SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10KSB



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

For the fiscal year endedJanuary 31, 2006



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

For the transition period from _________ to ____________



Commission File No.000-49995



AMERICAN GOLDFIELDS INC.

(Exact name of Registrant as specified in its charter)



|                                | NEVADA                 | 71-0867612 | 
|------------------------------- | ---------------------- | ---------- | 
|(State or other jurisdiction of | (I.R.S. Employer       |           
|incorporation or organization)  | Identification Number)
|                                |                        |            | 



200-4170 Still Creek Drive

|Burnaby, B.C. Canada, V5C 6C6 | V5C 6C6
|----------------------------- | -------

|(Address of principal executive offices) | (Zip Code)
|---------------------------------------- | ----------



|Registrants telephone number, including area code: | (604) 299-6600
|--------------------------------------------------- | --------------



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



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



|Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act     [   ] |  | 
|---------------------------------------------------------------------------------------------------------------------- |  | 



Check whether the issuer (l) has 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 reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [   ] No



Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not 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. [   ]



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

|[ |  |  | 
|- |  |  | 



Revenues for fiscal year ended January 31, 2006 were0.



The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of April 19, 2006 (a date within the past 60 days) was $14,322,872.



The number of shares of the issuers Common Stock outstanding as of April 24, 2006 is 25,892,878.



Documents Incorporated By Reference:  None



|Transitional Small Business Disclosure Format (check one):     Yes [  ]     No [X ] |  | 
|----------------------------------------------------------------------------------- |  | 





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PART I



|ITEM 1. | DESCRIPTION OF BUSINESS
|------- | -----------------------



General



American Goldfields Inc. (the Company or we), f/k/a Baymont Corporation, is a natural resource exploration stage company engaged in the acquisition and exploration of properties for deposits of gold or silver. We were incorporated on December 21, 2001 under the laws of the State of Nevada. Since then, we have engaged primarily in the acquisition and exploration of mining interests in properties that may potentially have deposits of gold and silver. To date, we have not earned any revenues.



In December 2001, we caused the incorporation of our wholly owned subsidiary, Baymont Explorations Inc., under the laws of British Columbia. Through this subsidiary we acquired a 75% undivided interest in a group of mineral claims known as the Bor Claims, being four mineral claims covering a total area of 247 acres located in the Omineca Mining Division of the Province of British Columbia, Canada. The interest was purchased from Lorne B. Warren of Smithers, British Columbia, the beneficial owner of the claims, for US$2,500. In April 2004 we terminated our interest in this property.



On various dates in 2004 and 2005, we entered into separate agreements with MinQuest Inc. (MinQuest) granting us an option to purchase 100% of MinQuests mining interests in six different properties located in various parts of the State of Nevada, which we plan to explore for the purpose of determining whether there are any commercially exploitable deposits of gold or silver. None of the properties presently has any mineral deposits. The properties are undeveloped and do not contain any open-pit or underground mines. There is no mining plant or equipment located on the properties, and there is no power supply to the properties. Our planned exploration program is exploratory in nature and no mineral reserves may ever be found.



Further exploration of all of our mineral claims is required before a final determination as to their viability can be made. No commercially viable mineral deposit may exist on our mineral claims. Our plan of operations is to carry out exploration work on these claims in order to ascertain whether they possess deposits of gold or silver. We can provide no assurance to investors that our mineral claims contain a commercially viable mineral deposit until appropriate exploratory work is done and an evaluation based on that work concludes further work programs are justified. At this time, we definitely have no reserves on our mineral claims.



Corporate History

From the date of its incorporation until February 5, 2004, the Company was controlled by its sole officer and director, Mr. Alfredo De Lucrezia. On February 5, 2004 Mr. Lucrezia appointed Donald Neal and Gregory Crowe to the Board and resigned as the Companys sole officer. Mr. Neal was duly appointed as the Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary of the Company. Mr. Neals appointment to the Board became effective on February 5, 2004, and Mr. Crowe became a member of the Board on February 23, 2004, ten days after the mailing of the Information Statement regarding such changes. On such date, Mr. Lucrezia resigned as a director of the Company.



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On February 10, 2004, Mr. Lucrezia sold 3,000,000 shares of Common Stock to each of Donald Neal and Gregory Crowe. The purchase price for each share of Common Stock was $0.035. Mr. Lucrezia no longer holds any shares of capital stock or other equity in the Company.



On February 23, 2004, the Company approved a 6:1 forward stock split. As a result of the stock split, an additional 44,928,565 shares of common stock were issued. The par value of the common stock remains unchanged at $0.001 per common share but the authorized number of common stock increased to 600,000,000 from 100,000,000.



On February 24, 2004, the Company and a majority of the Companys stockholders authorized the changing of the Companys name to American Goldfields Inc. The name change became effective March 31, 2004.



On March 31, 2004, each of Messrs. Neal and Crowe returned 15,000,000 shares (such number reflects the 6:1 stock split) of common stock to treasury for no proceeds. The Company did not record a gain or loss as a result of this transaction. Since it is customary for a mining exploration company to acquire properties  with the  issuance  of stock, this is an option which Messrs. Neal and Crowe  considered not only feasible and reasonable, but the only  practicable  method for the  company to acquire  property in light of the companys current financial condition. The  stockholders/directors determined that they would prefer to dilute their personal equity interests in the company now rather than have the stockholders incur significant  dilution in the future when,  and if, a potential seller feels that the directors of the company have too significant of an equity interest.



On May 26, 2004, Mr. Richard Kern joined the Board of Directors of the Company. Mr. Kern is also the President of MinQuest Inc. All of the Companys current mineral properties have been optioned from MinQuest. In addition, MinQuest has been engaged by the Company as its principal exploration contractor for all exploration performed on the Companys current properties. As a result, a significant portion of the Companys expenses have been the result of activities performed directly by Mr. Kern or by subcontractors managed by Mr. Kern or MinQuest.



Competition



The mineral exploration industry, in general, is intensively competitive and even if commercial quantities of ore are discovered, a ready market may not exist for sale of same. Numerous factors beyond our control may affect the marketability of any substances discovered. These factors include market fluctuations, the proximity and capacity of natural resource markets and processing equipment, government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in our not receiving an adequate return on invested capital.



Compliance with Government Regulation





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We will be required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to the exploration of minerals in the United States. The federal government and various state and local governments have adopted laws and regulations regarding the protection of natural resources, human health and the environment. We will be required to conduct all exploration activities in accordance with all applicable laws and regulations. These may include requiring working permits for any exploration work that results in physical disturbances to the land and locating claims, posting claims and reporting work performed on the mineral claims. The laws and regulations may tell us how and where we can explore for natural resources, as well as environmental matters relating to exploration and development.  Because these laws and regulations change frequently, the costs of compliance
with existing and future environmental regulations cannot be predicted with certainty.



Any exploration or production on United States Federal land will have to comply with the Federal Land Management Planning Act which has the effect generally of protecting the environment. Any exploration or production on private property, whether owned or leased, will have to comply with the Endangered Species Act and the Clean Water Act. The costs of complying with environmental concerns under any of these acts vary on a case by case basis. In many instances the cost can be prohibitive to development. Environmental costs associated with a particular project must be factored into the overall cost evaluation of whether to proceed with the project.



There are no costs to us at the present time in connection with compliance with environmental laws. However, since we do anticipate engaging in natural resource projects, these costs could occur at any time. Costs could extend into the millions of dollars for which we could be liable. In the event of liability, we would be entitled to contribution from other owners so that our percentage share of a particular project would be the percentage share of our liability on that project. However, other owners may not be willing or able to share in the cost of the liability. Even if liability is limited to our percentage share, any significant liability would wipe out our assets and resources.



Employees



We have no employees as of the date of this report other than Mr. Donald Neal, our sole officer. Our sole officer and three directors (one of which is Mr. Neal) provide planning and organizational services for us on a part-time basis.



Any other services required will be conducted largely through consultants and other third parties.



Research and Development Expenditures



We have not incurred any research or development expenditures since our incorporation.



Subsidiaries



We have incorporated a wholly-owned British Columbia subsidiary, Baymont Explorations Inc.





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Patents and Trademarks



We do not own any patent or trademark.



Factors that May Affect Future Results



We will require additional funds to achieve our current business strategy and our inability to obtain funding will cause our business to fail.



Based upon current plans, we expect to incur operating losses in future periods. This will happen because there are expenses associated with the acquisition and exploration of the natural resource properties. We will need to raise additional funds through public or private debt or equity sales in order to fund our operations and fulfill our contractual obligations. These financings may not be available when needed. Even if these financings are available, it may be on terms that we deem unacceptable or are materially adverse to your interests with respect to dilution of book value, dividend preferences, liquidation preferences, or other terms. Our inability to obtain financing would have an adverse effect on our ability to implement our current exploration in Nevada, and as a result, could require us to diminish or suspend our operations and possibly cease our existence. Obtaining additional financing would
be subject to a number of factors, including the market prices for the mineral property and silver and copper. These factors may make the timing, amount, terms or conditions of additional financing unavailable to us.



If we do not complete the required option payments and capital expenditure requirements mandated in our respective agreements with MinQuest, we will lose our interest in that respective property and our business may fail.



If we do not make all of the property payments to MinQuest or incur the required expenditures in accordance with the respective property option agreements we will lose our option to purchase the respective property for which we have not made the payments and may not be able to continue to execute our business objectives if we are unable to find an alternate exploration interest. Since our payment obligations are non-refundable, if we do not make any payments, we will lose any payments previously made and all our rights to the properties.



Our directors have the ability to exercise significant influence over matters submitted for shareholderapproval and their interests may differ from other shareholders.



By virtue of a Shareholders Agreement dated February 10, 2004 between Messrs. Neal and Crowe our directors have the ability to nominate and appoint a majority to our Board. Since the agreement also provides that the two shareholders shall vote their respective 3,000,000 shares together, they have significant influence in determining the outcome of any corporate transaction or other matter submitted to the shareholders for approval. This could have a significant impact on mergers, acquisitions, and the sale of all or substantially all of our assets, and also to prevent or cause a change of control.





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Because all of our mineral properties have been optioned from MinQuest and one of the Directors of the Company is also a Director of MinQuest, potential conflicts of interest could impact our business.



Mr. Kern joined the Board of Directors of the Company on May 26, 2004. Mr. Kern is also the president of MinQuest. All of the Companys mineral properties have been optioned from MinQuest. As a result, MinQuest and Mr. Kern are related parties to the Company and both MinQuest and Mr. Kern receive substantial payments from the Company. In addition, the Company has agreed to use Mr. Kern as the primary contractor on exploration undertaken to date on all of its properties. The potential exists for conflicts of interest to occur from time to time that could adversely affect the Companys ability conduct its business. Also, Mr. Kern is the most knowledgeable person regarding the historical and current state of exploration on the mineral properties currently optioned by the Company. If Mr. Kern were to terminate his relationship with the Company, the Company would be
adversely affected while we found a suitable replacement.  To date, there have not been any conflicts of interest between the Company and MinQuest or Mr. Kern.



Because one of our Directors is also an Officer and Director of another public company engaged in mineral exploration, a potential conflict of interest could negatively impact our ability to acquire properties to explore and to run our business.



One of our directors, Mr. Greg Crowe, is also the CEO, President and Director of Entrée Gold Inc., a publicly traded mineral exploration company. Due to time demands placed on Mr. Crowe by Entrée Gold and competition with Entrée Gold for the rights to mineral properties, the potential exists for conflicts of interest to occur from time to time that could adversely affect our ability to conduct our business. Mr. Crowes full-time employment with Entrée Gold limits the amount of time he can dedicate to us as a director with significant geological experience upon which we rely. Also, Mr. Crowe may have a conflict of interest in helping us identify and obtain the rights to mineral properties because Entrée Gold may also be considering the same properties. To mitigate these risks, we contract several geologists in order to ensure that we are not reliant on
Mr. Crowe to provide us with geological services. The risk that Mr. Crowe may have a conflict of interest in relation to property acquisition is minimized because Entrée Gold does not operate in Nevada at this time. However, we cannot be certain that Entrée Gold does not currently have any plans to operate in Nevada or may decide to operate in Nevada in the future. To date, there have not been any conflicts of interest between Mr. Crowe and us.



Because of the speculative nature of exploration and development, there is a substantial risk that our business will fail.



The search for valuable natural resources as a business is extremely risky. We can provide investors with no assurance that the property we have optioned in Nevada contains commercially exploitable reserves. Exploration for natural reserves is a speculative venture involving substantial risk. Few properties that are explored are ultimately developed into producing commercially feasible reserves. Problems such as unusual or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts. In such a case, we would be unable to complete our business plan.





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Because our sole executive officer does not have formal training specific to the technicalities of mineral exploration, there is a higher risk our business will fail



Mr. Neal, our sole executive officer, does not have formal training as a geologist or in the technical aspects of management of a mineral exploration company. Our management lacks technical training and experience with exploring for, starting, and operating a mine. With no direct training or experience in these areas, our management may not be fully aware of the specific requirements related to working within this industry. Consequently, our operations, earnings, and ultimate financial success could suffer irreparable harm due to managements lack of experience in this industry.



Because we have not commenced business operations, we face a high risk of business failure due to our inability to predict the success of our business



We have just begun the initial stages of exploration of our mineral claims, and thus have no way to evaluate the likelihood that we will be able to operate the business successfully. We were incorporated on December 21, 2001 and to date have been involved primarily in organizational activities, and the acquisition and exploration of the mineral claims. We have not earned any revenues as of the date of this report.



Because of the unique difficulties and uncertainties inherent in mineral exploration and the mining business, we face a high risk of business failure



Potential investors should be aware of the difficulties normally encountered by new mineral exploration companies and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration of the mineral properties that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates.



Because we anticipate our operating expenses will increase prior to our earning revenues, we may never achieve profitability



Prior to completion of our exploration stage, we anticipate that we will incur increased operating expenses without realizing any revenues. We therefore expect to incur significant losses into the foreseeable future. We recognize that if we are unable to generate significant revenues from the exploration of our mineral claims, we will not be able to earn profits or continue operations. There is no history upon which to base any assumption as to the likelihood that we will prove successful, and we can provide investors with no assurance that we will generate any operating revenues or ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail.



Because of the speculative nature of exploration of mineral properties, there is substantial risk that no mineral deposits will be found and this business will fail



The search for valuable minerals as a business is extremely risky. Exploration for minerals is a speculative venture necessarily involving substantial risk. The expenditures to be made by us in



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the exploration of the mineral claims may not result in the discovery of mineral deposits. Problems such as unusual or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts. In such a case, we would be unable to complete our business plan.



Because of the inherent dangers involved in mineral exploration, there is a risk that we may incur liability or damages as we conduct our business



The search for valuable minerals involves numerous hazards. As a result, we may become subject to liability for such hazards, including pollution, cave-ins and other hazards against which we cannot insure or against which we may elect not to insure. The payment of such liabilities may have a material adverse effect on our financial position.



Because access to our mineral claims may be restricted by inclement weather, we may be delayed in our exploration



Access to our mineral properties may be restricted through some of the year due to weather in the area. As a result, any attempt to test or explore the property is largely limited to the times when weather permits such activities. These limitations can result in significant delays in exploration efforts. Such delays can have a significant negative effect on our results of operations.



Because our president has only agreed to provide his services on a part-time basis, he may not be able or willing to devote a sufficient amount of time to our business operations, causing our business to fail



Mr. Neal, our sole officer, provides his management services to a number of companies. Because we are in the early stages of our business, Mr. Neal will not be spending a significant amount of time working for the Company. Mr. Neal expects to expend approximately five hours per week on our business. Later, if the demands of our business require the full business time of Mr. Neal, he is prepared to adjust his timetable to devote more time to our business. However, it still may not be possible for Mr. Neal to devote sufficient time to the management of our business, as and when needed, especially if the demands of Mr. Neals other interests increase. Competing demands on Mr. Neals time may lead to a divergence between his interests and the interests of other shareholders.





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Risks Related To Legal Uncertainty and Regulations



As we undertake exploration of our mineral claims, we will be subject to compliance with government regulation that may increase the anticipated cost of our exploration program



There are several governmental regulations that materially restrict mineral exploration. We will be subject to the federal, state and local laws of the United States and Nevada as we carry out our exploration program. We may be required to obtain work permits, post bonds and perform remediation work for any physical disturbance to the land in order to comply with these laws. While our planned exploration program budgets for regulatory compliance, there is a risk that new regulations could increase our costs of doing business and prevent us from carrying out exploration program.



|ITEM 2. | DESCRIPTION OF PROPERTIES
|------- | -------------------------



We currently maintain our corporate office at 200-4170 Still Creek Drive, Burnaby, B.C., Canada, at a cost of $400 per month. This rental is on a month-to-month basis without a written contract.



We have interests in the following real properties:



GILMAN PROPERTY



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Map of Gilman Property located in western Nevada.



On May 7, 2004, the Company completed the formal agreement with MinQuest for an option to acquire a 100% interest in a property known as the Gilman Property.  Concurrently, the company made the first $10,000 option payment to MinQuest.  The agreement requires certain additional minimum annual property option payments with a total of $75,000 required to be paid by May 15, 2009. The agreement also requires minimum annual exploration expenditures with a grand total of $450,000 in expenditures required to be incurred on the property by May 15, 2009. The agreement is subject to a 3% royalty payable to MinQuest with the Company being able to repurchase up to two-thirds of the royalty for $1,000,000 for each 1% repurchased. The Company is not required to use MinQuest for exploration undertaken on the Gilman Property. However, at its discretion, the Company has engaged MinQuest as the principal
contractor for exploration performed to date.  On March 22, 2005, the Company executed an amendment to the Gilman Property Option Agreement. As a result of the amendment, the Companys obligation to incur $50,000 in exploration expenditures on the Gilman Property by May 2005 was moved to May 2009.

To January 31, 2006, the Company had made the initial option payment of $10,000 due on signing as well as the $15,000 payment due in May 2005.  In addition the Company has incurred approximately $18,400 in exploration expenditures on the property.  Under the amended agreement, the Company is required to incur an additional $56,600 by May 2006.  In the event the Company does not make the indicated option payments and incur the exploration expenditures, when demanded, the Company will lose its interest in the property.



All other terms and commitments of the original agreement remain unchanged.



Description and Location of the Gilman Property



The Gilman Property is located in Lander County, Nevada approximately 28 kilometers south of the town of Austin, 282 kilometers east of Reno. The property consists of 19 contiguous, unpatented mineral claims covering an approximate 390 acre area over the eastern flank of the Toiyabe Range on the North Toiyabe Peak and Kingston US Geological Survey 7 1⁄2 quadrangle mapsheets. The property is accessed from Austin by following State Highway 376 for 16 kilometers. A gravel road leads west 3.5 kilometers to the main area of interest on the property.



Land claims in the district are administered under Department of Interior, Bureau of Land Management (BLM) and Department of Agriculture, Forest Service (USFS) under the Federal Land Policy and Management Act of 1976. The Gilman claims cover portions of Sections 7, 8, 17, and 18 in Township 16 North, Range 44 East in Lander County, Nevada. None of the claims have been legally surveyed. All of the claims are on USFS administered lands, while the access to the property is across BLM land.



Three of the claims on the Gilman Property are registered in the name of Mr. Herb Duerr. Under a Letter Agreement dated July 25, 2002, MinQuest leased the three claims. The Letter Agreement permits MinQuest to assign the property and terms of the agreement to third parties. This agreement covers an approximate 1.6 kilometer area. MinQuest located an additional 16 claims which all fall within the area of interest covered by the agreement MinQuest has with



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Mr. Duerr. Mr. Duerr subsequently granted to MinQuest the rights necessary to allow MinQuest to enter into agreements with third parties for the additional 16 claims. To maintain the claims in good standing, maintenance fees totaling $135 per claim are payable to the BLM on or before September 1 of each year. Recording fees of approximately $15 per claim are required by Lander County each year.



All of the Gilman Property is within the Toiyabe National Forest, administered by the USFS. Exploration within national forest lands must be permitted by the USFS. Prior to undertaking exploration activities a Plan of Operations must be submitted to the USFS for review. An environmental assessment and public input is required necessitating an approximate four month lead time before undertaking any disturbance. A reclamation bond to cover costs of such disturbances is required to be posted with the USFS. Access to the Gilman Property is across BLM administered land. As there are existing roads and tracks in place, no permit is required to cross these lands. No permits have been applied for or are currently issued for the Gilman Property.



Exploration History of the Gilman Property



There is no known production or history data from the Gilman Property, but several pits and two adits are evidence of prior exploration activities. Numerous companies conducted property reviews and sampled the showings in the area, which have locally returned high concentrations of gold.



Geology of the Gilman Mineral Claims



The geology of the property is described in a December, 2002 report by Geoffrey N. Goodall, President of Global Geological Consultants Ltd., a private consulting firm. Mineralization on the Gilman Property is associated with a steep, easterly dipping and northerly trending range front fault. Jasperoid and massive quartz veining have developed along the fault zone and local east trending faults offset the jasperoid. Sulphide rich quartz veining occurs at the base of the silicified fault zone. Sulphides identified at Gilman include pyrite, arsenopyrite, galena, chalcopyrite and sphalerite. The primary focus of exploration at the Gilman Property is for structurally hosted high-grade gold/silver mineralization. Mineralization at Gilman consists of a gossanous shear zone and quartz veins along the base of a range front fault zone. Gold, silver, and copper associated with the fault system have been located in the area.



Current State of Exploration



The Gilman claims presently do not have any mineral reserves. The property that is the subject to our mineral claims is undeveloped and does not contain any open-pit or underground mines. There is no mining plant or equipment located on the property that is the subject of the mineral claim. Currently, there is no power supply to the mineral claim. Our planned exploration program is exploratory in nature and no mineral reserves may ever be found.



Geological Exploration Program



Evaluation of the Gilman claims to date has consisted of the preparation of a topographic base map, and surface and underground geochemical sampling. In addition, as part of the permitting process the Company undertook an archeological review of the property.  The Company expects that a drilling permit will be received in the coming months.  Significant gold and silver values obtained in surface and underground sampling have been found associated with the range front quartz vein.  Future exploration will include drilling of the range front fault.   Although the permitting process is nearing completion, the Company does not currently have any plans to undertake any significant exploration on the Gilman Property for the remainder of calendar 2006.





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IMPERIAL PROPERTY





Map of Imperial Property located in western Nevada.



On June 30, 2004, the Company entered into an agreement with MinQuest for an option to acquire a 100% interest in a property known as the Imperial Property.  The company made the first scheduled option payment of $60,000 upon signing the agreement. The agreement requires certain additional minimum annual property option payments with a total of $80,000 required to be paid by July 1, 2008. The agreement also requires minimum annual exploration expenditures with a grand total of $500,000 in expenditures required to be incurred on the property by the July 1, 2009. The property option agreement is subject to a 3% royalty payable to MinQuest. The Company is required to use MinQuest for exploration conducted on the Imperial Property.

To January 31, 2006, the Company had made the initial option payment of $60,000 upon signing the agreement as well as the $20,000 payment due in June 2005.  In addition the Company has incurred approximately $265,500 in exploration expenditures on the property.  Under the terms of the option agreement the Company was required to have spent $75,000 on the property by June 2005.  The excess of $190,500 will be applied to the commitments of future periods.  In the event the Company does not make future option payments and incur the exploration expenditures, when demanded, the Company will lose its interest in the property.



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Description and Location of the Imperial Property



The Imperial Property is located in Esmeralda County, Nevada, approximately 60 kilometres southwest of Tonopah and 300 kilometers northwest of Las Vegas in the Railroad Springs Mining District. The property consists of 22 mineral claims elongated in an east-west direction, covering approximately 450 acres located in Railroad Pass between the Montezuma Range to the northeast and the Silver Peak Range to the southwest. The property covers portions of two adjacent US Geological Survey 7 1⁄2 quadrangle map sheets:  Lida Wash, Nevada and Montezuma Peak, SW Nevada. The center of the property is situated at approximately 117o 31 43 West longitude and 37o 33 North latitude.



Land claims in the district are administered under Department of Interior, Bureau of Land Management (BLM) under the Federal Land Policy and Management Act of 1976. The Imperial claims cover portions of Sections 34, 35, and 36 in Township 4S, Range 40 East in Esmeralda County, Nevada. None of the claims have been legally surveyed. The property is most easily accessed from the community of Silver Peak, Nevada by following US route 95 west from Tonopah for a distance of 35 kilometers and turning south onto paved State Highway 295 for 21 kilometers and then west on a secondary gravel road for 500 meters to the eastern claim boundary.



MinQuest is the registered owner of 12 of the claims that make up the Imperial Property. Ten of the claims (Lida 1 to Lida 10) are registered to Richard Kern, Michael Forth, and James Motter. Under the terms of a Letter Agreement, the Lida claims have been leased to MinQuest for a period of 20 years. The lease allows MinQuest to transfer title to third parties providing all conditions of the original agreement are met. To maintain the claims in good standing, maintenance fees totaling $135 per claim are payable to the BLM on or before September 1 of each year. Recording fees of approximately $15 per claim are required by Lander County each year.



Exploration History of the Imperial Property



The Imperial was first developed in the 1920s but apparently had little or no production until the late 1930s. The Imperial Mine produced approximately 10,000 tons of ore and was probably shut down at the beginning of World War II. The mine has two adits, the longest of which has approximately 2,600 feet of drifts and crosscuts. A 200 foot shaft, which is not accessible, is also located on the property.



The property has been explored by Energy Reserves Group, Goldsil Mining, Felmont Oil, and Nevada Star Resource Corporation. Felmont conducted the bulk of the work during 1983  1984 including drilling 19 reverse circulation holes. Five of these holes intercepted significant thickness of  oxide gold in Carlin-style mineralization. Six of their holes were drilled on the area that hosted the Imperial Mine. No other holes were drilled on this target that is more than a mile long. Felmont dropped the property partly because they lost the rights to the portion of the claim covering the Imperial Mine and partly because they were taken over by Homestake.



Nevada Star conducted a soil survey over the non-Imperial Mine claim block in 1987 and partially tested the area around two of the better Felmont holes with shallow, close-spaced grid



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drilling. This work which defined an area of gold mineralization and confirmed the presence of Carlin-style gold in silty rocks adjacent to northeast trending high angle feeder faults, was to be followed up by drill testing of this and several other targets. However, Nevada Star was unable to raise the capital needed to continue and relinquished the property.



Geology of the Imperial Mineral Claims



The geology of the property is described in a December, 2002 report by Geoffrey N. Goodall, President of Global Geological Consultants Ltd., a private consulting firm. Regionally, the Imperial Property is located within the Walker Lane which hosts several precious metal deposits. Two distinct types of gold mineralization occur on the Imperial Property. The first type is associated with high angle bodies of jasperoid that outcrop along the east-west axis of the property. The second type of mineralization is identified from drill hole data in the eastern part of the property. Here gold mineralization is associated with flat lying bedding and is disseminated throughout highly altered limonite stained decalcified siltstones.



Structurally, two fault sets appear closely related to mineralization. The Imperial Fault and other associated west-northwest structural zones have received the bulk of the exploration within the district. Numerous northeast trending faults, some of which are shown by soil geochemistry, have received little attention as possible feeders. Nearly all gold anomalies from the eastern half of the claims have a northeast trend. These anomalies are thought to be leakage along feeder faults.



Three primary Carlin-type targets are present at Imperial. The first and most important is the Imperial Target that has only one hole on the favourable side of the approximately 1,600 meter long structure. The second target, called the Resource Target is an open-ended 500 meter long gold in soil anomaly along a northeast trending fault system. A final target called the Jasperoid Breccia Target is a large anomaly under cover in the central portion of the claim group. The anomaly is 400 meters long and has gold in soil anomaly at its west end.



Current State of Exploration



The Imperial claims presently do not have any mineral reserves. The property that is the subject to our mineral claims is undeveloped but does contain two adits, the longest of which has approximately 2,600 feet of drifts and crosscuts. There is no mining plant or equipment located on the property that is the subject of the mineral claim. Currently, there is no power supply to the mineral claim.



Exploration of the enargite-bearing high-grade vein system is warranted simultaneously with Carlin-style exploration. Our planned exploration program is exploratory in nature and no mineral reserves may ever be found.



Geological Exploration Program



The Company has completed a two phase exploration drill program that focused on the high-grade vein and disseminated gold targets within the Imperial Property. The program included 31 reverse circulation holes for a total of 7,935 feet of drilling.



14



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The results of the drilling are shown below:



|IMPERIAL DRILLING RESULTS
|-------------------------
|                         
|                         
|Hole                     
|No.                      
|                         
|IR-1                     
|                         
|IR-2                     
|                         
|IR-3                     
|                         
|IR-4                     
|                         
|IR-4                     
|                         
|IR-4                     
|                         
|IR-5                     
|                         
|IR-5                     
|                         
|IR-6                     
|                         
|IR-7                     
|                         
|IR-7                     
|                         
|IR-8                     
|                         
|IR-8                     
|                         
|IR-9                     
|                         
|IR-10                    
|                         
|IR-10                    
|                         
|IR-11                    
|                         
|IR-12                    
|                         
|IR-13                    
|                         
|IR-13                    
|                         
|IR-14                    
|                         
|IR-15                    
|                         
|IR-16                    
|                         
|IR-17                    
|                         
|IR-18                    
|                         
|IR-19                    
|                         
|IR-20                    
|                         
|IR-21                    
|                         
|IR-22                    
|                         
|IR-23                    
|                         
|IR-23                    
|                         
|IR-23                    
|                         
|IR-24                    
|                         
|IR-25                    
|                         
|IR-26                    
|                         
|IR-27                    
|                         
|IR-27                    
|                         
|IR-28                    
|                         
|IR-29                    
|                         
|IR-29                    
|                         
|IR-29                    
|                         
|IR-29                    
|                         
|IR-30                    
|                         
|IR-31                    
|                         
|                         
|                         
|Total                    
|                         







15



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The first phase of the program was completed in the fall of 2004 and included 10 drill holes for a total of 2,995 feet. All of these holes were drilled on the Imperial Target.  In addition to the drilling the Company has also conducted underground sampling. A total of 40 samples have been taken of quartz vein related mineralization underground. This work confirmed the presence of high grade values in the two adits sampled and will help target further drilling.



Of the first ten drill holes drilled, several intersected stopes which were not visible on existing underground maps. This was to be expected to some extent, as Phase I of the drill program was designed to test an area of previous underground mining which had already had extensive workings. Of particular interest was drill hole IR-4 which intersected 10 feet of high grade gold. This 10 foot interval (105 to 115) averages 0.50 oz/ton gold occurs within a 40 foot interval (110 to 140) that averages 0.154 oz/ton gold. Seven of the ten holes drilled contain gold intercepts exceeding 1.0 ppm (0.029 oz/ton).



The second phase of the drilling was completed in the fall of 2005.  This phase included 21 holes for a total of 4,940 feet.  The Company drilled 14 holes in the Resource Target area with all but 5 containing +0.01 oz/ton gold intercepts.  Two of the holes intersected, or came close to intersecting, the feeder structure within the favorable host sediment. Hole IR-22 contained 35 feet averaging 0.072 oz/ton gold and IR-23 contained 25 feet at 0.034 oz/ton gold including 5 feet at 0.096 oz/ton at the bottom of the hole.  The drilling indicates the gold is located within one nearly flat-lying favorable sedimentary unit (a calcareous siltstone) that is approximately 50 feet thick. Gold grade drops off quickly as one moves away from the feeder fault. Holes drilled beneath the mineralized unit, even those intersecting the feeder fault, were barren. The flat-lying mineralization appears to dip gently to the
northwest and is approximately 200 feet wide and 40 to 50 feet thick. The gold bearing horizon has not been drilled to the southwest.



Two holes targeted the Jasperoid Breccia Target with one hole being drilled under the gold bearing jasperoid and another targeting the possible intersection of the northeast trending feeder fault with the Imperial fault.   Both of these holes (IR-25 and26) were barren. Just as at the Resource Target, these holes drilled beneath the favorable stratigraphy and missed the mineralization. Future drilling should be collared above the favorable horizon in proximity to the feeder fault.



In addition to the drilling, a total of 40 channel (continuous and consistent amount) samples were taken across veins exposed in the upper and lower adits. Sample widths were noted. Once at the assay lab each was weighed. Sample preparation, performed by ALS Chemex in Reno, Nevada, consisted of crushing the entire sample, splitting off 1,000 grams, pulverizing all 1,000 grams and splitting off 50 grams of this pulp for fire assay for gold and 50 grams for silver.



Results of all of the channel sampling done are noted in the table below:



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|Imperial Upper Adit Results
|---------------------------
|Sample Number              
|                           
|IUA 0                      
|IUA 10                     
|IUA 30                     
|IUA 40                     
|IUA 50                     
|IUA 65                     
|IUA 70                     
|IUA 80                     
|IUA 93                     
|IUA 105                    
|IUA 120                    
|IUA 128                    
|IUA 140                    
|IUA 150                    
|IUA 175                    
|IUA 190                    
|IUA 210                    
|IUA 230                    
|IUA 250                    



IMPERIAL LOWER ADIT



|Sample  Number | Weight (lb) | Width (ft) | Gold (oz/ton) | Silver (oz/ton)
|-------------- | ----------- | ---------- | ------------- | ---------------
|               |             |            |               |                
|ILA 50         | 7.04        | 1.0        | 0.143         | 0.742          
|ILA 70         | 5.72        | 1.5        | 0.033         | 0.053          
|ILA 90         | 8.87        | 2.5        | 0.183         | 0.850          
|ILA 110        | 10.12       | 3.0        | 0.154         | 0.844          
|ILA 137        | 11.53       | 2.0        | 0.506         | 1.451          
|ILA 152        | 10.19       | 1.5        | 0.045         | 0.085          
|ILA 170        | 7.00        | 1.5        | 0.004         | 0.015          
|ILA 202        | 9.13        | 2.0        | 0.048         | 0.020          
|ILA 250        | 7.72        | 2.5        | 0.053         | <0.015         
|ILA 300        | 7.37        | 3.0        | 0.004         | 0.035          
|ILA 350        | 8.16        | 3.0        | 0.002         | 0.064          
|ILA 400        | 8.65        | 2.0        | 0.013         | 0.015          
|ILA 420        | 7.15        | 2.5        | 0.341         | 0.044          
|ILA 430        | 10.52       | 1.5        | 0.379         | 0.020          
|ILA 444        | 7.90        | 2.0        | 0.159         | 0.020          
|ILA 450        | 10.01       | 3.0        | 0.102         | 0.023          
|ILA 460        | 12.52       | 1.5        | 0.089         | 0.053          
|ILA 500        | 10.27       | 2.5        | 0.178         | 0.397          
|ILA 510        | 8.98        | 3.0        | 0.497         | 0.131          
|ILA 520        | 5.19        | 3.0        | 0.148         | 0.155          
|ILA 527        | 5.96        | 2.0        | 0.113         | 0.018          





17



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The Company is currently reviewing its plans for the Imperial Property but does not intend to incur any significant exploration expenses on the Imperial Property in 2006.

HERCULES PROPERTY





Map of Hercules Property located in western Nevada.



On October 22, 2004, the Company entered into an agreement with MinQuest for an option to acquire a 100% interest in a property known as the Hercules Property.  Concurrent with the signing of the agreement, the Company made the first property option payment of $20,000. The agreement requires certain additional minimum annual property option payments totaling $200,000 and minimum annual exploration expenditures totaling $4,050,000 to be paid or incurred by November 25, 2014. The agreement is subject to a 3% royalty payable to MinQuest with the Company being able to repurchase up to two-thirds of the royalty for $3,000,000.

To January 31, 2006, the Company had made the initial option payment of $20,000 due on signing as well as the $20,000 payment due in November 2005.  In addition the Company has incurred approximately $108,300 in exploration expenditures on the property.  The Company was to have incurred $150,000 by November 2005.  The Company is currently in discussions with MinQuest to add the deficiency of $41,700 to the commitment of $200,000 required to be incurred on the property by November 2006.  In the event the Company does not make the



18



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indicated option payments and incur the exploration expenditures, when demanded, the Company will lose its interest in the property.



Description and Location of the Hercules Property



The Hercules Property is located in Lyon County, Nevada, approximately 40 kilometers southwest of Reno. Access is via 11 kilometers of paved and dirt road from Dayton.  Land claims in the district are administered under Department of Interior, Bureau of Land Management (BLM) under the Federal Land Policy and Management Act of 1976. MinQuest holds a 100% interest in these claims via unpatented mining claims.



Exploration History of the Hercules Property



The Hercules Property was first discovered in 1860 by pioneers during the famous Washoe Rush. Production from high grade veins started as early as 1870 and occurred as late as 1956. The Hercules Mine, located on the property, had production of 5,000 ounces of gold and 20,000 ounces of silver as indicated from stoping. Recent exploration efforts began in the early 1980s when placer mining was attempted on the eastern portion of the property, below the Hercules Mine. Since then, Asamera, St. Joe, Horizon Gold, Phelps Dodge and Adamas\GSL have conducted exploration efforts totaling over US$2,000,000 in expenditures.  Drilling undertaken by predecessor companies are as follows:



| |  | St. Joe              1985           11 RC holes for 2,715 feet (882 m)
| | - | ----------------------------------------------------------------------

| |  | Asamera           1985           10 Core holes for 4,314 feet (1,400 m)
| | - | -----------------------------------------------------------------------

| |  | Horizon Gold    1986-90     138 RC holes for 18,091 feet (5,874 m)
| | - | ------------------------------------------------------------------

| |  | Phelps-Dodge   1995-97     17 RC holes for a total of 8,805 feet (2,859 m)
| | - | --------------------------------------------------------------------------



A total of 33,925 feet (11,015 m) in 176 holes have been completed on the property. The vast majority of the drilling targeted shallow open pit heap-leachable gold mineralization. No systematic exploration of the high-grade vein targets has been completed.



Geology of the Hercules Mineral Claims



The property lies within the Walker Lane structural corridor.  The Walker Lane is characterized by a strong northwesterly structural fabric causing easterly rifting. As with much of the Walker Lane rocks at Hercules consist dominantly of Tertiary age pyroclastic volcanics and volcaniclastic sediments cover the entire property. The pyroclastic rocks have been intruded by several volcanic vents and plugs. Thin post-mineral basalt and rhyodacite of Pliocene age cover mineralization on the northern and western sides of the property.



The Hercules Property contains one of the most significant untested Comstock-type vein systems in the Western U.S. The depth of erosion of the Hercules vein system is evidenced by the following:



| | 1. | Multiple parallel veins that should merge at depth.
| | -- | ---------------------------------------------------

| | 2. | Presence of low-temperature alteration minerals such as chalcedony, calcite, and kaolinite in exist in veins at current surface.
| | -- | --------------------------------------------------------------------------------------------------------------------------------



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| | 3. | Presence of low temperature elements such as mercury, arsenic and antimony.
| | -- | ---------------------------------------------------------------------------

| | 4. | A low silver to gold ratio relative to bonanza horizon.
| | -- | -------------------------------------------------------

| | 5. | Low base metal content (lead, zinc) relative to bonanza horizon.
| | -- | ----------------------------------------------------------------

| | 6. | Localized high-grade gold (+0.5 oz/ton) in veins at current erosion surface.
| | -- | ----------------------------------------------------------------------------



The Hercules mineralization is largely localized along two parallel dip-slip multi-vein structures which trend north-northeast. The structures have near-vertical dips and have been offset by two east-west faults. Gold/silver is hosted by permeable volcanics/volcaniclastics as well as by the high-angle structures. The highest grade mineralization occurs in quartz veins within the faults. Silicification and banded quartz-adularia veins are surrounded by intense clay alteration grading to weak propylitic alteration.



The second target type at Hercules is bulk-minable, heap-leachable gold/silver.This area contains the following individual target areas:



| | Zones C/D/E contain significant mineralization.within three separate pods. Drilling is wide spaced and incomplete between the three pods. The pods remain open ended along strike and down dip. These pods may join along strike.  Two claims not owned by MinQuest cover part of this resource. In the past, these claims were leased for reasonable terms.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Zone A/B is an extension of the C/D/E/ zone. The A/B zone contains additional mineralization of gold and silver.
|- | ----------------------------------------------------------------------------------------------------------------



| | The West Cliff Zone also contains additional mineralization as indicated in widely spaced drilling and surface sampling results. Untested mineralization occurs north of the West Cliff resource. This area has a 5,000 feet (1620 m) strike length.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | The Loaves Zone is the last target in this area.
|- | ------------------------------------------------



All of these areas remain open along strike and at depth.



St. Joe and Horizon Gold performed bulk tests from drill cuttings and surface samples. The average recovery for gold was 88%. The process involved crushing and pulverizing the sample and completing a bottle roll using over 50 separate samples. Although the tests are encouraging, further metallurgy is needed to determine recoveries of various size fractions.



A bonanza grade gold/silver deposit is the primary target at Hercules. All of the mineralized vein structures listed previously are targets. Exploration should begin in areas with higher-grade gold values at surface, with higher silver/gold ratios, more base metals, higher temperature alteration suites and where multiple veins occur. This will ensure the shallowest targets will be tested first. The most likely site to start as indicated by initial study is area D and E of the Hercules Mine target. Accurate drilling down dip in 100 m steps will allow spot coring of the target horizon at 300-400 m beneath the surface.





20



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The secondary target is open pit bulk-minable heap leachable gold/silver for which some resources have already been established. The size and grade of these resources could be increased by drilling across their feeder structures and by drilling possible extensions.



The West Cliff target is located in the southwest portion of the property. This area is defined by 17 widely spaced drill holes and underground and surface channel sampling results. Soil sampling and drilling suggests a second en-echelon zone occurs 300 feet (100 m) east of the main zone.  The area is open ended for 1000 feet (305m) north, 600 feet (180 m) south and down dip to the west.  Only two holes have tested the parallel zone.



The Loaves target consists of a zone of silicified volcanics containing banded quartz veins. The zone has a strike length of over 5,000 feet (1520 m) and extends under cover to the northwest. This zone is probably the offset extension of the West Cliffs resource. Only two of ten holes drilled to date have tested the structure. Previous drilling has targeted the footwall side of the fault. Even so, long intervals of anomalous gold with occasional short intervals of higher grade were encountered. This target requires angle drilling to test the hanging wall side of the structure to penetrate the fault zone at depth and along strike.



The Hercules Mine and Extensions (C\D\E) targets cover the main Hercules structure and parallel fault zones. Drilling and sampling from underground and outcrop areas have encountered relatively thick intercepts of gold and silver. This wide spaced drilling (both core and RC) and underground sampling indicate multiple mineralized structures with associated disseminated mineralization. The core samples were only partially assayed and may contain more gold than is displayed on the cross sections. The zone remains open for at least 1000 feet (300 m) north, over 1000 feet (300 m) south. Parallel mineralized structures are known to exist further to the east within the claim block.



The southern of the three Loaves targets contains3 holes and surface panel sampling. Soil sampling suggests a minimum of 1700 feet (515 m) of strike length that remains untested.



Current State of Exploration



The Hercules claims have had a significant amount of exploration undertaken in their history. However, they do not currently have any mineral reserves. The property that is the subject to our mineral claims is undeveloped. There is no mining plant or equipment located on the property that is the subject of the mineral claim. Currently, there is no power supply to the mineral claim. Our planned exploration program is exploratory in nature and no mineral reserves may ever be found.



Geological Exploration Program



The exploration potential at the Hercules Property is considered excellent. The main targets are untested. Several of the near-surface targets were poorly tested and are open between the current resources. Obvious extensions of drilling, soil and rock gold anomalies and high grade veins in old workings suggest not only an excellent chance of increasing the known resource of open pit mineralization but of finding a world class bonanza gold/silver deposit at depth. The vast majority of the previous resource drilling was vertical and did not test for these potentially higher grade fault zones.



During 2005 the Company undertook an exploration program on the Hercules Property.  The program consisted of geologic mapping, geochemical sampling, compilation of previous drilling data, and a re-evaluation of geophysical surveys.  Also, a total of 105 soil samples were collected on the north end of the property.  The geophysical targets on the northern portion of the claim block were reviewed and evaluated.  The information developed from previous exploration



21



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groups was combined with new information from the geophysical surveys and recent mapping to place 7 reverse circulation holes to determine strike, dip and stratigraphy within the A, B, C, West Cliffs and Bread Loaves mineralized zones.  The structures believed to be present in these areas would provide a pathway for mineral rich fluids.  The fluids should pond within certain porous rock types below impermeable stratigraphy.



Six drill holes were located on the margins of the previously defined mineralized zones. The seventh hole tested a parallel alteration zone to the west of any previous drilling.  Seven drill holes were completed for 2,470 feet (753 m).  The drilling extended the known precious metals mineralization near surface and between pods A-C.  The holes also defined several fault zones that fed these mineralized areas.  Generally, the fault zones were encountered within an impermeable mudstone unit.  The faults were represented by bleaching, iron oxide and clay alteration within the mudstone.  The faults were 3 to 8 meters wide and contained anomalous gold values in the 0.01 to 0.05 g/t range.  It is believed that this mudstone unit restricted the flow of mineralizing fluids and may have caused ponding of the fluids at its base.



The following table lists the intercepts in each drill hole:



|Drill Hole # | Gold Eq g/t | Thickness (m) | From (m) | To (m)
|------------ | ----------- | ------------- | -------- | ------
|HY 05-01     | 0.95        | 12.2          | 6.1      | 18.3  
|HY 05-02     | 0.379       | 1.5           | 32.0     | 33.5  
|             | 0.33        | 10.7          | 44.2     | 54.9  
|             | 0.83        | 3.0           | 65.5     | 68.5  
|HY 05-03     | 0.58        | 3.0           | 32.0     | 35.0  
|             | 0.32        | 4.5           | 41.2     | 45.7  
|             | 0.54        | 3.0           | 51.8     | 54.8  
|             | 0.59        | 6.1           | 83.8     | 89.9  
|HY 05-04     | 0.38        | 6.1           | 3.0      | 9.1   
|             | 0.61        | 1.5           | 10.7     | 12.2  
|             | 0.45        | 1.5           | 42.7     | 44.2  
|             | 0.42        | 1.5           | 54.9     | 56.4  
|HY 05-05     | NSV         |               |          |       
|HY 05-06     | 0.55        | 1.5           | 51.8     | 53.3  
|HY 05-07     | NSV         |               |          |       





NSV = no significant values found



All holes successfully identified altered and mineralized structures.  Holes 05-01 through 05-04 extended the known ore zones of A through C east and north.  It appears that drill hole 05-05 may have missed the West Cliffs vein due to thicker alluvial cover than anticipated.  Hole 05-07 was the only hole that tested outside of the known mineralization.  The hole intersected an opaline rich structure hosted within basalt and andesite west of any previous drilling. The structure contained sulfide minerals (mainly pyrite) and low temperature quartz, but did not contain any significant precious metal values.  The cuttings were not assayed for trace elements.  This structure is along strike of an interpreted fault defined by an IP geophysical survey to the north.



22



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The Company is currently reviewing the 2006 work program and related budget.  The budget is expected to be approximately $250,000.  It is expected that the 2006 work program will include a detailed geologic map of the property.  Although a detailed map has been completed of the property, it is piecemeal from several geologists and includes discrepancies between different authors and ambiguity in actual locations.  The new geological map should clarify and resolve some stratigraphic inconsistencies between different geologists.  Compilation of all available data including, drill holes, into a single database should be completed.  The data should then be used to create cross-sections and determine actual locations of faults and geochemical anomalies.



The Company expects that the 2006 work program will include a continuation of drilling that will test the base of the mudstone unit near the identified fault zones within the A, B and C mineralized zones.  The target is a bonanza style vein with ponding of high grade mineralization in a receptive horizon.  Offset of high grade intercepts encountered in Phelps Dodge drill holes is also being reviewed.



An initial soil sampling program was implemented on the north end of the property during 2005.  The samples collected show some anomalous areas of gold, arsenic and mercury.  Further soil sampling is planned in order to define undrilled areas on the north end of the property.







23



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CORTEZ PROPERTIES





Map of the Cortez Properties located in western Nevada.



On February 28, 2005, the Company entered into an agreement with MinQuest for an option to acquire a 100% interest in properties known as the Crescent Fault Project, the Bankop Property, and the Bullion Mountain Property (collectively, the Cortez Properties). Concurrent with the signing of the agreement, the Company made the first property option payment of $65,000. The agreement requires certain additional minimum annual property option payments totaling $445,000 and minimum annual exploration expenditures totaling $1,150,000 to be paid or incurred by February 15, 2010. The agreement is subject to a 3% royalty payable to MinQuest. In addition, the Company is required to use MinQuest for exploration activities undertaken on the properties.

To January 31, 2006, the Company had made the initial option payment of $65,000 due on signing.  In addition the Company has incurred approximately $74,200 in exploration expenditures on the property.  By February 28, 2006 the Company had not incurred the required property expenditures of $100,000.  The Company is currently in discussions with MinQuest to add the deficiency of $25,800 to the commitment of $150,000 required to be incurred on the property by February 2007.  In the event the Company does not make the indicated option payments and incur the exploration expenditures, when demanded, the Company will lose its interest in the property.





24



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CRESCENT FAULT PROJECT



Description and Location of the Crescent Fault Project



The Crescent Fault Property is located in Eureka County, Nevada and consists of 6 unpatented claims. Access to the property is via paved highway and graded gravel road. Land claims in the district are administered under Department of Interior, Bureau of Land Management (BLM) under the Federal Land Policy and Management Act of 1976. All claims are held by Desert Pacific Exploration (DPE) and under a Letter Agreement dated February 26, 2005 MinQuest acquired the rights to the claims comprising the Crescent Fault Property from DPE. The Letter Agreement allows MinQuest to assign its interest to third parties.



Exploration History of the Crescent Fault Project



The Crescent Fault Property was explored by Homestake from 1983 to 1986, Noranda from 1992 to 1994, and North Mining from 1995 to 1996. Past exploration includes considerable rock chip sampling, geologic mapping, and drilling. Clastic sediments have been silicified and argillized along a range front fault zone. Drilling has tested part of the range front and some of the down dropped section. Drilling on the property is summarized as follows:



|Homestake | 1985-1986 | 2 holes drilled for 1,855 feet
|--------- | --------- | ------------------------------
|Noranda   | 1992-1993 | 8 holes drilled for 4,436 feet
|North     | 1995      | 8 holes drilled for 3,930 feet
|          |           |                               



Drilling has intersected significant sphalerite and galena. The lead-zinc mineralization appears to be related to epidote-chlorite skarn. The drilling has focused on testing the surface expression of pyritic jasperoid and quartz veining developed within parallel to sub-parallel faults to the range front. Potential down dropped sections of mineralization may exist under alluvial cover. Outcrops of jasperoid are developed along low angle thrust faults and high angle shear zones. Tertiary age dikes have been noted along high angle faults trending northwesterly.



Geology of the Crescent Fault Project Mineral Claims



The property was discovered while prospecting along the Crescent fault. One short adit and a few small prospect pits were the only evidence of previous exploration efforts prior to the first drill holes. The drilling has focused along the range front, intersecting significant alteration and mineralization.



The regional geology consists of a package of Pennsylvanian to Permian carbonate to siliciclastic sediments. This sediment package has been intruded by a possible Cretaceous granodiorite to porphyry rhyolite. The range front has had both strike-slip and dip-slip movement, down dropped along the Crescent fault. Placer Dome has determined the strike-slip movement to be up to 1 mile in an east-northeasterly direction. Many parts of the Crescent fault have been down dropped over 1000 feet under alluvial cover. In the vicinity of the property, drilling and geophysical data indicate a shelf of bedrock has been preserved at depths ranging from 250 to 400 feet deep for up to 1000 feet from the fault zone. Potential for a preserved portion of mineralized bed rock at reasonable depth is very good.



25



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Tertiary volcanoclastics on the eastern part of the property are altered and quartz veined along strike of the fault. Jasperoid shows slickensides indicating two movements, one down dropped and one left lateral. Low angle faulting was noted near the top of the ridge and has been down faulted along the range front, in the next section west. The low angle faulting is represented by Ordovician chert and quartzite thrust over Pennsylvanian carbonate. North to northwest trending faults bisect the range front fault zone, down dropping and offsetting mineralization in several areas. Possible Tertiary age dikes and sills have intruded and healed several northwesterly faults and the crescent fault zone. These dikes are argillized, iron stained and in a few places, quartz veined.



The property covers a well defined zone of alteration exposed along the range front fault zone bounding the southeast portion of Crescent Valley. The alteration is composed of jasperoid, decalcified limestone, silicified shale, and quartz veining filling faults and fractures in intrusive rocks and siliciclastic sediments. Tertiary age dikes have intruded the sediments and older intrusive rocks, generally following a northwesterly trend. Alteration zones carry low values in gold, silver and copper along with minor elevations of trace elements typically identified in other disseminated gold deposits of the area. The jasperoid is vuggy with weak, erratic gold and anomalous arsenic, mercury and antimony on the surface.



The Jasperoid target dips northwesterly under alluvium, paralleling the Crescent Fault. Drilling has intercepted relatively shallow bedrock under the alluvium, but no gold has been encountered to date. Extensions of the zone will be mapped and sampled to further define this target area.



Skarn mineralization is hidden. Skarn is weakly developed and spotty throughout the area. Drilling has encountered high grade gold and base metals in carbonate rocks.  Mapping of alteration phases may better define the Skarn target. At present, the best potential target is a blind skarn zone with high-grade gold potential.



Current State of Exploration



The Crescent Fault claims presently do not have any mineral reserves. The property that is the subject to our mineral claims is undeveloped and does not contain any open-pit or underground mines. There is no mining plant or equipment located on the property that is the subject of the mineral claim. Currently, there is no power supply to the mineral claim. Our planned exploration program is exploratory in nature and no mineral reserves may ever be found.



Paved roads come within 5 miles of the property and well maintained gravel roads provide access within 1,000 feet of the property boundary. A dirt road is in place and provides adequate access throughout the property. All currently proposed drilling can be done without further road building.



Geological Exploration Program



Potential exists for the existence of relatively high-grade gold. The exploration completed to date has identified mineralization within fault zones parallel to the range front fault. Sampling has indicated weakly anomalous gold values exist over 12,000 feet of strike length.  In 2005 the



26



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Company initiated a program of geophysical and geochemical surveys over the pediment area along strike of the mineralization.  The surveys were following up on the observations of previous geophysicists and drill-hole data from former property owners suggesting shallow pediment.  Five CSMT (Controlled Source Magneto Telluric) survey lines were collected to determine changes in lithology and potential parallel faulting to the main Crescent Fault.



Also in 2005 a reconnaissance auger sampling program was designed to test for concealed gold mineralization in pediment cover.  The auger holes were positioned 30 meters apart along each line and the lines were separated about 300 meters apart, perpendicular to the range front.  The holes tested the caliche layer developed within transported material.  Gold mineralization is known to leak from sources below and become entrapped in the caliche layer.  This system is not widely used but is proven technology in finding buried gold deposits in desert environments in both Nevada and Australia.  It has been successful in finding at least two gold deposits in the Battle Mountain area.



A total of 175 samples were collected along 9 widely separated lines.  The samples were tested for calcium carbonate on site and 31 elements in the ALS/Chemex lab.  No gold was identified in any of the samples.



The 2005 program of CSMT and auger drilling did not identify any significant drill targets within the pediment zone.  The topography is too steep to effectively conduct geophysical surveys to identify new drill targets on the rest of the property.  However, the original drill targets still remain.



The exploration contractor has made several recommendations to the Company.  Amongst the recommendations are that at least one drill hole should be spotted to intersect the favorable host rocks at a depth of 300 meters and a second hole should be placed to twin the original drill hole that intersected 4 g/t gold.  This hole would determine the alteration type and structural control of the mineralization.  It has also been recommended that 5 additional drill holes be targeted at areas of gold in rock chip that have yet to be drill tested.  Offsetting known mineralization in previous drilling is also highly recommended.



The Company is required to incur an aggregate $175,000 in exploration expenditures on the Cortez Properties.  The Company intends to spend this amount in 2006.  However, the Company has not yet determined on which of the three properties (or a combination of the three) making up the Cortez Property the Company will incur the exploration expenditures.  The recommended program on the Crescent Fault property would require at least 7 drill holes for a total of 1,800 meters.  Permitting could be reasonably completed in 3 months and drilling could start in mid-2006.  The Company has not yet made a decision on whether to proceed with the recommended program.



BANKOP PROPERTY



Description and Location of the Bankop Property



The Bankop property is located in eastern Lander County, Nevada, approximately 40 kilometers (25 miles) southeast of Battle Mountain and six kilometers (4 miles) northwest of the Pipeline



27



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Mine. The property consists of 24 unpatented mining claims. Land claims in the district are administered under Department of Interior, Bureau of Land Management (BLM) under the Federal Land Policy and Management Act of 1976. All claims are held by Desert Pacific Exploration (DPE) and under a Letter Agreement dated February 26, 2005 MinQuest acquired the rights to the claims comprising the Bankop Property from DPE. The Letter Agreement allows MinQuest to assign its interest to third parties.



Exploration History of the Bankop Property



There has been no production from the Bankop claims.



Historic prospect pits, adits, and shafts occur throughout the low lying hills of the area. The property has seen recent exploration efforts beginning as early as 1965. Exploration companies involved included U.S Mining and Exploration Company, Inc., Phelps Dodge, Inc., Placer Amex, Inc., Cyprus Exploration Company, Homestake Mining Company, U.S Borax, Placer Dome U.S. Inc., Noranda Exploration, Inc. (Hemlo Gold, Inc.), Uranerz U.S.A., Inc. and Minorca Resources Inc. This very large volume of geologic information is an extremely valuable tool for further study of the property.



Geology of the Bankop Mineral Claims



Regionally, the Utah Camp property is situated within the Battle Mountain-Eureka Trend, a northwest striking 30 to 40 mile wide (45 to 60 km) belt of mostly Paleozoic rocks which are intruded by numerous Cretaceous to Tertiary age intrusives. All bedrock mapped to date on the Bankop property is Upper Plate fine-grained clastic rocks. Although these rocks are dominated by siliceous lithologies, they do contain an appreciable thickness of carbonate-rich rocks. Deep drilling by Uranerz contains thick sections of calcareous siltstone within the Valmy. Calcareous sandstones make up a significant portion of the middle Elder Formation. Both of these rock types are good host rocks for Carlin style mineralization.



A significant portion of the property is covered by Quaternary alluvium. Outcrop is normally sparse, except where thick sections of quartzite occur. Colluvial cover is relatively thick once the break in slope is reached traversing from ridge top to valley.



Besides the bedding plane faults associated with thrust slices, several high angle faults have been mapped. The dominant trend is northeast and the next most abundant trend is northwest. East-west high angle structures are most common in the southern portion of the property.



Mineralization occurring within the property is gold associated with arsenic and mercury. The main alteration type is clay, and therefore, it is rare for the mineralization to outcrop. Instead it is usually found in topographic lows. Bulldozer work has exposed decalcified sandstone. This and several other gold anomalies in rocks and soils within the property are indications of Carlin style mineralization. Significant gold intercepts of Carlin style mineralization occur around a bulldozer trench. Several holes drilled in this area have shown mineralization  All of the above holes were drilled vertically.





28



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A number of companies have explored for Carlin style systems within the property. Although these efforts provide an excellent database for further studies they failed to define or test a single feeder structure. Because the property is underlain by upper plate rocks not known to host large gold deposits elsewhere in the district, the emphasis has been on deep drilling to test lower plate carbonate rocks.  Without an associated feeder fault this effort will be fruitless.



Current State of Exploration



The Bankop claims presently do not have any mineral reserves. The property that is the subject to our mineral claims is undeveloped and does not contain any open-pit or underground mines. There is no mining plant or equipment located on the property that is the subject of the mineral claim. Currently, there is no power supply to the mineral claim. Our planned exploration program is exploratory in nature and no mineral reserves may ever be found.



Geological Exploration Program



The work program in 2005 included an auger program that grid sampled the entire claim block with 30 by 300 meter centers.  This program was successful in further defining the trend and extent of gold mineralization and identifying four other gold anomalies elsewhere on the property.  The reconnaissance auger sampling program was designed to further extend the known gold anomaly and potentially identify a widening of the gold zone.  Areas of blossoming gold anomalies may suggest structural intersections that should be drill tested.  The auger holes were positioned 30 meters apart along each line and lines were separated about 200 meters apart.  The holes penetrated the loess cover in almost every instance and collected soil and/or rock form the bottom of the hole.  Depths of penetration ranged from less than 0.3 meters to over 7 meters.



Gold values were generally widespread within the south half of the property.  High grade values were encountered along several lines.  The best value was collected from Line D near the middle of the traverse.  A compilation of rock, soil, auger and drill geochemistry for gold indicates three anomalous areas with multiple sample sites and two single point anomalies.  The anomalous areas range from 600 by 150 meters to 30 by 30 meters.



A second gold anomaly was identified on the southern portion of the claim block.  This zone trends northerly and is 600 meters long and 150 meters wide.  The zone is hosted partly within the Ordovician Valmy quartzite.  A brecciated fault zone defines the contact between the Valmy and Elder Formations.   Gold values are elevated along this fault zone.  However, the fault is oblique to the sample lines and has limited coverage by the auger survey.



A third gold anomaly was identified by Uranerz, but missed by the Auger survey.  The anomaly is represented by two sample sites that fall midway between lines A and B on the northern portion of the claim block.



The Company is required to incur an aggregate $175,000 in exploration expenditures on the Cortez Properties.  The Company intends to spend this amount in 2006.  However, the Company has not yet determined on which of the three properties (or a combination of the three) making up the Cortez Property the Company will incur the exploration expenditures.





29



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BULLION MOUNTAIN PROPERTY



Description and Location of the Bullion Mountain Property



The Bullion Mountain Property is located in Lander County, Nevada within T29N, R46E and consists of 38 mining claims. A portion of the claims is made up of the Bully and Chief groups of claims.  Access is via gravel road south from Battle Mountain  Land claims in the district are administered under Department of Interior, Bureau of Land Management (BLM) under the Federal Land Policy and Management Act of 1976. All claims are held by Desert Pacific Exploration (DPE) and under a Letter Agreement dated February 26, 2005 MinQuest acquired the rights to the claims comprising the Bullion Mountain Property from DPE. The Letter Agreement allows MinQuest to assign its interest to third parties.



Exploration History of the Bullion Mountain Property



The property may have been prospected as early as the 1870s. Numerous prospect pits and shallow adits dot the top of the ridge that makes up part of Bullion Mountain. The most extensive prospecting occurs along low and high angle fault zones with clear quartz veins. The fault zones generally trend east-northeasterly. These veins can assay over a half ounce of gold across 1 meter.



The property lies along the Pipeline fault zone which has been defined by Placer Dome as having a northwesterly trend.  The Chief and Bully claims have been previously explored by Placer Dome, Asarco, Hemlo, Lac, Barrick, and Pallum. Recent work includes drilling by Asarco on the Bully claims and drilling by Placer Dome and Pallum on the Chief claims.



Numerous surface samples have identified high grade gold (>0.5 opt) in fault zones in upper plate rocks. Drilling by Asarco has encountered 3 meters of 0.204 opt gold on the Bully claims. Drilling by Pallum encountered 1.5 meters of 0.08 opt gold and 15 meters of 0.02 opt gold on the Chief claims. Drilling by Placer Dome and Pallum has identified a small, low grade gold target on the Chief Claims.



Geology of the Bullion Mountain Mineral Claims



Upper plate Silurian to Devonian siliciclastic rocks have been thrust over Cambrian to Silurian carbonate facies. The entire package of sediments has been intruded by Tertiary age granite (Bullion Mountain granite). The Upper Plate assemblage is hornfelsed and bleached near the margin of the intrusive.



The entire area within the claim block is structurally complex with both low and high angle faulting. High angle faults have displaced all rock types.  ENE faults on the Bully claims contain significant gold values.  Many of these ENE faults and shears have been healed with quartz veins and jasperoid silica. Gold is generally found associated with clear, crystalline quartz veins and narrow, argillized dikes. Many of the faults of the area show secondary movement represented by several stages of quartz veining. Recent exploration efforts have been limited to low angle fault zones on the Chief claims and within a discreet area on the Bully claims.





30



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Drilling has identified significant gold values on the Chief and Bully Claim groups.  The Bully target area contains several high grade fault zones within a breccia zone of lower grade material. The Chief area has been drilled on a grid with roughly 200 foot centers. The drilling suggests a shallow dipping fault breccia zone with consistent gold values. Both target areas may have high angle faults providing plumbing for the gold mineralization in the area. At present, a feeder fault has not been identified within the Chief claim boundary. Exploratory drilling in the valley between Chief and Bully has encountered minor gold values in upper plate rocks. Further work in this area is also recommended.



Current State of Exploration



The Bullion Mountain claims presently do not have any mineral reserves. The property that is the subject to our mineral claims is undeveloped and does not contain any open-pit or underground mines. There is no mining plant or equipment located on the property that is the subject of the mineral claim. Currently, there is no power supply to the mineral claim. Our planned exploration program is exploratory in nature and no mineral reserves may ever be found.



Geological Exploration Program



Recommended exploration work at the Bully and Chief portion on the property includes detailed geologic mapping and sampling of the claim blocks. Drilling is recommended within the previously defined resource area on the Chief claims. Previous sampling on the Bully claims has identified high grade gold in narrow veins throughout the claim block. Infrastructure is well established in the Chief area. Access roads may have to be built into much of the Bully area. A modest program of infill sampling and detailed mapping should help define drill targets within the Bully claim group. Permitting should be relatively simple since roads are in and the surrounding area is a well known mining field situated on land administered by the US Bureau of Land Management. No exploration work was carried on this property during 2005.  The Company is required to incur an aggregate $175,000 in exploration expenditures on the
Cortez Properties.  The Company intends to spend this amount in 2006.  However, the Company has not yet determined on which of the three properties (or a combination of the three) making up the Cortez Property the Company will incur the exploration expenditures.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------



There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company.  The Companys property is not the subject of any pending legal proceedings.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------



There was no matter submitted to a vote of security holders during the fourth quarter of the fiscal year ended January 31, 2006.



PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|------- | ---------------------------------------------------------------------



Market Information



Our common stock is traded on the Over the Counter Bulletin Board sponsored by the National Association of Securities Dealers, Inc. under the symbol AGFL.OB. The Over the Counter Bulletin Board is maintained by the NASDAQ Stock Market, but does not have any of the quantitative or qualitative standards such as those required for companies listed on the NASDAQ Small Cap Market or National Market System. The following table sets forth the range of quarterly high and low closing bids of the common stock as reported on http://finance.yahoo.com during the fiscal years ending January 31, 2006 and 2005:





|Financial Quarter             | Bid Information*
|----------------------------- | ----------------
|Fiscal Year Ended January 31, | Quarter         
|2006                          | Fourth Quarter  
|Third Quarter                 | $1.21           
|Second Quarter                | $0.93           
|First Quarter                 | $2.25           
|2005                          | Fourth Quarter  
|Third Quarter                 | $1.77           
|Second Quarter                | $2.00           
|First Quarter                 | $3.62           



*The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.





31



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Holders of Our Common Stock



The Company estimates that as of April 24, 2006, we had fifty-three (53) holders of record of shares of common stock.



Recent Sales of Unregistered Securities



There were no sales of equity securities of the Company by the Company during the period covered by this report that were not registered under the Securities Act of 1933, as amended.



Dividend Policy



As of April 24, 2006, there had been no dividends declared on the Companys Common Stock.  We have never declared or paid any cash dividends on our common stock nor do we anticipate paying any in the foreseeable future. Furthermore, we expect to retain any future earnings to finance our operations and expansion. The payment of cash dividends in the future will be at the discretion of our Board of Directors and will depend upon our earnings levels, capital requirements, any restrictive loan covenants and other factors the Board considers relevant.



There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends.  The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:



1.We would not be able to pay our debts as they become due in the usual course of business; or



2.Our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.



Securities Authorized for Issuance under Equity Compensation Plans



In March 2004, the Board of Directors adopted the American Goldfields Inc.s 2004 Stock Option Plan (the 2004 Plan) reserving 5,000,000 common shares for grant to employees, directors and consultants.



Set forth below is certain information as of April 24, 2006, regarding equity compensation plans that have not been approved by our shareholders.



Equity compensation plans not approved by stockholders as of April 24, 2006.



|Plan Category | Number of securities to be
issued upon exercise of
outstanding options, warrants and rights | Weighted average exercise
price of outstanding options,
warrants and rights | Number of securities
remaining available for
future issuance
|------------- | ------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------------
|              |                                                                                             |                                                                             |                                                             
|              |                                                                                             |                                                                             |                                                             





32



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|2004 Stock Option Plan | 5,000,000 | $1.08 | 2,200,000
|---------------------- | --------- | ----- | ---------
|                       |           |       |          
|Warrants               | 1,210,800 | $2.00 |          





As of April 24, 2006, there were a total of 2,800,000 options granted under the plan with a weighted average exercise price of $0.51 per options. Of these, 1,225,000 remain outstanding and exercisable at a weighted average exercise price of $1.08 per option as of April 24, 2006.



The following discussion describes material terms of grants made pursuant to the stock option plans:



Pursuant to the 2004 Stock Option Plan, grants of shares can be made to employees, officers, directors, consultants and independent contractors of non-qualified stock options as well as for the grant of stock options to employees that qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986 (Code) or as non-qualified stock options. The Plan is administered by the Option Committee of the Board of Directors (the Committee), which has, subject to specified limitations, the full authority to grant options and establish the terms and conditions for vesting and exercise thereof. Currently the entire Board functions as the Committee.



In order to exercise an option granted under the Plan, the optionee must pay the full exercise price of the shares being purchased. Payment may be made either: (i) in cash; or (ii) at the discretion of the Committee, by delivering shares of common stock already owned by the optionee that have a fair market value equal to the applicable exercise price.



Subject to the foregoing, the Committee has broad discretion to describe the terms and conditions applicable to options granted under the Plan. The Committee may at any time discontinue granting options under the Plan or otherwise suspend, amend or terminate the Plan and may, with the consent of an optionee, make such modification of the terms and conditions of such optionees option as the Committee shall deem advisable.



Purchases of equity securities by the issuer and affiliated purchasers



None.



|ITEM 6. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND PLAN OF OPERATIONS
|------- | ------------------------------------------------------------------------------------------------------------



The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this Form 10-KSB. The matters discussed herein contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, which involve risks and uncertainties. All statements



33



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other than statements of historical information provided herein may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. Factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, those discussed under the heading Factors that May Affect Future Results and elsewhere in this report and the risks discussed in our other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect managements analysis, judgment, belief or expectation only as of the date hereof. We undertake no obligation to publicly revise these forward-looking statements to reflect
events or circumstances that arise after the date hereof.



Plan of Operations



Our business plan is to proceed with the exploration of the Gilman, Imperial, Hercules and Cortez Properties to determine whether there are commercially exploitable reserves of gold and silver or other metals. We had $314,996 in cash and $294,817 in working capital as of January 31, 2006.



During our exploration stage, our president will only be devoting approximately five hours per week of his time to our business. We do not foresee the limited involvement of our President as negatively impacting our company over the next twelve months as all exploratory work is being performed by outside consultants. Additionally, we will not have a need to hire any employees over the next twelve months; nor do we plan to make any purchases of equipment over the next twelve months due to reliance upon outside consultants to provide all tools needed for the exploratory work being conducted.



Results of Operations for the Fiscal Year Ended January 31, 2006



We did not earn any revenues during the fiscal year ended January 31, 2006. We do not anticipate earning revenues until such time as we have entered into commercial production of our mineral properties. We are presently in the exploration stage of our business and we can provide no assurance that we will discover commercially exploitable levels of mineral resources on our properties, or if such resources are discovered, that we will enter into commercial production of our mineral properties.



For the year ended January 31, 2006 we had a net loss of $1,819,720 compared to $325,261 for the prior year, an increase of $1,494,459.  Our loss for 2006 has increased substantially over 2005 primarily due to an increase in the effect of stock-based compensation.  The expense recognized in 2006 for the fair value of stock options granted during the year was $1,302,400 compared to $43,200 in 2005.  In addition, exploration expenses increased as a result of the Company making option payments totaling $120,000 in 2006 compared to $90,000 in 2005.  During 2006 the Company made option payments under the Hercules $20,000 (2005 - $20,000), Imperial $20,000 (2005 - $60,000), Gilman $15,000 (2005 - $10,000), and the Cortez $65,000 (2005 - $Nil) property option agreements.   Also, during 2006 the Company conducted the Phase II exploration drill program on the Imperial Property, completed two initial auger drill
programs on the Cortez Property, and undertook a seven-hole reverse circulation drill program on the Hercules property.   In 2005, the only exploration program completed was the Phase I program



34



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on the Imperial Property.   Office and Sundry increased due to the recognition of $355,200 in stock-based compensation related to investor relations and financial services received by the Company.  As with office and sundry, consulting fees increased in 2006 due to $355,200 in stock-based compensation.



Liquidity and Capital Resources



We had cash of $314,996 and working capital of $294,817 as of January 31, 2006. We anticipate that we will incur over the next twelve months:



| | 1. | $85,000 in connection with property payments on the Companys four option agreements. Of this amount, $30,000 was paid by the Company on February 28, 2006 under the Cortez Property Option Agreement;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | $241,700 in property exploration expenses in order to meet the requirements of the Companys property option agreements;
| | -- | ------------------------------------------------------------------------------------------------------------------------



| | 3. | $50,000 for operating expenses, including working capital and general, legal, accounting and administrative expenses associated with reporting requirements under the Securities Exchange Act of 1934.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Net cash used in operating activities during the year ended January 31, 2006 was $522,752 compared to $250,649 during the year ended January 31, 2005.  The increased cash used in operations was primarily due to an increase in the net loss in 2006 ($1,819,720) compared to 2005 ($325,261). The effect of the higher loss was partially offset by the recognition of a larger stock-based compensation amount of $1,302,400 in 2006 compared to $43,200 in 2005.



Cash from financing of $4,500 for the year ended January 31, 2006 was from the exercise of stock options.  In 2005 cash from financing was the result of $1,009,000 received from a private placement. The Company issued 403,600 units at $2.50 per unit.  In 2005, the Company also received $90,000 from the exercise of stock options. In addition, in 2005 the Company obtained and repaid a $60,000 bridge loan. Cash used in investing activities related to the payment of a refundable reclamation deposit to the state of Nevada on the Cortez and Hercules Properties while in 2005 it related to a bond on the Imperial Property.



Current cash on hand is not sufficient for the Companys requirements for the next twelve months. We shall require additional funding and we anticipate that such funding will be in the form of equity financing from the sale of our common stock. However, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund additional phases of the exploration program, should we decide to proceed. We believe that debt financing will not be an alternative for funding any further phases in our exploration program. The risky nature of this enterprise and lack of tangible assets places debt financing beyond the credit-worthiness required by most banks or typical investors of corporate debt until such time as an economically viable mine can be demonstrated. We do not have any arrangements in place for any future equity financing.



Off Balance Sheet Arrangements



35



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We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.



36



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|ITEM 7. | FINANCIAL STATEMENTS
|------- | --------------------



Index to Consolidated Financial Statements:



|1. | Auditors Report;
|-- | -----------------



|2. | Audited Consolidated Financial Statements for the year ended January 31, 2006, including:
|-- | -----------------------------------------------------------------------------------------



| | a. | Consolidated Balance Sheets as at January 31, 2006 and 2005;
| | -- | ------------------------------------------------------------



| | b. | Consolidated Statements of Operations for the years ended January 31, 2006 and 2005 and for the period from inception on December 21, 2001 to January 31, 2006;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | Consolidated Statements of Cash Flows for the years ended January 31, 2006 and 2005 and for the period from inception on December 21, 2001 to January 31, 2006;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | Statements of Stockholders Equity for the years ended January 31, 2006 and 2005 and for the period from inception on December 21, 2001 to January 31, 2006;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e. | Notes to the Consolidated Financial Statements.
| | -- | -----------------------------------------------





37



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AMERICAN GOLDFIELDS INC.

(An Exploration Stage Company)





CONSOLIDATED FINANCIAL STATEMENTS



JANUARY 31, 2006

(Stated in U.S. Dollars)



38



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders of

American Goldfields Inc.

(An exploration stage company)



We have audited the accompanying consolidated balance sheets of American Goldfields Inc.(an exploration stage company) as at January 31, 2006 and 2005 and the related consolidated statements of operations, cash flows, and stockholders equity for each of the two years ended January 31, 2006 and for the cumulative period from inception, December 21, 2001, to January 31, 2006.  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 audit.

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 an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as at January 31, 2006 and the results of its operations and its cash flows for the periods indicated in conformity with accounting principles generally accepted in the United States.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting.  Accordingly, we express no such opinion.





|Vancouver, Canada | Morgan & Company
|----------------- | ------------------



|April 12, 2006 | Chartered Accountants
|-------------- | ---------------------







39



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AMERICAN GOLDFIELDS INC.

(An Exploration Stage Company)



CONSOLIDATED BALANCE SHEETS

(Stated in U.S. Dollars)





|                                                                                                    | JANUARY 31
|--------------------------------------------------------------------------------------------------- | ----------
|                                                                                                    |           
|                                                                                                    |           
|                                                                                                    |           
|ASSETS                                                                                              |           
|                                                                                                    |           
|Current Assets                                                                                      |           
|Cash and cash equivalents                                                                           | $         
|Prepaid expenses                                                                                    |           
|                                                                                                    |           
|                                                                                                    |           
|                                                                                                    |           
|Reclamation deposit(note 4)                                                                         |           
|Web-site development costs, net (note 5)                                                            |           
|                                                                                                    |           
|                                                                                                    |           
|                                                                                                    | $         
|                                                                                                    |           
|                                                                                                    |           
|LIABILITIES                                                                                         |           
|                                                                                                    |           
|Current Liabilities                                                                                 |           
|Accounts payable and accrued liabilities                                                            | $         
|                                                                                                    |           
|                                                                                                    |           
|STOCKHOLDERS EQUITY                                                                                |           
|                                                                                                    |           
|Share Capital (note 7)                                                                              |           
|Authorized:                                                                                         |           
|600,000,000 (January 31, 2005  100,000,000) common shares with a par value of $0.001 per share     |           
|100,000,000 preferred shares with a par value of $0.001 per share                                   |           
|Issued:                                                                                             |           
|25,892,878 (January 31, 2005  25,817,878) common shares issued and outstanding at January 31, 2006 |           
|                                                                                                    |           
|Additional paid-in capital                                                                          |           
|                                                                                                    |           
|Deficit accumulated during the exploration stage                                                    |           
|                                                                                                    |           
|Total stockholders equity                                                                          |           
|                                                                                                    |           
|                                                                                                    |           
|                                                                                                    | $         
|                                                                                                    |           





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



40



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AMERICAN GOLDFIELDS INC.

(An Exploration Stage Company)



CONSOLIDATED STATEMENTS OF OPERATIONS

(Stated in U.S. Dollars)





|                                                                  |                        |                | DECEMBER 21,
|----------------------------------------------------------------- | ---------------------- | -------------- | ------------
|                                                                  |                        |                | 2001        
|                                                                  | YEAR ENDED JANUARY 31, | (INCEPTION) TO
|                                                                  |                        |               
|                                                                  |                        |                | JANUARY 31  
|                                                                  | 2006                   | 2005           | 2006        
|                                                                  |                        |                |             
|                                                                  |                        |                |             
|Expenses                                                          |                        |                |             
|Mineral claim payments and exploration expenditures               | $                      | 1,054,268      | $           
|Office and sundry                                                 |                        | 384,117        |             
|Rent                                                              |                        | 4,138          |             
|Professional fees                                                 |                        | 23,900         |             
|Transfer agent fees                                               |                        | -              |             
|Amortization                                                      |                        | 6,000          |             
|Interest expense                                                  |                        | -              |             
|Directors fees                                                   |                        | 431            |             
|Consulting fees                                                   |                        | 355,200        |             
|                                                                  |                        |                |             
|Total Expenses                                                    |                        | 1,828,054      |             
|                                                                  |                        |                |             
|                                                                  |                        |                |             
|Interest income                                                   |                        | 8,334          |             
|                                                                  |                        |                |             
|                                                                  |                        |                |             
|Net loss for the period                                           | $                      | (1,819,720)    | $           
|                                                                  |                        |                |             
|                                                                  |                        |                |             
|                                                                  |                        |                |             
|Basic and diluted loss per share of common stock                  | $                      | (0.07)         | $           
|                                                                  |                        |                |             
|                                                                  |                        |                |             
|                                                                  |                        |                |             
|Weighted average number of shares outstanding  basic and diluted |                        | 25,849,179     |             
|                                                                  |                        |                |             
|                                                                  |                        |                |             











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



41



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AMERICAN GOLDFIELDS INC.

(An Exploration Stage Company)



CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in U.S. Dollars)



|                                                 |                        |                | DECEMBER 21,
|------------------------------------------------ | ---------------------- | -------------- | ------------
|                                                 |                        |                | 2001        
|                                                 | YEAR ENDED JANUARY 31, | (INCEPTION) TO
|                                                 |                        |               
|                                                 |                        |                | JANUARY 31  
|                                                 | 2006                   | 2005           | 2006        
|                                                 |                        |                |             
|                                                 |                        |                |             
|Cash provided by (used in):                      |                        |                |             
|                                                 |                        |                |             
|Cash flows used in operating activities          |                        |                |             
|Net loss for the period                          | $                      | (1,819,720)    | $           
|                                                 |                        |                |             
|Adjustments to reconcile net loss to net         |                        |                |             
|Cash flows used in operating activities:         |                        |                |             
|Stock-based compensation                         |                        | 1,302,400      |             
|Amortization                                     |                        | 6,000          |             
|Changes in assets and liabilities                |                        |                |             
|Prepaid expenses                                 |                        | (6,199)        |             
|Accounts payable and accrued liabilities         |                        | (5,233)        |             
|                                                 |                        |                |             
|                                                 |                        | (522,752)      |             
|                                                 |                        |                |             
|                                                 |                        |                |             
|Cash flows from (used in) financing activity     |                        |                |             
|Proceeds from loan                               |                        | -              |             
|Repayment of loan principal                      |                        | -              |             
|Proceeds from the exercise of stock options      |                        | 4,500          |             
|Proceeds from the issue of common stock          |                        | -              |             
|                                                 |                        |                |             
|                                                 |                        | 4,500          |             
|                                                 |                        |                |             
|                                                 |                        |                |             
|Cash flows used in investing activity            |                        |                |             
|Reclamation deposit                              |                        | (13,951)       |             
|                                                 |                        |                |             
|                                                 |                        | (13,951)       |             
|                                                 |                        |                |             
|                                                 |                        |                |             
|Increase (decrease) in cash and cash equivalents |                        | (532,203)      |             
|                                                 |                        |                |             
|Cash and cash equivalents, beginning of period   |                        | 847,199        |             
|                                                 |                        |                |             
|                                                 |                        |                |             
|Cash and cash equivalents, end of period         | $                      | 314,996        | $           
|                                                 |                        |                |             
|                                                 |                        |                |             



SCHEDULE OF NON-CASH ACTIVITIES

| | Settlement of accounts payable by contribution |  
| | ---------------------------------------------- | -
| | from a stockholder                             | $
| |                                                |  

Web-site development costs related to

| | non-employee stock-based compensation | $ | - | $ | 18,000 | $ | 18,000
| | ------------------------------------- | - | - | - | ------ | - | ------





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



42



---







AMERICAN GOLDFIELDS INC.

(An Exploration Stage Company)



CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY



JANUARY 31, 2006

(Stated in U.S. Dollars)





|                                                                                                | COMMON STOCK            | DEFICIT ACCUMULATED DURING THE EXPLORATION STAGE | TOTAL STOCKHOLDERS EQUITY                        
|----------------------------------------------------------------------------------------------- | ----------------------- | ------------------------------------------------ | --------------------------------------------------
|                                                                                                |                        
|                                                                                                | NUMBER OF COMMON SHARES | PAR VALUE                                        | ADDITIONAL PAID IN CAPITAL                        
|                                                                                                |                         |                                                  |                                                   
|                                                                                                |                         |                                                  |                                                   
|Shares issued for cash on
Incorporation at $0.001 per share                                     | 36,000,000              | $     36,000                                     | $                                          30,000)
|Shares issued for cash at $0.005
per share                                                      | 17,914,278              | 7,914                                            | 71,657                                            
|Net loss for the period                                                                         | -                       | -                                                | -                                                 
|                                                                                                |                         |                                                  |                                                   
|                                                                                                |                         |                                                  |                                                   
|Balance, January 31, 2002                                                                       | 53,914,278              | 53,914                                           | 41,657                                            
|                                                                                                |                         |                                                  |                                                   
|Net loss for the year                                                                           | -                       | -                                                | -                                                 
|                                                                                                |                         |                                                  |                                                   
|                                                                                                |                         |                                                  |                                                   
|Balance, January 31, 2003                                                                       | 53,914,278              | 53,914                                           | 41,657                                            
|                                                                                                |                         |                                                  |                                                   
|Net loss for the year                                                                           | -                       | -                                                | -                                                 
|                                                                                                |                         |                                                  |                                                   
|                                                                                                |                         |                                                  |                                                   
|Balance, January 31, 2004                                                                       | 53,914,278              | 53,914                                           | 41,657                                            
|                                                                                                |                         |                                                  |                                                   
|Contributions by shareholders                                                                   | -                       | -                                                | 4,543                                             
|                                                                                                |                         |                                                  |                                                   
|Cancellation of common shares                                                                   | (30,000,000)            | (30,000)                                         | 30,000                                            
|                                                                                                |                         |                                                  |                                                   
|Stock-based compensation                                                                        | -                       | -                                                | 61,200                                            
|                                                                                                |                         |                                                  |                                                   
|Exercise of common stock options                                                                | 1,500,000               | 1,500                                            | 88,500                                            
|                                                                                                |                         |                                                  |                                                   
|Private placement, common share issuances for cash at $2.50 per unit in November, 2004 (Note 7) | 403,600                 | 404                                              | 306,332                                           
|                                                                                                |                         |                                                  |                                                   
|Net loss for the year                                                                           | -                       | -                                                | -                                                 
|                                                                                                |                         |                                                  |                                                   
|                                                                                                |                         |                                                  |                                                   
|Balance, January 31, 2005                                                                       | 25,817,878              | 25,818                                           | 532,232                                           
|                                                                                                |                         |                                                  |                                                   
|Exercise of common stock options                                                                | 75,000                  | 75                                               | 4,425                                             
|                                                                                                |                         |                                                  |                                                   
|Stock-based compensation                                                                        | -                       | -                                                | 1,302,400                                         
|                                                                                                |                         |                                                  |                                                   
|Net loss for the year                                                                           | -                       | -                                                | -                                                 
|                                                                                                |                         |                                                  |                                                   
|                                                                                                |                         |                                                  |                                                   
|Balance, January 31, 2006                                                                       | 25,892,878              | $     25,893                                     | $ 1,839,057                                       
|                                                                                                |                         |                                                  |                                                   







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



43



---







AMERICAN GOLDFIELDS INC.

(An Exploration Stage Company)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



January 31, 2006 and 2005

(Stated in U.S. Dollars)



|1. | NATURE OF OPERATIONS
|-- | --------------------



Organization

The Company was incorporated in the State of Nevada, U.S.A., on December 21, 2001.  On February 24, 2004, the Company and a majority of the Companys stockholders authorized the changing of the Companys name to American Goldfields Inc.  The name change became effective March 31, 2004.

On February 23, 2004, the Board of Directors authorized a 6-for-1 stock split of the Companys $0.001 par value common stock.  As a result of the split 44,928,565 additional shares were issued, and additional paid-in capital was reduced by $44,928.  All references in the accompanying financial statements to the number of common shares and per-share amounts for all periods presented have been restated to reflect the stock split.

Exploration Stage Activities

The Company has been in the exploration stage since its formation and has not yet realized any revenues from its planned operations.  It is primarily engaged in the acquisition and exploration of mining properties.  Upon location of a commercial, minable reserve, the Company expects to actively prepare the site for its extraction and enter a development stage.



44





---







AMERICAN GOLDFIELDS INC.

(An Exploration Stage Company)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



January 31, 2006 and 2005

(Stated in U.S. Dollars)



|2. | SIGNIFICANT ACCOUNTING POLICIES
|-- | -------------------------------

The consolidated financial statements have, in managements opinion, been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below:

Basis of Presentation

These consolidated financial statements include the accounts of the Company and its wholly-owned Canadian subsidiary, Baymont Explorations Inc.  The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States.

Capital Assets

Web-site development is recorded at cost.  Web-site development costs are amortized on a straight-line basis over their estimated useful life of three years.

Mineral Claim Payments and Exploration Expenditures

The Company expenses all costs related to the acquisition, maintenance and exploration of its unproven mineral properties, to which it has secured exploration rights.  If and when proven and probable reserves are determined for a property and a feasibility study prepared with respect to the property, then subsequent exploration and development costs of the property will be capitalized.  To date, the Company has not established the commercial feasibility of its exploration prospects. Therefore, all costs have been expensed.

Use of Estimates

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

Stock-Based Compensation

The Company accounts for employee stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees.Compensation cost for stock options, if any, is measured as the excess of the quoted market price of the Companys stock at the date of grant over the amount an employee must pay to acquire the stock. SFAS No.123,Accounting for Stock-Based Compensation,established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. The Company has elected to remain on its current method of accounting as described above, and has adopted the disclosure requirements of SFAS No. 123.

45





---









AMERICAN GOLDFIELDS INC.

(An Exploration Stage Company)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



January 31, 2006 and 2005

(Stated in U.S. Dollars)



|2. | SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | -------------------------------------------

Impairment and Disposal of Long-Lived Assets

The carrying value of intangible assets and other long-lived assets are reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment, in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.  For assets that are to be held and used, an impairment loss is recognized when the estimated undiscounted future cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value.

Environmental Costs

Environmental expenditures that relate to current operations are charged to operations or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are charged to operations. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. Generally, the timing of these accruals coincides with the earlier of completion of a feasibility study or the Companys commitments to plan of action based on the then known facts.

Cash and Cash Equivalents

The Company considers all liquid investments, with an original maturity of three months or less when purchased, to be cash equivalents.

Foreign Currency Translation

The Companys functional currency is the U.S. dollar.  Transactions in foreign currency are translated into U.S. dollars as follows:

| | i) | monetary items at the rate prevailing at the balance sheet date;
| | -- | ----------------------------------------------------------------

| | ii) | non-monetary items at the historical exchange rate;
| | --- | ---------------------------------------------------

| | iii) | revenue and expense at the average rate in effect during the applicable accounting period.
| | ---- | ------------------------------------------------------------------------------------------

Exchange gains or losses arising on translation are included in income (loss) for the year.



46



---







AMERICAN GOLDFIELDS INC.

(An Exploration Stage Company)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



January 31, 2006 and 2005

(Stated in U.S. Dollars)



|2. | SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | -------------------------------------------

Income Taxes

The Company has adopted Statement of Financial Accounting Standards No. 109  Accounting for Income Taxes (SFAS 109).  The Company adopted the SFAS No. 109,Accounting for Income Taxes..  Pursuant to SFAS No. 109, deferred income tax assets and liabilities are computed for differences between the financial statement carrying amounts and the respective tax bases.  Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the periods in which those differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized.  Potential benefits of net operating losses
have not been recognized in the financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

Loss Per Share

Basic earnings (loss) per share of common  stock is computed  by dividing net income  (loss) available to common shareholders by the weighted-average number of common shares outstanding for the period.  Diluted  earnings  per  share of common  stock  reflect  the  potential dilution that could occur if securities or other contracts to issue common stock were  exercised  or  converted  into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

At January 31, 2006,  potential  common  shares of 2,435,800 (January 31, 2005  1,410,800) related  to  common  stock  options and warrants were  excluded  from  the computation  of diluted  earnings  per share since their  effect is anti-dilutive.

Financial Instruments

The Company's financial assets and liabilities consist of cash and accounts payable and accrued liabilities.  Except as otherwise noted, it is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.  The fair values of these financial instruments approximate their carrying values due to the short-term maturities of these instruments.

Asset Retirement Obligations

The Company has adopted SFAS No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and normal use of the asset.



47



---







AMERICAN GOLDFIELDS INC.

(An Exploration Stage Company)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



January 31, 2006 and 2005

(Stated in U.S. Dollars)



|2. | SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | -------------------------------------------

Asset Retirement Obligations (continued)

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. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement.

New Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 154, Accounting for Changes and Error Corrections  A Replacement of APB Opinion No. 20 and SFAS No. 3.  SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle and applies to all voluntary changes in accounting principle.  It also applies to change required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions.  SFAS No. 154 requires retrospective application to prior periods financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects of the cumulative effect of the change.  The
provisions of SFAS No. 154 are effective for accounting changes and correction of error made in fiscal years beginning after December 15, 2005.  The adoption of this standard is not expected to have a material effect of the Companys results of operations or financial position.

In March 2005, SEC staff issued Staff Accounting Bulletin No. 107 (SAB 107) to give guidance on the implementation of SFAS No. 123R.  The Company will consider SAB 107 during implementation of SFAS No. 123R

In December 2004, FASB issued SFAS No. 123R,"Share Based Payment".SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123R requires that the fair value of such equity instruments be recognized as expense in the historical financial statements as services are performed. Prior to SFAS 123R, only certain pro-forma disclosures of fair value were required. SFAS 123R shall be effective for the Companys fiscal year beginning February 1, 2006. The adoption of SFAS No. 123R will not have a material impact on the Companys financial statements.



48



---







AMERICAN GOLDFIELDS INC.

(An Exploration Stage Company)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



January 31, 2006 and 2005

(Stated in U.S. Dollars)



| | 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued)
| | -- | -------------------------------------------

New Accounting Pronouncements (continued)

In December 2004, FASB issued SFAS No. 153, Exchange of Non-monetary Assets. This statement addresses the measurement of exchanges of non-monetary assets and eliminates the exception from fair value measurement for non-monetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement is effective for periods beginning after June 15, 2005. The adoption of this new accounting pronouncement does have a material impact on the Companys financial statements, as the Company does not have any exchanges of non-monetary assets.

The implementation of these new standards is not expected to have a material effect on the Company's financial statements.



|3. | MINERAL PROPERTY INTERESTS
|-- | --------------------------

Gilman Property

On May 7, 2004, the Company completed the formal agreement with MinQuest Inc. (MinQuest) for an option to acquire a 100% interest in the Gilman Property.   The Gilman property consists of 19 contiguous, unpatented mineral claims covering approximately 390 acres located in Lander County, Nevada, U.S.A.  The agreement requires certain additional minimum annual option payments totaling $75,000 to be paid by May 15, 2009.  The agreement also requires minimum annual exploration expenditures with a grand total of $450,000 in expenditures required to be incurred on the property by May 15, 2009.  The agreement is subject to a 3% royalty payable to MinQuest with the Company being able to repurchase up to two-thirds of the royalty for $1,000,000 for each 1% repurchased.

On March 22, 2005, the Company executed an amendment to the Gilman Property Option Agreement with MinQuest.  As a result of the amendment, the Companys obligation to incur $50,000 in exploration expenditures on the Gilman Property by May 2005 was moved to May 2009.  All other terms and commitments of the original agreement remain unchanged.

To January 31, 2006, the Company had made the initial option payment of $10,000 due on signing as well as the $15,000 payment due in May 2005.  In addition the Company has incurred approximately $18,400 in exploration expenditures on the property.  The Company will be required to incur an additional $56,600 by May 2006.  In the event the Company does not make the indicated option payments and incur the exploration expenditures, when demanded, the Company will lose its interest in the property.



49



---







AMERICAN GOLDFIELDS INC.

(An Exploration Stage Company)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



January 31, 2006 and 2005

(Stated in U.S. Dollars)



|3. | MINERAL PROPERTY INTERESTS (Continued)
|-- | --------------------------------------

Imperial Property

On June 30, 2004, the Company entered into an agreement with MinQuest for an option to acquire a 100% interest in the Imperial Property. The Imperial Property consists of 22 contiguous, unpatented mineral claims covering approximately 450 acres located in Esmeralda County, Nevada, U.S.A.  The agreement requires certain additional minimum annual option payments totaling $80,000 to be paid by July 1, 2008.  The agreement also requires minimum annual exploration expenditures with a grand total of $500,000 in expenditures required to be incurred on the property by the July 1, 2009.  The property option agreement is subject to a 3% royalty payable to MinQuest.  The Company is required to use MinQuest for exploration conducted on the Imperial Property.

To January 31, 2006, the Company had made the initial option payment of $60,000 upon signing the agreement (see also note 6) as well as the $20,000 payment due in June 2005.  In addition the Company has incurred approximately $265,500 in exploration expenditures on the property.  Under the terms of the option agreement the Company was required to have spent $75,000 on the property by June 2005.  The excess of $190,500 will be applied to the commitments of future periods.  In the event the Company does not make future option payments and incur the exploration expenditures, when demanded, the Company will lose its interest in the property.

Hercules Property

On October 22, 2004, the Company entered into an agreement with MinQuest for an option to acquire a 100% interest in the Hercules Property.  The Hercules Property consists of 40 mineral claims located in Lyon County, Nevada, USA.  The agreement requires certain additional minimum annual option payments totaling $200,000 and minimum annual exploration expenditures totaling $4,050,000 to be paid or incurred by November 25, 2014.  In the event the Company does not make the indicated option payments and incur the exploration expenditures, when demanded, the Company will lose its interest in the property.

The agreement is subject to a 3% royalty payable to MinQuest with the Company being able to repurchase up to two-thirds of the royalty for $3,000,000.

To January 31, 2006, the Company had made the initial option payment of $20,000 due on signing as well as the $20,000 payment due in November 2005.  In addition the Company has incurred approximately $108,300 in exploration expenditures on the property.  The Company was to have incurred $150,000 by November 2005.  The Company is currently in discussions with MinQuest to add the deficiency of $41,700 to the commitment of $200,000 required to be incurred on the property by November 2006.  In the event the Company does not make the indicated option payments and incur the exploration expenditures, when demanded, the Company will lose its interest in the property.



50



---









AMERICAN GOLDFIELDS INC.

(An Exploration Stage Company)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



January 31, 2006 and 2005

(Stated in U.S. Dollars)



|3. | MINERAL PROPERTY INTERESTS (Continued)
|-- | --------------------------------------

Cortez Property

On February 28, 2005, the Company entered into an agreement with MinQuest for an option to acquire a 100% interest in the Crescent Fault Claims, the Bankop Property, and the Bullion Mountain Property (collectively, the Cortez Property).  The Cortez Property consists of an aggregate of approximately 68 mineral claims located in Eureka and Lander Counties, Nevada, U.S.A.  The agreement requires certain additional minimum annual property option payments with a total of $445,000 required to be paid by February 15, 2010.  The agreement also requires minimum annual exploration expenditures with a grand total of $1,150,000 in expenditures required to be incurred on the property by the February 15, 2010.  The property option agreement is subject to a 3% royalty payable to MinQuest and the Company is required to use MinQuest for exploration conducted on the Cortez Properties.

To January 31, 2006, the Company had made the initial option payment of $65,000 due on signing.  In addition the Company has incurred approximately $74,200 in exploration expenditures on the property.  By January 31, 2006 the Company had not incurred the required property expenditures of $100,000.  The Company is currently in discussions with MinQuest to add the deficiency of $25,800 to the commitment of $150,000 required to be incurred on the property by February 28, 2007.  In the event the Company does not make the indicated option payments and incur the exploration expenditures, when demanded, the Company will lose its interest in the property.

BOR Claims

By an agreement dated December 28, 2001, as amended, the Company acquired a 75% interest in the BOR Claims located in British Columbia, Canada, in consideration of a cash payment of $2,500.  Based on the results of the exploration programs undertaken by the Company, the Company terminated the BOR Agreement on April 20, 2004.



|4. | RECLAMATION DEPOSIT
|-- | -------------------

The Company has been granted exploration permits from the state of Nevada for several of its properties.  As part of the application process, the Company paid refundable deposits to the state for the estimated reclamation costs associated with the planned respective exploration programs.  Upon completion of any required reclamation, the Company will receive a refund of the deposit.



51



---







AMERICAN GOLDFIELDS INC.

(An Exploration Stage Company)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



January 31, 2006 and 2005

(Stated in U.S. Dollars)



|5. | WEB-SITE DEVELOPMENT COSTS
|-- | --------------------------

Web-site development costs, totaling $18,000, represent capitalized costs of design, configuration, coding, installation and testing of the Companys web-site up to initial installation.  Ongoing web-site post-implementation costs will be charged to operations as incurred.



|6. | LOAN PAYABLE
|-- | ------------

On July 5, 2004 the Company entered into a loan agreement with a minority shareholder.  The total proceeds of the loan of $60,000 were used by the Company to make the initial option payment on the Imperial Property Agreement (note 3).  No security was provided for the loan.  On November 15, 2004, the Company repaid the balance of the loan of $60,000 along with $1,070 of interest at the agreed rate of Bank of Canada Prime Lending Rate plus 1%.



|7. | SHARE CAPITAL
|-- | -------------

| | a) | Issued Shares
| | -- | -------------

| | i) | On February 23, 2004, the Company approved a 6:1 forward stock split.  As a result of the stock split, an additional 44,928,565 shares of common stock were issued.  The par value of the common stock remained unchanged at $0.001 per common share but the authorized number of common stock increased to 600,000,000 from 100,000,000.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ii) | On March 31, 2004, two Directors of the company returned a total of 30,000,000 shares (such number reflects the 6:1 stock split) of common stock to treasury for no proceeds.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | iii) | On November 4, 2004, the Company closed a private placement consisting of 403,600 units at $2.50 per unit for total proceeds of $1,009,000.  Each unit consists of one common share and three non-transferable share purchase warrants, designated Class A, Class B and Class C.  Each warrant entitles the subscriber to purchase one common share of the Company for a period of five years from the date that the warrant first becomes exercisable.  The warrants have an exercise price of $1.50 per share for the Class A warrants, $2.00 per share for the Class B warrants and $2.50 per share for the Class C warrants.  The Class A warrants are exercisable commencing November 4, 2005, the Class B warrants are exercisable commencing May 4, 2006, and the Class C warrants are exercisable commencing November 4, 2006.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | iv) | During the year ended January 31, 2006 75,000 shares were issued, pursuant to exercise of stock options, for total consideration of $4,500.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------



52



---







AMERICAN GOLDFIELDS INC.

(An Exploration Stage Company)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



January 31, 2006 and 2005

(Stated in U.S. Dollars)



|7. | SHARE CAPITAL (Continued)
|-- | -------------------------

| | b) | Stock Options
| | -- | -------------

The Company applies Accounting Principles Board Opinion No. 25 ("APB No. 25") and related interpretations in accounting for its employee common stock option plans. Accordingly, compensation costs are recognized as the difference between the exercise price of each option and the market price of the Company's stock at the date of each grant. The Company has not granted any stock options to employees or directors in either of the years ended January 31, 2006 or 2005.

The Company accounts for the grant of options to non-employees using the fair value-based method prescribed in Statement of Financial Accounting Standard ("SFAS") No. 123 (as amended by SFAS 143), using the Black-Scholes option pricing model. Compensation for unvested options is amortized over the vesting period.  The Company granted 1,100,000 stock options to non-employees during the year ended January 31, 2006 (January 31, 2005  1,700,000). The options were valued using the Black-Scholes option pricing model with the following assumptions:



|                        |  | 2006     | 2005  
|----------------------- |  | -------- | ------
|                        |  |          |       
|Dividend yield          |  | 0%       | 0%    
|Volatility              |  | 152%     | 165%  
|Risk-free interest rate |  | 4.1%     | 3.0%  
|Expected life           |  | 10 years | 1 year



The weighted average fair value of options granted for the year ended January 31, 2006 was $1.18 (January 31, 2005 - $0.036).  As a result of the recognition of stock-based compensation, the following amounts have been included in the Consolidated Statement of Loss:

|                                                          | 2006                                                     | 2005     
|--------------------------------------------------------- | -------------------------------------------------------- | ---------
|                                                          |                                                          |          
|Mineral property acquisition and exploration expenditures | $                                                592,000 | $  32,400
|Office and sundry                                         | 355,200                                                  | 7,200    
|Consulting                                                | 355,200                                                  | 3,600    
|                                                          |                                                          |          
|                                                          | $                                         1,302,400      | $  43,200
|                                                          |                                                          |          

In addition, web site development costs in the amount of $nil (January 31, 2005 - $18,000) have been capitalized pursuant to the granting of non-employee stock options.

In March 2004, the Board of Directors adopted the American Goldfields Inc.s 2004 Stock Option Plan (the 2004 Plan) reserving 5,000,000 common shares for grant to employees, directors and consultants.  Because additional stock options are expected to be granted in future periods, the above stock-based compensation expense is not representative of the effects on reported financial results for future periods.



53



---







AMERICAN GOLDFIELDS INC.

(An Exploration Stage Company)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



January 31, 2006 and 2005

(Stated in U.S. Dollars)



|7. | SHARE CAPITAL (Continued)
|-- | -------------------------

| | b) | Stock Options (continued)
| | -- | -------------------------

Activity under the 2004 Plan is summarized as follows:

|                          |  | Options Outstanding | Weighted Average Exercise Price
|------------------------- |  | ------------------- | -------------------------------
|                          |  |                     |                                
|Balance, January 31, 2004 |  | -                   | -                              
|Options granted           |  | 1,700,000           | $   0.06                       
|Options exercised         |  | (1,500,000)         | $   0.06                       
|                          |  |                     |                                
|Balance, January 31, 2005 |  | 200,000             | $   0.06                       
|Options granted           |  | 1,100,000           | $   1.20                       
|Options exercised         |  | (75,000)            | $   0.06                       
|                          |  |                     |                                
|Balance, January 31, 2006 |  | 1,225,000           | $   1.08                       
|                          |  |                     |                                

The following table summarizes information concerning outstanding and exercisable common stock options under the 2004 Plan at January 31, 2006:



|Range of Exercise Prices | Options Outstanding | Remaining Contractual Life
(in years) | Weighted Average Exercise Price | Number of Options Currently Exercisable | Weighted Average Exercise Price
|------------------------ | ------------------- | ------------------------------------- | ------------------------------- | --------------------------------------- | -------------------------------
|                         |                     |                                       |                                 |                                         |                                
|                         |                     |                                       |                                 |                                         |                                
|$  0.06                  | 125,000             | 8.17                                  | $   0.06                        | 200,000                                 | $   0.06                       
|$  1.20                  | 1,100,000           | 9.75                                  | $   1.20                        | 1,100,000                               | $   1.20                       
|                         |                     |                                       |                                 |                                         |                                
|                         | 1,225,000           | 9.59                                  | $   1.08                        | 1,225,000                               | $   1.08                       
|                         |                     |                                       |                                 |                                         |                                

| | c) | Warrants
| | -- | --------

|                                   |  | Warrants Outstanding
|---------------------------------- |  | --------------------
|                                   |  |                     
|Balance, January 31, 2004          |  | -                   
|Warrants granted                   |  | 1,210,800           
|                                   |  |                     
|Balance, January 31, 2005 and 2006 |  | 1,210,800           
|                                   |  |                     

The following table lists the common share warrants outstanding at January 31, 2006.  Each warrant is exchangeable for one common share.



|Quantity  | Exercise Price | Exercise Period                     
|--------- | -------------- | ------------------------------------
|          |                |                                     
|          |                |                                     
|403,600   | $ 1.50         | November 4, 2005 to November 4, 2010
|403,600   | $ 2.00         | May 4, 2006 to May 4, 2011          
|403,600   | $ 2.50         | November 4, 2006 to November 4, 2011
|          |                |                                     
|1,210,800 |                |                                     
|          |                |                                     



At January 31, 2005, only the $1.50 warrants are exercisable.



54



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AMERICAN GOLDFIELDS INC.

(An Exploration Stage Company)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



January 31, 2006 and 2005

(Stated in U.S. Dollars)



|8. | RELATED PARTY TRANSACTIONS
|-- | --------------------------

On May 26, 2004, Mr. Richard Kern joined the Companys Board of Directors.  Mr. Kern is also the President of MinQuest.  The Imperial and Cortez Property option agreements require the Company to use MinQuest as the primary contractor for exploration activity undertaken on the property.  All exploration work undertaken on any of the Companys properties will be at the direction and discretion of the Company.   For the year ended January 31, 2006, the Company paid MinQuest a total of $120,000 (January 31, 2005 - $90,000) related to property option payments for the Imperial ($20,000), Hercules ($20,000), Cortez ($65,000) and Gilman ($15,000) Properties.  Included in the net loss for the twelve months ended January 31, 2006 is an amount of $20,600 (January 31, 2004 - $15,400) with respect to fees paid to Mr. Kern for geological services rendered to the Company.  In addition, the
Company has reimbursed Mr. Kern or MinQuest a combined total of $77,686  (January 31, 2005 - $52,372) for expenses including subcontractor costs, claim filing fees, documentation preparation, field sample costs and travel related to exploration activity on the Companys properties.

|9. | INCOME TAXES
|-- | ------------

Deferred tax assets of the Company are as follows:

|                              | 2006 | 2005     
|----------------------------- | ---- | ---------
|                              |      |          
|Loss carry-forwards           | $    | 297,000  
|Timing differences            |      | (2,000)  
|Less:  Valuation allowance    |      | (295,000)
|                              |      |          
|Deferred tax asset recognized | $    | -        
|                              |      |          

As at January 31, 2006 the Company has net operating loss carry-forwards of approximately $875,000 (2005 - $358,000), which expire between 2017 and 2026.

A valuation allowance has been recorded to reduce the net benefit recorded in the financial statements related to these deferred tax assets.  The valuation allowance is deemed necessary as a result of the uncertainty associated with the ultimate realization of these deferred tax assets.

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate of 34% (2004  34%) to net loss for the year.  The sources and tax effect of the differences are as follows:

|                                | 2006 | 2005     
|------------------------------- | ---- | ---------
|                                |      |          
|Computed expected tax benefit | $    | 619,000  
|Permanent differences           |      | (442,000)
|Change in Valuation Allowance   |      | (177,000)
|                                |      |          
|Income tax provision            | $    | -        
|                                |      |          







55



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



We have had no disagreements with our independent auditors on accounting or financial disclosures.



|ITEM 8A. | CONTROLS AND PROCEDURES.
|-------- | ------------------------



Disclosure Controls and Procedures



Based on an evaluation under the supervision and with the participation of the Company's management as of a date within the end of the period covered by this Annual Report on Form 10-KSB, the Company's chief executive officer and chief financial officer has concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the Exchange Act) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.



There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses, and therefore there were no corrective actions taken. However, the design of any system of controls is based in part upon certain assumptions about the likelihood of future events and there is no certainty that any design will succeed in achieving its stated goal under all potential future considerations, regardless of how remote.



Internal Controls Over Financial Reporting



There have not been any changes in the Companys internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Companys most recent fiscal year that have materially affected, or are reasonably likely to materially affect, the Companys internal controls over financial reporting.



PART III



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



Set forth below is certain information concerning the Companys executive officers and directors during the year ended January 31, 2006.



|Name | Position | Age | Date of
First Election
Or Appointment
|---- | -------- | --- | -------------------------------------
|     |          |     |                                      
|     |          |     |                                      





56



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|Donald Neal    | Director, Chairman, President, Chief Executive and Operating Officer and Secretary | 55 | February 5, 2004
|-------------- | ---------------------------------------------------------------------------------- | -- | ----------------
|Greg Crowe     | Director                                                                           | 51 | February 5, 2004
|Richard Kern   | Director                                                                           | 59 | May 26, 2004    
|David Gladwell | Director                                                                           | 49 | January 11, 2006



The following is a brief account of the education and business experience of each director and executive officer during the past five years:



Donald Nealis a professional engineer with a background in Projects Engineering Management. In his 30 year career, Mr. Neal has developed extensive industrial expertise in areas relating to power plant and refinery engineering and design. He has been involved in the construction supervision and start-up phases of plants throughout the world, including the United States, Canada, Europe and Asia. His experience in industrial project management encompasses a range of capabilities including field service expertise, performance testing, failure analysis and pulverized coal firing, milling, feeding and fuel conveying systems. Mr. Neal is a graduate of the University of Waterloo (Applied Science), and is a member of the Association of Professional Engineers and Geoscientists of British Columbia. From 2000 to present, Mr. Neal has worked as an independent consultant for
Mocaits Development Corp. which is a privately held corporation. Prior to his present position, Mr. Neal worked as an Engineering Manager for Utility and Recovery Engineering Ltd.



Gregory Croweis a registered Professional Geologist in the Canadian provinces of Alberta and British Columbia. Mr. Crowe has over 20 years of exploration, business and entrepreneurial experience throughout North America, Latin America, Africa and Southeast Asia. Currently, Mr. Crowe is the President, CEO, and Director of Entrée Gold Inc. which is a public Canadian junior gold mining company. Over the past five years prior to his appointment to his current position, Mr. Crowe provided consulting services to a number of mining companies in several countries. Mr. Crowe also holds a Master of Science (Geo.).



Richard Kernis an exploration geologist with over twenty-five years experience in base and precious metals exploration in the United States, Central and South America, and Australia. Mr. Kern worked for Homestake Mining for over thirteen years, where his positions included Exploration Manager Eastern Australia and District Geologist Western United States. Mr. Kern directly managed major exploration programs in diverse locations, including Malaysia, Ecuador, Mexico and the Western U.S. In Nevada, his team drilled the discovery holes into a 1.6 million ounce gold deposit which has since gone into production, and a 9 million ounce gold-equivalent deposit in Australia, also in production. Mr. Kern has operated as an independent mineral exploration geologist for the last several years, with a focus on the Western United States. He holds a Bachelor of Science in Geology
(Montana State) and Master of Science in Geology (Idaho State).



David Gladwellis an experienced geochemist with an extensive background in mineral exploration utilizing advanced technologies. After completing his formal geological education, Dr. Gladwell came to Canada to work as staff geochemist and later airborne operations



57





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geochemist for Barringer Magenta and then Barringer Research. During this time Dr. Gladwell conducted research on several significant gold zones including the Kerr Addison deposit in Ontario (later published) and the Cortez deposit/trend in Nevada. As geochemist at Barringer, Dr. Gladwell developed a suite of multivariate statistical software tools to provide interpretation of exploration programs in northern Ontario. In a joint effort between Barringer and British Petroleum, he also assisted with the development of a pressurized airborne Flame Ionization Detector (AIRTRACE) which he used to manage and interpret surveys in the North Sea, the Minches, the Irish Sea, the English Channel, the Mediterranean offshore of Egypt, the Baltic Sea, the Gulf Coast, the Beaufort Sea and large tracts of the Northwest Territories. From 1999 to 2005, Dr. Gladwell worked as a Pastor and is currently an instructor at
Georgian College and Applegate School in Ontario, Canada.  Dr. Gladwell earned a Bachelor of Science degree in Chemistry and Geology from the University of Liverpool, and a Ph.D. in Geochemistry from the Royal School of Mines, London University, UK.



None of our directors holds any directorships in companies with a class of securities registered pursuant to Section 12 of the Securities Exchange Act or subject to the requirements of Section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940, as amended.



Our Directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.



The Board of Directors has not established an audit committee and does not have an audit committee financial expert. The Board is of the opinion that an audit committee is not necessary since the Companys directors have been performing the functions of an audit committee.



The Board has established an Option Committee and a Compensation Committee, each consisting of Messrs. Neal and Crowe. The Option Committee recommends and grants options to individuals under the option plans adopted by the company. The Compensation Committee recommends and grants compensation to individuals who work for the company.



The Board does not have a nominating committee, the functions of which are performed by the Board.



Section 16(a) Beneficial Ownership Reporting Compliance



Section 16(a) of the Exchange Act requires the Companys executive officers, directors and persons who beneficially own more than 10% of a registered class of the Companys equity securities to file with the Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Such persons are required by Commission regulations to furnish the Company with copies of all Section 16(a) forms they filed.



We are not aware of any instances in fiscal year 2005 when an executive officer, director or owners of more than 10% of the outstanding shares of our common stock failed to comply with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934.



58



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The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. For purposes of this Item, the term code of ethics means written standards that are reasonably designed to deter wrongdoing and to promote:



- honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

- full, fair, accurate, timely, and understandable disclosure in reports and documents that the issuer files with, or submits to, the Commission and in other public communications made by the issuer;

- compliance with applicable governmental laws, rules and regulations;

- the prompt internal reporting of violations of the code to the board of directors or another appropriate person or persons; and

- accountability for adherence to the code.



The Company hereby undertakes to provide to any person without charge, upon request, a copy of such code of ethics. Such request may be made in writing to the board of directors at the address of the issuer.



|ITEM 10. | EXECUTIVE COMPENSATION
|-------- | ----------------------



The table below summarizes all compensation awarded to, earned by, or paid to persons serving as our chief executive officer during the fiscal year ended January 31, 2006 for all services rendered in all capacities to us for the fiscal years ended January 31, 2006, 2005 and, 2004. None of our executive officers received compensation in excess of $100,000 during the fiscal year ended January 31, 2006.



Annual Compensation Table



| | Annual Compensation | Long Term Compensation
| | ------------------- | ----------------------

|Name                           | Title                                         | Year | Salary | Bonus | Other Annual Compensation | Restricted Stock Awarded | Warrants & Options | LTIP Payouts ($) | All Other Compensation
|------------------------------ | --------------------------------------------- | ---- | ------ | ----- | ------------------------- | ------------------------ | ------------------ | ---------------- | ----------------------
|Alfredo Javier De Lucrezia (1) | Director, President, Secretary, and Treasurer | 2006 | 0      | 0     | 0                         | 0                        | 0                  | 0                | 0                     
|                               |                                               | 2005 | 0      | 0     | 0                         | 0                        | 0                  | 0                | 0                     
|                               |                                               | 2004 | 5,000  | 0     | 0                         | 0                        | 0                  | 0                | 0                     
|Donald Neal (1)                | Director, President, Secretary, and Treasurer | 2006 | 0      | 0     | 0                         | 0                        | 0                  | 0                | 0                     
|                               |                                               | 2005 | 0      | 0     | 0                         | 0                        | 0                  | 0                | 0                     
|                               |                                               | 2004 | 0      | 0     | 0                         | 0                        | 0                  | 0                | 0                     





59



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(1) On February 5, 2004, Mr. Lucrezia resigned from his position with the Company. On the same date, Mr. Donald Neal was appointed as a Director and elected as President, Chief Executive Officer, Chief Financial Officer, Secretary, and Treasurer.



Stock Option Grants



We did not grant any option, stock appreciation rights, warrants or other type of securities during the fiscal year ended January 31, 2006. On March 12, 2004, the Company granted 1,100,000 stock options and on April 2, 2004 the Company granted 600,000 stock options to consultants of the Company. All of these options vested immediately and were granted at $0.06 per option.  On November 4, 2005, the Company granted 1,100,000 stock options to consultants of the Company.  All of these options vested immediately and were granted at $1.20 per option.



We have no employment agreements with any of our executive officers or employees.



|ITEM 11. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|-------- | --------------------------------------------------------------



The following table sets forth certain information concerning the number of shares of our common stock owned beneficially as of April 24, 2006 by: (i) each person (including any group) known to us to own more than five percent (5%) of any class of our voting securities, (ii) each of our directors, and (iii) officers and directors as a group. Information relating to beneficial ownership of common stock by our principal stockholders and management is based upon information furnished by each person using beneficial ownership concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to
be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days.



Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest.



The percentages below are calculated based on 25,892,878 shares of common stock issued and outstanding



|Officers, Directors,5% Shareholder                              | No. of Shares | Beneficial Ownership % |      
|--------------------------------------------------------------- | ------------- | ---------------------- | -----
|Donald Neal
6231 Gibbons Drive, Richmond, B.C., Canada, V7C 2C9 | 3,000,000     | (1)                    | 11.6%
|                                                                |               |                        |      





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|Gregory Crowe
1679 Eaglecliff Road, Bowen Island, B.C., Canada, V0N 1G0 | 3,000,000 | (1) | 11.6% | 
|----------------------------------------------------------------------- | --------- | --- | ----- | 
|                                                                        |           |     |       | 
|                                                                        |           |     |      
|All directors and executive officers as a group (2 persons)             | 6,000,000 |     | 23.2% | 





(1)   Each of Donald Neal and Gregory Crowe purchased 18,000,000 (giving effect to the 6:1 forward stock split) shares from Alfredo De Lucrezia, the Companys former officer and director on February 10, 2004. On March 31, 2004, each of Messrs. Neal and Crowe returned 15,000,000 shares to the Company.



The persons or entities named in this table, based upon the information they have provided to us, have sole voting and investment power with respect to all shares of common stock beneficially owned by them.



Change In Control



Alfredo De Lucrezia had legal and beneficial ownership of 6,000,000(pre-forward split) shares of Common Stock, or 66.8% of the issued and outstanding share capital of the Company. Pursuant to the Purchase and Sale Agreement dated as of February 10, 2004, among Gregory Crowe, Donald Neal and Alfredo De Lucrezia, Mr. Lucrezia sold 3,000,000 shares to each of Messrs. Crowe and Neal. The per share purchase price was $0.035 per share, or an aggregate of $105,000 paid by each of Messrs. Crowe and Neal.



Messrs. Neal and Crowe are party to a Shareholders Agreement dated as of February 10, 2004. The agreement provides that for so long as the person holds any of the 3,000,000 shares which he received from Alfredo De Lucrezia, the directors shall vote such shares to maintain two persons on our board, or such number as the shareholders agree. Upon any vote to appoint representatives to the Board, each shareholder agreed that he shall vote his shares for the other shareholder. If one of the shareholders is no longer a shareholder, or if the Board or our shareholders decided to remove one of the Board members, or the shareholder no longer holds any of the 3,000,000 shares which he received from Mr. Lucrezia, then the other shareholder agreed to vote his shares to either maintain the number of Board members as one or to nominate a second Board member. The agreement also provides that for all other
matters in which shares are voted, the two shareholders shall vote their 3,000,000 shares together as determined by the unanimous decision of the shareholders.



Each of the shareholders also agreed that he will not, directly or indirectly, sell, pledge, gift or in any other way dispose of any of the 3,000,000 shares which he received from Mr. Lucrezia. This transfer restriction shall apply to such shares in all situations during all times that such individual holds any of the 3,000,000 shares.



Other than as described above, there is no agreement or arrangement between Mr. Crowe and Mr. Neal with respect to the 6,000,000 shares held by said persons.



|ITEM 12. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- | ----------------------------------------------



Mr. Kern joined the Board of Directors of the Company on May 26, 2004. Mr. Kern is also the president of MinQuest. All of the Companys mineral properties have been optioned from MinQuest. As a result, MinQuest and Mr. Kern are related parties to the Company and both MinQuest and Mr. Kern receive substantial payments from the Company. In addition, the Company has agreed to use Mr. Kern as the primary contractor on exploration undertaken to date on all of its properties. The potential exists for conflicts of interest to occur from time to time that could adversely affect the Companys ability conduct its business of exploration. Also, Mr. Kern is the most knowledgeable person regarding the historical and current state of exploration on the mineral properties currently optioned by the Company. If Mr. Kern were to terminate his relationship with the Company, the
Company would be adversely affected while we found a suitable replacement.  To date, there have not been any conflicts of interest between the Company and MinQuest or Mr. Kern.



Other than as described above, none of the following parties has, since our date of incorporation, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us:



| |  | Any of our directors or officers;
| | - | ---------------------------------

| |  | Any person proposed as a nominee for election as a director;
| | - | ------------------------------------------------------------

| |  | Any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our outstanding shares of common stock;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Any of our promoters;
| | - | ---------------------

| |  | Any relative or spouse of any of the foregoing persons who has the same house as such person.
| | - | ---------------------------------------------------------------------------------------------



|ITEM 13. | EXHIBITS
|-------- | --------





|Exhibit No. | Description               | Where Found                                                                                                                                        
|----------- | ------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         | Articles of Incorporation | Previously filed with the Companys Form SB-2, filed with the SEC on March 13, 2002, as amended on Jun 12, 2002, July 18, 2002, and August 22, 2002
|3.2         | Bylaws                    | Previously filed with the Companys Form SB-2, filed with the SEC on March 13, 2002, as amended on Jun 12, 2002, July 18, 2002, and August 22, 2002





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|4.1  | Share Certificate                                              | Previously filed with the Companys Form SB-2, filed with the SEC on March 13, 2002, as amended on Jun 12, 2002, July 18, 2002, and August 22, 2002
|---- | -------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 | Property Option Agreement  (relating to the Gilman Property)   | Previously filed with the Companys Current Report on Form 8-K, filed with the SEC on May 13, 2004                                                 
|10.2 | Property Option Agreement  (relating to the Imperial Property) | Previously filed with the Companys Current Report on Form 8-K, filed with the SEC on July 9, 2004                                                 
|10.3 | Property Option Agreement  (relating to the Hercules Property) | Previously filed with the Companys Current Report on Form 8-K, filed with the SEC on November 1, 2004                                             
|10.4 | Property Option Agreement  (relating to the Cortez Properties) | Previously filed with the Companys Current Report on Form 8-K, filed with the SEC on March 2, 2005                                                
|31.  | Rule 13a-14(a)/15d14(a) Certifications                         | Attached Hereto                                                                                                                                    
|32.  | Section 1350 Certifications                                    | Attached Hereto                                                                                                                                    



Item 14. Principal Accountant Fees and Services.



Morgan & Company has served as the Companys Principal Accountant since the Companys incorporation. Their fees billed to the Company for the fiscal years ending January 31, 2006 and 2005 are set forth below:



|                   |  | Fiscal year endingJanuary 31, 2006 |        | Fiscal year endingJanuary 31, 2005 |    
|------------------ |  | ---------------------------------- | ------ | ---------------------------------- | ---
|                   |  |                                    |        |                                    |    
|Audit Fees         |  | $                                  | 15,310 |                                    | $  
|Audit Related Fees |  | NIL                                |        | NIL                                |    
|Tax Fees           |  | $                                  | 3,000  |                                    | NIL
|All Other Fees     |  | $                                  | NIL    |                                    | $  
|                   |  |                                    |        |                                    |    



As of January 31, 2006, the Company did not have a formal, documented pre-approval policy for the fees of the principal accountant. It is in the process of adopting such a policy.



62



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SIGNATURES



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



|AMERICAN GOLDFIELDS INC.
|------------------------
|                        
|                        
|                        
|Dated: April 24, 2006   
|                        
|                        
|                        
|                        
|                        
|                        





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