U.S. Securities and Exchange Commission
                             Washington, D.C. 20549


                                 Form 10-KSB/A-1


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

                  For the fiscal year ended December 31, 2005

         [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

                  For the transition period from _________ to __________

                         Commission File Number 0-50218

                               BEKEM METALS, INC.
                  ---------------------------------------------
                 (Name of Small Business Issuer in its charter)

             UTAH                                                87-06669131
-------------------------------                              -------------------
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

170 Tchaikovsky Street, 4th Floor, Almaty, Kazakhstan             050000
-----------------------------------------------------           ----------
     (Address of principal executive Offices)                   (Zip Code)

                   Issuer's telephone number: +7 3272 582 386
                                              ---------------

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

Securities registered pursuant to section 12(g) of the Exchange Act: Common,
$0.001 par value

Check whether the Issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report(s), and (2) has been
subject to such filing requirements for the past 90 days. (1) Yes [X] No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [ ]

Check if the Issuer is a shell company. [ ]

The issuer's revenue for its most recent fiscal year was: $148,549.

The aggregate market value of the issuer's voting stock held as of April 14,
2006, by non-affiliates of the issuer was approximately $33,338,566, based on
the average of the bid price and the ask price for the Company's common stock on
that date, as reported on the OTCBB.

As of April 14, 2006, the issuer had 100,088,888 shares of its $0.001 par value
common stock outstanding.

Transitional Small Business Disclosure Format. Yes [ ] No [X]

Documents incorporated by reference: none

<PAGE>

                                TABLE OF CONTENTS


                                     PART I


Explanatory Note..............................................................


ITEMS 1 & 2. DESCRIPTION OF BUSINESS AND PROPERTIES........................... 3

ITEM 3.  LEGAL PROCEEDINGS....................................................15

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS................15

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............15

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS.................................17

ITEM 7.  FINANCIAL STATEMENTS.................................................28

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
           AND FINANCIAL DISCLOSURE...........................................28

ITEM 8A. CONTROLS AND PROCEDURES..............................................28

ITEM 8B. OTHER INFORMATION....................................................29

                                    PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
           COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT .................29

ITEM 10. EXECUTIVE COMPENSATION...............................................31

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......33

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................35

                                     PART IV

ITEM 13. EXHIBITS.............................................................36

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES...............................36

SIGNATURES....................................................................37

                                       2
<PAGE>

               Explanatory Note to Amendment No. 1 to Form 10-KSB

         This Form 10-KSB/A-1 is being filed to correct an error in the
Consolidated Financial Statements and Notes to the Consolidated Financial
Statements and Management's Discussion and Analysis resulting from an error in
the calculation of our deferred tax liability. This error in calculation
resulted in an $888,145 overstatement of our deferred tax liability. This error
requires us to correct our Consolidated Balance Sheets, Consolidated Statements
of Operations, Consolidated Statement of Stockholders' Equity (Deficit) and
Consolidated Statements of Cash Flows as of December 31, 2005 to correct the
overstatement of our deferred tax liability.

         The primary effect of the correction discussed above resulted in the
Company reducing "Deferred Tax Liability," "Total Liabilities" and "Accumulated
Deficit" by $888,145 on its Consolidated Balance Sheet as of December 31, 2005;
recognition of a "Deferred Tax Benefit" of $888,145 and a decrease in "Net Loss"
in the same amount on the Consolidated Statements of Operations; decreases in
"Net Loss," "Comprehensive Loss" and "Balance, December 31, 2005" in the amount
of $888,145 on the Consolidated Statement of Stockholder's Equity (Deficit); and
a decrease in "Net Loss" of $888,145 and the recognition of a deferred tax
benefit in the amount of $888,145 on the Consolidated Statements of Cash Flows.

         For your convenience the Consolidated Financial Statements and the
entire text of the annual report on Form 10-KSB have been included in this Form
10-KSB/A-1 and replace, modify and update the disclosures presented in the
original Form 10-KSB. This Amendment No. 1 speaks to the original filing date of
the Form 10-KSB on April 14, 2006, and does not modify or update disclosures
contained therein, including the nature and character of such disclosures, to
reflect events occurring, or items discovered, after the original filing date of
the Form 10-KSB.


                           Forward-Looking Statements

         In accordance with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, we note that certain statements in this report,
which provide other than historical information and which are forward-looking,
involve risks and uncertainties that may impact our actual results of
operations. We face risks and uncertainties, many of which are beyond its
control.

         Forward-looking statements, which can generally be identified by the
use of such terminology as "may," "expect," "anticipate," "estimate,"
"forecast," "believe," "think," "could," "will," "continue," "intend," "seek,"
"plan," "should," "would" and similar expressions contained in this report, 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 their nature are 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. The forward-looking
statements should be considered in the context of the risk discussed in this

                                       3
<PAGE>

Form 10-KSB. Investors and prospective investors are cautioned not to place
undue reliance on such forward-looking statements. We disclaim any obligation to
update or revise the forward-looking statements contained herein to reflect new
information, future events or developments.

                                     PART I

Items 1 & 2. Description of Business and Properties

Company History

         Bekem Metals, Inc., (hereinafter referred to as "us," "we," the
"Company" or "Bekem") is engaged in the development, extraction, refining and
marketing of nickel, cobalt and brown coal in the Republic of Kazakhstan.

         We incorporated in the state of Utah under the name EMPS Research
Corporation on January 30, 2001. We changed our name to Bekem Metals, Inc., on
March 16, 2005. From inception through 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"). On January 28, 2005, we acquired Condesa Pacific, S.A., and its
wholly owned subsidiary Kaznickel, LLP ("Kaznickel"). The primary asset of
Kaznickel is an exploration and production concession issued by the government
of the Republic of Kazakhstan which grants Kaznickel the exclusive right to
explore for and engage in test production of nickel, cobalt and other minerals
in a 4,950 hectare (12,232 acre) area known as the Gornostai deposit through
February 26, 2026. The Gornostai deposit is located in northeastern Kazakhstan.

         With the acquisition of Kaznickel, our primary business focus shifted
from the development of our HFECS technology to becoming a leading nickel and
cobalt producer in Kazakhstan. To that end, on October 24, 2005, we entered into
an Acquisition Agreement with Kazakh Metals, Inc., a British Virgin Islands
international business company, ("KMI") and the fifteen shareholders of KMI to
acquire 100% of the issued and outstanding common shares of KMI in exchange for
61,200,000 common shares of the Company. For financial reporting purposes, KMI
is considered the accounting acquirer. Accordingly, the accompanying financial
statements include financial statements of KMI for all periods presented.

         The primary asset of KMI is its wholly owned subsidiary Kyzyl Kain
Mamyt LLP, a Kazakhstan limited liability partnership, ("KKM"), formed in July
1999. KKM holds licenses to commercially produce and is engaged in the
production of nickel and cobalt ore at its Kempirsai deposit and brown coal from
its Mamyt deposit in northwestern Kazakhstan.

Business of the Company

         The Nickel Market

                                       4
<PAGE>

         The overall market for nickel in the world is approximately $22
billion, according to United States Geological Survey ("USGS"). Total nickel
production in 2005 was approximately 1,500,000 tons. Russia is the largest
supplier of nickel in the world with almost 20% market share, followed closely
by Canada, Australia and Latin America.

         According to various market analysts, including Inco, (the second
largest producer of nickel in the world), demand for nickel grew approximately
4% in 2005, but could settle at around 3-4% increase in demand annually through
2010. There is some debate in the market as to whether nickel prices will
continue to increase. Average nickel price in 2005 was about $14,372 per ton, up
from $13,741 in 2004. The current LME spot price is $17,375 per ton. Even as
large buyers seek cheaper alternatives to nickel, it is anticipated that demand
for nickel worldwide and especially in China will remain high for the next 5
years.

         There are several factors that can affect the overall worldwide nickel
demand and prices in the future, which include the following:

         o        New processing technologies that make the developments of
                  low-grade lateritic nickel deposits economically feasible;
         o        Expansion of new nickel capacity;
         o        Other sources of secondary nickel and levels of
                  stainless-steel scrap containing nickel;
         o        Reduction in stainless-steel worldwide demand.

         USGS data shows that there are several laterite and sulfide projects
scheduled for completion in the next several years, which could bring more
primary nickel to the market and potentially decrease the price. To date,
however, delays in production and labor strikes at a number of mines of some
leading nickel producers have limited new supply of nickel and resulted in
higher nickel prices. Moreover, given the growing economies and demands of
China, India and other Asian countries, coupled with probable reduction in
production of several older nickel mines due to depletion, we anticipate growth
in the worldwide demand for nickel. Inco estimates an additional 60,000 tons of
nickel per year will be needed to meet the growing demand. These factors lead us
to believe that nickel prices will remain stable, if not increase in the future.

         Stainless-steel production, the single largest end use market segment
of nickel, is expected to grow steadily in the next five years, relying heavily
on the primary nickel supply for its expansion. Of course, high nickel prices
force some steel mills to substitute chromium and manganese in place of nickel;
while this lowers the cost of producing steel, it also lowers the
corrosion-resistance of the steel. This lower-quality steel is used mainly in
consumer applications where it is important to have a cheap final product,
which, however, will not resist corrosion from acid or salt.

         Resistance to corrosion makes nickel an essential element both in
alloys and as a catalyst. For aerospace, electric power and petrochemical
industries, this resistance to corrosion is essential, as well as for use in
gray-iron castings to toughen the iron, promote graphitization and improve

                                       5
<PAGE>

machineability. The use of nickel in nickel-based batteries for electric and
hybrid electric vehicles represents another industry with high potential demand
for nickel.

         History of our deposits

                  Gornostai

         In February 2004, Kaznickel acquired a concession for exploration and
development of Gornostai cobalt and nickel deposit (contract No. 1349 registered
by the Kazakh Ministry of Energy and Mineral Resources), covering 616 hectares
(1,522 acres) in eastern Kazakhstan.

         We are at the exploration stage on the Gornostai deposit located in the
Beskaragai district of the East Kazakhstan region in Kazakhstan. The deposit was
discovered in 1958. The Gornostai deposit is divided by the Irtysh River into
the left and right banks. From 1960 to 1968 a series of surveys and evaluation
works were performed on both banks to evaluate available cobalt-nickel ore
reserves. The surveys identified 21 ore bodies on the left bank.

         The deposit had been abandoned as reserves around Norilsk in Russia
were considered more attractive and were already at the production stage. In
addition, a Soviet army nuclear test site (similar to Nevada) was located near
the Gornostai deposit. The surrounding territory, including the deposit, was
considered a secret military zone. Therefore commercial development of the
deposit had been discontinued.

         The last nuclear testing in the area was conducted more than 15 years
ago. Recent tests show that the radiation levels in the soil, water and air are
within normal ranges.

         Pursuant to the terms of the three-year work program approved by the
Geology Committee of the Republic of Kazakhstan Ministry of Energy and Mineral
Resources and as required under the Kaznickel exploration and development
contract, in the nine months preceding January 1, 2005, Kaznickel had completed
drilling core samples of 5,504 meters.

         In October 2005, the Republic of Kazakhstan Ministry of Energy and
Mineral Resources ("MEMR") granted Kaznickel an extension of its Gornostai
concession to an area of 4,950 hectare (12,232 acre) from the original 616
hectares (1,522 acres).

                  Kempirsai

         KKM holds production licenses issued by the government of Kazakhstan to
233,000 hectares (575,756 acres), in northwestern Kazakhstan. The licenses grant
KKM the right to produce nickel and cobalt ore from deposits located within the
territory through October 12, 2011, and may be extended upon agreement between
KKM and the MEMR. KKM also holds a license to 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.

                                       6
<PAGE>

         The primary deposit located within the licensed territory is the
Kempirsai deposit. This deposit was discovered in 1938 and at its peak in the
late 1980's mined almost five million tons of ore annually, which included
50,000 tons of nickel metal content. The discovery was assigned to the
YuzhUralNickel processing plant in Russia during Soviet times. The Kempirsai
deposit remained the property of YuzhUralNickel after the break up of the Soviet
Union until 1996, when a joint venture between YuzhUralNickel and the Kazakhstan
State Property Committee was formed. The joint venture was unsuccessful and in
1999 the licenses were acquired by KKM.

         Characteristics of our deposits

                  Gornostai

         During 2004 and 2005 we drilled 216 wells to a total depth of 5,504
meters and have taken 2,659 geochemical and core samples to the Institute of
Nonferrous Metals, located in Oskemen, Kazakhstan to perform spectrum and
quantity analysis to identify the content of nickel, cobalt and iron. The
results showed average content of nickel of 0.89% and cobalt 0.065%. We
anticipate a final report from this Institute during the second quarter of 2006.
Once we have the report we will present it to the Geology Committee for
approval.

         In 2006 and 2007 we plan to continue exploratory drilling of an
additional 8,000 meters on the left bank and 22,000 meters on the right bank.

         Left bank ore bodies are bedded horizontally in a zone of leached
nontronized serpentinites area weathering crust at the depth of 4.9 meters to
13.2 meters. They have tabular shape and variable thickness. The lengths of the
ore bodies are 200 meters to 4,050 meters; the width is 200 meters to 2,000
meters. Thickness varies from 0.8 meters to 15 meters. Mean ore body thickness
is 4.2 meters, with a mean stripping ratio of 1.8 cubic meters per ton.

         Initial evaluation of ore and metals in 1968 showed nickel cutoff grade
of 0.7%, cobalt cutoff grade of 0.5%, average nickel ore grade of 0.9%, minimum
nickel content in a measured block of 1.0%, and minimum ore body thickness of
0.5m.

         We intend to retain the services of an independent engineering firm to
provide a reserves estimate and a feasibility study and to design a flowsheet to
process our laterite ore.

                  Kempirsai

         The ore reserves of the Kempirsai deposit were evaluated during the
Soviet period. KKM does not have a current ore reserve report. We intend to
perform a reserve estimate of the deposit as soon as practicable.

         Mining conditions

                  Gornostai

                                       7
<PAGE>

         The main host rocks of nickel and cobalt are minerals such as
nontronite, hydroxides of iron and manganese formations. The ore is loose and
found mainly along small fracture lines. Coarse ore, bigger than 10 mm,
represents approximately 11.2% of all ore found at the deposit. The loose
structure of overburden and ores allows mining of the deposit without drilling
and blasting works. The rocks and ores of Gornostai are relatively unstable
requiring that the pit slope not exceed 45 degrees.

         Development of the left bank can be performed through a system of small
open pits, starting from northern side of the deposit. Stripping rocks from the
initial pits can be placed in external dumps. Stripping from later pits could be
placed within the workout space of previous pits. According to survey data, we
do not anticipate pit depths to exceed 55 meters.

                  Kempirsai

         The Kempirsai deposit is located close to the small town of Badamsha,
Kazakhstan about 130 kilometers from Aktobe, Kazakhstan and is accessible by
freeway. The population of Badamsha is around 6,000. The deposit is also
accessible through a rail system that connects to main line railroads in
Kazakhstan and Russia. The deposit is also connected to power transmission lines
that run adjacent to the property. 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 1940s and the early 1990s.

         The Kempirsai deposit has been open pit mined, with maximum mining
depths of approximately 50 meters. The Kempirsai mining complex has significant
infrastructure and mining equipment in place and has a current standing capacity
to mine up to 500,000 tons of ore annually.

         During 2005 and 2004, KKM sold approximately 35,000 tons and 62,000
tons of ore, respectively, and realized revenue of approximately $75,000 and
$195,000, respectively from ore sales.

         Additionally, KKM holds a license to produce brown coal from a deposit
located within 40 kilometers of the Kempirsai deposit, with a current capacity
to mine up to 100,000 tons of coal annually. KKM will use this coal to supply
its own energy needs for processing ore from the Kempirsai deposit.

         Processing

         The KMI acquisition gave us the rights to a proprietary technology for
processing nickel and cobalt ores. While this technology has not previously been
used to process nickel and cobalt ores, it is based on the same principles used

                                       8
<PAGE>

to process titanium and other rare earth metals in Kazakhstan and Russia. We are
currently in the final stages of construction of a pilot processing plant at the
KKM site utilizing this technology. The processing technique utilizes hydrogen
chloride to leach out the nickel and cobalt ores with sublimation of the nickel
and cobalt chlorides occurring at 1050-1100(Degree) Celsius. We anticipate this
process will result in extraction rates of approximately 93% nickel and 88%
cobalt. The final products of this process are granules or briquettes of
ferronickel, with 23% nickel content and a cobalt oxide powder.

         The pilot processing plant will have a processing capacity of ten tons
of ore per day. The anticipated output of the pilot processing plant will be
approximately ten kilos of metal per day. We expect the first metals to be
produced during the second quarter 2006.

         We anticipate this processing technique will result in lower capital
and operational costs compared to other technologies currently in use.
Historically, pyrometallurgy was utilized at most processing plants.
Hydrometallurgical technology has improved to the point that it is now an
acceptable alternative to pyrometallurgy. Both technologies require large
plants, costly construction and expensive equipment often requiring capital
infusions of hundreds of millions of dollars. Construction time for such
facilities is commonly three to five years. Production costs are typically about
$8,000 per ton of metal using pyrometallurgy and more than $4,000 per ton using
hydrometallurgy. Both technologies are expensive to operate and pose
environmental risks in the form of gases and chemical emissions.

         Our hydrochlorination technology utilizes a closed-circle utilization
chamber, which results in no emissions while achieving extraction rates
comparable to pyrometallurgy and hydrometallurgy. We anticipate production costs
to be about $5,000 per ton of metal - lower than pyrometallurgy and somewhat
higher than hydrometallurgy. Our system will require less electricity than
pyrometallurgy because our system will be powered by our own brown coal.

         Upon successful testing of our technology during the second quarter
2006, we intend to continue operating the pilot plant to conduct additional
testing to maximize our results using different ores from both our Kempirsai and
Gornostai deposits.

         We plan to commence construction of a commercial processing plant
during the fourth quarter 2006. We plan to build the processing plant in three
phases. Planned completion of Phase I is scheduled for the fourth quarter of
2007. Phase I will provide us with processing capacity of approximately 300,000
tons of ore. Completion of Phases II and III are scheduled for the fourth
quarter of 2008 and will provide us with more than 600,000 tons of additional
processing capacity. Once completed, we anticipate that the processing plant
will have total processing capacity of up to 1,000,000 tons of ore per year and
will produce 45,000 tons of ferronickel of at least 23% nickel content and 700
tons of cobalt oxide powder.

Reserves

         We do not have a current estimate of the ore reserves contained within
our licensed territories. While we have reserve estimates prepared during Soviet

                                       9
<PAGE>

times, we do not know the accuracy of those reserve estimates and do not believe
them to be to the standards set forth by the United States Securities and
Exchange Commission ("SEC"). As disclosed herein, we will be working with a
qualified independent engineering firm to provide us with an ore reserve
estimate of our deposits that will conform to applicable SEC standards.

Development of Operations

         As discussed herein, we are just beginning to implement our plan of
development and operations. During the second quarter of 2006, we plan to seek
initial funding for completion of the pilot plant and testing, and we expect to
complete initial testing of the pilot plant. During the third and fourth
quarters of 2006, we intend to continue testing at the pilot plant and to seek
additional funding to help fund Phase I construction of our commercial
processing plant. We expect to obtain the result of the independent estimate of
our reserves during the fourth quarter of 2006. We also plan to engage in
additional exploratory drilling throughout 2006.

         During 2007, we intend to increase the scope of our exploratory
drilling. We expect completion of construction of Phase I of our commercial
processing plant during the fourth quarter of 2007 and commencement of Phases II
and III construction during the same quarter. We anticipate the need to seek
additional funding during the third quarter 2007 to meet our ongoing need for
capital to support the construction of our commercial production plant. We plan
to realize our first cash flows from operations during the fourth quarter 2007.

         We have scheduled the completion of construction of Phases II and III
of the commercial production plant to occur during the fourth quarter of 2008.
We expect to engage in exploratory drilling throughout all of 2008 and we
anticipate cash flow from operations throughout fiscal 2008.

Title to Properties

         We hold an exploration and development contract from the Republic of
Kazakhstan that grants us the right explore and produce nickel, cobalt other
minerals within the Gornostai deposit. We also hold a production contract that
grants us the right to produce nickel, cobalt, brown coal and other minerals at
the Kempirsai deposit. Our rights to those properties terminate at various times
from October 2011 to February 2026 unless we are able to negotiate extensions of
those contracts. While under the terms of our contracts we retain our rights to
all tangible and intangible assets we acquire for exploration, extraction and
production at these deposits, if we are unsuccessful in negotiating extensions,
upon the expiration of those contracts our interest in and rights to those
properties terminates and reverts back to the government of the Republic of
Kazakhstan.

Tax and Royalty Scheme in the Republic of Kazakhstan

         Our subsidiaries operating in the mining industry in Kazakhstan are
subject to the following taxes and royalties payable to the Republic of
Kazakhstan:

                                       10
<PAGE>
<TABLE>
<CAPTION>
 Class of Tax or Royalty            Basis of Tax               Period              Rate
-------------------------------   ----------------   ----------------------   ----------------
<S>                                 <C>                  <C>                      <C>
Corporate Income Tax                Profits                   Monthly               30%
Social Tax                          Payroll                   Monthly               21%
VAT                                 Value added               Monthly               16%
Property Tax                        Property                 Quarterly              1%
Royalty (ore)                       Output volume        Monthly/Quarterly         2.21%
Royalty (brown coal)                Output volume        Monthly/Quarterly         0.9%
</TABLE>

Working Programs of our Subsidiaries

         For us to maintain our rights under the exploration license held by
Kaznickel and the production license held by KKM, we must satisfy the work
program requirements of the MEMR. Each year we must submit a proposed annual
work program under each license to the MEMR. This annual work program must be
reviewed and approved by the MEMR. If we fail to meet the minimum work program
requirements, we could lose our licenses. Under the current work program for
Kaznickel, we must drill at least 17,498 meters in 2006. The current work
program under the KKM licenses calls for KKM to extract the following amounts of
ore for processing and brown coal.

                                    Tons of Ore           Tons of Brown Coal
                                ------------------       --------------------

             2006                         -0-                    20,000
             2007                     175,000                    60,000
             2008                     350,000                   200,000
             2009                   1,000,000                   200,000
             2010                   1,000,000                   200,000
             2011                   1,000,000                   200,000
             2012                                               200,000
             2013                                               200,000
             2014                                               200,000
             2015                                               200,000
             2016                                               200,000
             2017                                               200,000
             2018                                               200,000

         To date, we have met the minimum obligations under the minimum work
programs of our subsidiaries. Should we fail to complete the minimum work
program in some year, the MEMR could review the work program, request an update
and amendment to the work program or even recall our license.

         Management is confident of our ability to satisfy the obligations of
the minimum work programs of our subsidiaries in the future.

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<PAGE>

Competition

         Total nickel production worldwide was approximately 1,500,000 tons in
2005, according to USGS. Norilsk Nickel is the largest nickel producer followed
by Inco, BHP Billiton Plc, Eramet Group and Falconbridge Limited. These five
companies together account for approximately 66% of world primary nickel
production, while more than 30 medium- to small-companies produce the remaining
34%.

         Companies compete with each other generally across the globe and are
best categorized by their size, reserve base and production method, due to
different extracting technologies applied and the final product.

         Until recently, there were no nickel-producing companies in Kazakhstan.
In February 2004, Oriel Resources, a London-based company, acquired 90% of
Muzbel LLC, which holds exploration and extraction rights for Shevchenko nickel
deposit in northern Kazakhstan.

         We do not anticipate direct competition from Oriel Resources. Nickel
and cobalt are part of a global market and a worldwide demand, in which the
supply is limited and the number of industries that use nickel and cobalt is
increasing, thus ensuring a constant demand for additional production of nickel
and cobalt.

         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.

         We are confident that the proximity of our Gornostai deposit to China
and other Asian countries will be a major competitive factor. We have already
been approached by Chinese metal companies willing to buy its ore at this stage
and interested in purchasing finished product once we reach production stage. We
have also been approached about jointly developing the deposit, but we have not
discussed this option in detail. At the same time, we believe the proximity of
our Kempirsai deposit to Russia and the industrial region around the Ural
Mountains, Europe and China will benefit us once we reach commercial production.

Foreign Operations

         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 it currently
operates. We therefore face risks inherent in conducting business
internationally, such as:

         o        Foreign currency exchange fluctuations or imposition of
                  currency exchange controls;
         o        Legal and governmental regulatory requirements;
         o        Nationalization of assets;

                                       12
<PAGE>

         o        Import-export quotas or other trade barriers;
         o        Difficulties in collecting accounts receivable and longer
                  collection periods;
         o        Political and economic instability;
         o        Difficulties and costs of staffing and managing international
                  operations; and
         o        Language and cultural differences.

         Any of these factors could materially adversely affect our operations
and consequently its business, operating results and financial condition. At
this time, management is unable to estimate what, if any, changes may occur or
the resulting effect of any such changes on our financial condition or future
results of operations.

         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.

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

Regulation of Mining Activity

         Our mining activities will be subject to various laws and regulations
concerning exploration, allowable production, taxes, labor standards,
environmental protection, mine safety, regulations relating to royalties,
importing and exporting of minerals and other matters. In addition, new laws or
regulations governing operations and activities could impact us in a materially
adverse way.

Environmental Regulations

         Environmental legislation in all countries is evolving in a manner
which will require stricter standards and enforcement, increased fines and
penalties for non-compliance, more stringent environmental assessments of
proposed projects and a heightened degree of responsibility for companies and
their officers, directors and employees.

         All phases of our operations in the Republic of Kazakhstan are subject
to environmental regulations. The regulations are comprehensive and cover water
quality, discharge limits, hazardous wastes, agricultural land and vegetation.

                                       13
<PAGE>

Other Properties

         Bekem uses one-quarter of an 800 square foot office condominium located
at 875 Donner Way, Unit 705, Salt Lake City, Utah 84108 for its corporate
offices. We currently pay no rent for this space pursuant to a verbal agreement
with Particle Separation Technologies, L.C. This free rent is of nominal value.
There is no lease agreement with Particle Separation Technologies, L.C. If at
any time Particle Separation Technologies, L.C., decides it needs or wants the
space, we have no right to continue to occupy the space and could be forced to
move.

         We also maintain a representative office in Almaty, Kazakhstan, where
it rents 175 square meters of office space. The lease agreement expires on
December 31, 2006. The monthly lease payment is $5,250. Under the terms of our
lease agreement, the owner of the space could terminate our lease at any time
and require us to vacate the premises.

         Kaznickel LLP rents a 368 square meter office in Semei, Kazakhstan, for
approximately $1,300 per month. Semei is the closest city to the Gornostai
deposit. This lease agreement expires in May 2007. Kaznickel also rents 1,432
square meters of warehouse space in Semei for $3,900 per month. Kaznickel uses
this space to store test ore. This space is leased on a year-to-year basis. If
at any time the owner of this space decides it needs or wants the space for
other purposes, Kaznickel has no right to continue to occupy the space and could
be forced to move.

         KKM rents 100 square meters of office space in Aktobe, Kazakhstan. KKM
pays approximately US $1,500 per month for this space under a one-year lease
agreement. It is our understanding that the owner of this building is currently
trying to sell the building. Under the terms of our lease agreement, if the
building is sold our right to occupy this space could be terminated and KKM
would be forced to move its offices.

Employees

         We currently have approximately 309 full-time employees. We hire our
employees under local labor contracts complying with the governing laws of the
Republic of Kazakhstan. Typically, these employment contracts are renewable for
one-year terms.

         With new labor laws passed in early 2005, all labor contracts that do
not expire or are not terminated before one year are automatically (by law)
extended for an undefined period. This means that it will become more difficult
to terminate existing employees, and our exposure to expenses associated with
termination of employees is expected to increase. With the ongoing labor market
monitoring, we believe that future new labor requirements can be satisfied and
there is no significant risk of labor shortage.

         We believe we have satisfactory relations with our employees. We
anticipate the need to hire additional personnel as operations expand. To date,
neither our operations nor the operations of any of our subsidiaries have been
interrupted by strikes or work stoppages.

                                       14
<PAGE>

Patents

         The Company owns U.S. Patents 5,439,117, 5,772,043, and 6,095,337, each
entitled "System and Method for Separating Electrically Conductive Particles."
The patents were issued on August 8, 1995, June 30, 1998, and August 1, 2000,
respectively. All three patents expire December 21, 2013. These patents cover
the technology that allows the Company to separate nonmagnetic particles from
feed material. Prior to the acquisition of Condesa, these patents were very
important to the Company's business and added significant value because they
give it an exclusive right to the covered technology. With the shift in the
primary business focus of the Company to mineral exploration and production,
these patents are no longer significant to the success of the Company.

Research and Development

         In connection with the development of its electromagnetic particle
separating technology, on or about January 16, 2001, the Company received a
research grant in the amount of $199,000 from the Department of Energy ("DOE"),
through its Office of Industrial Technologies 2000 Inventions and Innovation
("I&I") program for use i35 n developing an HFECS prototype. This grant expired
on June 30, 2005. The Company spent $2,536 of the grant money during 2005, and
spent an aggregate of $151,286 before the grant expired.

         During 2005, the Company spent approximately $131,000 in research and
development developing the hydrochlorination technology that will be used in the
pilot plant and the commercial processing plant. None of these costs have been
borne directly by any of our customers.

Reports to Security Holders

         We file annual and quarterly reports with the SEC. The public may read
and copy any materials filed by the Company 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 3. Legal Proceedings

         To the knowledge of management, there is no material litigation or
governmental agency proceeding pending or threatened against Bekem or its
management. Further, we are not aware of any material pending or threatened
litigation or governmental agency proceeding to which the Bekem or any of our
directors, officers or affiliates are or would be a party.

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

         No matters were submitted to a vote of security holders during the
quarter ended December 31, 2005.

                                       15
<PAGE>

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

         Our shares are currently traded on the Over-the-Counter Bulletin Board
("OTCBB") under the symbol BKMM. As of April 6, 2006 we had approximately 151
shareholders holding 100,088,888 common shares. Of the issued and outstanding
common stock, approximately 3,300,000 are free trading, the balance are
"restricted securities" as that term is defined in Rule 144 promulgated by the
Securities and Exchange Commission.

         Our common stock began trading on the OTCBB on February 17, 2004. Prior
to that time no quotation for our common shares was quoted on any exchange or
quotation medium. Published bid and ask quotations from February 17, 2004
through December 31, 2005, are included in the chart below. These quotations
represent prices between dealers and do not include retail markup, markdown or
commissions. In addition, these quotations do not represent actual transactions.

                                      Bid                    Ask
                                 High      Low         High        Low
                                 ----      ---         ----        ---
2005
-----
Jan. 1 thru Mar. 31            $3.95      $2.00       $7.50      $4.00
Apr. 1 thru June 30             3.55       2.50        7.00       3.25
July 1 thru Sep. 30             2.90       2.40        6.00       3.00
Oct. 1 thru Dec. 31             2.60       2.00        4.00       2.60

2004
----
Feb. 17 thru Mar. 31           $1.00      $0.10       $2.00      $0.55
Apr. 1 thru June 30             2.50       1.00        5.00       2.00
July 1 thru Sep. 30             2.50       2.50        7.50       5.00
Oct. 1 thru Dec. 31             3.50       2.00        7.50       7.50

         The above information was obtained from Pink Sheets LLC, 304 Hudson
Street, 2nd Floor, New York, New York 10013.

Dividends

         We have not paid, nor declared, any dividends since our inception and
do not intend to declare any such dividends in the foreseeable future. Our
ability to pay dividends is subject to limitations imposed by Utah law. Under
Utah law, dividends may be paid to the extent that the corporation's assets
exceed it liabilities and the corporation is able to pay its debts as they
become due in the usual course of business.

                                       16
<PAGE>

Securities Authorized for Issuance Under Equity Compensation Plans
<TABLE>
<CAPTION>
------------------------- --------------------------- --------------------------- ------------------------------------
Plan category             Number of securities        Weighted-average            Number of securities
                          to be issued  upon          exercise price of           remaining available for future
                          exercise of                 outstanding                 issuance under equity
                          outstanding options,        options, warrants           compensation plans
                          warrants and rights         and rights                  (excluding securities reflected
                                                                                    in columns (a))
                                     (a)                          (b)                             (c)
------------------------- --------------------------- --------------------------- ------------------------------------
<S>                                   <C>                        <C>                           <C>
Equity compensation
plans approved by                    -0-                         $-0-                          3,000,000
security holders
------------------------- --------------------------- --------------------------- ------------------------------------
Equity compensation
plans not approved by                -0-                         $-0-                             -0-
security holders
------------------------- --------------------------- --------------------------- ------------------------------------
Total                                -0-                         $-0-                          3,000,000
------------------------- --------------------------- --------------------------- ------------------------------------
</TABLE>

         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 February 16, 2004, we granted options to two parties to purchase
1,000,000 shares each for technology and asset acquisition and business
development services. The options were not exercisable until such time as we
acquired assets with a fair value of at least $2,000,000, as determined by the
board of directors. The exercise price of the options was $0.10. The options
were scheduled to expire on February 16, 2009. We granted the option holders a
registration right in connection with the exercise of the options and/or the
resale of the underlying common shares. On August 23, 2005 we issued 588,888
shares of our restricted common stock to the option holders in exchange for the
cancellation of these options.

         We have issued no other securities under the Plan.

Unregistered Sales of Equity Securities

         We sold no unregistered securities during the quarter ended December
31, 2005.

Repurchases of Equity Securities

         We did not repurchase any of our equity securities during the quarter
ended December 31, 2005.

                                       17
<PAGE>

Transfer Agent

         Our transfer agent and registrar is Interwest Transfer Company, Inc.,
1981 East 4800 South, Suite 100, Salt Lake City, Utah 84117, Telephone (801)
272-9294.

Item 6. Management's Discussion and Analysis

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

         During 2005, we generated only limited revenue from operations. We do
not anticipate generating significant revenues until we begin commercial
production, which, if necessary funding can be obtained, is estimated to occur
in 2007. Moreover, in reaching commercial production stage, we anticipate
incurring millions of dollars in costs. Because we are not currently generating
significant revenues we will be completely dependent on investment funds to
support our operations until such time as production generates sufficient
revenues to cover our operating expenses. We do not expect to begin production
until the fourth quarter 2007, and we do not anticipate generating sufficient
revenue to cover operating expenses until 2008. There is no assurance that we
can obtain funding on favorable terms, or at all. These factors raise
substantial doubt about our ability to continue as a going concern.

Results of Operations

         As you read this Results of Operations section it is important to keep
in mind that during fiscal 2005 we acquired KMI and its operating subsidiary
KKM. While KKM has not engaged in significant operations in recent years, it has
engaged in significantly greater operations than Bekem or Kaznickel. Prior to
the acquisition of KMI, we were engaged in exploration of our Gornostai deposit.
However, because of a lack of funds our exploration activities were limited. The
increases in revenue and expenses in fiscal 2005 compared to fiscal 2004 is the
result of acquisition of KKM and not the result of increased operations of Bekem
or Kaznickel.

         Revenue

         During fiscal 2005 we earned revenue of $148,549 primarily from the
sale of ore and brown coal. By comparison, in fiscal 2004 we realized no
revenue. In fiscal 2004 our operations were limited strictly to exploratory
drilling of our Gornostai deposit. In fiscal 2005 we acquired KMI and its
wholly-owned subsidiary, KKM. During fiscal 2005, KKM engaged in the extraction
and sale of ore and brown coal. We anticipate revenue during the 2006 fiscal
year will be lower in 2006 because we do not expect to sell ore or coal in 2006.

                                       18
<PAGE>

         Cost of Product Sold

         We realized cost of product sold of $74,205 during the twelve months
ended December 31, 2005 and no cost of product sold during the comparable 2004
period. This increase in cost of product sold is the direct result of our
acquisition of KKM and its active operations. As discussed above, during 2004 we
engaged in no active mining operations. We anticipate cost of product sold
during the twelve months ending December 31, 2006 will be lower than in 2005
because we do not expect to sell ore or coal in 2006.

         General and Administrative Expenses

         With the acquisition of KKM, our general and administrative expenses
increased from $99,509 during 2004 to $1,018,633 during 2005. This significant
increase is general and administrative expenses in 2005 is attributable to the
significant increase in employees and employee-related costs, as well as, costs
associated with having operations in both northeastern and northwestern
Kazakhstan, including increased office rents and travel expenses. In the
upcoming fiscal year we expect general and administrative expenses will continue
to increase at about the same or a more accelerated rate as we continue our
efforts to ramp up mining and processing operations.

         Accretion Expense

         We realized no accretion expense during the twelve months ended
December 31, 2004. During the twelve months ended December 31, 2005 we realized
accretion expenses of $60,632. This increase in accretion expense resulted from
the accretion of the asset retirement obligations. We believe accretion expense
will be approximately $85,000 during the twelve months ending December 31, 2006.

         Depreciation Expenses

         In 2005 we recognized $48,233 in depreciation expense. We recognized no
depreciation expense in 2004. With the acquisition of KKM, we also acquired the
assets of KKM, which includes equipment, buildings, machinery, etc. that we did
not own in 2004. The increase in depreciation expense is directly attributable
to the increase in our asset base as a result of our acquisition of KKM. We
expect that depreciation expenses in 2006 will remain at levels more or less
consistent with the expenses recognized during 2005.

         Total Expenses

         As a result of our acquisition of KKM our total expenses increased from
$370,608 during fiscal 2004 to $1,956,711 during fiscal 2005. We expect our
total expenses in 2006 will continue to increase as we ramp up our business.

         Loss from Operations

         During the twelve months ended December 31, 2005 we experienced a loss
from operations of $1,808,162 compared to a loss of $370,608 during the twelve

                                       19
<PAGE>

months ended December 31, 2004. This dramatic increase in loss from operations
during 2005 is again the result of our acquisition of KKM and its active
operations during the 2005 fiscal year, whereas in 2004 we engaged in very
limited operations and incurred fewer expenses. We expect we will continue to
generate losses from operations until such time as we engage in significant ore
production.

         Net Loss


         For all of the foregoing reasons, during the twelve months ended
December 31, 2005 we experienced a net loss of $1,203,254 compared to a net loss
of $245,090 during the twelve months ended December 31, 2004. We anticipate we
will continue to experience increasing net losses until we are able to engage in
significant nickel and cobalt ore extraction, processing and sales. We do not
expect to be engaged in significant ore extraction and processing prior to the
2008 fiscal year.


Liquidity and Capital Resources

         While we raised some funds through a private placement of our equity
securities in 2004, our capital resources have consisted primarily of funds we
have borrowed from related and non-related parties. We anticipate the need for
substantial additional capital resources in the upcoming twelve months, which
will likewise consist primarily of funds raised in financing activities and
debt.

         During fiscal 2005 and 2004 cash was primarily used to fund operations.
See below for additional discussion and analysis of cash flow.

                                                   Fiscal 2005      Fiscal 2004
                                                  -------------     -----------
Net cash used in operating activities             $(1,757,443)       $(184,374)
Net cash provided by/(used) in investing
  activities                                           14,206         (203,582)
Net cash provided by financing activities           1,821,031          395,860
                                                  ------------       ---------

NET INCREASE IN CASH                              $    85,176        $   4,190
                                                  ===========        =========

         In fiscal 2005 net cash used in operating activities was $1,757,443,
compared to net cash used in operating activities of $184,374 in fiscal 2004.
This increase in net cash used in operating activities is primarily the result
of the acquisition of KMI and its operation subsidiary KKM.

         Cash provided by investing activities was $14,206 in fiscal 2005, by
comparison, in fiscal 2004, we used $203,582 in investing activities. We

                                       20
<PAGE>

realized net cash from investing activities because the cash we acquired in
acquisitions during 2005, was only partially offset by purchases of property and
equipment.

         Net cash provided by financing activities in fiscal 2005 was $1,821,031
compared to net cash provided by financing activities of $395,860 in fiscal
2004. We realized a significant increase in net cash provided by financing
activities because proceeds from notes payable to related and non-related
parties and proceeds from accrued liabilities to related parties and from the
issuance of stock were only partially offset by payments on notes payable.

Plan of Operations

         We have developed a plan of operations that should allow it to begin
production in 2007, assuming adequate funding can be obtained. To fund
operations during 2006, we estimate we will need approximately $20,000,000. We
plan to seek this funding through private equity investments. If we are
successful in raising $20,000,000 we intend to allocate the funds as follows.

Operations

         Drilling

         We will allocate approximately $3,000,000 to drilling and exploration.
This includes drilling of approximately 25,000 meters of the left and right
banks of the Gornostai deposit. Estimated drilling costs include both direct and
indirect drilling costs, including geologist fees and costs for site
supervisors, geological data processors, core sample takers, topographers, site
procurement specialists, etc.

         Core Analysis

         We anticipate spending approximately $250,000 for core analysis during
the next twelve months.

Design and Engineering

         Assuming we have available funds, over the next twelve months we plan
to spend approximately $3,500,000 for pre-feasibility and feasibility studies
and to develop a commercial processing plant design for ore processing at the
Kempirsai deposit. We will also perform an independent resource and reserves
estimate and valuation.

         Independent Resource and Reserve Estimate

         We will allocate $1,000,000 to hire an independent mining consulting
firm to provide us with a resource and reserve reclassification and estimate for
the Gornostai deposit and the Kempirsai deposits.

                                       21
<PAGE>

         Feasibility Study

         We anticipate spending approximately $1,000,000 for the preparation of
pre-feasibility and feasibility studies. This is a minimum amount based on
market rates in the Commonwealth of Independent States of the former Soviet
Union. However, the price may increase if we retain an independent western
consulting firm.

         Detailed Design

         Detailed design costs of $1,500,000 represent the prospective costs of
detailed engineering and design contract for construction of a commercial
processing plant on the territory of Kempirsai deposit. This includes flowsheet
design and its pilot testing. This is a rough estimate, which will be subject to
future revision following completion of feasibility studies.

Professional Fees

         We expect to incur approximately $300,000 in expenses to our financial
auditors and securities attorneys during the next twelve months.

Administrative Expenses

         We plan to allocate approximately $1,000,000 for administrative
expenses during the next twelve months, which include expenses of maintaining
offices in the United States and Kazakhstan, for salaries and taxes.

Loan Repayment

         We will allocate approximately $9,000,000 to retire loans provided to
us by local banks and shareholders to finance operation and construction of the
pilot plant.

Working Capital

         We plan to allocate $1,500,000 for working capital for the next twelve
months. This will be used to finance our operations at the Kempirsai and
Gornostai deposits.

         In the event we are unable to raise $20,000,000, priority will be given
to drilling and design and engineering expenses, with funds being allocated as
management determines in its business judgment to be in the best interest of the
Company.

Summary of Material Contractual Commitments

         The following table lists our significant commitments as of December
31, 2005:

                                       22
<PAGE>
<TABLE>
<CAPTION>

                                                           Payments Due by Fiscal Year
                                   ---------------------------------------------------------------------------
                                                      Less than         1-3           3-5
Contractual Commitments                  Total          1 year          years         years        Thereafter
--------------------------------------------------------------------------------------------------------------
<S>                                 <C>              <C>             <C>           <C>              <C>
Notes Payable                       $  5,253,999      3,660,230        983,769        610,000         -0-
Notes  Payable - Related Party      $  4,075,012            -0-      1,787,012      2,288,000         -0-
Due to the Government of the
  Republic of Kazakhstan(1)         $    831,580            -0-        831,580            -0-         -0-
Operating Leases                    $    103,160         96,660          6,500            -0-         -0-
--------------------------------------------------------------------------------------------------------------
         Total                      $ 10,263,751     $3,756,890     $3,602,361     $2,898,000         -0-
==============================================================================================================
</TABLE>
(1) In connection with our acquisition of the exploration contract covering the
    Gornostai deposit, we are required to repay the Republic of Kazakhstan for
    historical costs incurred by it in undertaking geological and geophysical
    studies and infrastructure improvements. The repayment terms of this
    obligation will not be determined until such time as we apply for and are
    granted a contract to engage in commercial production by the Republic of
    Kazakhstan. Under our current contract once we determine the property
    contains commercially producible reserves, if we wish to commence commercial
    production, we must apply for such right prior to the expiration of our
    exploration and development rights in February 2026. We anticipate that we
    will apply for a commercial production contract within the next 1-3 years.
    Of course, there is no guarantee when or if we will discover commercially
    producible reserves within the Gornostai deposit. Should we decide not to
    pursue a commercial production contract, we can relinquish the Gornostai
    deposit to the Republic of Kazakhstan in satisfaction of this obligation.

         We are required, under our licenses to submit a proposed annual work
program to the MEMR for approval. Failure to meet the minimum work program
requirements could cause us to lose our licenses. More information relative to
this requirement is included in Item 1. Description of Business and Properties
in the section "Working Programs of our Subsidiaries."

Off-Balance Sheet Financing Arrangements

         As of December 31, 2005 and 2004 we had no off-balance sheet financing
arrangements.

Critical Accounting Policies

         The preparation of financial statements in accordance with accounting
standards generally accepted in the United States requires management to make
estimates and assumptions that affect both the recorded values of assets and
liabilities at the date of the financial statements and the revenues recognized
and expenses incurred during the reporting period. Our estimates and assumptions
affect our recognition of deferred expenses, bad debts, income taxes, the
carrying value of our long-lived assets and our provision for certain
contingencies. We evaluate the reasonableness of these estimates and assumptions
continually based on a combination of historical information and other
information that comes to our attention that may vary our outlook for the
future. Actual results may differ from these estimates under different
assumptions.

         We suggest that our Summary of Significant Accounting Policies, as
described in Note 1 of Notes to Consolidated Financial Statements, be read in

                                       23
<PAGE>

conjunction with this Management's Discussion and Analysis of Financial
Condition and Results of Operations. We believe the critical accounting policies
that most impact our consolidated financial statements are described below.

         Use of Estimates - The preparation of 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 more significant areas requiring
the use of management estimates and assumptions relate to mineral reserves that
are the basis for future cash flow estimates and units-of-production
depreciation, depletion and amortization calculations; environmental,
reclamation and closure obligations; asset impairments; write-down of inventory
to net realizable value; valuation allowances for deferred tax assets; reserves
for contingencies and litigation; and the fair value and accounting treatment of
financial instruments. 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.

         Currency Translation - The consolidated financial statements are
presented in U.S. dollars. The functional currency of the Company's subsidiaries
operating in Kazakhstan is U.S. dollars for Kaznickel and Kazakh tenge for KKM.
Results of operations are translated into U.S. dollars at the average exchange
rates during the reporting period. Non-monetary assets and liabilities of
Kaznickel 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. Translation differences are
included in results of operations. All balance sheet accounts of KKM are
translated at exchange rates on the date of the financial statements and
translation differences are included in stockholders' equity as cumulative
translation adjustments.

         Revenue Recognition - For its operating mine, revenues currently arise
from the limited sale of ore and Mamyt brown coal. Revenue is recorded when
persuasive evidence of an arrangement exists, title to product transfers to the
customer, and collectibility is reasonably assured. Produced, but unsold
minerals or ore are recorded as inventory until sold.

         Trade Receivables -- In the normal course of business, the company
extends credit to its customers on a short-term basis. The principal customers
are local companies and government agencies. Although credit risks associated
with these customers are considered minimal, the company routinely reviews its
accounts receivable balances and makes provisions for doubtful accounts.

         Related Party Receivables - Related party receivables consists of
short-term advances to employees. No allowance has been provided due to the
historic short-term nature and recoverability of such advances.

                                       24
<PAGE>

         Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
-- 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.
At December 31, 2005, we reviewed our long-lived assets as disclosed above and
determined no impairment was necessary.

         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 - Expenditures for new
facilities or equipment and expenditures 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 based on proven and probable reserves as the
useful lives of these assets are considered to be limited to the life of the
relevant mine.

         Costs incurred to develop new properties are capitalized as incurred,
where it has been determined that the property can be economically developed
based on the existence of proven and probable reserves. At our surface mines,
these costs include costs to further delineate the ore body and remove
overburden to initially expose the ore body. All such costs are 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.

         Major development costs incurred after the commencement of production
are amortized using the UOP method based on estimated recoverable minerals to be
mined from proven and probable reserves. Depending upon whether the development
is expected to benefit the entire remaining ore body, or specific ore blocks or
areas only, the UOP basis is either the life of the entire ore body, or the life
of the specific ore block or area.

         The calculation of the UOP rate of amortization, and therefore the
annual amortization charge to operations, could be materially impacted to the
extent that actual production in the future is different from current forecasts
of production based on proven and probable reserves. This would generally occur
to the extent that there were significant changes in any of the factors or
assumptions used in determining reserves. These factors could include: (i) an
expansion of proven and probable reserves through exploration activities; (ii)
differences between estimated and actual cash costs of mining, due to
differences in grade, mineral recovery rates and foreign currency exchange
rates; and (iii) differences between actual commodity prices and commodity price
assumptions used in the estimation of reserves. Such changes in reserves could

                                       25
<PAGE>

similarly impact the useful lives of assets depreciated on a straight-line
basis, where those lives are limited to the life of the mine, which in turn is
limited to the life of the proven and probable reserves.

         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 assumed for purpose of
depreciation, depletion and amortization calculations.

         Stripping Costs - In general, mining costs are allocated to production
costs, stockpiles, and inventories, and are charged to costs applicable to sales
when minerals are sold. However, the mining industry, generally, defers and
amortizes certain mining costs on a units-of-production basis over the life of
the mine. These mining costs, which are commonly referred to as "deferred
stripping" costs, are incurred in mining activities that are normally associated
with the removal of waste rock. The deferred stripping accounting method is
generally accepted in the mining industry where mining operations have diverse
grades and waste-to-ore ratios; however, industry practice does vary. Deferred
stripping matches the costs of production with the sale of minerals, where this
procedure is employed, by assigning each quantity of mineral with an equivalent
amount of waste removal cost. When stripping costs are expensed as incurred,
there might be greater volatility in a company's period-to-period results of
operations. We did not acquire any deferred stripping costs in the acquisition
of KKM.

         In March 2005, the FASB ratified Emerging Issues Task Force Issue No.
04-6, "Accounting for Stripping Costs Incurred during Production in the Mining
Industry," (EITF 04-6) which addresses the accounting for stripping costs
incurred during the production phase of a mine and refers to these costs as
variable production costs that should be included as a component of inventory to
be recognized in costs applicable to sales in the same period as the revenue
from the sale of inventory. As a result, capitalization of stripping costs is
appropriate only to the extent product inventory exists at the end of a
reporting period and the carrying value is less than the net realizable value.
We will adopt the provisions of EITF 04-6 on January 1, 2006. We have had very
limited production activity in the recent period, so the full effect of this
adoption will be felt as production increases in the future periods.

         Mineral Property Rights - 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 a mineral property or 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.

                                       26
<PAGE>

         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 properties. We
regularly perform evaluations of our investment in mineral interests to assess
the recoverability and / or the residual value of its investments in these
assets. All mineral interests and mineral properties 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.

         Our estimates of mineral prices, recoverable probable reserves, and
operating, capital and reclamation costs, when available, are subject to certain
risks and uncertainties, which may affect the recoverability of mineral property
costs. Although we have made our best estimate 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.

Recently Issued Accounting Pronouncements

         Inventory Costs - In November 2004, the FASB issued SFAS No. 151,
Inventory Costs, which is an amendment of ARB No. 43. SFAS No. 151 requires idle
facility expenses, freight, handling costs and wasted material (spoilage) costs
to be recognized as current-period charges. It also requires that allocation of
fixed production facilities. SFAS No. 151 will be effective for us beginning
January 1, 2006 and resulting adjustments will be made on prospective basis. The
Company does not anticipate that the adoption of this standard will have a
significant impact on our business, results of operations or financial position.

         Share Based Payment - In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment, which is a revision to SFAS No. 123. SFAS No. 123R
established standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services. Primarily, SFAS No. 123R
focuses on accounting for transactions in which an entity obtains employee
services in share-based payment transactions. It also addresses transactions in
which an entity incurs liabilities in exchange for goods or services that are
based on the fair value of the entity's equity instruments or that may be
settled by the issuance of those equity instruments.

         SFAS No. 123R requires us to measure the cost of employee services
received in exchange for an award of equity instruments based on the grant-date
fair value of the award. That cost will be recognized over the period during
which an employee is required to provide service in exchange for the award,
which is usually the vesting period. No compensation cost is recognized for
equity instruments for which employees do not render the requisite service.

         In accordance with the Securities and Exchange Commission's Staff
Accounting Bulleting 107, SFAS No. 123R is effective as of the beginning of the
annual reporting period that begins after December 15, 2005. Under these

                                       27
<PAGE>

guidelines, the company will adopt SFAS 123R as of January 1, 2006. We do not
expect that the adoption of this standard will have a material impact on our
future results of operations.

         Accounting Changes and Error Corrections - In May 2005, the FASB issued
SFAS No. 154, Accounting Changes and Error Corrections, which is a replacement
of APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting
Changes in Interim Financial Statements. SFAS No. 154 changes the requirements
for the accounting for and reporting a change in an accounting principle.
Previously, most voluntary changes in accounting principle required recognition
of a cumulative effect adjustment in the results of operations of the period of
change. SFAS No. 154 requires retrospective application to prior periods unless
it is impracticable to determine either the period-specific effects or the
cumulative effect of the change. SFAS No. 154 is effective for accounting
changes and corrections of errors made in years beginning after December 15,
2005; however, it does not change the transition provisions of any existing
accounting pronouncements, such as SFAS No. 123R. We do not believe the adoption
of SFAS No. 154 will have a material effect on our business, results of
operations, or financial position.

Item 7. Financial Statements

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

Item 8. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

         We have made no changes in and had no disagreements with our
independent registered accounting firm on accounting and financial disclosure
during the 2005 fiscal year.

Item 8A. Controls and Procedures


         Our chief executive officer and our chief financial officer (the
"Certifying Officers") are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rule 13a-15 and
Rule 15d-15(e)). Such officers have concluded (based upon their evaluations of
these controls and procedures as of the end of the period covered by this
report) that our disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in this report is accumulated and
communicated to management, including the Certifying Officers as appropriate, to
allow timely decisions regarding required disclosure.

         Following the filing of our Form 10-KSB annual report for 2005, we
undertook a review of the calculation of our deferred tax liability. Based on
this review and after consultation with our board of directors and our
independent registered public accounting firm, we concluded that our calculation
of our deferred tax liability contained in our audited consolidated financial
statements for the year ended December 31, 2005, was performed incorrectly
requiring a correction in that period relating to our calculation of deferred
tax liability.

                                       28
<PAGE>

         In light of our determination that we needed to correct the financial
statements contained in our annual report for the year ended December 31, 2005
we carried out an evaluation in accordance with Exchange Act Rules 13a-15 and
15d-15 and under the supervision and with the participation of management,
including our Certifying Officers, of the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this report. We
have evaluated the accounting procedures and controls in place and determined
that the error was a calculation error. Based on this evaluation, our Certifying
Officers have concluded that the correction of our financial statements was not
the result of ineffective disclosure controls and procedures.

         There have been no changes in our internal controls over financial
reporting that occurred during the year ended December 31, 2005.


Item 8B. Other Information

         None.


                                    PART III

Item 9. Directors and Executive Officers, Promoters, and Control Persons;
        Compliance With Section 16(A) of the Exchange Act

         The following table sets forth our directors, 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                    Positions with
 Executive Officer           Age        the Company             Director Since
------------------------ ----------  -------------------------  ----------------

Marat Cherdabayev            31      Chief Executive Officer,   November 2004
                                     President and Director
James Gunnell                51      Secretary and Director     June 2004
Dossan Kassymkhanuly         38      Director                   August 2005
Yermek Kudabayev             36      Chief Financial Officer

         The above individuals will serve as the Company's officers and/or
directors. A brief description of their positions, proposed duties and their
background and business experience follows:

         Marat Cherdabayev. From July 2002 to July 2005, Mr. Cherdabayev served
as a director of Caspian Services Group, Inc., ("CSI") a U.S. reporting issuer,
and former parent company of Bekem Metals, Inc. Prior to joining CSI, Mr.
Cherdabayev worked for Caspian Services Group Limited ("CSGL") in Almaty,
Kazakhstan. CSGL is a wholly-owned subsidiary of CSI. Mr. Cherdabayev was a

                                       29
<PAGE>

Business Development Manager for CSGL, and was responsible for developing a
marketing plan for CSGL's services. Prior to his employment with CSGL, Mr.
Cherdabayev worked for the Department of Project Finance at OJSC Kazakhtelecom
in Almaty, Kazakhstan. Mr. Cherdabayev served as the Head of Project Planning
and Monitoring, with responsibility for analyzing the financial feasibility of
investment projects. He began working for OJSC Kazakhtelecom in January 2001.
From October 2000 to January 2001, Mr. Cherdabayev served as the Advisor to the
President of TNS Plus, a private telecommunications company in Almaty,
Kazakhstan. In that capacity, he developed and advised the president on
marketing strategies, marketing analysis and optimization issues. From January
1999 to June 1999, Mr. Cherdabayev was a Mutual Fund Accountant for State Street
Corporation, in Boston, Massachusetts. His primary duties included producing and
verifying daily financial statements, monitoring general ledger activity and
pricing and reconciling five mutual funds on a daily basis. From January 1998 to
June 1998, Mr. Cherdabayev was a Financial Reporting Assistant at Boston Edison
in Boston Massachusetts. Mr. Cherdabayev graduated with a Bachelor of Science in
Business Administration from Northeastern University in June 2000. Mr.
Cherdabayev is not a director of any other SEC reporting company.

         James F. Gunnell. Mr. Gunnell graduated from Brigham Young University
in 1976 with a Bachelor of Science degree in Zoology. Mr. Gunnell brings over 18
years of sales and management experience to the Company. Since 1991, Mr. Gunnell
has been employed as a Sales Manager with National Electrical Carbon
Corporation, a manufacturer of specialty graphite materials. Mr. Gunnell has
been responsible for growing and managing an independent distributor network,
for developing several new product markets and has significantly increased
product sales in the areas he has managed. Mr. Gunnell is not a director of any
other SEC reporting company.

         Dossan Kassymkhanuly. Mr. Kassymkhanuly has been the director of the
representative office of Kaznickel LLP in Astana, Kazakhstan since March 2004.
As the director, Mr. Kassymkhanuly has been primarily responsible for
negotiations with various government entities and committees on behalf of
Kaznickel. Prior to joining Kaznickel, Mr. Kassymkhanuly worked for Irtysh-Aimak
Ltd., in Ust-Kamenogorsk, Kazakhstan, a coal mining company. While with
Irtysh-Aimak, Mr. Kassymkhanuly served as the director of the representative
office of Irtysh-Aimak in Eastern Kazakhstan where he was responsible for coal
sales in Eastern Kazakhstan. Prior to joining Irtysh-Aimak, Mr. Kassymkhanuly
worked for several employers in mineral marketing and sales and has extensive
experience in this area. Mr. Kassymkhanuly is not a director of any other SEC
reporting company.

         Yermek Kudabayev. 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 has been a member of the Association
of Chartered Certified Accountants, an international accountancy body, since
2004. He was issued a Certified Accounting Practitioner Certificate from the
International Counsel of Certified Accountants and Auditors in 2002. He has been

                                       30
<PAGE>

a Kazakhstani Certified Accountant since 1998 and a Certified Kazakhstani
Auditor since 2000. Prior to joining the Company, 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 is not a director
of any SEC reporting company.

         Mr. Cherdabayev and Mr. Kassymkhanuly are brothers-in-law.

Compliance with Section 16(a) of the Exchange Act

         Directors and executive officers 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. A Form 3 is an initial statement of ownership
of securities. Form 4 is to report changes in beneficial ownership. Form 5
covers annual statements of change in beneficial ownership.

         Based solely on a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company during its most recent fiscal year, it appears that Mr.
Gunnell and Mr. Kassymkhanuly failed to timely file Form 3s at the time they
became directors.

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 and controller. Our
website can be found at www.bekemmetals.com. The code of ethics is posted on our
website.

Item 10. Executive Compensation

         The following chart sets forth the compensation paid to each of our
Executive Officers and Directors during the last three fiscal years:

                                       31
<PAGE>
<TABLE>
<CAPTION>
                                             SUMMARY COMPENSATION TABLE

                                                                            Long Term Compensation
                                                                    ------------------------------------
                                          Annual Compensation                 Awards            Payouts
                                   -------------------------------- -------------------------- ---------
                                                            Other     Restricted   Securities              All Other
                                                           Annual        Stock     Underlying   LTIP        Compen-
    Name and                 Year    Salary      Bonus     Compen-       Awards     Options/   Payouts       sation
 Principal Position         Ended      ($)        ($)      sation($)        ($)       SARs (#)    ($)          ($)
-------------------------- --------- ---------  ---------  ----------- -----------  ----------- -------     ----------
<S>                       <C>       <C>             <C>         <C>          <C>          <C>     <C>           <C>
Marat Cherdabayev(1)      12/31/05  $160,000       -0-         -0-          -0-          -0-     -0-           -0-
President, CEO
And Director
-------------------------- --------- ---------  ---------  ----------- -----------  ----------- -------     ----------
Terrence Chatwin (2)      12/31/05       -0-       -0-         -0-          -0-          -0-     -0-           -0-
Former President,         12/31/04       -0-       -0-         -0-          -0-          -0-     -0-           -0-
CEO and Director
-------------------------- --------- ---------  ---------  ----------- -----------  ----------- -------     ----------
Timur Kunayev(3)          12/31/04       -0-       -0-         -0-          -0-          -0-     -0-           -0-
Former CEO
-------------------------- --------- ---------  ---------  ----------- -----------  ----------- -------     ----------
Louis Naegle(4)           12/31/04       -0-       -0-         -0-          -0-          -0-     -0-           -0-
Former CEO                12/31/03       -0-       -0-         -0-          -0-          -0-     -0-           -0-
CEO and Director          12/31/02       -0-       -0-         -0-          -0-          -0-     -0-           -0-
-------------------------- --------- ---------  ---------  ----------- -----------  ----------- -------     ----------
</TABLE>
(1) Mr. Cherdabayev has served as president and chief executive officer since
    May 2005.
(2) Dr. Chatwin served as president and chief executive officer of the Company
    from November 2004 to May 2005.
(3) Mr. Kunayev served as the chief executive officer the Company from April
    2004 to November 2004.
(4) Mr. Naegle served as the chief executive officer of the Company from
    inception to April 2004.

         No compensation has been paid directly or accrued to any of our
directors. We currently have no policy for compensating our directors for
attendance at Board of Directors meetings or for other services as directors.

         Compensation of officers and directors is determined by our Board of
Directors and is not subject to shareholder approval. We do not have employment
agreements with any of our officers or directors.

         In the past three years no executive officer has received any amounts
in connection with his resignation, retirement, or other termination. No
executive officer received any amounts in the last three years in connection
with a change in control of the Company or a change in the executive officer's
responsibilities after a change in control.

         We have no retirement, pension, or benefit plan at the present time,
however, the Board of Directors may adopt plans as it deems reasonable under the
circumstances.

                                       32
<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management

         The term "beneficial owner" refers to both the power of investment and
the right to buy and sell shares of the Company. It also refers to rights of
ownership or the right to receive distributions from the Company and proceeds
from the sale of our shares. Since these rights may be held or shared by more
than one person, each person who has a beneficial ownership interest in shares
is deemed to be the beneficial owner of the same shares because there is shared
power of investment or shared rights of ownership.

         The following table sets forth as of April 7, 2006, 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 the
Registrant to own beneficially, more than 5% of the 100,088,888 issued and
outstanding shares of our Common Stock, and the name and shareholdings of each
director and of all officers and directors as group.
<TABLE>
<CAPTION>
Type of                                           Amount & Nature of          % of
Security Name and Address                        Beneficial Ownership         Class
--------------------------                        --------------------         -----
<S>      <C>                                            <C>                     <C>
Common   Bekem Metals, Inc.,                            24,031,880              24%
         Voting Trust
         dated April 14, 2006(1)
         170 Tchaikovsky Street
         4th Floor
         Almaty, Kazakhstan 050000

Common   Brisa Equities Corporation(2)                  21,000,000              21%
         1020 East 900 South
         Bountiful, Utah 84010

Common   Central Asian Metals, Inc.(3)                  15,504,408              15%
         P.O. Box 5251
         CH 6901
         Lugano, Switzerland

Common   Marat Cherdabayev(1)                           24,031,880              24%
         170 Tchaikovsky Street
         4th Floor
         Almaty, Kazakhstan 050000

Common   Comodidad y Fantasia en Tierras, S.A.(2)        5,097,960               5%
         APDO 947-2400
         4th Floor
         Almaty, Kazakhstan 050000

                                       33
<PAGE>

Common   EMRJD Creaciones de Puntarenas, S.A.(1)         5,097,960               5%
         Jaco Centro, Garabito
         Bajos de la Fiscalia de Garabito
         Puntarenas, Costa Rica

Common   Envases y Formas Naturales(1)                   5,097,960               5%
         para la Venta, S.A.
         Barrio Santa Marta, de bomba Unica Tica
         200 Oeste y 25 Sur
         Calle Fallas, Desamparados
         San Jose, Costa Rica

Common   James Gunnell(4)                                      250               *
         875 Donner Way, Unit 705
         Salt Lake City, Utah 84108

Common   Hsuih Chi Hun(2)                               36,306,120              36%
         1/F., Chap Biu Building
         Tai Po Market, 15 On Fu Road
         New Territories, Hong Kong, S.A.R.
         China

Common   Inversiones Tentadoras para Habitar, S.A.(1)    5,097,960               5%
         Desamparados, Calle Fallas
         De Tala Bar,
         25 Norte Casa de alto a mano derecha
         San Jose, Costa Rica

Common   Dossan Kassymkhanuly(4)                               -0-               *
         97 Abay Street, Suite 521
         7th Floor
         Semipalatinsk, Kazakhstan 071400

Common   Yermek Kudabayev(4)                                   -0-               *
         170 Tchaikovsky Street
         4th Floor
         Almaty, Kazakhstan 050000

Common   Landsgate Marketing Limited(2)                  5,110,200               5%
         2100 South 1752 East
         Salt Lake City, Utah 84106

                                       34
<PAGE>

Common   Las Tierras del Deleite, S.A.(2)                5,097,960               5%
         Desamparados El Cruce
         San Jose, Costa Rica
---------------------------------------------------------------------------------------
Officers, Directors and Nominees                        24,032,130              24%
  as a Group: (4 persons)
---------------------------------------------------------------------------------------
</TABLE>
*  Less than 1%.

(1) Mr. Marat Cherdabayev owns no shares in his own name. He is the trustee of
    the Bekem Metals, Inc., Voting Trust dated April 14, 2006 and as such, he
    maintains voting control over these shares and therefore may be deemed to be
    the beneficial owner of the shares held by the Voting Trust.

(2) Mr. Hsuih Chi Hun owns no shares in his own name. However, he maintains
    voting and investment control over the shares held of record by Brisa
    Equities, Inc., Landsgate Marketing Limited, Comodidad y Fantasia en Tierra,
    S.A. and Las Tierras del Deleite, S.A., and therefore may be deemed to be
    the beneficial owner of the shares held by these entities.
(3) Brilliance Investments Ltd., as trustee, maintains the voting and investment
    control over the shares held of record by Central Asian Metals, Inc., and
    therefore, may be deemed to be the beneficial owner of the shares held by
    that entity.
(4) Mr. Cherdabayev and Mr. Kudabayev are executive officers of the Company. Mr.
    Cherdabayev, Mr. Gunnell and Mr. Kassymkhanuly are directors of the Company.

Change in Control

         To the knowledge of the management, there are no present arrangements
or pledges of our securities that may result in a change in control of the
Company.

Item 12. Certain Relationships and Related Transactions

         Prior to the acquisition of KMI, we had 38,888,888 common shares
outstanding. In connection with our acquisition of KMI, we issued 61,200,000
shares of our common stock. This transaction, however, did not result in a
change in control of the Company because the Company and KMI shared a common
control shareholder, Hsuih Chi Hun. Prior to the transaction, Hsuih Chi Hun
maintained investment and voting control over 54% of our outstanding common
shares and 50% of the outstanding common shares of KMI. Following the
transaction, Hsuih Chi Hun maintained investment and voting control over 51.5%
of our post-acquisition outstanding common shares.

         On December 2, 2004 we borrowed $92,308 from CJSC Kazmorgeophysica, a
Kazakh company related by virtue of several common shareholders. The short-term
loan is denominated in Kazakh Tenge, interest free and was due on its original
terms by December 31, 2004. During the year ending December 31, 2005 we borrowed
an additional $99,798 from CJSC Kazmorgeophysica, as a Kazakh Tenge denominated,
interest-free, due on demand note. In addition, during the year ended December
31, 2005, we repaid Kazmorgeophysica the $192,106 note from proceeds from a
third-party lender. In addition, we received short-term advances, payable on
demand in the amount of $37,298 from a shareholder.

                                       35
<PAGE>

         During May and June of 2005 we borrowed $77,000 from a shareholder to
fund the U.S. administrative operations. The loans are unsecured and carry an
annual interest rate equal to the LIBOR rate plus two percent; interest and
principal payments are due at maturity, three years after origination.


                                     PART IV

Item 13. Exhibits

         Exhibits. The following exhibits are included as part of this report:

                  Exhibit 9.1       Bekem Metals, Inc., Voting Trust Agreement
                                    dated April 14, 2006
                  Exhibit 21.1      List of Subsidiaries
                  Exhibit 31.1      Certification of Principal Executive Officer
                                    Pursuant to Section 302 of the
                                    Sarbanes-Oxley Act of 2002.
                  Exhibit 31.2      Certification of Principal Financial Officer
                                    Pursuant to Section 302 of the
                                    Sarbanes-Oxley Act of 2002.
                  Exhibit 32.1      Certification of Principal Executive Officer
                                    Pursuant to Section 906 of the
                                    Sarbanes-Oxley Act of 2002.
                  Exhibit 32.2      Certification of Principal Financial Officer
                                    Pursuant to Section 906 of the
                                    Sarbanes-Oxley Act of 2002.

Item 14. Principal Accountant Fees and Services

         Hansen, Barnett and Maxwell served as the Company's independent
registered public accounting firm for the years ended December 31, 2005 and 2004
and is expected to serve in that capacity for the current year. Principal
accounting fees for professional services rendered for us by Hansen, Barnett &
Maxwell for the years ended December 31, 2005 and 2004, are summarized as
follows:

                                                     2005               2004
--------------------------------------------------------------------------------

  Audit                                              $77,800          $49,200
  Audit related                                                             -
  Tax                                                $ 2,000          $ 1,000
  All other                                                                 -
--------------------------------------------------------------------------------
  Total                                              $79,800          $50,200
================================================================================

                                       36
<PAGE>

         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.


                                   SIGNATURES


         In accordance with Section 13 or 15(d) of the Securities Exchange Act
the registrant caused this amended report to be signed on its behalf, thereunto
duly authorized.


                                             BEKEM METALS, INC.



Date: May 5, 2006                              /s/ Marat Cherdabayev
                                             -----------------------------------
                                             Marat Cherdabayev, Chief Executive
                                             Officer and Director



Date: May 5, 2006                             /s/ Yermek Kudabayev
                                             -----------------------------------
                                             Yermek Kudabayev, Chief Financial
                                             Officer



Date: May 5, 2006                             /s/ James Gunnell
                                             -----------------------------------
                                             James Gunnell, Director



Date: May 5, 2006                             /s/ Dossan Kassymkhanuly
                                             -----------------------------------
                                             Dossan Kassymkhanuly, Director

                                       37
<PAGE>

 HANSEN, BARNETT & MAXWELL                    Registered with the Public Company
 A Professional Corporation                       Accounting Oversight Board
CERTIFIED PUBLIC ACCOUNTANTS
  5 Triad Center, Suite 750                         an independant member of
Salt Lake City, UT 84180-1128                              BAKER TILLY
    Phone: (801) 532-2200                                 INTERNATIONAL
     Fax: (801) 532-7944
       www.hbmcpas.com



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and the Shareholders
Bekem Metals, Inc.


We have audited the accompanying consolidated balance sheets of Bekem Metals,
Inc. and Subsidiaries as of December 31, 2005 and 2004, and the related
statements of operations, shareholders' equity (deficit), and cash flows for the
years then ended. 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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion the 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, 2005 and 2004, and the results of its
operations and its cash flows for the years then ended in conformity with U.S.
generally accepted accounting principles.


                                             HANSEN, BARNETT & MAXWELL


Salt Lake City, Utah
April 13, 2006

                                      F-1
<PAGE>
<TABLE>
<CAPTION>
                                      BEKEM METALS, INC. AND SUBSIDIARIES
                                          CONSOLIDATED BALANCE SHEETS



December 31,                                                                           2005               2004
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                <C>
ASSETS

Current Assets
Cash                                                                               $     89,366       $      4,190
Trade accounts receivable                                                                18,657                  -
Prepaid expenses and other current assets                                                     -             21,337
Related party receivables                                                                42,393                  -
Inventories                                                                             337,030                  -
VAT Recoverable                                                                          61,936                  -
-------------------------------------------------------------------------------------------------------------------
Total Current Assets                                                                    549,382             25,527
-------------------------------------------------------------------------------------------------------------------

Long-term deferred expenses                                                              37,606             15,117
Property, plant and equipment (net of accumulated
  depreciation of $49,645 and $1,412)                                                 3,061,290             45,044
Other assets                                                                              1,635                  -
Mineral property rights - net                                                         7,877,078            732,007
-------------------------------------------------------------------------------------------------------------------
Total Assets                                                                       $ 11,526,991       $    817,695
===================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current Liabilities
Accounts payable                                                                   $    424,306       $     85,384
Accrued expenses                                                                        276,291             26,959
Due to related party                                                                      5,518             92,308
Current portion of long-term notes payable                                            3,660,230                  -
-------------------------------------------------------------------------------------------------------------------
Total Current Liabilities                                                             4,366,345            204,651

Deferred tax liabilities                                                              2,304,285                  -
Long-term notes payable, net of discount                                                797,178                  -
Long-term notes payable - related parties                                             4,075,012                  -
Asset Retirement Obligation                                                             833,840            675,460
-------------------------------------------------------------------------------------------------------------------
Total Liabilities                                                                    12,376,660            880,111
-------------------------------------------------------------------------------------------------------------------

Shareholders' Equity (Deficit)
Preferred stock; $0.001 par value, 20,000,000 shares
  authorized, no shares outstanding                                                           -                  -
Common stock; $0.001 par value, 150,000,000 shares
  authorized, 100,088,888  and 21,000,000 shares outstanding                            100,089             21,000
Additional paid-in capital                                                              515,879            161,674
Accumulated deficit                                                                  (1,448,344)          (245,090)
Cumulative translation adjustment                                                       (17,293)                 -
-------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity (Deficit)                                                   (849,669)           (62,416)
--------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity (Deficit)                               $ 11,526,991       $    817,695
===================================================================================================================


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

                                                      F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                               BEKEM METALS, INC. AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF OPERATIONS



For the Year Ended December 31,                           2005                    2004
-------------------------------------------------------------------------------------------
<S>                                                  <C>                      <C>
Revenue                                              $    148,549             $          -
-------------------------------------------------------------------------------------------

Operational Expenses
Cost of product sold                                       74,205                        -
General and administrative expenses                     1,018,633                   99,509
Research and development costs                            131,562                        -
Exploratory costs                                         623,446                  271,099
Accretion expense                                          60,632                        -
Depreciation expense                                       48,233                        -
-------------------------------------------------------------------------------------------

Total Expenses                                          1,956,711                  370,608
-------------------------------------------------------------------------------------------

Loss From Operations                                   (1,808,162)                (370,608)

Other Income (Expense)
Other income                                               16,790                        -
Interest expense                                         (293,451)                       -
Translation adjustment                                     38,190                        -
Exchange rate gain (loss)                                 (64,192)                   3,736
-------------------------------------------------------------------------------------------

Net Other Income (Expense)                               (302,663)                   3,736
-------------------------------------------------------------------------------------------
Net Loss Before Minority Interest and Taxes            (2,110,825)                (366,872)

Deferred tax benefit                                      888,145                        -
Loss in minority interest                                 (19,426)                (121,782)
-------------------------------------------------------------------------------------------

Net Loss                                             $ (2,091,399)            $   (245,090)
===========================================================================================
Basic (Loss) Per Common Share                        $      (0.02)            $      (0.02)
===========================================================================================
Basic Weighted Average Common Shares Outstanding       48,645,053               12,153,191
===========================================================================================


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

                                              F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                        BEKEM METALS, INC. AND SUBSIDIARIES
                             CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
                               FOR THE PERIOD FROM MARCH 5, 2004 (DATE OF INCEPTION)
                                             THROUGH DECEMBER 31, 2005


                                              Common Stock             Additional      Cumulative                       Total
                                         --------------------------     Paid-in        Translation    Accumulated    Shareholders'
                                             Shares          Amount     Capital         Adjustment       Deficit    Equity (Deficit)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>            <C>          <C>             <C>           <C>             <C>
Balance - March 5, 2004
 (Date of inception of Condesa S.A.)                      $       -    $       -       $       -     $          -    $          -
Shares issued for cash, August 12, 2004      8,400,000        8,400      174,274               -                -         182,674
Shares exchanged for 60% interest
 in Kaznickel, November 19, 2004,
 $0.02 per share                            12,600,000       12,600      (12,600)              -                -               -
Net loss for period                                               -            -               -         (245,090)       (245,090)
----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004                  21,000,000       21,000      161,674               -         (245,090)        (62,416)

Net loss for period                                                                                    (1,203,254)     (1,203,254)
Cumulative translation adjustment                                                        (17,293)                         (17,293)
                                                                                                                     =============
Comprehensive Loss                                                                                                    (1,282,963)
                                                                                                                     -------------

Minority interest shares issued in
 acquisition of EMPS Research
 Corporation, January 24, 2005                       -            -      (11,706)              -                -         (11,706)
Shares issued for cash, August 8, 2005      61,200,000       61,200       38,800               -                -         100,000
Shares issued for the acquisition of
 the minority interests of Bekem Metals,
 Inc., October 24, 2005                     17,888,888       17,889      327,111               -                -         345,000
----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2005                 100,088,888    $ 100,089    $ 515,879       $ (17,293)    $ (1,448,344)   $   (849,669)
==================================================================================================================================


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

                                                      F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                       BEKEM METALS, INC. AND SUBSIDIARIES
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS



For the Year Ended December 31,                                                2005               2004
-------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                <C>
Cash Flows from Operating Activities
Net loss                                                                     $ (1,203,254)      $   (366,872)
Adjustments to reconcile net loss to
  net cash provided by operating activities:
    Depreciation and amortization                                                  48,233              1,398
    Accretion expense on asset retirement obligations                              60,632             16,069
    Interest expense from debt discount                                           107,261                  -
    Issuance of common stock for modification
      and exercise of warrants                                                     19,426                  -
    Loss recognized on minority shareholders' interests                           (19,426)                 -
    Foreign currency exchange gain                                                (64,192)             3,736
    Purchased exploration costs                                                   251,286                  -
    Change in operating assets and liabilities:
      Accounts receivable                                                          (8,015)                 -
      Inventories                                                                 (67,062)                 -
      Prepaid expenses and other current assets                                    30,181             79,838
      Accounts payable and accrued liabilities                                    (24,368)            81,457
      Deferred tax benefit                                                       (888,145)                 -
-------------------------------------------------------------------------------------------------------------
Net Cash From Operating Activities                                             (1,757,443)          (184,374)
-------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchase of property and equipment                                                (16,100)           (24,641)
Cash acquired in acquisitions                                                      26,761           (178,941)
Increase in related party payables                                                  3,545                  -
-------------------------------------------------------------------------------------------------------------
Net Cash From Investing Activities                                                 14,206           (203,582)
-------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Proceeds from notes payable                                                    12,618,779             91,404
Payments on notes payable                                                     (14,874,760)                 -
Proceeds from notes payable related parties                                     4,075,012                  -
Proceeds from accrued liabilities to related parties                                2,000                  -
Proceeds from issuance of common stock                                                  -            304,456
-------------------------------------------------------------------------------------------------------------
Net Cash From Financing Activities                                              1,821,031            395,860
-------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash                                             7,382             (3,714)
-------------------------------------------------------------------------------------------------------------
Net Increase in Cash                                                               85,176              4,190
Cash at Beginning of Period                                                         4,190                  -
-------------------------------------------------------------------------------------------------------------
Cash at End of Period                                                        $     89,366       $      4,190
=============================================================================================================


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

                                                      F-5
</TABLE>
<PAGE>

                       BEKEM METALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005



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


Basis of Presentation

On October 24, 2005, Bekem Metals, Inc. ("BMI") entered into an Acquisition
Agreement with Kazakh Metals, Inc., a British Virgin Islands international
business company ("KMI"), under which Bekem 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, together
with other entities its owners control, is the controlling shareholder of KMI
and was also the principal 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
shareholder maintains voting and investment control held 51,600,000 BMI common
shares, which represent 51.5% of the 100,088,888 outstanding common shares.

The acquisition of the portion 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
minority shareholders of BMI were recorded at their estimated fair value on the
transaction date of $345,000. KMI accounted for the purchase of BMI similar to a
pooling.

The accompanying consolidated financial statements include the accounts of Bekem
Metals, Inc. ("BMI", "Bekem," or the "Company") and its wholly subsidiaries,
Kazakh Metals, Inc. ("KMI"), Kyzyl Kain Mamyt LLP ("KKM"), Condesa Pacific, S.A.
("Condesa"), and Kaznickel, LLP ("Kaznickel"). Intercompany accounts and
transactions have been eliminated in consolidation. The results of operations of
the previously separate KMI and BMI were combined for all periods prior to the
acquisition, with recognition of the minority interest in BMI, and the
operations of BMI and KMI are consolidated from October 24, 2005.

Bekem Metals, Inc. - The combined financial statements include the accounts of
Condesa Pacific S.A. and Kaznickel LLP ("Kaznickel"), a Kazakh partnership,
since the date of its acquisition by Condesa, and the accounts of Bekem Metals,
Inc. since its acquisition by Condesa. Condesa was incorporated under the laws
of the British Virgin Islands on March 5, 2004. Condesa acquired Bekem Metals,
Inc. in a reverse acquisition, on January 28, 2005.

Kazakh Metals, Inc. - The combined financial statements also include the
accounts of Kazakh Metals, Inc. and its wholly-owned subsidiary, Kyzyl Kain
Mamyt LLP ("KKM") a Kazakh partnership, which it acquired on June 1, 2005 in a
purchase business combination.

Name Change -- On February 9, 2005, the Board of Directors of EMPS Research
Corporation approved, and the stockholders holding a majority of the outstanding
shares of the company approved and ratified by written consent, a change in the

                                      F-6
<PAGE>

                       BEKEM METALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005



company's name from EMPS Research Corporation to Bekem Metals, Inc. On March 16,
2005, the company filed an amendment to its Articles of Incorporation to affect
the change.

Nature of Business

The Company is engaged in the acquisition, exploration, and production of
mineral resource properties. Kaznickel owns the right to the Gornostayevskoye
("Gornostai") nickel and cobalt deposit (the "Deposit") located in the East
Kazakhstan Oblast located in northeast Kazakhstan. KKM holds exploration and
production licenses from the government of Kazakhstan to a 163,770 hectare
(404,682 acres) parcel, in the Aktobe Oblast located in northwestern 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, 2011, which may be extended upon agreement
between KKM and the Geology and Minerals Resources Committee of the Ministry of
Energy and Minerals Resources (MEMR) of the Republic of Kazakhstan. 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.


Business Condition - The Company has no proven mineral reserves that conform to
U.S. accounting standards and has only limited ore and Mamyt brown coal
production from its Kempirsai deposit since its acquisition on May 31, 2005. The
Gornostai deposit has not yet entered the development stage with respect to its
mineral interests, and has no production. There has been only limited revenue
from the Kempersai operations, and the Company has incurred a net loss of
$1,203,254 and $245,090 for the years ended December 31, 2005 and 2004,
respectively. In addition, current liabilities exceeded current assets by
$3,816,963 and $179,124 at December 31, 2005 and 2004, respectively. Management
expects to generate sufficient cash to fund its current activities by issuing
equity securities and receiving financial assistance, if needed, from its
shareholders. There is no assurance, however, that funds can be raised or that
the shareholders will have the ability to raise the capital or provide financial
assistance to the Company. These matters raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.


Kempirsai Production Stage - The Kempirsai, or KKM, operations are considered to
be in the production stage.

Gornostai Exploration Stage - The Gornostai, or Kaznickel, operations are
considered to be in the exploration stage. Since its inception March 5, 2004,
the Company has devoted a substantial amount of effort in raising capital and
acquiring Kaznickel, and then exploring for mineral property under its
exploration contract. The mineral property has not reached a development or
production stage and accordingly, no revenues from production of the property
have been recorded. Therefore, these operations are considered to be in the
development stage.

Significant Accounting Policies

Use of Estimates - The preparation of 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 more significant areas requiring the use of
management estimates and assumptions relate to mineral reserves that are the

                                      F-7
<PAGE>

                       BEKEM METALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005



basis for future cash flow estimates and units-of-production depreciation,
depletion and amortization calculations; environmental, reclamation and closure
obligations; asset impairments; write-down of inventory to net realizable value;
valuation allowances for deferred tax assets; reserves for contingencies and
litigation; and the fair value and accounting treatment of financial
instruments. 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.

Currency Translation - The consolidated financial statements are presented in
U.S. dollars. The functional currency of the Company's subsidiaries operating in
Kazakhstan is U.S. dollars for Kaznickel and Kazakh tenge for KKM. Results of
operations are translated into U.S. dollars at the average exchange rates during
the reporting period. Non-monetary assets and liabilities of Kaznickel 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. Translation differences are included in
results of operations. All balance sheet accounts of KKM are translated at
exchange rates on the date of the financial statements and translation
differences are included in stockholders' equity as cumulative translation
adjustments.

Trade Receivables -- In the normal course of business, the company extends
credit to its customers on a short-term basis. The principal customers are local
companies and government agencies. Although credit risks associated with these
customers are considered minimal, the company routinely reviews its accounts
receivable balances and makes provisions for doubtful accounts.

Related Party Receivables - Related party receivables consists of short-term
advances to employees. No allowance has been provided due to the historic
short-term nature and recoverability of such advances.

Inventories -- Inventory consists of materials and spare parts, miscellaneous
goods, fuel and some raw materials. Inventory of raw materials is stated at the
lower of cost or recoverable value. Spare parts, goods and fuel are recorded at
the lower cost or estimated service value.

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.

Long-term Receivable - Long-term receivable consists of prior year advances of
money to the former owners of KKM. It is not expected that these advances will
be repaid and, consequently, have been fully allowed against.

Mineral Property Rights - 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 a
mineral property or 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

                                      F-8
<PAGE>

                       BEKEM METALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005



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 properties. The
Company regularly performs evaluations of its investment in mineral interests to
assess the recoverability and / or the residual value of its investments in
these assets. All mineral interests and mineral properties 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 theoB asset or upon the
determination that certain exploration properties do not have sufficient
potential for economic mineralization.

Management's estimates of mineral prices, recoverable probable reserves, and
operating, capital and reclamation costs, when available, are subject to certain
risks and uncertainties, which may affect the recoverability of mineral property
costs. Although management has made its best estimate 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.

Property, and Equipment - Property, plant and equipment are carried at cost less
accumulated depreciation. Depreciation is provided on a straight-line basis over
the following estimated useful lives of the assets:

        ------------------------------------------------------------
        Building and constructions                        12.5 years
        Machinery and equipment                              7 years
        Vehicles                                            10 years
        Other fixed assets                                3-10 years
        ------------------------------------------------------------

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of --
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.
At December 31, 2005, the Company reviewed its long-lived assets as disclosed
above and determined no impairment was necessary.

Depreciation, Depletion and Amortization - Expenditures for new facilities or
equipment and expenditures 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
based on proven and probable reserves as the useful lives of these assets are
considered to be limited to the life of the relevant mine.

Costs incurred to develop new properties are capitalized as incurred, where it
has been determined that the property can be economically developed based on the
existence of proven and probable reserves. At the Company's surface mines, these
costs include costs to further delineate the ore body and remove overburden to

                                      F-9
<PAGE>

                       BEKEM METALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005



initially expose the ore body. All such costs are 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.

Major development costs incurred after the commencement of production are
amortized using the UOP method based on estimated recoverable minerals to be
mined from proven and probable reserves. Depending upon whether the development
is expected to benefit the entire remaining ore body, or specific ore blocks or
areas only, the UOP basis is either the life of the entire ore body, or the life
of the specific ore block or area.

The calculation of the UOP rate of amortization, and therefore the annual
amortization charge to operations, could be materially impacted to the extent
that actual production in the future is different from current forecasts of
production based on proven and probable reserves. This would generally occur to
the extent that there were significant changes in any of the factors or
assumptions used in determining reserves. These factors could include: (i) an
expansion of proven and probable reserves through exploration activities; (ii)
differences between estimated and actual cash costs of mining, due to
differences in grade, mineral recovery rates and foreign currency exchange
rates; and (iii) differences between actual commodity prices and commodity price
assumptions used in the estimation of reserves. Such changes in reserves could
similarly impact the useful lives of assets depreciated on a straight-line
basis, where those lives are limited to the life of the mine, which in turn is
limited to the life of the proven and probable reserves.

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 assumed for purpose of depreciation,
depletion and amortization calculations.

Stripping Costs - In general, mining costs are allocated to production costs,
stockpiles, and inventories, and are charged to costs applicable to sales when
minerals are sold. However, the mining industry, generally, defers and amortizes
certain mining costs on a units-of-production basis over the life of the mine.
These mining costs, which are commonly referred to as "deferred stripping"
costs, are incurred in mining activities that are normally associated with the
removal of waste rock. The deferred stripping accounting method is generally
accepted in the mining industry where mining operations have diverse grades and
waste-to-ore ratios; however, industry practice does vary. Deferred stripping
matches the costs of production with the sale of minerals, where this procedure
is employed, by assigning each quantity of mineral with an equivalent amount of
waste removal cost. When stripping costs are expensed as incurred, there might
be greater volatility in a company's period-to-period results of operations. The
Company did not acquire any deferred stripping costs in the acquisition of KKM.

In March 2005, the FASB ratified Emerging Issues Task Force Issue No. 04-6,
"Accounting for Stripping Costs Incurred during Production in the Mining
Industry," (EITF 04-6) which addresses the accounting for stripping costs
incurred during the production phase of a mine and refers to these costs as
variable production costs that should be included as a component of inventory to
be recognized in costs applicable to sales in the same period as the revenue
from the sale of inventory. As a result, capitalization of stripping costs is
appropriate only to the extent product inventory exists at the end of a
reporting period and the carrying value is less than the net realizable value.

                                      F-10
<PAGE>

                       BEKEM METALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005



The Company will adopt the provisions of EITF 04-6 on January 1, 2006. The
Company has had very limited production activity in the recent period, so the
full effect of this adoption will be felt as production increases in the future
periods.

Revenue Recognition - For its operating mine, revenues currently arise from the
limited sale of ore and Mamyt brown coal. Revenue is recorded when persuasive
evidence of an arrangement exists, title to product transfers to the customer,
and collectibility is reasonably assured. Produced, but unsold minerals or ore
are recorded as inventory until sold.

Financial Instruments - The nature of the Company's operation exposes the
Company to fluctuations in commodity prices, foreign currency exchange risk and
credit 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 fluctuations in interest rates because certain of
its loans are interest free, as a general requirement under Kazakh law for
non-financial institutions.

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.


Net Loss Per Share - The computation of net loss per common share is based on
the weighted-average number of shares outstanding during the periods presented.


NOTE 2 - ACQUISITIONS

Purchase of Minority Interest in Bekem Metals, Inc. - On October 24, 2005 the
Company issued 17,888,888 shares of common stock to acquire the minority
shareholders' interests of BMI. Acquisition of the minority interests was
accounted for under the purchase method. The incremental increase in the assets
acquired and liabilities assumed related to the Kaznickel property, and were
recorded at their estimated fair values as follows:

        -----------------------------------------------------------
        Mineral interest rights                        $    132,432
        Purchased exploration costs                         251,286
        Deferred tax liability                              (38,718)
        -----------------------------------------------------------
        Minority Shareholders' Interests Acquired      $    345,000
        ===========================================================

The value assigned to the intangible purchased exploration costs was written off
and charged to operations on the date of the acquisition as exploration costs.
Intangible mineral interest rights assets acquired include the mineral property
rights, which are capitalized until the production phase begins, subject to
impairment considerations.

Acquisition of Kyzyl Kain Mamyt, LLC - On June 1, 2005, Kazakh Metals acquired
100% of the equity interests of Kyzyl Kain Mamyt, LLC (KKM) for the cash
purchase price of $100,000. The former equity holders of KKM were not related
parties. KKM operates in the Aktyubinsk region of northwestern Kazakhstan and
licenses to explore for, and is engaged in the production and sale of nickel and
cobalt ore and Mamyt brown coal. KKM has been actively involved in mining cobalt
and nickel ore since its inception and operating in the Soviet Union since 1938.
The height of production occurred in the late 1980's. Limited production has
occurred since that time. KKM's primary assets are its rights to exploit
unproved reserves and its infrastructure of buildings, machinery and equipment,
including a rail spur.

                                      F-11
<PAGE>

                       BEKEM METALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005



Kazakh Metals accounted for the acquisition of KKM as a purchase business
combination with a purchase price of $100,000. The purchase price was allocated
to the assets acquired and liabilities assumed based on their estimated fair
values. The Company has estimated a fair value of $40,000,000 for the mineral
interests and obtained an independent appraisal of the buildings and equipment
of $17,693,795 on the acquisition date, and is in the process of obtaining
third-party valuations of the mineral assets; accordingly, the allocation of the
purchase price is subject to refinement. Negative goodwill was not recognized in
connection with the acquisition of KKM. Instead, the excess of the fair value of
the net assets over the purchase price was allocated as a pro rata reduction of
the amounts that otherwise would have been assigned to the long-term assets.
Notes payable assumed in the acquisition with a stated value of $7,445,197 are
due to third parties generally within three years, including $4,432,290 to a
bank, and were recorded based upon their fair values on the acquisition date,
resulting in a discount to the notes that will be recognized as interest expense
through maturity. The operations and cash flows of KKM are included in the
Company's consolidated financial statements since the date of the acquisition.

The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition.

       -------------------------------------------------------------------
       Current Assets                                          $   469,379
       Unproved mineral property rights                          7,034,321
       Asset retirement costs of the mineral rights                 86,852
       Buildings, constructions machinery and equipment          3,068,786
       -------------------------------------------------------------------
       Total assets acquired                                    10,659,338
       -------------------------------------------------------------------
       Current liabilites                                          717,527
       Asset retirement obligation                                  97,223
       Notes Payable, net of discount of $917,737                6,541,670
       Deferred tax liability                                    3,202,918
       -------------------------------------------------------------------
       Total liabilites assumed                                 10,559,338
       -------------------------------------------------------------------
       Net Assets Acquired                                     $   100,000
       ===================================================================

Intangible assets acquired include the mineral property rights, which are
capitalized and amortized on a units-of-production method, subject to impairment
considerations. Other intangible assets include the asset retirement costs of
the mineral rights, which have a 20-year estimated life and are subject to
amortization at a planned rate of $4,311 per year, and the asset retirement
obligation, which is accreted over its 20-year life, with a current estimated
expense of $7,680 per year.

Subsequent to the acquisition, during September 2005, Kazakh Metals refinanced
$5,832,478 of debt, including the bank debt, as more fully described in Note 8.

Acquisition of EMPS Research, Inc. - On January 28, 2005, EMPS Research, Inc.
("EMPS") completed a Plan and Agreement of Reorganization with Condesa, wherein
EMPS acquired 100% of the outstanding capital stock of Condesa in exchange for
the issuance of 35,000,000 common shares of which 21,000,000 were held by the
controlling shareholder of KMI and 14,000,000 were issued to minority
shareholders in Condesa. EMPS then changed its name to Bekem Metals, Inc. As a
result of that reorganization, the shareholders of Condesa owned 91% of the
outstanding common stock of EMPS at that reorganization date. The combined
entities were referred to after that reorganization as Bekem.

                                      F-12
<PAGE>

                       BEKEM METALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005



EMPS had 3,300,000 shares of common stock outstanding prior to that transaction
that remained outstanding, were classified as minority interests, and were
valued at $0. The transaction resulted in a change of control of EMPS. For
financial reporting purposes, Condesa was considered the acquirer. The
acquisition was recognized as a forward stock split of Condesa's 30,000 shares
of capital stock held by the controlling shareholder of KMI that were
outstanding prior to the reorganization into 21,000,000 common shares, or a
700-for-1 stock split. The accompanying financial statements have been restated
for the effects of the stock split for all periods presented. Condesa's assets,
liabilities and minority interests were recorded at their historical cost and
the effect of the stock split was reflected retroactively since the inception of
Condesa. The assets of EMPS were considered to have been acquired by Condesa in
exchange for the assumption of EMPS's net liabilities. The net assets consisted
of cash of $2,648 and intangible assets of $1,823 and current liabilities of
$15,077. The operations of Condesa are included for all periods presented and
the operations of EMPS are included from the acquisition of EMPS.

Purchase of Kaznickel LLP - On July 9, 2004 Condesa, which was owned 60% by
Brisa holding 8,400,000 of 14,000,000 shares of outstanding common stock,
entered into an investment agreement under which Condesa provided a $300,000
convertible loan to Kaznickel LLP, which was immediately converted into a new 40
percent equity interests in Kaznickel. On September 22, 2004, Brisa acquired an
interest in Kaznickel by purchasing 60 percent of the equity interest of the
founding partners' remaining 60 percent interests. As consideration for the
purchase, the original partners obtained a commitment from Brisa to facilitate a
reverse merger with a U.S. public company, and a commitment to obtain funding
enabling Kaznickel to further develop its mineral property rights. The value of
the commitment was estimated to be $270,000 based on the percent of Kaznickel
obtained for Condesa's original cash investment of $300,000.

On November 19, 2004, Brisa and the remaining Kaznickel partners exchanged their
combined 60% interest in Kaznickel for a new 60% interest, equal to 21,000,000
shares of Condesa, thereby making Kaznickel a wholly-owned subsidiary of
Condesa. Brisa received 12,600,000 shares of Condesa in the transaction. The
remaining 8,400,000 common shares issued in the acquisition were recognized as
minority shareholders' interests. The acquisition of a controlling interest in
Kaznickel by Brisa and Condesa was considered the purchase of Kaznickel with a
measurement date of September 22, 2004, the date Brisa and Condesa obtained
control from the original Kaznickel partners.

Condesa accounted for the acquisition of Kaznickel as a purchase business
combination with a purchase price of $304,456. The purchase price was allocated
to the assets acquired and liabilities assumed based on their estimated fair
values. Negative goodwill was not recognized in connection with the acquisition
of Kaznickel. Instead, the excess of the fair value of the net assets over the
purchase price was allocated as a pro rata reduction of the amounts that
otherwise would have been assigned to the long-term assets. The Company is in
the process of obtaining an independent valuation of the net assets acquired.
Accordingly the allocation of the purchase price is subject to refinement. At
September 22, 2004, the purchase price was allocated to the assets acquired and
the liabilities assumed as follows:

                                      F-13
<PAGE>

                       BEKEM METALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005



--------------------------------------------------------------------------------
Current assets                                                      $   231,674
Mineral property rights                                                 267,660
Asset retirement costs of the mineral rights                            474,936
Property and equipment                                                   21,573
--------------------------------------------------------------------------------
     Total assets acquired                                              995,843
--------------------------------------------------------------------------------
Current liabilities                                                     (25,468)
Asset retirement obligation                                            (665,919)
--------------------------------------------------------------------------------
     Total liabilities assumed                                         (691,387)
Minority Shareholders' interests                                       (121,782)
--------------------------------------------------------------------------------
Net Assets Acquired                                                 $   182,674
================================================================================

Intangible assets acquired include the mineral property rights, which are
capitalized until the production phase begins, subject to impairment
considerations. Other intangible assets include the asset retirement costs of
the mineral rights, which have a 20-year estimated life and are subject to
amortization at a planned rate of $24,291 per year, and the asset retirement
obligation, which is accreted over its 20-year life, with a current estimated
expense of $43,274 per year.

NOTE 3 - MINERAL PROPERTY RIGHTS

The government of Kazakhstan retains the title to the property upon which the
Company's mineral rights pertain; accordingly, the Company's mineral interests
are considered to be intangible assets. As more fully described in Note 2, the
Company capitalized the acquisition costs of its mineral interests upon the
purchase business combinations with Kaznickel and with KKM.

Gornostai Deposit

Kaznickel acquired its interest in the Contract on Exploration and Development
of Gornostai Cobalt and Nickel Deposit (the "Contract") issued by the Ministry
of Energy and Mineral Resources of the Republic of Kazakhstan (the "Ministry")
dated February 26, 2004. By virtue of the Contract, Kaznickel acquired the right
to exploit the mineral property including the right to explore, develop and
produce the cobalt and nickel mineral resources on the Deposit through February
26, 2026. The Company has the right to re-negotiate the contract at that time
for an additional 30 years. The government of Kazakhstan retains the title to
the property; accordingly, the Company's mineral interest is considered to be an
intangible asset. As more fully described in Note 2, the Company capitalized the
acquisition costs of its mineral interest upon the purchase business combination
with Kaznickel. The allocated purchase price included a capitalized amount of an
acquired asset retirement obligation. While the property is not in production,
the asset retirement cost is depleted over the life of the contract from the
date of acquisition.

The Contract provides the Company certain rights and also imposes certain
obligations and commitments. The rights include exploration through February
2006, and development and production of minerals through February 26, 2026. The
Company may transfer its right to third parties in accordance with Kazakh laws
and regulations and has a right to renegotiate an extension of the Contract.
Significant rights and obligations and commitments of the Contract include
monetary commitments for exploration of $200,000 in 2005 and 2006, and
expenditures to support social projects amounting to $300,000 during the
production stage. In addition, the Company was required to pay a fee of $2,000

                                      F-14
<PAGE>

                       BEKEM METALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005



upon award of the Contract, and a fee for the use of Kazakh owned technical data
of $835,759 of which $4,179 was paid on award of the Contract and $831,580 will
be due upon a finding of commercial deposits. Royalties of 0.5% of ores
extracted and sold will be required. The Contract subjects the Company to pay
regular income tax of 30 percent and requires an excess profits tax of 15 to 60
percent if its net profits exceed 20 percent of gross profit. Obligations also
include the establishment and funding of a reclamation fund that includes the
cost of removing buildings and equipment used in the Deposit area. The Company
is also required to comply with Kazakh environmental laws and regulations.

Kempirsai Deposit

Bekem acquired two contracts to explore for and extract minerals in connection
with the purchase of KKM as mentioned in Note 2. 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 "Kimpersai" deposit
through October 12, 2011. The other contract is for the exploration and
extraction of Mamyt brown coal at a site located within 40 kilometers of the
Kimpersai deposit 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
Kimpersai 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 of gross coal sales. 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. The
asset retirement cost is depleted over the life of the contract from the date of
acquisition.

Capitalized costs and related accumulated amortization at December 31, 2004 and
2005 is as follows:
<TABLE>
<CAPTION>
                                                                                      Depletion of
                                                          Mineral Property           Asset Retirement         Net Mineral
                                                               Rights                     Costs             Property Rights
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                         <C>                   <C>
Net Carrying Value at December 31, 2003                    $         -                 $      -              $         -

Acquisitions:
Unproved mineral interests                                     267,660                                           267,660
Asset retirement obligations                                   474,936                    5,935                  469,001
Translation adjustments                                         (4,654)                       -                   (4,654)
-----------------------------------------------------------------------------------------------------------------------------
Net Carrying Value at December 31, 2004                        737,942                    5,935                  732,007
-----------------------------------------------------------------------------------------------------------------------------

Acquisitions:
Unproved mineral interests                                   7,166,753                                         7,166,753
Asset retirement obligations                                    86,852                   26,338                   60,514
Translation adjustments                                        (82,196)                                          (82,196)
----------------------------------------------------------------------------------------------------------------------------
Net Carrying Value at December 31, 2005                    $ 7,909,351                 $ 32,273              $ 7,877,078
============================================================================================================================
</TABLE>

                                      F-15
<PAGE>

                       BEKEM METALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005



NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

The Company's property, plant and equipment consist of the following:

         December 31,                          2005               2004
         ---------------------------------------------------------------
         Buildings                          $2,062,865         $      -
         Machinery and equipment               970,005           46,456
         Other fixed assets                     53,856                -
         ---------------------------------------------------------------
                                             3,086,726           46,456
         Accumulated depreciation              (25,436)          (1,412)
         ---------------------------------------------------------------
         Net Property and Equipment         $3,061,290         $ 45,044
         ===============================================================

NOTE 5 - LONG TERM DEFERRED EXPENSES

The Company completed a remodel of its Semipalatinsk, Kazakhstan offices, which
costs are applied against monthly office rent charges through May 1, 2007. The
current portion of long term deferred expenses is included in other current
assets.

NOTE 6 - INCOME TAXES

In accordance with the laws and regulations of the Republic of Kazakhstan income
taxes are calculated at the statutory rate of 30 percent. Net operating losses
for development companies in the exploration and development may be carried
forward for the 7 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.

Deferred tax assets and liabilities were as follows:

December 31,                                          2005                 2004
--------------------------------------------------------------------------------

Tax loss carryforward                         $    718,392            $ 106,710
Property and equipment                            (803,003)              (4,457)
Asset retirement obligation                        250,152              202,638
Mineral property rights                         (2,080,040)                   -
Asset retirement cost                             (149,837)                   -
Long-term debt and discount                       (239,949)                   -
Valuation allowance                                      -             (304,891)
--------------------------------------------------------------------------------

Total deferred tax liabilities                $ (2,304,285)           $       -
================================================================================


The following is a reconciliation of the amount of tax that would result from
applying the federal rate to pretax income with the provision for income taxes
at December 31, 2005:

                                      F-16
<PAGE>

                       BEKEM METALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005



For the Year Ended December 31,                                     2005
--------------------------------------------------------------------------------
Tax at US Federal statutory rate (34%)                          $ (627,420)
Change in valuation allowance                                     (107,721)
Effect of higher effective tax rates                              (153,004)
--------------------------------------------------------------------------------
Deferred tax benefit                                            $ (888,145)
================================================================================


NOTE 7 - RELATED PARTY TRANSACTIONS

On December 2, 2004 the Company borrowed $92,308 from CJSC Kazmorgeophysica, a
Kazakh company related by virtue of several common shareholders. The short-term
loan is denominated in Kazakh Tenge, interest free and was due on its original
terms by December 31, 2004. During the year ending December 31, 2005 the Company
borrowed an additional $99,798 from CJSC Kazmorgeophysica, as a Kazakh Tenge
denominated, interest-free, due on demand note. In addition, during the year
ended December 31, 2005, the Company repaid Kazmorgeophysica the $192,106 note
from proceeds from a third-party lender. In addition, the Company received
short-term advances, payable on demand in the amount of $37,298 from a
shareholder. Because the notes are denominated in Tenge, the balance reported on
the financial statements fluctuates based upon ending exchange rates.

During May and June of 2005 the Company borrowed $77,000 from shareholders to
fund the U.S. administrative operations. The loans are unsecured and carry an
annual interest rate equal to the LIBOR rate plus two percent; interest and
principal payments are due at maturity, three years after origination.

NOTE 8 - LONG-TERM DEBT

During the twelve months ended December 31, 2005 the Company borrowed $560,203
to fund the exploration and administrative operations in Kazakhstan and to
retire a $192,106 related party note payable to Kazmorgeophysica. Principal
payments on the loans plus an interest payment equal to five percent of the
original balances are due three to five months after origination. As of December
31, 2005, these loans were still outstanding. The Company has agreed to repay
these loans out of the first funds raised by BMI.

                                      F-17
<PAGE>

                       BEKEM METALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005


<TABLE>
<CAPTION>
Long-term debt consists of the following:

December 31,                                                                                 2005                  2004
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>                        <C>
Note payable to a company bearing interest at 0%;
  imputed interest of 22%; denominated in U.S.
  dollars; due April 2009; unsecured;                                                  $    497,818                     -
Note payable to a company bearing interest at 3%;
  imputed interest of 22%; denominated in U.S.
  dollars; due April 2010; unsecured;                                                       550,000                     -
Note payable to a company bearing interest at 0%;
  imputed interest of 22%; denominated in U.S.
  dollars; due August 2008; unsecured;                                                      485,951                     -
Note payable to a company bearing interest at
  LIBOR plus 2% (6.39% at December 31, 2005);
  imputed interest of 22%; denominated in U.S.
  dollars; due March 2010; unsecured;                                                        60,000                     -
Notes payable to companies bearing interest at 0%;
  imputed interest of 22%; due on demand; unsecured;                                      3,018,032                     -
  Bank overdraft bearing interest at 14%;
  due on demand; unsecured;                                                                  29,709                     -
Note payable to a company bearing interest at 16%;
  due on demand; unsecured;                                                                  52,286                     -
Note payable to a company bearing interest at 5%;
  due on demand; unsecured;                                                                 560,203                     -
-----------------------------------------------------------------------------------------------------------------------------
Total Long-term Debt                                                                      5,253,999                     -
Less: Current Portion                                                                   (3,660,230)
Less: Debt discount                                                                        (796,591)                    -
-----------------------------------------------------------------------------------------------------------------------------
Long-term Debt - Net of Current Portion                                                $    797,178                     -
=============================================================================================================================
</TABLE>

The following are the annual maturities of notes payable for each of the next
five years:


                   Year Ended December 31,
                   --------------------------------------------
                   2006                            $ 3,660,230
                   2007                                      -
                   2008                                485,951
                   2009                                497,818
                   2010                                610,000
                   --------------------------------------------
                   Total                           $ 5,253,999
                   ============================================

                                      F-18
<PAGE>

                       BEKEM METALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005



NOTE 9 - LONG-TERM DEBT - RELATED PARTIES

Long-term debt to related parties consists of the following:
<TABLE>
<CAPTION>
December 31,                                                       2005           2004
--------------------------------------------------------------------------------------------
<S>                                                           <C>                <C>
Notes payable to related companies bearing interest
  at 6.29%; due August 2008; unsecured;                       $ 1,710,012              -
Note payable to related company bearing interest
  at 6.29%; due August 2010; unsecured;                         2,288,000              -
Notes payable to related companies bearing interest
  at 6.29%; due May 2008; unsecured;                               77,000              -
============================================================================================
Total Long-term Debt                                            4,075,012              -
Less: Current Portion                                                   -              -
============================================================================================
Long-term Debt - Net of Current Portion                       $ 4,075,012              -
============================================================================================
</TABLE>

The above amounts have been loaned to the Company per an agreement dated August
8, 2005, between Kazakh Metals, Inc. and its wholly owned subsidiary, Kyzyl Kain
Mamyt ("KKM"), for up to $10,000,000 for the purpose of assisting KKM in funding
its work requirements, including generation of geological data, under the
mineral extraction contract with the Ministry of Energy and Mineral Resources of
the Republic of Kazakhstan. Funds borrowed on this agreement bear interest at
the rate of 6.29% (the August 8, 2005 LIBOR plus 2%) per annum. Terms currently
range from three to five years with no prepayment penalties. The notes are not
collateralized. At December 31, 2005 $3,998,012 had been borrowed. The former
owners of Kazakh Metals, Inc. are funding this agreement.

The following are the annual maturities of long-term debt to related parties for
each of the next five years:

                   Year Ended December 31,
                   --------------------------------------------
                   2006                            $         -
                   2007                                      -
                   2008                              1,787,012
                   2009                                      -
                   2010                              2,288,000
                   --------------------------------------------
                   Total                           $ 4,075,012
                   ============================================

NOTE 10 - ASSET RETIREMENT OBLIGATION

Upon the purchase of Kaznickel on September 22, 2004 and KKM on June 1, 2005,
the Company recorded the effects of asset retirement obligations in accordance
with SFAS No. 143, "Accounting for Asset Retirement Obligations," and related
interpretations, which requires entities to record the fair value of a liability
for an asset retirement obligation when it is incurred. The Company is required
under the contracts with the Geology and Minerals Resources Committee of the
Ministry of Energy and Minerals Resources (MEMR) of the Republic of Kazakhstan,
to remediate the properties from the effects of the open pit mining processes.
The standard applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development or

                                      F-19
<PAGE>

                       BEKEM METALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005



normal use of the asset. The Company's asset retirement obligations relate
primarily to the obligation to fill mining pits and restore surface conditions
at the conclusion of the term of the Contracts.

SFAS No. 143 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 interest rights. 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 rights interests
as described in Note 1.

The reconciliation of the asset retirement obligation is as follows:


December 31,                                        2005                 2004
--------------------------------------------------------------------------------
Balance at beginning of period                   $ 675,460            $ 665,919
Liabilities incurred                                97,748                    -
Accretion expense during the period                 60,632                9,541
--------------------------------------------------------------------------------
Balance at End of Period                         $ 833,840            $ 675,460
================================================================================

NOTE 11 - SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES

In conjunction with the acquisitions, net assets acquired and liabilities
assumed were as follows:

 Noncash Investing and Financing Activities:                   December 31,
                                                          2005           2004
--------------------------------------------------------------------------------
 Fair value of the assets acquired                     3,640,160      1,441,387
 Fair value of intangible mineral interest rights      7,198,372              -
 Cash paid for equity interests                         (100,419)      (300,000)
 Liabilities assumed                                 (10,656,105)             -
 Fair value of shares issued for acquisitions           (333,294)             -
--------------------------------------------------------------------------------

NOTE 12 - 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, and 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.

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.

                                      F-20
<PAGE>

                       BEKEM METALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005



Tax Matters - 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.

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, provide for 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.

Operating Leases - The Company rented a number of cars for operational purposes
and has potential commitment of $99,000 in case of loss for any reason, which is
not covered by any insurance.

NOTE 13 - COMMON STOCK

The Company entered into an investment agreement with investors on July 9, 2004
under which the Company issued 14,000,000 common shares for cash proceeds of
$304,456, or $0.014 per share, received through August 12, 2004. Of the shares
issued, 8,400,000 were issued to the controlling shareholder for cash proceeds
of $182,674. The Company issued 21,000,000, common shares, on November 19, 2004,
12,600,000 of which were issued to the controlling shareholder, in exchange for
60% of the equity of Kaznickel as further described in Note 2. The aggregate
shares issued in exchange for the equity of Kaznickel were valued at $304,456,
or $0.014 per share, based upon the value for which investors received common
shares for cash.

On August 8, 2005 the Company issued 61,200,000 shares of common stock for cash
proceeds of $100,000, or $0.02 per share. Of the proceeds received, the
controlling shareholder provided $50,000.

On August 23, 2005, and prior to its combination with the Company, BMI issued
588,888 shares of common stock in exchange for the cancellation of 2,000,000
options to purchase common stock at $0.10 per share. BMI treated the
cancellation, for accounting purposes, as a modification of 588,888 of the
options to options with an exercise price of zero, and the cancellation of the
remaining options. The modification resulted in a charge to operations of
$19,426, the difference between the fair value of the options before and after
the modification. The issued shares were included in the 17,888,888 shares
considered issued for the acquisition of the minority shareholders' interests in
BMI on October 24, 2005.

                                      F-21
<PAGE>

                       BEKEM METALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005



NOTE 14 - MINORITY SHAREHOLDERS' INTERESTS

BMI classified common shares issued for cash and in exchange of interests in
acquisition transactions as minority shareholders' interests. Carrying values of
the minority shareholders' interests are summarized as follows:
<TABLE>
<CAPTION>
                                                                           Shares        Carrying Value
--------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                 <C>
Shares issued for cash, August 12, 2004                                  5,600,000          $ 121,782
Shares issued for 60% interest in Kaznickel,
  LLP, November 19, 2004                                                 8,400,000                  -
Losses attributed to the minority shareholders' interests                                    (121,782)
--------------------------------------------------------------------------------------------------------
Carrying Value on December 31, 2004                                     14,000,000                  -
--------------------------------------------------------------------------------------------------------
Shares issued in reverse merger with EMPS
  Research, Inc., January 24, 2005, net liabilities
  assigned to equity due to no minority carrying value                   3,300,000                  -
Shares issued for cancellation of BMI warrants to
  purchase 2,000,000 shares of common stock
  at $0.02, accounted for as a modification of the
  warrants to a $0.00 per share exercise price.                            588,888             19,426
Losses attributed to the minority shareholders'                                               (19,426)
  interests through October 24, 2005
--------------------------------------------------------------------------------------------------------
Carrying Value on December 31, 2005                                     17,888,888          $       -
========================================================================================================
</TABLE>

                                      F-22