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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
 
For the fiscal year ended August 31, 2012
 
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
 
20-0716175
(State or other jurisdiction of
 incorporation or organization)
 
(I.R.S. Employer
 Identification No.)
 
 
 
10920 West Alameda Avenue, Suite 201  Lakewood, CO
 
80226
(Address of principal executive offices)
 
(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  ¨   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  ¨    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  ¨
 
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.  ¨
 
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):
 
Largeaccelerated filer  ¨                                                                          Accelerated filer  ¨
 
Non-accelerated filer  ¨                                                                            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  ¨    No  þ
 
The aggregate market value of the Class A common stock of the registrant held by non-affiliates as of February 29, 2012 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 OTC Markets OTCQB system was  $2,637,546.
 
Class
 
Shares Outstanding at November 16, 2012
Class A Common Stock, $0.001 Par Value
 
43,665,223
Class B Common Stock (Restricted), $0.001Par Value
 
490,371,533
 
DOCUMENTS INCORPORATED BY REFERENCE
 
None.
 


 
 

 
 
TABLE OF CONTENTS

PART I
 
    1  
Item 1.
Business
    3  
Item 1A.
Risk Factors
    8  
 
Risks Relating to Our Company
    8  
 
Risks Associated with Our Common Stock in General
    12  
Item 1B.
Unresolved Staff Comments
    15  
Item 2.
Properties
    15  
 
Pride of the West Mill
    15  
 
Silver Wing Mine
    17  
 
King Solomon Mine
    18  
 
Pay Day and Rage Uranium Claim Group
    19  
Item 3.
Legal Proceedings
    20  
Item 4.
Mine Safety Disclosures
    21  
           
PART II
 
    22  
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    22  
Item 6.
Selected Financial Data
    26  
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    26  
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
    32  
Item 8.
Financial Statements and Supplementary Data
    33  
 
Balance Sheets
    34  
 
Statements of Operations
    35  
 
Statements of Cash Flows
    36  
 
Statements of Stockholders' (Deficit) Equity
    37  
 
Notes to the Financial Statements
    38  
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    52  
Item 9A.
Controls and Procedures
    52  
           
PART III
 
    54  
Item 10.
Directors, Executive Officers and Corporate Governance
    54  
Item 11.
Executive Compensation
    57  
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    61  
Item 13.
Certain Relationships and Related Transactions, and Director Independence
    62  
Item 14.
Principal Accountant Fees and Services
    63  
           
PART IV
 
    64  
Item 15.
Exhibits and Financial Statement Schedules
    64  
SIGNATURES     65  
EXHIBIT INDEX     66  
 
 
ii

 
 
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.
 
 
1

 
 
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, Quarterly Reports on Form 10-Q, 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.

 
2

 
 
ITEM 1.  BUSINESS
 
Background

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 201, Lakewood, Colorado, 80226 and our telephone number is (303) 984-5324.  Our common stock is quoted on the OTC Markets Inc. owned and operated OTCQB Inter-dealer Quotation System and FINRA owned and operated OTC Pinksheets under the symbol “CGFI.”

Our Business

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

As of the filing date of this report, our five properties are:

1.  
The Pride of the West Mill, Silverton, Colorado
2.  
Silver Wing Mine, San Juan County, Colorado
3.  
Champion Mine, San Juan County, Colorado
4.  
King Solomon Mine, San Juan County, Colorado
5.  
Pay Day and Rage Uranium Claim Group, Monticello, Utah

The Pride of the West Mill (“Mill”), is located 5.3 miles northeast of Silverton, Colorado.  The Mill is located on approximately 120 acres of patented mining claims on San Juan County Road 2, within a nine air-mile radius of the Silver Wing Mine Property, the King Solomon Mine Property and many other mine properties.  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.  The Mill is currently not operational.  We hope to bring the Mill into operation, as more fully described in “Item 2. Properties,” in 2013.

The Silver Wing Mine consists of ten patented mining claims across 70 acres in San Juan County, in southwestern Colorado. The mine’s poly-metallic ore contains recoverable metal values in gold, silver, lead, copper and zinc.

The Champion Mine consists of approximately 354 acres located in the San Juan Mountains at Silverton, Colorado. The mine is located within the historically productive rim (i.e. over $700 million in gold, silver and base metals produced since 1874) of the Silverton Caldera complex at the southwestern extremity of the very prolific Colorado mineral belt.  Several major narrow (i.e. average 3 to 6 feet wide with stopes up to 9,000 feet long and vertical extent of at least 2,500 feet) vein deposits each up to 10 million tons or more have previously operated profitably in the district

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.  

The Pay Day and Rage Uranium Claim Group is located in San Juan County, Utah.  The Pay Day and Rage Uranium Claim Group consists of 63 (55 Pay Day and 8 Rage) claims.  The Pay Day claim group is located in Township 32 South, Range 24 East of the Salt Lake Meridian in Sections 26, 27, 34, and 35, in San Juan County northeast of Monticello, Utah.  The Rage claim group spans Stevens Canyon on the southeast flank of the Seven Sisters Buttes in Township 33 South, Range 20 East of the Salt Lake Meridian in Section 33, San Juan County, Utah.

 
3

 
 
We refer to these properties collectively as “the CGFI Mineral Properties” throughout this report.  We are presently in the exploration stage at the CGFI Mineral Properties.  We have not generated revenue from mining operations.

As an exploration stage mining company that owns a mill, our activities are currently focused on mill re-activation, mine development, 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.

We continually evaluate acquisition of other mining companies or their mining properties.

Recent Events

Throughout fiscal 2011 and 2012, we constructed a third comprehensive amendment (“AM-03”), to the Mill permit and submitted extensive engineering and operations plans to the Colorado Division of Reclamation Mining and Safety (“DRMS”).

This third amendment was approved with conditions on August 9, 2012.  The core of the permit consists of nine Environmental Protection Faculties (“EPFs”), which are: 1) Mill Building, 2) Ore Stockpile Area, 3) Laboratory Facility, 4) Leach Plant Building, 5) Flood Protection Dike, 6) Plant Waste Water Disposal, 7) Groundwater intercept Drain, 8) Upland Stormwater Intercept Ditch, 9) Mill Tailings Repository.

The conditions specified by the DRMS regard the ninth EPF, the Mill Tailings Repository and simply request additional geotechnical substrate stability analysis, structure specific engineering designs for the cover of the repository, the repository’s reserve capacity, and the always on-going recalculation of financial warranty.  See “Item 2. Properties” for additional detail.

In November 2012, we entered into a contract to purchase the Silver Wing Mine and a contract to purchase the Champion  Mine.  These two past producing mines solidify the sources of ore to be processed by the Mill and provide the clearest most efficient path toward operating the Mill at full capacity.  See “Item 2. Properties” for additional detail.

In the third and fourth quarter of 2010, two outside funding sources became involved with the Company.  A Delaware Partnership and a group of New York Private Investors have provided funding to us in the form of convertible debt.  These investors continued to provide limited funding for the Company throughout fiscal 2012.  However, the funding was, and is, at their sole discretion.  See Item 8.  Notes to the Financial Statements for additional details.

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.

 
4

 
 
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, August 2006, and August 2010.

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.

Also, the “Statement of Basis, Specific Statutory Authority, and Purpose for New Rules and Amendments to the Mineral Rules and Regulations of the Colorado Mined Land Reclamation Board for Hard Rock, Metal and Designated Mining Operations, 2 CCR 407-1,” may be retrieved at: http://mining.state.co.us/rulesregs/Rulemaking%20SBP%20Final%20Draft.pdf
 
When the Mill or mines come into production we will also be subject to the rules and regulations of the Mine Safety and Health Administration, a Division of the United States Department of Labor.

Statutory and Regulatory authority for this agency is found in Code of Federal Regulations - 30 CFR - Parts 1 to 199, and may be retrieved at: http://www.msha.gov/regsinfo.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.

 
5

 
 
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.   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.

 
6

 
 
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, 2012:

1.  
Lee R. Rice, President Chief Executive Officer, and Director
2.  
C. Stephen Guyer, Chief Financial Officer and Director
3.  
John Ferguson, Director of Operations

We make extensive use of consultants and advisors for specific technical projects so that the resource is most closely matched to the need.  See Item 11 Executive Compensation for additional details.
 
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 and housing facility at our Pride of the West Mill near Silverton, Colorado in San Juan County Colorado. We believe these arrangements are and will be adequate for our needs for the foreseeable future.
 
 
7

 
 
ITEM 1A.  RISK FACTORS
 
High Degree of Risk

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, 2012, our accumulated deficit since inception was approximately $23.5 million.  We have substantial current obligations and at August 31, 2012, we had approximately $2.6 million of current liabilities as compared to only approximately $25 thousand of current assets.  Since August 31, 2011, we have been able to raise only minimal additional capital, and we have minimal cash on hand.  Accordingly, the Company does not have sufficient cash resources or current assets to pay its current 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 turmoil 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 Mineral 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 mill re-activation efforts, exploration activities, meet the work commitment requirements on the CGFI Mineral 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, 2012.  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.

The feasibility of mineral extraction from the CGFI Mineral Properties has not been established; as we have not completed exploration or other work necessary to determine if it is commercially feasible to develop the properties.

We are currently a mining exploration stage company.  See “Item 2 Properties” of this Report for more information regarding our mining assets.

 
8

 
 
The CGFI Mineral 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 Mineral 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 Mineral Properties.

On June 29, 2007, the Company acquired the Pride of the West Mill located in Howardsville, Colorado. The cost of the Mill was $1,400,677.  In connection with the acquisition, the Company entered into a $650,000 mortgage with the seller, which is collateralized by the property and bears interest at 12% per year.  All unpaid principal was originally due June 29, 2009.  The due date on the mortgage was extended and is currently due in full on December 31, 2012.  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.

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 unconditional approval from the State of Colorado Mined Land Reclamation Board of the previously described 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 cannot 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 King Solomon Mine, we are required to expend $50,000 over three years in the form of a work commitment.  We are required to pay approximately $3.16 million to consummate fully our contracts to purchase the Silver Wing and Champion Mines.  Management estimates that re-activating the Mill and bringing the Silver Wing and Champion Mines into production will require approximately $11 million of additional funding.

We will be required to raise significantly more capital in order to develop the CGFI Mineral Properties for mining production assuming that economically viable reserves exist. There is no assurance that our investments in the CGFI Mineral 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 Mineral 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 CGFI Mineral 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.

 
9

 
 
Historical production of gold at the CGFI Mineral 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 cannot be relied upon as an indication that the CGFI Mineral Properties will have commercially feasible reserves. Investors in our securities should not rely on historical operations of the CGFI Mineral Properties as an indication that we will be able to place the CGFI Mineral Properties into commercial production again. We expect to incur losses unless and until such time as the 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 CGFI Mineral 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 CGFI Mineral 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 and deposited an additional $196,976 in June, 2011 for a total of $515,130. We have currently estimated the total reclamation costs on the Mill at $515,130 and have recorded a liability in this amount as of August 31, 2012.  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 Mineral Properties, some of which are subject to our Lease/Options, 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.

 
10

 

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 Mineral 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 Mineral Properties are subject to royalties on production.

As part of the Lease/Options for the King Solomon Mine, the Company granted a Net Smelter Royalty ("NSR") of 3.5%.  Both the Silver Wing and Champion Mines carry a 5% NSR payable to the prior owners.  In addition, historical royalties may be asserted by third-parties which are currently unknown to us.

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

The CGFI Mineral Properties in Colorado 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.

 
11

 
 
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 the date of this report, 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 mill re-activation and exploration activities on the CGFI Mineral 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 CGFI Mineral Properties will be adversely affected.

Risks Associated with Our Common Stock in General

Trading on the Over the Counter markets 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 OTCQB Inter-Dealer Quotation System owned and operated by the OTCMarkets Group, Inc. and the OTC Pink Sheet service of the Financial Industry Regulatory Authority (“FINRA”).  Trading in stock quoted on over the counter markets is often thin, volatile, 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 over the counter markets are not a stock exchange, and trading of securities on the over the counter markets 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.

 
12

 
 
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.

Because the SEC imposes additional sales practice requirements on brokers who deal in shares of penny stocks, some brokers may be unwilling to trade our securities.  This means that you may have difficulty reselling your shares, which may cause the value of your investment to decline.

Our shares are classified as penny stocks and are covered by Section 15(g) of the Securities Exchange Act of 1934 (the “Exchange Act”) which imposes additional sales practice requirements on broker-dealers who sell our securities in this offering or in the aftermarket.  For sales of our securities, broker-dealers must make a special suitability determination and receive a written agreement prior from you to making a sale on your behalf. Because of the imposition of the foregoing additional sales practices, it is possible that broker-dealers will not want to make a market in our common stock.  This could prevent you from reselling your shares and may cause the value of your investment to decline.

 
13

 
 
Although DTC eligible, our stock is “chilled for deposits” at DTCC, and the National Securities Clearing Corporation has exited our stock from the Continuous Net Settlement System, therefore, trades are executed and cleared on a trade for trade basis in certificate form.

As a result, the settlement of physical certificated positions can carry significant pass-through charges, including: execution fees, DTC fees, deposit fees, and transfer agent fees.  These fees, which can vary and may be substantial, increase the cost that shareholders must bear for clearing and execution of trades.  Furthermore, pass-through charges described above may not be immediately charged to a customer account following a trade in non-DTC eligible securities, as our clearing firms may receive notice of such fees as late as three weeks following the trade.  Broker-dealers may reserve the right to withhold funds in a customer account pending potential assessment of fees associated with trading in low priced or sub-penny securities.

A decline in the price of our common stock could affect our ability to raise further working capital, it may adversely impact our ability to continue operations and we may go out of business.

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital.  Because we may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity securities, or convertible debt instruments, a decline in the price of our common stock could be detrimental to our liquidity and our operations because the decline may cause investors to not choose to invest in our stock. If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations.   a result, our business may suffer, and not be successful and we may go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our common stock and we may be forced to go out of business.

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 1B.  UNRESOLVED STAFF COMMENTS
 
Since we are not an accelerated filer or a large accelerated filer, as defined in Rule 12b-2 of the Exchange Act, or a well-known seasoned issuer as defined in Rule 405 of the Securities Act this item is not applicable.

 
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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 Silver Wing, Champion, and King Solomon Mines.  The physical address is 3701 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, which has now increased to $515,130 with the DRMS in the form of restricted cash on deposit with the State of Colorado.  We have recorded a corresponding estimated asset retirement obligation of $515,130 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 in the period 2002-2003.

A key factor for curing the C&D and re-activating the Mill is the disposal of tailings; that is, the material that remains after ore has been processed.  Our original mill tailings disposal method was to move mill tailings (finely ground waste rock from which the valuable metals have been removed in the milling process) as a slurry, generally consisting of 15% solids and 85% water, to a closed, lined tailings pond.  After the solids have settled and separated from the water, some of the process water is returned to the Mill for re-use.  The tailings pond is essentially a lake containing liquid mud.

However, through the permit amendment process and working with the Colorado Division of Reclamation Mining and Safety, we have learned that this method of tailings disposal has more challenges than originally anticipated.

 
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Therefore, we developed a “dry stack” method of tailings disposal as part of a new permit amendment (“AM-03”).

In a Filtered Tailings or Dry Stacking system, the Mill tailings are filtered (de-watered), to remove approximately 85% of the water at the Mill plant itself.  The resulting material is approximately 85% solids and 15% water and can be transported by belt conveyor or trucks to a disposal area where they can be placed in an environmentally contained area and handled with earth moving equipment.

Utilizing this approach for tailings disposal will remove some of the issues associated with our prior permit amendment, such as:

  ●         
Providing improved long term geotechnical stability of the tailings disposal area;
 
●         
Reducing concerns about potential seismic activity;
 
●         
Greatly reduce environmental risks of contamination of ground and surface water;
 
●         
Making overall compliance with environmental regulations much more efficient and straight forward.
 
We will also realize some immediate benefits from this Dry Stack approach, such as:

●         
Smaller environmental footprint for tailings disposal area;
 
●         
Smaller operating area at any one time, which is easier to manage;
 
●         
Vastly improved management of tailing disposal operations during winter season, which is approximately 7 months of the year;
 
●         
Facilitates the ability to use tailings for mine backfill to improve underground ore extraction efficiency and reduce need for additional tailings disposal area;
 
●         
Conserves water use in the milling process;
 
●         
Lower long-term environmental liability from possible failure of conventional tailings dam structures.
 
On August 9, 2012, the DRMS approved with conditions Reclamation Permit Amendment (AM-03).  The core of the permit consists of nine Environmental Protection Faculties (“EPF”), which are: 1) Mill Building, 2) Ore Stockpile Area, 3) Laboratory Facility, 4) Leach Plant Building, 5) Flood Protection Dike, 6) Plant Waste Water Disposal, 7) Groundwater intercept Drain, 8) Upland Stormwater Intercept Ditch, 9) Mill Tailings Repository.

The conditions specified by DRMS regard the ninth EPF, the Mill Tailings Repository and request additional geotechnical substrate stability analysis, structure specific engineering designs for the cover of the repository, the repository’s reserve capacity, and the always on-going recalculation of financial warranty.

While we are completing the analysis necessary to satisfy the DRMS’s conditions, work began on the ore stockpile area in September 2012.

We believe that approval of the AM-03 permit amendment along with the extension of the Mill mortgage to December 31, 2012, will move the business plan forward.

The Pride of the West Mill is also subject to certain local, state and federal regulations.
 
 
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Silver Wing Mine
 
The property consists of 10 patented mining claims (70 acres) in San Juan County, in southwestern Colorado, known as the Silver Wing Mine.  The Company intends to develop a mining and milling operation to produce gold, silver, copper, lead, and zinc concentrates.

The initial ore discovery and location for the first Silver Wing Mine was made in 1874 on the Silver Wing claim itself. All ore production from early operations (1874 through 1909) was based on silver values.  The early ore was so rich that it was direct-shipped to smelters on pack mules over mountain passes in excess of 12,500 ft. high.

On October 31, 2012, the Company entered into a contract for purchase of the Silver Wing Mine.  The terms of the contract provide that the Company:

   1.  
Issue to Jo Grant Mining Company, Inc. (“Jo Grant”), 12,000,000 (post-split) four-year restricted shares of Class A Common Stock on or before January 6, 2013.
 
2.  
Pay off Jo Grant’s existing note in favor of a Colorado bank, dated March, 6, 2008, assigned to Jo Grant on October 17, 2012, having a present balance of approximately $60,353, as of October 31, 2012 on or before January 6, 2013.
 
3.  
To pay to Jo Grant a sum of $50,000, no later than January 6, 2013.
 
4.  
Provide Jo Grant for a period of 99 years a 5% Net Smelter Royalty (“NSR”), from the Silver Wing Mining Claims. The payment of the NSR shall be made not more than 45 days after the close of the month during which the payment is received from the smelter or buyer on which such NSR is calculated.

Champion Mine

The Champion Mine consists of approximately 354 acres located in the San Juan Mountains at Silverton, Colorado. The mine is located within the rim of the Silverton Caldera complex at the southwestern extremity of the Colorado Mineral Belt.

The property has been intermittently developed and mined by numerous separate operators between 1876 and 1942, during which period an estimated 375,000 ounces of gold and 15,000,000 ounces of silver have been produced from a northwesterly trending and steeply south dipping vein system.  Production was halted in 1942 as a result of the US Government's Gold Mine Closing Order, brought on by World War II.

On November 2, 2012, the Company entered into a contract for purchase of the Champion Mine.  The terms of the contract provide that the Company:

1.  
Issue to Jo Grant 24,000,000 (post-split) four-year restricted shares of Class A Common Stock on or before January 6, 2013.
 
2.  
Pay $3,000,000 to Jo Grant, only for the purpose of consummating the contract to buy and sell real estate (Land), between Jo Grant Mining, Inc. (as the Buyer), and a Texas limited liability company, (as the Seller), dated October 9, 2012, no later than January 6, 2013; and
 
3.  
To pay to Jo Grant a sum of $50,000, no later than January 6, 2013.
 
4.  
Provide Jo Grant for a period of 99 years a 5% Net Smelter Royalty (“NSR”), from the Champion Mining Claims. The payment of the NSR shall be made not more than 45 days after the close of the month during which the payment is received from the smelter or buyer on which such NSR is calculated.
 
    The stock issued for both the Silver Wing and Champion Mines is non-refundable and represents one component of a contemplated comprehensive funding transaction.
 
17

 
 
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.

During fiscal 2012, the land position surveys were completed and corner monuments were set for the King Solomon claims. Several original corners, first placed in the 1800s, were found and the monuments were reset, which verifies the claim locations.  Specific survey control points were completed to establish and fix the location of the two principal mine portals relative to the claim boundaries and surface vein expressions.

Exploration teams entered and explored the underground workings, locating important vein structures, and took ore samples from each.  Underground workings also revealed areas that are ready to be mined along with those that will require re-habilitation and timbering.

Most importantly, sufficient data was collected to begin the construction of the 3-D model of the mine, the most efficient way to develop the surface and underground diamond drilling exploration plan.

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 pre-split (10,000 post-split) 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.

On October 11, 2012, we entered into an Extension and Renewal of Mining Lease with Option to Purchase, effective September 18, 2012.
 
1.  
The Extension and Renewal is for a period of three years in consideration for which we issued 250,000 post-split shares of restricted Class A Common Stock, with an additional 25,000 post-split shares to be issued upon each yearly anniversary.  The stock is further restricted for two years.
 
2.  
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. The work commitment from the original Lease is considered fulfilled.
 
3.  
We shall pay Lessor a 3.5% Net Smelter Royalty on all mineral bearing ores.
 
 
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4.  
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.
 
5.  
All other terms and conditions of the original Lease remain in effect.
 
Pay Day and Rage Uranium Claim Group

On June 13, 2011, we purchased the Pay Day and Rage Uranium Claim Group.  These claim groups consist of 63 (55 Pay Day and 8 Rage) claims.  The Pay Day claim group is located in Township 32 South, Range 24 East of the Salt Lake Meridian in Sections 26, 27, 34, and 35, in San Juan County northeast of Monticello, Utah.  The Rage claim group spans Stevens Canyon on the southeast flank of the Seven Sisters Buttes in Township 33 South, Range 20 East of the Salt Lake Meridian in Section 33, San Juan County, Utah.  Both claim groups have been plotted on USGS topographic maps as shown.

An initial internal analysis by Company president Lee R. Rice indicates that the historical information used by others did not account for all possible sources and additional potential resource at depth.  For that reason, we have engaged Allan P. Juhas, Ph.D. in Economic Geology, University of Manitoba 1973, to undertake the preparation of an NI43-101 technical report based upon the Company’s exploration plan and previous work that can be verified. Dr. Juhas has over 50 years’ experience in a broad spectrum of precious metals and base metals geological pursuits. He is well recognized in the industry, and prepares a number of NI43-101 reports each year.

We will be performing exploration and constructing an N1431-01 Report to confirm and verify the value of these assets.  We acquired the properties in all stock transaction consisting of 125,000,000 pre-split (25,000 post-split) shares of 1-year restricted Class A Common Stock and 125,000,000 pre-split (25,000 post-split) shares of 2-year restricted Class A Common Stock.
 
 
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ITEM 3.   LEGAL PROCEEDINGS
 
The Company is involved in the following legal proceeding:

San Juan Properties and Hennis Proceedings

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, and release from his shareholder lock-up agreement and from Rule 144 trading restrictions on approximately 51,500,000 pre-split (10,300 post-split) shares of Class A Common Stock held by Hennis.  On May 12, 2009, a counter-claim with jury demand was 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.

Hennis filed a Motion for Summary Judgment on October 16, 2009.  On September 2, 2010, the court granted partial summary judgment in favor of Mr. Hennis and awarded him damages of $230,707.  On September 22, 2010, the court awarded additional damages in the amount of $114,896 to Mr. Hennis for a total of $345,603, which has been recorded as an accrued liability by the Company as of August 31, 2011 and 2012.  On March 25, 2011, the court awarded an additional $58,989 to Hennis for attorney’s fees, which has been accrued as of August 31, 2011 and 2012.

The Company filed motions for (a) a new trial on all or part of the issues; (b) an amendment of findings; and (c) an amendment of judgment pursuant to C.R.C.P. Rule 58(a).  On March 25, 2011, the court evoked C.R.C.P. 59(j) and denied the post-trial motions by not ruling on them.

The Company filed a Notice of Appeal with the Colorado Court of Appeals on January 7, 2011.  On April 5, 2012, the Colorado Court of Appeals affirmed the judgment ($345,603), however the order awarding plaintiffs their trial attorney fees ($58,989) and costs was vacated, and the case was remanded to the district court for further proceedings.  The Company filed a Petition for Rehearing in the Court of Appeals on April 9, 2012, which was denied on May 17, 2012.

On August 31, 2012, The Company filed a Petition of Certiorari with the Colorado Supreme Court.  As of the date of this report, the Company is awaiting the Supreme Court’s decision.

Other Legal Proceedings

The Company is not involved in any other legal proceedings, however mines and mining claims near to the CGFI Mineral 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 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.

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.

 
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ITEM 4.   MINE SAFETY DISCLOSURES
 
In accordance with Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, there are no applicable mine safety violations or other regulatory matters to report.
 
 
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PART II

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

Market Information

On February 23, 2011, the Company's stock quotation coverage moved from the FINRA operated OTC Bulletin Board to the OTC Markets Group, Inc.’s OTCQB under the same symbol "CGFIA."  OTCQB is the middle tier of the OTC market.  OTCQB companies are fully reporting with the SEC or a U.S. banking regula]tor.  Our Class A common stock also continues to trade on the FINRA owned OTC Pink Sheets.  Our Class B common stock is restricted and does not trade on any market.

On September 12, 2012, the Company received approval from the Financial Industry Regulatory Authority, Inc. (“FINRA”), of a 1 for 5,000 reverse stock split.  The post-split shares are assigned the new CUSIP number of 19647Y609.  The symbol is “CGFI.”

The table below sets forth the high and low sales prices for our Class A common stock for the periods indicated as reported by the NASDAQ Historical Quotation System.  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, 2008
           
First Quarter
  $ 4,250.00     $ 2,550.00  
Second Quarter
    4,250.00       2,750.00  
Third Quarter
    4,250.00       1,100.00  
Fourth Quarter
    1,250.00       400.00  
August 31, 2009
               
First Quarter
  $ 650.00     $ 100.00  
Second Quarter
    100.00       50.00  
Third Quarter
    100.00       29.00  
Fourth Quarter
    45.50       15.00  
August 31, 2010
               
First Quarter
  $ 21.50     $ 6.00  
Second Quarter
    15.50       7.50  
Third Quarter
    14.50       8.00  
Fourth Quarter
    10.50       4.50  
August 31, 2011
               
First Quarter
  $ 14.50     $ 3.50  
Second Quarter
    5.00       4.50  
Third Quarter
    5.00       3.00  
Fourth Quarter
    4.00       2.00  
August 31, 2012
               
First Quarter
  $ 2.50     $ 1.00  
Second Quarter
    1.50       0.50  
Third Quarter
    1.00       0.50  
Fourth Quarter
    1.00       0.50  
____________
*           The prices set forth above have been adjusted for the 1 for 5,000 reverse stock split.
 
 
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On November 14, 2012 the last reported sales price of our Class A common stock as reported by the OTCMarkets OTCQB was $0.088 per share.  As of November 14, 2012, there were 101 holders of record of our Class A common stock.  The number of holders of record does not include those shareholders who own their shares in “street name.”  We estimate that the ultimate number of beneficial owners of both Class A and Class B shares is approximately 7,000.

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
 
 
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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 for the equity compensation plans outstanding as of August 31, 2012 (including individual compensation arrangements) under which shares of our common stock are authorized for issuance:

Equity Compensation Plan Information

Plan Category
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
   
Weighted average exercise price of outstanding options, warrants and rights
   
Number of securities remaining available for future issuance as of November 16, 2012(1)
 
Equity compensation plans approved by security holders:
    -       -       -  
Equity compensation plans not approved by security holders:
    -       -       -  
2008 Employee Stock Incentive Plan
    -       -       14  
2008 Non-Qualified Consultants & Advisors Stock Compensation Plan.
    -       -       20,000,909  
2008 Stock Compensation Plan
    -       -       20,089,120  
____________________
(1) Share amounts are adjusted for the 1 for 5,000 reverse stock split effective September 12, 2012

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 2,496(1) shares of the Company’s Class A common shares.
 
 
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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 (the “2008 Consultants Plan”). As of November 16, 2012 we are authorized to issue up to 20,373,000(1) 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 2008 Consultants 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 2008 Consultants Plan. We have registered with the Securities and Exchange Commission the common shares issuable under the 2008 Consultants 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 Stock Compensation Plan (Formerly the Employee & Director Stock Compensation Plan)

In November, 2008, our Board of Directors approved the Employee & Director Stock Compensation Plan (the “2008 Employee Plan”).  The purpose of the 2008 Employee 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 16, 2012, we are authorized to issue up to 23,322,160(1) 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).  The 2008 Employee 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.

On April 18, 2011 the Board of Directors amended the 2008 Employee Plan defining eligible persons to be: “officers, directors, employees, consultants, and advisors of the Company and/or one or more of its subsidiaries, if any.”  On June 1, 2011, The Board of Directors amended the name of the 2008 Employee and Director Stock Compensation Plan to “2008 Stock Compensation Plan."
____________________
(1) Share amounts are adjusted for the 1 for 5,000 reverse stock split effective September 12, 2012
 
Transfer Agent

Corporate Stock Transfer, Inc. 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.
 
 
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ITEM 6.  SELECTED FINANCIAL DATA

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
 
ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion 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, 2012, as well as our future results. It consists of the following subsections:
 
“Results 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 2013;

“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.

Results and Plan of Operation

Plan of Operation

Our plan of operation for fiscal 2013 is to: 1) complete all necessary permitting requirements, 2) bring the Mill into operation, 3) continue seeking funding for our operations and mining exploration program, and 4) commence milling of ore.

The following discussion updates our plan of operation for the foreseeable future.  The discussion also summarizes the results of our operations for the fiscal year ended August 31, 2012 and compares those results to the fiscal year ended August 31, 2011.

During fiscal year 2012, we continued to experience the negative effects of the financial markets upheaval, which made capital acquisition extremely difficult.

During fiscal year 2012, we focused primarily on re-activation of the Pride of the West Mill, primarily working towards amending the current reclamation permit, securing agreements for “custom” or “toll” milling, and seeking out new properties to acquire, explore and develop.

 
26

 

Operations at the Pride of the West Mill:

During fiscal year 2012, we submitted additional detailed design material for the “Mill Tailings Repository” to the Colorado Division of Reclamation, Mining and Safety.  On July 20, 2012, the Division of Reclamation, Mining and Safety (Division or Office) issued its recommendation to approve with conditions, over public objection, the application to amend the permit. By August 8, 2012, all objecting parties to the application withdrew and Colorado Goldfields reiterated its consent to the Division's conditions for approval.  Because of the withdrawal of all objectors, on August 9, 2012 the DRMS recommendation to the Board was revised from a recommendation to a decision.

A key factor for re-activating the Mill and the approval of the permit is the disposal of tailings.  We developed a “dry stack” method of tailings disposal as part of a new permit amendment.  This approach is unique and a first in Colorado.

The core of the permit consists of nine Environmental Protection Faculties (“EPFs”), which are: 1) Mill Building, 2) Ore Stockpile Area, 3) Laboratory Facility, 4) Leach Plant Building, 5) Flood Protection Dike, 6) Plant Waste Water Disposal, 7) Groundwater intercept Drain, 8) Upland Stormwater Intercept Ditch, 9) Mill Tailings Repository.

The conditions specified by the Division regard the ninth EPF, the Mill Tailings Repository and simply request additional geotechnical substrate stability analysis, structure specific engineering designs for the cover of the repository, the repository’s reserve capacity, and the always on-going recalculation of financial warranty.

Company Management believes that these conditions will be satisfied by the end of second quarter, 2013.  However, operations within the approved areas have been rapidly initiated.

 In addition, as part of the Mill re-activation plan, we are reclaiming the old tailings ponds on the property.  That work is pursuant to a Technical Revision (“TR”), to the existing permit.  On March 25, 2011, we filed Technical Revision 11 (“TR-11”) with the DRMS.  TR-11 was approved by the DRMS on June 27, 2011.

TR-11 consists of 8 work tasks that will commence immediately upon approval from the DRMS.  The 8 tasks within TR-11 will address the closure of six test pits and two geotechnical drill holes located within the Upper and Lower Tailings Pond areas of the site and the relocation and final disposition of certain Waste Rock, initiates the final reclamation of the Mill Drain Pond, the Upper Tailings Pond and the Lower Tailings Pond.  These were the major problem areas in the December 2010 permit amendment, and now are removed from the scope of the permit.

The first several tasks were completed during the summer of 2011; however, early snowfall caused suspension of the remaining work until spring 2012.  Cleanup work began in May 2012 at the Mill site and continued throughout the summer of 2012.  In September 2012, we began work on the ore receiving area of the Mill.

We believe that this new permit amendment along with the extension of the Mill mortgage to December 31, 2012, will move the business plan forward.

Operations at the Silver Wing Mine:

In anticipation of our final acquisition of the Silver Wing Mine, we submitted a Notice of Intent to Conduct Prospecting Activities (“NOI”) for activities at the Silver Wing Mine.  The application was approved on November 18, 2011.  Prior to any work commencing on at the Silver Wing Mine, we were required to post a $25,000 financial warranty with the DRMS for reclamation costs.  We did not supply the required financial warranty timely; therefore, this NOI was cancelled.  A new NOI is being prepared.
 
 
27

 

Activities to be completed at the Silver Wing Mine will include re-sampling key areas of the mine by taking approximately 250 channel samples to verify records of sample data taken by prior operators and consultants.  In preparation for drilling, work will also include the verification of underground mine maps, evaluation of prior underground development work and the condition of existing workings.  This information will be utilized to develop an on-going core drilling program and an initial mining plan.

This project is particularly significant because it allows for an investigation to be made to determine the source of the existing mine drainage of approximately 20 gallons per minute and evaluate the potential for controlling or eliminating this discharge with an underground grouting program which could avoid the need for a discharge permit.  If it is determined that the discharge cannot be eliminated, then an evaluation will be made of what actions can be taken to minimize the discharge, and assuming a permit is required, what permit conditions would be most effective and appropriate for preventing discharges of pollutants into the Animas River.

As of the date of this report, we are in the process of constructing the necessary permit application materials so the work may commence.  Furthermore, the Company has prepared a Property of Merit report for the Silver Wing to be used in fund raising activities.

Operations at the Champion Mine:

The Company has prepared a Property of Merit report for the Champion Mine to be used in fund raising activities.

Operations at the Brooklyn Mine:

The Lease with an Option to Purchase for the Brooklyn was terminated on September 6, 2012.  After extensive analysis of potential acid mine drainage problems, we decided not to seek to renew the lease.

Operations at the King Solomon Mine:

We completed our 2011 exploration program on the King Solomon Mine during the first quarter of 2012.

The land position surveys were completed and corner monuments were set for the King Solomon claims.  Several original corners, first placed in the 1800s, were found and re-monumented, which verifies the claim locations.  Specific survey control points were completed to establish and fix the location of the two principal mine portals relative to the claim boundaries and surface vein expressions.

Exploration teams entered and explored the underground workings, locating important vein structures, and taking ore samples from each.  Underground workings also revealed areas that are ready to be mined along with those that will require re-habilitation and timbering.

Most importantly, sufficient data was collected to begin the construction of the 3-D model of the mine, the most efficient way to develop the surface and underground diamond drilling exploration plan.

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.

On October 11, 2012, we entered into a three-year Extension and Renewal of Mining Lease with Option to Purchase the King Solomon Mine under substantially the same terms as the original lease.  Plans to develop the King Solomon property are moving forward.

 
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Operations at the Pay Day and Rage Uranium Claim Group

On June 13, 2011, we purchased the Pay Day and Rage Uranium Claim Group.  These claim groups consist of 63 (55 Pay Day and 8 Rage) claims.  The Pay Day claim group is located in Township 32 South, Range 24 East of the Salt Lake Meridian in Sections 26, 27, 34, and 35, in San Juan County northeast of Monticello, Utah.  The Rage claim group spans Stevens Canyon on the southeast flank of the Seven Sisters Buttes in Township 33 South, Range 20 East of the Salt Lake Meridian in Section 33, San Juan County, Utah.

An initial internal analysis by Company president Lee R. Rice indicates that the historical information used by others did not account for all possible sources and additional potential resource at depth.  For that reason, we have engaged Allan P. Juhas, Ph.D. in Economic Geology, University of Manitoba 1973, to undertake the preparation of an NI43-101 technical report based upon the Company’s exploration plan and previous work that can be verified.  Dr. Juhas has over 50 years’ experience in a broad spectrum of precious metals and base metals geological pursuits.  He is well recognized in the industry, and prepares a number of NI43-101 reports each year.

We are in the process of constructing an N1431-01 compliant report to confirm and verify the value of these assets.

We acquired the Pay Day and Rage Uranium Claim Group properties in all stock transaction consisting of 125,000,000 pre-split (25,000 post-split) shares of 1-year restricted Class A Common Stock and 125,000,000 pre-split (25,000 post-split) shares of 2-year restricted Class A Common Stock.

General Operations

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.

Liquidity and Capital Resources

We were formed in early 2004 and have 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 several years.  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.  The Company has a working capital deficit of $2,596,711 at August 31, 2012; a net loss of $4,299,576 for the year ended August 31, 2012, and has a deficit accumulated during the exploration stage of $23,503,824 for the period from February 11, 2004 (inception) through August 31, 2012.  Accordingly, we have not generated cash flows from operations and have primarily relied upon advances from stockholders, promissory notes, advances from unrelated parties, and equity financing to fund our operations.  These conditions (as indicated in the 2012 audit report of our Independent Registered Public Accounting Firm), raise substantial doubt about our 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 significant capital requirements for the foreseeable future include $50,000 on our mining property options, payment of $456,900 on a promissory note and accrued interest, which is collateralized by the Mill (due December 31, 2012), payment on notes payable to related parties including accrued interest totaling $338,914, re-activation expenses for the Mill, and our corporate overhead expenses.  Additionally, we must raise and pay approximately $3,160,000 to consummate fully the acquisition of the Silver Wing and Champion Mines.
 
 
29

 

We are actively seeking additional equity or debt financing, and have secured two sources of funding.  However, there can be no assurance that the total 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.

We are dependent upon the DRMS and State of Colorado Mined Land Reclamation Board ("MLRB"), fully approving an amendment to the existing reclamation permit for the Mill.  Full approval of the amendment would cure the current cease and desist order, which was issued in 2005, and allow the Mill to become operational.  The permit amendment process is lengthy and complex.  We submitted an amendment to our existing reclamation permit on January 27, 2012 and the DRMS approved the amendment with conditions on August 9, 2012.  We are now preparing material that will satisfy the remaining conditions of the approval.

Ultimately, should the Company not be able to satisfy the conditions of approval and bring the Mill into operation, management anticipates that the Mill will be reclaimed and liquidated.

As of August 31, 2012, we had cash of approximately $6,000, and other current assets of approximately $19,000 and current liabilities of approximately $2,621,000, resulting in a working capital deficit of approximately $2,597,000.  We used cash of approximately $433,000 in operating activities for the year ended August 31, 2012.  Investing activities provided cash of approximately $35,000 for the year ended August 31, 2012, and financing activities provided cash of approximately $392,000 received primarily from the issuance of convertible debt.

Coincident with the approval of the Mill permit, the Board of Directors approved a 1 for 5,000 reverse stock split of the Company’s Class A Common Stock.  The Board of Directors believes that the current market price of the Company’s Class A Common Stock is impairing its acceptability to certain investors, clearing firms, and other members of the investing public, and approved the reverse split in anticipation that it could result in a significant improvement in the per share price of the stock.

We effected a reverse stock split to better align the stock price with our accomplishments and operational objectives.  We believe this transaction will broaden our shareholder base, increase the appeal of the stock to investors, and help facilitate electronic transactions of our stock through Depository Trust & Clearing Corporation.   We strongly believe that this split will provide benefits to our shareholders by improving trading accessibility and liquidity, thereby enhancing long-term shareholder value.

Effective September 12, 2012, every 5,000 shares of Class A common stock of CGFIA were automatically combined into one share of Class A common stock.  The reverse split reduced the number of shares of outstanding Class A common stock from approximately 28.2 billion pre-split to approximately 5.7 million post-split at August 31, 2012.  The number of authorized shares of Class A common stock was reduced from 35 billion to 7 million.  Proportional adjustments were made to our convertible notes and equity compensation plans.  All fractional shares were rounded up to the nearest whole number.  The reverse split will did not negatively affect any of the rights that accrue to holders of CGFIA common stock or common stock equivalents.  The reverse split was not a taxable event to existing stockholders.  All references to Class A common stock in this document have been adjusted to reflect the post-split amounts

On October 10, 2012 pursuant to Nevada Revised Statutes (“NRS”) 78.320 we received written consents in lieu of a Meeting of Stockholders from the Officer and Director Stockholders holding 92% of the total possible votes outstanding, to establish and fix the total number of authorized shares of Class A Common Stock, par value $0.001 per share, that the Company is authorized to issue, at one billion.

The increase to the authorized capital was made, in part, to provide us with more flexibility and opportunities to conduct equity financings, acquisitions, satisfy the reserved but unissued requirements of convertible debt financings, option agreements, and warrant reserves in connection potential with financings.  Having such additional authorized shares of capital stock available for issuance in the future should give us greater flexibility and may allow such shares to be issued without the expense and delay of a special shareholders’ meeting or obtaining written consents.  Although such issuance of additional shares with respect to future financings and acquisitions would dilute existing shareholders, management believes that such transactions would increase the total value of the Company to its shareholders.  The increase in authorized Class A Common Stock will not have any immediate effect on the rights of existing shareholders.
 
 
30

 
 
Results of Operations

Year Ended August 31, 2012 compared to the Year Ended August 31, 2011

For the year ended August 31, 2012, we incurred a net loss of approximately $4,300,000 compared to a net loss of approximately $6,163,000 for the years ended August 31, 2011 a 33% improvement of $2,040,000

Mineral property and exploration costs were $667,000 and $711,000 for the years ended August 31, 2012 and 2011, respectively.  The decrease of $45,000 was due to timing delays related to the Mill permit approval.

Professional fees decreased $45,000 from $360,000 for the years ended August 31, 2011 to $315,000 for the year ended August 31, 2012.  The decrease was due to reduced legal expenses related to the Hennis lawsuit.  (See “Legal Proceedings”.)
 
General and administrative costs were approximately $1,874,000 and $2,821,000 for the years ended August 31, 2012 and 2011, respectively, a 34% decrease of $947,000.  The decrease was due primarily to the specific reasons presented below.
 
Consulting expenses were $873,000 and $1,831,000 for the years ended August 31, 2012 and 2011, respectively, a decrease 52% of $958,000.  The decrease is due to the reduced use of outside services for corporate communications, economic imaging, and an increase in the use of results based compensation for services rendered.

Salaries were $519,000 and $461,000 for the years ended August 31, 2012 and 2011, respectively, an increase of $58,000.  The increase is due to higher compensation pursuant to our executive compensation agreements effective in July 2012.  Salaries are generally either accrued as an unpaid liability or, paid in the form of stock awards in lieu of cash, which are exempt under Rule 16b-3.  Amounts owed pursuant to our executive employment agreements have been fully accrued as of August 31, 2012.

Filing fees and transfer agent fees were $59,000 and $34,000 for the years ended August 31, 2012 and August 31, 2011, respectively.  The $25,000 increase was due to filing fees in the state of Nevada associated with an increase of the number of authorized Class A Common Stock shares in 2012.

Printing and reproduction costs were $11,000 and $1,700 for the years ended August 31, 2012 and August 31, 2011, respectively.  The $9,300 increase was due to preparing material for the Mill permit amendment.

Bank and brokerage fees increased to $41,000 for the year ended August 31, 2012 from $26,000 for the year ended August 31, 2011.  The increase was due to higher costs associated with transacting the Class A Common Stock shares of the Company.

Investor relations costs were $20,000 and $251,000 for the years ended August 31, 2012 and August 31, 2011, respectively, a decrease of $231,000.  The decrease was due to reduced media presence on radio and web based analyst coverage.

Interest expense was $1,221,000 and $2,660,000 for the years ended August 31, 2012 and 2011, respectively.  The decrease of $1,439,000 is primarily related to the required accounting treatment of convertible debt derivative liabilities and the amortization of debt discounts, and lower total outstanding debt balances.
 
 
31

 
 
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 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.

Property Retirement Obligation: Asset retirement costs are capitalized as part of the carrying amount of certain long-lived assets.  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.

Mining Rights:  The Company has determined that its mining rights meet the definition of mineral rights and are tangible assets.  As a result, the costs of mining rights are initially capitalized as tangible assets when purchased.  If proven and probable reserves are established for a property and it has been determined that a mineral property can be economically developed, costs will be amortized using the units-of-production method over the estimated life of the probable reserves.  For mining rights in which proven and probable reserves have not yet been established, the Company assesses the carrying value for impairment at the end of each reporting period.  Mining rights are stated at cost less accumulated amortization and any impairment losses.  Mining rights for which probable reserves have been established will be amortized based on actual units of production over the estimated reserves of the mines.

Derivatives:  The Company follows the relevant accounting guidance and records derivative instruments (including certain derivative instruments embedded in other contracts) in the balance sheet as either an asset or liability measured at its fair value, with changes in the derivative’s fair value recognized currently in earnings unless specific hedge accounting criteria are met. The Company values these derivative securities under the fair value method at the end of each reporting period (quarter), and their value is marked to market at the end of each reporting period with the gain or loss recognition recorded in earnings. The Company continues to revalue these instruments each quarter to reflect their current value in light of the current market price of our Common Stock. The Company utilizes a valuation pricing model to estimate fair value. Key assumptions of the valuation pricing model include applicable volatility rates, risk-free interest rates and the instrument’s expected remaining life. These assumptions require significant management judgment.

Recent Accounting Pronouncements

In June 2011, FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220) – Presentation of Comprehensive Income (“ASU 2011-05”).  ASU 2011-05 requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. ASU 2011-05 is effective for fiscal years and interim periods beginning after December 15, 2011 (March 1, 2012 for the Company).  The Company does not expect the adoption of ASU 2011-05 to have a material impact on its results of operations, financial condition, or cash flows.
 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company”, we are not required to provide the information required by this Item.  However, please see “Item 1A. Risk Factors” for a discussion of the risks associated with the Company.
 
 
32

 
 
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, 2012 and 2011, and the related statements of operations, cash flows and stockholders’ (deficit) equity for each of the years then ended, and for the period from February 11, 2004 (inception) through August 31, 2012.  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, 2012 and 2011, and the results of its operations and cash flows for each of the years then ended, and for the period from February 11, 2004 (inception) through August 31, 2012, 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 $4,299,576 for the year ended August 31, 2012, and a deficit accumulated during the exploration stage of $23,503,824 for the period from February 11, 2004 (inception) through August 31, 2012.  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 16, 2012
 
 
33

 
 
Colorado Goldfields Inc. (An Exploration Stage Company)
Balance Sheets
 
   
August 31,
   
August 31,
 
   
2012
   
2011
 
             
ASSETS
           
Current Assets
           
Cash
  $ 6,093     $ 11,838  
Prepaid expenses and other
    18,550       88,823  
Total Current Assets
    24,643       100,661  
                 
Non-Current Assets
               
Property, plant and equipment, net (Note 3)
    1,396,414       1,605,878  
Mining rights and claims (Note 4)
    158,889       294,722  
Restricted cash (Note 3)
    515,428       515,428  
Deferred financing costs
    15,580       28,805  
Other
    4,743       11,520  
Total Non-Current Assets
    2,091,054       2,456,353  
Total Assets
  $ 2,115,697     $ 2,557,014  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
Current Liabilities
               
Accounts payable
  $ 330,519     $ 253,453  
Accrued liabilities
    859,488       1,023,340  
Convertible notes, less unamortized discount of $214,059 and $285,693, (Note 7)
    141,082       153,605  
Derivative liabilities (Note 8)
    469,370       529,146  
Promissory note payable, including accrued interest (Note 6)
    25,081       -  
Notes payable, including accrued interest - related parties (Note 5)
    338,914       320,521  
Mortgage notes payable, including accrued interest (Note 3)
    456,900       453,575  
Total Current Liabilities
    2,621,354       2,733,640  
                 
Non-Current Liabilities
               
Promissory note payable, including accrued interest (Note 6)
    86,207       -  
Asset retirement obligation
    515,500       656,570  
Total Non-Current Liabilities
    601,707       656,570  
Total Liabilities
    3,223,061       3,390,210  
                 
Contingencies and Commitments (Note 10)
               
                 
Stockholders' Deficit (Note 9)
               
Class A common stock, 1,000,000,000 shares authorized, $0.001 par value;
               
5,647,989 and 1,554,155 issued and outstanding, respectively
    5,647       1,553  
                 
Class B common stock, 500,000,000 shares authorized, $0.001 par value;
               
490,371,533 shares issued and outstanding, respectively
    -       -  
                 
Additional paid in capital
    22,361,563       18,340,249  
Donated capital
    29,250       29,250  
Deficit accumulated during the exploration stage
    (23,503,824 )     (19,204,248 )
Total Stockholders' Deficit
    (1,107,364 )     (833,196 )
Total Liabilities and Stockholders' Deficit
  $ 2,115,697     $ 2,557,014  
 
The accompanying notes are an integral part of these financial statements
 
 
34

 

Colorado Goldfields Inc. (An Exploration Stage Company)
Statements of Operations
 
               
Accumulated
 
               
from February 11,
 
   
For the Year
   
For the Year
   
2004 (Date of
 
   
Ended
   
Ended
   
Inception) to
 
   
August 31, 2012
   
August 31, 2011
   
August 31, 2012
 
                   
Revenue
  $ -     $ -     $ -  
                         
Operating expenses
                       
                         
Donated rent
    -       -       9,750  
Donated services
    -       -       19,500  
General and administrative
    1,873,586       2,820,984       14,376,146  
Mineral property and exploration costs
    666,516       711,122       3,263,584  
Professional fees
    314,996       359,536       1,835,994  
                         
Total operating expenses
    (2,855,098 )     (3,891,642 )     (19,504,974 )
                         
Other income (expense)
                       
Other income
    85,045       22,119       187,986  
Interest income
    -       647       33,781  
(Loss) gain on derivative liabilities
    (309,021 )     365,735       67,503  
Interest expense
    (1,220,502 )     (2,660,253 )     (4,288,120 )
                         
Total other expense
    (1,444,478 )     (2,271,752 )     (3,998,850 )
                         
Net Loss
  $ (4,299,576 )   $ (6,163,394 )   $ (23,503,824 )
Net Loss Per Common Share - Basic and Diluted
    (1.27 )     (7.85 )        
Weighted Average Number of Common Shares Outstanding
    3,385,014       785,523          
 
The accompanying notes are an integral part of these financial statements
 
 
35

 

Colorado Goldfields Inc. (An Exploration Stage Company)
Statements of Cash Flows
 
   
For the Year
Ended
August 31, 2012
   
For the Year
Ended
August 31, 2011
   
Accumulated from
February 11, 2004
(Date of Inception) to
August 31, 2012
 
Cash Flows Used in Operating Activities:
                 
                   
Net loss
  $ (4,299,576 )   $ (6,163,394 )   $ (23,503,824 )
                         
Adjustments to reconcile net loss to net cash used in operating activities:
                       
Donated services and rent
    -       -       29,250  
Amortization of debt discount and deferred financing costs
    1,088,310       2,512,402       3,689,479  
Depreciation and amortization
    17,410       32,039       147,874  
Loss (gain) on derivative liabilities
    309,021       (365,735 )     (67,503 )
Impairment of mining rights
    135,833       135,834       398,611  
Stock issued for services
    1,059,619       2,368,137       10,471,080  
Stock-based compensation - options
    -       -       899,303  
Accrued interest
    129,566       107,483       439,945  
Accretion expense on asset retirement obligation
    35,065       44,020       191,635  
Gain on sale of property, plant and equipment
    (19,252 )     (20,802 )     (93,009 )
Change in operating assets and liabilities:
                       
Increase in restricted cash
    -       (197,274 )     (515,428 )
Decrease (increase) in prepaid expenses and other
    10,451       (14,214 )     (3,763 )
Increase in accounts payable
    527,273       430,053       2,126,361  
Increase in accrued liabilities
    566,974       511,969       1,586,082  
Decrease (increase) in other assets
    6,777       -       (4,743 )
Net cash used in operating activities
    (432,529 )     (619,482 )     (4,208,650 )
                         
Cash Flows from Investing Activities:
                       
Proceeds from sale of property, plant and equipment
    38,232       42,900       240,632  
Acquisition of property, plant and equipment
    (3,061 )     -       (720,797 )
Net cash provided by (used in) investing activities
    35,171       42,900       (480,165 )
                         
Cash Flows from Financing Activities:
                       
Advances received
    -       -       405,733  
Repayment of advances
    -       -       (405,733 )
Proceeds from notes from related parties
    -       -       581,452  
Repayment of advances from related party
    -       (10,544 )     (20,596 )
Proceeds from note payable
    24,000       -       124,000  
Repayment of notes payable
    (7,787 )     (513,704 )     (696,491 )
Proceeds from issuance of convertible debt
    427,000       1,218,977       1,845,977  
Loan acquisition costs
    (51,600 )     (126,898 )     (198,498 )
Proceeds from exercise of warrants
    -       570       570  
Net proceeds from issuance of common stock
    -       -       3,058,494  
Net cash provided by financing activities
    391,613       568,401       4,694,908  
                         
(Decrease) increase in cash
    (5,745 )     (8,181 )     6,093  
                         
Cash - Beginning of Period
    11,838       20,019       -  
                         
Cash  - End of Period
  $ 6,093     $ 11,838     $ 6,093  
                         
Supplemental Disclosures:
                       
Interest paid
  $ 3,645     $ 16,459     $ 98,426  
Income taxes paid
  $ -     $ -     $ -  
                         
Non-cash investing and financing activities:
                       
Exchange of accounts payable and accrued liabilities for debt
  $ 80,000     $ 30,742     $ 246,036  
Issuance of common stock to satisfy accounts payable
  $ 450,207     $ 459,024     $ 1,623,074  
Issuance of common stock to satisfy accrued liabilities
  $ 682,560     $ -     $ 682,560  
Issuance of common stock for prepaid expenses
  $ 21,580     $ 191,140     $ 550,159  
Issuance of common stock for mining rights
  $ -     $ 150,000     $ 557,500  
Exchange of convertible debt for common shares
  $ 1,892,844     $ 2,771,502     $ 4,771,482  
Exchange of mortgage payable for convertible debt
  $ 50,000             $ 50,000  
Exchange of property, plant and equipment for accounts payable
  $ -     $ -     $ 2,750  
Forgiveness of related party debt and accrued interest
  $ -     $ -     $ 288,361  
Change in estimate of asset retirement obligation
  $ 176,135             $ 176,135  
                         
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
 
 
36

 
 
Colorado Goldfields Inc. (An Exploration Stage Company)
Statements of Stockholders' (Deficit) Equity
From February 11, 2004 (Date of Inception) to August 31, 2012
 
                                       
Deficit
       
                                       
Accumulated
   
Total
 
   
Class A
   
Class B
   
Additional
         
During the
   
Stockholders'
 
   
Common Stock
   
Common Stock
   
Paid in
   
Donated
   
Exploration
   
(Deficit)
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Capital
   
Stage
   
Equity
 
                                                 
                                                 
Balances - February 11, 2004 (Date of inception)
    -     $ -       -     $ -     $ -     $ -     $ -     $ -  
Issuance of common stock for cash
    10,270       10       -       -       2,490       -       -       2,500  
Donated services and rent
    -       -       -       -       -       4,500       -       4,500  
Net loss
    -       -       -       -       -       -       (5,898 )     (5,898 )
                                                                 
Balances - August 31, 2004
    10,270     $ 10       -     $ -     $ 2,490     $ 4,500     $ (5,898 )   $ 1,102  
Issuance of common stock for cash
    12,632       13       -       -       53,737       -       -       53,750  
Donated services and rent
    -       -       -       -       -       9,000       -       9,000  
Net loss
    -       -       -       -       -       -       (35,319 )     (35,319 )
                                                                 
Balances - August 31, 2005
    22,902     $ 23       -     $ -     $ 56,227     $ 13,500     $ (41,217 )   $ 28,533  
Donated services and rent
    -       -       -       -       -       9,000       -       9,000  
Net loss
    -       -       -       -       -       -       (36,148 )     (36,148 )
                                                                 
Balances - August 31, 2006
    22,902     $ 23       -     $ -     $ 56,227     $ 22,500     $ (77,365 )   $ 1,385  
Donated services and rent
    -       -       -       -       -       6,750       -       6,750  
Net loss
    -       -       -       -       -       -       (300,193 )     (300,193 )
                                                                 
Balances - August 31, 2007
    22,902     $ 23       -     $ -     $ 56,227     $ 29,250     $ (377,558 )   $ (292,058 )
Issuance of common stock for cash (net of offering costs
                                                               
  of $282,231)     2,277       2       -       -       3,002,242       -       -       3,002,244  
Shares issued for services
    1,966       2       -       -       869,737       -       -       869,739  
Stock-based compensation - options
    -       -       -       -       895,209       -       -       895,209  
Net loss
    -       -       -       -       -       -       (3,721,021 )     (3,721,021 )
                                                                 
Balances - August 31, 2008
    27,145     $ 27       -     $ -     $ 4,823,415     $ 29,250     $ (4,098,579 )   $ 754,113  
Shares issued for services
    74,057       74       -       -       4,241,209       -       -       4,241,283  
Issuance of common stock to satisfy accounts payable
    5,878       6       -       -       370,009       -       -       370,015  
Stock-based compensation - options
    -       -       -       -       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
    -       -       -       -       288,361       -       -       288,361  
Net loss
    -       -       -       -       -       -       (5,281,857 )     (5,281,857 )
Balances - August 31, 2009
    107,080     $ 107       35,732,285     $ -     $ 9,727,088     $ 29,250     $ (9,380,436 )   $ 376,009  
Shares issued for services
    184,241       184       -       -       1,950,576       -       -       1,950,760  
Issuance of common stock to satisfy accounts payable
    28,962       29       -       -       343,799       -       -       343,828  
Shares issued for mining rights
    25,000       25       -       -       407,475       -       -       407,500  
Shares issued for convertible debt
    9,375       9       -       -       107,127       -       -       107,136  
Stock issued to beneficial owners of Class A Common Stock
    -       -       5,012,068       -       -       -       -       -  
Net loss
    -       -       -       -       -       -       (3,660,418 )     (3,660,418 )
                                                                 
Balances - August 31, 2010
    354,658     $ 354       40,744,353     $ -     $ 12,536,065     $ 29,250     $ (13,040,854 )   $ (475,185 )
Shares issued for services
    603,354       603       -       -       2,423,684       -       -       2,424,287  
Issuance of common stock to satisfy accounts payable
    116,710       117       -       -       458,907       -       -       459,024  
Shares issued for convertible debt
    429,433       429       -       -       2,771,073       -       -       2,771,502  
Shares issued for mining rights
    50,000       50       -       -       149,950       -       -       150,000  
Stock issued to officers
    -       -       449,623,244       -       -       -       -       -  
Class B warrants exercised and shares issued
    -       -       3,936       -       570       -       -       570  
Net loss
    -       -       -       -       -       -       (6,163,394 )     (6,163,394 )
                                                                 
Balances - August 31, 2011
    1,554,155     $ 1,553       490,371,533     $ -     $ 18,340,249     $ 29,250     $ (19,204,248 )   $ (833,196 )
Shares issued for services (Note 9)
    1,118,227       1,118       -       -       998,679       -       -       999,797  
Issuance of common stock to satisfy accounts payable (Note 9)
    513,050       513       -       -       449,694       -       -       450,207  
Issuance of common stock to satisfy accrued liabilities (Note 9)
    632,560       633       -       -       681,927       -       -       682,560  
Shares issued for convertible debt (Note 9)
    1,829,997       1,830       -       -       1,891,014       -       -       1,892,844  
Net loss
    -       -       -       -       -       -       (4,299,576 )     (4,299,576 )
Balances - August 31, 2012
    5,647,989     $ 5,647       490,371,533     $ -     $ 22,361,563