if the Brooklyn property does contain an unrecognized or unexplored breccia pipe similar to those found to the north along Red Mountain Pass, then this would be very beneficial and ‘big news’ so to speak. Essentially, to address this possibility, a program should be implemented to test this concept. The sampling results from Fetchenhier in the Growler Tunnel in 1984 were not very encouraging for gold values, but two samples returned 4-8 opt Ag, and she recommended follow-up incremental sampling in the tunnel. Apparently the ground was quite deteriorated and somewhat dangerous at that time, and one can postulate it is only worse today. Surface reconnaissance would help create a drill target for testing the breccia pipe concept as well, and the geochemical and geophysical surveys will contribute to that body of knowledge as well. It is therefore recommended that work on the Growler target be postponed until those surveys and further surface reconnaissance are complete, and then tackle the area with a bit more base line knowledge prior to drilling or other time and energy intensive exploration is incurred.

5. Other targets Tabor, Magnet, etc.

There is mention of a mine/prospect on the southern end of the property named the Tabor, and possibly the Magnet, from historical information. These may be separate, or the same, but occupy the same general area and both are described as long (600-700 feet) drifts that explore structures trending more or less E-W. They are both described as starting from west and below the grade of US Hwy 550, above the Ophir Pass road down to Burro’s Bridge. Wright (1984) mentions the Tabor as a target, but no work was done due to time and funding constraints. The Magnet is mentioned in Economic Geology of the Silverton Quadrangle (Ransome, 1901), as being the same general location as Wright describes the Tabor. The Magnet was listed as an ‘old location’, ~2 foot fissure vein with quartz, hessite, and little free gold, and having a tunnel ~560 in length on a vein trending N85W, and dipping to the south steeply. Some upper surface cuts on the structure were listed as well.

Resource Definition and Development

The resource definition and development is centered on confirming and expanding the resource blocks outlined by BMCs 1984 underground drilling campaign. These historical resources are crucial to developing near-term minable production for the Company. The 1984 drilling of known ore producing areas along the Brooklyn Vein was completed from four drill stations on No.2 Level along strike of the vein. The highlights of the program were several ore grade intercepts over minable widths below the D Stope, and the A Stope, both ore shoots combined are largely responsible for most of the past production from the Brooklyn mine. Drill intercepts indicated that these important ore shoots continued down dip, below No.2 Level (~11,370’) of the mine. Single drill intercepts defined individual blocks, which as a composite indicate that approximately 21,066 tons at a grade of 0.69 opt Au (Wright, 1984) over a minimum of 4’ mine widths.

Long section along Brooklyn Vein showing A and D Targets and the inferred rake of ore shoots. Modified from Wright, 1984⁷.

Terms of our Lease/Option and Related Agreements on the Brooklyn Mine

In summary,

1.

The Lease/Option is for a period of three years in consideration for which we issued 75,000,000 shares of restricted Class A Common Stock. The stock is further restricted from sale during the initial term of the lease.

2.

The Lease/Option shall automatically renew and continue so long as ores, minerals, or metals are produced or sold.

3.

We shall perform exploration, mining, development, production, processing or any other activity (“work” herein) which benefits the Leased Premises at a minimum cost of $150,000 for the first year, $200,000 for the second year and $250,000 for the third year.

4.

We shall pay Lessor a Five Percent (5%) Net Smelter Royalty on all mineral bearing ores.

5.

We have the sole and exclusive option to purchase all of Lessor’s right, title and interest in the property (the Leased Premises) for a total purchase price of $4,000,000, plus a perpetual 2% Net Smelter Royalty. This amount may be paid in cash or other cash equivalent as mutually agreed by us and the Lessor.

The King Solomon Mine

The King Solomon Mine is located on the southern flank of King Solomon Mountain, just a few hundred yards up the mountain from the first discovery of gold in the San Juan Mountains in Little Giant Basin. Opened in 1876, the mine was in production until 1883. Newspaper accounts and shipping records of the day indicate that the product was good to very high grade silver ore with substantial credits for lead and copper.

The King Solomon Mine is of particular interest to Colorado Goldfields because of its strategic placement in Little Giant Basin. Although no activity has occurred on the property since 1883, nearby properties in Little Giant Basin have produced significant gold.

We intend to commence an exploration program to determine whether the veins will become more important for their gold content with depth as has been the case in many of the San Juan County mining properties which were first mined for the silver content.

Terms of our Option and Related Agreements on the King Solomon Mine

In summary,

1.

The Lease/Option is for a period of three years in consideration for which we issued 50,000,000 shares of restricted Class A Common Stock. The stock is further restricted from sale during the initial term of the lease.

2.

The Lease/Option shall automatically renew and continue so long as ores, minerals, or metals are produced or sold.

3.

We shall perform exploration, mining, development, production, processing or any other activity (“work” herein) which benefits the Leased Premises at a minimum cost of $50,000 for each successive three year term during the term of the Lease/Option.

4.

We shall pay Lessor a 3.5% Net Smelter Royalty on all mineral bearing ores.

5.

We have the sole and exclusive option to purchase all of Lessor’s right, title and interest in the property (the Leased Premises) for a total purchase price of $1,250,000. This amount may be paid in cash or other cash equivalent as mutually agreed by Lessor and us.

The San Juan Properties

The San Juan Properties, which are the subject of current litigation, consist of three separate mines encompassing 63 patented mining claims and 13 unpatented mining claims. All three mines (the Gold King, Mogul and Mayflower), were actively mined during the early to mid 1900’s, although they have been relatively dormant for the past 15 years.

In fiscal 2009, we discontinued concentrating on the San Juan Properties due to on-going litigation with Todd C. Hennis, our former president, as more discussed in “Item 3. Legal Proceedings.” We are currently focused on re-activation of the Pride of the West Mill, securing agreements for milling, and seeking out new properties for exploration and development.

Terms of our Option and Related Agreements on the San Juan Properties

Effective June 17, 2007, we entered into an option agreement (“Option Agreement”) with Todd C. Hennis and San Juan Corp., a company controlled by Mr. Hennis (collectively the “Optionors”), whereby we were granted the exclusive right and option to acquire up to an 80% undivided right, title and interest in the San Juan Properties. The option is currently exercisable as follows:

(i) an undivided 40% interest in the San Juan Properties will vest when we have incurred expenditures of not less than $6,000,000 on the San Juan Properties, provided that such expenditures must be incurred within five years from the date of the Option Agreement;

(ii) an additional undivided 20% interest in the San Juan Properties will vest when: (a) we have incurred additional expenditures of not less than $3,500,000 on the San Juan Properties, provided that such expenditures must be incurred within 7.5 years from the date of the Option Agreement, and (b) we issue, subject to compliance with applicable securities laws, 13,000,000 (after adjusting for stock dividends), shares of our common stock to the Optionors; and

(iii) an additional undivided 20% interest in the San Juan Properties (for an aggregate of 80%) will vest when: (a) we have incurred additional expenditures of not less than $3,500,000 on the San Juan Properties, provided that such expenditures must be incurred within 10 years from the date of the Option Agreement, and (b) we issue, subject to compliance with applicable securities laws, an additional 13,000,000 (after adjusting for stock dividends), shares of our common stock, to the Optionors.

Pursuant to the Option Agreement, we paid the Optionors a cash payment of $50,000 in August 2007. In addition, in order to keep the option in good standing, we must make payments to the Optionors as follows:

a)

Cash payment of $100,000 within one year from the date of the option agreement (which was extended to March 15, 2009 and includes accrued interest at 8.5% per annum from the original date of June 17, 2008). See “Item 3. Legal Proceedings” for further details.

b)

Cash payment of $200,000 within two years from the date of the option agreement, originally due on June 19, 2009, which was not made.

c)

100 troy ounces of gold contained in gold ore, or the cash equivalent thereof, within three years of the date of the option agreement, and annually thereafter up to and including the 10th year from the date of the option agreement, which payments shall only be made if the Company successfully operates the Mill during any part of the year in which payment is due.

Ownership Maintenance Requirements on the San Juan Properties

The patented mining claims of the Gold King, Mogul, and Mayflower Units which encompass the San Juan Properties are owned in fee simple by either Todd C. Hennis or San Juan Corp., a Colorado corporation owned by Mr. Hennis. To maintain ownership of the patented claims, they must make yearly real estate property tax payments in order to avoid tax liens that may result in loss of ownership. With respect to the unpatented mining claims, a yearly maintenance fee of $125 per claim must be paid, and a yearly Notice of Intent to Hold must be filed with the U.S. Bureau of Land Management.

Royalty Encumbrances

The San Juan Properties are subject to the following royalties: (i) 3.0% net smelter return royalty on Gold King Mine, (ii) 2.5% net profits interest on Gold King Mine, (iii) 2.0% net smelter return royalty on the Mayflower Group, (iv) 2.5% net profits interest in the Mayflower Group, and (v) a 2% net smelter royalty on the Gold King Mine. Payment of these royalties will reduce our potential revenue. Further, as the documentation existing for many of these properties dates back to the late 19th century, there may be unknown encumbrances, including royalties, on these properties. We received notice of such a legacy royalty claim in September 2009 and are investigating the claim.

Item 3.		Legal Proceedings

Pride of the West Mill Proceedings

The Pride of the West Mill is currently under a Cease and Desist Order from the Colorado Division of Reclamation, Mining and Safety that was issued against a previous operator. The Cease and Desist Order prohibits operation of the Pride of the West Mill until deficiencies in the mill tailing impoundment area, the mill drain water impoundment area, and other problems are corrected.

As a result of our activities in the summer of 2009 which we believed were in compliance with our permit and Cease & Desist Order, by letters dated October 8, 2009, the Division of Reclamation Mining & Safety (“Division”) notified the Company of its “Reason to Believe a Violation Exists,” “Scheduling of Board Hearing,” “Revocation of Permit,” and “Forfeiture of Financial Warranty,” regarding the permit for the Pride of west Mill.

By letter of October 8, 2009, the Division of Reclamation Mining & Safety also notified the Company of the Division’s inspection of the Pride of the West Mill performed on September 16, 2009. The inspection report included an increase in the reclamation cost to $514,630 from $318,154; an increase of $196,476.

On November 6, 2009 we reached an agreement with the Division of Reclamation Mining and Safety in the form of a Joint Stipulation which was presented to the Mined Land Reclamation Board (“Board”) at the Board’s November 12, 2009 hearing, and approved. The joint stipulation provides (in part), that:

1.

Colorado Goldfields intends to work with the Division to assure that a comprehensive permit amendment meets the Divisions requirements and expectations.

2.

Colorado Goldfields commits to submittal of:

a.

a comprehensive permit amendment, complete for the purposes of filing, that includes an engineered analysis and plans for placement, construction, certification, and monitoring of new Environmental Protection Facilities designed to allow the re-activation of the Mill, and to clarify the Operator’s authorization to perform “custom” or “toll” milling, by no later than January 13, 2010;

b.

within 180 days of filing, all documentation necessary to allow Division approval of the subject amendment, including an acceptable financial warranty in the amount calculated by the Division incorporating all the revised reclamation cost provisions detailed in the amendment.

3.

The current financial warranty increase deadline is December 7, 2009, however, it is agreed that this deadline is extended and the Division will re-calculate the bond during the permit amendment review process.

4.

The permit amendment will include analyses related to waste rock relocation and designs for new tailing pond facilities in compliance with the requirements of the Act and Rules. Under the permit amendment all portions of the Reclamation Plan will be updated.

5.

Colorado Goldfields commits to on-the-ground compliance with the requirements of the Act, the Rules, and provisions of Permit No. M-1984-049, modified by the subject amendment, by no later than October 29, 2010.

6.

Colorado Goldfields acknowledges that, without intention, it did not comply with the procedural requirements of its permit or the Cease and Desist Order when relocating the waste rock to the lower tailings pond at the Mill. Therefore, Colorado Goldfields is in violation pursuant to C.R.S. 34-32-124(1) for failure to comply with conditions of permit No. M-1984-049 and failure to comply with the conditions of a Cease and Desist order. In accordance with Rule 3.3.2(2)(b) and C.R.S. 34-32-124(7) the Board shall assess a civil penalty in the range of $5,700 to $57,000 for each violation, reflecting 57 days of violation at $100 to $1,000 per day, as measured from the September 16th inspection to the November 12, 2009 hearing. Colorado Goldfields respectfully requests that the Board suspend all but $250 for each of the violations, totaling $500, pending completion of the corrective actions and requirements described herein. The Division does not object to this request.

7.

The Division has indicated that the water quality of the Las Animas River degrades in the vicinity of the Mill. Colorado Goldfields has agreed to conduct an analysis of the potential source of this degradation, which might relate to the Mill site (including pre-law tailings located on the Mill site), or might be caused by a naturally occurring iron bog or other natural sources in the area. Colorado Goldfields has agreed to conduct this analysis as part of the amendment application discussed herein.

A Formal Board Hearing before the Mined Land Reclamation Board was held November 12, 2009 in Denver. The Board approved the above described joint stipulation.

San Juan Properties and Hennis Proceedings

The San Juan Properties are currently the object of litigation between us and our former President Todd C. Hennis. On April 6, 2009, Todd C. Hennis (the former President and CEO of the Company), and entities San Juan Corp., and Salem Minerals Inc. (which are substantially owned by Mr. Hennis), served upon the Company a Complaint seeking among other things, a $100,000 payment pursuant to the option agreement (Note 6a), and release from his shareholder lock-up agreement and from Rule 144 trading restrictions on approximately 50,000,000 shares of Class A Common Stock held by Hennis. Company counsel advises that the Hennis complaint is barred due to Hennis’s affiliate and control person status and moreover is filed in bad faith, since among other things, on June 17, 2008 as President and CEO of the Company, Hennis elected not to pay the option fee then due. The Company received a written settlement offer from Mr. Hennis two days after the Company was served on April 8, 2009. A counter-claim with jury demand has been filed against Mr. Hennis and his entities for wrongful conversion, breach of duty of loyalty, lack of good faith, breach of fiduciary duty, and significant conflicts of interest. No trial date has been set. The outcome of the litigation is not certain; however, it does appear that the Company has legitimate defenses to mitigate damages, if any exist. We have recorded liabilities of approximately $58,000 related to the claims of the litigation. Additional claims of between a range of $190,000 and $220,000 are asserted by Mr. Hennis. However, we believe that the probability of having to recognize these additional liabilities is remote.

Mr. Hennis filed a Motion for Summary Judgment on October 5, 2009. We responded to the motion on November 16, 2009. Even though the Company has valid claims against Mr. Hennis, the Company continues to pursue settlement. However, the ultimate outcome of the litigation is uncertain.

Former Law Firm Litigation

On March 2, 2009 the Company’s former legal counsel, Jackson Kelly PLLC, filed a Complaint in District Court, Denver, Colorado, claiming breach of contract of the promissory note executed by the Company October 2, 2008 (Note 5). On October 16, 2009, the Court granted a Motion for Summary Judgment against the Company in the amount of $138,005 plus interest at 6.25% until satisfied.

Other Legal Matters

Mines and mining claims nearby the San Juan Properties are owned by other parties. Because the various mines possibly have interconnections between adits and tunnels and common stormwater conveyances and treatment sites, the environmental issues are both factually complex and legally complex. Disputes among the various property owners, over environmental liabilities, responsibility for clean-up and maintenance of the sites and facilities, and responsibility for site remediation continue.

The following applies to the San Juan properties, which are the subject of litigation. Therefore, depending upon the out come of that litigation, the following considerations may or may not be applicable.

The Gold King Property is subject to federal, state and local regulations regarding environmental conditions at the site and activities at the site. In August 2007, we filed a “Notice of Intent to Conduct Prospecting Operations for Hard Rock/Metal Mines” with the State of Colorado, Division of Reclamation, Mining and Safety governing our proposed surface drilling activities at the Gold King and Mogul Properties, and we were approved for drilling on five pads. In addition, in June 2008 we filed a Notice of Intent seeking approval for drilling on another four pads.

The Gold King Property has an active, acid mine drainage occurring from the Gold King #7 Level. This mine water flow has substantially increased in volume since 2000, and recent flow measurements have shown a large increase in flows. This water discharge is believed by our management to originate substantially from the 2150 vein workings of the Sunnyside Mine, which is owned by another company, and which vein workings extend into the Gold King Property. To date, our management has not been able to prove the origin of this water flow.

We are in negotiations with the Water Quality Control Division (“WQCD”) of the Colorado Department of Public Health and Environment to authorize us and San Juan Corp. to undertake reconnaissance and mitigate activities to hopefully prevent a potential “blow out” of underground blockages at the Gold King Mine, which if it occurred could be a potential threat to public health. We are also in negotiations with the WQCD to obtain a discharge permit and we are working towards plans to develop the support necessary to construct the treatment works necessary to comply with a discharge permit. In connection with our environmental and permitting efforts, we have hired an environmental remediation specialist to assist us with our negotiations and permitting process with the WQCD.

We received correspondence from the State of Colorado Attorney General’s Office stating that the Company was required to apply for a stormwater discharge permit for the Gold King Mine by the end of January 2008. We applied for the stormwater discharge permit in January 2008, and received Permit COR-040237 for the Gold King Mine on January 28, 2008. The stormwater permit requires a Stormwater Management Plan for the site, and we have incorporated such a plan into an existing Environmental Management Plan for the Gold King Mine.

Permitting requirements can be a costly undertaking and we could be at risk for fines and penalties if required permits are not timely in place.

Item 4.		Submission of Matters to a Vote of Security Holders

No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders.

PART II

Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our Class A common stock has been quoted on the OTC Bulletin Board since April 6, 2006. Our trading symbol is “CGFIA.” Our Class B common stock is restricted and does not trade on any market.

The table below sets forth the high and low sales prices for our common stock for the periods indicated as reported by the OTCBB. Sales prices represent prices between dealers, do not include retail markups, markdowns or commissions and do not necessarily represent prices at which actual transactions were effected.*

Year Ended		High				Low
August 31, 2006
April 11 to May 31, 2006 (1)		$	0.32			$	Nil
Fourth Quarter			0.32				0.31
August 31, 2007
First Quarter		$	0.31			$	0.04
Second Quarter			0.06				0.04
Third Quarter			0.19				0.04
Fourth Quarter			0.63				0.19
August 31, 2008
First Quarter		$	0.85			$	0.51
Second Quarter			0.85				0.55
Third Quarter			0.85				0.22
Fourth Quarter			0.25				0.08
August 31, 2009
First Quarter		$	0.13			$	0.02
Second Quarter			0.02				0.01
Third Quarter			0.02				0.0058
Fourth Quarter			0.0091				0.0030

On November 17, 2009 the last reported sales price of our Class A common stock as reported on the OTCBB was $0.0022 per share. As of November 17, 2009, there were 47 holders of record of our Class A common stock.

On October 17, 2008, the Company’s Board of Directors authorized a 30% (thirty percent) stock dividend of the Company’s Class A Common Stock for its Stockholders of Record as of November 6, 2008. The Stock Dividend Pay Date to stockholders was November 26, 2008.

We have never paid a cash dividend. Payment of future dividends, if any, will be at the discretion of our Board of Directors after taking into account various factors, including the terms of any credit arrangements, our financial condition, operating results, current and anticipated cash needs and plans for growth. Our initial earnings, if any, will likely be retained to finance our growth. At the present time, we are not party to any agreement that would limit our ability to pay dividends.

The Securities Enforcement and Penny Stock Reform Act of 1990

The Securities and Exchange Commission has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). Our shares are currently subject to the penny stock rules.

A purchaser is purchasing penny stock which limits the ability to sell the stock. The classification of penny stock makes it more difficult for a broker-dealer to sell the stock into a secondary market, which makes it more difficult for a purchaser to liquidate his/her investment. Any broker-dealer engaged by the purchaser for the purpose of selling his or her shares in us will be subject to Rules 15g-1 through 15g-10 of the Securities and Exchange Act. Rather than creating a need to comply with those rules, some broker-dealers will refuse to attempt to sell penny stock.

The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the Commission, which:

•

contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;

•

contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of the Securities Act of 1934, as amended;

•

contains a brief, clear, narrative description of a dealer market, including “bid” and “ask” prices for penny stocks and the significance of the spread between the bid and ask price;

•

contains a toll-free telephone number for inquiries on disciplinary actions;

•

defines significant terms in the disclosure document or in the conduct of trading penny stocks; and

•

contains such other information and is in such form (including language, type, size and format) as the Securities and Exchange Commission shall require by rule or regulation.

•

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, to the customer:

•

the bid and offer quotations for the penny stock;

•

the compensation of the broker-dealer and its salesperson in the transaction;

•

the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and

•

monthly account statements showing the market value of each penny stock held in the customer’s account.

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements have the effect of reducing the trading activity in the secondary market for our stock. Thus, stockholders may have difficulty selling their securities.

Securities Authorized for Issuance Under Equity Compensation Plans

Equity Compensation Plan Information

The following sets forth information as of August 31, 2009 concerning compensation plans (including individual compensation arrangements) under which shares of our common stock are authorized for issuance:

Equity Compensation Plan Information

		Number of securities
		to be issued upon				Weighted average				Number of securities
		exercise of				exercise price of				remaining available for
		outstanding options,				outstanding options,				future issuance as of
Plan Category		warrants and rights				warrants and rights				November 18, 2009
Equity compensation plans approved by security holders:			—				—				—
Equity compensation plans not approved by security holders:			—				—				—
2008 Employee Stock Incentive Plan			—				—				67,730
2008 Non-Qualified Consultants & Advisors Stock Compensation Plan			—				—				165,238,997
2008 Employee & Director Stock Compensation Plan			—				—				88,739,267

2008 Stock Incentive Plan

In February 2008, the Company approved the 2008 Stock Incentive Plan (“2008 Plan”) which provides incentive stock and non-statutory options to be granted to select employees, directors and consultants of the Company. The 2008 Plan provides that awards may be granted for up to 12,480,000 shares of the Company’s Class A common shares.

2008 Non-Qualified Consultants & Advisors Stock Compensation Plan

On September 12, 2008, our Board of Directors approved the 2008 Non-Qualified Consultants & Advisors Stock Compensation Plan. As of November 18, 2009 we are authorized to issue up to 565,000,000 shares of our Class A Common Stock (subject to adjustment in case of a subdivision of our outstanding shares of Common Stock, recapitalization, stock dividend, or other change in our corporate structure that affects our Common Stock) to consultants or advisors in connection with services rendered by such persons or entities. The plan is administered by our Compensation Committee of the Board of Directors, or if the we do not have a Compensation Committee, then a committee appointed by the Board which is to consist of one executive officer of the Company and at least one independent, non-employee member of the Board. If no committee is appointed, then the Board of Directors administers the plan. We currently do not have a Compensation Committee. Our Board has appointed C. Stephen Guyer, our Chief Financial Officer and Director, and Norman J. Singer, one of our independent Directors, to act as the committee to administer the plan. We have registered with the Securities and Exchange Commission the common shares issuable under the Plan. One of the primary purposes of the plan is to give our company the flexibility to pay for services with shares of our common stock rather than with cash during our exploratory stage.

2008 Employee & Director Stock Compensation Plan

In November, 2008, our Board of Directors approved the Employee & Director Stock Compensation Plan (the Plan). The purpose of the Plan is (i) to further our growth by allowing us to compensate employees and Directors who have provided bona fide services to our company through the award of shares of our Common Stock, and (ii) attract, motivate, retain and reward quality employees and directors to acquire or increase a proprietary interest in our company. Considering that we are an exploratory mining company which faces challenging economic times and difficult capital markets, the Board of Directors believes that using our common stock is an important means of retaining and compensating employees and directors. As of November 18, 2009 we are authorized to issue up to 210,800,000 shares of our Common Stock (subject to adjustment in case of a subdivision of our outstanding shares of Common Stock, recapitalization, stock dividend, or other change in our corporate structure that affects our Common Stock). The Plan is administered by a committee consisting of at least two persons to be appointed by the Board of Directors, one of whom is an independent director, or in the absence of such a committee, the Plan is to be administered by the Board of Directors. Our Board of Directors appointed C. Stephen Guyer, our CFO, and Norman J. Singer, one of our independent directors, to the committee. Any of our employees or directors are eligible to receive awards under the Plan.

Transfer Agent

Corporate Stock Transfer is the transfer agent for our common stock. Their address is at 3200 Cherry Creek Drive, Suite 430, Denver, Colorado 80209, and their telephone number is (303) 282-4800.

Issuer purchase of equity securities

There were no issuer purchases of securities during the period covered by this report.

Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion provides information that management believes is relevant to an assessment and understanding of the financial condition and results of operations of Colorado Goldfields Inc. (the “Company”).

This discussion addresses matters we consider important for an understanding of our financial condition and results of operations as of and for the two years ended August 31, 2009, as well as our future results. It consists of the following subsections:

•

“Introduction and Plan of Operation” which provides a brief summary of our consolidated results and financial position and the primary factors affecting those results, as well as a summary of our expectations for fiscal 2010;

•

“Liquidity and Capital Resources,” which contains a discussion of our cash flows and liquidity, investing activities and financing activities, contractual obligations, and critical obligations;

•

“Results of Operations and Comparison”,” which sets forth an analysis of the operating results for the last two years;

•

“Critical Accounting Policies,” which provides an analysis of the accounting policies we consider critical because of their effect on the reported amounts of assets, liabilities, income and/or expenses in our consolidated financial statements and/or because they require difficult, subjective or complex judgments by our management;

•

“Recent Accounting Pronouncements and Developments,” which summarizes recently published authoritative accounting guidance, how it might apply to us and how it might affect our future results.

This item should be read in conjunction with our financial statements and the notes thereto included in this annual report.

Introduction and Plan of Operation

The following discussion updates our plan of operation for the foreseeable future. The discussion also summarizes the results of our operations for the year ended August 31, 2009 and compares those results to the year ended August 31, 2008.

Fiscal 2009 was a pivotal year for Colorado Goldfields. We continued to experience the negative effects of the financial markets upheaval, which made capital acquisition extremely difficult. The litigation commenced by our former president, Todd C. Hennis necessarily caused all work relating to the Gold King Mine to be suspended, including the N.I. 43-101 report which was originally expected to be completed in the spring of 2009. We can not now predict when (if ever), the N. I. 43-101 report will be completed for the Gold King Mine pending the results of the litigation.

Therefore, in fiscal 2009 we turned away from concentrating only on the Hennis-owned Gold King Mine, and focused primarily on re-activation of the Pride of the West Mill, securing agreements for “custom” or “toll” milling, and seeking out new properties to explore and develop. In that regard, we were generally successful. We entered into two new lease/option agreements for properties located near our Mill facility, and completed the first major milestone regarding mill re-activation.

In 2007, our former management predicted profitability by end of calendar year 2009. Given the events described above, we are now targeting profits from operations by November 2010. Weather conditions in San Juan County, Colorado vary by season. During the winter season our activities are concentrated on analysis, planning, and development of properties in more temperate climates. Surface drilling and property exploration in San Juan County can reasonably take place between May and late October. Of course underground operations continue year-round.

Our plan of operation for fiscal 2010 is to continue seeking funding for our operations and mining exploration program.

We will be primarily focused on three areas in fiscal 2010, 1) Re-activation of the Pride of the West Mill, 2) Exploration and development of the Brooklyn and King Solomon Mine, 3) Potential acquisition of other suitable mining properties.

In October 2009, we signed a letter of intent to purchase all the mining assets of Gemini Explorations Inc. (GMXS.OB) in exchange for 100 million restricted Class A common shares of Colorado Goldfields Inc.

Among the properties this transaction would bring into Colorado Goldfields is Los Chorros. This property is located in the municipality of Zaragoza in the department of Antiochia, Colombia. It lies in the El Bagre — Zaragoza mining district in the midst of Colombia’s most prolific gold producing region. This area has been the site of extensive placer mining for several decades along the Nechi River at the western foot of the Serrania de San Lucas. Exploration of the lode gold source areas of these placers in the vein deposits of these upland areas has resulted in a number of recent discoveries presently being developed into producing mines. The acquisition is subject to mutual due diligence. The due diligence period extends to November 30, 2009.

Liquidity and Capital Resources

We were formed in early 2004 and have primarily had limited activity until our acquisition of the option to acquire interests in the San Juan Properties. Since we have received no revenue from the production of gold or other metals, we have relied on funds received in connection with our equity and debt offerings to finance our ongoing operations. We have experienced net losses since inception, and we expect we will continue to incur losses for the next year. As of the date of this filing, we do not have any available external source of funds. We require additional capital in the near term to maintain our current operations. Although we are actively seeking additional equity and debt financing, such financing may not be available on acceptable terms, if at all.

Our financial statements have been prepared assuming that we will continue as a going concern. Since our inception in February 2004, we have not generated revenue and have incurred net losses. We have a working capital deficit of $1,083,785 at August 31, 2009, incurred net losses of $5,281,857 and $3,721,021 for the years ended August 31, 2009 and 2008 respectively, and have a deficit accumulated during the exploration stage of $9,380,436 for the period from February 11, 2004 (inception) through August 31, 2009. Accordingly, we have not generated cash flow from operations and have primarily relied upon loans from officers, promissory notes and advances from unrelated parties, sale of assets, and equity financing to fund its operations. These conditions (as indicated in the 2009 audit report of our Independent Registered Public Accounting Firm) raise substantial doubt about the Company’s ability to continue as a going concern

We currently have minimal cash on hand. Accordingly, we do not have sufficient cash resources or current assets to pay our obligations, and we have been meeting many of our obligations through the issuance of our common stock to our employees, consultants and advisors as payment for goods and services. Considering the foregoing, we are dependent on additional financing to continue our operations and exploration efforts and, if warranted, to develop and commence mining operations. Our capital requirements for the foreseeable future include exploration of our mining properties, payment on a $650,000 promissory note which is collateralized by the Pride of the West Mill and accrued interest of $79,895, payment on notes payable including accrued interest to related parties totaling $100,774, payment on a promissory note payable, including interest of $143,009 to one of our vendors, re-activation expenses at the Mill, and our corporate overhead expenses.

We are actively seeking additional equity or debt financing. However, there can be no assurance that funds required during the next twelve months or thereafter will be available from external sources. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force us to substantially curtail or cease operations and would, therefore, have a material adverse effect on our business. Further, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significantly dilutive effect on our existing shareholders. All of these factors have been exacerbated by the extremely unsettled credit and capital markets presently existing.

As of August 31, 2009, we had cash of approximately $600 and other current assets of approximately $262,500 and current liabilities of approximately $1,346,900. We used cash and cash equivalents of $615,377 in operating activities for the year ended August 31, 2009. Investing activities for the year ended August 31, 2009 consisted of the purchase of property, plant and equipment of $4,120, offset by the proceeds from the sale of property, plant and equipment of $109,500. Financing activities consisted of cash proceeds from loans made by officers during the year of $375,700.

Contractual Obligations

The table below summarizes contractual obligations as of August 31, 2009 due in the future.

Contractual Obligations		Total				Less than 1 Year				2 and 3				4 and 5
Principal payment on Pride of the West Mill(1)		$	650,000			$	650,000
Note payable to vendor(2)		$	138,005			$	138,005
Notes payable to officers(3)		$	100,774			$	100,774

Results of Operations

We are presently in the exploration stage of our business and have not earned any revenues to date, and we do not anticipate earning revenues until we acquire and develop mining properties with proven reserves or perform milling for other mining companies.

Year Ended August 31, 2009 Compared to Year Ended August 31, 2008

For the year ended August 31, 2009, we incurred a net loss of approximately $5,282,000 compared to a net loss of approximately $3,721,000 for the year ended August 31, 2008.

For the years ended August 31, 2009 and 2008, overall mineral property and exploration costs were $602,000 and $587,000, respectively. However, exploration drilling expenses were $189,000 and $415,000 for the years ended August 31, 2009 and 2008, respectively, a decrease of $226,000 reflecting our focus on Mill reactivation rather than exploratory drilling on the Gold King property. Consistent with this change of focus is an increase in project management expense to $117,000 from $21,000 from 2008 to 2009.

General and administrative costs were approximately $4,390,000 and $2,607,000 for the years ended August 31, 2009 and 2008, respectively. The increase is due to the specific reasons presented below.

Consulting expenses were $3,005,000 and $1,777,000 for the years ended August 31, 2009 and 2008, respectively, an increase of $1,228,000. The vast majority of these expenses are in the form of stock based compensation and the increase is due to employing consultants for increased geological and engineering analysis of potential mining property acquisitions, environmental consulting, corporate communications, research and development of international opportunities.

Salaries and related payroll taxes were $603,000 and $306,000 for the years ended August 31, 2009 and 2008, respectively. The increase is due to executive compensation agreements with our Chief Executive Officer and Chief Financial Officer, which more accurately reflect their day-to-day commitment. All salaries are paid in the form of stock awards in lieu of cash exempt under Rule 16b-3.

Travel and related costs were $9,000 and $98,000 for the years ended August 31, 2009 and 2008, respectively, a decrease of $89,000. The decrease in travel during the 2009 fiscal year was due to management’s commitment to efficient due diligence procedures for potential acquisitions, and use of technology rather than personal travel associated with raising funds for the Company.

Website costs were $224,000 and $2,000 for the years ended August 31, 2009 and 2008, respectively, an increase of $222,000. The increase, paid in the form of stock based compensation, was due to the comprehensive redesign of our website along with the implementation of real-time tracking links to sources of related information. Website hosting costs remained $200 per month.

Investor relations expenses were $194,000 and $190,000 for the years ended August 31, 2009 and 2008, respectively. While there was not a significant change from 2008 to 2009, we are taking steps to dramatically reduce those expenses.

Overall professional fees decreased $243,000 from $494,000 in 2008, to $251,000 in 2009. The decrease is due to less outside legal fees.

Interest expense was $107,000 and $48,000 for the years ended August 31, 2009 and 2008, respectively, related to the mortgage on the Pride of the West Mill which was purchased in June 2007. The increase is primarily due to modified promissory note terms pursuant to note extension to June 29, 2010.

Other income was $69,000 and $16,000 during the years ended August 31, 2009 and 2008 respectively, and increase of $53,000 due primarily to gains on the sale of assets that were not immediately needed for operations.

Critical Accounting Policies

We have identified the following critical accounting policies which were used in the preparation of our financial statements.

Exploration and Development Costs: Costs of acquiring mining properties and any exploration and development costs are expensed as incurred unless proven and probable reserves exist and the property is a commercially minable property. When it has been determined that a mineral property can be economically developed as a result of established proven and probable reserves, the costs to develop such property will be capitalized. Costs of abandoned projects will be charged to operations upon abandonment.

Long-lived Assets: We periodically evaluate the carrying value of property, plant and equipment costs, to determine if these costs are in excess of their net realizable value and if a permanent impairment needs to be recorded. The periodic evaluation of carrying value of capitalized costs and any related property, plant and equipment costs are based upon expected future cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain circumstances in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets.”

Property Retirement Obligation: SFAS 143, “Accounting for Asset Retirement Obligations,” requires the fair value of a liability for an asset retirement obligation to be recognized in the period that it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. Accretion expense is recorded in each subsequent period to recognize the changes in the liability resulting from the passage of time. Changes resulting from revisions to the original fair value of the liability are recognized as an increase or decrease in the carrying amount of the liability and the related asset retirement costs capitalized as part of the carrying amount of the related long-lived asset.

Stock- Based Compensation: SFAS 123(R), “Share-Based Payment,” requires the recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the award. SFAS 123(R) also requires the stock option compensation expense to be recognized over the period during which an employee is required to provide service in exchange for the award (the requisite service period). We utilize the Black-Scholes option-pricing model to determine fair value which requires us to make judgments relating to the inputs required to be included in the model. In this regard, the expected volatility is based on the historical price volatility of the Company’s common stock. The dividend yield represents the Company’s anticipated cash dividend on common stock over the expected life of the stock options. The U.S. Treasury bill rate for the expected life of the stock options is utilized to determine the risk-free interest rate. The expected term of stock options represents the period of time the stock options granted are expected to be outstanding. We do not have historical exercise trends to analyze. Therefore, the expected term used by management was calculated in accordance with the Staff Accounting Bulletin 107 “Share-Based Payment” (“SAB 107”) for “plain-vanilla” options.

Recent Accounting Pronouncements

During October 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157, Fair Value Measurements. This statement does not require any new fair value measurements but provides guidance on how to measure fair value and clarifies the definition of fair value under accounting principles generally accepted in the United States of America. The statement also requires new disclosures about the extent to which fair value measurements in financial statements are based on quoted market prices, market-corroborated inputs, or unobservable inputs that are based on management’s judgments and estimates. The statement is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective Dates of FASB Statement No. 157 (the “FSP”). The FSP amends SFAS 157 to delay its effective date for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). For items within its scope, the FSP defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The statement will be applied prospectively by the Company for any fair value instruments that arise after the date of adoption.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115. This statement permits entities to choose to measure eligible items at fair value at specified election dates. The statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, although early adoption is permitted provided that an entity also adopts SFAS 157. The Company has not determined the impact this standard will have on its financial statements upon adoption.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations. SFAS 141R continues to require the purchase method of accounting to be applied to all business combinations, but it significantly changes the accounting for certain aspects of business combinations. Under SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141R will change the accounting treatment for certain specific acquisition related items including: (1) expensing acquisition related costs as incurred; (2) valuing non-controlling interests at fair value at the acquisition date; and (3) expensing restructuring costs associated with an acquired business. SFAS 141R also includes a substantial number of new disclosure requirements. SFAS 141R is to be applied prospectively to business combinations for which the acquisition date is on or after September 1, 2009 for the Company. The Company does not expect that the adoption of SFAS 141R will have an impact on its financial statements unless the Company enters into business acquisitions in the future.

In June 2008, the FASB issued Emerging Issue Task Force (“EITF”) Issue No. 07-5, Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock (“EITF 07-5”). EITF 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. EITF 07-5 requires the application of a two-step model in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock, including evaluation of the instrument’s contingent exercise and settlement provisions. This statement is effective for the Company on September 1, 2009. The Company does not expect the adoption of this statement will have a material impact on its financial statements.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of SFAS 162 (SFAS No. 168). SFAS No. 168 provides for the FASB Accounting Standards Codification to be the single official source of authoritative, non-governmental GAAP. The Codification did not change GAAP, but reorganizes the structure. SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009 and will be adopted by the Company beginning in the first quarter of its fiscal year 2010. The Company does not expect the adoption of SFAS 168 to have a material impact on its financial statements.

Item 8.		Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Colorado Goldfields Inc.

We have audited the accompanying balance sheets of Colorado Goldfields Inc. (an Exploration Stage Company) as of August 31, 2009 and 2008 and the related statements of operations, cash flows and stockholders’ equity (deficit) for each of the two years in the period ended August 31, 2009, and for the period from February 11, 2004 (inception) through August 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Colorado Goldfields Inc. as of August 31, 2009 and 2008, and the results of its operations and cash flows for each of the two years in the period ended August 31, 2009, and for the period from February 11, 2004 (inception) through August 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company incurred a net loss of $5,281,857 for the year ended August 31, 2009, and a deficit accumulated during the exploration stage of $9,380,436 for the period from February 11, 2004 (inception) through August 31, 2009. The Company also has a limited history and no revenue producing operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ GHP HORWATH, P.C.   Denver, Colorado
November 18, 2009

Colorado Goldfields Inc. (An Exploration Stage Company)

		August 31,				August 31,
		2009				2008
ASSETS
Current Assets
Cash and cash equivalents		$	559			$	134,856
Prepaid expenses and other			262,508				79,656
Total Current Assets			263,067				214,512
Non-Current Assets
Property, plant and equipment, net (Note 3)			1,699,620				1,819,834
Restricted cash (Note 3)			318,154				318,154
Other			13,520				13,520
Total Non-Current Assets			2,031,294				2,151,508
Total Assets		$	2,294,361			$	2,366,020
LIABILITIES & STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable (Note 8)		$	267,564			$	398,671
Accrued liabilities (Note 8)			105,610				38,236
Notes payable, including accrued interest — related parties (Note 4)			100,774				—
Promissory note payable, including accrued interest (Note 5)			143,009				—
Mortgage notes payable, including accrued interest (Note 3)			729,895				650,000
Total Current Liabilities			1,346,852				1,086,907
Non-Current Liabilities
Asset retirement obligation (Note 2)			571,500				525,000
Total Non-Current Liabilities			571,500				525,000
Total Liabilities			1,918,352				1,611,907
Contingencies and Commitments (Notes 3, 4, 5, 6, 8, 10 and 11)
Stockholders’ Equity (Note 7)
Class A common stock, 2,500,000,000 shares authorized, $0.001 par value; 535,398,127 and 135,726,120 shares issued and outstanding, respectively			477,137				77,465
Class B common stock, 500,000,000 shares authorized, no par value; 35,732,285 and zero shares issued and outstanding			—				—
Additional paid in capital			9,250,058				4,745,977
Donated capital			29,250				29,250
Deficit accumulated during the exploration stage			(9,380,436	)			(4,098,579	)
Total Stockholders’ Equity			376,009				754,113
Total Liabilities and Stockholders’ Equity		$	2,294,361			$	2,366,020

The accompanying notes are an integral part of these financial statements

Colorado Goldfields Inc. (An Exploration Stage Company)

										Accumulated from
		For the Year				For the Year				February 11, 2004
		Ended				Ended				(Date of Inception) to
		August 31, 2009				August 31, 2008				August 31, 2009
Revenue		$	—			$	—			$	—
Operating expenses
Donated rent			—				—				9,750
Donated services			—				—				19,500
General and administrative			4,390,367				2,607,001				7,061,816
Mineral property and exploration costs			601,788				587,279				1,318,019
Professional fees			251,829				494,359				891,010
Total operating expenses			(5,243,984	)			(3,688,639	)			(9,300,095	)
Other income (expense)
Other income			53,741				—				54,789
Interest income			15,389				15,838				31,227
Interest expense			(107,003	)			(48,220	)			(166,357	)
Total other expense			(37,873	)			(32,382	)			(80,341	)
Net Loss		$	(5,281,857	)		$	(3,721,021	)		$	(9,380,436	)
Net Loss Per Common Share — Basic and Diluted		$	(0.02	)		$	(0.03	)
Weighted Average Number of Common Shares Outstanding			268,677,008				124,045,964

The accompanying notes are an integral part of these financial statements

Colorado Goldfields Inc. (An Exploration Stage Company)

										Accumulated from
		For the Year				For the Year				February 11, 2004
		Ended				Ended				(Date of Inception) to
		August 31, 2009				August 31, 2008				August 31, 2009
Cash Flows Used in Operating Activities:
Net loss		$	(5,281,857	)		$	(3,721,021	)		$	(9,380,436	)
Adjustments to reconcile net loss to net cash used in operating activities:
Donated services and rent			—				—				29,250
Depreciation			51,322				8,782				60,104
Stock issued for services			3,983,784				869,739				4,853,523
Stock-based compensation — options			4,094				895,209				899,303
Accrued interest on debt			101,046				—				101,046
Accretion expense on asset retirement obligation			46,500				25,000				71,500
Gain on sale of property, plant and equipment			(39,239	)			—				(39,239	)
Change in operating assets and liabilities:
Decrease (increase) in restricted cash			—				19,965				(318,154	)
Decrease (increase) in prepaid expenses and other			74,647				(72,917	)			(5,009	)
Increase in accounts payable			376,952				322,225				775,623
Increase in accrued liabilities			67,374				9,810				105,610
Increase in reclamation bond			—				(318,154	)			—
Decrease (increase) in other assets			—				600				(13,520	)
Net cash used in operating activities			(615,377	)			(1,960,762	)			(2,860,399	)
Cash Flows from Investing Activities:
Proceeds from sale of property, plant and equipment			109,500				35,000				144,500
Acquisition of property, plant and equipment			(4,120	)			(462,939	)			(717,736	)
Net cash provided by (used in) investing activities			105,380				(427,939	)			(573,236	)
Cash Flows from Financing Acitvities:
Advances received			—				—				405,733
Repayment of advances			—				(400,733	)			(405,733	)
Proceeds from notes from related parties			375,700				—				385,752
Repayment of advances from related party			—				—				(10,052	)
Proceeds from note payable			—				—				100,000
Repayment of note payable			—				(100,000	)			(100,000	)
Net proceeds from issuance of common stock			—				3,002,244				3,058,494
Net cash provided by financing activities			375,700				2,501,511				3,434,194
(Decrease) increase in cash and cash equivalents			(134,297	)			112,810				559
Cash and cash equivalents — Beginning of Period			134,856				22,046				—
Cash and cash equivalents — End of Period		$	559			$	134,856			$	559
Supplemental Disclosures:
Interest paid		$	15,783			$	48,220			$	71,586
Income taxes paid		$	—			$	—			$	—
Non-cash investing and financing activities:
Exchange of accounts payable for promissory note		$	135,294			$	—			$	135,294
Issuance of common stock to satisfy accounts payable		$	370,015			$	—			$	370,015
Issuance of common stock for prepaid expenses		$	257,499			$	—			$	257,499
Exchange of property, plant and equipment for accounts payable		$	2,750			$	—			$	2,750
Forgiveness of related party debt and accrued interest		$	288,361							$	288,361
Acquisition of land and building:
Cash paid		$	—			$	—			$	250,677
Mortgage note given to seller			—				—				650,000
Asset retirement obligation assumed			—				—				500,000
Assets acquired		$	—			$	—			$	1,400,677

The accompanying notes are an integral part of these financial statements

Colorado Goldfields Inc. (An Exploration Stage Company)

Statements of Stockholders’ Equity (Deficit)
From February 11, 2004 (Date of Inception) to August 31, 2009

																										Deficit
																										Accumulated				Total
		Class A								Class B								Additional								During the				Stockholders’
		Common Stock								Common Stock								Paid in				Donated				Exploration				Equity
Number of Shares		Shares				Amount				Shares				Amount				Capital				Capital				Stage				(Deficit)
Balances — February 11, 2004 (Date of inception)			—			$	—				—			$	—			$	—			$	—			$	—			$	—
Issuance of common stock for cash			51,350,000				2,500				—				—				—				—				—				2,500
Donated services and rent			—				—				—				—				—				4,500				—				4,500
Net loss			—				—				—				—				—				—				(5,898	)			(5,898	)
Balances — August 31, 2004			51,350,000				2,500				—				—				—				4,500				(5,898	)			1,102
Issuance of common stock for cash			63,160,500				53,750				—				—				—				—				—				53,750
Donated services and rent			—				—				—				—				—				9,000				—				9,000
Net loss			—				—				—				—				—				—				(35,319	)			(35,319	)
Balances — August 31, 2005			114,510,500				56,250				—				—				—				13,500				(41,217	)			28,533
Donated services and rent			—				—				—				—				—				9,000				—				9,000
Net loss			—				—				—				—				—				—				(36,148	)			(36,148	)
Balances — August 31, 2006			114,510,500				56,250				—				—				—				22,500				(77,365	)			1,385
Donated services and rent			—				—				—				—				—				6,750				—				6,750
Net loss			—				—				—				—				—				—				(300,193	)			(300,193	)
Balances — August 31, 2007			114,510,500				56,250				—				—				—				29,250				(377,558	)			(292,058	)
Issuance of common stock for cash (net of offering costs of $282,231) (Note 7)			11,386,180				11,386				—				—				2,990,858				—				—				3,002,244
Shares issued for services (Note 7)			9,829,440				9,829				—				—				859,910				—				—				869,739
Stock-based compensation — options (Note 7)			—				—				—				—				895,209				—				—				895,209
Net loss			—				—				—				—				—				—				(3,721,021	)			(3,721,021	)
Balances — August 31, 2008			135,726,120				77,465				—				—				4,745,977				29,250				(4,098,579	)			754,113
Shares issued for services (Note 7)			370,282,860				370,283				—				—				3,871,000				—				—				4,241,283
Issuance of common stock to satisfy accounts payable (Note 7)			29,389,147				29,389				—				—				340,626				—				—				370,015
Stock-based compensation — options (Note 7)			—				—				—				—				4,094				—				—				4,094
Stock issued to beneficial owners of Class A Common Stock			—				—				35,732,285				—				—				—				—				—
Forgiveness of related party debt and accrued interest (Note 4)			—				—				—				—				288,361				—				—				288,361
Net loss			—				—				—				—				—				—				(5,281,857	)			(5,281,857	)
Balances — August 31, 2009			535,398,127			$	477,137				35,732,285			$	—			$	9,250,058			$	29,250			$	(9,380,436	)		$	376,009

The accompanying notes are an integral part of these financial statements

Colorado Goldfields Inc. (An Exploration Stage Company)

Notes to the Financial Statements

August 31, 2009

1.

Organization, Nature of Business, Going Concern and Management’s Plans

Organization and Nature of Business:

The Company was incorporated in the State of Nevada on February 11, 2004. The Company is an Exploration Stage Company, as defined by Statement of Financial Accounting Standard (“SFAS”) No. 7 Accounting and Reporting for Development Stage Enterprises. The Company’s principal business is the acquisition and exploration of mineral resources. The Company has not presently determined whether the properties it intends to acquire contain mineral reserves that are economically recoverable.

Going Concern and Management’s Plans:

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. Since its inception in February 2004, the Company has not generated revenue and has incurred net losses. The Company has a working capital deficit of $1,083,785 at August 31, 2009, incurred a net loss of $5,281,857 for the year ended August 31, 2009, and has incurred a deficit accumulated during the exploration stage of $9,380,436 for the period from February 11, 2004 (inception) through August 31, 2009. Accordingly, it has not generated cash flows from operations and has primarily relied upon advances from officers, promissory notes and advances from unrelated parties, and equity financing to fund its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts or classification of liabilities that may result from the possible inability of the Company to continue as a going concern. Management’s plans with regards to these conditions are described below.

The Company continues to explore sources of additional financing to satisfy its current operating requirements. The Company currently faces a severe working capital shortage and is not generating any revenues. The Company will need to obtain additional capital to fund its operations, continue mining exploration activities and plans, and fulfill its obligations under its mineral property option agreements, and satisfy existing creditors.

Considering the difficult U.S. and global economic conditions, along with the substantial stability problems in the capital and credit markets, there is a significant possibility that the Company will be unable to obtain financing to continue its operations.

There is no assurance that required funds during the next twelve months or thereafter will be generated from operations, or that those funds will be available from external sources, such as debt or equity financings or other potential sources. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. Further, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significantly dilutive effect on the Company’s existing shareholders. All of these factors have been exacerbated by the extremely unsettled credit and capital markets presently existing.

2.

Summary of Significant Account Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and are expressed in US dollars. The Company’s fiscal year-end is August 31.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Basic and Diluted Net Loss Per Share

The Company computes net loss per share in accordance with SFAS No. 128, Earnings per Share. SFAS No. 128 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing net loss available to common stockholders (numerator) by the weighted average number of shares of the Class A Common Stock outstanding (denominator) during the period. During the year ended August 31, 2009, the Company issued Class B Common Stock, which are not publicly traded shares, share dividends equally with Class A Common Stock, and are defined as participating securities under US Generally Accepted Accounting Principles; however, they have no contractual obligation to share in losses of the Company. The Company has therefore not included the Class B Common Stock in determining basic EPS. Diluted EPS gives effect to all potential dilutive common shares outstanding during the period using the treasury stock method (for options and warrants) and the two-class method (for Class B common stock). In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. For the years ended August 31, 2009 and 2008, the effect the conversion of outstanding options and warrants and Class B common shares would have been anti-dilutive.

The following table presents information regarding the potential dilutive shares for the periods presented:

		Year ended				Year ended
		August 31,				August 31,
		2009				2008
Stock options			—				1,250,000
Class A warrants			11,386,180				11,386,180
Class B Common Stock			35,732,285				—
Class B warrants			35,732,285				—

Comprehensive Income (Loss)

SFAS No. 130, Reporting Comprehensive Income, establishes standards for reporting and display of comprehensive income (loss), its components, and accumulated balances. For the periods presented there were no differences between net loss and comprehensive loss.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.

Mineral Property and Exploration Costs

The Company has been in the exploration stage since its formation on February 11, 2004, and has not yet realized any revenues from its planned operations. It is primarily engaged in the acquisition and exploration of mining properties.

Costs incurred before mineralization is classified as proven and probable reserves are expensed and classified as Mineral property and exploration costs. Capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified as 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 acquire and develop such property are capitalized. Such costs will be amortized using the units-of-production method over the estimated life of the probable reserve. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.

Long-Lived Assets

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life.

Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. Management believes no impairment exists as of August 31, 2009.

Financial Instruments

Effective September 1, 2008, the Company partially adopted SFAS No. 157, Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. As permitted by FASB (“Financial Accounting Standards Board”) Staff Position No. FAS 157-2, Effective Dates of FASB Statement No. 157, the Company elected to defer the adoption of SFAS No. 157 for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value on a non-recurring basis, until September 1, 2009. The partial adoption of SFAS No. 157 did not have a material impact on the Company’s financial statements.

To increase consistency and comparability in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs into valuation techniques used to measure fair value into three levels as follows:

		Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities;
		Level 2 — observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and

Level 3 — assets and liabilities whose significant value drivers are unobservable.

Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions. Unobservable inputs require significant management judgment or estimation. In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy. In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement. Such determination requires significant management judgment.

As of August 31, 2009, the Company had the following financial assets and liabilities which are measured at fair value:

		Level 1				Level 2				Level 3
Restricted cash (time deposits)			—			$	318,154				—

The Company has no financial assets or liabilities measured at fair value using Level 1 or Level 3 inputs.

The fair values of other financial assets and liabilities, which include cash, accounts payable and notes payable were estimated to approximate their carrying value due to the immediate or short-term maturity of these financial instruments. The fair value of the letter of credit issued in conjunction with the reclamation bond (Note 4) approximates the fees paid to obtain it.

Income Taxes

Potential benefits of income tax losses are not recognized in the accounts until realization is determined to be more likely than not. The Company has adopted SFAS No. 109, Accounting for Income Taxes as of its inception. The potential benefit of net operating losses have not been recognized in these financial statements because the Company cannot be assured that it is more likely than not it will utilize the net operating losses carried forward in future years.

The Company has no unrecognized tax benefits. The Company files income tax returns in the U.S. federal jurisdiction and in the state of Colorado. Management does not believe there will be any material changes in the Company’s unrecognized tax positions over the next 12 months.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. There was no income tax expense recognized during the years ended August 31, 2009 or 2008 for interest and penalties.

Share Based Payments

The Company recognizes the cost of employee services received in exchange for an award of equity instruments in the financial statements, and the cost is measured based on the grant date fair value of the award. Stock-based compensation expense is recognized over the period during which an employee is required to provide service in exchange for the award (the requisite service period). The Company utilizes the Black-Scholes option-pricing model to determine fair value of stock option awards. Key assumptions of the Black-Scholes option-pricing model include applicable volatility rates, risk-free interest rates and the instrument’s expected remaining life. These assumptions require significant management judgment.

Asset Retirement Obligation

SFAS 143, Accounting for Asset Retirement Obligations, requires the fair value of a liability for an asset retirement obligation to be recognized in the period that it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset (see Note 3). Accretion expense is recorded in each subsequent period to recognize the changes in the liability resulting from the passage of time. During the years ended August 31, 2009 and 2008, the Company recorded accretion expense of $46,500 and $25,000, respectively. Changes resulting from revisions to the original fair value of the liability are recognized as an increase or decrease in the carrying amount of the liability and the related asset retirement costs capitalized as part of the carrying amount of the long-lived asset. Other than the increase due to accretion, no other changes or revisions to the original fair value of the liability occurred during the years ended August 31, 2009 or 2008.

Recent Accounting Pronouncements

Effective September 1, 2008, the Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115. This statement permits entities to choose to measure eligible items at fair value at specified election dates. The adoption of SFAS No. 159 did not have a material impact on the Company’s financial statements.

In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141 (Revised 2007), Business Combinations (“SFAS 141R”). SFAS 141R continues to require the purchase method of accounting to be applied to all business combinations, but it significantly changes the accounting for certain aspects of business combinations. Under SFAS 141R, an acquiring entity is required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141R changes the accounting treatment for certain specific acquisition related items including: (1) expensing acquisition related costs as incurred; 2) valuing non-controlling interests at fair value at the acquisition date; and (3) expensing restructuring costs associated with an acquired business. SFAS 141R also includes a substantial number of new disclosure requirements. SFAS 141R is to be applied prospectively to business combinations for which the acquisition date is on or after September 1, 2009 for the Company. The Company does not expect that the adoption of SFAS 141R will have an impact on its financial statements unless the Company enters into business acquisitions in the future.

In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements (“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary (minority interest) is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements and separate from the parent company’s equity. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated statement of operations, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. This statement is effective for the Company on September 1, 2009. The adoption of SFAS 160 will not have an impact on the Company’s financial statements.

In June 2008, the FASB issued Emerging Issues Task Force (“EITF”) Issue No. 07-5, Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock (“EITF 07-5”). EITF 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. EITF 07-5 requires the application of a two-step model in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock, including evaluation of the instrument’s contingent exercise and settlement provisions. This statement is effective for the Company on September 1, 2009. The Company does not expect the adoption of this statement will have a material impact on its financial statements.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of SFAS 162 (SFAS No. 168). SFAS No. 168 provides for the FASB Accounting Standards Codification to be the single official source of authoritative, non-governmental GAAP. The Codification did not change GAAP, but reorganizes the structure. SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009 and will be adopted by the Company beginning in the first quarter of its fiscal year 2010. The Company does not expect the adoption of SFAS 168 to have a material impact on its financial statements.

3.

Property, Plant and Equipment

On June 29, 2007, the Company acquired the Pride of the West Mill (the “Mill”) located in Howardsville, Colorado for consideration of $900,677 plus the assumption of an estimated asset retirement obligation of $500,000 for a total cost of $1,400,677. The Company paid the seller cash of $250,677 and the remaining $650,000 was paid through a mortgage with the seller, which is collateralized by the property bearing interest at 7% per year with interest only payable monthly for two years, with all unpaid principal originally due June 29, 2009. In July 2009, the due date on the mortgage was extended until June 29, 2010. Interest on the unpaid interest and principal balance accrues at the rate of 12% per annum from August 28, 2008 forward. Interest expense related to the Mill note for the years ended August 31, 2009 and 2008 was $79,897 and $45,500, respectively.

In connection with the acquisition of the Mill, the Company was obligated to replace a financial warranty that the seller had provided to the Colorado Division of Reclamation, Mining, and Safety (“DRMS”). In December 2007, the Company replaced the financial warranty by purchasing a certificate of deposit, which is restricted, to secure an irrevocable standby letter of credit (the “LOC”) totaling $318,154, with a financial institution. The LOC is used to secure possible future payment requests made by the State of Colorado.

Property, plant and equipment consist of the following as of August 31, 2009 and 2008:

		August 31,				August 31,
		2009				2008
Computer equipment		$	2,118			$	2,118
Vehicle			—				3,267
Mine and drilling equipment			113,278				116,379
Mobile mining equipment			61,519				140,585
Land and mill			1,567,176				1,566,267
			1,744,091				1,828,616
Less accumulated depreciation			(44,471	)			(8,782	)
		$	1,699,620			$	1,819,834

Depreciation expense was $51,322 and $8,782 for the years ended August 31, 2009 and 2008, respectively. Property, plant and equipment are depreciated on a straight line basis over their estimated useful lives ranging from three to five years. However, a significant portion of the of the Company’s property, plant and equipment has not yet been placed in service.

4.

Notes payable — related parties

During the year ended August 31, 2009, the Company borrowed $72,500 and $303,200 from its chief executive officer (“CEO”) and its chief financial officer (“CFO”), respectively. In connection with the borrowings, the Company executed unsecured promissory notes (“Notes”) which are due six months from the dates of issue and accrue interest at 6.5% per annum (or 18% per annum, if the Notes are in default). The Company subsequently entered into amended note agreements with its CEO to extend the due dates an additional six months from the original due dates. During the year ended August 31, 2009, the Company’s CFO forgave certain notes and accrued interest which has been accounted for as a capital transaction resulting in an increase in equity of $288,361. During the year ended August 31, 2009, the Company recorded interest expense of $13,435 relating to the Notes. The notes outstanding at August 31, 2009 are due at varying times between January 19, 2010 and September 18, 2010.

5.

Promissory note payable

On October 2, 2008, the Company executed an unsecured promissory note with one of its vendors for services rendered totaling $135,294. The promissory note bears interest at 6.25% per annum and the principal and interest were due on December 19, 2008. The Company recorded interest expense of $7,715 for the year ended August 31, 2009. The promissory note is in default and a Motion for Summary Judgment has been granted. See Note 10 for additional details.

6.

Mineral properties interests

On June 17, 2007, the Company entered into an option agreement, amended November 8, 2007, July 10, 2008 and again on September 25, 2008, among the Company as Optionee, and San Juan Corp., a company controlled by Mr. Todd C. Hennis (“Hennis”) and Hennis as Optionors, whereby the Company was granted the exclusive right and option to acquire an 80% undivided right, title and interest in certain properties located in San Juan County, Colorado.

In order to keep the option in good standing, the Company must make payments to the Optionors as follows:

a)

cash payment of $50,000 within 30 days from the date of the option agreement (which was paid by the Company in August 2007 and recorded as expense);

b)

cash payment of $100,000 within one year from the date of the option agreement (which was extended to March 15, 2009 and includes accrued interest at 8.5% per annum from the original date of June 17, 2008) See Note 10 for additional details;

c)

cash payment of $200,000 within two years from the date of the option agreement, originally due on June 19, 2009, which was not made. See Note 10 for additional details.

d)

100 troy ounces of gold contained in gold ore, or the cash equivalent thereof, within three years of the date of the option agreement, and annually thereafter up to and including the 10th year from the date of the option agreement, which payments shall only be made if the Company successfully operates the Mill during any part of the year in which payment is due.