UN1TED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549  FORM 20-F/A-1 Amendment No. 1 (Mark One)   ̈ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934  OR  þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 31, 2006  OR   ̈ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR   ̈SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report..  For the transition period from ______________ to_______________  Commission file 0-31100  Rimfire Minerals Corporation (Exact name of Registrant as specified in its charter)  Not Applicable (Translation of Registrants name into English)  British Columbia (Jurisdiction of incorporation or organization)  Suite 1350  650 West Georgia Street, Vancouver, British Columbia, Canada, V6B 4N9 (Address of principal executive offices)  Securities registered or to be registered pursuant to Section 12(b) of the Act.  NONE.  Title of each class Name of each exchange on which registered  1  Securities registered or to be registered pursuant to Section 12(g) of the Act.  Common Shares without par value (Title of Class)  Securities for which there is a reporting obligation pursuant to Section 15(d)of the Act.  Not Applicable (Title of Class) Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report.19,999,539  Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  ̈YesþNo If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  ̈YesþNo Note Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.  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.  þYes ̈No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):  Large accelerated filer  ̈ Accelerated filer ̈ Non-accelerated filer þ  Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP  ̈International Financial Reporting Standards as issued by the International Accounting Standards Board  ̈Otherþ  If Other has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. þItem l7 ̈Item l8  If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ̈YesþNo  2  (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)  Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  ̈Yes ̈No   3    EXPLANATORY NOTE  This Amendment No. 1 to the Registrants Annual Report on Form 20-F for the fiscal year ended January 31, 2006 is filed in response to comments from the Commissions Staff of the Division of Corporation Finance with respect to the Registrants disclosures under Item 3 (Key Information), Item 17 (Financial Statements) and Item 19 (Exhibits). Pursuant to Rule 12b-15 under the Exchange Act, this Amendment No. 1 sets forth the complete text of the above-referenced Items and all amendments thereto, and includes new certifications pursuant to Rules 13a-14(a) and 15d-14(a) and Rules 13a-14(b) and 15d-14(b) under the Exchange Act.  Other than as expressly set forth above, this Amendment No. 1 does not, and does not purport to, amend, update or restate the information in any Item of the Registrants Annual Report on Form 20-F for the fiscal year ended January 31, 2006, or reflect any events that have occurred after the Form 20-F was filed on May 25, 2006.     4  FORWARD-LOOKING STATEMENTS  This Report contains forward looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Certain statements in this Report constitute forward looking statements. These forward looking statements are not guarantees of Rimfires future operational or financial performance and are subject to risks and uncertainties. When used in this Annual Report, the words estimate, intend, expect, anticipate and similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these statements, which speak only as of the date of this Annual Report. These statements are subject to risks and uncertainties that could cause results to differ materially from those contemplated in such forward-looking statements. Actual operational and financial results may differ materially from the Corporations expectations contained in the forward looking statements as a result of various factors, many of which are beyond the control of the Corporation. These factors include, but are not limited to, the need for additional financing to fully execute the Corporations business plan, the risk factors as set forth in more detail in Item 3 - Key Information - Risk Factors,adverse technical factors associated with exploration and development of the Corporations properties, changes in Canadian or U.S. tax or other laws or regulations, and material changes in capital expenditures.   5      TABLE OF CONTENTSPART IPageITEM 1IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not amended8ITEM 2OFFER STATISTICS AND EXPECTED TIMETABLE
Not amended8ITEM 3KEY INFORMATION8ITEM 4INFORMATION ON THE CORPORATION
Not amended17ITEM 5OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Not amended17ITEM 6DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Not amended17ITEM 7MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Not amended17ITEM 8FINANCIAL INFORMATION17ITEM 9THE OFFERING AND LISTING
Not amended18ITEM 10ADDITIONAL INFORMATION
Not amended18ITEM 11QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not amended18ITEM 12DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not amended18   6   PART IIPageITEM 13DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not amended18ITEM 14MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not amended18ITEM 15CONTROLS AND PROCEDURES
Not amended18ITEM 16AAUDIT COMMITTEE FINANCIAL EXPERT
Not amended18ITEM 16BCODE OF ETHICS
Not amended18ITEM 16CPRINCIPAL ACCOUNTANT FEES AND SERVICES
Not amended19ITEM 16DEXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not amended19ITEM 16EPURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not amended19  PART IIIITEM 17

ITEM 18FINANCIAL STATEMENTS

FINANCIAL STATEMENTS19

19ITEM 19EXHIBITS20   7  PART I     ITEM 1   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not Applicable.     ITEM 2   OFFER STATISTICS AND EXPECTED TIMETABLE Not Applicable.   ITEM 3   KEY INFORMATION CURRENCY AND EXCHANGE RATES  All dollar amounts set forth in this report are in Canadian dollars, except where otherwise indicated. The following tables set forth:  (i) the average rates of exchange for each of the Corporations fiscal years ending January 31, for the Canadian dollar, expressed in U.S. dollars, calculated by using the average of the exchange rates on the last day of each month during the period. (ii) the high and low exchange rate for each month during the previous six months, in each case based on the noon buying rate in New York City for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York.  Fiscal Year ended 
January 31st20062005200420032002Average Rate During Period$0.8339$ 0.7763$ 0.7305$ 0.6392$ 0.6414  April
2006March 2006February 2006January 2006December 2005November 2005High Rate$0.8926$0.8809$0.8788$ 0.8744$ 0.8690$ 0.8579Low Rate$0.8534$0.8531$0.8638$ 0.8528$ 0.8521$ 0.8361  On April 28, 2006, the noon buying rate in New York City for cable transfer in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York was $0.8926 US = $1.00 CDN.  SELECTED FINANCIAL DATA  The selected consolidated financial information set out below has been obtained from financial statements which reflect the Corporation's operations in the mineral exploration business.   The following table summarizes information pertaining to operations of the Corporation for the last five fiscal years.   8   Year
Ended
2006 ($)Year
Ended
2005 ($)Year
Ended
2004 ($)Year
Ended
2003 ($)
(restated)Year
Ended
2002 ($)
(restated)Mineral Property Revenues$199,777$414,338$223,626$   158,224$   45,016Loss from Operations(2,025,514)(1,601,214)(980,325)$   158,224$   45,016Net Loss(1,823,606)(1,495,680)(901,405)(507,303)(716,895)Per Share(0.10)(0.09)(0.07)(0.04)(0.08)Current Assets9,082,0865,214,1533,005,2243,064,5641,132,470Mineral Property InterestsNILNILNILNILNILOther Assets90,26488,46144,16331,17517,298Total Assets3,095,4883,153,0251,176,6331,119,457454,059Current Liabilities99,579219,98561,01846,66353,255Long-Term Liabilities35,36335,363NILNILNILShareholders Equity2,960,5462,897,6771,115,6151,072,794400,804Shares Outstanding
(number of shares)19,999,53917,855,22013,615,62112,334,6219,453,288  The Corporations financial statements have been prepared in accordance with accounting principles generally accepted in Canada. The Corporation intends to adopt accounting recommendations of the Canadian Institute of Chartered Accountants for the recognition and measurement of financial instruments with related disclosure in a Statement of Comprehensive Income for the fiscal year ending January 31, 2007. At each balance sheet date, the Corporations financial instruments will be measured at their fair value. Gains and losses will be recognized in other comprehensive income for instruments considered to be available for sale and in net income for other instruments. Adoption of this provision requires that interim statements for the fiscal year must show the components of other comprehensive income and the adjustments to reclassify amounts of revenue, expense, gain and loss previously recognized in other comprehensive income to the income statement.  On January 31, 2004, the Corporation adopted the new accounting recommendations of the Canadian Institute of Chartered Accountants on accounting for share-based compensation of employees and non-employees during the year. These recommendations established the following standards for the measurement, recognition and disclosure of compensation and other costs arising from the issue of share purchase options and other share-based payments to employees and non-employees. When options to purchase shares are issued to employees or directors, the fair value of the options on the date of the grant are recognized as compensation expense, with a corresponding increase in contributed surplus, over the period during which the related options vest. When options to purchase shares are issued to non-employees in return for goods and services, the fair value of the options issued are recognized as an expense, with a corresponding increase in contributed surplus, in the period in which the goods or services are received or are expected to be received. The consideration received on the exercise of share options is credited to share capital. The Corporation accounted for these recommendations on a retroactive basis, and accordingly increased share-based compensation expense by $245,280 and $10,240 for the years ended January 31, 2002 and 2003 and deficit and contributed surplus by $245,280 at January 31, 2002 and $255,520 at January 31, 2003.   9  On January 31, 2002 the Corporation elected to adopt a different method of accounting for its mineral property interests. The Corporation accounts for its mineral property interests whereby all acquisition and exploration costs are charged to expense as incurred and all property sales and option proceeds received are credited to income. When the existence of a mineral reserve on a property has been established, future acquisition, exploration and development costs will be capitalized for that property. After commercial production on the property commences, the net capitalized costs will be charged to future operations using the unit of production method based on estimated recoverable reserves on the property. The Corporation had previously accounted for its mineral property interests whereby costs relative to the acquisition, exploration and development of these interests were capitalized by property. All sales and option proceeds received were first credited against the costs of the related property, with any excess credited to earnings. No gains or losses were recognized on the partial sale or dispositions of properties except in circumstances which result in significant dispositions of reserves. Once commercial production had commenced, these net costs were to be charged to future operations using the unit-of-production method based on estimated recoverable reserves by property. The net costs related to abandoned properties were charged to earnings.  Except as disclosed in Note 10 of the financial statements, the financial statements conform in all material respects with U.S. GAAP.  The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards (SFAS) No. 109 Accounting for Income Taxes which related to the Corporations issuance of flow-through shares. The amount received by the Corporation on the issuance of flow-through shares in excess of the fair value of common shares is required to be credited to liabilities and included in operations in the period in which the Corporation renounces the qualified expenditures. Under Canadian income tax legislation, the company is permitted to issue shares whereby the company agrees to incur qualifying expenditures and renounce the related income tax deductions to the investors. The Corporation has accounted for the issue of flow-through shares by reducing shareholders equity and recognizing a future income tax liability for the amount of tax credits renounced to the investors, in accordance with Canadian GAAP.  As the Company has no identifiable mineral reserves from which to determine potential future cash flows, all acquisition costs and exploration costs of mineral property interests have been expensed as incurred for Canadian GAAP purposes. Emerging Issues Task Force (EITF) Abstract 04-2 requires acquisition costs of mineral property interests to be recorded as tangible assets, and the aggregate carrying amount reported as a separate component of property, plant and equipment. Statement of Financial Accounting Standard (SFAS) 144, and EITF 04-3 also require these assets to be tested for recoverability whenever events or changes in circumstances indicate the carrying value may not be recoverable. Accordingly, for U.S. GAAP purposes, acquisition costs of mineral property interests would be recorded as tangible assets when incurred.  The weighted average number of shares outstanding used in the calculation of earnings per share under Canadian GAAP includes shares held in escrow. These shares are excluded in the calculation under U.S. GAAP. This has the effect of increasing the loss per share in previous years when the number of shares held in escrow was more substantial. There was little or no effect in each of the last three years.   10  The following table shows the effect of these differences on the summary financial information:  Year
Ended
2006 ($)Year
Ended
2005 ($)Year
Ended
2004 ($)Year
Ended
2003 ($)
(restated)Year
Ended
2002 ($)
(restated)Loss from Operations$(1,867,972)$(1,560,189)$(980,325)$(491,779)$(713,850)Net Loss(1,808,564)(1,454,655)(901,405)(507,303)(716,895)Loss Per Share(0.10)(0.08)(0.07)(0.05)(0.09)Mineral Property Interests198,56741,025---Total Assets3,294,0553,194,0501,176,6331,119,457454,059Shareholders Equity3,159,1132,938,7021,115,6151,072,794400,804    CAPITALIZATION AND INDEBTEDNESS  Not Applicable.  REASONS FOR THE OFFER AND USE OF PROCEEDS  Not Applicable.  RISK FACTORS  The Corporation is engaged in the business of preliminary or early stage mineral exploration and mine development. The Corporation holds no interests in any producing mines or commercial ore deposits. The Corporation is subject to many of the material risks customarily encountered by early stage exploration and mine development companies. Additional risks are included which are specific to the operations and business plan of the Corporation.  Specific Corporate Risks  Employment Contracts/Reliance Upon Officers  The Corporation is largely dependent upon the personal efforts and abilities of its corporate officers. The loss or unavailability to the Corporation of these individuals may have a materially adverse effect upon the Corporation's business. Investors will be relying on management's judgment with respect to the operation of the Corporation. The Corporation does not presently have "key person" life insurance on the lives of any of its officers. (See Item 6 "Directors, Senior Management and Employees").  The Corporation has not entered into an employment contract with any of its executive officers. The services of David A. Caulfield, President and Chief Executive Officer are provided to the Corporation pursuant to a January 1, 2006 management agreement with Equity Engineering Ltd. (See Item 6 "Directors, Senior Management and Employees").   11  Conflict of Interest  Certain of the directors of the Corporation are also directors and officers of other corporations engaged in the business of mineral exploration and mine development. It is possible that a conflict of interest may arise between their duties as a director of the Corporation and their duties as a director or officer of other corporations. All such conflicts of interest must be disclosed by a director under British Columbia corporate law and a director must act in the best interest of both corporations. A director in such a conflict of interest position must abstain from voting on all resolutions with respect to one of the two competing corporations. (See Item 6: Certain Affiliations)  Legal Proceedings Against Foreign Directors  The Corporation is incorporated under the laws of the Province of British Columbia, Canada, and all of the Corporations five directors and all of its officers are residents of Canada. Consequently, it may be difficult for United States investors to effect service of process within the United States upon the Corporation or upon those directors or officers who are not residents of the United States, or to realize in the United States upon judgments of United States courts predicated upon civil liabilities under the United States Securities Exchange Act of 1934, as amended. Furthermore, it may be difficult for investors to enforce judgments of the U.S. courts based on civil liability provisions of the U.S. federal securities laws in a Canadian court against the Corporation or any of the Corporations non-U.S. resident executive officers or directors. There is substantial doubt whether an original lawsuit could be brought successfully in Canada against any of such persons or the Corporation predicated solely upon such civil liabilities.  Shareholder Dilution  The Corporation raises working capital funds primarily through the sale of its common shares from treasury. An investors proportional interest in the Corporation will decrease over time as additional common shares are issued.  Classification as a Passive Foreign Investment Company  The Corporation believes it is a Passive Foreign Investment Company (PFIC), as that term is defined in Section 1297 of the Internal Revenue Code of 1986, as amended, and believes it will continue to be a PFIC for the coming fiscal year. Consequently, this classification may result in adverse tax consequences for U.S. holders of the Corporations shares. For an explanation of these effects on taxation, see Item 10, Taxation. U.S. shareholders and prospective holders of the Corporations shares are also encouraged to consult their own tax advisers.   12  Classification of the Common Stock as Penny Stock  In October 1990, Congress enacted the "Penny Stock Reform Act of 1990. A "Penny Stock" is generally any equity security other than a security (a) that is registered or approved for registration and traded on a national securities exchange or an equity security for which quotation information is disseminated by The National Association of Securities Dealers Automated Quotation ("NASDAQ") System on a real-time basis pursuant to an effective transaction reporting plan, or which has been authorized or approved for authorization upon notice of issuance for quotation in the NASDAQ System, (b) that is issued by an investment company registered under the Investment Company Act of 1940, (c) that is a put or call option issued by Options Clearing Corporation, (d) that has a price of five dollars (US) or more, or (e) whose issuer has net tangible assets in excess of $2,000,000(US), if the issuer has been in continuous operation for at least three years, or $5,000,000(US) if the issuer has been in continuous operation for less than three years, or average revenue of at least $6,000,000(US) for the last three years.  The Corporations Common Shares are presently considered penny stock under these criteria. Therefore, the Common Shares are subject to Rules 15g-2 through 15g-9 (the "Penny Stock Rules") under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Penny Stock Rules impose additional reporting, disclosure and sales practice requirements on brokers and dealers before they can recommend the Common Shares for purchase by their customers, and require that such brokers and dealers must make a special suitability determination of each purchaser and must have received the purchaser's written consent to the transaction prior to the sale. Consequently, the Penny Stock Rules may affect the ability of brokers and dealers to sell the Common Shares and may affect the ability of purchasers to sell any of the Shares acquired hereby in the secondary markets.  So long as the Common Shares are within the definition of "Penny Stock" as defined in Rule 3a51-1 of the Exchange Act, the Penny Stock Rules will continue to be applicable to the Common Shares. Unless and until the price per share of Common Shares is equal to or greater than $5.00(US), the Common Shares will be subject to substantial additional risk disclosures and document and information delivery requirements on the part of brokers and dealers effecting transactions in the Common Shares. Such additional risk disclosures and document and information delivery requirements on the part of such brokers and dealers may have an adverse effect on the market for and/or valuation of the Common Shares.  General Exploration and Mining Risks  Stage of Development  The Corporation has no production revenue. It does not have an operating history upon which investors may rely. Moreover, the Corporation has no commercially viable properties at this time.   13  Capital Expenditures; Need for Future Financing  The Corporation has limited financial resources. Sufficient funding for future exploration and development of its properties or to fulfill its obligations under current agreements may not be available when and as required. Failure to obtain such future financing will result in delay or indefinite postponement of further exploration and development of its projects. Failure to obtain such future financing will also result in default under certain of the current agreements and the Corporation will forfeit its interest in such properties. The Corporations accumulated deficit as at January 31, 2006 was $7,320,443.  Commercial development of any of the Corporations properties will only occur if sufficient quantities of minerals with a sufficient average grade are discovered. If a mineral discovery is made, substantial financial resources will be required to establish ore reserves, develop metallurgical processes to extract metal from the ore and develop mining and processing facilities at a given site. If the Corporation is unable to finance such development on its own, it will be required to sell all or a portion of its interest in such property to one or more parties capable of financing such development.  Operating Risks  The exploration and, if warranted, development of mining properties is a high-risk industry. Presently, none of the Corporations properties have a known body of commercial ore. Unusual or unexpected formations, formation pressures, fires, power outages, labor disruptions, flooding, explorations, cave-ins, landslides, and the inability to obtain adequate machinery, equipment or labor are all risks involved in the operation of mines and the conduct of exploration programs.  Volatility in Mineral Prices  The cost of developing gold and other mineral properties is affected by the cost of operations, variations in ore grade, fluctuations in metal markets and the cost of processing equipment. Government regulations regarding prices, taxes, royalties, allowable production, importing and exporting of minerals, land use, land tenure and environmental protection also affect economic viability.  The Corporation cannot control the marketability of the minerals it discovers. Metal prices have fluctuated widely in recent years, and are affected by numerous factors beyond the Corporations control. International economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates, global or regional consumption patterns, speculative activities and worldwide production levels all may affect metal prices.  The trading price of mineral exploration and mining companies is largely influenced by international metal prices. As the Corporation raises funds through the sale of its common shares, a significant decrease in the price of precious and base metals will adversely affect the Corporations ability to fund its operations.  14  Forfeiture of Mineral Claims  The Corporation holds an interest in a number of exploration properties with respect to which certain cash payments, exploration expenditures and share issuances are required to maintain the Corporations interests in such properties. For those of the Corporations properties acquired through the staking of claims, a failure by the Corporation to incur exploration expenditures or make cash payments to the appropriate government agency in lieu of exploration expenditures will result in the forfeiture of the title to the mining claims back to the State of Alaska, State of Nevada, Yukon Territory or Province of British Columbia, as the case may be. Once forfeited, the areas previously covered by the claims will be available for staking by other parties.  For those of the Corporations properties held under option agreement, if the Corporation does not fulfill its obligations under the terms of any such option agreement, such agreement will terminate and title to the property will revert to the grantor of the original option.  Competition  The mineral industry is very competitive. The Corporation must compete with other companies possessing superior financial resources and technical facilities. This competition is not only for the acquisition of mining interests, but also for retention of the services of qualified employees.  No Assurance of Titles  The Corporations mineral property interests may be subject to prior unregistered agreements, transfers or native land claims and title may be affected by undetected defects. Substance and continuity of title may also be affected by political instability and the vagaries of law as they exist and are applied in foreign jurisdictions. Surveys have not been carried out on all of the Corporations mineral properties and therefore, in accordance with the laws of the jurisdiction in which such properties are situated, their existence and area could be in doubt.  General Operating Risks  Permits and Licenses  The operations of the Corporation require licenses and permits from various governmental authorities. The Corporation may not be able to obtain all necessary licenses and permits that may be required to carry out exploration, development and mining operations at its projects. All properties are presently without any known body of commercial ore.   15  The Corporations RDN, Thorn, Williams, Jake, Adam, Kizmet, and Tide Properties are located in British Columbia, Canada. The RDN Property consists of 19 mineral claims comprising 10,140 hectares. The Thorn Property consists of 21 mineral claims comprising 15,583 hectares. The Williams Property consists of 21 mineral claims comprising 10,727 hectares. The Jake Property consists of 84 claims covering 37,237 hectares. The Adam Property consists of 2 mineral claims comprising 1,823 hectares. The Kizmet Property consists of 93 mineral claims comprising 34,078 hectares. The Tide Property consists of 4 mineral claims comprising 2,964 hectares. All of these mineral claims are governed by the Mineral Tenure Act and the Mines Act (British Columbia) and are subject to a required assessment work or cash in lieu of $4.00 per hectare in each of the first 3 years and $8.00 in the fourth and subsequent years after their location dates. As the Corporation has paid all required assessments and filing fees, valid title to the mineral claims is recorded in the name of the Corporation or the Joint Venture partner of each property with the Ministry of Energy and Mines in British Columbia.  The Corporations Fer, Simpson and Wernecke Breccia Properties are located in Yukon Territory, Canada. The Fer Property consists of 118 claims, the Simpson Property consists of 8 claims and the Wernecke Breccias Property is comprised of 700 claims. All of these mineral claims are governed by the Quartz Mining Act and are subject to a required assessment work or cash in lieu of $100 each year. As the Corporation has paid all required assessments and filing fees, valid title to the mineral claims is recorded in the name of the Corporation or the Joint Venture partner.  The Corporations Poncho-Crow Property is located in the State of Nevada. The property consists of 136 mining claims totaling 1,700 acres. The mineral claims are subject to a Bureau of Land Management claim rental fee of $125 (US) per claim plus a Nye County renewal fee of $8.50 per claim plus filing fees. As the Corporation has paid all required claim rental and filing fees, valid title to the mining claims is recorded in the name of Rimfire Nevada Ltd.  The Corporations Goodpaster Properties (Bou, California-Surf, Eagle, ER-Ogo-Fire, Hawk and Swede) are located in the State of Alaska. The properties consist of 1,654 state mining claims totaling 182,800 acres. The mineral claims are subject to a required assessment or cash in lieu of $2.50 (US) per acre per year. The annual claim rental fees of $25-$100 (US) per claim, depending on size and location date, are due in November. As the Corporation has paid all required assessments and filing fees, valid title to the mining claims is recorded in the name of Rimfire Alaska with the Alaska Department of Natural Resources. There is currently no mining activity or commercial production from any of the Corporations British Columbia, Yukon or Alaska mineral properties.  Share Price Fluctuations, Price Volatility  Securities markets in Canada have experienced a high level of price and volume volatility in recent years, with many resource companies experiencing wide price fluctuations not necessarily related to operating performance or underlying asset values of such companies. The Corporations Common Shares traded between $0.51 and $1.25 in 2003, between $0.76 and $1.80 during 2004, between $0.93 and $1.90 during 2005, and between $1.45 and $2.64 during the first quarter of fiscal 2006. It is probable that the Corporations share price and volume will continue to fluctuate materially.  Environmental Regulations  All phases of the Corporations operations are subject to environmental regulations promulgated by government agencies from time to time. Environmental legislation is evolving in a manner which means stricter standards and enforcement, more stringent fines and penalties for non-compliance. Environmental  16  assessments of proposed projects carry a heightened degree of responsibility for the Corporation and its directors, officers and employees. Future changes in environmental regulation, if any, may adversely affect the Corporations operations.   ITEM 4   INFORMATION ON THE CORPORATION  Not Amended  ITEM 5   OPERATING AND FINANCIAL REVIEW AND PROSPECTS  Not Amended  ITEM 6   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES   Not Amended  ITEM 7    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS  Not Amended   ITEM 8   FINANCIAL INFORMATION  CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION  The following financial statements are attached and incorporated herein:  Description of Statement

Consolidated Balance Sheets for the fiscal years ended January 31, 2006 and 2005
Consolidated Statements of Operations, Consolidated Statements of Cash Flows,
Consolidated Statements of Comprehensive Loss,
Consolidated Statements of Shareholders Equity, and
Consolidated Statements of Mineral Property Expenditures
all for the fiscal years ended January 31, 2006, 2005, and 2004
Notes to Consolidated Financial Statements
Management Discussion and Analysis for the year ended January 31, 2008
Schedule II  Valuation Allowance  SIGNIFICANT CHANGES  There have been no significant changes since year-end that have not been disclosed elsewhere in this document. Please see Item 5, in the section entitled Liquidity and Capital Resources for discussion of the private placement completed April 13, 2006.   17  ITEM 9   THE OFFERING AND LISTING  Not Amended  ITEM 10   ADDITIONAL INFORMATION  Not Amended  ITEM 11   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK  Not Amended  ITEM 12   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES  Not Applicable.   PART II  ITEM 13   DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES  None  ITEM 14   MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS  Not Applicable.  ITEM 15   CONTROLS AND PROCEDURES  Not Amended  ITEM 16A   AUDIT COMMITTEE FINANCIAL EXPERT  Not Amended  ITEM 16B   CODE OF ETHICS  Not Amended   18  ITEM 16C   PRINCIPAL ACCOUNTANT FEES AND SERVICES  Not Amended  ITEM 16D   EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable  ITEM 16E   PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Not applicable    PART III     ITEM 17   FINANCIAL STATEMENTS  The following financial statements are attached and incorporated herein:  Description of Statement

Consolidated Balance Sheets for the fiscal years ended January 31, 2006 and 2005
Consolidated Statements of Operations, Consolidated Statements of Cash Flows,
Consolidated Statements of Comprehensive Loss,
Consolidated Statements of Shareholders Equity, and
Consolidated Statements of Mineral Property Expenditures
all for the fiscal years ended January 31, 2006, 2005, and 2004
Notes to Consolidated Financial Statements
Management Discussion and Analysis for the year ended January 31, 2008
Schedule II  Valuation Allowance  ITEM 18   FINANCIAL STATEMENTS  See Item 17      19  ITEM 19   EXHIBITS  Exhibit NumberDescriptionPage1.8Articles of Incorporation effective August 5, 200434.30Management Contract between Equity Engineering Ltd. and Rimfire Minerals Corporation effective January 1, 200624.33Option Agreement between Northgate Minerals Corporation and Rimfire Minerals Corporation dated March 29, 200434.35Registrar and Transfer Agent Agreement between Pacific Corporate Trust Company and Rimfire Minerals Corporation dated September 1, 200434.36Amendment to Option Agreement between Rimfire Minerals Corporation, Plutonic Capital and Serengeti Resources Inc. dated September 9, 200434.37Amendment to RDN Property Option Agreement between Northgate Minerals Corporation and Rimfire Minerals Corporation dated November 19, 200434.38Agreement between Newmont Capital Limited and Rimfire Minerals Corporation dated January 5, 2005 regarding Walker Lane34.39Termination Agreement between AngloGold Ashanti (U.S.A.) Exploration Inc. and Rimfire Alaska, Ltd. effective December 31, 2005 (Eagle Property)24.40Termination Agreement between AngloGold Ashanti (U.S.A.) Exploration Inc. and Rimfire Alaska, Ltd. effective December 31, 2005 (ER Property)28.1List of Subsidiary Companies of Rimfire Minerals Corporation311.1Corporate Governance Policy adopted November 20, 2002511.2Code of Ethics  Board of Directors dated January 31, 2003511.3Code of Ethics  Chief Executive Officer dated January 31, 2003511.4Code of Ethics  Chief Financial Officer dated February 28, 2003511.5Incentive Stock Option Plan431.1Certification by Chief Executive Officer131.2Certification by Chief Financial Officer132.1Certification by Chief Executive Officer132.2Certification by Chief Financial Officer1  1 Filed as exhibits in connection with this document 2 Incorporated herein by reference to the exhibits as filed in connection with the Registrants Form 20-F dated May 25, 2006. 3 Incorporated herein by reference to the exhibits as filed in connection with the Registrants Form 20-F dated May 25, 2005. 4 Incorporated herein by reference to the exhibits as filed in connection with the Registrants Form 20-F dated July 26, 2004 5 Incorporated herein by reference to the exhibits as filed in connection with the Registrants Form 20-F dated July 7, 2003.  20  SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.   RIMFIRE MINERALS CORPORATION  By:Jason S. WeberJason S. WeberPresident & Director  Date: April 3, 2009    21  RIMFIRE MINERALS CORPORATION  Consolidated Financial Statements Years Ended January 31, 2006, 2005 and 2004      MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING  The accompanying consolidated financial statements of Rimfire Minerals Corporation and all information in this annual report are the responsibility of management. The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles and where appropriate include managements best estimates and judgments. Management has reviewed the financial information presented throughout this report and has ensured it is consistent with the consolidated financial statements.  Management maintains a system of internal control designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use, and that financial information is timely and reliable.  The Board of Directors is responsible for ensuring that management fulfils its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the consolidated financial statements. The Board carries out this responsibility principally through its Audit Committee.  The Board of Directors appoints the Audit Committee, and the majority of its members are independent directors. The Audit Committee meets periodically with management and the shareholders auditors to review financial statements and reports prepared by management, internal controls, audit results, accounting principles and related matters. The Board of Directors approves the consolidated financial statements on recommendation from the Audit Committee.  Hay and Watson, an independent firm of Registered Chartered Accountants, was appointed by the shareholders at the last annual meeting to examine the consolidated financial statements and provide an independent professional opinion.     Jason S. Weber Dorothy Miller   Jason S. Weber, P.Geo Dorothy G. Miller President & Chief Executive Officer Chief Financial Officer     22  [rfmannual20fa12006002.gif]  REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS  To the Shareholders of Rimfire Minerals Corporation  We have audited the consolidated balance sheets of Rimfire Minerals Corporation (the Company) as at January 31, 2006 and 2005 and the consolidated statements of operations, of comprehensive loss, of shareholders equity, of mineral property expenditures and of cash flows for each of the years in the three year period ended January 31, 2006 (all expressed in Canadian dollars). 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 Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance 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.  In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at January 31, 2006 and 2005 and the results of its operations and its cash flows for each of the years in the three year period ended January 31, 2006 in accordance with Canadian generally accepted accounting principles.  Canadian generally accepted accounting principles vary in certain significant respects from accounting principles generally accepted in the United States of America. The effect of the application of United States generally accepted accounting principles is summarized in Note 10 to the consolidated financial statements.  Our previous report dated March 31, 2006 has been withdrawn and the consolidated financial statements have been revised for a reclassification of investment income on the statements of operations and statements of cash flows, enhanced segmented disclosures, and disclosure of differences between generally accepted accounting principles in Canada and the United States relating to mineral property acquisition costs.  For further explanation of the revisions, see Note 2 in the Notes to the Consolidated Financial Statements.  Hay & Watson  Independent Registered Chartered Accountants Vancouver, Canada March 31, 2006, except as to Notes 2, 10 and 12 which are as of October 30, 2008  23  [rfmannual20fa12006002.gif]   Comment by Independent Registered Chartered Accountants on Canada  United States of America Reporting Difference  The standards of the Public Company Oversight Board (United States) for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there are changes in accounting principles that have a material effect on the comparability of the Companys financial statements, such as the changes described in Note 2 to the consolidated financial statements. Our report to the shareholders dated March 31, 2006, except as to Notes 2, 9 and 10 which are as of October 30, 2008, is expressed in accordance with Canadian reporting standards which do not require a reference to such a change in accounting principles in the report of the independent registered chartered accountants when the change is properly accounted for and adequately disclosed in the financial statements.  Hay & Watson  Independent Registered Chartered Accountants Vancouver, Canada March 31, 2006, except as to Notes 2, 10 and 12 which are as of October 30, 2008    24     RIMFIRE MINERALS CORPORATIONConsolidated Statements of OperationsYears Ended January 31(Expressed in Canadian Dollars)200620052004Mineral Property OperationsRevenueOption proceeds$   163,500$    358,630$    191,792Project management fees36,27755,70831,834199,777414,338223,626ExpensesAcquisition costs202,167217,38598,200Exploration expenditures1,116,1721,105,733320,743Reclamation obligations-35,363-Joint venture reimbursements(33,988)(145,641)-Exploration tax credits(18,736)(122,227)(62,131)1,265,6151,090,613356,812Loss from mineral property operations(1,065,838)(676,275)(133,186)Other OperationsRevenueOther7,9003,274323ExpensesAccounting and legal40,93427,38921,535Depreciation33,98017,3447,761Foreign exchange losses8,1964,71332,028Investor services36,47863,47143,121Management services116,80492,82071,767Marketing and promotion77,23484,31663,067Office78,95998,95043,099Rent63,83239,17236,582Salaries and support services255,550163,50385,152Share-based compensation206,689292,149411,208Travel and entertainment48,92044,38632,142967,576928,213847,462Loss from other operations(959,676)(924,939)(847,139)Loss before  investment transactions(2,025,514)(1,601,214)(980,325)Gain (loss) on marketable securities(49,264)35,81954,842Interest income68,67269,71524,078Loss before Income Taxes(2,006,106)(1,495,680)(901,405)Future Income Tax Recovery (Note 8)182,500--Net Loss$    (1,823,606)$    (1,495,680)$     (901,405)Basic and Diluted Loss Per Share$            (0.10)$             (0.09)$           (0.07)Weighted average number of shares outstanding18,656,97417,231,84013,383,727     25     RIMFIRE MINERALS CORPORATIONConsolidated Balance SheetsJanuary 31(Expressed in Canadian Dollars)20062005ASSETSCurrentCash$2,836,027$2,724,083Marketable securities (Note 3)88,370139,870Accounts receivable64,635193,726Prepaid expenses16,1926,8853,005,2243,064,564Office and Computer Equipment, less accumulateddepreciation of $70,282 (2005- $47,076)61,56444,061Project Reclamation Deposits (Note 4)28,70044,400Mineral Property Interests (Note 5)--$3,095,488$3,153,025LIABILITIESCurrentAccounts payable and accruals$62,733$88,811Payable to related party (Note 7)36,84633,368Exploration funding deposits-97,80699,579219,985Mineral Property Reclamation Obligation(Note 11)35,36335,363134,942255,348SHAREHOLDERS EQUITYShare Capital (Note 6)9,358,0137,467,987Contributed Surplus (Notes 2 and 6 )922,976926,527Deficit(7,320,443)(5,496,837)2,960,5462,897,677$3,095,488$3,153,025APPROVED BY THE BOARDDavid A. CaulfieldDirectorHenry J. AwmackDirector  26     RIMFIRE MINERALS CORPORATIONConsolidated Statements of Cash FlowsYears Ended January 31(Expressed in Canadian Dollars)200620052004Cash Flows Used for Operating ActivitiesMineral property operationsPaid for acquisition costs(175,818)$    (208,635)$    (80,700)Paid for exploration costs(1,160,836)(1,086,025)(320,743)Exploration reimbursements received15,946143,804-Exploration tax credits and grants received122,22962,15718,745Exploration funding (paid) received(97,806)97,806-Project management fees received36,29358,06147,346Reclamation deposits (paid) received15,700(24,200)(7,100)Option proceeds received150,000295,130117,792Other operationsPaid for supplies and services(688,520)(597,035)(367,721)Received from related party3,4786588,651Other revenue received1,063757323(1,778,271)(1,257,522)(583,407)Cash Flows Used for Investing ActivitiesInterest revenue received63,67667,33221,168Proceeds from sale of marketable securities15,73666,95862,242Purchase of office and computer equipment(51,483)(37,442)(13,649)27,92996,84869,761Cash Flows From Financing ActivitiesCommon shares issued for cash1,895,0293,208,200516,500Share issue costs(32,743)(241,357)(982)1,862,2862,966,843515,518Increase in Cash and Cash Equivalents111,9441,806,1691,872Cash and Cash Equivalents,
Beginning of Year2,724,083917,914916,042Cash and Cash Equivalents, End of Year$    2,836,027$    2,724,083$   917,914Supplemental Information on Non-Cash TransactionsMineral property interest acquisition costs-(8,750)(17,500)Shares issued for acquisition ofmineral property interests-8,75017,500Marketable securities received(13,500)(63,500)(74,000)Mineral property interest option proceeds13,50063,50074,000Share-based compensation expense206,689292,149424,008Contributed surplus(3,551)257,239411,208   27     RIMFIRE MINERALS CORPORATIONConsolidated Statement of Changes in Shareholders EquityYears Ended January 31(Expressed in Canadian Dollars)200620052004Common Shares (Note 6)Balance, beginning of year$   7,467,987$   4,447,484$   3,914,466Issued forCash - private placement2,659,200-Cash - private placement (flow-through)500,000--Cash  Exercise of share purchase warrants1,245,029506,500509,500Cash  exercise of share purchase options150,00042,5004,700Mineral properties-8,7507,000Membership fee-10,000-Transfer from contributed surplus on the exercise of vested share purchase options210,24034,91012,800Future income taxes related to flow-through share issue(182,500)--Share issue costs(32,743)(241,357)(982)Balance, end of year9,358,0137,467,9874,447,484Contributed SurplusBalance, beginning of year926,527669,288258,080Share-based compensation206,689292,149424,008Transfer to common shares on exercise of share purchase vested options(210,240)(34,910)(12,800)Balance, end of year922,976926,527669,288DeficitBalance, beginning of year5,496,8374,001,1573,099,752Net Loss for the year1,823,6061,495,680901,405Balance, end of year7,320,4435,496,8374,001,157Shareholders Equity2,960,5462,897,6771,115,615





RIMFIRE MINERALS CORPORATIONConsolidated Statements of Mineral Property ExpendituresYears Ended January 31(Expressed in Canadian Dollars)CanadaAlaskaNevadaJakeKizmetRDNThornTideWilliamsOtherTotalCumulative net expenditures, January 31, 2003$         -$            -$798,180$321,741$35,831$177,406$318,361$18,506$            -$  1,670,025Acquisition Costs-22,830-30,9572,36921,2503,53117,263-98,200Exploration Expenditures-10,9757,41011,8538023,644237,37448,685-320,743Exploration Tax Credits--(1,889)---(60,242)--(62,131)Option Proceeds---(41,000)(61,000)(50,000)-(39,792)-(191,792)Net expenditures, year ended January 31, 2004-33,8055,5211,810(57,829)(25,106)180,66326,156-165,020Acquisition Costs-5,242-150,0001,84228,7504,49624,1522,903217,385Exploration Expenditures-176,5175,425450,46117,6776,255367,43056,22725,7411,105,733Exploration Tax Credits-(30,243)(552)(87,818)(2,751)(350)(513)--(122,227)Joint Venture Reimbursements----(1,427)-(144,214)--(145,641)Reclamation Obligations--17,10211,0823,1794,000---35,363Option Proceeds--(25,000)(182,000)(56,500)--(95,130)-(358,630)Net expenditures, year ended January 31, 2005-151,516(3,025)341,725(37,980)38,655227,199(14,751)28,644731,983Acquisition Costs14,2567,80631,34215,665-5,00010,083104,69213,323202,167Exploration Expenditures21,80211,6125,760417,7038,913208,84364,806194,786181,9471,116,172Exploration Tax Credits(263)(717)(106)(2,889)(997)(13,762)(2)--(18,736)Joint Venture Reimbursements-(560)(18,042)(5,465)(364)-(9,557)--(33,988)Option Proceeds-(75,000)(40,000)-(48,500)----(163,500)Net expenditures, year ended January 31, 200635,795(56,859)(21,046)425,014(40,948)200,08165,330299,478195,2701,102,115Cumulative net expenditures, January 31, 200635,795128,462779,6301,090,290(100,926)391,036791,553329,389223,9143,669,143Less write-downs and abandonments----(1,719)-(563,922)(6,290)-(571,931)Net cumulative expenditures on active 
mineral properties charged to operations,
January 31, 2006$  35,795$    128,462$   779,630$ 1,090,290$(102,645)$  391,036$  227,631$  323,099$ 223,914$    3,097,212


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RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    1. SIGNIFICANT ACCOUNTING POLICIES  These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada, which conform in all material respects with accounting principles generally accepted in the United States of America, except as described in Note 10 to the consolidated financial statements. These consolidated financial statements include the following significant policies:  Operations and Basis of Consolidation  The Company was incorporated on May 7, 1991 as Bull Pine Explorations Ltd. and commenced mineral exploration operations in Canada in 1991. The Company changed its name to Rimfire Minerals Corporation on November 4, 1997. One of the Companys wholly-owned subsidiary companies, Rimfire Alaska, Ltd., which was incorporated on August 19, 1998, conducts exploration of mineral properties located in the State of Alaska. A second wholly-owned subsidiary company, Rimfire Nevada Ltd., which was incorporated on January 4, 2005, conducts exploration of mineral properties located in the State of Nevada.  These consolidated financial statements include the accounts of the Company and its wholly-owned United States subsidiaries, Rimfire Alaska, Ltd. and Rimfire Nevada Ltd. (individually and collectively the Company).  Marketable Securities  Marketable securities are recorded at acquisition cost and are written down to market value when declines in value are significant and other than temporary.  Office and Computer Equipment  Office and computer equipment are recorded at cost. Depreciation is provided at annual rates considered sufficient to amortize the cost of the assets over their estimated useful lives as follows:  Computer software100%Computer equipment (prior to March 23, 2004)30%Computer equipment (after March 23, 2004)45%Office equipment and furniture20%


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RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    1. SIGNIFICANT ACCOUNTING POLICIES (continued)  Mineral Property Interests  The Companys mineral property interests are composed of mineral properties owned by the Company and rights to ownership of mineral properties which the Company can earn through cash or share payments, incurring exploration expenditures and combinations thereof. The Companys property ownership and rights to property ownership are described in Note 5.  The Company accounts for its mineral property interests whereby all acquisition and exploration costs are charged to expense as incurred and all property sales and option proceeds received are credited to operations. When the existence of a mineral reserve on a property has been established, future acquisition, exploration and development costs will be capitalized for that property. After commercial production on a property commences, the net capitalized costs will be charged to future operations using the unit of production method based on estimated recoverable reserves on the property.  Mineral Property Reclamation Obligations  The company recognizes the fair value of a liability for a reclamation obligation on mineral property interests when the obligation is incurred and the fair value can be reasonably estimated.  The fair value of the obligations is based on the estimated cash flow required to settle the obligations, discounted using the Government of Canada Bond Rate for the applicable term adjusted for the Companys credit rating.  The fair value of the obligation is recorded as a liability with the same amount charged to mineral property expenses.  The liability is adjusted for accretion expense representing the increase in the fair value of the obligations due to the passage of time.  Changes resulting from revisions to the timing or the amount of the original estimate of undiscounted cash-flows are recognized as an increase or a decrease to the carrying amount of the liability and charged to mineral property expenses.  When the existence of a mineral reserve on a property has been established, future reclamation obligation costs will be capitalized for that property.


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RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    1. SIGNIFICANT ACCOUNTING POLICIES (continued)  Share-Based Compensation  The Company issues options to purchase shares under the terms described in Note 6. When options to purchase shares are issued to employees or directors, the fair value of the options on the date of the grant is recognized as compensation expense, with a corresponding increase in contributed surplus, over the period during which the related options vest. When options to purchase shares are issued to non-employees in return for goods and services, the fair value of the options issued is recognized as an expense, with a corresponding increase in contributed surplus, in the period in which the goods or services are received or are expected to be received.  The consideration received on the exercise of share options is credited to share capital. When options are exercised, previously recorded compensation is reclassified from contributed surplus to share capital to fully reflect the consideration for the shares issued.  Income Taxes  The Company follows the asset and liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are recorded based on temporary differences between the carrying amount of balance sheet items and their corresponding tax bases. In addition, the future tax benefits of unused tax losses and other deductions carried forward, are recognized, subject to a valuation allowance, to the extent that it is more likely than not that such future benefits will ultimately be realized.  Future income tax assets and liabilities are measured using enacted or substantively enacted tax rates and laws expected to apply when the tax liabilities or assets are to be either settled or realized.  Flow-Through Shares  The Company has issued flow-through shares to finance some of its exploration activities. These shares were issued for cash in exchange for the Company giving up the tax benefits arising from the exploration expenditures, in accordance with tax legislation.  The Company records these share issues by crediting share capital for the full value of cash consideration received and the related future income tax liabilities are reflected as a share issue cost.


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RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    1. SIGNIFICANT ACCOUNTING POLICIES (continued)  Foreign Currency Translation  Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the rate of exchange prevailing at the balance sheet date. Non-monetary assets and liabilities are translated using historical rates. Revenue and expense items are translated at exchange rates prevailing at the time of the transaction. Foreign exchange gains and losses are included in operations.  Loss per Share  The basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year. The diluted loss per share reflects the potential dilution of common share equivalents, such as the outstanding share purchase options and warrants, in the weighted average number of common shares outstanding during the year, if dilutive. For this purpose, the treasury stock method is used for the assumed proceeds upon the exercise of share purchase options and warrants that are used to purchase common shares at the average market price during the year. Common share equivalents (Note 6) have been excluded from the computation of the diluted loss per share for the periods presented as including them would have been anti-dilutive.  Exploration Tax Credits  The Company may receive refundable exploration tax credits and grants from provincial jurisdictions in Canada equal to a specified rate of qualifying exploration expenditures incurred on properties located within that jurisdiction. The Company records these exploration tax credits or grants as it incurs the related exploration expenditures.  Use of Estimates  The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates.


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RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    2. ACCOUNTING CHANGES  The Company adopted the new accounting recommendations of the Canadian Institute of Chartered Accountants for the accounting for share-based compensation of employees and non-employees during the 2004 fiscal year. These recommendations established the standards described in Notes 1 and 6 for the measurement, recognition and disclosure of compensation and other costs arising from the issue of share purchase options and other share-based payments to employees and non-employees. The Company accounted for these recommendations on a retroactive basis, and accordingly increased the deficit and contributed surplus by $255,520 at January 31, 2003. This change also resulted in an increase in the net loss for the years ended January 31, 2006, 2005 and 2004 by $206,689 ($.01 per share), $292,149 ($.02 per share) and $411,208 ($.03 per share), respectively.  The Company has reclassified certain items in the Consolidated Statements of Operations, Consolidated Statements of Cash Flows and Note 10 (regarding differences between generally accepted accounting principles in Canada and the United States). The reclassification has no effect on net loss, net loss per share, accumulated deficit or increase in cash and cash equivalents. A summary of the changes to the financial statements is provided in the following table:  Consolidated Statements of Operations  Other Operations200620052004RevenueAs originally presented76,57272,98924,401Reclassification of interest received(68,672)(69,715)(24,078)Revised7,9003,274323  Loss from other operationsAs originally presented(891,004)(855,224)(823,061)Reclassification of interest received(68,672)(69,715)(24,078)Revised(959,676)(924,939)(847,139)  Loss before the undernoted  (revised)Loss before the undernoted(2,025,514)(1,601,214)(980,325)Reclassified interest income68,67269,71524,078


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RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    2. ACCOUNTING CHANGES (continued)   Consolidated Statements of Cash Flows 200720062005Cash Flows Used for Operating ActivitiesAs originally presented(1,714,595)(1,190,190)(562,239)Reclassified interest received(63,676)(67,332)(21,168)Revised(1,778,271)(1,257,522)(583,407)Cash Flows Used for Investing ActivitiesAs originally presented(35,747)29,51648,593Reclassified interest received63,67667,33221,168Revised27,92996,84869,761   3. MARKETABLE SECURITIES  The fair market value of the marketable securities on January 31, 2006 was approximately $182,468 (2005 - $271,405).   4. PROJECT DEPOSITS  Project deposits represent term deposits in favour of regulatory authorities held as site restoration deposits. The amount of the deposit is determined at the time the exploration program is planned and a notice of work is submitted to the regulatory authority. If work is more extensive than previously planned, the amount of the deposit will be increased.


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RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    5. MINERAL PROPERTY INTERESTS  Expenditures on mineral property interests during the years ended January 31 were:  200620052004Acquisition Costs$ 202,167$217,385$98,200Exploration CostsAircraft and helicopter171,480261,87139,204Camp72,52258,84615,177Chemical analysis38,75152,83225,033Drafting11,93713,1488,981Drilling and trenching49,76387,046-Equipment rental15,74116,2284,975Freight11,35012,341722Geological and engineering319,943354,662142,869Geophysical surveying68,922--Maps and reproductions13,42117,3415,529Materials24,34630,2492,501Project management73,45297,44326,607Recording and filing216,41567,72036,389Travel28,12936,00612,7561,116,1721,105,733320,743Exploration tax credits and grants(18,736)(122,227)(62,131)Joint venture reimbursements(33,988)(145,641)-Reclamation obligation-35,363-1,063,448873,228258,612Option Proceeds(163,500)(358,630)(191,792)Net Expenditures For the Year1,102,115731,983165,020Cumulative Net Expenditures, 
Beginning of Year2,567,0281,835,0451,670,025Cumulative Net Expenditures, End of Year3,669,1432,567,0281,835,045Property Write-downs and Abandonments(571,931)(302,917)(193,421)Net Cumulative Expenditures On Active Mineral Properties Charged to Operations From Inception$ 3,097,212$2,264,111$1,641,624


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RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    5. MINERAL PROPERTY INTERESTS (continued)  The analysis of these expenditures by property or interest is reported in the Statements of Mineral Property Expenditures.  The Companys commitments to earn or acquire its mineral property interests are:  Thorn Property, British Columbia  On March 1, 2000 the Company entered into an agreement with Kohima Pacific Gold Corp. (Kohima) to earn a 100% interest in the Thorn mineral property, subject to a 3.5% net smelter return. The Company has earned its interest by making staged payments totalling $230,000, completing exploration expenditures of $50,000 and issuing a total of 200,000 common shares. The Company will issue an additional 200,000 shares upon commencement of commercial production from the property. The Company can purchase 2% of Kohimas underlying net smelter return (NSR) for $3,000,000.  On March 1, 2002, the Company granted CANGOLD Limited (CANGOLD) an option to earn a 51% interest in the Thorn property on completion of exploration expenditures of $1.2 million, cash payments totalling $190,000 and issuing 250,000 shares of CANGOLD to the Company. In September 2004, CANGOLD completed these requirements. The Company and CANGOLD have entered into a joint venture agreement for further development of the property. CANGOLD is currently operator for the project.  RDN Property, British Columbia  On July 31, 1997, the Company acquired a one-third interest in the RDN mineral claims from Equity Engineering Ltd. (Note 7) for $150,000 and acquired the remaining two-thirds interest, subject to a 1.34% net smelter return, by completing exploration expenditures and share issue requirements. The Company may purchase one-half of the NSR for $666,666.  The Company signed an option agreement, effective March 29, 2004, with Northgate Minerals Corporation (Northgate) which provides that Northgate can earn a 51% interest in the RDN Property on completion of the following:


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RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    5. MINERAL PROPERTY INTERESTS (continued)  RDN Property, British Columbia  Exploration expenditures of: · not less than $1,000,000 before December 31, 2004 (completed) · not less than an aggregate of $2,000,000 on or before December 31, 2005 
(as revised November 19, 2004) (completed) · not less than an aggregate of $3,000,000 on or before December 31, 2006
(as revised December 2, 2005) · not less than an aggregate of $5,000,000 on or before December 31, 2007
(as revised November 19, 2004) Cash payments of: · $25,000 upon closing of the agreement (received) · $40,000 on or before March 1, 2005 (received) · $60,000 on or before March 1, 2006(received subsequent to year-end) · $75,000 on or before March 1, 2007  The Company is the project operator until Northgate has earned its 51% interest. Northgate may earn an additional 9% by completing a feasibility study and funding all expenditures up to completion of the feasibility study.  On December 14, 2005, the Company (40%) and Northgate (60%) purchased 100% of the LL property, which is contiguous with the RDN, for $30,000 cash, subject to an NSR of 2%. This royalty can be purchased at any time for $2,000,000.  Williams Property, British Columbia  On May 17, 2001 the Company entered into an option to earn a 100% interest in the property, subject to a 2.5% net smelter return. On June 25, 2002, the Company subsequently acquired half of the interest and half of the net smelter return pursuant to another agreement by issuing 75,000 common shares. The Company earned the remaining 50% interest by making cash payments totalling $57,500 and issuing 125,000 common shares. The Company will issue an additional 50,000 common shares upon commencement of commercial production from the property. The Company can purchase 0.75% of the NSR for $1,000,000. Advance royalty payments of $5,000 per year, commencing in December 2005, are payable to the underlying vendor.


37


RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    5. MINERAL PROPERTY INTERESTS (continued)  Tide Property, British Columbia  On July 10, 2001 the Company purchased the Tide mineral property from Newmont Canada Limited for $10 and an agreement to give Newmont Canada Limited a three year right of first refusal to re-acquire the property if the Company decides to assign, transfer or dispose of its interest to a third party, and a 1.5% NSR in the event the property becomes commercially feasible to mine.  In October 2002, the Company granted Plutonic Capital Corp. (Plutonic) an option to earn a 51% interest in the property on completion of a combination of cash and share payments and exploration expenditures. In consideration for an extension, dated October 20, 2003, Plutonic issued an additional 100,000 common shares to the Company. In an option amendment agreement dated November 20, 2003, Plutonic assigned the agreement to Serengeti Resources Inc. (Serengeti). As compensation for this amendment, Serengeti issued 100,000 shares to the Company. Serengeti has assumed all of the obligations from the original and amended agreements with Plutonic:  Cash payments to the Company of: · $2,000 upon signing of the agreement (received) · $13,000 upon regulatory approval (received) · $15,000 on or before July 24, 2003 (received) · $25,000 on or before December 31, 2004  (as amended September 9, 2004-received) · $35,000 on or before December 31, 2005  (as amended September 9, 2004 -received) · $40,000 on or before December 31, 2006  (as amended September 9, 2004) Issue to the Company or pay: · 50,000 common shares or $20,000 on or before August 15, 2003 (received) · 75,000 common shares or $35,000 on or before July 24, 2004 (received) · 75,000 common shares or $60,000 on or before December 31, 2005
(as amended September 9, 2004) (received) · 75,000 common shares or $85,000 on or before December 31, 2006 
(as amended September 9, 2004) Fund expenditures of at least: · $185,000 on or before June 30, 2004 (completed) · an additional $250,000 on or before December 31, 2004 (completed) · an additional $400,000 on or before December 31, 2005 (completed) · an additional $600,000 on or before December 31, 2006  The Company is the operator for the exploration programs until Serengetis interest has vested. In November 2004 two additional claims (the Wave claims) were staked which were jointly explored with the Tide property but do not form part of the property agreement. In November 2005, the Wave claims were permitted to lapse.


38


RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    5. MINERAL PROPERTY INTERESTS (continued)  Kizmet Property, British Columbia  The Company acquired the Kizmet (formerly Sutlahine) Property by staking 52 claims between April 2003 and January 2005. The Company signed a joint venture agreement with Barrick Gold Corporation (Barrick), effective February 26, 2005, to explore the Kizmet claims. Barrick contributed 170 claims to the joint venture and paid the Company $75,000 Canadian. In January 2006, the number of claims was reduced to 93 totalling 34,078 hectares.  Barrick can increase its interest in the property to an aggregate 80% upon completion of the following:  · to 65% upon completion of aggregate exploration expenditures of $1,200,000 (USD) over a period of three years from the date of the formal agreement; · to 75% upon funding exploration expenditures of not less than $500,000 (USD) per year through to a production decision; and · at the Companys election, to 80% upon assisting the Company with project financing.  Jake Property, British Columbia  The Company signed an option agreement effective October 29, 2005 to earn a 100% interest in the Jake claims, subject to a 4% NSR, half of which can be purchased for US$2 million. The Company is to make cash payments of: · US$10,000 upon signing (paid) · US $20,000 on or before October 29, 2006 · US $25,000 on or before October 29, 2007 · US $30,000 on or before each of the third through ninth anniversary dates (US $210,000) · US $35,000 on or before October 29, 2015  The Company is to complete exploration expenditures of: · $100,000 (Canadian) on or before October 29, 2007 · an aggregate of $300,000 (Canadian) on or before October 29, 2009  The Company staked an additional 36,033 hectares surrounding the original claim.  Adam Property, British Columbia  In April 2002 the Company acquired the Adam Property by staking 3 claims comprising 60 units. These claims have been converted to 2 claims totalling 1,823 hectares. The Company conducted a sampling and mapping program during August 2002 to fulfil the assessment work requirement to keep these claims in good standing until April 2007.


39


RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    5. MINERAL PROPERTY INTERESTS (continued)  ER-Ogo-Fire Property, Alaska  Pursuant to the terms of an agreement dated August 30, 2001 with Engineer Mining Corp., the Company acquired a 100% interest in the ER property.  On January 30, 2002 the Company signed an exploration, development and mine operating agreement with AngloGold (U.S.A) Exploration Inc. (AngloGold) whereby AngloGold could earn a 50% interest in the ER-Ogo-Fire property. A December 17, 2003 amendment included the Jazz claims (staked by the Company) and the Zappa claims (staked by AngloGold) in the agreement. Effective December 31, 2005, a termination agreement was signed whereby AngloGold relinquished 100% ownership of the claims subject to an NSR of 2%, one-half of which can be purchased for $2,000.000 (US Dollars).  Eagle Property, Alaska  On January 30, 2002 the Company signed an exploration, development and mine operating agreement with AngloGold whereby AngloGold can earn a 50% interest in the Eagle property. A December 17, 2003 amendment included the Sand claims (staked by the Company) and the EX claims (staked by AngloGold) in the agreement. Effective December 31, 2005, a termination agreement was signed whereby AngloGold relinquished 100% ownership of the claims subject to an NSR of 2%, one-half of which can be purchased for $1,000.000 (US). In January 2006, the Company staked 362 claims near the Eagle property.  California-Surf properties, Alaska  The Company held a 30% joint venture interest in the California and Surf properties, which included several claim blocks. The joint venture partner, Western Keltic Mines Inc. (Western Keltic), held the remaining 70% interest in the properties.  In August 2003, Western Keltic sold its 70% interest in these claims to the Company, subject to a 1.75% NSR (of which 1% may be bought for $1,000,000), for the following payments:  · $25,000, or 50,000 common shares at the election of the Company, upon completion of $1,500,000 of exploration expenditures subsequent to the agreement, · $50,000, or 50,000 common shares at the election of the Company, upon completion of an aggregate $3,000,000 of exploration expenditures subsequent to the agreement, · 100,000 shares upon obtaining a positive feasibility study for placing any part of the property into commercial production.


40


RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    5. MINERAL PROPERTY INTERESTS (continued)  California-Surf properties, Alaska  The Company staked claims adjacent to the current project and the California-Surf group now includes 883 claims covering 98,080 acres.  Walker Lane Project, Nevada  In January 2005, the Company signed an agreement with Newmont Capital Limited (Newmont) targeting a defined project area in Nevadas Walker Lane Mineral Belt. The Company has committed to making $300,000 USD in exploration expenditures within the project area during the term of the two year agreement. The Company may, at its discretion, acquire one or more properties within the project area boundaries in which to conduct further exploration work. On the Companys acquisition of any property interest, Newmont will be granted an NSR of 2.0% to 3.0% on a sliding scale based on the price of gold. Newmont will have a one-time right to enter a 50:50 Joint Venture upon the Companys expenditures of $300,000 USD on an acquired property. When this right is exercised, Newmont will relinquish the NSR, manage the Joint Venture, and solely fund the next $1,000,000 USD in exploration expenditures to earn its 50% interest.  In September 2005 the Company staked 65 claims totalling 1,300 acres in one project area. In February 2006, 71 claims totalling 1,404 acres were added to the group.  Northgate Exploration Alliance  In December 2005, the Company signed a letter of agreement with Northgate to cooperatively generate new exploration properties. The initial phase will consist of data compilation with each company contributing up to $20,000. The second phase of field examination will be funded by contributions of $130,000 from each company. Upon acquisition of a property, Northgate shall have an option to earn 60% of the acquired property by making the first $1.5 million in exploration expenditures. Upon completion of the earn-in, expenditures will be shared pro-rata between the Company and Northgate. The Company will be operator during the compilation and field examination phases of the project.


41


RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    5. MINERAL PROPERTY INTERESTS (continued)  FER Property, Yukon  Under an agreement with Boliden Limited (Boliden) dated July 1, 1998, as amended on October 28, 1999 and October 11, 2000, the Company has earned a 51% interest in the claims. The exploration expenditures required to earn an 85% interest were not completed. Bolidens interest in the property has been sold to Breakwater Resources Ltd. (Breakwater). The Company and Breakwater intend to enter into a joint venture for the further development of the claims. If either partys interest subsequently decreases to below 7.5%, that partys interest will be automatically converted to an NSR of 2%.  Simpson Property, Yukon  In January and April 2003, the Company acquired the Simpson Property by staking 38 claims in the Watson Lake Mining District. Thirty of these claims were allowed to lapse in December 2005. The remaining eight claims have expiry dates of December 2008. Four additional claims, comprising the Simpson Extension, were staked in August 2003. These four additional claims have been allowed to lapse.  Wernecke Breccias, Yukon  In January 2006, the Company signed an agreement with Fronteer Development Group Inc (Fronteer) to acquire 700 mineral claims and a proprietary geoscience dataset covering a large region of the northern Yukon known as the Wernecke Breccias, from Newmont Exploration Canada Limited (Newmont) and NVI Mining Ltd., a subsidiary of Breakwater Resources Ltd. (NVI).  To complete the acquisition, $2 million in exploration expenditures must be spent within four years.  Newmont and NVI retain a total 2% NSR and a right of first refusal, which terminates after completion of the exploration expenditures. There is a 7.5% to 15% Net Profits Interest payable to the underlying vendors.Fronteer will be operator of the project and will fund 100% of the exploration costs to earn an 80% interest, with the Company earning the remaining 20% interest.  Once the $2 million has been expended, a Joint Venture will be formed between Fronteer and the Company, and ongoing exploration expenses will be shared pro-rata subject to dilution for non participation.  Should either partys interest fall below 5%, their interest will be converted to a 3% Net Profits Interest after payback of capital.  Yukon Targeted Exploration Initiative  In December 2003, the Company signed an agreement with Newmont to focus on grass-roots exploration within a defined area in the Yukon. Expenditures for compilation and fieldwork were shared equally between the Company and Newmont.


42


RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    6. SHARE CAPITAL  Authorized: unlimited common shares without par value  Issued and fully paid common shares Number of SharesAmountJanuary 31, 200312,334,621$  3,914,466Issued for cashExercise of warrants, net of issue costs of $7711,211,000508,729Exercise of share purchase options, net of issue costs of $70 and including transfer from contributed surplus on the exercise of vested options20,00017,430Issued for mineral property interests, net of issue costs of $14150,0006,859January 31, 200413,615,6214,447,484Issued for cashPlacement, net of issue costs of $235,1032,986,9072,424,097Exercise of warrants, net of issue costs of $2,7421,110,000503,758Exercise of share purchase options, net of issue costs of $3,245 and including transfer from contributed surplus on the exercise of vested options100,00074,165Issued for Mineral Deposits Research Unit membership, net of issue costs of $1227,6929,878Issued for mineral property interests, net of issue costs of $14525,0008,605January 31, 200517,855,2207,467,987Issued for cashExercise of warrants, net of issue costs of $3,2311,128,8191,241,798Exercise of share purchase options, net of issue costs of $235 and including transfer from contributed surplus on the exercise of vested options600,000360,005Flow-through shares, net of issue costs of $29,277 and future income taxes of $182,500415,500288,223January 31, 200619,999,539$  9,358,013


43


RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    6. SHARE CAPITAL (continued)  The Company issues share purchase options to directors, officers, and employees of the Company and persons who provide ongoing services to the Company under an incentive stock option plan. Under the plan, the Company has reserved 1,300,000 shares to be issued pursuant to share purchase options. The exercise price of share purchase options will be no less than the closing price of the shares on the business day immediately preceding the date on which the option is granted less the discount permitted by the TSX Venture Exchange.  Options will expire no later than five years from the grant date, except that they will expire within thirty days when the holder is no longer qualified to hold the option (other than for cause, when the option will expire immediately). Individual grants in excess of 30,000 shares vest over two years with one-half vesting immediately, one-quarter vesting on the first anniversary date of the grant and the remaining one-quarter vesting on the second anniversary date.  January 31, 2006January 31, 2005Number of sharesWeighted average exercise priceNumber of sharesWeighted average exercise priceOutstanding at beginning of year1,645,000$    0.701,310,000$    0.54Granted150,0001.23465,0001.10Exercised600,0000.25130,0000.43Outstanding at end of year1,195,0000.991,645,0000.70Options exercisable at end of year1,130,0001.001,515,0000.67  Options OutstandingOptions ExercisableExpiry DateNumber of sharesExercise priceNumber of sharesExercise price02-Mar-0650,000$      0.2550,000$      0.2515-Jan-0875,0000.6075,0000.6026-Mar-0660,0000.9560,0000.9518-Dec-08455,0000.95455,0000.9518-Jun-09150,0000.96112,5000.9609-Dec-09255,0001.21227,5001.2122-Dec-10150,0001.23150,0001.231,195,0001,130,000


44


RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    6. SHARE CAPITAL (continued)  The weighted average grant-date fair value of share purchase options granted during the year ended January 31, 2006 was $1.06 per share (2005 - $0.83). The Company determines the fair value of the options granted during a year for the purposes of determining share-based compensation expense using the Black-Scholes option pricing model using the following weighted average assumptions:  January 31, 2006January 31, 2005January 31, 2004Volatility137%110%105%Risk-free interest rate3.84%2.60%2.75%Expected life5 years4.6 years4.6 yearsExpected dividend yield---  7. RELATED PARTY TRANSACTIONS   The Companys mineral property evaluation and exploration projects are managed by Equity Engineering Ltd. (Equity), a company indirectly owned and operated by officers and significant shareholders of the Company. Balances payable to Equity for fees and reimbursement of costs incurred on behalf of the Company have been separately disclosed as Payable to Related Party. Fees charged to the Company by Equity are on the same basis as those charged by Equity to unrelated third parties.   During the year ended January 31, 2006, the Company paid Equity $206,763 (2005 - $431,996, 2004 - $260,926) for geological consulting services and $244,871 (2005 - $203,099, 2004 - $144,087) for providing general corporate and administrative services composed of $1,117 (2005 - $14,457, 2004 - $6,396) for insurance, $4,279 (2005 - $3,711, 2004 - $2,200) for investor services, $99,305 (2005 - $96,462, 2004 - $66,264) for management services, $5,810 (2005 - $12,026, 2004 - $5,702) for office services, $62,696 (2005 - $39,172, 2004 - $36,582) for rent and $71,663 (2005 - $37,270, 2004 - $26,943) for support services.  It is anticipated that Equity will continue to provide geological consulting and administrative support services to the Company from time to time, and Equity will be remunerated for such services at Equitys standard commercial rates.  Equity is one of the underlying vendors who own a 7.5 to 15% Net Profits Interest (NPI) in the Wernecke Breccia property (Note 5). Equitys share of the NPI is 40%. In addition, two of the directors and officers of the Company each own 20% of a different company which is entitled to 10% of the NPI.


45


RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    8. INCOME TAXES  The Companys future income tax assets are:  January 3120062005Future income tax assetsMineral property interests$      1,859,190$         1,821,881Other assets49,44783,518Tax loss carry-forwards3,203,2782,234,1845,111,9154,139,583Valuation allowance(5,111,915)(4,139,583)Net future income tax assets$                    -$                       -  A reconciliation of the provision for recovery of income taxes is as follows:  Year ended January 31200620052004Loss before income taxes$      2,006,106$       1,495,680$       901,405Statutory tax rate35.6%37.6%39.6%Recovery of income taxes based on combined Canadian and provincial statutory rates$        714,174$          562,376$       356,956Add (deduct):Non-deductible expenses(32,663)(14,834)(10,572)Tax effect of current  period losses not recognized(681,511)(547,542)(346,384)Recovery of future income taxes arising from flow through share issue182,500--Future income tax recovery$           182,500$                      -$                   -


46


RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    8. INCOME TAXES (continued)  At January 31, 2006, the Company has unrecognized non-capital losses for income tax purposes of approximately $3,203,278 that may be used to offset future taxable income. If unused, these losses will expire as follows:  2007$    260,1952008297,8532009322,0572010349,6432011412,7592012532,73920131,028,032$ 3,203,278  9. FINANCIAL INSTRUMENTS  (a) Fair value of financial instruments  The Companys financial instruments include cash, accounts receivable and accounts payable, payable to related party and joint venture deposits. The carrying values of these instruments in these financial statements approximate their fair values. The fair value of the marketable securities is disclosed in Note 3.  (b) Foreign exchange risk  The Company incurs certain expenses in currencies other than the Canadian dollar. As such, the Company is subject to foreign exchange risk as a result of fluctuations in exchange rates.  (c) Market risk  The Companys financial instruments include marketable securities which are publicly traded and therefore are subject to the market risks that affect all publicly traded securities. Some of these shares are thinly traded which could result in lower quoted market values.


47


RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    10. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING  PRINCIPLES IN CANADA AND THE UNITED STATES  These financial statements have been prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP) which, with respect to the Company, differ in certain respects from United States generally accepted accounting principles (U.S. GAAP). The significant differences between US GAAP and Canadian GAAP are as follows:  (a) Flow-through shares  Under Canadian income tax legislation, the Company is permitted to issue shares whereby the Company agrees to incur qualifying expenditures and renounce the related income tax deductions to the investors. The Company has accounted for the issue of flow-through shares by reducing shareholders equity and recognizing a future income tax liability for the amount of tax credits renounced to the investors, in accordance with Canadian GAAP.  For U.S. GAAP, the amount received by the Company on the issuance of flow-through shares in excess of the fair value of common shares is required to be credited to liabilities and included in operations in the period in which the Company renounces the expenditures.  (b) Acquisition costs of mineral property interests (restated)  The Company's accounting policy under Canadian GAAP is to expense the acquisition of mineral properties as incurred until there are identifiable reserves on a property, when they will be capitalized and amortized over production from the property. Mineral property acquisition costs are capitalized under US GAAP, unless there is evidence that they are impaired and not recoverable, when they are written off.  Note 10 (b) and (e) have been restated to identify a difference between accounting for mineral property acquisition costs under Canadian GAAP and US GAAP. The Company had previously interpreted US GAAP to consider the lack of identifiable reserves as sufficient evidence to impair and write off the carrying value of the mineral property acquisition costs. However, the Company has reconsidered the requirements of Emerging Issues Task Force (EITF) Abstract 04-2 and has concluded that the lack of reserves is not conclusive evidence of impairment under US GAAP. The Company has therefore amended this note to identify the accounting for these costs as a difference between Canadian and US GAAP, effective for periods beginning after April 30, 2004.


48


RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    10. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING  PRINCIPLES IN CANADA AND THE UNITED STATES  (continued)  (c) Earnings per share  The weighted average number of shares outstanding used in the calculation of earnings per share under Canadian GAAP includes shares held in escrow. These shares are excluded in the calculation under U.S. GAAP.   (d) Statements of cash flows  Both CICA Handbook Section 1540 and SFAS 95 recommend use of the direct method of presenting statements of cash flows. However, SFAS 95 also requires that when the direct method of reporting cash flow from operating activities is used, a reconciliation of net income to net cash flow from operating activities shall be provided in a separate schedule. This reconciliation is presented below.  (e) Reconciliation  The effect of the differences between Canadian GAAP and U.S. GAAP on the consolidated financial statements is summarized as follows:  Consolidated Balance Sheets  2006Canadian GAAPAdj.
(a,b)U.S. GAAPMineral property interest acquisition costsPreviously reported$                -$               -$                 -Restated (b)-198,567198,567Share capital9,358,013142,5009,500,513Deficit(7,320,443)56,067(7,264,376)


49


RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    10. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING  PRINCIPLES IN CANADA AND THE UNITED STATES  (continued)  (e) Reconciliation  Consolidated Balance Sheets  2005Canadian GAAPAdj.
(b)U.S. GAAPMineral property interest acquisition costsPreviously reported$                -$               -$                 -Restated (b)-41,02541,025Share capital7,467,987-7,467,987Deficit(5,496,837)41,025(5,455,812)  Consolidated Statements of Operations  Previously reported200620052004Net loss under Canadian GAAP$(1,823,606)$(1,495,680)$    (901,405)Reversal of acquisition costs (b)157,54241,025-Impairment provision (b)(157,542)(41,025)Future income tax recovery (a)(182,500)--Deferred tax benefit (a)40,000--Net loss under U.S. GAAP$(1,823,606)$(1,495,680)$    (901,405)Weighted average number of shares outstanding under Canadian GAAP18,656,97417,231,84013,383,727Escrow shares-29,865209,865Weighted average number of shares outstanding under U.S. GAAP18,656,97417,201,97513,173,862Basic and diluted loss per share 
under U.S. GAAP($0.10)$(0.09)($0.07)


50


RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    10. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING  PRINCIPLES IN CANADA AND THE UNITED STATES  (continued)   Restated200620052004Net loss under Canadian GAAP$(1,823,606)$(1,495,680)$    (901,405)Net mineral property interest acquisition costs (b)157,54241,025-Future income tax recovery (a)(182,500)--Deferred tax benefit (a)40,000--Net loss under U.S. GAAP$(1, 808,564)$(1,454,655)$    (901,405)Weighted average number of shares outstanding under Canadian GAAP18,656,97417,231,84013,383,727Escrow shares-29,865209,865Weighted average number of shares outstanding under U.S. GAAP18,656,97417,201,97513,173,862Basic and diluted loss per share 
under U.S. GAAP($0.10)$(0.08)($0.07)  Consolidated Statements of Cash Flows (d) 200620052004Net loss under Canadian GAAP$(1,823,606)$(1,495,680)$    (901,405)Adjustments to reconcile net loss to net cash used by operating activitiesDepreciation33,98017,34453,920Foreign exchange losses8,1964,7137,519Reclamation obligations-35,363-Share-based compensation206,689292,149411,208Non-cash option proceeds(13,500)8,75017,500Non-cash mineral property acquisition costs49,264(63,500)(74,000)Gain (loss) on sale of marketable securities(68,672)(35,819)(54,842)Interest income(182,500)(69,715)(24,078)Increase in accounts receivable134,087(101,633)14,607Increase in prepaid expenses(9,307)8,078(4,678)Increase in project reclamation deposits15,700(24,200)(7,100)Increase in accounts payable / accrued expenses(30,796)68,822(22,058)Increase in exploration funding deposits(97,806)97,806-Total adjustments45,335238,158317,998Net cash used for operating activities$  (1,778,271)$   (1,257,522)$     (583,407)


51


RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    11. ENVIRONMENTAL  The Companys exploration activities are subject to various federal, provincial and state laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company conducts its operations so as to protect public health and the environment, and believes its operations are materially in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations. Managements current estimate of reclamation and other future site restoration costs to be incurred for existing mining interests has been included in these financial statements.  12. SEGMENT INFORMATION  The Company operates in one industry segment only within three geographical areas, Alaska, Canada and Nevada. All subsidiaries are operated as one entity with management in common located at the Companys head office.  The following table shows the cash attributable to each operating segment for the fiscal years ending January 31:  200620052004Canada$     2,797,535$    2,618,968$     838,342Alaska25,818105,11579,572Nevada12,674--$     2,836,027$     2,724,083$     917,914  All other significant assets, including equipment, are held in Canada.  The following tables show the net loss attributable to each geographic area, and the significant components thereof, for each fiscal year:  CanadaAlaskaNevadaTotalNet Loss for the year ended
January 31, 2006$ (1,317,545)$ (305,843)$ (200,218)$(1,823,606)included in Net LossMineral property revenue199,777--199,777Interest income67,69983713668,672Gain (loss) on marketable securities(49,264)--(49,264)Future income tax recovery182,500--182,500Amortization(33,980)--(33,980)Share-based compensation(206,689)--(206,689)


52


RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    12. SEGMENT INFORMATION  Net Loss for the year ended
January 31, 2005$ (1,477,656)$ 13,667$ (31,691)$(1,495,680)included in Net LossMineral property revenue319,20895,130-414,338Interest income69,67243-69,715Gain (loss) on marketable securities35,819--35,819Future income tax recovery----Amortization(17,344)--(17,344)Share-based compensation(292,149)--(292,149)  CanadaAlaskaNevadaTotalNet Loss for the year ended
January 31, 2004$ (875,048)$ (26,357)$          -$(901,405)included in Net LossMineral property revenue183,83439,792-223,626Interest income23,971107-24,078Gain (loss) on marketable securities54,842--54,842Future income tax recovery----Amortization(7,761)--(7,761)Share-based compensation(411,208)--(411,208)  Exploration expenditures on the Companys mineral properties by geographical segments are shown in the Consolidated Statement of Exploration Expenditures.


53


RIMFIRE MINERALS CORPORATION Notes to the Consolidated Financial Statements January 31, 2006, 2005 and 2004 (Expressed in Canadian Dollars)    13. SUBSEQUENT EVENTS  On March 28, 2006, the Company announced that a private placement has been negotiated to raise $2.55 million. The private placement will consist of 1,500,000 units at a price of $1.70 per unit with each Unit consisting of one common share and one non-transferable share purchase warrant ("Warrant"). Each Warrant entitles the holder to purchase, for a period of two years from the closing of the private placement, one  additional common share at a price of $2.00 per share in year one and $2.25 per share in year two. The Warrants will contain a provision whereby if, during the term of any unexercised Warrant commencing four months after the Closing, the common shares of the Company trade on any exchange for a period of 20 consecutive trading days at a price of $2.50 per share or greater in year one or $2.75 per share or greater in year two the Company may, at its option and by notice in writing to each holder, require the holder of the Warrant to exercise such Warrant within 30 days, failing which the Warrant will be deemed to have expired. The proceeds from the private placement financing will be used for continued exploration of the Company's mineral property interests, development of other projects and for general corporate purposes.  Subsequent to year-end, options to purchase 150,000 shares were exercised at prices ranging from $0.25 to $1.21. This increased the number of common shares issued and outstanding to 20,149,539 as of March 31, 2006.


54


RIMFIRE MINERALS CORPORATION   Management Discussion 
and Analysis    Form 51-102F1 For the year ended January 31, 2006


55  Management Discussion and Analysis RFM-2006   1.1 Date  The information in this form includes financial results for the year ending January 31, 2006 with other information current to April 30, 2006.  1.2 Overall Performance  Rimfire Minerals Corporation is a junior mineral explorer listed on the TSX Venture Exchange, trading under the symbol RFM. Rimfire explores for precious and base metals in British Columbia, Yukon Territory, Nevada and Alaska.  British Columbia remained the focus of Rimfires exploration efforts in 2005, with six active projects in the province. While traditionally focused on northern British Columbia, Yukon Territory and Alaska, the Company diversified its geographic presence with the commencement of fieldwork and project acquisitions in Nevada under the terms of the Walker Lane agreement with Newmont.  Opportunities to strengthen Rimfires presence and bring new exploration projects into the project pipeline in traditional target areas were acted upon, with the Company acquiring large land positions in the Pogo area of Alaska, the Wernecke Mountains, Yukon Territory, with new partner Fronteer Development Group, and southern British Columbia with the Jake acquisition.  To capitalize on the strong relationship with partner Northgate Minerals, the Company embarked on an alliance with Northgate to jointly generate and explore precious metals exploration targets in Canada, potentially adding another level of diversification to the Companys geographic spread.  Two additional technical staff were added to help administer these new projects and assist in generating new exploration targets. In support, Rimfires marketing activities have focused on messaging to existing and potential joint venture partners as well as the investing public.  2005 Exploration Overview  British Columbia  During 2005, three of the Companys projects were drilled by joint venture or option partners; RDN, Thorn and Tide. There were a total of 19 holes drilled totaling 3,093 metres. In addition, groundwork and geophysical surveys were completed on the Tide and Kizmet projects. The Company conducted geophysical and prospecting-mapping programs at the wholly-owned Williams property and preliminary field examination of the Jake property. Subsequent to year-end, a trenching and geophysical survey was conducted on the Jake property.   56  Management Discussion and Analysis RFM-2006   Alaska  The commencement of mining by Teck Cominco/Sumitomo at the Pogo Gold Mine and a gold discovery by AngloGold Ashanti NA in the Goodpaster District led Rimfire to re-interpret data from previous programs and newly published government surveys to define new targets within the district. Subsequently, the Company staked claims covering 53,695 ha (132,680 acres). The Company expects to have secured a partner to conduct regional exploration on these claims in 2006. Subsequent to year end, an agreement was completed with AngloGold Ashanti (U.S.A.) Exploration Inc. to reacquirethe Eagle and ER-Ogo-Fire properties subject to a net smelter royalty.  Nevada  During the first half of the year, the company identified potential targets for exploration and conducted limited field examinations under the Walker Lane Exploration Alliance with Newmont Capital Limited. A total of 136 claims were staked in the Poncho-Crow project area and the company is negotiating to acquire existing claims in the same area. The company expects to conduct surface programs and a drill program on the claims in 2006.  Yukon Territory  In January 2006, the Company signed an agreement jointly with Fronteer Development Group Inc (Fronteer) to acquire 700 mineral claims and a proprietary geoscience dataset, covering a large region of the northern Yukon known as the Wernecke Breccias, from Newmont Exploration Canada Limited and NVI Mining Ltd., a subsidiary of Breakwater Resources Ltd. Fronteer, as project operator, staked additional claims under the agreement and will undertake exploration work in 2006.  Financial Overview for Fiscal Year Ended January 31, 2006  The Company completed one financing in 2005 consisting of 400,000 flow-through shares at $1.25. This provided $500,000 to be used for exploration at the Williams and Thorn properties within BC. The strategic advantage of this placement was to interest institutional investors in the Company.  Exploration expenditures were almost the same in the current year as they were in the previous fiscal year but the options proceeds, exploration tax credits and joint venture reimbursement were significantly less. This resulted in an overall increase in mineral property costs of approximately one-third from the previous year. The Company expanded the number of exploration projects and increased Company participation in existing projects. During 2006, the Company will be participating in an exploration alliance with Northgate Minerals which will maintain the current level of exploration expenditures.   57  Management Discussion and Analysis RFM-2006   General and administrative expenditures have increased slightly from the previous year for two reasons. Audit and legal costs have increased by 50%. Part of this is due to the increased work required to comply with new auditing regulations and part is due to increased corporate governance and oversight requiring knowledge of regulations and statutes. The second factor increasing administrative costs is the addition of two geologists to the staff part way through the year. This increases the Companys ability to manage existing projects as well as to generate new project ideas and the resources to carry them out.  The Companys working capital as of January 31, 2006 was $2,905,645, comprised primarily of term deposits and other forms of cash, compared to $2,844,579 at the end of the previous fiscal year. This is sufficient to complete the planned exploration initiatives for the current year without a requirement for additional financing.  1.3 Selected Annual Performance  The selected consolidated financial information set out below has been obtained from financial statements, which reflect the Companys operations in the mineral exploration business.  The following table summarizes information pertaining to operations of the Company for the last three fiscal years ended January 31, 2006. These results have been restated in accordance with the Companys use of the fair value method of accounting for stock option compensation that was adopted January 31, 2004:  200620052004Mineral property revenues$   199,777$   414,338$      223,626Net Income (Loss)(1,823,606)(1,495,680)(901,405)Per Share(0.10)(0.09)(0.07)Total assets3,095,4883,153,0251,176,633Long-Term Liabilities35,36335,363NILCash dividends declaredNILNILNIL  The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada, which conform in all material respects with accounting principles generally accepted in the United States of America, except as described in Note 10 to the consolidated financial statements and which include the following significant policies:  · Marketable securities are recorded at acquisition cost and are written down to market value when declines in value are significant and other than temporary. · The Companys mineral property interests are composed of mineral properties owned by the Company and rights to ownership of mineral properties, which the Company can earn through cash or share payments, incurring exploration expenditures and combinations thereof. The Company accounts for its mineral property interests whereby all acquisition and exploration costs are charged to expense as incurred and all property sales and option proceeds received are credited to income. When the existence of a mineral reserve on a property has been established, future acquisition, exploration and  58  Management Discussion and Analysis RFM-2006   development costs will be capitalized for that property. After commercial production on the property commences, the net capitalized costs will be charged to future operations using the unit of production method based on estimated recoverable reserves on the property. · When options to purchase shares are issued to employees or directors, the fair value of the options on the date of the grant is recognized as compensation expense, with a corresponding increase in contributed surplus, over the period during which the related options vest. When options to purchase shares are issued to non-employees in return for goods and services, the fair value of the options issued is recognized as an expense, with a corresponding increase in contributed surplus, in the period in which the goods or services are received or are expected to be received. The consideration received on the exercise of share options is credited to share capital. When options are exercised, previously recorded compensation is reclassified from contributed surplus to share capital to fully reflect the consideration for the shares issued. · The Company follows the asset and liability method of accounting for income taxes.  Under this method, future income tax assets and liabilities are recorded based on temporary differences between the carrying amount of balance sheet items and their corresponding tax bases.  In addition, the future tax benefits of income tax assets, including unused tax losses, are recognized, subject to a valuation allowance, to the extent that it is more likely than not that such future benefits will ultimately be realized.  Future income tax assets and liabilities are measured using substantively enacted tax rates and laws expected to apply when the tax liabilities or assets are to be either settled or realized. · Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the rate of exchange prevailing at the balance sheet date. Non-monetary assets and liabilities are translated using historical rates. Revenue and expense items are translated at exchange rates prevailing at the time of the transaction. Foreign exchange gains and losses are included in the determination of income. · The basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year. The diluted loss per share reflects the potential dilution of common share equivalents, such as the convertible notes payable and outstanding stock options, in the weighted average number of common shares outstanding during the year, if dilutive. For this purpose, the if converted method is used for the assumed conversion of the convertible notes payable at the beginning of the year. In addition, the treasury stock method is used for the assumed proceeds upon the exercise of stock options that are used to purchase common shares at the average market price during the year. Common share equivalents have been excluded from the computation of diluted earnings per share for the periods presented as including them would have been anti-dilutive.   59  Management Discussion and Analysis RFM-2006   1.4 Results of Operations  For the year ended January 31, 2006, Rimfire incurred a net loss of $1,823,606 ($0.10 per share) compared to a net loss of $1,495,680 ($0.09 per share) in the previous year. Revenue declined by $15,848 as interest revenue remained steady but joint venture management fees decreased due to reduction in number of projects under management. Completion of earn-in on the Thorn property contributed to a decline in option proceeds from $358,630 for the year ended January 2005 to $163,500 for the current year.  The major increases in general and administrative expenses are for rent and salaries and support services. Rent during the year increased from $39,172 in 2004 to $63,832 in 2005 as office renovations were completed at the end of the first quarter allowing more office space for the use of Company staff. Salaries and support services increased from $163,503 in 2004 to $255,550 in 2005. This reflects the addition of two fulltime staff members and additional support services provided by Equity Engineering Ltd.  Investor services expense has been split into two components to reflect the re-alignment of marketing strategies. Investor services expense includes only the costs required to maintain a public listing and to provide services to current shareholders. This includes listing fees and transfer agent costs. Marketing expense includes the costs to provide information to new and existing shareholders as well as trade show participation intended to raise the companys profile in the marketplace. Prior results have been reclassified to conform to the new presentation. Total expenditures on both components are reduced in the current year. The change to a strategic marketing focus rather than trade show participation is primarily responsible for the changes in expenditures.  Accounting and legal costs are sharply increased for the current year. Part of this is based on increased audit procedures required to comply with changes in accounting and auditing standards. It is anticipated that there will be an increase of approximately 20% in the amount of time involved in the audit. The second factor is the number and complexity of property option and exploration agreements undertaken by the company during the year. Most of these costs are included in acquisition costs for the individual properties but some are corporate expenses related directly to setting up a new subsidiary to hold claims in Nevada.  Exploration expenditures, excluding those by joint-venture partners, totaled $1,116,172 ($1,105,733), and property acquisition costs totaled $202,167 ($217,385). These costs were offset by joint venture reimbursements totaling $33,988 ($145,641.) The British Columbia Mineral Exploration Tax Credit Program will reimburse the Company for 20% of eligible expenditures in that jurisdiction. For the fiscal year ended January 31, 2006, exploration tax credits are only $18,736 since the remainder of exploration expenditures were renounced to flow-through investors from the private placement completed during the second quarter.   60  Management Discussion and Analysis RFM-2006   Several factors come into play when comparing current fiscal year exploration expenditures to previous years. The first is the companys decision to undertake geophysical and geochemical surveys on the Williams property. This program accounted for one-fifth of the companys exploration expenditures. Another factor was the acquisition of new claims in the Goodpaster region of Alaska. Exploration work in Nevada for the Walker Lane Alliance project also increased total exploration expenditures for the current fiscal year. The final factor was completion of earn-in for the Thorn property requiring the Company to pay 49% of exploration expenditures. British Columbia expenditures were financed with a flow-through share placement which reduced mineral exploration tax credits which otherwise would have offset 20% of the expenditures.  The Corporation is in the exploration stage and its properties are presently without a known body of commercial ore. Its principal mineral properties are the following:  British Columbia  RDN  The RDN Property is located in the Liard Mining Division of British Columbia, approximately 120 kilometres northwest of Stewart, British Columbia. This property, covering approximately 10,139 hectares, is currently optioned to Northgate Minerals Corporation. The RDN property has had a protracted history of exploration; beginning in the late 1980s and spurred on in the 1990s by the discovery of gold-silver-rich massive sulphide in similar rocks at Eskay Creek, 50 kilometres to the south. The RDN property is largely underlain by Jurassic Hazelton Group stratigraphy similar in age, lithology and geochemistry to the Eskay Creek volcanogenic massive sulphide (VMS) deposit. Late in the year, the company acquired the LL property which surrounds the north end of the RDN property.  In the 2005 program, six drill holes were completed for a total of 1,470 metres in two target areas: Blind Fault and Arctic Grid. Drilling at the Arctic Grid target intersected stratigraphy equivalent in age and geological setting to that hosting the Eskay Creek deposit. Three holes in the Blind Fault area targeted a 300 x 50 metre zone of vein and disseminated silver-lead-zinc mineralization in volcanic and sedimentary rocks where native silver was discovered in 2004. Continuous surface channel sampling in 2005 returned 24.7 metres averaging 24.9 g/t silver. Hole RDN05-42 intersected three silver-bearing intervals. Based on the geological similarities to Eskay observed on surface and in drill holes, Northgate has expressed its intent to continue exploring the property for gold-silver rich massive sulphide deposits in 2006. The 2006 program, budgeted at $1 million, will consist of airborne geophysical surveys, groundwork and drilling at the Arctic Grid.  The work program was conducted by Equity Engineering Ltd. under the direction of Murray Jones, P.Geo. ALS Chemex Labs Ltd. of North Vancouver analyzed drill core samples as well as the rock samples. A technical report has been filed on SEDAR.   61  Management Discussion and Analysis RFM-2006   Thorn  The Thorn Property is located in the Atlin Mining Division of British Columbia, approximately 120 kilometres northwest of Telegraph Creek. This property, covering 15,583 hectares, is a joint venture with Cangold Limited who has acquired a 51% interest in the property. The Thorn high-sulphidation vein system is hosted by feldspar-quartz-biotite-phyric diorite of the Late Cretaceous (ca. 91 Ma) Thorn Stock, which intrudes Upper Triassic Stuhini Group volcanic and sedimentary rocks. These high-sulphidation silver-gold-copper-bearing veins represent the prime exploration targets on the Thorn property. Lesser focus will be placed on the Oban Zone, although potential for additional breccia pipes should be considered.  The main aspects of the 2005 exploration program included 17.4 line-kilometres of IP geophysical surveying and 655.8 metres of drilling in five holes. The 2005 IP helped to further outline and define the Talisker Zone, and located two new anomalies further north: the Balvenie and Cutty Sark Zones. Geological mapping and rock sampling during 2005 focused on the margins of the Thorn Stock and the overlying Windy Table Formation volcanic units as recent age dating of these rocks revealed that they may be affected by mineralizing events at the Thorn.  Two holes were drilled at the Talisker Zone, which has now been extended over a strike length of at least 200 metres with intercepts in both 2005 step out holes including 4.2 metres of 4.44 g/t gold, 407.9 g/t silver and 2.95 % copper in THN05-37. Two holes, which tested the new IP target at the Cutty Sark anomaly, intersected the first occurrences of lithologically controlled alteration on the property. One hole tested the far eastern extent of the Balvenie Zone, another vein system parallel to the Talisker Zone.  The drilling and sampling programs were conducted under the direction of Robert Brown, P.Geo. ALS Chemex Labs Ltd. of North Vancouver analyzed drill core samples as well as the rock, soil and silt samples. A technical report has been filed on SEDAR.  Tide  The Tide Property is located in the Skeena Mining Division of British Columbia, approximately 36 kilometres north of Stewart, British Columbia. This property, covering 2,960 hectares, is currently optioned to Serengeti Resources Inc. The Tide property lies in the heart of the Early Jurassic Stewart-Unuk-Iskut metallogenic belt, which hosts a number of silver-gold+copper vein and porphyry deposits associated with 193-198 Ma porphyritic intrusives,   62  Management Discussion and Analysis RFM-2006   The primary focus of the 2005 drilling was to follow up the 2004 drilling discovery of gold mineralization at the 36 Zone. Eight holes totaling 967 metres were drilled, four targeting the 36 Zone and four targeting the 52 Zone. The holes in the 36 Zone had mineralized intervals which extended the zone to the northeast, southwest and in depth. Infill soil geochemical sampling between the 36 Zone and the South Pit soil anomalies to the south showed that the two anomalies are continuous as defined by gold values in excess of 500 ppb (0.5 g/t) gold. This gold-arsenic+/-antimony anomaly is now approximately 500 metres by 2100 metres in size, with diamond drilling having tested an area of 170 by 350 metres. Favourable results from preliminary metallurgical studies show that this mineralization is amenable to leaching, with gold recoveries averaging 73-81%. Prospecting and trenching were completed at the 52 Zone. The diamond drilling, combined with the surface results, has shown mineralization in this zone to be highly variable in nature.  The drilling and sampling programs were conducted under the direction of Henry Awmack, P.Eng. ALS Chemex Labs Ltd. of North Vancouver analyzed the samples. A technical report has been filed on SEDAR.  Williams  The Williams Property, covering 10,727 hectares, is located in the Liard Mining Division of British Columbia, approximately 150 kilometres southeast of Dease Lake, British Columbia and 330 kilometres north of Smithers. The Williams property covers two distinct gold-bearing prospects in north-central British Columbia. The T-Bill prospect is a 3 km2area of carbonate-sericite alteration, highly anomalous gold-arsenic soil geochemistry and gold-bearing quartz-sulphide veining. Drilling by Cominco and Du Pont in 1983 and 1984 intersected six separate two-metre intercepts grading greater than 15 g/tonne gold. A single 2003 drill hole (WG03-10) oriented to better intersect this structural corridor intersected four separate vein zones. The GIC prospect, located three kilometres to the north, is a previously unrecognized porphyry gold-copper target consisting of a poorly explained 0.7 km2 gold-copper soil geochemical anomaly centred on a prominent gossan.  The 2005 exploration program focused on the GIC prospect. Mapping, prospecting, and soil sampling followed by geophysical surveys outlined a compelling new copper-gold porphyry target. Induced Polarization (IP) surveys at the GIC prospect identified a strong 600 by 1800 metre chargeability high anomaly coincident with and adjacent to known gold and copper mineralization. A 500 x 1,400 metre, east-west trending copper soil geochemical anomaly, enclosing two discrete 300 x 500-750 metre gold soil anomalies lies to the north, partially overlapping the northern edge of the GIC chargeability anomaly. The rest of the geophysical anomaly is masked by glacial till except for an isolated outcrop where a chip sample returned 0.22 % copper and 0.22 g/tonne gold over 3.73 metres. Several gossans lie within the soil anomaly.  The sampling programs were conducted by Equity Engineering Ltd. under the direction of Henry Awmack, P.Eng. ALS Chemex Labs Ltd. of North Vancouver analyzed the samples. A technical report has been filed on SEDAR.   63  Management Discussion and Analysis RFM-2006   Kizmet Project  The Kizmet Project, formerly called the Sutlahine, is a joint venture with Barrick Gold Corporation. Rimfire staked the SUTL and LJ claims to the northwest of the Thorn property, based on favourable regional geochemical stream sediment survey data and similar geology to that of the Thorn property. The Company contributed claims totalling 27,939 hectares to the joint venture while Barrick contributed claims covering an area of 67,865 hectares. In January 2006, the number of claims was reduced to 93 totalling 34,078 hectares.  Barrick conducted a prospecting, mapping and stream sediment sampling program that identified several anomalous areas that will require more detailed work. A technical report has not been filed on the Kizmet Project.  Jake Property  The Jake Property, covering 37,237 hectares, is located in Kamloops Mining Division of British Columbia, approximately 13 kilometres west of Clearwater, BC. The Company signed an option agreement effective October 29, 2005 to earn a 100% interest in the Jake claims (1,204 hectares), subject to a 4% NSR, half of which can be purchased for US$2 million. The Company will make cash payments totalling USD$300,000 and complete an aggregate of $300,000 (Canadian) in exploration expenditures before October 29, 2009. The surrounding claims were staked to cover geology prospective for high grade intrusion related gold mineralization. In March 2006, the Company undertook an initial ground magnetics and VLF electromagnetics survey to identify targets for additional exploration later in the year. Mechanical trenching was conducted at the original discovery exposing six veins over the length of the 74 metre trench. The results of this survey have not yet been compiled.  Expenditures by the Company on the British Columbia properties during the fiscal year ended January 31, 2006 were:    JakeKizmetRDNThornTideWilliamsAcquisition costs$14,256$  7,806$   31,342$ 15,665$            -$     5,000Exploration costsAircraft and helicopter-840-109,121-46,761Camp28576228730,96132615,062Chemical analysis440--11,594-5,969Drafting-200-3,063502,625Drilling & trenching---49,763--Equipment rentals454621501,042616,040Freight---8,964-2,220Geological & engineering5,9225,2545,09196,1117,68446,099Geophysical surveying---28,044-40,878Maps and reproductions4069881,4916022,144Materials---13,985-4,886  64  Management Discussion and Analysis RFM-2006    Project management4827852,8457818,321Recording and filing14,4732,007703,462-16,294Travel1831,9621467,2571121,54421,80211,6125,760417,7038,913208,843Exploration tax credits(263)(717)(106)(2889)(997)(13,762)Joint venture payments-(560)(18,042)(5,465)(364)-21,53910,335(12,388)409,3497,552195,081Option proceeds-(75,000)(40,000)-(48,500)-Cumulative Net ExpendituresBeginning of Year-185,321800,676665,276(59,978)190,955Property write-down or abandonment----(1,719)-End of Year$  35,795$  128,462$ 779,630$ 1,090,290$(102,645)$ 391,036  United States  Alaska Properties  The Alaska Properties, located in the Goodpaster Mining District, Alaska, 65 kilometres northeast of Delta Junction, consist of six claim groups totaling 74,000 ha (182,800 acres). The ER-Ogo-Fire and Eagle claim groups were optioned to AngloGold (U.S.A) Exploration Inc. Effective December 31, 2005, an agreement was negotiated to re-acquire 100% interest in the claims subject to a 2% NSR. The Bou, Hawk, Swede and California-Surf groups are wholly owned by Rimfire Alaska, Ltd. Two distinct, but related, target types have emerged on these properties: (1) high-grade, structurally-related gold-quartz veins, and; (2) lower-grade bulk tonnage sheeted vein systems. Each of the claim groups has demonstrated multi-element silt and soil geochemical anomalies and/or gold-bearing rock samples, providing abundant justification to carry out extensive exploration on each of the properties.  Late in the year, data from previous programs and newly published government surveys was re-interpreted and new targets defined. Subsequently, the company staked 842 claims covering 53,695 ha (132,680 acres). The Company expects to conduct regional exploration on these claims in 2006 on its own behalf or under an option or joint venture agreement if a partner is secured.  A technical report for the Alaska properties has been filed on SEDAR. The Qualified Person for this property is Mark Baknes, P.Geo. Vice President, Exploration for the Company.   65  Management Discussion and Analysis RFM-2006   Walker Lane  Walker Lane Exploration Alliance with Newmont Mining Corporation targets a defined project area in Nevadas Walker Lane Mineral Belt. The company has access to Newmont's geological, geochemical and geophysical databases for the project area, as well as dedicated technical assistance and the use of Newmont's "neural network" (pattern recognition) target map.  During the first half of the year, the company identified potential targets for exploration and conducted limited field examinations. During the third quarter, 65 claims (526 ha, 1300 acres) were staked in one project area. Subsequent to year end an additional 71 (568 ha, 1404 acres) claims were staked adjoining the original group. The Company is negotiating with a third party for additional claims in the area. This acquisition is expected to be completed after the date of this report. No detailed property work on the Walker Lane projects has been completed; however, the company expects to conduct surface programs and a drill program on the claims in 2006. A technical report has not been filed. The Qualified Person for this property is Mark Baknes, P.Geo. Vice President, Exploration for the Company.  Expenditures by the Company during the fiscal year ended January 31, 2006 (all amounts in Canadian Dollars) were:  AlaskaWalker LaneAcquisition costs$ 104,692$13,323Exploration costsAircraft and helicopter13,097-Camp1,42421,268Chemical analysis-19,922Drafting2,994555Drilling & trenching--Equipment rentals-7,406Freight-166Geological and engineering18,80992,422Geophysical surveying--Maps and reproductions1,8525,057Materials2,5762,684Project management569282Recording and filing153,46516,144Travel-16,041194,786181,947Exploration tax credits--Joint venture payments--194,786181,947  66  Management Discussion and Analysis RFM-2006    Option proceeds--Cumulative Net ExpendituresBeginning of Year23,62128,644End of Year$   323,099$   223,914   Yukon Territory  Wernecke Breccias  In January 2006, the Company signed an agreement jointly with Fronteer Development Group Inc (Fronteer) to acquire 700 mineral claims and a proprietary geoscience dataset, covering a large region of the northern Yukon known as the Wernecke Breccias, from Newmont Exploration Canada Limited (Newmont) and NVI Mining Ltd., a subsidiary of Breakwater Resources Ltd. (NVI). Fronteer has staked additional claims under the agreement. There is a 7.5% to 15% Net Profits Interest payable to the underlying vendors.  Fronteer will be operator for the project and will undertake exploration work in 2006.  Other Properties  The Companys other mineral property interests are:  · The Adam Property, covering 1,823 hectares, is located in the Skeena Mining Division of British Columbia, approximately 70 kilometres northwest of Stewart. The Company owns 100% of these claims.  · The Fer Property, consisting of 118 claims, is located in the Watson Lake Mining District of Yukon Territory, approximately 20 kilometres west of Tungsten in the Northwest Territories and approximately 200 kilometres north of Watson Lake, Yukon Territory. The Company owns a 51% interest in these claims.  · The Simpson Property, consisting of 8 claims, is located in the Watson Lake Mining District of Yukon Territory, approximately 105 kilometres northwest of Watson Lake, Yukon Territory. The Company owns 100% of these claims.  · The Yukon Targeted Exploration Initiative was a joint venture with Newmont Canada Limited focused on grass-roots exploration within a defined area. Costs incurred during 2005 were shared equally between the two companies. No claims have been staked within this defined area.   67  Management Discussion and Analysis RFM-2006   The following table shows the detailed expenditures for the Companys other properties during the fiscal year.  AdamFerWerneckeYukon TargetedOtherAcquisition costs$       -$       -$   9,091$         -$     992Exploration costsAircraft and helicopter----1,661Camp-133831,637294Chemical analysis----826Drafting---2,100350Drilling & trenching-----Equipment rentals----535Freight-----Geological & engineering2,358-3817,06832,744Geophysical surveying-----Maps and reproductions8-641,281410Materials---2132Project management---986288Recording and filing-10,500---Travel----8842,36610,63352813,28537,994Exploration tax credits(2)----Reclamation obligation-----Joint venture payments-(7,306)-(1,140)(1,111)2,3643,32752812,14536,883Option proceeds-----Cumulative Net ExpendituresBeginning of Year60,336100,802-185,45083,004Property write-down or abandonment---(197,595)(69,696)End of Year$62,700$104,129$9,619$         -$    51,183   The notes accompanying the consolidated financial statements contain additional details regarding option or joint venture agreements for each property.   68  Management Discussion and Analysis RFM-2006   At present, the Corporation does not intend to undertake any exploration at its own expense on the RDN, Tide, Adam, or Yukon Properties for the 2006 fiscal year. Option agreements in place require other corporations to complete exploration programs on some of these properties.  In the event that joint venture partners are not obtained for the remaining properties, the Corporation may pay the required carrying costs from working capital or allow these claims to be returned to the vendor or be forfeited to the State, Province or Territory as the case may be.  Cangold is the operator for the Thorn property and the Company will have the option to contribute 49% of the expenditures for the project or face dilution of the Companys interest at the rate of 1% reduction for each $50,000 of the proportionate share of the program in which the company does not participate.  1.5 Summary of Quarterly Results  The following table summarizes information regarding the Company's operations on a quarterly basis for the last two fiscal years.  Quarter
EndedMineral Property
RevenueIncome
(loss)Income (loss)
per shareJanuary 31, 2006$    124,943$    (515,970)$    (0.03)October 31, 200518,353(513,695)(0.03)July 31, 200515,891(567,371)(0.03)April 30, 200540,590(226,570)(0.01)January 31, 200589,691(680,298)(0.04)October 31, 2004184,254(307,839)(0.02)July 31, 200454,516(299,310)(0.03)April 30, 200485,877(208,233)(0.01)  Expenditures generally exhibit a seasonal variation being lower in the first and last quarters and higher during the second and third quarters of each year. This variation is due to the climate where exploration is taking place, which restricts exploration to the summer months. The reported figures as shown above have some of this seasonality masked by share-based compensation awards.  1.6 Liquidity  The Companys working capital as of January 31, 2006 was $2,905,645, comprised primarily of term deposits and other forms of cash, compared to $2,844,579 at the previous fiscal year end. The Company expects that current working capital will be sufficient for the 2006 and 2007 fiscal years.   69  Management Discussion and Analysis RFM-2006   The Companys issued and outstanding shares stood at 19,999,539 at January 31, 2006. The placements completed during the second quarter and exercise of share purchase warrants represents most of the increase from the 17,855,220 common shares that were issued and outstanding at the previous fiscal year-end. During the year, 150,000 employee stock options were granted and 600,000 options were exercised. 980,000 previously granted director and employee options exercisable before December 2009 remain outstanding. If all remaining options are exercised, a maximum of $1,114,525 will be added to Rimfires treasury, and shares outstanding will total 21,129,539.  The Companys financial instruments are all fully cashable at any time so there are no restrictions on availability of funds. There is no long-term debt. The Companys current obligations include rent on office premises which requires 6-month written notice. The other current obligations are statutory withholding and payroll taxes.  1.7 Capital Resources  The companys primary capital assets are mineral property interests. The company expenses all costs related to mineral properties so they do not appear on the Companys balance sheet as an asset.  None of the property agreements are binding on the Company or on the Companys option partners, with the exception of the Walker Lane Alliance where total expenditures shown below are required by the agreement. If management chooses to continue with exploration, the following schedule of payments will be required in the next year:  PropertyAmountDate of paymentAdamNilAlaska propertiesProject exploration $105,500 USD
(approximately $124,500 CAD)
Claim rental - $91,180 USD (approximately $107,600 CAD)
Assessment & filing - $3,347 USD
(approximately $3,850 CAD)August 31, 2006

November 30, 2006
November 30, 2006Fer51% of cash in lieu and filing $5,355June 10, 2006JakeCash payment of $20,000 USD
(approximately $22,878 CAD)
Exploration totalling $100,000 CADOctober 29, 2006
October 29, 2007KizmetNil  70  Management Discussion and Analysis RFM-2006    Northgate Alliance50% of compilation and exploration to a maximum of $150,000July 31, 2006RDNNilThornNilTideNilWalker LaneClaim rental fee $17,000 USD
(approximately $20,800 CAD)
Project exploration totalling $300,000 USD
(approximately $376,750 CAD)August 31, 2006

December 31, 2006Wernecke BrecciasNilWilliamsAdvance royalty payment - $5,000December 15, 2006  All of these payments can be made from current assets without any requirement to pursue additional financing.  1.8 Off-Balance Sheet Arrangements  The Company does not utilize off-balance sheet arrangements.  1.9 Transactions with Related Parties  The Companys mineral property evaluation and exploration projects are managed by Equity Engineering Ltd. (Equity), a company indirectly owned and operated by officers and directors of the Company. Balances payable to Equity for fees and reimbursement of costs incurred on behalf of the Company have been separately disclosed in the financial statements as Payable to Related Party. Fees charged to the Company by Equity are on the same basis as those charged by Equity to unrelated third parties.   71  Management Discussion and Analysis RFM-2006   During the fiscal year ended January 31, 2006, the company paid Equity $206,763 (2005 - $431,996) for geological consulting services, excluding costs paid by joint venture partners, and $244,871 (2005 - $203,098) for providing general corporate and administrative services. General corporate and administrative services provided by Equity during the period consisted of the following: $1,117  insurance (2005 - $14,457) $4,279 - investor services (2005 - $3,711); $99,305- management services (2005 - $96,462); $5,810  office (2005 - $12,026); $62,696 rent (2005 - $39,172); and $71,663 - support services (2005 - $37,270). Increases in rent reflects the additional office space occupied by the companys employees while the cost of support services reflects additional administrative support as well as increased salaries for support personnel. The company now purchases general liability and property insurance independently from Equity Engineering Ltd, so this amount is no longer paid to a related company.  It is anticipated that Equity will continue to provide geological consulting and administrative support services to the Company from time to time, and Equity will be remunerated for such services at standard commercial rates.  Equity Engineering Ltd. is one of the underlying vendors who own a 7.5 to 15% Net Profits Interest (NPI) for the Wernecke Breccia property. Equitys share of the NPI is 40%. In addition, two of the directors and officers each own 20% of a different company which is entitled to 10% of the NPI.  1.10 Fourth Quarter  The Company has an incentive stock option plan for directors and employees. During the fourth quarter, the directors authorized the granting of most of the remaining stock options available under the plan. Since the company has adopted a policy of accounting for share-based compensation at fair market value, this resulted in a significant increase in expense for the fourth quarter. Addition of two full-time geologists also increased the costs for salaries and support.  Exploration expenses during the fourth quarter were lower than in the previous year because field work, specifically drilling, was carried out in early to mid-November 2004. However, acquisition expenditures were higher in the current year than they were in the previous year because the Company staked a large block of claims in Alaska and finalized several exploration agreements during the fourth quarter.  Reclamation obligations for each property with substantial exploration programs under the direction of the Company were re-evaluated to determine if allowances which had been previously estimated were still valid. The only changes in the amount of the estimate were related to use of current interest rates for the discount rate. This did not result in a significant change to the estimates. When the reclamation activities are completed, this liability will be reduced by the actual costs incurred with any variance reported as reclamation obligation expense in that period. Several properties do not have reclamation obligations accrued as yet since no exploration work has been undertaken.   72  Management Discussion and Analysis RFM-2006   1.11 Proposed Transactions  On March 28, 2006 the Company announced that a private placement has been negotiated to raise $2.55 million. The private placement will consist of 1,500,000 units at a price of $1.70 per unit with each unit consisting of one common share and one non-transferable share purchase warrant ("Warrant"). Each Warrant entitles the holder to purchase, for a period of two years from the closing of the private placement, one additional common share at a price of $2.00 per share in year one and $2.25 per share in year two. The Warrants will contain a provision whereby if, during the term of any unexercised Warrant commencing four months after the Closing, the common shares of the Company trade on any exchange for a period of 20 consecutive trading days at a price of $2.50 per share or greater in year one or $2.75 per share or greater in year two the Company may, at its option and by notice in writing to each holder, require the holder of the Warrant to exercise such Warrant within 30 days, failing which the Warrant will be deemed to have expired. The proceeds from the private placement financing will be used for continued exploration of the Company's properties, development of other projects and for general corporate purposes. This financing closed on April 13, 2006 with gross proceeds of $2,550,000. Share issue costs will be approximately $162,000. Common shares issued and outstanding has been increased to 21,721,539. There were 1,572,000 share purchase warrants issued. 140,000 Brokers warrants at an exercise price of $1.70 were issued in conjunction with the placement. The expiry date for all warrants is April 13, 2008.  1.12 Critical Accounting Estimates  Not applicable  1.13 Changes in Accounting Policies including Initial Adoption  Flow-through shares transfer the tax benefits of Canadian exploration expenditures from the Company to the individual investor. As a result, the Company may be liable for future income taxes. Accounting recommendations of the Canadian Institute of Chartered Accountants require that the cost of future income taxes related to the resulting temporary difference is recorded as a cost of issuing the securities to the investors on the date when the forms renouncing the expenditures are filed. This policy came into effect for all shares issued after March 19, 2004. The company issued flow-through shares in June 2005 and renounced the expenditures in January 2006; therefore this policy was implemented for the fiscal year ended January 31, 2006.  1.14 Financial Instruments and Other Instruments  The company does not employ a hedging strategy or a foreign exchange protection strategy. The majority of the Companys income and expenses are denominated in Canadian dollars. The income which is received in U.S. Dollars is preserved in a U.S. Dollar account for use in paying U.S. Dollar denominated expenses.   73  Management Discussion and Analysis RFM-2006   1.15 Other Requirements  The Company has filed an alternative form of Annual Information Form on SEDAR at www.sedar.com. The Company also files technical reports on all material properties, press releases and material change reports on SEDAR. The company is a foreign private issuer as defined by the Securities and Exchange Commission in the United States. As such, the Company files an annual report on Form 20-F and interim reports and other filings on Form 6-K. These reports are available on EDGAR at www.sec.gov/edgar.shtml. Additional information about the company can be accessed at the companys website (www.rimfireminerals.com.)  Additional Disclosure for Venture Issuers without Significant Revenue  Please refer to the Statement of Loss and Deficit and Note 5 in the financial statements regarding the components of general and administrative and exploration costs for the Companys mineral property interests.  Disclosure of Outstanding Share Data  Please refer to Note 6 of the financial statements for details of share issues prior to January 31, 2006. Subsequent to year-end, 150,000 share purchase options were exercised at prices of $0.25 to $1.21. 1,572,000 shares were issued pursuant to the private placement. This increased the number of common shares issued and outstanding to 21,721,539 as of April 30, 2006.  Forward-Looking Information  This MD&A may contain certain forward-looking statements. These forward-looking statements include estimates, forecasts, and statements as to managements expectations with respect to, among other things, future metal production and production costs, potential mineralization and reserves, exploration results, progress in the development of mineral properties, demand and market outlook for commodities and future plans and objectives of Rimfire Minerals Corporation. Forward-looking statements generally can be identified by the use of forward-looking terminology such as may, will, expect, intend, estimate, anticipate, believe, or continue or the negative thereof or variations thereon or similar terminology. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management are inherently subject to significant business, economic and competitive uncertainties and contingencies. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Rimfire expressly disclaims any intention, or obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  74    RIMFIRE MINERALS CORPORATION  Schedule II - Valuation Allowance    ClassificationBalance at beginning of yearAdditions charged to costs and expenses [1]Deductions[2]Balance at 
end of yearValuation Allowance for Deferred Tax Assets:Year Ended2006$   (1,556,483)$   (346,151)$   82,792$   (1,819,842)2005(1,063,380)(514,371)21,268(1,556,483)  [1] The 2006 and 2005 increases in the valuation allowance for deferred tax assets are related to the tax effect of current period losses and deductible temporary differences. [2] The decrease in valuation allowance for deferred tax assets reflects changes in the enacted tax rate applicable to the Company.   75