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EXCEL - IDEA: XBRL DOCUMENT - COLORADO GOLDFIELDS INC.Financial_Report.xls
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EX-32.1 - CERTIFICATION - COLORADO GOLDFIELDS INC.cgfi_ex321.htm
EX-31.2 - CERTIFICATION - COLORADO GOLDFIELDS INC.cgfi_ex312.htm
EX-23.1 - CONSENT - COLORADO GOLDFIELDS INC.cgfi_ex231.htm
EX-31.1 - CERTIFICATION - COLORADO GOLDFIELDS INC.cgfi_ex311.htm


UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549

FORM 10-K
 
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended August 31, 2013
 
o
 
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number 000-51718

COLORADO GOLDFIELDS INC.
 (Name of registrant as specified in its charter)
 
Nevada
 
20-0716175
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
10920 West Alameda Avenue, Suite 201  Lakewood, CO
 
80226
(Address of principal executive offices)
 
(Zip Code)
 
(303) 984-5324
 (Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None
 
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $0.001 par value

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 Exchange 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 registrant 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.  o
 
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 definition of “accelerated filer”, “large 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                                                                           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  o    No  þ
 
The aggregate market value of the Class A common stock of the registrant held by non-affiliates as of February 28, 2013 the last business day of the registrant’s most recently completed second fiscal quarter based on the closing sale price of the registrant’s Class A common stock on that date as reported on the OTC Markets OTCQB system was  $457,747.
 
Class
 
Shares Outstanding at December 12, 2013
Class A Common Stock, $0.001 Par Value
 
356,662,566
Class B Common Stock (Restricted), $0.001Par Value
 
490,371,533
 
DOCUMENTS INCORPORATED BY REFERENCE
 
None.
 


 
 
 
 
 
TABLE OF CONTENTS
 
PART I     3
         
 
Item 1.
Business
  5
 
Item 1A.
Risk Factors
  10
   
Risks Relating to Our Company
  10
    Risks Associated with Our Common Stock in General   15
 
Item 1B.
Unresolved Staff Comments
  18
 
Item 2.
Properties
  19
   
Pride of the West Mill
  19
 
Item 3.
Legal Proceedings 
  22
 
Item 4.
Mine Safety Disclosures
  24
         
PART II
    25
       
  Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   25
 
Item 6.
Selected Financial Data
  29
  Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations   30
 
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
  37
 
Item 8.
Financial Statements and Supplementary Data
  38
   
Balance Sheets
  39
   
Statements of Operations
  40
   
Statements of Cash Flows
  41
   
Statements of Stockholders' (Deficit) Equity
  42
   
Notes to the Financial Statements
  43
 
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
  57
 
Item 9A.
Controls and Procedures 
  57
         
PART III
    59
         
 
Item 10.
Directors, Executive Officers and Corporate Governance
  59
 
Item 11.
Executive Compensation 
  62
 
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  66
 
Item 13.
Certain Relationships and Related Transactions, and Director Independence
  67
 
Item 14.
Principal Accountant Fees and Services 
  68
         
PART IV
    69
         
 
Item 15.
Exhibits and Financial Statement Schedules 
  69
   
SIGNATURES
  70
   
EXHIBIT INDEX
  71
 
This document (including information incorporated herein by reference) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which involve a degree of risk and uncertainty due to various factors affecting Colorado Goldfields Inc. For a discussion of some of these factors, see the discussion in Item 1A, Risk Factors, of this report.
 
 
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PART I
Forward-Looking Statements

Certain statements contained in this report (including information incorporated by reference) are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provided for under these sections. Our forward-looking statements include, without limitation:
 
 
 
Statements regarding future earnings;
 
 
 
Estimates of future mineral production and sales, for specific operations and on a consolidated or equity basis;
 
 
 
Estimates of future costs applicable to sales, other expenses and taxes for specific operations and on a consolidated basis;
 
 
 
Estimates of future cash flows;
 
 
 
Estimates of future capital expenditures and other cash needs, for specific operations and on a consolidated basis, and expectations as to the funding thereof;
 
 
 
Estimates regarding timing of future capital expenditures, construction, production or closure activities;
 
 
 
Statements as to the projected development of certain ore deposits, including estimates of development and other capital costs and financing plans for these deposits;
 
 
 
Estimates of reserves and statements regarding future exploration results and reserve replacement and the sensitivity of reserves to metal price changes;
 
 
 
Statements regarding the availability and costs related to future borrowing, debt repayment and financing;
 
 
 
Statements regarding modifications to hedge and derivative positions;
 
 
 
Statements regarding future transactions;
 
 
 
Statements regarding the impacts of changes in the legal and regulatory environment in which we operate; and
 
 
 
Estimates of future costs and other liabilities for certain environmental matters.

Where we express an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed, projected or implied by those forward-looking statements. Such risks include, but are not limited to: the ability of Colorado Goldfields to obtain or maintain necessary financing; the price of gold, silver and other commodities; currency fluctuations; geological and metallurgical assumptions; operating performance of equipment, processes and facilities; labor relations; timing of receipt of necessary governmental permits or approvals; domestic laws or regulations, particularly relating to the environment and mining; domestic and international economic and political conditions; and other risks and hazards associated with mining operations. More detailed information regarding these factors is included in Item 1, Business, Item 1A, Risk Factors, and elsewhere throughout this report. Given these uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements.

 
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All subsequent written and oral forward-looking statements attributable to Colorado Goldfields or to persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Colorado Goldfields disclaims any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

Available Information

Colorado Goldfields maintains an internet website at www.cologold.com. Colorado Goldfields makes available, free of charge, through the Investor Information section of the web site, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Section 16 filings and all amendments to those reports, as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. Colorado Goldfields’ Code of Business Ethics and Conduct are available on the web site at

www.cologold.com/uploads/Code_of_Business_Conduct_Ethics.pdf

Any of the foregoing information is available in print to any stockholder who requests it by contacting Colorado Goldfields’ Investor Relations Department at 866-579-9444.

 
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Item 1.    Business

Background

We were organized under the laws of the State of Nevada on February 11, 2004 under the name Garpa Resources Inc.  On June 18, 2007, we changed our name to Colorado Goldfields Inc.

Our principal executive offices are located at 10920 West Alameda Avenue, Suite 201, Lakewood, Colorado, 80226 and our telephone number is (303) 984-5324.  Our common stock is quoted on the OTC Markets Inc. owned and operated OTCQB Inter-dealer Quotation System and FINRA owned and operated OTC Pinksheets under the symbol “CGFI.”

Our Business

Colorado Goldfields Inc. (“we,” “us,” “our,” or the “Company”) is a milling and mining exploration stage company engaged in the acquisition, exploration, and development of mineral properties, primarily for gold, silver, copper, uranium, lead, and zinc, and the milling and processing of ore from both owned and non-owned mining properties.
 
During fiscal year 2013, we owned or held rights to own five properties.  On October 31, 2013 the contracts for purchase of the Champion and Silver Wing Mines expired unconsummated.  As of the date of this report, we are awaiting information from a potential investor, which may cause those contracts to be renegotiated.  However, the terms of the anticipated funding may not be acceptable to the owners of the Silver Wing and Champion Mines.
 
1.  
The Pride of the West Mill, Silverton, Colorado
2.  
Silver Wing Mine, San Juan County, Colorado
3.  
Champion Mine, San Juan County, Colorado
4.  
King Solomon Mine, San Juan County, Colorado
5.  
The Pay Day and Rage Uranium Claim Group

The Pride of the West Mill (“Mill”), is located 5.3 miles northeast of Silverton, Colorado.  The Mill is located on approximately 120 acres of patented mining claims on San Juan County Road 2, within a nine air-mile radius of the Silver Wing Mine, the King Solomon Mine, and many other mine properties.  The Mill is located within the famous “San Juan Triangle” mining center of southwestern Colorado, which also includes the historic mining towns of Telluride and Ouray, and encompasses one of the most richly mineralized areas of North America.  The mill is currently not operational.  We hope to bring the Mill into operation, which is more fully described in “Item 2. Properties,” in 2013.

The Silver Wing Mine consists of ten patented mining claims across 70 acres in San Juan County, in southwestern Colorado. The mine’s poly-metallic ore contains recoverable metal values in gold, silver, lead, copper and zinc.

The Champion Mine consists of approximately 354 acres located in the San Juan Mountains at Silverton, Colorado. The Mine is located within the historically productive rim (i.e. over $700 million in gold, silver and base metals produced since 1874) of the Silverton Caldera complex at the southwestern extremity of the very prolific Colorado mineral belt.  Several major narrow (i.e. average 3 to 6 feet wide with stopes up to 9,000 feet long and vertical extent of at least 2,500 feet) vein deposits each up to 10 million tons or more have previously operated profitably in the district.

The King Solomon Mine is located on the southern flank of King Solomon Mountain, just a few hundred yards up the mountain from the first discovery of gold in the San Juan Mountains in Little Giant Basin. Opened in 1876, the mine was in production until 1883.  

The Pay Day and Rage Uranium Claim Group is located in San Juan County, Utah.  The Pay Day and Rage Uranium Claim Group consists of 63 (55 Pay Day and 8 Rage) claims.  The Pay Day claim group is located in Township 32 South, Range 24 East of the Salt Lake Meridian in Sections 26, 27, 34, and 35, in San Juan County northeast of Monticello, Utah.  The Rage claim group spans Stevens Canyon on the southeast flank of the Seven Sisters Buttes in Township 33 South, Range 20 East of the Salt Lake Meridian in Section 33, San Juan County, Utah.

 
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We refer to these properties collectively as “the CGFI Mineral Properties” throughout this report.  We are presently in the exploration stage at the CGFI Mineral Properties.  We have not generated revenue from mining operations.

As an exploration stage mining company that owns a mill, our activities are currently focused on mill re-activation, mine development, exploration, geological evaluation and feasibility studies for gold and other metals and, where warranted, efforts to develop and construct mining and processing facilities.  We may enter into joint ventures, partnerships or other arrangements to accomplish these activities.

We continually evaluate acquisition of other mining companies or their mining properties.

Recent Events

Throughout fiscal 2011 and 2012, we constructed a third comprehensive amendment (“AM-03”), to the Mill permit and submitted extensive engineering and operations plans to the Colorado Division of Reclamation Mining and Safety (“DRMS”).

This third amendment was approved with conditions on August 9, 2012.  The core of the permit consists of nine Environmental Protection Faculties (“EPFs”), which are: 1) Mill Building, 2) Ore Stockpile Area, 3) Laboratory Facility, 4) Leach Plant Building, 5) Flood Protection Dike, 6) Plant Waste Water Disposal, 7) Groundwater intercept Drain, 8) Upland Stormwater Intercept Ditch, 9) Mill Tailings Repository.

The conditions specified by the DRMS regard the ninth EPF, the Mill Tailings Repository and simply requested additional geotechnical substrate stability analysis, structure specific engineering designs for the cover of the repository, the repository’s reserve capacity, and the always on-going recalculation of financial warranty.  See “Item 2. Properties” for additional detail.

In November 2012, we entered into a contract to purchase the Silver Wing Mine and a contract to purchase the Champion  Mine.  These two past producing mines solidify the sources of ore to be processed by the Mill and provide the clearest most efficient path toward operating the Mill at full capacity.  However and as stated above, on October 31, 2013 the contracts for purchase of the Champion and Silver Wing Mines expired unconsummated.  As of the date of this report, we are awaiting information from a potential investor, which may cause those contracts to be renegotiated.  However, the terms of the anticipated funding may not be acceptable to the owners of the Silver Wing and Champion Mines.  On See “Item 2. Properties” for additional detail.

In the third and fourth quarter of 2010, two outside funding sources became involved with the Company.  In fiscal 2013, two additional outside short-term funding sources (New York Alternative Investment Firm and San Diego Private Investor), provided limited capital to the Company.  These four sources have provided funding to us in the form of convertible debt.  These investors continued to provide limited funding for the Company throughout fiscal 2013.  However, the funding was, and is, at their sole discretion.  See Item 8.  Notes to the Financial Statements for additional details.

Competitive Business Conditions

We compete with many companies in the mining business, including larger, more established mining companies with substantial capabilities, personnel and financial resources.  There is a limited supply of desirable mineral lands available for claim-staking, lease or acquisition in the United States and other areas where we may conduct exploration activities.  Because we compete with individuals and companies that have greater financial resources and larger technical staffs, we may be at a competitive disadvantage in acquiring desirable mineral properties.  From time to time, specific properties or areas that would otherwise be attractive to us for exploration or acquisition are unavailable due to their previous acquisition by other companies or our lack of financial resources.  Competition in the mining industry is not limited to the acquisition of mineral properties but also extends to the technical expertise to find, advance, and operate such properties; the labor to operate the properties; and the capital needed to fund the acquisition and operation of such properties.  Competition may result in our company being unable not only to acquire desired properties, but to recruit or retain qualified employees, to obtain equipment and personnel to assist in our exploration activities or to acquire the capital necessary to fund our operation and advance our properties.  Our inability to compete with other companies for these resources would have a material adverse effect on our results of operation and business.

 
6

 
 
General Government Regulations

Federal Lands. The Company’s property is situated adjacent to lands owned by the United States, which may require that the Company obtain certain special use permits in order to gain access to our land for exploration and mining activities.

Mining Operations.  The operation of mines is governed by both federal and state laws.  Federal laws, such as those governing the purchase, transport or storage of explosives, and those governing mine safety and health, also apply.

The State of Colorado likewise requires various permits and approvals before mining operations can commence, and permits and approvals that must regulate all operations.  Among other things, a detailed reclamation plan must be prepared and approved, with bonding in the amount of projected reclamation costs.  The bond is used to ensure that proper reclamation takes place, and the bond will not be released until that time.  The Colorado Division of Reclamation, Mining and Safety is the state agency that administers the reclamation permits, mine permits and related closure plans on our property.  Local jurisdictions (such as San Juan County) may also impose permitting requirements (such as conditional use permits or zoning approvals).  Some permits require, or will require, monitoring, compliance, reporting, periodic renewal, or review of their conditions and may be subject to a public review process during which opposition to our proposed operations may be encountered.

The primary body of law that affects the Company’s operations in Colorado is the Mineral Rules And Regulations Of The Colorado Mined Land Reclamation Board For Hard Rock, Metal And Designated Mining Operations, first Promulgated May, 1977 Amended June-December, 1977; March-July, 1978; July-August, 1979; May, 1980; April, 1981; February-April, 1982; April, 1983; October, 1983; June, 1985; March, 1987; December, 1987; October, 1988; November, 1990; September, 1991; March, 1993; April, 1994; January, 1995; October, 1995; April, 1999, January, 2000; August, 2001;June 2005, August 2006, and September 2010..

And, Title 34 Mineral Resources Article 32, Colorado Mined Land Reclamation Act, of the Colorado Revised Statutes.  The complete and current rules may be retrieved from the Internet at:

http://mining.state.co.us/SiteCollectionDocuments/HardRockRulesAdoptedAug122010actcites12032010correction.pdf

The Colorado Department of Natural Resources website may be accessed at:

http://mining.state.co.us/Pages/Home.aspx

When the Mill or mines come into production we will also be subject to the rules and regulations of the Mine Safety and Health Administration, a Division of the United States Department of Labor.

 
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Statutory and Regulatory authority for this agency is found in Code of Federal Regulations - 30 CFR - Parts 1 to 199, and may be retrieved at:

http://www.msha.gov/regsinfo.htm

Environmental Laws.  Mining activities at the Company’s properties are also subject to various environmental laws, both federal and state, including but not limited to the federal National Environmental Policy Act, CERCLA (as defined below), the Resource Recovery and Conservation Act, the Clean Water Act, the Clean Air Act and the Endangered Species Act, and certain Colorado state laws governing the discharge of pollutants and the use and discharge of water.  Various permits from federal and state agencies are required under many of these laws.  Local laws and ordinances may also apply to such activities as construction of facilities, land use, waste disposal, road use and noise levels.

These laws and regulations are continually changing and, as a general matter, are becoming more restrictive.  Colorado Goldfields’ policy is to conduct our business in a manner that safeguards public health and mitigates the environmental effects of our business activities.  To comply with these laws and regulations, we have made, and in the future may be required to make, capital and operating expenditures.

The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (CERCLA), imposes strict, joint, and several liability on parties associated with releases or threats of releases of hazardous substances.  Liable parties include, among others, the current owners and operators of facilities at which hazardous substances were disposed or released into the environment and past owners and operators of properties who owned such properties at the time of such disposal or release.  This liability could include response costs for removing or remediating the release and damages to natural resources.  Our properties, because of past mining activities, could give rise to potential liability under CERCLA.

Under the Resource Conservation and Recovery Act (RCRA) and related state laws, mining companies may incur costs for generating, transporting, treating, storing, or disposing of hazardous or solid wastes associated with certain mining-related activities.  RCRA costs may also include corrective action or clean up costs.

Mining operations may produce air emissions, including fugitive dust and other air pollutants, from stationary equipment, such as crushers and storage facilities, and from mobile sources such as trucks and heavy construction equipment.  All of these sources are subject to review, monitoring, permitting, and/or control requirements under the federal Clean Air Act and related state air quality laws.  Air quality permitting rules may impose limitations on our production levels or create additional capital expenditures in order to comply with the permitting conditions.

Under the federal Clean Water Act and the delegated Colorado water-quality program, point-source discharges into waters of the State are regulated by the National Pollution Discharge Elimination System (NPDES) program.  Stormwater discharges also are regulated and permitted under that statute.   Section 404 of the Clean Water Act regulates the discharge of dredge and fill material into Waters of the United States, including wetlands.  All of those programs may impose permitting and other requirements on our operations.

The National Environmental Policy Act (NEPA) requires an assessment of the environmental impacts of major federal actions.  The federal action requirement must be satisfied if the project involves federal land or if the federal government provides financing or permitting approvals.  NEPA does not establish any substantive standards, but requires the analysis of any potential impacts.  The scope of the assessment process depends on the size of the project.  An Environmental Assessment (EA) may be adequate for smaller projects. An Environmental Impact Statement (EIS), which is much more detailed and broader in scope than an EA, is required for larger projects. NEPA compliance requirements for any of our proposed projects could result in additional costs or delays.

The Endangered Species Act (ESA) is administered by the U.S. Fish and Wildlife Service of the U.S. Department of Interior. The purpose of the ESA is to conserve and recover listed endangered and threatened species and their habitat. Under the ESA, endangered means that a species is in danger of extinction throughout all or a significant portion of its range. The term threatened under such statute means that a species is likely to become endangered within the foreseeable future. Under the ESA, it is unlawful to take a listed species, which can include harassing or harming members of such species or significantly modifying their habitat. Future identification of endangered species or habitat in our project areas may delay or adversely affect our operations.

 
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U.S. federal and state reclamation requirements often mandate concurrent reclamation and require permitting in addition to the posting of reclamation bonds, letters of credit or other financial assurance sufficient to guarantee the cost of reclamation. If reclamation obligations are not met, the designated agency could draw on these bonds or letters of credit to fund expenditures for reclamation requirements. Reclamation requirements generally include stabilizing, contouring and re-vegetating disturbed lands, controlling drainage from portals and waste rock dumps, removing roads and structures, neutralizing or removing process solutions, monitoring groundwater at the mining site, and maintaining visual aesthetics.

Employees

There were three people employed by Colorado Goldfields as of August 31, 2013:
 
1.  
Lee R. Rice, President Chief Executive Officer, and Director
2.  
C. Stephen Guyer, Chief Financial Officer and Director
3.  
John Ferguson, Director of Operations

We make extensive use of consultants and advisors for specific technical projects so that the resource is most closely matched to the need.  See Item 11 Executive Compensation for additional details.
 
Office Facilities

Due to frequent travel, our executive staff generally offices remotely from the corporate offices in Lakewood, Colorado and we do not pay rent for the Lakewood facility.  We also have an office and housing facility at our Pride of the West Mill near Silverton, Colorado.  We believe these arrangements are and will be adequate for our needs for the foreseeable future.
 
 
9

 
 
Item 1A.    Risk Factors

High Degree of Risk

An investment in our securities involves a high degree of risk. You should consider carefully the following risks, along with all of the other information included in this report, before deciding to buy our common stock. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also impair our business operations. If we are unable to prevent events that have a negative effect from occurring, then our business may suffer.

This report, including Management’s Discussion and Analysis or Plan of Operation, contains forward-looking statements that may be materially affected by several risk factors, including those summarized below.

Risks Relating to Our Company

Pending litigation may cause us to loss control of the Pride of the West Mill, and ultimately the entire Company.

On September 6, 2013, the Company was served, through its registered agent, with a Renewed Motion for Appointment of Receiver, and Verified Complaint, seeking a judicial foreclosure, declaratory judgment, and breach of fiduciary duties by Todd C. Hennis, the former president and CEO of the Company.

A hearing on the Motion to Appoint a Receiver was held on November 12 and 15, 2013.  The Motion to Appoint a Receiver was denied.  The Company has filed its answer and initial disclosures regarding the complaint regarding judicial foreclosure, declaratory judgment, breach of fiduciary duties, and awaits the court’s scheduling of a case management conference.  Please see Item 10. Litigation, for additional details.)

We have incurred losses since our inception in 2004 and may never be profitable which raises doubt about our ability to continue as a going concern.

Since our inception in 2004, we have had nominal operations and incurred operating losses.  As of August 31, 2013, our accumulated deficit since inception was approximately $29.8 million.  We have substantial current obligations and at August 31, 2013, we had approximately $3.4 million of current liabilities as compared to only approximately $64 thousand of current assets.  Since August 31, 2011, we have been able to raise only minimal additional capital, and we have minimal cash on hand.  Accordingly, the Company does not have sufficient cash resources or current assets to pay its current obligations, and we have been meeting many of our obligations through the issuance of our Class A common stock to our employees, consultants and advisors as payment for the goods and services.

Our management continues to search for additional financing; however, considering the difficult U.S. and global economic conditions along with the substantial turmoil in the capital and credit markets, there is a significant possibility that we will be unable to obtain financing to continue our operations.

As we are in the beginning stages of our exploration activities on the CGFI Mineral Properties, we expect to incur additional losses in the foreseeable future, and such losses may continue to be significant. To become profitable, we must be successful in raising capital to continue with our mill re-activation efforts, exploration activities, meet the work commitment requirements on the CGFI Mineral Properties, discover economically feasible mineralization deposits and establish reserves, successfully develop the properties and finally realize adequate prices on our minerals in the marketplace. It could be years before we receive any revenues from gold and mineral production, if ever. Thus, we may never be profitable.

 
10

 
 
These circumstances raise substantial doubt about our ability to continue as a going concern as described in an explanatory paragraph to our independent registered public accounting firm's report on our audited financial statements as of and for the year ended August 31, 2013.  If we are unable to continue as a going concern, investors will likely lose all of their investment in our company.  The financial statements included in this report do not include any adjustments that might result from the outcome of this uncertainty.   Please see “Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources,” for further information.

The feasibility of mineral extraction from the CGFI Mineral Properties has not been established; as we have not completed exploration or other work necessary to determine if it is commercially feasible to develop the properties.

We are currently a mining exploration stage company.  See “Item 2 Properties” of this Report for more information regarding our mining assets.

The CGFI Mineral Properties do not have any proven or probable reserves. A “reserve,” as defined by the SEC, is that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. A reserve requires a feasibility study demonstrating with reasonable certainty that the deposit can be economically extracted and produced. We have not carried out any feasibility study with regard to the CGFI Mineral Properties.  As a result, we currently have no reserves and there are no assurances that we will be able to prove that there are reserves on the CGFI Mineral Properties.

On June 29, 2007, the Company acquired the Pride of the West Mill located in Howardsville, Colorado. The cost of the Mill was $1,400,677.  In connection with the acquisition, the Company entered into a $650,000 mortgage with the seller, which is collateralized by the property and bears interest at 12% per year.  All unpaid principal was originally due June 29, 2009.  The due date on the mortgage was extended and was due in full on December 1, 2013, and is currently in default.  We will be required to obtain debt or equity financing from external sources in order to fund payment on the mortgage.  In addition, as the Mill is currently inactive and under a cease and desist order issued by the Colorado Division of Reclamation, Mining and Safety due to operational deficiencies, we will require further funds to cure the deficiencies and bring the Mill back into active status.

We cannot generate any income from the Mill until such time as we (i) cure the deficiencies contained in the cease and desist order, (ii) obtain unconditional approval from the State of Colorado Mined Land Reclamation Board of the previously described permit amendment, and (iii) refurbish it to operational status.  Please see "Item 2 – Properties – Pride of the West Mill" and “ Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” for further information.

Mining operations are subject to conditions or events beyond our control, which could have a material adverse effect on our business; we do not carry insurance.

Mining operations by their nature are subject to many operational risks and factors that are generally outside of our control and could adversely affect our business, operating results, and cash flows. These operational risks and factors include unanticipated ground and water conditions; adverse claims to water rights and shortages of water to which we have rights; adjacent land ownership that results in constraints on current or future mine operations; geological problems, including earthquakes and other natural disasters; metallurgical and other processing problems; unusual or unexpected rock formations; ground or slope failures; structural cave-ins or slides; flooding or fires; seismic activity; rock bursts; equipment failures; and periodic interruptions due to inclement or hazardous weather conditions or operating conditions and other force majeure events; lower than expected ore grades or recovery rates; accidents; delays in the receipt of or failure to receive necessary government permits; the results of litigation, including appeals of agency decisions; uncertainty of exploration and development; delays in transportation; interruption of energy supply; labor disputes; inability to obtain satisfactory insurance coverage; the availability of drilling and related equipment in the area where mining operations will be conducted; and the failure of equipment or processes to operate in accordance with specifications or expectations.

 
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These risks could result in damage to, or destruction of, mines and other producing facilities resulting in partial or complete shutdowns, personal injury or death, environmental or other damage to our properties or the properties of others, delays in mining, monetary losses and potential legal liability. Milling operations are subject to hazards such as equipment failure or failure of tailings disposal areas that may result in environmental pollution and consequential liabilities.

We do not currently carry insurance.  In addition, although certain risks are insurable, we may be unable to obtain insurance to cover these risks at economically feasible premiums. Moreover, insurance against risks such as environmental pollution or other hazards as a result of exploration and production is not generally available to us or to other companies in the mining industry on acceptable terms. We might also become subject to liability for pollution or other hazards that may not be insured against or that we may elect not to insure against because of premium costs or other reasons. Losses from these events may cause the Company to incur significant costs that could have a material adverse effect upon its business. Furthermore, should we be unable to fund fully the cost of remedying an environmental problem, we might be required to suspend operations or enter into interim compliance measures pending completion of the required remedy.

We may never find commercially viable gold or other reserves.

Mineral exploration and development involve a high degree of risk and few properties that are explored are ultimately developed into producing mines. We cannot assure you that any future mineral exploration and development activities will result in any discoveries of proven or probable reserves as defined by the SEC since such discoveries are remote. Nor can we provide any assurance that, even if we discover commercial quantities of mineralization, a mineral property will be brought into commercial production. Development of our mineral properties will follow only upon obtaining sufficient funding and satisfactory exploration results.

We will require significant additional capital to continue our exploration activities, and, if warranted, to develop mining operations.

Under our lease with an option to purchase the King Solomon Mine, we are required to expend $50,000 over three years in the form of a work commitment.  We have expended only minimal amounts toward the King Solomon work commitment.  Management estimates that re-activating the Mill and bringing the Silver Wing and Champion Mines into production will require approximately $11 million of additional funding.

We will be required to raise significantly more capital in order to develop the CGFI Mineral Properties for mining production assuming that economically viable reserves exist. There is no assurance that our investments in the CGFI Mineral Properties will be financially productive. Our ability to obtain necessary funding depends upon a number of factors, including the price of gold and other base metals and minerals which we are able to mine, the status of the national and worldwide economy and the availability of funds in the capital markets. If we are unable to obtain the required financing in the near future for these or other purposes, our exploration activities would be delayed or indefinitely postponed, we would likely lose our lease/options and option to acquire an ownership interest in the CGFI Mineral Properties and this would likely, eventually, lead to failure of our Company. Even if financing is available, it may be on terms that are not favorable to us, in which case, our ability to become profitable or to continue operating would be adversely affected. If we are unable to raise funds to continue our exploration and feasibility work on the CGFI Mineral Properties, or if commercially viable reserves are not present, the market value of our securities will likely decline, and our investors may lose some or all of their investment.
 
 
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Historical production of gold at the CGFI Mineral Properties may not be indicative of the potential for future development or revenue.

Historical production of gold and other metals and minerals from the mines encompassed under our Lease/Options cannot be relied upon as an indication that the CGFI Mineral Properties will have commercially feasible reserves. Investors in our securities should not rely on historical operations of the CGFI Mineral Properties as an indication that we will be able to place the CGFI Mineral Properties into commercial production again. We expect to incur losses unless and until such time as the properties enter into commercial production and generate sufficient revenue to fund our continuing operations.

Fluctuating gold, metal and mineral prices could negatively impact our business plan.

The potential for profitability of our gold and other metal and mineral mining operations and the value of any mining properties we may acquire will be directly related to the market price of gold and the metals and minerals that we mine. Historically, gold and other mineral prices have widely fluctuated, and are influenced by a wide variety of factors, including inflation, currency fluctuations, regional and global demand and political and economic conditions. Fluctuations in the price of gold and other minerals that we mine may have a significant influence on the market price of our common stock and a prolonged decline in these prices will have a negative effect on our results of operations and financial condition.

Reclamation obligations on the CGFI Mineral Properties, and our Mill could require significant additional expenditures.

We are responsible for the reclamation obligations related to any exploratory and mining activities located on the CGFI Mineral Properties. Since we have only begun exploration activities, we cannot estimate these costs at this time. In November 2007, the Colorado Division of Reclamation, Mining and Safety transferred the Mill permit into our name, and we delivered to the Division a reclamation bond in the amount of $318,154 and deposited an additional $196,976 in June, 2011 for a total of $515,130. We have currently estimated the total reclamation costs on the Mill at $515,130 and have recorded a liability in this amount as of August 31, 2013.  The satisfaction of current and future bonding requirements and reclamation obligations will require a significant amount of capital. There is a risk that we will be unable to fund these additional bonding requirements, and further that increases to our bonding requirements or excessive actual reclamation costs will negatively affect our financial position and results of operation.

Title to mineral properties can be uncertain, and we are at risk of loss of ownership of our property.

Our ability to explore and mine the leased and optioned properties depends on the validity of title to that property. The CGFI Mineral Properties, some of which are subject to our Lease/Options, consist of patented and unpatented mining claims. Unpatented mining claims are effectively only a lease from the federal government to extract minerals; thus an unpatented mining claim is subject to contest by third parties or the federal government. These uncertainties relate to such things as the sufficiency of mineral discovery, proper posting and marking of boundaries, failure to meet statutory guidelines, assessment work and possible conflicts with other claims not determinable from descriptions of record. Since a substantial portion of all mineral exploration, development and mining in the United States now occurs on unpatented mining claims, this uncertainty is inherent in the mining industry. We have not obtained a title opinion on our leased properties or the San Juan Properties we have under option. Thus, there may be challenges to the title to the properties which, if successful, could impair development and/or operations.

Our ongoing operations and past mining activities of others are subject to environmental risks, which could expose us to significant liability and delay, suspension or termination of our operations.

Mining exploration and exploitation activities are subject to federal, state and local laws, regulations and policies, including laws regulating the removal of natural resources from the ground and the discharge of materials into the environment. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Exploration and exploitation activities are also subject to federal, state and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of exploration methods and equipment.

 
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Environmental and other legal standards imposed by federal, state or local authorities are constantly evolving, and typically in a manner which will require stricter standards and enforcement, and increased fines and penalties for non-compliance. Such changes may prevent us from conducting planned activities or increase our costs of doing so, which would have material adverse effects on our business. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages that we may not be able to or elect not to insure against due to prohibitive premium costs and other reasons. Unknown environmental hazards may exist on the CGFI Mineral Properties, or we may acquire properties in the future that have unknown environmental issues caused by previous owners or operators, or that may have occurred naturally.

The CGFI Mineral Properties are subject to royalties on production.

As part of the Lease/Options for the King Solomon Mine, the Company granted a Net Smelter Royalty (“NSR”), of 3.5%.  Should the contracts to purchase the Silver Wing and Champion Mines be renegotiated, both properties carry a 5% NSR payable to the prior owners.  In addition, historical royalties may be asserted by third-parties which are currently unknown to us.

Weather interruptions in the San Juan County, Colorado area may delay or prevent exploration on the CGFI Mineral Properties

The CGFI Mineral Properties in Colorado are located in a mountainous, high alpine region of the Colorado Rocky Mountains.  The area receives extreme winter conditions which delay or prevent exploration of the properties during the winter months.  However once in production, operations may continue year-round.

Our industry is highly competitive, attractive mineral lands are scarce and we may not be able to obtain quality properties.

We compete with many companies in the mining industry, including large, established mining companies with capabilities, personnel and financial resources that far exceed our limited resources. In addition, there is a limited supply of desirable mineral lands available for claim-staking, lease or acquisition in the United States, and other areas where we may conduct exploration activities. We are at a competitive disadvantage in acquiring mineral properties, since we compete with these larger individuals and companies, many of which have greater financial resources and larger technical staffs. Likewise, our competition extends to locating and employing competent personnel and contractors to prospect, develop and operate mining properties. Many of our competitors can offer attractive compensation packages that we may not be able to meet. Such competition may result in our company being unable not only to acquire desired properties, but to recruit or retain qualified employees or to acquire the capital necessary to fund our operation and advance our properties. Our inability to compete with other companies for these resources would have a material adverse effect on our results of operation and business.

We depend on our Chief Executive Officer and Chief Financial Officer and the loss of these individuals could adversely affect our business.

Our company is completely dependent on our Chief Executive Officer, Lee R. Rice, and on our Chief Financial Officer, C. Stephen Guyer, both of whom are also members of our Board of Directors. As of the date of this report, we only employed three individuals: Messrs. Rice and Guyer and our Director of Operations. Thus, the loss of either Messrs. Rice or Guyer could significantly and adversely affect our business, and certainly the loss of both individuals on or about the same time could result in a complete failure of the Company. We do not carry any life insurance on the lives of either Messrs. Rice or Guyer.

 
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The nature of mineral exploration and production activities involves a high degree of risk and the possibility of uninsured losses that could materially and adversely affect our operations.

Exploration for minerals is highly speculative and involves greater risk than many other businesses. Many exploration programs do not result in the discovery of economically feasible mineralization. Few properties that are explored are ultimately advanced to the stage of producing mines. We are subject to all of the operating hazards and risks normally incident to exploring for and developing mineral properties such as, but not limited to:

           economically insufficient mineralized material;
           fluctuations in production costs that may make mining uneconomical;
           labor disputes;
           unanticipated variations in grade and other geologic problems;
           environmental hazards;
           water conditions;
           difficult surface or underground conditions;
           industrial accidents; personal injury, fire, flooding, cave-ins and landslides;
           metallurgical and other processing problems;
           mechanical and equipment performance problems; and
           decreases in revenues and reserves due to lower gold and mineral prices.

Any of these risks can materially and adversely affect, among other things, the development of properties, production quantities and rates, costs and expenditures and production commencement dates. We currently have no insurance to guard against any of these risks. If we determine that capitalized costs associated with any of our mineral interests are not likely to be recovered, we would incur a write-down of our investment in these interests. All of these factors may result in losses in relation to amounts spent which are not recoverable.

Our operations are subject to permitting requirements which could require us to delay, suspend or terminate our operations on our mining property.

Our operations, including our planned mill re-activation and exploration activities on the CGFI Mineral Properties, require permits from the state and federal governments. We may be unable to obtain these permits in a timely manner, on reasonable terms or at all. If we cannot obtain or maintain the necessary permits, or if there is a delay in receiving these permits, our timetable and business plan for exploration of the CGFI Mineral Properties will be adversely affected.

Risks Associated with Our Common Stock in General

Trading on the Over the Counter markets may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.

Our common stock is quoted on the OTCQB Inter-Dealer Quotation System owned and operated by the OTCMarkets Group, Inc. and the OTC Pink Sheet service of the Financial Industry Regulatory Authority (“FINRA”).  Trading in stock quoted on over the counter markets is often thin, volatile, and characterized by wide fluctuations in trading prices due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the over the counter markets are not a stock exchange, and trading of securities on the over the counter markets is often more sporadic than the trading of securities listed on other stock exchanges such as the NASDAQ Stock Market, New York Stock Exchange or American Stock Exchange.  Accordingly, our shareholders may have difficulty reselling any of their shares.

 
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Our stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations and the FINRA’s sales practice requirements, which may limit a stockholders ability to buy and sell our stock.

Our stock is a penny stock. The SEC has adopted Rule 15g-9 which generally defines penny stock to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The term accredited investor refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. 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 in a form prepared by the SEC which provides information about penny stocks and the nature and level of 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 customers’ account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must 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 the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability or willingness of broker-dealers to trade our securities. We believe that the penny stock rules discourage broker-dealer and investor interest in, and limit the marketability of, our common stock.

FINRA sales practice requirements may also limit a stockholders ability to buy and sell our stock.

In addition to the penny stock rules promulgated by the SEC, which are discussed in the immediately preceding risk factor, FINRA rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit the ability to buy and sell our stock and have an adverse effect on the market value for our shares.

Because the SEC imposes additional sales practice requirements on brokers who deal in shares of penny stocks, some brokers may be unwilling to trade our securities.  This means that you may have difficulty reselling your shares, which may cause the value of your investment to decline.

Our shares are classified as penny stocks and are covered by Section 15(g) of the Securities Exchange Act of 1934 (the “Exchange Act”) which imposes additional sales practice requirements on broker-dealers who sell our securities in this offering or in the aftermarket.  For sales of our securities, broker-dealers must make a special suitability determination and receive a written agreement prior from you to making a sale on your behalf. Because of the imposition of the foregoing additional sales practices, it is possible that broker-dealers will not want to make a market in our common stock.  This could prevent you from reselling your shares and may cause the value of your investment to decline.

 
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Although DTC eligible, our stock is “chilled for deposits” at DTCC, and the National Securities Clearing Corporation has exited our stock from the Continuous Net Settlement System, therefore, trades are executed and cleared on a trade for trade basis in certificate form.

As a result, the settlement of physical certificated positions carry significant pass-through charges, including: execution fees, DTC fees, deposit fees, brokerage fees, and transfer agent fees.  These fees, which can vary and may be substantial, increase the cost that shareholders must bear for clearing and execution of trades.  Furthermore, pass-through charges described above may not be immediately charged to a customer account following a trade in non-DTC eligible securities, as our clearing firms may receive notice of such fees as late as three weeks following the trade.  Broker-dealers reserve the right to withhold funds in a customer account pending potential assessment of fees associated with trading in low priced or sub-penny securities.  Virtually all of our stock is held in certificate form by various individuals and broker/dealers.

A decline in the price of our common stock could affect our ability to raise further working capital, it may adversely affect our ability to continue operations and we may go out of business.

A prolonged decline in the price of our common stock has resulted in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital.  Because we may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity securities, or convertible debt instruments, the decline in the price of our common stock has been detrimental to our liquidity and our operations because the decline has caused investors to not choose to invest in our stock. If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations.   a result, our business may suffer, and not be successful and we may go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our common stock and we may be forced to go out of business.

We have never paid a cash dividend on our common stock and we do not anticipate paying any in the foreseeable future.

We have not paid a cash dividend on our common stock to date, and we do not intend to pay cash dividends in the foreseeable future. Our ability to pay dividends will depend on our ability to successfully develop one or more properties and generate revenue from operations. Notwithstanding, we will likely elect to retain any earnings, if any, to finance our growth. Future dividends may also be limited by bank loan agreements or other financing instruments that we may enter into in the future. The declaration and payment of dividends will be at the discretion of our Board of Directors.

We have not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have more limited protections against interested director transactions, conflicts of interest and similar matters.

Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or The NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges and NASDAQ are those that address board of directors’ independence, audit committee oversight and the adoption of a code of ethics. While our Board of Directors has adopted a Code of Ethics and Business Conduct, we have not yet adopted any of these corporate governance measures and, since our securities are not listed on a national securities exchange or NASDAQ, we are not required to do so. It is possible that if we were to adopt some or all of these corporate governance measures, shareholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.

 
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Our stock is subject to a “Global Lock” imposed by the Depository Trust and Clearing Corporation (“DTCC”).

On September 24, 2013, we were notified that DTCC would be placing a “Global Lock” on the company’s Class A stock as a result of actions by a third-party broker-dealer.  On November 11, 2013, DTCC imposed the Global Lock.  Since less than 0.02% of the Company’s Class A common stock shares were held within DTCC, Management chose to not undertake the expense of challenging the Global Lock.  Nevertheless, shares that are held in street name (CEDE & CO.), will not be able to be withdrawn from DTCC without further action.

Item 1B.    Unresolved Staff Comments

Since we are not an accelerated filer or a large accelerated filer, as defined in Rule 12b-2 of the Exchange Act, or a well-known seasoned issuer as defined in Rule 405 of the Securities Act this item is not applicable.

 
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Item 2.    Properties
 
Pride of the West Mill
 
The Pride of the West Mill (“Mill”) is an inactive mining mill located at Howardsville, Colorado in San Juan County. The Pride of the West Mill is located on approximately 120 acres of patented mining claims on San Juan County Road 2, within a six air mile radius of the Silver Wing, Champion, and King Solomon Mines.  The physical address is 3701 County Road 2, Silverton, Colorado.  No mineral is known to exist in deposit form on the property. The economic significance of the property is as a mineral processing site, with residual post-mining value.  The Mill is located within the famous “San Juan Triangle” mining center of southwestern Colorado, which also includes the historic mining towns of Telluride and Ouray, and encompasses one of the most richly mineralized areas of North America.  Fourteen thousand feet mountain peaks tower over the mill, which is accessible year round because of its location on county maintained access roads.

The mill has the capability to process five metals: gold, silver, copper, lead, and zinc.  In operation as recently as 2004, the mill contains virtually all of its working components enclosed within one complex.  The complex includes: 1) ore stockpile pad, 2) crushing plant consisting of a coarse ore bin adjacent to the stockpile area, an apron feeder, conveyor to the crushing section, a 3 foot Symons vibrating grizzly, jaw crusher, 4’x 8’ Symons rod deck screen, conveyors, a 3 foot Symons standard cone crusher, and electromagnets, 3) grinding circuit including a Macy Rod mill and a Denver Ball mill, 4) flotation circuit and ancillary equipment all in one building.  The leach plant is in a separate building and is configured for 2 or 4 tank agitation leach with carbon in leach. The carbon stripping plant is in the main mill building as is the melt furnace.  A separate building houses a metallurgical laboratory for sample preparation, and an assay laboratory.  A large steel frame metal building houses offices and a truck shop, with living quarters for personnel upstairs.

The Mill is readily accessible by heavy trucks, has a power substation in place, and has two water rights from Cunningham and Hematite Creeks with associated water pipelines on the property that are sufficient to supply the needs of the mill complex.

In March 2008, the Colorado Division of Reclamation, Mining and Safety transferred the Mill permit into our name, and in connection therewith, we posted a bond in the amount of $318,154, which has now increased to $515,130 with the DRMS in the form of restricted cash on deposit with the State of Colorado.  We have recorded a corresponding estimated asset retirement obligation of $515,130 in connection with our estimated future reclamation costs.

The Pride of the West Mill was (and is) the subject of a cease and desist order (“C&D”), issued by the State of Colorado Mined Land Reclamation Board due to the operational deficiencies of the previous operator in the period 2002-2003.

On August 9, 2012, the DRMS approved with conditions Reclamation Permit Amendment (AM-03).  The core of the permit consists of nine Environmental Protection Faculties (“EPF”), which are: 1) Mill Building, 2) Ore Stockpile Area, 3) Laboratory Facility, 4) Leach Plant Building, 5) Flood Protection Dike, 6) Plant Waste Water Disposal, 7) Groundwater intercept Drain, 8) Upland Stormwater Intercept Ditch, 9) Mill Tailings Repository.

The conditions specified by the DRMS regard the ninth EPF, the Mill Tailings Repository and request additional geotechnical substrate stability analysis, structure specific engineering designs for the cover of the repository, the repository’s reserve capacity, and the always on-going recalculation of financial warranty.

While we are completing the analysis necessary to satisfy the DRMS’s conditions, work began on the ore stockpile area in September 2012.

 
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We believe that approval of the AM-03 permit amendment along with the extension of the Mill mortgage to December 1, 2013, will move the business plan forward.

Silver Wing and Champion Mine
 
On October 31, 2012, the Company entered into a contract for purchase of the Silver Wing Mine.  In conjunction with this contract the Company issued to Jo Grant Mining Company, Inc. (“Jo Grant”), 12,000,000 pre-split (24,000 post-split) four-year restricted shares of Class A Common Stock on November 1, 2012.

The Company entered into a modified extension to the original agreement in July 2013, whereby the Company shall payoff an existing note Jo Grant having a balance of approximately $60,400 on or before October 31, 2013 and shall pay Jo Grant $50,000 no later than October 31, 2013.

On November 2, 2012, the Company entered into a contract for purchase of the Champion Mine.  In conjunction with this contract the Company issued 24,000,000 pre-split (48,000 post-split) four-year restricted shares of Class A Common Stock on November 2, 2012.

The Company entered into an extension and modification for the Champion Mine purchase agreement on May 6, 2013 with Jo Grant whereby the Company issued 50,000,000 pre-split (100,000 post-split) four-year restricted Class A shares, the value of which was recorded as expense within mineral property and exploration costs,  in exchange for modifications to the purchase contract dated November 2, 2012.  The terms of this contract were extended further in July 2013.  The modified remaining terms of the contract are as follows:

1.  
Pay $3,000,000 to Jo Grant, only for the purpose of consummating the contract to buy and sell real estate (Land), between Jo Grant Mining, Inc. (as the Buyer), and a Texas limited liability company, (as the Seller), dated October 9, 2012, no later than October 31, 2013.
 
2.  
Pay to Jo Grant a sum of $100,000, no later than October 31, 2013.
 
3.  
Provide Jo Grant for a period of 99 years a 5% Net Smelter Royalty (“NSR”), on the Champion Mining Claims.  The payment of the NSR shall be made not more than 45 days after the close of the month during which the payment is received from the smelter or buyer on which such NSR is calculated.  Additional mineral rights were included in the modification for which Jo Grant will be provided for a period of 99 years a 5% NSR.
 
4.  
The Company and Jo Grant will enter into a contract for milling to process and mill up to 100,000 tons of ore from the Silver Wing Mine at a cost not greater than $75.00 per ton, on or before July 31, 2013.  The execution of this contract has been suspended pending the results of fund raising efforts.
 
The Champion Mine, including the additional mineral rights added in May 2013, consists of approximately 591 acres located in the San Juan Mountains at Silverton, Colorado. The Mine is located within the rim of the Silverton Caldera complex at the southwestern extremity of the Colorado Mineral Belt.

On October 31, 2013, the contracts for purchase of the Champion and Silver Wing Mines expired unconsummated.  As of the date of this report, we are awaiting information from a potential investor, which may cause those contracts to be renegotiated.  However, the terms of the anticipated funding may not be acceptable to the owners of the Silver Wing and Champion Mines.
 
The purchase of the Champion mine from Jo Grant will not be consummated until the Company provides additional cash of approximately $3.1 million to complete the acquisition of this asset. Therefore, until this occurs, the Company does not own the mine.  As of August 31, 2013, as noted above, the Company has issued a total of 86 million pre-split (172,000 post-split) shares of its Class A common stock to Jo Grant in connection with these purchase transactions. The shares issued are nonrefundable, and represent less than 1% of the Company's total shares of Class A common stock outstanding as of August 31, 2013. In addition, these shares are restricted for four years from the dates of issuance.

 
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The Silver Wing mine was acquired by Jo Grant on October 17, 2012 for cash consideration of approximately $20,000 and the assumption of a note payable totaling approximately $60,000. The right to acquire the Champion Mine was obtained by Jo Grant on October 9, 2012 for cash consideration of approximately $20,000, which represents a non-refundable payment made in connection with the $3 million contract to purchase the Champion Mine discussed above.

Management estimated the fair value of the 36 million pre-split (72,000 post-split) four-year restricted, non-refundable shares issued within the original purchase contracts was approximately $100,000, based on the assets acquired. Therefore, the shares of common stock issued by the Company in November 2012 were recorded on the balance sheet as “Deferred acquisition costs”.   Due to the expiration of the contracts, this $100,000 was expensed as mining property and exploration costs during the fourth quarter of fiscal year 2013.

King Solomon Mine

On September 18, 2009, the Company entered into a lease with an option to purchase the King Solomon Mine, in consideration for which the Company issued 10,000 pre-split (20 post-split) shares of restricted Class A Common Stock valued at $17.50 pre-split ($8,750 post-split) per share (the quoted market price on the date the Company entered into the agreement and obtained the mining rights) totaling $175,000.  The lease/option was for a period of three years.  The stock was restricted from sale during the initial term of the lease.  The lease/option automatically renewed and continued so long as ores, minerals, or metals are produced or sold.  The lease granted the Company the exclusive right to perform exploration, mining, development, production, processing or any other activity that benefits the leased premises and required a minimum work commitment of $50,000 to be expended by the Company for each successive three year term during the term of the lease/option.  The lease also required the Company to pay the lessor a 3.5% NSR on all mineral bearing ores.  In addition, before royalties are computed, 5% of the value of NSR on all materials produced and sold from the mining property must be deducted for the purpose of a contingency reclamation reserve fund for paying potential reclamation costs, up to $200,000.  The Company has the sole and exclusive option to purchase all of lessor's right, title and interest in the property for a total purchase price of $1,250,000, payable in cash or other cash equivalents as mutually agreed by the lessor and the Company.

On October 11, 2012, the Company entered into a three-year extension and renewal of mining lease with option to purchase, effective September 18, 2012, for which the Company issued 250,000 pre-split (500 post-split) shares of restricted Class A Common Stock, with an additional 25,000 pre-split (50 post-split) shares to be issued upon each yearly anniversary.  The mining lease with an option to purchase expires on September 18, 2015.  The Company recorded $62,500 as mining rights and claims based upon the share price on the date of the transaction of $0.25 pre-split ($125 post-split) per share.  The stock is restricted for two years.  The original work commitment outlined above is considered fulfilled.  All other terms and conditions of the original lease remain in effect.

Pay Day and Rage Uranium Claim Group

On June 13, 2011, the Company purchased mineral rights to 63 mining claims in the state of Utah.  The claims are referred to as The Pay Day and Rage Uranium Claim Group and are located in San Juan County northeast of Monticello, Utah.  In consideration for the acquisition of these claims, the Company issued 50,000 pre-split (100 post-split) shares of restricted Class A Common Stock, which had a value of $150,000 on the purchase date, (based on the quoted market price on the date the Company entered into the agreement and obtained the mineral rights).  The shares were issued in two blocks of 25,000 pre-split (50 post-split) shares each and are subject to lock-up provisions for periods of one and two years respectively, during which no sales or other conveyances of the shares may be undertaken.

 
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Item 3.    Legal Proceedings

The Company is involved in the following legal proceeding:

San Juan Properties and Hennis Proceedings

On April 6, 2009, Todd C. Hennis (the former President and CEO of the Company), and entities San Juan Corp., and Salem Minerals Inc. (which are substantially owned by Mr. Hennis), served upon the Company a Complaint seeking among other things, a $100,000 payment pursuant to the option agreement, and release from his shareholder lock-up agreement and from Rule 144 trading restrictions on approximately 51,500,000 pre-split (10,300 post-split), shares of Class A Common Stock held by Hennis.  On May 12, 2009, a counter-claim with jury demand was filed against Mr. Hennis and his entities for wrongful conversion, breach of duty of loyalty, lack of good faith, breach of fiduciary duty, and significant conflicts of interest.

Hennis filed a Motion for Summary Judgment on October 16, 2009.  On September 2, 2010, the court granted partial summary judgment in favor of Mr. Hennis and awarded him damages of $230,707.  On September 22, 2010, the court awarded additional damages in the amount of $114,896 to Mr. Hennis for a total of $345,603, which has been recorded as an accrued liability by the Company as of August 31, 2011 and 2012.  On March 25, 2011, the court awarded an additional $58,989 to Hennis for attorney’s fees, which has been accrued as of August 31, 2011 and 2012.  However, on April 5, 2012 the court of appeals remanded the award of attorneys’ fees and therefore the accrual has been reduced by $58,989.

The Company filed motions for (a) a new trial on all or part of the issues; (b) an amendment of findings; and (c) an amendment of judgment pursuant to C.R.C.P. Rule 58(a).  On March 25, 2011, the court evoked C.R.C.P. 59(j) and denied the post-trial motions by not ruling on them.

The Company filed a Notice of Appeal with the Colorado Court of Appeals on January 7, 2011.  On April 5, 2012, the Colorado Court of Appeals affirmed the judgment ($345,603), however the order awarding plaintiffs their trial attorney fees ($58,989) and costs was vacated, and the case was remanded to the district court for further proceedings.  The Company filed a Petition for Rehearing in the Court of Appeals on April 9, 2012, which was denied on May 17, 2012.

On August 31, 2012, The Company filed a Petition of Certiorari with the Colorado Supreme Court.  On May 23, 2013, the Supreme Court denied the Company’s Petition of Certiorari.  The judgment ($345,603) is affirmed, the order awarding plaintiffs their trial attorney fees ($58,989) and costs is vacated, and the case is remanded for further proceedings.

On June 5, 2013, Hennis filed a motion to release funds of approximately $85,300, from the San Juan County court registry.  These funds were placed into the court registry as a result of a garnishment order on April 18, 2011.

Post Judgment Collection Actions by Hennis

On August 23, 2013, Hennis attempted to have a receiver appointed to take control over the Company by means of an Ex Parte Motion for the Appointment of a Receiver filed in Jefferson County, Colorado.  This motion (kept secret from the Company), was denied by the court on September 4, 2013.  The court’s order stated, “Should plaintiffs wish to pursue their Rule 66 motion, they should serve their complaint and motion upon defendant and, after service is effected, contact the court to request a forthwith hearing.”

On September 6, 2013, the Company was served, through its registered agent, with 1) Renewed Motion for Appointment of Receiver, and 2) Verified Complaint, seeking a judicial foreclosure, declaratory judgment, breach of fiduciary duties.

 
22

 

A hearing on the motion to appoint a receiver was held on November 12 and 15, 2013.  The motion to appoint a receiver was denied.  The Company has filed its answer and initial disclosures regarding the complaint regarding judicial foreclosure, declaratory judgment, breach of fiduciary duties, and awaits the court’s scheduling of a case management conference.
 
Recreation Properties, Thomas A. Warlick
       
 On December 5, 2013, Recreation Properties, Thomas A. Warlick, President, served upon the Company, C. Stephen Guyer, and Lee R. Rice a Complaint alleging; 1) Default Upon a Promissory Note, 2) Breach of Contract, Breach of Fiduciary Duty (Guyer and Rice), and Fraudulent Transfer Under CRS §§ 38-8-105(1)(b) & 106(1).  The Complaint seeks a judgment in favor of Recreation Properties, recovery of funds transferred to Guyer and Rice during the last four years preceding the complaint, and avoidance of the Deeds of Trust granted to Guyer and Rice.  The Company is preparing its answer to the Complaint, which is due on December 25, 2013.
 
Other Legal Proceedings

The Company is not involved in any other legal proceedings, however mines and mining claims near to the CGFI Mineral Properties are owned by other parties.  Because the various mines possibly have interconnections between adits and tunnels and common stormwater conveyances and treatment sites, the environmental issues are both factually and legally complex. Disputes among the various property owners, over environmental liabilities, responsibility for clean-up and maintenance of the sites and facilities, and responsibility for site remediation continue.

Permitting requirements can be a costly undertaking and we could be at risk for fines and penalties if required permits are not timely in place.

 
23

 

Item 4.    Mine Safety Disclosures

In accordance with Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, there are no applicable mine safety violations or other regulatory matters to report.

 
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PART II

Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

On February 23, 2011, the Company's stock quotation coverage moved from the FINRA operated OTC Bulletin Board to the OTC Markets Group, Inc.’s OTCQB under the same symbol "CGFIA."  OTCQB is the middle tier of the OTC market.  OTCQB companies are fully reporting with the SEC or a U.S. banking regulator.  Our Class A common stock also continues to trade on the FINRA owned OTC Pink Sheets.  Our Class B common stock is restricted and does not trade on any market.  On September 12, 2012, the Company received approval from the Financial Industry Regulatory Authority, Inc. (“FINRA”), of a 1 for 5,000 reverse stock split.  The post-split shares are assigned the new CUSIP number of 19647Y609.  Effective May 13, 2013 FINRA approved a further 1 for 500 reverse stock split.    The post-split shares are assigned the new CUSIP number of 19647Y708.  The symbol is “CGFI.”  All references to Class A common stock and related price per share in these financial statements have been adjusted to reflect the post-reverse split amounts.  The table below sets forth the high and low sales prices for our Class A common stock for the periods indicated as reported by the NASDAQ Historical Quotation System.  Sales prices represent prices between dealers, do not include retail markups, markdowns or commissions and do not necessarily represent prices at which actual transactions were effected.
 
Year Ended
 
High*
   
Low*
 
31-Aug-09
           
First Quarter
  $ 32,500.00     $ 50,000.00  
Second Quarter
    50,000.00       25,000.00  
Third Quarter
    50,000.00       14,500.00  
Fourth Quarter
    22,750.00       7,500.00  
31-Aug-10
    -       -  
First Quarter
  $ 10,750.00     $ 3,000.00  
Second Quarter
    7,750.00       3,750.00  
Third Quarter
    7,250.00       4,000.00  
Fourth Quarter
    5,250.00       2,250.00  
31-Aug-11
    -       -  
First Quarter
  $ 7,250.00     $ 1,750.00  
Second Quarter
    2,500.00       2,250.00  
Third Quarter
    2,500.00       1,500.00  
Fourth Quarter
    2,000.00       1,000.00  
31-Aug-12
    -       -  
First Quarter
  $ 1,250.00     $ 500.00  
Second Quarter
    750.00       250.00  
Third Quarter
    500.00       250.00  
Fourth Quarter
    500.00       250.00  
31-Aug-13
               
First Quarter
  $ 255.00     $ 33.50  
Second Quarter
    34.950       3.650  
Third Quarter
    4.000       0.065  
Fourth Quarter
    0.325       0.006  
____________
*           The prices set forth above have been adjusted for the 1 for 5,000 and 1 for 500 reverse stock splits.

 
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On December 12, 2013 the last reported sales price of our Class A common stock as reported by the OTCMarkets OTCQB was $0.0001 per share.  As of December 12, 2013, there were 120 holders of record of our Class A common stock.

We have never paid a cash dividend.  Payment of future dividends, if any, will be at the discretion of our Board of Directors after taking into account various factors, including the terms of any credit arrangements, our financial condition, operating results, current and anticipated cash needs and plans for growth. Our initial earnings, if any, will likely be retained to finance our growth. At the present time, we are not party to any agreement that would limit our ability to pay dividends.

The Securities Enforcement and Penny Stock Reform Act of 1990

The Securities and Exchange Commission has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). Our shares are currently subject to the penny stock rules.

A purchaser is purchasing penny stock which limits the ability to sell the stock.  The classification of penny stock makes it more difficult for a broker-dealer to sell the stock into a secondary market, which makes it more difficult for a purchaser to liquidate his/her investment. Any broker-dealer engaged by the purchaser for the purpose of selling his or her shares in us will be subject to Rules 15g-1 through 15g-10 of the Securities and Exchange Act. Rather than creating a need to comply with those rules, some broker-dealers will refuse to attempt to sell penny stock.

The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the Commission, which:

  
contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;
 
  
contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of the Securities Act of 1934, as amended;
 
  
contains a brief, clear, narrative description of a dealer market, including “bid” and “ask” prices for penny stocks and the significance of the spread between the bid and ask price;
 
  
contains a toll-free telephone number for inquiries on disciplinary actions;
 
  
defines significant terms in the disclosure document or in the conduct of trading penny stocks; and
 
  
contains such other information and is in such form (including language, type, size and format) as the Securities and Exchange Commission shall require by rule or regulation.
 
  
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, to the customer:
 
  
the bid and offer quotations for the penny stock;
 
  
the compensation of the broker-dealer and its salesperson in the transaction;
 
  
the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and
 
  
monthly account statements showing the market value of each penny stock held in the customer’s account.

 
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In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements have the effect of reducing the trading activity in the secondary market for our stock. Thus, stockholders may have difficulty selling their securities.

Securities Authorized for Issuance Under Equity Compensation Plans

Equity Compensation Plan Information

The following sets forth information for the equity compensation plans outstanding as of August 31, 2013 (including individual compensation arrangements) under which shares of our common stock are authorized for issuance:

Equity Compensation Plan Information

Plan Category
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
   
Weighted average exercise price of outstanding options, warrants and rights
   
Number of securities remaining available for future issuance as of
December 12,
2013(1)
 
Equity compensation plans approved by security holders:
    -       -       -  
Equity compensation plans not approved by security holders:
    -       -       -  
2008 Employee Stock Incentive Plan
    -       -       0  
2008 Non-Qualified Consultants & Advisors Stock Compensation Plan.
    -       -       17,930,408  
2008 Stock Compensation Plan
    -       -       15,318,610  
____________________
(1) Share amounts are adjusted for the 1 for 5,000 reverse stock split effective September 12, 2012, and the 1 for 500 reverse stock split effective May 13, 2013.

2008 Stock Incentive Plan

In February 2008, the Company approved the 2008 Stock Incentive Plan (“2008 Plan”) which provides incentive stock and non-statutory options to be granted to select employees, directors and consultants of the Company.  The 2008 Plan provides that awards may be granted for up to 5(1) shares of the Company’s Class A common shares.

2008 Non-Qualified Consultants & Advisors Stock Compensation Plan

On September 12, 2008, our Board of Directors approved the 2008 Non-Qualified Consultants & Advisors Stock Compensation Plan (the “2008 Consultants Plan”). As of December 12, 2013 we are authorized to issue up to 20,140,746(1) shares of our Class A Common Stock (subject to adjustment in case of a subdivision of our outstanding shares of Common Stock, recapitalization, stock dividend, or other change in our corporate structure that affects our Common Stock) to consultants or advisors in connection with services rendered by such persons or entities.  The 2008 Consultants Plan is administered by our Compensation Committee of the Board of Directors, or if the we do not have a Compensation Committee, then a committee appointed by the Board which is to consist of one executive officer of the Company and at least one independent, non-employee member of the Board. If no committee is appointed, then the Board of Directors administers the plan. We currently do not have a Compensation Committee. Our Board has appointed C. Stephen Guyer, our Chief Financial Officer and Director, and Norman J. Singer, one of our independent Directors, to act as the committee to administer the 2008 Consultants Plan. We have registered with the Securities and Exchange Commission the common shares issuable under the 2008 Consultants Plan. One of the primary purposes of the plan is to give our company the flexibility to pay for services with shares of our common stock rather than with cash during our exploratory stage.

 
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2008 Stock Compensation Plan (Formerly the Employee & Director Stock Compensation Plan)

In November, 2008, our Board of Directors approved the Employee & Director Stock Compensation Plan (the “2008 Employee Plan”).  The purpose of the 2008 Employee Plan is (i) to further our growth by allowing us to compensate employees and Directors who have provided bona fide services to our company through the award of shares of our Common Stock, and (ii) attract, motivate, retain and reward quality employees and directors to acquire or increase a proprietary interest in our company.  Considering that we are an exploratory mining company which faces challenging economic times and difficult capital markets, the Board of Directors believes that using our common stock is an important means of retaining and compensating employees and directors.  As of November 16, 2012, we are authorized to issue up to 20,146,644(1) Shares of our Class A Common Stock (subject to adjustment in case of a subdivision of our outstanding shares of Common Stock, recapitalization, stock dividend, or other change in our corporate structure that affects our Common Stock).  The 2008 Employee Plan is administered by a committee consisting of at least two persons to be appointed by the Board of Directors, one of whom is an independent director, or in the absence of such a committee, the Plan is to be administered by the Board of Directors. Our Board of Directors appointed C. Stephen Guyer, our CFO, and Norman J. Singer, one of our independent directors, to the committee.  Any of our employees or directors are eligible to receive awards under the Plan.

On April 18, 2011 the Board of Directors amended the 2008 Employee Plan defining eligible persons to be: “officers, directors, employees, consultants, and advisors of the Company and/or one or more of its subsidiaries, if any.”  On June 1, 2011, The Board of Directors amended the name of the 2008 Employee and Director Stock Compensation Plan to “2008 Stock Compensation Plan."
____________________
(1) Share amounts are adjusted for the 1 for 5,000 reverse stock split effective September 12, 2012, and the 1 for 500 reverse stock split effective May 13, 2013.
 
Transfer Agent

Corporate Stock Transfer, Inc. is the transfer agent for our common stock. Their address is at 3200 Cherry Creek Drive, Suite 430, Denver, Colorado 80209, and their telephone number is (303) 282-4800.

Issuer purchase of equity securities

There were no issuer purchases of securities during the period covered by this report.

 
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Item 6.    Selected Financial Data

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
 
 
29

 
 
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion provides information that management believes is relevant to an assessment and understanding of the financial condition and results of operations of Colorado Goldfields Inc. (the “Company”).

This discussion addresses matters we consider important for an understanding of our financial condition and results of operations as of and for the two years ended August 31, 2013, as well as our future results. It consists of the following subsections:
 
  
“Results and Plan of Operation” which provides a brief summary of our consolidated results and financial position and the primary factors affecting those results, as well as a summary of our expectations for fiscal 2013;

  
“Liquidity and Capital Resources,” which contains a discussion of our cash flows and liquidity, investing activities and financing activities, contractual obligations, and critical obligations;

  
“Results of Operations and Comparison”,”  which sets forth an analysis of the operating results for the last two years;

  
 “Critical Accounting Policies,” which provides an analysis of the accounting policies we consider critical because of their effect on the reported amounts of assets, liabilities, income and/or expenses in our consolidated financial statements and/or because they require difficult, subjective or complex judgments by our management;

  
“Recent Accounting Pronouncements and Developments,” which summarizes recently published authoritative accounting guidance, how it might apply to us and how it might affect our future results.

This item should be read in conjunction with our financial statements and the notes thereto included in this annual report.

Results and Plan of Operation
 
On September 6, 2013, the Company was served, through its registered agent, with 1) Renewed Motion for Appointment of Receiver, and 2) Verified Complaint, seeking a judicial foreclosure, declaratory judgment, breach of fiduciary duties by Todd C. Hennis as Plaintiff.

A hearing on the Motion to Appoint a Receiver was held on November 12 and 15, 2013.  The motion to appoint a receiver was denied.  The Company has filed its answer and initial disclosures regarding the complaint regarding judicial foreclosure, declaratory judgment, breach of fiduciary duties, and awaits the court’s scheduling of a case management conference.

Our entire plan of operation is of course subject to the successful resolution of the legal action brought by Todd C. Hennis.
 
Plan of Operation

Our plan of operation for fiscal 2014 is to: 1) acquire funding for our operations and mining exploration program, 2) commence milling of ore, 3) complete all necessary permitting requirements, and 4) bring the Mill into operation.

The following discussion updates our plan of operation for the foreseeable future.  The discussion also summarizes the results of our operations for the fiscal year ended August 31, 2013 and compares those results to the fiscal year ended August 31, 2012.

 
30

 
 
During fiscal year 2013, we continued to experience the negative effects of the financial markets upheaval, which made capital acquisition extremely difficult.

During fiscal year 2013, we focused primarily on re-activation of the Pride of the West Mill, working towards amending the current reclamation permit and seeking out new properties to acquire, explore and develop.

Operations at the Pride of the West Mill:

During the quarter ended August 31, 2013, we continued the very specific analysis to satisfy conditions that were imposed on full permit approval by the DRMS.  The core of the permit consists of nine Environmental Protection Faculties (“EPFs”), which are: 1) Mill Building, 2) Ore Stockpile Area, 3) Laboratory Facility, 4) Leach Plant Building, 5) Flood Protection Dike, 6) Plant Waste Water Disposal, 7) Groundwater intercept Drain, 8) Upland Stormwater Intercept Ditch, 9) Mill Tailings Repository.

The conditions specified by the DRMS regard the ninth EPF, the Mill Tailings Repository and simply request additional geotechnical substrate stability analysis, structure specific engineering designs for the cover of the repository, the repository’s reserve capacity, and the always on-going recalculation of financial warranty.  Management believes that these conditions will be satisfied by the end of May 2014.  However, operations within the approved areas have been rapidly initiated.

        Operations at the Champion Mine:

In February 2013, we completed a Preliminary Technical Report for the Champion Mine Project located in San Juan County, Colorado.  The report was prepared in accordance with Canadian National Instrument 43-101 and SEC Guideline 7 criteria.  The NI 43-101 instrument is a codified set of rules and guidelines for reporting and displaying information related to mineral properties owned by, or explored by, companies which report these results on stock exchanges within Canada.  The purpose of the National Instrument 43-101 is to ensure that misleading, erroneous or fraudulent information relating to mineral properties is not published and promoted to investors on the stock exchanges overseen by the Canadian Securities Authority.  Additionally, the NI 43-101 instrument is used by many companies that report only on United States stock exchanges.

The report was prepared by Mr. Lee R. Rice, who is President and CEO of Colorado Goldfields Inc. and is a Qualified Person (QP) as defined by Canadian National Instrument 43-101.  Mr. Rice is a Registered Professional Engineer in the state of Colorado and is a member in good standing of the Society for Mining, Metallurgy, and Exploration, Inc. as well as being a member in good standing of a number of other professional technical societies.

The Champion Mine consists of approximately 591 acres located in the San Juan Mountains at Silverton, Colorado.  The mine is located within the rim of the Silverton Caldera complex at the southwestern extremity of the Colorado Mineral Belt.

The property has been intermittently developed and mined by numerous separate operators between 1876 and 1942, during which period an estimated 375,000 ounces of gold and 15,000,000 ounces of silver have been produced from a northwesterly trending and steeply south dipping vein system.  Production was halted in 1942 as a result of the US Government's Gold Mine Closing Order, brought on by World War II.

The stock issued for both the Silver Wing and Champion Mines is non-refundable and represents one component of a contemplated comprehensive funding transaction.

See Item 2. Properties for important information regarding our right to acquire the Champion Mine.

 
31

 
 
Operations at the Silver Wing Mine:

In January 2013, we completed a Preliminary Technical Report for the Silver Wing Project located in San Juan County, Colorado.  The report was prepared in accordance with Canadian National Instrument 43-101 and SEC Guideline 7 criteria.

The report was prepared by Mr. Lee R. Rice, who is President and CEO of Colorado Goldfields Inc. and is a Qualified Person (QP) as defined by Canadian National Instrument 43-101.  The NI 43-101 instrument is a codified set of rules and guidelines for reporting and displaying information related to mineral properties owned by, or explored by, companies which report these results on stock exchanges within Canada.  The purpose of the National Instrument 43-101 is to ensure that misleading, erroneous or fraudulent information relating to mineral properties is not published and promoted to investors on the stock exchanges overseen by the Canadian Securities Authority.  Additionally, the NI 43-101 instrument is used by many companies that report only on United States stock exchanges.

Mr. Rice is a Registered Professional Engineer in the state of Colorado and is a registered member in good standing of the Society for Mining, Metallurgy, and Exploration, Inc. as well as being a member in good standing of a number of other professional technical societies.

See Item 2. Properties for important information regarding our right to acquire the Silver Wing Mine.
 
On October 31, 2013, the contracts for the purchases of the Champion and Silver Wing Mines expired unconsummated. We currently anticipate that these contracts may be subject to renegotiation. Therefore, until this occurs, the Company does not own the mines.
Operations at the Brooklyn Mine:

The Lease with an Option to Purchase for the Brooklyn was terminated on September 6, 2012.  After extensive analysis of potential acid mine drainage problems, we decided not to seek to renew the lease.  Pursuant to the lease, work commitment expenses not spent on the properties were due to the lessors in cash or cash equivalents, including additional shares of Company stock.  Failing to negotiate the anticipated lease renewal, on November 1, 2012 the Company issued 6,397,300 pre-split (12,795 post-split) shares of restricted Class A Common Stock, valued at $660,834 on the date of issue to satisfy all terms of the lease.

Operations at the King Solomon Mine:

We completed our 2011 exploration program on the King Solomon Mine during the first quarter of fiscal 2012.   On October 11, 2012, we entered into a three-year Extension and Renewal of Mining Lease with Option to Purchase the King Solomon Mine under substantially the same terms as the original lease.  Plans to develop the King Solomon property are moving forward.

Operations at the Pay Day and Rage Uranium Claim Group

On June 13, 2011, we purchased the Pay Day and Rage Uranium Claim Group.  These claim groups consist of 63 (55 Pay Day and 8 Rage) claims.  The Pay Day claim group is located in Township 32 South, Range 24 East of the Salt Lake Meridian in Sections 26, 27, 34, and 35, in San Juan County northeast of Monticello, Utah.  The Rage claim group spans Stevens Canyon on the southeast flank of the Seven Sisters Buttes in Township 33 South, Range 20 East of the Salt Lake Meridian in Section 33, San Juan County, Utah.

An initial internal analysis by Company president Lee R. Rice indicates that the historical information used by others did not account for all possible sources and additional potential resource at depth.
 
 
32

 

General Operations

Weather conditions in San Juan County, Colorado vary by season.  During the winter season, our activities are concentrated on analysis, planning, and development of properties in more temperate climates.  Surface drilling and property exploration in San Juan County can reasonably take place between May and late October.  Of course, underground operations continue year-round.

Liquidity and Capital Resources

We were formed in early 2004 and have had limited activity until our acquisition of the option to acquire interests in the San Juan Properties.  Since we have received no revenue from the production of gold or other metals, we have relied on funds received in connection with our equity and debt offerings to finance our ongoing operations.  We have experienced net losses since inception, and we expect we will continue to incur losses for the next several years.  As of the date of this filing, we do not have any available external source of funds.  We require additional capital in the near term to maintain our current operations.  Although we are actively seeking additional equity and debt financing, such financing may not be available on acceptable terms, if at all.

Since its inception in February 2004, the Company has not generated revenue and has incurred net losses.  The Company has a working capital deficit of $3,356,954 at August 31, 2013, has incurred net losses of $6,342,520 and $4,299,576 for the years ended August 31, 2013 and 2012, respectively, and an accumulated deficit during the exploration stage of $29,846,344 for the period from February 11, 2004 (inception) through August 31, 2013.  Accordingly, it has not generated cash flows from operations and has primarily relied upon equity financing, advances from stockholders, promissory notes, and advances from unrelated parties to fund its operations.

We currently have minimal cash on hand.  Accordingly, we do not have sufficient cash resources or current assets to pay our obligations, and we have been meeting many of our obligations through the issuance of our common stock to our employees, consultants and advisors as payment for goods and services.  Considering the foregoing, we are dependent on additional financing to continue our operations and exploration efforts and, if warranted, to develop and commence mining operations.  Our significant capital requirements for the foreseeable future are: payment of $200,578 on a mortgage note and accrued interest, which is collateralized by the Mill (due December 1, 2013 and currently in default), payment of $119,248 on a promissory note and accrued interest, payment on notes payable to related parties including accrued interest totaling $357,258, re-activation expenses for the Mill (approximately $3 million), and our corporate overhead expenses.

We are actively seeking additional equity or debt financing, and have secured four sources of funding.  However, there can be no assurance that the total funds required during the next twelve months or thereafter will be available from external sources.  The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force us to substantially curtail or cease operations and would, therefore, have a material adverse effect on our business.  Further, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significantly dilutive effect on our existing shareholders.  All of these factors have been exacerbated by the extremely unsettled credit and capital markets presently existing.

We are dependent upon the DRMS and State of Colorado Mined Land Reclamation Board (“MLRB”), fully approving an amendment to the existing reclamation permit for the Mill.  Full approval of the amendment would cure the current cease and desist order, which was issued in 2005, and allow the Mill to become operational.  The permit amendment process is lengthy and complex.  We submitted an amendment to our existing reclamation permit on January 27, 2012 and April 23, 2012 (AM-03), and the DRMS approved the amendment with conditions on August 9, 2012.  We are now preparing material that will satisfy the remaining conditions of the approval.

 
33

 
 
Ultimately, should the Company not be able to satisfy the conditions of approval and bring the Mill into operation, management anticipates that the Mill will be reclaimed and liquidated.

We have effected two reverse stock splits of our Class A Common Stock.  As discussed further below, the first, a 1 for 5,000 reverse split effective September 12, 2012 and secondly, a 1 for 500 reverse split effective May 13, 2013. These actions were taken to better align the stock price with our accomplishments and operational objectives.  We believe these transactions will broaden our shareholder base, increase the appeal of the stock to investors, and help facilitate electronic transactions of our stock through Depository Trust & Clearing Corporation.  We strongly believe that this split will provide benefits to our shareholders by improving trading accessibility and liquidity, thereby enhancing long-term shareholder value.

Effective September 12, 2012, every 5,000 shares of Class A common stock of CGFIA were automatically combined into one share of Class A common stock.  The reverse split reduced the number of shares of outstanding Class A common stock from approximately 28.2 billion pre-split to approximately 5.7 million post-split at August 31, 2012.  The number of authorized shares of Class A common stock was reduced from 35 billion to 7 million.  Proportional adjustments were made to our convertible notes and equity compensation plans.  All fractional shares were rounded up to the nearest whole number.  The reverse split did not negatively affect any of the rights that accrue to holders of Class A common stock or common stock equivalents.  The reverse split was not a taxable event to existing stockholders

On October 10, 2012 pursuant to Nevada Revised Statutes (“NRS”) 78.320 we received written consents in lieu of a Meeting of Stockholders from the Officer and Director Stockholders holding 92% of the total possible votes outstanding, to establish and fix the total number of authorized shares of Class A Common Stock, par value $0.001 per share, that the Company is authorized to issue, at one billion.

Effective May 13, 2013 every 500 shares of Class A Common Stock were automatically combined into one share of Class A common stock.  As a result of this corporate action, the total number of issued and outstanding shares of Class A Stock decreased from 328,111,671 shares to 656,223 (the foregoing number divided by 500), and our authorized shares of Class A common stock were decreased concurrently from 1,000,000,000 to 2,000,000 shares.  Proportional adjustments were made to our convertible notes and equity compensation plans.  All fractional shares were rounded up to the nearest whole number.  This reverse split did not negatively affect any of the rights that accrue to holders of CGFIA common stock or common stock equivalents.  The reverse split was not a taxable event to existing stockholders.

All references to Class A common stock in this document have been adjusted to reflect the post-split amounts.

On May 13, 2013, pursuant to Nevada Revised Statutes (“NRS”) 78.320 we received written consents in lieu of a Meeting of Stockholders from the Officer and Director Stockholders holding 92% of the total possible votes outstanding, to establish and fix the total number of authorized shares of Class A Common Stock, par value $0.001 per share, that the Company is authorized to issue, at one billion.

The increase to the authorized capital was made, in part, to provide us with more flexibility and opportunities to conduct equity financings, acquisitions, satisfy the reserved but unissued requirements of convertible debt financings, option agreements, and warrant reserves in connection potential with financings.  Having such additional authorized shares of capital stock available for issuance in the future should give us greater flexibility and may allow such shares to be issued without the expense and delay of a special shareholders’ meeting or obtaining written consents.  Although such issuance of additional shares with respect to future financings and acquisitions would dilute existing shareholders, management believes that such transactions would increase the total value of the Company to its shareholders.  The increase in authorized Class A Common Stock will not have any immediate effect on the rights of existing shareholders.
 
 
34

 
 
Results of Operations

Year Ended August 31, 2013 compared to the Year Ended August 31, 2012

For the year ended August 31, 2013, we incurred a net loss of approximately $6,300,000 compared to a net loss of approximately $4,300,000 for the year ended August 31, 2012 an increase of 48% of $2,043,000.

Mineral property and exploration costs were $1,300,000 and $667,000 for the years ended August 31, 2013 and 2012, respectively.  The increase of $633,000 was primarily due to settlement costs associated with the Brooklyn lease.

General and administrative costs were approximately $2,500,000 and $1,874,000 for the years ended August 31, 2013 and 2012, respectively, a 34% increase of $636,000.  The increase was due primarily to the specific reasons presented below.

Professional fees decreased $6,000 from $315,000 for the years ended August 31, 2012 to $309,000 for the year ended August 31, 2013.
 
Consulting expenses were $852,000 and $873,000 for the years ended August 31, 2013 and 2012, respectively, a decrease of $21,000.  The decrease is due to the reduced use of outside services for corporate communications, economic imaging, and an increase in the use of results based compensation for services rendered.

Salaries were $591,000 and $519,000 for the years ended August 31, 2013 and 2012, respectively, a 14% increase of $73,000.  The increase is due to higher compensation pursuant to our executive compensation agreements.  Salaries are generally either accrued as an unpaid liability or, paid in the form of stock awards in lieu of cash, which are exempt under Rule 16b-3.  Amounts owed pursuant to all our executive employment agreements have been fully accrued as of August 31, 2013.  During the year, a large portion of executive compensation was converted to 1 year restricted stock.

Filing fees and transfer agent fees were $49,000 and $59,000 for the years ended August 31, 2013 and August 31, 2012, respectively.  The $10,000 decrease was due to the absence of filing fees associated with an increase of the number of authorized Class A Common Stock shares in 2012.

Printing and reproduction costs were $5,800 and $11,000 for the years ended August 31, 2013 and August 31, 2012, respectively.  The decrease was due to non-recurring expenses paid in 2012 for the Mill permit amendment and lower stock certificate printing costs.

Bank and brokerage fees increased to $45,000 for the year ended August 31, 2013 from $41,000 for the year ended August 31, 2012.  The increase was due to higher costs associated with transacting the Class A Common Stock shares of the Company.

Investor relations costs were $24,000 and $20,000 for the years ended August 31, 2013 and August 31, 2012, respectively, an increase of $4,000.  The increase was due to a non-recurring research report prepared in June 2013.
 
Interest expense was $2,722,000 and $1,221,000 for the years ended August 31, 2013 and 2012, respectively.  The increase of $1,501,000 is primarily related to the required accounting treatment of convertible debt derivative liabilities and the amortization of debt discounts.

 
35

 

Critical Accounting Policies

We have identified the following critical accounting policies which were used in the preparation of our financial statements.

Exploration and Development Costs:  Costs of exploration and development costs are expensed as incurred unless proven and probable reserves exist and the property is a commercially minable property.  When it has been determined that a mineral property can be economically developed as a result of established proven and probable reserves, the costs to develop such property will be capitalized.  Costs of abandoned projects will be charged to operations upon abandonment.

Long-lived Assets:  We periodically evaluate the carrying value of property, plant and equipment costs, to determine if these costs are in excess of their net realizable value and if a permanent impairment needs to be recorded.  The periodic evaluation of carrying value of capitalized costs and any related property, plant and equipment costs are based upon a variety of factors expected to result from the use and the eventual disposal of the asset, as well as specific appraisals in certain circumstances.

Property Retirement Obligation: Asset retirement costs are capitalized as part of the carrying amount of certain long-lived assets.  Accretion expense is recorded in each subsequent period to recognize the changes in the liability resulting from the passage of time.  Changes resulting from revisions to the original fair value of the liability are recognized as an increase or decrease in the carrying amount of the liability and the related asset retirement costs capitalized as part of the carrying amount of the related long-lived asset.

Mining Rights:  The Company has determined that its mining rights meet the definition of mineral rights and are tangible assets.  As a result, the costs of mining rights are initially capitalized as tangible assets when purchased.  If proven and probable reserves are established for a property and it has been determined that a mineral property can be economically developed, costs will be amortized using the units-of-production method over the estimated life of the probable reserves.  For mining rights in which proven and probable reserves have not yet been established, the Company assesses the carrying value for impairment at the end of each reporting period.  Mining rights are stated at cost less accumulated amortization and any impairment losses.  Mining rights for which probable reserves have been established will be amortized based on actual units of production over the estimated reserves of the mines.

Derivatives:  The Company follows the relevant accounting guidance and records derivative instruments (including certain derivative instruments embedded in other contracts) in the balance sheet as either an asset or liability measured at its fair value, with changes in the derivative’s fair value recognized currently in earnings unless specific hedge accounting criteria are met. The Company values these derivative securities under the fair value method at the end of each reporting period (quarter), and their value is marked to market at the end of each reporting period with the gain or loss recognition recorded in earnings. The Company continues to revalue these instruments each quarter to reflect their current value in light of the current market price of our Common Stock. The Company utilizes a valuation pricing model to estimate fair value. Key assumptions of the valuation pricing model include applicable volatility rates, risk-free interest rates and the instrument’s expected remaining life. These assumptions require significant management judgment.

 
36

 

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

As a “smaller reporting company”, we are not required to provide the information required by this Item.  However, please see “Item 1A. Risk Factors” for a discussion of the risks associated with the Company.
 
 
37

 
 
Item 8.    Financial Statements and Supplementary Data
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
Board of Directors and Stockholders
Colorado Goldfields Inc.
 
We have audited the accompanying balance sheets of Colorado Goldfields Inc. (an Exploration Stage Company) as of August 31, 2013 and 2012, and the related statements of operations, cash flows and stockholders’ (deficit) equity for each of the years then ended, and for the period from February 11, 2004 (inception) through August 31, 2013.  These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Colorado Goldfields Inc. as of August 31, 2013 and 2012, and the results of its operations and cash flows for each of the years then ended, and for the period from February 11, 2004 (inception) through August 31, 2013, in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company incurred a net loss of $6,342,520 for the year ended August 31, 2013, and a deficit accumulated during the exploration stage of $29,846,344 for the period from February 11, 2004 (inception) through August 31, 2013.  The Company also has no revenue producing operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans with regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/s/ GHP HORWATH, P.C.

Denver, Colorado
December 16, 2013
 
38

 
 
Colorado Goldfields Inc. (An Exploration Stage Company)
Balance Sheets
 
   
August 31,
   
August 31,
 
   
2013
   
2012
 
             
ASSETS
           
Current Assets
           
Cash
  $ 15,092     $ 6,093  
Prepaid expenses and other
    48,558       18,550  
Total Current Assets
    63,650       24,643  
                 
Non-Current Assets
               
Property, plant and equipment, net (Note 3)
    1,436,206       1,396,414  
Mining rights and claims (Note 4)
    152,604       158,889  
Restricted cash (Note 3)
    515,428       515,428  
Deferred financing costs
    43,790       15,580  
Other
    4,743       4,743  
Total Non-Current Assets
    2,152,771       2,091,054  
Total Assets
  $ 2,216,421     $ 2,115,697  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
Current Liabilities
               
Accounts payable
  $ 379,474     $ 330,519  
Accrued liabilities
    655,075       859,488  
Convertible notes, less unamortized discount of $386,601
               
and $214,059 (Note 7)
    284,856       141,082  
Derivative liabilities (Note 8)
    1,424,115       469,370  
Promissory note payable, including accrued interest (Note 6)
    119,248       25,081  
Notes payable, including accrued interest - related parties (Note 5)
    357,258       338,914  
Mortgage notes payable, including accrued interest (Note 3)
    200,578       456,900  
Total Current Liabilities
    3,420,604       2,621,354  
                 
Non-Current Liabilities
               
Promissory note payable, including accrued interest (Note 6)
    -       86,207  
Asset retirement obligation
    515,500       515,500  
Total Non-Current Liabilities
    515,500       601,707  
Total Liabilities
    3,936,104       3,223,061  
                 
Commitments and Contingencies (Note 10)
               
                 
Stockholders' Deficit (Note 9)
               
Class A common stock, 1,000,000,000 shares authorized, $0.001 par value;
         
47,366,656 and 11,295 issued and outstanding, respectively
    47,367       10  
                 
Class B common stock, 500,000,000 shares authorized, $0.001 par value;
         
490,371,533 shares issued and outstanding, respectively
    -       -  
                 
Additional paid in capital
    28,050,044       22,367,200  
Donated capital
    29,250       29,250  
Deficit accumulated during the exploration stage
    (29,846,344 )     (23,503,824 )
Total Stockholders' Deficit
    (1,719,683 )     (1,107,364 )
Total Liabilities and Stockholders' Deficit
  $ 2,216,421     $ 2,115,697  
 
The accompanying notes are an integral part of these financial statements
 
 
39

 
 
Colorado Goldfields Inc. (An Exploration Stage Company)
Statements of Operations
 
               
Accumulated
 
               
from February 11,
 
               
2004
 
    For the Year     For the Year     (Date of  
   
Ended
   
Ended
   
Inception) to
 
   
August 31,
2013
   
August 31,
2012
   
August 31,
2013
 
                   
Revenue
  $ -     $ -     $ -  
                         
Operating expenses
                       
                         
Donated rent
    -       -       9,750  
Donated services
    -       -       19,500  
General and administrative
    2,509,541       1,873,586       16,885,687  
Mineral property and exploration costs
    1,305,564       666,516       4,569,148  
Professional fees
    309,078       314,996       2,145,072  
                         
Total operating expenses
    (4,124,183 )     (2,855,098 )     (23,629,157 )
                         
Other income (expense)
                       
Other income
    6,784       85,045       194,770  
Interest income
    -       -       33,781  
Gain (loss) on derivative liabilities
    496,605       (309,021 )     564,108  
Interest expense
    (2,721,726 )     (1,220,502 )     (7,009,846 )
                         
Total other expense
    (2,218,337 )     (1,444,478 )     (6,217,187 )
                         
Net Loss
  $ (6,342,520 )   $ (4,299,576 )   $ (29,846,344 )
Net Loss Per Common Share - Basic and Diluted
  $ (2.07 )   $ (635.09 )        
Weighted Average Number of Common Shares Outstanding
    3,062,319       6,770          

The accompanying notes are an integral part of these financial statements
 
 
40

 
 
Colorado Goldfields Inc. (An Exploration Stage Company)
Statements of Cash Flows
 
               
Accumulated from
 
               
February 11,
2004
 
    For the Year     For the Year     (Date of  
   
Ended
   
Ended
   
 Inception) to
 
   
August 31,
2013
   
August 31,
2012
   
August 31,
2013
 
                   
Cash Flows Used in Operating Activities:
             
                   
Net loss
  $ (6,342,520 )   $ (4,299,576 )   $ (29,846,344 )
                         
Adjustments to reconcile net loss to net cash used in
         
operating activities:
                       
Donated services and rent
    -       -       29,250  
Amortization of debt discount and deferred financing costs
    2,599,650       1,088,310       6,289,129  
Depreciation and amortization
    3,796       17,410       151,670  
(Gain) loss on derivative liabilities
    (496,605 )     309,021       (564,108 )
Impairment of mining rights
    68,785       135,833       467,396  
Stock issued for services
    1,031,297       1,059,619       11,502,377  
Stock issued for Champion and Silver Wing Mines
    185,000       -       185,000  
Stock-based compensation - options
    -       -       899,303  
Accrued interest
    125,993       129,566       565,938  
Accretion expense on asset retirement obligation
    -       35,065       191,635  
Loss (gain) on sale of property, plant and equipment
    217       (19,252 )     (92,792 )
Change in operating assets and liabilities:
                 
Increase in restricted cash
    -       -       (515,428 )
(Increase) decrease in prepaid expenses and other
    (87,299 )     10,451       (91,062 )
Increase in accounts payable
    1,266,983       527,273       3,393,344  
Increase in accrued liabilities
    1,170,945       566,974       2,757,027  
(Increase) decrease in other assets
    -       6,777       (4,743 )
Net cash used in operating activities
    (473,758 )     (432,529 )     (4,682,408 )
                         
Cash Flows from Investing Activities:
                 
Proceeds from sale of property, plant and equipment
    -       38,232       240,632  
Acquisition of property, plant and equipment
    (43,805 )     (3,061 )     (764,602 )
Net cash (used in) provided by investing activities
    (43,805 )     35,171       (523,970 )
                         
Cash Flows from Financing Activities:
                 
Advances received
    -       -       405,733  
Repayment of advances
    -       -       (405,733 )
Proceeds from notes from related parties
    -       -       581,452  
Repayment of advances from related party
    -       -       (20,596 )
Proceeds from note payable
    -       24,000       124,000  
Repayment of notes payable
    (6,328 )     (7,787 )     (702,819 )
Proceeds from issuance of convertible debt
    628,320       427,000       2,474,297  
Loan acquisition costs
    (95,430 )     (51,600 )     (293,928 )
Proceeds from exercise of warrants
    -       -       570  
Net proceeds from issuance of common stock
    -       -       3,058,494  
Net cash provided by financing activities
    526,562       391,613       5,221,470  
                         
Increase (decrease) in cash
    8,999       (5,745 )     15,092  
                         
Cash - Beginning of Period
    6,093       11,838       -  
                         
Cash  - End of Period
  $ 15,092     $ 6,093     $ 15,092  
                         
Supplemental Disclosures:
                       
Interest paid
  $ 3,759     $ 3,645     $ 102,185  
                         
Non-cash investing and financing activities:
                 
Exchange of accounts payable and accrued liabilities for debt
  $ -     $ 80,000     $ 246,036  
Issuance of common stock to satisfy accounts payable
  $ 557,194     $ 450,207     $ 2,180,268  
Issuance of common stock to satisfy accrued liabilities
  $ 1,420,122     $ 682,560     $ 2,102,682  
Issuance of common stock for prepaid expenses
  $ -     $ 21,580     $ 550,159  
Issuance of common stock for mining rights
  $ 62,500     $ -     $ 620,000  
Issuance of common stock for work commitment
  $ 660,834     $ -     $ 660,834  
Exchange of convertible debt for common shares
  $ 1,870,545     $ 1,892,844     $ 6,642,027  
Exchange of mortgage payable for convertible debt
  $ 295,984     $ 50,000     $ 345,984  
Exchange of property, plant and equipment for
         
  accounts payable
  $ -     $ -     $ 2,750  
Forgiveness of related party debt and accrued interest
  $ -     $ -     $ 288,361  
Change in estimate of asset retirement obligation
  $ -     $ 176,135     $ 176,135  
                         
Acquisition of land and building:
                       
Cash paid
  $ -     $ -     $ 250,677  
Mortgage note given to seller
  $ -     $ -       650,000  
Asset retirement obligation assumed
  $ -     $ -       500,000  
Assets acquired
  $ -     $ -     $ 1,400,677  
 
The accompanying notes are an integral part of these financial statements
 
 
41

 
 
Colorado Goldfields Inc. (An Exploration Stage Company)
Statements of Stockholders' (Deficit) Equity
From February 11, 2004 (Date of Inception) to August 31, 2013
 
                                       
Deficit
       
                                       
Accumulated
   
Total
 
   
Class A
   
Class B
   
Additional
         
During the
   
Stockholders'
 
   
Common Stock
   
Common Stock
   
Paid in
   
Donated
   
Exploration
   
(Deficit)
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Capital
   
Stage
   
Equity
 
                                                 
                                                 
Balances - February 11, 2004 (Date of inception)
    -     $ -       -     $ -     $ -     $ -     $ -     $ -  
Issuance of common stock for cash
    21       -       -       -       2,500       -       -       2,500  
Donated services and rent
    -       -       -       -       -       4,500       -       4,500  
Net loss
    -       -       -       -       -       -       (5,898 )     (5,898 )
                                                                 
Balances - August 31, 2004
    21     $ -       -     $ -     $ 2,500     $ 4,500     $ (5,898 )   $ 1,102  
Issuance of common stock for cash
    25       -       -       -       53,750       -       -       53,750  
Donated services and rent
    -       -       -       -       -       9,000       -       9,000  
Net loss
    -       -       -       -       -       -       (35,319 )     (35,319 )
                                                                 
Balances - August 31, 2005
    46     $ -       -     $ -     $ 56,250     $ 13,500     $ (41,217 )   $ 28,533  
Donated services and rent
    -       -       -       -       -       9,000       -       9,000  
Net loss
    -       -       -       -       -       -       (36,148 )     (36,148 )
                                                                 
Balances - August 31, 2006
    46     $ -       -     $ -     $ 56,250     $ 22,500     $ (77,365 )   $ 1,385  
Donated services and rent
    -       -       -       -       -       6,750       -       6,750  
Net loss
    -       -       -       -       -       -       (300,193 )     (300,193 )
                                                                 
Balances - August 31, 2007
    46     $ -       -     $ -     $ 56,250     $ 29,250     $ (377,558 )   $ (292,058 )
Issuance of common stock for cash (net of
                                         
offering costs of $282,231)
    4       -       -       -       3,002,244       -       -       3,002,244  
Shares issued for services
    4       -       -       -       869,739       -       -       869,739  
Stock-based compensation - options
    -       -       -       -       895,209       -       -       895,209  
Net loss
    -       -       -       -       -       -       (3,721,021 )     (3,721,021 )
                                                                 
Balances - August 31, 2008
    54     $ -       -     $ -     $ 4,823,442     $ 29,250     $ (4,098,579 )   $ 754,113  
Shares issued for services
    148       -       -       -       4,241,283       -       -       4,241,283  
Issuance of common stock to satisfy accounts payable
    12       -       -       -       370,015       -       -       370,015  
Stock-based compensation - options
    -       -       -       -       4,094       -       -       4,094  
Stock issued to beneficial owners of Class A Common Stock
    -       -       35,732,285       -       -       -       -       -  
Forgiveness of related party debt and accrued interest
    -       -       -       -       288,361       -       -       288,361  
Net loss
    -       -       -       -       -       -       (5,281,857 )     (5,281,857 )
Balances - August 31, 2009
    214     $ -       35,732,285     $ -     $ 9,727,195     $ 29,250     $ (9,380,436 )   $ 376,009  
Shares issued for services
    368       -       -       -       1,950,760       -       -       1,950,760  
Issuance of common stock to satisfy accounts payable
    58       -       -       -       343,828       -       -       343,828  
Shares issued for mining rights
    50       -       -       -       407,500       -       -       407,500  
Shares issued for convertible debt
    19       -       -       -       107,136       -       -       107,136  
Stock issued to beneficial owners of Class A Common Stock
    -       -       5,012,068       -       -       -       -       -  
Net loss
    -       -       -       -       -       -       (3,660,418 )     (3,660,418 )
                                                                 
Balances - August 31, 2010
    709     $ -       40,744,353     $ -     $ 12,536,419     $ 29,250     $ (13,040,854 )   $ (475,185 )
Shares issued for services
    1,207       1       -       -       2,424,286       -       -       2,424,287  
Issuance of common stock to satisfy accounts payable
    233       -       -       -       459,024       -       -       459,024  
Shares issued for convertible debt
    859       1       -       -       2,771,501       -       -       2,771,502  
Shares issued for mining rights
    100       -       -       -       150,000       -       -       150,000  
Stock issued to officers
    -       -       449,623,244       -       -       -       -       -  
Class B warrants exercised and shares issued
    -       -       3,936       -       570       -       -       570  
Net loss
    -       -       -       -       -       -       (6,163,394 )     (6,163,394 )
                                                                 
Balances - August 31, 2011
    3,108     $ 2       490,371,533     $ -     $ 18,341,800     $ 29,250     $ (19,204,248 )   $ (833,196 )
Shares issued for services
    2,236       2       -       -       999,795       -       -       999,797  
Issuance of common stock to satisfy accounts payable
    1,026       1       -       -       450,206       -       -       450,207  
Issuance of common stock to satisfy accrued liabilities
    1,265       1       -       -       682,559       -       -       682,560  
Shares issued for convertible debt
    3,660       4       -       -       1,892,840       -       -       1,892,844  
Net loss
    -       -       -       -       -       -       (4,299,576 )     (4,299,576 )
                                                                 
Balances - August 31, 2012
    11,295     $ 10       490,371,533     $ -     $ 22,367,200     $ 29,250     $ (23,503,824 )   $ (1,107,364 )
Shares issued to round fractional shares due to stock split
    361       -       -       -       -       -       -       -  
Shares issued for services
    4,967,177       4,967       -       -       969,039       -       -       974,006  
Shares issued for mining rights
    500       1       -       -       62,499       -       -       62,500  
Shares issued for Champion and Silver Wing Mines
    172,000