Notes to Unaudited Consolidated Financial Statements

NOTE 1.  Basis of Presentation

Gold Crest Mines, Inc. and its subsidiaries (“Gold Crest” and “the Company”) is a Nevada corporation originally incorporated on August 20, 1968, as Silver Crest Mines, Inc., an Idaho corporation.  

On August 1, 2006, Gold Crest acquired 100% of the issued and outstanding shares of Niagara Mining and Development Co., (“Niagara”), an Idaho corporation formed on January 11, 2005, and its wholly-owned subsidiary, Kisa Gold Mining, Inc. (“Kisa”), an Alaskan corporation formed on July 28, 2006.  On June 20, 2008, 100% of the issued and outstanding shares of Kisa was transferred from Niagara to the Company.

The interim Consolidated Financial Statements of the Company and its subsidiaries are unaudited.  In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included.  All such adjustments are, in the opinion of management, of a normal recurring nature.  The results reported in these interim Consolidated Financial Statements are not necessarily indicative of the results that may be reported for the entire year.  These interim Consolidated Financial Statements should be read in conjunction with the Company’s Consolidated Financial Statements included in its Annual Report on Form 10-KSB for the year ended December 31, 2007.

Certain amounts in prior period financial statements have been reclassified to conform to the 2008 presentation.

NOTE 2.  Summary of Significant Accounting Policies

This summary of significant accounting policies is presented to assist in understanding the financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

Accounting for Investments

The Company uses the cost method to account for its investments in companies that we do not control and for which the Company does not have the ability to exercise significant influence over operating and financial policies.  Marketable equity securities are categorized as available for sale and carried at fair market value. Realized gains and losses on the sale of securities are recognized on a specific identification basis. Unrealized gains and losses are included as a component of accumulated other comprehensive income (loss), unless a permanent impairment in value has occurred, which would then be charged to current period net income (loss).

Adoption of New Accounting Principles

Effective January 1, 2008, we adopted the provisions of SFAS No. 157, “Fair Value Measurements”, for our financial assets and financial liabilities without a material effect on our results of operations and financial position.  The effective date of SFAS No. 157 for non-financial assets and non-financial liabilities has been deferred by FSP 157-2 to fiscal years beginning after November 15, 2008, and we do not anticipate the impact of adopting SFAS 157 for non-financial and non-financial liabilities to have a material impact on our results of operations and financial position.  

SFAS No. 157 expands disclosure requirements to include the following information for each major category of assets and liabilities that are measured at fair value on a recurring basis:

a.

The fair value measurement;

b.

The level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3);

c.

For fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following:

1)

Total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities);

2)

The amount of these gains or losses attributable to the change in unrealized gains or losses relating to those assets or liabilities still held at the reporting period date and a description of where those unrealized gains or losses are reported;

3)

Purchases, sales, issuances, and settlements (net); and

4)

Transfers in and/or out of Level 3.

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The Company’s cash and cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.

We also adopted the provisions of SFAS No. 159, “The Fair Value Option for Financial Liabilities”, effective January 1, 2008.  SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities at fair value.  The adoption of SFAS No. 159 has not had a material effect on our financial position or results of operations as of and for the six months ended June 30, 2008.

New Accounting Pronouncements

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” ("SFAS 162"). SFAS 162 identifies a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles for non-governmental entities. SFAS 162 is effective 60 days following the Securities and Exchange Commission's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Presenting Fairly in Conformity with Generally Accepted Accounting Principles." The Company is assessing the impact of the adoption of SFAS 162 and believes there will be no material impact on its consolidated financial statements.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133” (“SFAS 161”).  SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities.  This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  The Company does not expect the adoption of SFAS 161 to have a material effect on our financial position or results of operations.

In December 2007, FASB issued Statement of Financial Accounting Standards No. 160 “Non Controlling Interests in Consolidated Financial Statements - an amendment of ARB 51” (“SFAS 160”) which is effective for fiscal years and interim periods within those years beginning on or after December 15, 2008. SFAS No. 160 amends ARB 51 to establish accounting and reporting standards for the non controlling ownership interest in a subsidiary and for the deconsolidation of a subsidiary. The Company does not expect the adoption of SFAS 160 to have a material effect on our financial position or results of operations.

In December 2007, FASB issued SFAS No. 141 (R) “Business Combinations”. This standard is effective for transactions where the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS No. 141 (R) will change the accounting for assets acquired and liabilities assumed in a business combination. These changes include:

·

Acquisition costs will generally be expensed as incurred;

·

Non controlling interests will be valued at fair value at the acquisition date;

·

Acquired contingent liabilities will be recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non acquired contingencies;

·

In-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date;

·

Restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and

·

Changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense.

The adoption of SFAS No. 141 (R) is not expected to have a material effect on the Company’s financial statements.  Any future business combination occurring on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 will be accounted for in accordance with this guidance.

Basic and Diluted Net Loss Per Share

Net loss per share was computed by dividing the net loss by the weighted average number of common shares outstanding during the period.  The weighted average number of shares was calculated by taking the number of shares outstanding and weighting them by the amount of time that they were outstanding.  Diluted net loss per share for the Company is the same as basic net loss per share, as the inclusion of common stock equivalents would be antidilutive.  At June 30, 2008 the common stock equivalents consisted of 6,250,000 options exercisable at prices ranging from $0.28 to $0.53 per share and 4,397,500 common stock warrants exercisable at $0.30 per share.  At June 30, 2007 the common stock equivalents consisted of 5,540,000 options exercisable at prices ranging from $0.30 to $0.53 per share.

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Use of Estimates

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the amounts reported in those statements and accompanying notes. Actual results could differ from those estimates.

NOTE 3. Going Concern

As shown in the accompanying financial statements, the Company has had no revenues and incurred an accumulated deficit of $8,400,990 through June 30, 2008.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  Management intends to seek additional capital from new equity securities offerings and joint venture agreements that will provide funds needed to increase liquidity, fund internal growth and fully implement its business plan.  See “Note 5. Mineral Properties - Golden Lynx, LLC’, “Note 5. Mineral Properties - Letter of Intent with Cougar”, “Note 7.  Common Stock and Common Stock Warrants” and “Note 8. Common Stock Subscribed”.

The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

Should the Company be unable to raise capital through future private placements and/or joint venture agreements, its business, and, as a result, its financial position, results of operations and cash flow will likely be materially adversely impacted.  As such, substantial doubt as to the Company’s ability to continue as a going concern remains as of the date of these financial statements.

An estimated $500,000 to $1,000,000 is believed necessary to continue operations and increase development through the next twelve months. The timing and amount of capital requirements will depend on a number of factors, including the Company’s ability to successfully enter into a joint venture on our Golden Meadows project in Idaho and the Company’s future personnel requirements.

NOTE 4.  Note Receivable

On January 11, 2007, the Company advanced Diamond Drilling Consultants Con Ag., Inc. (“Diamond Drilling”) $150,000 of a $200,000 secured promissory note to finance the construction of a drilling rig for use by the Company. The final $50,000 was advanced during May 2007, when the drilling rig construction was completed. Interest accrued at six percent (6%) per annum, from June 15, 2007, through June 12, 2008. This note, including principal and interest, was payable in full on or before January 15, 2009, or at the termination of the drilling contract between the parties, whichever occurred first. In consideration for the Company providing this note, the Company was to have exclusive use of the drilling rig for two calendar years, which also served as collateral for the note.

Upon successful completion of the contractual obligations of the note, the Company agreed to grant Diamond Drilling a forty percent (40%) reduction in the amount of principal and accrued interest payable.  During the third quarter of 2007, the Company determined that the 40% reduction was probable and likely to occur.  Therefore 40% of the note receivable, or $80,000, had been recorded as ”Prepaid Exploration Costs” and was being amortized over the life of the note receivable.  The amortized expense was being charged to exploration expenditures.

As part of the contract with Diamond Drilling for the 2008 drilling season, the Company had a 10,000 foot minimum drilling requirement at a cost of $23.00 per foot for a total potential liability of $230,000 for undrilled footage (the “Diamond Drilling Contract”).  See “Note 9. Commitments and Contingencies - Diamond Drilling Contract ”.

During 2008, it became apparent that the Company would not satisfy its minimum drilling requirement under the Diamond Drilling Contract.  On June 12, 2008, the Company entered into a settlement agreement with Diamond Drilling (the “Settlement Agreement”).  The terms of the Settlement Agreement require Diamond Drilling to release Gold Crest from its obligation to pay the $230,000 drilling commitment in exchange for the following (recorded as $161,814  to settlement of drilling contract in the Company financial statements for the quarter ended June 30, 2008):

1.

The forgiveness by the Company of a $120,000 note receivable from Diamond Drilling;

2.

The forgiveness by the Company of $7,160 of accrued interest receivable related to the note receivable from Diamond Drilling;

3.

The sale to Diamond Drilling for $1 a water line with a carrying value of $12,654 and miscellaneous tools with zero carrying value; and

4.

The write off by the Company of the $22,000 remaining balance in the Prepaid Exploration Costs.

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NOTE 5.  Mineral Properties

The Company’s mineral properties consist of various mining claims in Alaska and Idaho.  The Company is in the business of exploration, development, and if warranted the mining of properties containing valuable mineral deposits. The focus of the Company’s exploration programs is directed at precious metals, primarily gold. The Company currently controls approximately 92,160 acres of land under State of Alaska jurisdiction, after having transferred 15,320 acres into Golden Lynx, LLC as part of our joint venture with Cougar Gold LLC.  See “ Golden Lynx, LLC”.    These claims are held under and are subject to the State’s mining laws and regulations.  In Idaho, the Company controls over 3,930 acres of unpatented mill site and load claims under Federal jurisdiction that are held under and are subject to the Federal mining laws and regulations.

Golden Lynx, LLC  

On April 18, 2008, the Company, through its wholly-owned subsidiary, Kisa, entered into an agreement with Cougar Gold LLC, a Delaware limited liability company, (“Cougar”) under which the two companies formed Golden Lynx, LLC, a Delaware limited liability company (“Golden Lynx”).  Pursuant to this agreement, the Company transferred 15,320 acres under State of Alaska jurisdiction into Golden Lynx.  The Company accounts for this investment under the cost method of accounting.  Accordingly, the carrying value of the contributed property of $54,575 was reclassed from mineral properties  to “Investment in Golden Lynx LLC”.  

Cougar has an initial 55% interest and Kisa has an initial 45% interest in Golden Lynx. Cougar is entitled to retain its 55% interest by making the following contributions to Golden Lynx, used to fund exploration expenditures, on the following timetable:

(a)

$750,000 on or before the first anniversary of the effective date of the agreement;

(b)

An additional $1,250,000 on or before the second anniversary of the effective date of the agreement; and

(c)

An additional $1,500,000 on or before the third anniversary of the effective date of the agreement.

Within 30 days after completing the foregoing expenditures, Cougar may elect to purchase an additional ownership interest in Golden Lynx by making capital contributions in the aggregate amount of $2,500,000 which shall also be used to fund exploration expenditures during the two years that follow the third anniversary of the effective date of the agreement. Upon making such capital contributions, Cougar’s ownership interest would increase to 80%, and Kisa’s ownership interest would decrease to 20%.  

Option and Real Property Sales Agreement with JJO, LLC.

On January 24, 2008, the Company entered into an Option and Real Property Sales Agreement with JJO, LLC, an Idaho limited liability company and personal representative of the Estate of J.J. Oberbillig.  This option gives the Company the right to acquire approximately 255 acres of patented mining and mill site claims in the Stibnite area from the Oberbillig Estate.  These lands have been the subject of several exploration programs over the years, but contain no resources calculated to modern standards.  The Company has also acquired access to all the historical data for the district owned by the Oberbilligs.  The property has a total purchase price of $435,620.  As consideration for entering into the Option Agreement, the Company paid $125,000 which is presented in the caption “Mineral Properties” on the balance sheet.  

If the Company decides to continue with the option on the land, the Company will be required to make the following payments.  A payment of $100,000 will be required upon closing on or before August 15, 2008 (the “Closing Date”), then the remaining balance of the Purchase Price will be $210,620 and shall be in the form of promissory notes which will accrue interest at the rate of six percent (6%) per annum commencing on the Closing Date.   Commencing one (1) year from the Closing Date, five (5) annual payments of principal plus accrued interest in the amount of $50,000 will be due on the same day and month as the Closing Date and will end in the year 2013.

Mining Lease and Option to Purchase Agreement with Bradley Mining Company

On March 31, 2008, the Company entered into a Mining Lease and Option to Purchase Agreement with the Bradley Mining Company (the “Bradley Option Agreement”).  Pursuant to the terms of the Agreement, the Company has been granted an exclusive option through March 30, 2009 to purchase for $300,000 real property located in the Stibnite mining district, Valley County, Idaho (“the Bradley Property”).  The Bradley Property consists of nine patented mining claims comprising approximately 175 acres.  As consideration for entering into the Bradley Option Agreement, the Company paid $75,000 which is included in the caption “Mineral Properties” on the balance sheet.  If the Company elects to exercise this option on or before March 30, 2009, then there will be another payment due upon closing in the amount of $225,000.

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Newmont Venture Agreements

On May 8, 2008, the Company signed three separate joint venture agreements (“the Newmont Agreements”) with Newmont North America Exploration Limited, a subsidiary of Newmont Mining Corporation (”Newmont”).   The subject claims consist of the Company’s AKO and Luna claim groups located in the Kuskokwim region of southwestern Alaska approximately 120 miles south of the Donlin Creek deposit and our Chilly claim group located approximately 50 miles southwest of the Donlin Creek deposit.  

Under the terms of the Newmont Agreements, Newmont can earn a 51% interest in the subject claims by expending $3,000,000 in Qualifying Work Expenditures (as defined in the Newmont Agreements) and by completing a minimum of 3,000 meters of drilling on each property on or before December 31, 2011.  In addition, Newmont must make cash payments to Gold Crest for each property of $25,000 on or before January 15, 2009, and $50,000 on or before January 15, 2010.  

Newmont has the option to increase its interest in the subject claims to 70% by completing an additional $6,000,000 in Qualifying Work Expenditures (as defined in the Newmont Agreements) and by completing a minimum of 3,000 additional meters of drilling on each property on or before December 31, 2015.  In the event a decision is made to build a mine on either property, either company may elect to have Newmont provide all the financing for the mine in return for Newmont receiving an additional 10% interest in that property.  The Company would then repay Newmont for the Company’s share of the financing from its share of future profits, if any.

Letter of Intent with Cougar

On June 10, 2008, the Company, through its wholly owned subsidiary Niagara, signed a non-binding letter-of-intent with Cougar to enter into a joint venture agreement covering all of the Company’s properties in Idaho (the “Proposed JV Agreement”).  The Proposed JV Agreement covers the Company’s unpatented mining and millsite claims, as well as its patented claims held under mining leases and option agreements.  Altogether the subject properties total approximately 4,360 acres known as our Golden Meadows Project located in the Stibnite-Yellow Pine Mining District, Valley County, Idaho.  The 4,360 acres consists of:

1.

the Company’s 3,930 acres of unpatented mill site and load claims;

2.

the 255 acres included in the Option and Real Property Sales Agreement with JJO, LLC; and

3.

the 175 acres included in the Mining Lease and Option to Purchase Agreement with Bradley Mining Company.

The Proposed JV Agreement is subject to due diligence by Cougar and to negotiation and execution of a definitive joint venture agreement.  Under the terms of the Proposed JV Agreement, Cougar can earn a 60% interest in the subject properties by expending a total of $4,500,000 (the “Initial Earn-In Amount”) within four years of the signing of the definitive agreement.  The initial earn-in amount will include exploration expenditures, land payments and the cost of the due diligence.

Cougar can earn up to an additional 25% interest in the subject properties, for a total of 85%, by expending an incremental $4,500,000 (the “Additional Earn-In Amount”) on exploration expenditures within eight years of the signing of the definitive agreement.  

The following is a summary of our mineral properties at June 30, 2008 and December 31, 2007.

The Company is required to perform certain work commitments and pay annual assessments to the States of Alaska and Idaho to hold these claims in good standing.  See “Note 9. Commitments and Contingencies”

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NOTE 6.  Royalty Interest in Mineral Property

On January 24, 2008, the Company entered into an Option and Royalty Sales Agreement with the heirs of the Estate of J.J. Oberbillig (the “Oberbillig Agreement”).  Pursuant to the terms of the Agreement, the Company has been granted an exclusive option through August 15, 2008 to purchase a 5% (five percent) net smelter royalty interest (“NSR”) in real property located in Valley County, Idaho.  This royalty applies to any metal produced from lands sold by the estate of J.J. Oberbillig to Bradley Mining Co. in 1941.  The Yellow Pine gold property, now controlled by Vista Gold Corporation and the subject of a December 2006 Canadian National Instrument 43-101 report, is subject to the 5% NSR.  The NSR has a total Purchase Price of $1,642,480.  As consideration for entering into the Option Agreement, the Company paid $400,000 which is presented as royalty interest in mineral properties on the balance sheet.  

If the Company elects to exercise this option on or before August 15, 2008 (the “Closing Date”), then there will be another payment due upon closing in the amount of $400,000.  The remaining balance of the Purchase Price, $842,480 shall be in the form of a promissory note which will accrue interest at the rate of six percent (6%) per annum commencing on the Closing Date.   Commencing one (1) year from the Closing Date, five (5) annual payments of principal plus accrued interest in the amount of $200,000 will be due on the same day and month as the Closing Date and will end in the year 2013.  The Oberbillig Agreement is subject to the letter-of-intent discussed in “Note 5. Mineral Properties - Letter of Intent with Cougar”.  

NOTE 7.  Common Stock and Common Stock Warrants

During the first six months of 2008, the Company had the following issuances of common stock:  

1.

The Company issued 450,000 shares of restricted common stock upon the payment of promissory notes in the amount of $90,000 issued as part of the November 2007 private placement.  See “Note 8.  Common Stock Subscribed”;  

2.

The Company issued 300,000 shares of restricted common stock upon the exercise of 300,000 warrants and received gross proceeds in the amount of $90,000;  

3.

The Company issued 100,000 shares of restricted common stock for $10,000 worth of services performed;  

4.

The Company issued 400,000 shares of common stock to two newly appointed directors valued at $40,000;

5.

The Company issued 1,666,667 and 3,000,000 shares of restricted common stock for gross proceeds of $250,000 and $300,000, respectively. See “Note 5. Mineral Properties - Golden Lynx, LLC” and “Note 5. Mineral Properties - Letter of Intent with Cougar”.

NOTE 8.  Common Stock Subscribed

In November 2007, the Company completed a private placement of 4,697,500 units at a price of $0.20 per unit.  Each unit consisted of one share of common stock and one warrant.  Each warrant is exercisable for a period of two years to purchase one share of common stock at a price of $0.30 per share.   

Of the total units, 662,500 units were subscribed in exchange for promissory notes with a value of $132,500 and due dates extending through September 1, 2008.   The $132,500 was recorded under the caption “Common Stock Subscribed” in the Company’s 2007 financial statements.

During the 2008 first quarter, the Company received payments on the promissory notes in the amount of $86,500.  However, the Company issued only 150,000 units because not all investors paid in full on their promissory notes.

During the 2008 second quarter, the Company received payments of $20,000 which constituted partial payment on certain promissory notes and issued a total of 300,000 units.

At June 30, 2008, the balance under the caption “Common Stock Subscribed” was $26,000.  However, 212,500 units remain unissued because the Company has not received full payment on certain related promissory notes.  See “Note 7. Common Stock and Common Stock Warrants”.

NOTE 9.  Commitments and Contingencies

Alaska Mineral Property Rent and Assessment Work Commitments

In Alaska, land holdings consist of state mining claims and prospecting sites totaling 107,480 acres of land. The holdings are in good standing until September 1, 2008, at which time the Company will need to have completed $173,200 of assessment work on the claims to the State of Alaska.  As per the terms of our joint ventures with Newmont and Cougar, they will pay $20,000 of that assessment work.  Of the remaining $153,200, if the Company is unsuccessful in placing any

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of the remaining properties into joint ventures by the September 1, 2008 due date, then the Company may be forced to drop the claims and therefore will not be required to pay the $153,200 in assessment work.  The carrying value of these claims that the Company may drop is $83,600.   See “Note 5. Mineral Properties - Newmont Venture Agreements”, “Note 5. Mineral Properties - Golden Lynx, LLC” and “Note 10. Subsequent Events”.

The Company is also required to pay annual rent amounting to $64,375 to the State of Alaska.  As per the terms of our joint ventures with Newmont and Cougar, they will pay $20,675 of that assessment work.  Of the remaining $43,700, if the Company is unsuccessful in placing any of the remaining properties into joint ventures by the September 1, 2008 due date, then the Company may be forced to drop the claims and therefore will not be required to pay the $43,700 in rental fees.  The carrying value of these claims that the Company may drop is $83,600.   See “Note 5. Mineral Properties - Newmont Venture Agreements”, “Note 5. Mineral Properties - Golden Lynx, LLC” and “Note 10. Subsequent Events”.

Included in the 107,480 acres of land, the Company’s wholly-owned subsidiary, Kisa Gold Mining, Inc., had a lease and option agreement dated January 30, 2007, with Greatland Exploration on 26,400 acres, known as the Kelly Creek claims, in the Cape Nome Recording District in Alaska. The Company was required to pay $45,000 to Greatland Exploration by September 1, 2008, to hold the claims for another year.  Also, as part of the Greatland Exploration lease, the Company was required to perform $400,000 in work commitments on the property by December 31, 2008.  The $400,000 work commitment could have been credited towards $44,400 worth of assessment work for the State of Alaska, or at the option of the Company, in lieu of the $400,000 work commitment with Greatland Exploration, the Company could have paid a one-time fee to Greatland Exploration of $200,000.  This amounts to a total maximum commitment of $461,500, plus filing fees the Company would have been required to pay to hold the Kelly Creek claims for another year.  However, on July 22, 2008 the Company notified Greatland Exploration, LTD that it was exercising its right to cancel the lease and option agreement dated January 30, 2007.  “See Note 10.  Subsequent Events”.

Idaho Mineral Property Rent and Assessment Work Commitments

In central Idaho, the Company controls approximately 46 unpatented federal mill site claims and 185 unpatented federal lode claims in the Stibnite District covering approximately 3,930 acres on federally-owned public lands administered by the Payette and Boise National Forests. Mill site claims do not require annual assessment work, but do require annual maintenance payments to DOI Bureau of Land Management which will total $5,750.  The 185 unpatented federal lode claims will require a total of $18,500 worth of assessment work to be performed by September 1, 2008 or in lieu of the work, a one-time payment of $23,125 would satisfy the annual maintenance fee in order to hold the Idaho properties for an additional year. See “Note 5. Mineral Properties - Letter of Intent with Cougar”.

Option and Royalty and Real Property Sales Agreements

On January 24, 2008, the Company entered into an Option and Royalty Sales Agreement with the heirs of the Estate of J.J. Oberbillig and an Option and Real Property Sales Agreement with JJO, LLC, an Idaho limited liability company and personal representative of the Estate of J.J. Oberbillig.  If the Company decides to continue with the options on both the Royalty and the Land, the Company will be required to make the following payments.  A combined payment of $500,000 will be required upon closing on or before August 15, 2008 (the “Closing Date”), then the remaining balance of the Purchase Price, for both agreements combined will be $1,053,100 and shall be in the form of promissory notes which will accrue interest at the rate of six percent (6%) per annum commencing on the Closing Date.   Commencing one (1) year from the Closing Date, five (5) annual payments of principal plus accrued interest on both agreements in the amount of $250,000 will be due on the same day and month as the Closing Date and will end in the year 2013. See “Note 5. Mineral Properties - Letter of Intent with Cougar”.

Mining Lease and Option to Purchase Agreement with Bradley Mining Company

On March 31, 2008, the Company entered into a Mining Lease and Option to Purchase Agreement with the Bradley Mining Co., a California corporation.  Pursuant to the terms of the Agreement, the Company has been granted an exclusive option through March 30, 2009 to purchase real property located in the Stibnite mining district, Valley County, Idaho consisting of nine patented mining claims comprising approximately 175 acres.  The Property has a total Purchase Price of $300,000.  As consideration for entering into the Option Agreement, the Company paid $75,000.  If the Company elects to exercise this option on or before March 30, 2009, then there will be another payment upon closing in the amount of $225,000. See “Note 5. Mineral Properties - Letter of Intent with Cougar”.

Diamond Drilling Contract

As part of the contract with Diamond Drilling, the Company had a 10,000 foot minimum drilling requirement in 2007 of which the Company fulfilled only a 3,105 feet.  At March 31, 2008, the Company had accrued a liability to Diamond Drilling for the undrilled footage in the amount of $108,372.  This amount includes accrued interest and is net of a prepaid balance we carried with them.  During 2008 second quarter, the Company paid $108,372 to Diamond Drilling in satisfaction of this liability.

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As part of the contract with Diamond Drilling for the 2008 drilling season, the Company had a 10,000 foot minimum drilling requirement at a cost of $23.00 per foot for a total potential liability of $230,000 for undrilled footage (the “Diamond Drilling Contract”).  During 2008, it became apparent that the Company would not satisfy its minimum drilling requirement under the Diamond Drilling Contract.  See “Note 4. Note Receivable“.

Environmental Matters

A predecessor entity to the Company owned mineral property interests on certain public and private lands in Idaho and Montana.  Holdings included lands in mining districts designated as “Superfund” sites pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"). The properties were, and are, subject to a variety of federal and state regulations governing land use and environmental matters. A consultant reviewed the potential environmental impact of the prior mineral exploration and development activities, and believes there was substantial compliance with all such regulations, and is unaware of any pending action or proceedings relating to regulatory matters that would affect the financial position of the Company. Management acknowledges, however, that the possibility exists that the Company may be subject to environmental liabilities associated with its prior activities in the unforeseeable future, although the likelihood of such is deemed remote and the amount and nature of the liabilities is impossible to estimate.