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, 2008
 
 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 o No 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 o No 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 þ No 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, 2008, was $34,172,520. 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, 2009
was 206,050,457.
 
 DOCUMENTS
INCORPORATED BY REFERENCE
 The
information required by Items 10, 11, 12, 13 and 14 of Part III are
incorporated by reference to the registrant’s proxy statement to be filed within
120 days of the registrant’s fiscal year end.
   
  TABLE OF
CONTENTS
 
 PART
      IITEM
      1.
                        BUSINESS
                        3ITEM
      1A.
                        RISK
      FACTORS
                        12ITEM
      2.
                        PROPERTIES
                        18ITEM
      3.
                        LEGAL
      PROCEEDINGS
                        18ITEM
      4.
                        SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                        20PART
      IIITEM
      5.
                        MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS ANDISSUER
      PURCHASES OF EQUITY SECURITIES
                        21ITEM
      6.
                        SELECTED
      FINANCIAL DATA
                        23ITEM
      7.
                        MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                        23ITEM
      8.
                        FINANCIAL
      STATEMENTS
                        35ITEM
      9.
                        CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL  DISCLOSURE
                        35ITEM
      9A(T).
                        CONTROLS
      AND PROCEDURES
                        35ITEM
      9B.
                        OTHER
      INFORMATION
                        36PART
      IIIITEM
      10.
                        DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
                        37ITEM
      11.
                        EXECUTIVE
      COMPENSATION
                        37ITEM
      12.
                        SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                        37ITEM
      13.
                        CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
                        37ITEM
      14.
                        PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                        37PART
      IVITEM
      15.
                        EXHIBITS
                        37SIGNATURES
                        38
   
  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 focus is on properties containing gold, silver and
molybdenum that are located in Nevada.
 
 Our
primary mining property asset is the Mineral Ridge mine, located in
Nevada.  Our near-term goal is to develop a feasibility plan and
obtain financing through a joint venture or sale of all or part of our interest
in the mine based on the potential for profitable production of gold and silver
at Mineral Ridge.  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.
  3
 
 In 2007
we transitioned from an exploration and development company into a production
stage company.  However, in the fourth quarter of 2008, our Board of
Directors made the decision to suspend active mining operations of the Ashdown
Project LLC (the “Ashdown LLC”) in response to a rapid and substantial decline
of molybdenum oxide market prices as prices fell from an average of
approximately $33 per pound in September 2008 to approximately $10 per pound for
November 2008.  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 Mines Limited (“WEX”),
whereby the Company agreed to sell 100% of its ownership interest in the Ashdown
LLC to WEX (the “Ashdown Sale”).  WEX has been a co-owner of the
Ashdown LLC with the Company since the inception of the Ashdown LLC in September
2006  As a result, detailed discussions of the Ashdown LLC and the
Ashdown mine are omitted from this report, and the Ashdown LLC is discussed and
classified as discontinued operations for all periods presented in our
consolidated financial statements.
 
 The
Ashdown Sale, which is discussed in more detail below, will not be completed
until execution of definitive agreements, receipt of regulatory approval, and
WEX obtaining financing.  Upon completion of the Ashdown Sale, all
litigation between WEX and the Company will terminate.  The Company
will have the right to appoint one representative to the WEX Board of Directors,
and WEX will have the right to appoint one representative to the Company’s Board
of Directors.  There is no assurance that the Ashdown Sale will be
completed.
 
 Our
corporate directors, officers and managers 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 who 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.
  4
 
 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.
 
 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, 2008, we acquired, through purchase, debt or lease
financing approximately $380,000 of drilling equipment and fully staffed a full
service drilling department.  Initially, the efforts of this drilling
department were directed towards drilling activities at Mineral Ridge, with
plans to further complete development work, engineering and feasibility work on
expansion of the Ashdown operations.  The suspension of operations at
Ashdown and the deterioration of capital markets have made financing extremely
difficult, and the drilling department operations have been suspended pending
additional funding.
 
 When
funding is available, we anticipate completing drilling activities for
approximately 60,000 feet of drilling (estimated cost of $1,400,000) at Mineral
Ridge, and completing ongoing reserve calculations and feasibility work
(estimated cost of $400,000) at Mineral Ridge.
 
 Mining
Properties And Projects
 
 With the
sale of our interest in the Ashdown, LLC, our primary mining property asset is
the Mineral Ridge mine, located in Nevada.  Our near-term goal is to
develop a feasibility plan and obtain financing through a joint venture or sale
of all or part of our interest in the mine based on the potential for profitable
production of gold and silver at Mineral Ridge.
 
 As
further discussed below, we completed a purchase agreement with four individuals
for the Northern Champion molybdenum property located in Ontario, Canada, and
plan to take bulk samples for metallurgical and market testing, and to actively
explore and delineate molybdenum mineralization on the property as funds become
available.
  5
  
 
 Figure 1.Map showing the
locations of the Nevada properties discussed in this Annual
Report.  Ashdown was the only active property in 2008, with Mineral
Ridge idled in 2005.
  6
  Mineral
Ridge Gold Mine, Esmeralda County, Nevada
 
 The
Mineral Ridge gold mine is located four miles northwest of the town of Silver
Peak and thirty-two miles west of Tonopah in Esmeralda County, Nevada (“Mineral
Ridge”). 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. We also
control three (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 controlled
by Golden Phoenix is equal to approximately 6.78 square miles.
 
 Golden
Phoenix purchased the Mineral Ridge mine in late 2000 out of bankruptcy for
$225,000 cash and the assumption of a $382,000 liability to Sierra Pacific Power
Co. for a facility charge for the installation of a grid power line. 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 Golden Phoenix from the previous operator.
We believe that prior mine operators had spent about $30 million on the
property, which includes about $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. 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. We intend to
commence further exploration of numerous targets and development of identified
economic mineralization potentially via joint venture at Mineral Ridge in 2009.
It is expected that this work, consisting of over 60,000 feet of planned
drilling, will identify and delineate reserves for both open pit and underground
deposits and ultimately extend the life of the mine.  The exploration
work at Mineral Ridge has been suspended pending availability of
funding.
 
 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 twelve
(12) years. It also allows us the flexibility to increase our bond in the future
as we recommence operations at Mineral Ridge. Operations began in 2003 once the
bond 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.
 
 Subsequent to our fiscal year ended
December 31, 2008, 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 Crestview provided us with a bridge loan in the principal
amount of One Million Dollars ($1,000,000) and restructured the previous debt
owed to them pursuant to a Production Purchase Payment and Assignment Agreement
dated June 12, 2007.  Both the bridge loan and the restructured debt
are evidenced by secured promissory notes, wherein we granted Crestview a
security interest in the Mineral Ridge property.  Further details
regarding the bridge loan and debt restructuring transaction can be found in our
Current Report on Form 8-K filed with the Commission on February 5, 2009, and
are discussed in greater detail in the Notes to our Financial Statements
included in this Annual Report, under the heading “Subsequent
Events.”
  7
 
 Mineral
Ridge Royalty Obligations
 
 We are
obligated to honor two (2) prior royalty agreements. The first is to Mary Mining
Company, which includes annual advance minimum royalty payments of $60,000, and
a sliding-scale production royalty based on gold price:
 
 Price
      of Gold Per Troy Ounce
                      Royalty
      Percentage RateLess
      than or equal to $300
                      2.5%Greater
      than $300, but less than or equal to $325
                      3.0%Greater
      than $325, but less than or equal to $350
                      3.5%Greater
      than $350, but less than or equal to $375
                      4.0%Greater
      than $375, but less than or equal to $400
                      4.5%Greater
      than $400, but less than or equal to $500
                      5.0%Greater
      than $500, but less than or equal to $600
                      5.5%Greater
      than $600, but less than or equal to $800
                      6.0%Greater
      than $800, but less than or equal to $1000
                      7.0%Greater
      than $1000
                      8.0%
 
 The other
agreement, which originated from Benquet Corp., is with private individuals on
several patented claims. This agreement has no minimum payments due but includes
a sliding-scale production royalty:
 
 Price
      of Gold Per Troy Ounce
                      Royalty
      Percentage RateLess
      than or equal to $300
                      1.0%Greater
      than $300, but less than or equal to $400
                      2.0%Greater
      than $400, but less than or equal to $500
                      2.5%Greater
      than $500
                      3.0%
 
 We are
actively working with the royalty holders to reduce and restructure the current
royalty burdens to affect a benefit to all parties.  The outcome of
these negotiations remains uncertain at this time.
 
 
 Northern
Champion Property, Ontario, Canada
 
 The
Northern Champion Property is 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.
  8
 
 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.
 
 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.
  9
  
 
 
 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.
  10
  Discontinued
Ashdown Operations
 
 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 WEX, whereby the Company agreed to sell 100% of
its ownership interest in the Ashdown LLC to WEX (the “Ashdown
Sale”).  WEX has been 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 WEX 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.
 
 As
consideration for the Ashdown Sale, WEX will pay $5.3 million (the “Purchase
Price”) to the Company, in the form of a secured promissory note for the full
amount of the Purchase Price.  In addition, WEX will assume the
majority of all obligations and liabilities of the Ashdown
LLC.  Interest on the note will be calculated on a quarterly basis at
a defined prime rate plus 2%, not to exceed 10%.  No payments of note
principal or interest are payable until April 1, 2010, with monthly payments of
principal and interest payable thereafter for a period of 72
months.
 
 The
Ashdown Sale will be complete upon execution of definitive agreements and
receipt of regulatory approval.  Upon completion of the Ashdown Sale,
all litigation between WEX and the Company will terminate.  The
Company will have the right to appoint one representative to the WEX Board of
Directors, and WEX will have the right to appoint one representative to the
Company’s Board of Directors.  There is no assurance that the Ashdown
Sale will be completed.
 
 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 Mineral Ridge and Northern Champion on line over the next
twelve to twenty-four months.
 
 Drilling
Services Division
 
 In fourth
quarter of 2007, we established a drilling services extension to our Technical
Services Group.  In 2008, this division leased a new Ingersol Rand
TH60 drill rig, purchased other support equipment and retained a lead driller
and two support drillers to staff the rig.  Drilling Services was
expected to support exploration and development work at Ashdown, Mineral Ridge
and in other corporate opportunities as they presented
themselves.  However, the suspension of operations at Ashdown and the
deterioration of capital markets have made financing extremely difficult, and
the Drilling Services operations have been suspended pending additional
funding.
 
 Mineral
Ridge Mine
 
 At the
Mineral Ridge mine we have one employee overseeing security during the idle
phase. It is anticipated that more employees will be added at the Mineral Ridge
operation in the next twelve to twenty four months as funding is obtained to
allow the start up of operations at the mine.
  11
 
 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 $7,056,582 and $2,350,435 for the years ended December 31, 2008 and
2007, respectively. As a result, at December 31, 2008 we had an accumulated
deficit of $44,622,302 and a total stockholders’ deficit of
$4,410,617.   Our revenues have not been sufficient to sustain
our operations. We recently suspended the operations of the Ashdown LLC and
entered into an agreement to sell our member interest.  The Ashdown
LLC has been the only source of our operating revenues for the past two
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 mines. We may not be able to
successfully commercialize our mines 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 the financial statements for the years ended December
31, 2008 and 2007 with respect to their doubt about our ability to continue as a
going concern.  As discussed in Note 2 to our consolidated financial
statements for the year ended December 31, 2008, we have generated significant
losses from operations, and had an accumulated deficit of $44,622,302 and a
total stockholders’ deficit of $4,410,617 at December 31, 2008, 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,
2008.
 
 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 current crisis 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.
  12
 
 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.
 
 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.
  13
 
 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.
  14
 
 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;
 
 •
              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.
  15
 
 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.
 
 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.
  16
  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 $0.53 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.
 
 The Number of Shares Being Registered
for Sale in a Registration Statement Filed and Dated February 28, 2008, and in a
Prospectus Dated January 22, 2008, are Significant in Relation to our Trading Volume and may Depress
our Share Price.
 
 The
shares being registered in a registration statement filed and dated February 28,
2008, 19,190,580, if sold in the market all at once or at about the same time,
could depress the market price during the period the registration statement
remains effective and also could affect our ability to raise equity
capital.  Further, the market price may be additionally depressed by
the sale of shares offered in a prospectus dated January 22, 2008, and filed
with the Securities and Exchange Commission on January 23, 2008, wherein the
Company registered 15,484,600 additional shares of common stock, of which
5,484,600 shares were being registered for a selling shareholder and 10,000,000
shares of common stock were being registered for sale for cash or conversion of
some or all of a certain cash obligation that may be due to the Ashdown Milling
Company LLC.
  17
 
 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
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
 
 Win-Eldrich
Gold, Inc. — The Company has participated in mediation proceedings with
Win-Eldrich Gold, Inc. (“WEX”).  The dispute arises from the Company’s
November 2, 2006 formal notice of default to WEX that it failed to timely fund
its share of the Program and Budget for the Ashdown mine, due on October 15,
2006.  Payment was due pursuant to the Ashdown Project LLC Operating
Agreement between WEX and the Company dated September 28, 2006 and a related
letter agreement of the same date.  The amount claimed by the Company
to be owed by WEX under the agreement is $115,755.  Additionally, by
the same notice of default, the Company reminded WEX that it did not timely pay
to the Company its share of revenues received by WEX for ore from stockpiles as
required by the above-mentioned letter agreement.  The Company’s share
of these monies was $193,391.  The total amount in default totals
$309,146.  Pursuant to the agreements, interest accrues on these
amounts at a rate equal to two percentage points over the Prime Rate to the
maximum allowed by law. The agreement permits a defaulting party to cure if they
pay the defaulted amount, plus interest at a rate of Prime plus
7%.  WEX did not cure its default.  Consequently, the
Company elected, as permitted under the agreement, to dilute WEX’s membership
interest in the Ashdown LLC by notice dated December 20,
2006.  Pursuant to a calculation formula contained in the agreement,
the Company contends WEX’s membership interest has been reduced from 40% to
30.5%.  WEX is currently contesting this dilution of its interest in
the Ashdown LLC.  WEX has disputed and continues to dispute the amount
and timing of certain expenditures incurred by the Company on the Ashdown
property.  In addition, WEX has notified the Company of certain
provisions in the Operating Agreement that it contends the Company has
breached.
  18
  
 As of the
date of this Report, the Company does not believe any of WEX’s allegations are
material.  Upon closing the Ashdown Sale, all litigation between the
Company and WEX will terminate.  The outcome of these matters cannot
currently be determined.
  Freddie
Quimby — On or about October 26, 2007, Ashdown LLC terminated the employment of
Freddie Busby Quimby, the Mine Manager of Ashdown, for cause pursuant to the
terms of his employment agreement.  Mr. Quimby claimed that Ashdown
LLC owed him approximately $2,500,000 in severance pay.  Mr. Quimby
filed suit against both the Ashdown LLC and Mr. Kent Aveson, the then new Mine
Manager at Ashdown, seeking $4,000,000 in damages.  The suit was filed
on or about September 11, 2008, in the United States District Court, District of
Oregon.  Ashdown LLC was served and filed a motion to dismiss or in
the alternative a change of venue.  Mr. Quimby’s claims appear to have
no basis in fact and are considered by Ashdown LLC to be
frivolous.  Following the Ashdown LLC’s entry into settlement
discussions with Mr. Quimby, on or around April 9, 2009, the Court granted the
Ashdown LLC’s motion and dismissed the lawsuit as frivolous.  Based on
the nature of the allegations, the surrounding facts and the court’s recent
dismissal, the Company does not consider these allegations
material.
 Earl Harrison
— On October 22, 2008, the Company received a summons and complaint initiated by
its former Ashdown Mine Manager, Earl Harrison, in an amount equal to
$172,116.  The claim 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.  This Note had been the
subject of regular monthly payments until the deteriorating capital markets
forced the Company to suspend this payment schedule.  The Company agreed
with the amounts detailed in the complaint and had no objection to Mr.
Harrison’s claim.  The Company is now in receipt of a default judgment
dated February 2, 2009 entered in Mr. Harrison’s favor, 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 Note is
paid in full.  We have been in discussions with Mr. Harrison and his
attorney throughout this period of time and have initiated a formal process to
negotiate a settlement in this matter on February 4, 2009.  We expect to
reach an amicable resolution to this outstanding obligation and to extinguish
this debt as funding allows.
 
 Tetra
Financial Group, LLC — On January 29, 2009, Tetra Financial Group, LLC (“Tetra”)
filed a complaint 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 ten ton hauler trucks.  The total
money damages claimed are approximately $852,478.  At this time the
parties are continuing to negotiate to reach a favorable settlement, which may
include performance of the lease, return of certain equipment and/or payment of
some damages.  It is uncertain at this time whether the Company will
continue to participate in these negotiations or in any terms of a settlement,
or whether the Tetra obligations will be assumed solely by the Ashdown Project
LLC following the Company’s sale of its interest in Ashdown.  As of
the date of this Report, the Company does not believe these allegations are
material.
 
 Retrievers,
LLC — On February 12, 2009, Retrievers, LLC, along with John Tingue and Kris
Tingue (collectively, “Retrievers”) filed a complaint in the Sixth Judicial
District Court of the State of Nevada, in and for the County of Humboldt, Case
No. CV-17880, against the Ashdown Project, LLC, the Company, Win-Eldrich Gold,
Inc., and Perry Muller, an individual (collectively, the “Ashdown Group”),
seeking (1) to establish rights, titles, and interests in and to certain
personal property known as the “Kingston Mill”, consisting of certain machinery
and equipment; (2) damages for breaches of contract and other claims; and (3)
certain equitable relief.  The complaint included claims arising out
of certain obligations and agreements contained in a Settlement Agreement
between Retrievers and the Company, made as of August 26,
2005.  Specifically, the complaint seeks a temporary restraining order
and preliminary injunction enjoining the Ashdown Group from using, encumbering
or transferring any rights to the Kingston Mill, title to the Kingston Mill and
damages in excess of $133,163.  Retrievers and Ashdown Group are currently
engaged in settlement negotiations and have agreed to the principal terms of a
settlement, which the Company expects to conclude and all lawsuits to be
dismissed concurrently with the close of the Ashdown sale.  The
settlement obligations of the Company are not anticipated to have a material
adverse effect on the operations of the Company.
 
 DMC-Dynatec
Mining Services Corporation — On February 13, 2009, DMC Mining recorded a
mechanic’s lien against real property, mining claims and mineral deposits at the
Ashdown mine claiming approximately $108,448 due for mechanic’s
labor.  Such amount is owed on a service contract, which requires DMC
Mining to bring suit within six months of recording its lien.  As of
the date of this Report, it is anticipated that the Company will be indemnified
and held harmless by the Ashdown Project LLC for any liability or obligation to
DMC Mining in connection with the sale of the Company’s interest in
Ashdown.
  19
 
 Vendors
and Lenders — 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.  However, the ability to bring the obligations current is
dependent on the Company’s ability to raise additional capital.  There
can be no assurance that the Company will be successful in these
efforts.
 
 
 ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 No
matters were submitted to a vote of security holders during the fourth quarter
of 2008.
  20
  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 two (2) years. These quotations represent inter-dealer
prices, without retail markups, markdowns or commissions and may not necessarily
represent actual transactions.
 
 
 Year
      2007
                  High
                  LowFirst
      Quarter
                  $0.37
                  $0.29Second
      Quarter
                  $0.53
                  $0.30Third
      Quarter
                  $0.43
                  $0.23Fourth
      Quarter
                  $0.34
                  $0.21
 
 Year
      2008
                  High
                  LowFirst
      Quarter
                  $0.31
                  $0.17Second
      Quarter
                  $0.22
                  $0.16Third
      Quarter
                  $0.19
                  $0.07Fourth
      Quarter
                  $0.08
                  $0.01
 
 Holders
 
 On April
14, 2009, the closing price of our common stock as reported on the
Over-the-Counter Bulletin Board was $0.01 per share. On Aprl 14, 2009, we had
approximately 260 holders of record of common stock and 206,050,457 shares of
our common stock were issued and outstanding, plus an additional 45,556,198
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.
  21
 
 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 nine percent (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 nine percent (9%) of the total number of outstanding shares of common
stock of the Company on that date. No more than two million (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, 2009.
 Plan
      Category
                (a)
      Number of
                  securities
      to be
                  issued
      upon
                  exercise
      of
                  of
      outstanding
                  options,
      warrants
                  and
      right
                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)
                2,170,000
                $0.19
                18,484,313Equity
      Compensation Plans not approved by security holders (2)
                43,386,198
                $0.16
                —Total
                45,556,198
                $0.17
                18,484,313
 ____________
 
 (1)
      Includes shares issuable upon exercise of stock options to employees and
      directors under the 2007 Plan.
 (2)
      Includes 4,487,273 shares issuable upon exercise of stock options and
      38,898,925 shares issuable upon exercise of warrants and stock purchase
      rights.
  22
  Recent
Sales Of Unregistered Securities
  There
were no sales of unregistered securities during the fourth quarter of the year
ended December 31, 2008.
 
 Purchase
of Equity Securities by the Small Business Issuer and Affiliated
Purchasers
 
 During
the fourth quarter of the year ended December 31, 2008, 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 Operation” 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.
 
 Overview
 
 Golden
Phoenix Minerals, Inc. (the “Company” or “Golden Phoenix”) 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.
  23
 
 Our
primary mining property asset is the Mineral Ridge mine, located in Nevada. Our
near-term goal is to develop a feasibility plan and obtain financing through a
joint venture or sale of all or part of our interest in the mine based on the
potential for profitable production of gold and silver at Mineral
Ridge.  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.
 
 We
suspended the molybdenum mining operations of the Ashdown LLC in November 2008
in response to a substantial decline of molybdenum oxide market
prices.  On February 25, 2009, we entered into an agreement to sell
100% of our ownership interest in the Ashdown LLC.  As a result, the
Ashdown LLC is classified as discontinued operations for all periods presented
in our consolidated financial statements and in our discussion of results of
operations.
 
 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 $44,622,302 and a total stockholders’ deficit of $4,410,617 at
December 31, 2008, which together raises doubt about the 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 recent deterioration of capital markets has made
it increasingly difficult for us to obtain debt and equity
financing.  During the year ended December 31, 2008, we received
proceeds from the sale of common stock, including the exercise of options and
warrants, of $764,780 and proceeds of $171,370 from amounts due related
parties.  On January 30, 2009, we entered into a Bridge Loan and Debt
Restructuring Agreement with Crestview Capital Master, LLC, whereby we borrowed
$1 million.
 
 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.  On February 25, 2009, we
entered into an agreement to sell 100% of our ownership interest in the Ashdown
LLC for $5.3 million.  As a result, the Ashdown LLC is classified as
discontinued operations for all periods presented in the financial statements
and the we currently have no operating revenues.
 
 The $5.3
million purchase price due us will be payable over a 72 month term, and WEX will
assume substantially all of the liabilities of the Ashdown LLC.  There
can be no guarantee or assurance that WEX 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.  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.  Our consolidated financial statements do not include
any adjustments that might result from the outcome of these
uncertainties.
  24
 
 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 those critical accounting policies are as
follows:
 
 Minority
Interest.As of December 31, 2008 and 2007, the minority
interest balance in our consolidated balance sheets is comprised of the portion
of the members’ equity in the Ashdown LLC not owned by us.  The loss
from discontinued operation of the Ashdown LLC for the year ended December 31,
2008 was allocated 40% to WEX, the minority member, based on its equity
ownership percentage, thereby reducing the loss from discontinued operations
included in the our consolidated net loss.  Similarly, the income from
discontinued operations of the Ashdown LLC for the year ended December 31, 2007
was allocated 40% to WEX, thereby decreasing the income from discontinued
operations included in the our consolidated net loss.
 
 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.
 
 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 40 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 Ashdown LLC, as of December 31, 2008, we had no proven or probable reserves
and have idled the Mineral Ridge mine pending full reviews of engineering and
metallurgy, and optimization of a revised mine and operations
plan.  Accordingly, through December 31, 2008, 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.
  25
  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.
 
 Stripping Costs.On
March 30, 2005, the Financial Accounting Standards Board (FASB) ratified the
consensus of the Emerging Issues Task Force (EITF) Issue 04-06 that stripping
costs incurred during the production phase of a mine are variable costs that
should be included in the costs of the inventory produced during the period that
the stripping costs are incurred. The Company will utilize this accounting
policy for stripping costs incurred in its mining operations where
applicable.
 
 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.
 
 With the
sale of our interest in the Ashdown LLC, we currently have 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.  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 accordance with generally accepted accounting
principles, including the adoption of SFAS 143, Accounting for Asset Retirement
Obligations.
  26
 
 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.
 
 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, 2008 and 2007, we have reduced our
deferred tax assets by recording a valuation allowance of approximately
$11,858,000, and $9,552,000, respectively.
 
 Stock-Based Compensation and Equity
Transactions.We account for stock-based compensation pursuant
to SFAS No. 123R, Share-Based
Payment, an amendment of FASB Statements 123 and 95, which requires us to
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 SFAS
123R, 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
EITF 96-18, 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.
 
 Recent
Accounting Pronouncements
 
 In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities.  This statement changes the
disclosure requirements for derivative instruments and hedging
activities.  Entities are required to provide enhanced disclosures
about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, and its related interpretations, and
(c) how derivative instruments and related hedged items affect an entity’s
financial position, financial performance, and cash flows.  This
statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, or our fiscal year beginning
January 1, 2009, with early application encouraged.  This statement
encourages, but does not require, comparative disclosures for earlier periods at
initial adoption.  We are currently unable to determine what impact
the future application of this pronouncement may have on our consolidated
financial statements.
  27
 
 In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations.  This statement replaces SFAS No. 141, Business Combinations and
applies to all transactions or other events in which an entity (the acquirer)
obtains control of one or more businesses (the acquiree), including those
sometimes referred to as “true mergers” or “mergers of equals” and combinations
achieved without the transfer of consideration.  This statement
establishes principles and requirements for how the acquirer: a) recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree; b)
recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase; and c) determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination.  This statement will be effective
for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008, or our fiscal year beginning January 1,
2009.  Earlier adoption is prohibited.  We are currently
unable to determine what impact the future application of this pronouncement may
have on our consolidated financial statements.
 
 In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements.  This statement applies to
all entities that prepare consolidated financial statements, except
not-for-profit organizations, and amends Accounting Research Bulletin (“ARB”) 51
to establish accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary.  It also
amends certain of ARB 51’s consolidation procedures for consistency with the
requirements of SFAS No. 141 (revised 2007).  This statement will be
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008, or our fiscal year beginning January 1,
2009.  Earlier adoption is prohibited.  We are currently
unable to determine what impact the future application of this pronouncement may
have on our consolidated financial statements.
 
 In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an Amendment of FASB Statement No.
115. This statement permits entities to choose to measure many financial
instruments and certain other items at fair value.  Most of the
provisions of SFAS No. 159 apply only to entities that elect the fair value
option.  However, the amendment to SFAS No. 115 Accounting for Certain Investments
in Debt and Equity Securities applies to all entities with
available-for-sale and trading securities. SFAS No. 159 is
effective as of the beginning of an entity’s first fiscal year that begins after
November 15, 2007, or our fiscal year beginning January 1,
2008.  Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provision of SFAS No. 157, Fair Value
Measurements.  We adopted SFAS No. 159 on January 1, 2008, with
no material impact on our consolidated financial statements.
 
 In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS
No. 157 defines fair value, establishes a framework for measuring fair value,
and requires enhanced disclosures about fair value measurements.  SFAS
No. 157 requires companies to disclose the fair value of their financial
instruments according to a fair value hierarchy as defined in the
standard.  Additionally, companies are required to provide enhanced
disclosure regarding financial instruments in one of the categories, including a
reconciliation of the beginning and ending balances separately for each major
category of assets and liabilities.  In February 2008, the FASB issued
FASB Staff Position (FSP) No. FAS 157-2, which delays by one year the effective
date of SFAS No. 157 for certain types of non-financial assets and non-financial
liabilities.  As a result, SFAS No. 157 will be effective for
financial statements issued for fiscal years beginning after November 15, 2007,
or our fiscal year beginning January 1, 2008, for financial assets and
liabilities carried at fair value on a recurring basis, and on January 1, 2009,
for non-recurring non-financial assets and liabilities that are recognized or
disclosed at fair value.  We adopted SFAS No. 157 on January 1, 2008
for financial assets and liabilities carried at fair value on a recurring basis,
with no material impact on our consolidated financial statements.  We
are currently unable to determine what impact the application of SFAS No. 157 on
January 1, 2009 for non-recurring non-financial assets and liabilities that are
recognized or disclosed at fair value will have on our consolidated financial
statements.
  28
 
 RESULTS
OF OPERATIONS
 
 Sales
 
 With the
sale of our interest in the Ashdown LLC and the presentation of our
operations as discontinued operations in our consolidated financial statements,
we reported no sales for the years ended December 31, 2008 and
2007.
 
 Operating
Costs and Expenses
 
 Costs of
mining operations were $202,380 and $172,066 for the years ended December 31,
2008 and 2007, respectively.  Costs of mining operations include
expenditures to maintain the Mineral Ridge project on standby status, and
increased in 2008 primarily due to an increase in our estimate of our
reclamation obligation.
 
 Exploration,
development and mineral property lease expenses were $1,413,829 and $139,226 for
the years ended December 31, 2008 and 2007, respectively.  These
expenses increased significantly in 2008 due to two factors.  First,
we organized a drilling department that was fully staffed and for which we
acquired equipment and supplies.  We conducted planning activities for
and commenced drilling of approximately 50,000 feet at Mineral Ridge, and
completed 20,000 feet of drilling at Ashdown.  Second, we continued
reserve calculations and feasibility work at Mineral Ridge in
2008.  These exploration and development activities at Mineral Ridge
have been suspended pending available funding.
 
 General
and administrative expenses were $3,023,051 and $2,520,935 for the years ended
December 31, 2008 and 2007, 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 increase in 2008 is primarily the result of
increased stock-based compensation for current year option grants, increases in
legal and professional fees, including costs of complying with the
Sarbanes–Oxley Act, and the addition of accounting and administrative personnel
to support the increased operations of the Ashdown LLC prior to the suspension
of its operations in November 2008.
 
 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 the members in the first quarter of 2008 to buy out their
membership interests in Ashdown Milling, thus reducing the our future royalty
obligations on Ashdown LLC production.  No royalties were paid during
the year ended December 31, 2007.
 
 Accretion
expense for the years ended December 31, 2008 and 2007 was $185,035 and
$170,537, respectively.  The increase in accretion expense in 2008
resulted from an increase in our estimate of our Mineral Ridge reclamation
obligation.
 
 Depreciation
and amortization expense for the years ended December 31, 2008 and 2007 was
$137,516 and $78,536, respectively, and increased in 2008 primarily due to the
addition of vehicles and equipment for our drilling department.
  29
 
 Other
Income (Expense)
 
 During
the year ended December 31, 2008, interest income decreased to $11,323 from
$117,283 for the year ended December 31, 2007.  The decrease in
interest income in 2008 is due to decreased levels of interest-bearing
deposits.
 
 During
the year ended December 31, 2008, interest expense decreased to $97,988 from
$271,558 for the year ended December 31, 2007.  This decrease resulted
from the reduction in short-term interest-bearing debt, including severance
obligations and amounts due to related parties, partially offset by increased
long-term borrowings in the current year related to the purchase of property and
equipment for our drilling department.
 
 During
year ended December 31, 2007, we reported a net gain on extinguishment of debt
of $537,309, resulting from the elimination of amounts payable pursuant to a
financing agreement and subsequent conversion to a production payment obligation
to Crestview and from agreements reached to extinguish certain accounts
payable.  During the year ended December 31, 2008 we reported a gain
on extinguishment of debt of $46,528 resulting from agreements reached to
extinguish certain accounts payable and other obligations, 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.
 
 During
the year ended December 31, 2008, we sold our shares of International Enexco
Ltd. Common stock for net proceeds of $20,559, realizing a loss on sale of
$141,482.  We had no gain or loss on sale of marketable securities
during the year ended December 31, 2007.
 
 The
remaining other income (expense) amounts reported in the years ended December
31, 2008 and 2007 consisted of  gain or loss on disposal of property
and equipment, and were not material.
 
 Discontinued
Operations
 
 We have
reported the results of operations of the Ashdown LLC in our consolidated
financial statements as discontinued operations for the years ended December 31,
2008 and 2007, including the following:
 2008
                                      
                                      
                                      2007Revenues
                                      
                                      $
                                      10,537,370
                                      
                                      
                                      $
                                      10,398,361Income
      (loss) before minority interest and income taxes
                                      
                                      $
                                      (1,240,881
                                      )
                                      
                                      $
                                      540,252Provision
      for income taxes
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Income
      (loss) before minority interest
                                      
                                      
                                      (1,240,881
                                      )
                                      
                                      
                                      540,252Minority
      interest in net (income) loss of joint venture
                                      
                                      
                                      496,352
                                      
                                      
                                      
                                      (216,101
                                      )Income
      (loss) from discontinued operations
                                      
                                      $
                                      (744,529
                                      )
                                      
                                      $
                                      324,151
  30
 
 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.  Sales in the year ended December 31, 2008 were negatively
impacted by the temporary suspension of mining activities at Ashdown due to
safety and maintenance activities and the suspension of operations in November
2008 due to recent significant declines in the market price of molybdenum when
production costs exceeding market prices.  Consequently, the Ashdown
LLC reported a loss before minority interest of $1,240,881 in 2008 compared to
income before minority interest of $540,252 in 2007.
 
 Liquidity
And Capital Resources
 
 We have a
history of operating losses since our inception in 1997, and had an accumulated
deficit of $44,622,302 and a working capital deficit of $4,442,515 at December
31, 2008.
 
 During
the year ended December 31, 2008 we used net cash of $2,942,607 in operating
activities, compared to $2,564,033 net cash used in operating activities during
the year ended December 31, 2007.  The increase in net cash used in
operating activities in the current year is primarily due to the increased net
loss of the Company.
 
 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, 2007, net cash used in
investing activities was $30,795, comprised of $45,795 for the purchase of
property, partially offset by $15,000 proceeds from the sale of property and
equipment.
 
 During
the year ended December 31, 2008, net cash provided by financing activities was
$636,807, comprised of net proceeds from the issuance of common stock and the
exercise of warrants and options of $764,780 and proceeds from amounts due
related parties of $171,370.  The cash provided by these financing
sources was partially offset by the payment of severance obligations of
$113,247, notes payable and long-term debt of $31,172, amounts due to related
parties of $114,898 and the payments of production payment obligation – related
party of $40,026.
 
 During
the year ended December 31, 2007, net cash provided by financing activities was
$4,748,256, consisting of $6,930,550 from the issuance of common stock and the
exercise of warrants and options, partially offset by payments of severance
obligations of $338,469, notes payable and long-term debt of $789,284, amounts
due related parties of $250,000 and the payments of production payment
obligation – related party of $804,541.
 
 Our
liquidity has been negatively impacted by the recent deterioration of capital
markets, making 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 for $5.3
million.  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.
 
 The
Ashdown Sale will be complete upon execution of definitive agreements and
receipt of regulatory approval.  Upon completion of the Ashdown Sale,
all litigation between WEX and the Company will terminate.  We will
have the right to appoint one representative to the WEX Board of Directors, and
WEX will have the right to appoint one representative to the our Board of
Directors.  There is no assurance that the Ashdown Sale will be
completed.
  31
 
 The $5.3
million purchase price due us from WEX will be payable over a 72 month term, and
WEX will assume substantially all of the liabilities of the Ashdown
LLC.  There can be no guarantee or assurance that WEX 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.  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.
 
 At
December 31, 2008, we had exhausted our cash reserves, with a balance of cash
and cash equivalents of $454.  With no operating revenues and
difficulties experienced in raising debt and equity capital, our current cash
and cash equivalents will not be sufficient for our current level of operations
and planned exploration and development activities in the near
term.  We have significantly reduced our operating costs, including a
reduction in force.
 
 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 owed by the Company to the Lender pursuant to the Production
Payment Purchase Agreement and Assignment, dated June 12, 2007.  The
Agreement provides for two closings, with an initial closing having occurred on
January 30, 2009 (the “Initial Closing”), and a second closing no later than
February 6, 2009 (the “Subsequent Closing”).
 
 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%.  Of the Principal Amount, the Lender loaned the
Company $100,000 in exchange for the Company issuing the Lender a Secured
Promissory Note (the “Interim Bridge Note”) on the Initial Closing. The Interim
Bridge Note was cancelled upon the Subsequent Closing, and replaced with the
Bridge Note. The Bridge Note shall be due and payable on the earlier of the
following: (a) completion of the Company’s formation of a joint venture with, or
any sale or transfer to, a third party in relation to the Mineral Ridge
Property; or (b) a date that is 9 months from the Subsequent
Closing.  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”).
 
 We have
used the proceeds from the Bridge Loan for working capital and believe we have
resolved most issues with our major creditors and lenders, negotiating monthly
payment plans to bring our obligations current over the next several
months.  We will require additional capital to complete these
arrangements with our creditors and lenders.
 
 Additionally,
pursuant to the Agreement, the Company and Lender have agreed to restructure the
Original Debt, which is recorded as a production payment obligation, a current
liability in our consolidated balance sheets as of December 31, 2008 and
2007.  In consideration of the reduction of the Original Debt from
$1,794,960 to $1,000,000, we will execute 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 24 months from the Subsequent Closing, as well as issue certain
warrants to purchase our common stock as further described below.  In
the event that the Company forms a joint venture in relation to the Mineral
Ridge Property (or its mining rights) resulting in the Company retaining less
than a 10% interest in the Mineral Ridge Property, the entire amount owed on the
Debt Restructuring Note will be accelerated and become immediately
due.  Upon formation of a joint venture in relation to the Mineral
Ridge Property, 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.
  32
 
 As of the
Subsequent Closing, and as additional consideration for the restructuring of the
Original Debt, the Company will issue 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 twenty-four (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.  Such registration rights require the
Company to prepare and file a registration statement, with respect to the common
stock underlying the Warrants, with the SEC within 60 days after the Subsequent
Closing.  The registration rights also provide that the Company will
use its best efforts to effect the registration rights under the Securities Act
of 1933, as amended (the “Securities Act”), of the common shares underlying the
Warrants within 120 days after the Subsequent Closing.
 
 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 will be 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 the appropriate entity as reasonably designated by the Lender, and the
filing of any other necessary documents.
 
 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 will release 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.
 
 On
September 26, 2005, we 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 our 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 our request 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.
 
 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 the Company pursuant
to this agreement, with the proceeds allocated as follows.
 
 Common
      stock
                          
                          $
                          370,100Warrants
                          
                          
                          225,333Deferred
      revenue
                          
                          
                          904,567$
                          1,500,000
  33
 
 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 our share of production distributions
received from the Ashdown LLC.  As of December 31, 2008, we had paid
the $904,567 production payment obligation.  As of December 31, 2007,
this obligation had a balance of $100,026.  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 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.  We intend to pay the remaining royalty obligation as
sales proceeds are received from WEX.
 
 In May
2003, we entered into an insurance-backed financial assurance program for a
surety bond, to secure the reclamation bond for approximately $2,700,000 for the
Mineral Ridge property. The program structure includes an insurance policy that
will pay reclamation expenses as they occur. During June 2003, we transferred
approximately $1,800,000 of the reclamation cash deposits that had been
presented as restricted cash for the reclamation of the Mineral Ridge property
to the insurance company. The total bond amount is reviewed by BLM every three
years, and their audit for this period was completed on August 28, 2006 with a
finding that the bond amount be increased to approximately $2,800,000 to remain
in compliance with our reclamation obligations. We have posted this additional
amount.  We are also obligated to pay an additional $11,311 annually
to keep this insurance policy in force.
 
 We
continue to investigate other potential financing sources, and to entertain
potential joint venture partners for the Mineral Ridge mine.
  34
 
 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, 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,
2008.  Based on that evaluation, the Company’s chief executive officer
concluded that the disclosure controls and procedures employed at the Company
were not 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.  During the audit of
our consolidated financial statements for the year ended December 31, 2008, our
auditors provided us with adjusting journal entries not detected by us that were
material to our consolidated financial statements.  We believe this
deficiency in our internal control over financial reporting constitutes a
material weakness.
 
 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, 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,
management identified a deficiency in our internal controls where material
adjusting entries submitted to us by our auditors were required to close our
accounting records and prepare our consolidated financial statements for the
year ended December 31, 2008.  Management has concluded that this
deficiency in our internal control over financial reporting constitutes a
material weakness, and that our internal control over financial reporting was
not effective as of December 31, 2008.
 
 A
material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a
deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented
or detected on a timely basis.
  35
 
 Despite
the material weakness in financial reporting noted above, we believe that our
consolidated financial statements for the year ended December 31, 2008 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.
 
 We are committed to the establishment
of effective internal controls over financial reporting and have successfully
implemented such controls in prior reporting periods.  In the future,
we will place emphasis on quarterly and year end closing procedures, including
enhanced review of all schedules and account analyses by experienced accounting
department personnel or independent consultants.
 
 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.
 
 Change
in Internal Control Over Financial Reporting
 
 Other
than the matter regarding material audit adjusting journal entries discussed
above, 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.
  36
 
 PART
III
 
 ITEM
      10.
              DIRECTORS,
      EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
 
 Information regarding our directors
will appear under “Proposal No. 1 - Election of Directors” in our Proxy
Statement for the upcoming 2009 Annual Meeting of Stockholders to be filed with
the Commission within 120 days of our fiscal year end (the “Proxy Statement”).
Information regarding our executive officers, and corporate governance will also
be provided in the Proxy Statement. These portions of the Proxy Statement are
incorporated by reference into this report.
 
 There were no material changes to the
procedures by which security holders may recommend nominees to our Board of
Directors.
 
 ITEM
11.  EXECUTIVE COMPENSATION
 
 Information
about compensation of our named executive officers appears under “Executive
Compensation” in the Proxy Statement.  That portion of the Proxy
Statement is incorporated by reference into this report.
 
 ITEM
12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
 
 Information
about security ownership of certain beneficial owners and management appears
under “Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters” in the Proxy Statement. That portion of the Proxy
Statement is incorporated by reference into this report.
 
 ITEM
      13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
      DIRECTOR INDEPENDENCE
 
 Information
about certain relationships and related transactions appears under “Certain
Relationships and Related Transactions” in the Proxy Statement. That portion of
the Proxy Statement is incorporated by reference into this report.
 
 ITEM
14.  PRINCIPAL ACCOUNTING FEES AND SERVICES
 
 Information
regarding our principal accounting fees and services will appear under such
heading in our Proxy Statement.  That portion of the Proxy Statement
is incorporated by reference into this report.
  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.
  37
 
 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
      15, 2009
                          
                          By:
                          /s/
      David A. CaldwellName:
      David A. CaldwellTitle:
      Chief Executive Officer(Principal
      Executive Officer)Date:
                          April
      15, 2009
                          
                          By:
                          /s/
      David A. CaldwellName:
      David A. CaldwellTitle:
      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/
      David A. Caldwell
                  
                  Chief
      Executive Officer, Chief Financial Officer and Director
                  
                  April
      15, 2009David
      A. Caldwell/s/
      Robert P. Martin
                  
                  President
      and Secretary
                  
                  April
      15, 2009Robert
      P. Martin/s/
      Thomas Klein
                  
                  Director
                  
                  April
      15, 2009Thomas
      Klein/s/
      J. Roland Vetter
                  
                  Director
                  
                  April
      15, 2009J.
      Roland Vetter/s/
      Corby G. Anderson
                  
                  Director
                  
                  April
      15, 2009Corby
      G. Anderson/s/
      Kent D. Aveson
                  
                  Director
                  
                  April
      15, 2009Kent
      D. Aveson
  38
  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
                  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.
 Reno,
Nevada
 
 We have
audited the accompanying consolidated balance sheets of Golden Phoenix Minerals,
Inc. as of December 31, 2008 and 2007, and the related consolidated statements
of operations, stockholders’ equity (deficit), and cash flows for the years
ended December 31, 2007 and 2008.  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 auditing standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Golden Phoenix
Minerals, Inc. at December 31, 2008 and 2007 and the results of their operations
and their cash flows for the years ended December 31, 2008 and 2007, in
conformity with United States generally accepted accounting
principles.
 
 We were
not engaged to examine management’s assertion about the effectiveness of Golden
Phoenix Minerals, Inc.’s internal control over financial reporting as of
December 31, 2008 and, accordingly, we do not express an opinion.
 
 The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has generated significant losses
from operations, has an accumulated deficit of $44,622,302 and has a working
capital deficit of $4,442,515 at December 31, 2008, which together raises 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 consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
 
 /s/ HJ
& Associates, LLC
 HJ &
Associates, LLC
 Salt Lake
City, Utah
 April 14,
2009
 
  F-2
  GOLDEN
PHOENIX MINERALS, INC.
 Consolidated Balance
Sheets
 December
      31,2008
                                                                              
                                                                              
                                                                              2007ASSETSCurrent
      assets:Cash
      and cash equivalents
                                                                              
                                                                              $
                                                                              454
                                                                              
                                                                              
                                                                              $
                                                                              2,128,941Receivables
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              1,638Prepaid
      expenses and other current assets
                                                                              
                                                                              
                                                                              58,619
                                                                              
                                                                              
                                                                              
                                                                              86,573Inventories
                                                                              
                                                                              
                                                                              49,739
                                                                              
                                                                              
                                                                              
                                                                              19,092Marketable
      securities
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              163,958Total
      current assets
                                                                              
                                                                              
                                                                              108,812
                                                                              
                                                                              
                                                                              
                                                                              2,400,202Property
      and equipment, net
                                                                              
                                                                              
                                                                              817,578
                                                                              
                                                                              
                                                                              
                                                                              579,931Other
      assets:Restricted
      funds – reclamation obligations
                                                                              
                                                                              
                                                                              1,839,592
                                                                              
                                                                              
                                                                              
                                                                              1,838,624Prepaid
      bond insurance premiums
                                                                              
                                                                              
                                                                              234,065
                                                                              
                                                                              
                                                                              
                                                                              277,276Deposits
                                                                              
                                                                              
                                                                              107,046
                                                                              
                                                                              
                                                                              
                                                                              134,060Assets
      of discontinued operations
                                                                              
                                                                              
                                                                              3,383,205
                                                                              
                                                                              
                                                                              
                                                                              3,118,757Total
      other assets
                                                                              
                                                                              
                                                                              5,563,908
                                                                              
                                                                              
                                                                              
                                                                              5,368,717Total Assets
                                                                              
                                                                              $
                                                                              6,490,298
                                                                              
                                                                              
                                                                              $
                                                                              8,348,850LIABILITIES
      AND STOCKHOLDERS’ EQUITY (DEFICIT)Current
      liabilities:Accounts
      payable
                                                                              
                                                                              $
                                                                              1,268,465
                                                                              
                                                                              
                                                                              $
                                                                              160,581Accrued
      liabilities
                                                                              
                                                                              
                                                                              573,156
                                                                              
                                                                              
                                                                              
                                                                              590,871Current
      portion of severance obligations
                                                                              
                                                                              
                                                                              100,170
                                                                              
                                                                              
                                                                              
                                                                              132,158Current
      portion of long-term debt
                                                                              
                                                                              
                                                                              176,549
                                                                              
                                                                              
                                                                              
                                                                              72,169Production
      payment obligation – related party
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              100,026Production
      payment obligation
                                                                              
                                                                              
                                                                              1,974,456
                                                                              
                                                                              
                                                                              
                                                                              1,974,456Amounts
      due to related parties
                                                                              
                                                                              
                                                                              458,531
                                                                              
                                                                              
                                                                              
                                                                              403,276Total
      current liabilities
                                                                              
                                                                              
                                                                              4,551,327
                                                                              
                                                                              
                                                                              
                                                                              3,433,537Long-term
      liabilities:Reclamation
      obligations
                                                                              
                                                                              
                                                                              3,034,314
                                                                              
                                                                              
                                                                              
                                                                              2,824,805Severance
      obligations
                                                                              
                                                                              
                                                                              86,460
                                                                              
                                                                              
                                                                              
                                                                              166,595Long-term
      debt
                                                                              
                                                                              
                                                                              142,506
                                                                              
                                                                              
                                                                              
                                                                              119,658Liabilities
      of discontinued operations
                                                                              
                                                                              
                                                                              3,390,627
                                                                              
                                                                              
                                                                              
                                                                              1,643,486Total
      long-term liabilities
                                                                              
                                                                              
                                                                              6,653,907
                                                                              
                                                                              
                                                                              
                                                                              4,754,544Total
      liabilities
                                                                              
                                                                              
                                                                              11,205,234
                                                                              
                                                                              
                                                                              
                                                                              8,188,081Commitments
      and contingenciesMinority
      interest
                                                                              
                                                                              
                                                                              (304,319
                                                                              )
                                                                              
                                                                              
                                                                              34,034Stockholders’
      equity (deficit):Preferred
      stock, no par value, 50,000,000 shares authorized, none
    issued
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              —Common
      stock; $0.001 par value, 400,000,000 shares authorized, 205,510,457 and
      180,552,639 shares issued and outstanding, respectively
                                                                              
                                                                              
                                                                              205,510
                                                                              
                                                                              
                                                                              
                                                                              180,553Additional
      paid-in capital
                                                                              
                                                                              
                                                                              40,127,362
                                                                              
                                                                              
                                                                              
                                                                              37,509,985Common
      stock subscriptions receivable
                                                                              
                                                                              
                                                                              (121,187
                                                                              )
                                                                              
                                                                              
                                                                              —Other
      comprehensive income
                                                                              
                                                                              
                                                                              —
                                                                              
                                                                              
                                                                              
                                                                              1,917Accumulated
      deficit
                                                                              
                                                                              
                                                                              (44,622,302
                                                                              )
                                                                              
                                                                              
                                                                              (37,565,720
                                                                              )Total
      stockholders’ equity (deficit)
                                                                              
                                                                              
                                                                              (4,410,617
                                                                              )
                                                                              
                                                                              
                                                                              126,735$
                                                                              6,490,298
                                                                              
                                                                              
                                                                              $
                                                                              8,348,850
 
 See
accompanying notes to consolidated financial statements
  F-3
  GOLDEN
PHOENIX MINERALS, INC.
 Consolidated Statements of
Operations
 
 
 Years
      Ended December 31,2008
                                                                            
                                                                            
                                                                            2007Sales
                                                                            
                                                                            $
                                                                            —
                                                                            
                                                                            
                                                                            $
                                                                            —Operating
      costs and expenses:Costs
      of mining operations
                                                                            
                                                                            
                                                                            202,380
                                                                            
                                                                            
                                                                            
                                                                            172,066Exploration,
      development and mineral property lease expenses
                                                                            
                                                                            
                                                                            1,413,829
                                                                            
                                                                            
                                                                            
                                                                            139,226Accretion
      expense
                                                                            
                                                                            
                                                                            185,035
                                                                            
                                                                            
                                                                            
                                                                            170,537General
      and administrative expenses
                                                                            
                                                                            
                                                                            3,023,051
                                                                            
                                                                            
                                                                            
                                                                            2,520,935Depreciation
      and amortization expense
                                                                            
                                                                            
                                                                            137,516
                                                                            
                                                                            
                                                                            
                                                                            78,536Royalties
                                                                            
                                                                            
                                                                            1,158,337
                                                                            
                                                                            
                                                                            
                                                                            —Total
      operating costs and expenses
                                                                            
                                                                            
                                                                            6,120,148
                                                                            
                                                                            
                                                                            
                                                                            3,081,300Loss
      from operations
                                                                            
                                                                            
                                                                            (6,120,148
                                                                            )
                                                                            
                                                                            
                                                                            (3,081,300
                                                                            )Other
      income (expense):Interest
      income
                                                                            
                                                                            
                                                                            11,323
                                                                            
                                                                            
                                                                            
                                                                            117,283Interest
      expense
                                                                            
                                                                            
                                                                            (97,988
                                                                            )
                                                                            
                                                                            
                                                                            (271,558
                                                                            )Gain
      on extinguishment of debt
                                                                            
                                                                            
                                                                            46,528
                                                                            
                                                                            
                                                                            
                                                                            537,309Loss
      on sale of marketable securities
                                                                            
                                                                            
                                                                            (141,482
                                                                            )
                                                                            
                                                                            
                                                                            —Gain
      (loss) on disposal of property and equipment
                                                                            
                                                                            
                                                                            (10,286
                                                                            )
                                                                            
                                                                            
                                                                            23,680Total
      other income (expense)
                                                                            
                                                                            
                                                                            (191,905
                                                                            )
                                                                            
                                                                            
                                                                            406,714Loss
      before income taxes
                                                                            
                                                                            
                                                                            (6,312,053
                                                                            )
                                                                            
                                                                            
                                                                            (2,674,586
                                                                            )Provision
      for income taxes
                                                                            
                                                                            
                                                                            —
                                                                            
                                                                            
                                                                            
                                                                            —Loss
      from continuing operations
                                                                            
                                                                            
                                                                            (6,312,053
                                                                            )
                                                                            
                                                                            
                                                                            (2,674,586
                                                                            )Income
      (Loss) from discontinued operations:Income
      (Loss) from discontinued operations before minority
    interest
                                                                            
                                                                            
                                                                            (1,240,881
                                                                            )
                                                                            
                                                                            
                                                                            540,252Minority
      interest in (income) loss of discontinued operations
                                                                            
                                                                            
                                                                            496,352
                                                                            
                                                                            
                                                                            
                                                                            (216,101
                                                                            )Income
      (Loss) from discontinued operations
                                                                            
                                                                            
                                                                            (744,529
                                                                            )
                                                                            
                                                                            
                                                                            324,151Net
      loss
                                                                            
                                                                            $
                                                                            (7,056,582
                                                                            )
                                                                            
                                                                            $
                                                                            (2,350,435
                                                                            )Income
      (Loss) per common share, basic and diluted:Continuing
      operations
                                                                            
                                                                            $
                                                                            (0.03
                                                                            )
                                                                            
                                                                            $
                                                                            (0.01
                                                                            )Discontinued
      operations
                                                                            
                                                                            
                                                                            (0.01
                                                                            )
                                                                            
                                                                            
                                                                            0.00Total
                                                                            
                                                                            $
                                                                            (0.04
                                                                            )
                                                                            
                                                                            $
                                                                            (0.01
                                                                            )Weighted
      average number of shares outstanding
                                                                            
                                                                            
                                                                            189,375,309
                                                                            
                                                                            
                                                                            
                                                                            172,926,174
 
 See
accompanying notes to consolidated financial statements
  F-4
  GOLDEN
PHOENIX MINERALS, INC.
 Consolidated
Statements of Stockholders’ Equity (Deficit)
 Years
Ended December 31, 2008 and 2007
 
 Additional
                                                                                
                                                                                
                                                                                Common
                                                                                
                                                                                
                                                                                OtherCommon
      Stock
                                                                                
                                                                                
                                                                                Paid-in
                                                                                
                                                                                
                                                                                Stock
                                                                                
                                                                                
                                                                                Comprehensive
                                                                                
                                                                                
                                                                                AccumulatedShares
                                                                                
                                                                                
                                                                                Amount
                                                                                
                                                                                
                                                                                Capital
                                                                                
                                                                                
                                                                                Subscribed
                                                                                
                                                                                
                                                                                Income
                                                                                
                                                                                
                                                                                Deficit
                                                                                
                                                                                
                                                                                TotalBalance,
      December 31, 2006
                                                                                
                                                                                
                                                                                154,064,010
                                                                                
                                                                                
                                                                                $
                                                                                154,064
                                                                                
                                                                                
                                                                                $
                                                                                30,106,479
                                                                                
                                                                                
                                                                                $
                                                                                (60,000
                                                                                )
                                                                                
                                                                                $
                                                                                43,902
                                                                                
                                                                                
                                                                                $
                                                                                (35,215,285
                                                                                )
                                                                                
                                                                                $
                                                                                (4,970,840
                                                                                )Issuance
      of common stock for cash
                                                                                
                                                                                
                                                                                23,441,066
                                                                                
                                                                                
                                                                                
                                                                                23,441
                                                                                
                                                                                
                                                                                
                                                                                7,011,558
                                                                                
                                                                                
                                                                                
                                                                                60,000
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                7,094,999Issuance
      of common stock for stock issuance costs
                                                                                
                                                                                
                                                                                150,000
                                                                                
                                                                                
                                                                                
                                                                                150
                                                                                
                                                                                
                                                                                
                                                                                (150
                                                                                )
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —Stock
      issuance costs
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                (350,494
                                                                                )
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                (350,494
                                                                                )Issuance
      of common stock for services
                                                                                
                                                                                
                                                                                393,990
                                                                                
                                                                                
                                                                                
                                                                                394
                                                                                
                                                                                
                                                                                
                                                                                143,712
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                144,106Issuance
      of common stock for payment of debt
                                                                                
                                                                                
                                                                                423,728
                                                                                
                                                                                
                                                                                
                                                                                424
                                                                                
                                                                                
                                                                                
                                                                                124,576
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                125,000Issuance
      of common stock upon exercise of options and warrants
                                                                                
                                                                                
                                                                                2,079,845
                                                                                
                                                                                
                                                                                
                                                                                2,080
                                                                                
                                                                                
                                                                                
                                                                                371,565
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                373,645Issuance
      of warrants for interest expense
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                7,308
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                7,308Stock-based
      compensation
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                95,431
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                95,4312,519,155Comprehensive
      net loss calculation:Net
      loss
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                (2,350,435
                                                                                )
                                                                                
                                                                                
                                                                                (2,350,435
                                                                                )Net
      unrealized loss on marketable securities
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                (41,985
                                                                                )
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                (41,985
                                                                                )Net
      comprehensive loss
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                (2,392,420
                                                                                )Balance,
      December 31, 2007
                                                                                
                                                                                
                                                                                180,552,639
                                                                                
                                                                                
                                                                                
                                                                                180,553
                                                                                
                                                                                
                                                                                
                                                                                37,509,985
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                1,917
                                                                                
                                                                                
                                                                                
                                                                                (37,565,720
                                                                                )
                                                                                
                                                                                
                                                                                126,735Issuance
      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
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                246,7162,647,882Comprehensive
      net loss calculation:Net
      loss
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                (7,056,582
                                                                                )
                                                                                
                                                                                
                                                                                (7,056,582
                                                                                )Net
      unrealized loss on marketable securities
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                (1,917
                                                                                )
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                (1,917
                                                                                )Net
      comprehensive loss
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                (7,058,499
                                                                                )Balance,
      December 31, 2008
                                                                                
                                                                                
                                                                                205,510,457
                                                                                
                                                                                
                                                                                $
                                                                                205,510
                                                                                
                                                                                
                                                                                $
                                                                                40,127,362
                                                                                
                                                                                
                                                                                $
                                                                                (121,187
                                                                                )
                                                                                
                                                                                $
                                                                                —
                                                                                
                                                                                
                                                                                $
                                                                                (44,622,302
                                                                                )
                                                                                
                                                                                $
                                                                                (4,410,617
                                                                                )
 
 See
accompanying notes to consolidated financial statements
  F-5
  GOLDEN
PHOENIX MINERALS, INC.
 Statements of Cash
Flows
 
 Years
      Ended December 31,2008
                                                                                
                                                                                
                                                                                2007Cash
      flows from operating activities:Net
      loss
                                                                                
                                                                                $
                                                                                (7,056,582
                                                                                )
                                                                                
                                                                                $
                                                                                (2,350,435
                                                                                )Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Loss
      (income) from discontinued operations
                                                                                
                                                                                
                                                                                744,529
                                                                                
                                                                                
                                                                                
                                                                                (324,151
                                                                                )Depreciation
      and amortization
                                                                                
                                                                                
                                                                                137,516
                                                                                
                                                                                
                                                                                
                                                                                78,536Accretion
      expense
                                                                                
                                                                                
                                                                                185,035
                                                                                
                                                                                
                                                                                
                                                                                170,537Stock-based
      compensation
                                                                                
                                                                                
                                                                                246,716
                                                                                
                                                                                
                                                                                
                                                                                95,431Loss
      on disposal of property and equipment
                                                                                
                                                                                
                                                                                10,286
                                                                                
                                                                                
                                                                                
                                                                                16,320Bad
      debt expense
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                116,407Issuance
      of common stock for services
                                                                                
                                                                                
                                                                                84,700
                                                                                
                                                                                
                                                                                
                                                                                144,106Issuance
      of common stock for royalties
                                                                                
                                                                                
                                                                                840,000
                                                                                
                                                                                
                                                                                
                                                                                —Issuance
      of warrants for interest expense
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                7,308Gain
      on extinguishment of debt
                                                                                
                                                                                
                                                                                (46,528
                                                                                )
                                                                                
                                                                                
                                                                                (537,309
                                                                                )Loss
      on sale of marketable securities
                                                                                
                                                                                
                                                                                141,482
                                                                                
                                                                                
                                                                                
                                                                                —Changes
      in operating assets and liabilities:(Increase)
      decrease in receivables
                                                                                
                                                                                
                                                                                1,638
                                                                                
                                                                                
                                                                                
                                                                                (138
                                                                                )Decrease
      in prepaid expenses and other current assets
                                                                                
                                                                                
                                                                                71,165
                                                                                
                                                                                
                                                                                
                                                                                241,862Increase
      in inventories
                                                                                
                                                                                
                                                                                (30,647
                                                                                )
                                                                                
                                                                                
                                                                                (921
                                                                                )Increase
      in restricted funds – reclamation obligations
                                                                                
                                                                                
                                                                                (968
                                                                                )
                                                                                
                                                                                
                                                                                (1,398
                                                                                )(Increase)
      decrease in deposits
                                                                                
                                                                                
                                                                                27,014
                                                                                
                                                                                
                                                                                
                                                                                (100,095
                                                                                )Increase
      (decrease) in accounts payable
                                                                                
                                                                                
                                                                                1,421,406
                                                                                
                                                                                
                                                                                
                                                                                (74,523
                                                                                )Increase
      (decrease) in accrued and other liabilities
                                                                                
                                                                                
                                                                                256,157
                                                                                
                                                                                
                                                                                
                                                                                (45,570
                                                                                )Increase
      in reclamation obligations
                                                                                
                                                                                
                                                                                24,474
                                                                                
                                                                                
                                                                                
                                                                                —Net
      cash used in operating activities
                                                                                
                                                                                
                                                                                (2,942,607
                                                                                )
                                                                                
                                                                                
                                                                                (2,564,033
                                                                                )Cash
      flows from investing activities:Purchase
      of property and equipment
                                                                                
                                                                                
                                                                                (243,057
                                                                                )
                                                                                
                                                                                
                                                                                (45,795
                                                                                )Proceeds
      from the sale of marketable securities
                                                                                
                                                                                
                                                                                20,559
                                                                                
                                                                                
                                                                                
                                                                                —Proceeds
      from the sale of property and equipment
                                                                                
                                                                                
                                                                                —
                                                                                
                                                                                
                                                                                
                                                                                15,000Net
      cash used in investing activities
                                                                                
                                                                                
                                                                                (222,498
                                                                                )
                                                                                
                                                                                
                                                                                (30,795
                                                                                )Cash
      flows from financing activities:Net
      proceeds from the sale of common stock
                                                                                
                                                                                
                                                                                739,122
                                                                                
                                                                                
                                                                                
                                                                                6,744,505Proceeds
      from the exercise of options and warrants
                                                                                
                                                                                
                                                                                25,658
                                                                                
                                                                                
                                                                                
                                                                                186,045Proceeds
      from amounts due related parties
                                                                                
                                                                                
                                                                                171,370
                                                                                
                                                                                
                                                                                
                                                                                —Payments
      of severance obligations
                                                                                
                                                                                
                                                                                (113,247
                                                                                )
                                                                                
                                                                                
                                                                                (338,469
                                                                                )Payments
      of notes payable and long-term debt
                                                                                
                                                                                
                                                                                (31,172
                                                                                )
                                                                                
                                                                                
                                                                                (789,284
                                                                                )Payments
      of amounts due to related parties
                                                                                
                                                                                
                                                                                (114,898
                                                                                )
                                                                                
                                                                                
                                                                                (250,000
                                                                                )Payments
      of production payment obligation – related party
                                                                                
                                                                                
                                                                                (40,026
                                                                                )
                                                                                
                                                                                
                                                                                (804,541
                                                                                )Net
      cash provided by financing activities
                                                                                
                                                                                
                                                                                636,807
                                                                                
                                                                                
                                                                                
                                                                                4,748,256Cash
      flows from discontinued operations:Net
      cash provided by operating activities
                                                                                
                                                                                
                                                                                1,185,438
                                                                                
                                                                                
                                                                                
                                                                                557,161Net
      cash used in investing activities
                                                                                
                                                                                
                                                                                (829,017
                                                                                )
                                                                                
                                                                                
                                                                                (723,805
                                                                                )Net
      cash provided by (used in) financing activities
                                                                                
                                                                                
                                                                                43,390
                                                                                
                                                                                
                                                                                
                                                                                (12,991
                                                                                )Net
      cash provided by (used in) discontinued operations
                                                                                
                                                                                
                                                                                399,811
                                                                                
                                                                                
                                                                                
                                                                                (179,635
                                                                                )Net
      increase (decrease) in cash
                                                                                
                                                                                
                                                                                (2,128,487
                                                                                )
                                                                                
                                                                                
                                                                                1,973,793Cash
      and cash equivalents, beginning of year
                                                                                
                                                                                
                                                                                2,128,941
                                                                                
                                                                                
                                                                                
                                                                                155,148Cash
      and cash equivalents, end of year
                                                                                
                                                                                $
                                                                                454
                                                                                
                                                                                
                                                                                $
                                                                                2,128,941
 
 See
accompanying notes to financial statements
  F-6
  GOLDEN
PHOENIX MINERALS, INC.
 Consolidated Notes to Financial
Statements
 Years
Ended December 31, 2008 and 2007
 
 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 formed in Minnesota on June 2,
1997.  On May 30, 2008, the Company reincorporated in
Nevada.  The Company’s 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, the Company’s main focus is in Nevada.
 
 The
Company’s primary mining property asset is the Mineral Ridge mine, located in
Nevada. Management’s near-term goal is to develop a feasibility plan and obtain
financing through a joint venture or sale of all or part of its interest in the
mine based on the potential for profitable production of gold and silver at
Mineral Ridge.  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.
 
 The
Company 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 February 25, 2009, the Company
entered into an agreement to sell 100% of its ownership interest in the Ashdown
LLC (Note 3).  As a result, the Ashdown LLC is classified as
discontinued operations for all periods presented in the consolidated financial
statements.
 
 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
 
 The
consolidated financial statements of the Company include 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.
 
 Minority
Interest
 
 As of
December 31, 2008 and 2007, the minority interest balance is comprised of the
portion of the members’ equity in the Ashdown LLC not owned by the
Company.  The loss from discontinued operation of the Ashdown LLC for
the year ended December 31, 2008 was allocated 40% to Win-Eldrich Gold, Inc.,
the minority member, based on its equity ownership percentage, thereby reducing
the loss from discontinued operations included in the Company’s consolidated net
loss.  Similarly, the income from discontinued operations of the
Ashdown LLC for the year ended December 31, 2007 was allocated 40% to
Win-Eldrich Gold, Inc., thereby decreasing the income from discontinued
operations included in the Company’s consolidated net loss.
 
 Reclassifications
 
 Certain
reclassifications have been made to the 2007 consolidated financial statements
in order for them to conform to the classifications used for the current year
presentation.
  F-7
  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.
 
 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 cash equivalents
of $0 and $2,200,377 at December 31, 2008 and 2007, respectively.
 
 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.
 
 Marketable
Securities
 
 The
Company had no marketable securities at December 31, 2008.  Marketable
securities at December 31, 2007 consisted of shares of International Enexco Ltd.
common stock received in the sale of mineral properties in 2006.  The
Company classified these marketable securities as securities held-for-sale in
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain
Investments in Debt and Equity Securities.  The Company sold
the securities in October 2008, realizing a loss on sale of $141,482 with sales
proceeds of $20,559.  Prior to the sale of the securities, the
marketable securities were stated at fair value based on market
quotes.  Unrealized gains and losses were recorded as other
comprehensive income, a component of stockholders’ equity in the Company’s
consolidated balance sheet.  The total net unrealized loss on this
investment for the year ended December 31, 2007 was $41,985.
 
 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:
 
 Buildings
                      40
      yearsMining
      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, as of December 31, 2008, the Company had no proven or probable
reserves and has idled the Mineral Ridge mine pending full reviews of
engineering and metallurgy, and optimization of a revised mine and operations
plan.  Accordingly, through December 31, 2008, 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.
  F-8
 
 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.
 
 Stripping
Costs
 
 On March
30, 2005, the Financial Accounting Standards Board (FASB) ratified the consensus
of the Emerging Issues Task Force (EITF) Issue 04-06 that stripping costs
incurred during the production phase of a mine are variable costs that should be
included in the costs of the inventory produced during the period that the
stripping costs are incurred.  The Company will utilize this
accounting policy for stripping costs incurred in its mining operations where
applicable.
 
 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.
 
 With the
sale of its interest in the Ashdown LLC, 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 accordance with generally accepted
accounting principles, including the adoption of SFAS 143, Accounting for Asset Retirement
Obligations (see Note 7).
  F-9
 
 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.
 
 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 the Company’s properties and long-lived
assets.
 
 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.
 
 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, 2008 and 2007, the Company had reduced
its deferred tax assets by recording a valuation allowance of approximately
$11,858, and $9,552,000, 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.  The Company has adopted SFAS No. 123R, Share-Based Payment, an
amendment of FASB Statements 123 and 95, which requires the Company to 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 SFAS
123R, 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 EITF 96-18, 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.
  F-10
 
 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.
 
 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
      31,2008
                              
                              
                              2007Weighted
      average number of common shares outstanding
                              
                              
                              189,341,009
                              
                              
                              
                              172,926,174Dilutive
      effect of:Stock
      options
                              
                              
                              -
                              
                              
                              
                              -Warrants
      and stock purchase rights
                              
                              
                              -
                              
                              
                              
                              -Convertible
      debt
                              
                              
                              -
                              
                              
                              
                              -Weighted
      average number of common sharesoutstanding,
      assuming dilution
                              
                              
                              189,341,009
                              
                              
                              
                              172,926,174
 
 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, 2008, the Company had outstanding
options, warrants and stock purchase rights to purchase a total of 22,726,198
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, 2008 and 2007, 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, 2008 and 2007.
 
 Advertising
Expense
 
 The
Company expenses advertising expenses as incurred in accordance with SOP
93-7. The Company had no advertising expense for the years ended December
31, 2008 and 2007, respectively.
 
 Recent
Accounting Pronouncements
 
 In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities.  This statement changes the
disclosure requirements for derivative instruments and hedging
activities.  Entities are required to provide enhanced disclosures
about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, and its related interpretations, and
(c) how derivative instruments and related hedged items affect an entity’s
financial position, financial performance, and cash flows.  This
statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, or the Company’s fiscal year
beginning January 1, 2009, with early application encouraged.  This
statement encourages, but does not require, comparative disclosures for earlier
periods at initial adoption.  The Company is currently unable to
determine what impact the future application of this pronouncement may have on
its consolidated financial statements.
  F-11
 
 In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations.  This statement replaces SFAS No. 141, Business Combinations and
applies to all transactions or other events in which an entity (the acquirer)
obtains control of one or more businesses (the acquiree), including those
sometimes referred to as “true mergers” or “mergers of equals” and combinations
achieved without the transfer of consideration.  This statement
establishes principles and requirements for how the acquirer: a) recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree; b)
recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase; and c) determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination.  This statement will be effective
for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008, or the Company’s fiscal year beginning January 1,
2009.  Earlier adoption is prohibited.  The Company is
currently unable to determine what impact the future application of this
pronouncement may have on its consolidated financial statements.
 
 In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements.  This statement applies to
all entities that prepare consolidated financial statements, except
not-for-profit organizations, and amends Accounting Research Bulletin (“ARB”) 51
to establish accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary.  It also
amends certain of ARB 51’s consolidation procedures for consistency with the
requirements of SFAS No. 141 (revised 2007).  This statement will be
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008, or the Company’s fiscal year beginning
January 1, 2009.  Earlier adoption is prohibited.  The
Company is currently unable to determine what impact the future application of
this pronouncement may have on its consolidated financial
statements.
 
 In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an Amendment of FASB Statement No.
115. This statement permits entities to choose to measure many financial
instruments and certain other items at fair value.  Most of the
provisions of SFAS No. 159 apply only to entities that elect the fair value
option.  However, the amendment to SFAS No. 115 Accounting for Certain Investments
in Debt and Equity Securities applies to all entities with
available-for-sale and trading securities.  SFAS No. 159 is effective
as of the beginning of an entity’s first fiscal year that begins after November
15, 2007, or the Company’s fiscal year beginning January 1,
2008.  Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provision of SFAS No. 157, Fair Value
Measurements.  The Company adopted SFAS No. 159 on January 1,
2008, with no material impact on its consolidated financial
statements.
 
 In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS
No. 157 defines fair value, establishes a framework for measuring fair value,
and requires enhanced disclosures about fair value measurements.  SFAS
No. 157 requires companies to disclose the fair value of their financial
instruments according to a fair value hierarchy as defined in the
standard.  Additionally, companies are required to provide enhanced
disclosure regarding financial instruments in one of the categories, including a
reconciliation of the beginning and ending balances separately for each major
category of assets and liabilities.  In February 2008, the FASB issued
FASB Staff Position (FSP) No. FAS 157-2, which delays by one year the effective
date of SFAS No. 157 for certain types of non-financial assets and non-financial
liabilities.  As a result, SFAS No. 157 will be effective for
financial statements issued for fiscal years beginning after November 15, 2007,
or the Company’s fiscal year beginning January 1, 2008, for financial assets and
liabilities carried at fair value on a recurring basis, and on January 1, 2009,
for non-recurring non-financial assets and liabilities that are recognized or
disclosed at fair value.  The Company adopted SFAS No. 157 on January
1, 2008 for financial assets and liabilities carried at fair value on a
recurring basis, with no material impact on its consolidated financial
statements.  The Company is currently unable to determine what impact
the application of SFAS No. 157 on January 1, 2009 for non-recurring
non-financial assets and liabilities that are recognized or disclosed at fair
value will have on its consolidated financial statements.
 
 
 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 $44,622,302 and a total stockholders’ deficit of
$4,410,617 at December 31, 2008, 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.
  F-12
 
 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 recent deterioration
of capital markets has made it increasingly difficult for the Company to obtain
debt and equity financing.  During the year ended December 31, 2008,
the Company received proceeds from the sale of common stock, including the
exercise of options and warrants, of $764,780 and proceeds of $171,370 from
amounts due related parties.  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
22).
 
 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.  On February
25, 2009, the Company entered into an agreement to sell 100% of its ownership
interest in the Ashdown LLC for $5.3 million.  As a result, the
Ashdown LLC is classified as discontinued operations for all periods presented
in the financial statements and the Company currently has no operating
revenues.
 
 The $5.3
million purchase price due the Company will be payable over a 72 month term, and
WEX will assume substantially all of the liabilities of the Ashdown
LLC.  There can be no guarantee or assurance that WEX 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.  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.  However, the ability to bring the 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.
 
 
 Note
3:  Discontinued Operations
 
 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 Mines Limited (“WEX”), whereby the
Company agreed to sell 100% of its ownership interest in the Ashdown LLC to WEX
(the “Ashdown Sale”).  WEX has been 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 WEX 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.
 
 As
consideration for the Ashdown Sale, WEX will pay $5.3 million (the “Purchase
Price”) to the Company, in the form of a secured promissory note for the full
amount of the Purchase Price.  In addition, WEX will assume the
majority of all obligations and liabilities of the Ashdown
LLC.  Interest on the note will be calculated on a quarterly basis at
a defined prime rate plus 2%, not to exceed 10%.  No payments of note
principal or interest are payable until April 1, 2010, with monthly payments of
principal and interest payable thereafter for a period of 72
months.
 
 The
Ashdown Sale will be complete upon execution of definitive agreements and
receipt of regulatory approval.  Upon completion of the Ashdown Sale,
all litigation between WEX and the Company will terminate.  The
Company will have the right to appoint one representative to the WEX Board of
Directors, and WEX will have the right to appoint one representative to the
Company’s Board of Directors.  There is no assurance that the Ashdown
Sale will be completed.
  F-13
 
 The
Company has reported the results of operations of the Ashdown LLC as
discontinued operations for the years ended December 31, 2008 and 2007,
including the following:
 
 2008
                                      
                                      
                                      2007Revenues
                                      
                                      $
                                      10,537,370
                                      
                                      
                                      $
                                      10,398,361Income
      (loss) before minority interest and income taxes
                                      
                                      
                                      (1,240,881
                                      )
                                      
                                      
                                      540,252Provision
      for income taxes
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Income
      (loss) before minority interest
                                      
                                      
                                      (1,240,881
                                      )
                                      
                                      
                                      540,252Minority
      interest in net (income) loss of joint venture
                                      
                                      
                                      496,352
                                      
                                      
                                      
                                      (216,101
                                      )Income
      (loss) from discontinued operations
                                      
                                      $
                                      (744,529
                                      )
                                      
                                      $
                                      324,151
 
 The
assets and liabilities of the Ashdown LLC are aggregated and disclosed as
long-term assets and liabilities in the consolidated balance sheets as of
December 31, 2008 and 2007 as follows:
 
 2008
                            
                            
                            2007Cash
      and cash equivalents
                            
                            $
                            193
                            
                            
                            $
                            44,870Receivables
                            
                            
                            -
                            
                            
                            
                            950,235Prepaid
      expenses and other current assets
                            
                            
                            14,938
                            
                            
                            
                            67,389Inventories
                            
                            
                            224,846
                            
                            
                            
                            383,391Property
      and equipment, net
                            
                            
                            2,498,502
                            
                            
                            
                            1,235,723Restricted
      funds – reclamation obligations
                            
                            
                            493,218
                            
                            
                            
                            408,200Deposits
                            
                            
                            151,508
                            
                            
                            
                            28,949Assets
      of discontinued operations
                            
                            $
                            3,383,205
                            
                            
                            $
                            3,118,757
 
 2008
                          
                          
                          2007Accounts
      payable
                          
                          $
                          1,247,199
                          
                          
                          $
                          731,255Accrued
      liabilities
                          
                          
                          749,928
                          
                          
                          
                          389,416Long-term
      debt, including current portion
                          
                          
                          631,885
                          
                          
                          
                          35,058Amounts
      due to related parties
                          
                          
                          176,705
                          
                          
                          
                          -Reclamation
      obligation
                          
                          
                          584,910
                          
                          
                          
                          487,757Liabilities
      of discontinued operations
                          
                          $
                          3,390,627
                          
                          
                          $
                          1,643,486
 
 
 Note
4:  Mineral Properties
 
 With the
sale of its interest in the Ashdown, LLC, the Company’s primary mining property
asset is the Mineral Ridge gold mine.  Management’s near-term goal is
to develop a feasibility plan and obtain financing through a joint venture or
sale of all or part of our interest in the mine based on the potential for
profitable production of gold and silver at Mineral Ridge.
 
 As
further discussed below, 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
funds become available.
  F-14
 
 Mineral
Ridge Property
 
 On
November 7, 2000, the Company purchased the Mineral Ridge gold mine and related
land, property and equipment located near Silver Peak, Nevada (“Mineral
Ridge”).  The mine was acquired out of bankruptcy and the trustee was
conducting only minimum maintenance activities at the time.  The
permits associated with the Mineral Ridge mining operations had either expired
or were under review by the State of Nevada and the Bureau of Land Management at
the time of the purchase.  Since then, the Company has obtained new
permits based upon a revised Plan of Operations/Environmental Assessment (“POA”)
and posted an updated reclamation surety bond of approximately
$2,700,000.  The Mineral Ridge mine was placed in full operation in
the spring of 2004.
 
 The
Mineral Ridge property holds three separate potentially economic mineable gold
deposits, the Drinkwater, Mary, and Brodie, as outlined in an independent third
party engineering and feasibility study completed in May 2003 by Behre Dolbear
& Company, Inc., an outside consultant (“Behre Dolbear”).  The
feasibilility study identified 156,504 ounces of gold that could be recovered
using a cyanide heap leaching process, including 10,000 recoverable ounces
estimated to be on the leach pad. Silver values were not economically
significant in the mineralized material at Mineral Ridge and were not included
in these reserve calculations.  The property holds further mineral
potential with identified targets potentially containing additional gold
mineralization.
 
 Operations
began in 2003 once the bond 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.  Operations have yielded
certain amounts of precious metal product that has been sold resulting in total
revenues of approximately $2.3 million in 2005 and
2004.  Under-performance of the leach pads and associated high
production costs resulted from the Company’s failure to meet the designed
processing specifications as outlined under the Behre Dolbear feasibility
study.  On January 12, 2005, the Company announced its decision to
temporarily idle the mine pending full reviews of engineering and metallurgy,
and optimization of a revised mine and operations plan. During 2008, the Company
commenced further exploration of numerous targets and development of identified
economic mineralization at Mineral Ridge in 2008.  It is expected that
this work, consisting of approximately 60,000 feet of planned drilling, will
identify and delineate additional reserves for both open pit and underground
deposits and ultimately extend the life of the mine.  The exploration
work at Mineral Ridge has been suspended pending availability of
funding.
 
 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
(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, 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.  The exploration work on the Northern Champion Property will
commence as funds become available.
  F-15
 
 Note 5:  Property and
Equipment
 
 Property and equipment consist of the
following at December 31:
 
 2008
                                
                                
                                2007Land
                                
                                $
                                57,599
                                
                                
                                $
                                57,599Buildings
                                
                                
                                116,020
                                
                                
                                
                                116,020Mining
      and milling equipment
                                
                                
                                722,314
                                
                                
                                
                                731,056Computer
      equipment
                                
                                
                                82,370
                                
                                
                                
                                80,974Drilling
      equipment
                                
                                
                                379,220
                                
                                
                                
                                -Vehicles
                                
                                
                                22,871
                                
                                
                                
                                79,930Support
      equipment
                                
                                
                                146,887
                                
                                
                                
                                146,887Furniture
      and equipment
                                
                                
                                19,659
                                
                                
                                
                                19,6591,546,940
                                
                                
                                
                                1,232,125Less
      accumulated depreciation and amortization
                                
                                
                                (729,362
                                )
                                
                                
                                (652,194
                                )$
                                817,578
                                
                                
                                $
                                579,931
 
 For the
years ended December 31, 2007 and 2006, the Company recorded depreciation and
amortization expense of $137,516 and $78,536, respectively.
 
 At
December 31, 2008, the Company had drilling equipment under capital lease with a
cost of $66,395 and accumulated amortization of $9,959.  The Company
had no material amounts of property and equipment under capital lease at
December 31, 2007.
 
 
 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 property. 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
property.  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 property.  This amount
has been included in the balance of the Restricted Funds - Reclamation
Obligations asset in the accompanying consolidated balance sheets as of December
31, 2008 and 2007.
 
 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, 2008
and 2007, 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 the accompanying consolidated balance sheets.  The
long-term portion of the prepaid insurance premiums totaled $234,065 and
$277,276 at December 31, 2008 and 2007, respectively, and is included in other
assets 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 $42,940 and $41,972 at December 31, 2008 and 2007,
respectively, for the Mineral Ridge property is also included in the balance of
the Restricted Funds – Reclamation Obligations in the accompanying consolidated
balance sheets.
  F-16
 
 Note
7:  Reclamation Obligations
 
 In
accordance with SFAS No. 143, Accounting for Asset Retirement
Obligations, which establishes a uniform methodology for accounting for
estimated reclamation and abandoned costs, the Company has estimated reclamation
costs for the Mineral Ridge property.  At December 31, 2008 and 2007,
the amount recorded for estimated reclamation obligations was $3,034,314 and
$2,824,805, respectively.  Because the Company was unable to operate
the Mineral Ridge mine profitably in accordance with the feasibility study
completed in 2003 and has idled the project, no related reclamation asset has
been recorded at December 31, 2008 and 2007.
 
 Accretion
expense related to the reclamation obligations for the years ended December 31,
2008 and 2007 was $185,035 and $170,537, respectively.
 
 The
following is a summary of the changes to the Company’s reclamation
obligations:
 
 Balance,
      December 31, 2006
                          
                          $
                          2,654,268Accretion
      expense
                          
                          
                          170,537Balance,
      December 31, 2007
                          
                          
                          2,824,805Additional
      reclamation obligations
                          
                          
                          24,474Accretion
      expense
                          
                          
                          185,035Balance,
      December 31, 2008
                          
                          $
                          3,034,314
 
 
 Note
8:  Accrued Liabilities
 
 Accrued liabilities consisted of the
following as of December 31:
 
 2008
                          
                          
                          2007Officers
      deferred compensation
                          
                          $
                          356,989
                          
                          
                          $
                          427,807Accrued
      payroll and related
                          
                          
                          109,770
                          
                          
                          
                          78,475Other
                          
                          
                          106,397
                          
                          
                          
                          84,589$
                          573,156
                          
                          
                          $
                          590,871
 
 
 The officers deferred compensation is
payable to officers, former officers and employees of the Company as follows at
December 31:
 
 2008
                              
                              
                              2007David
      Caldwell
                              
                              $
                              187,869
                              
                              
                              $
                              166,670Robert
      Martin
                              
                              
                              133,570
                              
                              
                              
                              131,550Steven
      Craig (former officer)
                              
                              
                              -
                              
                              
                              
                              129,587Other
                              
                              
                              35,550
                              
                              
                              
                              -$
                              356,989
                              
                              
                              $
                              427,807
 
 
 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.  Mr. Fitzsimonds loaned $100,000 to the Company
in 1998 on which the Company pays $1,350 a month for interest (see Note
13).  The principal was to be repaid on or before February 18, 2008,
but was still outstanding as of the date of this Report.  The current
portion of the severance obligation to Mr. Fitzsimonds of $100,170 and $80,136
as of December 31, 2008 and 2007, 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 and
$166,595 as of December 31, 2008 and 2007, respectively, is included in
long-term liabilities in the accompanying consolidated balance
sheets.
  F-17
 
 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. As of December 31, 2007, the current portion of the severance obligation
to Mr. Ripley of $52,022 is included in current liabilities in the accompanying
consolidated balance sheets.
 
 
 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 five percent (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.
 
 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 and 2007.  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.
 
 The
Company determined, that in the event the market value per share of the
Company’s common stock was greater than the $0.36 per share minimum conversion
price per share, there was a beneficial conversion feature equal to the
intrinsic value of the production payment obligation.  The Company
calculated the beneficial conversion feature at the end of each quarterly
reporting period to record changes to the intrinsic value of the beneficial
conversion to common stock and interest expense.  At no time during
the years ended December 31, 2008 and 2007 was there a beneficial conversion
feature since the market price of the Company’s common stock was less than the
$0.36 per share minimum conversion price.
 
 
 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.
 
 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
  F-18
 
 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.  As of December 31, 2008,
the Company had paid the $904,567 production payment obligation.  As
of December 31, 2007, this obligation had a balance of
$100,026.  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
 
 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 intends to pay the remaining royalty
obligation as sales proceeds are received from WEX.
  F-19
 
 Note
12:  Amounts Due to Related Parties
 
 Amounts due to related parties,
included in current liabilities, consist of the following at December 31, 2008
and 2007:
 
 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 (see Note 9)
                        
                        $
                        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, 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
 
 2007
 Principal
                        
                        
                        Interest
                        
                        
                        TotalNote
      payable to Kenneth Ripley, a former Chief
                          Executive
      Officer of the Company, with interest at an annual rate of 18%, plus a 5%
      origination fee
                        
                        $
                        14,897
                        
                        
                        $
                        27,675
                        
                        
                        $
                        42,572Note
      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 (see Note 9)
                        
                        
                        100,000
                        
                        
                        
                        —
                        
                        
                        
                        100,000Note
      payable to the former manager of the Ashdown
                          mine
      for the purchase of a mill, equipment rental and other, with interest at
      12%
                        
                        
                        212,908
                        
                        
                        
                        47,796
                        
                        
                        
                        260,704$
                        327,805
                        
                        
                        $
                        75,471
                        
                        
                        $
                        403,276
  In January 2007, the principal balance
of the note payable to Mr. Ripley was reduced by $160,228 in connection with the
exercise by Mr. Ripley of employee stock options.
  F-20
 
 Note
13:  Long-Term Debt
 
 Long-term debt consists of the
following at December 31:
 
 2008
                                                
                                                
                                                2007Note
      payable to GMAC, payable at $538 per month
                                                  with
      no interest through May 2009, secured by vehicle
                                                
                                                $
                                                4,300
                                                
                                                
                                                $
                                                9,138Note
      payable to GE Capital, payable at $1,080 per month
                                                  through
      January 2012, including interest at 5.40%, secured by
                                                  equipment
                                                
                                                
                                                40,363
                                                
                                                
                                                
                                                -Note
      payable to Daimler Chrysler, payable at $806 per month,
                                                  through
      February 2012, including interest at 13.75%, secured
                                                  by
      vehicle
                                                
                                                
                                                25,736
                                                
                                                
                                                
                                                -Note
      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
                                                
                                                
                                                
                                                182,475Capital
      lease payable to Heartland Wisconsin Corp., payable at $1,148
                                                  per
      month through May 2013, secured by equipment
                                                
                                                
                                                50,173
                                                
                                                
                                                
                                                -Other
                                                
                                                
                                                -
                                                
                                                
                                                
                                                214Accrued
      interest payable
                                                
                                                
                                                23,026
                                                
                                                
                                                
                                                -Total
                                                
                                                
                                                319,055
                                                
                                                
                                                
                                                191,827Less
      current portion
                                                
                                                
                                                176,549
                                                
                                                
                                                
                                                72,169Long-term
      portion
                                                
                                                $
                                                142,506
                                                
                                                
                                                $
                                                119,658
 
 Future maturities of long-term debt are
as follows:
 
 Years
      Ending December 31:2009
                        
                        $
                        176,5492010
                        
                        
                        88,1492011
                        
                        
                        32,5392012
                        
                        
                        16,2232013
                        
                        
                        5,595$
                        319,055
 
 
 Note
14:  Gain on Extinguishment of Debt
 
 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.
 
 During the year ended December 31,
2007, the Company realized a net gain on extinguishment of debt of $520,504
resulting from the elimination of amounts payable pursuant to a financing
agreement, and subsequent conversion of certain amounts to a production payment
obligation to Crestview.  The Company also realized a net gain on
extinguishment of debt of $16,805 in 2007 from agreements reached to extinguish
certain accounts payable.
  F-21
  Note
15:  Stock-Based Compensation
 
 The
Company accounts for stock-based compensation in accordance with SFAS No.
123(R), Share Based
Payments.  Under the fair value recognition provisions of this
statement, 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, 2008 and 2007 was $246,716 and $95,431,
respectively.  There was no stock compensation expense capitalized
during the years ended December 31, 2008 and 2007.
  During
the year ended December 31, 2008, options to purchase 2,440,000 shares of the
Company’s common stock were issued to officers, directors and employees with
exercise prices ranging from $0.19 to $0.29 per share.  The Company
estimated the weighted average grant-date fair value of these options at $0.12
per share using the Black-Scholes option pricing model with the following
assumptions:
 
 Expected
      dividend yield
                  0.00%Expected
      stock price volatility
                  71.29%Risk-free
      interest rate
                  3.08%Expected
      life of options
                  5
      years
 
 The
following table summarizes the stock option activity during the year ended
December 31, 2008:
 
 Options
                
                
                Weighted
                  Average
                  Exercise
                  Price
                
                
                Weighted
                  Average
                  Remaining
                  Contract
      Term
                
                
                Aggregate
                  Intrinsic
                  ValueOutstanding
      at December 31, 2007
                
                
                5,811,573
                
                
                
                $ 
      0.22Granted
                
                
                2,440,000
                
                
                
                $ 
      0.20Exercised
                
                
                (1,024,300
                )
                
                
                $ 
      0.15Expired
      or cancelled
                
                
                (400,000
                )
                
                
                $ 
      0.37Outstanding
      at December 31, 2008
                
                
                6,827,273
                
                
                
                $ 
      0.21
                
                
                
                2.80
                
                
                
                $ 
      -Options
      vested and exercisable atDecember 31, 2008
                
                
                5,800,607
                
                
                
                $ 
      0.22
                
                
                
                2.52
                
                
                
                $ 
      -
 
 The aggregate intrinsic value in the preceding table represents the total
pretax intrinsic value, based on the Company’s closing stock price of $0.02 as
of December 31, 2008 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, 2008, the total future compensation cost related to non-vested
stock-based awards not yet recognized in the condensed consolidated statements
of operations was $71,441.
 
 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, 2008 and changes during the year then ended is presented below:
 
 Weighted
      AverageShares
                        Exercise
      PriceOutstanding,
      December 31, 2007
                        12,100,000
                        $   0.38Granted
                        4,748,925
                        $   0.22Canceled
      / Expired
                        (650,000)
                        $   0.20Exercised
                        (300,000)
                        $   0.20Outstanding,
      December 31, 2008
                        15,898,925
                        $   0.34
 
  F-22
 
 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, 2008:
 
 Expiration
      Date
                                      Price
                                      Number2009
                                      $  0.18
                                      2,000,0002009
                                      $  0.20
                                      550,0002009
                                      $  0.25
                                      1,000,0002009
                                      $  0.40
                                      10,600,0002010
                                      $  0.25
                                      1,748,92515,898,925
 
 In
connection with the sale of shares of its common stock in June, July and August
2008, the Company issued rights to purchase a total of 4,748,925 shares of its
common stock, 1,748,925 shares at $0.25 per shares exercisable for a two-year
period, 1,000,000 shares at $0.25 per share exercisable for a one-year period,
and 2,000,000 shares at $0.18 per share exercisable for a one-year
period.
 
 All stock
warrants and purchase rights are exercisable at December 31, 2008.
 
 
 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, 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).
 
 During
the year ended December 31, 2007, the Company issued a total of 26,488,629
shares of its common stock for the following
consideration:  23,441,066 shares issued for cash of $7,034,999 and
common stock subscriptions payable of $60,000; 150,000 shares for stock issuance
costs; 393,990 shares for services valued at $144,106; 423,728 shares issued for
reduction of accounts payable of $125,000; and 2,079,845 shares issued for the
exercise of options and warrants, $186,045 for cash, $27,373 reduction in
accounts payable and $160,227 reduction in amounts due related
parties.  Stock issuance costs paid in cash were
$350,494.
 
 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, 2008, a loss on
extinguishment of debt of $105,030 through the issuance of the Company’s common
stock was recorded.  For the year ended December 31, 2007, no gain or
loss on extinguishment of debt repaid through the issuance of the Company’s
common stock was recorded.
  F-23
  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 31,2008
                                
                                
                                2007Income
      tax benefit at statutory rate
                                
                                $
                                2,399,238
                                
                                
                                $
                                727,575Adjustments
      to net operating loss carry forward
                                
                                
                                259,322
                                
                                
                                
                                567,184Stock
      for services/options expense
                                
                                
                                (334,798
                                )
                                
                                
                                -Change
      in rate
                                
                                
                                -
                                
                                
                                
                                (1,216,255
                                )Other
                                
                                
                                (18,290
                                )
                                
                                
                                (12,924
                                )Change
      in valuation allowance
                                
                                
                                (2,305,472
                                )
                                
                                
                                (65,580
                                )$
                                -
                                
                                
                                $
                                -
 
 
 Deferred tax assets (liabilities) are
comprised of the following at December 31:
 
 2008
                                      
                                      
                                      2007Deferred
      tax assets:Net
      operating loss carry forwards
                                      
                                      $
                                      10,305,281
                                      
                                      
                                      $
                                      7,999,868Reclamation
      obligation
                                      
                                      
                                      1,151,808
                                      
                                      
                                      
                                      1,059,936Accrued
      expenses
                                      
                                      
                                      203,771
                                      
                                      
                                      
                                      294,062Mineral
      properties
                                      
                                      
                                      170,947
                                      
                                      
                                      
                                      170,947Stock-based
      compensation
                                      
                                      
                                      116,330
                                      
                                      
                                      
                                      32,447Allowance
      for doubtful accounts
                                      
                                      
                                      -
                                      
                                      
                                      
                                      39,57811,948,137
                                      
                                      
                                      
                                      9,596,838Less
      valuation allowance
                                      
                                      
                                      (11,857,837
                                      )
                                      
                                      
                                      (9,552,365
                                      )Net
      deferred tax assets
                                      
                                      
                                      90,300
                                      
                                      
                                      
                                      44,473Deferred
      tax liabilities:Depreciation
                                      
                                      
                                      (90,300
                                      )
                                      
                                      
                                      (43,821
                                      )Unrealized
      gain on investments
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (652
                                      )Net
      deferred tax liabilities
                                      
                                      
                                      (90,300
                                      )
                                      
                                      
                                      (44,473
                                      )Net
      deferred taxes
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
 
 At
December 31, 2008, the Company has a net operating loss carry forward available
to offset future taxable income of approximately $30,310,000, which will begin
to expire in 2009.  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.
 
 The FASB
has issued Financial Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – An Interpretation of FASB Statement No. 109 (FIN 48).  FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes.  Fin 48 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.  As
a result of the implementation of FIN 48, the Company performed a review of its
material tax positions in accordance with recognition and measurement standards
established by FIN 48.
 
 At the
adoption date of January 1, 2007, the Company had no unrecognized tax benefit
which would affect the effective tax rate if recognized.  There has
been no significant change in the unrecognized tax benefit during the years
ended December 31, 2008 and 2007.
  F-24
 
 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, 2008 and 2007, 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, 2008 are
subject to examination.
 
 
 Note
19:  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, 2008.
 
 2009
                        
                        $
                        269,1862010
                        
                        
                        268,4962011
                        
                        
                        255,0562012
                        
                        
                        175,8282013
                        
                        
                        14,525Total
                        
                        $
                        983,091
 
 Rental expense for all operating leases
was $322,930 and $124,730 for the years ended December 31, 2008 and 2007,
respectively.
 
 Employment
Agreements
 
 David A.
Caldwell
 
 The
Company entered into an Employment Agreement with David A. Caldwell on February
22, 2006, and into an Addendum to the Employment Agreement on January 31,
2007.  Pursuant to these agreements, Mr. Caldwell currently serves as
the full time Chief Executive Officer of the Company, and as of November 8, 2008
the Chief Financial Officer, with duties to assist the Company’s executive
management in the areas of corporate development and compliance, mergers and
acquisitions, investment banking and fund raising, strategic relationships and
public relations, in the United States and such other locations as deemed
appropriate by the Board.
 
 Mr.
Caldwell’s salary was adjusted in June 2006 to $165,000 annually, subject to
increases, if any, as the Board may determine in its sole discretion after
periodic review his duties not less frequently than annually.  All of
Mr. Caldwell’s salary was deferred during 2006 and portions of Mr. Caldwell’s
salary were deferred during 2007 and 2008.  The deferred salary
payable is included in accrued liabilities in the accompanying consolidated
balance sheets at December 31, 2008 and 2007 (see Note 8).
 
 On
February 13, 2006, Mr. Caldwell was granted 600,000 options under the 2002 Stock
Option Incentive Plan with an exercise price of $0.24 per share.  One
fourth of the options vest each ninety (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 five (5) years and are subject to
other standard terms and conditions under the applicable stock option plan of
the Company.  Mr. Caldwell has also agreed to a non-competition clause
while employed by the Company and a non-solicitation clause for a term of
twenty-four (24) months following termination of his
employment.
  F-25
 
 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.  All of Mr. Martin’s salary, and portions of Mr. Caldwell’s
salary were deferred during 2007 and 2008.  The deferred salary
payable is included in accrued liabilities in the accompanying consolidated
balance sheets at December 31, 2008 and 2007 (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 ninety (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 five (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
twenty-four (24) months following termination of his employment.
 
 Environmental
Obligations
 
 As part
of the purchase of the Mineral Ridge mine and related assets, the Company is
responsible for future closure, reclamation and remediation costs (See Notes 1
and 7). The Company prepared a reclamation plan for $2,693,000 that was approved
by the Nevada Department of Environmental Protection and the Bureau of Land
Management in May 2003.
 
 The
estimated future reclamation and remediation cost and related assets and
liabilities have been recognized in the consolidated financial statements in
accordance with SFAS 143 (See Note 7).
 
 Litigation
 
 The
Company has participated in mediation proceedings with WEX.  The
dispute arises from the Company’s November 2, 2006 formal notice of default to
WEX that it failed to timely fund its share of the Program and Budget for the
Ashdown mine, due on October 15, 2006.  Payment was due pursuant to
the Ashdown Project LLC Operating Agreement between WEX and the Company dated
September 28, 2006 and a related letter agreement of the same
date.  The amount claimed by the Company to be owed by WEX under the
agreement is $115,755.  Additionally, by the same notice of default,
the Company reminded WEX that it did not timely pay to the Company its share of
revenues received by WEX for ore from stockpiles as required by the
above-mentioned letter agreement.  The Company’s share of these monies
was $193,391.  The total amount in default totals
$309,146.  Pursuant to the agreements, interest accrues on these
amounts at a rate equal to two percentage points over the Prime Rate to the
maximum allowed by law. The agreement permits a defaulting party to cure if they
pay the defaulted amount, plus interest at a rate of Prime plus
7%.  WEX did not cure its default.  Consequently, the
Company elected, as permitted under the agreement, to dilute WEX’s membership
interest in the Ashdown LLC by notice dated December 20,
2006.  Pursuant to a calculation formula contained in the agreement,
the Company contends WEX’s membership interest has been reduced from 40% to
30.5%.  WEX is currently contesting this dilution of its interest in
the Ashdown LLC.  WEX has disputed and continues to dispute the amount
and timing of certain expenditures incurred by the Company on the Ashdown
property.  In addition, WEX has notified the Company of certain
provisions in the Operating Agreement that it contends the Company has
breached.
 
 As of the
date of this Report, the Company does not believe any of WEX’s allegations are
material.  Upon closing the Ashdown Sale, all litigation between the
Company and WEX will terminate (see Notes 3 and 22).  The outcome of
these matters cannot currently be determined.  The accompanying
condensed consolidated financial statements of the Company reflect its ownership
in the Ashdown LLC at 60% and do not reflect the potential impact of any
ultimate resolution or arbitration.
 
 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.  However,
the ability to bring the obligations current is dependent on the Company’s
ability to raise additional capital.  There can be no assurance that
the Company will be successful in these efforts.
  F-26
 
 Freddie
Quimby — On or about October 26, 2007, Ashdown LLC terminated the employment of
Freddie Busby Quimby, the Mine Manager of Ashdown, for cause pursuant to the
terms of his employment agreement.  Mr. Quimby claimed that Ashdown
LLC owed him approximately $2,500,000 in severance pay.  Mr. Quimby
filed suit against both the Ashdown LLC and Mr. Kent Aveson, the then new Mine
Manager at Ashdown, seeking $4,000,000 in damages.  The suit was filed
on or about September 11, 2008, in the United States District Court, District of
Oregon.  Ashdown LLC was served and filed a motion to dismiss or in
the alternative a change of venue.  Mr. Quimby’s claims appear to have
no basis in fact and are considered by Ashdown LLC to be
frivolous.  Following the Ashdown LLC’s entry into settlement
discussions with Mr. Quimby, on or around April 9, 2009, the Court granted the
Ashdown LLC’s motion and dismissed the lawsuit as frivolous.  Based on
the nature of the allegations, the surrounding facts and the court’s recent
dismissal, the Company does not consider these allegations
material.
  Earl
Harrison — On October 22, 2008, the Company received a summons and complaint
initiated by its former Ashdown Mine Manager, Earl Harrison, in an amount equal
to $172,116.  The claim 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.  This Note had been the
subject of regular monthly payments until the deteriorating capital markets
forced the Company to suspend this payment schedule.  The Company agreed
with the amounts detailed in the complaint and had no objection to Mr.
Harrison’s claim.  The Company is now in receipt of a default judgment
dated February 2, 2009 entered in Mr. Harrison’s favor, 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 Note is
paid in full.  We have been in discussions with Mr. Harrison and his
attorney throughout this period of time and have initiated a formal process to
negotiate a settlement in this matter on February 4, 2009.  We expect to
reach an amicable resolution to this outstanding obligation and to extinguish
this debt as funding allows.
 
 Tetra
Financial Group, LLC — On January 29, 2009, Tetra Financial Group, LLC (“Tetra”)
filed a complaint 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 ten ton hauler trucks.  The total
money damages claimed are approximately $852,478.  At this time the
parties are continuing to negotiate to reach a favorable settlement, which may
include performance of the lease, return of certain equipment and/or payment of
some damages.  It is uncertain at this time whether the Company will
continue to participate in these negotiations or in any terms of a settlement,
or whether the Tetra obligations will be assumed solely by the Ashdown Project
LLC following the Company’s sale of its interest in Ashdown.  As of
the date of this Report, the Company does not believe these allegations are
material.
 
 Retrievers,
LLC — On February 12, 2009, Retrievers, LLC, along with John Tingue and Kris
Tingue (collectively, “Retrievers”) filed a complaint in the Sixth Judicial
District Court of the State of Nevada, in and for the County of Humboldt, Case
No. CV-17880, against the Ashdown Project, LLC, the Company, Win-Eldrich Gold,
Inc., and Perry Muller, an individual (collectively, the “Ashdown Group”),
seeking (1) to establish rights, titles, and interests in and to certain
personal property known as the “Kingston Mill”, consisting of certain machinery
and equipment; (2) damages for breaches of contract and other claims; and (3)
certain equitable relief.  The complaint included claims arising out
of certain obligations and agreements contained in a Settlement Agreement
between Retrievers and the Company, made as of August 26,
2005.  Specifically, the complaint seeks a temporary restraining order
and preliminary injunction enjoining the Ashdown Group from using, encumbering
or transferring any rights to the Kingston Mill, title to the Kingston Mill, and
damages in excess of $133,163.  Retrievers and Ashdown Group are currently
engaged in settlement negotiations and have agreed to the principal terms of a
settlement, which the Company expects to conclude and all lawsuits to be
dismissed concurrently with the close of the Ashdown sale.  The
settlement obligations of the Company are not anticipated to have a material
adverse effect on the operations of the Company.
 
 DMC-Dynatec
Mining Services Corporation — On February 13, 2009, DMC Mining recorded a
mechanic’s lien against real property, mining claims and mineral deposits at the
Ashdown mine claiming approximately $108,448 due for mechanic’s
labor.  Such amount is owed on a service contract, which requires DMC
Mining to bring suit within six months of recording its lien.  As of
the date of this Report, it is anticipated that the Company will be indemnified
and held harmless by the Ashdown Project LLC for any liability or obligation to
DMC Mining in connection with the sale of the Company’s interest in
Ashdown.
 
 Royalties
 
 The
Company is obligated to honor two prior royalty agreements with respect to the
Mineral Ridge project.  The first is to Mary Mining Company, which
includes annual advance minimum royalty payments of $60,000, and a sliding-scale
production royalty based on gold price divided by 100 in $50 increments with a
cap at 8.5% (i.e. above a $850 per ounce gold price).  The other
agreement, which originated from Benquet Corp., is with private individuals on
several patented claims.  This agreement includes a 1.0% sliding-scale
production royalty on production when gold prices are below $300 per ounce and
2.0% when gold prices are above $300 per ounce.
 
 
 Note
20:  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.
  F-27
 
 As more
fully discussed in Note 12, 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 $458,531 and $403,276 at December 31, 2008 and 2007,
respectively.
 
 As
detailed in Note 8, the Company also has deferred compensation payable to
officers or former officers totaling $356,989 and $427,807 at December 31, 2008
and 2007, respectively.
 
 
 Note
21:  Supplemental Statement of Cash Flows Information
 
 During the years ended December 31,
2008 and 2007, the Company made no cash payments for income taxes.
 
 During the years ended December 3, 2008
and 2007, the Company made cash payments for interest of $190,613 and $94,227,
respectively.
 
 During
2008, the Company had the following non-cash financing and investing
activities:
 
 ·
              Accrued
      liabilities were reduced by $129,587 through the exercise of stock options
      and resultant increase in common stock of $394 and increase in additional
      paid-in capital of $129,193.
 
 ·
              Property
      and equipment was purchased through the issuance of debt of
      $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.
 
 ·
              Production
      payment obligation – related party was reduced by $60,000 through the
      exercise of stock options and resultant increase in common stock of $300
      and increase in additional paid-in capital of
  $59,700.
 
 During 2007, the Company had the
following non-cash financing and investing activities:
 
 ·
              Decreased
      marketable securities and other comprehensive income for unrealized loss
      on marketable securities of
$41,985.
 
 ·
              Increased
      common stock by $424, increased additional paid-in capital by $124,576 and
      decreased accounts payable by
$125,000.
 
 ·
              Amounts
      due related parties were reduced by $160,227 through the exercise of stock
      options and resultant increase in common stock of $668 and additional
      paid-in capital of $159,559.
 
 ·
              Accounts
      payable was reduced by $27,373 through the exercise of stock options and
      resultant increase in common stock of $122 and additional paid-in capital
      of $27,251.
 
 ·
              Accounts
      payable was reduced and long-term debt increased by
    $512,262.
 
 ·
              Notes
      payable and related accrued interest was reduced and production payment
      obligation was increased by
$1,974,456.
 
 ·
              The
      Company reclassified deferred revenue – related party of $904,567 to
      production payment obligation – related
party.
 
 ·
              Accounts
      payable was reduced and accrued liabilities increased by
      $63,083.
 
 ·
              Common
      stock was increased and additional paid-in capital decreased by
      $150.
  F-28
 
 Note
22:  Subsequent Events
 
 Consulting
Agreement
 
 On
January 16, 2009, the Company entered into a Consulting Agreement (the
“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.
 
 As
compensation for his consulting services, 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 (“Initial
Compensation”).  Such 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 Agreement, Mr. Klein will be obligated to
incur expenses or purchase Company debt up to the full value of the Initial
Compensation.
 
 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 (“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 or $500,000
debt reduction, respectively, and will have an exercise price of $0.0079 per
share.
 
 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 Agreement.
 
 Bridge
Loan and Debt Restructuring Agreement
 
 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 owed by the Company to the Lender pursuant to
the Production Payment Purchase Agreement and Assignment, dated June 12,
2007.  The Agreement provides for two closings, with an initial
closing having occurred on January 30, 2009 (the “Initial Closing”), and a
second closing no later than February 6, 2009 (the “Subsequent
Closing”).
 
 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%.  Of the Principal Amount, the
Lender loaned the Company $100,000 in exchange for the Company issuing the
Lender a Secured Promissory Note (the “Interim Bridge Note”) on the Initial
Closing. The Interim Bridge Note was cancelled upon the Subsequent Closing, and
replaced with the Bridge Note. The Bridge Note shall be due and payable on the
earlier of the following: (a) completion of the Company’s formation of a joint
venture with, or any sale or transfer to, a third party in relation to the
Mineral Ridge Property; or (b) a date that is 9 months from the Subsequent
Closing.  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”).
  F-29
 
 Additionally,
pursuant to the Agreement, the Company and Lender have agreed to restructure the
Original Debt, which is recorded as a production payment obligation, a current
liability in the Company’s consolidated balance sheets as of December 31, 2008
and 2007.  In consideration of the reduction of the Original Debt from
$1,794,960 to $1,000,000, the Company will execute 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 24 months from the Subsequent Closing, as well as issue certain
warrants to purchase Company common stock as further described
below.  In the event that the Company forms a joint venture in
relation to the Mineral Ridge Property (or its mining rights) resulting in the
Company retaining less than a 10% interest in the Mineral Ridge Property, the
entire amount owed on the Debt Restructuring Note will be accelerated and become
immediately due.  Upon formation of a joint venture in relation to the
Mineral Ridge Property, 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.
 
 As of the
Subsequent Closing, and as additional consideration for the restructuring of the
Original Debt, the Company will issue 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 twenty-four (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.  Such registration rights require the
Company to prepare and file a registration statement, with respect to the common
stock underlying the Warrants, with the SEC within 60 days after the Subsequent
Closing.  The registration rights also provide that the Company will
use its best efforts to effect the registration rights under the Securities Act
of 1933, as amended (the “Securities Act”), of the common shares underlying the
Warrants within 120 days after the Subsequent Closing.
 
 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 will be 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 the appropriate entity as reasonably designated by the Lender, and the
filing of any other necessary documents.
 
 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 will release 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.
 
 Binding
Memorandum of Understanding
 
 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 Mines Limited (“WEX”), whereby the
Company agreed to sell 100% of its ownership interest in the
Ashdown  LLC to WEX (the “Ashdown Sale”).  WEX has been 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 WEX
owning a 40% membership interest.
 
 As
consideration for the Ashdown Sale, WEX will pay $5.3 million (the “Purchase
Price”) to the Company, in the form of a secured promissory note for the full
amount of the Purchase Price.  In addition, WEX will assume the
majority of all obligations and liabilities of the Ashdown
LLC.  Interest on the note will be calculated on a quarterly basis at
a defined prime rate plus 2%, not to exceed 10%.  No payments of note
principal or interest are payable until April 1, 2010, with monthly payments of
principal and interest payable thereafter for a period of 72
months.
  F-30
 
 The
Ashdown Sale will not be completed until execution of definitive agreements,
receipt of regulatory approval, and WEX obtaining financing.  Upon
completion of the Ashdown Sale, all litigation between WEX and the Company will
terminate.  The Company will have the right to appoint one
representative to the WEX Board of Directors, and WEX will have the right to
appoint one representative to the Company’s Board of Directors.  There
is no assurance that the Ashdown Sale will be completed.
 
 Issuance
of Common Shares
 
 During January and February 2009, a
total of 540,000 shares of our common stock were issued in payment of accounts
payable of $12,473.
  F-31


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.(18)3.4
              Amended
      and Restated Articles of Incorporation of Golden Phoenix Minerals,
      Inc.(20)3.5
              Amended
      and Restated Bylaws of Golden Phoenix Minerals, Inc.(20)4.1
              Specimen
      Common Stock Certificate of Golden Phoenix Minerals, Inc.(20)4.2
              Form
      of Warrant of Golden Phoenix Minerals, Inc.(24)10.1
              Agreement
      dated July 22, 1997, by and between J.D. Welsh & Associates, Inc. and
      Golden Phoenix Minerals, Inc.(2)10.2
              Kennecott
      Agreement - Option to Purchase with Exploration Rights, dated September
      19, 1997, by and between Kennecott Exploration Company and Golden Phoenix
      Minerals, Inc.(2)10.3
              Option
      Agreement dated September 1997, by and between S.F. Lewis Trust and Golden
      Phoenix Minerals, Inc.(3)10.4
              Amended
      Supplemental Agreement dated November 15, 1997, by and between J. D. Welsh
      & Associates, Inc. and Golden Phoenix Minerals, Inc.(4)10.5
              Mineral
      Lease Agreement and Option to Purchase, by and between Erik Hansen and
      Golden Phoenix Minerals, Inc.(4)10.6
              Mineral
      Lease Agreement and Option to Purchase dated December 1, 1997, by and
      between Mack Rife and Golden Phoenix Minerals, Inc.(4)10.7
              Form
      of General Executive Compensation Contract(5)10.8
              Mineral
      Ridge Mine Sale Agreement dated October 9, 2000, by and between Thomas L.
      Minsic (Trustee for the Chapter 11 bankruptcy estate of Mineral Ridge
      Resources, Inc.) and Golden Phoenix Minerals, Inc.(6)10.9
              Year
      2002 Supplemental Employee/Consultant Stock Compensation Plan(29)10.10
              Agreement
      dated July 21, 2003, by and between Golden Phoenix Minerals, Inc. and
      Borealis Mining Company(7)10.11
              Long
      Term Agreement dated August 18, 2004, by and between Golden Phoenix
      Minerals, Inc. and Derek Raphael & Company Limited(8)10.12
              Settlement
      Agreement dated August 26, 2005 by and between Golden Phoenix Minerals,
      Inc., Earl Harrison, dba Western Mine Development, Retrievers LLC, John
      Tingue and Kris Tingue(8)10.13
              Payment
      Production Purchase Agreement dated September 2005, by and between Golden
      Phoenix Minerals, Inc. and Ashdown Milling Company, LLC(8)10.14
              Second
      Addendum to Long Term Agreement dated October 25, 2005, by and between
      Golden Phoenix Minerals, Inc. and Derek Raphael & Company Limited(8)10.15
              Employment
      Agreement dated February 22, 2006, by and between Golden Phoenix Minerals,
      Inc. and David A. Caldwell(8)10.16
              Employment
      Agreement dated March 8, 2006, by and between Golden Phoenix Minerals,
      Inc. and Robert P. Martin(8)10.17
              Purchase
      Agreement dated April 18, 2006, by and between Golden Phoenix Minerals,
      Inc., Robert R. Robitaille, Douglas Lalonde, Sheldon Davis and Ronald E.
      Dockweiler(9)10.18
              Employment
      Agreement dated August 14, 2006, by and between Golden Phoenix Minerals,
      Inc. and Donald R. Prahl(10)10.19
              Letter
      Agreement dated August 29, 2006, by and between Golden Phoenix Minerals,
      Inc. and Win-Eldrich Gold, Inc.(28)10.20
              Ashdown
      Project LLC Operating Agreement dated September 28, 2006, by and between
      Golden Phoenix Minerals, Inc. and Win-Eldrich Gold, Inc.(11)10.21
              Settlement
      Agreement and Mutual Release dated December 1, 2006, by and between Golden
      Phoenix Minerals, Inc., Frank W Lewis and the Sharon F. Lewis Trust(26)10.22
              Independent
      Contractor Agreement dated December 18, 2006, by and between Golden
      Phoenix Minerals, Inc. and Dennis P. Gauger(12)10.23
              Stock
      Option Agreement, by and between Golden Phoenix Minerals, Inc. and Dennis
      P. Gauger(27)10.24
              Employment
      Separation Agreement dated January 31, 2007, by and between Golden Phoenix
      Minerals, Inc. and Kenneth S. Ripley(25)
  
  10.25
                Addendum
      to Employment Agreement dated January 31, 2007, by and between Golden
      Phoenix Minerals, Inc. and David A. Caldwell(25)10.26
                Addendum
      to Employment Agreement dated January 31, 2007, by and between Golden
      Phoenix Minerals, Inc. and Robert P. Martin(25)10.27
                Addendum
      to Employment Agreement dated January 31, 2007, by and between Golden
      Phoenix Minerals, Inc. and Donald R. Prahl(25)10.28
                Share
      and Warrant Purchase Agreement dated April 23, 2007, by and between Golden
      Phoenix Minerals, Inc. and certain Investors(13)10.29
                Registration
      Rights Agreement dated April 23, 2007, by and between Golden Phoenix
      Minerals, Inc. and certain Investors(13)10.30
                Advance
      Sales Restructuring Agreement dated April 23, 2007, by and between Golden
      Phoenix Minerals, Inc. and William Schnack or Candida Schnack(14)10.31
                Mutual
      Termination Agreement dated April 23, 2007, by and between Golden Phoenix
      Minerals, Inc. and Fusion Capital Fund II, LLC(14)10.32
                2006
      Non-Employee Director Stock Option Plan(15)10.33
                2007
      Equity Incentive Plan(15)10.34
                Production
      Payment Purchase Agreement and Assignment dated June 12, 2007, by and
      between Golden Phoenix Minerals, Inc. and Crestview Capital Master,
      LLC(16)10.35
                Registration
      Rights Agreement dated June 12, 2007, by and between Golden Phoenix
      Minerals, Inc. and Crestview Capital Master, LLC(16)10.36
                Security
      Agreement dated June 12, 2007, by and between Golden Phoenix Minerals,
      Inc. and Crestview Capital Master, LLC(17)10.37
                Notice
      of Assignment dated June 13, 2007, by and between Golden Phoenix Minerals,
      Inc. and Crestview Capital Master, LLC(17)10.38
                Settlement
      Agreement and Release dated September 14, 2007, by and among Steven D.
      Craig, Estate of Collette Crater Craig and Golden Phoenix Minerals,
      Inc.(19)10.39
                Addendum
      to Production Payment Purchase Agreement between Golden Phoenix Minerals,
      Inc. and Ashdown Milling Company LLC dated February 6, 2008(19)10.40
                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.(19)10.41
                Agreement
      and Plan of Merger dated May 21, 2008(20)10.42
                2007
      Equity Incentive Stock Option Plan(21)10.43
                2008
      Executive Stock Compensation Plan(22)10.44
                Consulting
      Agreement dated January 16, 2009, by and between Golden Phoenix Minerals,
      Inc. and Thomas Klein(23)21
                Subsidiaries
      of Golden Phoenix Minerals, Inc.*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 10SB12G/A as filed with the SEC on October 22,
      1997.(3)
                Incorporated
      by reference from Form 10-Q filed with the SEC on November 10,
    1997.(4)
                Incorporated
      by reference from Form 10SB12G/A filed with the SEC on December 29,
      1997.(5)
                Incorporated
      by reference from Form 10-KSB filed with the SEC on October 27,
      1999.(6)
                Incorporated
      by reference from Form 8-K filed with the SEC on November 22,
    2000.(7)
                Incorporated
      by reference from Form SB-2 filed with the SEC on September 11,
      2003.(8)
                Incorporated
      by reference from Form 10-KSB filed with the SEC on April 17,
    2006.(9)
                Incorporated
      by reference from Form 10-QSB filed with the SEC on May 19,
  2006.(10)
                Incorporated
      by reference from Form 8-K filed with the SEC on August 17,
  2006.(11)
                Incorporated
      by reference from Form 8-K filed with the SEC on October 3,
  2006.(12)
                Incorporated
      by reference from Form 8-K filed with the SEC on December 21,
    2006.(13)
                Incorporated
      by reference from Form 8-K filed with the SEC on April 25,
  2007.(14)
                Incorporated
      by reference from Form 8-K filed with the SEC on April 27,
  2007.(15)
                Incorporated
      by reference from Form SB-2 filed with the SEC on May 25,
  2007.  
  (16)
                Incorporated
      by reference from Form 8-K filed with the SEC on June 19,
  2007.(17)
                Incorporated
      by reference from Form SB-2 filed with the SEC on June 29,
  2007.(18)
                Incorporated
      by reference from Form SB-2/A filed with the SEC on December 21,
      2007.(19)
                Incorporated
      by reference from Form 10-KSB filed with the SEC on March 31,
    2008.(20)
                Incorporated
      by reference from Form 8-K filed with the SEC on June 5,
2008.(21)
                Incorporated
      by reference from Form S-8 filed with the SEC on July 15,
  2008.(22)
                Incorporated
      by reference from Form S-8 filed with the SEC on October 8,
  2008.(23)
                Incorporated
      by reference from Form 8-K filed with the SEC on January 23,
    2009.(24)
                Incorporated
      by reference from Exhibit A to Exhibit 10.1 of Form 8-K filed with the SEC
      on April 25, 2007.(25)
                Incorporated
      by reference from Form 8-K filed with the SEC on February 5,
    2007.(26)
                Incorporated
      by reference from Form 8-K filed with the SEC on January 16,
    2007.(27)
                Incorporated
      by reference from Form S-8 filed with the SEC on January 8,
  2007.(28)
                Incorporated
      by reference from Form 8-K filed with the SEC on August 30,
  2006.(29)
                Incorporated
      by reference from Form S-8 filed with the SEC on February 12,
    2002.