UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





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





For
the Fiscal Year Ended December 31, 2009





OR





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





Commission
File No. 000-22905





GOLDEN
PHOENIX MINERALS, INC.


(Exact
Name of Registrant as Specified in Its Charter)





Nevada
            
            41-1878178(State
      or Other Jurisdiction
            
            (I.R.S.
      Employer IdentificationOf
      Incorporation or Organization)
            
            Number)1675
      East Prater Way, Suite 102, Sparks, Nevada
            
            89434(Address
      of Principal Executive Offices)
            
            (Zip
      Code)





Registrant’s
telephone number, including area code (775)
853-4919





Securities
registered pursuant to Section 12(g) of the Act:





Common Stock, par value
$0.001 per share


(Title of
Class)








Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.     Yes oNo þ





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.    Yes oNo þ





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.     Yes þNo o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).    Yes oNo o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.    þ





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):




Large
      accelerated filer o
            Accelerated
      filer o
            Non-accelerated
      filer o
              (Do
      not check if a smaller reporting company)
            Smaller
      reporting company þ





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





The
aggregate market value of voting stock held by non-affiliates computed by
reference to the price at which the common equity was last sold as of the last
business day of the registrant’s most recently completed second fiscal quarter,
June 30, 2009, was $4,054,297.  For purposes of this computation, it
has been assumed that the shares beneficially held by directors and officers of
registrant were “held by affiliates”; this assumption is not to be deemed to be
an admission by such persons that they are affiliates of
registrant.





The
number of shares of registrant’s common stock outstanding as of April 5, 2010
was 234,328,762.










TABLE OF
CONTENTS





PART
      IITEM
      1.
            
            BUSINESS
            
            3ITEM
      1A.
            
            RISK
      FACTORS
            
            13ITEM
      1B.
            
            UNRESOLVED
      STAFF COMMENTS
            
            20ITEM
      2.
            
            PROPERTIES
            
            20ITEM
      3.
            
            LEGAL
      PROCEEDINGS
            
            20PART
      IIITEM
      5.
            
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
            
            22ITEM
      6.
            
            SELECTED
      FINANCIAL DATA
            
            24ITEM
      7.
            
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
            
            24ITEM
      7A.
            
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            
            37ITEM
      8.
            
            FINANCIAL
      STATEMENTS
            
            37ITEM
      9.
            
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL  DISCLOSURE
            
            37ITEM
      9A(T).
            
            CONTROLS
      AND PROCEDURES
            
            37ITEM
      9B.
            
            OTHER
      INFORMATION
            
            38PART
      IIIITEM
      10.
            
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
            
            39ITEM
      11.
            
            EXECUTIVE
      COMPENSATION
            
            42ITEM
      12.
            
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
            
            50ITEM
      13.
            
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
            
            51ITEM
      14.
            
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
            
            52PART
      IVITEM
      15.
            
            EXHIBITS
            
            53SIGNATURES
            
            54







PART
I





ITEM
1.  BUSINESS





Description
Of Business





As used
in this Annual Report on Form 10-K, unless otherwise indicated, the terms “we,”
“us,” “our” and “the Company” refer to Golden Phoenix Minerals, Inc., a Nevada
corporation.





Forward-Looking
Statements and Associated Risks. This Annual Report on Form 10-K contains
forward-looking statements.  Such forward-looking statements include
statements regarding, among other things, (1) our estimates of mineral reserves
and mineralized material, (2) our projected sales and profitability, (3) our
growth strategies, (4) anticipated trends in our industry, (5) our future
financing plans, (6) our anticipated needs for working capital, (7) our lack of
operational experience and (8) the benefits related to ownership of our common
stock.  Forward-looking statements, which involve assumptions and
describe our future plans, strategies, and expectations, are generally
identifiable by use of the words “may,” “will,” “should,” “expect,”
“anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of
these words or other variations on these words or comparable
terminology.  These statements constitute forward-looking statements
within the meaning of the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995.  This information may involve known and
unknown risks, uncertainties, and other factors that may cause our actual
results, performance, or achievements to be materially different from the future
results, performance, or achievements expressed or implied by any
forward-looking statements.  These statements may be found under
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” as well as in this filing generally.  Actual events or
results may differ materially from those discussed in forward-looking statements
as a result of various factors, including, without limitation, the risks
outlined under Item 1A below and other risks and matters described in this
filing and in our other SEC filings.  In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this filing will in fact occur as projected.  We do not
undertake any obligation to update any forward-looking statements.





The
Company





We are a
mineral exploration, development and production company, formed in Minnesota on
June 2, 1997.  On September 21, 2007, our shareholders voted in favor
of a Plan of Merger to reincorporate from the State of Minnesota to the State of
Nevada.  The reincorporation was completed on May 30,
2008.





Our
business includes acquiring and consolidating mineral properties that we believe
have a high potential for new mineral discoveries and
profitability.  Our primary focus is on properties containing gold,
silver and molybdenum that are located in Nevada.





Our main
remaining mining property assets are the Northern Champion molybdenum property
located in Ontario, Canada and the Duff claim block, located adjacent to the
Ashdown Mine in northwestern Nevada.  In February 2007, we completed a
purchase agreement with four individuals for the Northern Champion molybdenum
property located in Ontario, Canada, and we plan to take bulk samples for
metallurgical and market testing, and to actively explore and delineate
molybdenum mineralization on the property as funding is
available.  With available funding, we also plan to commence a surface
mapping and sampling program covering sections of the 4,400 acres of claims
within the Duff claim block.


3


Some of our more significant recent
events include the following:





·      On
March 10, 2010, subsequent to our year end, we closed the Exploration,
Development and Mining Joint Venture Members’ Agreement (the “Members’
Agreement”) entered into on December 31, 2009 with Scorpio Gold Corporation
(“Scorpio Gold”) and its US subsidiary, Scorpio Gold (US) Corporation (“Scorpio
US”).  At the closing, we sold Scorpio US an undivided 70% interest in
the Mineral Ridge mineral properties and various related assets (the “Mineral
Ridge Mine”) for a purchase price of $3,750,000 cash (less those amounts
previously advanced to us by Scorpio Gold) and 7,824,750 common shares of stock
of Scorpio Gold at a deemed price of Cdn $0.50 per share.  Immediately
following the sale, the Company and Scorpio US each contributed their respective
interests in the Mineral Ridge Mine to a joint venture formed to own and operate
the Mineral Ridge Mine called Mineral Ridge Gold, LLC, a Nevada limited
liability company (the “Mineral Ridge LLC”).  We also contributed to
the Mineral Ridge LLC our interest in the reclamation bonds related to the
Mineral Ridge Mine and Scorpio US contributed a net smelter royalty encumbering
the Mineral Ridge Mine, which Scorpio US had acquired simultaneously with the
closing of the Members’ Agreement.  We currently own a 30% membership
interest in the Mineral Ridge LLC.  Scorpio US owns a 70% membership
interest in, and is the Manager of, the Mineral Ridge LLC, and has agreed to
carry all finance costs necessary to bring the Mineral Ridge Mine into
production and, provided it does so within 30 months of the closing of the
Members’ Agreement, will then have the right to increase its interest in the
Mineral Ridge LLC by 10% to a total of 80%.  In the event Scorpio US
qualifies to increase its ownership interest to 80%, it will also have the
option to purchase our then remaining 20% interest for a period of 24 months
following the commencement of commercial production..  There can be no
assurance that Scorpio US will be successful in its ability to raise sufficient
capital to fund the development of the Mineral Ridge Mine and attain a
successful level of operations.





·      On
January 25, 2010, we entered into an Employment Separation and Severance
Agreement with David A. Caldwell, our former Chief Executive Officer and
director (the “Caldwell Separation Agreement”).  The Caldwell
Separation Agreement provides that Mr. Caldwell will form a new company, Phoenix
Development Group, LLC, a Nevada limited liability company (“PDG”), to operate
as a mine exploration and evaluation enterprise.  It is contemplated
that Mr. Caldwell will serve as the Chief Executive Officer and Exploration
Geologist of PDG and that we will own a 25% ownership interest in PDG in
exchange for ongoing monthly cash payments of $7,500 (“PDG Payments”), such
payments to commence 30 days after the formation of PDG and continue on a
monthly basis for a period of 24 months, to be further detailed in a
contribution agreement by and between PDG and the Company at a later
time.  Further, pursuant to the Caldwell Separation Agreement, we will
have a right of first refusal  to negotiate with PDG for the purchase
of any mining, mineral or exploration property rights identified and acquired by
PDG.  In addition, as set forth in the Caldwell Separation Agreement,
PDG can be issued shares of our common stock in lieu of the PDG
Payments.  There can be no assurance that PDG will be successful in
its efforts to identify and acquire mineral property rights that will lead to
significant commercial opportunities for us.





·      We
suspended the molybdenum mining operations of the Ashdown Project LLC (the
“Ashdown LLC”) in November 2008 in response to a substantial decline of
molybdenum oxide market prices.  On May 13, 2009, we completed an
agreement to sell 100% of our ownership interest in the Ashdown LLC. to
Win-Eldrich Gold, Inc. (“WEG”).  WEG was a 40% co-owner of the Ashdown
LLC with the Company since inception of the Ashdown LLC in September
2006.  The $5.3 million purchase price due the Company will be payable
over a 72 month term, and WEG assumed substantially all of the liabilities of
the Ashdown LLC.  There can be no guarantee or assurance that WEG will
be successful in its ability to raise sufficient capital to fund the operations
of the Ashdown LLC, attain a sustained profitable level of operations from the
Ashdown LLC, or pay the Company the $5.3 million promissory
note.


4





The
Company’s mining properties are discussed in further detail below.





Our
corporate directors and officers have prior management experience with large and
small mining companies.  We believe that we have created the basis for
a competitive minerals exploration/development and operational company through
assembling a group of individuals with experience in target generation, ore
discovery, resource evaluation, mine development and mine
operations.





We intend
to continue to explore and develop properties.  We plan to provide
joint venture opportunities for mining companies to conduct exploration or
development on mineral properties we own or control.  We, together
with any future joint venture partners, intend to explore and develop selected
properties to a stage of proven and probable reserves, at which time we would
then decide whether to sell our interest in a property or take the property into
production alone or with our future partner(s).  By joint venturing
our properties, we may be able to reduce our costs for further work on those
properties, while continuing to maintain and acquire interests in a portfolio of
gold and base strategic metals properties in various stages of mineral
exploration and development.  We expect that this corporate strategy
will minimize the financial risk that we would incur by assuming all the
exploration costs associated with developing any one property, while maximizing
the potential for success and growth.





Sources
of Available Land for Mining and Exploration





There are
at least five sources of land available for exploration, development and mining:
public lands, private fee lands, unpatented mining claims, patented mining
claims, and tribal lands.  The primary sources for acquisition of
these lands are the United States government, through the Bureau of Land
Management and the United States Forest Service, state and Canadian Provincial
governments, tribal governments, and individuals or entities that currently hold
title to or lease government and private lands.





There are
numerous levels of government regulation associated with the activities of
exploration and mining companies.  Permits, which we are maintaining
and amending include “Notice of Intent” to explore, “Plan of Operations” to
explore, “Plan of Operations” to mine, “Reclamation Permit,” “Air Quality
Permit,” “Water Quality Permit,” “Industrial Artificial Pond Permit,” and
several other health and safety permits.  These permits are subject to
amendment or renewal during our operations.  Although there is no
guarantee that the regulatory agencies will timely approve, if at all, the
necessary permits for our current operations or other anticipated operations, we
have no reason to believe that necessary permits will not be issued in due
course.  The total cost and effects on our operations of the
permitting and bonding process cannot be estimated at this time.  The
cost will vary for each project when initiated and could be
material.





The
Federal government owns public lands that are administered by the Bureau of Land
Management or the United States Forest Service.  Ownership of the
subsurface mineral estate can be acquired by staking a twenty (20) acre mining
claim granted under the General Mining Law of 1872, as amended (the “General
Mining Law”).  The Federal government still owns the surface estate
even though the subsurface can be controlled with a right to extract through
claim staking.  Private fee lands are lands that are controlled by
fee-simple title by private individuals or corporations.  These lands
can be controlled for mining and exploration activities by either leasing or
purchasing the surface and subsurface rights from the private
owner.  Unpatented mining claims located on public land owned by
another entity can be controlled by leasing or purchasing the claims outright
from the owners.  Patented mining claims are claims that were staked
under the General Mining Law, and through application and approval the owners
were granted full private ownership of the surface and subsurface estate by the
Federal government.  These lands can be acquired for exploration and
mining through lease or purchase from the owners.  Tribal lands are
those lands that are under control by sovereign Native American
tribes.  Areas that show promise for exploration and mining can be
leased or joint ventured with the tribe controlling the
land.


5





Competition
And Mineral Prices





The
mining industry has historically been intensely competitive and the increasing
price of gold since 2002 has led a number of companies to begin once again to
aggressively acquire claims and properties.





Capital
Equipment and Expenditures





During
the year ended December 31, 2009, our efforts were primarily focused on
completing the sale of our interest in the Ashdown LLC and the formation of the
joint venture related to the Mineral Ridge property; therefore, no material
capital equipment was acquired by us.  The operations of our drilling
department, formed in 2008, were suspended during the early portions of 2009
pending additional funding.  However, the drilling equipment was
leased to a third-party operator for latter portions of 2009 and successfully
used for exploratory drilling at the Mineral Ridge property.  The
equipment is currently idle, pending future drilling opportunities.








Mining
Properties And Projects





With the
sale of our interest in the Ashdown, LLC and the formation of the Mineral Ridge
LLC, our primary mining property assets are the Northern Champion molybdenum
property located in Ontario, Canada and the Duff claims block, located adjacent
to the Ashdown Mine in northwestern Nevada.  We also have retained a
30% membership in the Mineral Ridge LLC, which plans to bring the Mineral Ridge
Mine into commercial production.





As
further discussed below, we completed a purchase agreement with four individuals
for the Northern Champion molybdenum property located in Ontario, Canada, and we
plan to take bulk samples for metallurgical and market testing, and to actively
explore and delineate molybdenum mineralization on the property as funding is
available.  With available funding, we also plan to commence a surface
mapping and sampling program covering sections of the 4,400 acres of claims
within the Duff claims block.





Figures 1 and 2 below display our
mining properties.


6








Figure 1.Map showing the
locations of the Nevada properties discussed in this Annual
Report.  Our Duff claims block is located adjacent to the Ashdown
Mine, which we sold our interest in on May 13, 2009, and we currently own a 30%
interest in a joint venture which intends to place the Mineral Ridge Mine in
commercial production.


7











Figure 2.Map showing the
Northern Champion property located within the Province of Ontario, Canada. The
acquisition of this property was completed in February 2007.


8


Northern
Champion Property, Ontario, Canada





The
Northern Champion property consists of approximately 880 acres in Griffith and
Brougham Townships in the Province of Ontario, Canada (“Northern Champion
Property”). On April 18, 2006, we executed a Purchase Agreement with Robert R.
Robitaille, Douglas Lalonde, Sheldon Davis and Ronald E. Dockweiler
(collectively, the “Vendors”) to acquire five (5) registered claims totaling 22
units on the Northern Champion Property together with a NI 43-101 Technical
Report and Feasibility Study describing a molybdenite deposit within the area of
the claims.





Pursuant
to the terms of the agreement, we were obligated to pay $125,000 in four (4)
equal quarterly installments of $31,250 commencing on August 15, 2006. Each
payment was to be distributed as follows, $9,991.50 to Mr. Lalonde, $9,247.45 to
each of Messrs. Robitaille and Davis, and $2,763.61 to Mr. Dockweiler. In
addition, the agreement provided that we would issue 735,000 shares of our
common stock to the Vendors. Mr. Lalonde received 235,000 shares, each of
Messrs. Robitaille and Davis received 217,500 shares and Mr. Dockweiler received
65,000 shares. The agreement also provides that the Vendors will retain a 3.3%
Net Smelter Return (“NSR”) on the sales of minerals taken from the Northern
Champion Property. Each of Messrs. Lalonde, Robitaille and Davis will be
entitled to receive 1% of the Net Smelter Return and Mr. Dockweiler will be
entitled to receive 0.3% of the Net Smelter Return. Additionally, we will have
the right of first refusal to purchase 1.65% of said Net Smelter Return from the
Vendors for $1,650,000. We will have the ability to purchase 0.5% of said Net
Smelter Return from each of Messrs. Lalonde, Robitaille and Davis and 0.15% of
said Net Smelter Return from Mr. Dockweiler.





On
February 12, 2007, the parties agreed to convert the remaining cash payments to
an equivalent number of restricted shares of our common stock valued at the
market close of $0.295 per share on that date. On February 16, 2007, 423,729
restricted shares of our common stock were issued to the Vendors and the
purchase was completed. We now own 100% of the Northern Champion Property
subject to the NSR reserved by the Vendors.





Duff
Claims Block, Humboldt County, Nevada





We own
the Duff claims block comprised of 211 mineral claims located along the western
flank of the Pine Forest Range, 20 miles south of Denio, Humboldt County,
Nevada.  The claims block, which was acquired in 2007, abuts the
Ashdown Mine to the north and extends south to the border of the Blue Lake
Wilderness Study Area.  The geology of the region is primarily
tertiary cretaceous granites with quartz outcroppings.  Metals
historically mined in the general region include gold, molybdenum, copper,
tungsten and antimony.





The major
mine feature of the Duff claims is the Adams Mine, which at one time produced
silica.  However, there are historical reports that substantial gold
was also extracted from the quartz rock.  Gold has also been mined in
the Vicksburg, Ashdown and Cherry Creek canyons to the north, and Leonard Canyon
to the south of the Duff claims.





Joint
Venture Interest in Mineral Ridge Gold Mine, Esmeralda County,
Nevada





The
Mineral Ridge Mine is located four miles northwest of the town of Silver Peak
and thirty-two miles west of Tonopah in Esmeralda County, Nevada. The property
consists of 54 patented and 140 unpatented mining claims totaling nearly 3,880
acres, or 6 square miles. The property is accessed on the east side from state
highway 265 and on the west side from a well-maintained gravel road. Heavy
trucks access the site from the west entrance by way of state highway 264, which
connects to state highway 773 and U. S. highway 6.  Also included are
3 private land parcels, which are located outside the main Mineral
Ridge mine area. These are the abandoned Blair town site, the Silver Peak mill
site, and deeded land west of Mineral Ridge over certain springs. These private
lands total about 430 acres. The total combined acreage is equal to
approximately 6.78 square miles.


9





We
purchased the Mineral Ridge mine in late 2000 out of
bankruptcy.  Additional commitments were also assumed, including
obligations to pay advanced royalty payments of $60,000 per year and the annual
permit cost for the Nevada Department of Environmental Protection of
approximately $20,000 during the time the permits were being transferred to us
from the previous operator. We believe that prior mine operators had spent about
$30 million on the property, which includes approximately $18 million in office,
process, and ancillary facilities, about $2 million in engineering and
feasibility studies, about $6 million in drilling and assays, $2 million in past
permitting costs, and the remainder in site preparation.





The
Mineral Ridge property holds three separate potentially economic mineable gold
deposits, the Drinkwater, Mary, and Brodie. We believe that the property holds
further mineral potential with identified targets potentially containing
additional gold mineralization.  Operations began in 2003 once the
bond (discussed below) was in place, including adding chemicals to the process
solutions, plumbing the pad with drip lines and main trunk pipes, and mining
both new and old stockpiled materials.  Our operations have yielded
certain amounts of precious metal product (dore, a mixture of gold and silver)
that has been sold resulting in revenues of approximately $2.3 million in 2005
and 2004.  In January 2005, we temporarily idled the mine pending full
reviews of engineering and metallurgy, and optimization of a revised mine and
operations plan.





In 2001,
Golden Phoenix filed a $1.8 million interim reclamation bond, which allowed the
Company to hold the Mineral Ridge property while other permitting was underway.
We negotiated an interim bond amount to keep the project at status quo until a
new plan and bond amount could be negotiated. On May 8, 2003, we received the
new amended operating permit and on June 23, 2003, we filed a $2.7 million
reclamation bond with the Bureau of Land Management with respect to the Mineral
Ridge mine. We utilized an insurance-backed financial assurance program to
acquire the bond. The program structure includes an insurance policy that will
pay reclamation expenses as they occur. The insurance enabled us to acquire the
necessary reclamation bond at a fixed and discounted rate for a term of 12
years.  It also allows us the flexibility to increase the bond in the
future as operations recommence at Mineral Ridge.





As
discussed previously, on March 10, 2010, we closed that certain Exploration,
Development and Mining Joint Venture Members’ Agreement (the “Members’
Agreement”) entered into on December 31, 2009 with Scorpio Gold Corporation
(“Scorpio Gold”) and its US subsidiary, Scorpio Gold (US) Corporation (“Scorpio
US”), pursuant to which we sold Scorpio US an undivided 70% interest in our
Mineral Ridge properties and various related assets (collectively referred to
herein as the “Properties”).  At the closing, we received a purchase
price of $3,750,000 in cash (less those sums previously advanced to us by
Scorpio Gold), and 7,824,750 common shares of capital stock of Scorpio Gold at a
deemed price of Cdn $0.50 per share (the “Sale”).   Immediately
following the Sale, the Company and Scorpio US each contributed their respective
interests in the Properties to a joint venture entity formed to own the
Properties and conduct operations thereon, called Mineral Ridge Gold, LLC, a
Nevada limited liability company (the “Mineral Ridge LLC”).  We also
contributed to the Mineral Ridge LLC our interest in the above-referenced
reclamation bonds related to the Properties and Scorpio US contributed that
certain net smelter return royalty encumbering the Properties (the “NSR”), which
NSR was acquired simultaneous with the closing.  In exchange for such
contributions, we obtained an initial 30% ownership interest in the Mineral
Ridge LLC and Scorpio US obtained an initial 70% ownership interest in the
Mineral Ridge LLC.


10


Scorpio
US is the Manager of the Mineral Ridge LLC and has agreed to carry all finance
costs necessary to bring the Properties into commercial production and, provided
it does so within 30 months of the Closing, will then have the right to increase
its joint venture interest in the Mineral Ridge LLC by 10% to a total of
80%.  In the event Scorpio US qualifies to increase its ownership
interest in the LLC to 80%, it will also have the option to purchase the
Company’s then-remaining 20% interest for a period of 24 months following the
commencement of commercial production.





Bridge
Loan and Debt Restructuring Agreement





As
further detailed below under the section entitled Results of Operations within
the Management’s Discussion and Analysis of Financial Condition and Results of
Operations, on January 30, 2009, we entered into a Bridge Loan and Debt
Restructuring Agreement with one of our investors, Crestview Capital Master, LLC
(“Crestview”), whereby we entered into a bridge loan and a restructuring of
certain original debt owed by the Company to Crestview.  The bridge
loan, in the principal amount of $1,000,000, was secured by an interest in the
Mineral Ridge property and was repaid in full at the closing of the joint
venture transaction with Scorpio US on March 10, 2010, at which time Crestview
released its security interest in the property.  Crestview maintains
an ongoing security interest in our ownership interest in the Mineral Ridge LLC
until we pay in full the debt restructuring promissory note in the principal
amount of $1,000,000 plus interest accrued thereon, which has a maturity date of
August 6, 2010.  Further, we issued Crestview an irrevocable
assignment of fifty percent (50%) of our right to any proceeds from
distributions made by the Mineral Ridge LLC, to be applied as a mandatory
prepayment on the debt restructuring promissory note.





Alaskan
Royalties





We own a
1% net smelter return royalty on two properties located in Alaska, Glory Creek
and Uncle Sam.  We are not required to perform any work or make any
payments for these royalties.





The Glory
Creek property is 100% controlled by Great American Mineral Exploration, Inc.
(“GAME”).  It is located in the Bonnifield mining district, about 60
miles south of Fairbanks.  Exploration work on the property has
defined an anomalous zone of gold mineralization that requires drilling for the
next phase of work.  We do not know if or when a discovery of gold
mineralization will be made.





The Uncle
Sam property is also 100% controlled by GAME.  The property is located
in the Richardson Gold District, about 60 miles southeast of
Fairbanks.  Their work has defined a strongly anomalous gold zone that
requires drilling for the next phase of work.  Sumitomo and Kennecott
acquired claims that abut the GAME position, and work by these entities and
their Joint Venture partners have produced very strong results.  We do
not know if or when a discovery of gold mineralization will be
made.





Preliminary
negotiations have been entered with GAME to explore the conversion of these
royalty interests into an equity stake in this private company.  It is
not certain what the outcome of these discussions will be.





Discontinued
Ashdown Operations





On
February 25, 2009, we entered into a Binding Memorandum of Understanding as well
as two related binding side letter agreements (collectively, the “MOU”) with
Win-Eldrich Gold, Inc. (“WEG”) , whereby we agreed to sell 100% of our ownership
interest in the Ashdown LLC to WEG (the “Ashdown Sale”).  WEG was a
co-owner of the Ashdown LLC with the Company since the inception of the Ashdown
LLC in September 2006, with the Company owning a 60% membership interest and WEG
owning a 40% membership interest.  The Ashdown LLC placed the Ashdown
property into commercial operation in December 2006, and had sales of
molybdenite concentrates of $10,398,361 for the year ended December 31, 2007 and
sales of $10,537,370 during 2008 prior to suspension of operations in November
2008 due to significant declines in the market price of
molybdenum.


11





On May
13, 2009, pursuant to the material terms of the MOU, as further revised,
negotiated and mutually agreed to by the Parties, we entered into definitive
agreements that superseded the MOU, including a Purchase and Sale of LLC
Membership Interest Agreement with WEG, to effectuate the Ashdown Sale (the
“Purchase Agreement”).  As consideration for the Ashdown Sale and the
Parties’ mutual release of certain claims against the other pursuant to the
terms of a Settlement and Release Agreement (the “Release”), WEG will pay $5.3
million (the “Purchase Price”) to the Company, which will be satisfied by the
issuance of a Limited Recourse Secured Promissory Note (the “Note”), for the
full amount of the Purchase Price.





In
particular, WEG will pay the Company $5.3 million and assume the majority of all
obligations and liabilities held by the LLC, all as detailed and more fully set
forth in the Purchase Agreement.  Pursuant to the terms and conditions
of the Purchase Agreement and the Note, the Company, WEG and the LLC have also
entered into a Security Agreement, a Short Form Deed of Trust and Assignment of
Rents Agreement (the “Deed of Trust”), and certain other releases and side
letter agreements (together with the Purchase Agreement and the Note,
collectively, the “Transaction Documents”).





The terms
and conditions of the Note, including term, interest rate and description of
security interest are as follows: the terms of the Note include the payment of
the Purchase Price together with simple interest on the unpaid principal amount
of the Note at rate equal to the Wall Street Journal Prime rate plus two percent
(2.00%), computed on a quarterly basis beginning April 1, 2009, for a term of 72
months, with the first payment due one (1) year from the date of
Closing.  As security for the Note, the Purchase Price shall be
secured by the assets and property of the LLC as well as one hundred percent
(100%) of WEG’s ownership interest in the LLC (the “Collateral”).  The
sole recourse of the Company under the Note for the collection of amounts owed
and in the event of default shall be foreclosure as to the Collateral, as
further detailed in the Security Agreement and Deed of Trust by and between the
Parties.





Because
of the current uncertainty of collecting the Note or realizing any value from
the assets and property of the LLC upon foreclosure, the Note has been reduced
100% by an allowance account and recorded at no value in the accompanying
consolidated balance sheet as of December 31, 2009, and no gain on disposition
of our interest in the Ashdown LLC attributed to the $5.3 million Note has been
recorded in the accompanying consolidated statements of operations for the year
ended December 31, 2009.  We did, however, record a loss on sale of
interest in joint venture of $235,303 for year ended December 31, 2009 resulting
from our assumption of certain liabilities in the transaction and the
elimination of all investment and loan accounts related to the Ashdown
LLC.  Further gain, if any, on disposition of the interest in the
Ashdown LLC will be recorded as cash payments are received on the Note or, if
required, upon disposition of any assets or property of the Ashdown LLC due to
foreclosure on the Note.





Pursuant
to the Release, the Parties agreed to terminate any and all litigation and
ongoing disputes existing between the Parties effective at Closing.





Finally,
pursuant to the Purchase Agreement, Perry Muller, President of WEG, or his
assignee, agreed to pay up to $100,000 of all payments made in settlement of the
amounts owed by the Ashdown LLC to Retrievers LLC, and we secured a release from
Retrievers LLC of any claim or title in or to the Ashdown Mill property, with
Mr. Muller becoming the sole owner of the Ashdown Mill property (the “Retriever’s
Settlement”).  Upon completion of the Retriever’s Settlement, Mr.
Muller agreed to lease the Ashdown Mill property to the Ashdown LLC and convey
the Ashdown Mill to the Ashdown LLC upon repayment to Mr. Muller by the Ashdown
LLC of $100,000, plus a loan fee amount of $10,000, all as pursuant to that
certain Ashdown Mill Binding Side Letter Agreement, dated May 13,
2009.


12





Employees





Corporate
Office





We have 2
key professionals and 2 support staff to perform management functions. We intend
to employ independent contractors to fulfill short-term needs for accounting,
permitting, and other administrative functions, and may staff further with
employees as we bring new projects on line.





Drilling
Services Division





We have
suspended the operations of our drilling services division, pending additional
funding and project opportunities, and currently do not have any employees in
this division.





ITEM 1A.  RISK FACTORS





The risks
described below are the ones we believe are most important for you to
consider.  These risks are not the only ones that we
face.  If events anticipated by any of the following risks actually
occur, our business, operating results or financial condition could suffer and
the price of our common stock could decline.





We Have A Limited Operating History
With Significant Losses And Expect Losses To Continue For The Foreseeable
Future.





We have
yet to establish any history of profitable operations. We have incurred net
losses of $2,798,747 and $7,056,582 for the years ended December 31, 2009 and
2008, respectively.  As a result, at December 31, 2009 we had an
accumulated deficit of $47,421,049 and a total stockholders’ deficit of
$6,355,454.  Our revenues have not been sufficient to sustain our
operations. We recently sold our member interest in the Ashdown
LLC.  The Ashdown LLC has been the only source of our operating
revenues for the past three years.  We expect that our revenues will
not be sufficient to sustain our operations for the foreseeable
future.  Our profitability will require the successful
commercialization of our mineral interest. We may not be able to successfully
commercialize our mineral interests or ever become profitable.





There Is Doubt About Our Ability To
Continue As A Going Concern Due To Recurring Losses From Operations,
Accumulated Deficit And Working Capital Deficit All Of Which Means That We
May Not Be Able To Continue Operations.





Our
independent auditors have added an explanatory paragraph to their audit opinion
issued in connection with our consolidated financial statements for the years
ended December 31, 2009 and 2008 with respect to the uncertainty of our ability
to continue as a going concern.  As discussed in Note 2 to our
consolidated financial statements for the year ended December 31, 2009, we have
generated significant losses from operations, and had an accumulated deficit of
$47,421,049 and a total stockholders’ deficit of $6,355,454 at December 31,
2009, which together raises doubt about our ability to continue as a going
concern.  Management’s plans in regard to these matters are also
described in Note 2 to our consolidated financial statements for the year ended
December 31, 2009.


13


The
Consideration Received From The Sale Of Our Interest In The Ashdown LLC Is A
Promissory Note For $5.3 million, The Collection Of Which Is
Uncertain.





As
consideration for the sale of our interest in the Ashdown LLC on May 13, 2009,
WEG is obligated to pay us $5.3 million , which was satisfied by the issuance of
a Limited Recourse Secured Promissory Note.  The Note bears interest
at a rate equal to the Wall Street Journal Prime rate plus 2.0%, computed on a
quarterly basis beginning April 1, 2009, for a term of 72 months, with the first
payment due May 13, 2010.  The Note is secured by the assets and
property of the LLC as well as 100% of WEG’s ownership interest in the
LLC.  Our sole recourse under the Note for the collection of amounts
owed and in the event of default shall be foreclosure as to the collateral, as
further detailed in the Security Agreement and Deed of Trust by and between the
Parties.  Because of the current uncertainty of collecting the Note or
realizing any value from the assets and property of the LLC upon foreclosure,
the Note has been reduced 100% by an allowance account and recorded at no value
in the accompanying consolidated balance sheet as of December 31, 2009, and no
gain on disposition of our interest in the Ashdown LLC attributed to the $5.3
million Note has been recorded in the accompanying consolidated statements of
operations for the year ended December 31, 2009.





The
Mineral Ridge LLC Has Been Recently Formed And Its Ultimate Success Is
Uncertain





We
currently own a 30% membership interest in the Mineral Ridge LLC which was
formed on March 10, 2010.  Scorpio US owns a 70% membership interest
in and is the Manager of the Mineral Ridge LLC, and has agreed to carry all
finance costs necessary to bring the Mineral Ridge Mine into production and,
provided it does so within 30 months of the closing of the Members’ Agreement,
will then have the right to increase its interest in the Mineral Ridge LLC by
10% to a total of 80%.  In the event Scorpio US qualifies to increase
its ownership interest to 80%, it will also have the option to purchase our then
remaining 20% interest for a period of 24 months following the commencement of
commercial production..  There can be no assurance that Scorpio US
will be successful in its ability to raise sufficient capital to fund the
development of the Mineral Ridge Mine and attain a successful level of
operations.





We
May Not Have Access To Capital In The Future As A Result Of Disruptions In
Capital And Credit Markets.





Our
ability to access capital or credit necessary to continue operations may be
hindered by the continuing difficulties in the capital and credit markets both
in the U.S. and internationally.  Moreover, longer term volatility and
continued disruptions in the capital and credit markets as a result of
uncertainty, changing or increased regulation of financial institutions, reduced
alternatives or failures of significant financial institutions could affect
adversely our access to the liquidity needed for our business in the longer
term.  Such disruptions could require us to take measures to conserve
cash until the markets stabilize or until alternative credit arrangements or
other funding for our business needs can be arranged.  The disruptions
in the capital and credit markets have also resulted in higher interest rates on
publicly issued debt securities and increased costs under credit
facilities.  The continuation of these disruptions could increase our
interest expense and capital costs and could affect adversely our results of
operations and financial position including our ability to grow our business
through joint ventures, sales or acquisitions.





We
May Not Be Able To Secure Additional Financing To Meet Our Future Capital Needs
Due To Changes In General Economic Conditions.





We
anticipate needing significant capital to conduct further exploration and
development needed to bring our existing mining properties into production, meet
certain debt obligations and/or to continue to seek out
appropriate joint venture partners or buyers for certain mining
properties.  We may use capital more rapidly than currently
anticipated and incur higher operating expenses than currently expected, and we
may be required to depend on external financing to satisfy our operating and
capital needs.  We may need new or additional financing in the future
to conduct our operations or expand our business.  Any sustained
weakness in the general economic conditions and/or financial markets in the
United States or globally could affect adversely our ability to raise capital on
favorable terms or at all.  From time to time we have relied, and may
also rely in the future, on access to financial markets as a source of liquidity
to satisfy working capital requirements and for general corporate
purposes.  We may be unable to secure additional debt or equity
financing on terms acceptable to us, or at all, at the time when we need such
funding.  If we do raise funds by issuing additional equity or
convertible debt securities, the ownership percentages of existing stockholders
would be reduced, and the securities that we issue may have rights, preferences
or privileges senior to those of the holders of our common stock or may be
issued at a discount to the market price of our common stock which would result
in dilution to our existing stockholders.  If we raise additional
funds by issuing debt, we may be subject to debt covenants, which could place
limitations on our operations including our ability to declare and pay
dividends.  Our inability to raise additional funds on a timely basis
would make it difficult for us to achieve our business objectives and would have
a negative impact on our business, financial condition and results of
operations.


14





We
May Not Be Able to Bring Our Obligations Current.





Due to
the financial hardships we faced with the discontinuance of operations at
Ashdown and subsequent sale of our membership interest in the Ashdown LLC,
certain vendors and lenders of the Company have initiated actions to collect
balances that are passed due.  We are attempting to negotiate mutually
beneficial settlements with such vendors and lenders.  However, in the
event that we do not have or are unable to raise sufficient capital to bring our
obligations current or cannot negotiate settlements, we will experience
difficulty in achieving our business objectives and will likely experience a
negative impact on our business, financial condition and results of
operations.





The
Validity Of Our Unpatented Mining Claims Could Be Challenged, Which Could Force
Us To Curtail Or Cease Our Business Operations.





A
majority of our properties consist of unpatented mining claims, which we own or
lease.  These claims are located on federal land or involve mineral
rights that are subject to the claims procedures established by the General
Mining Law.  We must make certain filings with the county in which the
land or mineral is situated and with the Bureau of Land Management and pay
annual holding fees of $133.50 per claim.  If we fail to make the
annual holding payment or make the required filings, our mining claim could be
void or voidable.  Because mining claims are self-initiated and
self-maintained rights, they are subject to unique vulnerabilities not
associated with other types of property interests.  It is difficult to
ascertain the validity of unpatented mining claims from public property records
and, therefore, it is difficult to confirm that a claimant has followed all of
the requisite steps for the initiation and maintenance of a
claim.  The General Mining Law requires the discovery of a valuable
mineral on each mining claim in order for such claim to be valid, and rival
mining claimants and the United States may challenge mining
claims.  Under judicial interpretations of the rule of discovery, the
mining claimant has the burden of proving that the mineral found is of such
quality and quantity as to justify further development, and that the deposit is
of such value that it can be mined, removed and disposed of at a
profit.  The burden of showing that there is a present profitable
market applies not only to the time when the claim was located, but also to the
time when such claim’s validity is challenged.  However, only the
federal government can make such challenges; they cannot be made by other
individuals with no better title rights than us.  It is therefore
conceivable that, during times of falling metal prices, claims that were valid
when they were located could become invalid if challenged.  Title to
unpatented claims and other mining properties in the western United States
typically involves certain other risks due to the frequently ambiguous
conveyance history of those properties, as well as the frequently ambiguous or
imprecise language of mining leases, agreements and royalty
obligations.  No title insurance is available for
mining.  In the event we do not have good title to our properties, we
would be forced to curtail or cease our business
operations.


15





Environmental Controls Could Curtail
Or Delay Exploration And Development Of Our Mines And Impose Significant
Costs On Us.





We are
required to comply with numerous environmental laws and regulations imposed by
federal and state authorities.  At the federal level, legislation such
as the Clean Water Act, the Clean Air Act, the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response Compensation Liability
Act and the National Environmental Policy Act impose effluent and waste
standards, performance standards, air quality and emissions standards and other
design or operational requirements for various components of mining and mineral
processing, including molybdenum, gold and silver mining and
processing.  In addition, insurance companies are now requiring
additional cash collateral from mining companies in order for the insurance
companies to issue a surety bond.  This addition of cash collateral
for a bond could have a significant impact on our ability to bring properties
into production.





Many
states, including the State of Nevada (where our Mineral Ridge and Ashdown
properties are located), have also adopted regulations that establish design,
operation, monitoring, and closing requirements for mining
operations.  Under these regulations, mining companies are required to
provide a reclamation plan and financial assurance to ensure that the
reclamation plan is implemented upon completion of mining
operations.  Additionally, Nevada and other states require mining
operations to obtain and comply with environmental permits, including permits
regarding air emissions and the protection of surface water and
groundwater.  Although we believe that we are currently in compliance
with applicable federal and state environmental laws, changes in those laws and
regulations may necessitate significant capital outlays or delays, may
materially and adversely affect the economics of a given property, or may cause
material changes or delays in our intended exploration, development and
production activities.  Any of these results could force us to curtail
or cease our business operations.





Proposed Legislation Affecting The
Mining Industry Could Have An Adverse Effect On Us.





During
the past several years, the United States Congress considered a number of
proposed amendments to the General Mining Law of 1872, which governs mining
claims and related activities on federal lands.  For example, a broad
based bill to reform the General Mining Law of 1872, the Hardrock Mining and
Reclamation Act of 2007 (H.R. 2262) was introduced in the U.S. House of
Representatives on May 10, 2007 and was passed by the U.S. House of
Representatives on November 1, 2007, and has been submitted to the U.S. Senate
where no action has been taken to date.





In 1992,
a federal holding fee of $100 per claim was imposed upon unpatented mining
claims located on federal lands.  This fee was increased to $125 per
claim in 2005 ($133.50 total with the accompanying County fees
included).  Beginning in October, 1994, a moratorium on processing of
new patent applications was approved.  In addition, a variety of
legislation over the years has been proposed by the United States Congress to
further amend the General Mining Law.  If any of this legislation is
enacted, the proposed legislation would, among other things, change the current
patenting procedures, limit the rights obtained in a patent, impose royalties on
unpatented claims, and enact new reclamation, environmental controls and
restoration requirements.





For
example, the Hardrock Mining and Reclamation Act of 2007 (H.R. 2262), if
enacted, would have several negative impacts on the Company including but not
limited to: requiring royalty payments of 8% of
gross income from mining a claim on Federal land, or 4% of claims on Federal
land that existed prior to the passage of this act; and prohibition of certain
areas from being open to the location of mining claims, including wilderness
study areas, areas of critical environmental concern, areas included in the
National Wild and Scenic Rivers System, and any area included in maps made for
the Forest Service Roadless Area Conservation Final Environmental Impact
Statement.


16





The
extent of any such changes to the General Mining Law of 1872 that may be enacted
is not presently known, and the potential impact on us as a result of future
congressional action is difficult to predict.  If enacted, the
proposed legislation could adversely affect the economics of developing and
operating our mines because many of our properties consist of unpatented mining
claims on federal lands.  Our financial performance could therefore be
materially and adversely affected by passage of all or pertinent parts of the
proposed legislation, which could force us to curtail or cease our business
operations.





The Development And Operation Of Our
Mining Projects Involve Numerous Uncertainties.





Mine
development projects, including our planned projects, typically require a number
of years and significant expenditures during the development phase before
production is possible.





Development
projects are subject to the completion of successful feasibility studies,
issuance of necessary governmental permits and receipt of adequate
financing.  The economic feasibility of development projects is based
on many factors such as:





•
            estimation
      of reserves;





•
            anticipated
      metallurgical recoveries;





•
            future
      molybdenum, gold and silver prices;
and





•
            anticipated
      capital and operating costs of such
projects.





Our mine
development projects may have limited relevant operating history upon which to
base estimates of future operating costs and capital
requirements.  Estimates of proven and probable reserves and operating
costs determined in feasibility studies are based on geologic and engineering
analyses.





Any of
the following events, among others, could affect the profitability or economic
feasibility of a project:





•
            unanticipated
      changes in grade and tonnage of material to be mined and
      processed;





•
            unanticipated
      adverse geotechnical conditions;





•
            incorrect
      data on which engineering assumptions are
made;





•
            costs
      of constructing and operating a mine in a specific
      environment;





•
            availability
      and cost of processing and refining
facilities;





•
            availability
      of economic sources of power;





•
            adequacy
      of water supply;


17





•
            adequate
      access to the site;





•
            unanticipated
      transportation costs;





•
            government
      regulations (including regulations relating to prices, royalties, duties,
      taxes, restrictions on production, quotas on exportation of minerals, as
      well as the costs of protection of the environment and agricultural
      lands);





•
            fluctuations
      in metal prices; and





•
            accidents,
      labor actions and force majeure
events.





Any of
the above referenced events may necessitate significant capital outlays or
delays, may materially and adversely affect the economics of a given property,
or may cause material changes or delays in our intended exploration, development
and production activities.  Any of these results could force us to
curtail or cease our business operations.





Mineral Exploration Is Highly
Speculative, Involves Substantial Expenditures, And Is Frequently
Non-Productive.





Mineral
exploration involves a high degree of risk and exploration projects are
frequently unsuccessful.  Few prospects that are explored end up being
ultimately developed into producing mines.  To the extent that we
continue to be involved in mineral exploration, the long-term success of our
operations will be related to the cost and success of our exploration
programs.  We cannot assure you that our mineral exploration efforts
will be successful.  The risks associated with mineral exploration
include:





•
            The
      identification of potential economic mineralization based on superficial
      analysis;





•
            the
      quality of our management and our geological and technical expertise;
      and





•
            the
      capital available for exploration and
  development.





Substantial
expenditures are required to determine if a project has economically mineable
mineralization.  It may take several years to establish proven and
probable reserves and to develop and construct mining and processing
facilities.  Because of these uncertainties, our current and future
exploration programs may not result in the discovery of reserves, the expansion
of our existing reserves or the further development of our mines.





The Price Of Molybdenum, Gold and
Silver are Highly Volatile And A Decrease In The Price Of Molybdenum, Gold or Silver
Would Have A Material Adverse Effect On Our Business.





The
profitability of mining operations is directly related to the market prices of
metals.  The market prices of metals fluctuate significantly and are
affected by a number of factors beyond our control, including, but not limited
to, the rate of inflation, the exchange rate of the dollar to other currencies,
interest rates, and global economic and political conditions.  Price
fluctuations of metals from the time development of a mine is undertaken to the
time production can commence can significantly affect the profitability of a
mine.  Accordingly, we may begin to develop one or more of our mines
at a time when the price of metals makes such exploration economically feasible
and, subsequently, incur losses because the price of metals
decreases.  Adverse fluctuations of the market prices of metals may
force us to curtail or cease our business operations.


18





Our Mineral Reserve Estimates are
Potentially Inaccurate.





We
estimate our mineral reserves on our properties as either “proven reserves” or
“probable reserves.”  Our mineral reserve figures and costs are
primarily estimates and are not guarantees that we will recover the indicated
quantities of these metals.  We estimate proven reserve quantities
based on sampling and testing of sites conducted by us and by independent
companies hired by us.  Probable reserves are based on information
similar to that used for proven reserves, but the sites for sampling are less
extensive, and the degree of certainty is less.  Reserve estimation is
an interpretive process based upon available geological data and statistical
inferences and is inherently imprecise and may prove to be
unreliable.




Our
reserves are reduced as existing reserves are depleted through
production.  Reserves may be reduced due to lower than anticipated
volume and grade of reserves mined and processed and recovery
rates.




Reserve
estimates are calculated using assumptions regarding metals
prices.  These prices have fluctuated widely in the
past.  Declines in the market price of metals, as well as increased
production costs, capital costs and reduced recovery rates, may render reserves
uneconomic to exploit.  Any material reduction in our reserves may
lead to increased net losses, reduced cash flow, asset write-downs and other
adverse effects on our results of operations and financial
condition.  Reserves should not be interpreted as assurances of mine
life or of the profitability of current or future operations.  No
assurance can be given that the amount of metal estimated will be produced or
the indicated level of recovery of these metals will be realized.




Mining Risks And Insurance Could Have
An Adverse Effect On Our Profitability.





Our
operations are subject to all of the operating hazards and risks normally
incident to exploring for and developing mineral properties, such as unusual or
unexpected geological formations, environmental pollution, personal injuries,
flooding, cave-ins, changes in technology or mining techniques, periodic
interruptions because of inclement weather and industrial
accidents.  Although we currently maintain insurance to ameliorate
some of these risks, more fully described in the description of our business in
this filing, such insurance may not continue to be available at economically
feasible rates or in the future be adequate to cover the risks and potential
liabilities associated with exploring, owning and operating our
properties.  Either of these events could cause us to curtail or cease
our business operations.





The Market Price Of Our Common Stock
Is Highly Volatile, Which Could Hinder Our Ability To Raise Additional
Capital.





The
market price of our common stock has been and is expected to continue to be
highly volatile.  Factors, including regulatory matters, concerns
about our financial condition, operating results, litigation, government
regulation, developments or disputes relating to agreements, title to our
properties or proprietary rights, may have a significant impact on the market
price of our stock.  The range of the high and low bid prices of our
common stock over the last three (3) years has been between $0.35 and
$0.01.  In addition, potential dilutive effects of future sales of
shares of common stock by shareholders and by us, and subsequent sale of common
stock by the holders of warrants and options could have an adverse effect on the
price of our securities, which could hinder our ability to raise additional
capital to fully implement our business, operating and development
plans.


19


Penny Stock Regulations Affect Our
Stock Price, Which May Make It More Difficult For Investors To Sell Their
Stock.





Broker-dealer
practices in connection with transactions in “penny stocks” are regulated by
certain penny stock rules adopted by the SEC.  Penny stocks generally
are equity securities with a price per share of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ Stock Market, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system).  The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document that provides information about penny
stocks and the risks in the penny stock market.  The broker-dealer
must also provide the customer with current bid and offer quotations for the
penny stock, the compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer’s account.  In addition, the penny
stock rules generally require that prior to a transaction in a penny stock the
broker-dealer make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser’s written
agreement to the transaction.  These disclosure requirements may have
the effect of reducing the level of trading activity in the secondary market for
a stock that becomes subject to the penny stock rules.  Our securities
are subject to the penny stock rules, and investors may find it more difficult
to sell their securities.





ITEM
1B.  UNRESOLVED STAFF COMMENTS





Not applicable.





ITEM
2.  PROPERTIES





Our
principal executive office consists of 7,000 square feet located at 1675 East
Prater Way, Suite 102, Sparks, Nevada 89434. The principal offices are leased
from WDCI, Inc in Sparks Nevada.  The lease has a seven (7) year term
signed May 12, 2004, and is renewable.  We consider our existing
facilities to be adequate for our foreseeable needs.  See the
discussion above for a description of our mineral properties.





ITEM
3.  LEGAL PROCEEDINGS





With the
shutdown of Ashdown operations, the sale of our interest in the Ashdown LLC and
the ongoing difficulty raising capital, certain of our vendors and lenders have
initiated actions to collect balances that are past due.  We are
negotiating mutually beneficial settlements and payment plans with these
parties.  However, our ability to bring such obligations current is
dependent on our ability to raise additional capital.  There can be no
assurance that we will be successful in these efforts.





Tetra Financial
Group, LLC – On January 29, 2009, Tetra Financial Group, LLC (“Tetra”)
filed a complaint in the Third District Court of Utah in Salt Lake County
against the Ashdown Project, LLC, the Company, Win-Eldrich Mines Limited and
certain principals of each company, claiming the breach of a lease agreement for
the lease of two (2) ten-ton hauler trucks.  In February 2010, a
settlement agreement was reached with Tetra resulting in no material financial
impact to the Company.





Earl
Harrison - We received a default judgment dated February 2, 2009 from the
Second District Court of the State of Nevada in Washoe County entered in favor
of Mr. Earl Harrison, awarding Mr. Harrison $165,197 plus accrued interest
through December 31, 2008 of $5,094 and additional interest that accrues at a
daily rate of $18.66 until the obligation is paid in full.  The
judgment relates to a promissory note and accrued interest stemming from the
lease of Mr. Harrison’s mining equipment and other amounts due him
prior to the formation of the Ashdown LLC.  Additionally, on May 1,
2009, we received an Execution Order providing for attachment of personal
property and/or certain specified amounts of earnings of the
Company.  We have been in discussions with Mr. Harrison, and expect to
reach an amicable resolution to this outstanding obligation and to extinguish
this debt as funding allows.


20





Ed Staub &
Sons Petroleum, Inc. - On April 16, 2009, a complaint was filed in the
Sixth District Court of the State of Nevada in Humboldt County against Ashdown
LLC, the Company and WEG, requesting payment of $107,992 owed to them by the
Ashdown LLC under an Application for Credit for the provision of fuel by the
plaintiff, as well as seeking certain other relief, including a temporary
restraining order on the proposed sale of the Company’s interest in Ashdown
LLC.  The parties have been in discussions and expect to reach an
amicable resolution to this outstanding obligation and to extinguish this debt
as funding allows.





DMC-Dynatec
Mining Services Corporation - On February 13, 2009, DMC Mining Services
Corporation filed a complaint against the Company and the Ashdown Project, LLC
in the U.S. District Court, District of Nevada (Reno), claiming approximately
$108,448 due for mechanic’s labor based on a service contract  A
default judgment as to both the Company and the Ashdown LLC was entered on July
26, 2009, which obligation was expressly assumed by WEG in connection with the
closing of the sale of the Company’s interest in the Ashdown LLC on May 13,
2009.  As of the date of this Report, it is our understanding that WEG
has negotiated a settlement with DMC Mining with respect to such obligation and
that we will be indemnified and held harmless for any liability or obligation to
DMC Mining in connection with the sale of our interest in
Ashdown.


21


PART
II





ITEM 5.  MARKET FOR COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF
EQUITY SECURITIES





Our
common stock has been publicly traded since August 6, 1997.  The
securities are traded on the OTC Bulletin Board, and quoted on the OTC Bulletin
Board under the symbol “GPXM.OB.”  The following table sets forth for
the periods indicated the range of high and low bid quotations per share as
reported by the OTC Bulletin Board for our past 2 years.  These
quotations represent inter-dealer prices, without retail markups, markdowns or
commissions and may not necessarily represent actual transactions.




Year
      2008
            High
            LowFirst
      Quarter
            $0.31
            $0.17Second
      Quarter
            $0.22
            $0.16Third
      Quarter
            $0.19
            $0.07Fourth
      Quarter
            $0.08
            $0.01





Year
      2009
            High
            LowFirst
      Quarter
            $0.03
            $0.01Second
      Quarter
            $0.05
            $0.01Third
      Quarter
            $0.04
            $0.02Fourth
      Quarter
            $0.09
            $0.03





Holders





On April
5, 2010, the closing price of our common stock as reported on the
Over-the-Counter Bulletin Board was $0.05 per share.  On April 5,
2010, we had approximately 270 holders of record of common stock and 234,328,762
shares of our common stock were issued and outstanding, plus an additional
33,897,259 shares issuable upon the exercise of outstanding options and
warrants.





Dividend
Policy





We have
not paid any dividends on our common stock and do not anticipate paying any cash
dividends in the foreseeable future.  We intend to retain any earnings
to finance the growth of the business.  We cannot assure you that we
will ever pay cash dividends.  Whether we pay any cash dividends in
the future will depend on the financial condition, results of operations and
other factors that the Board of Directors will consider.





Securities
Authorized for Issuance under Equity Compensation Plans





In April
1998, the Board approved the Golden Phoenix Minerals, Inc. Stock Option
Incentive Plan (the “1997 Stock Option Incentive Plan”), under which employees
and directors of the Company are eligible to receive grants of stock
options.  The Company has reserved a total of 1,000,000 shares of
common stock under the 1997 Stock Option Incentive Plan.  Subsequent
to this, the Employee Stock Incentive Plan of 2002 amended the 1997 Stock Option
Incentive Plan and allows for up to 4,000,000 options to be granted (the “2002
Stock Option Incentive Plan”).  In addition to these qualified plans,
the Company created a class of non-registered, non-qualifying options in 2000 to
compensate its three principal employees for deferred salaries.  The
Company’s executive management administers the plan.  Subject to the
provisions of the 2002 Stock Option Incentive Plan, the Board has full and final
authority to select
the individuals to whom options will be granted, to grant the options, and to
determine the terms and conditions and the number of shares issued pursuant
thereto.


22





On
October 23, 2006, the Board approved the 2006 Non-Employee Director Stock Option
Plan providing for 2,000,000 shares of the Company’s common stock to be reserved
for issuance of awards of non-qualified stock options to non-employee directors
of the Company pursuant to the terms and conditions set forth in the
plan.





On
September 21, 2007, our shareholders approved the 2007 Equity Incentive Plan
(the “2007 Plan”) providing 9% of the total number of outstanding shares of
common stock of the Company to be reserved and available for grant and issuance
at the effective date of the 2007 Plan, with an increase at the beginning of
each year if additional shares of common stock were issued in the preceding year
so that the total number of shares reserved and available for grant and
issuance, not including shares that are subject to outstanding awards, will be
9% of the total number of outstanding shares of common stock of the Company on
that date.  No more than 2,000,000 shares of common stock shall be
granted in the form of Incentive Stock Options.  Under the 2007 Plan,
grants may be made to any director, officer or employee of the Company or other
person who, in the opinion of the Board, is rendering valuable services to the
Company, including without limitation, an independent contractor, outside
consultant, or advisor to the Company.





The
Company has also issued stock options on a stand-alone basis under no specific
plan, which have been approved by the Board.





The
following table presents information concerning outstanding stock options and
warrants issued by the Company as of April 5, 2010.




Plan
      Category
            (a)
      Number of
              securities
      to be
              issued
      upon
              exercise
      of
              of
      outstanding
              options,
      warrants
              and
      rights
            Weighted-average
              exercise
      price of
              outstanding
      options
              warrants
      and rights
            Number
      of securities
              remaining
      available for
              future
      issuance under
              equity
      compensation
              plans
      (excluding
              securities
      reflected
              in
      column (a))Equity
      Compensation Plans Approved by Security Holders (1)
            2,050,000
            $0.17
            21,315,842Equity
      Compensation Plans not Approved by Security Holders (2)
            31,847,259
            $0.06
            —Total
            33,897,259
            $0.05
            21,315,842


____________





(1)
      Includes shares issuable upon exercise of stock options to employees and
      directors under the 2007 Plan.


(2)
      Includes 2,265,000 shares issuable upon exercise of stock options and
      29,582,259 shares issuable upon exercise of warrants and stock purchase
      rights.


23


Recent
Sales of Unregistered Securities




During
the three months ended December 31, 2009, the Company issued a total of
6,500,000 unregistered common shares for the following
consideration:




Name
            
            #
      Shares
            
            
            Amount
            
            ConsiderationMichael
      Margolin
            
            
            750,000
            
            
            $
            14,962
            
            CashLesweek
      Pty. Ltd.
            
            
            2,500,000
            
            
            
            49,875
            
            CashBradley
      Watts
            
            
            2,250,000
            
            
            
            44,888
            
            CashMichael
      Fitzsimonds
            
            
            1,000,000
            
            
            
            100,000
            
            Debt
      Repayment6,500,000
            
            
            $
            209,725





We
believe these transactions did not involve any public offering within the
meaning of Section 4(2) of the Securities Act of 1933, as amended (the “Act”),
and accordingly are exempt from the registration requirements of the Act and
from various similar state exemptions.





Purchase
of Equity Securities by the Small Business Issuer and Affiliated
Purchasers





During the fourth quarter of the year
ended December 31, 2009, neither the Company nor any of its affiliates purchased
any equity securities of the Company.





ITEM
6.  SELECTED FINANCIAL DATA





This
information is not required because we are a smaller reporting
company.





ITEM
7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS





Forward
Looking Statements





Except
for historical information, the following Management’s Discussion and Analysis
contains forward-looking statements based upon current expectations that involve
certain risks and uncertainties.  Such forward-looking statements
include statements regarding, among other things, (a) our estimates of mineral
reserves and mineralized material, (b) our projected sales and profitability,
(c) our growth strategies, (d) anticipated trends in our industry, (e) our
future financing plans, (f) our anticipated needs for working capital, (g) our
lack of operational experience and (h) the benefits related to ownership of our
common stock.  Forward-looking statements, which involve assumptions
and describe our future plans, strategies, and expectations, are generally
identifiable by use of the words “may,” “will,” “should,” “expect,”
“anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of
these words or other variations on these words or comparable
terminology.  This information may involve known and unknown risks,
uncertainties, and other factors that may cause our actual results, performance,
or achievements to be materially different from the future results, performance,
or achievements expressed or implied by any forward-looking
statements.  These statements may be found under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
“Description of Business,” as well as in this Report
generally.  Actual events or results may differ materially from those
discussed in forward-looking statements as a result of various factors,
including, without limitation, the risks outlined under “Risk Factors” and
matters described in this Report generally.  In light of these risks
and uncertainties, there can be no assurance that the forward-looking statements
contained in this Report will in fact occur as projected.


24





Overview





Golden
Phoenix Minerals, Inc. (the “Company,” “Golden Phoenix,” “we,” “us” or “our”) is
a mineral exploration, development and production company formed in Minnesota on
June 2, 1997.  On May 30, 2008, we reincorporated in
Nevada.  Our business includes acquiring and consolidating mineral
properties with potential production and future growth through exploration
discoveries.  Acquisition emphasis is focused on properties containing
gold, silver, molybdenum and other strategic minerals that present low political
and financial risk and exceptional upside potential. Currently, our main focus
is in Nevada.





On May
13, 2009, we completed an agreement to sell 100% of our ownership interest in
the Ashdown Project LLC (the “Ashdown LLC”) and, on March 10, 2010, closed an
agreement dated December, 2009 for the purpose of contributing our Mineral Ridge
Mine into the Mineral Ridge LLC to place the Mineral Ridge Mine into
production.  As a result, the Ashdown LLC and the Mineral Ridge Mine
are classified as discontinued operations for all periods presented in the
consolidated financial statements.





We are
pleased to report the completion of the sale of our interest in the Ashdown, LLC
and believe that we have received fair and valuable consideration in the form of
the note receivable of $5.3 million.  In addition, we believe that
substantial value is represented in the assets of the Ashdown LLC that have been
pledged as collateral for the note receivable.  However, generally
accepted accounting principles preclude us from presenting an asset in our
consolidated balance sheet as of December 31, 2009 and recognizing any gain on
sale of our interest in the Ashdown LLC attributed to the note due to the
uncertainty of collecting the note or realizing any value from the assets and
property of the Ashdown LLC upon foreclosure.  Therefore, we have
recorded a 100% valuation allowance against the $5.3 million note receivable as
of December 31, 2009.  Payments received from WEG in the future, if
any, will be recorded as either interest income or gain on sale of our interest
in the Ashdown LLC.





With the
sale of our interest in the Ashdown, LLC and the formation of the Mineral Ridge
LLC, our primary mining property assets are the Northern Champion molybdenum
property located in Ontario, Canada and the Duff claims block, located adjacent
to the Ashdown Mine in northwestern Nevada.





In
February 2007, we completed a purchase agreement with four individuals for the
Northern Champion molybdenum property located in Ontario, Canada, and we plan to
take bulk samples for metallurgical and market testing, and to actively explore
and delineate molybdenum mineralization on the property as funding is
available.  With available funding, we also plan to commence a surface
mapping and sampling program covering sections of the 4,400 acres of claims
within the Duff claims block, which was acquired in 2007.





Going
Concern





Our
consolidated financial statements are prepared using accounting principles
generally accepted in the United States of America applicable to a going
concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business.  However, we have a
history of operating losses since our inception in 1997, and have an accumulated
deficit of $47,421,049 and a total stockholders’ deficit of $6,355,454 at
December 31, 2009, which together raises doubt about our ability to continue as
a going concern.  The accompanying consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.





Historically,
we have obtained working capital from debt and equity financing, the exercise of
options
and warrants, and from a production payment purchase agreement to fund our
activities.  The deterioration of capital markets has made it
difficult for us to obtain debt and equity financing.  On January 30,
2009, we entered into a Bridge Loan and Debt Restructuring Agreement with
Crestview Capital Master, LLC (“Crestview), whereby we borrowed $1
million.  Subsequently, the maturity date of this loan was extended
from November 6, 2009 to February 6, 2010, and from February 6 to the earlier of
the completion of a joint venture with respect to the Mineral Ridge Mine or
April 6, 2010.  The loan was repaid in full on March 10, 2010,
concurrent with the closing of the Mineral Ridge LLC, however, we remain
obligated to Crestview under that certain Debt Restructuring Secured Promissory
Note in the principal amount of $1 million issued pursuant to the Bridge Loan
and Debt Restructuring Agreement, which has a maturity date of August 6,
2010.


25





The
operations of the Ashdown LLC have also funded a significant portion of our
operating costs and expenses.  We suspended the mining operations of
the Ashdown LLC in November 2008 in response to a substantial decline of
molybdenum oxide market prices, with only incidental revenues during the period
from January 1, 2009 through May 13, 2009.  On May 13, 2009, we
completed an agreement to sell 100% of its ownership interest in the Ashdown
LLC. to Win-Eldrich Gold, Inc. (“WEG”).  The $5.3 million purchase
price due us will be payable over a 72 month term, and WEG will assume
substantially all of the liabilities of the Ashdown LLC.  There can be
no guarantee or assurance that WEG will be successful in its ability to raise
sufficient capital to commence again the operations of the Ashdown LLC, attain a
sustained profitable level of operations from the Ashdown LLC, or pay us the
$5.3 million promissory note.





On March 10, 2010, subsequent to our
year end, we closed the Exploration, Development and Mining Joint Venture
Members’ Agreement (the “Members’ Agreement”) entered into on December 31, 2009
with Scorpio Gold and Scorpio US.  At the closing of the Members’
Agreement, we sold Scorpio US an undivided 70% interest in the Mineral Ridge
Mine for a purchase price of $3,750,000 cash (less those amounts previously
advanced to us by Scorpio Gold) and 7,824,750 common shares of stock of Scorpio
Gold at a deemed price of Cdn $0.50 per share.  Immediately following
the sale, the Company and Scorpio US each contributed their respective interests
in the Mineral Ridge Mine to the Mineral Ridge LLC, a joint venture formed to
own and operate the Mineral Ridge Mine.  We currently own a 30%
membership interest in the Mineral Ridge LLC.  Scorpio US owns a 70%
membership interest in and is the Manager of the Mineral Ridge LLC, and has
agreed to carry all finance costs necessary to bring the Mineral Ridge Mine into
production.  There can be no assurance that Scorpio US will be
successful in its ability to raise sufficient capital to fund the development of
the Mineral Ridge Mine and attain a successful level of operations.





With the shutdown of Ashdown operations
and the ongoing difficulty raising capital, certain of our vendors and lenders
have initiated actions to collect balances that are past due.  We are
negotiating mutually beneficial settlements and payment plans with these
parties.  With the closing of the Mineral Ridge LLC, we did receive
additional funds to repay certain obligations, including repayment of a
$1,000,000 bridge loan.  However, the ability to bring all obligations
current is dependent on the our ability to raise additional
capital.  Further, there can be no assurance that we will attain a
successful level of operations from our other properties, or to continue to
raise capital at favorable rates or at all.  If we are unable to
obtain profitable operations and positive operating cash flows and raise
sufficient capital to meet scheduled and past due debt obligations, we may be
forced to scale back our development plans or to significantly reduce or
terminate operations and file for reorganization or liquidation under the
bankruptcy laws.  The consolidated financial statements do not include
any adjustments that might result from the outcome of these
uncertainties.


26


Critical
Accounting Policies





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make a
wide variety of estimates and assumptions that affect: (1) the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities as
of the date of the financial statements, and (2) the reported amounts of
revenues and expenses during the reporting periods covered by the financial
statements. Our management routinely makes judgments and estimates about the
effect of matters that are inherently uncertain. As the number of variables and
assumptions affecting the future resolution of the uncertainties increases,
these judgments become even more subjective and complex. We have identified
certain accounting policies that are most important to the portrayal of our
current financial condition and results of operations. Our significant
accounting policies are disclosed in Note 1 of the Notes to the Consolidated
Financial Statements, and several of these critical accounting policies are as
follows:





Property and
Equipment.Property and equipment are stated at cost.
Depreciation and amortization are calculated using the straight-line method over
estimated useful lives of the assets, ranging from 5 to 7 years.





Mine
development costs are capitalized after proven and probable reserves have been
identified.  Amortization of mine development costs will be calculated
using the units-of-production method over the expected life of the operation
based on the estimated proven and probable reserves.  With the sale of
our interest in the Ashdown LLC and the formation of the Mineral Ridge LLC, as
of December 31, 2009, we had no proven or probable
reserves.  Accordingly, through December 31, 2009, mining equipment
and buildings are currently being depreciated on a straight-line basis over
their estimated economic useful life rather than on a units-of-production
method.





Property Acquisition and Deferred
Mineral Property Development Costs.Mineral property acquisition and
deferred mineral property development costs are recorded at cost and will be
capitalized once determination has been made that a mineral property has proven
or probable reserves that can be produced profitably. On the commencement of
profitable commercial production, depletion of each mineral property acquisition
and associated deferred property development costs will be computed on the units
of production basis using estimated proven and probable reserves.





Exploration
Properties.  Mineral exploration expenditures are expensed as
incurred. Property acquisition costs relating to exploration properties are also
expensed until the economic viability of the project is determined and proven
and probable reserves quantified. Costs associated with economically viable
projects are depreciated and amortized in accordance with the policies described
above.





Proven and Probable Ore
Reserves.On a periodic basis, management reviews the reserves
that reflect estimates of the quantities and grades of metals at our mineral
properties which management believes can be recovered and sold at prices in
excess of the total cost associated with mining and processing the mineralized
material. Management’s calculations of proven and probable ore reserves are
based on, along with independent consultant evaluations, in-house engineering
and geological estimates using current operating costs, metals prices and demand
for our products. Periodically, management obtains external determinations of
reserves.





Reserve
estimates will change as existing reserves are depleted through production, as
well as changes in estimates caused by changing production costs and/or metals
prices. Reserves may also be revised based on actual production experience once
production commences. Declines in the market price of metals, as well as
increased production or capital costs or reduced recovery rates, may render ore
reserves uneconomic to exploit. Should that occur, restatements or reductions in
reserves and asset write downs in
the applicable accounting periods may be required. Reserves should not be
interpreted as assurances of mine life or of the profitability of current or
future operations. No assurance can be given that the estimate of the amount of
metal or the indicated level of recovery of these metals will be
realized.








27




Closure, Reclamation and Remediation
Costs.Current laws and regulations require certain closure,
reclamation and remediation work to be done on mineral properties as a result of
exploration, development and operating activities.  We periodically
review the activities performed on our mineral properties and makes estimates of
closure, reclamation and remediation work that will need to be performed as
required by those laws and regulations and makes estimates of amounts that are
expected to be incurred when the closure, reclamation and remediation work is
expected to be performed. Future closure, reclamation and environmental related
expenditures are difficult to estimate in many circumstances due to the early
stages of investigation, uncertainties associated with defining the nature and
extent of environmental contamination, the uncertainties relating to specific
reclamation and remediation methods and costs, application and changing of
environmental laws, regulations and interpretation by regulatory authorities and
the possible participation of other potentially responsible
parties.





We have
estimated costs associated with closure, reclamation and environmental
reclamation of the Mineral Ridge property, which are included in its
consolidated financial statements in liabilities of discontinued operations, in
accordance with generally accepted accounting principles, in accordance with the
Financial Accounting Standards Board (FASB) Accounting Standards Codification
(“ASC”) Topic 410, Asset
Retirement and Environment Obligations.





Property Evaluations and Impairment
of Long-Lived Assets.  We review and evaluate the carrying
amounts of our mining properties and related buildings and equipment, and other
long-lived assets when events or changes in circumstances indicate that the
carrying amount may not be recoverable. Estimated future net cash flows, on an
undiscounted basis, from a property or asset are calculated using estimated
recoverable minerals (considering current proven and probable reserves and
mineralization expected to be classified as reserves where applicable);
estimated future mineral price realization (considering historical and current
prices, price trends and related factors); and operating, capital and
reclamation costs. Reduction in the carrying value of property, plant and
equipment, or other long-lived assets, with a corresponding charge to earnings,
are recorded to the extent that the estimated future net cash flows are less
than the carrying value.





Estimates
of future cash flows are subject to risks and uncertainties. It is reasonably
possible that changes in circumstances could occur which may affect the
recoverability of our properties and long-lived assets.





Note Receivable.As
of December 31, 2009, the note receivable of $5.3 million received from WEG in
the sale of our interest in the Ashdown LLC has been reduced by a 100% valuation
allowance due to the uncertainty of collecting the note or realizing any value
from the assets and property of the Ashdown LLC upon
foreclosure.  Payments received from WEG in the future, if any, will
be recorded as either interest income or gain on sale of our interest in the
Ashdown LLC.





Revenue
Recognition. Revenue
from the sale of precious metals is recognized when title and risk of ownership
passes to the buyer and the collection of sales proceeds is assured.


28




Income Taxes.We
recognize a liability or asset for deferred tax consequences of all temporary
differences between the tax bases of assets and liabilities and their reported
amounts in the consolidated financial statements that will result in taxable or
deductible amounts in future years when the reported amounts of the assets and
liabilities are recovered or settled.  Deferred tax items mainly
relate to net operating loss carry forwards and accrued
expenses.  These deferred tax assets or liabilities are measured using
the enacted tax rates that will be in effect when the differences are expected
to reverse.  The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.  Deferred tax assets are reviewed periodically for
recoverability, and valuation allowances are provided when it is more likely
than not that some or all of the deferred tax assets may not be
realized.  As of December 31, 2009 and 2008, we have fully reduced our
deferred tax assets by recording a valuation allowance.





Stock-Based Compensation and Equity
Transactions.We have stock-based compensation plans, which
are described more fully in the Notes to our Consolidated Financial
Statements.  In accordance with ASC Topic 718, Compensation – Stock Compensation,we measure the compensation cost of stock options and other stock-based
awards to employees and directors at fair value at the grant date and recognize
compensation expense over the requisite service period for awards expected to
vest.





Except
for transactions with employees and directors that are within the scope of ASC
Topic 718, all transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the
fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably
measurable.  Additionally, in accordance with ASC Topic 505-50, Equity-Based Payments to
Non-Employees, we have determined that the dates used to value the
transaction are either: (1) the date at which a commitment for performance by
the counter party to earn the equity instruments is established; or (2) the date
at which the counter party’s performance is complete.





Recent
Accounting Pronouncements





In June
2009, the FASB issued guidance now codified as ASC Topic 105, Generally Accepted Accounting
Principles.  This standard establishes the FASB Accounting
Standards CodificationTM as the source of authoritative U.S. generally accounting
principles (GAAP) recognized by the FASB to be applied to nongovernmental
entities.  Rules and interpretive releases of the Securities and
Exchange Commission (SEC) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants.  On the effective
date of this standard, the Codification will supersede all then-existing non-SEC
accounting and reporting standards.  All other nongrandfathered
non-SEC accounting literature not included in the Codification will become
nonauthoritative.  This standard is effective for financial statements
issued for interim and annual periods ending after September 15, 2009, or our
quarter ended September 30, 2009. We implemented this standard with no material
impact on our consolidated financial statements.





In May
2009, the FASB issued guidance now incorporated into ASC Topic 855, Subsequent
Events.This standard sets forth: (a) the period after the
balance sheet during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements; (b) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements; and (c) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet
date.  The standard is effective for interim and annual periods ending
after June 15, 2009, or our fiscal quarter
ended June 30, 2009.  The implementation of this standard did not have
a material impact on our consolidated financial
statements.


29





In
December 2007, the FASB issued guidance now incorporated into ASC Topic 810,
Consolidation, that
requires the ownership interests in subsidiaries held by parties other than the
parent (minority interests) be clearly identified, labeled, and presented within
the equity section of the consolidated balance sheet.  The guidance
also requires the amount of consolidated net income attributable to the parent
and to the noncontrolling interest be clearly identified and presented on the
face of the consolidated statement of operations, and that entities provide
sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling
owners.  The guidance is effective for fiscal years beginning on or
after December 15, 2008, or our fiscal year beginning January 1,
2009.  Effective January 1, 2009, we revised our presentation for the
noncontrolling interest in the Ashdown LLC in the accompanying consolidated
financial statements for the years ended December 31, 2009 and
2008.








RESULTS
OF OPERATIONS





Revenues





With the
sale of our interest in the Ashdown LLC and the presentation of its operations
as discontinued operations in our consolidated financial statements, we reported
no sales of minerals for the years ended December 31, 2009 and
2008.





During
the year ended December 31, 2009, we had rental income from the use of our
drilling equipment of $63,056.  We had no rental income in the prior
year.





Operating
Costs and Expenses





Operating
costs and expenses reported in the accompanying condensed consolidated
statements of operations exclude the operating costs and expenses of the Ashdown
LLC and the Mineral Ridge Mine due to the classification of these operations as
discontinued operations.





General
and administrative expenses were $1,760,363 and $3,023,051 for the years ended
December 31, 2009 and 2008, respectively.  General and administrative
expenses include investor relations, salaries and wages of officers and office
and accounting personnel, legal and professional fees, and stock-based
compensation expense.  The decrease in the current year is due to the
substantial reduction in the number of employees and related administrative
expenses pursuant to the suspension of operations at Ashdown and the sale of our
interest in the Ashdown LLC.





Depreciation
and amortization expense for the years ended December 31, 2009 and 2008 was
$78,438 and $109,702, respectively.  Depreciation and amortization
expense in the current year is less than in the prior year due to the retirement
of certain mining and milling equipment in the current year.





Royalties
expense for the year ended December 31, 2009 was $70,090, representing an amount
that was converted to a note payable to an officer of the
Company.  Royalties expense for the year ended December 31, 2008 was
$1,158,337, comprised of cash royalty payments to members of Ashdown Milling and
the issuance of our common stock to two of its members to buy out their
membership interests in Ashdown Milling, thus reducing future royalty
obligations on Ashdown LLC production.




30


Other
Income (Expense)





Interest
and other income for the year ended December 31, 2009 and 2008 was $4,541 and
$11,264, respectively.  The decrease in interest and other income in
the current year is due to decreased levels of interest-bearing
deposits.





Interest
expense for the years ended December 31, 2009 and 2008 was $760,521 and $97,089,
respectively.  The increase in interest expense during the current
year is due primarily to the addition of $2,000,000 of interest-bearing debt in
the first quarter of 2009 and interest expense recorded upon the issuance of
warrants associated with fund raising activities.





During
the years ended December 31, 2009 and 2008, we reported a gain on extinguishment
of debt of $1,032,579 and $46,528, respectively.  The increase in the
gain in the current year resulted primarily from the restructuring of a
production payment obligation of $1,974,456 to a long-term debt obligation of
$1,000,000.





We
reported a loss on sale of marketable securities in the year ended December 31,
2008 of $141,482.  We had no marketable security transactions during
the year ended December 31, 2009.





Gains or
losses on the disposal of property and equipment were insignificant to our
consolidated financial statements in the years ended December 31, 2009 and
2008.





Discontinued
Operations





We have
reported the results of operations of the Ashdown LLC and the Mineral Ridge Mine
in our consolidated financial statements as discontinued operations for the
years ended December 31, 2009 and 2008, including the following:





2009
            
            
            2008Ashdown
              LLC
            
            
            Mineral
              Ridge
            
            
            Total
            
            
            Ashdown
              LLC
            
            
            Mineral
              Ridge
            
            
            TotalRevenues
            
            $
            321,115
            
            
            $
            -
            
            
            $
            321,115
            
            
            $
            10,537,370
            
            
            $
            -
            
            
            $
            10,537,370Loss
      before income taxes
            
            $
            (668,186
            )
            
            $
            (593,423
            )
            
            $
            (1,261,609
            )
            
            $
            (1,014,488
            )
            
            $
            (2,062,188
            )
            
            $
            (3,076,676
            )Provision
      for income taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Loss
      from discontinued operations
            
            
            (668,186
            )
            
            
            (593,423
            )
            
            
            (1,261,609
            )
            
            
            (1,014,488
            )
            
            
            (2,062,188
            )
            
            
            (3,076,676
            )Loss
      on sale of interest in joint venture
            
            
            (235,303
            )
            
            
            -
            
            
            
            (235,303
            )
            
            
            -
            
            
            
            -
            
            
            
            -Loss
      from discontinued operations
            
            
            (903,489
            )
            
            
            (593,423
            )
            
            
            (1,496,912
            )
            
            
            (1,014,488
            )
            
            
            (2,062,188
            )
            
            
            (3,076,676
            )Loss
      from discontinued operations attributable to noncontrolling
      interest
            
            
            267,274
            
            
            
            -
            
            
            
            267,274
            
            
            
            496,352
            
            
            
            -
            
            
            
            496,352Loss
      from discontinued operations attributable to the Company
            
            $
            (636,215
            )
            
            $
            (593,423
            )
            
            $
            (1,229,638
            )
            
            $
            (518,136
            )
            
            $
            (2,062,188
            )
            
            $
            (2,580,324
            )





The
Ashdown LLC commenced operations and had its first sale of molybdenite
concentrates in December 2006, with operations and sales ramping up during most
of 2007.  We suspended the mining operations of the Ashdown LLC in
November 2008 in response to a substantial decline of molybdenum oxide
market prices, with only incidental revenues during the period from January 1,
2009 through May 13, 2009, the date we sold our interest in the Ashdown
LLC.  No amounts for the Ashdown LLC are included in our consolidated
statements of operations subsequent to that date.


31





The
Ashdown LLC reported a loss of $668,186 for the year ended December 31, 2009
compared to a loss of $1,014,488 for the year ended December 31,
2008.  As discussed above, mining operations were suspended and we had
only incidental revenues in fiscal 2009 up to the date of sale of our interest
in the Ashdown LLC.  We recognized a loss on sale of the interest in
the Ashdown LLC of $235,303 in the year ended December 31, 2009.





Amounts
included in loss from discontinued operations for the Mineral Ridge Mine include
costs and expenses to maintain the property on standby status and exploration
and development activities.  These expenses decreased in the current
year due to lack of funding and the suspension of related activities of our
drilling department.





Liquidity
And Capital Resources





We have a
history of operating losses since our inception in 1997, and had an accumulated
deficit of $47,421,049 and a working capital deficit of $6,201,847 at December
31, 2009.





During
the year ended December 31, 2009, we used net cash of $1,220,429 in operating
activities, compared to $1,314,903 net cash used in operating activities during
the year ended December 31, 2008.  The decrease in net cash used in
operating activities in the current year is primarily due to the elimination of
the non-cash gain on extinguishment of debt of $1,032,579 in the current year
calculation.  Substantially all of the gain on extinguishment of debt
resulted from the restructuring of a production payment obligation of $1,974,456
to a long-term debt obligation of $1,000,000.





During
the year ended December 31, 2009, net cash provided by investing activities was
$896,528 consisting of $900,000 in deposits received from Scorpio Gold, $353 in
proceeds for the purchase of property and equipment, partially offset by the
acquisition of property and equipment of $3,825.  During the year
ended December 31, 2008, net cash used in investing activities was $222,498
consisting of $243,057 for the purchase of property and equipment, partially
offset by proceeds from the sale of marketable securities of
$20,559.





During
the year ended December 31, 2009, net cash provided by financing activities was
$1,117,997, comprised of proceeds from the issuance of debt of $1,000,000,
proceeds from the amounts due related parties of $6,000, proceeds from the
issuance of common stock of $249,400, and proceeds from the exercise of options
and warrants of $3,000, partially offset by the payment of severance obligations
of $21,429, debt of $72,905 and amounts due related parties of
$46,069.





During
the year ended December 31, 2008, net cash provided by financing activities was
$636,807, comprised of proceeds from the amounts due related parties of
$171,370, proceeds from the issuance of common stock of $739,122, and proceeds
from the exercise of options and warrants of $25,658, partially offset by
payments of severance obligations of $113,247, debt of $31,172, amounts due
related parties of $114,898 and the payments of production payment obligation –
related party of $40,026.





Our
liquidity has been negatively impacted by the deterioration of capital markets,
making it increasingly difficult for us to obtain debt and equity
financing.  In addition, due to significant declines in the market
price of molybdenum, during the first week of November 2008, we suspended the
operations of the Ashdown LLC, where production costs per pound exceeded the
market price per pound.  On February 25, 2009, we entered into an
agreement to sell 100% of our ownership interest in the Ashdown LLC to
Win-Eldrich Gold, Inc. (“WEG”) for $5.3 million.  The sale was
completed on May 13, 2009.  As a result, we currently have no
operating revenues and we will require additional funding from debt and equity
financing to meet our current obligations, including substantial obligations
that are past due.


32





The $5.3
million purchase price due us from WEG will be payable over a 72 month term
commencing one year from the closing of the sale, and WEG will assume
substantially all of the liabilities of the Ashdown LLC.  There can be
no guarantee or assurance that WEG will be successful in its ability to raise
sufficient capital to recommence the operations of the Ashdown LLC, attain a
sustained profitable level of operations from the Ashdown LLC, or pay us the
$5.3 million promissory note.





We
entered into a letter agreement dated May 19, 2009, as subsequently amended on
July 17, 2009, with Scorpio Gold for the purpose of completing due diligence
prior to entering into a possible joint venture to place the Mineral Ridge Mine
into production.  Upon execution of the letter agreement, Scorpio Gold
paid us $50,000 and commenced a 15 day due diligence period.  On June
18, 2009, Scorpio Gold notified us that it had completed preliminary due
diligence and intended to proceed with the acquisition of the Mineral Ridge Mine
and the formation of a joint venture.





Through
December 31, 2009, Scorpio Gold paid us an additional $850,000 plus certain
expenses, as part of ongoing monthly payments to be credited toward the ultimate
purchase price while the parties finalized negotiations and definitive
agreements.  The payments to us are non-refundable, and the total
payments through December 31, 2009 of $900,000 have been recorded as a deposit,
a current liability.





On March
10, 2010, subsequent to year end, we closed the Members’ Agreement entered into
on December 31, 2009 with Scorpio Gold and Scorpio US.  At the closing
of the Members’ Agreement, we sold Scorpio US an undivided 70% interest in the
Mineral Ridge Mine for a purchase price of $3,750,000 cash (less those amounts
previously advanced to us by Scorpio Gold) and 7,824,750 common shares of stock
of Scorpio Gold at a deemed price of Cdn $0.50 per share.  Immediately
following the sale, the Company and Scorpio US each contributed their respective
interests in the Mineral Ridge Mine to the Mineral Ridge LLC to own and operate
the Mineral Ridge Mine.  We also contributed to the Mineral Ridge LLC
our interest in the reclamation bonds related to the Mineral Ridge Mine and
Scorpio US contributed a net smelter royalty encumbering the Mineral Ridge Mine,
which Scorpio US had acquired simultaneously with the closing of the Members’
Agreement.  We currently own a 30% membership interest in the Mineral
Ridge LLC.  Scorpio US owns a 70% membership interest in and is the
Manager of the Mineral Ridge LLC, and has agreed to carry all finance costs
necessary to bring the Mineral Ridge Mine into production and, provided it does
so within 30 months of the closing of the Members’ Agreement, will then have the
right to increase its interest in the Mineral Ridge LLC by 10% to a total of
80%.  In the event Scorpio US qualifies to increase its ownership
interest to 80%, it will also have the option to purchase our then remaining 20%
interest for a period of 24 months following the commencement of commercial
production.  There can be no assurance that Scorpio US will be
successful in its ability to raise sufficient capital to fund the development of
the Mineral Ridge Mine and attain a successful level of operations.





In connection with the closing of the
Members’ Agreement and the formation of the Mineral Ridge LLC on March 10, 2010,
we repaid the $1,000,000 Bridge Loan and Crestview released its security
interest in the Mineral Ridge Mine.





At
December 31, 2009, we had cash of $94,785, but total current liabilities of
$6,312,136.  Our current liabilities at December 31, 2009 included
deposits received from Scorpio Gold totaling $900,000, which were credited to
the cash portion of the purchase price of our 70% interest in the Mineral Ridge
Mine. With no operating revenues and difficulties experienced in raising debt
and equity capital, our current
cash and cash equivalents and the proceeds from the sale of our interest in the
Mineral Ridge Mine will be sufficient for our current level of operations in the
near term.  We have, however, significantly reduced our operating
costs, including a reduction in force.  In order to increase the level
of our operations, commence again the activities of our drilling department and
explore or develop our mineral properties, we will require additional
capital.


33





With the
shutdown of Ashdown operations and the ongoing difficulty raising capital,
certain of our vendors and lenders have initiated actions to collect balances
that are past due.  We are negotiating mutually beneficial settlements
and payment plans with these parties.  However, the ability to bring
the obligations current is dependent on our ability to raise additional
capital.  Further, there can be no assurance that we will attain a
successful level of operations from our other properties, or to continue to
raise capital at favorable rates or at all.  If we are unable to
obtain profitable operations and positive operating cash flows and raise
sufficient capital to meet scheduled and past due debt obligations, we may be
forced to scale back our development plans or to significantly reduce or
terminate operations and file for reorganization or liquidation under the
bankruptcy laws.





On
January 30, 2009, we entered into a Bridge Loan and Debt Restructuring Agreement
(the “Agreement”) with Crestview Capital Master, LLC (the “Lender”), whereby the
Company and the Lender entered into a bridge loan and a restructuring of the
original debt in the amount of $1,974,456 owed by us to the Lender pursuant to
the Production Payment Purchase Agreement and Assignment, dated June 12, 2007
(the “Original Debt”).





Pursuant
to the Agreement, we borrowed from the Lender the principal amount of $1,000,000
(the “Principal Amount”) in exchange for the Company issuing the Lender a Bridge
Loan Secured Promissory Note (the “Bridge Note”) for the Principal Amount plus
interest to accrue on a quarterly basis at a rate of the Wall Street Journal
Prime Rate plus 2%.  On October 26, 2009, we and the Lender agreed to
restructure the Bridge Note to extend the maturity date from November 6, 2009 to
February 6, 2010.  Pursuant to a side letter agreement between the
Company and the Lender dated January 13, 2010, the Lender agreed to extend the
Maturity Date for successive one week periods for an extension fee of $10,000
per weekly period, prorated for any portion thereof, but in no event beyond
April 6, 2010.  On March 10, 2010, the Bridge Note was repaid in full
concurrently with the formation of the Mineral Ridge LLC.





Additionally,
pursuant to the Agreement, the Company and Lender restructured the Original
Debt, which was recorded as a production payment obligation, a current liability
in our consolidated balance sheet as of December 31, 2008.  In
consideration of the reduction of the Original Debt from $1,974,456 to
$1,000,000, we executed a Secured Promissory Note in the principal amount of
$1,000,000 (the “Debt Restructuring Note”) together with interest at a rate
equal to the Wall Street Journal Prime Rate plus 2%, with a maturity date of
August 6, 2010, as well as issue certain warrants to purchase Company common
stock as further described below.  As a result, we recorded a gain on
extinguishment of debt of $974,456 in the accompanying consolidated statement of
operations for the year ended December 31, 2009.  Upon formation
of the joint venture with Scorpio US in relation to the Mineral Ridge
Property, we issued an irrevocable assignment to the Lender of 50% of all
distributions to be made to us by the joint venture as prepayment for the
amount outstanding on the Debt Restructuring Note.  Upon payment in
full of the Debt Restructuring Note and any additional note issued pursuant to
Section 3 of the Bridge Note, the Lender will release the joint venture from the
assignment.





On
October 26, 2009, the Company and Crestview also agreed to restructure the terms
of the $1 million Debt Restructuring Note to change the maturity date from
February 6, 2011 to August 6, 2010.  We executed an Amended and
Restated Debt Restructuring Promissory Note dated October 29, 2009 to reflect
the same.  The terms of the Amended and Restated Debt Restructuring
Note were also modified to require
us to prepay the Amended and Restated Debt Restructuring Note to the extent of
50% of any debt or equity financing received by us.  As a result of
the change in the maturity date, the Debt Restructuring Loan of $1 million has
been recorded as a current liability in the accompanying consolidated balance
sheet at December 31, 2009.


34





We paid
the Lender $50,000 as part of the consideration for amending each of the Bridge
Loan and debt restructuring agreements set forth above.





As of the
Closing of the Bridge Loan and Debt Restructuring, and as additional
consideration for the restructuring of the Original Debt, we issued to the
Lender warrants to purchase 23,000,000 shares of the Company’s common stock, at
an exercise price of $0.03 per share, for a purchase period of 24 months (the
“Debt Restructuring Warrants”). The Debt Restructuring Warrants and the Bridge
Warrants (collectively referred to herein as the “Warrants”) are subject to
certain registration rights, which the Lender, at present, has agreed to waive
in lieu of utilizing Rule 144, as necessary, to remove any restrictive legends
on its securities.  The provisions of the Debt Restructuring Warrants
were modified pursuant to an Amended and Restated Restructuring Warrant dated
October 29, 2009 to provide that in the event there is an issuance of shares or
common stock, convertible debt or equity, or warrants or options, at a price per
share or convertible or exercisable at a price per share below the Warrant Price
(as defined), then the Warrant Price shall be reduced to the price per share of
the common stock so issued or issuable, and the number of Warrant Shares (as
defined) shall be adjusted to the extent required to enable the Holder to
acquire additional shares of common stock representing the same percentage of
the shares issued and/or issuable as a result of the transaction as the number
of Warrant Shares exercisable immediately prior to the transactions represents
of the number of shares of common stock issued and outstanding immediately prior
to the transaction.





As
security for the Bridge Note and the Debt Restructuring Note, the Parties agreed
to amend and restate their Security Agreement, dated June 12, 2007, which
secures the Company’s repayment obligations pursuant to the Agreement (the
“Amended Security Agreement”).  The secured interest in favor of the
Lender has been perfected by the filing of a UCC-1 Financing Statement with the
Nevada Secretary of State as well as the filing of a Deed of Trust and Mortgage
with Esmeralda County.





Pursuant
to the Agreement, in consideration of our issuance of the Bridge Note, the Debt
Restructuring Note, the Debt Restructuring Warrants, and the Amended Security
Agreement, the Lender released us from all past, present, and future claims
relating to the Original Debt provided that we pay the interest and principal of
the current obligations on the day such interest and principal become
payable.





Because
production payments from the Ashdown mine were not assured at the time of the
agreement with Ashdown Milling, the transaction was originally accounted for as
the sale of an interest in mineral properties with the related gain to be
deferred until we began making payments according the terms of the
agreement.  A total of $1,500,000 was advanced to us pursuant to this
agreement, with the proceeds allocated as follows.





Common
      stock
            
            $
            370,100Warrants
            
            
            225,333Deferred
      revenue
            
            
            904,567$
            1,500,000





The
allocation of the proceeds to common stock was based on the quoted market price
of the Company’s common stock on the date the shares were issued to the Ashdown
Milling members.  The allocation
of the proceeds to warrants, also recorded to common stock, was based on the
estimated value of the warrants calculated using the Black-Scholes valuation
model.


35





With the
commencement of mining operations at the Ashdown mine, we reclassified the
deferred revenue to a production payment obligation – related party, a current
liability, to be repaid from our share of production distributions received from
the Ashdown LLC.  As of December 31, 2008, we had paid the $904,567
production payment obligation.  Amounts paid to Ashdown Milling
members in excess of the original obligation recorded of $904,567 will be
reported as royalties expense.





On
February 6, 2008 we bought out the membership interests of two members of
Ashdown Milling, Charles D. Murphy and Acco Investment Inc., in exchange for
1,866,667 shares of the Company’s common stock and $139,092 cash paid to each of
them.  As a result, their membership interests in Ashdown Milling were
extinguished, and our remaining production payment to be paid to Ashdown Milling
was reduced from a 12% net smelter returns royalty on the minerals produced to
7.2%.





For the
year ended December 31, 2008, we reported royalties expense of $1,158,337
comprised of the following:





Common
      stock – 3,733,334 shares at $0.225 per share
            
            $
            840,000Exercise
      of warrants – 300,000 shares at $0.20 per share
            
            
            60,000Cash
      payments
            
            
            258,337$
            1,158,337





As a
consequence of the sale of our interest in the Ashdown LLC, the members of
Ashdown Milling will no longer have a net smelter returns royalty on Ashdown LLC
production.  We intend to pay the remaining royalty obligation as
sales proceeds are received from WEG.





We
continue to investigate other potential financing sources.


36





ITEM
7A.  QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not applicable.





ITEM
8.  FINANCIAL STATEMENTS





Our consolidated financial statements
appear beginning at page F-1.





ITEM 9.  CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING   AND FINANCIAL
DISCLOSURE





None.





ITEM 9A (T).  CONTROLS AND
PROCEDURES





Evaluation
of Disclosure Controls and Procedures





The Company’s management, under the
supervision and with the participation of its chief executive officer and chief
financial officer, evaluated the effectiveness of the design and operation of
the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act) as of December 31, 2009.  Based
on that evaluation, the Company’s chief executive officer and chief financial
officer concluded that the disclosure controls and procedures employed at the
Company were effective to ensure that the information required to be disclosed
by the Company in the reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in SEC rules and forms.





Management’s
Report on Internal Control Over Financial Reporting





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined under Exchange Act Rules
13a-15(f).  The Company’s internal control system is designed to
provide reasonable assurance to its management and board of directors regarding
the preparation and fair presentation of published financial
statements.  Under the supervision and with the participation of our
management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.  Based on our evaluation under that framework,
our management concluded that our internal control over financial reporting was
effective as of December 31, 2009.





We
believe that our consolidated financial statements for the year ended December
31, 2009 included in this report fairly present our financial position, results
of operations and cash flows as of and for the periods presented in all material
respects.





This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.  The Company’s internal control over financial reporting
was not subject to attestation by the Company’s registered public accounting
firm pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only management’s report in this annual
report.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect
misstatements. It should be noted that any system of controls, however well
designed and operated, can provide only reasonable, and not absolute, assurance
that the objectives of the system will be met.  In addition, the
design of any control system is based in part upon certain assumptions about the
likelihood of future events.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.


37





Changes
in Internal Control Over Financial Reporting





There was
no change in the Company’s internal control over financial reporting during the
fourth fiscal quarter, that materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.





ITEM 9B.  OTHER
INFORMATION





None.





38





PART
III





ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE





Directors
and Executive Officers





The
following table sets forth the names and ages of our current directors and
executive officers and positions with us held by each person.  Our
Board of Directors (the “Board”) consists of 6 seats.  Directors serve
for a term of one (1) year and stand for election at our annual meeting of
shareholders.  Pursuant to our Bylaws, a majority of directors may
appoint a successor to fill any vacancy that occurs on the Board between annual
meetings.  Our executive officers are appointed by our Board of
Directors.  There are no family relationships among our directors and
executive officers.





Name
            Age
            PositionThomas
      J. Klein
            47
            Chief
      Executive Officer, DirectorJ.
      Roland Vetter
            58
            Chief
      Financial Officer, DirectorRobert
      P. Martin
            59
            President,
      Secretary, Chairman of the Board, DirectorDavid
      A. Caldwell
            49
            Former Chief Executive
      Officer, Former
      Chief Financial Officer, Former
      DirectorCorby
      G. Anderson
            53
            DirectorKent
      D. Aveson
            57
            DirectorClyde
      C. Harrison
            66
            Director,
      Chair of the Audit CommitteeDonald
      R. Prahl
            63
            Former Chief Operating
      Officer





Biographies





Thomas J.
Klein.  Mr. Klein has been a director of the Company since
December, 2008 and was appointed to the position of Chief Executive Officer,
effective February 1, 2010.  Mr. Klein is a Tier One capital markets
advisor having specialized in high net worth corporate and trust accounts for a
premier Canadian bank.  Additionally, Mr. Klein advises resource-based
small cap companies, assisting in all aspects of creative funding and
restructuring.  Mr. Klein has recently co-founded MI3 Capital, which
is focused on investing in the resource sector, specifically those companies
that are in or near production.  From May, 1996 to August, 2001, Mr.
Klein was an investment advisor at Scotia Capital Markets in the wealth
management division providing investment portfolio advice for high net worth
private and corporate clients.  From September, 2001 to March, 2003,
Mr. Klein joined Blackmont Capital, Inc. as an investment advisor and served on
the internal listing committee.  Mr. Klein provided advice to
corporate clients for mergers and acquisitions as well as initial public
offerings.  From April, 2003 to October, 2003, Mr. Klein worked in
Institutional Sales with PI Financial Corp.  Since October, 2003, Mr.
Klein has worked as a consultant for Private Venture Capital, providing
specialized advice to public and private small cap companies in the resource and
high tech sectors.





J. Roland
Vetter.  Mr. Vetter was
appointed as the Company’s Chief Executive Officer, effective February 1,
2010.  Mr. Vetter is also a Director and served as the Chairman of the
Audit Committee of the Company from May, 2008 until February 1,
2010.  Since 2006, Mr. Vetter has been the CFO of QuadTech
International, Inc.  Since 2004, Mr. Vetter has been CFO and a
director of iPackets International, Inc.  Since May 2008, Mr. Vetter
has been CFO of Albonia Innovative Technologies, Ltd.  Since April
2008, Mr. Vetter has been CFO of Conventus Energy, Inc.  From 2002 to
2008, Mr. Vetter was a director of Dasek Securities, Ltd., a Bermuda
company.  From 2003 to 2005, Mr. Vetter was the president and CFO of
Cardinal Minerals, Inc.  From 2003 to 2004, Mr. Vetter was the CFO of
Globetech Ventures,
Inc.  From 2005 to 2007, Mr. Vetter was the President and CFO of
International Gold Resources, Inc.  From 1986 to 1998, Mr. Vetter held
various positions with Zimco Group, part of the New Mining Business Division of
Anglo American Corporation.  Mr. Vetter was the former Group Financial
Services Director for the Zimco Group and a former Chairman of the Anglo
American Audit Liaison Committee.  Mr. Vetter is a member of both the
Canadian and South African Institute of Chartered Accountants.  He
earned his Bachelor of Commerce and Bachelor of Accounting degrees from the
University of the Witwatersrand in South Africa.


39





Robert P.
Martin.  Effective February 1, 2010, Mr. Martin was appointed
to serve as the Chairman of the Company’s Board.  Mr. Martin has been
President of the Company since January, 2007 and Corporate Secretary since
January, 2006.  Mr. Martin served as Executive Vice President from
January, 2006 to January, 2007.  Mr. Martin first joined the Company
as Director of Corporate Development in 2005.  Since 1992, Mr. Martin
has been the co-owner, CEO and Vice President of Waikiki Beach Activities, Inc.,
a Hawaii-based beach and pool concessionaire under contract to the Hilton
Corporation.  Mr. Martin’s background includes company turn-arounds,
communications, public relations and human resources.  He holds a
Bachelor of Science degree in Political Science from Washington University and
completed post-graduate business studies at the University of
Washington.  Since 1985, Mr. Martin has donated time as President of
Pacific Marine Research, a non-profit education organization based in Seattle,
Washington.





David A.
Caldwell.Effective February 1, 2010, Mr. Caldwell resigned as the Chief
Executive Officer, Chief Financial Officer and as a member of the Board of
Directors of the Company.  Mr. Caldwell had been a Director of the
Company since its inception in 1997.  He had been the Chief Executive
Officer since January, 2007 and the Chief Financial Officer since November,
2008.  Mr. Caldwell served as President and Chief Operating Officer
from January, 2006 to his appointment as Chief Executive Officer in January,
2007.  Further information regarding Mr. Caldwell’s separation can be
found on our Current Report on Form 8-K as filed with the SEC on January 29,
2010.





Corby G.
Anderson, Ph.D.  Dr. Anderson has served as a Director of the
Company since September, 2006.  Since 1997, Dr. Anderson has been a
Director and the Principal Process Engineer for the Center for Advanced Mineral
and Metallurgical Processing at Montana Tech in Butte, Montana.  He is
professionally registered as a Charted Chemical Engineer and as a Qualified
Professional.  In addition to being a full research professor, Dr.
Anderson has 28 years of experience in process, chemical and metallurgical
engineering and industrial plant operations.  He has implemented
hydrometallurgical technologies for precious and base metal recovery, process
control, separations and refining.  Dr. Anderson has been responsible
for engineering design, start-up and operations of mineral processing and
hydrometallurgical plants processing a broad range of precious and base
metals.  He is active in many professional organizations including
participation as an SME Director and Vice President, IPMI Director, Trustee for
Northwest Mining Association and Fellow of the Institution of Chemical
Engineers.  He received his B.Sc., Chemical Engineering, from Montana
State University, his M.Sc., Metallurgical Engineering, from Montana Tech, and
his Ph.D., Metallurgical Engineering, from the University of Idaho. Dr. Anderson
holds several international patents in process engineering.





Kent D.
Aveson.  Mr. Aveson has been a director of the Company since
September, 2006.  From October, 2007 to November, 2008, Mr. Aveson was
the general manger of the Ashdown Project LLC, a subsidiary of the
Company.  From 2005 to October, 2007, Mr. Aveson was the Director of
Continuous Improvement for Barrick Goldstrike Mines, Inc.’s Bald Mountain Mine
in Elko, Nevada.  This involved support of the Underground Division to
problem solve, plan and develop improvement teams, train, and deliver
multi-million dollar annual cost savings.  From 2001 to 2005, Mr.
Aveson held various management positions with Washington Tru Solutions,
Inc.  This involved managing mine waste operations.  From
1997 to 2001, he was manager of mines for Mississippi Potash, Inc.  He
is also a former
member of the Board of Directors for the New Mexico State Mining
Association.  He is a two-time recipient of MSHA’s top Sentinels of
Safety Award and a four-time winner of the New Mexico Operator of the Year
Award. Mr. Aveson has 33 years of mining experience.  Mr. Aveson
earned his B.S. in Geological Engineering from the University of
Utah.


40





Clyde C.
Harrison.  Mr. Harrison has
been a director of the Company since June 27, 2009.  Mr. Harrison was
appointed Chair of the Company’s Audit Committee, effective February 1,
2010.  Most recently, Mr. Harrison was the Founding Member of Beeland
Management Company, LLC.  During his 5-year tenure as its CEO, Mr.
Harrison managed the Rogers Raw Materials Index Funds, which gained 150% while
the benchmark S&P index gained 1%.  From 2004 until 2007, Mr.
Harrison was a member of the board of directors of Geocom Resources, Inc., an
early exploration stage mineral resource company.  Mr. Harrison has
served as a pension fund consultant and has extensive experience as a derivative
trader.  Mr. Harrison began his career in 1968 in finance with Lamson
Brothers.  In 1974, he became General Partner with Carl Icahn,
managing hedge positions for corporate takeovers.  Mr. Harrison later
served as a consultant to Commerz Bank, creating the risk control system
employed to relocate their futures headquarters from Europe to
Chicago.  Mr. Harrison has also served as General Partner for a number
of private investment and trading funds.  Mr. Harrison is a former
member of the Managed Futures Committee of the Chicago Mercantile
Exchange.  He has consulted for NBD Bank and Northern Trust, and Mr.
Harrison has served as a Special Consultant to the Chairman of the Chicago Board
Options Exchange.  Mr. Harrison is a prior member of the International
Monetary Market.




Donald R.
Prahl.  Mr. Prahl served as the Company’s Chief Operating
Officer from January 31, 2007 until July 28, 2009, when the Company and Mr.
Prahl entered into a Separation Agreement.  Formerly, beginning on
August 14, 2006 and ending on January 31, 2007, Mr. Prahl served as the Vice
President of Operations of the Company and the Interim General Manager at the
Ashdown Mine.




Nominations
to the Board of Directors





There were no material changes to the
procedures by which security holders may recommend nominees to our Board of
Directors.





Audit
Committee Financial Expert





We have
established a separate Audit Committee within the meaning of Section 3(a)(58)(A)
of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).  We believe Mr. Vetter, former Audit Committee Chairman, was an
“audit committee financial expert,” within the meaning of Item 407(d)(5) of
Regulation S-K during the fiscal year ended December 31,
2009.  Currently, we believe Mr. Harrison, current Audit Committee
Chairman is an “audit committee financial expert” within the meaning of Item
407(d)(5) of Regulation S-K.





Audit
Committee Report





The Audit
Committee reviews the Company’s internal accounting procedures, consults with
and reviews the services provided by the Company’s independent accountants and
makes recommendations to the Board of Directors regarding the selection of
independent accountants.  In fulfilling its oversight
responsibilities, the Committee has reviewed and discussed the audited financial
statements with management and discussed with the independent auditors the
matters required to be discussed by SAS 61. Management is responsible for the
financial statements and the reporting process, including the system of internal
controls.  The independent auditors are responsible for expressing an
opinion on the conformity of those audited financial statements with generally
accepted accounting principles.


41





The
Committee discussed with the independent auditors, the auditors’ independence
from the management of the Company and received written disclosures and the
letter from the independent accountants required by Independence Standards Board
Standard No. 1.





After
review and discussions, the Committee recommended to the Board that the audited
financial statements be included in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2009.  The Committee also recommended to
the Board that HJ & Associates, LLC be appointed as the Company’s
independent registered public accounting firm for the fiscal year ending
December 31, 2009.





Two
independent directors currently serve on our Audit Committee: Mr. Harrison
(Audit Committee Chairman) and Dr. Anderson.





Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Securities and Exchange Act of 1934, as amended, requires our
officers and directors and persons who own more than 10% of a registered class
of our securities to file reports of change of ownership with the
SEC.  Officers, directors and greater than 10% beneficial owners are
required by SEC regulation to furnish us with copies of all 16(a) forms they
file.





Based
solely on our review of the copies of such forms that we received, or written
representations from certain reporting persons that no forms were required for
those persons, we believe that during fiscal year 2009 all filing requirements
applicable to our officers, directors and greater than 10% beneficial owners
were complied with by such persons in a timely manner.





Involvement
in Certain Legal Proceedings





No
director, executive officer, significant employee or control person of the
Company has been involved in any legal proceeding listed in Item 401(f) of
Regulation S-K in the past 5 years.





Code
of Ethics





We have adopted a code of ethics, which
is available at our website at www.golden-phoenix.com.





ITEM
11.   EXECUTIVE
COMPENSATION





Summary
Compensation





The Compensation Committee of the Board
of Directors reviews and approves executive compensation policies and
practices.  Our executive compensation philosophy and the elements of
our executive compensation program in fiscal 2009 are summarized as
follows:





·
            The
      main objectives of our executive compensation program are attracting,
      motivating and retaining the best executives and aligning their interests
      with our strategy of maximizing shareholder
  value.




·
            During
      fiscal 2009, total direct compensation under our executive compensation
      program consisted of base salary generally determined by employment
      contracts and long-term equity incentive
      opportunities.  However, due to ongoing financial difficulties
      in 2009, significant portions of executive compensation obligations were
      deferred until such time as additional capital is available. There were no
      bonus opportunities in fiscal year
2009.


42





·
            The
      Compensation Committee is responsible for evaluating and setting the
      compensation levels of our executive officers.  In setting
      compensation levels for executive officers other than the Chief Executive
      Officer, the Compensation Committee solicits the input and recommendations
      of our Chief Executive Officer (formerly, David A. Caldwell; currently,
      Thomas J. Klein).





·
            The
      Compensation Committee did not engage outside consultants in determining
      fiscal year 2009 executive
compensation.





·
            The
      Compensation Committee considers all relevant competitive factors in
      determining compensation for our executive
  officers.





The following table sets forth
information regarding all forms of compensation received by the named executive
officers during the fiscal years ended December 31, 2009 and December 31, 2008,
respectively:


Name
      and Principal Position
            
            Year
            Salary
              ($)
            Bonus
              ($)
            Stock
      Awards
              ($)
            Option
      Awards
              ($)(1)
            Non-Equity
      Incentive Plan Compensation
              ($)
            Non-Qualified
      Deferred Compensation Earnings
              ($)
            All
      Other Compensation
              ($)
            Total
              ($)(a)
            
            (b)
            (c)
            (d)
            (e)
            (f)
            (g)
            (h)
            (i)
            (j)Thomas
      J. Klein
              Chief
      Executive Officer(2)
            
            2009
              2008
            $-
              $-
            $-
              $-
            $-
              $-
            $-
              $-
            $-
              $-
            $-
              $-
            $-
              $-
            $-
              $-J.Roland
      Vetter
              Chief
      Financial Officer(3)
            
            2009
              2008
            $-
              $-
            $-
              $-
            $-
              $-
            $-
              $-
            $-
              $-
            $-
              $-
            $-
              $-
            $-
              $-Robert
      P. Martin
              President
            
            2009
              2008
            $-
              $116,108
            $-
              $-
            $-
              $-
            $9,611
              $16,018
            $-
              $-
            $-
              $-
            $12,970(6)
              $-
            $22,581
              $132,126Former
      Executive OfficersDavid
      A. Caldwell
              FormerChief
      Executive Officer
              andChief
      Financial Officer(4)
            
            2009
              2008
            $-
              $127,048
            $-
              $-
            $-
              $-
            $9,611
              $16,018
            $-
              $-
            $-
              $-
            $-
              $-
            $9,611
              $143,066Donald
      R. Prahl
              Former  Chief
      Operating
              Officer(5)
            
            2009
              2008
            $-
              $96,154
            $-
              $-
            $-
              $-
            $12,814
              $32,827
            $-
              $-
            $-
              $-
            $18,000(7)
              $-
            $30,814
              $128,981




43





(1)           The
amounts in column (f) reflect the dollar amount recognized for financial
statement reporting purposes for the years ended December 31, 2009 and 2008 in
accordance with SFAS 123(R).





(2)           Mr.
Klein was appointed as Chief Executive Officer, effective February 1,
2010.  Note that the numbers stated for compensation received in this
table only reflect compensation received in Mr. Klein’s capacity as an executive
officer.  Director compensation is provided below.





(3)           Mr.
Vetter was appointed as Chief Financial Officer, effective February 1,
2010.  Note that the numbers stated for compensation received in this
table only reflect compensation received in Mr. Vetter’s capacity as an
executive officer.  Director compensation is provided
below.





(4)           Mr.
Caldwell resigned as Chief Executive Officer and Chief Financial Officer
effective February 1, 2010.





(5)           Mr.
Prahl resigned as Chief Operating Officer on July 28, 2009.





(6)           The
other compensation paid to Mr. Martin in 2009 consisted of a commission earned
pursuant to his Supplemental Compensation Agreement, discussed further
below.





(7)           The
other compensation paid to Mr. Prahl in 2009 consisted of miscellaneous
non-employee compensation.





The officers’ deferred compensation as
of December 31, 2009 is payable to the following officers or former officers of
the Company:





David
      A. Caldwell
            
            $
            352,873Robert
      P. Martin
            
            
            268,570Other
            
            
            14,915$
            636,358





The
officers’ compensation has been deferred in accordance with the employment
agreements of the respective officers due to working capital constraints, and
was not part of a formal compensation deferral program which would allow the
officers to defer awards earned under other compensation plans.


44


Outstanding
Equity Awards at December 31, 2009 Year-End





Name
            Number
      of Securities Underlying Unexercised Options (#)
            
            Equity
      Incentive Plan Award: Number of Securities Underlying
      Unexercised
              Unearned
              Options
      (#) Unexercisable
            
            Equity
      Incentive Plan Awards: Number of Securities Underlying Unexercised
      Unearned Options (#)
              Exercisable
            
            Option
              Exercise
              Price
              ($)
            
            Option
              Expiration
              Date(a)
            (b)
            
            (c)
            
            (d)
            
            (e)
            
            (f)David
      A. Caldwell(1)
            200,000
            
            -
            
            -
            
            0.15
            
            02/27/2010David
      A. Caldwell
            600,000
            
            -
            
            -
            
            0.24
            
            02/13/2011David
      A. Caldwell
            250,000
            
            -
            
            -
            
            0.19
            
            05/08/2013David
      A. Caldwell
            200,000
            
            -
            
            -
            
            0.19
            
            05/08/2013Robert
      P. Martin
            50,000
            
            -
            
            -
            
            0.15
            
            02/27/2010Robert
      P. Martin
            40,000
            
            -
            
            -
            
            0.19
            
            02/02/2010Robert
      P. Martin
            200,000
            
            -
            
            -
            
            0.24
            
            02/13/2011Robert
      P. Martin
            250,000
            
            
            
            -
            
            0.19
            
            05/08/2013





Columns
(g) through (j) have been omitted since the Company has not granted any stock
awards.





(1)           Mr.
Caldwell resigned as Chief Executive Officer and Chief Financial Officer
effective February 1, 2010.





Compensation
of Directors





Starting
January 1, 2007, the Company adopted a stipend system to compensate our
directors, whereby each director receives $1,000 per
month.  Subsequent to our year ended December 31, 2009, the Board
revised this policy such that director stipends are $500 per
month.  Further, reasonable expenses related to the performance of
duties as a director are reimbursed upon submission of evidence of payment
therefore.  The following table sets forth compensation paid to our
non-executive directors for the fiscal year ended December 31,
2009.





Name
            Fees
      Earned
              or
      Paid
              in
      Cash
              ($)
            Stock
              Awards
              ($)(1)
            Option
              Awards
              ($)(1)
            Non-Equity
              IncentivePlan
              Compensation($)
            Nonqualified
              Deferred
              Compensation
              Earnings
              ($)
            All
              Other
              Compensation
              ($)
            Total
              ($)Thomas
      J. Klein(2)
            $8,000
            $-
            $1,520
            $-
            $-
            $-
            $9,520Corby
      G. Anderson
            $14,000
            $-
            $-
            $-
            $-
            $-
            $14,000Kent
      D. Aveson
            $8,000
            $-
            $-
            $-
            $-
            $-
            $8,000Clyde
      C. Harrison
            $4,000
            $-
            $2,562
            $-
            $-
            $-
            $6,562J.
      Roland Vetter(3)
            $13,000
            $-
            $-
            $-
            $-
            $-
            $13,000David
      A. Caldwell(4)
            $13,000
            $-
            $-
            $-
            $-
            $-
            $13,000




45





(1)           The
amounts for stock awards and option awards reflect the dollar amount recognized
for financial statement reporting purposes for the year ended December 31, 2009
in accordance with SFAS 123(R).





(2)           Mr.
Klein was appointed as Chief Executive Officer, effective February 1,
2010.  This table only reflects compensation received by Mr. Klein in
his capacity as a director.





(3)           Mr.
Vetter was appointed as Chief Financial Officer, effective February 1,
2010.  This table only reflects compensation received by Mr. Vetter in
his capacity as a director.





(4)           Mr.
Caldwell resigned as Chief Executive Officer and Chief Financial Officer
effective February 1, 2010.





Stock
Option Plans





In April,
1998, the Board approved the Golden Phoenix Minerals, Inc. Stock Option
Incentive Plan (the “1997 Stock Option Incentive Plan”), under which employees
and directors of the Company are eligible to receive grants of stock
options.  The Company has reserved a total of 1,000,000 shares of
common stock under the 1997 Stock Option Incentive Plan.  Subsequent
to this, the Employee Stock Incentive Plan of 2002 amended the 1997 Stock Option
Incentive Plan and allows for up to 4,000,000 options to be granted (the “2002
Stock Option Incentive Plan”).  These options are qualified and
registered with the SEC.  In addition to these qualified plans, the
Company created a class of non-registered, non-qualifying options in 2000 to
compensate its three principle employees for deferred salaries.  The
Company’s executive management administers the plan.  Subject to the
provisions of the 2002 Stock Option Incentive Plan, the Board has full and final
authority to select the individuals to whom options will be granted, to grant
the options, and to determine the terms and conditions and the number of shares
issued pursuant thereto.





On
October 23, 2006, the Board approved the 2006 Non-Employee Director Stock Option
Plan providing for 2,000,000 shares of the Company’s common stock to be reserved
for issuance of awards of non-qualified stock options to non-employee directors
of the Company pursuant to the terms and conditions set forth in the
plan.





On
September 21, 2007, the Shareholders approved the 2007 Equity Incentive Plan
providing for 9% of the total number of outstanding shares of the Company’s
common stock at the beginning of each fiscal year to be available for issuance
of awards of Incentive and Nonqualified Stock Options, Stock and Stock
Appreciation Rights.  However, not more than 2,000,000 shares of stock
shall be granted in the form of Incentive Stock Options.  On July 15,
2008, 10,000,000 shares underlying the options under this 2007 Equity Incentive
Plan were registered with the U.S. Securities and Exchange
Commission.





Employment
Agreements of Executive Officers and Directors





David A.
Caldwell





On
January 25, 2010, we entered into an Employment Separation and Severance
Agreement, dated as of January 19, 2010, with David A. Caldwell, our
then-current CEO, interim CFO and a member of the Company’s Board (the “Caldwell
Separation Agreement”).  Pursuant to the terms of the Caldwell
Separation Agreement, Mr. Caldwell resigned from his positions as CEO, CFO and
as a member of the Board effective as of February 1, 2010.  The
Caldwell Separation Agreement terminated the Employment Agreement
between the Company and Mr. Caldwell dated February 27, 2006, as amended by that
certain Addendum to Employment Agreement dated January 31, 2007 (collectively,
the “Caldwell Employment Agreement”).


46





Under the
terms of the Caldwell Separation Agreement, in settlement of all outstanding
amounts owed to Mr. Caldwell, including, but not limited to, those amounts due
in accrued and unpaid salary, expenses, director’s fees and repayment of certain
loans made to the Company, as well as all amounts owed as severance pursuant to
the terms of the Caldwell Employment Agreement, we agreed to: (i) make cash
payments of an aggregate of $25,000, half of which was paid upon the agreement
of the principal terms of the Caldwell Separation Agreement and the other half
paid upon the signing of the Caldwell Separation Agreement; (ii) a subsequent
cash payment of $20,378.57 upon the earlier to occur of the Company’s closing of
a transaction involving the Company’s Mineral Ridge mining property or a
financing by a third party involving an infusion of working capital to the
Company of at least $250,000 (the “Caldwell Subsequent Payment”); and (iii)
issue to Mr. Caldwell an unsecured promissory note (the “Caldwell Note”), in the
principal amount of $366,623.32, such Caldwell Note to accrue interest at a rate
of 2.0% per annum, with a maturity date 24 months from the date of the Caldwell
Separation Agreement.  Further, pursuant to certain events and
conditions as set forth in the Caldwell Separation Agreement, Mr. Caldwell can
be issued shares of Company common stock in lieu of cash payments for the
Caldwell Note and the Caldwell Subsequent Payment.





Robert P.
Martin





The
Company entered into an Employment Agreement with Robert P. Martin on March 8,
2006, and into an Addendum to the Employment Agreement on January 31, 2007 (the
“Martin Employment Agreement”).  Pursuant to the Martin Employment
Agreement, Mr. Martin currently serves as the full time President of the Company
at an annual salary of $135,000.  Portions of Mr. Martin’s salary were
deferred during 2008 and 2009.





On
February 13, 2006, Mr. Martin was granted 200,000 options under the 2002 Stock
Option Incentive Plan with an exercise price of $0.24 per share.  One
fourth of the options vest each 90 day period from the date of the grant date,
resulting in 100% vesting on February 13, 2007.  The options have a
term of 5 years and are subject to other standard terms and conditions under the
applicable stock option plan of the Company.  Mr. Martin has also
agreed to a non-competition clause while employed by the Company and a
non-solicitation clause for a term of 24 months following termination of his
employment.





On May
18, 2009, the Company entered into a Supplemental Compensation Agreement with
Mr. Martin, whereby Mr. Martin is to provide specific services to the Company in
his roles as an executive officer of the Company, in connection with and in
support of the Company’s continued financing and debt conversion
efforts.  As compensation for such services Mr. Martin is to receive
1,500,000 shares of Company common stock valued at a 50% discount to the
trailing twenty day Company common stock average price from the date of Board
approval of such compensation package, totaling $11,835 (“Martin Initial
Compensation”).  Such Martin Initial Compensation is to serve to
offset the expenses incurred by Mr. Martin in his attempt to help secure the
Company future financing.  Pursuant to the Supplemental Compensation
Agreement, Mr. Martin was to be obligated to incur expenses or purchase Company
debt up to the full value of the Martin Initial Compensation.





In
addition, Mr. Martin is eligible to receive 1,500,000 warrants to purchase
Company common stock upon the acquisition of $200,000 in financing for the
Company or in connection with a property transaction related to the Mineral
Ridge mining property, or the retirement of up to $500,000 of the Company’s
existing debt, that are a result of Mr. Martin’s efforts (“Martin Subsequent
Compensation”).  Pursuant to the Supplemental Compensation Agreement,
the warrants associated with the Martin Subsequent
Compensation are to vest pro-rata as efforts are made to secure the $200,000
financing, the property transaction or $500,000 debt reduction, respectively,
and will have an exercise price of $0.0079.


47





Furthermore,
for all financing obtained by Mr. Martin’s efforts resulting in the Company
receiving at least $200,000, the completion of a property transaction or
resulting in the retirement of the Company’s existing debt in excess of
$500,000, Mr. Martin is eligible for certain additional compensation to be
determined by the Company’s Board of Directors, payable in cash or in restricted
Company common stock at a 20% discount to the closing market price of the
Company’s common stock at the time of closing.





The
Company has agreed that it will use its best efforts to register the stock
issued in connection with the Martin Initial Compensation pursuant to an
applicable registration statement filed with the SEC.





Donald
R. Prahl





On July
28, 2009, the Company entered into an Employment Separation Agreement with
Donald R. Prahl (the “Prahl Separation Agreement”).  Pursuant to the
Separation Agreement, Mr. Prahl resigned as the COO of the Company and from all
other positions held with the Company or on behalf of the Company, effective
July 28, 2009.  The Separation Agreement terminates: the Employment
Agreement, dated August 14, 2006, between the Company and Mr. Prahl whereby Mr.
Prahl assumed the roles of Vice President of Operations of the Company and of
Interim General Manager at the Ashdown Mine and the Addendum to the Employment
Agreement between the Company and Mr. Prahl dated January 31, 2007, pursuant to
which Mr. Prahl became COO of the Company (collectively the “Prahl Employment
Agreement”).





Under the
terms of the Prahl Separation Agreement, the Company agreed to: (i) pay Mr.
Prahl 1 year of his base salary of $125,000 as severance, of which $85,000 will
be converted into 4,341,164 restricted shares of the Company’s common stock, and
the remaining $40,000 will be paid in cash upon the closing of a joint venture
transaction involving the Company’s Mineral Ridge property; (ii) pay Mr. Prahl
$655 for expenses incurred in connection with his employment as soon as
reasonably practicable out of available funds, with any unpaid balance due upon
the closing of a joint venture transaction involving the Company’s Mineral Ridge
property; (iii) credit the $18,000 that was previously advanced to Mr. Prahl as
payment in full of any and all outstanding consulting fees owed to Mr. Prahl for
the period from November 2008 through July 2009; and (iv) immediately vest any
unvested portion of Mr. Prahl’s currently outstanding stock options to purchase
shares of the Company’s common stock.  Further, Mr. Prahl agreed to a
non-solicitation clause with a term of 18 months from the Effective Date and
provided the Company with a general release of liability and
claims.





Thomas
Klein


On
January 16, 2009, the Company entered into a Consulting Agreement with Thomas
Klein, whereby Mr. Klein is to provide consulting services to the Company in
connection with the Company’s continued financing and debt conversion efforts
(“Klein Consulting Agreement”).





As
compensation for his consulting services, and as previously disclosed on the
Company’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 19, 2008 and now formalized in the Klein Consulting
Agreement, Mr. Klein will receive 1,500,000 shares of Company common stock
valued at a 50% discount to the trailing twenty day Company common stock average
price, totaling $11,835 (“Klein Initial Compensation”).  Such Klein
Initial Compensation shall serve to offset the expenses incurred by Mr. Klein in
his attempt to help secure the Company future financing.  Pursuant
to the Klein Consulting Agreement, Mr. Klein will be obligated to incur expenses
or purchase Company debt up to the full value of the Klein Initial
Compensation.


48





In
addition, Mr. Klein will be eligible to receive 1,500,000 warrants to purchase
Company common stock upon the acquisition of $200,000 in financing for the
Company, or the retirement of up to $500,000 of the Company’s existing debt,
that are a result of Mr. Klein’s efforts (“Klein Subsequent
Compensation”).  Pursuant to the Klein Consulting Agreement, the
warrants associated with the Klein Subsequent Compensation will vest pro-rata as
efforts are made to secure the $200,000 financing or $500,000 debt reduction,
respectively, and will have an exercise price of $0.0079.





Furthermore,
for all financing obtained by Mr. Klein’s efforts above $200,000 or resulting in
the retirement of the Company’s existing debt in excess of $500,000, Mr. Klein
will be eligible for a 10% finder’s fee paid either in cash or, at the
discretion of the finder, in restricted Company common stock at a 20% discount
to the closing market price of the Company’s common stock at the time of
contracting.





The
Company has agreed that it will use its best efforts to register the stock
issued in connection with the Klein Initial Compensation, Klein Subsequent
Compensation and finder’s fee Compensation pursuant to an applicable
registration statement filed with the SEC. Mr. Klein has agreed to a
non-competition clause and a non-solicitation clause, both applicable during the
course of Mr. Klein’s consulting services to the Company and for a period to end
12 months after termination of the Agreement.





Corby
Anderson





On April
16, 2009, the Company entered into a Consulting Agreement with Allihies
Engineering, Incorporated, a Montana corporation, and its President, Dr. Corby
Anderson, whereby Dr. Anderson is to provide consulting services to the Company
in connection with the Company’s continued financing and debt conversion efforts
(the “Anderson Consulting Agreement”).  Dr. Anderson currently serves
on the Company’s Board of Directors and Governance Committee.





As
compensation for his consulting services, Dr. Anderson will receive 1,500,000
shares of Company common stock valued at a 50% discount to the trailing twenty
day Company common stock average price from the date of Board approval of such
compensation package, totaling $11,835 (“Anderson Initial
Compensation”).  Such Anderson Initial Compensation shall serve to
offset the expenses incurred by Dr. Anderson in his attempt to help secure the
Company future financing.  Pursuant to the Anderson Consulting
Agreement, Dr. Anderson will be obligated to incur expenses or purchase Company
debt up to the full value of the Anderson Initial Compensation.





In
addition, Dr. Anderson will be eligible to receive 1,500,000 warrants to
purchase Company common stock upon the acquisition of $200,000 in financing for
the Company or in connection with a property transaction related to the Mineral
Ridge mining property, or the retirement of up to $500,000 of the Company’s
existing debt, that are a result of Dr. Anderson’s efforts (“Anderson Subsequent
Compensation”). Pursuant to the Agreement, the warrants associated with the
Subsequent Compensation will vest pro-rata as efforts are made to secure the
$200,000 financing, the property transaction or $500,000 debt reduction,
respectively, and will have an exercise price of $0.0079.





Furthermore,
for all financing obtained by Dr. Anderson’s efforts resulting in the Company
receiving at least $200,000, the completion of a property transaction or
resulting in the retirement of the Company’s existing debt in excess of
$500,000, Dr. Anderson will be eligible for a 10% finder’s fee paid either in
cash or, at the discretion of the finder, in restricted Company common stock at
a 20% discount to the closing market price of the Company’s common stock at the
time of closing.







49




The
Compensation Committee





The
Compensation Committee of the Board of Directors reviews and approves executive
compensation policies and practices, reviews salaries and bonuses for other
officers, administers the Company’s stock option plans and other benefit plans,
and considers other matters as may, from time to time, be referred to them by
the Board of Directors.





ITEM
12.  SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS





The
following table presents certain information regarding the beneficial ownership
of all shares of common stock at April 5, 2010 for each executive officer and
director of our Company and for each person known to us who owns beneficially
more than 5% of the outstanding shares of our common stock.  The
percentage ownership shown in such table is based upon the 234,328,762 shares
that were issued and outstanding on April 5, 2010, and ownership by these
persons of options or warrants exercisable within 60 days of such
date.





Name
      and Address
            Common
      Shares
              Owned
            Exercisable
              Options
      and
              Warrants
      (1)
            Total
            PercentageDavid
      A. Caldwell (2)1675
      E. Prater Way, Suite 102Sparks,
      NV 89434
            2,715,703
            1,050,000
            3,765,703
            1.61%Robert
      P. Martin (3)1675
      E. Prater Way, Suite 102Sparks,
      NV 89434
            3,619,929
            550,000
            4,169,929
            1.78%J.
      Roland Vetter (4)1675
      E. Prater Way, Suite 102Sparks,
      NV 89434
            
            100,000
            100,000
            *Corby
      G. Anderson (5)1675
      E. Prater Way, Suite 102Sparks,
      NV 89434
            528,500
            200,000
            728,500
            *Kent
      D. Aveson (6)1675
      E. Prater Way, Suite 102Sparks,
      NV 89434
            
            200,000
            200,000
            *Thomas
      J. Klein (7)1675
      E. Prater Way, Suite 102Sparks,
      NV 89434
            1,500,000
            1,600,000
            3,100,000
            1.32%Clyde
      C. Harrison1675
      E. Prater Way, Suite 102Sparks,
      NV 89434
            100,000
            -
            100,000
            *Total
      Officers and Directors
            8,464,132
            3,700,000
            12,164,132
            5.19%


____________


* Less
than 1%


50




(1)
            Represents
      stock options and stock warrants exercisable at April 5, 2010 or within
      sixty (60) days of April 5, 2010.





(2)
            Mr.
      Caldwell holds options for 600,000 common shares exercisable at $0.24, and
      450,000 common shares exercisable at $0.19 per
  share.





(3)
            Mr.
      Martin holds options for 100,000 common shares exercisable at $0.045 per
      share, 200,000 common shares exercisable at $0.24 per share and 250,000
      common shares exercisable at $0.19.





(4)
            Mr.
      Vetter holds options for 100,000 common shares exercisable at $0.22 per
      share.





(5)
            Mr.
      Anderson holds options for 100,000 common shares exercisable at $0.36 per
      share and 100,000 common shares exercisable at $0.19 per
      share.





(6)
            Mr.
      Aveson holds options for 100,000 common shares exercisable at $0.36 per
      share and 100,000 common shares exercisable at $0.19 per
      share.





(7)
            Mr.
      Klein holds options for 100,000 common shares exercisable at $0.02 per
      share and warrants for 1,500,000 common shares exercisable at $0.0079 per
      share.





Equity
      Compensation Plan Information





For information regarding our equity
compensation plans, please see Item 5, above.





ITEM
13.  CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE





Related
Party Transactions





On
September 26, 2005, we entered into a Production Payment Purchase Agreement with
Ashdown Milling Co. LLC (“Ashdown Milling”).  Robert Martin, President
of the Company, and Kenneth Ripley, a former Chief Executive Officer of the
Company, are members, managers, and lead investors in Ashdown
Milling.  A total of $1,500,000 was advanced to the Company pursuant
to this agreement, $650,000 received in 2006 and $850,000 received in 2005, of
which $904,567 had been recorded as a production payment obligation – related
parties.  We repaid the $904,567 obligation in 2007 and
2008.  Including the $904,567 obligation, the total amount of the
production payment to be paid to Ashdown Milling is equal to a 12% net smelter
returns royalty on the minerals produced from the mine until an amount equal to
240% of the total purchase price has been paid.  The Company
subsequently bought out the member interests of two members of Ashdown Milling,
thereby reducing its production payment obligation.  Amounts paid to
Ashdown Milling members in excess of the original obligation recorded of
$904,567 will be reported as royalties expense.  No royalties expense
to related parties was recorded for the year ended December 31,
2009.  As a consequence of the sale of its interest in the Ashdown
LLC, the members of Ashdown Milling will no longer have a net smelter returns
royalty on Ashdown LLC production.  We expect to pay the remaining
royalty obligation as sales proceeds are received from Win-Eldrich Mines
Limited.





Certain
officers and former officers of the Company have advanced funds to the Company
in the form of interest-bearing promissory notes.  In addition, we
have a note payable to a former employee and the former manager of the Ashdown
mine resulting from the acquisition of the mill at the Ashdown mine and for
rental payments and other amounts owed.  These obligations, including
accrued interest payable, as of December 31, 2009 are summarized as
follows:


51





Principal
            
            
            Interest
            
            
            TotalNote
      payable to the former manager of the Ashdown mine for the purchase of a
      mill, equipment rental and other, with interest at 12%
            
            $
            166,407
            
            
            $
            11,830
            
            
            $
            178,237Notes
      payable to David A. Caldwell, a former Chief Executive Officer of the
      Company, and Julie K. Caldwell, payable on demand, with interest at
      18%
            
            
            40,866
            
            
            
            4,513
            
            
            
            45,379Notes
      payable to Robert P. Martin, President of the Company, and the Robert P.
      Martin Revocable Living Trust, payable on demand, with interest at
      18%
            
            
            160,524
            
            
            
            48,033
            
            
            
            208,557$
            367,797
            
            
            $
            64,376
            
            
            $
            432,173




Director
Independence





Our Board
of Directors consists principally of independent directors, as determined by
Rule 4200 of the National Association of Securities Dealers’ (NASD) listing
standards.  A Director is considered independent if the Board
affirmatively determines that the Director (or an immediate family member) does
not have any direct or indirect material relationship with us or our affiliates
or any member of our senior management or his or her affiliates.  The
term “affiliate” means any corporation or other entity that controls, is
controlled by, or under common control with us, evidenced by the power to elect
a majority of the Board of Directors or comparable governing body of such
entity.  The term “immediate family member” means spouse, parents,
children, siblings, mothers- and fathers-in-law, sons- and daughters-in law,
brothers- and sisters-in-laws and anyone (other than domestic employees) sharing
the Director’s home.





In
accordance with these guidelines, the Board has determined that Corby G.
Anderson, Kent D. Aveson and Clyde C. Harrison are independent
directors.





ITEM
14.  PRINCIPAL
ACCOUNTANT FEES AND SERVICES





Relationship
with Independent Registered Public Accounting Firm





Our Audit
Committee has responsibility for the appointment, compensation and oversight of
the work of our independent registered public accounting firm, HJ &
Associates, LLC.  We retained the firm of HJ & Associates, LLC as
our Independent Registered Public Accounting Firm for the fiscal year ending
December 31, 2009.  We have appointed HJ & Associates, LLC as our
independent registered public accounting firm for our fiscal year
2010.





Audit
Fees





For the
fiscal years ended 2009 and 2008, the aggregate fees billed for services
rendered for the audits of the annual financial statements and the review of the
financial statements included in the quarterly reports on Form 10-Q and the
services provided in connection with the statutory and regulatory filings or
engagements for those fiscal years and registration statements filed with the
SEC were $72,113 and $65,716, respectively.


52


Audit-Related
Fees





For the
fiscal years ended December 31, 2009 and 2008, there were no fees billed for the
audit or review of the financial statements that are not reported above under
Audit Fees.





Tax
Fees





For the
fiscal years ended December 31, 2009 and 2008, there were no fees billed for tax
compliance services.  There was no tax-planning advice provided in
2009 or 2008.





All
Other Fees





For the
fiscal years ended December 31, 2009 and 2008, there were no fees billed for
services other than services described above.





Audit
Committee Approval of Audit and Non-Audit Services of Independent
Accountants





The Audit
Committee approves all audit and non-audit services provided by the independent
auditors. These services may include audit services, audit-related services, tax
services and other services. The independent accountants and management are
required to periodically report to the Audit Committee regarding the extent of
services provided by the independent accountants, and the fees for the services
performed to date.





PART
IV





ITEM
15.  EXHIBITS





(a)(1)(2)
            Financial
      Statements: See index to consolidated financial statements and
      supporting schedules.





(a)(3)
            Exhibits:  The
      information required by this item is set forth in the section of this
      Annual Report entitled “EXHIBIT INDEX” and is incorporated herein by
      reference.


53





SIGNATURES





Pursuant
to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereto duly authorized.





GOLDEN
      PHOENIX MINERALS, INC.Date:  April
      9, 2010
            By:
            /s/ Thomas
      KleinName:
      Thomas KleinTitle:
      Chief Executive Officer(Principal
      Executive Officer)Date:  April
      9, 2010
            By:
            /s/ J. Roland
      VetterName:
      J. Roland VetterTitle:
      Chief Financial Officer(Principal
      Accounting and Financial Officer)





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





SIGNATURE
            TITLE
            DATE/s/ Thomas
      Klein
            Chief
      Executive Officer and Director
            April
      9, 2010Thomas
      Klein/s/ Robert P.
      Martin
            President
      and Secretary and Director
            April
      9, 2010Robert
      P. Martin/s/ J. Roland
      Vetter
            Chief
      Financial Officer and Director
            April
      9, 2010J.
      Roland Vetter/s/ Corby G. Anderson
            Director
            April
      9, 2010Corby
      G. Anderson/s/ Kent D.
      Aveson
            Director
            April
      9, 2010Kent
      D. Aveson/s/ Clyde
      Harrison
            Director
            April
      9, 2010Clyde
      Harrison


54


GOLDEN
PHOENIX MINERALS, INC.


Index
to Consolidated Financial Statements





Report
      of Independent Registered Public Accounting Firm
            F-2Consolidated
      Balance Sheets
            F-3Consolidated
      Statements of Operations and Comprehensive Loss
            F-4Consolidated
      Statements of Stockholders’ Equity (Deficit)
            F-5Consolidated
      Statements of Cash Flows
            F-6Notes
      to Consolidated Financial Statements
            F-7





F-1


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Stockholders


Golden
Phoenix Minerals, Inc.





We have
audited the accompanying consolidated balance sheets of Golden Phoenix Minerals,
Inc. as of December 31, 2009 and 2008, and the related consolidated statements
of operations, stockholders' equity (deficit), and cash flows for the years then
ended.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on
these financial statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Golden Phoenix Minerals,
Inc. as of December 31, 2009 and 2008, and the results of their operations and
cash flows for the years then ended, in conformity with U.S. generally accepted
accounting principles.





We were
not engaged to examine management's assessment of the effectiveness of Golden
Phoenix Minerals, Inc.'s internal control over financial reporting as of
December 31, 2009, and, accordingly, we do not express an opinion
thereon.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations,
has an accumulated deficit of $47,421,049 and has a total stockholders’ deficit
of $6,355,454 at December 31, 2009, which together raises substantial doubt
about the Company’s ability to continue as a going
concern.  Management's plans in regard to these matters are also
described in Note 2.  The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.








HJ &
Associates, LLC


Salt Lake
City, Utah


April 9,
2010


F-2


GOLDEN
PHOENIX MINERALS, INC.


Consolidated
Balance Sheets





December
      31,2009
            
            
            2008ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            94,785
            
            
            $
            454Prepaid
      expenses and other current assets
            
            
            15,504
            
            
            
            11,544Inventories
            
            
            —
            
            
            
            30,637Total
      current assets
            
            
            110,289
            
            
            
            42,635Property
      and equipment, net
            
            
            285,006
            
            
            
            371,557Other
      assets:Deposits
            
            
            106,590
            
            
            
            107,046Note
      receivable
            
            
            —
            
            
            
            —Assets
      of discontinued operations
            
            
            2,552,400
            
            
            
            5,969,060Total
      other assets
            
            
            2,658,990
            
            
            
            6,076,106$
            3,054,285
            
            
            $
            6,490,298LIABILITIES
      AND STOCKHOLDERS’ DEFICITCurrent
      liabilities:Accounts
      payable
            
            $
            1,273,547
            
            
            $
            1,253,489Accrued
      liabilities
            
            
            1,005,433
            
            
            
            573,156Current
      portion of severance obligations
            
            
            165,201
            
            
            
            100,170Current
      portion of long-term debt
            
            
            2,535,782
            
            
            
            176,549Production
      payment obligation
            
            
            —
            
            
            
            1,974,456Amounts
      due to related parties
            
            
            432,173
            
            
            
            458,531Deposits
      received
            
            
            900,000
            
            
            
            —Total
      current liabilities
            
            
            6,312,136
            
            
            
            4,536,351Long-term
      liabilities:Severance
      obligations
            
            
            —
            
            
            
            86,460Long-term
      debt
            
            
            61,173
            
            
            
            142,506Liabilities
      of discontinued operations
            
            
            3,036,430
            
            
            
            6,439,917Total
      long-term liabilities
            
            
            3,097,603
            
            
            
            6,668,883Total
      liabilities
            
            
            9,409,739
            
            
            
            11,205,234Commitments
      and contingenciesStockholders’
      deficit:Preferred
      stock, no par value, 50,000,000 shares authorized, none
    issued
            
            
            —
            
            
            
            —Common
      stock; $0.001 par value, 400,000,000 shares authorized, 223,180,210 and
      205,510,457 shares issued and outstanding, respectively
            
            
            223,180
            
            
            
            205,510Additional
      paid-in capital
            
            
            40,842,415
            
            
            
            40,127,362Common
      stock subscriptions receivable
            
            
            —
            
            
            
            (121,187
            )Accumulated
      deficit
            
            
            (47,421,049
            )
            
            
            (44,622,302
            )Total
      Company’s stockholders’ deficit
            
            
            (6,355,454
            )
            
            
            (4,410,617
            )Noncontrolling
      interest in discontinued operations
            
            
            —
            
            
            
            (304,319
            )Total
      stockholders’ deficit
            
            
            (6,355,454
            )
            
            
            (4,714,936
            )$
            3,054,285
            
            
            $
            6,490,298





See
accompanying notes to consolidated financial statements


F-3


GOLDEN
PHOENIX MINERALS, INC.


Consolidated
Statements of Operations and Comprehensive Loss





Years
      Ended December 31,2009
            
            
            2008Rental
      income
            
            $
            63,056
            
            
            $
            —Operating
      costs and expenses:General
      and administrative expenses
            
            
            1,760,363
            
            
            
            3,023,051Depreciation
      and amortization expense
            
            
            78,438
            
            
            
            109,702Royalties
            
            
            70,090
            
            
            
            1,158,337Total
      operating costs and expenses
            
            
            1,908,891
            
            
            
            4,064,697Loss
      from operations
            
            
            (1,845,835
            )
            
            
            (4,291,090
            )Other
      income (expense):Interest
      income
            
            
            4,541
            
            
            
            11,264Interest
      expense
            
            
            (760,521
            )
            
            
            (97,089
            )Gain
      on extinguishment of debt
            
            
            1,032,579
            
            
            
            46,528Loss
      on sale of marketable securities
            
            
            —
            
            
            
            (141,482
            )Gain
      (loss) on disposal of property and equipment
            
            
            127
            
            
            
            (4,389
            )Total
      other income (expense)
            
            
            276,726
            
            
            
            (185,168
            )Loss
      from continuing operations before income taxes
            
            
            (1,569,109
            )
            
            
            (4,476,258
            )Provision
      for income taxes
            
            
            —
            
            
            
            —Loss
      from continuing operations attributable to the Company
            
            
            (1,569,109
            )
            
            
            (4,476,258
            )Loss
      from discontinued operations:Loss
      on sale of interest in joint venture
            
            
            (235,303
            )
            
            
            —Loss
      from discontinued operations
            
            
            (1,261,609
            )
            
            
            (3,076,676
            )Loss
      from discontinued operations
            
            
            (1,496,912
            )
            
            
            (3,076,676
            )Loss
      from discontinued operations attributable to noncontrolling
      interest
            
            
            267,274
            
            
            
            496,352Loss
      from discontinued operations attributable to the Company
            
            
            (1,229,638
            )
            
            
            (2,580,324
            )Net
      loss attributable to the Company
            
            $
            (2,798,747
            )
            
            $
            (7,056,582
            )Other
      comprehensive loss:Loss
      from continuing operations
            
            $
            (1,569,109
            )
            
            $
            (4,476,258
            )Loss
      from discontinued operations
            
            
            (1,496,912
            )
            
            
            (3,076,676
            )Net
      loss
            
            
            (3,066,021
            )
            
            
            (7,552,934
            )Net
      unrealized loss on marketable securities
            
            
            —
            
            
            
            (1,917
            )Other
      comprehensive loss
            
            
            (3,066,021
            )
            
            
            (7,554,851
            )Other
      comprehensive loss attributed to noncontrolling interest
            
            
            267,274
            
            
            
            496,352Other
      comprehensive loss attributed to the Company
            
            $
            (2,798,747
            )
            
            $
            (7,058,499
            )Loss
      per common share attributable to the Company, basic and
      diluted:Continuing
      operations
            
            $
            (0.01
            )
            
            $
            (0.02
            )Discontinued
      operations
            
            
            (0.00
            )
            
            
            (0.02
            )Total
            
            $
            (0.01
            )
            
            $
            (0.04
            )Weighted
      average number of shares outstanding
            
            
            211,632,837
            
            
            
            189,375,309





See
accompanying notes to consolidated financial statements


F-4


GOLDEN
PHOENIX MINERALS, INC.


Consolidated
Statements of Stockholders’ Equity (Deficit)


Years
Ended December 31, 2009 and 2008





NoncontrollingAdditional
            
            
            Common
            
            
            Other
            
            
            
            
            
            Interest
      inCommon
      Stock
            
            
            Paid-in
            
            
            Stock
            
            
            Comprehensive
            
            
            Accumulated
            
            
            DiscontinuedShares
            
            
            Amount
            
            
            Capital
            
            
            Subscribed
            
            
            Income
            
            
            Deficit
            
            
            Operations
            
            
            TotalBalance,
      December 31, 2007
            
            
            180,552,639
            
            
            $
            180,553
            
            
            $
            37,509,985
            
            
            $
            —
            
            
            $
            1,917
            
            
            $
            (37,565,720
            )
            
            $
            34,034
            
            
            $
            160,769Issuance
      of common stock for cash
            
            
            10,422,363
            
            
            
            10,422
            
            
            
            728,700
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            739,122Issuance
      of common stock for services
            
            
            1,461,154
            
            
            
            1,461
            
            
            
            83,239
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            84,700Issuance
      of common stock for payment of accounts payable
            
            
            3,460,000
            
            
            
            3,460
            
            
            
            159,691
            
            
            
            (1,187
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            161,964Issuance
      of common stock for payment of accrued liabilities
            
            
            3,890,000
            
            
            
            3,890
            
            
            
            229,510
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            233,400Issuance
      of common stock for royalty expense
            
            
            3,733,334
            
            
            
            3,733
            
            
            
            836,267
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            840,000Issuance
      of common stock for subscription receivable
            
            
            666,667
            
            
            
            667
            
            
            
            119,333
            
            
            
            (120,000
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Issuance
      of common stock upon exercise of warrants for royalty
    expense
            
            
            300,000
            
            
            
            300
            
            
            
            59,700
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            60,000Issuance
      of common stock upon exercise of options and warrants
            
            
            1,024,300
            
            
            
            1,024
            
            
            
            154,221
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            155,245Stock-based
      compensation
            
            
            —
            
            
            
            —
            
            
            
            246,716
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            246,716Net
      unrealized loss on marketable securities
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (1,917
            )
            
            
            —
            
            
            
            —
            
            
            
            (1,917
            )Capital
      contribution of noncontrolling interest
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            157,999
            
            
            
            157,999Net
      loss attributable to the Company
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (7,056,582
            )
            
            
            —
            
            
            
            (7,056,582
            )Net
      loss attributed to noncontrolling interest
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (496,352
            )
            
            
            (496,352
            )Balance,
      December 31, 2008
            
            
            205,510,457
            
            
            
            205,510
            
            
            
            40,127,362
            
            
            
            (121,187
            )
            
            
            —
            
            
            
            (44,622,302
            )
            
            
            (304,319
            )
            
            
            (4,714,936
            )Issuance
      of common stock for cash
            
            
            12,501,253
            
            
            
            12,501
            
            
            
            236,899
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            249,400Issuance
      of common stock upon exercise of options
            
            
            100,000
            
            
            
            100
            
            
            
            2,900
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            3,000Issuance
      of common stock for payment of accounts payable
            
            
            4,068,500
            
            
            
            4,069
            
            
            
            35,063
            
            
            
            1,187
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            40,319Issuance
      of common stock for payment of debt
            
            
            1,000,000
            
            
            
            1,000
            
            
            
            49,000
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            50,000Issuance
      of warrants for interest expense
            
            
            —
            
            
            
            —
            
            
            
            448,804
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            448,804Stock-based
      compensation
            
            
            —
            
            
            
            —
            
            
            
            62,387
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            62,387Write
      off subscription receivable
            
            
            —
            
            
            
            —
            
            
            
            (120,000
            )
            
            
            120,000
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Elimination
      of noncontrolling interest due to sale of interest in LLC
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            571,593
            
            
            
            571,593Net
      loss attributable to the Company
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (2,798,747
            )
            
            
            —
            
            
            
            (2,798,747
            )Net
      loss attributed to noncontrolling interest
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (267,274
            )
            
            
            (267,274
            )Balance,
      December 31, 2009
            
            
            223,180,210
            
            
            $
            223,180
            
            
            $
            40,842,415
            
            
            $
            —
            
            
            $
            —
            
            
            $
            (47,421,049
            )
            
            $
            —
            
            
            $
            (6,355,454
            )





See
accompanying notes to consolidated financial statements


F-5


GOLDEN
PHOENIX MINERALS, INC.


Consolidated
Statements of Cash Flows





Years
      Ended December 31,2009
              
              
              2008Cash
      flows from operating activities:Net
      loss attributable to the Company
              
              $
              (2,798,747
              )
              
              $
              (7,056,582
              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Loss
      from discontinued operations attributable to the Company
              
              
              1,229,638
              
              
              
              2,580,324Depreciation
      and amortization
              
              
              78,437
              
              
              
              109,702Stock-based
      compensation
              
              
              62,387
              
              
              
              246,716(Gain)
      loss on disposal of property and equipment
              
              
              (127
              )
              
              
              4,389Issuance
      of debt for royalties
              
              
              70,090
              
              
              
              —Issuance
      of warrants for interest expense
              
              
              448,804
              
              
              
              —Gain
      on extinguishment of debt
              
              
              (1,032,579
              )
              
              
              (46,528
              )Issuance
      of common stock for services
              
              
              —
              
              
              
              84,700Issuance
      of common stock for royalties
              
              
              —
              
              
              
              840,000Loss
      on sale of marketable securities
              
              
              —
              
              
              
              141,482Changes
      in operating assets and liabilities:Decrease
      in receivables
              
              
              —
              
              
              
              1,638(Increase)
      decrease in prepaid expenses and other current assets
              
              
              (3,960
              )
              
              
              27,640(Increase)
      decrease in inventories
              
              
              30,637
              
              
              
              (30,637
              )Decrease
      in deposits
              
              
              456
              
              
              
              94Increase
      in accounts payable
              
              
              42,458
              
              
              
              1,456,738Increase
      in accrued and other liabilities
              
              
              652,077
              
              
              
              325,421Net
      cash used in operating activities
              
              
              (1,220,429
              )
              
              
              (1,314,903
              )Cash
      flows from investing activities:Purchase
      of property and equipment
              
              
              (3,825
              )
              
              
              (243,057
              )Proceeds
      from the sale of property and equipment
              
              
              353
              
              
              
              —Deposits
      received
              
              
              900,000
              
              
              
              —Proceeds
      from the sale of marketable securities
              
              
              —
              
              
              
              20,559Net
      cash provided by (used) in investing activities
              
              
              896,528
              
              
              
              (222,498
              )Cash
      flows from financing activities:Net
      proceeds from the sale of common stock
              
              
              249,400
              
              
              
              739,122Proceeds
      from the issuance of notes payable
              
              
              1,000,000
              
              
              
              —Proceeds
      from the exercise of options and warrants
              
              
              3,000
              
              
              
              25,658Proceeds
      from amounts due related parties
              
              
              6,000
              
              
              
              171,370Payments
      of severance obligations
              
              
              (21,429
              )
              
              
              (113,247
              )Payments
      of notes payable and long-term debt
              
              
              (72,905
              )
              
              
              (31,172
              )Payments
      of amounts due to related parties
              
              
              (46,069
              )
              
              
              (114,898
              )Payments
      of production payment obligation – related party
              
              
              —
              
              
              
              (40,026
              )Net
      cash provided by financing activities
              
              
              1,117,997
              
              
              
              636,807Cash
      flows from discontinued operations:Net
      cash used in operating activities
              
              
              (842,678
              )
              
              
              (442,265
              )Net
      cash provided by (used in) investing activities
              
              
              34,730
              
              
              
              (829,018
              )Net
      cash provided by financing activities
              
              
              108,183
              
              
              
              43,390Net
      cash used in discontinued operations
              
              
              (699,765
              )
              
              
              (1,227,893
              )Net
      increase (decrease) in cash
              
              
              94,331
              
              
              
              (2,128,487
              )Cash
      and cash equivalents, beginning of year
              
              
              454
              
              
              
              2,128,941Cash
      and cash equivalents, end of year
              
              $
              94,785
              
              
              $
              454


See
accompanying notes to consolidated financial statements


F-6


GOLDEN
PHOENIX MINERALS, INC.


Notes
to Consolidated Financial Statements


Years
Ended December 31, 2009 and 2008





Note
1:  Description of Business and Summary of Significant Accounting
Policies





Organization
and Description of Business





Golden
Phoenix Minerals, Inc. (the “Company” or “Golden Phoenix”) is a mineral
exploration, development and production company specializing in acquiring and
consolidating mineral properties with potential production and future growth
through exploration discoveries.  Acquisition emphasis is focused on
properties containing gold, silver, molybdenum and other strategic minerals that
present low political and financial risk and exceptional upside
potential.  Currently, the Company’s main focus is in
Nevada.





The
Company was formed in Minnesota on June 2, 1997.  On May 30, 2008, the
Company reincorporated in Nevada.





As
discussed in Note 3, on May 13, 2009, the Company completed the sale of 100% of
its ownership interest in the Ashdown Project LLC (“Ashdown LLC”) and, on March
10, 2010, closed an agreement dated December 31, 2009 for the purpose of selling
a 70% interest in its Mineral Ridge mining property and related assets (“Mineral
Ridge Mine”) and contributing the remaining 30% interest into a joint venture to
place the Mineral Ridge Mine into production.  As a result, the
Ashdown LLC and the Mineral Ridge Mine are classified as discontinued operations
for all periods presented in the condensed consolidated financial
statements.





In
February 2007, the Company completed a purchase agreement with four individuals
for the Northern Champion molybdenum property located in Ontario, Canada, and
plans to take bulk samples for metallurgical and market testing, and to actively
explore and delineate molybdenum mineralization on the property as funding is
available.





Accounting
Method





The
Company’s consolidated financial statements are prepared by management in
conformity with United States generally accepted accounting principles using the
accrual method of accounting.  The Company has elected a December 31
year-end.





Principles
of Consolidation





Through
May 13, 2009, the consolidated financial statements of the Company included the
accounts of Golden Phoenix Minerals, Inc. and the Ashdown LLC, an entity
controlled by Golden Phoenix Minerals, Inc. through its 60% member
interest.  All significant inter-company balances and transactions
have been eliminated.





Noncontrolling
Interest





As of
December 31, 2008, the noncontrolling interest in discontinued operations is
comprised of the portion of the members’ deficit of the Ashdown LLC not owned by
the Company.  The loss from discontinued operations of the Ashdown LLC
for the year ended December 31, 2008 and the period from January 1, 2009 through
May 13, 2009 was allocated 40% to Win-Eldrich Gold, Inc., the noncontrolling
interest holder, based on its membership ownership percentage, thereby reducing
the loss from discontinued operations included in the Company’s consolidated net
loss.





Reclassifications





Certain
reclassifications have been made to the 2008 consolidated financial statements
in order for them to conform to the classifications used for the current year
presentation.





Concentrations





Concentration
of Credit Risk — Financial instruments, which could potentially subject the
Company to credit risk, consist primarily of cash in bank and
receivables.  The Company maintains its cash in bank deposit accounts
insured by the Federal Deposit Insurance Corporation up to
$250,000.  The Company’s account balances, at times, may exceed
federally insured limits.  The Company has not experienced material
losses in such accounts, and believes it is not exposed to any significant
credit risk with respect to its cash accounts.




Concentration
of Operations — The Company’s operations are all related to the minerals and
mining industry.  A reduction in mineral prices or other disturbances
in the minerals market could have an adverse effect on the Company’s
operations.


F-7




Use
of Estimates





The
preparation of financial statements in conformity with United States generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Differences in these estimates and actual results
could be material to the Company’s consolidated financial position and results
of operations.





Cash
and Cash Equivalents





The
Company considers all investments purchased with original maturities of three or
fewer months to be cash equivalents.  The Company had no cash
equivalents at December 31, 2009 and 2008.





Inventories





Inventories
consist of materials and supplies and are stated at the lower of cost (using the
average cost method) or market.  Market is determined on the basis of
estimated realizable values.  The Company had no inventories at
December 31, 2009.





Property
and Equipment





Property
and equipment are stated at cost.  Depreciation and amortization are
calculated using the straight-line method over estimated useful lives as
follows:





Mining
      and milling equipment
            5-7
      yearsComputer
      equipment
            5
      yearsDrilling
      equipment
            4-5
      yearsVehicles
            5
      yearsSupport
      equipment
            5-7
      yearsFurniture
      and equipment
            5-7
      years





Mine
development costs are capitalized after proven and probable reserves have been
identified.  Amortization of mine development costs will be calculated
using the units-of-production method over the expected life of the operation
based on the estimated proven and probable reserves.  With the sale of
the Company’s interest in the Ashdown LLC and the formation of the Mineral Ridge
LLC, as of December 31, 2009, the Company had no proven or probable
reserves.  Accordingly, through December 31, 2009, mining and milling
equipment are currently being depreciated on a straight-line basis over their
estimated economic useful life rather than on a units-of-production
method.





Property
Acquisition and Deferred Mineral Property Development Costs





Mineral
property acquisition and deferred mineral property development costs are
recorded at cost and will be capitalized once determination has been made that a
mineral property has proven or probable reserves that can be produced
profitably.  On the commencement of profitable commercial production,
depletion of each mineral property acquisition and associated deferred property
development costs will be computed on the units of production basis using
estimated proven and probable reserves.





Exploration
Properties





Mineral
exploration expenditures are expensed as incurred.  Property
acquisition costs relating to exploration properties are also expensed until the
economic viability of the project is determined and proven and probable
reserves quantified.  Costs associated with economically viable
projects are depreciated and depleted in accordance with the policies described
above.


F-8





Stripping
Costs





Where
applicable in its mining operations, the Company accounts for stripping costs
incurred during the production phase of a mine as variable costs included in the
costs of the inventory produced during the period that the stripping costs are
incurred.





Proven
and Probable Ore Reserves





On a
periodic basis, management reviews the reserves that reflect estimates of the
quantities and grades of metals at our mineral properties which management
believes can be recovered and sold at prices in excess of the total cost
associated with mining and processing the mineralized material. Management’s
calculations of proven and probable ore reserves are based on, along with
independent consultant evaluations, in-house engineering and geological
estimates using current operating costs, metals prices and demand for our
products. Periodically, management obtains external determinations of
reserves.





Reserve
estimates will change as existing reserves are depleted through production, as
well as changes in estimates caused by changing production costs and/or metals
prices. Reserves may also be revised based on actual production experience once
production commences. Declines in the market price of metals, as well as
increased production or capital costs or reduced recovery rates, may render ore
reserves uneconomic to exploit. Should that occur, restatements or reductions in
reserves and asset write-downs in the applicable accounting periods may be
required. Reserves should not be interpreted as assurances of mine life or of
the profitability of current or future operations. No assurance can be given
that the estimate of the amount of metal or the indicated level of recovery of
these metals will be realized.





The
Company currently has no proven or probable ore reserves.





Closure,
Reclamation and Remediation Costs





Current
laws and regulations require certain closure, reclamation and remediation work
to be done on mineral properties as a result of exploration, development and
operating activities.  The Company periodically reviews the activities
performed on its mineral properties and makes estimates of closure, reclamation
and remediation work that will need to be performed as required by those laws
and regulations and makes estimates of amounts that are expected to be incurred
when the closure, reclamation and remediation work is expected to be performed.
Future closure, reclamation and environmental related expenditures are difficult
to estimate in many circumstances due to the early stages of investigation,
uncertainties associated with defining the nature and extent of environmental
contamination, the uncertainties relating to specific reclamation and
remediation methods and costs, application and changing of environmental laws,
regulations and interpretation by regulatory authorities and the possible
participation of other potentially responsible parties.





The
Company has estimated costs associated with closure, reclamation and
environmental reclamation of the Mineral Ridge property, which are included in
its consolidated financial statements in liabilities of discontinued operations,
in accordance with generally accepted accounting principles, in accordance with
the Financial Accounting Standards Board (FASB) Accounting Standards
Codification (“ASC”) Topic 410, Asset Retirement and Environment
Obligations.  See Note 7.





Property
Evaluations and Impairment of Long-Lived Assets





The
Company reviews and evaluates the carrying amounts of its mining properties and
related buildings and equipment, and other long-lived assets when events or
changes in circumstances indicate that the carrying amount may not be
recoverable.  Estimated future net cash flows, on an undiscounted
basis, from a property or asset are calculated using estimated recoverable
minerals (considering current proven and probable reserves and mineralization
expected to be classified as reserves where applicable); estimated future
mineral price realization (considering historical and current prices, price
trends and related factors); and operating, capital and reclamation
costs.  Reduction in the carrying value of property, plant and
equipment, or other long-lived assets, with a corresponding charge to earnings,
are recorded to the extent that the estimated future net cash flows are less
than the carrying value.







F-9




Deposits





Payments
received by the Company in advance of the closing of the sale of its interest in
the Mineral Ridge Mine and the formation of a joint venture to operate the
Mineral Ridge Mine are recorded as deposits, a current liability.





Revenue
Recognition





Revenue
from the sale of precious metals is recognized when title and risk of ownership
passes to the buyer and the collection of sales proceeds is
assured.





Revenue
from the occasional rental of drilling equipment is recognized when the agreed
upon rental period is completed and the collection of rental proceeds is
assured.





Income
Taxes





The
Company recognizes a liability or asset for deferred tax consequences of all
temporary differences between the tax bases of assets and liabilities and their
reported amounts in the consolidated financial statements that will result in
taxable or deductible amounts in future years when the reported amounts of the
assets and liabilities are recovered or settled.  Deferred tax items
mainly relate to net operating loss carry forwards and accrued
expenses.  These deferred tax assets or liabilities are measured using
the enacted tax rates that will be in effect when the differences are expected
to reverse.  The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.  Deferred tax assets are reviewed periodically for
recoverability, and valuation allowances are provided when it is more likely
than not that some or all of the deferred tax assets may not be
realized.  As of December 31, 2009 and 2008, the Company had reduced
its deferred tax assets by recording a valuation allowance of approximately
$12,880,000 and $11,858,000, respectively (see Note 18).





Stock-Based
Compensation and Equity Transactions





The
Company has stock-based compensation plans, which are described more fully in
Note 15.  In accordance with ASC Topic 718, Compensation – Stock Compensation,the Company measures the compensation cost of stock options and other
stock-based awards to employees and directors at fair value at the grant date
and recognizes compensation expense over the requisite service period for awards
expected to vest.





Except
for transactions with employees and directors that are within the scope of ASC
Topic 718, all transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the
fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably
measurable.  Additionally, in accordance with ASC Topic 505-50, Equity-Based Payments to
Non-Employees, the Company has determined that the dates used to value
the transaction are either: (1) the date at which a commitment for performance
by the counter party to earn the equity instruments is established; or (2) the
date at which the counter party’s performance is complete.





Earnings
Per Common Share





The
computation of basic earnings per common share is based on the weighted average
number of shares outstanding during the period.  The computation of
diluted earnings per common share is based on the weighted average number of
shares outstanding during the period plus the weighted average outstanding
common stock equivalents which would arise from the exercise of stock options,
warrants, stock purchase rights and convertible debt using the treasury stock
method and the average market price per share during the
period.


F-10




A
reconciliation of the number of shares used in the computation of the Company’s
basic and diluted earnings per common share is as follows:





Year
      Ended
              December
      31,2009
            
            
            2008Weighted
      average number of common shares outstanding
            
            
            211,632,837
            
            
            
            189,375,309Dilutive
      effect of:Stock
      options
            
            
            -
            
            
            
            -Warrants
      and stock purchase rights
            
            
            -
            
            
            
            -Convertible
      debt
            
            
            -
            
            
            
            -Weighted
      average number of common shares outstanding, assuming
    dilution
            
            
            211,632,837
            
            
            
            189,375,309





No common
shares which would arise from the exercise of stock options, warrants, stock
purchase rights or convertible debt are included in the computation of weighted
average number of shares because the effect would be
anti-dilutive.  At December 31, 2009, the Company had outstanding
options, warrants and stock purchase rights to purchase a total of 31,302,258
common shares of the Company that could have a future dilutive effect on the
calculation of earnings per share.





Preferred
Stock/Common Stock





The
Company has authorized 50,000,000 shares of no par value, non-voting convertible
preferred stock.  In 1997, the Company’s Board of Directors (the
“Board”) authorized the designation of a class of preferred stock convertible
into ten shares of common stock for each share of preferred stock at a
conversion rate of $0.10 per common share for a period of ten (10) years from
June 12, 1997.  The Company did not determine any dividend rights,
dividend rates, liquidation preferences, redemption provisions, and other
rights, preferences, privileges and restrictions.  At the date of this
action and as of December 31, 2009 and 2008, there were no shares of preferred
stock outstanding. The Company has authorized 400,000,000 shares of $0.001 par
value common stock as of December 31, 2009 and 2008.





Advertising
Expense





The
Company expenses advertising expenses as incurred in accordance with ASC Topic
720-35, Advertising
Costs. The Company had no advertising expense for the years ended
December 31, 2009 and 2008, respectively.





Recent
Accounting Pronouncements





In June
2009, the FASB issued guidance now codified as ASC Topic 105, Generally Accepted Accounting
Principles.  This standard establishes the FASB Accounting
Standards CodificationTM as the source of authoritative U.S. generally accounting
principles (GAAP) recognized by the FASB to be applied to nongovernmental
entities.  Rules and interpretive releases of the Securities and
Exchange Commission (SEC) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants.  On the effective
date of this standard, the Codification will supersede all then-existing non-SEC
accounting and reporting standards.  All other nongrandfathered
non-SEC accounting literature not included in the Codification will become
nonauthoritative.  This standard is effective for financial statements
issued for interim and annual periods ending after September 15, 2009, or the
Company’s quarter ended September 30, 2009. The Company implemented
this standard with no material impact on its consolidated financial
statements.





In May
2009, the FASB issued guidance now incorporated into ASC Topic 855, Subsequent
Events.This standard sets forth: (a) the period after the
balance sheet during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements; (b) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements; and (c) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet
date.  The standard is effective for interim and annual periods ending
after June 15, 2009, or
the Company’s fiscal quarter ended June 30, 2009.  The implementation
of this standard did not have a material impact on the Company’s consolidated
financial statements.


F-11





In
December 2007, the FASB issued guidance now incorporated into ASC Topic 810,
Consolidation, that
requires the ownership interests in subsidiaries held by parties other than the
parent (minority interests) be clearly identified, labeled, and presented within
the equity section of the consolidated balance sheet.  The guidance
also requires the amount of consolidated net income attributable to the parent
and to the noncontrolling interest be clearly identified and presented on the
face of the consolidated statement of operations, and that entities provide
sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling
owners.  The guidance is effective for fiscal years beginning on or
after December 15, 2008, or the Company’s fiscal year beginning January 1,
2009.  Effective January 1, 2009, the Company revised its presentation
for the noncontrolling interest in the Ashdown LLC in the accompanying
consolidated financial statements for the years ended December 31, 2009 and
2008.





Note
2:  Going Concern





The
Company’s consolidated financial statements are prepared using accounting
principles generally accepted in the United States of America applicable to a
going concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business.  However, the Company
has a history of operating losses since its inception in 1997, and has an
accumulated deficit of $47,421,049 and a total stockholders’ deficit of
$6,355,454 at December 31, 2009, which together raises doubt about the Company’s
ability to continue as a going concern.  The accompanying consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.





Historically,
the Company has obtained working capital from debt and equity financing, the
exercise of options and warrants, and from a production payment purchase
agreement to fund the Company’s activities.  The deterioration of
capital markets has made it difficult for the Company to obtain debt and equity
financing.  On January 30, 2009, the Company entered into a Bridge
Loan and Debt Restructuring Agreement with Crestview Capital Master, LLC
(“Crestview), whereby the Company borrowed $1 million (see Note
12).  Subsequently, the maturity date of this loan was extended from
November 6, 2009 to February 6, 2010, and from February 6 to the earlier of the
completion of a joint venture with respect to the Mineral Ridge Mine or April 6,
2010.  The loan was repaid in full on March 10, 2010, however, the
Company remains obligated to Crestview under that certain Debt Restructuring
Secured Promissory Note in the principal amount of $1 million issued pursuant to
the Bridge Loan and Debt Restructuring Agreement, which has a maturity date of
August 6, 2010.





The
operations of the Ashdown LLC have also funded a significant portion of the
Company’s operating costs and expenses.   The Company suspended
the mining operations of the Ashdown LLC in November 2008 in response to a
substantial decline of molybdenum oxide market prices, with only incidental
revenues during the period from January 1, 2009 through May 13,
2009.  On May 13, 2009, the Company completed an agreement to sell
100% of its ownership interest in the Ashdown LLC to Win-Eldrich Gold, Inc.
(“WEG”) (Note 3).  The $5.3 million purchase price due the Company is
payable over a 72 month term, and WEG has assumed substantially all of the
liabilities of the Ashdown LLC.  There can be no guarantee or
assurance that WEG will be successful in its ability to raise sufficient capital
to commence again the operations of the Ashdown LLC, attain a sustained
profitable level of operations from the Ashdown LLC, or pay the Company the $5.3
million promissory note.





On March
10, 2010, the Company closed the Exploration, Development and Mining Joint
Venture Members’ Agreement (the “Members’ Agreement”) entered into on December
31, 2009 with Scorpio Gold Corporation (“Scorpio Gold”) and its US subsidiary,
Scorpio Gold (US) Corporation (“Scorpio US”).  At the closing of the
Members’ Agreement, the Company sold Scorpio US an undivided 70% interest in the
Mineral Ridge Mine for a purchase price of US $3,750,000 cash (less those
amounts previously advanced to the Company by Scorpio Gold) and 7,824,750 common
shares of stock of Scorpio Gold at a deemed price of Cdn $0.50 per
share.  Immediately following the sale, the Company and Scorpio US
each contributed their respective interests in the Mineral Ridge Mine to a joint
venture formed to own and operate the Mineral Ridge Mine called Mineral Ridge
Gold, LLC, a Nevada limited liability company (the “Mineral Ridge
LLC”).  The Company currently owns a 30% membership interest in the
Mineral Ridge LLC.  Scorpio US owns a 70% membership interest in and
is the Manager of the Mineral Ridge LLC, and has agreed to carry all finance
costs necessary to bring the Mineral Ridge Mine into
production.  There can be no assurance that Scorpio US will be
successful in its ability to raise sufficient capital to fund the development of
the Mineral Ridge Mine and attain a successful level of operations.





With the
shutdown of Ashdown operations and the ongoing difficulty raising capital,
certain vendors and lenders of the Company have initiated actions to collect
balances that are past due.  The Company is negotiating mutually
beneficial settlements and payment plans with these parties.  With the
closing of the Mineral Ridge LLC, the Company did receive additional funds to
repay certain obligations, including the repayment of a $1,000,000 bridge
loan.  However, the ability to bring all obligations current is
dependent on the Company’s ability to raise additional
capital.  Further, there can be no assurance that the Company will
attain a successful level of operations from its other properties, or to
continue to raise capital at favorable rates or at all.  If the
Company is unable to obtain profitable operations and positive operating cash
flows and raise sufficient capital to meet scheduled and past due debt
obligations, it may be forced to scale back its development plans or to
significantly reduce or terminate operations and file for reorganization or
liquidation under the bankruptcy laws.  The consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.


F-12





Note
3:  Discontinued Operations





Ashdown Project
LLC





On
February 25, 2009, the Company entered into a Binding Memorandum of
Understanding as well as two related binding side letter agreements
(collectively, the “MOU”) with Win-Eldrich Gold, Inc. (“WEG”) , whereby the
Company agreed to sell 100% of its ownership interest in the Ashdown LLC to WEG
(the “Ashdown Sale”).  WEG was a co-owner of the Ashdown LLC with the
Company since the inception of the Ashdown LLC in September 2006, with the
Company owning a 60% membership interest and WEG owning a 40% membership
interest.  The Ashdown LLC placed the Ashdown property into commercial
operation in December 2006, and had sales of molybdenite concentrates of
$10,398,361 for the year ended December 31, 2007 and sales of $10,537,370 during
2008 prior to suspension of operations in November 2008 due to significant
declines in the market price of molybdenum.





On May
13, 2009, pursuant to the material terms of the MOU, as further revised,
negotiated and mutually agreed to by the Parties, the Company entered into
definitive agreements that superseded the MOU, including a Purchase and Sale of
LLC Membership Interest Agreement with WEG, to effectuate the Ashdown Sale (the
“Purchase Agreement”).  As consideration for the Ashdown Sale and the
Parties’ mutual release of certain claims against the other pursuant to the
terms of a Settlement and Release Agreement (the “Release”), WEG is to pay $5.3
million (the “Purchase Price”) to the Company, which has been satisfied by the
issuance of a Limited Recourse Secured Promissory Note (the “Note”), for the
full amount of the Purchase Price.





In
particular, WEG is to pay the Company $5.3 million and assume the majority of
all obligations and liabilities held by the LLC, all as detailed and more fully
set forth in the Purchase Agreement.  Pursuant to the terms and
conditions of the Purchase Agreement and the Note, the Company, WEG and the LLC
have also entered into a Security Agreement, a Short Form Deed of Trust and
Assignment of Rents Agreement (the “Deed of Trust”), and certain other releases
and side letter agreements (together with the Purchase Agreement and the Note,
collectively, the “Transaction Documents”).





The terms
and conditions of the Note, including term, interest rate and description of
security interest are as follows: the terms of the Note include the payment of
the Purchase Price together with simple interest on the unpaid principal amount
of the Note at rate equal to the Wall Street Journal Prime rate plus 2.0%,
computed on a quarterly basis beginning April 1, 2009, for a term of 72 months,
with the first payment due one year from the date of Closing.  As
security for the Note, the Purchase Price shall be secured by the assets and
property of the LLC as well as 100% of WEG’s ownership interest in the LLC (the
“Collateral”).  The sole recourse of the Company under the Note for
the collection of amounts owed and in the event of default shall be foreclosure
as to the Collateral, as further detailed in the Security Agreement and Deed of
Trust by and between the Parties.





Because
of the current uncertainty of collecting the Note or realizing any value from
the assets and property of the LLC upon foreclosure, the Note has been reduced
100% by an allowance account and recorded at no value in the accompanying
consolidated balance sheet as of December 31, 2009, and no gain on disposition
of the Company’s interest in the Ashdown LLC attributed to the $5.3 million Note
has been recorded in the accompanying consolidated statements of operations for
the year ended December 31, 2009.  The Company did, however, record a
loss on sale of interest in joint venture of $235,303 for year ended December
31, 2009 resulting from the assumption by the Company of certain liabilities in
the transaction and the elimination of all investment and loan accounts related
to the Ashdown LLC.  Further gain, if any, on disposition of the
interest in the Ashdown LLC will be recorded as cash payments are received on
the Note or, if required, upon disposition of any assets or property of the
Ashdown LLC due to foreclosure on the Note.


F-13


Pursuant
to the Release, the Parties agreed to terminate any and all litigation and
ongoing disputes existing between the Parties effective at Closing.





Finally,
pursuant to the Purchase Agreement, Perry Muller, President of WEG, or his
assignee, agreed to pay up to $100,000 of all payments made in settlement of the
amounts owed by the Ashdown LLC to Retrievers LLC, and the Company secured a
release from Retrievers LLC of any claim or title in or to the Ashdown Mill
property, with Mr. Muller becoming the sole owner of the Ashdown Mill property
(the “Retriever’s Settlement”).  Upon completion of the Retriever’s
Settlement, Mr. Muller agreed to lease the Ashdown Mill property to the Ashdown
LLC and convey the Ashdown Mill to the Ashdown LLC upon repayment to Mr. Muller
by the Ashdown LLC of $100,000, plus a loan fee amount of $10,000, all as
pursuant to that certain Ashdown Mill Binding Side Letter Agreement, dated May
13, 2009.





Mineral
Ridge Mine





The
Company entered into a letter agreement dated May 19, 2009, as subsequently
amended on July 17, 2009, with Scorpio Gold Corporation (“Scorpio Gold”) for the
purpose of completing due diligence prior to entering into a possible joint
venture to place the Company’s Mineral Ridge Mine into
production.  Upon execution of the letter agreement, Scorpio Gold paid
the Company $50,000 and commenced a 15 day due diligence period.  On
June 18, 2009, Scorpio Gold notified the Company that it had completed
preliminary due diligence and intended to proceed with the acquisition of the
Mineral Ridge Mine and the formation of a joint venture.





Through
December 31, 2009, Scorpio Gold paid the Company an additional $850,000 plus
certain expenses, as part of ongoing monthly payments to be credited toward the
ultimate purchase price while the parties finalized negotiations and definitive
agreements.  The payments to the Company are non-refundable, and the
total payments through December 31, 2009 of $900,000 have been recorded as a
deposit, a current liability.





On March
10, 2010, the Company closed the Members’ Agreement entered into on December 31,
2009 with Scorpio Gold and Scorpio US.  At the closing of the Members’
Agreement, the Company sold Scorpio US an undivided 70% interest in the Mineral
Ridge Mine for a purchase price of US $3,750,000 cash (less those amounts
previously advanced to the Company by Scorpio Gold) and 7,824,750 common shares
of stock of Scorpio Gold at a deemed price of Cdn $0.50 per
share.  Immediately following the sale, the Company and Scorpio US
each contributed their respective interests in the Mineral Ridge Mine to a joint
venture formed to own and operate the Mineral Ridge Mine called Mineral Ridge
Gold, LLC, a Nevada limited liability company (the “Mineral Ridge
LLC”).  The Company also contributed to the Mineral Ridge LLC its
interest in the reclamation bonds related to the Mineral Ridge Mine and Scorpio
US contributed a net smelter royalty encumbering the Mineral Ridge Mine, which
Scorpio US had acquired simultaneously with the closing of the Members’
Agreement.  The Company currently owns a 30% membership interest in
the Mineral Ridge LLC.  Scorpio US owns a 70% membership interest in
and is the Manager of the Mineral Ridge LLC, and has agreed to carry all finance
costs necessary to bring the Mineral Ridge Mine into production and, provided it
does so within 30 months of the closing of the Members’ Agreement, will then
have the right to increase its interest in the Mineral Ridge LLC by 10% to a
total of 80%.  In the event Scorpio US qualifies to increase its
ownership interest to 80%, it will also have the option to purchase the
Company’s then remaining 20% interest for a period of 24 months following the
commencement of commercial production.  There can be no assurance that
Scorpio US will be successful in its ability to raise sufficient capital to fund
the development of the Mineral Ridge Mine and attain a successful level of
operations.





The
Company has reported the operations of the Ashdown LLC and the Mineral Ridge
Mine as discontinued operations in the accompanying consolidated financial
statements for all periods presented.


F-14





2009
            
            
            2008Ashdown
              LLC
            
            
            Mineral
              Ridge
            
            
            Total
            
            
            Ashdown
              LLC
            
            
            Mineral
              Ridge
            
            
            TotalRevenues
            
            $
            321,115
            
            
            $
            -
            
            
            $
            321,115
            
            
            $
            10,537,370
            
            
            $
            -
            
            
            $
            10,537,370Loss
      before income taxes
            
            $
            (668,186
            )
            
            $
            (593,423
            )
            
            $
            (1,261,609
            )
            
            $
            (1,014,488
            )
            
            $
            (2,062,188
            )
            
            $
            (3,076,676
            )Provision
      for income taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Loss
      from discontinued operations
            
            
            (668,186
            )
            
            
            (593,423
            )
            
            
            (1,261,609
            )
            
            
            (1,014,488
            )
            
            
            (2,062,188
            )
            
            
            (3,076,676
            )Loss
      on sale of interest in joint venture
            
            
            (235,303
            )
            
            
            -
            
            
            
            (235,303
            )
            
            
            -
            
            
            
            -
            
            
            
            -Loss
      from discontinued operations
            
            
            (903,489
            )
            
            
            (593,423
            )
            
            
            (1,496,912
            )
            
            
            (1,014,488
            )
            
            
            (2,062,188
            )
            
            
            (3,076,676
            )Loss
      from discontinued operations attributable to noncontrolling
      interest
            
            
            267,274
            
            
            
            -
            
            
            
            267,274
            
            
            
            496,352
            
            
            
            -
            
            
            
            496,352Loss
      from discontinued operations attributable to the Company
            
            $
            (636,215
            )
            
            $
            (593,423
            )
            
            $
            (1,229,638
            )
            
            $
            (518,136
            )
            
            $
            (2,062,188
            )
            
            $
            (2,580,324
            )





No
accounts or amounts for the Ashdown LLC are included in the consolidated
financial statements of the Company subsequent to May 13, 2009, the date the
Company’s sale of its interest in the Ashdown LLC was completed.  The
assets and liabilities of the Mineral Ridge Mine are aggregated and disclosed as
long-term assets and liabilities of discontinued operations in the consolidated
balance sheet as of December 31, 2009 as follows:





Prepaid
      expenses and other current assets
            
            $
            48,041Inventories
            
            
            19,324Property
      and equipment, net
            
            
            432,986Restricted
      funds – reclamation obligations
            
            
            1,861,146Prepaid
      bond insurance premiums
            
            
            190,853Deposits
            
            
            50Assets
      of discontinued operations
            
            $
            2,552,400





Accounts
      payable
            
            $
            17,332Reclamation
      obligation
            
            
            3,019,098Liabilities
      of discontinued operations
            
            $
            3,036,430





The
assets and liabilities of the Ashdown LLC and the Mineral Ridge Mine are
aggregated and disclosed as long-term assets and liabilities in the consolidated
balance sheet as of December 31, 2008 as follows:




Ashdown
      LLC
            
            
            Mineral
      Ridge
            
            
            TotalCash
      and cash equivalents
            
            $
            193
            
            
            $
            -
            
            
            $
            193Prepaid
      expenses and other current assets
            
            
            14,938
            
            
            
            47,075
            
            
            
            62,013Inventories
            
            
            224,846
            
            
            
            19,102
            
            
            
            243,948Property
      and equipment, net
            
            
            2,498,502
            
            
            
            446,021
            
            
            
            2,944,523Restricted
      funds – reclamation obligations
            
            
            493,218
            
            
            
            1,839,592
            
            
            
            2,332,810Prepaid
      bond insurance premiums
            
            
            -
            
            
            
            234,065
            
            
            
            234,065Deposits
            
            
            151,508
            
            
            
            -
            
            
            
            151,508Assets
      of discontinued operations
            
            $
            3,383,205
            
            
            $
            2,585,855
            
            
            $
            5,969,060




Ashdown
      LLC
              
              
              Mineral
      Ridge
              
              
              TotalAccounts
      payable
              
              $
              1,247,199
              
              
              $
              14,976
              
              
              $
              1,262,175Accrued
      liabilities
              
              
              749,928
              
              
              
              -
              
              
              
              749,928Long-term
      debt, including current portion
              
              
              631,885
              
              
              
              -
              
              
              
              631,885Amounts
      due to related parties
              
              
              176,705
              
              
              
              -
              
              
              
              176,705Reclamation
      obligation
              
              
              584,910
              
              
              
              3,034,314
              
              
              
              3,619,224Liabilities
      of discontinued operations
              
              $
              3,390,627
              
              
              $
              3,049,290
              
              
              $
              6,439,917


F-15




Note
4:  Mineral Properties





With the
sale of its interest in the Ashdown, LLC, and the formation of the Mineral Ridge
LLC, the Company’s primary mining property assets are the Northern Champion
molybdenum property located in Ontario, Canada and the Duff claim block, located
adjacent to the Ashdown Mine in northwestern Nevada.





Northern
Champion Property





The
Northern Champion Property is approximately 880 acres in Griffith and Broughham
Townships in the Province of Ontario, Canada (“Northern Champion
Property”).  On April 18, 2006, the Company executed a Purchase
Agreement with four individuals (collectively, the “Vendors”) to purchase five
registered claims totaling 22 units on the Northern Champion Property together
with a NI 43-101 Technical Report and Feasibility Study describing a molybdenite
deposit within the area of the claims.





Pursuant
to the terms of the agreement, the Company was obligated to pay $125,000 in four
equal quarterly installments of $31,250 commencing on August 15,
2006.  In addition, the agreement provided that the Company would
issue 735,000 shares of the Company’s common stock to the
Vendors.  The agreement also provided that the Vendors will retain a
3.3% Net Smelter Return (“NSR”) on the sales of minerals taken from the Northern
Champion Property.  Additionally, the Company will have the right of
first refusal to purchase 1.65% of said Net Smelter Return from the Vendors for
$1,650,000.





On
February 12, 2007, the parties agreed to convert the remaining cash payments to
an equivalent number of restricted shares valued at the market close of $0.295
on that date.  On February 16, 2007, 423,729 restricted shares were
issued to the Vendors and the purchase was completed.  The Company now
owns 100% of the Northern Champion Property subject to the NSR reserved by the
Vendors.





All costs
incurred by the Company in connection with the Northern Champion Property,
including acquisition costs, have been expensed to exploration and development
costs.  With available funding, the Company plans to take bulk samples
for metallurgical and market testing, and to actively explore and delineate
molybdenum mineralization on the property.





Duff
Claims Block





The
Company owns the Duff claims block comprised of 211 mineral claims located along
the western flank of the Pine Forest Range, 20 miles south of Denio, Humboldt
County, Nevada.  The claims block, which was acquired in 2007, abuts
the Ashdown Mine to the north and extends south to the boarder of the Blue Lake
Wilderness Study Area.  The geology of the region is primarily
tertiary cretaceous granites with quartz outcroppings.  Metals
historically mined in the general region include gold, molybdenum copper,
tungsten and antimony.





The major
mine feature of the Duff claims is the Adams Mine, which at one time produced
silica.  However, there are historical reports that substantial gold
was also extracted from the quartz rock.  Gold has also been mined in
the Vicksburg, Ashdown and Cherry Creek canyons to the north, and Leonard Canyon
to the south of the Duff claims.




With
available funding, the Company plans to commence a surface mapping and sampling
program covering sections of the 4,400 acres of claims within the Duff claims
block.
 
 The Duff
claims block has no historical cost basis to the Company for accounting
purposes; therefore, no amounts related to this mineral property are included in
the accompanying consolidated financial statements.


F-16





Note 5:  Property and
Equipment





Property and equipment consist of the
following at December 31:





2009
            
            
            2008Mining
      and milling equipment
            
            $
            20,431
            
            
            $
            247,581Computer
      equipment
            
            
            82,370
            
            
            
            82,370Drilling
      equipment
            
            
            379,220
            
            
            
            379,220Vehicles
            
            
            -
            
            
            
            7,469Support
      equipment
            
            
            39,933
            
            
            
            39,933Furniture
      and equipment
            
            
            23,484
            
            
            
            19,659545,438
            
            
            
            776,232Less
      accumulated depreciation and amortization
            
            
            (260,432
            )
            
            
            (404,675
            )$
            285,006
            
            
            $
            371,557





For the
years ended December 31, 2008 and 2007, the Company recorded depreciation and
amortization expense of $78,438 and $109,702, respectively.





The
Company had drilling equipment under capital lease with a cost of $66,395 and
accumulated amortization of  $23,238 and $9,959 at December 31, 2009
and 2008, respectively.








Note
6:  Restricted Funds – Reclamation Obligations





During
May 2003, the Company entered into an insurance backed financial assurance
program for a surety bond to secure the $2,693,000 reclamation bond for the
Mineral Ridge Mine. The program structure includes an insurance policy that will
pay reclamation expenses as they occur.  During June 2003, the Company
transferred to the insurance company approximately $1,800,000 of restricted cash
for the reclamation of the Mineral Ridge Mine.  The Company has paid
an additional $526,505 of premiums on the reclamation bond policy through
December 31, 2007.  The Company is obligated to pay $11,311 annually
thereafter which amount will be expensed during the year incurred.





Of the
total initial premium of $2,326,505, $1,796,652 represents a Reclamation
Experience Account which funds are directly available to the Company to use for
closure, reclamation and remediation activities once they commence based on the
existing known condition of the Mineral Ridge Mine.  This amount has
been included in the balance of the Restricted Funds - Reclamation Obligations
asset included in assets of discontinued operations in the accompanying
consolidated balance sheets as of December 31, 2009 and 2008.





The
prepaid bond insurance premiums of $526,505 are being amortized over the twelve
(12) year term of the policy.  The annual insurance premium of $11,311
is amortized over a twelve (12) month period.  At December 31, 2009
and 2008, the total current portion of the prepaid insurance premiums related to
this policy totaled $43,212 and is included in prepaid expenses and other
current assets in assets of discontinued operations in the accompanying
consolidated balance sheets.  The long-term portion of the prepaid
insurance premiums totaled $190,853 and $234,065 at December 31, 2009 and 2008,
respectively, and is included in assets of discontinued operations in the
accompanying consolidated balance sheets.  This program allows the
Company flexibility to increase its bond in the future to an aggregate limit of
$4,000,000.





A deposit
with a balance of $64,494 and $42,940 at December 31, 2009 and 2008,
respectively, for the Mineral Ridge Mine is also included in the balance of the
Restricted Funds – Reclamation Obligations in assets of discontinued operations
in the accompanying consolidated balance sheets.







F-17




Note
7:  Reclamation Obligations





In
accordance with FASB ASC Topic 410, Asset Retirement and Environment
Obligations, which establishes a uniform methodology for accounting for
estimated reclamation and abandoned costs, the Company has estimated reclamation
costs for the Mineral Ridge Mine.  At December 31, 2009 and 2008, the
amount recorded for estimated reclamation obligations was $3,019,098 and
$3,034,314, respectively, and is included in liabilities of discontinued
operations in the accompanying consolidated balance sheets.  Because
the Company was unable to operate the Mineral Ridge Mine profitably in
accordance with the feasibility study completed in 2003 and subsequently idled
the project, no related reclamation asset has been recorded at December 31, 2009
and 2008.





Accretion
expense related to the reclamation obligations for the years ended December 31,
2009 and 2008, included in loss from discontinued operations, was $(15,216) and
$185,035, respectively.





The
following is a summary of the changes to the Company’s reclamation
obligations:




Balance,
      December 31, 2007
            
            $
            2,824,805Additional
      reclamation obligations
            
            
            24,474Accretion
      expense
            
            
            185,035Balance,
      December 31, 2008
            
            
            3,034,314Accretion
      expense
            
            
            (15,216
            )Balance,
      December 31, 2009
            
            $
            3,019,098








Note
8:  Accrued Liabilities





Accrued liabilities consisted of the
following as of December 31:





2009
            
            
            2008Officers
      deferred compensation
            
            $
            636,358
            
            
            $
            356,989Accrued
      payroll and related
            
            
            289,240
            
            
            
            109,770Other
            
            
            79,835
            
            
            
            106,397$
            1,005,433
            
            
            $
            573,156




The officers deferred compensation is
payable to officers, former officers and employees of the Company as follows at
December 31:





2009
            
            
            2008David
      Caldwell
            
            $
            352,873
            
            
            $
            187,869Robert
      Martin
            
            
            268,570
            
            
            
            133,570Other
            
            
            14,915
            
            
            
            35,550$
            636,358
            
            
            $
            356,989




F-18





Note
9:  Severance Obligations





At a
meeting of the Board of Directors on February 18, 2005, the directors
unanimously approved a separation agreement for Michael Fitzsimonds, a former
Chief Executive Officer of the Company.  The terms of separation were
that Mr. Fitzsimonds would be paid his full salary for one year, including
medical benefits, followed by 180 hours of vacation.  The Company then
would pay him $394,000 in 59 equal monthly payments.  He would be
allowed to use a company vehicle for one year at which time he exercised his
option to purchase it.  The current portion of the severance
obligation to Mr. Fitzsimonds of $165,201 and $100,170 as of December 31, 2009
and 2008, respectively, is included in current liabilities in the accompanying
consolidated balance sheets.  The long-term portion of the severance
obligation to Mr. Fitzsimonds of $86,460 as of December 31, 2008 is included in
long-term liabilities in the accompanying consolidated balance
sheets.





On
December 23, 2009, the Company entered into a Settlement Agreement and Mutual
Release Agreement with Mr. Fitzsimonds (the Fitzsimonds Settlement Agreement”),
pursuant to which the Company and Mr. Fitzsimonds agreed to settle the severance
obligations and $100,000 promissory note due Mr. Fitzsimonds and cancel all
outstanding stock options held by Mr. Fitzsimonds.  The Company paid
Mr. Fitzsimonds $25,000 upon execution of the Fitzsimonds Settlement Agreement
and agreed to pay Mr. Fitzsimonds $65,201 within two business days of the
closing of the Mineral Ridge LLC.  In addition, the Company issued Mr.
Fitzsimonds 1,000,000 shares of its common stock on December 30, 2009 in payment
of the $100,000 promissory note and 1,428,571 shares of its common stock on
March 18, 2010 in payment of other obligations.  Mr. Fitzsimonds
agreed to release and discharge the Company from all current or future
claims.





During
the year ended December 31, 2008, the Company paid all remaining amounts payable
to Kenneth S. Ripley, former Chief Executive Officer of the Company, under an
employment separation agreement.  This agreement terminated an
employment agreement dated as of March 8, 2006 between the Company and Mr.
Ripley.








Note
10:  Production Purchase Obligation





On June
13, 2007, the Company entered into a Production Payment Purchase Agreement and
Assignment (the “Purchase Agreement”) by and between the Company and Crestview
Capital Master, LLC (“Crestview”).  Pursuant to the terms of the
Purchase Agreement, Crestview acquired from the Company a production payment
equal to $1,974,456.  The production payment was payable in an amount
equal to a 5% Net Smelter (Refinery) Returns (“NSR”) paid solely from the
Company’s share of production distributed to the Company pursuant to the Ashdown
Project LLC Operating Agreement.  On January 30, 2009, the Company
entered into a Bridge Loan and Debt Restructuring Agreement with Crestview,
whereby the production payment obligation was restructured as secured promissory
note of $1,000,000.  See Note 12 for a discussion of this promissory
note and a second promissory note payable to Crestview of
$1,000,000.





The
production payment obligation to Crestview of $1,974,456 was recorded as a
current liability in the accompanying consolidated balance sheets at December
31, 2008.  Prior to its restructure in January 2009, the production
payment obligation was convertible in whole or in part into shares of the
Company’s common stock at the option of Crestview using a defined formula, but
in no case less than $0.36 per share nor more than $0.46 per share.








Note
11:  Ashdown Milling Production Payment Purchase
Agreement





On
September 26, 2005, the Company entered into a Production Payment Purchase
Agreement with Ashdown Milling Co LLC (“Ashdown Milling”).  Under the
terms of the agreement, Ashdown Milling agreed to purchase a production payment
to be paid from the Company’s share of production from the Ashdown mine for a
minimum of $800,000.  In addition, Ashdown Milling received one share
of the Company’s common stock and one warrant to purchase one share of the
Company’s common stock at $0.20 per share for each dollar paid to the
Company.  In addition, the Production Payment Purchase Agreement
provided that, upon the request of the Company for additional funds, Ashdown
Milling had the right, but not the obligation, to increase its investment in the
production payment up to an additional $700,000 for a maximum purchase price of
$1,500,000.  The amount of the production payment to be paid to
Ashdown Milling is equal to a 12% net smelter returns royalty on the minerals
produced from the mine until an amount equal to 240% of the total purchase price
has been paid.  Robert P. Martin, President
of the Company, and Kenneth S. Ripley, a former Chief Executive Officer of the
Company, are co-managers and two of the five members of Ashdown
Milling.  The Company’s Board approved the
transaction.


F-19





Because
production payments from the Ashdown mine were not assured at the time of the
agreement with Ashdown Milling, the transaction was originally accounted for as
the sale of an interest in mineral properties with the related gain to be
deferred until the Company began making payments according the terms of the
agreement.  A total of $1,500,000 was advanced to the Company pursuant
to this agreement, with the proceeds allocated as follows.





Common
      stock
            
            $
            370,100Warrants
            
            
            225,333Deferred
      revenue
            
            
            904,567$
            1,500,000





The
allocation of the proceeds to common stock was based on the quoted market price
of the Company’s common stock on the date the shares were issued to the Ashdown
Milling members.  The allocation of the proceeds to warrants, also
recorded to common stock, was based on the estimated value of the warrants
calculated using the Black-Scholes valuation model.





With the
commencement of mining operations at the Ashdown mine, the Company reclassified
the deferred revenue to a production payment obligation – related party, a
current liability, to be repaid from the Company’s share of production
distributions received from the Ashdown LLC.  The Company has paid the
$904,567 production payment obligation.  Amounts paid to Ashdown
Milling members in excess of the original obligation recorded of $904,567 will
be reported as royalties expense.





On
February 6, 2008 the Company bought out the membership interests of two members
of Ashdown Milling, Charles D. Murphy and Acco Investment Inc., in exchange for
1,866,667 shares of the Company’s common stock and $139,092 cash paid to each of
them.  As a result, their membership interests in Ashdown Milling were
extinguished, and the Company’s remaining production payment to be paid to
Ashdown Milling was reduced from a 12% net smelter returns royalty on the
minerals produced to 7.2%.





For the
year ended December 31, 2008, the Company reported royalties expense of
$1,158,337 comprised of the following:





Common
      stock – 3,733,334 shares at $0.225 per share
            
            $
            840,000Exercise
      of warrants – 300,000 shares at $0.20 per share
            
            
            60,000Cash
      payments
            
            
            258,337$
            1,158,337





For the
year ended December 31, 2009, the Company reported royalties expense of $70,090
resulting from the issuance of a note payable to a related party (see Note
13).





As a
consequence to the sale of its interest in the Ashdown LLC, the members of
Ashdown Milling will no longer have a net smelter returns royalty on Ashdown LLC
production.  The Company expects to pay the remaining royalty
obligation as sales proceeds are received from WEG.




F-20





Note
12:  Debt





The
Company’s debt consists of the following at December 31:





2009
            
            
            2008Note
      payable to Crestview Capital Master, LLC payable April 6, 2010, with
      interest to accrue on a quarterly basis at prime plus 2%
            
            $
            1,000,000
            
            
            $
            -Note
      payable to Crestview Capital Master, LLC resulting from the restructure of
      a production payment obligation (Note 9) payable August 6, 2010, with
      interest to accrue on a quarterly basis at prime plus 2%
            
            
            1,000,000
            
            
            
            -Note
      payable to GE Capital, payable at $1,080 per month through January 2012,
      including interest at 5.40%, secured by equipment
            
            
            26,450
            
            
            
            40,363Note
      payable to Daimler Chrysler, payable at $806 per month,  through
      February 2012, including interest at 13.75%, secured by
      vehicle
            
            
            18,027
            
            
            
            25,736Note
      payable to Komatsu Equipment Company, with principal payments of $58,486
      on June 30, 2008, $58,486 on June 30, 2009, and $58,485 on June 30, 2010,
      with interest at 8%, unsecured
            
            
            175,457
            
            
            
            175,457Capital
      lease payable to Heartland Wisconsin Corp., payable at $1,148 per month
      through May 2013, secured by equipment
            
            
            39,544
            
            
            
            50,173Short-term
      note payable to Retrievers, LLC, with interest at 12%, secured by the
      assets of the Company
            
            
            145,468
            
            
            
            -Other
            
            
            15,366
            
            
            
            4,300Accrued
      interest payable
            
            
            176,643
            
            
            
            23,026Total
            
            
            2,596,955
            
            
            
            319,055Less
      current portion
            
            
            2,535,782
            
            
            
            176,549Long-term
      portion
            
            $
            61,173
            
            
            $
            142,506





On
January 30, 2009, the Company entered into a Bridge Loan and Debt Restructuring
Agreement (the “Agreement”) with Crestview Capital Master, LLC (the “Lender”),
whereby the Company and the Lender entered into a bridge loan and a
restructuring of the original debt in the amount of $1,974,456 owed by the
Company to the Lender pursuant to the Production Payment Purchase Agreement and
Assignment, dated June 12, 2007 (the “Original Debt”).





Pursuant
to the Agreement, the Company borrowed from the Lender the principal amount of
$1,000,000 (the “Principal Amount”) in exchange for the Company issuing the
Lender a Bridge Loan Secured Promissory Note (the “Bridge Note”) for the
Principal Amount plus interest to accrue on a quarterly basis at a rate of the
Wall Street Journal Prime Rate plus 2%.  On October 26, 2009, the
Company and the Lender agreed to restructure the Bridge Note to extend the
maturity date from November 6, 2009 to February 6, 2010.  Pursuant to
a side letter agreement between the Company and the Lender dated January 13,
2010, the Lender agreed to extend the Maturity Date for successive one week
periods for an extension fee of $10,000 per weekly period, prorated for any
portion thereof, but in no event beyond April 6, 2010 (see Note
24).  The Lender may, at its option, require repayment of $500,000 of
the amount owed on the Bridge Note in consideration for the issuance of warrants
to purchase 5,000,000 shares of the Company’s common stock, at an exercise price
of $0.05 per share (the “Bridge Warrants”).  On March 10, 2010, the
Bridge Note was repaid in full (see Note 24).





Additionally,
pursuant to the Agreement, the Company and Lender restructured the Original
Debt, which was recorded as a production payment obligation, a current liability
in the Company’s consolidated balance sheet as of December 31,
2008.  In consideration of the reduction of the Original Debt from
$1,974,456 to $1,000,000, the Company executed a Secured Promissory Note in the
principal amount of $1,000,000 (the “Debt Restructuring Note”) together with
interest at a rate equal to the Wall Street Journal Prime Rate plus 2%, with a
maturity date of August 6, 2010, as well as issue certain warrants to purchase
Company common stock as further described below.  As a result, the
Company recorded a gain on extinguishment of debt of $974,456 in the
accompanying consolidated statement
of operations for the year ended December 31, 2009.  Upon formation of
a joint venture in relation to the Mineral Ridge Mine, the Company will issue an
irrevocable assignment to the Lender of 50% of all distributions to be made to
it by the joint venture as prepayment for the amount outstanding on the Debt
Restructuring Note.  Upon payment in full of the Debt Restructuring
Note and any additional note issued pursuant to Section 3 of the Bridge Note,
the Lender will release the joint venture from the
assignment.


F-21





On
October 26, 2009, the Company and Crestview also agreed to restructure the terms
of the $1 million Debt Restructuring Note to change the maturity date from
February 6, 2011 to August 6, 2010.  The Company executed an Amended
and Restated Debt Restructuring Promissory Note dated October 29, 2009 to
reflect the same.  The terms of the Amended and Restated Debt
Restructuring Note were also modified to require the Company to prepay the
Amended and Restated Debt Restructuring Note to the extent of 50% of any debt or
equity financing received by the Company.  As a result of the change
in the maturity date, the Debt Restructuring Loan of $1 million has been
recorded as a current liability in the accompanying consolidated balance sheet
at December 31, 2009.





The Company paid the Lender
$50,000 as part of the consideration for amending each of the Bridge Loan and
debt restructuring agreements set forth above.





As of the
Closing, and as additional consideration for the restructuring of the Original
Debt, the Company issued to the Lender warrants to purchase 23,000,000 shares of
the Company’s common stock, at an exercise price of $0.03 per share, for a
purchase period of 24 months (the “Debt Restructuring Warrants”). The Debt
Restructuring Warrants and the Bridge Warrants (collectively referred to herein
as the “Warrants”) are subject to certain registration rights, which the Lender,
at present, has agreed to waive in lieu of utilizing Rule 144, as necessary, to
remove any restrictive legends on its securities.  The provisions of
the Debt Restructuring Warrants were modified pursuant to an Amended and
Restated Restructuring Warrant dated October 29, 2009 to provide that in the
event there is an issuance of shares or common stock, convertible debt or
equity, or warrants or options, at a price per share or convertible or
exercisable at a price per share below the Warrant Price (as defined), then the
Warrant Price shall be reduced to the price per share of the common stock so
issued or issuable, and the number of Warrant Shares (as defined) shall be
adjusted to the extent required to enable the Holder to acquire additional
shares of common stock representing the same percentage of the shares issued
and/or issuable as a result of the transaction as the number of Warrant Shares
exercisable immediately prior to the transactions represents of the number of
shares of common stock issued and outstanding immediately prior to the
transaction.





As
security for the Bridge Note and the Debt Restructuring Note, the Parties agreed
to amend and restate their Security Agreement, dated June 12, 2007, which
secures the Company’s repayment obligations pursuant to the Agreement (the
“Amended Security Agreement”).  The secured interest in favor of the
Lender has been perfected by the filing of a UCC-1 Financing Statement with the
Nevada Secretary of State as well as the filing of a Deed of Trust and Mortgage
with Esmeralda County.





Pursuant
to the Agreement, in consideration of the Company’s issuance of the Bridge Note,
the Debt Restructuring Note, the Debt Restructuring Warrants, and the Amended
Security Agreement, the Lender released the Company from all past, present, and
future claims relating to the Original Debt provided that the Company pays the
interest and principal of the current obligations on the day such interest and
principal become payable.


F-22





Note
13:  Amounts Due to Related Parties





Amounts due to related parties,
included in current liabilities, consist of the following at December 31, 2009
and 2008:





2009


Principal
            
            
            Interest
            
            
            TotalNote
      payable to the former manager of the Ashdown mine for the purchase of a
      mill, equipment rental and other, with interest at 12%
            
            $
            166,407
            
            
            $
            11,830
            
            
            $
            178,237Notes
      payable to David A. Caldwell, a former Chief Executive Officer of the
      Company, and Julie K. Caldwell, payable on demand, with interest at
      18%
            
            
            40,866
            
            
            
            4,513
            
            
            
            45,379Notes
      payable to Robert P. Martin, President of the Company, and the Robert P.
      Martin Revocable Living Trust, payable on demand, with interest at
      18%
            
            
            160,524
            
            
            
            48,033
            
            
            
            208,557$
            367,797
            
            
            $
            64,376
            
            
            $
            432,173




2008


Principal
            
            
            Interest
            
            
            TotalNote
      payable to Michael Fitzsimonds, a former Chief Executive Officer of the
      Company, with interest payments of $1,350 per month, due on or before
      February 18, 2008 (repaid in December 2009)
            
            $
            100,000
            
            
            $
            4,050
            
            
            $
            104,050Note
      payable to the former manager of the Ashdown mine for the purchase of a
      mill, equipment rental and other, with interest at 12%
            
            
            166,189
            
            
            
            9,429
            
            
            
            175,618Notes
      payable to David A. Caldwell, a former Chief Executive Officer of the
      Company, and Julie K. Caldwell, payable on demand, with interest at
      18%
            
            
            80,935
            
            
            
            3,457
            
            
            
            84,392Notes
      payable to Robert P. Martin, President of the Company, and the Robert P.
      Martin Revocable Living Trust, payable on demand, with interest at
      18%
            
            
            90,435
            
            
            
            4,036
            
            
            
            94,471$
            437,559
            
            
            $
            20,972
            
            
            $
            458,531








Note
14:  Gain on Extinguishment of Debt





As
discussed in Notes 10 and 12, during the year ended December 31, 2009, the
Company restructured a production payment obligation of $1,974,456 to a
short-term note payable of $1,000,000, resulting in a gain on extinguishment of
debt of $974,456.  Other extinguishment of debt transactions in 2009
resulted in additional gain totaling $58,123.





The
Company reached agreement with certain parties during the year ended December
31, 2008 pursuant to which a net gain on extinguishment of debt of $46,586 was
realized.  This gain is recorded net of a loss on extinguishment of
accrued liabilities due to related parties of $105,030 from the issuance of
common shares where the
market value of the common stock exceeded the recorded amount of the debt paid
on the date the shares were issued.


F-23




Note
15:  Stock-Based Compensation





The
Company accounts for stock-based compensation in accordance with ASC Topic 718,
Compensation – Stock
Compensation.  Under the fair value recognition provisions of
this pronouncement, stock-based compensation cost is measured at the grant date
based on the value of the award granted, using the Black-Scholes option pricing
model, and recognized over the period in which the award vests.  The
stock-based compensation expense included in general and administrative expenses
for the years ended December 31, 2009 and 2008 was $62,387 and $246,716,
respectively.  There was no stock compensation expense capitalized
during the years ended December 31, 2009 and 2008.





During
the year ended December 31, 2009, options to purchase 200,000 shares of the
Company’s common stock were issued to directors with exercise prices ranging
from $0.02 to $0.03 per share.  The Company estimated the weighted
average grant-date fair value of these options at $0.02 per share using the
Black-Scholes option pricing model with the following assumptions:




Expected
      dividend yield
            0.00%Expected
      stock price volatility
            114.92%Risk-free
      interest rate
            2.09%Expected
      life of options
            5
      years




The
following table summarizes the stock option activity during the year ended
December 31, 2009:





Options
            
            
            Weighted
              Average
              Exercise
              Price
            
            
            Weighted
              Average
              Remaining
              Contract
      Term
            
            
            Aggregate
              Intrinsic
              ValueOutstanding
      at December 31, 2008
            
            
            6,827,273
            
            
            $
            0.21Granted
            
            
            200,000
            
            
            $
            0.03Exercised
            
            
            (100,000
            )
            
            $
            0.03Expired
      or cancelled
            
            
            (790,000
            )
            
            $
            0.24Outstanding
      at December 31, 2009
            
            
            6,137,273
            
            
            $
            0.21
            
            
            
            1.81
            
            
            $
            3,000Options
      vested and exercisable at December 31, 2009
            
            
            5,787,273
            
            
            $
            0.21
            
            
            
            1.71
            
            
            $
            3,000




The aggregate intrinsic value in the preceding
table represents the total pretax intrinsic value, based on the Company’s
closing stock price of $0.05 as of December 31, 2009 which would have been
received by the holders of in-the-money options had the option holders exercised
their options as of that date.





As of
December 31, 2009, the total future compensation cost related to non-vested
stock-based awards not yet recognized in the condensed consolidated statements
of operations was $13,455.


F-24





Note
16:  Stock Warrants and Purchase Rights





A summary
of the status of the Company’s stock warrants and purchase rights as of December
31, 2009 and changes during the year then ended is presented below:





WeightedAverageShares
            
            
            Exercise
      PriceOutstanding,
      December 31, 2008
            
            
            15,898,925
            
            
            $
            0.34Granted
            
            
            34,531,380
            
            
            $
            0.03Canceled
      / Expired
            
            
            (24,181,380
            )
            
            $
            0.21Exercised
            
            
            -
            
            
            $
            -Outstanding,
      December 31, 2009
            
            
            26,248,925
            
            
            $
            0.04








The
following summarizes the exercise price per share and expiration date of the
Company's outstanding warrants and rights to purchase common stock at December
31, 2009:





Expiration
      Date
            Price
            Number2010
            $  0.25
            1,748,9252011
            $  0.03
            23,000,0002011
            $  0.01
            1,500,00026,248,925





As
additional consideration for the restructuring of debt (see Note 12), the
Company issued warrants to purchase 23,000,000 shares of the Company’s common
stock, at an exercise price of $0.03 per share, exercisable for a period of 24
months.  The Company has estimated the value of the warrants at
$437,611 using the Black-Scholes option pricing model, and has included this
amount in interest expense for the year ended December 31, 2009.





The
Company issued warrants to a Director in connection with a consulting agreement
to purchase 1,500,000 common shares of the Company at an exercise price of
$0.0079 per share.  The warrants are exercisable through February 6,
2011.  The Company has estimated the value of the warrants at $11,193
using the Black-Scholes option pricing model, and has included this amount in
interest expense for the year ended December 31, 2009.








Note
17:  Stockholders’ Equity





Upon
reincorporation to the State of Nevada in May 2008, the par value of the
Company’s common stock was changed from no par value per share to $0.001 par
value per share.  The consolidated financial statements of the Company
for all periods presented have been retroactively adjusted to reflect this
change in par value per share.





During
the year ended December 31, 2009, the Company issued a total of 17,669,753
shares of its common stock, including 3,528,500 shares to officers and
directors, for the following consideration:  12,501,253 shares issued
for cash of $249,400; 100,000 shares issued for cash of $3,000 upon the exercise
of stock options; 4,068,500 shares issued for accounts payable of $40,319 and
common stock subscription receivable of $1,187; and 1,000,000 shares issued for
debt of $50,000.  The Company also wrote off a stock subscription
receivable of $120,000 against additional paid-in capital.





On July
28, 2009, the Company entered into a Stock Purchase Agreement (the “Agreement”)
with Alliance International (the “Investor”).  Pursuant to the terms
of the Agreement, the Company issued 2,500,000 shares of the Company’s common
stock (the “Shares”), with a purchase price of $0.01995 per Share, to the
Investor for a total purchase price of $49,875.  Additionally, the
Company granted the Investor the following options (the “Options”):


F-25




The
Shares, the Options, and the First Option Shares and Second Option Shares
issuable upon exercise of the Options, are exempt from the registration
requirements of the Securities Act of 1933, as amended, (the “Securities Act”)
pursuant to Section 4(2) of the Securities Act and from various similar state
exemptions.





During
the year ended December 31, 2008, the Company issued a total of 24,957,818
shares of its common stock for the following
consideration:  10,422,363 shares for cash of $739,122; 1,461,154
shares for services valued at $84,700; 3,460,000 shares in payment of accounts
payable of $163,151 and common stock subscription receivable of $1,187;
3,890,000 shares in payment of accrued liabilities to related parties of
$233,400; 3,733,334 shares issued for royalties expense of $840,000 (Note 11);
666,667 shares for common stock subscription receivable of $120,000; 1,024,300
shares issued for the exercise of options and warrants, $25,658 for cash and
$129,587 reduction in accrued liabilities; and 300,000 shares issued upon the
exercise of warrants for royalties expense of $60,000 (Note 11).





The
prices per share recorded in non-cash equity transactions approximated the
quoted market price of the Company’s common stock on the date the shares were
issued.  In those instances where the market price of the Company’s
common stock on the date the shares are issued to repay debt or other
obligations differs from the market price originally used to determine the
number of shares to be issued, a gain or loss on extinguishment of debt is
recorded.  Depending on the delay in issuing these shares, the gain or
loss may be material.  For the year ended December 31, 2009, a gain of
$50,000 on extinguishment of debt repaid through the issuance of the Company’s
common stock was recorded.  For the year ended December 31, 2008, a
loss on extinguishment of debt of $105,030 through the issuance of the Company’s
common stock was recorded.








Note
18:  Income Taxes





The
benefit (provision) for income taxes is different than amounts which would be
provided by applying the statutory federal income tax rate to (loss) income
before income taxes for the following reasons:





Years
      Ended December 31,2009
            
            
            2008Income
      tax benefit at statutory rate
            
            $
            951,574
            
            
            $
            2,399,238Adjustments
      to net operating loss carry forward
            
            
            1,280
            
            
            
            259,322Stock
      or warrants issued for services and expenses
            
            
            (152,593
            )
            
            
            (334,798
            )Other
            
            
            68,947
            
            
            
            (18,290
            )Change
      in valuation allowance
            
            
            (869,208
            )
            
            
            (2,305,472
            )$
            -
            
            
            $
            -





Deferred tax assets (liabilities) are
comprised of the following at December 31:





2009
            
            
            2008Deferred
      tax assets:Net
      operating loss carry forwards
            
            $
            10,906,860
            
            
            $
            10,305,281Reclamation
      obligation
            
            
            1,026,493
            
            
            
            1,151,808Accrued
      expenses
            
            
            391,615
            
            
            
            203,771Mineral
      properties
            
            
            170,947
            
            
            
            170,947Depreciation
            
            
            64,008
            
            
            
            -Stock-based
      compensation
            
            
            137,542
            
            
            
            116,330Allowance
      for doubtful accounts
            
            
            29,580
            
            
            
            -12,727,045
            
            
            
            11,948,137Less
      valuation allowance
            
            
            (12,727,045
            )
            
            
            (11,857,837
            )Net
      deferred tax assets
            
            
            -
            
            
            
            90,300


F-26





2009
            
            
            2008Deferred
      tax liabilities:Depreciation
            
            
            -
            
            
            
            (90,300
            )Unrealized
      gain on investments
            
            
            -
            
            
            
            -Net
      deferred tax liabilities
            
            
            -
            
            
            
            (90,300
            )Net
      deferred taxes
            
            $
            -
            
            
            $
            -





At
December 31, 2009, the Company has a net operating loss carry forward available
to offset future taxable income of approximately $32,079,000, which will begin
to expire in 2010.  If substantial changes in the Company’s ownership
should occur, there would also be an annual limitation of the amount of the net
operating loss carry forward which could be utilized.





FASB ASC
Topic 718-740, Income
Taxes, requires a company to determine whether it is more likely than not
that a tax position will be sustained upon examination based upon the technical
merits of the position.  If the more-likely-than-non threshold is met,
a company must measure the tax position to determine the amount to recognize in
the financial statements.  During the years ended December 31, 2009
and 2008, the Company performed a review of its material tax positions in
accordance with recognition and measurement standards established by ASC Topic
718-740.  The Company has no unrecognized tax benefit which would
affect the effective tax rate if recognized.





The
Company classifies interest and penalties arising from the underpayment of
income taxes in the consolidated statements of operations under general and
administrative expenses.  As of December 31, 2009 and 2008, the
Company had no accrued interest or penalties related to uncertain tax
positions.





The
Company files income tax returns in the U.S. federal jurisdiction, but in no
state or local jurisdictions since all operations are currently conducted in the
State of Nevada, which does not have a corporate income tax.  The
Company also has immaterial operations in Canada.  All U.S. federal
net operating loss carry forwards through the year ended December 31, 2009 are
subject to examination.








Note
19: Consulting Agreements





In
December 2008, the Company’s Board of Directors approved a compensation package
to be offered to all executive officers and board members to provide the Company
with consulting services related to its ongoing financing and debt conversion
efforts.  Certain of the Company’s officers and directors have entered
into consulting or other compensation arrangements on substantially similar
terms based on this board approved package, as further detailed
below.





Thomas
Klein





On
January 16, 2009, the Company entered into a Consulting Agreement (the “Klein
Agreement”) with Thomas Klein, whereby Mr. Klein is to provide consulting
services to the Company in connection with the Company’s continued financing and
debt conversion efforts.  Mr. Klein currently serves on the Company’s
Board of Directors and Governance Committee and was appointed Chief Executive
Officer of the Company in January 2010.





As
compensation for his consulting services, Mr. Klein received 1,500,000 shares of
Company common stock in May 2009 valued at a 50% discount to the trailing twenty
day Company common stock average price from the date of Board approval of such
compensation package, totaling $11,835 (“Initial Compensation”).  Such
Initial Compensation serves to offset the expenses incurred by Mr. Klein in his
attempt to help secure the Company future financing.  Pursuant to the
Klein Agreement, Mr. Klein will be obligated to incur expenses or purchase
Company debt up to the full value of the Initial Compensation.





In
addition, in May 2009, Mr. Klein received 1,500,000 warrants to purchase Company
common stock based upon the acquisition of $200,000 in financing for the
Company, or the retirement of up to $500,000 of the Company’s existing debt, as
a result of Mr. Klein’s efforts (“Subsequent Compensation”).  Pursuant
to the Klein Agreement, the warrants associated with the Subsequent Compensation
are fully vested, have an exercise price of $0.0079 per share, and are
exercisable through February 6, 2011.


F-27





Furthermore,
for all financing obtained by Mr. Klein’s efforts above $200,000 or resulting in
the retirement of the Company’s existing debt in excess of $500,000, Mr. Klein
will be eligible for a 10% finder’s fee paid either in cash or, at the
discretion of the finder, in restricted Company common stock at a 20% discount
to the closing market price of the Company’s common stock at the time of
contracting (“Finder’s Fee Compensation”).





The
Company has agreed that it will use its best efforts to register the stock
issued in connection with the Initial Compensation, Subsequent Compensation and
Finder’s Fee Compensation pursuant to an applicable registration statement filed
with the SEC.  Mr. Klein has agreed to a non-competition clause and a
non-solicitation clause, both applicable during the course of Mr. Klein’s
consulting services to the Company and for a period to end 12 months after
termination of the Klein Agreement.





Corby
Anderson





On April
16, 2009, the Company entered into a Consulting Agreement (the “Allihies
Agreement”) with Allihies Engineering, Incorporated, a Montana corporation, and
its President, Dr. Corby Anderson, whereby Dr. Anderson is to provide consulting
services to the Company in connection with the Company’s continued financing and
debt conversion efforts.  Dr. Anderson currently serves on the
Company’s Board of Directors and Governance Committee.





As
compensation for his consulting services, Dr. Anderson will receive 1,500,000
shares of Company common stock valued at a 50% discount to the trailing twenty
day Company common stock average price from the date of Board approval of such
compensation package, totaling $11,835 (“Initial Compensation”).  In
May 2009, 528,500 of the common shares were issued.  Such Initial
Compensation shall serve to offset the expenses incurred by Dr. Anderson in his
attempt to help secure the Company future financing. Pursuant to the Allihies
Agreement, Dr. Anderson will be obligated to incur expenses or purchase Company
debt up to the full value of the Initial Compensation.





In
addition, Dr. Anderson will be eligible to receive 1,500,000 warrants to
purchase Company common stock upon the acquisition of $200,000 in financing for
the Company or in connection with a property transaction related to the Mineral
Ridge mining property, or the retirement of up to $500,000 of the Company’s
existing debt, that are a result of Dr. Anderson’s efforts (“Subsequent
Compensation”).  Pursuant to the Allihies Agreement, the warrants
associated with the Subsequent Compensation will vest pro-rata as efforts are
made to secure the $200,000 financing, the property transaction or $500,000 debt
reduction, respectively, and will have an exercise price of
$0.0079.





Furthermore,
for all financing obtained by Dr. Anderson’s efforts resulting in the Company
receiving at least $200,000, the completion of a property transaction or
resulting in the retirement of the Company’s existing debt in excess of
$500,000, Dr. Anderson will be eligible for a 10% finder’s fee paid either in
cash or, at the discretion of the finder, in restricted Company common stock at
a 20% discount to the closing market price of the Company’s common stock at the
time of closing.





The
Company has agreed that it will use its best efforts to register the stock
issued in connection with the Initial Compensation pursuant to an applicable
registration statement filed with the SEC.





Jeffrey
Dahl





On April
24, 2009, the Company entered into a Consulting Agreement (the “Dahl Agreement”)
with Jeffrey Dahl to provide consulting services to the Company in connection
with the Company’s continued financing and debt conversion
efforts.  Mr. Dahl currently serves on the Company’s Board of
Directors.





As
compensation for his consulting services, Mr. Dahl will receive 1,500,000 shares
of Company common stock valued at a 50% discount to the trailing twenty day
Company common stock average price from the date of Board approval of such
compensation package, totaling $11,835 (“Initial
Compensation”).  Pursuant to the Dahl Agreement, Mr. Dahl will be
obligated to incur expenses or purchase Company debt up to the full value of the
Initial Compensation.





In
addition, Mr. Dahl will be eligible to receive 1,500,000 warrants to purchase
Company common stock upon the acquisition of $200,000 in financing for the
Company or in connection with a property transaction related to the
Mineral Ridge mining property, or the retirement of up to $500,000 of the
Company’s existing debt, that are a result of Mr. Dahl’s efforts (“Subsequent
Compensation”).  Pursuant to the Dahl Agreement, the warrants
associated with the Subsequent Compensation will vest pro-rata as efforts are
made to secure the $200,000 financing, the property transaction or $500,000 debt
reduction, respectively, and will have an exercise price of
$0.0079.


F-28





Furthermore,
for all financing obtained by Mr. Dahl’s efforts resulting in the Company
receiving at least $200,000, the completion of a property transaction or
resulting in the retirement of the Company’s existing debt in excess of
$500,000, Mr. Dahl will be eligible for a 10% finder’s fee paid either in cash
or, at the discretion of the finder, in restricted Company common stock at a 20%
discount to the closing market price of the Company’s common stock at the time
of closing.





The
Company has agreed that it will use its best efforts to register the stock
issued in connection with the Initial Compensation pursuant to an applicable
registration statement filed with the SEC.





Mr.
Dahl’s consulting agreement was amended on February 25, 2010, establishing the
amount owed by the Company to Mr. Dahl for fund raising efforts as $11,835 which
will be paid through the issuance of 1,500,000 shares of the Company’s common
stock.  The shares were issued to Mr. Dahl in March
2010.  Mr. Dahl also agreed to waive his rights to the pro-rata award
of warrants.





On
February 25, 2010, the Company and Mr. Dahl entered into a new Consulting
Agreement with a term of 12 months pursuant to which the Company agreed to pay
Mr. Dahl a cash finder’s fee equal to 10% of total defined Financing or Property
Transactions.





David
Caldwell





On May 7,
2009, the Company entered into a Supplemental Compensation Agreement (the
“Caldwell Agreement”) with David A. Caldwell, whereby Mr. Caldwell is to provide
specific services to the Company in his role as an executive officer of the
Company, in connection with and in support of the Company’s continued financing
and debt conversion efforts.  Mr. Caldwell is the former Chief
Executive Officer and Chief Financial Officer of the Company and a former member
of the Company’s Board of Directors (see Note 20).





As
compensation for his services, Mr. Caldwell will receive 1,500,000 shares of
Company common stock valued at a 50% discount to the trailing twenty day Company
common stock average price from the date of Board approval of such compensation
package, totaling $11,835 (“Initial Compensation”).  Such Initial
Compensation shall serve to offset the expenses incurred by Mr. Caldwell in his
attempt to help secure the Company future financing.  Pursuant to the
Caldwell Agreement, Mr. Caldwell will be obligated to incur expenses or purchase
Company debt up to the full value of the Initial Compensation.





In
addition, Mr. Caldwell will be eligible to receive 1,500,000 warrants to
purchase Company common stock upon the acquisition of $200,000 in financing for
the Company or in connection with a property transaction related to the Mineral
Ridge mining property, or the retirement of up to $500,000 of the Company’s
existing debt, that are a result of Mr. Caldwell’s efforts (“Subsequent
Compensation”).  Pursuant to the Caldwell Agreement, the warrants
associated with the Subsequent Compensation will vest pro-rata as efforts are
made to secure the $200,000 financing, the property transaction or $500,000 debt
reduction, respectively, and will have an exercise price of
$0.0079.





Furthermore,
for all financing obtained by Mr. Caldwell’s efforts resulting in the Company
receiving at least $200,000, the completion of a property transaction or
resulting in the retirement of the Company’s existing debt in excess of
$500,000, Mr. Caldwell will be eligible for certain additional compensation to
be determined by the Company’s Board of Directors, payable in cash or in
restricted Company common stock at a 20% discount to the closing market price of
the Company’s common stock at the time of closing.





The
Company has agreed that it will use its best efforts to register the stock
issued in connection with the Initial Compensation pursuant to an applicable
registration statement filed with the SEC.








F-29




Robert Martin




On May
18, 2009, the Company entered into a Supplemental Compensation Agreement (the
“Martin Agreement”) with Robert P. Martin, President of the Company and Chairman
of the Board of Directors, whereby Mr. Martin is to provide specific services to
the Company in his role as an executive officer of the Company, in connection
with and in support of the Company’s continued financing and debt conversion
efforts.





As
compensation for his services, Mr. Martin received 1,500,000 shares of Company
common stock valued at a 50% discount to the trailing twenty day Company common
stock average price from the date of Board approval of such compensation
package, totaling $11,835 (“Initial Compensation”).  Such Initial
Compensation shall serve to offset the expenses incurred by Mr. Martin in his
attempt to help secure the Company future financing. Pursuant to the Martin
Agreement, Mr. Martin will be obligated to incur expenses or purchase Company
debt up to the full value of the Initial Compensation.





In
addition, Mr. Martin will be eligible to receive 1,500,000 warrants to purchase
Company common stock upon the acquisition of $200,000 in financing for the
Company or in connection with a property transaction related to the Mineral
Ridge mining property, or the retirement of up to $500,000 of the Company’s
existing debt, that are a result of Mr. Martin’s efforts (“Subsequent
Compensation”).  Pursuant to the Martin Agreement, the warrants
associated with the Subsequent Compensation will vest pro-rata as efforts are
made to secure the $200,000 financing, the property transaction or $500,000 debt
reduction, respectively, and will have an exercise price of
$0.0079.





Furthermore,
for all financing obtained by Mr. Martin’s efforts resulting in the Company
receiving at least $200,000, the completion of a property transaction or
resulting in the retirement of the Company’s existing debt in excess of
$500,000, Mr. Martin will be eligible for certain additional compensation to be
determined by the Company’s Board of Directors, payable in cash or in restricted
Company common stock at a 20% discount to the closing market price of the
Company’s common stock at the time of closing.





The
Company has agreed that it will use its best efforts to register the stock
issued in connection with the Initial Compensation pursuant to an applicable
registration statement filed with the SEC.





In
February 2010, the Board of Directors of the Company ratified the compensation
paid to officers and directors pursuant to the above agreements and agreed to
terminate the agreements going forward.








Note
20:  Employment Separation Agreements





David
A. Caldwell





On
January 25, 2010, the Company entered into an Employment Separation and
Severance Agreement dated as of January 19, 2010 (the “Caldwell Separation
Agreement”) with David A. Caldwell, the Company’s then Chief Executive Officer
(“CEO”), interim Chief Financial Officer (“CFO”) and a member of the Company’s
board of directors (“Board”).  Pursuant to the terms of the Caldwell
Separation Agreement, Mr. Caldwell resigned from his positions as CEO, CFO and
as a member of the Board effective as of February 1, 2010 (the “Termination
Date”).  The Caldwell Separation Agreement terminated that certain
Employment Agreement between the Company and Mr. Caldwell dated February 27,
2006, as amended by that certain Addendum to Employment Agreement dated January
31, 2007, pursuant to which the Company has employed Mr. Caldwell as its CEO
since January 31, 2007 (collectively, the “Caldwell Employment
Agreement”).





Under the
terms of the Caldwell Separation Agreement, in settlement of all outstanding
amounts owed to Mr. Caldwell, including, but not limited to, those amounts due
in accrued and unpaid salary, expenses, director’s fees and repayment of certain
loans made to the Company, as well as all amounts owed as severance pursuant to
the terms of the Caldwell Employment Agreement, the Company shall: (i) make cash
payments of an aggregate of $25,000, half of which was paid upon the agreement
of the principal terms of the Caldwell Separation Agreement and the other half
paid upon the signing of the Caldwell Separation Agreement; (ii) a subsequent
cash payment of $20,379 upon the earlier to occur of the Company’s closing of a
transaction involving the Company’s Mineral Ridge mining property or a financing
by a third party involving an infusion of working capital to the Company of at
least $250,000 (the “Subsequent Payment”); and (iii) issue to Mr. Caldwell an
unsecured promissory note (the “Note”), in the principal amount of $366,623,
such Note to accrue interest at a rate of 2.0% per annum, with a maturity date
twenty-four (24) months from the date of the Separation
Agreement.  Further, pursuant to certain events and conditions
as set forth in the Caldwell Separation Agreement, Mr. Caldwell can be issued
shares of Company common stock in lieu of cash payments for the Note and the
Subsequent Payment.


F-30





The
Caldwell Separation Agreement further provides that Mr. Caldwell will form a new
company, Phoenix Development Group, LLC, a Nevada limited liability company
(“PDG”), to operate as a mine exploration and evaluation enterprise. It is
contemplated that Mr. Caldwell will serve as CEO and Exploration Geologist of
PDG and that the Company will own a 25% ownership in PDG in exchange for ongoing
monthly cash payments of $7,500 (“PDG Payments”), such payments to commence 30
days after the formation of PDG and continue on a monthly basis for a period of
24 months, to be further detailed in a contribution agreement by and between PDG
and the Company at a later time.  Further, pursuant to the Caldwell
Separation Agreement, the Company will have a right of first refusal to
negotiate with PDG for the purchase of any mining, mineral or exploration
property rights identified and acquired by PDG.  In addition, as set
forth in the Caldwell Separation Agreement, PDG can be issued shares of Company
common stock in lieu of the PDG Payments.





Donald
R. Prahl





On July
28, 2009, the Company entered into an Employment Separation Agreement (the
“Prahl Separation Agreement”) with Donald R. Prahl.  Pursuant to the
Prahl Separation Agreement, Mr. Prahl resigned as the Chief Operating Officer of
the Company and from all other positions held with the Company or on behalf of
the Company, effective July 28, 2009 (the “Effective Date”).  The
Prahl Separation Agreement terminates: (i) that certain Employment Agreement,
dated August 14, 2006, between the Company and Mr. Prahl whereby Mr. Prahl
assumed the roles of Vice President of Operations of the Company and of Interim
General Manager at the Ashdown Mine (the “Prahl Employment Agreement”), and (ii)
that certain Addendum to the Employment Agreement between the Company and Mr.
Prahl dated January 31, 2007, pursuant to which Mr. Prahl became Chief Operating
Officer of the Company (the “Addendum”).





Under the
terms of the Prahl Separation Agreement, the Company agreed to: (i) pay Mr.
Prahl one year of his base salary of $125,000 as severance, of which $85,000
will be converted into 4,341,164 restricted shares of the Company’s common
stock, and the remaining $40,000 will be paid in cash upon the closing of a
joint venture transaction involving the Company’s Mineral Ridge property; (ii)
pay Mr. Prahl $655 for expenses incurred in connection with his employment as
soon as reasonably practicable out of available funds, with any unpaid balance
due upon the closing of a joint venture transaction involving the Company’s
Mineral Ridge Mine; (iii) credit the $18,000 that was previously advanced to Mr.
Prahl as payment in full of any and all outstanding consulting fees owed to Mr.
Prahl for the period from November 2008 through July 2009; and (iv) immediately
vest any unvested portion of Mr. Prahl’s currently outstanding stock options to
purchase shares of the Company’s common stock.  Further, Mr. Prahl
agreed to a non-solicitation clause with a term of eighteen months from the
Effective Date and provided the Company with a general release of liability and
claims.





Note
21:  Commitments and Contingencies





Operating
Leases





The
Company leases its office facilities under a non-cancelable operating lease that
expires July 31, 2011. The monthly rent is based on an escalating scale based on
an average increase of three cents ($0.03) per square foot on each anniversary
date.  In addition, the Company leases office equipment and drilling
equipment.





The
following is a schedule, by years, of the future minimum lease payments under
operating leases, as of December 31, 2009.





2010
            
            $
            268,4962011
            
            
            255,0562012
            
            
            175,8282013
            
            
            14,525Total
            
            $
            713,905





Rental expense for all operating leases
was $288,028 and $322,930 for the years ended December 31, 2009 and 2008,
respectively.


F-31





Employment
Agreements





Robert P.
Martin





The
Company entered into an Employment Agreement with Robert P. Martin on March 8,
2006, and into an Addendum to the Employment Agreement on January 31,
2007.  Pursuant to these agreements, Mr. Martin currently serves as
the full time President of the Company at an annual salary of
$135,000.  Portions of Mr. Martin’s salary were deferred during 2009
and 2008.  The deferred salary payable is included in accrued
liabilities in the accompanying consolidated balance sheets at December 31, 2009
and 2008 (see Note 8).





On
February 13, 2006, Mr. Martin was granted 200,000 options under the 2002 Stock
Option Incentive Plan with an exercise price of $0.24 per share.  One
fourth of the options vest each 90 day period from the date of the grant date,
resulting in one hundred percent (100%) vesting on February 13,
2007.  The options have a term of 5 years and are subject to other
standard terms and conditions under the applicable stock option plan of the
Company.  Mr. Martin has also agreed to a non-competition clause while
employed by the Company and a non-solicitation clause for a term of 24 months
following termination of his employment.





See also
the discussion of a current Supplemental Compensation Agreement with Mr. Martin
in Note 19.





Thomas
Klein





In
connection with the resignation of David A. Caldwell as CEO of the Company, the
Company’s Board of Directors approved the appointment of Thomas Klein, a member
of the Company’s Board of Directors, as the Company’s new CEO.  It is
anticipated that Mr. Klein will enter into an arrangement related to his
employment as the Company’s CEO.  See, however, the discussion of a
current Consulting Agreement with Mr. Klein in Note 19.





J.
Roland Vetter





In
connection with the resignation of David A. Caldwell as CFO of the Company, the
Company’s Board of Directors approved the appointment of J. Roland Vetter, a
member of the Company’s Board of Directors, as the Company’s new
CFO.  It is anticipated that Mr. Vetter will enter into an arrangement
related to his employment as the Company’s CFO.





Legal
Matters





With the
shutdown of Ashdown operations, the sale of the Company’s interest in the
Ashdown LLC and the ongoing difficulty raising capital, certain of the Company’s
vendors and lenders have initiated actions to collect balances that are past
due.  The Company is negotiating mutually beneficial settlements and
payment plans with these parties.  However, the Company’s ability to
bring such obligations current is dependent on its ability to raise additional
capital.  There can be no assurance that the Company will be
successful in these efforts.





Tetra Financial Group, LLC –
On January 29, 2009, Tetra Financial Group, LLC (“Tetra”) filed a complaint in
the Third District Court of Utah in Salt Lake County against the Ashdown
Project, LLC, the Company, Win-Eldrich Mines Limited and certain principals of
each company, claiming the breach of a lease agreement for the lease of two (2)
ten-ton hauler trucks.  In February 2010, a settlement agreement was
reached with Tetra resulting in no material financial impact to the
Company.





Earl Harrison – The Company
received a default judgment dated February 2, 2009 from the Second District
Court of the State of Nevada in Washoe County entered in favor of Mr. Earl
Harrison, awarding Mr. Harrison $165,197 plus accrued interest through December
31, 2008 of $5,094 and additional interest that accrues at a daily rate of
$18.66 until the obligation is paid in full.  The judgment relates to
a promissory note and accrued interest stemming from the lease of Mr. Harrison’s
mining equipment and other amounts due him prior to the formation of the Ashdown
LLC.  Additionally, on May 1, 2009, we received an Execution Order
providing for attachment of personal property and/or certain specified amounts
of earnings of the Company.  The Company has been in discussions with
Mr. Harrison, and
expects to reach an amicable resolution to this outstanding obligation and to
extinguish this debt as funding allows.


F-32





Ed Staub & Sons Petroleum,
Inc. - On April 16, 2009, a complaint was filed in the Sixth District
Court of the State of Nevada in Humboldt County against Ashdown LLC, the Company
and WEG, requesting payment of $107,992 owed to them by the Ashdown LLC under an
Application for Credit for the provision of fuel by the plaintiff, as well as
seeking certain other relief, including a temporary restraining order on the
proposed sale of the Company’s interest in Ashdown LLC.  The parties
have been in discussions and expect to reach an amicable resolution to this
outstanding obligation and to extinguish this debt as funding
allows.





DMC-Dynatec Mining Services
Corporation - On February 13, 2009, DMC Mining Services Corporation filed
a complaint against the Company and the Ashdown Project, LLC in the U.S.
District Court, District of Nevada (Reno), claiming approximately $108,448 due
for mechanic’s labor based on a service contract.  A default judgment
as to both the Company and the Ashdown LLC was entered on July 26, 2009, which
obligation was expressly assumed by WEG in connection with the closing of the
sale of the Company’s interest in the Ashdown Project LLC on May 13,
2009.  As of the date of this Report, it is the Company’s
understanding that WEG has negotiated a settlement with DMC Mining with respect
to such obligation and that the Company will be indemnified and held harmless
for any liability or obligation to DMC Mining in connection with the sale of the
Company’s interest in Ashdown.








Note
22:  Related Party Transactions





As more
fully discussed in Note 11, on September 26, 2005, the Company entered into a
Production Payment Purchase Agreement with Ashdown Milling.  Robert
Martin, President of the Company, and Kenneth Ripley, a former Chief Executive
Officer of the Company, are members, managers, and lead investors in Ashdown
Milling.  A total of $1,500,000 was advanced to the Company pursuant
to this agreement, $650,000 received in 2006 and $850,000 received in 2005, of
which $904,567 has been recorded as a production payment obligation – related
parties.  The Company repaid the $904,567 obligation in 2007 and
2008.  Including the $904,567 obligation, the total amount of the
production payment to be paid to Ashdown Milling is equal to a 12% net smelter
returns royalty on the minerals produced from the mine until an amount equal to
240% of the total purchase price has been paid.  The Company
subsequently bought out the member interests of two members of Ashdown Milling,
thereby reducing its production payment obligation.  Amounts paid to
Ashdown Milling members in excess of the original obligation recorded of
$904,567 will be reported as royalties expense.  Royalties expense to
related parties for the year ended December 31, 2008, totaled $1,158,337
comprised of payments of shares of common stock of the Company and
cash.  As a consequence to the sale of its interest in the Ashdown
LLC, the members of Ashdown Milling will no longer have a net smelter returns
royalty on Ashdown LLC production.  The Company expects to pay the
remaining royalty obligation as sales proceeds are received from
WEG.





As more
fully discussed in Note 13, certain officers and former officers of the Company
have advanced funds to the Company in the form of interest-bearing promissory
notes.  In addition, the Company has a note payable to a former
employee and the former manager of the Ashdown mine resulting from the
acquisition of the mill at the Ashdown mine and for rental payments and other
amounts owed.  These obligations, including accrued interest payable,
totaled $432,173 and $458,531 at December 31, 2009 and 2008,
respectively.





As
discussed in Notes 19 and 21, the Company has entered into certain consulting
and employment agreements with its officers and directors.





As
detailed in Note 8, the Company also has deferred compensation payable to
officers or former officers totaling $636,358 and $356,989 at December 31, 2009
and 2008, respectively.


F-33




Note
23:  Supplemental Statement of Cash Flows Information
 
 During
the years ended December 31, 2009 and 2008, the Company made no cash payments
for income taxes.


During the years ended December 3, 2009
and 2008, the Company made cash payments for interest of $57,852 and $189,714,
respectively.





During 2009, the Company had the
following non-cash financing and investing activities:





·
            Decreased
      production payment obligation and increased long-term debt by
      $1,000,000.





·
            Decreased
      accounts payable and increased property and equipment by
    $147.





·
            Decreased
      current portion of long-term debt and increased amounts due to related
      parties by $4,300.





·
            Decreased
      accounts payable and increased debt by
$22,050.





·
            Decreased
      accounts payable by $40,319, increased common stock by $4,069, increased
      additional paid-in capital by $35,063 and decreased common stock
      subscribed by $1,187.





·
            Decreased
      amounts due related parties by $50,000, increased common stock by $1,000
      and increased additional paid-in capital by
  $49,000.





·
            Decreased
      additional paid-in capital and common stock subscriptions receivable by
      $120,000.





During
2008, the Company had the following non-cash financing and investing
activities:





·
            Decreased
      accrued liabilities by $129,587, increased common stock by $394 and
      increased additional paid-in capital by
  $129,193.





·
            Increased
      property and equipment and debt by
$142,392.





·
            Increased
      common stock by $667, increased additional paid-in capital by $119,333 and
      decreased common stock subscribed by
$120,000.





·
            Increased
      common stock by $3,460, increased additional paid-in capital by $159,691,
      increased common stock subscription receivable by $1,187 and decreased
      accounts payable by $161,964.





·
            Increased
      common stock by $3,890, increased additional paid-in capital by $124,480
      and decreased accrued liabilities by
$128,370.





·
            Increased
      common stock by $3,460, increased additional paid-in capital by $159,691,
      increased common stock subscription receivable by $1,187 and decreased
      accounts payable by $161,964.





·
            Increased
      common stock by $300, increased additional paid-in capital by $59,700 and
      decreased production payment obligation – related party by
      $60,000.


F-34


Note
24:  Subsequent Events
 
 Employment
Separation and Severance Agreement
 
 As
further described in Note 20, on January 25, 2010, the Company entered into an
Employment Separation and Severance Agreement dated January 19, 2010 with David
A. Caldwell, the Company’s former Chief Executive Officer and interim Chief
Financial Officer and former member of the Company’s Board of
Directors.  Pursuant to this agreement, Mr. Caldwell resigned from his
positions as officer and director and all employment agreements between Mr.
Caldwell and the Company were terminated.  The agreement also
established settlement and repayment terms for all outstanding amounts owed by
the Company to Mr. Caldwell.
 
 Bridge
Loan Side Letter Agreement
 
 On
January 13, 2010, the Company entered into a side letter agreement (the “Side
Letter”) with Crestview Capital Master, LLC (the “Lender”) for the purpose of
amending the Bridge Loan Secured Promissory Note, as amended
(the “Bridge Note”) that was issued in connection with the Bridge Loan and Debt
Restructuring Agreement between the Company and the Lender, dated January 30,
2009 (the “Agreement”) (see Note 12).





Pursuant
to the Side Letter, the parties have agreed to further amend the Bride Note to
provide that if the Company does not complete a joint venture with respect to
its Mineral Ridge Mine on or before the Maturity Date of the Bridge Note due to
circumstances beyond the Company’s reasonable control, the Lender will agree to
extend the Maturity Date for successive one (1) week periods for an extension
fee of ten thousand dollars ($10,000) per weekly period, prorated for any
portion thereof, but in no event beyond April 6, 2010.  Any extension
fees incurred will be added to the principal amount of the Bridge
Note.  The parties further agreed that all other Transaction
Documents, as defined in the Agreement, remain unchanged and in full force and
effect and that the Second Amended Bridge Note remains subject to such
Transaction Documents, including the Side Letter.





Termination
of Consulting Agreements





In
February 2010, the Board of Directors of the Company ratified the compensation
paid to officers and directors pursuant to the Consulting Agreements discussed
in Note 19 and agreed to terminate the agreements going forward.  In
place of the agreements, the Board of Directors authorized a finance fee of up
to 10% cash for successful financing efforts.





Dahl
Consulting Agreement





The
Consulting Agreement of Jeffrey Dahl (Note 19) was amended on February 25, 2010,
establishing the amount owed by the Company to Mr. Dahl for fund raising efforts
as $11,835, which will be paid through the issuance of 1,500,000 shares of the
Company’s common stock.  Mr. Dahl also agreed to waive his rights to
the pro-rata award of warrants.





On
February 25, 2010, the Company and Mr. Dahl entered into a new Consulting
Agreement with a term of 12 months pursuant to which the Company agreed to pay
Mr. Dahl a cash finder’s fee equal to 10% of total defined Financing or Property
Transactions.





Private
Placement Offering of Units





In
February 2010, the Board of Directors of the Company authorized a private
placement offering of units of up to $500,000.  The offering of units
will be made to accredited investors at a purchase price of $0.03 per unit,
consisting of one share of common stock of the Company and a warrant to purchase
one share of common stock of the Company at an exercise price of
$0.06.


F-35


Mineral
Ridge LLC
 
 On March
10, 2010, the Company closed the Members’ Agreement entered into on December 31,
2009 with Scorpio Gold and Scorpio US.  At the closing the Company
sold Scorpio US an undivided 70% interest in the Mineral Ridge mineral
properties and various related assets (the “Mineral Ridge Mine”) for a purchase
price of $3,750,000 cash (less those amounts previously advanced to us by
Scorpio Gold) and 7,824,750 common shares of stock of Scorpio Gold at a deemed
price of Cdn $0.50 per share.  Immediately following the sale, the
Company and Scorpio US each contributed  their respective interests in
the Mineral Ridge Mine to a joint venture formed to own and operate the Mineral
Ridge Mine called Mineral Ridge Gold, LLC, a Nevada limited liability company
(the “Mineral Ridge LLC”).  The Company also contributed to the
Mineral Ridge LLC our interest in the reclamation bonds related to the Mineral
Ridge Mine and Scorpio US contributed a net smelter royalty encumbering the
Mineral Ridge Mine, which Scorpio US had acquired simultaneously with the
closing of the Members’ Agreement.  The Company currently owns a 30%
membership interest in the Mineral Ridge LLC.  Scorpio US owns a 70%
membership interest in and is the Manager of the Mineral Ridge LLC, and has
agreed to carry all finance costs necessary to bring the Mineral Ridge Mine into
production and, provided it does so within 30 months of the closing of the
Members’ Agreement, will then have the right to increase its interest in the
Mineral Ridge LLC by 10% to a total of 80%.  In the event Scorpio US
qualifies to increase its ownership interest to 80%, it will also have the
option to purchase the Company’s then remaining 20% interest for a period of 24
months following the commencement of commercial production.




Repayment
of Bridge Loan





In
connection with the closing of the Members’ Agreement and the formation of the
Mineral Ridge LLC on March 10, 2010, the Company repaid the $1,000,000 Bridge
Loan and Crestview released its security interest in the Mineral Ridge
Mine.





Issuance
of Common Shares, Warrants and Options





Subsequent
to December 31, 2009, a total of 11,148,552 shares of the Company’s common stock
were issued, 6,333,333 shares for $250,000 cash, 1,500,000 shares in payment of
accrued liabilities of $11,835 and a total of 3,315,219 shares pursuant to
separation and settlement agreements.  In connection with the issuance
of common stock for cash, the Company issued a warrant for the purchase of
3,333,333 shares of common stock at an exercise price of $0.06 per share,
exercisable for a period of one year.  The Company also issued an
option to a director for the purchase of 100,000 shares of common stock at an
exercise price of  $0.045 per share, exercisable for a period of five
years.


F-36


Exhibit
Index





Exhibit
      No.
            
            Description3.1
            
            Articles
      of Incorporation of Golden Phoenix Minerals, Inc.(1)3.2
            
            Bylaws
      of Golden Phoenix Minerals, Inc.(1)3.3
            
            Amended
      and Restated Articles of Incorporation of Golden Phoenix Minerals,
      Inc.(9)3.4
            
            Amended
      and Restated Articles of Incorporation of Golden Phoenix Minerals,
      Inc.(11)3.5
            
            Amended
      and Restated Bylaws of Golden Phoenix Minerals, Inc.(11)4.1
            
            Specimen
      Common Stock Certificate of Golden Phoenix Minerals, Inc.(11)4.2
            
            Form
      of Warrant of Golden Phoenix Minerals, Inc.(15)10.1
            
            Year
      2002 Supplemental Employee/Consultant Stock Compensation Plan(16)10.2
            
            Payment
      Production Purchase Agreement dated September 2005, by and between Golden
      Phoenix Minerals, Inc. and Ashdown Milling Company, LLC(2)10.3
            
            Employment
      Agreement dated February 22, 2006, by and between Golden Phoenix Minerals,
      Inc. and David A. Caldwell(2)10.4
            
            Employment
      Agreement dated March 8, 2006, by and between Golden Phoenix Minerals,
      Inc. and Robert P. Martin(2)10.5
            
            Employment
      Agreement dated August 14, 2006, by and between Golden Phoenix Minerals,
      Inc. and Donald R. Prahl(3)10.6
            
            Addendum
      to Employment Agreement dated January 31, 2007, by and between Golden
      Phoenix Minerals, Inc. and David A. Caldwell(25)10.7
            
            Addendum
      to Employment Agreement dated January 31, 2007, by and between Golden
      Phoenix Minerals, Inc. and Robert P. Martin(25)10.8
            
            Addendum
      to Employment Agreement dated January 31, 2007, by and between Golden
      Phoenix Minerals, Inc. and Donald R. Prahl(25)10.9
            
            Share
      and Warrant Purchase Agreement dated April 23, 2007, by and between Golden
      Phoenix Minerals, Inc. and certain Investors(4)10.10
            
            Registration
      Rights Agreement dated April 23, 2007, by and between Golden Phoenix
      Minerals, Inc. and certain Investors(4)10.11
            
            Advance
      Sales Restructuring Agreement dated April 23, 2007, by and between Golden
      Phoenix Minerals, Inc. and William Schnack or Candida Schnack(5)10.12
            
            Mutual
      Termination Agreement dated April 23, 2007, by and between Golden Phoenix
      Minerals, Inc. and Fusion Capital Fund II, LLC(5)10.13
            
            2006
      Non-Employee Director Stock Option Plan(6)10.14
            
            2007
      Equity Incentive Plan(6)10.15
            
            Production
      Payment Purchase Agreement and Assignment dated June 12, 2007, by and
      between Golden Phoenix Minerals, Inc. and Crestview Capital Master,
      LLC(7)10.16
            
            Registration
      Rights Agreement dated June 12, 2007, by and between Golden Phoenix
      Minerals, Inc. and Crestview Capital Master, LLC(7)10.17
            
            Security
      Agreement dated June 12, 2007, by and between Golden Phoenix Minerals,
      Inc. and Crestview Capital Master, LLC(8)10.18
            
            Notice
      of Assignment dated June 13, 2007, by and between Golden Phoenix Minerals,
      Inc. and Crestview Capital Master, LLC(8)10.19
            
            Settlement
      Agreement and Release dated September 14, 2007, by and among Steven D.
      Craig, Estate of Collette Crater Craig and Golden Phoenix Minerals,
      Inc.(
      10)10.20
            
            Addendum
      to Production Payment Purchase Agreement between Golden Phoenix Minerals,
      Inc. and Ashdown Milling Company LLC dated February 6, 2008(10)10.21
            
            Amended
      Settlement Agreement and Release dated March 21, 2008, by and among Steven
      D. Craig, Estate of Collette Crater-Craig and Golden Phoenix Minerals,
      Inc.(
      10)10.22
            
            Agreement
      and Plan of Merger dated May 21, 2008(11)10.23
            
            2007
      Equity Incentive Stock Option Plan(12)10.24
            
            2008
      Executive Stock Compensation Plan(13)10.25
            
            Consulting
      Agreement dated January 16, 2009, by and between Golden Phoenix Minerals,
      Inc. and Thomas Klein(14)10.26
            
            Consulting
      Agreement dated April 16, 2009, by and between Golden Phoenix Minerals,
      Inc. and Allihies Engineering Incorporated and its President, Corby G.
      Anderson(17)10.27
            
            Supplemental
      Compensation Agreement dated May 7, 2009, by and between Golden Phoenix
      Minerals, Inc. and David Caldwell(18)10.28
            
            Bridge
      Loan and Debt Restructuring Agreement dated January 30, 2009, by and
      between Golden Phoenix Minerals, Inc. and Crestview Capital Master,
      LLC(19)10.29
            
            Binding
      Memorandum of Understanding dated February 28, 2009, by and between Golden
      Phoenix Minerals, Inc. and Win-Eldrich Gold, Inc.(19)10.30
            
            Supplemental
      Compensation Agreement dated May 18, 2009, by and between Golden Phoenix
      Minerals, Inc. and Robert P. Martin(20)10.31
            
            Employment
      Separation Agreement dated July 28, 2009, by and between Golden Phoenix
      Minerals, Inc. and Donald R. Prahl(21)10.32
            
            Purchase
      and Sale of LLC Membership Interest Agreement dated May 11, 2009, by and
      between Golden Phoenix Minerals, Inc. and Win-Eldrich Gold, Inc.(22)10.33
            
            Global
      Settlement and Mutual Release of All Claims by All Parties dated May 13,
      2009, by and between Golden Phoenix Minerals, Inc., Retrievers, LLC, John
      Tingue, Kris Tingue, Ashdown Project, LLC, Win-Eldrich Gold, Inc. and
      Perry Muller(22)10.34
            
            Employment
      Separation and Severance Agreement dated January 19, 2010, by and between
      Golden Phoenix Minerals, Inc. and David Caldwell(23)14
            
            Code
      of Ethics*21
            
            Subsidiaries
      of Golden Phoenix Minerals, Inc.(24)31.1
            
            Certification
      of Chief Executive Officer Pursuant to Section 302*31.2
            
            Certification
      of Chief Financial Officer Pursuant to Section 302*32.1
            
            Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to 18
      U.S.C. Section 1350*









*
            
            Filed
      herewith.(1)
            
            Incorporated
      by reference from Form 10SB12G filed with the SEC on July 30,
      1997.(2)
            
            Incorporated
      by reference from Form 10-KSB filed with the SEC on April 17,
      2006.(3)
            
            Incorporated
      by reference from Form 8-K filed with the SEC on August 17,
      2006.(4)
            
            Incorporated
      by reference from Form 8-K filed with the SEC on April 25,
      2007.(5)
            
            Incorporated
      by reference from Form 8-K filed with the SEC on April 27,
      2007.(6)
            
            Incorporated
      by reference from Form SB-2 filed with the SEC on May 25,
      2007.(7)
            
            Incorporated
      by reference from Form 8-K filed with the SEC on June 19,
      2007.(8)
            
            Incorporated
      by reference from Form SB-2 filed with the SEC on June 29,
      2007.(9)
            
            Incorporated
      by reference from Form SB-2/A filed with the SEC on December 21,
      2007.(10)
            
            Incorporated
      by reference from Form 10-KSB filed with the SEC on March 31,
      2008.(11)
            
            Incorporated
      by reference from Form 8-K filed with the SEC on June 5,
    2008.(12)
            
            Incorporated
      by reference from Form S-8 filed with the SEC on July 15,
      2008.(13)
            
            Incorporated
      by reference from Form S-8 filed with the SEC on October 8,
      2008.(14)
            
            Incorporated
      by reference from Form 8-K filed with the SEC on January 23,
      2009.(15)
            
            Incorporated
      by reference from Exhibit A to Exhibit 10.1 of Form 8-K filed with the SEC
      on April 25, 2007.(16)
            
            Incorporated
      by reference from Form S-8 filed with the SEC on February 12,
      2002.(17)
            
            Incorporated
      by reference from Form 8-K filed with the SEC on April 22,
      2009.(18)
            
            Incorporated
      by reference from Form 8-K filed with the SEC on May 13,
    2009.(19)
            
            Incorporated
      by reference from Form 10-Q filed with the SEC on May 15,
      2009.(20)
            
            Incorporated
      by reference from Form 8-K filed with the SEC on May 22,
    2009.(21)
            
            Incorporated
      by reference from Form 8-K filed with the SEC on July 31,
      2009.(22)
            
            Incorporated
      by reference from Form 10-Q filed with the SEC on August 19,
      2009.(23)
            
            Incorporated
      by reference from Form 8-K filed with the SEC on January 29,
      2010.(24)
            
            Incorporated
      by reference from Form 10-K filed with the SEC on April 15,
      2009.