Document:

exv10w3

 

Exhibit 10.3

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS
OR THE COMPANY SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES
UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.

MISSION TECHNOLOGY GROUP, INC.

SECURED INVENTORY PROMISSORY NOTE

 

			
	$1,430,000.00
	 	Issuance Date: April 16, 2007

     FOR VALUE RECEIVED, the undersigned, Mission Technology Group, Inc., a California corporation
(the “Company”), hereby promises to pay to the order of Mobility California, Inc., a
Delaware corporation or any future permitted holder of this promissory note (the “Payee”),
at the principal office of the Payee set forth herein, or at such other place as the Payee may
designate in writing to the Company, the principal sum of One Million Four Hundred and Thirty
Thousand Dollars ($1,430,000.00), and such other amount as may be outstanding hereunder, together
with all accrued but unpaid interest, in United States dollars, as provided in this Secured
Inventory Promissory Note (the “Note”).

     1. Principal and Interest Payments.

          (a) Reference is hereby made to that certain Asset Purchase Agreement, dated as of February
21, 2007, by and between the Company and Payee (the “Purchase Agreement”). Terms used
herein but not otherwise defined shall have the meanings ascribed thereto in the Purchase
Agreement. The principal reflects the agreed upon fair market value of the Closing Inventory (the
“FMV”). Within ten (10) days following the end of each calendar month, the Company shall
make a principal payment under this Note to Payee equal to the FMV of any Closing Inventory sold,
assigned, transferred or otherwise disposed of by the Company (each a “Transfer”) during
such calendar month; provided, however, that the unpaid principal balance of this Note as of
November 1, 2008 (the (“Final Maturity Date”) shall be due and payable on the Final Maturity Date.
Each payment shall be accompanied by a written statement identifying the items of Closing Inventory
Transferred by the Company during such calendar month.

          (b) Interest on the outstanding principal balance of this Note shall accrue at a rate of six
percent (6.00%) per annum, subject to increase as provided below. Interest on the outstanding
principal balance of the Note shall be computed on the basis of the actual number of days elapsed
and a year of three hundred and sixty (360) days. Accrued but unpaid interest on this Note shall
be due and payable at the same time that the principal amount of this Note is due and payable as
provided in subsection (a) above. Furthermore, upon the occurrence of an Event of Default (as
defined below), then to the extent permitted by law, the Company will pay interest

 

 

to the Payee, payable on demand, on the outstanding principal balance of the Note from the
date of the Event of Default until payment in full at the rate of twelve percent (12%) per annum.

     2. Security Interests. The payment of the principal of, and interest on, this Note,
as well as other amounts that may become due and payable under this Note, is secured by: (i) a
security interest in certain assets of the Company as provided in that certain Security Agreement,
of even date herewith, by and between the Company and Payee (the “Security Agreement”); and
(ii) a security interest in certain securities of Payee as provided in that certain Pledge
Agreement, of even date herewith, by and between Randy Jones, the controlling shareholder of the
Company, and Payee (the “Pledge Agreement”).

     3. Non-Business Days. Whenever any payment to be made shall be due on a Saturday,
Sunday or a public holiday under the laws of the State of Arizona and/or California, such payment
may be due on the next succeeding business day and such next succeeding day shall be included in
the calculation of the amount of accrued interest payable on such date.

     4. Events of Default. The occurrence of any of the following events shall be an
“Event of Default” under this Note:

          (a) the Company shall fail to make the payment of any amount of any principal outstanding for
a period of three (3) business days after the date such payment shall become due and payable
hereunder; or

          (b) the Company shall fail to make any payment of interest for a period of three (3) business
days after the date such interest shall become due and payable hereunder; or

          (c) the Company breaches any representation, warranty, covenant, agreement or certification
made by the Company herein, in that certain Secured Promissory Note, of even date herewith, in the
original principal amount of $2,500,000, an with the Company as “maker” and Payee as “payee” (the
“1st Note”), in the Security Agreement or in the Pledge Agreement; or

          (d) the holder of any indebtedness of the Company or any of its subsidiaries shall accelerate
any payment of any amount or amounts of principal or interest on any indebtedness (the
“Indebtedness”) (other than the indebtedness hereunder) prior to its stated maturity or
payment date, whether such Indebtedness now exists or shall hereinafter be created, and such
accelerated payment entitles the holder thereof to immediate payment of such Indebtedness which is
due and owing and such indebtedness has not been discharged in full or such acceleration has not
been stayed, rescinded or annulled within ten (10) business days of such acceleration; or

          (e) a judgment or order for the payment of money shall be rendered against the Company or any
of its subsidiaries in excess of $100,000 in the aggregate (net of any applicable insurance
coverage) for all such judgments or orders against all such persons (treating any deductibles, self
insurance or retention as not so covered) that shall not be discharged, and all such judgments and
orders remain outstanding, and there shall be any period of sixty (60) consecutive days following
entry of the judgment or order in excess of $100,000 or the judgment or order which causes the
aggregate amount described above to exceed $100,000 during which a

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stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect; or

          (f) the Company shall (i) apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its property or assets, (ii) make a general assignment for the benefit of its creditors,
(iii) commence a voluntary case under the Bankruptcy Code or under the comparable laws of any
jurisdiction (foreign or domestic), (iv) file a petition seeking to take advantage of any
bankruptcy, insolvency, moratorium, reorganization or other similar law affecting the enforcement
of creditors’ rights generally, (v) acquiesce in writing to any petition filed against it in an
involuntary case under the Bankruptcy Code or under the comparable laws of any jurisdiction
(foreign or domestic), or (vi) take any action under the laws of any jurisdiction (foreign or
domestic) analogous to any of the foregoing; or

          (g) a proceeding or case shall be commenced in respect of the Company or any of its
subsidiaries without its application or consent, in any court of competent jurisdiction, seeking
(i) the liquidation, reorganization, moratorium, dissolution, winding up, or composition or
readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or
the like of it or of all or any substantial part of its assets or (iii) similar relief in respect
of it under any law providing for the relief of debtors, and such proceeding or case described in
clause (i), (ii) or (iii) shall continue undismissed, or unstayed and in effect, for a period of
thirty (30) consecutive days or any order for relief shall be entered in an involuntary case under
the Bankruptcy Code or under the comparable laws of any jurisdiction (foreign or domestic) against
the Company or any of its subsidiaries or action under the laws of any jurisdiction (foreign or
domestic) analogous to any of the foregoing shall be taken with respect to the Company or any of
its subsidiaries and shall continue undismissed, or unstayed and in effect for a period of thirty
(30) consecutive days.

     5. Remedies Upon An Event of Default. If an Event of Default shall have occurred and
shall be continuing, the Payee may at any time at its option, (a) declare the entire unpaid
principal balance of this Note, together with all interest accrued hereon, due and payable, and
thereupon, the same shall be accelerated and so due and payable; provided, however,
that upon the occurrence of an Event of Default described in (i) Sections 4(f) and (g), without
presentment, demand, protest, or notice, all of which are hereby expressly unconditionally and
irrevocably waived by the Company, the outstanding principal balance and accrued interest hereunder
shall be automatically due and payable, and (ii) Sections 4(a) through (e), the Payee may exercise
or otherwise enforce any one or more of the Payee’s rights, powers, privileges, remedies and
interests under this Note, the 1st note, the Security Agreement, the Pledge Agreement or
applicable law. No course of delay on the part of the Payee shall operate as a waiver thereof or
otherwise prejudice the right of the Payee. No remedy conferred hereby shall be exclusive of any
other remedy referred to herein or now or hereafter available at law, in equity, by statute or
otherwise.

     6. Replacement. Upon receipt of a duly executed, notarized written statement from the
Payee with respect to the loss, theft or destruction of this Note (or any replacement hereof), and
without requiring an indemnity bond or other security, or, in the case of a mutilation of this

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Note, upon surrender and cancellation of such Note, the Company shall issue a new Note, of
like tenor and amount, in lieu of such lost, stolen, destroyed or mutilated Note.

     7. Parties in Interest, Transferability. This Note shall be binding upon the Company
and its successors and assigns and the terms hereof shall inure to the benefit of the Payee and its
successors and permitted assigns. This Note may be transferred or sold, subject to the provisions
of Section 15 below, or pledged, hypothecated or otherwise granted as security by the Payee.

     8. Amendments. This Note may not be modified or amended in any manner except in
writing executed by the Company and the Payee.

     9. Notices. Any notice, demand, request, waiver or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery
by telecopy or facsimile at the address or number designated below (if delivered on a business day
during normal business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following the date of
mailing by express courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The Company agrees to give written notice to
the Payee at least twenty (20) days prior to the date on which dissolution, liquidation or
winding-up will take place and in no event shall such notice be provided to the Payee prior to such
information being made known to the public.

	 	 	 
	     Address of Payee:

	 	Mobility California, Inc.
	 

	 	17800 N. Perimeter Drive, Suite 200
	 

	 	Scottsdale, Arizona 85255
	 

	 	Attention: Chief Executive Officer
	 

	 	Fax No.: (480) 477-3639
	 
	 	 
	     Address of the Company:

	 	Mission Technology Group, Inc.
	 

	 	9918 Via Pasar
	 

	 	San Diego, CA 92126
	 

	 	Attention: Randy Jones
	 

	 	Fax No.: (858) 530-2733

     10. Governing Law. This Note shall be governed by and construed in accordance with the
internal laws of the State of Arizona, without giving effect to the choice of law provisions. This
Note shall not be interpreted or construed with any presumption against the party causing this Note
to be drafted.

     11. Headings. Article and section headings in this Note are included herein for
purposes of convenience of reference only and shall not constitute a part of this Note for any
other purpose.

     12. Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief.
The remedies provided in this Note shall be cumulative and in addition to all other remedies

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available under this Note, the Security Agreement, at law or in equity (including, without
limitation, a decree of specific performance and/or other injunctive relief), no remedy contained
herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a Payee’s right to pursue actual damages for any failure by the Company
to comply with the terms of this Note. Amounts set forth or provided for herein with respect to
payments and the like (and the computation thereof) shall be the amounts to be received by the
Payee and shall not, except as expressly provided herein, be subject to any other obligation of the
Company (or the performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable and material harm to the Payee and that the remedy at
law for any such breach may be inadequate. Therefore the Company agrees that, in the event of any
such breach or threatened breach, the Payee shall be entitled, in addition to all other available
rights and remedies, at law or in equity, to seek and obtain such equitable relief, including but
not limited to an injunction restraining any such breach or threatened breach, without the
necessity of showing economic loss and without any bond or other security being required.

     13. Failure or Indulgence Not Waiver. No failure or delay on the part of the Payee in
the exercise of any power, right or privilege hereunder (including without limitation to perfect
any security interest granted to Payee by this Note) shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.

     14. Enforcement Expenses. The Company agrees to pay all costs and expenses of
enforcement of this Note, including, without limitation, reasonable attorneys’ fees and expenses.

     15. Binding Effect. The obligations of the Company and the Payee set forth herein
shall be binding upon the successors and assigns of each such party, whether or not such successors
or assigns are permitted by the terms hereof. The Payee may assign any or all if its rights,
titles and interests in, to or under this Note to any person or entity upon written notice to the
Company.

     16. Severability. The provisions of this Note are severable, and if any provision
shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall not in any manner affect such provision in any other
jurisdiction or any other provision of this Note in any jurisdiction.

     17. Consent to Jurisdiction. Each of the Company and the Payee hereby irrevocably
submits to the jurisdiction of the United States District Court sitting in Phoenix, Arizona and the
courts of the State of Arizona located in Maricopa County for the purposes of any suit, action or
proceeding arising out of or relating to this Note. Each of the Company and the Payee hereby
waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or proceeding is
brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper.
Each of the Company and the Payee consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address set forth in Section 9 above and
agrees that such service shall constitute good and sufficient service of process and notice
thereof.

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Nothing in this Section 17 shall affect or limit any right to serve process in any other
manner permitted by law.

     18. Company Waivers. Except as otherwise specifically provided herein, the Company
and all others that may become liable for all or any part of the obligations evidenced by this
Note, hereby waive presentment, demand, notice of nonpayment, protest and all other demands and
notices in connection with the delivery, acceptance, performance and enforcement of this Note, and
do hereby consent to any number of renewals of extensions of the time or payment hereof and agree
that any such renewals or extensions may be made without notice to any such persons and without
affecting their liability herein and do further consent to the release of any person liable hereon,
all without affecting the liability of the other persons, firms or Company liable for the payment
of this Note, AND DO HEREBY WAIVE TRIAL BY JURY.

     (a) No delay or omission on the part of the Payee in exercising its rights under this Note, or
course of conduct relating hereto, shall operate as a waiver of such rights or any other right of
the Payee, nor shall any waiver by the Payee of any such right or rights on any one occasion be
deemed a waiver of the same right or rights on any future occasion.

     (b) THE COMPANY ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL
TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE LAW, HEREBY WAIVES ITS RIGHT TO NOTICE AND
HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE PAYEE OR ITS SUCCESSORS OR ASSIGNS MAY
DESIRE TO USE.

     19. Usury Savings Clause. Any provision in this Note or in any other document
executed in connection herewith, or in any other agreement or commitment, whether written or oral,
express or implied, to the contrary notwithstanding, Payee shall not in any event be entitled to
receive or collect, nor shall or may amounts received hereunder be credited, so that Payee shall be
paid, as interest, a sum greater than the maximum rate of interest permitted by applicable law. If
any construction of this Note, or any and all other papers, agreements or commitments, indicates a
different right given to Payee to ask for, demand or receive any larger sum as interest, such is a
mistake in calculation or wording, which this clause shall override and control; it being the
intention of the parties that this Note and all other instruments relating to this Note shall in
all things comply with applicable law, and proper adjustment shall automatically be made
accordingly. In the event Payee ever receives, collects or applies as interest, any sum in excess
of the maximum rate of interest permitted by applicable law, such excess amount shall be applied to
the reduction of the unpaid principal balance of this Note in the inverse order of maturity, and if
this Note is paid in full, any remaining excess shall be paid to Maker. In determining whether or
not the interest paid or payable, under any specific contingency, exceeds the maximum rate of
interest permitted by applicable law, Maker and Payee shall, the maximum extent permitted under
applicable law (i) characterize any nonprincipal payment as an expense, fee or premium rather than
as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) “spread” the
total amount of interest throughout the entire term of this Note so that the interest rate is
uniform throughout the entire term hereof.

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     IN WITNESS WHEREOF, the Company has executed and delivered this Note as of the date first
written above.

	 	 	 	 	 
	 	MISSION TECHNOLOGY GROUP, INC.

 	 
	 	By:  	/s/ Randy Jones
 	 
	 	 	Randy Jones, President 	 
	 	 	 	 
	 

7Exhibit 10.1

     

    

    Sheep
      Mountain Prospect Acquisition and Evaluation Report

    A
      Precious and Base Metals Prospect

    Luna
      County, New Mexico

    

     

     

     

    
 

    Prepared
      For: Paradigm Venture Corp.

    

    By

    

    Leroy
      Halterman

    Certified
      and Registered Geologist

    820
      Piedra Vista NE

    Albuquerque,
      New Mexico

    

    May
      26,
      2005

    

    

    
      
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    Sheep
      Mountain Prospect Acquisition and Evaluation Report

    

    Executive
      Summary

    

    The
      Sheep
      Mountain prospect represents a disseminated, epithermal gold prospect with
      deeper replacement manto potential as well as porphyry copper and molybdenum
      potential. The prospect contains 7 lode mining claims and is located in western
      Luna County, New Mexico, approximately 15 miles south of Gage, New Mexico in
      the
      Klondike Hills (Figure 1). The Klondike Hills are at the northern edge of the
      Cedar Mountain of southwestern New Mexico. The closest major inhabitation is
      the
      city of Deming, New Mexico 45 miles to the northeast. Rocks on the property
      consist of the Mississippian to Ordovician limestone, dolomites and shales
      and
      minor Tertiary felsic volcanics. These rocks have been structurally deformed
      by
      both thrust and normal faults and altered and mineralized with heavy and
      precious metals.

    

    In
      early
      May Leroy Halterman, a certified and registered geologist and representing
      Paradigm Venture Corp. located 7 lode-mining claims on behalf of Paradigm
      Venture Corp. This was based on his knowledge of the area from previous work
      that had been done on the property. Sampling in the early 1980’s on the property
      by other companies indicated a large area of anomalous pathfinder elements
      including arsenic and antimony in addition to anomalous gold and silver.
      Paradigm Venture Corp. has not performed any sampling or other geological work
      on the property. The earlier sampling in the area of the claims has yielded
      samples as high as 4.2 grams of gold and 460 grams of silver per ton. In
      addition to gold, these samples were assayed for silver, molybdenum, arsenic
      and
      antimony. The associated anomalous elements such as gold along with high arsenic
      and antimony are considered to be characteristic of the low temperature
      hydrothermal systems. This type of system deposited many of the world’s largest
      gold deposit including those that are found in Nevada. 

    

    The
      Sheep
      Mountain Prospect has the potential for deposits other than disseminated gold.
      Some of the samples were highly anomalous in molybdenum adding to the
      speculation that this mineralization may be associated with a porphyry
      copper-molybdenum deposit in the valley just south and possibly under the SMC
      claims. This type of deposit has been found 10 miles north in the valley next
      to
      Victorio Peak. At Victorio Peak manto type of lead, copper, silver and gold
      deposits were formed in the Fusselman Limestone that lies directly below the
      Percha Shale. The same type of geology exists on the SMC claims along with
      some
      evidence of higher temperature mineralization that would help form this type
      of
      deposits.

    

    Land
      Status, Topography and Access

    

    The
      "SMC"
      claim block consists of 7 unpatented mining claims covering approximately 140
      acres of BLM land and minerals (Figure 2). These 7 contiguous claims lie within
      Section 21 and 22 Township 26 South and Range 13 West. They are not subject
      to
      any royalty but either an annual assessment work in excess of $100 per claim
      along with appropriate filing must be done or an annual maintenance fee payable
      to the Federal government of $125 per claim is required. Thus a total payment
      of
      $875 per year for the entire claim block is required to keep the claims
      valid.

     

    
 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Access
      to
      the Sheep Mountain Prospect is obtained by traveling west from Deming on
Interstate
      10 to Gage, New Mexico and then south on a county road which turns to the west
      along
      the
      southern margin of the Klondike Hills and traverses the southern edge of the
      property (Figure 3). From this point several ranch roads lead into the claim
      block. The topography of the area consist of hills of low to moderate relief,
      which have been dissected by erosion. Access within the area is good. Vegetation
      is sparse consisting of short grasses, cacti and scattered junipers. The primary
      use of the surface is cattle grazing.

    

    Exploration
      History

    

    The
      Klondike Hills were included in an old mining district designated as the
      Carrizalillo-Cedar district. This district extended in a northwest--southeast
      belt and included the Cedar Mountains and Klondike Hills in the northwest and
      the Carrizalillo Hills in the southeast. There are numerous prospect pits and
      shallow shafts on the property, particularly in Section 21, 22 and 27 within
      and
      near the claim block. The early work concentrated on fault structures, along
      which jasperoid and/or gossan-like iron-rich mineralization were
      deposited.

    

    Energy
      Reserves Group, Minerals Division, initially investigated the Sheep Mountain
      Prospect during regional recon-naissance work in southwestern New Mexico in
      June
      of 1981. At that time it was noted that the geology in the area was favorable
      for disseminated precious metal mineralization as well as other types of
      deposits. Anomalous arsenic values were obtained from the initial sampling
      program and the area was slated for further investigation. A subsequent
      evaluation yielded not only high values of the pathfinder elements but also
      anomalous gold, silver and some associated base metals that resulted in the
      staking of the PAL claim block. Energy Reserve suffered financial difficulty
      as
      a result of falling oil and gas prices and was forced it to abandon its minerals
      program and farmed out this property to another company. 

    

    This
      company performed further sampling and drilled one 494 foot deep hole. The
      drill
      hole was located in the northern portion of the PAL claim block and on of the
      SMC claims. It bottomed in silicified dolomite not reaching the target Fusselman
      below the Percha Shale but it did intercept anomalous gold between 70 and 300
      feet and anomalous silver from 240 to 340 feet. In their report they noted
      that
      they had unknowingly placed the drill hole on the down-thrown side of a fault
      that was later mapped. In this report they stated that they would not have
      drilled the hole there if they had known about the fault. However, it is
      interesting is that they did intercept a significant thickness of anomalous
      gold
      and silver mineralization and that they had two hundred feet of silicification
      in the bottom of the hole. This may indicated that they were nearing an
      intrusive body that may have been mineralized such as in the copper-molybdenum
      porphyry model. 

    

    Geology

    

    The
      Klondike Hills lay at the northern edge of the Cedar Mountains and are
      considered to be a part of the same structural trend (Figure 4). The Cedar
      Mountains are a northwest trending Basin and Range structure bounded by high
      angle normal faults. Exposures in the Cedar 

    
      
         

         

      

      
         

        
          

        

      

      
         

      

    

    

    

    

    

    
      
         

         

      

      
         

        
          

        

      

      
         

      

    

     

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Mountains
      consist of Tertiary volcanic and intrusive rocks with one small window of
Paleozoic and Cretaceous rocks exposed. A valley that
      parallels the northern edge of the volcanic pile separates the Klondike Hills
      from the main body of the Cedar Mountains. Exposures in the Klondike Hills
      consist of Paleozoic strata of Ordovician through Mississippian age and a few
      exposures of Precambrian rocks that are present in the center of the hills.
      Tertiary volcanic rocks are exposed northwest of the prospect area and a small
      exposure of an intrusive is also present within the prospect area.

     

    Rocks
      outcropping within the Sheep Mountain Prospect area include the Ordovician
      El
      Paso Formation, the Ordovician Montoya Group, the Silurian Fusselman Dolomite,
      the Devonian Percha Shale, the Mississippian Keating Formation, and the Tertiary
      intrusive unit mentioned above.

    

    The
      El
      Paso Formation consists of thin to medium-bedded limestone with argillaceous
      and
      silty intervals. It is the primary target formation on the property. Extensive
      jasperoid development and argillic alteration has been noted in the formation
      occurring in association with fault structures.

    

    The
      El
      Paso Formation is overlain by the Montoya Group, which is divided into four
      formations of predominantly dolomitic composition. Thin-bedded sediments in
      the
      upper formation of this group may also have some potential as a host
      rock.

    

    The
      Silurian Fusselman dolomite, a fine-grained, massive dolomite overlies the
      Montoya Group. The Fusselman has been included with the Montoya Group on the
      geologic map, Figure 4, as it has been on previously published geologic maps
      of
      the area.

    

    The
      Devonian Percha Shale is green-gray shale seen in a small, poorly exposed
      outcrop near the southern edge of the prospect and in tailings from a relatively
      shallow shaft on the southeastern edge of the prospect. The Percha Shale is
      also
      a potential host rock in this area.

    

    The
      lower
      part of the Mississippian Keating Formation (the lower member of the Escabrosa
      Group) consists of medium-bedded limestone exposed at a small outcrop near
      the
      southern edge of the prospect. Jasperoid has developed along a structure in
      the
      Keating in this area.

    

    Structurally,
      the Klondike Hills are quite complex. The area lies within the east-southeast
      trending Laramide overthrust belt of southwestern New Mexico. The complex
      relationships among the units exposed is due to a series of relatively
      flat-lying thrust plates in which upper plate Ordovician and Silurian rocks
      have
      been thrust over each other and over lower plate Devonian and Mississippian
      strata. These thrust slices have in turn been broken by two sets of Tertiary
      high angle normal faults that trend northeast and northwest. To complicate
      matters further, the area also lies along the west trending Texas lineament.
      The
      Texas lineament is a very old zone of weakness that extends to the basement
      and
      which has added an east-west trending strike-slip component to the deformation
      of the strata in the area.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Mineralization

    

    Mineralization
      and alteration found at the Sheep Mountain Prospect consists of jasperoid,
      argillic alteration, silicification and iron staining of thin-bedded sediments
      and development of iron-rich, gossan-like material. Copper, fluorite, calcite,
      barite and iron mineralization was also noted in silicified rock found on the
      dump of a shallow shaft that was sunk on a structure on the southeast side
      of
      the property.

    

    The
      jasperoid at the Sheep Mountain Prospect frequently contains visible blades
      of
      barite. Jasperoid occurs over a wide area on the property, both along high
      angle
      Basin and Range structures and along the planes of the low angle thrust faults.
      Jasperoid appears to form most readily in the EI Paso limestone, but also occurs
      in the dolomites of the Montoya Group. Silica appears to have migrated easily
      through the reactive EI Paso limestones and has replaced the rock for some
      distance beyond the major structures. In contrast, the dolomites of the Montoya
      Group appear to have been less reactive and silica replacement occurs only
      in
      narrow bands along the structures that served as conduits for mineralizing
      solutions.

    

    The
      occurrence of the iron-rich gossan-like mineralization also appears to be
      confined closely to structures, primarily the Basin and Range structures on
      the
      south side of the property. This mineralization occurs in addition to and in
      association with jasperoid development along these structures and can be seen
      in
      the dump material. 

    

    Argillic
      alteration was noted in thin-bedded units of the El Paso Formation in several
      locations and partial silicification of argillically altered sediments that
      also
      occurred in several places. Silicification of thin-bedded El Paso sediments
      can
      often be found beneath jasperoid outcrops where hematitic and limonitic staining
      occurs in conjunction with the argillic alteration and silicification.
      Silicification, brecciation, and calcite veining was noted in the Percha Shale
      on the dump of a shallow shaft on the southeast side of the
      property.

    

    The
      primary drilling target on the Sheep Mountain Prospect is the El Paso limestone.
      Thin-bedded El Paso sediments dip into major structures in several areas on
      the
      property where alteration and mineralization have been observed. Consequently,
      several target areas may be tested where the EI Paso Formation could serve
      as a
      host for ore-grade mineralization.

    

    The
      Percha Shale may also be a drilling target on the southeast side of the
      property. Although this area is less well exposed, the fissile shales of the
      Percha may prove to be an excellent host rock where the formation dips into
      mineralized structures. In other districts in southern New Mexico the Percha
      has
      served as a dam for upward migrating hydrothermal fluid forcing the fluid to
      migrate and precipitate ore bodies in the underlying Fusselman Limestone. One
      example of this type of mineralization is 10 miles north in the Victorio mining
      district.

    

    Drilling
      depths to the precious metals mineralized zones within these units are expected
      to be shallow and should not exceed 400 feet. However, should the initial work
      indicate that porphyry copper-molybdenum deposit exists than deeper holes may
      be
      required to test this target.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Summary
      and Conclusions

    

    The
      Sheep
      Mountain prospect represents a viable exploration target for a number of types
      of deposits. It has favorable host rocks, structure, alteration and related
      gold, silver and molybdenum mineralization. In addition to the geology, it
      is
      located an in area where significant mineral deposits have been located and
      produced over the last 100 years. 

    

    The
      Sheep
      Mountain prospect is like many prospects that lack sufficient exploration during
      the mid 1980’s when the decline of precious and base metal prices forced
      companies to cut back or eliminate exploration expenditures. Previous work
      on
      the property did not invalidate any of the suppositions as to the prospect’s
      models and potential. Rather they increased the knowledge of the property and
      elevated it as a prospect. This property is of Merit and warrants additional
      financial expenditure and exploration.

    

    Proposed
      Program of Exploration 

    

    The
      evaluation report concludes that the property merits exploration and evaluation.
      The Sheep Mountain Prospect warrants additional work because the areas where
      alteration and anomalous precious metals rock samples were found have not been
      adequately evaluated. There has not been any trench sampling or drilling. To
      date the only drilling has been one misplaced drill hole. A two-phase program
      is
      recommended with the second phase depending upon the successful results of
      the
      first phase. Trenching refers to the process in which an area and material
      to be
      sampled is channeled in one direction with a shovel or by earth moving
      equipment, and the material for the sample is taken at regular intervals along
      the channel. The procedure is repeated with several other channels in different
      directions until a sample of the proper size has been secured. Drilling refers
      to a method of sampling a deposit by means of a drill or borehole. The boreholes
      will be located in areas where favorable structure and mineralization exists
      and
      drill at an angle to intercept the target across its strike and at the most
      favorable depth. Geochemical sampling refers to the search for economic mineral
      deposits by detection of abnormal or anomalous concentrations of base elements
      or complexes containing these elements in surface materials or material within
      a
      few feet of the surface. 

    

    The
      first
      phase should include conventional soil sampling on specified grids. Conventional
      soil sampling means taking soil sample from specified areas in the SMC claim
      block. These samples would be taken a few feet below the surface in areas mapped
      out in advance. 

    

    Based
      upon the results of the Phase I program a drilling program should take place
      to
      test the existing anomalies and those disclosed during the Phase I program.
      The
      recommended programs are presented below.

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Recommendations
      Phase I and Phase II Programs

    

    Phase
      I. The
      Phase
      I program will be limited to defining drill targets for the Phase II program.
      It
      is anticipated to cost approximately $14,000. The following discussion gives
      a
      brief description of the Phase I program.

    

    1. Additional
      mapping and sampling to confirm earlier sampling and to better target drill
      holes to test untested mineralized areas of the SMC claim block.

    

    2. Perform
      close spaced geochemical soil sampling across the entire staked area. This
      type
      of sampling would collect samples from approximately 1-2 feet below the surface
      and have them tested for gold, silver, molybdenum antimony, mercury and arsenic.
      

    

    The
      Quaternary gravel that covers the central portion of the prospect may limit
      the
      usefulness of conventional soil geochemistry but test grids will have to be
      surveyed, sampled and analyzed to determine its usefulness. Quaternary refers
      to
      a geologic period following the Tertiary Age beginning 2 to 3 million years
      ago
      and extending to the present

    

    Phase
      II Program. The
      Phase
      II program is estimated to cost approximately $53,000 and will involve the
      drill
      testing of strong rock and soil geochemical anomalies. A geochemical anomaly
      refers to a concentration of one or more elements in rock, soil, sediment,
      vegetation, or water that is markedly higher or lower than background. In
      addition to testing the geochemical anomalies, geological mapping will generate
      other drill targets that may not be highly mineralized at the surface but will
      still warrant testing with several drill holes. These holes should be drilled
      to
      a depth of 300 to 400 feet or until the geological target has been intercepted.
      

    

    Cost
      Estimates Phase I Program

     

    

      
        	
                Item

              	 	
                Estimated
                  Cost

              	 
	 	 	 	 
	
                Soil
                  Samples 150, average $30/Sample

              	 	
                $

              	
                4,500

              	 
	
                Rock
                  samples 50 samples @ $30/ sample

              	 	 	
                1,500

              	 
	
                Sampling
                  supplies 200 samples @ $2.00/ sample

              	 	 	
                400

              	 
	
                Geologist,
                  12 days @ $400/day

              	 	 	
                4,800

              	 
	
                Per
                  diem 12 days @ $100/day

              	 	 	
                1,200

              	 
	
                Vehicle
                  Mileage 2,000 @ $.50 / Mile

              	 	 	
                1,000

              	 
	
                Miscellaneous
                  and field supplies

              	 	 	
                600

              	 
	
                Total
                  Phase I Cost

              	 	
                
                  $

                

              	
                
                  14,000

                

              	 

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Estimated
      Cost Phase II Program

    
 

    
      
        	 Item	 	
                  Estimated
                  Cost

              	 
	
                Drilling
                  

              	 	 	 
	
                Mineralized
                  Outcrops and soil anomalies, 2holes 400 ft. each
                  /$25.00/ft

              	 	
                
                  $

                

              	
                
                  20,000

                

              	 
	
                Test
                  Geological targets 2 holes 350 ft each./ $25.00/ft

              	 	 	
                
                  17,500

                

              	 
	
                Assaying,
                  200 samples $30

              	 	 	
                6,000

              	 
	
                Geologist
                  28 days @ $400/ day

              	 	 	
                5,100

              	 
	
                Per
                  Diem 28 days @ $100/ day

              	 	 	
                1,400

              	 
	
                Vehicle
                  5000 miles @$.50/mile

              	 	 	
                2,500

              	 
	
                Miscellaneous

              	 	 	
                1,500

              	 
	 Total
                Phase II Cost	 	
                
                  $

                

              	
                
                  53,000

                

              	 

      

    Submitted
      26th
      day of
      May, 2005

    

    

    Leroy
      Halterman

    Certified
      Professional Geologist #3444

    Wyoming
      Registered Geologist #1226

    Texas
      Licensed Geologist #435

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