UNITED
      STATESSECURITIES
      AND EXCHANGE COMMISSIONWashington,
      D.C. 20549FORM
      10-K[X]
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934For
      the fiscal year ended:
            December
      31, 2009OR[  ]
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934For
      the transition period from:
            
            toCommission
      File Number 0-50218BEKEM
      METALS, INC.(Exact
      name of registrant as specified in its charter)Utah
            
            87-0669131(State
      or other jurisdiction of incorporation of organization)
            
            (I.R.S.
      Employer I.D. No.)149
      Kyz Zhibek Street, Office 11
            
            050020Almaty,
      Kazakhstan
            
            (Zip
      Code)(Address
      of principal executive offices)Registrant’s
      telephone number including area code:
            +7
      7272 279405Securities
      registered pursuant to Section 12(b) of the Act:
            NoneSecurities
      registered pursuant to Section 12(g) of the Act:$.001
      par value, common voting shares(Title
      of class)




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as
      defined in Rule405 of
      the Securities Act.
              Yeso
          NoxIndicate
      by check mark if the registrant is not required to file reports pursuant
      to Section 13 or15(d)
      of the Exchange Act.
              Yes
      o
          No xIndicate
      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 past 12 months (or for such shorter period that the registrant
      was required to file such reports), and (2) has been subject to such
      filing requirements for the past90
      days.
              Yes
      x
          No oIndicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the
      best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-K or any
      amendment to thisForm
      10-K.
              oIndicate
      by check mark whether the registrant is a large accelerated filed, an
      accelerated filer, a non-accelerated filer or a smaller reporting company.
      See the definitions of “large accelerated
      filer,” “accelerated filer” and
      “smaller reporting
      company” in Rule 12b-2 of the Exchange
  Act.
  Large
      accelerated filer o
                Accelerated
      filer oNon-accelerated
      filer o
                Smaller
      reporting company x(Do
      not check if smaller reporting company)
 Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the ExchangeAct.
              Yeso
          NoxThe
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common
      equity was last sold, or the average bid and asked price of such common
      equity as of June 30, 2009 was approximately
$1,381,300.As
      of March 31, 2010 the issuer had 125,172,011 shares of its $.001 par value
      common stock outstanding.Documents
      incorporated by
reference:   None








Table
of Contents


PagePART
      IItem
      1.
            Business
            4Item
      1A.
            Risk
      Factors
            9Item
      1B.
            Unresolved
      Staff Comments
            13Item
      2.
            Properties
            14Item 3.
            Legal Proceedings
            18Item 4.
            Reserved
            18PART IIItem 5.
            Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            19Item 6.
            Selected Financial Data
            20Item 7.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            20Item 7A.
            Quantitative and Qualitative Disclosures About Market
      Risk
            27Item 8.
            Financial Statements and Supplementary Data
            28Item
    9.
            Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
            28Item 9A(T).
            Controls and Procedures
            28Item 9B.
            Other Information
            30PART IIIItem 10.
            Directors, Executive Officers and Corporate
      Governance
            30Item 11.
            Executive Compensation
            37Item 12.
            Security
      Ownership of Certain Beneficial Owners and Managementand
      Related Stockholder Matters
            46Item 13.
            Certain
      Relationships and Related Transactionsand
      Director Independence
            49Item 14.
            Principal Accounting Fees and Services
            50PART IVItem 15.
            Exhibits, Financial Statement Schedules
            51SIGNATURES
            54














Information
Concerning Forward-Looking Statements





This
annual report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Act of 1934, as amended, that are based on our management’s
beliefs and assumptions and on information currently available to our
management.  For this purpose any statement contained in this annual
report that is not a statement of historical fact may be deemed to be
forward-looking, including statements about our revenue, spending, cash flow,
products, actions, intentions, plans, strategies and
objectives.  Without limiting the foregoing, words such as “may,” “hope,” “will,” “expect,” “believe,” “anticipate,” “estimate” “projected”or “continue” or comparable
terminology are intended to identify forward-looking
statements.  These statements by their nature involve substantial
risks and uncertainty, and actual results may differ materially depending on a
variety of factors, many of which are not within our control. These factors
include but are not limited to those relating to our plan of operations
including our ability to raise funds, construct a processing plant and put our
property into commercial production; economic conditions generally and in the
industry in which we and our customers participate; future commodity prices;
competition within our industry, including competition from much larger
competitors; future exploration; legislative requirements and changes and the
effect of such on our business; results of operations; sufficiency of future
working capital, borrowings and capital resources and liquidity and our ability
to generate future cash flow and our ability to continue to meet the
requirements of and maintain our rights to our properties.





Forward-looking statements are
predictions and not guarantees of future performance or events.  The
forward-looking statements are based on current industry, financial and economic
information, which we have assessed but which by its nature is dynamic and
subject to rapid and possibly abrupt changes.  Our actual results
could differ materially from those stated or implied by such forward-looking
statements due to risks and uncertainties associated with our
business.  We hereby qualify all our forward-looking statements by
these cautionary statements. We undertake no obligation to amend this report or
revise publicly these forward looking statements (other than pursuant to
reporting obligations imposed on registrants pursuant to the Securities Exchange
Act of 1934) to reflect subsequent events or circumstances.





The following discussion should be read
in conjunction with our financial statements and the related notes contained
elsewhere in this report and in out our other filings with the Securities and
Exchange Commission.





Throughout
this report, unless otherwise indicated by the context, references herein to the
“Company”, “BMI”, “we”, our” or “us” means Bekem Metals, Inc, a Utah
corporation, and its corporate subsidiaries and predecessors.














PART I





Item
1.                      Business





Corporate Structure











Company History





We
incorporated in the state of Utah under the name EMPS Research Corporation on
January 30, 2001.  Until the end of the 2004 fiscal year, our primary
business focus was the development, marketing and licensing of our patented
technology for use in commercially separating nonmagnetic particulate material
by building and testing a high frequency eddy-current separator
(“HFECS”).





We
changed our name to Bekem Metals, Inc., on March 16, 2005 following our
acquisition of Condesa Pacific, S.A., a British Virgin Islands international
business company (“Condesa”), and its wholly owned subsidiary Kaznickel, LLP in
January 2005.  On July 24, 2006 Condesa transferred its interest in
Kaznickel to Bekem, making Kaznickel a wholly-owned subsidiary of
Bekem.  On October 1, 2006 Bekem sold Condesa to a third party for
nominal value. With the acquisition of Kaznickel, our primary business focus
shifted from the development of our HFECS technology to exploring for nickel and
cobalt in Kazakhstan because the primary asset of Kaznickel was an exploration
and production concession which granted Kaznickel the exclusive right to explore
for nickel, cobalt and other minerals in northeastern Kazakhstan known as the
Gornostayevskoye (“Gornostai”) deposit. Declining metal prices and the
increasing difficulties in obtaining financing due to the global economic and
credit crisis forced us to sell our interest in Kaznickel during
2009.  In November 2009 we completed the sale of our interest in
Kaznickel to a third party for approximately $1,867 and for repayment of
$5,000,000 worth of loans owed to Bekem by Kaznickel.















On
October 24, 2005, we acquired Kazakh Metals, Inc. (“KMI”), and its wholly owned
subsidiary Kyzyl Kain Mamyt LLP (“KKM”), in exchange for 61,200,000 shares of
our common stock.  Under applicable accounting reporting rules, KMI
was considered the accounting acquirer.





KKM holds
the exclusive subsoil use contract to extract and process nickel and cobalt ore
from the Kempirsai deposit, which is comprised of the Kara-Obinskoye, and
Stepninskoye sections (collectively referred to as the “Kara-Obinskoye section”)
and Novo-Shandashinskoye section, and brown coal from its Mamyt
deposit.  Unless
otherwise indicated by the context of the disclosure, the Kara-Obinskoye and the
Novo-Shandashinskoye sections are collectively referred to herein as the
“Kempirsai deposit.”





Business of the Company





Since
acquiring Condesa and KMI in 2005 our primary business focus has been the
exploration and development of the Kempirsai and, until November, 2009, the
Gornostai deposits.  To date, we have mined and sold very little ore
from the Kempirsai deposit and none from the Gornostai deposit.  We
have no proven mineral reserves that conform to the standards established by the
United States Securities and Exchange Commission (“SEC”).  We have not
entered the development stage at any of our deposits, have no current production
and have very little ability to generate revenue.  Since inception, we
have been completely reliant upon equity financing and loans to fund our
operations and have incurred an accumulated deficit of $30,229,302 through
December 31, 2009.  At December 31, 2009 our current liabilities
exceeded current assets by $974,506.  At December 31, 2009 we had cash
on hand of $534,619.  We anticipate that cash on hand will be
sufficient to meet our general and administrative expenses until approximately
June 1, 2010.  As discussed in Note 1 to our Consolidated Financial
Statements, our limited operating history, being at the exploration stage with
respect to our mineral interests and having not started production, declines in
nickel prices, and dependence upon debt or equity infusions to meet our work
program requirements under our government mineral licenses, combined with the
current global financial crisis, raise substantial doubt about our ability to
continue as a going concern.





Because
of our business and financial condition; difficulties in the broader world
economy, including the recent problems in the credit markets; steep declines in
world nickel prices and our inability to attract additional funding we sold our
interest in the Gornostai deposit during 2009 to help raise funds to meet our
ongoing expenses.





There is
very little demand for our nickel ore until it has been processed and
concentrated because of its low nickel content.  Currently, there is
no nickel ore processing facility within the region of the Kempirsai
deposit.  We have spent several years investigating processing
technologies and undertaking preliminary feasibility studies (“PFS”) for the
construction of a nickel ore processing facility.  Based on the
results of the PFS, if we are able to secure funding, we intend to focus on the
Vanyukov Process for further development of the Kempirsai deposits and
construction of a nickel processing plant in the Aktobe region of Kazakhstan,
where the Kempirsai deposit is located. The Vanyukov Process, first developed in
the 1940’s in Russia, is capable of treating oxide nickel ores to form either a
nickel matte (by addition of a sulphur containing compound such as pyrite) or
directly to form a ferronickel alloy containing up to 20% nickel. The
anticipated cost to construct such a processing plant with the planned annual
capacity of 20,000 tons of ferronickel (5,000 tons of nickel) is approximately
$160 million.















In 2008
KKM entered into a preliminary consortium agreement, subject to negotiation
of the terms of a definitive agreement, with two Kazakhstani
companies, GRK Koitas LLP (“GRK”) and Asia-Invest Corporation LLP (“AI”) for the
purpose of jointly developing and constructing a processing plant. GRK and AI
have exploration and production licenses near our Kempirsai
deposit.  Because of the proximity of their deposits, the parties felt
a consortium between the parties made the project more economically viable.
Under the preliminary consortium agreement, KKM is considered to be the operator
of the Consortium. The preliminary shares of the parties in the Consortium are
the following: KKM - 50%; GRK Koitas - 40%; and AI - 10%.  Like us,
GRK, AI and their shareholders have been unsuccessful raising funds to finance
the Consortium due to the effects of the volatility in the world financial and
nickel markets.  In 2009 GRK was successful in negotiating with the
Ministry of Energy and Mineral Resources of the Republic of Kazakhstan (the
“MEMR”) an extension of the investment obligations under its license to later
periods. Also, in March 2010 AI obtained a similar extension of its investment
obligations to later periods.  We believe the extension of GRK’s and
AI’s licenses make it unlikely that the parties will finalize a definitive
consortium agreement or move forward with the joint development of a processing
plant.





Given our
current financial condition, coupled with current and projected nickel
inventories and world nickel prices over the next few years we believe our
prospects for securing funding to construct a nickel ore processing plant are
limited at best.  We do not expect to generate revenue from ore
extraction and sales until such time as we are able to secure funding for and
construct a nickel processing facility.





As
discussed in more detail in the “Annual Work Programs of our
Deposits” section of Item 2. Properties of this
report, in order to retain our subsoil use contracts we are required to satisfy
minimum work program requirements each year.  However, because of a
lack of funds, KKM did not meet the $6 million annual work program requirement
of the Kempirsai deposit for 2009.  During 2009 KKM invested $1.7
million in the Kempirsai deposit.  We anticipate the need to seek
significant additional funding during fiscal 2010 to satisfy the 2010 Kempirsai
deposit annual work program obligations (to invest up to $26.5 million) and to
satisfy the obligations KKM did not meet in 2009.  Given our current
financial condition, economic and credit market conditions and the state of the
nickel market, our prospects for securing $30.8 million to fulfill our 2009 and
2010 obligations associated with the Kempirsai deposit are limited at
best.





Because of our limited prospects for
generating revenue or obtaining additional financing, we anticipate that we will
be unable to fulfill the 2010 minimum work associated with the Kempirsai
deposit.  It is unclear how often the Ministry of Industry and New
Technologies (the “MINT”), (which was newly created in March 2010 to assume the
responsibilities of the MEMR with regard to non-oil-related licenses) will
review compliance with minimum annual work program requirements.  If
the MINT reviews our compliance at a time when we are delinquent in meeting our
requirements, we expect the MINT will take action to terminate our subsoil use
contract to the Kempirsai deposit, as the MEMR did in 2007.  To avoid
the loss of this contract, management plans to engage in discussions with the
appropriate governmental agencies to revise the terms of its annual work
program.  The government is under no obligation to negotiate with us
and there is no guarantee that we can be successful in renegotiating the terms
of our work program.





We may also investigate the possibility
of selling our rights to the Kempirsai deposit.


















KKM also
did not fully meet the 2009 annual work program requirements of the Mamyt
deposit to invest up to $1.8 million.  KKM invested
$400,000.  However, as discussed in more detail in the “Annual Work Programs of our
Deposits” section of Item 2. Properties of this
report, in December 2009 KKM received a letter from the MEMR granting our
request to decrease our annual work program for the period from 2009 to
2012.  We anticipate an addendum to our license memorializing the
changes to the annual work program requirements to be prepared some time in
April 2010.  We expect that the 2009 and 2010 annual work programs
will be reduced significantly to the level that was actually spent by KKM in
2009.





Because of the lack of readily
available market in Kazakhstan for low grade brown coal of the quality contained
at our Mamyt deposit, historically we had planned to use coal from the Mamyt
deposit primarily to provide power for our nickel processing
facility.  Given the unlikelihood that we will obtain financing to
construct a processing plant, we have begun to investigate potential markets and
uses for our brown coal with a goal to generating revenue for the
Company.





In addition to its contracts to the
Kempirsai and Mamyt deposits, KKM also owns fuel tanks, locomotives, rail cars,
railway cranes, bridge cranes, railway cisterns, maintenance equipment,
excavators, motor graders, passenger vehicles, passenger buses, heavy dump
trucks, hoppers, scales, lathes, forging hammers, presses, grinding, milling and
boring machines, boilers, electrical substations, office equipment, business
machines, portable communication equipment, laboratory equipment and multiple
buildings.  The machinery was manufactured between 1950 and the
present. The buildings were built between the 1940’s and the early
1990’s.  Much of our existing equipment and buildings will need repair
and refurbishing prior to being put into active operation.  We planned
to use this equipment to support our nickel mining activities at the Kempirsai
deposit.  Given the unlikelihood that we will engage in nickel mining
activities, we are investigating whether this equipment can be put to other uses
to generate capital for the Company.  We are also investigating
whether there is a market for the sale of this equipment.





Competition in the Nickel
Market





Norilsk
Nickel is the largest nickel producer in the world followed by CVRD, BHP
Billiton Plc, Eramet Group and Xtrata.  These five companies account
for approximately 60% of the world’s primary nickel production, while more than
30 medium to small size companies produce the remaining
40%.  Companies compete with each other generally across the globe and
are best categorized by their size, reserve base, ore richness, production
method and final product.  Competition in this industry focuses
largely on price and nickel content, whether it is sold in unwrought or chemical
form.  High nickel content material is sold at higher prices and is
most sought after among customers.





Currently
there are no nickel-producing companies in Kazakhstan although there are several
companies holding exploration and/or extraction rights to nickel deposits in
Kazakhstan. Currently none of these Kazakhstani companies extract nickel ore due
to problems related to marketing of the ore and financing and construction of
processing plants.












Tax
and Royalty Scheme in the Republic of Kazakhstan





In
January 2009 Kazakhstan adopted a new tax code.  The new tax code
invalidates tax stability clauses in existing contracts and eliminated tax
stability in future contracts.  The government has said that the
stability of tax clauses was retained only for existing production sharing
agreements that contained stability clauses and had undergone the mandatory tax
expert evaluation and subsurface use contracts approved by the President of
Kazakhstan.





The new
tax code increases the taxes paid by extractive industries while lowering the
general tax burden on the entire economy.  In this respect, the new
tax code decreases the corporate tax rate from 30% to 20% beginning January 1,
2009.  The corporate tax rate decreases to 17.5% in 2010, and to 15%
starting in 2011.  Under the draft amendments planned to be introduced
to the Tax Code this year, however, the planned reductions in the corporate
income tax rate may be postponed, with rate decreases being postponed to 17.5%
in 2013 and to 15% starting from 2014.





The new
tax code also increases the tax burden of subsurface users by introducing a new
minerals extraction tax (“MET”), while canceling royalty payments.  In
general, MET applies to the value of produced resources which is calculated
based on “world” prices.  The current MET rate applicable to nickel is
set at 6%.  Extractive companies are also liable to pay excess profit
tax (“EPT”).  EPT liability arises when the ratio of aggregate annual
income to deductions allowable for EPT purposes relative to operations under a
specific subsurface use contract is more than 1.25 for the reporting tax period
which, in most cases, is a calendar year.  The tax code provides for
an incremental sliding scale of EPT rates ranging from 0% to 60% for various
profit levels above the mentioned ratio. The planned amendments to the tax code
this year may change the current procedure of EPT calculation.





The new
tax code also makes rent tax applicable to exports of coal (previously
applicable only to exports of hydrocarbons). The rent tax at the rate of 2.1%
applies to value of exported coal calculated on the basis of the sale
prices.





Value-added
tax (“VAT”), which has decreased every year from 16% in 2006 to 12% in 2009, is
expected to stay at its current level.  Under the new tax code, the
progressive scale of social tax rates imposed on employer’s payroll costs was
replaced with a flat rate of 11%.  The personal income tax rate for
resident individuals is set at 10%.  Depending on the specific type of
income, income of non-residents working in Kazakhstan is subject to income taxes
(withholding) at varying rates ranging from 5% to 20%.





During
2009 KKM received a letter from the MEMR requiring changes/addendums to the
taxation provisions of its existing subsurface use contracts to make them
consistent with the new tax regime.  Despite the fact that KKM’s
existing subsurface use contracts include statements of stabilization of the tax
regime with regard to subsurface user taxes (such as royalty, excess profit
tax), the MEMR letter required the new tax regime to be applied to existing
contracts beginning January 1, 2009.  In December 2009 KKM signed an
addendum to the Kempirsai subsoil use contract replacing the existing tax regime
indicated in the subsoil use contact to be in compliance with the new tax code
regime in exchange for changes in the annual work program proposed by
KKM.  A similar addendum is expected to be signed for the Mamyt
subsoil use contract some time in April 2010.











Initially,
the Kempirsai contract required KKM to pay royalty payments equal to 2.21% of
gross ore sales.  The Mamyt brown coal contract required a royalty
payment equal to nine tenths of one percent (0.9%) of gross coal
sales.  Both contracts require KKM to pay an excess profits tax
ranging from 4 to 30 percent based upon an internal rate of return (as defined
in the contracts) ranging from 22 to 30 percent.





As of
December 31, 2009, we are subject to the following taxes and royalties payable
to the Republic of Kazakhstan:





Class of Tax or Royalty
            Basis of Tax
            Payable Period
            Annual RateCorporate
      Income Tax
            Profits
            Monthly
            20%Social
      Tax
            Payroll
            Monthly
            11%VAT
            Value
      added
            Monthly
            12%Property
      Tax
            Property
            Quarterly
            1%Minerals
      Extraction Tax (ore)
            Value
      of extracted resources
            Monthly
            6%Rent
      Tax (brown coal)
            Value
      of exported coal
            Monthly
            2.1%Excess
      Profit Tax
            Net
      income
            Annually
            0-60%





Employees





We
currently employ approximately 148 employees, including part-time and full-time
working employees and 70 employees that have been sent on unpaid vacation due to
our current financial difficulties.  We hire our employees under local
labor contracts complying with the governing laws of the Republic of
Kazakhstan.  We anticipate the need to hire additional personnel only
if operations expand.  Except for Company initiated work force
reductions, we have managed to maintain turnover of our work force at a low
level.  We believe that future new labor requirements can be satisfied
and there is no significant risk of labor shortage.





Reports
to Security Holders





We are
subject to the reporting requirements of the Securities Exchange Act of
1934.  As such, we are required to file annual, quarterly and current
reports, any amendments to those reports, proxy and registration statements and
other information with the United States Securities and Exchange Commission
(“SEC”) in accordance with reporting requirements.  The public may
read and copy any materials filed by us with the SEC at the SEC’s Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549.  The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 202-551-8090.  We are an electronic filer and the
SEC maintains an Internet site that contains reports and other information
regarding the Company that may be viewed at http://www.sec.gov.





Item
1A.                      Risk
Factors





If We
are Unable to Obtain Additional Financing in the Near Future, We May be Forced
to Terminate Operations. We have no proven
mineral reserves that conform to the standards established by the SEC. Our
Kempirsai and Mamyt deposits have not yet entered the development stage with
respect to their mineral interests and we have no production. We have realized
only limited revenue from the Kempirsai and Mamyt deposits and have very little
ability to generate revenue. We do not expect this to change until a nickel ore
processing plant is built and we have commenced commercial
operations.  As we currently generate no revenue, we will need to
raise additional capital through the sale of our equity and/or debt
securities.















Our
management has expended significant time and effort trying to obtain additional
financing for the Company.  To date, we have been unsuccessful in
securing sufficient additional financing to meet our needs.  We
believe this is due to several factors.  Since inception we have
incurred an accumulated deficit of $30,229,302.   At December 31,
2009 our current liabilities exceeded current assets by $974,506.  We
currently generate no revenue from operations and do not anticipate that to
change until such time as we are able to construct an ore processing
plant.  When coupled with the difficulties in the broader world
economy, including the recent problems in the credit markets, steep declines in
worldwide nickel prices and volatility and downward trends in the stock market,
our prospects for obtaining additional funding in the near term are
limited.





If we are
unable to obtain additional financing in the near future, we will have
insufficient funds to satisfy our operating needs, much less to meet our annual
work program obligations to ensure we retain our licenses.  If we have
insufficient funds to meet our operating needs we may be forced to cease
operations.





Failure
to Satisfy the Terms of Our Subsoil Use Contracts Could Result in the Loss of
our Contracts.  Under
our subsoil use contracts we are required to satisfy our annual minimum work
program requirements.  There is no guarantee that we will be able to
continue to meet these commitments in the future.  If we fail to
satisfy these commitments we may be subject to penalties and fines and/or the
loss of our subsoil use contracts.  The cancellation of our contracts
would have a material adverse effect on our business, results of operations and
financial condition.  Although we would seek waivers of any breaches
or seek to renegotiate the terms of our commitments in the event we do not
believe we can meet such commitments, we cannot assure you that we would be
successful in doing so.





Our
Independent Registered Public Accounting Firm has Expressed Substantial Doubt
About Our Ability to Continue as a Going Concern.As disclosed in the
Report of Independent Registered Public Accounting Firm in our audited
Consolidated Financial Statements, given our limited operating history, being at
the exploration stage with respect to our mineral interests and having not
started production, the decline in nickel prices, and dependence upon debt or
equity infusions to meet our work program requirements our government mineral
licenses, combined with the current global financial crisis, raise substantial
doubt about our ability to continue as a going concern.  If we are
unable to resolve these issues, it is unlikely we will be able to continue as a
going concern.





Fluctuations
in Commodity Price and Demand for Nickel and Cobalt Have and Will Likely
Continue to Adversely Impact the Company.Commodity prices and
demand for nickel and cobalt are cyclical and influenced strongly by world
economic growth, particularly in the U.S. and Asia (notably
China).  Commodity prices have significantly declined recently and
prices can fluctuate widely.  Such fluctuations could have a material
adverse impact on our revenues, earnings, cash flows, asset values and growth in
the future.  As a result of difficult market and general economic
conditions (which may be long lasting and continue to deepen), there is reduced
direct and indirect demand for nickel and cobalt and these declines, if they do
not reverse are expected to a material adverse impact on our future revenues,
earnings, cash flows, asset values and growth.















Due to
the significant reduction in nickel prices we were required to recognize an
impairment of our mineral interests in 2008. According to our estimates, once we
construct a nickel processing facility, we can generate positive cash flows if
nickel prices are not lower than $12,000-$12,500 per ton. Nickel prices at
December 31, 2008, however, fell below this level, requiring us to recognize an
impairment of our mineral interests in the amount of $8,916,265.





Mineral
Exploration and Exploitation is Inherently Dangerous.   The
search for valuable minerals involves numerous hazards. As a result, we may
become subject to liability for such hazards, including pollution, cave-ins and
other hazards against which we cannot insure or against which we may elect not
to insure. At the present time we have no coverage to insure against these
hazards. The payment of such liabilities may have a material adverse effect on
our financial position.





We are
Subject to All the Risks of Operating in a Foreign Country.  In
recent years, the Republic of Kazakhstan has undergone substantial political and
economic change.  As an emerging market, Kazakhstan does not possess
the well-developed business infrastructure that generally exists in more mature
free market economies.  As a result, operations carried out in
Kazakhstan can involve significant risks that are not typically associated with
developed markets.  Instability in the market reform process could
subject us to unpredictable changes in the basic business infrastructure in
which we currently operate.  Therefore, we face risks inherent in
conducting business internationally, such as:





Ÿ
            foreign
      currency exchange fluctuations or imposition of currency exchange
      controls;Ÿ
            legal
      and governmental regulatory requirements;Ÿ
            disruption
      of tenders resulting from disputes with governmental
      authorities;Ÿ
            potential
      seizure or nationalization of assets;Ÿ
            difficulties
      in collecting accounts receivable and longer collection
      periods;Ÿ
            political
      and economic instability;Ÿ
            difficulties
      and costs of staffing and managing international operations;
      andŸ
            language
      and cultural differences.





Any of
these factors could materially adversely affect our business and financial
condition.  At this time, we are unable to estimate what, if any,
changes may occur or the resulting effect of any such changes on
us.





We also face a significant potential
risk of unfavorable tax treatment and currency law
violations.  Legislation and regulations regarding taxation, foreign
currency transactions and licensing of foreign currency loans in the Republic of
Kazakhstan continue to evolve as the central government manages the
transformation from a command to a market-oriented economy.  The
legislation and regulations are not always clearly written and their
interpretation is subject to the opinions of local tax
inspectors.  Instances of inconsistent opinions between local,
regional and national tax authorities are not unusual.





The
current regime of penalties and interest related to reported and discovered
violations of Kazakhstan’s laws, decrees and related regulations can be
severe.  Penalties include confiscation of the amounts at issue for
currency law violations, as well as fines of generally 100% of the taxes
unpaid.  Interest is assessable at rates of generally 0.3% per
day.  As a result, penalties and interest can result in amounts that
are multiples of any unreported taxes.















We may be
adversely affected by Kazakh political developments, including the application
of existing and future legislation and tax regulations.





In
December 2008, a new subsoil use legislation of Kazakhstan was submitted to
parliament, superseding legislation on oil production and exploration, mineral
resources mineral management, and production sharing agreements (“PSAs”). The
new subsoil use legislation of Kazakhstan, which is expected to be adopted by
parliament and signed by the President in second quarter 2010 and become
effective six months after its approval by parliament and the President, allows
the government to annul contracts in the extractive sector if they are deemed to
be harmful to Kazakhstan's economic security or national interests. The
legislation also requires separate contracts for exploration and production
operations, puts shorter time limits on exploration contracts, enhances the
government’s authority to terminate contracts not in compliance with the law,
and requires tax stability clauses in individual contracts to be approved by the
President of Kazakhstan. In addition, under the terms of the legislation, no
future contracts would be structured as a PSA, companies are required to
establish equal terms, conditions, and pay for Kazakhstani and foreign workers,
and the government would evaluate subsoil resource bids based on promised social
contributions. Also, the latest draft assumes that disputes between subsurface
users and the government will be settled in the courts of Kazakhstan, and does
not assume international arbitration.  Disputes regarding the existing
subsurface use contracts would also be settled in the courts of
Kazakhstan.





In
January 2009, Kazakhstan adopted a new tax code. The new subsoil use and tax
legislation of Kazakhstan, which defines the framework and procedures connected
with the regulation of activities of subsoil users, introduces significant
changes in terms of the regulation of the activities of subsoil users, including
the abolition of the existing stabilization regime for all subsoil users. The
new tax code increases the taxes paid by extractive industries while lowering
the general tax burden on the entire economy. Details of the new tax code are
discussed above in Item 1. Businessin the section
entitled“Tax and Royalty
Scheme in the Republic of Kazakhstan” of this report.





In
February 2009 Kazakhstan’s National Bank dramatically devalued the Tenge, the
local currency, from a range of 117-123 Tenge/U.S. dollar to 145-155 Tenge/U.S.
dollar, citing the decline in oil price (oil comprises 60% of Kazakh exports),
currency devaluations in Kazakhstan’s neighbors, particularly Russia, and the
fledgling state of the domestic banking sector. We have limited confidence in
the government’s ability to control prices in the near to medium term, and with
the value of Tenge wages falling, purchasing power is declining.  The
future effect of the devaluation is difficult to project given the present
uncertainty on the currency markets and on the government’s policies regarding
exchange rates and/or foreign currency regulations. Although devaluation of the
local currency generally leads to reduced cost of operations, the foreign
exchange rate fluctuations, as well as, the deteriorating overall economic
situation in Kazakhstan increase uncertainties peculiar to long-term projects in
Kazakhstan.





In April
2009, because of the global economic crisis and to support local producers, the
government requested the MEMR to specify the “local content” requirements in
every subsoil use contract. The current subsoil use legislation of Kazakhstan
requires mining and oil companies to use local goods and services. According to
these “local content” regulations, subsurface users in Kazakhstan are obligated
to purchase goods and services from Kazakhstan entities, provided that the local
goods meet minimum project standards, and to give preference to the employment
of local personnel. Therefore, in April 2009 KKM and the MEMR signed an addendum
# 3 to its nickel subsoil use contract whereby KKM is obliged to the following
commitments:












Ÿ
            Until
      2013, at least 30% of KKM’s total procurements of equipment, materials and
      other products, must be of goods produced in Kazakhstan, during 2013 and
      2014, this percentage shall increase to 40%, after 2014, at least 50% of
      KKM’s total procurements must have been of equipment, materials and other
      products produced in Kazakhstan;Ÿ
            Of
      the total percentage of nickel mining related services retained by KKM
      until 2013, at least 70% shall be provided by Kazakhstani companies,
      between 2013 and 2014 that percentage shall increase to  80%,
      after 2014 the percentage shall increase to 90%;Ÿ
            Kazakhstan
      citizens shall be given priority in personnel hiring, and depending upon
      the type of position within KKM, Kazakhstani citizens should account for
      80-100% of total KKM personnel until 2013, between 2013 and 2014 the
      percentages increase to between 90 and 100%, and after 2015, 100% of KKM
      employees shall be Kazakhstani
citizens.





On March
12, 2010, the Oil and Gas Ministry and a Ministry of Industry and New
Technologies were created by decree of the President of the Republic of
Kazakhstan.  It is expected that these two ministries will replace the
MEMR.  Also, it is expected that Ministry of Industry and New
Technologies will be responsible for development of the non-oil branch of the
MEMR, which will include the electric power industry, mining, nuclear, and
manufacturing industries.





We are
Subject to Strict Environmental Regulations.  We are subject to
stringent federal, state and local laws and regulations relating to the release
or disposal of materials into the environment or otherwise relating to
environmental protection.  These laws and regulations may require the
acquisition of permits before extraction activities commence, restrict the
types, quantities and concentration of substances that can be released into the
environment in connection with extraction and production activities and impose
substantial liabilities for pollution resulting from our
operations.  Failure to comply with these laws and regulations may
result in the assessment of administrative, civil and criminal penalties,
incurrence of investigatory or remedial obligations or the imposition of
injunctive relief. Changes in environmental laws and regulations occur
frequently, and any changes that result in more stringent or costly waste
handling, storage, transport, disposal or cleanup requirements could require us
to make significant expenditures to maintain compliance, and may otherwise have
a material adverse effect on us as well as the industry in
general.  Under these environmental laws and regulations, we could be
held strictly liable for the removal or remediation of previously released
materials or property contamination regardless of whether we were
responsible.





Liquidity
of Common Shares.  Our common stock has limited trading volume
on the Over-the-Counter Bulletin Board and is not listed on a national
exchange.  Moreover, a significant percentage of our outstanding
common stock is “restricted” and therefore subject to the resale restrictions
set forth in Rule 144 of the rules and regulations promulgated by the U.S.
Securities and Exchange Commission under the Securities Act of
1933.  These factors could adversely affect the liquidity, trading
volume, price and transferability of our common shares.





Item
1B.                      Unresolved
Staff Comments





None.










Item
2.                                Properties





As
discussed above, through our subsidiary, we hold the rights to the Kempirsai
nickel and cobalt deposits and the Maymt brown coal deposit, which are located
in northwestern Kazakhstan.














Location
and Access to our Deposits





The
Kempirsai deposit is located in the Khromtausky region of northwestern
Kazakhstan, approximately 130 kilometers northeast of Aktobe, Kazakhstan and
approximately 35 kilometers south of Badamsha village, Aktobe region,
Kazakhstan. The Mamyt deposit is located approximately 30 kilometers east of
Badamsha village, Aktobe region, Kazakhstan.  Badamsha is a village of
approximately 6,000 people.  The Aktubinsk-Karabutak asphalt highway
runs within 14 kilometers to the south of the nickel and cobalt
deposit.  The nickel, cobalt and brown coal deposits can be accessed
through a network of country roads.  The Orsk-Kandagash state railway
runs nearby the Kempirsai deposit and we own 55 kilometers of our own
railway.  Our railway connects our deposits to a reloading station and
to a Russian railway.





















Our
Subsoil Use Contracts





The
following table provides additional information regarding our subsoil use
contracts.





Territory
      Name
            Size
      of Territory
            Primary Minerals
            License
              Type
            License
      or Contract #
            License  and
              Subsoil Use Contract
TermKempirsai
            575,756
      acres
            Nickel
      and cobalt ore
            Production
            MG
      #420
              MG
      #426
            Expires
      Oct, 12, 2020 unless extended.Mamyt
            116
      acres
            Brown
      coal
            Production
            MG
      #9-D
            Expires
      Dec, 11 2018 unless extended.





The
Kempirsai and Mamyt licenses are independent of one another.  The loss
of one would not trigger a loss of the other.  Under our contracts we
have the right to negotiate with the government for extensions of the terms of
those contracts.  If we are unsuccessful in negotiating extensions,
upon the expiration of our contracts our interest in and rights to those
deposits terminates and reverts back to the government of the Republic of
Kazakhstan, but we retain the rights to all tangible and intangible assets we
acquire for exploration, extraction and production at these
deposits.














For
additional details regarding the terms and obligations associated with our
subsoil use contracts and licenses, please see “Tax and Royalty Scheme in the
Republic of Kazakhstan” in Item 1 “Business”,“Annual Work Programs of our
Deposits” in this Item 2 “Properties”,“Summary of Material Contractual
Commitments” in Item 7 “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and “Note 3 – Property, Plant and Mineral
Interests”, “Note 6 –
Asset Retirement Obligations” and “Note 9 – Commitments and
Contingencies” contained in the Notes to our Consolidated Financial
Statements.





Annual
Work Programs of our Deposits





The
Kempirsai and Mamyt deposits were discovered and actively explored during the
Soviet era.  In the 1980s the State Reserves Committee approved the
reserves (based on Soviet standards) and approved the Kempirsai deposit for
commercial production.  The Kempirsai deposit was actively mined
during the 1980s and early 1990s.  Active mining ceased in
1996.





The
subsoil use contracts and licenses for the Kempirsai and Mamyt deposits are
production contracts and do not require us to undertake significant exploration
activities.  While we do not have fixed exploration obligations, in
order to retain our licenses, we are required to engage in certain
activities.  Each year we must submit an annual work program to the
government. The annual work program indicates the scope of exploration and/or
production works and finance costs we are required to incur each
year.





Our
contracts and licenses call for KKM to extract the following amounts of ore from
the Kempirsai deposit and brown coal from the Mamyt deposit and make the
following investments in the ore mining and processing technology:





Kempirsai
      (1)
            Mamyt
      (2)Tons
      of Ore
            Investments,
              $
            Tons
      of BrownCoal2009
            -
            6,000,000
            200,0002010
            -
            26,500,000
            200,0002011
            -
            42,000,000
            200,0002012
            -
            36,500,000
            200,0002013
            800,000
            2,400,000
            200,0002014
            800,000
            2,000,000
            200,0002015
            1,000,000
            2,000,000
            200,0002016
            1,000,000
            2,000,000
            200,0002017
            1,500,000
            1,000,000
            200,0002018
            1,500,000
            1,000,000
            200,0002019
            1,600,000
            1,000,0002020
            1,234,900
            1,000,000Total
            9,434,900
            123,400,000
            2,000,000




(1)
              In
      December 2008, KKM received a notice from the MEMR that it has agreed to
      suspend ore mining requirements until the end of 2012 to allow KKM to
      focus on the construction of an ore processing facility. The notice
      indicated that under the annual work program, KKM is required to invest
      $135,000,000 in its mining and ore processing technology during the period
      from 2006 to 2020 (or $123.4 million for the remaining period). In
      December 2009, KKM signed an addendum to the nickel and cobalt ore
      production contract memorializing the amendments to KKM’s subsoil use
      contract to incorporate the changes set forth in the notice received in
      December 2008. The above table represents extraction and investment
      obligations indicated in the December 2009 addendum.(2)
              In
      December 2009 KKM received a letter from the MEMR granting KKM’s request
      to decrease the coal volume production requirements of its work program
      from 200,000 tons per year to 5,000 tons per year for the period from 2009
      to 2012. We anticipate an addendum to this license memorializing the
      changes to the annual work program requirements to be prepared some time
      in April 2010. These changes are not reflected in the above table and will
      be reflected when these changes are legally approved by the government by
      signing the new addendum to the existing subsoil use
    contract.










Geology
and Mineralization of the Kempirsai Deposit





Nickel
ferrous laterites make up approximately 70% of all land-based nickel resources,
though currently they constitute about 45% of the primary nickel
production.  Nickel laterite deposits are formed as a result of
prolonged weathering of ‘ultramafic’ rocks containing ferromagnesian silicate
minerals.  Under conditions of warm temperatures and high, frequent
rainfall, nickel leaches from the upper layers and precipitates in the lower
layers in a lattice of silicate and iron oxide minerals.





If an ore
deposit is outcropping or occurs near the surface, it can be extracted using
open cut methods.  Open cut methods allow for lower extraction and
operating costs, which can allow low-grade deposits to be economically viable.
The topsoil and overburden are removed and stockpiled for later rehabilitation
and, as the mine increases in depth, the walls of the excavation are left at an
angle to avoid collapse. Open cut mines use large mobile machinery that enables
high production rates. Large haul trucks carry the ore and waste to surface
stockpiles. Rapid rates of mining in shallow weathered parts of the deposits
slow down as the depths increase due to the increased hardness of the material.
Nickel laterites are generally mined by surface operations up to 60 meters
deep.





The
Kempirsai nickel and cobalt deposit is comprised of two deposits:
Kara-Obinskoye, and Novo-Shandashinskoye.  These deposits are located
approximately 5-10 kilometers from each other.  The results of
exploration carried out during the Soviet era show that nickel and cobalt ore is
located within the Kempirsai ultramafic massif.  The minerals are
found in laterite form and are associated with leached nontronized
serpentinites. The ore bodies have a blanket-like shape and tend to lie
conformably on the underlying rocks.  The depth of ore bodies from the
surface is 0-40 meters.  In vertical section they are mainly
horizontal in attitude and show variable thickness.  Thickness varies
from 2.0 meters to 30.0 meters, with an average thickness of 6.0
meters.  Average stripping ratio is 1.5 cubic meters per
ton.  The nickel content of the ore within the Kempirsai deposit
varies from 0.8% to 3.0% and cobalt – from 0.025% to 0.08%. The average nickel
and cobalt content for the Kara-Obinskoye are 1.1% and 0.066%
respectively.   The average nickel and cobalt content for the
Novo-Shandashinskoye deposit are 1.38% and 0.045%.


















Reserves





In
accordance with SEC Industry Guide 7 mineral deposits qualify as “reserves” only
to the extent some part of the deposit can be economically and legally extracted
or produced at the time of the reserve determination based on the bankable
feasibility study.  At the present time, we have completed a
preliminary feasibility study for the Kempirsai deposit and, if and when funds
allow, we plan to retain Wardell Armstrong International to conduct a bankable
feasibility study of our Kempirsai deposit to provide detailed information on
mining, processing, metallurgical, economic and other relevant factors. Because
our deposits are without known reserves, our proposed programs should be
considered exploratory in nature.





Our
Offices





Bekem
leases approximately 400 square feet of office space located at 324 South 400
West, Suite 225, Salt Lake City, Utah 84101 for its administrative and
registered office in the United States.  We pay annual rent of
approximately $7,800 for this space pursuant to a lease agreement that expired
in October 2009.  We are currently renting this space on a
month-to-month basis at the same rate while we negotiate the terms of a new
one-year lease.  We anticipate we will be successful in negotiating a
new lease on terms comparable to our previous lease, but if negotiations are
unsuccessful, we anticipate we will be able to find a replacement space under
similar terms.





We
maintain a representative office in Almaty, Kazakhstan, where we lease
approximately 645 square feet of office space. The lease agreement expires on
August 31, 2010. The monthly lease payment is $921. Following our policy of
cutting expenses where possible, we are in the process of closing the
representative office in Almaty.  We expect that the representative
office will be officially closed by August 31, 2010 due to certain applicable
legal requirements in Kazakhstan.





KKM rents
approximately 1,796 square feet of office space in Aktobe, Kazakhstan. KKM pays
approximately $1,400 per month for this space. The lease agreement expires on
July 20, 2010. The agreement may be extended beyond its term upon mutual
agreement of the parties.





We
believe the various office spaces we rent are suitable and adequate for our
needs.





Item
3.                      Legal
Proceedings





We may, from time to time, be a party
to ordinary routine litigation incidental to our business.  We are not
currently aware of any pending, or threatened litigation or proceedings that
could have a material adverse effect on our results of operations, cash flows or
financial condition.





Item
4.                      Reserved




18














PART II





Item
5.                      Market
for Common Equity, Related Stockholder Matters and Small Business Issuer
Purchases of Equity Securities





Our shares are currently traded on the
Over-the-Counter Bulletin Board ("OTCBB") under the symbol
“BKMM.”  The following table presents the high and low bid quotations
for the fiscal years ended December 31, 2009 and 2008.  The published
high and low bid quotations were furnished to us by Pink OTC Markets
Inc.  These quotations reflect inter-dealer prices without retail
mark-up, mark-down or commissions and may not necessarily represent actual
transactions.








2009
            
            High
            
            LowOct.
      1 thru Dec. 31
            
            $0.07
            
            $0.07July
      1 thru Sept. 30
            
            0.12
            
            0.02Apr.
      1 thru June 30
            
            0.05
            
            0.017Jan.
      1 thru Mar. 31
            
            0.017
            
            0.0122008Oct.
      1 thru Dec. 31
            
            $0.18
            
            $0.007July
      1 thru Sept. 30
            
            0.54
            
            0.16Apr.
      1 thru June 30
            
            0.54
            
            0.54Jan.
      1 thru Mar. 31
            
            1.01
            
            0.54





Record
Holders





As of March 31, 2010 we had
approximately 156 shareholders holding 125,172,011 shares of our common
stock.  The number of record holders was determined from the records
of our stock transfer agent and does not include beneficial owners of common
stock whose shares are held in the names of various security brokers, dealers
and registered clearing houses.





Dividend
Policy





We have not declared a cash dividend on
any class of common equity during the past two fiscal years.  Our
ability to pay dividends is subject to limitations imposed by Utah
law.  Under Utah law, dividends may not be made if, after giving it
effect: a) the company would not be able to pay its debts as they become due in
the usual course of business; or b) the company’s total assets would be less
than the sum of its total liabilities plus the amount that would be needed to
satisfy the rights of any holders of preferential rights.  Our board
of directors does not, however, anticipate paying any dividends in the
foreseeable future; it intends to retain the earnings that could be distributed,
if any, for the operations, expansion and development of its
business.





Performance
Graph





We are a smaller reporting company, as
defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, and
accordingly are not required to provide this information.




Recent
Sales of Unregistered Securities





During the quarter ended December 31,
2009 we did not sell any unregistered securities.





Purchases
of Equity Securities by the Issuer and Affiliated Purchasers





Neither we, nor any affiliated
purchasers, purchased any of our equity securities during the year ended
December 31, 2009.










Item
6.                      Selected
Financial Data
 
 The selected consolidated financial
information set forth below is derived from our consolidated balance sheets and
statements of operations as of and for the years ended December 31, 2009, 2008,
2007, 2006 and 2005.  The data set forth below should be read in
conjunction with “Management’s Discussion and Analysis” and the consolidated
financial statements and related notes thereto included in this Annual Report on
Form 10-K.
 Consolidated
      Statements of Operations Data:
              
              For
      the Years Ended December 31,2009
              2008
              2007
              2006
              2005General
      and administrative expenses
              
              $2,363,977
              $4,068,004
              $3,497,477
              $2,574,591
              $833,865Research
      and development costs
              
              -
              240,832
              296,070
              389,507
              131,562Exploratory
      costs
              
              124,886
              763,405
              1,608,479
              314,270
              74,050Loss
      from impairment of property
              
              556,500
              8,642,958
              1,043,720
              -
              -Loss
      from operations
              
              (3,912,546)
              (14,311,699)
              (6,884,436)
              (3,438,711)
              (1,048,562)Interest
      expense
              
              -
              -
              (1,018)
              (1,076,013)
              (260,286)Interest
      income
              
              75,853
              221,084
              324,976
              85,337
              -Income
      (Loss) from Discontinued Operations(including
      gain on disposal of Kaznickelof
      $6,082,390 in 2009)
              
              6,044,447
              (1,777,953)
              (2,361,308)
              (2,533,431)
              (847,541)Net
      Income (Loss)
              
              43,572
              (15,348,975)
              (8,701,550)
              (4,951,212)
              (1,271,137)Basic
      income (loss) per common share
              
              $0.00
              $0.00
              $(0.07)
              $(0.04)
              $(0.03)
 
 
 Balance
      Sheet Data:
              
              As
      of December 31,2009
              2008
              2007
              2006
              2005Total
      current assets
              
              $1,331,149
              $16,651,082
              $1,820,365
              $9,711,374
              $444,089Property,
      plant and mineral interests, net
              
              2,852,697
              4,384,366
              14,175,269
              13,800,167
              10,898,919Assets
      of discontinued operations
              
              -
              144,764
              1,007,800
              1,109,949
              951,248Total
      assets
              
              4,225,729
              21,338,787
              15,442,837
              23,987,978
              10,478,767Notes
      payable
              
              2,031,981
              19,668,792
              -
              -
              7,901,481Liabilities
      of discontinued operations
              
              -
              1,284,228
              943,521
              1,106,640
              1,520,661Total
      liabilities
              
              3,216,952
              21,880,505
              1,014,925
              1,093,408
              10,826,906Total
      shareholders' equity (deficit)
              
              1,008,777
              (541,718)
              14,492,191
              22,897,879
              (917,552)





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





For a
complete understanding, this Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with the
Consolidated Financial Statements and Notes to the Consolidated Financial
Statements contained in this Annual Report on Form 10-K.





Some of
the statements set forth in this section are forward-looking statements relating
to our future results of operations.  Our actual results may vary from
the results anticipated by these statements.  Please see “Information Concerning
Forward-Looking Statements” on page 4.












Results
of Operations





Comparison of the years
ended December 31, 2009 and 2008





While
reading this Results of
Operations section, it is important to keep in mind that during most of
2009 we had insufficient financial resources to fund our
activities.





During
2009 we sold our interest in Kaznickel to a third party for approximately $1,867
and for repayment of $5,000,000 worth of loans owed to Bekem Metals by
Kaznickel.  We received an initial payment of $500,000 in March 2009.
The balance was paid in November 2009.  As a result, the operations of
Kaznickel are consolidated in our consolidated financial statements until the
date we closed this transaction. The Kaznickel operations were reported in the
consolidated statements of operations as income (loss) from discontinued
operations.





General and Administrative
Expenses





Our
general and administrative expenses decreased from $4,068,004 during 2008 to
$2,363,977 during 2009.  This 42% decrease was primarily the result of
lower payroll expenses. During 2009 payroll expense decreased by approximately
$743,000.  We currently employ approximately 148 employees, including
part- and full-time working employees and 70 employees that have been sent on
unpaid vacation due to our current financial difficulties.  General
and administrative expenses also decreased as a result of the Tenge devaluation
which occurred in the beginning of February 2009.  The total estimated
effect of the Tenge devaluation on our general and administrative expenses is
approximately $474,000, including the effect of devaluation on payroll expenses
of approximately $276,000. The balance of the decrease (approximately $211,000)
resulted from the reduced scope of our operations during 2009 due to our current
financial difficulties.





Research and Development
Costs





During
2008 we incurred research and development cost of $240,832, which was related to
preparation of the preliminary feasibility study on the Kempirsai
deposits.  During 2009 we did not incur any research and development
costs.





Exploratory
Costs





Our
exploratory costs decreased from $763,405 during the twelve months ended
December 31, 2008 to $124,886 during the twelve months ended December 31,
2009.





During
the twelve months ended December 31, 2009 we extracted 2,835 tons of
coals.  No ore was extracted during 2009.  By comparison,
during the twelve months ended December 31, 2008, we extracted 146,107 tons of
ore and 4,668 tons of coal.  The extraction costs of $44,664 and
$393,018 (including stripping costs) for 2009 and 2008, respectively, were
included in exploratory costs since we are in the exploration
stage.





The
balance of exploratory cost of $80,222 and $370,387 for 2009 and 2008,
respectively, represent the cost of maintenance and repair works of KKM
assets.










Loss from Impairment of
Property





During
2008, due to the global financial crisis and sharp fall in nickel prices on the
world market, we reassessed our assets and recognized impairment of mineral
interests of $8,077,787.  According to our estimates, once we have
built a processing facility that would allow us to produce a marketable product
(a ferronickel alloy containing 20% nickel) we can generate positive cash flows
if nickel prices are not lower than $12,000-$12,500 per ton.  Nickel
prices at December 31, 2008, however, fell below this level, requiring us to
recognize an impairment of our mineral interests.  We also recognized
impairment for other property in the amount of $565,171 for assets used in our
hydrochlorination technology pilot plant that will not be used in the Vanyukov’s
technology to be used at the nickel processing plant.  Although nickel
prices have improved, we have recognized an additional impairment of $556,500 in
2009 for equipment to be used in the Vanyukov’s technology. The impairment was
recognized for about 40% of pilot plant cost due to our current poor financial
condition.





Accretion
Expense





We
realized accretion expense of $52,184 during the twelve months ended December
31, 2009.  During the twelve months ended December 31, 2008 we
realized accretion expenses of $10,755.  This increase in accretion
expense is due to the normal increase in the asset retirement obligation balance
over time.





Due to
our poor financial condition and the potential likelihood that our subsoil use
contract could be revoked, we estimated cost of liquidation and reclamation of
the KKM mines. As of December 31, 2009 the liquidation cost was estimated to be
up to $911,297, which is higher than the previously recognized asset retirement
obligations by $513,971. This amount was immediately recognized in
2009.





We
believe accretion expense during the upcoming fiscal year will be approximately
3.8 times higher due to revision of asset retirement obligation made for KKM in
2009.




Grant Compensation
Expense





During
the year ended December 31, 2009 we incurred $301,028 in grant compensation
expense for restricted stock grants issued to certain officers and key
employees.  The amount is less than initially expected by $45,301 due
to the anticipated resignation of Zhassulan Bitenov who has been serving as our
Chief Financial Officer since January 2008.  Half of the shares
granted to Mr. Bitenov will not vest because he has informed the Company he
intends to resign his position with the Company in April 2010, which is prior to
the vesting date of one-half of his stock grant.  During 2008 grant
compensation expense amounted to $585,745.  The reduction in grant
compensation expense resulted from the vesting of a significant portion of
shares granted in 2008 and reversal of shares granted to Mr. Bitenov which were
expected to vest in 2011.  As a result, we anticipate deferred grant
compensation of $6,390 to be fully expensed next year, i.e., the whole amount
reported on the balance sheet as of December 31, 2009 is to be expensed next
year.





Total Operating Expenses and
Loss from Operations





As a
result of the factors described above, our total expenses and loss from
operations decreased by 73%, from $14,311,699 during fiscal 2008 to $3,912,546
during fiscal 2009.  The principal reason for this decrease is that we
recognized impairment losses of $556,500 in 2009 while in 2008 loss from
impairment of property amounted to $8,642,958, which occurred mainly due to the
sharp fall in world nickel prices in the second half of 2008. Also, as a result
of our financial difficulties, we significantly reduced the scope of our
operations and recognized additional asset retirement costs of $513,971. As a
result of our lack of financial resources and the Tenge devaluation, general and
administrative expenses and exploratory costs in 2009 decreased by $2,342,546
compared to the prior year and we incurred no research and development costs in
2009.  We expect we will continue to generate losses until we engage
in significant revenue generating activities, which most likely will not occur
before we construct the nickel ore processing plant and put it into
operations.












Translation Adjustment and
Exchange Gain/Loss From Remeasurement





Our
consolidated financial statements are presented in U.S. dollars. The functional
currency of Kaznickel was U.S. dollars. The functional currency of KKM is Kazakh
tenge. Results of operations are translated into U.S. dollars at the average
exchange rates during the reporting period. All balance sheet accounts of KKM
are translated at exchange rates on the date of the financial statements, except
equity which is translated at weighted-average historical rates.  The
translation differences are included in stockholders’ equity as cumulative
translation adjustments.





Non-monetary
assets and liabilities of the Almaty representative office, as well as the
related expense accounts, are translated into U.S. dollars, using historical
exchange rates and monetary assets and liabilities are translated into U.S.
dollars using exchange rates on the date of the financial statements and the
resulting balance sheet item differences are included in the results of
operations as exchange gains/losses from remeasurement. The same approach was
applied for the ten-month operations of Kaznickel before its disposal date. The
exchange difference from remeasurement is commonly, but not always, positive
(gain) if the average exchange rates are lower than exchange rates on the date
of the financial statements and negative (loss) if the average exchange rates
are higher than exchange rates on the date of the financial
statements.




On
February 4, 2009, Kazakhstan’s National Bank dramatically devalued the Tenge,
the local currency, from a range of 117-123 Tenge/U.S. dollar to 145-155
Tenge/U.S. dollar, citing the decline in oil price (oil comprises 60% of Kazakh
exports), currency devaluations in Kazakhstan’s neighbors, particularly Russia,
and the fledgling state of the domestic banking sector. This currency
devaluation was the main cause of the exchange gain from remeasurement
recognized by us during 2009.





Exchange Loss and
Gain





During
2009 we realized an exchange loss of $2,521,226 compared to an exchange loss of
$22,659 during 2008.  As with the gain/loss from remeasurement, we
recognize exchange gain or loss as a result of having subsidiaries operating in
foreign countries whose functional currency may or may not be the U.S.
dollar.  This requires us to translate results of operations from a
foreign currency, in this case Kazakh tenge, to U.S. dollars at the average
exchange rate, where results of operations include exchange gains or losses on
the U.S. dollar monetary assets and liabilities. The currency devaluation
discussed above was the main cause of the foreign exchange loss incurred by the
Company during the twelve months ended December 31, 2009.





Interest
Income





During the twelve months ended December
31, 2009, we realized interest income of $75,853, including $1,353 of interest
earned on short-term bank deposits and $74,500 accrued on the note receivable
from Latimer.  By comparison, during the twelve months ended December
31, 2008 we earned $221,084 of interest, including $54,756 of interest earned on
short-term bank deposits and $166,328 accrued on the note receivable from
Latimer.










Other Income,
net





During
the twelve months ended December 31, 2009, we realized $320,989 of other income
compared to $486,064 realized during the same period of the prior
year.  This amount mainly includes income from the rendering railway
services and renting railway facilities.





Gain from sale of
subsidiary





As
discussed above, in November 2009 we sold our interest in
Kaznickel.  As a result, November 3, 2009 was treated as the
measurement date for accounting of the discontinued operations.  The
amount of gain from discontinued operations represents mainly accumulated loss
of Kaznickel written off at the measurement/disposal date less net assets and
costs directly related to execution of the sale-purchase
transaction.  It also includes income of approximately $1,867 received
from the acquirer for Kaznickel’s charter capital.





Net Income /
Loss





For all
of the foregoing reasons, during the twelve months ended December 31, 2009 we
experienced a net income of $43,572 compared to a net loss of $15,348,975 during
the twelve months ended December 31, 2008.  We anticipate we will
continue to experience annual net losses until we are able to engage in nickel
and cobalt ore extraction, processing and sales.




Liquidity
and Capital Resources





Since
inception we have generated no revenue. Our capital resources have consisted
primarily of funds we have borrowed from related and non-related parties and the
sale of our equity securities and funds received from the sale of
Kaznickel.  As of December 31, 2009 we had cash on hand of
$534,619.  We earned net income of $43,572 for the year ended December
31, 2009 and incurred net losses of $15,348,975 for the year ended December 31,
2008 and $30,229,302 for the period from March 5, 2004 (date of inception)
through December 31, 2009.  Our current liabilities exceeded our
current assets by $974,506 and $3,520,764 as of the year ended December 31, 2009
and 2008, respectively.





As
discussed above in Item 1 “Business” we have no proven
mineral reserves that conform to the standards established by the United States
Securities and Exchange Commission.  Our deposits have not yet entered
the development stage and we have no production.  We have realized
only limited revenue from our Kempirsai and Mamyt deposits and have very little
ability to generate revenue.  We do not expect this to change until we
build and begin operating a nickel ore processing plant.










Due to
our lack of revenue and our inability to obtain equity or debt funding,
partially as a result of the financial crisis impacting the global economy,
during 2009 we sold our wholly-owned subsidiary Kaznickel LLP to a third party
for approximately $1,867 and for repayment of $5,000,000 worth of loans owed to
Bekem by Kaznickel.  $2,500,000 of these funds were spent for partial
repayment of notes payable to related parties and $1,965,382 was used for
working capital.   The proceeds from the sale will not provide us
adequate funding to meet our minimal operational needs, much less fulfill the
annual work program requirements associated with our deposits through the end of
2010.





Because
of a lack of funds, we were unable to meet our 2009 annual work program
requirements to invest up to $6 million into development of the Kempirsai
deposit and a processing plant.  We anticipate the need to seek
significant additional funding during fiscal 2010 to satisfy our 2010 annual
work program obligations (to invest up to $26.5 million) and to satisfy the
obligations we did not meet in 2009.  We also anticipate the need for
up to $400,000 to satisfy the 2010 work program requirements associated with our
Mamyt deposit if we are successful in negotiations with the government to reduce
the 2009 annual work program to the level that was actually spent in
2009.  There is no assurance that we will be able to obtain additional
funding on favorable terms, or at all.  If we are unsuccessful in
obtaining additional funding during 2010, we will likely have insufficient funds
to continue operations.





Because of our limited prospects for
generating revenue or obtaining additional financing, we anticipate that we will
not be able to fulfill the 2010 minimum work associated with the Kempirsai
deposit.  If we fail to satisfy our minimum work program requirements,
we expect the government will take action to terminate our subsoil use contract
to the Kempirsai deposit, as they did in 2007.  To avoid the loss of
this contract, management plans to engage in discussions with the appropriate
governmental agencies to revise the terms of its annual work
program.  However, the government is under no obligation to negotiate
with us and there is no guarantee that we can be successful in renegotiating the
terms of our work program.




Cash
Flow





During the 2009 and 2008 fiscal years,
cash was primarily used to fund operations.  See below for additional
discussion and analysis of cash flow.





December
      31,
            
            2009
            
            
            2008Net
      cash used for operating activities
            $
            (2,151,169)
            
            $
            (5,185,567)Net
      cash from investing activities
            
            5,007,050
            
            
            (15,153,828)Net
      cash from financing activities
            
            (2,500,000)
            
            
            19,698,150Effect
      of exchange rate changes on cash
            
            63,094
            
            
            (54)NET
      INCREASE (DECREASE) IN CASH
            $
            418,975
            
            $
            (641,299)





In fiscal 2009 net cash used in
operating activities was $2,151,169, compared to net cash used in operating
activities of $5,185,567 in fiscal 2008.  This decrease in net cash
used in operating activities primarily occurred due to reduced exploratory
activities as a result of the financial difficulties we have
experienced.





Net cash
provided by investing activities during the twelve months ended December 31,
2009 was $5,007,050.  The cash inflow was primarily comprised of the
amount received as a repayment of loans under a sale-purchase agreement of our
subsidiary, Kaznickel. By comparison, during the twelve months ended December
31, 2008, we used net cash in investing activities of $15,153,828. The cash
outflows in investing activity during the twelve months ended December 31, 2008
mainly occurred due to the loan provided to Latimer, one of the owners of the
other parties to the consortium.










Net cash
used for financing activities during twelve months ended December 31, 2009 was
$2,500,000 compared to net cash provided by financing activities of $19,698,150
in fiscal 2008.  This net cash used for financing activities in 2009
was a payment of $2,500,000 under the preliminary Consortium agreement. The 2008
cash inflow occurred due to proceeds received by KKM under the preliminary
Consortium agreement.





Summary
of Material Contractual Commitments





The
following table lists our significant commitments as of December 31,
2009:




Payments
      due by Fiscal YearContractual
      Commitments
            
            Total
            
            
            Less
      than
              1
      year
            
            1-3
      years
            
            3-5
      years
            
            More
      than 5 yearsKKM’s
      work programs (1)
      (2)
            
            $123,400,000
            
            
            $32,500,000
            
            $78,500,000
            
            $4,400,000
            
            $8,000,000Operating
      leases
            
            35,635
            
            
            35,635
            
            -0-
            
            -0-
            
            -0-Total
            
            $123,435,635
            
            
            $32,535,635
            
            $78,500,000
            
            $4,400,000
            
            8,000,000





(1)
            The current terms of the
      Kempirsai contract requireKKM to invest $135 million to be
      applied to its mining and ore processing technology during the period
      2006-2020 (or around $123.4 million for the remaining period).Also, the estimates include
      $950,000for removal
      of all equipment and to remediate the property.  This
      remediation work can be done during the term of the subsoil use contract
      or upon completion of the terms of the
  contract.


(2)
            In
      March 2008 KKM entered into a preliminary consortium agreement
      with two Kazakhstani companies, GRK Koitas LLP (“GRK”) and
      Asia-Invest Corporation LLP (“AI”), who also have exploration and
      production licenses near the Company’s Kempirsai deposit in northwestern
      Kazakhstan.  Under the preliminary consortium agreement, which
      was amended in November 2009, the parties are obliged to jointly
      contribute approximately $9.2 million for financing the construction of
      the processing plant. Of this amount, KKM is obligated to contribute
      approximately $4.6 million. Contributions made by the parties into the
      consortium are accounted for in the annual work programs of these parties.
      As of December 31, 2009 contributions of GRK equal KZT 192 million
      ($1,293,565) and contributions of AI equal KZT 122 million ($820,925),
      which were to be used for construction of a processing
    plant.







For more
information regarding this requirement please see the “Annual Work Programs of our
Deposits” section of Item 2 “Properties”.





Off-Balance
Sheet Financing Arrangements





As of
December 31, 2009 and 2008 we had no off-balance sheet financing
arrangements.





Recent
Accounting Pronouncements





For
details of applicable new accounting standards, please, refer to Note 1to ourConsolidated Financial
Statements.










Critical
Accounting Policies





We
prepare our financial statements in conformity with accounting principles
generally accepted in the United States of America.  As such, we are
required to make certain estimates, judgments and assumptions that we believe
are reasonable based upon the information available. These estimates and
assumptions affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of expenses and revenues, to
the extent we generated revenue during the periods presented.  Actual
results could differ from these estimates.  Our significant accounting
policies require us to make difficult, subjective or complex judgments or
estimates.  We consider an accounting estimate to be critical if (1)
the accounting estimate requires us to make assumption about matters that were
highly uncertain at the time the accounting estimate was made and (2) changes in
the estimates that are reasonably likely to occur from period to period, or use
different estimates that we reasonably could have used in the current period,
would have a material impact on our financial condition or results of
operations.





There are other items within our
financial statements that require estimation, but are not deemed critical as
defined above.  Changes in estimates used in these and other items
could have a material impact on our financial statements.  Management
has discussed the development of these critical accounting estimates with our
board of directors and they have reviewed the foregoing disclosure.





Use of
Estimates – In connection with the preparation of our financial
statements, we are required to make estimates and assumptions that affect the
reported amounts in the financial statements and accompanying
notes.  One of the significant areas requiring the use of management
estimates and assumptions relates to environmental reclamation and closure
obligations.  Under our licenses with the Republic of Kazakhstan,
following completion of exploration and mining activities we are required to
reclaim our licensed territories.  To prepare our financial statements
in accordance with accounting principles generally accepted in the United States
of America we are required to account for this obligation.   The
determination of the amount of the mine retirement and environmental reclamation
obligation the Republic of Kazakhstan will impose upon us, however, has not yet
been determined.  The determination of the mine retirement and
environmental reclamation obligation is based, in significant part, on the size
of each deposit.  We base our estimate of this obligation on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances.  Accordingly, actual results may
differ significantly from our estimate.




Income
Taxes – While we are a Utah corporation, our primary operations are in
the Republic of Kazakhstan.  The Republic of Kazakhstan was formed in
1991 following the break-up of the former Soviet Union.  At the time
the Republic of Kazakhstan was formed, it adopted a new tax code.  The
tax code and the application of tax laws in the Republic of Kazakhstan are still
developing and may not be uniformly applied in all instances.





Item
7A.                      Qualitative
and Quantitative Disclosures About Market Risk





Our
primary market risks are fluctuations in commodity prices and foreign currency
exchange rates.  We do not currently use derivative commodity
instruments or similar financial instruments to attempt to hedge commodity price
risks associated with future nickel production.







Commodity
Price Risk





Historically,
nickel and cobalt prices have been subject to significant volatility in response
to changes in supply, market uncertainty and a variety of other factors beyond
our control.  Nickel and cobalt are likely to continue to be volatile
in the future and this volatility makes it difficult to predict future price
movements with any certainty.  As a result, commodity price
fluctuations affect our ability to borrow funds or raise additional capital
because declines in nickel and cobalt prices would reduce the revenues we could
earn if we begin commercial production.  Commodity prices for nickel
and cobalt have a material effect on our business and financial
condition.





Foreign
Currency Risk





Our
functional currency is the U.S. dollar.  Our Kazakhstani subsidiary
KKM uses the Kazakh tenge as its functional currency.  To the extent
that business transactions in Kazakhstan are denominated in the Kazakh tenge we
are exposed to transaction gains and losses that could result from fluctuations
in the U.S. dollar—Kazakh tenge exchange rate. When the U.S. dollar strengthens
in relation to the Kazakh tenge, the U.S. dollar-reported expenses will
decrease. We do not engage in hedging transactions to protect us from such
risk.





Our
foreign-denominated monetary assets and liabilities are revalued on a monthly
basis with gains and losses on revaluation reflected in net income. A
hypothetical 10% favorable or unfavorable change in foreign currency exchange
rate at December 31, 2009 would have affected our net income by approximately
$180,000.





Item
8.                      Financial
Statements and Supplementary Data





See
Consolidated Financial Statements listed in the accompanying index to the
Consolidated Financial Statements on Page F-1 herein.





Item
9.                      Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure





During
the fiscal year ended December 31, 2009 there were no changes in and
disagreements with our independent registered public accounting firm on
accounting and financial disclosure.





Item
9A(T).               Controls
and Procedures





Evaluation of Disclosure
Controls and Procedures





Our
management, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
the design and operation of our disclosure controls and procedures (as defined
in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of
1934, as amended (the “Exchange Act”)), as of December 31, 2009. Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that as of December 31, 2009, our disclosure controls and procedures were
effective in (1) recording, processing, summarizing and reporting, on a timely
basis, information required to be disclosed by us in the reports that we file or
submit under the Exchange Act and (2) ensuring that information disclosed by us
in such reports is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.










Management's Report on
Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) promulgated under the
Exchange Act as a process designed by, or under the supervision of, the
company’s principal executive officer and principal financial officer and
effected by the company’s board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and includes those policies and
procedures that:





•
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the assets of the
      Company;•
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the Company
      are being made only in accordance with authorizations of management and
      directors of the Company; and•
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the Company’s assets that
      could have a material effect on the financial
  statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





Our
management assessed the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2009. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated
Framework. Based on this assessment, our management concluded that as of
December 31, 2009, our internal control over financial reporting is
effective based on those criteria.





This
Annual Report on Form 10-K does not include an attestation report of our
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit us to provide only management’s report in this
Annual Report on Form 10-K.





Changes in Internal Control
Over Financial Reporting





There
were no changes in our internal control over financial reporting during the
quarter ended December 31, 2009 that materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.












Item
9B.                      Other
Information





None.





PART  III





Item
      10.
            Directors,
      Executive Officers and Corporate
Governance





The following table sets forth as of
March 31, 2010 our directors and executive officers, promoters and control
persons, their ages, and all offices and positions held.  Directors
are elected for a period of one year and thereafter serve until their successor
is duly elected by the stockholders and qualified.  Officers and other
employees serve at the will of the board of directors.





Name
      of Director or
              Executive
      Officer
            
            Age
            
            Positions
      with
              the
      Company
            
            Director
      Since
            
            Officer
      SinceYermek
      Kudabayev
            
            40
            
            Chief
      Executive Officer, President and Director
            
            December
      2007
            
            April
      2006Zhassulan
      Bitenov
            
            33
            
            Chief
      Financial Officer
            
            
            
            January
      2008James
      Kohler
            
            63
            
            Independent
      Director
            
            May
      2006Timothy
      Adair
            
            46
            
            Independent
      Director
            
            May
      2006Valery
      Tolkachev
            
            42
            
            Independent
      Director
            
            May
      2006Nurlan
      Tajibayev
            
            62
            
            Vice
      President of Metallurgy and Director
            
            October
      2006
            
            October
      2006Dossan
      Kassymkhanuly
            
            42
            
            Vice
      President and Director
            
            August
      2007
            
            August
      2007





The above individuals currently serve
as the Company’s officers and/or directors.  A brief description of
their background and business experience follows:




Yermek Kudabayev. In December
2007, the Company’s board of
directors appointed Yermek Kudabayev as the Chief Executive Officer, President
of the Company and Chairman of the board of directors. Mr.Kudabayev
served as the Company’s Chief Financial
Officer from April 2006 until December 2007 and as interim Chief Executive
Officer and interim President from May 2007 to December 2007. Mr. Kudabayev
earned a Bachelors degree in Engineer-Economics from the Moscow Institute of
Steel and Alloys in 1993. He earned an MBA degree from the Kazakhstan Institute
of Management, Economics and Strategic Research in 1996. Mr.Kudabayev is
a past member of the Association of Chartered Certified Accountants, an
international accountancy body. He was issued a Certified Accounting
Practitioner Certificate from the International Counsel of Certified Accountants
and Auditors in 2002. He has been a Kazakhstani Certified Accountant since 1998
and a Certified Kazakhstani Auditor since 2000. Prior to joining the Company in
2006, Mr.Kudabayev
served as the Finance Director for Kazkhoil Aktobe LLP from 2003 to April 2006.
As the Finance Director, Mr.Kudabayev was
responsible for budgeting, planning, cash flow forecasting and management,
strategic research accounting, taxation and reporting. From 2002 to 2003,
Mr.Kudabayev
served as the Director of the Astana, Kazakhstan office of Ernst & Young,
where he was responsible for auditing and coordination of projects in the
Astana, Karaganda and Pavlodar regions of Kazakhstan. From 1997 to 2002,
Mr.Kudabayev
worked for Arthur Andersen as a Senior Auditor and as a Manager. Mr.Kudabayev was
appointed the Chief Financial Officer of Bekem Metals, Inc. in April 2006. Mr.
Kudabayev is not currently, nor has he in the past five years been, a director
or nominee of any other SEC registrant.














Zhassulan
Bitenov.  In January 2008, Mr. Bitenov accepted appointment as
the Company’s Chief Financial Officer. In 1999, Mr. Bitenov earned a
Masters of Arts in Economics from Kazakhstan Institute of Management, Economics
and Strategic Research in Almaty, Kazakhstan, with a specialization in
international economics. He earned a Bachelors degree in International Economics
from the International Kazakh –Turkish University in Turkestan, Kazakhstan in
1997. Mr. Bitenov passed the U.S. CPA exam in 2001. Mr. Bitenov served
in various positions with the Almaty office of the accounting firm of Ernst
& Young from November 2001 to October 2003 and from December 2004 through
December 2007. While at Ernst & Young, Mr. Bitenov worked as a Senior
auditor, Audit manager and Senior manager. Among other things, he was
responsible for clients’ audits, preparation of audit reports, management of
current engagements and negotiations with clients. From October 2003 to April
2004, he served as the Vice President of JSC AstanaEnergoService where he was
responsible for the daily management and supervision of several company
departments including the accounting, planning, sales, legal and marketing
departments. From June 2004 to December 2004, he served as the finance director
of JSC Interfarma-K. Mr. Bitenov is not currently, nor has he in the past five
years been, a director or nominee of any other SEC registrant.  In
December 2009 Mr. Bitenov informed the Company of his intent to resign as the
Company’s Chief Financial Officer in April 2010.


James F.
Kohler.  Mr. Kohler received a B.S. in geology in 1970 and an
M.S. in geology in 1980 from Utah State University.  Mr. Kohler is
currently self-employed as a geological consultant.  From 2001 through
2008 Mr. Kohler was employed with the U.S. Bureau of Land Management in Salt
Lake City, Utah.  Prior to leaving the BLM, Mr. Kohler was serving as
the Branch Chief of Solid Minerals in Salt Lake City, where he oversaw all
mining activity on public lands within the State of Utah. He began working at
the U.S Bureau of Land Management in 1988 as a Senior Geologist, providing
geologic support for all federal solid mineral leasing actions to establish a
basis for economic evaluation of leasing tracts. From 1987-1988, Mr. Kohler
served as Senior Geologist with the Utah Office of High Level Nuclear Waste in
Salt Lake City, Utah, where he provided oversight for high-level nuclear waste
repository characterization in Nevada, Texas, and Washington. From 1981-1986, he
was the senior geologist and Manager of coal development and mining geology for
Anaconda Minerals/ARCO Coal Company in Denver, Colorado supervising geologic
support for operating coal mines and acquisitions in the U.S., Indonesia and
China. From 1977 to 1981, Mr. Kohler was a Supervisory Geologist with the U.S.
Geological Survey in Salt Lake City, Utah. In 2000, Mr. Kohler was awarded the
Utah Governor's Medal for Science and Technology. Mr. Kohler is not currently,
nor has he in the past five years been, a director or nominee of any other SEC
registrant.










Timothy Adair.  Mr.
Adair received a Masters in Business Administration (MBA) from Brigham Young
University, located in Provo, Utah, in 1990.  Mr. Adair also received
a Bachelors of Science from the same university in Mechanical Engineering with a
minor in Mathematics in 1988.  Since 2005, Mr. Adair has been
principally engaged as the Owner/President of Cube Office
Designs located in Salt Lake City, Utah where he has successfully transferred
company ownership and management.  Mr. Adair also acted, since 2005, as an
Internal Human Resources Consultant for Avalon Health Care specializing in
Affirmative Action/Equal Opportunity Employment and Financial Analysis. 
Prior to purchasing Cube Office Designs, from 1989 through 2004, Mr. Adair was
principally engaged as the Human Resources Productivity / Efficiency Manager
with Intermountain Health Care (IHC) of Salt Lake City, Utah. IHC is a health
care provider with 25,000+ employees and annual revenue of 2.5 + billion USD.
While with IHC Mr. Adair consistently implemented cost savings improvements,
such as the standardizing and automating of employee transactions which resulted
in annual savings of $200k. Mr. Adair is also a licensed real estate agent and
has been an avid real estate investor and property manager since 1989 as a
partner of ADLAW. Mr. Adair was a member of the Oracle Applications User Group
(OAUG) and the Intermountain Compensation and Benefits Association (ICBA). Mr.
Adair is not currently, nor has he in the past five years been, a director or
nominee of any other SEC registrant.





Valery
Tolkachev.  Since March 2009, Mr. Tolkachev been employed with
Maxwellbank in Moscow, Russia, where he serves as the Deputy CEO. From 1991 to
2009, Mr. Tolkachev served in various positions with various employers including
Slaviansky Bank, UniCreditAton, MDM Bank, InkomBank, InkomCapital and
others.  Mr. Tolkachev graduated with Honors from the High Military
School in Kiev, USSR in 1989.  In 2005, he completed his studies at
the Academy of National Economy, as a qualified lawyer.  Mr. Tolkachev
also serves as a director of Caspian Services, Inc., and BMB Munai,
Inc.  Both are SEC registrants.





Nurlan
Tajibayev.  Mr. Tajibayev has worked in the metallurgy industry
since earning a Bachelors degree in Engineer-Metallurgy from the Kazakh State
Technical University in 1973. Prior to joining Bekem Metals, Mr. Tajibayev
served as the Executive Director of Kyzyl Kain Mamyt, LLP, a wholly-owned
subsidiary of Bekem Metals. Before joining Kyzyl Kain Mamyt in 2003, Mr.
Tajibayev served as Chairman of Canat UK Ltd., a supplier of metallurgical
equipment from Europe and the United States to Kazakhstan, for six years. Mr.
Tajibayev also spent twenty years serving in various capacities, including
Senior Engineer, for Aktyubinsk Ferroalloys Plant and President of Kazchrome
Corporation. Mr. Tajibayev is not currently, nor has he in the past five years
been, a director or nominee of any other SEC registrant.





Dossan Kassymkhanuly. In
August 2007, the board of directors appointed Mr. Kassymkhanuly as a
director. The board also appointed Mr. Kassymkhanuly as a vice-president of
the Company. Mr. Kassymkhanuly served as the Business Manager for
Gauhar-Tas Centre from December 1992 to February 1999. Gauhar-Tas Centre was
engaged in foreign-economic activity with China, including exportation of
non-ferrous metals and importation of building materials and mining engineering.
From February 1999 to November 2003, Mr. Kassymkhanuly served as Director
of the Semey FPG JSC regional office in Ust-Kamenogorsk. He was responsible for
coal sales in Eastern Kazakhstan.  Mr. Kassymkhanuly also took
part in the development of the Gornostai nickel-cobalt deposit, as well as in
the pilot industrial smelting for ferronickel at the Pavlodar tractor plant. He
was also responsible for negotiations with the Geology Committee of the Ministry
of Energy and Mineral Resources of the Republic of Kazakhstan, including
overseeing amendments and addendums to contracts for subsoil use.
Mr. Kassymkhanuly chairmanned a group on implementation of new technology.
In particular, he took part in the construction project for a briquette plant to
produce briquette coal at the Karazhira coal deposit, Eastern Kazakhstan.
Mr. Kassymkhanyly served as the Director of the Representative Office of
Kaznickel LLP in Astana, Kazakhstan from March 2004 to August 2007. In that
position he was primarily responsible for negotiations with various government
entities and committees on behalf of Kaznickel. Mr. Kassymkhanuly also
served as a member of the board of directors of Bekem Metals, Inc. from August
2005 to October 2006. Mr. Kassymkhanuly earned a degree in
Engineer-Construction from Semipalatinsk College of Civil Engineering in 1989.
He earned a Bachelors degree in Engineer-Economics from the Eastern Kazakhstan
Technical University in 2002. At present, he is a candidate for a PhD
degree in Engineering Sciences at the Semey State Institute.
Mr. Kassymkhanuly is not a director or nominees of any other SEC
registrant.  Other than serving as a director of Bekem Metals, Mr.
Kassymkhanuly has not been a director or nominees of any other SEC registrant
during the past five years.










When
determining whether it is appropriate for a director to serve on the board of
directors, the Company focuses primarily on the information provided in each of
the director’s individual biographies set forth above and its knowledge of the
character and strengths of the sitting directors. With regard to Mr. Kudabayev,
the Company considered his experience as the Company’s chief executive officer
and former chief financial officer, as well as his strong accounting, audit and
financial budgeting background.  With regard to Mr. Kohler, the
Company considered his years of service with the United States Bureau of Land
Management as the Director of Solid Minerals in Utah, where he oversaw all
mining activities in the State of Utah, as well as his more than 30 years
experience as a geologist. With regard to Mr. Adair, the Company considered his
experience as a Human Resource Productivity/Efficiency Manager for a $2.5
billion a year in revenue, 25,000+  employee, health insurance
company, as well as his experience in running his own
company.   With regard to Mr. Tolkachev, the Company considered
his extensive investment experience and his related finance and banking
background.  With regard to Mr. Tajibayev the Company considered his
extensive experience in the metallurgy industry in Kazakhstan, as well as his
experience as the Executive Director of the Company’s subsidiary
KKM.  With regard to Mr. Kassymkhanuly, the Company considered his
extensive experience with the Gornostai development and his experience and
strong relationships within the mining industry in Kazakhstan.





Board
Leadership Structure and Risk Oversight





The board
of directors has chosen to combine the principal executive officer and board
chairman positions and has not appointed a separate lead
director.  Mr. Yermek Kudabayev has served as the principal executive
officer and board chairman since December 2007.  At the present time,
the independent directors believe that Mr. Kudabayev’s in-depth knowledge of our
operations and vision for its development make him the best-qualified director
to serve as Chairman.





The board
of directors is responsible for consideration and oversight of risks facing the
Company, and is responsible for ensuring that material risks are identified and
managed appropriately.  The board of directors administers its
oversight functions by reviewing the operations of the Company, by overseeing
the executive officers’ management of the Company, and also oversees related
party transactions, requiring pre-approval of any such transactions with the
Company.










Family
Relationships




There are
no family relationships among any of our executive officers and/or
directors.




Involvement
in Certain Legal Proceedings





During
the past ten years none of our executive officers, directors or persons
nominated to become a director has been involved in any of the following events
that could be material to an evaluation of his ability or integrity,
including:




(1) Any
bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or
within two years prior to that time.




(2) Any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor offenses);




(3) Being
subject to any order, judgment, or decree, not subsequently reversed, suspended
or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining him from, or otherwise limiting the following activities:




(i)  Acting
      as a futures commission merchant, introducing broker, commodity trading
      advisor, commodity poll operator, floor broker, leverage transaction
      merchant, and other person regulated by the Commodity Futures Trading
      Commission (“CFTC”), or an associated person of any of the foregoing, or
      as an investment adviser, underwriter, broker or dealer in securities, or
      as an affiliate person, director or employee of any investment company,
      bank savings and loan association or insurance company, or engaging in or
      continuing any conduct or practice in connection with such
      activity;




(ii)  Engaging
      in any type of business practice; or(iii)
      Engaging in any activity in connection with the purchase or sale of any
      security or commodity or in connection with any violation of Federal or
      State securities laws or Federal commodities
  laws.





(4)  Being
subject to any order, judgment or decree, not subsequently reversed, suspended
or vacated, of any Federal or State authority barring, suspending or otherwise
limiting for more than 60 days the rights of such person to engage in any
activity described in (3)(i) above, or to be associated with persons engaged in
any such activity.




(5)  Being
found by a court of competent jurisdiction in a civil action or by the
Securities and Exchange Commission to have violated any Federal or State
securities law, and the judgment in such civil action or finding by the
Commission has not be subsequently reversed, suspended or vacated.




(6)  Being
found by a court of competent jurisdiction in a civil action or by the Commodity
Futures Trading Commission to have violated any Federal commodities law, and the
judgment in such civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended, or
vacated.










(7)  Being the subject of, or
a party to any Federal or State judicial or administrative order, judgment,
decree or finding, not subsequently reversed, suspended or vacated, relating to
an alleged violation of:





(i)  Any
      Federal or State securities or commodities law or regulations;
      or(ii)
      Any law or regulation respecting financial institutions or insurance
      companies including, but not limited to, a temporary or permanent
      injunction, order of disgorgement or restitution, civil money penalty or
      temporary or permanent cease-and-desist order, or removal or prohibition
      order;  or(iii)
      Any law or regulation prohibiting mail or wire fraud or fraud in
      connection with any business entity;
or





(8)  Being the subject of, or
a party to, any sanction or order, not subsequently reversed, suspended or
vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of
the Exchange Act (15 U.S.C. 78c(a)(26)))), any registered entity (as defined in
Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any
equivalent exchange, association, entity or organization that has disciplinary
authority over its members or persons associated with a member.




Committees
of the Board of Directors





Audit
Committee





We do not currently have a standing
audit committee or other committee performing similar functions, nor have we
adopted an audit committee charter.  Given the size of the Company,
its available resources and the fact that the OTCBB does not require us to have
an audit committee, the board of directors has determined that it is in the
Company’s best interest to have the full board fulfill the functions that would
be performed by the audit committee, including selection, review and oversight
of the Company’s independent accountants, the approval of all audit, review and
attest services provided by the independent accountants, the integrity of the
Company’s reporting practices and the evaluation of the Company’s internal
controls and accounting procedures.  The board is also responsible for
the pre-approval of all non-audit services provided by its independent
auditors.  Non-audit services are only provided by our independent
accountants to the extent permitted by law.  Pre-approval is required
unless a “de minimus” exception is met.  To qualify for the “de
minimus” exception, the aggregate amount of all such non-audit services provided
to the Company must constitute not more than 5% of the total amount of fees paid
by us to our independent auditors during the fiscal year in which the non-audit
services are provided; such services were not recognized by us at the time of
the engagement to be non-audit services; and the non-audit services are promptly
brought to the attention of the board and approved prior to the completion of
the audit by the board or by one or more members of the board to whom authority
to grant such approval has been delegated.










As we do not currently have a standing
audit committee, we do not at this time have an “audit committee financial
expert” as defined under the rules of the Securities and Exchange
Commission.  The board does believe, however, that should the Company
form a standing audit committee in the future, Mr. Timothy Adair, an independent
director, could qualify as an audit committee expert.





Nominating
Committee





Given the small size of the Company, we
do not have a standing nominating committee or nominating committee
charter.  Instead, the full board of directors performs the functions
that would be performed by a nominating committee.





The procedures by which our security
holders may recommend nominees to the Company’s board of directors have not
changed during the current fiscal and are the same as reported in our Annual
Report on Form 10-K for the year ended December 31, 2008, which was filed with
the SEC on April 15, 2009.





Board Diversity





While we
do not have a formal policy regarding the consideration of diversity in
identifying and evaluating potential director candidates, the board considers
the interplay of a candidate's knowledge, expertise, skills and experience with
that of the other members of the board of directors in order to build a board of
directors that is effective, collegial and responsive to the needs of the
Company. We believe this analysis results in a board of directors that is
diverse in knowledge, expertise, skills, experience and viewpoint.




Our board may establish committees from
time to time to facilitate our management.





Compliance
with Section 16(a) of the Exchange Act





Directors, executive officers and
holders of more than 10% of our outstanding common stock are required to comply
with Section 16(a) of the Securities Exchange Act of 1934, which requires
generally that such persons file reports regarding ownership of and transactions
in securities of the Company on Forms 3, 4, and 5.  Based solely on
management’s review of these reports during the year ended December 31, 2009, it
appears that GLG Partners LP, a greater than 10% shareholder of the Company,
filed a Form 4 disclosing the sale of all its shares of our common stock several
days late.  To date, the acquirer(s) of the shares held by GLG
Partners have not made any Section 16(a) filing disclosing their acquisition of
the shares.  It also appears the Mirbulat Abuov, White Hill Trust and
Central Asian Metals, Inc. who jointly hold greater than 10% of the outstanding
common stock of the Company, late filed an amended Form 4 disclosing three
transactions in shares of our common stock.





Code
of Ethics





Our board of directors has adopted a
code of ethics that applies to all of our officers and employees, including our
principal executive officer, principal financial officer, principal accounting
officer, controller and persons performing similar functions.  Our
code of ethics is posted on our website which can be found at www.bekemmetals.com.










Item
11.                      Executive
Compensation





Compensation
Discussion and Analysis





We do not
have a standing compensation committee. Our Chief Executive Officer (“CEO”)
makes recommendations to our board of directors regarding employee benefit
programs and officer and employee compensation. Historically, our CEO has not
made recommendations to the board of directors regarding his own compensation,
although we have no policy prohibiting the CEO from doing so. Our board of
directors may seek input from the CEO as to his compensation, but CEO
compensation must be approved by a majority of our board of directors. Currently
our CEO is a member of our board of directors.  Our CEO does not vote
on any matter relating to his own compensation.




Objectives and philosophy of
our executive compensation program





The
primary objectives of our executive compensation programs are to:





Ÿ
            attract,
      retain and motivate skilled and knowledgeable
  individuals;Ÿ
            ensure
      that executive compensation is aligned with our corporate strategies and
      business objectives;Ÿ
            promote
      the achievement of key strategic and financial performance measures by
      linking short-term and long-term cash and equity incentives to the
      achievement of measurable corporate and individual performance goals;
      andŸ
            align
      executives’ incentives with the creation of stockholder
    value.





To
achieve these objectives, our CEO and board of directors evaluate our executive
compensation program with the objective of setting compensation at levels they
believe will allow us to attract and retain qualified executives.  In
addition, a portion of each executive’s overall compensation may be tied to key
strategic, financial and operational goals set by our board of
directors.   We have also provided a portion of our executive
compensation in the form of equity awards that vest over time, which we believe
helps us retain our executives and align their interests with those of our
stockholders by allowing the executives to participate in our longer term
success as reflected in asset growth and stock price appreciation.





Components of our executive
compensation program





At this
time, the primary elements of our executive compensation program
are:





Ÿ
            base
      salaries;Ÿ
            non-equity
      incentive compensation;Ÿ
            bonuses;Ÿ
            equity
      incentive awards; andŸ
            benefits
      and other compensation.





We do not
have any formal or informal policy or target for allocating compensation between
short-term and long-term compensation, between cash and non-cash compensation or
among the different forms of non-cash compensation.  Instead, the
appropriate level and mix of the various compensation components has typically
been determined subjectively based on negotiation on a case-by-case
basis.  We do not rely on benchmarking against our competitors in
making compensation related decisions.










Named executive
officers





The following table identifies the
persons who, during the 2009 fiscal year, served as our principal executive
officer, and our most highly paid executive and non-executive officers whose
total compensation exceeded $100,000 during fiscal 2009.  For purposes
of this compensation disclosure and analysis only, such individuals are referred
to herein as the “named executive officers.”





Name
            
            Corporate
      OfficeYermek
      Kudabayev
            
            Chief
      Executive Officer, President and Chairman of the Board of Directors(1)(2)Zhassulan
      Bitenov
            
            Chief
      Financial Officer(3)Dossan
      Kassymkhanuly
            
            Vice
      President and Director(2)





(1)
            In
      December 2007, Mr. Kudabayev was appointed Chief Executive Officer,
      President, a director and as Chairman of the Board of
      Directors.(2)
            Mr.
      Kudabayev and Mr. Kassymkhanuly have served as members of the board of
      directors and received no compensation for services rendered as a
      director.  All compensation amounts paid to these individuals
      was paid as compensation for services rendered as an employee of the
      Company.(3)
            Mr.
      Bitenov joined the Company and was appointed Chief Financial Officer of
      the Company in January 2008.




Employment
agreements





We
maintain employment agreements with each of the named executive
officers.  The employment agreement we have with Mr. Kassymkhanuly is
the standard statutorily required employment agreements for all employees in the
Republic of Kazakhstan.  These employment agreements are limited in
their terms and primarily provide for statutory requirements related to the
rights of employees, base salary, payment of income and social taxes and pension
fund obligations.





We
maintain more detailed employment contracts with Mr. Kudabayev and Mr.
Bitenov.  As discussed in more detail below, in addition to base
salary and payment of income and employment-related taxes, these employment
agreements cover a range of other components of the executive’s compensation
package.





Base
salaries





Base
salaries are used to recognize the experience, skills, knowledge and
responsibilities required of our named executive officers.  Base
salaries for our named executive officers typically have been set in our offer
letter to the individual at the outset of employment.  Under the terms
of these employment agreements base salary and other components of compensation,
may be evaluated by our board of directors for adjustment based on an assessment
of the individual’s performance and compensation trends in our
industry.










The board
did not consider salary increases for any of the named executive officers during
fiscal years ended December 31, 2009 and 2008.





Nonequity incentive
compensation





From time
to time we may make cash awards to our employees, including the named executive
officers.  Such awards may be designed to incentivize employees over a
specified period of time pursuant to pre-established, performance-based
criteria, the accomplishment of which is substantially uncertain at the time the
criteria are established.  In the event this type of cash award were
made, it would be reflected in the “Summary Compensation Table”
under a separate column entitled “Nonequity Incentive Plan
Compensation.”  We may use non-equity incentive compensation to
incentivize our employees.  The criteria for earning such non-equity
incentive bonuses may be based on corporate financial performance measures that
would be developed by our board of directors at the time such non-equity
incentive plan is established.  Our board has discretion to determine
the applicable performance measures and the appropriate weighting of such
measures at the time it establishes any non-equity incentive
plan.  Our board of directors did not establish a non-equity incentive
compensation plan during the fiscal year ended December 31, 2009 and no
non-equity incentive compensation was awarded during the year.




Bonuses





We may
also make cash awards to employees that are not part of any pre-established,
performance-based criteria.  Awards of this type are completely
discretionary and subjectively determined by our board of directors at the time
they are awarded.  Such awards are reported in the “Summary Compensation Table”
in the column entitled “Bonus.”  Our board
of directors did not award any bonuses during fiscal years ended December 31,
2009 and 2008.





Equity incentive
compensation





Our
equity award program is the primary vehicle for offering long-term incentives to
our named executive officers.  Our equity awards have typically been
made in the form of restricted stock grants.  We believe that equity
grants provide our named executive officers with a direct link to our long-term
performance, create an ownership culture and align the interests of our
executives and our stockholders.  In the past, we have included a
restricted stock grant award as part of the executive employee’s compensation
package at the time we hire the individual.  We do not use a formula
to determine the size of our restricted stock grants.  This
determination is left to the discretion of the board of directors and is made on
a case-by-case basis, although the board does consider past awards in making
such determination.  Historically, these restricted stock awards have
vested over time, typically three years, with one-quarter vesting in each of the
first two years and the final one-half vesting in the third
year.  Vesting of such awards has typically been contingent on some
performance measure directly tied to the responsibilities of the employee, and
may also be tied to certain Company landmark events.  Should those
vesting requirements not be met, the associated shares would not vest to the
individual without further review of the vesting conditions and performance of
the named executive by the board of directors.  Should the individual
leave employment with the Company for any reason, any shares that have not
vested at that time shall be forfeited back to the Company.  While
pecuniary interest in and the right to dispose of the shares awarded under our
restricted stock grants does not vest to the individual until he has satisfied
the vesting conditions, the individual is allowed to vote all of the shares
included in the grant and to  enjoy all the other benefits associated
with ownership of the shares.  We believe the vesting features further
our objective of executive retention because this feature provides an incentive
to our executives to remain in our employ during the vesting
period.










As a
result of general market and economic conditions and the Company’s performance
during the 2009 fiscal year, the board of directors did not award any equity
incentive compensation during the 2009 fiscal year.





Benefits and other
compensation





Under the
terms of their employment contracts, our named executive officers are permitted
to participate in such health care, disability insurance and other employee
benefits plans as may be in effect with the Company from time to time to the
extent the executive is eligible under the terms of those plans.





For
example, under the terms of their respective employment agreements Mr. Kudabayev
and Mr. Bitenov are allowed to participate in such pension, profit sharing,
bonus, life insurance, hospitalization, major medical and other employee benefit
plans that may be in effect from time to time and to the extent he is eligible
to participate under the terms of the particular plan.  They are each
also entitled to 28 days of paid vacation per year.





Under all
of our employment agreements we agree to pay all income and social taxes and
government pension fund payments due under the applicable laws of Kazakhstan for
our named executive officers.  This does not include the officer’s
home base income or other taxes in the case of expatriates.





Income
tax





As is the custom in Kazakhstan, we pay
the income taxes of our employees, including the named executive
officers.  The income tax rate for individuals in Kazakhstan is
currently 10%.





Social
tax





We make payments of mandatory
Kazakhstani social taxes at rate of 11% of an employee’s wages.  These
costs are recorded in the period when they are incurred and presented as salary
related tax expense in the income statement.





Summary
Compensation Table





The table below summarizes compensation
paid to or earned by our principal executive officer and our two most highly
compensated executive officers in addition to our principal executive officer,
who we refer to collectively as our “named executive
officers.”  Except for the listed named executive officers, we had no
other employee whose total compensation exceeded $100,000 during the year ended
December 31, 2009.












Name
      and
              Principal Position
            
            Year
            
            Salary(1)
            
            Stock
              Awards(2)
            
            All
      Other
              Compensation
            
            TotalYermek Kudabayev(3)
            
            2009
            
            $160,600
            
            $           0
            
            $47,612
            
            $208,212CEO,
      President and Director
            
            2008
            
            $180,000
            
            $  30,674
            
            $53,161
            
            $263,835Zhassulan Bitenov(4)
            
            2009
            
            $98,200
            
            $           0
            
            $31,325
            
            $129,525CFO
            
            2008
            
            $108,000
            
            $306,743
            
            $30,985
            
            $445,728Dossan
      Kassymkhanuly
            
            2009
            
            $101,300
            
            $           0
            
            $31,498
            
            $132,798Vice-President
      and Director
            
            2008
            
            $120,000
            
            $           0
            
            $34,024
            
            $154,024





(1)
            The legislation of the Republic of Kazakhstan requires
      reflecting the base salaries in standard statutorily required employment
      agreements and making payments of the salaries and other compensations in
      Tenge, the local currency. As a result, the base salary amounts indicated
      in the employment agreements are in Tenge at the fixed exchange rate of
      127 Tenge/US Dollar which was adopted in 2005 when the representative
      office in Kazakhstan was established while the table above represents US
      Dollar amounts at the actual rates at the date of payments. On February 4,
      2009 Kazakhstan’s National Bank dramatically devalued the Tenge, from a
      corridor of 117-123 Tenge/US Dollar to 145-155 Tenge/US Dollar. As a
      result of the devaluation, the US Dollar value of base salaries decreased
      accordingly. However, because of financial difficulties due to global
      financial crisis, the management decided not to increase base salaries in
      order to reflect the US Dollar value prior to the Tenge
    devaluation.




(2)
            Represents
      the dollar amount recognized for financial statement reporting purposes in
      accordance with ASC Topic 718 with respect to restricted stock grants
      awarded on March 25, 2008.  The restricted stock grants were
      valued at $0.80 per share, which represented the closing market price for
      our common stock on the date of grant. The grant date fair value is based
      on the probable outcome of the performance condition, determined as of the
      grant date.  The 2008 award values were recalculated from
      amounts shown in prior annual reports and/or proxy statements to reflect
      their grant date fair values, as required by SEC rules effective for
      2010.(3)
            On
      March 25, 2008, the restricted stock grant of 383,429 awarded to Mr.
      Kudabayev in October 2006 was increased by 38,343 shares to
      421,772.  The restricted stock grant vested as
      follows:  95,857 shares vested in April 2007; 115,029 shares
      vested in April 2008.  The final 210,886 shares vested in April
      2009.(4)
            
            On
      March 25, 2008, Mr. Bitenov was awarded a restricted stock grant of
      383,429 shares, which vest as follows: 95,857 shares on January 3, 2009;
      95,857 shares on January 3, 2010 and 191,715 shares on January 3,
      2011.  Vesting of Mr. Bitenov’s stock grants is contingent upon
      the Company timely filing its reports with the U. S. Securities and
      Exchange Commission during each fiscal year.  Mr. Bitenov
      forfeits any unvested grants at the time his employment with the Company
      terminates.  Mr. Bitenov has informed the Company of his
      intention to resign as Chief Financial Officer in April,
      2010.  As a result, he will not be eligible for shares that
      would have vested in 2011.





Valuation of Stock
Awards





On March 25, 2008, the board awarded a
38,343 share restricted stock grant to Yermek Kudabayev and a 383,429 share
restricted stock grant to Zhassulan Bitenov with an estimated fair value of
$337,418 at the closing market price of common stock on the date of grant ($0.80
per share).





As of December 31, 2009, there was
$6,390 of total unexpensed compensation cost.  The cost is expected to
be recognized over a period of one year. 184,510 and 184,510 shares vested
during 2009 and 2008, respectively.  The Company recognized $301,028
and $585,745 of compensation expense for the years ended December 31, 2009 and
2008, respectively.










A summary of the non-vested stock under
the Stock Option Plan follows:





Non-Vested
              Shares
            
            Weighted-Average
              Grant
      Date
              Fair
      ValueNon-vested
      at December 31, 2007
            
            496,013
            
            $     1.95Stock
      Granted
            
            421,772
            
            0.80Stock
      Vested
            
            (184,510)
            
            1.83Stock
      Cancelled
            
            -
            
            -Non-vested
      at December 31, 2008
            
            733,275
            
            $     1.32Stock
      Granted
            
            -
            
            -Stock
      Vested
            
            (445,703)
            
            1.60Stock
      Cancelled
            
            (191,715)
            
            0.80Non-vested
      at December 31, 2009
            
            95,857
            
            $    0.80





Stock
cancelled is that portion of the shares granted to Mr. Bitenov that have not yet
vested and are not expected to vest due to the anticipated resignation of Mr.
Bitenov in April 2010.




All
Other Compensation





The table below provides additional
information regarding “all other compensation” awarded to the named executive
officers as disclosed in the “All Other Compensation” column of the “Summary Compensation Table”
above.





Name
            
            Year
            
            IncomeTax
            
            Social
              Tax
            
            Medical
              Insurance
            
            PensionFund
            
            TotalYermek
      Kudabayev
            
            2009
            
            $     18,235
            
            $     19,211
            
            $      1,930
            
            $       8,236
            
            $       47,6122008
            
            25,998
            
            15,048
            
            3,684
            
            8,431
            
            53,161Zhassulan
      Bitenov
            
            2009
            
            $     10,919
            
            $     11,517
            
            $         653
            
            $       8,236
            
            $       31,3252008
            
            12,839
            
            8,468
            
            1,247
            
            8,431
            
            30,985Dossan
      Kassymkhanuly
            
            2009
            
            $     10,670
            
            $     12,006
            
            $      1,176
            
            $       7,646
            
            $       31,4982008
            
            14,200
            
            9,149
            
            2,244
            
            8,431
            
            34,024





Base
Salary





As
discussed above, our employment agreements provide for an annual
salary.  Base salary may be increased from time to time with the
approval of the board of directors.  Base salary may not be decreased
without the written consent of the named executive officer. The agreements
provide for statutory requirements related to the rights of employees, base
salary, payment of income and social taxes and pension fund
obligations.





Due to
the significant decrease of the Company’s activity caused by sale of Kaznickel
and Company’s inability to obtain financing, the current involvement of Mr.
Kassymkhanuly in our day-to-day operations has decreased
significantly.  As a result, Mr. Kassymkhanuly has agreed to terminate
his annual salary, effective from March 1, 2010.  Commencing March 1,
2010, he will be compensated only the annual director fees and other fees and
compensation paid to the members of our board of directors for their
service.










Grants
of Plan-Based Awards Table for Fiscal Year 2009





No grants
of any plan-based awards were made to any of the named executive officers during
the 2009 fiscal year.





Outstanding
Equity Awards at Fiscal Year End





None of
the named executive officers held unexercised stock options at December 31,
2009.  The following table sets forth information concerning all
unvested restricted stock grants and equity incentive plan awards for each of
the named executive officers as of December 31, 2009.




Stock AwardsName
            
            Equity
      Incentive Plan Awards:
              Number
      of Unearned Shares, Units or Other Rights That Have Not Vested (#)
            
            Equity
      Incentive Plan Awards:
              Market
      or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)Zhassulan
      Bitenov
            
            95,857(1)
            
            $6,710(2)





(1)
            In
      March 2008 the board of directors voted to grant restricted stocks to Mr.
      Bitenov. His shares vest as follows:  one-fourth (95,857 shares)
      in January 2009 and one-fourth (95,857 shares) in January 2010, provided
      that the Company has timely filed its reports with Securities and Exchange
      Commission. The final one-half (191,715 shares) will vest in January
      2011.  Vesting during each year is contingent upon the Company
      timely filing of its reports with the Securities and Exchange Commission
      each year.  Moreover, vesting in the third year is also
      contingent upon the Company having commenced commercial operations. Any
      unvested shares at the time Mr. Bitenov’s employment with the Company
      ceases, for any reason, shall be forfeited back to the
      Company.  All shares underlying the award were issued at the
      time of grant and are being held in escrow by the Company subject to the
      vesting schedule placed on the grant.  Mr. Bitenov have the
      right to vote the shares, receive dividends and enjoy all other rights of
      ownership over the entire grant amount, except for the right to dispose of
      or otherwise encumber the shares prior to satisfying the applicable
      vesting requirement.  In December 2009 Mr. Bitenov informed the
      Company of his intention to resign as the Company’s Chief Financial
      Officer in April 2010.  As a result, 191,715 shares were
      forfeited back to the Company.  The table above represents only
      shares of Mr. Bitenov vested in January 2010.(2)
            The
      market value of the unearned shares is computed by multiplying the closing
      market price of the Company’s stock at the end of the last completed
      fiscal year ($0.07 per share) by the number of unearned shares that have
      not vested.





Option
Exercises and Stock Vested





None of
the named executive officers exercised options during the 2009 fiscal
year.  The following table sets forth the number of restricted stock
awards that vested to our named executive officer during fiscal 2009 and the
aggregate dollar amount realized by our named executive officer on
vesting.

















Stock AwardsName
            
            Number
      of Shares
              Acquired on Vesting (#)
            
            Value Realized on Vesting
    ($)Yermek
      Kudabayev
            
            210,886
            
            $4,218(1)Zhassulan
      Bitenov
            
            95,857
            
            $9,586(2)





(1)
            These
      shares vested on April 7, 2009.  Value realized on vesting was
      calculated based on a closing market price of $0.02 per share, which was
      the closing market price of the Company’s common stock on April 7,
      2009.(2)
            These
      shares vested on January 3, 2009, which was a Saturday.  Value
      realized on vesting was calculated based on a closing market price of
      $0.01 per share for the Company’s common stock on January 5, 2009, the
      first trading day following the vesting
date.




Pension
Benefits




In
accordance with the legislative requirements of the Republic of Kazakhstan
during 2009 we paid government mandated pension fund payments for each of the
named executive officers.  We do not have any other liabilities
related to any supplementary pensions, post retirement health care, insurance
benefits or retirement indemnities for any of the named executive
officers.





We offer no pension or other specified
retirement payments or benefits, including but not limited to tax-qualified
deferred benefit plans and supplemental executive retirement plans to its named
executive officers.





Nonqualified
Deferred Compensation





We offer no defined contribution or
other plan that provides for the deferral of compensation on a basis that is not
tax-qualified to any of our employees including the named executive
officers.





Potential
Payments upon Termination or Change-in-Control





Termination of Employment
Agreements





With the
exception of the employment agreements of Mr. Kudabayev and Mr. Bitenov, none of
the other named executive officers employment agreements provide for potential
payments upon the termination of their employment.





Should we
terminate the employment agreements of Mr. Kudabayev or Mr. Bitenov for good
reason, they shall be entitled to salary for the month in which he is terminated
and for the succeeding three calendar months.  An additional month
will be added up to a maximum of twelve months for each year of completed
service beginning after two full years of service.  This amount may be
reduced in the event Mr. Kudabayev or Mr. Bitenov obtains new employment prior
to the completion of the payment period.  If either is terminated for
cause he shall only be entitled to compensation through the date of
termination.  If either is terminated for disability he shall be
compensated for the remainder of the month and for three succeeding months or
until disability insurance benefits commence.  If employment is
terminated because of death Mr. Kudabayev or Mr. Bitenov shall be entitled to
compensation through the end of the calendar month in which his death occurs.
The phrase “for good reason” means any of the following: (a) the Company’s
material breach of the employment agreement; (b) the assignment of the
executive without his consent to a position, responsibilities, or duties of a
materially lesser status or degree of responsibility than his position,
responsibilities, or duties; or (c) the relocation of the Company’s
principal executive offices outside the Kazakhstan area; or (d) the
requirement by the Company that the executive be based anywhere other than the
Company’s principal executive offices, without the executive’s
consent.










Change-in-Control





None of
the employment agreements of our named executive officers provide for potential
payouts or other change in control benefits.




Compensation
of Directors





We offer cash compensation to attract
and retain candida tes to serve on our board of
directors.  We do not compensate directors who are also our employees
for their service on our board of directors.  Therefore, during 2009
Mr. Kudabayev, Mr. Kassymkhanuly and Nurlan Tajibayev did not receive any
compensation for their service on our board of directors. However, due to the
significant decrease of the Company’s activity caused by sale of Kaznickel and
Company’s inability to obtain financing, the current involvement of Mr.
Tajibayev and Mr. Kassymkhanuly in the Company’s operations has decreased
significantly.  As a result, Mr. Tajibayev and Mr. Kassymkhanuly have
agreed to terminate their annual salary, effective from March 1,
2010.  Commencing March 1, 2010, they will be compensated only the
annual director fees and other fees and compensation paid to the members
of our board of directors for their service.





Meeting
Fees





Members
of the board of directors who are not employees of the Company or one of its
subsidiaries are paid a $16,000 stipend per year, payable
quarterly.  Non-employee directors are paid $1,000 for each board
meeting attended in person plus reimbursement for travel expenses.





Equity
Compensation





We do not
currently have a fixed plan for the award of equity compensation to our
non-employee directors.





Director
Compensation Table





The following table sets forth a
summary of the compensation we paid to our directors for services on our board
during our 2009 fiscal year.





Name
            
            Fees
      Earned or
              Paid in Cash ($)
            
            All
      Other Compensation
($)
            
            Total ($)Timothy
      Adair
            
            $16,000
            
            -0-
            
            $16,000James
      Kohler
            
            $16,000
            
            -0-
            
            $16,000Valery
      Tolkachev
            
            $16,000
            
            -0-
            
            $16,000Yermek
      Kudabayev(1)
            
            -0-
            
            $208,212
            
            $208,212Dossan
      Kassymkhanuly(1)
            
            -0-
            
            $132,798
            
            $132,798Nurlan
      Tajibayev(2)
            
            -0-
            
            $70,211
            
            $70,211




(1)
            In
      addition to being directors Mr. Kudabayev and Mr. Kassymkhanuly are also
      Company employees, and therefore do not qualify for compensation paid to
      our non-employee directors.  For details regarding compensation
      paid to Mr. Kudabayev and Mr. Kassymkhanuly in their capacity as employees
      of the Company please see the Summary Compensation
      Table above.(2)
            
            In
      addition to being a director, Mr. Tajibayev was also employed as the
      Company’s Vice President of Metallury during fiscal 2009, and therefore
      did not qualify for compensation paid to our non-employee
      directors.  The compensation paid to Mr. Tajibayev during our
      2009 fiscal year consisted of salary of $51,000 and
      all other
      compensation of $19,211.  All other compensation
      consisted of income tax paid of $5,744; social tax paid of $6,432; medical
      insurance premiums of $653 and pension fund payment of
      $6,382.  Due to the significant decrease of the Company’s
      activity, the current involvement of Mr. Tajibayev in our day-to-day
      operations has decreased significantly.  As a result, Mr.
      Tajibayev has agreed to terminate his annual salary, effective from March
      1, 2010.  Commencing March 1, 2010, he will be compensated only
      the annual director fees and other fees and compensation paid to the
      members of our board of directors for their
  service.

















Item
12.                      Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters





The following table sets forth as of
March 4, 2010 the name and the number of shares of our common stock, par value
of $0.001 per share, held of record or beneficially by each person who held of
record, or was known by us to own beneficially, more than 5% of the 125,172,011
issued and outstanding shares of our common stock, and the name and
shareholdings of each director and of all officers and directors as a
group.





Type of Security
            
            Name and Address
            
            Amount & Nature of Beneficial
      Ownership
            
            % of ClassCommon
            
            Hsuih
      Chi Hun(1)
            
            33,404,080
            
            27%1/F.,
      Chap Biu BuildingTai
      Po Market, 15 On Fu RoadNew
      Territories, Hong Kong, S.A.R.ChinaCommon
            
            Brisa
      Equities Corporation(1)
            
            21,000,000
            
            17%1020
      East 900 SouthBountiful,
      Utah 84010Common
            
            White
      Hill Trust(2)
            
            21,482,941
            
            17%60
      Azerbayev StreetOffice
      1Almaty,
      Kazakhstan 050099Common
            
            Central
      Asian Metals, Inc.(2)
            
            20,400,408
            
            16%P.O.
      Box 5251CH
      6901Lugano,
      SwitzerlandCommon
            
            Unicredit
      Bank AG
            
            21,000,000
            
            17%120
      London WallLondon
      EC2Y E5TUnited
      KingdomCommon
            
            Jamestown
      Financial, Inc.(3)
            
            21,093,880
            
            17%Akara
      Building, 24 de Castro St.Wickhams
      Cay I, PO Box 36Road
      Town, Tortola, BVICommon
            
            Yermek
      Kudabayev(4)
      (5)
            
            421,772
            
            *170
      Tchaikovsky Street4th
      FloorAlmaty,
      Kazakhstan 050000Common
            
            Zhassulan
      Bitenov(4)
      (5)
            
            383,429
            
            *170
      Tchaikovsky Street4th
      FloorAlmaty,
      Kazakhstan 050000





















Common
            
            Nurlan
      Tajibayev(4)
      (5)
            
            191,715
            
            *170
      Tchaikovsky Street4th
      FloorAlmaty,
      Kazakhstan 050000Common
            
            Dossan
      Kassymkhanuly(5)
            
            -0-
            
            *170
      Tchaikovsky Street4th
      FloorAlmaty,
      Kazakhstan 050000Common
            
            James
      Kohler(5)
            
            -0-
            
            *2011
      Maple View DriveBountiful,
      Utah 84101Common
            
            Timothy
      Adair(5)
            
            -0-
            
            *5062
      W. Amelia Earhart DriveSalt
      Lake City, Utah 84116Common
            
            Valery
      Tolkachev(5)
            
            -0-
            
            *170
      Tchaikovsky Street, 4th FloorAlmaty,
      KazakhstanOfficers,
      Directors and Nominees
            
            996,376
            
            *as
      a Group: (7 persons)







*
            Less
      than 1%.(1)
            Mr.
      Hsuih Chi Hun owns no shares in his own name.  However, he
      maintains voting and investment control over 21,000,000 shares held of
      record by Brisa Equities, Inc., as well as 5,110,200 shares held of record
      by Landsgate Marketing Limited, 5,097,960 shares held of record by
      Comodidad y Fantasia en Tierra, S.A. and 2,195,920 shares held of record
      by Las Tierras del Deleite, S.A., and therefore may be deemed to be the
      beneficial owner of the shares held by these entities.(2)
            The
      shares attributable to the White Hill Trust. include 20,400,408 held of
      record by Central Asian Metals, Inc. and 1,082,445 shares held of record
      by Munivac Global Ventures Inc.  The White Hill Trust is the
      sole shareholder of Central Asian Metals, Inc., and the sole owner of
      Munivac Global Ventures Inc.  Mr. Mirbulat Abuov is the settlor
      of the White Hill Trust.  Brilliance Investments Ltd., as
      trustee of the White Hill Trust, maintains the voting and investment
      control over the shares attributable to White Hill Trust, and therefore,
      may be deemed to be the beneficial owner of the shares held by that
      entity.  Mr. Abouv is the beneficial owner of the shares
      attributable to the White Hill Trust.(3)
            Jamestown
      Financial, Inc. is a wholly-owned subsidiary of Stockton Properties
      Ltd.  As the parent company of Jamestown Financial, Inc.,
      Stockton Properties Ltd. may be deemed to have voting and investment power
      over the shares held of record by Jamestown Financial and therefore may be
      deemed to be the beneficial owner of the shares held by that
      entity.

















(4)
            On
      October 20, 2006 our board of directors awarded a restricted stock grant
      to  Mr. Kudabayev in the amount of 383,429 shares and to Mr.
      Tajibaev in the amount of 191,715 shares.  On March 25, 2008 the
      board of directors increased Mr. Kudabayev’s restricted stock grant by an
      additional 38,343 shares and awarded a restricted stock grant in the
      amount of 383,429 shares to Mr. Bitenov.  The awards vest over a
      period of three years.  As of the date of this report 421,772
      shares of Mr. Kudabayev award had vested, 191,715 shares of Mr. Tajibaev’s
      award had vested and 191,714 shares of Mr. Bitenov’s award  had
      vested.  The shares have been issued and are outstanding and are
      being held in escrow by the Company subject to the applicable vesting
      schedule for each grant.  The grantees have the right to vote
      the shares, receive dividends and enjoy all other rights of ownership over
      the entire grant amount from the grant date, except for investment control
      of the shares, which will not pass to these individuals until the shares
      vest.   Shares will vest to the grantee only if the grantee
      is employed by the Company on the applicable vesting date.  Any
      unvested shares at the time a grantee’s employment with the Company
      ceases, for any reason, shall be forfeited back to the
      Company.   For additional information regarding vesting
      dates and conditions see the section entitled “Securities Authorized for
      Issuance Under Equity Compensation Plans” below.(5)
            Mr.
      Kudabayev, Mr. Bitenov, Mr. Tajibaev and Mr. Kassymkhanuly are officers of
      the Company.  Mr. Kudabayev, Mr. Tajibaev, Mr. Kassymkhanuly,
      Mr. Kohler, Mr. Adair and Mr. Tolkachev are directors of the
      Company.





Change
in Control





To the knowledge of the management,
there are no present arrangements or pledges of our securities the operation of
which may at a subsequent date result in a change in control of the
Company.





Securities
Authorized for Issuance Under Equity Compensation Plans





Plan
      category
            Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
            Weighted-average
      exercise price of outstanding options, warrants and rights
            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a))(a)
            (b)
            (c)Equity
      compensation plans approved by security holders
            -0-
            $-0-
            1,916,877Equity
      compensation
              plans
      not approved by security holders
            -0-
            $-0-
            -0-Total
            -0-
            $-0-
            1,916,877





In March
2003, we adopted the EMPS Research Corporation 2003 Stock Option Plan (the
"Plan") reserving 5,000,000 common shares for distribution under the Plan. The
purpose of the Plan is to allow us to offer key employees, officers, directors,
consultants and sales representatives an opportunity to acquire a proprietary
interest in the Company. The various types of incentive awards which may be
provided under the Stock Option Plan enable us to respond to changes in
compensation practices, tax laws, accounting regulations and the size and
diversity of our business.












On
October 20, 2006 and March 25, 2008 the board agreed to award restricted stock
grants to the following four officers or employees of the
Company;





Name
            
            Position
      with the Company
            
            Number
      of SharesYermek
      Kudabayev
            
            Chief
      Executive Officer, President, Director
            
            421,772Zhassulan
      Bitenov
            
            Chief
      Financial Officer
            
            383,429Nurlan
      Tajibayev
            
            Vice
      President, Director
            
            191,715Alexander
      Rassokhin
            
            Exploration
      Manager
            
            86,207





The stock grants approved in October
2006 were valued at $1.95 per share, which represented the closing market price
of our stock on October 20, 2006.  The stock grants approved in March
2008 were valued at $0.80 per share. The stock grants were made under our 2003
Stock Option Plan.  The shares have been issued and are outstanding
and are being held in escrow by the Company subject to the applicable vesting
schedule for each grant.  The grantees have the right to vote the
shares, receive dividends and enjoy all other rights of ownership over the
entire grant amount from the grant date, except for the right to dispose of or
otherwise encumber the shares prior to satisfying the applicable vesting
schedule.  Shares will only vest to the grantee if the grantee is
employed by the Company on the applicable vesting date.  Any unvested
shares at the time a grantee’s employment with the Company ceases, for any
reason, shall be forfeited back to the Company.





As of the date of this report, all
shares awarded to Mr. Kudabayev, Mr. Tajibayev and Mr. Rassokhin have
vested.  191,714 shares have vested to Mr. Bitenov.  The
remaining 191,715 shares will not vest because he has informed the Company he
intends to resign his position with the Company in April 2010, which is prior to
the vesting date of the stock grant.





We have
issued no other securities under the Plan.





Item
13.                      Certain
Relationships and Related Transactions and Director Independence





During 2009 and 2008 we did not engage
in any transaction with any related person as defined by Rule 404 (Instructions to Item 404(a))
that exceeded the lesser of $120,000 or 1% of our average total assets at
December 31, 2009 and 2008 in which any related person had or will have a direct
or indirect material interest.





In
accordance with our written policies and procedures our management and board of
directors are charged with monitoring and reviewing issues involving potential
conflicts of interests and reviewing and approving all related party
transactions. In general, for purposes of our policy, a related party
transaction is a transaction, or a material amendment to any such transaction,
involving a related party and the Company that exceeds the lesser of $120,000 or
1% of our average total assets at our fiscal year end.  Our policy
requires our management or our board of directors to review and approve related
party transactions.  In reviewing and approving any related party
transaction or material amendment to any such transaction, management or the
board of directors must satisfy themselves that they have been fully informed as
to the related party’s relationship to the Company and interest in the
transaction and as to the material facts of the transaction, and must determine
that the related party transaction is fair to the Company.















Director
Independence





The board
has determined that Timothy Adair, James Kohler and Valery Tolkachev would each
qualify as an independent director as that term is defined in the listing
standards of the NYSE Amex.  Such independence definition includes as
series of objective tests, including that the director is not an employee of the
company and has not engaged in various types of business dealings with the
company.  In addition, as further required by the NYSE Amex listing
standards, the board of directors has made a subjective determination as to each
independent director that no relationships exist which, in the opinion of the
board of directors, would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director.





Item
14.                      Principal
Accountant Fees and Services





Hansen,
Barnett and Maxwell, P.C. served as our independent registered public accounting
firm for the years ended December 31, 2009 and 2008 and is expected to serve in
that capacity for the 2010 fiscal year.  Principal accounting fees for
professional services rendered for us by Hansen, Barnett & Maxwell, P.C. for
the years ended December 31, 2009 and 2008, are summarized as
follows:





2009
            2008Audit
            $97,719
            $143,055Tax
            4,886
            -Total
            $102,605
            $143,055





Audit Fees.  Audit
fees were for professional services rendered in connection with the Company’s
annual financial statement audits and quarterly reviews of financial statements
for filing with the Securities and Exchange Commission.





Tax Fees.  Tax fees
related to services for tax compliance and consulting.





Board of Directors Pre-Approval
Policies and Procedures.  At its regularly scheduled and
special meetings, the Board of Directors, in lieu of an established audit
committee, considers and pre-approves any audit and non-audit services to be
performed by our independent registered public accounting firm.  The
Board of Directors has the authority to grant pre-approvals of non-audit
services.





The board
of directors has not, as of the time of filing this Annual Report on Form 10-K
with the Securities and Exchange Commission, adopted policies and procedures for
pre-approving audit or permissible non-audit services performed by our
independent auditors. Instead, the board of directors as a whole has
pre-approved all such services. In the future, our board of directors may
approve the services of our independent registered public accounting firm
pursuant to pre-approval policies and procedures adopted by the board of
directors, provided the policies and procedures are detailed as to the
particular service, the board of directors is informed of each service, and such
policies and procedures do not include delegation of the board of director’s
responsibilities to our management.















The board
of directors has determined that the services provided by Hansen, Barnett &
Maxwell, P.C. described above are compatible with maintaining its independence
as our independent registered public accounting firm.





PART
IV





Item
      15.
            Exhibits
      and Financial Statement Schedules





(a)
            Documents filed as part of this
      report:





(1)  Financial
Statements





The
      following financial statements of the registrant are included in response
      to Item 8 of this annual report:Report
      of Independent Registered Public Accounting Firm.Consolidated
      Balance Sheets - December 31, 2009 and 2008.Consolidated
      Statements of Operations for the years ended December 31, 2009and 2008 and
      for the period from March 5, 2004 (Date of Inception) through December 31,
      2009.Consolidated
      Statements of Shareholders’ Equity (Deficit) for the years ended December
      31, 2009and
      2008, and for the period from March 5, 2004 (Date of Inception) through
      December 31, 2009.Consolidated
      Statements of Cash Flows for the years ended December 31, 2009 and 2008,
      and for the period from March 5, 2004 (Date of Inception) through December
      31, 2009.Notes
      to Consolidated Financial
Statements.





(2)  Financial Statement
Schedules





None.





(b)
Exhibits:





Exhibit
      No.
            
            Exhibit
      Description3.1
            
            Articles
      of Incorporation(1)3.2
            
            Amended
      Articles of Incorporation(1)3.3
            
            Bylaws(1)3.4
            
            Amendment
      to Articles of Incorporation(2)3.5
            
            Articles
      of Amendment to Articles of Incorporation*4.1
            
            2003
      Stock Option Plan(1)9.1
            
            Voting
      Trust Agreement(3)10.1
            
            Assignment
      of Patents(1)10.2
            
            Subcontract
      Agreement(1)

















Exhibit
      No.
            
            Exhibit
      Description10.3
            
            Private
      Equity Credit Agreement(4)10.4
            
            Plan
      and Agreement of Reorganization among EMPS Research Corporation and
      Condesa Pacific S,A. and the Shareholders of Condesa Pacific S.A. dated
      December 3, 2004(5)10.5
            
            Acquisition
      Agreement among Bekem Metals, Inc. and Kazakh Metals Inc. and the
      Shareholders of Kazakh Metals Inc. dated October 24, 2005(6)10.6
            
            Registration
      Rights Agreement(7)10.7
            
            Employment
      Agreement – Yermek Kudabayev(8)10.8
            
            Restricted
      Stock Grant Agreement – Marat Cherdabayev(8)10.9
            
            Restricted
      Stock Grant Agreement – Yermek Kudabayev(8)10.10
            
            Restricted
      Stock Grant Agreement – Nurlan Tajibayev(8)10.11
            
            Restricted
      Stock Grant Agreement – Alexandr Rassokhin(8)10.12
            
            Amended
      Employment Agreement – Yermek Kudabayev(9)10.13
            
            Amended
      Restricted Stock Grant Agreement – Yermek Kudabayev(9)10.14
            
            Amended
      Restricted Stock Grant Agreement – Nurlan Tajibayev(9)10.15
            
            Employment
      Agreement – Zhassulan Bitenov(9)10.16
            
            Restricted
      Stock Grant Agreement – Zhassulan Bitenov(9)10.17
            
            Loan
      Agreement(10)10.18
            
            Addendum
      No. 1 to Loan Agreement(10)10.19
            
            Pledge
      Agreement(10)10.20
            
            Addendum
      No. 1 to Pledge Agreement(10)10.21
            
            Memorandum
      of Understanding(11)10.22
            
            Sale
      and Purchase Agreement between Bekem Metals, Inc. and Ertis Ferronickel
      Works LLP, dated November 3, 2009(12)10.23
            
            Money
      Obligations Offset Agreement dated 11 November 2009(13)10.24
            
            Assignment
      and Assumption Agreement dated, 13 August 2009, between Bekem Metals,
      Inc., Kyzyl Kain Mamyt LLP, GRK Koitas LLP and Latimer Assets, Inc.(13)10.25
            
            Contract
      of nickel-cobalt ores extraction at Novo-Shandashinsky, Vostochno
      Shandashinsky, III-Shandashinsky, Shirpakainsky, Kara-Obinsky and
      Steninsky Deposits in Aktyubinsk oblast of the Rebulic of Kazakhstan
      (English translation)*10.26
            
            Addendum
      to the Contract as of 15 July 1997 for mining of nickel-cobalt ore at
      Novo-Shandashinsk, East – Shandashinsk, III -  Shandashinsk,
      Shirpakainsk, Kara-Obinsk and Stepninsk deposits in Aktyubinsk oblast of
      the Republic of Kazakhstan in accordance with the Licenses series MG Nos.
      414, 415, 420, 421, 425 and 426 as of 12 October 1995 between the Ministry
      of Energy and Mineral Resources of the Republic of Kazakhstan and Joint
      Venture “Kempirsaisk Mine Group” (English translation)*10.27
            
            Addendum
      No. 2 to the Contract for mining of nickel-cobalt ore at Novo-Shandashinsk
      and Kara-Obinsk deposits in Aktyubinsk oblast of the Republic of
      Kazakhstan in accordance with the Licences No.420 and No.426 as of
      12.10.95 (English translation)*

















Exhibit
      No.
            
            Exhibit
      Description10.28
            
            Addendum
      No. 3 to the Contract as of 15 July 1997 for mining of nickel-cobalt ore
      at Novo-Shandashinsk and Kara-Obinsk deposits in Aktyubinsk oblast
      (English translation)*10.29
            
            Addenda
      No.4  to the Contract dated 15 July 1997 for mining of
      nickel-cobalt ore at Novo-Shandashinsk and Kara-Obinsk deposits in
      Aktyubinsk oblast of the Republic of Kazakhstan(14)10.30
            
            Contract
      on work on Extraction of brown coal on East - Ural a
      deposit
              (A
      site East - Ural) Located in the Aktyubinsk area Kazakhstan Republic
      (English translation)*14.1
            
            Code
      of Ethics(15)21.1
            
            List
      of Subsidiaries*31.1
            
            Certification
      of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-
      Oxley Act of 2002*31.2
            
            Certification
      of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-
      Oxley Act of 2002*32.1
            
            Certification
      of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-
      Oxley Act of 2002*32.2
            
            Certification
      of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-
      Oxley Act of 2002*





*  Filed
herewith.


(1)
Incorporated by reference to registrant’s Registration Statement on Form 10-SB
as filed with the Commission on March 25, 2003.


(2)Incorporated by reference to Registrant’s Current Report on Form 8-K as
filed with the Commission on March 16, 2005.


(3)  Incorporated
by reference to Registrant’s Annual Report on Form 10-KSB for the year ended
December 31, 2005 as filed with the Commission on April 17, 2006.


(4)Incorporated
by reference to Registrant’s Quarterly Report on Form 10-QSB for the quarter
September 30, 2003 as filed with the Commission on November 14,
2003.


(5)  Incorporated
by reference to Registrant’s Current Report on Form 8-K as filed with the
Commission on February 2, 2005.


(6)  Incorporated
by reference to Registrant’s Current Report on Form 8-K as filed with the
Commission on October 28, 2005.


(7)  Incorporated
by reference to Registrant’s Current Report on Form 8-K as filed with the
Commission on July 18, 2006.


(8)  Incorporated
by reference to Registrant’s Annual Report on Form 10-KSB for the year ended
December 31, 2006 as filed with the Commission on April 2, 2007.


(9)  Incorporated
by reference to Registrant’s Current Report on Form 8-K as filed with the
Commission on March 28, 2008.


(10)  Incorporated
by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2008 as filed with the Commission on August 14, 2008.


(11)  Incorporated
by reference to Registrant’s Current Report on Form 8-K as filed with the
Commission on February 17, 2009.


(12)  Incorporated
by reference to Registrant’s Current Report on Form 8-K as filed with the
Commission on November 5, 2009.


(13)  Incorporated
by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2009 as filed with the Commission on November 13,
2009.


(14)  Incorporated
by reference to Registrant’s Current Report on Form 8-K/A-1 as filed with the
Commission on December 29, 2009.


(15)  Incorporated
by reference to Registrant’s Annual Report on Form 10-KSB for the year ended
December


31, 2004
as filed with the Commission on April 15, 2005.






SIGNATURES





Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed by the undersigned, thereunto duly
authorized.





BEKEM
      METALS, INC.Date:  April
      13, 2010
            
            By:
            /s/
      Yermek KudabayevYermek
      KudabayevChief
      Executive Officer and President(Duly
      Authorized Representative)





Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dated indicated.





Signatures
            
            Title
            
            Date/s/
      Yermek Kudabayev
            
            Chief
      Executive Officer,
            
            April
      13, 2010Yermek
      Kudabayev
            
            Presidentand
      Director/s/
      Zhassulan Bitenov
            
            Chief
      Financial Officer
            
            April
      13, 2010Zhassulan
      Bitenov/s/
      Timothy Adair
            
            Director
            
            April
      13, 2010Timothy
      Adair/s/
      Dossan Khassymkhanuly
            
            Director
            
            April
      13, 2010Dossan
      Khassymkhanuly/s/
      James Kohler
            
            Director
            
            April
      13, 2010James
      Kohler/s/
      Nurlan Tajibayev
            
            Director
            
            April
      13, 2010Nurlan
      Tajibayev/s/
      Valery Tolkachev
            
            Director
            
            April
      13, 2010Valery
      Tolkachev
















BEKEM
METALS, INC. AND SUBSIDIARIES





(An
Exploration Stage Company)





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


AND


FINANCIAL
STATEMENTS





December
31, 2009 and 2008








HANSEN,BARNETT & MAXWELL, P.C.
 A
Professional Corporation
 CERTIFIED
PUBLIC ACCOUNTANTS





BEKEM
      METALS, INC. AND SUBSIDIARIES(An
      Exploration Stage Company)TABLE
      OF CONTENTSPageReport
      of Independent Registered Public Accounting Firm
            F-2Consolidated
      Financial Statements:Consolidated
      Balance Sheets – December 31, 2009 and 2008
            F-3Consolidated
      Statements of Operations for the yearsended
      December 31, 2009 and 2008, and for the period fromMarch
      5, 2004 (Date of Inception) through December 31, 2009
            F-4Consolidated
      Statements of Shareholders’ Equity (Deficit) for the years
      endedDecember
      31, 2009 and 2008, and for the period from March 5,2004
      (Date of Inception) through December 31, 2009
            F-5Consolidated
      Statements of Cash Flows for the years endedDecember
      31, 2009 and 2008, and for the period from March 5,2004
      (Date of Inception) through December 31, 2009
            F-6Notes
      to Consolidated Financial Statements
            F-7








F-1




HANSEN,BARNETT& MAXWELL,
    P.C.A
      Professional CorporationCERTIFIED
      PUBLIC ACCOUNTANTSANDBUSINESS
      CONSULTANTS5
      Triad Center, Suite 750Salt
      Lake City, UT 84180-1128Phone:
      (801) 532-2200Fax:
      (801) 532-7944www.hbmcpas.com


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and the Shareholders


Bekem
Metals, Inc. and Subsidiaries





We have
audited the accompanying consolidated balance sheets of Bekem Metals, Inc. and
Subsidiaries (an Exploration Stage Company) as of December 31, 2009 and 2008,
and the related consolidated statements of operations, shareholders’ equity
(deficit), and cash flows for the years ended December 31, 2009 and 2008, and
for the period from March 5, 2004 (Date of Inception) through December 31,
2009.  These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In our
opinion the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Bekem Metals, Inc. and
Subsidiaries as of December 31, 2009 and 2008, and the results of its operations
and its cash flows for the years ended December 31, 2009 and 2008, and for the
period from March 5, 2004 (Date of Inception) through December 31, 2009 in
conformity with U.S. generally accepted accounting principles.





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has a limited operating history and is at the
exploration stage with respect to mineral interests, having not started
production.  The Company is dependent upon debt or equity infusions to
meet its work program requirements under certain government mineral
licenses.  These factors, combined with the current global financial
crisis and the decline in nickel prices, raise substantial doubt about its
ability to continue as a going concern. Management’s plans regarding those
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.





/s/HANSEN, BARNETT & MAXWELL,
P.C.


Salt Lake
City, Utah


April 12,
2010







F-2





BEKEM
      METALS, INC. AND SUBSIDIARIES(An
      Exploration Stage Company)CONSOLIDATED
      BALANCE SHEETSDecember
      31,
            
            December
      31,2009
            
            2008ASSETSCurrent
      AssetsCash
            
            $
            534,619
            
            $
            115,458Trade
      accounts receivable
            
            
            22,439
            
            
            58,238VAT
      recoverable
            
            
            179,012
            
            
            229,293Inventories
            
            
            542,245
            
            
            735,111Note
      receivable from related party
            
            
            -
            
            
            15,066,328Prepaid
      expenses and other current assets
            
            
            46,444
            
            
            94,875Deferred
      compensation
            
            
            6,390
            
            
            351,779Total
      Current Assets
            
            
            1,331,149
            
            
            16,651,082Property,
      plant and mineral interests (net of accumulateddepreciation
      of $564,990 and $494,369)
            
            
            2,852,697
            
            
            4,384,366Non-current
      deferred compensation
            
            
            -
            
            
            109,011Other
      assets
            
            
            41,883
            
            
            49,564Assets
      of discontinued operations
            
            
            -
            
            
            144,764Total
      Assets
            
            $
            4,225,729
            
            $
            21,338,787LIABILITIES
      AND SHAREHOLDERS' DEFICITCurrent
      LiabilitiesNotes
      payable to related parties
            
            $
            2,031,981
            
            $
            19,668,792Accounts
      payable
            
            
            122,610
            
            
            196,375Accrued
      expenses
            
            
            151,064
            
            
            247,117Advances
      received
            
            
            -
            
            
            59,562Due
      to related party
            
            
            -
            
            
            -Total
      Current Liabilities
            
            
            2,305,655
            
            
            20,171,846Asset
      retirement obligations
            
            
            911,297
            
            
            424,431Liabilities
      of discontinued operations
            
            
            -
            
            
            1,284,228Total
      Liabilities
            
            
            3,216,952
            
            
            21,880,505Commitments
      and Contingencies
            
            
            -
            
            
            -Shareholders'
      DeficitPreferred
      stock; $0.001 par value, 20,000,000 shares authorized,no
      shares outstanding
            
            
            -
            
            
            -Common
      stock; $0.001 par value, 300,000,000 shares authorized,
and124,980,296
      and 125,172,011 shares issued and outstanding,
respectively
            
            
            124,980
            
            
            125,172Additional
      paid-in capital
            
            
            28,387,055
            
            
            28,540,235Accumulated
      deficit
            
            
            (30,229,302)
            
            
            (30,272,874)Accumulated
      other comprehensive income
            
            
            2,726,044
            
            
            1,065,749Total
      Shareholders' Equity (Deficit)
            
            
            1,008,777
            
            
            (541,718)Total
      Liabilities and Shareholders' Equity (Deficit)
            
            $
            4,225,729
            
            $
            21,338,787











The
accompanying notes are an integral part of these financial
statements.
 
 F-3





BEKEM
      METALS, INC. AND SUBSIDIARIES(An
      Exploration Stage Company)CONSOLIDATED
      STATEMENTS OF OPERATIONSFor
      the Years Ended
              December
      31,
            
            For
      the Period from March 5, 2004 (Date of Inception)
  through2009
            
            2008
            
            December
      31, 2009Revenue
            
            $
            -
            
            $
            -
            
            $
            -Operating
      ExpensesGeneral
      and administrative expenses
            
            
            2,363,977
            
            
            4,068,004
            
            
            13,437,423Research
      and development costs
            
            
            -
            
            
            240,832
            
            
            1,057,970Exploratory
      costs
            
            
            124,886
            
            
            763,405
            
            
            2,915,757Loss
      from impairment of property
            
            
            556,500
            
            
            8,642,958
            
            
            10,243,178Accretion
      expense on asset retirement obligations
            
            
            566,155
            
            
            10,755
            
            
            599,853Grant
      compensation expense
            
            
            301,028
            
            
            585,745
            
            
            1,467,291Total
      Operating Expenses
            
            
            3,912,546
            
            
            14,311,699
            
            
            29,721,472Loss
      From Operations
            
            
            (3,912,546)
            
            
            (14,311,699)
            
            
            (29,721,472)Other
      Income/(Expense)Exchange
      gain from remeasurement
            
            
            36,055
            
            
            56,188
            
            
            51,734Exchange
      loss
            
            
            (2,521,226)
            
            
            (22,659)
            
            
            (2,936,878)Interest
      income
            
            
            75,853
            
            
            221,084
            
            
            707,250Interest
      expense
            
            
            -
            
            
            -
            
            
            (1,337,317)Other
      income, net
            
            
            320,989
            
            
            486,064
            
            
            951,358Net
      Other Income/(Expense)
            
            
            (2,088,329)
            
            
            740,677
            
            
            (2,563,853)Loss
      from Continuing Operations
            
            
            (6,000,875)
            
            
            (13,571,022)
            
            
            (32,285,325)Income
      (Loss) from Discontinued Operations (including gainon
      disposal of Kaznickel of $6,082,390 in 2009)
            
            6,044,447
            
            
            (1,777,953)
            
            
            (1,475,786)Net
      Income (Loss) Before Taxes
            
            
            43,572
            
            
            (15,348,975)
            
            
            (33,761,111)Deferred
      tax benefit
            
            
            -
            
            
            -
            
            
            3,390,601Consolidated
      Net Income (Loss)
            
            
            43,572
            
            
            (15,348,975)
            
            
            (30,370,510)Less:
      Loss attributable to noncontrolling interests
            
            
            -
            
            
            -
            
            
            141,208Net
      Income (Loss) Attributable To Shareholders of Bekem Metals
      Inc.
            
            $
            43,572
            
            $
            (15,348,975)
            
            $
            (30,229,302)Basic
      Loss per Common ShareLoss
      from continuing operations
            
            $
            (0.05)
            
            $
            (0.11)Income
      (loss) from discontinued operations
            
            
            0.05
            
            
            (0.01)Consolidated
      net income (loss)
            
            $
            0.00
            
            $
            (0.12)Weighted-Average
      Shares used inBasic
      Loss per Common Share
            
            
            125,172,011
            
            
            125,074,058





The
accompanying notes are an integral part of these financial
statements.
 
 F-4





BEKEM
      METALS, INC. AND SUBSIDIARIES(An
      Exploration Stage Company)CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)FOR
      THE PERIOD FROM MARCH 5, 2004 (DATE OF INCEPTION)  THROUGH
      DECEMBER 31, 2009Accumulated
            
            
            
            Deficit
      (Equity)Other
            
            
            
            Attributable
      to
            
            TotalCommon
      Stock
            
            Additional
            
            Comprehensive
            
            Accumulated
            
            Noncontrolling
            
            Shareholders'Shares
            
            Amount
            
            Paid-in
      Capital
            
            Income
            
            Deficit
            
            Interests
            
            Equity
      (Deficit)Balance
      - March 5, 2004(Date
      of inception)
            -
            
            $                   -
            
            $                        -
            
            $                          -
            
            $                            -
            
            $                           -
            
            $                           -Shares
      issued for cash, August 12, 2004
            8,400,000
            
            8,400
            
            174,274
            
            -
            
            -
            
            -
            
            182,674Shares
      issued for 60% interest inKaznickel,
      November 19, 2004,$0.02
      per share
            12,600,000
            
            12,600
            
            (12,600)
            
            -
            
            -
            
            -
            
            -Net
      loss for period
            
            
            -
            
            -
            
            -
            
            (366,872)
            
            121,782
            
            (245,090)Balance,
      December 31, 2004
            21,000,000
            
            $           21,000
            
            $              161,674
            
            $                          -
            
            $              (366,872)
            
            $                121,782
            
            $               (62,416)Net
      loss for period
            
            
            
            
            
            
            
            
            (1,290,563)
            
            19,426
            
            (1,271,137)Cumulative
      translation adjustment
            
            
            
            
            
            
            (17,293)
            
            
            
            
            
            (17,293)Comprehensive
      Loss
            
            
            
            
            
            
            
            
            
            
            
            
            $          (1,350,846)Noncontrolling
      interest shares issued inacquisition
      of EMPS ResearchCorporation,
      January 24, 2005
            -
            
            -
            
            (11,706)
            
            -
            
            -
            
            -
            
            (11,706)Shares
      issued for cash, August 8, 2005
            61,200,000
            
            61,200
            
            38,800
            
            -
            
            -
            
            -
            
            100,000Shares
      issued for the acquisition of thenoncontrolling
      interests of Bekem Metals,Inc.,
      October 24, 2005
            17,888,888
            
            17,889
            
            327,111
            
            -
            
            141,208
            
            (141,208)
            
            345,000Balance,
      December 31, 2005
            100,088,888
            
            $         100,089
            
            $              515,879
            
            $                (17,293)
            
            $           (1,516,227)
            
            $                         -
            
            $             (917,552)Net
      loss for period
            
            
            
            
            
            
            
            
            (4,706,122)
            
            -
            
            (4,706,122)Cumulative
      translation adjustment
            
            
            
            
            
            
            (12,923)
            
            
            
            -
            
            (12,923)Comprehensive
      Loss
            
            
            
            
            
            
            
            
            
            
            
            
            $          (5,636,597)Shares
      issued for cash, July 14, 2006 -net
      of fees of $1,577,614
            24,000,000
            
            24,000
            
            26,398,386
            
            -
            
            -
            
            -
            
            26,422,386Issue
      of Stock grants at 1.95 per share onOctober
      20, 2006
            1,083,123
            
            1,083
            
            2,111,007
            
            -
            
            -
            
            -
            
            2,112,090Balance,
      December 31, 2006
            125,172,011
            
            $         125,172
            
            $         29,025,272
            
            $                (30,216)
            
            $           (6,222,349)
            
            $                         -
            
            $          22,897,879Net
      loss for period
            
            
            
            
            
            
            
            
            (8,701,550)
            
            -
            
            (8,701,550)Cumulative
      translation adjustment
            
            
            
            
            
            
            1,118,317
            
            
            
            
            
            1,118,317Comprehensive
      Loss
            
            
            
            
            
            
            
            
            
            
            
            
            $          15,314,646Shares
      cancelled, June 30, 2007
            (421,772)
            
            (422)
            
            (822,033)
            
            -
            
            -
            
            -
            
            (822,455)Balance,
      December 31, 2007
            124,750,239
            
            $         124,750
            
            $         28,203,239
            
            $             1,088,101
            
            $         (14,923,899)
            
            $                         -
            
            $          14,492,191Net
      loss for period
            
            
            
            
            
            
            
            
            (15,348,975)
            
            -
            
            (15,348,975)Cumulative
      translation adjustment
            
            
            
            
            
            
            (22,352)
            
            
            
            
            
            (22,352)Comprehensive
      Loss
            
            
            
            
            
            
            
            
            
            
            
            
            $             (879,136)Issue
      of Stock grants at $0.80 per share onMarch
      25, 2008
            421,772
            
            422
            
            336,996
            
            -
            
            -
            
            -
            
            337,418Balance,
      December 31, 2008
            125,172,011
            
            $         125,172
            
            $         28,540,235
            
            $             1,065,749
            
            $         (30,272,874)
            
            $                         -
            
            $             (541,718)Net
      income for period
            
            
            
            
            
            
            
            
            43,572
            
            -
            
            43,572Cumulative
      translation adjustment
            
            
            
            
            
            
            1,660,295
            
            
            
            
            
            1,660,295Comprehensive
      Income
            
            
            
            
            
            
            
            
            
            
            
            
            $            1,162,149Shares
      cancelled, December 31, 2009
            (191,715)
            
            (192)
            
            (153,180)
            
            -
            
            -
            
            -
            
            (153,372)Balance,
      December 31, 2009
            124,980,296
            
            $         124,980
            
            $         28,387,055
            
            $             2,726,044
            
            $         (30,229,302)
            
            $                         -
            
            $            1,008,777





The
accompanying notes are an integral part of these financial
statements.
 
 F-5





BEKEM
      METALS, INC. AND SUBSIDIARIES(An
      Exploration Stage Company)CONSOLIDATED
      STATEMENTS OF CASH FLOWSFor
      the Years
              Ended
      December 31,
            
            For
      the Period from March 5, 2004 (Date of Inception) through2009
            
            2008
            December
      31, 2009Cash
      Flows from Operating ActivitiesNet
      income (loss)
            $
            43,572
            
            $
            (15,348,975)
            
            $
            (30,229,302)(Income)
      Loss from discontinued operations
            
            (6,044,447)
            
            
            1,777,953
            
            
            1,475,786Adjustments
      to reconcile net loss tonet
      cash provided by operating activities:Depreciation
      and amortization
            
            208,145
            
            
            244,708
            
            
            843,065Accretion
      expense on asset retirement obligations
            
            566,155
            
            
            10,755
            
            
            599,853Interest
      expense from debt discount
            
            -
            
            
            -
            
            
            963,231Shares
      issued on option modification
            
            -
            
            
            -
            
            
            19,426Deferred
      tax benefit
            
            -
            
            
            -
            
            
            (3,390,601)Foreign
      currency exchange loss / (gain) and loss / (gain)from
      remeasurement
            
            2,485,171
            
            
            (70,579)
            
            
            2,885,144Impairment
      loss on property, plant and mineral interests
            
            556,500
            
            
            8,642,958
            
            
            10,243,178Loss
      / (gain) on disposal of property and equipment
            
            38,232
            
            
            (196,115)
            
            
            (96,044)Stock
      grant compensation expense
            
            301,028
            
            
            585,745
            
            
            1,467,291Change
      in operating assets and liabilities:Trade
      accounts receivable
            
            35,799
            
            
            (56,003)
            
            
            (22,593)VAT
      recoverable
            
            110,900
            
            
            (26,531)
            
            
            (120,734)Inventories
            
            195,451
            
            
            82,151
            
            
            (540,217)Prepaid
      expenses and other current assets
            
            61,616
            
            
            (90,539)
            
            
            (77,031)Change
      in related party receivables / payables
            
            -
            
            
            -
            
            
            (206,171)Accounts
      payable
            
            (324,873)
            
            
            (167,008)
            
            
            (41,953)Advances
      received
            
            (59,562)
            
            
            59,795
            
            
            -Accrued
      expenses
            
            (31,345)
            
            
            43,340
            
            
            (6,730)Cash
      Used For Operating Activities - Continuing operations
            
            (1,857,658)
            
            
            (4,508,345)
            
            
            (16,234,402)Cash
      Used For Operating Activities - Discontinuing operations
            
            (293,511)
            
            
            (677,222)
            
            
            (5,816,257)Net
      Cash Used For Operating Activities
            
            (2,151,169)
            
            
            (5,185,567)
            
            
            (22,050,659)Cash
      Flows from Investing ActivitiesPurchase
      of property and equipment
            
            (82,400)
            
            
            (344,027)
            
            
            (4,051,384)Purchase
      of intangible assets
            
            (3,294)
            
            
            (2,271)
            
            
            (46,919)Proceeds
      from disposal of property and equipment
            
            90,877
            
            
            93,833
            
            
            471,217Loans
      provided to related parties
            
            -
            
            
            (14,900,000)
            
            
            (14,900,000)Cash
      received from sale of subsidiary
            
            5,000,000
            
            
            -
            
            
            5,000,000Cash
      acquired in acquisitions / received from discontinued
      operations
            
            1,867
            
            
            -
            
            
            52,364Cash
      From Investing Activities - Continuing operations
            
            5,007,050
            
            
            (15,152,465)
            
            
            (13,474,722)Cash
      Used For Investing Activities - Discontinuing operations
            
            -
            
            
            (1,363)
            
            
            425,377Net
      Cash From Investing Activities
            
            5,007,050
            
            
            (15,153,828)
            
            
            (13,049,345)Cash
      Flows from Financing ActivitiesProceeds
      from notes payable
            
            -
            
            
            -
            
            
            13,946,817Payments
      on notes payable
            
            -
            
            
            -
            
            
            (21,649,038)Proceeds
      from loans / notes payable - related parties
            
            -
            
            
            19,698,150
            
            
            18,210,606Payments
      on loans / notes payable - related parties
            
            (2,500,000)
            
            
            -
            
            
            (6,815,004)Issuance
      of shares for cash
            
            -
            
            
            -
            
            
            26,728,842Cash
      From Financing Activities - Continuing operations
            
            (2,500,000)
            
            
            19,698,150
            
            
            30,422,223Cash
      Used For Financing Activities - Discontinuing operations
            
            -
            
            
            -
            
            
            4,979,594Net
      Cash From Financing Activities
            
            (2,500,000)
            
            
            19,698,150
            
            
            35,401,817Effect
      of Exchange Rate Changes on Cash
            
            63,094
            
            
            (54)
            
            
            232,806Net
      (Decrease) / Increase in Cash
            
            418,975
            
            
            (641,299)
            
            
            534,619Cash
      at Beginning of Period
            
            115,458
            
            
            750,809
            
            
            -Cash
      at Beginning of Period - Discontinued Operations
            
            186
            
            
            6,134Cash
      at End of Period
            
            534,619
            
            
            115,644
            
            
            534,619Less
      Cash of Discontinued Operations at End of Period
            
            -
            
            
            (186)
            
            
            -Cash
      of Continuing Operations at End of Period
            $
            534,619
            
            $
            115,458
            
            $
            534,619Supplemental
      Disclosure for Cash Flow Information:For
      the year ended December 31,
            
            2009
            
            
            2008Cash
      paid for interest
            $
            -
            
            $
            -Cash
      paid for income taxes
            
            -
            
            
            -Non-Cash
      Investing and Financing ActivityShares
      cancelled due to resignation of CFO
            $
            153,372
            
            $
            -





The
accompanying notes are an integral part of these financial
statements.
 
 F-6
 
 BEKEM
METALS, INC. AND SUBSIDIARIES
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008





NOTE 1–BASIS OF PRESENTATION, NATURE OF
BUSINESS, AND SIGNIFICANT ACCOUNTING POLICIES





Company
History – The Company was incorporated in the State of Utah under the
name EMPS Research Corporation.  The name was changed to Bekem Metals,
Inc. on February 9, 2005 following the reverse acquisition with Condesa Pacific,
S.A. discussed below.  The Company’s primary business focus has been
exploring for nickel, cobalt and other minerals in Kazakhstan.  The
Company’s operations are considered to be at the exploratory stage.





Bekem Metals,
Inc. – Condesa and its wholly owned subsidiary Kaznickel, LLP acquired
Bekem in a reverse acquisition on January 28, 2005.  On July 24, 2006,
Condesa transferred its interest in Kaznickel to Bekem, making Kaznickel a
wholly-owned subsidiary of Bekem.  On September 30, 2006, Bekem sold
Condesa to a third party for a nominal value. Condesa is included in the
consolidated financial statements from the date of acquisition to the date of
disposal.





During
2009 Bekem sold Kaznickel to a third party for 280,000 Kazakh tenge
(approximately $1,867) and for repayment of $5,000,000 worth of loans owed to
Bekem by Kaznickel. Kaznickel is also included in the consolidated financial
statements from the date of acquisition to the date of disposal.





Kazakh Metals, Inc. – On
October 24, 2005, Bekem Metals, Inc. entered into an Acquisition Agreement with
Kazakh Metals, Inc., a British Virgin Islands international business company,
under which BMI acquired 100% of the outstanding common shares of KMI in
exchange for the issuance of 61,200,000 common shares.





The KMI
shareholders received 61.1% of the BMI common stock outstanding after the
transaction and therefore KMI was considered the acquirer for financial
reporting purposes. Accordingly, the accompanying financial statements include
financial statements of KMI for all periods presented.





Brisa
Equities Corporation, a British Virgin Islands holding company (“Brisa”),
together with other entities its owners control, was the controlling shareholder
of KMI and was also the controlling shareholder of BMI.  Accordingly,
the transaction was considered to be between entities under common control and
did not result in a change in control of BMI.  Following the
transaction, entities over which the controlling shareholder maintained voting
and investment control held 51,600,000 BMI common shares, which represented
51.5% of the 100,088,888 outstanding common shares.





The
acquisition of the portion of the net liabilities of BMI relating to the common
shares owned by the controlling shareholder was recorded at historical cost of
$(161,998).  The acquisition of the common shares of BMI purchased
from the noncontrolling shareholders of BMI were recorded at $345,000, which was
the estimated fair value of those shares on the date of
acquisition.  KMI accounted for the purchase of BMI similar to a
pooling.





Basis of
Presentation – The accompanying consolidated financial statements include
the accounts of Bekem Metals, Inc. (“BMI”, “Bekem” or the “Company”) and its
wholly owned subsidiaries Kazakh Metals, Inc. (“KMI”), Kyzyl Kain Mamyt LLP
(“KKM”) and the results of operations for 10 months of Kaznickel, LLP
(“Kaznickel”).  Intercompany accounts and transactions have been
eliminated in consolidation. The results of operations of KMI and BMI were
combined for all periods prior to the acquisition, with recognition of the
noncontrolling interest in BMI; the operations of BMI and KMI are consolidated
from October 24, 2005.








F-7
 
 BEKEM
METALS, INC. AND SUBSIDIARIES
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008





Foreign Currency
Transactions–
The consolidated financial statements are presented in U.S.
dollars.  The functional currency of Bekem Metals, Inc. is United
States Dollars (USD).





Kaznickel
made its principal investing and financing transactions in USD, which was also
its functional currency. Transactions and balances denominated in other
currencies were translated into USD using historical exchange rates. Exchange
gains and losses from holding foreign currencies and having liabilities payable
in foreign currencies were included in the results of operations.





The
Kazakh Tenge (KZT) is the functional currency of the operating subsidiary, KKM.
The respective balance sheets have been translated into USD at the exchange
rates prevailing at each balance sheet date. The respective statements of
operations have been translated into USD using the average exchange rates
prevailing during the periods of each statement. The corresponding translation
adjustments are part of accumulated other comprehensive income and are shown as
part of shareholders’ equity.





Nature
of Business





The
Company is engaged in the exploration of mineral resource
properties.





Kyzyl Kain Mamyt
LLP (“KKM”)- KKM holds exploration and production licenses from the
government of Kazakhstan to a 575,756 acre parcel, located approximately 130
kilometers northwest of Aktobe, Kazakhstan.  This deposit is referred
to as the Kempirsai deposit. The licenses grant KKM the right to explore for and
produce nickel and cobalt from deposits located within the territory through
October 12, 2020, which may be extended upon agreement between KKM and the
Ministry of Energy and Mineral Resources (MEMR).  KKM also holds a
license to explore for and produce Mamyt brown coal from a deposit located
within 40 kilometers of its cobalt and nickel deposit.  This license
expires on December 11, 2018 with further possible
extensions.  Because the Company does not have a reserve estimate for
its deposits that conforms to the standards of Industry Guide 7 issued by the U.
S. Securities and Exchange Commission, its operations were considered to be at
the exploratory stage for 2009 and 2008.





KKM
contracts and licenses call for the extraction of the following amounts of ore
from the Kempirsai deposit and brown coal from the Mamyt deposit and the
following investments in the ore mining and processing technology:





Kempirsai
      (1)
            Mamyt
      (2)Tons
      of Ore
            Investments,
              $
            Tons
      of BrownCoal2009
            -
            6,000,000
            200,0002010
            -
            26,500,000
            200,0002011
            -
            42,000,000
            200,0002012
            -
            36,500,000
            200,0002013
            800,000
            2,400,000
            200,0002014
            800,000
            2,000,000
            200,0002015
            1,000,000
            2,000,000
            200,0002016
            1,000,000
            2,000,000
            200,0002017
            1,500,000
            1,000,000
            200,0002018
            1,500,000
            1,000,000
            200,0002019
            1,600,000
            1,000,0002020
            1,234,900
            1,000,000Total
            9,434,900
            123,400,000
            2,000,000







(1)
              In
      December 2008, KKM received a notice from the MEMR that it has agreed to
      suspend ore mining requirements until the end of 2012 to allow KKM to
      focus on the construction of an ore processing facility. The notice
      indicated that under the annual work program, KKM is required to invest
      $135,000,000 in its mining and ore processing technology during the period
      from 2006 to 2020 (or $123.4 million for the remaining period). In
      December 2009, KKM signed an addendum to the nickel and cobalt ore
      production contract memorializing the amendments to KKM’s subsoil use
      contract to incorporate the changes set forth in the notice received in
      December 2008. The above table represents extraction and investment
      obligations indicated in the December 2009
  addendum.
  (2)
              In
      December 2009 KKM received a letter from the MEMR granting the Company’s
      request to decrease the coal volume production requirements of its work
      program from 200,000 tons per year to 5,000 tons per year for the period
      from 2009 to 2012. We anticipate an addendum to this license memorializing
      the changes to the annual work program requirements to be prepared some
      time in April 2010. These changes are not reflected in the above table and
      will be reflected when these changes are legally approved by the
      government by signing the new addendum to the existing subsoil use
      contract.


F-8
 
 BEKEM
METALS, INC. AND SUBSIDIARIES
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008










On
December 10, 2007, the MEMR unilaterally terminated KKM’s contracts and licenses
to explore for nickel, cobalt, brown coal, and other minerals within the
Kempirsai and the Mamyt deposits on the basis that KKM had material failures in
execution of the work programs associated with the contacts and licenses and did
not detail those failures. In January 2008, KKM filed an action in the Court of
Astana city against the MEMR challenging the legality of the unilateral
termination of the KKM contracts and licenses by the MEMR for several reasons,
including that the contracts and licenses had been terminated on grounds not
provided for in the subsoil use contracts and legislation and there were no
material failures in the execution of the work programs associated with the
contracts and licenses. In February 2008, the Court of Astana city acknowledged
that the unilateral termination of the contracts and licenses by the MEMR was
illegitimate. The Court canceled the order of the MEMR relating to the
unilateral termination of the licenses and reinstated the KKM contracts and
licenses. In March 2008, the MEMR appealed the decision of the Court of Astana
city to the Republic of Kazakhstan Supreme Court.  On April 22, 2008
the Supreme Court cancelled the MEMR’s unilateral termination and reinstated the
Company’s contracts and licenses to the Kempirsai deposit. On February 18, 2009
the General Prosecutor of the Republic of Kazakhstan lodged a protest to
the Supervisory board under the Supreme Court against the judgment of the Court
of Astana city and the Supreme Court canceling the unilateral termination of the
KKM contracts and licenses. Pursuant to the Code of Civil Procedure of the
Republic of Kazakhstan, the General Prosecutor may protest the decision of the
Supreme Court within one year of its determination. The General Prosecutor
asserts that the Court of Astana city and the Supreme Court wrongly applied the
substantive law and requests an order cancelling the decisions of the Court of
Astana city and the Supreme Court and reinstating the order unilaterally
cancelling the KKM contracts and licenses. The Company filed a formal objection
to the protest of the General Prosecutor. On March 18, 2009, the Supervisory
board under the Supreme Court rejected the protest of the General
Prosecutor.





Kaznickel, LLP
(“Kaznickel”) -Kaznickel owns the right to the Gornostayevskoye
(“Gornostai”) nickel and cobalt deposit located in the East Kazakhstan Oblast in
northeast Kazakhstan. The license is for exploration and production of cobalt
and nickel ores and is valid through February 26, 2026 providing commercial
discoveries are made before the end of the exploration period.





On
November 3, 2009 the Company and Ertis Ferronickel Works LLP (“Ertis”) executed
a definitive sale-purchase agreement. As a result, in November 2009 Kaznickel
was sold to Ertis. Ertis acquired 100% of the outstanding charter capital of
Kaznickel for 280,000 Kazakh tenge (approximately $1,867) and for repayment of
$5,000,000 of loans owed to Bekem Metals by Kaznickel.  Initial
payment of $500,000 was made on March 20, 2009. The remaining amount was paid in
November, 2009 after the Company signed a definitive sale-purchase agreement on
November 3, 2009.  The ten-month operations of Kaznickel during 2009
were included in the Company’s consolidated financial statements.





F-9
 
 BEKEM
METALS, INC. AND SUBSIDIARIES
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008





The
Company recognized a gain on disposal of Kaznickel during 2009 as
follows:





Proceeds
            $
            5,001,867Plus
      liabilities transferred
            
            2,097,769Less
      assets sold
            
            (105,854)Less
      intercompany loans written off
            
            (861,392)Less
      costs directly related to the sale
            
            (50,000)Gain
      on Disposal of Kaznickel
            $
            6,082,390




Business
Condition –The financial crisis
impacting the global economy has had a material effect on the Company’s
business. Metal prices fell sharply in 2008, making future forecasts problematic
and projected financial models unprofitable. Although prices have recovered some
during 2009, turning the projected financial models to positive expected
outcomes, they still remain vulnerable due to the continuing global economic
crisis making the Company’s access to equity and/or debt financing temporarily
impossible. In light of the uncertain economic environment, the Company has been
looking for private investors and/or potential purchasers of some of the
Company’s assets.





The
Kempirsai deposits have not yet entered the development stage with respect to
their mineral interests and have no production. The Company has realized only
limited revenue from the Kempirsai deposits and has very little ability to
generate revenue.  The Company does not expect this to change unless
it builds and begins operating a nickel ore processing plant. As discussed
above, the Company sold Kaznickel, however, the Company will need to raise
significant additional capital in order to maintain its current level of
operations and to fund construction of a processing plant.





Because
of a lack of funds, KKM did not fully meet the 2009 annual work program
requirements to invest up to $6 million into development of the Kempirsai
deposit, including construction of the processing plant.  The Company
anticipates the need to seek significant additional funding during fiscal 2010
to satisfy the 2010 annual work program obligations (to invest up to $26.5
million) and to satisfy the obligations KKM did not meet in
2009.  There is no assurance that the Company will be able to obtain
additional funding on favorable terms, or at all. If the Company is unsuccessful
in obtaining additional funding during 2010, the Company will likely have
insufficient funds to continue operations. If the Company cannot fulfill the
work program requirements, the Company could be subjected to the possible
forfeiture of the subsoil use contracts and licenses and current remediation of
approximately $950,000.





These
factors raise substantial doubt about the Company’s ability to continue as a
going concern.





Exploration
Stage Company





The
Company is currently an exploration stage company. As an exploration stage
enterprise, the Company discloses the deficit accumulated during the exploration
stage and the cumulative statements of operations and cash flows from inception
through the current balance sheet date.  The Company has incurred net
losses of $30,229,302 and used net cash in operations of $22,050,659 for the
period from March 5, 2004 (date of inception) through December 31, 2009. An
entity remains in the exploration stage until such time as proven or probable
reserves have been established for its deposits.





F-10
 
 BEKEM
METALS, INC. AND SUBSIDIARIES
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008





Significant
Accounting Policies





Use of Estimates– The preparation of the Company’s consolidated financial statements in
accordance with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts in the financial statements and accompanying
notes.  Actual results could differ from those estimates. The Company
bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the
circumstances.  Accordingly, actual results may differ significantly
from these estimates under different assumptions or conditions.





Revenue
Recognition – Since the Company is in the exploration stage, any
incidental sales of ore and Mamyt brown coal are recorded as a reduction of the
exploratory costs. Income from such sales is recognized when persuasive evidence
of an arrangement exists, title to product transfers to the customer, and
collectability is reasonably assured.





Inventories– Inventory consists of materials and spare parts, miscellaneous goods,
fuel and some raw materials. Spare parts, goods and fuel are recorded at the
lower cost or estimated service value.  The Company applies the
weighted average method of inventory costing.





Prepaid Expenses– Prepaid expenses relate to office rent, subscriptions, insurance and
advance drilling costs. Prepaid expenses are charged to operations in the period
the related service or work is performed.





Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed– Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount that the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to
sell.  During 2008, the Company recognized impairment of $565,171 on
its property and equipment used in the pilot plant under the previously applied
hydrochlorination technology that is no longer needed for the Vanyukov’s process
and $8,916,265 on its mineral interests, which included $838,478 related to
Kaznickel.  No further impairment of mineral interests was required
during 2009. During 2009, the Company recognized impairment of $556,500 on its
property and equipment to be used in the pilot plant under the Vanyukov’s
process.





Income taxes– Income taxes are calculated using the liability method of tax
accounting. Under this method, future income tax assets and liabilities are
computed based on temporary differences between the tax basis and carrying
amount on the balance sheet for assets and liabilities. Future income tax assets
and liabilities are calculated using tax rates anticipated to apply in the
periods that the temporary differences are expected to reverse.





Depreciation,
Depletion and Amortization– Costs incurred to develop new properties
will be capitalized as incurred, when it has been determined that the property
can be economically developed based on the existence of proven and probable
reserves.  All such costs will be amortized using the
units-of-production (“UOP”) method over the estimated life of the ore body based
on recoverable minerals to be mined from proven and probable
reserves.





Depreciation
of equipment used in exploration activities is calculated using the
straight-line method based on the estimated useful lives of the assets and is
charged to exploratory costs.





F-11
 
 BEKEM
METALS, INC. AND SUBSIDIARIES
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008





Expenditures
for new facilities or equipment and expenditures not related to exploration
activities and used for administrative and other operation purposes or that
extend the useful lives of existing facilities or equipment are capitalized and
depreciated using the straight-line method at rates sufficient to depreciate
such costs over the estimated future lives of such facilities or
equipment.  These lives do not exceed the estimated mine life as the
useful lives of these assets are considered to be limited to the life of the
relevant mine.





The
expected useful lives used in depreciation, depletion and amortization
calculations are determined based on applicable facts and circumstances, as
described above. Significant judgment is involved in the determination of useful
lives, and no assurance can be given that actual useful lives will not differ
significantly from the useful lives estimated for depreciation, depletion and
amortization calculations.





The
estimated useful lives for the property, plant and mineral interests are as
follows:





Useful
      Life (Years)Buildings
            20Machinery
      and equipment
            5-8Other
      fixed assets
            5-10





Mineral Interests– Mineral property acquisition costs, site restoration costs and
development costs on mineral properties with proven and probable reserves are
capitalized and will be depleted using the units-of-production method over the
estimated life of the reserves.  If there are insufficient reserves to
use as a basis for depleting such costs, they are written off as mineral
interest impairment in the period in which the determination is
made.  Site restoration costs are depleted over the term of their
expected life.  Interest costs are capitalized on mineral properties
and mineral interests in development.  The development potential of
mining properties is established by the existence of proven and probable
reserves, reasonable assurance that the property can be permitted as an
operating mine and evidence that there are no metallurgical or other impediments
to the production of saleable metals.





Exploration
costs incurred on mineral interests, other than acquisition costs, prior to the
establishment of proven and probable reserves are charged to operations as
incurred.  Development costs incurred on mineral interests with proven
and probable reserves will be capitalized as mineral interests.  The
Company regularly evaluates the investments in mineral interests to assess the
recoverability and / or the residual value of the investments in these
assets.  All mineral interests are reviewed for impairment whenever
events or circumstances change which indicate the carrying amount of an asset
may not be recoverable, utilizing established guidelines based upon undiscounted
future net cash flows from the asset or upon the determination that certain
exploration properties do not have sufficient potential for economic
mineralization.





The
estimates of mineral prices and operating, capital and reclamation costs, when
available, are subject to certain risks and uncertainties, which may affect the
recoverability of mineral interest costs.  Although the Company makes
its best estimates of these factors, it is possible that changes could occur in
the near term, which could adversely affect the future net cash flows to be
generated from the properties.  As of December 31, 2008, due to the
sharp fall of prices for nickel in 2008, the Company recognized impairment of
its mineral interests of $8,916,265, which included $838,478 related to
Kaznickel mineral interests. No further impairment of mineral interests was
required during 2009.





Exploratory Costs
–Since the Company is deemed to be in the Exploration stage, all costs
related to operating activities are classified as Exploratory costs, which
mainly consist of costs of drilling exploration works at the Gornostai deposits,
costs of blasting, stripping, excavation and ore extracting works at the
Kempirsai deposits, as well as salaries and wages, depreciation charges and
other expenses directly related to these works. All exploratory costs are
expensed as incurred.





F-12
 
 BEKEM
METALS, INC. AND SUBSIDIARIES
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008





Financial
Instruments– The nature of the Company’s operation exposes the Company
to fluctuations in commodity prices and foreign currency exchange risk. The
Company recognizes these risks and manages its operation in a manner such that
exposure to these risks is minimized to the extent practical. The Company is not
exposed to the credit risk fluctuations in interest rates because certain of its
loans are interest free, as a general requirement under Kazakh law for
non-financial institutions.





Basic and Diluted
Loss Per Share–
Basic loss per share is calculated by dividing net loss by the weighted-average
number of shares outstanding, including shares issued under equity award
program. Diluted loss per share is calculated by dividing net loss by the
weighted-average number of shares and all dilutive potentially issuable shares,
except during loss periods when those potentially issuable shares are
anti-dilutive.





The
following data shows the amounts used in computing basic and diluted
weighted-average number of shares outstanding at December 31, 2009 and
2008:





For
      the Years Ended December 31,
            
            2009
            
            
            2008Basic
      weighted average common shares outstanding
            $
            125,172,011
            
            $
            125,074,058Dilutive
      effect of outstanding options / warrants
            
            -
            
            
            -Diluted
      Weighted Average Common Shares Outstanding
            $
            125,172,011
            
            $
            125,074,058





Comprehensive
Income – Total comprehensive income represents the net change in
shareholders’ equity during a period from sources other than transactions with
shareholders. Accumulated other comprehensive income comprises accumulated
foreign currency translation adjustments.





Recent Accounting
Pronouncements





Consolidation of Variable Interest
Entities-In June 2009, the FASB
issued accounting guidance on the consolidation of variable interest entities
(VIEs). This new guidance revises previous guidance by eliminating the exemption
for qualifying special purpose entities, by establishing a new approach for
determining who should consolidate a variable-interest entity and by changing
when it is necessary to reassess who should consolidate a variable-interest
entity.  This guidance will be effective at the beginning of the first
fiscal year beginning after November 15, 2009. Early application is not
permitted.  The Company does not expect that the adoption of adoption of
this guidance will have a material impact on its financial
statements.





Disclosures about Fair Value
Measurements - In June 2009, the FASB issued accounting guidance which
will require more information about transfers of financial assets, including
securitization transactions, and where entities have continuing exposure to the
risks related to transferred financial assets. It eliminates the concept of a
“qualifying special-purpose entity”, changes the requirements for derecognizing
financial assets, and requires additional disclosures.  This guidance
will be effective at the beginning of the first fiscal year beginning after
November 15, 2009. Early application is not permitted. The Company does not
expect that the adoption of adoption of this guidance will have a material
impact on its financial statements.





In
January 2010, the FASB issued guidance requires an entity to disclose the
following:





·
            Separately
      disclose the amounts of significant transfers in and out of Level 1 and
      Level 2 fair value measurements and describe reasons for the
      transfers.


·
            Present
      separately information about purchases, sales, issuances and settlements,
      on a gross basis, rather than on one net number, in the reconciliation for
      fair value measurements using significant unobservable inputs (Level
      3).


·
            Provide
      fair value measurement disclosures for each class of assets and
      liabilities.





F-13
 
 BEKEM
METALS, INC. AND SUBSIDIARIES
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008








·
            Provide
      disclosures about the valuation techniques and inputs used to measure fair
      value for both recurring and nonrecurring fair value measurements for fair
      value measurements that fall in either Level 2 or level
  3.





This
guidance is effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances,
and settlements in the roll forward of activity in Level 3 fair value
measurements.  Those disclosures are effective for fiscal years
beginning after December 15, 2010. The Company does not expect that the adoption
of adoption of this guidance will have a material impact on its financial
statements.





Reclassifications
– Certain reclassifications have been made to the 2008 financial information to
conform to the current period presentation.





NOTE 2 – CASH





The
Company considers all demand deposits, money market accounts and marketable
securities purchased with an original maturity of three months or less to be
cash and cash equivalents. The fair value of cash and cash equivalents
approximates their carrying amounts due to their short-term
maturity.





Cash
consists of the following:





December
      31,
            
            December
      31,2009
            
            2008Current
      accounts (USD)
            
            $
            19,289
            
            $
            102,019Current
      accounts (Tenge)
            
            
            75,071
            
            
            13,439Bank
      deposit (USD)
            
            
            150,107
            
            
            -Bank
      deposit (Tenge)
            
            
            290,152
            
            
            -Total
            
            $
            534,619
            
            $
            115,458





NOTE
3 – PROPERTY, PLANT AND MINERAL INTERESTS





Property,
plant and mineral interests consist of the following:





December
      31,
            
            December
      31,2009
            
            2008Buildings
            
            $
            1,562,807
            
            $
            1,902,753Machinery
      and equipment
            
            
            1,744,464
            
            
            2,844,112Other
      fixed assets
            
            
            110,416
            
            
            131,870Unproved
      mineral interests
            
            
            -
            
            
            -3,417,687
            
            
            4,878,735Accumulated
      depreciation
            
            
            (564,990)
            
            
            (494,369)Property,
      plant and equipment, net
            
            $
            2,852,697
            
            $
            4,384,366








F-14
 
 BEKEM
METALS, INC. AND SUBSIDIARIES
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008





Unproved
mineral interests represent the acquisition costs of the mineral interests upon
the purchase business combinations with Kaznickel and with KKM. The government
of Kazakhstan retains the title to the property upon which the Company’s mineral
interests pertain; however, the Company’s mineral interests are considered to be
tangible assets.





In 2008
the Company recognized an impairment of mineral interests of $8,916,265, which
included $838,478 related to Kaznickel mineral interests. According to
management’s estimates, the Company can generate positive cash flows if nickel
prices are not lower than $12,000-$12,500 per ton. However, at the end of 2008
nickel prices fell below this level making the Company recognize impairment of
the Company’s mineral interests.  Also, in 2008 impairment of
machinery and equipment was recognized for the amount of $565,171. This amount
represents assets used in the pilot plant under the previously applied
hydrochlorination technology and no longer needed for the planned Vanyukov’s
process.  During 2009, the Company recognized impairment of $556,500
on its property and equipment to be used in the pilot plant under the Vanyukov’s
process.





Bekem
acquired two contracts to explore for and extract minerals in connection with
the purchase of KKM made in October 24, 2005. One contract is for the
exploration and extraction of nickel and cobalt ore from deposits located in an
approximately 575,756 acre site in the northwest area of the Republic of
Kazakhstan (approximately 130 kilometers northwest of the city of Aktobe,
Kazakhstan, near the town of Badamsha, referred to as the “Kempirsai” deposit),
which is valid through October 12, 2020.  The other contract is for
the exploration and extraction of Mamyt brown coal at a site located within 40
kilometers of the Kempirsai deposit, which is valid through December 11,
2018.  The contracts may be extended upon agreement between KKM and
the Geology and Minerals Resources Committee of the Ministry of Energy and
Minerals Resources of the Republic of Kazakhstan.  The Kempirsai
contract requires the Company to pay royalty payments equal to 2.21% of gross
ore sales.  The Mamyt brown coal contract requires a royalty payment
equal to nine tenths of one percent (0.9%) of gross coal
sales.  Royalty payments during 2008 and 2009 have been
insignificant.  Both contracts require the Company to pay an excess
profits tax ranging from 4 to 30 percent based upon the reaching of an internal
rate of return (as defined in the contracts) ranging from 22 to 30
percent.  The allocated purchase price of the mineral interest
included a capitalized amount of an acquired asset retirement
obligation.





NOTE
4 – INCOME TAXES





In
accordance with the laws and regulations of the Republic of Kazakhstan income
taxes for 2008 fiscal year were calculated at the statutory rate of 30 percent.
On December 10, 2008 a new Tax Code was adopted, which is effective from January
1, 2009. According to the new Tax Code, the corporate income tax rate was
reduced from 30% to 20% for 2009, 17.5% for 2010 and 15% for 2011. However, due
to the experienced economic crisis, the gradual reduction in the tax rate from
20% to 17.5% and 15% was postponed in October, 2009 until 2013.





Deferred
tax assets and liabilities were adjusted for the effect of the change in the tax
laws and rates. The deferred tax previously provided on items that will become
taxable or deductible in any future year affected by the rate change was
adjusted downward to reflect the new rates.  The deferred tax assets
and liabilities were calculated using the 15% rate since that is the future rate
that will most likely be applicable, if no changes in legislation occur, when
the deferred tax assets and liabilities are recognized.





Net
operating losses for development companies in exploration and development may be
carried forward for the seven subsequent years from the date the losses are
incurred. Therefore, the Company has deferred tax assets due to the savings of
income tax in future periods. However, the Company assessed the recoverability
of these deferred tax assets and created a provision against them until it has
more evidence of its recoverability in the future periods.








F-15
 
 BEKEM
METALS, INC. AND SUBSIDIARIES
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008





Deferred
tax assets and liabilities were as follows:





December
      31,
            
            2009
            
            
            2008Tax
      loss carryforwards
            $
            3,344,835
            
            $
            3,375,142Property
      and equipment
            
            (161,377)
            
            
            (221,613)Asset
      retirement obligations
            
            136,695
            
            
            20,144Grant
      compensation expense
            
            220,094
            
            
            174,939Valuation
      allowance
            
            (3,540,247)
            
            
            (3,348,612)Net
      Deferred Tax Liabilities
            $
            -
            
            $
            -





The
valuation allowance was recognized for the amount of loss carry forward balance
which is estimated to be unrecoverable.





The
following is a reconciliation of the amount of tax that would result from
applying the U.S. federal rate to pretax income with the provision for income
taxes at December 31, 2009 and 2008:





For
      the Years Ended December 31,
            
            2009
            
            
            2008Tax
      at US Federal statutory rate (34%)
            $
            14,814
            
            $
            (5,218,652)Change
      in valuation allowance
            
            191,635
            
            
            1,057,911Effect
      of changes in effective tax rates
            
            (206,449)
            
            
            4,160,741Deferred
      Tax Benefit
            $
            -
            
            $
            -





The local
and national tax environment in the Republic of Kazakhstan is subject to change
and inconsistent application, interpretation and enforcement. Non-compliance
with Kazakhstan laws and regulations, as interpreted by the Kazakh authorities,
can lead to the imposition of fines, penalties and interest.





The
Company has an uncertain tax position related to a $30,000 penalty assessed by
the IRS for the late filing of Form 5471. The Company submitted a penalty
abatement request to the IRS, which was recently denied.  The Company
is now formally appealing the penalty.   Based on the Company’s
assessment, it is probable that the penalty will be
appealed.  Consequently, the financial statements at December 31, 2009
do not include an adjustment for this uncertain tax position.





NOTE
5 – RELATED PARTY TRANSACTIONS





In March
2008, KKM entered into a preliminary consortium agreement, subject to
negotiation of the terms of a definitive agreement,
with two Kazakhstani companies, GRK Koitas LLP (“GRK”) and Asia-Invest
Corporation LLP (“AI”). GRK and AI are related parties of the Company through a
common stockholder. These companies also have exploration and production
licenses near the Company's Kempirsai deposits in northwestern Kazakhstan. This
agreement provides for the joint development and construction of a nickel
processing plant in the area for joint use by the parties. Under the preliminary
consortium agreement, KKM is considered to be the operator of the Consortium.
The preliminary shares of the parties in the Consortium are the following: KKM -
50%; GRK Koitas - 40%; and Asia-Invest - 10%.





F-16
 
 BEKEM
METALS, INC. AND SUBSIDIARIES
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008





Under the
preliminary consortium agreement, the parties were obliged to jointly contribute
approximately $40 million for financing the construction of the processing
plant. Of this amount, KKM was obligated to contribute approximately $20
million.  KKM received advances of KZT 2.278 billion ($18,862,300 as
of December 31, 2008) from GRK, and KZT 97.4 million ($806,492 as of December
31, 2008) from AI, which were to be used for construction of a processing plant.
The parties have the right to withdraw from the Consortium subject to three
months written notice. Consequently, these advances have been classified as
current notes payable to related parties and bear no interest since they
represent contributions to the Consortium.





When the
Company received the advance payments from GRK and AI, the parties had not yet
selected the technology to be implemented for processing the Kempirsai ore and
therefore, they had not yet developed the Consortium’s detailed plan for capital
expenditures. The technology (Vanyukov process) for the processing plant was
selected in September 2008 only after completion of the initial pilot testing of
various technologies capable of processing nickel ore.  The technology
was selected based on the results of the testing and the preliminary feasibility
study report. In addition, KKM was in dispute with the MEMR in relation to
unilateral termination of the subsoil use contract as disclosed in Note 1.
Therefore, in May 2008 Latimer, one of the major shareholders in GRK and AI,
applied to the Company with a request for a loan. On May 22, 2008 the Company
signed a Note Agreement with Latimer Assets Inc. Pursuant to the terms of the
Note Agreement, the Company loaned $7,400,000 to Latimer Assets Inc.
(“Latimer”). The note was originally interest free. Latimer owns substantial
interests in GRK and AI.





On June
19, 2008 the Company and Latimer entered into Addendum # 1 to the Note Agreement
whereby the Company agreed to loan an additional $7,500,000 to Latimer,
increasing the total note amount to $14,900,000. The total note was provided at
an interest rate of 2% per annum. Interest was charged on a monthly basis and
was payable as a lump-sum payment at the date of the note repayment. The Company
ceased accruing interest on the note since March 31, 2009 upon consent of both
parties. The balance of the note receivable from related party at that time was
$15,140,828.





Pursuant
to a Pledge Agreement dated May 22, 2008 between the Company, its subsidiary,
KKM, GRK and AI, the Latimer note receivable was secured by a pledge of a
cumulative 39% interest in the Consortium. The 39% interest consists of 31% of
GRK’s 40% interest in the Consortium and 8% of AI’s 10% interest in the
Consortium.





On
September 15, 2009 Bekem, KKM, GRK and Latimer Assets Inc. executed an
Assignment and Assumption Agreement, dated August 13, 2009 (the “Assignment
Agreement”). Pursuant to the Assignment Agreement, the Company’s receivable from
Latimer was satisfied with a corresponding reduction in the payable to
GRK.





On
November 11, 2009 KKM and GRK entered into the Offset Agreement. Pursuant to the
terms of the Offset Agreement, GRK and KKM agreed to partially offset KZT
2,282,328,413 (equivalent to $15,136,811 at the currency conversion rate of KZT
150.78 per $1 on November 11, 2009) owed by GRK to KKM.





On
November 11, 2009 KKM, GRK and AI also executed an Addendum #2 to the Joint
Activity Agreement (Addendum #2”) to reflect certain changes in connection with
the Offset Agreement. The main difference was a change in the amounts each party
was required to invest in the consortium.  KKM’s investment obligation
decreased from KZT 2,333,000,000 (equivalent to $15,690,362 on November 11,
2009) to KZT 686,936,015 (equivalent to $4,619,921 on November 11, 2009). GRK’s
investment obligation decreased from KZT 2,235,600,000 (equivalent to
$15,707,849 on November 11, 2009) to KZT 565,143,597 (equivalent to $3,800,818
on November 11, 2009). And AI’s investment obligation increased from KZT
97,400,000 (equivalent to $655,054 on November 11, 2009) to KZT 121,792,418
(equivalent to $819,103 on November 11, 2009). In connection with Addendum #2,
the parties also agreed to extend the period for final determination of the
ownership interests of the parties in the Consortium to March 1,
2010.  However, in March 2010 AI was successful in negotiating with
the MEMR an extension of the investment obligations under its license to later
periods while GRK obtained a similar extension in 2009. As a result, the parties
further agreed to extend the period for final determination of the ownership
interests of the parties in the Consortium to June 1, 2010.





F-17
 
 BEKEM
METALS, INC. AND SUBSIDIARIES
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008





In
November 2009 KKM made partial repayment of the notes payable to GRK in the
amount of $2,500,000. As a result, as of December 31, 2009 the notes payable to
GRK were KZT 181,813,534 (equivalent $1,225,489) and to AI was KZT 119,651,105
(equivalent $806,492).





NOTE
6 – ASSET RETIREMENT OBLIGATIONS





FASB
guidance requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred, if a reasonable
estimate of fair value can be made. When the liability is initially recorded,
the related cost is capitalized by increasing the carrying amount of the related
mineral interests.  Over time, the liability is accreted upward for
the change in its present value each period until the obligation is settled. The
initial capitalized cost is amortized as a component of mineral interests as
described in Note 3.





The
reconciliation of the asset retirement obligation is as follows:





December
      31,
            
            2009
            
            2008Balance
      at the beginning of the year
            $
            424,431
            $
            130,682Revision
      of liability
            
            513,971
            
            283,544Accretion
      expense during the year
            
            52,184
            
            10,755Effect
      of the foreign exchange gain/loss
            
            (79,289)
            
            (550)Asset
      Retirement Obligation
            $
            911,297
            $
            424,431





Due to
Company’s poor financial conditions and likelihood of having the subsoil use
license revoked, management estimated cost of liquidation and reclamation of KKM
mines as of December 31, 2009. The estimated liquidation cost amounted to
$911,297, which is higher than the previously accrued asset retirement
obligations by $513,971. This amount was immediately additionally recognized in
2009 books as an increase in asset retirement obligations and related increase
in accretion expenses.





During
2008 the Company recalculated its asset retirement obligations. The amount of
the obligations has increased for KKM by $283,544 due to toughened environmental
legislation in Kazakhstan.  In revised calculations, inflation and
credit risk adjusted rates were assumed to be 8% and 15%, respectively. These
assumptions were significantly affected by the global economic crisis in general
as well as the current situation in Kazakhstan. The amount was recognized as a
cost of mining assets and was immediately fully impaired due to low probability
of assets’ recoverability.





NOTE
7 – SHAREHOLDERS’ EQUITY





Shares issued for
cash – On July 14, 2006, the Company closed a private placement of
8,000,000 units at $3.50 per unit, each unit consisting of three shares of
restricted common stock and one warrant to purchase one share of common stock
for two dollars.  The warrants were immediately exercisable and
expired twenty-four months from the date granted, i.e., in July
2008.  The private placement resulted in the issuance of 24,000,000
restricted common shares and warrants to purchase 8,000,000 common shares to two
non-U.S. investors for $28,000,000. These issuances did not result in a change
in control of the Company.





From the
total proceeds, the Company paid the placement agent, Aton Securities, Inc., a
cash fee totaling 5% of the total proceeds raised, or $1,400,000 and redeemed
the agent’s overhead expenses of $24,127. Also, the Company incurred legal and
consulting expenses of $153,487 in connection with this private placement. The
Company also issued to the placement agent a warrant to purchase up to 2,400,000
shares of restricted common stock.  The exercise price of this warrant
was $1.17 per share.  The warrant was immediately exercisable and
expired eighteen months from the date granted, i.e., in January 2008. The
warrants were not exercised.





F-18
 
 BEKEM
METALS, INC. AND SUBSIDIARIES
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008





The
following summarizes warrant activity for the year ended December 31,
2008:





WeightedAverageWarrants
            
            Exercise
      PriceBalance,
      December 31, 2007
            $
            10,400,000
            $
            1.81Issued
            
            -
            
            -Expired
            
            (10,400,000)
            
            1.81Exercised
            
            -
            
            -Balance,
      December 31, 2008
            $
            -
            $
            -





Stock grants and
shares cancelled–On October 20, 2006, under the Company’s 2003 Stock Option Plan and
pursuant to the board of directors desire to attract and retain experienced and
educated executives, the Board agreed to award to certain executives and key
employees of the Company restricted stock grants (1,083,123
shares).  The vesting of the shares is contingent upon meeting various
company-wide performance goals, including timely filing of reports with the
Securities and Exchange Commission, meeting the yearly deadlines for the pilot
plant construction, operations as dictated by the Board of Directors, timely
performing of the drilling work program requirements as dictated by the Republic
of Kazakhstan’s Ministry of Energy and Mineral Resources, and start of
commercial operations. The shares under the restricted stock grant scheme are
held and released by the Company to awarded employees based on the approval of
the Board and analysis of employee’s performance. If these performance
conditions are not met, the Company will reverse compensation expense, unless
approved by the Board of Directors, and will reverse any previously recognized
compensation expenses. The fair value of the restricted stock grants was valued
at $1.95 per share, which represented the closing market price of the Company’s
stock on October 20, 2006, or $2,112,090.  These restricted shares
were expensed over the expected term of the performance condition, which was
three years.





During
2007, the Company reversed the amount of deferred compensation of $822,455
(421,772 shares) due to the resignation of Mr. Cherdabayev, the previous CEO and
President of the Company.





On March
25, 2008, the board agreed to award to certain executives and key employees of
the Company additional restricted stock grants (421,772 shares) with an
estimated fair value of $337,418 at the closing market price of common stock on
the date of grant ($0.80 per share).  Out of this amount, $45,301
(191,715 shares) was reversed in 2009 due to anticipated resignation of Mr.
Bitenov, the CFO of the Company.





As of
December 31, 2009, there was $6,390 of total unexpensed compensation
cost.  The cost is expected to be recognized over a period of one
year. 445,703 and 184,510 shares vested during 2009 and 2008,
respectively.  The Company recognized $301,028 and $585,745 of
compensation expense for the years ended December 31, 2009 and 2008,
respectively.








F-19
 
 BEKEM
METALS, INC. AND SUBSIDIARIES
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008





A summary
of the non-vested stock under the Stock Option Plan follows:





Weighted-AverageNon-Vested
            
            Grant
      DateShares
            
            Fair
      ValueNon-vested
      at December 31, 2007
            496,013
            
            $
            1.95Stock
      Granted
            421,772
            
            
            0.80Stock
      Vested
            (184,510)
            
            
            1.83Stock
      Cancelled
            -
            
            
            -Non-vested
      at December 31, 2008
            733,275
            
            
            1.32Stock
      Granted
            -
            
            
            -Stock
      Vested
            (445,703)
            
            
            1.60Stock
      Cancelled
            (191,715)
            
            
            0.80Non-vested
      at December 31, 2009
            95,857
            
            $
            0.80





NOTE
8 – OTHER INCOME, NET





Other
income earned during 2009 and 2008 comprised the following:





For
      the year ended December 31,
            
            2009
            
            2008Income
      (loss) from sale of property and equipment
            $
            (38,232)
            $
            196,115Income
      from rent and other services
            
            359,221
            
            289,949$
            320,989
            $
            486,064





NOTE
9 – COMMITMENTS AND CONTINGENCIES





Concentration of
Risk Relating to Foreign Mining Operations – All of the Company’s
properties are located within the Republic of Kazakhstan in Central Asia. In
addition to general industry risks of nickel and cobalt price fluctuations, and
potential lack of economic viability of the claims, the Company has a
concentration of risk related to its foreign properties and interests which are
subject to political uncertainty, changes in government, unilateral
renegotiation of licenses, claims or contracts, nationalization, or other
uncertainties. In addition, the validity of mining claims which constitute the
Company's property holdings in Kazakhstan, may, in certain cases, be uncertain
and are subject to being contested.





Failure to
Satisfy the Terms of the Subsoil Use Contracts – Under the subsoil use
contracts, the Company is required to satisfy the annual minimum work program
requirements.  If the Company fails to satisfy these commitments, it
may be subject to the loss of one or more of the subsoil use
contracts.  The cancellation of the contracts would have a material
adverse effect on the Company’s business, results of operations and financial
condition.  While the Company does not expect any other penalties and
fines, except the loss of one or more of the subsoil use contracts, KKM is
required to remove all equipment and remediate the property where the
remediation costs are currently estimated at the level up to
$950,000.





F-20
 
 BEKEM
METALS, INC. AND SUBSIDIARIES
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008








Annual Work
Program – Historically, it has been the practice of the MEMR that if a
subsurface user could not fulfill certain conditions for a specific year, for
any reason, then the work program requirements of that year would be extended to
the next year.  This was done because the obligations of subsoil users
were typically set forth on the basis of the full duration of the subsoil use
contract, rather than on an annual basis. In December 2008, a new subsoil use
legislation of Kazakhstan was submitted to parliament, superseding legislation
on oil production and exploration, mineral resources mineral management, and
production sharing agreements (PSAs). The new subsoil use legislation of
Kazakhstan, which is expected to be adopted by parliament and signed by the
President in second quarter 2010 and become effective six months after its
approval by parliament and the President, allows the government to annul
contracts in the extractive sector if they are deemed to be harmful to
Kazakhstan's economic security or national interests. The legislation also
requires separate contracts for exploration and production operations, puts
shorter time limits on exploration contracts, enhances the government’s
authority to terminate contracts not in compliance with the law, and requires
tax stability clauses in individual contracts to be approved by the President of
Kazakhstan. Also, the latest draft assumes that disputes between subsurface
users and the government will be settled in the courts of Kazakhstan, and does
not assume international arbitration.  Disputes regarding the existing
subsurface use contracts would also be settled in the courts of
Kazakhstan.  This change in practice has created great uncertainty as
to how the government will proceed in the future.  Currently, there is
no legislatively fixed mechanism governing the development of annual work
programs or for the independent determination of compliance by the subsurface
user with the parameters of the annual work program. The determination is
currently being made at the discretion of officials employed by the authorized
governmental body.  Based solely on their own discretion, these
officials have the authority to suspend the activities of the subsurface user
even for a minor breach of the detailed annual work program. These facts,
coupled with the right of the competent body to unilaterally terminate a subsoil
user’s contract if the contractor materially breaches the subsoil use contract
obligations, indicates there is a risk that one or more of the subsoil use
contracts could be cancelled.  While the Company does not expect any
other penalties and fines, except the loss of one or more of the subsoil use
contracts, KKM is required to remove all equipment and remediate the property
where the remediation costs are currently estimated at the level up to
$950,000.





Kazakhstan
Business Environment – Kazakhstan, as an emerging market, has a legal and
regulatory infrastructure that is not as mature and stable as those usually
existing in more developed free market economies. As a result, operations
carried out in Kazakhstan can involve risks and uncertainties that are not
typically associated with those in developed markets. The instability associated
with the ongoing transformation process to a market economy can lead to changes
in the business conditions in which the Company currently operates. Changes in
the political, legal, tax or regulatory environment could adversely impact the
Company’s operations.





Environmental
Matters – Extensive national, regional and local environmental laws and
regulations in Kazakhstan affect the Company’s operations. These laws and
regulations set various standards regulating certain aspects of health and
environmental quality and impose user fees, penalties and other liabilities for
the violation of these standards and establish, in some circumstances,
obligations to remediate current and former facilities and off-site locations.
The Company believes it is currently in compliance with all existing Republic of
Kazakhstan environmental laws and regulations. However, as new environmental
laws and legislation are enacted and the old laws are repealed, interpretation,
application and enforcement of the laws may become inconsistent. Compliance in
the future could require significant expenditures, which may adversely affect
the Company’s operations.





F-21
 
 BEKEM
METALS, INC. AND SUBSIDIARIES
 (An
Exploration Stage Company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008





Required Annual
Work Program Due to the Government of the Republic of Kazakhstan – The
Company is required, under its licenses, to submit a proposed annual work
program to the MEMR for approval. Failure to meet the minimum work program
requirements could cause the Company to lose its licenses.





Operating
Leases – Bekem leases approximately 400 square feet of office space
located at 324 South 400 West, Suite 225, Salt Lake City, Utah 84101 for its
administrative and registered office in the United States.  The
Company pays annual rents of approximately $7,800 for this space pursuant to a
lease agreement that expired in October 2009. The Company is currently renting
this space on a month-to-month basis at the same rate while negotiating the
terms of a new one-year lease.  The Company anticipates that it will
be successful in negotiating a new lease on terms comparable to our previous
lease.





The
Company also maintains a representative office in Almaty, Kazakhstan, where it
leases approximately 645 square feet of office space. The lease agreement
expires on August 31, 2010. The monthly lease payment is $921. Upon consent of
both parties, the agreement may be prolonged further. To minimize its operating
expenses, in March, 2010 the Company decided to close the office. For details,
please refer to Note 10 “Subsequent events”.





KKM rents
approximately 1,706 square feet of office space in Aktobe, Kazakhstan. KKM pays
approximately $1,400 per month for this space under a one-year lease agreement.
This space is leased on a year-to-year basis.





Rent
expense for the years ended December 31, 2009 and 2008 was $87,784 and $285,366,
respectively.





NOTE
10 – SUBSEQUENT EVENTS





On March
11, 2010 the Company’s Board of Directors made a decision on closure of the
representative office in Kazakhstan. The decision to cease activity (to
liquidate) and withdraw from state registration the representative office of
Bekem Metals Inc. in Kazakhstan was made in order to minimize the Company’s
operating expenses due to lack of financial resources. Withdrawal from the state
registration is expected to take 3-6 months.  Closure of the
representative office will help to reduce the expenses by approximately $50,000
per month.





The
Company has evaluated subsequent events through April 12, 2010, the date these
consolidated financial statements were issued.








F-22