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


FORM 20-F/A


£  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES  EXCHANGE ACT OF 1934


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

For the fiscal year ended 2006


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

For the transition period from ____________ to ____________


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


Date of event requiring this shell company report __________________


For the transition period from ____________ to ____________


Commission file number: 0-29922


TOMBSTONE EXPLORATION CORPORATION

(Exact name of Registrant as specified in its charter)


Not Applicable

(Translation of Registrant's name into English)


Canada

(Jurisdiction of incorporation or organization)


250 Blairgowrie Place Nanaimo, BC Canada V9T 4P5

 (Address of principal executive offices)


Copy of communications to:

Luis Carrillo, Esq.

SteadyLaw Group, LLP

501 W. Broadway, Suite 800

San Diego, CA 92101

Telephone: (619) 399-3090 Facsimile: (619) 330-1888


Securities registered or to be registered pursuant to Section 12(b) of the Act.


Title of Class

Name of exchange on which registered

Not Applicable

Not Applicable








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


Common Shares Without Par Value

(Title of Class)


Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.


Not Applicable

(Title of Class)


Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock

as of the close of the period covered by the annual report.


There were 12,904,864 Common Shares without par value issued and outstanding as at December 31, 2006.


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
£  YES S  NO


If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

£  YES £  NO


Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.


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.
S  YES £  NO


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer      £        Accelerated filer         £       Non-accelerated filer       S


Indicate by check mark which financial statement item the registrant has elected to follow.
S  ITEM 17 £  ITEM 18


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
£  YES S  NO


If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). £  YES £  NO








EXPLANATORY NOTE:

 

THIS FORM 20-F/A IS BEING FILED TO INCLUDE EXHIBIT 4.20 THAT WAS INADVERTENTLY NOT INCLUDED WITH THE ORIGINAL FILING.  THERE ARE NO OTHER CHANGES.


TABLE OF CONTENTS

  

 

  

Page

Forward-Looking Statements

1

PART I

 

  

1

Financial Information And Accounting Principles

2

Item 1

Identity of Directors, Senior Management and Advisers

2

  

A.

Directors and Senior Management

2

  

B.

Advisers

2

  

C.

Auditors

3

Item 2

Offer Statistics and Expected Timetable

3

Item 3

Key Information

3

  

A.

Selected Financial Data

3

  

B.

Capitalization and Indebtedness

4

  

C.

Reasons for the Offer and Use of Proceeds

4

  

D.

Risk Factors

5

Item 4

Information on our Company

10

  

A.

History and Development of our Company

10

  

B.

Business Overview

12

  

C.

Organizational Structure

16

  

D.

Property, Plant and Equipment

16

Item 4A

Unresolved Staff Comments

28

Item 5

Operating and Financial Review and Prospects

25

  

A.

Operating Results

28

  

B.

Liquidity and Capital Resources

28

  

C.

Research and Development, Patents and Licenses, etc.

29

  

D.

Trend Information

29

  

E.

Off-Balance Sheet Arrangements

29

  

F.

Tabular Disclosure of Contractual Obligations

29

 

G

Safe Harbor

29

Item 6

Directors, Senior Management and Employees

30

  

A.

Directors and Senior Management

30

  

B.

Compensation

30

  

C.

Board Practices

31

  

D.

Employees

31

  

E.

Share Ownership

31

Item 7

Major Shareholders and Related Party Transactions

32

  

A.

Major Shareholders

32

  

B.

Related Party Transactions

32

  

C.

Interests of Experts and Counsel

32

Item 8

Financial Information

32

  

A.

Financial Statements and Other Financial Information

32

  

B.

Significant Changes

33

Item 9

The Offer and Listing

33

Item 10

Additional Information

34

  

A.

Share Capital

34

  

B.

Articles of Incorporation and By-laws

34

  

C.

Material Contracts

37

  

D.

Exchange Controls

38

  

E.

Taxation

39

  

F.

Dividends and Paying Agents

44

  

G.

Statement by Experts

44

  

H.

Documents on Display

44

  

I.

Subsidiary Information

44

Item 11

Quantitative and Qualitative Disclosures About Market Risk

45

Item 12

Description of Securities Other than Equity Securities

45







PART II

  

45

Item 13

Defaults, Dividend Arrearages and Delinquencies

45

Item 14

Material Modifications to the Rights of Security Holders and Use of Proceeds

45

Item 15

Controls and Procedures

45

Item 16

[Reserved]

46

  

A.

Audit Committee Financial Expert

46

  

B.

Code of Ethics

46

  

C.

Principal Accountant Fees and Services

46

  

D.

Exemptions from the Listing Standards for Audit Committees.

46

  

E.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

46

PART III

  

46

Item 17

Financial Statements

46

Item 18

Not Applicable

46

Item 19

Exhibits  

47

SIGNATURE

49








GENERAL


We use the U.S. dollar as our reporting currency. All references in this Annual Report to “dollars” or “$” are expressed in U.S. dollars, unless otherwise indicated. See also “Item 3. Key Information” for more detailed currency and conversion information. Our consolidated financial statements which form part of this Report are presented in U.S. dollars and are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).


FORWARD-LOOKING STATEMENTS


Except for the statements of historical fact contained herein, some information presented in this Report constitutes forward-looking statements. When used in this Report, the words “estimate”, “project”, “believe”, “anticipate”, “intend”, “expect”, “predict”, “may”, “should”, the negative thereof or other variations thereon or comparable terminology are intended to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of our company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, changes in project parameters as plans continue to be refined, future prices of nickel, as well as those factors discussed in the section entitled “Risk Factors”. Although our company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause actual results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, prospective investors should not place undue reliance on forward-looking statements. The forward-looking statements in this Report speak only as to the date hereof. Our company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.


Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.


As used in this prospectus, the terms “we”, “us”, “our” and “Tombstone Exploration” mean Tombstone Exploration Corporation, unless otherwise indicated.

















1





PART I


FINANCIAL INFORMATION AND ACCOUNTING PRINCIPLES


The financial statements and summaries of financial information contained in this document are reported in U.S. dollars (“$”) unless otherwise stated. All such financial statements have been prepared in accordance with United States generally accepted accounting principles.


The financial statements of Tombstone Exploration Corporation for the year ended December 31, 2006 have been reported on by Moore & Associates, Chartered, Suite 109, 2675 South Jones Blvd., Las Vegas, Nevada.


The financial statements of Tombstone Exploration Corporation (formerly known as Pure Capital Incorporated) for the year ended December 31, 2005 have been reported on by Morgan & Company, Chartered Accountants, Suite 1488, 700 West Georgia Street, Vancouver, British Columbia, Canada V7Y 1A1.


ITEM 1.

Identity of Directors, Senior Management and Advisers


A.

Directors and Senior Management


The Directors and the senior management of our company as of July 12, 2007 are as follows:


Name

Business Address

Function

Since

Alan Brown

250 Blairgowrie Place

Nanaimo, BC, Canada

V9T 4P5

As President, Chief Executive Officer and director, Mr. Brown is responsible for the development of our strategic direction and the management and supervision of our overall business.

April 12, 2000


Mr. Alan Brown - Mr. Brown is the President and a director of the Company. Mr. Brown has been the Company accountant for the last four years. Prior to his work with the Company Mr. Brown spent many years advising clients on tax planning and structure.


There are no arrangements or understandings between any directors or executive officers and any other person to which the director or executive officer was selected as a director or member of senior management. There are not any family relationships among any of the directors and senior management of the Company.


B.

Advisers


Our legal advisers are SteadyLaw Group, LLP, with a business address at 501 W. Broadway, San Diego, California, 92101.


Consultants and other experts:


John Escapule – Operations Consultant


John Escapule was born in Tombstone in 1952 and is a fourth generation Tombstone native. John's father, Ernie Escapule, was the first miner to perfect and commercialize cyanide leach extraction for commercial mining. The family has a rich history of mining and ranching in the Tombstone area. Except for a tour of duty in the U. S. Army during the Viet Nam era, John has been primarily self-employed, often acting in a consulting capacity. He has vast experience with underground mining and heavy equipment. John has years of experience in contract drilling of declines. John has a degree in Geology from the University of Mexico in Mexico City. John has also spent a number of years setting up Merrill-Crowe plants for precious metal recovery in both the United States and Latin America. John has also been certified by the Mine Safety and Health Administration as a mine safety instructor.



2





Dennis Dalton – Chief Geologist


Mr. Dalton received a B.S in Geology from the University of California and a M.S. in Mining Engineering from the University of Nevada.  Dennis has had broad experience in mining geology with Bunker Hill Company, Union Mines and  Whitney and Whitney, Inc.  He also has experience as an environmental engineer with Arimetco, Inc., as well as civil engineering assignments with the Pima County, AZ Department of Transportation.  Mr. Dalton holds professional registrations as Engineer in Training (E.I.T.), State of Nevada, and Certified Public Manager (C.P.M.) from the Arizona State University.


C.        Auditors


Our auditors are Moore & Associates, Chartered. Moore & Associates are members of the PCAOB.


ITEM 2.

Offer Statistics and Expected Timetable


Not Applicable.


ITEM 3.

Key Information


A.

Selected Financial Data


The following tables set forth the data of our fiscal years ended December 31, 2006, 2005, 2004, 2003, and 2002. We derived all figures from our financial statements as prepared by our management, approved by our audit committee and audited by our independent auditor. This information should be read in conjunction with our financial statements included in this annual report.


Our financial statements included in this Report have been prepared in accordance with accounting principles generally accepted (“GAAP”) in the United States (“US”). All amounts are expressed in United States dollars.


SUMMARY OF FINANCIAL INFORMATION IN THE COMPANY'S FINANCIAL STATEMENTS


 

Restated

December 31, 2002

Restated

December 31, 2003

Restated

December 31, 2004


December 31, 2005


December 31, 2006

OPERATING DATA:

 

 

 

 

 

  Revenue

$0

$0

$0

 $0

$0

  Gross Profit

0

0

0

 0

0

  Net Income (Loss)

(969,211)

(2,068,471)

(1,194,987)

 (546,941)

693,625

  Income (Loss)

     per share

(22.02)

(13.31)

(2.77)

 (0.48)

0.10

 

 

 

 

 

 

BALANCE SHEET DATA:

 

 

 

 

 

  Cash

$3,033

$790

-

 $116

$42,981

  Total Assets

38,877

4,907

-

 116

942,981

  Current Liabilities

840,458

1,222,754

1,084,163

 1,015,287

81,227

  Long Term Debt

0

0

0

 0

0

  Total Liabilities

840,458

1,222,754

1,084,163

  1,015,287

81,227

  Shareholders

    Equity

    (Deficiency)

(801,581)

(1,217,847)

(1,084,163)

 (1,015,171)

861,754




3





CURRENCY TRANSLATIONS

  

The following table sets out the exchange rates for the conversion of one Canadian dollar into U.S. dollars in effect at the end of the following periods, and the average exchange rates (based on the average of the exchange rates on the last day of each month in such periods) and the range of high and low exchange rates for such periods.

 

At Year End December 31  

2006

2005  

2004  

2003  

2002  

End ($)

0.8547

0.8577

0.8308

0.7738

0.6331

Average ($)

0.8849

0.8255

0.7683

0.7135

0.6368

High ($)

0.8547

0.8751

0.8493

0.7738

0.6618

Low ($)

0.9091

0.7853

0.7159

0.6349

0.6199

 

The following table sets forth the high and low exchange rates for the conversion of one Canadian dollar into U.S. dollars for each of the last 6 months.

 

  Through  

June 2007

May 2007

April 2007

March 2007

February 2007

January 2007

 

 

 

 

 

 

 

High for the month ($)

0.9491

0.8981

0.8633

0.8467

0.8437

0.8457

 

 

 

 

 

 

 

Low for the month ($)

0.9294

0.9347

0.9036

0.8673

0.8632

0.8584

 

Exchange rates are based upon the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. The noon rate of exchange on July 12, 2007 as reported by the Federal Reserve Bank of New York for the conversion of one Canadian dollar into U.S. dollars was $0.9547.

 

B.

Capitalization and Indebtedness


Our authorized capital consists of an unlimited number of Common Shares without par value. As of July 12, 2007, we had 24,927,864 Common Shares issued and outstanding.


The table below sets forth our total indebtedness in United States dollars and capitalization as of December 31, 2006. You should read this table in conjunction with the audited financial statements and accompanying notes, included herein.


As at December 31, 2006

 

 Liabilities

 

  

 

                   Current, unsecured

$

81,227

 

                   Long term, unsecured

 

0

 

  

 

 

 

Shareholders’ Equity

 

 

 

                   Common stock

$

8,651,588

 

                   Paid in Capital

 

56,800

 

                   Accumulated Deficit

 

(7,845,134)

 

  

 

 

 

C.

Reasons for the Offer and Use of Proceeds

Not applicable.



4





D.

Risk Factors


This Report contains forward-looking statements which relate to future events or our future performance, including our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, or “potential” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in enumerated in this section entitled “Risk Factors”, that may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.


While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this Report. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.


An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this Report in evaluating our company and our business before purchasing shares of our company’s common stock. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. The risks described below are not the only ones facing our company. Additional risks not presently known to us may also impair our business operations. You could lose all or part of your investment due to any of these risks.


Risks Associated with Mining


All of our properties are in the exploration stage. There is no assurance that any of our properties contain any mineral resources in commercially exploitable quantities. If we do not discover any mineral resource in a commercially exploitable quantity, our business will fail and investors may lose all of their investment in our company.


Despite our acquisition of mineral claims and rights, we have not established that any of them contain any commercially exploitable mineral reserves, nor can there be any assurance that we will ever find commercially exploitable mineral reserves. The probability of an individual prospect ever having a commercially exploitable mineral reserve is extremely remote; in all probability our mineral resource properties do not contain any reserves and any funds that we spend on exploration will probably be lost. The search for valuable minerals as a business is extremely risky. We can provide investors with no assurance that any exploration on our properties will establish that commercially exploitable reserves of minerals exist on our mineral properties. Additional potential problems that may prevent us from discovering any reserves of minerals on our property include, but are not limited to, unanticipated problems relating to exploration and additional costs and expenses that may exceed current estimates. Most of these factors are beyond our control, and any of them could increase costs and make extraction of any identified mineral resource unprofitable.


If we are unable to establish the presence of commercially exploitable reserves of minerals on our property, our ability to fund future exploration activities will be impeded, we will not be able to operate profitably and investors may lose all of their investment in our company.




5





We face intense competition in the mineral exploration and exploitation industry and we compete with our competitors for financing, for new mineral resource properties and for qualified managerial and technical employees.


Our competition includes large established mining companies with substantial capabilities and with greater financial and technical resources than those available to us. As a result of this competition, we may have to compete for financing and be unable to acquire financing on terms we consider acceptable. This competition could adversely affect our ability to acquire suitable prospects for exploration in the future. We may also have to compete with the other mining companies in the recruitment and retention of qualified managerial and technical employees. If we are unable to successfully compete for financing or for qualified employees, our exploration programs may be slowed down or suspended. If we are unable to successfully compete for the acquisition of suitable prospects for exploration in the future, there can be no assurance that we will acquire any interest in additional mineral resource properties. The occurrence of any of these things may cause us to cease operations as a company.


Because of the inherent dangers involved in mineral exploration and exploitation, there is a risk that we may incur liability or damages as we conduct our business.


The search for valuable minerals involves numerous hazards. As a result, we may become subject to liability for such hazards, including pollution, cave-ins and other hazards against which we cannot insure or against which we may elect not to insure. At the present time we have no coverage to insure against these hazards. The payment of such liabilities may have a material adverse effect on our financial position.


Our title to our resource properties may be challenged by third parties or the licenses that permit us to explore our properties may expire if we fail to timely renew them and pay the required fees.


We have investigated the status of our title to our mineral resource properties and we are satisfied that the title to these properties is properly registered in the name of our company, but we cannot guarantee that the rights to explore our properties will not be revoked or altered to our detriment. The ownership and validity of mining claims and concessions are often uncertain and may be contested. Should such a challenge to the boundaries or registration of ownership arise, the resolution of disputes or the process of clarifying the accuracy of our mining license registration could take substantial time and money. Further, the preservation of our title to our mineral properties requires that we continue to expend money or work the claims. If we fail to expend the necessary amount of money or if we fail to work our mineral claims, then our title to our mineral properties could expire or be forfeit.


Mineral prices are subject to dramatic and unpredictable fluctuations.


The market price of precious metals and other minerals is volatile and has fluctuated widely, particularly in recent years. The prices of various metals are affected by numerous factors beyond our control, including international economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates and global or regional consumption patterns, speculative activities and increased production due to improved mining and production methods. The supply of and demand for metals are affected by various factors, including political events, economic conditions and production casts in major mineral producing regions. Variations in the market prices of metals may impact on our ability to raise funding to continue exploration of our properties. In addition, any significant fluctuations in metal prices will impact on our decision to accelerate or reduce our exploration activities. If the price of precious metals and other minerals should drop significantly, the cost of mineral extraction may be higher than is economically feasible. The marketability of minerals is also affected by numerous other factors beyond our control, including government regulations relating to royalties, allowable production and importing and exporting of minerals, the effect of which cannot be accurately predicted.




6





Mineral operations are subject to government regulations which could have the effect of reducing or preventing us from exploiting any possible mineral reserves on our properties.


Exploration activities are subject to national and local laws and regulations governing prospects, taxes, labor standards, occupational health, land use, environmental protection, mine safety and others which may in the future have a substantial adverse impact on our company’s prospects. In order to comply with applicable laws, we may be required to make capital expenditures until a particular problem is remedied. Existing and possible future environmental legislation, regulation and action could cause additional expense, capital expenditure, restriction and delay in the activities of our company, the extent of which cannot be reasonably predicted. If we violate any applicable law or regulation, we could be forced to stop work and we could be fined. If we are forced to suspend our activities or if we are required to pay a large fine for a violation of these applicable laws and regulations, our business could be adversely affected.


Our operations may be subject to environmental regulations which may result in the imposition of fines and penalties.


Our operations may be subject to environmental regulations promulgated by government agencies from time to time. Environmental legislation provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain mining industry operations, such as seepage from tailings disposal areas, which would result in environmental pollution. A breach of such legislation may result in the imposition of fines and penalties. Environmental legislation is evolving in a manner which means stricter standards, and enforcement; fines and penalties for non-compliance are more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The cost of compliance with changes in governmental regulations has a potential to reduce the profitability of operations.


Risks Related To Our Company


The fact that we have not generated any operating revenues for the last five years raises substantial doubt about our ability to continue as a going concern.


We have not generated any operating revenues for the last five years and we will, in all likelihood, continue to incur operating expenses without revenues until our mining properties are fully developed and in commercial production. We had cash in the amount of $42,981 as of December 31, 2006. We estimate our average monthly operating expenses to be approximately $100,000. As a result, we need to generate significant revenues from our operations or obtain financing. We cannot assure that we will be able to successfully explore and develop our mining properties or assure that viable reserves exist on the properties for extraction. These circumstances raise substantial doubt about our ability to continue as a going concern. It is unlikely that we will generate any funds internally until we discover commercially viable quantities of precious metals and other minerals. If we are unable to generate revenue from our business in the next twelve months, we may be forced to delay, scale back, or eliminate our exploration activities. If any of these actions were to become necessary, we may not be able to continue to explore our properties or operate our business and if either of those events happen, then there is a substantial risk our business would fail.




7





We have a limited operating history on which to base an evaluation of our business and prospects.


As of the date of this Report, we have not yet located any mineral reserve. As a result, we have never had any revenues from our operations. In addition, we have no operating history related to the acquisition and exploration of our mineral properties. We have no way to evaluate the likelihood of whether our mineral properties contain any mineral reserve or, if they do that we will be able to build or operate a mine successfully. We anticipate that we will continue to incur operating costs without realizing any revenues during the period when we are exploring our properties. We expect to continue to incur significant losses into the foreseeable future. We recognize that if we are unable to generate significant revenues from mining operations and any dispositions of our properties, we will not be able to earn profits or continue operations. At this early stage of our operation in this industry, we also expect to face the risks, uncertainties, expenses and difficulties frequently encountered by companies at the start up stage of their business development. We cannot be sure that we will be successful in addressing these risks and uncertainties and our failure to do so could have a material adverse effect on our financial condition. There is no history upon which to base any assumption as to the likelihood that we will prove successful and we can provide investors with no assurance that we will generate any operating revenues or ever achieve profitable operations.


We have not generated any revenue from our business and we may need to raise additional funds in the near future. If we are not able to obtain future financing when required, we might be forced to discontinue our business.


Because we have not generated any revenue from our business and we cannot anticipate when we will be able to generate revenue from our business, we will need to raise additional funds for the further exploration and future development of our mining claims and to respond to unanticipated requirements or expensesWe do not currently have any arrangements for financing and we can provide no assurance to investors we will be able to find such financing if required. We have no assurance that additional funding will be available to us for further exploration and development of our projects or to fulfill our obligations under any applicable agreements. Although we have been successful in the past in obtaining financing through the sale of equity securities, there can be no assurance that we will be able to obtain adequate financing in the future or that the terms of such financing will be favorable. Failure to obtain such additional financing could result in a delay or indefinite postponement of further exploration and development of our projects with the possible loss of such properties.


Our Articles of Incorporation indemnify our officers and directors against all costs, charges and expenses incurred by them.


Our Articles of Incorporation contain provisions limiting the liability of our officers and directors for their acts, receipts, neglects or defaults and for any other loss, damage or expense incurred by our company which shall happen in the execution of the duties of such officers or directors, unless the officers or directors did not act honestly and in good faith with a view to the best interests of our company. Such limitations on liability may reduce the likelihood of derivative litigation against our officers and directors and may discourage or deter our shareholders from suing our officers and directors based upon breaches of their duties to our company, though such an action, if successful, might otherwise benefit our company and our shareholders.


Risks Relating to our Securities


Investors’ interests in our company will be diluted and investors may suffer dilution in their net book value per share if we issue additional shares or raise funds through the sale of equity securities.


We are currently without a source of revenue and will most likely be required to issue additional shares to finance our operations and, depending on the outcome of our exploration programs, may issue additional shares to finance additional exploration programs of any or all of our projects or to acquire additional properties. If we are required to issue additional shares to raise financing, your interests in our company will be diluted and you may suffer dilution in your net book value per share depending on the price at which such securities are sold. If we issue any such share purchase warrants and share purchase options, and they are exercised, there will be a reduction in the proportionate ownership and voting power of all other shareholders. The dilution may result in a decline in the market price of our common shares.




8





Investors’ interests in our company will be diluted and investors may suffer dilution in their net book value per share if we issue employee/director/consultant options.

 

We may in the future grant to some or all of our directors, officers, insiders, and key employees options to purchase our common shares as non-cash incentives to those persons. Such options may be granted at exercise prices equal to market prices, or at such other price as may be permitted under the policies of any stock exchange upon which our securities are traded (currently, our common shares are listed for trading on the OTC BB), when the public market is depressed. The issuance of additional shares will cause our existing shareholders to experience dilution of their ownership interests.


We Do Not Plan to Pay any Dividends in the Foreseeable Future


The Company has never paid a dividend and it is unlikely that the Company will declare or pay a dividend until warranted based on the factors outlined below. The declaration, amount and date of distribution of any dividends in the future will be decided by the Board of Directors from time-to-time, based upon, and subject to, the Company’s earnings, financial requirements and other conditions prevailing at the time.


In the Event that Key Employees Leave the Company, the Company Would Be Harmed Since We are Heavily Dependent Upon Them for All Aspects of Our Activities


The Company is heavily dependent on key employees and contractors, and on our sole officer and director, the loss of any of whom could have, in the short-term, any negative impact on our ability to conduct our activities and could cause a decline in profitability of our properties or additional costs from a delay in development or exploration of properties. The Company has consulting agreements with key employees and contractors, and an employment agreement with our sole officer and director.


Our Management May Not Be Subject to U.S. Legal Process Making it More Difficult for U.S. Investors to Sue Them


The enforcement by investors of civil liabilities under the United States federal securities laws may not be possible by the fact that all of our officers and directors are neither citizens nor residents of the United States. U.S. stockholders may not be able to effect service of process within the United States upon such persons. U.S. stockholders may not be able to enforce, in United States courts, judgments against such persons obtained in such courts predicated upon the civil liability provisions of United States federal securities laws. Appropriate foreign courts may not be able to enforce judgments of United States courts obtained in actions against such persons predicated upon the civil liability provisions of the federal securities laws. The appropriate foreign courts may not be able to enforce, in original actions, liabilities against such persons predicated solely upon the United States federal securities laws. However, U.S. laws would generally be enforced by a Canadian court provided that those laws are not contrary to Canadian public policy, are not foreign penal laws or laws that deal with taxation or the taking of property by a foreign government and provided that they are in compliance with applicable Canadian legislation regarding the limitation of actions.


We face exposure to fluctuations in the price of our common stock due to the very limited cash resources we have.


The Company has very limited resources to pay its professionals. If we are unable to pay professionals in order to perform various professional services for the company, it may be difficult, if not impossible, for the Company to maintain its reporting status under the Exchange Act. If the Company felt that it was likely that it would not be able to maintain its reporting status, it would make a disclosure by filing a Form 6-K with the SEC. In any case, if the Company was not able to maintain its reporting status, it would become “delisted” and this would potentially cause an investor or an existing shareholder to lose all or part of his investment.




9





The Company does not anticipate any contingency upon which it would voluntarily cease filing reports with the SEC, even though it may cease to be required to do so.


It is in the compelling interest of the Company to report its affairs quarterly, annually and currently, as the case may be, generally to provide accessible public information to interested parties, and also specifically to maintain its qualification for the OTCBB, if and when the Registrant's intended application for submission is effective.


Success of the Company will Depend on the Developments of an Active Trading Market.


While the Company's common shares (“Common Shares”) are included on NASD Over the Counter Bulletin Board, there can be no assurance that an active trading market for the Common Shares will develop. In the absence of such a market, investors may be unable to readily liquidate their investment in the Common Shares. The market for equity securities in general has been volatile and the trading price of the Common Shares could be subject to wide fluctuations in response to general market trends, changes in general conditions in the economy, the financial markets and other factors that may be unrelated to the Company's performance.


Low-Priced Stocks Subject to Greater Disclosure Requirements.


The Securities and Exchange Commission adopted rules (“Penny Stock Rules”) that regulate broker-dealer practices in connection with transactions in penny stocks. The Common Shares of the Company may fall within the Commission's definition of a penny stock. The closing price of the Company's shares on July 12, 2007 was $0.30. Penny stocks generally are 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 prices and volume information with respect to transactions in such securities is provided by the exchange or system). The Penny Stock Rules require a broker-dealer, prior to effecting a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the Securities and Exchange Commission that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. 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 such rules, the broker-dealer must receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that is subject to the Penny Stock Rules. At any time when the Company's common stock is subject to the Penny Stock Rules, shareholders may find it more difficult to sell their shares.


ITEM 4.

Information on the Company


A.

History and Development of the Company


Historical Overview


The Company was incorporated as a federal company pursuant to the laws of Canada under the Canada Business Corporations Act (the “Act”) on October 30, 1997, under the name 3430502 Canada Ltd. Since that time, the Company has changed its name four times: (1) On or about December 4, 1997, the Company changed its name to Four Crown Foods Inc.; (2) On or about June 5, 2000, the Company changed its name to Universal Domains Incorporated; (3) On or about September 20, 2004, the Company changed its name to Pure Capital Incorporated; and (4) On or about February 6, 2007, the Company changed its name to Tombstone Exploration Corporation.


Also, concurrently with the name change to Pure Capital Incorporated, the Company changed its principal corporate office from Suite 502, 828 Howe Street, Vancouver, British Columbia, Canada V6Z 2X2 to 250 Blairgowrie Place in Nanaimo, British Columbia, Canada V9T 4P5, where the registered agent and records office of the Company are also located.




10





Prior to current operations, the Company most recently operated as an independent energy company engaged in the exploration, development, production, and acquisition of crude oil and natural gas. Although the Company acquired a 75% working interest in the Puckett Field located in the State of Mississippi, and became partnered with Hawkeye Drilling Co. in March 2003, this relationship was abandoned in 2003 as the drilling was unsuccessful. Then, in January 2004, Hawkeye Drilling obtained a Court Order for the return of the Company’s interest in the Puckett Field. Subsequently, and upon information and belief, Hawkeye Drilling has sold its interest in the Puckett Field to a third-party.


Until March 2003, the Company, through its wholly-owned subsidiary VCL Communications Corp. (“VCL”), was in the business of providing teleconferencing services to clients in North America. In March 2003, the Company decided to discontinue providing teleconferencing services in order to focus on the oil and gas business.


Prior to the Company’s central operation model shifting to the oil and gas industry, the Company was involved in the food and beverage retail business (the “Food Retail Business”). Prior to December 31, 2001 the Company discontinued its Food Retail Business operations. The Company commenced a domain registration business upon the acquisition on April 12, 2000 of the license rights to a domain registration agreement for the “.cc” Internet registration domain. The Company withdrew from the domain registration business during fiscal 2001. In October, 2001 the Company acquired 100% of the issued and outstanding shares of VCL, a teleconferencing services company targeting clients throughout North America.


In November 2003, the Company ceased all operations. From that time until November 27, 2006, the Company’s goals were to continue to reduce the liabilities of the Company in an effort to obtain additional financing and explore the possibilities of starting a new operating business, and/or merge with or become acquired by another company or entity.


Present Operations of our Company


On November 1, 2006, the Company began negotiations with Redhawk for the acquisition of several mining and mineral right claims located in the State of Arizona. On November 27, 2006, the Company and Redhawk, pursuant to the terms and conditions of the Agreement, finalized the transaction, which closed on December 4, 2006.


The description set forth herein of the terms and conditions of the Agreement is qualified in its entirety by reference to the full text of such agreement, which is filed with as Exhibit 4.12 to the Company’s Form 20-F filed on November 30, 2006, and incorporated by reference herein.


Pursuant to the terms of the Agreement, at closing, the Company issued to Redhawk Eight Million (8,000,000) restricted shares of the Company’s Common Stock valued at Ten Cents ($0.10) per share (“Acquisition Shares”) and cash in the amount of One Hundred Thousand ($100,000) dollars (“Acquisition Cash”).


In exchange for the aforementioned Acquisition Shares and Acquisition Cash, the Company received from Redhawk full rights and title to certain mining and exploration claims (the “Mining Claims”) located in the State of Arizona, along with other equipment and property.


A more detailed discussion of the Company’s business and properties are set forth below, and incorporated herein by reference.




11





B.

Business Overview


Background


(1) PUCKETT FIELD ACQUISITION


Pursuant to an agreement dated March 25, 2003, the Company contracted with Hawkeye to acquire the Puckett Field (the “Field”), an oil and gas producing property, in consideration for a fee payment of $30,000; a payment of $50,000 towards reworking of existing wells for drilling and completion of an earning well; the issuance of 25,000 shares of common stock of the Company; execution of a Loan Agreement and Production Payment Obligation for the Cash Payment; execution of the Mortgage and related financing statements securing the Loan Agreement and Production Payment Obligation; assumption of costs and liability associated with the Vendor's carried interest; and funding drilling and testing all potentially productive zones in the earning well. In return, the Company received 75% of the assets of the project and proportionate entitlement to all existing and future oil and gas production revenues from the Field, subject to a 25% carried interest to be held by Hawkeye Drilling Co., on existing wells and the earning well.


The Field, including its existing production of 807 gross acres and 721 net acres, is located 20 miles east of Jackson, Mississippi. The Field produces from a series of Cretaceous age sands including Mooringsport, Paluxy, Fredricksbury, Washita and Tuscaloosa. Proven reserves are estimated at 5-million barrels of oil and 5.8-billion cubic feet of gas.


The Field contains 7 active wells producing 150+ barrels of oil per day, and it has 17 additional wells that are not producing but have been scheduled for re-work. Studies indicate that with moderate capital invested of $1,000,000 in a program to re-equip and work-over existing wells, combined with the drilling of roughly 8 to 13 new wells, the Field is capable of yielding years of production that could generate between 10,000 to 25,000 barrels of oil, together with 60-million cubic feet of gas, on average per month.


As of August 2003, two workovers were completed successfully and were producing at a steady rate of 50 barrels of oil per day each.


However, in November 2003, the Company abandoned its interest in the Field due to a failed business relationship with Hawkeye and unsuccessful drilling efforts. At that same time, the Company ceased operations altogether.


(2) VCL COMMUNICATIONS CORP.


Pursuant to an agreement dated October 15, 2001, the Company acquired 100% of the issued and outstanding shares of VCL in consideration for the issue of 8,334 shares of common stock of the Company. The closing took place on October 30, 2001. In March 2003, the Company decided to discontinue providing teleconferencing services in order to focus on the oil and gas business.


(3) DOMAIN REGISTRATION BUSINESS


The Company was previously involved in the domain registration business. However, the Company has ceased its involvement in this business sector during fiscal year 2002.


(4) FOOD RETAIL BUSINESS


The Company also previously held a 51% interest in Primo's Mexican Specialties Ltd. (“Primo's”), a manufacturer of Mexican specialty foods such as salsa, nacho and tortilla chips. The Company discontinued this operation prior to December 31, 2000 and disposed of the assets and liabilities of Primo's during 2002.

 



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Nature of Operations and Principal Activities


We are in the mineral resource business. This business generally consists of three stages: exploration, development and production. We are a mineral resource company in the exploration stage because we have not yet found mineral resources in commercially exploitable quantities, and are engaged in exploring land in an effort to discover them. Mineral resource companies that have located a mineral resource in commercially exploitable quantities and are preparing to extract that resource are in the development stage, while those engaged in the extraction of a known mineral resource are in the production stage.


Mineral resource exploration can consist of several stages. The earliest stage usually consists of the identification of a potential prospect through either the discovery of a mineralized showing on that property or as the result of a property being in proximity to another property on which exploitable resources have been identified, whether or not they are or have in the past been extracted.


After the identification of a property as a potential prospect, the next stage would usually be the acquisition of a right to explore the area for mineral resources. This can consist of the outright acquisition of the land or the acquisition of specific, but limited, rights to the land (e.g., a license, lease or concession). After acquisition, exploration would probably begin with a surface examination by a prospector or professional geologist with the aim of identifying areas of potential mineralization, followed by detailed geological sampling and mapping of this showing with possible geophysical and geochemical grid surveys to establish whether a known trend of mineralization continues underground, possibly trenching in these covered areas to allow sampling of the underlying rock. Exploration also commonly includes systematic regularly spaced drilling in order to determine the extent and grade of the mineralized system at depth and over a given area, as well as gaining underground access by ramping or shafting in order to obtain bulk samples that would allow one to determine the ability to recover various commodities from the rock. If minerals are found, exploration might culminate in a feasibility study to ascertain if the mining of the minerals would be economic. A feasibility study is a study that reaches a conclusion with respect to the economics of bringing a mineral resource to the production stage.


We will focus on the exploration and acquisition of mineral properties in the United States, and specifically, hold a majority of our interests in the State of Arizona. There is no assurance that a commercially viable mineral deposit exists on any of our properties and further exploration work may be required before a final evaluation as to the economic and legal feasibility is determined.


For further information, see Item 3D – Risk Factors.


Our primary natural resource property consists of approximately 9,000 acres of historical mining land southwest, south and southeast of Tombstone, Arizona (the “Tombstone Property”). We have not identified the existence of any commercially viable mineral deposits at the Tombstone Property. We are in the process of conducting prospecting and sampling as necessary.


There is no assurance that a commercially viable mineral deposit exists on the Tombstone Property, and further exploration is required before we can evaluate whether any exist and, if so, whether it would be economically and legally feasible to develop or exploit those resources. Even if we complete our current exploration program and we are successful in identifying a mineral deposit, we would be required to spend substantial funds on further drilling and engineering studies before we could know whether that mineral deposit will constitute a reserve (a reserve is a commercially viable mineral deposit). Please refer to the section entitled “Risk Factors” for additional information about the risks of mineral exploration.


On March 7, 2007, the Company commenced its 23 hole reverse circulation (R/C) drilling program at the project site located in the historic district of Tombstone, Arizona. Drilling on Hole No. 2 commenced on March 19, 2007, and will target the depth extension of the Ace-in-the-Hole mine which was a past producing mine. It is located approximately 950 feet southeasterly from the Bonanza/Chance structure. The mapped surface trace of the Ace-in-the-Hole extends 1,600 feet.




13





There are a total of 23 planned surface R/C holes to further define a portion of the historic mineral resource. It is anticipated that the drilled footage for all holes will reach about 20,000 feet. The drilling continues to demonstrate continuity of the vein structures and mineralization. Drilling on (TEM-1) is expected to last about one week. The drilling continues to validate the Company's control models.


On March 21, 2007, the Company completed its first reverse circulation drill hole (RT-1) to a depth of 500 feet and intercepted ore grade silver/gold mineralization when it hit its target at the Tombstone Project. Thirty-five feet averaging 0.0108 opt Au and 2.43 opt Ag was drilled. The RT-1 intercept occurred from 415 feet to 450 feet in a vertical hole. Included within the mineralized zone are two consecutive five foot intervals (from 430-435 and 435-440 feet) that assayed 0.008 opt Au, 6.16 opt Ag and 0.046 Au, 3.30 opt Ag, respectively. This zone has been identified as the Bonanza Vein structure and the ore zone was penetrated approximately 185 feet below the lowest level of the Bonanza Mine. Assay results received from Mountain States R&D International are:


DRILL HOLE

INTERVAL FT.

AU OPT

SG OPT

CU%

PB%

ZN%

RT-1

415-420

0.009

2.66

0.021

0.375

0.074

 

420-425

0.008

1.93

0.022

0.241

0.052

 

425-430

0.008

6.16

0.041

0.414

0.155

 

430-435

0.046

3.30

0.017

0.112

0.064

 

440-445

ND

0.97

0.003

0.010

0.098

 

445-450

0.001

1.19

0.002

0.017

0.075


Projecting the surface occurrence of the Bonanza Vein to the mineralized zone in drill hole RT-1 results in an average dip of 73 degrees for this structure. Based upon the estimated dip of 73 degrees, the true width of the mineralized zone is calculated as 10.2 feet. The Bonanza and the Chance Vein structures were mined for a distance in excess of 1,000 feet along strike, with surface mapping strongly suggesting that the extent of the Bonanza/Chance structure is greater than 3,000 feet along strike. If the tenor of the ore intercepted in RT-1 remains the same over 3,000 feet of strike and continues to only a depth of 500 feet then this structure might yield 1.17 million tons containing 2.85 million oz. Ag, 12,710 oz. Au, 18,000 lbs. Cu, 198,000 lbs. Pb, 103,000 lbs Zn.


Revenues


To date we have not generated any revenues from the Tombstone Property.


Principal Market


We do not currently have any market, as we have not yet identified any mineral resource on the Tombstone Property that is of a commercially exploitable quantity. If we succeed in identifying a mineral resource in commercially exploitable quantities, our principal markets should consist of metals refineries and base metal traders and dealers.


Seasonality of our Business


Our mineral exploration activities are not subject to extreme seasonal variation since the Tombstone Property is located in Arizona. Field work, however, is best carried out in temperatures averaging 10 to 15 degrees Celsius. Our other operations, such as metallurgical review and analysis of geochemical survey results, can be carried out all year round.


Sources and Availability of Raw Materials


The Tombstone Property is easily accessible by major highways and roads. The closest suitable source of power for development is the transmission line between Tombstone and Sierra Vista, which runs parallel to the highway and through the property. If a mineral resource is found on our Tombstone Property, power generation would be required.




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Patents and Licenses; Industrial, Commercial and Financial Contracts; and New Manufacturing Processes


In conducting our business operations, we are not dependent on any patented or license processes, technology, industrial, commercial or financial contract or new manufacturing processes.


Competitive Conditions


We compete with other mining companies, some of which have greater financial resources and technical facilities, for the acquisition of mineral interests, as well as for the recruitment and retention of qualified employees.


The mineral property exploration business, in general, is intensively competitive and there is not any assurance that even if commercial quantities of ore are discovered, a ready market will exist for sale of same. Numerous factors beyond our control may affect the marketability of any substances discovered. These factors include market fluctuations; the proximity and capacity of natural resource markets and processing equipment; and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of mineral and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may make it difficult for us to receive an adequate return on investment.


We compete with many companies possessing greater financial resources and technical facilities for the acquisition of mineral concessions, claims, leases and other mineral interests as well as for the recruitment and retention of qualified employees. Low metal prices and an instable market, even among competition, leads us to assume that we will not face any difficulties retaining geologists or other consultants compared to our competition.


Competition in the usual context, and as experienced by manufacturers of automobiles, durable goods, clothing, electronics, and the providers of most services simply is not a factor in the minerals market.  The demand for minerals always exceeds supply, and historically prices have consistently risen.  The only major factor for competition is the cost of production.


Although, competition over cost of production exists, there is little competition in the marketplace for the company’s products.  The market absorbs all precious metals and most base metals produced at prevailing prices.  Larger producers can hedge future production to enable easier management of expected revenue in times of price fluctuation, whereas junior companies usually sell at market prices.  In today’s market larger producers have pulled back from hedging.


The primary competition in the precious metals market is for talent in the workforce.  As prices have risen many new companies have started operations or are in the midst of exploration and proving of reserves.  It is in this area that competition exists for experienced geologists, project managers, and mining executives.  In many areas there also is a shortage of mining labor.  


Pure Capital believes it can overcome this competition due to it’s location in a historical mining area, year-round working conditions and nearness to major population centers of Tucson and Phoenix, AZ.  Additionally, experienced mining professionals have assisted in developing the corporation and have many contacts in the industry.


In the local area of Tombstone, there is essentially no competition.  Several small companies and a junior Canadian firm (Southern Silver Exploration) hold small parcels of land.  To our knowledge, we are the largest individual holder of land.  Pure Capital controls land from approximately the city limits to the protected San Pedro River Basin area.


Environmental Regulations


Mineral property exploration in Arizona is governed by the State of Arizona Office of Mine Inspector as well as Title 30 of the Code of Federal Regulations, both seek to regulate and promote the development of safe and environmentally conscious mining operations.




15





Governmental Regulations


Mining operations are subject to a wide range of government regulations such as restrictions on production, price controls, tax increases, expropriation of property, environmental protection, protection of agricultural territory or changes in conditions under which minerals may be marketed. Mining operations may also be affected by claims of native peoples, any of which could have the effect of reducing or preventing us from exploiting any of our properties.


We will be required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to the exploration of minerals in the State of Arizona and in the United States generally.


Our mineral claims entitle our company to continue exploration activities on our properties, subject to our compliance with various United States federal and state laws governing land use, the protection of the environment and related matters.


C.

Organizational Structure


We have a wholly owned subsidiary, Tombstone Exploration and Mining Corporation (“TEMC”), a Nevada corporation that is qualified to do business in the State of Arizona.  All of our operations are conducted through TEMC.


D.

Property, Plant and Equipment


Our principal executive office is located at 250 Blairgowrie Place, Nanaimo, British Columbia, Canada V9T 4P5. The Company leases the 750 square feet space for $1,000 a month, and the lease is month to month. This space accommodates all of our executive and administrative offices. We believe that this existing space is adequate for our current needs. Should we require additional space, we believe that such space can be secured on commercially reasonable terms.  


As part of our lease, we are provided access to all necessary office equipment and supplies, including a photocopier.


Our wholly owned subsidiary, TEMC, is located at the following address:


1515 Red Top Rd.
P.O. Box 1280
Tombstone, AZ. 85638


TEMC operates out of a mobile facility that is approximately 1,200 square feet and accommodates all of its operating needs.  The facility is equipped with five (5) offices, a reception area and a conference room.  TEMC owns the mobile facility, which is adequate for our current operations.   Should we require additional space, we believe that such space can be secured on commercially reasonable terms by securing other mobile facilities.  


Our primary property consists of mineral rights to approximately 9,000 acres of historical mining land southwest, south and southeast of Tombstone, Arizona. Pure Capital controls one of the largest mining properties in Arizona.  


The Tombstone Project is located approximately 65 miles southeast of Tucson, AZ and is easily accessible by major highways and roads.  An overview map is shown below, followed by a detailed look at the magnitude of the property size compared to the city of Tombstone.  



16





                    [TOMBSTONE20FA2006002.GIF]








17





[TOMBSTONE20FA2006003.JPG]






18





The Tombstone Project consists of the following claims:


Arizona Mining Claims Township 20 S Range 22E:


AMC364521 - AMC364556: Silver Bullet #1 thru #36 – Sec. 9

AMC364557 – AMC364572: Silver Bullet #37 thru #52 – Sec. 10

AMC364573 – AMC364576: Silver Bullet Extension #53 thru #56 – Sec. 15


In April 2007, the Company was granted permits giving the Company the exclusive right to explore 3,070 acres of prospective Arizona State lands (the ``Parcels''), which were approved by the Arizona State Lands Department. Upon exploration and verification of mineable minerals and base metals, the Company will then immediately seek to obtain state mineral leases on these Parcels. The Parcels include a 100 acre area that was evaluated by Interstat Resources, Inc. for its open pit silver potential in 1985. The Interstat report assay records show values ranging up to 220.07 opt Ag and 0.980 opt Au were encountered across narrow structures. In 1986, the state issued a recommendation that Interstat be granted a mineral lease to mine a 50,000 ton deposit of +1.5 opt Ag (Au values were not noted) by open pit methods from surface to 100 feet in depth. Much of this resource appears to be in the mineralized hangwall of the State of Maine mine.


On February 27, 2007, the Company closed a transaction pursuant to which it acquired various mineral rights claims from Donald Heck as Trustee of the Tombstone Silver Mines Secured Creditors Trust. The Purchase Agreement is incorporated by reference herein.


The following is a summary of the claims acquired form Donald Heck:


Subdivision

Census Id / Block Group /

Block / Suffix:

Legal Description:

MINERAL RIGHTS

0021003010

 

PAT MINES TOMBSTONE MNG DIST MINERAL RIGHTS ONLY: MERRIMAC LODE MNG CLAIM MS #53 20.61 AC; CLIPPER LODE MNG CLAIM MS #120 13.41 AC; & RED TOP LODE MNG CLAIM MS #52 20.66 AC ALL IN SEC 16 20 22 TOTAL ACRES MINERAL RIGHTS 54.68 AC

Subdivision

Census Id / Block Group /

Block / Suffix:

Legal Description:

MINERAL RIGHTS

0021003010

 

PAT MINES TOMBSTONE MNG DIST MAINE 18.33 AC LESS PCL 109-30-001J & TRIPLE X 15.27 AC SEC 16 20 22 MINERAL RIGHTS ONLY TOTAL 33.60 AC MINERAL RIGHTS ONLY 20P/AC

Subdivision

Census Id / Block Group /

Block / Suffix:

Legal Description:

MINERAL RIGHTS

0021003010

 

PAT MINES TOMBSTONE MNG DIST MINERAL RIGHTS ONLY BROTHER JONATHAN LODE SEC 16 17.28 AC; LOWEL LODE MS #797 SEC 17 20.59 ACALL IN T20 R22 TOTAL ACRES MINDERAL RIGHTS 37.87 AC

Subdivision

Census Id / Block Group /

Block / Suffix:

Legal Description:

MINERAL RIGHTS

0021003010

 

PAT MINE TOMBSTONE MNG DIST MINERAL RIGHTS ONLY MAY PAT MINE MS #317 SEC 16 20 22 TOTAL ACRES MINERAL RIGHTS 19.43 AC SITE VAL





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Industry of Interest


The precious metals and base metals industry produces over $100B in metal production per year.  The industry is essentially two sectors: the major producers and the junior exploration and mining companies.


The major producers such as Barrick, Newmont and Phelps Dodge, produce the majority of precious and base metals from large scale, geologically scattered operations.  Property expansion by the majors typically comes from joint venture, consolidation or acquisition with junior exploration and mining companies.  This occurs usually because a junior finds it difficult to initiate full scale operations due to the significant front end development costs.  The majors can absorb and develop the newly discovered fields with little impact to overhead operations and can fund direct operations through forward sale of metals.


Juniors typically spend the majority of their money locating new potentially rich areas, proving up a portion of reserves through geological studies, analyses and drilling, and then initialing small scale operations.  During that period most successful juniors draw the attention of and team in some way with a major producer.  


Cost of operations/production is the driver in the industry.  All product produced, particularly in the precious metals industry, is absorbed by the market.  Demand exceeds supply.  The most profitable companies have the lowest per ounce/pound cost of production.  The highest return to investors, however, comes from junior companies, when successful, where per share prices are lower until a viable project is proven.  Risk, though, is often higher with junior companies, unless and until they locate and acquire viable projects and adequate funding.


The prime customers for the precious metals sector of the industry are the refiners such as Englehart, Johnson Maffey, etc.  These companies serve as the distributor of product between the producers and the consumers.  The majority of precious metals produced are utilized by the industrial and electronics industry, the automotive industry, the jewelry industry and the investment community.


As metals prices have risen, so too has the interest in new areas for exploration and eventual production.  The past two decades has seen a significant expansion of interest into Central and South America, as well as developing third world countries.  Today’s price levels combined with the political uncertainties of many foreign projects, and the inability for year-round operations in portions of Alaska and northern Canada, has produced a resurgence of junior companies in the mainland United States.  However, many juniors target only one or two categories of metals.  This model of operation limits their chance for success for production or buyout.


The keys to success for today’s junior exploration and mining companies are four: 1. Property holdings and potential; 2. location; 3. metal diversity; and 4. cost of development and operation.  


The Tombstone Property


The Tombstone District sits astride a regional NE trending structure. This structure is visible on topographic maps as well as satellite images of the American Southwest. It is a northeast trending rift structure or shear traceable from southwest of the Huachuca Mountains of Arizona northeast to Silver City, New Mexico.


The majority of veins and mineralized structures within the Tombstone District and neighboring districts exhibit the same northeast alignment as the above noted structure. In neighboring districts along the NE rift, silver and gold mineralization occur in igneous and sedimentary rocks, suggesting ore mineralization is pervasive and of considerable extent along this northeast trending, regional rift.


This structural trend of mineralization presents an exploration potential of tremendous magnitude, with precious metals and base metals distributed along and adjacent to the structure.


Geologic evaluation of ore-bearing structures within the Tombstone basin suggest that mineralization similar to that historically mined, could support an open pit heap leach operation such as that conducted by Tombstone Exploration, Inc., circa 1980 to 1985.


Mesothermal replacement deposits primarily of silver, gold, zinc and lead in the upper Paleozoic section and copper in the lower Paleozoic section below Tombstone are thought to continue at depth.



20






Copper replacement deposits in The Abrigo and Martin Formations as seen at Bisbee may be similar to those suspected beneath the West Tombstone/Charleston areas.


Multiple porphyry copper centers are known to occur elsewhere associated with Laramide-age granodiorite and quartz monzonite plutons. One such center, confirmed by deep drilling by ASARCO in 1973-74, occurs near the Robbers Roost, on Company property, where intense argillic alteration and mineralized breccia pipe emplacement are exposed by erosion.


Surface examination of the West Tombstone area reveals there are numerous veins and structures that have not been mined or explored. The close proximity of many of these structures and veins may allow for Slot or Open Pit mining methods if sufficiently high silver-gold values are carried between.


The high degree of vein wall rock alteration indicates the silver and gold mineralization should extend away from the veins into the wall rocks. Most of the veins observed appear to be fissure fillings within fractured intrusive dikes and sills. Aplite and Andesite porphyry dike rocks appear in fissure veins of the West Tombstone-Solstice area.


Skarn mineralization appears to underlie a portion of the project area. Observed locally, the Skarn mineralization appears to be contained beneath a series of low angle or thrust faults as seen on the face of the Ground Hog hill and constituting the Limestone-volcanic contact at the western end of the Carbonate patented lode claim.


Most prominent structures are veins occupying N-NE trending fault zones and shears. Ore appears to have been mined where highly manganiferous vein material is present in the NE structures.


In the west portions of the property, the limestone is altered into rocks typically identified with Carlin-Type Gold deposits. The limestone is intensely silicified and is locally jasperoidal.


This intense alteration was observed to occur in the footwall of a low angle, reverse fault. This is a typical location for the deposition of Carlin-Type mineralization as ore bearing fluids tend to pond or be trapped beneath impermeable rocks or clays associated with these faults.


Stratigraphy


The rocks composing the Tombstone district range from pre-Cambrian to Quaternary in age.


The oldest rock in the district is a fine-grained, greenish-grey schist, evidently pre-Cambrian and correlated with the Pinal schist of Bisbee. Granitic and porphyritic rocks that have been tentatively aged as pre-Cambrian intrude the Pinal schist.


The Bolsa quartzite lies unconformably over the pre-Cambrian, and locally is about 450 feet thick. This is succeeded by about 700 feet of the Cambrian Abrigo Limestone. Overlying the Abrigo is 350 feet of the Devonian Martin Limestone, followed by the Mississippian Escabrosa Limestone of about 500 feet thickness.


The Escabrosa Limestone is not easily distinguishable from the overlying Naco Limestone of Pennsylvanian and Permian age. Up to 3,000 feet of Naco Limestone is known. The Naco Limestone, intruded by dikes and sills of quartz latite porphyry, possibly erupted prior to deposition of the Mesozoic sedimentary units.


Unconformably overlying the Naco is the Bisbee group consisting of conglomerate, sandstone, quartzite, shale and limestone. Fossils in these beds indicate a Mesozoic age. The thickness of the Bisbee group is unknown.  Following the deposition of sediments, The Schieffelin granite and the Uncle Sam porphyry were emplaced.


Last emplaced were the porphyritic andesite dikes, which occupy the NE trending shear zone structures.




21





Description of Claims


Our Tombstone Property consists of over 300 contiguous mineral claims. The Company owns a 100% interest in all of these mineral claims.


Recommendations and Exploration Program

 

The following exploration program for the Tombstone Property has been recommended to our company by Dennis Dalton, our Chief Geologist, and is scheduled to commence in December 2006.


The Tombstone Project is located in the western area of the Tombstone Mining District, Arizona. It is accessed from Tombstone by following the Charleston Road in a southwesterly direction (towards Sierra Vista) for about two miles and turning northerly onto the Main Chance Road.  


This project consists of exploration work in the Tombstone District of approximately 9,000 acres.  This property is in the western part of the Tombstone District.  Work has included geologic mapping and sampling.  The ore minerals occur in Bisbee Formation sedimentary rocks and quartz-monzonite intrusives and/or quartz-latite volcanics.  A GeoResource Associates January 2006 report (Report on Precious Metals Property; West Tombstone Mining District – Prepared by Jimmy L. Nyrhen) suggests that the potential value of this property could reach into the billions of dollars.  This report indicates the possibility of a precious metals skarn deposit.  


The current work has been focused on developing drill targets in the areas of documented past producing mines.  The Bonanza Mine, State of Maine Mine, Solstice Mine, Greenwhich Mine, Ace-in-the-Hole Mine, and the Ground Hog Mine have all produced silver.  Some of the area around these mines was mapped to locate vein extensions and other surface showings of mineralization that would potentially be productive (see attached maps).  Multiple structures trending northeasterly and some east-northeasterly trending crossing cutting structures were located.  Within Sections 9, 10, and 15 of T20S R22E these mineralized surface showings have a combined strike length of approximately 10,000 feet.  If projected to a depth of 1,000 feet (similar to the deepest mined depths achieved in the eastern Tombstone District mines) and using a five foot average vein width at 13 cubic feet per ton, a potential tonnage of about 3,800,000 tons is extrapolated in about 3% of the land holdings.  An additional 1000 feet of veining is located in Section 22 of T20S R23E where the Ground Hog mine was developed.  This adds another plus or minus 380,000 tons to the potential and only encompasses another 1% more or less of the total property.


A reverse circulation drilling program designed to identify ore potential in Sections 9, 10, and 15 has been developed (see attached map).  It will provide better definition of the structures exposed at the surface, test for “blind” mineralized structures, help in determining metals zoning, explore for deep copper deposits, and provide information on stratigraphy.  It is expected that drill hole sampling will provide the data to calculate a drill inferred ore reserve.  


Continued surface sampling and sampling of old workings will be undertaken.  Surface mapping will also continue and underground mapping will start with permitting is approved.  


The Ground Hog Mine area was sampled by previous workers and anomalous values of gold, silver and platinum were reported (see attached sample location maps).  Additional sampling will be conducted to provide confirmation of the original sample results.  Geologic mapping will be enhanced in this area as well.  Use of the sampling and mapping data will then become the basis for developing a drilling program to test this prospective past producer area.  


A resource potential estimate can be made of the mineral present on the Silver Bullet 1, 2, 3, 16, 17, 18, 37, 38, 39, 40, 44, 53, 54, 55, and 56 claims and the Ground Hog area.  




22





Assume the following:  

Average grade of all veins is 2 opt Silver (Ag) and 0.005 Gold (Au).

Average vein width is 5 feet.

Depth of ore is 1000 feet.

The veins extend as found in their surface traces, i.e. 11,000 feet.

The ore avearges13 cubic foot/ton – value derived from Melgren Report values.

Silver price is $12 per oz and Gold is $630 per oz.  

Credit from base metals is not included – Zinc, Lead, Copper

Potential for Platinum Metal Group minerals has not been considered.


The resource potential in this area of the Pure Capital holdings amounts to –


Ore Tonnage –

4,200,000 tons


Recommendations for Solstice/Ace-in-the-Hole Area


Re-evaluation of the drill program to expand the areas to be tested in accord with the latest data is suggested.  Resubmittal of the permit will be needed to meet this goal.  A revised plan will be prepared and submitted to management for approval.


Continue with the geologic mapping program and expand to include all accessible underground workings.  Continue sample collection and analysis.  Develop additional drill targets that could lead to discovering new mineralization.  Targets could include contact zones, possible faulted offsets, alteration zones, folded and sheared zones, strike and down dip projections of mineralized structures, and geochemical/geophysical anomalies.  


Quantify the dump materials in the Solstice/Ace-in-the-Hole areas both by tonnage and grade.  If the material is ore grade and the tonnage is sufficient the dump rock could provide material for start up of the proposed heap leach program.


Secure the Section 16 State Mineral lease.  Negotiate control of mineral rights of the patented mining claims in Section 16.  The presence of the Bonanza Mine and the Santa Ana Mine (both past producers) and other workings make this a highly prospective area that could need significant potential to the project.


Evaluate potential for open pit mining of these veins considering scenarios both with and without the Section 16 mineral lease.  The presence of crosscutting veins, the identification of multiple sub-parallel veins, the potential for finding “blind” veins, the possibility of finding disseminated mineralization are factors that could make an open pit mine feasible.   


Permitting


Drill Program – Modification of the B.L.M. Notice of Intent to Drill is recommended.  This will accommodate the newly collected data and test additional prospective areas.  The modification should not affect the pending ADWR NOI filing to any significant extent.  The original program was prepared to accommodate 13,450 of reverse circulation drilling and sampling.  This phase of drilling will require 60 working days to complete but will be conducted over a longer period to allow for analysis of samples and modification of the program based upon drill results.


Preparation of the Arizona Department of Water Resources Notice of Intent to Drill and Abandon an Exploration/Specialty Well permit documents is complete.  This is the only other permit that is required prior to drilling.  This notice can be filed when the filing fee of $450.00 is approved and released.  




23





Mining Program


Mine Ventilation Plan – The Solstice Mine ventilation plan required by Mine Safety and Health Administration (MSHA) was prepared and sent to MSHA during June.   MSHA a letter dated July 10, 2006 and approved the ventilation plan by indicating that there were no deficiencies in the plan.  The letter also noted that an Escape/Evacuation Plan and a Mine Rescue plan are required prior to commencement of mining.  MSHA requirements for the Escape/Evacuation Plan and the Mine Rescue Plan have been obtained.  Work on developing and receiving approval of these plans will be scheduled such that they will be completed and approved prior to commencement of mining.


Work is continuing on a Mine Operating Plan for submittal to the BLM.  An Aquifer Protection Plan, an Air Quality Plan and a Reclamation Plan for submittal to Arizona Department of Environment Quality are also in progress.  Process facility components designs are being prepared.  Draft engineering drawings for the process solution ponds and the heap leach pad have been completed.  These will be provided in an AutoCad format where appropriate.  Incidental data that is needed for permitting such as hydrologic, botanical, and meteorological information is being assembled for use in obtaining various permits including Stormwater, Mine Operating Plan, Aquifer Protection, Air Quality and Reclamation permits.


The Army Corps of Engineers made a Determination of Jurisdictional Waters in October 2005.  This allows operations to begin in a manner that does not affect the jurisdictional waters.  If jurisdictional waters will be impacted by the mining operations a Section 404 permit will be required before such work can begin.  At this time, preliminary mining plans are such that there will be no impact upon jurisdictional waters.


Projected Activities


Geology – Add detail to mapping in the Silver Bullet Claims area.  When feasible begin mapping underground workings.  Collect data from drilling program when it starts, sample and log cuttings and analyze data. Work in the Ground Hog Mine area to map the geology and develop drill targets.  Prepare a sampling plan and submit a budget and schedule to accomplish the program.


Permitting –  Prepare facility design drawings, work up application documents for various permits including the Mine Plan of Operations, APP, Air Quality, Stormwater, Escape and Evacuation Plan, Mine Rescue Plan, and Reclamation Plan.  Develop a budget and implementation schedule for permitting.  Modify the BLM Notice of Intent to Drill permit.


Development Strategy & Plan of Operations for the Next Twelve Months


The Company’s development strategy is to focus on and solidity the fundamental keys to success for a junior exploration and mining concern.  These keys were identified in the Industry discussion.


1.

Property holdings and potential.


Plan:  Continue geological analyses including mapping, and identification of drill targets. Focus on these targets for drilling, sampling and identifying potential reserves.  Expand target areas as drilling progresses and studies expand knowledge of properties.


2.

Location


Plan :  The Company’s property location in a known metal and mineral rich area with easy access, historical production, mining friendly community and ease of permitting puts Pure Capital in position for success.  The Company will continue to identify areas on the property for mill site operation, improve off-road access and work closely with the city of Tombstone and the community at large to offer employment opportunities.  The Company will also interface with the state levels in Arizona to establish itself as a significant contributor to the state economy.




24





3.

Metal diversity


Plan:   A significant number of metals and minerals have already been identified on the company property including silver and gold, as identified in the geological report.  The Company, with the help of consulting organizations, will further explore the range of metals and minerals, and the ability to extract/produce product for market.  In the non precious metals areas, the Company will likely seek joint venture partners who will add to the success and financial returns for our shareholders.


4.

Cost of development and operation


Plan:  The Company will establish a small production operation as soon a permitting is obtained, to begin silver and gold production with material from existing known sites.  As drill targets identify key areas for metal bearing ore, the operation will be expanded to two large scale mill sites.  The Company firmly believes from the geological report, sampling and historical production in the area, that a low cost / high profit operation will be developed.  



Historical product prices


[TOMBSTONE20FA2006005.GIF]




25





[TOMBSTONE20FA2006007.GIF]


[TOMBSTONE20FA2006009.GIF]




26





[TOMBSTONE20FA2006011.GIF]

[TOMBSTONE20FA2006013.GIF]




27





ITEM 4A

Unresolved Staff Comments


This item is not applicable as we are not an accelerated filer or a large accelerated filer or a well-seasoned issuer.


ITEM 5.

Operating and Financial Review and Prospects


The following discussion and analysis of our financial condition and results of operations for the fiscal years ended December 31, 2006 and 2005 should be read in conjunction with our financial statements and related notes included in this Report. Our financial statements included in this Report were prepared in accordance with United States generally accepted accounting principles.


A.

Operating Results


Our results of operations have been, and may continue to be, affected by many factors of a global nature, including economic and market conditions, the availability of capital, the level and volatility of prices and interest rates, currency values, commodities prices and other market indices, technological changes, the availability of credit, inflation and legislative and regulatory developments. Factors of a local nature, which include the political, social, financial and economic stability, the availability of capital, technology, workers, engineers and management, geological factors and weather conditions, also affect our results of operations. See “Key Information – Risk Factors”. As a result of the economic and competitive factors discussed above, our results of operations may vary significantly from period to period.


Year Ended December 31, 2006 Compared to Year Ended December 31, 2005


For the years ended December 31, 2006 and 2005, we did not receive any revenue from various mining claims and properties.


During the year ended December 31, 2006 we had a net income of $693,625 ($0.10 per share) compared to a net loss of $546,941 ($0.48 per share) for the year ended December 31, 2005. Our general and administrative expenses for 2006 were $72,391, compared to $37,090 the prior year.


Professional fees of $25,792 in 2006 were incurred, compared to $64,282 the previous year.


B.

Liquidity and Capital Resources


Since our incorporation, we have financed our operations almost exclusively through the sale of our common shares to investors. As we are now focusing on mining exploration with no producing resource properties, we do not generate operating income or cash flow from our business operations. Until a significant body of ore is found, our working capital requirements are not significant, and we expect to continue to finance operations through the sale of equity in fiscal 2007. There is no guarantee that we will be successful in arranging financing on acceptable terms.


To a significant extent, our ability to raise capital is affected by trends and uncertainties beyond our control. These include the market prices for base and precious metals and results from our exploration programs. Our ability to attain our business objectives may be significantly impaired if prices for metals such as gold and uranium fall or if results from our intended exploration programs on our properties are unsuccessful.


At December 31, 2006, we had cash on hand of $42,981; liabilities consisted of accounts payable and related party payables totaling $81,227. Amounts for the comparable period of 2005 were $116 and $1,015,287 representing cash on hand and liabilities consisting of accounts payable.


Authorized share capital consists of an unlimited number of voting common shares as of the date of filing of this filing, 24,927,864 common shares are issued and outstanding.




28





Application of Critical Accounting Policies


The preparation of financial statements in conformity with applicable generally accepted accounting principles requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.


Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex. Our significant accounting policies are disclosed in Note 2 to our financial statements included in this Report.


C.

Research and Development, Patents and Licenses, etc.


We do not currently, and did not previously, have research and development policies in place. Over the past three fiscal years, we have not expended any material amounts on research or development.


D.

Trend Information


Our business is the exploration for and development of mineral deposits, so the commodity price of precious metals has a direct impact on our revenue prospects and our ability to raise capital. Although there is no assurance that this trend will continue, management is optimistic that the current price level will continue for the foreseeable future.


E.

Off-Balance Sheet Arrangements


We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resource that is material to investors.


F.

Tabular Disclosure of Contractual Obligations


We do not have any contractual obligations and commitments as of December 31, 2006 that will require significant cash outlays in the future.


G.

Safe Harbor


Certain statements contained in this report may be viewed as "forward-looking statements" within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the US Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause actual events, and/or the actual performance, financial condition or results of operations of our company to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. Further information regarding these risks, uncertainties and other factors is included in this form 20-F under Item 3D and such other documents that we may file with the US SEC from time to time.




29





ITEM 6.

Directors, Senior Management and Employees


A.

Directors and Senior Management


The following table sets forth the names, business experience and function/areas of expertise of each of our directors and officers:


Name
Office Held
Age



Area of Experience and Functions in Our Company

Alan M. Brown

CEO, CFO, Director & President

44

As President, Chief Executive Officer, Chief Financial Officer and director, Mr. Brown is responsible for the development of our strategic direction and the management and supervision of our overall business.



B.

Compensation


During the fiscal year ended December 31, 2006, the aggregate remuneration paid to directors in their capacity as directors of our company was $NIL. Consulting fees totaling $60,000 worth of our securities were paid to directors and officers.


Executive Compensation


The following table provides a summary of compensation paid by us during the fiscal year ended December 31, 2006 to our chief executive officer who received a salary of $60,000:


   SUMMARY COMPENSATION TABLE   





Name and Principal
Position






Year

Annual Compensation

Long Term Compensation




All other
Compen-
sation





Salary





Bonus


Other
Annual
Compen-
sation

Securities
Under
Options/
SARs
Granted


Shares or units
subject to
resale
restrictions.

Alan M. Brown
CEO and Director

2006

$60,000(1)

NIL

NIL

NIL

NIL

$12,000(2)



(1)

Annual salary converted to restricted shares of the Company’s common stock.  Please see Financial Statements for additional information.

(2)

Annual rent converted to restricted shares of the Company’s common stock. Please see Financial Statements for additional information.



30






C.

Board Practices


All of the directors of the Company are elected annually by the shareholders and hold office until the next annual general meeting of shareholders or until their successors are duly elected and qualified, unless they sooner resign or cease to be directors in accordance with the Registrant's Articles. The Company's last annual regular general meeting was held on September 6, 2001. The Company's executive officers are appointed by and serve at the pleasure of the Board of Directors.


Members of the Board of Directors are elected by the holders of the Company's shares to represent the interests of all shareholders. The Board of Directors meets periodically to review significant developments affecting the Company and to act on matters requiring Board approval. Although the Board of Directors delegates many matters to others, it reserves certain powers and functions to itself. The only standing committee of the Board of Directors of the Company is the Audit Committee. The Audit Committee of the Company's Board of Directors currently consists of Colleen Garner and Alan Brown. This committee is directed to review the scope, cost and results of the independent audit of the Company's books and records, the results of the annual audit with management and the adequacy of the Company's accounting, financial and operating controls; to recommend annually to the Board of Directors the selection of the independent auditors; to consider proposals made by the Company's independent auditors for consulting work; and to report to the Board of Directors, when so requested, on any accounting or financial matters. The Company does not have an Executive Committee.


D.

Employees


As of July 12, 2007, we have twelve (12) employees. We do not have any relationship with any labor unions.


E.

Share Ownership


There were 24,927,864 Common Shares issued and outstanding as of July 12, 2007. Of the shares issued and outstanding, our directors and officers owned the following Common Shares:




Name

Number of Common Shares
Beneficially Owned as of
July 12, 2007



Percentage

Alan M. Brown

2,023,051

0.08%


The voting rights attached to the Common Shares owned by our officers and directors do not differ from those voting rights attached to shares owned by people who are not officers or directors of our company.


Stock Option Plan


In January 2007, the Company adopted a stock option plan which was approved by majority written consent of its shareholders and Board of Directors. Under the plan, options of the Company may be granted to directors, officers, employees and consultants of the Company. Please refer to the Company’s Form S-8 filed on February 2, 2007, which is incorporated by reference herein.



31





ITEM 7.

Major Shareholders and Related Party Transactions


A.

Major Shareholders


The following table sets forth, as of July 12, 2007, the following are known to us to be the beneficial owner of more than five (5%) of our Common Shares:




Name of Shareholder


No. of Common Shares
Owned

Percentage of
Outstanding
Common Shares (1)

Alan M. Brown

2,023,051

0.08

CEDE & Co.

1,985,945

0.08

Performance Capital Corporation

4,800,000

0.19

Red Hawk Exploration and Development Inc.

8,000,000

0.32


(1)

Based on 24,927,864 Common Shares issued and outstanding as at July 12, 2007.


The voting rights of our major shareholders do not differ from the voting rights of holders of our common shares who are not major shareholders.


As at July 12, 2007, the registrar and transfer agent for our company reported that there were 24,927,864 common shares of our company issued and outstanding. Of these, 9,349,935 were registered to Canadian residents (18 shareholders), 15,173,930 were registered to residents of the United States (41 shareholders) and 403,999 were  registered to residents of other foreign countries (7 shareholders).


To the best of our knowledge, our company is not directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal person.


There are no arrangements known to us, the operation of which may at a subsequent date result in a change in the control of our company.


B.

Related Party Transactions


To the best of our knowledge, there have been no material transactions since formation of our company to which we were or are a party and in which any of our directors or officers, any relative or spouse of any director or officer, or any individual owning, directly or indirectly, an interest in our voting power that gives it significant influence over us, has or will have a direct or indirect material interest nor were any of our directors or officers, any relatives or spouses of such directors or officers, or any individuals owning, directly or indirectly, an interest in our voting power that gives them significant influence over us, indebted to us during this period, other than those transactions set forth herein and in our filings with the SEC.

C.

Interests of Experts and Counsel

Not Applicable


ITEM 8.

FINANCIAL INFORMATION


A.

Consolidated Statements And Other Financial Information


The Company's financial statements, included as an exhibit to this Report, are incorporated into this Report by reference.




32





Legal Proceedings


There are no material legal proceedings in progress or, to the knowledge of the Company, pending or threatened to which the Company is a party or to which any of its property is subject.


Dividends


The Company has not and does not currently intend to pay any dividends on any of its shares. The Company intends to follow a policy of retained earnings to finance the growth of the business. Any future determination to pay dividends will be at the discretion of the Board of Directors of the basis of earnings, financial requirements and other relevant factors.


B.

Significant Changes


Except as otherwise disclosed in this annual report or in the Forms 6-K filed during 2007, no significant change has occurred since December 31, 2006.


ITEM 9.

The Offer and Listing


The following table lists the high and low closing sale prices for the Company's common stock for the periods indicated as reported by the NASD over the counter Bulletin Board.


The following is a table indicating the price history of Company's Common Stock:


Year

High

Low

2002

.90

.30

2003

1.35

.15

2004

6.75

.39

2005

3.55

.20

2006

1.00

.12


Period

High

Low

First Quarter 2005

3.53

.60

Second Quarter 2005

2.85

.54

Third Quarter 2005

1.35

.38

Fourth Quarter 2005

.75

.20

First Quarter 2006

.56

.12

Second Quarter 2006

1.00

.14

Third Quarter 2006

.67

.19

Fourth Quarter 2006

.80

.28


Month

High

Low

Jan. 2007

.45

.37

Feb. 2007

.79

.25

March 2007

.78

.37

April 2007

.55

.33

May 2007

.46

.25

June 2007

.38

.27

Through July 12, 2007

.35

.28


The shares of the Company commenced trading on the NASD over the counter Bulletin Board on July 12, 1999.



33






Markets


The Company's Common Shares are listed for trading on the NASD Over the Counter Bulletin Board.


ITEM 10.

Additional Information


A.

Share Capital

 

Not Applicable.


B.

Articles of Incorporation & By-Laws

 

Directors


A director who is, in any way, directly or indirectly interested in a proposed contract or transaction with shall disclose the nature and extent of his interest at a meeting of the directors in accordance with the provisions of the Canada Business Corporations Act (“CBCA”). A director shall not vote in respect of any contract or transaction with our company in which he is interested, and any such proposed contract or transaction shall be referred to the Board of Directors or shareholders for approval even if such contract or transaction is one that the ordinary course of the Company's business would not require approval by the Board of Directors or shareholders.


(1)  

Subject to the provisions of any unanimous shareholder agreement, the remuneration of the directors may from time to time be determined by the directors themselves, and such remuneration may be in addition to any reimbursement for travel and other expenses.

(2)  

The directors may, at their discretion and subject to the provisions of any unanimous shareholder agreement or By-Laws or the CBCA, authorize the Company to borrow any sum of money or incur indebtedness for the purpose of the Company and may raise or secure the repayment of such sum of money in such manner and upon such terms and conditions as the directors think fit.


(3)  

There are no provisions with respect to the retirement of a director or the non-retirement of a director under an age requirement.

(4)  

A director is not required to hold a share in the capital of our Company as qualification for his office.


With respect to the above noted matters, there are generally no significant differences between Canadian and U.S. law.

Objects and Purposes of the Company

Our Articles of Incorporation place no restrictions upon our objects and purposes.



34





Rights, Preference and Restrictions


Common Shares


All of the authorized common shares of the Company, once issued, rank equally as to dividends, voting powers, and participation in assets. Holders of common shares are entitled to one vote for each common share held of record on all matters to be acted upon by the shareholders. Holders of common shares are entitled to receive such dividends as may be declared from time to time by the board of directors, in its discretion, out of funds legally available therefore. The Company's By-Laws do not provide for cumulative voting.


Upon liquidation, dissolution or winding up of the Company, holders of common shares are entitled to receive pro rata our assets, if any, remaining after payments of all debts and liabilities. No common shares have been issued subject to call or assessment. There are no pre-emptive or conversion rights and no provisions for redemption or purchase for cancellation, surrender, or sinking or purchase funds. There are no restrictions on the repurchase or redemption of common shares by our company while there is any arrearage in the payment of dividends or sinking fund installments.


With respect to the rights, preferences and restrictions attaching to the Company's common shares, there are generally no significant differences between Canadian and United States law as the board of directors, or the applicable corporate statute, will determine the rights, preferences and restrictions attaching to each class of a company's shares.


Changes to Common Shares


Provisions as to the modification, amendment or variation of the rights attaching to the common shares are contained in the CBCA. The CBCA requires approval by a special resolution (i.e. approved by at least two-thirds of then votes cast at a meeting of the shareholders of our company or consented to in writing by each of our shareholders) of our company's shareholders in order to effect any of the following changes:


 

(1)

change any maximum number of shares that the Company is authorized to issue;

 

(2)

create new classes of shares;

 

(3)

reduce or increase its stated capital, if its stated capital is set out in the articles;

 

(4)

change the designation of all or any of its shares and add, change or remove any rights, privileges, restrictions and conditions, including rights to accrued dividends, in respect of all or any of its shares, whether issued or unissued;

 

(5)

change the shares of any class or series, whether issued or unissued, into a different number of shares of the same class or series or into the same or a different number of shares of other classes or series;


 

(6)

divide a class of shares, whether issued or unissued, into series and fix the number of shares in each series and the rights, privileges, restrictions and conditions thereof;

 

(7)

authorize the directors to divide any class of unissued shares into series and fix the number of shares in each series and the rights, privileges, restrictions and conditions thereof;


 

(8)

authorize the directors to change the rights, privileges, restrictions and conditions attached to unissued shares of any series;

 

(9)

revoke, diminish or enlarge any authority conferred under paragraphs (g) and (h); and


 

(10)

add, change or remove restrictions on the issue, transfer or ownership of shares.


Generally, there are no significant differences between Canadian and United States law with respect to changing the rights of shareholders as most state corporation statutes require shareholder approval (usually a majority) for any such changes that affect the rights of shareholders.




35





Annual General Meetings and Extraordinary General Meetings


Annual General Meetings (an “AGM”) must be held once every fiscal year, within 15 months of the previous AGM. If the Company fails to hold an AGM, the Supreme Court of British Columbia may, on the application of a director or shareholder of the Company, call or direct an AGM. Under the CBCA, we must give our shareholders written notice of an AGM not less than 21 days before the AGM is to be held.


Our directors may, whenever they think fit, convene an Extraordinary General Meeting (an “EGM”).


An AGM or EGM may also be requisitioned by one or more shareholders of our company so long as such shareholders own not less than 5% of the issued and outstanding shares at the date such shareholders requisition an EGM. After receiving such requisition, our directors must within 21 days call the meeting.


All shareholders entitled to attend and vote at an AGM or an EGM will be admitted to the meeting.


Most state corporation statutes require a public company to hold an annual meeting for the election of directors and for the consideration of other appropriate matters. The state statutes also include general provisions relating to shareholder voting’s and meetings. Apart from the timing of when an AGM must be held and the percentage of shareholders required to call a AGM or EGM, there are generally no material differences between Canadian and United States law respecting AGMs and EGMs.


Rights to Own Securities


There are no limitations on the rights of non-resident or foreign shareholders to hold or exercise voting rights.


Except as provided in the Investment Canada Act, there are no limitations under the applicable laws of Canada or by the Company's charter or other constituent documents of the Company on the right of foreigners to hold or vote common shares or other securities of the Company.


The Investment Canada Act will prohibit implementation, or if necessary, require divestiture of an investment deemed “reviewable” under the Investment Canada Act by an investor that is not a “Canadian” as defined in the Investment Canada Act (a “non-Canadian”), unless after review the Minister responsible for the Investment Canada Act (“the Minister”) is satisfied that the “reviewable” investment is likely to be of net benefit to Canada. An investment in our common shares by a non-Canadian would be reviewable under the Investment Canada Act if it was an investment to acquire control of our company and the value of our assets was $5 million or more. A non-Canadian would be deemed to acquire control of our company for the purposes of the Investment Canada Act if the non-Canadian acquired a majority of our outstanding common shares (or less than a majority but controlled our company in fact through the ownership of one-third or more of our outstanding common shares) unless it could be established that, on the acquisition, our company was not controlled in fact by the acquirer through the ownership of such common shares. Certain transactions in relation to our common shares would be exempt from review under the Investment Canada Act, including, among others, the following:


 

(1)

acquisition of common shares by a person in the ordinary course of that person's business as a trader or dealer in securities;

 

(2)

acquisition of control of our company in connection with the realization of security granted for a loan or other financial assistance and not for any purpose related to the provisions of the Investment Canada Act; and


 

(3)

acquisition of control of our company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control of our company, through the ownership of voting interests, remains unchanged.




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The Investment Canada Act was amended with the World Trade Organization Agreement to provide for special review thresholds for “WTO Investors” of countries belonging to the World Trade Organization, among others, nationals and permanent residents (including “WTO Investor controlled entities” as defined in the Investment Canada Act). Under the Investment Canada Act, as amended, an investment in our common shares by WTO Investors would be reviewable only if it was an investment to acquire control of our company and the value of our assets was equal to or greater than a specified amount (the “Review Threshold”), which published by the Minister after its determination for any particular year. The Review Threshold is currently $192 million for the year 2000.


Change in Control


There are no provisions in the Company's By-Laws that would have the effect of delaying, deferring or preventing a change in control of our company, and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company.


The CBCA does not contain any provisions that would have the effect of delaying, deferring or preventing a change of control of the Company. Generally, there are no significant differences between Canadian and United States law in this regard, as many state corporation statutes also do not contain such provisions and only empower a company's board of directors to adopt such provisions.


Ownership Threshold


There are no provisions in our Articles or Bylaws or in the CBCA governing the threshold above which shareholder ownership must be disclosed. The Securities Act (British Columbia) requires that the Company disclose, in its annual general meeting proxy statement, holders who beneficially own more than 10% of the Company's issued and outstanding shares. Most state corporation statutes do not contain provisions governing the threshold above which shareholder ownership must be disclosed. United States federal securities laws require a company to disclose, in its Annual Report of Form 20-F, holders who own more than 5% of a company's issued and outstanding shares.


Changes in the Capital of our Company


There are no conditions imposed by our By-Laws which are more stringent than those required by the CBCA.


C.

Material Contracts


With the exception of the contracts listed below, we have not entered into any material contracts during the last twenty-four months.


(1)

Release & Settlement Agreement with David Sams Industries, Inc. dated August 4, 2006.

(2)

Securities Purchase Agreement by and between the Company and Ken Pollinger dated July 28, 2006 in reliance upon the exemption from securities registration afforded by §4(2) of the Securities Act of 1933, as amended (the “Securities Act”).

(3)

Securities Purchase Agreement, together with Convertible Note, by and between the Company and Tom Reid dated July 28, 2006 in reliance upon the exemption from securities registration afforded by §4(2) of the Securities Act.

(4)

Securities Purchase Agreement, together with Convertible Note, by and between the Company and John Doria dated July 28, 2006 in reliance upon the exemption from securities registration afforded by §4(2) of the Securities Act.

(5)

Securities Purchase Agreement, together with Convertible Note, by and between the Company and Clavca Investment Corp. dated July 28, 2006 in reliance upon the exemption from securities registration afforded by §4(2) of the Securities Act.

(6)

Asset Purchase Agreement by and between the Company and Redhawk dated November 27, 2006.



37





(7)

On November 29, 2006, the Company entered into a Stock Purchase Warrant (the “Warrant”) with Mr. Alan Brown, the Company’s President, CEO, & Director. The Warrant allows Mr. Brown to purchase 8,000,000 shares of the Company’s common stock at a strike price of $0.10 per share and is immediately exercisable. Additionally, the Warrant grants “piggyback” registration rights with respect to the shares of the Company’s common stock issuable upon exercise of the Warrant. Mr. Brown is an “accredited investor” and the Company relied on exemptions from registration provided by Section 4(2) of the Securities Act of 1933, as amended and Regulation D promulgated under such Act in issuing the Warrant.

(8)

Effective November 1, 2006, the Company entered into a Business Development Agreement (“BDA”) with Performance Capital Corporation, a Delaware corporation (“PCC”), under the terms of which PCC shall receive $40,000 upon the successful closing of a transaction identified by PCC and presented to the Company.

(9)

Additionally, in January 2007, Company issued a Convertible Promissory Note (the “Note”) to PCC. Under the terms of the Note, PCC will make available to the Company $100,000, on a drawdown basis, to be used for general corporate and operational purposes.

(10)

On December 20, 2006, Pure Capital Incorporated, a Canadian Federal corporation (the “Company”), closed a series of financing transactions pursuant to various Stock Purchase Agreements (“Stock Purchase Agreements”). Pursuant to the terms of the Stock Purchase Agreements, each purchaser (the “Purchasers”) in consideration for the capital contribution (“Contribution”) may immediately convert the full amount of the Contribution to shares of the Company’s no par value common stock at a conversion rate of $0.10 per share. The Company shall issue shares converted under the Stock Purchase Agreement pursuant to exemptions from registration provided by Section 4(2) of the Securities Act of 1933 (the “Act”), as amended and Regulation D promulgated under the Act. The shares issued to the Purchasers shall not be registered, at the time of issuance, and may not be offered or sold absent registration, or an applicable exemption from registration, under the Act.


A summary of each financing transaction is set forth below:


(i)

John Doria invested $10,000 in exchange for 100,000 shares of common stock;

(ii)

Nicholas Scheidt invested $10,000 in exchange for 100,000 shares of common stock;

(iii)

Calvin Laiche invested $9,300 in exchange for 93,000 shares of common stock; and

(iv)

Lillian Sherke invested $20,000 in exchange for 200,000 shares of common stock.

 

(11)

On February 27, 2007, the Company closed a transaction pursuant to which it acquired various mineral rights claims from Donald Heck as Trustee of the Tombstone Silver Mines Secured Creditors Trust.

(12)

Securities Purchase Agreement by and between the Company and Nicholas L. Scheidt dated May 2, 2007 for $50,000 of common stock at $0.10 per share in reliance upon the exemption from securities registration afforded by §4(2) of the Securities Act.

(13)

Employment Agreement by and between the Company and Alan M. Brown, executed May 31, 2007 with an effective date of May 1, 2007.


D.

Exchange Controls


Except as discussed in Item E below, the Company is not aware of any Canadian federal or provincial laws, decrees, or regulations that restrict the export or import of capital, including foreign exchange controls, or that affect the remittance of dividends, interest or other payments to non-Canadian holders of Common Shares. The Company is not aware of any limitations on the right of non-Canadian owners to hold or vote Common Shares imposed by Canadian federal or provincial law or by the Company.




38





The Investment Canada Act (the “Act”) governs acquisitions of Canadian business by a non-Canadian person or entity. The Act provides, among other things, for a review of an investment in the event of acquisition of control in certain Canadian businesses in the following circumstances:


 

(1)

if the investor is a non-Canadian and is not a resident of a World Trade Organization (“WTO”) country, any direct acquisition having an asset value exceeding $5,000,000 and any indirect acquisition having an asset value exceeding $50,000,000;


 

(2)

if the investor is a non-Canadian and is a resident of a WTO member, any direct acquisition having an asset value exceeding $168,000,000, unless the business is involved in uranium production, financial services, transportation services or a cultural business.


An indirect acquisition of control by an investor who is a resident of a WTO country is not reviewable unless the value of the assets of the business located in Canada represents more than 50% of the asset value of the transaction, or the business is involved in uranium production, financial services, transportation services or a cultural business. The United States has been a member of the WTO since January 1, 1995.


The Act provides that a non-Canadian investor can hold up to 1/3 of the issued and outstanding capital of a Canadian corporation without being deemed a “control person”, and that a non-Canadian investor holding greater than 1/3 but less than 2 of the issued and outstanding capital of a Canadian corporation is deemed to be a control person subject to a reputable presumption to the contrary (i.e. providing evidence of another control person or control group holding a greater number of shares).


The Act requires notification where a non-Canadian acquires control, directly or indirectly, of a Canadian business with assets under the thresholds for reviewable transaction. The notification process consists of filing a notification within 30 days following the implementation of an investment.


E.

Taxation


Canadian Federal Income Taxation


We consider that the following summary fairly describes the principal Canadian federal income tax consequences applicable to a holder of our common shares who at all material times deals at arm’s length with our company, who holds all common shares as capital property, who is resident in the United States, who is not a resident of Canada and who does not use or hold, and is not deemed to use or hold, his common shares of our company in connection with carrying on a business in Canada (a “non-resident holder”). It is assumed that the common shares will at all material times be listed on a stock exchange that is prescribed for purposes of the Income Tax Act (Canada) (the “ITA”) and regulations thereunder. Investors should be aware that the Canadian federal income tax consequences applicable to holders of our common shares will change if, for any reason, we cease to be listed on a prescribed stock exchange. Accordingly, holders and prospective holders of our common shares should consult with their own tax advisors with respect to the income tax consequences of them purchasing, owing and disposing of our common shares should we cease to be listed on a prescribed stock exchange.


This summary is based upon the current provisions of the ITA, the regulations thereunder, the Canada-United States Tax Convention as amended by the Protocols thereto (the “Treaty”) as at the date of this Report and the currently publicly announced administrative and assessing policies of the Canada Customs and Revenue Agency (the “CCRA”). This summary does not take into account Canadian provincial income tax consequences. This description is not exhaustive of all possible Canadian federal income tax consequences and does not take into account or anticipate any changes in law, whether by legislative, governmental or judicial action. This summary does, however, take into account all specific proposals to amend the ITA and regulations thereunder, publicly announced by the Government of Canada to the date hereof.



39





This summary does not address potential tax effects relevant to our company or those tax considerations that depend upon circumstances specific to each investor. Accordingly, holders and prospective holders of our common shares should consult with their own tax advisors with respect to the income tax consequences to them of purchasing, owning and disposing of common shares in our company.


Dividends


The ITA provides that dividends and other distributions deemed to be dividends paid or deemed to be paid by a Canadian resident corporation (such as our company) to a non-resident of Canada shall be subject to a non-resident withholding tax equal to 25% of the gross amount of the dividend of deemed dividend. Provisions in the ITA relating to dividend and deemed dividend payments to and gains realized by non-residents of Canada, who are residents of the United States, are subject to the Treaty. The Treaty may reduce the withholding tax rate on dividends as discussed below.


Article X of the Treaty as amended by the US-Canada Protocol ratified on November 9, 1995 provides a 5% withholding tax on gross dividends or deemed dividends paid to a United States corporation which beneficially owns at least 10% of the voting stock of the company paying the dividend. In cases where dividends or deemed dividends are paid to a United States resident (other than a corporation) or a United States corporation which beneficially owns less than 10% of the voting stock of a company, a withholding tax of 15% is imposed on the gross amount of the dividend or deemed dividend paid. We would be required to withhold any such tax from the dividend and remit the tax directly to CCRA for the account of the investor.


The reduction in withholding tax from 25%, pursuant to the Treaty, will not be available:


 

(a)

if the shares in respect of which the dividends are paid formed part of the business property or were otherwise effectively connected with a permanent establishment or fixed base that the holder has or had in Canada within the 12 months preceding the disposition, or

 

 

 

 

(b)

the holder is a U.S. LLC which is not subject to tax in the U.S.


The Treaty generally exempts from Canadian income tax dividends paid to a religious, scientific, literary, educational or charitable organization or to an organization exclusively administering a pension, retirement or employee benefit fund or plan, if the organization is resident in the U.S. and is exempt from income tax under the laws of the U.S.


Capital Gains


A non-resident holder is not subject to tax under the ITA in respect of a capital gain realized upon the disposition of one of our shares unless the share represents “taxable Canadian property” to the holder thereof. Our common shares will be considered taxable Canadian property to a non-resident holder only if-.


 

(a)

the non-resident holder;

 

 

 

 

(b)

persons with whom the non-resident holder did not deal at arm’s length- or

 

 

 

 

(c)

the non-resident holder and persons with whom he did not deal at arm’s length,


owned not less than 25% of the issued shares of any class or series of our company at any time during the five year period preceding the disposition. In the case of a non-resident holder to whom shares of our company represent taxable Canadian property and who is resident in the United States, no Canadian taxes will generally be payable on a capital gain realized on such shares by reason of the Treaty unless:



40






 

(a)

the value of such shares is derived principally from real property (including resource property) situated in Canada,

 

 

 

 

(b)

the holder was resident in Canada for 120 months during any period of 20 consecutive years preceding, and at any time during the 10 years immediately preceding, the disposition and the shares were owned by him when he ceased to be a resident of Canada,

 

 

 

 

(c)

they formed part of the business property or were otherwise effectively connected with a permanent establishment or fixed base that the holder has or bad in Canada within the 12 months preceding the disposition, or

 

 

 

 

(d)

the holder is a U.S. LLC which is not subject to tax in the U.S.


If subject to Canadian tax on such a disposition, the taxpayer’s capital gain (or capital loss) from a disposition is the amount by which the taxpayer’s proceeds of disposition exceed (or are exceeded by) the aggregate of the taxpayer’s adjusted cost base of the shares and reasonable expenses of disposition. For Canadian income tax purposes, the “taxable capital gain” is equal to one-half of the capital gain.


United States Federal Income Taxation


The following is a discussion of the material United States Federal income tax consequences, under current law, applicable to a U.S. Holder (as defined below) of our common shares who holds such shares as capital assets. This discussion does not address all potentially relevant Federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of Federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion does not cover any state, local, or foreign tax consequences. (See “Canadian Federal Income Tax Consequences” above.)


The following discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, published Internal Revenue Service (“IRS”) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. In addition, this discussion does not consider the potential effects, both adverse and beneficial, of any recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.


The discussion below does not address potential tax effects relevant to our company or those tax considerations that depend upon circumstances specific to each investor. In addition, this discussion does not address the tax consequences that may be relevant to particular investors subject to special treatment under certain U.S. Federal income tax laws, such as, dealers in securities, tax-exempt entities, banks, insurance companies and non-U.S. Holders. Purchasers of the common stock should therefore satisfy themselves as to the overall tax consequences of their ownership of the common stock, including the State, local and foreign tax consequences thereof (which are not reviewed herein), and should consult their own tax advisors with respect to their particular circumstances.




41





U.S. Holders


As used herein, a “U.S. Holder” includes a beneficial holder of common shares of our company who is a citizen or resident of the United States, a corporation or partnership created or organized in or under the laws of the United States or of any political subdivision thereof, any trust if a US court is able to exercise primary supervision over the administration of the trust and one or more US persons have the authority to control all substantial decisions of the trust, any entity created or organized in the United States which is taxable as a corporation for U.S. tax purposes and any other person or entity whose ownership of common shares of our company is effectively connected with the conduct of a trade or business in the United States. A U.S. Holder does not include persons subject to special provisions of Federal income tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals or foreign corporations whose ownership of our common shares is not effectively connected with the conduct of a trade or business in the United States and shareholders who acquired their shares through the exercise of employee stock options or otherwise as compensation.


Dividend Distribution on Shares of our Company


U.S. Holders receiving dividend distributions (including constructive dividends) with respect to the common shares of our company are required to include in gross income for United States Federal income tax purposes the gross amount of such distributions to the extent that we have current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be deducted or may be credited against actual tax payable, subject to certain limitations and other complex rules, against the U.S. Holder’s United States Federal taxable income. See “Foreign Tax Credit” below. To the extent that distributions exceed our current or accumulated earnings and profits, they will be treated first as a return of capital to the extent of the shareholder’s basis in the common shares of our company and thereafter as gain from the sale or exchange of the common shares of our company. Preferential tax rates for net long term capital gains may be applicable to a U.S. Holder which is an individual, estate or trust.


In general, dividends paid on our common shares will not be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations.


Foreign Tax Credit


A U.S. Holder who pays (or who has had withheld from distributions) Canadian income tax with respect to the ownership of our common shares may be entitled, at the election of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. This election is made on a year-by-year basis and generally applies to all foreign income taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’s United States income tax liability that the U.S. Holder’s foreign source income bears to his or its world-wide taxable income. In determining the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern income such as “passive income”, “high withholding tax interest”, “financial services income”, “shipping income” and certain other classifications of income. A U.S. Holder who is treated as a domestic U.S. corporation owning 10% or more of our voting stock is also entitled to a deemed paid foreign tax credit in certain circumstances for the underlying foreign tax of our company related to dividends received or Subpart F income received from us. (See the discussion below of Controlled Foreign Corporations). The availability of the foreign tax credit and the application of the limitations on the foreign tax credit are fact specific and holders and prospective holders of our common shares should consult their own tax advisors regarding their individual circumstances.




42





Disposition of Common Shares


If a “U.S. Holder” is holding shares as a capital asset, a gain or loss realized on a sale of our common shares will generally be a capital gain or loss, and will be long-term if the shareholder has a holding period of more than one year. However, gains realized upon sale of our common shares may, under certain circumstances, be treated as ordinary income, if we were determined to be a “collapsible corporation” within the meaning of Code Section 341 based on the facts in existence on the date of the sale (See below for definition of “collapsible corporation”). The amount of gain or loss recognized by a selling U.S. Holder will be measured by the difference between (i) the amount realized on the sale and (ii) his tax basis in our common shares. Capital losses are deductible only to the extent of capital gains. However, in the case of taxpayers other than corporations (U.S.)$3,000 ($1,500 for married individuals filing separately) of capital losses are deductible against ordinary income annually. In the case of individuals and other non-corporate taxpayers, capital losses that are not currently deductible may be carried forward to other years. In the case of corporations, capital losses that are not currently deductible are carried back to each of the three years preceding the loss year and forward to each of the five years succeeding the loss year.


A “collapsible corporation” is a corporation that is formed or availed principally to manufacture, construct, produce, or purchase prescribed types or property that the corporation holds for less than three years and that generally would produce ordinary income on its disposition, with a view to the stockholders selling or exchanging their stock and thus realizing gain before the corporation realizes two thirds of the taxable income to be derived from prescribed property. Prescribed property includes: stock in trade and inventory; property held primarily for sale to customers in the ordinary course of business; unrealized receivables or fees, consisting of rights to payment for noncapital assets delivered or to be delivered, or services rendered or to be rendered to the extent not previously included in income, but excluding receivables from selling property that is not prescribed; and property gain on the sale of which is subject to the capital gain/ordinary loss rule. Generally, a shareholder who owns directly or indirectly 5 percent or less of the outstanding stock of the corporation may treat gain on the sale of his shares as capital gain.


Other Considerations for U.S. Holders


In the following circumstances, the above sections of this discussion may not describe the United States Federal income tax consequences resulting from the holding and disposition of common shares of the Registrant. Our management is of the opinion that there is little, if not, any likelihood that we will be deemed a “Foreign Personal Holding Company”, a “Foreign Investment Company” or a “Controlled Foreign Corporation” (each as defined below) under current and anticipated conditions.


Foreign Personal Holding Company


If at any time during a taxable year more than 50% of the total combined voting power or the total value of our outstanding shares is owned, actually or constructively, by five or fewer individuals who are citizens or residents of the United States and 60% or more of our gross income for such year was derived from certain passive sources (e.g., from dividends received from its subsidiaries), we would be treated as a “foreign personal holding company.” In that event, U.S. Holders that hold common shares in our capital would be required to include in income for such year their allocable portion of our passive income which would have been treated as a dividend had that passive income actually been distributed.


Foreign Investment Company

If 50% or more of the combined voting power or total value of our outstanding shares are held, actually or constructively, by citizens or residents of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), and we are found to be engaged primarily in the business of investing, reinvesting, or trading in securities, commodities, or any interest therein, it is possible that we might be treated as a “foreign investment company” as defined in Section 1246 of the Code, causing all or part of any gain realized by a U.S. Holder selling or exchanging our common shares to be treated as ordinary income rather than capital gains.




43





Controlled Foreign Corporation Status


If more than 50% of the voting power of all classes of stock or the total value of the stock of our company is owned, directly or indirectly, by U.S. Holders, each of whom own after applying rules of attribution 10% or more of the total combined voting power of all classes of stock of our company, we would be treated as a “controlled foreign corporation” or “CFC” under Subpart F of the Code. This classification would bring into effect many complex results including the required inclusion by such 10% U.S. Holders in income of their pro rata shares of “Subpart F income” (as defined by the Code) of our company and our earnings invested in “U.S. property” (as defined by Section 956 of the Code). In addition, under Section 1248 of the Code if we are considered a CFC at any time during the five year period ending with the sale or exchange of its stock, gain from the sale or exchange of common shares of our company by such a 10% U.S. Holder of our common stock at any time during the five year period ending with the sale or exchange is treated as ordinary dividend income to the extent of our earnings and profits attributable to the stock sold or exchanged. Because of the complexity of Subpart F, and because we may never be a CFC, a more detailed review of these rules is beyond of the scope of this discussion.


ALL PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF PURCHASING THE COMMON SHARES OF OUR COMPANY.


F.

Dividends and Paying Agents


There is no dividend restriction or any special procedure for non-resident holders to claim dividends. However, we have not declared dividends to our shareholders since our inception.


G.

Statement By Experts

 

The financial statements of our company as of December 31, 2006 and 2005 included in this report have been audited by Moore & Associates, Chartered, and Morgan & Company, Chartered Accountants, respectively, as stated in their reports appearing in this filing and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.  


The technical information regarding the Tombstone Property included in this Report is based on the Geological Report prepared by Jimmy L. Nyrehn Geologist GeoResource Associates, dated February 1, 2006.  This Geological Report was reviewed by the Company prior to the Agreement being executed.


H.

Documents On Display

 

We are subject to the informational requirements of the Securities Exchange Act of 1934 , as amended, and, as such, we file reports and other information with the SEC. You may read and copy any of our reports and other information at, and obtain copies upon payment of prescribed fees from, the Public Reference Room maintained by the SEC at 450 Fifth Street, N.W., Room 1024, Washington, DC 20549. In addition, the SEC maintains a web site that contains reports and other information regarding registrants that file electronically with the SEC at HTTP://www.sec.gov. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

We will provide without charge to each person, including any beneficial owner, on the written or oral request of such person, a copy of any or all documents referred to above which have been or may be incorporated by reference in this report (not including exhibits to such incorporated information that are not specifically incorporated by reference into such information). Requests for such copies should be directed to us in writing at our address.


I.

Subsidiary Information


As at the date of this Report, we have no subsidiaries.



44





Item 11.

Quantitative And Qualitative Disclosures About Market Risk


Our Tombstone Property is currently at the exploration stage and our operations are limited to exploring the Tombstone Property. Therefore, our market risks are minimal. We may, however, have future property exploration requirements due in currencies other than United States dollars. As a Canadian company, our cash balances are kept in Canadian funds, and then converted to United States funds for accounting purposes. Therefore, we may become exposed to some interest rate risks. We consider the amount of risk to be manageable and do not currently, nor will we likely in the foreseeable future, conduct hedging to reduce our market risks.


Item 12.

Description Of Securities Other Than Equity Securities


Not Applicable.


PART II

 

Item 13.

Defaults, Dividend Arrearages and Delinquencies.


None


Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds.


Not Applicable


Item 15.

Controls and Procedures


The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.


The Company’s executive officers, including our Chief Executive Officer and Chief Financial Officer, have established and maintained disclosure controls and procedures for the Company in order to provide reasonable assurance that material information relating to the Company is made known to it in a timely manner, particularly during the period in which the annual filings are being prepared. Based on evaluation of effectiveness of the Company’s disclosure controls and procedures and our Chief Executive Officer and Chief Financial Officer believe them to be effective in providing such reasonable assurance.




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Item 16.

[Reserved]


A.

Audit Committee Financial Expert


Not Applicable


B.

Code of Ethics


The Company has Code of Business Conduct and Ethics that was approved by the Company’s Board of Directors on June 1, 2007.  Refer to Exhibit 3.25 for the Code of Business Conduct and Ethics.


C.

Principal Accountant Fees and Services


The aggregate fees billed by the Company’s external auditors in each of the last two years for audit fees are as follows:


Financial Year Ending

 

Audit Fees(1)

 

Audit Related Fees (2)

 

Tax Fees (3)

 

All Other Fees (4)

2006

 

$7,500

 

$0

 

$0

 

$0

2005

 

$13,600

 

$0

 

$0

 

$0


(1)

The aggregate audit fees billed.

(2)

The aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements which are not included under the heading “Audit Fees”.

(3)

The aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning.

(4)

The aggregate fees billed for products and services other than as set out under the headings “Audit Fees”, “Audit Related Fees” and “Tax Fees”.


The Board of Directors must approve in advance any non-audit related services provided by the auditor to the Company, and the fees for such services, with a view to ensure independence of the Auditor, and in accordance with applicable regulatory standards, including applicable stock exchange requirements with respect to approval of non-audit related services performed by the auditors; and as necessary, taking or recommending appropriate action to oversee the independence of the auditors.


D.

Exemptions form the Listing Standards for Audit Committees.


Not Applicable


E.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.


Not Applicable


PART III

 

Item 17.

Financial Statements


Balance sheets of the Company as at December 31, 2006 and 2005, and the Statements of Operations and Stockholders Equity (Deficiency) and Cash Flows for each of the years in the three year period ended December 31, 2006, and for the period from re-entry into the Development Stage January 1, 2003 to December 31, 2005.


Item 18.

Financial Statements


Not Applicable.



46





Item 19.

Exhibits


Exhibits Required by Form 20-F


Exhibit

  

Number

Description

 

 

1.

Articles of Incorporation and By-laws:

 

 

1.1

Certificate of Incorporation under the Canada Business Corporations Act dated October 30, 1997.*

 

 

1.2

Articles of Incorporation.*

1.3

By-Laws.*

1.4

Certificate of Name Change dated September 20, 2004.*

 

 

3.25

Code of Ethics

 

 

4.

Material Contracts

 

 

4.1

Agreement between the Company and Scott Doiron dated April 12, 2000.*

4.2

Agreement between the Company and Mediapros, LLC dated April 12, 2000.*

4.3

Lease Indenture Agreement dated March 15, 2000 between the Company and Firwood Land & Trading Company Limited.*

4.4

Asset Acquisition Agreement by and between the Company and VCL Shareholders dated October 15, 2001.*

4.5

Settlement Agreement with Cavio dated May 17, 2002.*

4.6

Purchase and Sale Agreement with Hawkeye Drilling dated March 25, 2003.*

4.7

Securities Purchase Agreement, together with Convertible Note, by and between the Company and Ken Pollinger dated July 28, 2006 in reliance upon the exemption from securities registration afforded by §4(2) of the Securities Act of 1933, as amended (the “Securities Act”).*

4.8

Securities Purchase Agreement, together with Convertible Note, by and between the Company and Tom Reid dated July 28, 2006 in reliance upon the exemption from securities registration afforded by §4(2) of the Securities Act.*

4.9

Securities Purchase Agreement, together with Convertible Note, by and between the Company and John Doria dated July 28, 2006 in reliance upon the exemption from securities registration afforded by §4(2) of the Securities Act.*

4.10

Securities Purchase Agreement, together with Convertible Note, by and between the Company and Clavca Investment Corp. dated July 28, 2006 in reliance upon the exemption from securities registration afforded by §4(2) of the Securities Act.*

 

 

4.11

Settlement Agreement with David Sams, Inc. dated August 4, 2006.*

 

 

4.12

Asset Acquisition Agreement between Pure Capital Incorporated and Redhawk Exploration and Mining, Inc. dated November 27, 2006.*

 

 

4.13

Escrow Agreement between Pure Capital Incorporated and Redhawk dated November 27, 2006.*

 

 

4.14

Common Stock Purchase Warrant by and between the Company and Alan M. Brown dated November 29, 2006.*

 

 

4.15

Business Development Agreement by and between the Company and Performance Capital Corporation, effective November 1, 2006.*

 

 

4.16

Convertible Promissory Note dated January 2007 by and between the Company and Performance Capital Corporation.*



47






 

 

4.17

Form of Stock Purchase Agreement for series of transactions that closed on December 20, 2006.  Please refer to the Form 6-K filed on February 8, 2007.*

 

 

4.18

Acquisition Agreement dated February 27, 2007 by and between the Company and Donald Heck.*

 

 

4.19

Form of Securities Purchase Agreement by and between the Company and Nicholas L. Scheidt dated May 2, 2007 for $50,000 of common stock at $0.10 per share in reliance upon the exemption from securities registration afforded by §4(2) of the Securities Act.

 

 

4.20

Employment Agreement by and between the Company and Alan Brown dated May 31, 2007, effective as of May 1, 2007.

 

 

12.1

Certification of Chief Executive Officer of the Company required by rule 13A-14(A) or rule 15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

12.2

Certification of Chief Financial Officer of the Company required by rule 13A-14(A) or rule 15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

13.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 


* Previously filed.



48





SIGNATURES

 

The Company certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.



TOMBSTONE EXPLORATION CORPORATION

(Company)



/s/ ALAN BROWN                  

ALAN BROWN

President and Director


DATED on the 17 th day of July, 2007



49






















TOMBSTONE EXPLORATION CORPORATION

(FKA PURE CAPITAL, INC.)


FINANCIAL STATEMENTS


December 31, 2006 and 2005


































C O N T E N T S




Independent Registered Public Accounting Firms

 F-1


Balance Sheets

 F-3


Statements of Operations

 F-4


Statements of Stockholders’ Equity (Deficit)

 F-5


Statements of Cash Flows

 F-6


Notes to the Financial Statements

 F-7















REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the Stockholders

Pure Capital Incorporated

(A Development Stage Company)


We have audited the accompanying balance sheet of Pure Capital Incorporated (a development stage company) as at December 31, 2005 and the statements of operations, stockholders’ equity (deficiency), and cash flows for the year ended December 31, 2005, and for the period from re-entry into development stage, January 1, 2003, to December 31, 2005.  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 audit.  


We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform an audit to obtain reasonable assurance 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 audit provides a reasonable basis for our audit opinion.


In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as at December 31, 2005 and the results of its operations and its cash flows for the year ended December 31, 2005, and for the period from re-entry into development stage, January 1, 2003, to December 31, 2005, in conformity with United States generally accepted accounting principles.


The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.


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 has suffered recurring losses from operations and has insufficient working capital to meet its planned business objectives that raise substantial doubt about its ability to continue as a going concern.  Management’s plans in 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.





Vancouver, Canada

/s/ Morgan & Company


July 11, 2006

Chartered Accountants



F-1





MOORE & ASSOCIATES, CHARTERED

            ACCOUNTANTS AND ADVISORS

PCAOB REGISTERED



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors

Tombstone Exploration Corporation

(Fka Pure Capital, Inc.)

Nanaimo, B.C., Canada


We have audited the accompanying balance sheet of Tombstone Exploration Corporation (Fka Pure Capital, Inc.) as of December 31, 2006 and the related statements of operations, stockholders’ equity (deficit) and cash flows for the year ended December 31, 2006 and the cumulative column for the year ended December 31, 2006.  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 standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tombstone Exploration Corporation (Fka Pure Capital, Inc.) as of December 31, 2006 and the results of its operations and its cash flows for the year ended December 31, 2006 and the cumulative column for the year ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.


The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 5 to the consolidated financial statements, the Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. Management's plans in regard to these matters are also described in Note 5. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.




/s/ Moore & Associates Chartered       


Moore & Associates Chartered

Las Vegas, Nevada

July 16, 2007



2675 S. Jones Blvd. Suite 109, Las Vegas, NV 89146 (702) 253-7511 Fax (702) 253-7501



F-2





TOMBSTONE EXPLORATION CORPORATION

Balance Sheet

December 31, 2006 and December 31, 2005



 

 

December 31,

 

December 31,

 

 

2006

 

2005

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

     Cash in bank

$

42,981

$

116

 

 

 

 

 

TOTAL CURRENT ASSETS

 

42,981

 

116

 

 

 

 

 

OTHER ASSETS

 

 

 

 

     Mineral properties

 

900,000

 

-

 

 

 

 

 

TOTAL OTHER ASSETS

 

900,000

 

-

 

 

 

 

 

TOTAL ASSETS

$

942,981

$

116

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

     Accounts payable

$

11,659

$

1,015,287

     Related party payable

 

69,568

 

-

 

 

 

 

 

TOTAL CURRENT LIABILITIES

 

81,227

 

1,015,287

 

 

 

 

 

LONG-TERM DEBT

 

-

 

-

 

 

 

 

 

TOTAL LIABILITIES

 

81,227

 

1,015,287

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

     Common stock: no par value;

 

 

 

 

       unlimited shares authorized, 12,904,864 and 1,568,324

 

 

 

 

      shares issued and outstanding, respectively

 

8,651,588

 

7,468,288

     Additional paid in capital

 

56,800

 

56,800

     Cumulative translation adjustment

 

(1,500)

 

(1,500)

     Accumulated deficit

 

(7,845,134)

 

(8,538,759)

 

 

 

 

 

TOTAL STOCKHOLDERS' EQUITY

 

861,754

 

(1,015,171)

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

942,981

$

116




F-3






TOMBSTONE EXPLORATION CORPORATION

Statement of Operations

December 31, 2006 and December 31, 2005


 

 

 

 

 

 

From Inception

 

 

For the Year

 

For the Year

 

of the Development

 

 

Ended

 

Ended

 

Stage through

 

 

December 31,

 

December 31,

 

December 31,

 

 

2006

 

2005

 

2006

 

 

 

 

 

 

 

REVENUES

$

-

$

-

$

-

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

     Professional fees

 

25,792

 

64,282

 

199,388

     Consulting services

 

60,000

 

382,773

 

2,351,257

     General and administrative

 

72,391

 

37,090

 

285,220

 

 

 

 

 

 

 

TOTAL OPERATING EXPENSES

 

158,183

 

484,145

 

2,835,865

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

(158,183)

 

(484,145)

 

(2,835,865)

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

     Impairment of asset

 

-

 

-

 

(545,072)

     Gain on forgiveness of debt

 

851,808

 

-

 

851,808

     Interest expense

 

-

 

(62,796)

 

(535,939)

 

 

 

 

 

 

 

TOTAL OTHER INCOME (EXPENSE)

 

851,808

 

(62,796)

 

(229,203)

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

 

693,625

 

(546,941)

 

(3,065,068)

DISCONTINUED OPERATIONS

 

-

 

-

 

(51,706)

 

 

 

 

 

 

 

NET INCOME (LOSS)

$

693,625

$

(546,941)

$

(3,116,774)

 

 

 

 

 

 

 

COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

     Foreign Currency Translation Adjustment

 

-

 

(1,500)

 

(21,335)

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME (LOSS)

$

693,625

$

(548,441)

$

(3,138,109)

 

 

 

 

 

 

 

BASIC INCOME (LOSS) PER SHARE

$

0.10

$

(0.48)

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares

 

 

 

 

 

 

  Outstanding

 

7,236,594

 

1,139,471

 

 




F-4





TOMBSTONE EXPLORATION CORPORATION

Statements of Stockholders’ Equity (Deficit)

December 31, 2006 and December 31, 2005


 

 

 

 

Cumulative

 

 

 

 

 

 

Currency

 

Total

 

Common Stock

Additional Paid

Translation

Accumulated

Stockholders'

 

Shares

Amount

in Capital

Adjustment

Deficit

Equity

Balance December 31, 2002

81,991

$ 3,850,144

$   56,800

$   19,835

$   (4,728,360)

$   (801,581)

 

 

 

 

 

 

 

Common stock issued for:

 

 

 

 

 

 

   Services

86,500

1,141,098

-

-

-

1,141,098

   Advances payable

7,333

66,000

-

-

-

66,000

   Oil and gas property

25,000

480,000

-

-

-

480,000

Net loss for the year ended

 

 

 

 

 

 

  December 31, 2003

-

-

-

(34,893)

(2,068,471)

(2,103,364)

 

 

 

 

 

 

 

Balance December 31, 2003

200,824

5,537,242

56,800

(15,058)

(6,796,831)

(1,217,847)

 

 

 

 

 

 

 

Common stock issued for:

 

 

 

 

 

 

   Services

176,667

515,250

-

-

-

515,250

   Advances payable

332,651

798,363

-

-

-

798,363

Net loss for the year ended

 

 

 

 

 

 

  December 31, 2004

-

-

-

15,058

(1,194,987)

(1,179,929)

 

 

 

 

 

 

 

Balance December 31, 2004

710,142

6,850,855

56,800

-

(7,991,818)

(1,084,163)

 

 

 

 

 

 

 

Common stock issued for:

 

 

 

 

 

 

   Services

322,925

193,733

-

-

-

193,733

   Advances payable

535,257

423,700

-

-

-

423,700

Net loss for the year ended

 

 

 

 

 

 

  December 31, 2005

-

-

-

(1,500)

(546,941)

(548,441)

 

 

 

 

 

 

 

Balance December 31, 2005

1,568,324

7,468,288

56,800

(1,500)

(8,538,759)

(1,015,171)

 

 

 

 

 

 

 

Shares cancelled

(207,563)

-

-

-

-

-

Common stock issued for:

 

 

 

 

 

 

   Cash

3,544,103

383,300

-

-

-

383,300

   Mineral property

8,000,000

800,000

-

-

-

800,000

Net income for the year ended

 

 

 

 

 

 

 December 31, 2006

-

-

-

 

693,625

693,625

 

 

 

 

 

 

 

Balance December 31, 2006

12,904,864

$ 8,651,588

$   56,800

$   (1,500)

$   (7,845,134)

$   861,754




F-5





TOMBSTONE EXPLORATION CORPORATION

Statement of Cash Flows

December 31, 2006 and December 31, 2005


 

 

 

 

 

 

From Inception

 

 

For the Year

 

For the Year

 

of the Development

 

 

Ended

 

Ended

 

Stage through

 

 

December 31,

 

December 31,

 

December 31,

 

 

2006

 

2005

 

2006

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

     Net loss

$

693,625

$

(546,941)

$

(3,065,068)

     Adjustments to reconcile net income to

 

 

 

 

 

 

       net cash provided by operating activities:

 

 

 

 

 

 

         Discontinued operations

 

-

 

-

 

25,308

         Common stock issued for services

 

-

 

447,708

 

2,502,065

         Amortization

 

-

 

-

 

601

         Impairment of asset

 

-

 

-

 

546,474

         Forgiveness of debt

 

(851,808)

 

-

 

(851,808)

     Changes in operating assets and liabilities:

 

 

 

 

 

 

         (Increase) decrease in accounts receivable

 

-

 

-

 

31,508

         Increase (decrease) in accounts payable

 

(151,820)

 

52,549

 

45,725

 

 

 

 

 

 

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

(310,003)

 

(46,684)

 

(765,195)

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

        Acquisition of mineral properties

 

(100,000)

 

-

 

(165,072)

 

 

 

 

 

 

 

NET CASH (USED) BY INVESTING ACTIVITIES

 

(100,000)

 

-

 

(165,072)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

        Proceeds from common stock issued

 

383,300

 

-

 

383,300

        Proceeds from related party payables

 

69,568

 

48,300

 

608,250

 

 

 

 

 

 

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

452,868

 

48,300

 

991,550

Effect of Exchange Rate Changes on Cash

 

-

 

(1,500)

 

(21,335)

Net Increase (Decrease) in Cash

 

42,865

 

116

 

39,948

 

 

 

 

 

 

 

CASH - Beginning of period

 

116

 

-

 

3,033

 

 

 

 

 

 

 

CASH - End of period

$

42,981

 $

116

$

42,981

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW DISCLOSURE:

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH PAID FOR:

 

 

 

 

 

 

        Interest

$

-

$

-

$

-

        Income taxes

$

-

$

-

$

-

 

 

 

 

 

 

 

NON CASH FINANCING ACTIVITIES:

 

 

 

 

 

 

       Common stock issued for advances payable

$

-

$

169,725

$

559,065

       Common stock issued for mineral properties

$

800,000

$

-

$

800,000



F-6





TOMBSTONE EXPLORATION CORPORATION

(FKA PURE CAPITAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 and 2005


1.

Summary of Significant Accounting Policies


Nature of Business


Tombstone Exploration Corporation (the Company) was incorporated under the Canada Business Incorporations Act and all of its operations are located in Canada. The Company is a developmental stage corporation for the purpose of acquiring mineral and mining properties, and as a joint venture partner with similar companies.    


On February 6, 2007, the Company changed its name to Tombstone Exploration Corporation from Pure Capital, Inc.


Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.


Basic Income (Loss) per Common Share

Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There are no such common stock equivalents outstanding as of December 31, 2006 and 2005.


 

 

 

 

 

 

 

Basic Income (Loss)

 

 

 

Income(Loss)

 

Shares

 

Per Share

 

 

 

(Numerator)

 

(Denominator)

 

Amount

 

For the Year Ended

$

693,625

$

7,236,594

$

0.10

 

For the Year Ended

$

(548,441)

$

1,139,471

$

(0.48)


Dividends

The Company has not adopted any policy regarding payment of dividends. No dividends have been paid during any of the periods shown.


Comprehensive Income

The Company has adopted SFAS No. 130-“Reporting Comprehensive Income”. SFAS No. 130 establishes standards for reporting and displaying comprehensive income (loss) and its components.



F-7





TOMBSTONE EXPLORATION CORPORATION

(FKA PURE CAPITAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 and 2005


1.

Summary of Significant Accounting Policies (Continued)


Advertising Costs

The Company’s policy regarding advertising is to expense advertising when incurred. The Company had not incurred any advertising expense as of December 31, 2006 and 2005.


Cash and Cash Equivalents

For purposes of the Statement of Cash Flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.


Income Taxes

The Company provides for income taxes under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. SFAS No. 109

requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. The Company’s predecessor operated as entity exempt from Federal and State income taxes.


SFAS No. 109 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.


The provision for income taxes differs from the amounts which would be provided by applying the statutory federal income tax rate to net loss before provision for income taxes for the following reasons:

 

 

 

December 31, 2006

 

December 31, 2005

 

 

 

 

 

 

 

Income tax expense at statutory rate

$

2,267

$

130

 

Common stock issued for services

 

-0-

 

-0-

 

Valuation allowance

 

(2,267)

 

-0-

 

 

 

 

 

 

 

Income tax expense per books

$

-0-

$

130

 

 

 

 

 

 

Net deferred tax assets consist of the following components as of:

 

 

 

December 31, 2006

 

 

 

NOL Carryover

$

2,267

 

 

 

Valuation allowance

 

(2,267)

 

 

 

 

 

 

 

 

 

Net deferred tax asset

$

-0-

 

 




F-8





TOMBSTONE EXPLORATION CORPORATION

(FKA PURE CAPITAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 and 2005


1.

Summary of Significant Accounting Policies (Continued)

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur net operating loss carry forwards may be limited as to use in future years. As of December 31, 2006 the Company had net operating loss carryovers of approximately $15,100 which expire in 2026.


Impairment of Long-Lived Assets

The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.


Accounting Basis

The basis is accounting principles generally accepted in the United States of America.  The Company has adopted a December 31 fiscal year end.


Foreign Currency Translation


The Company’s operations are located in Vancouver, Canada and its functional currency is the Canadian dollar. The financial statements have been translated using the current method whereby the assets and liabilities are translated at the year end exchange rate, capital accounts at the historical exchange rate and revenues and expenses at the average rate for the period. Foreign currency gains and losses are included in the statement of operations.


Recent Accounting Pronouncements


In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. Where applicable, SFAS No. 157 simplifies and codifies related guidance within GAAP and does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier adoption is encouraged. The Company does not expect the adoption of SFAS No. 157 to have a significant effect on its financial position or results of operation.



F-9





TOMBSTONE EXPLORATION CORPORATION

(FKA PURE CAPITAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 and 2005


1.

Summary of Significant Accounting Policies (Continued)


In June 2006, the Financial Accounting Standards Board  issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006.  The Company does not expect the adoption of FIN 48 to have a material impact on its financial reporting, and the Company is currently evaluating the impact, if any, the adoption of FIN 48 will have on its disclosure requirements.


In March 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140.” This statement requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in any of the following situations: a transfer of the servicer’s financial assets that meets the requirements for sale accounting; a transfer of the servicer’s financial assets to a qualifying special-purpose entity in a guaranteed mortgage securitization in which the transferor retains all of the resulting securities and classifies them as either available-for-sale securities or trading securities; or an acquisition or assumption of an obligation to service a financial asset that does not relate to financial assets of the servicer or its consolidated affiliates. The statement also requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable, and permits an entity to choose either the amortization or fair value method for subsequent measurement of each class of servicing assets and liabilities. The statement further permits, at its initial adoption, a one-time reclassification of available for sale securities to trading securities by entities with recognized servicing rights, without calling into question the treatment of other available for sale securities under Statement 115, provided that the available for sale securities are identified in some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value and requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. This statement is effective for fiscal years beginning after September 15, 2006, with early adoption permitted as of the beginning of an entity’s fiscal year. Management believes the adoption of this statement will have no immediate impact on the Company’s financial condition or results of operations.



F-10





TOMBSTONE EXPLORATION CORPORATION

(FKA PURE CAPITAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 and 2005


2.

COMMON STOCK


During January 2006, the Company issued 304,103 shares of common stock for cash of $59,300 at $0.195 per share. During October 2006, the Company issued 3,240,000 shares of common stock for cash at $0.10 per share. On November 16, 2006, the Company issued 8,000,000 shares of common stock for mineral properties valued at $0.10 per share.


3.

MINERAL  PROPERTIES


The Company’s mineral properties are recorded at cost of $900,000. They are located near Tombstone, Arizona. The mineral properties were purchase for 8,000,000 shares of common stock valued at $0.10 per share and cash of $100,000.  


4.

RELATED PARTY PAYABLE


The Company has been advanced $69,568 from a shareholder.  The amount is non interest bearing, unsecured and due upon demand.


5.

GOING CONCERN


The Company’s financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.


In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing in order to put its mineral properties into production and to generate revenues there from. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.


The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.





F-11





TOMBSTONE EXPLORATION CORPORATION

(FKA PURE CAPITAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2006 and 2005


6.

GAIN ON FORGIVENESS OF DEBT


On August 3, 2006, the Company entered in a Release and Debt Settlement Agreement whereby it was relieved of various debt obligations. The Company recorded a gain on forgiveness of debt of $851,808 as a result of the debt release and settlement.





F-12


Exhibit 3.25


CODE OF ETHICS AND BUSINESS CONDUCT FOR OFFICERS, DIRECTORS AND EMPLOYEES OF TOMBSTONE EXPLORATION CORPORATION



1.

TREAT IN AN ETHICAL MANNER THOSE TO WHOM TOMBSTONE EXPLORATION CORPORATION HAS AN OBLIGATION


The officers, directors and employees of Tombstone Exploration Corporation, (the “Company”) are committed to honesty, just management, fairness, providing a safe and healthy environment free from the fear of retribution, and respecting the dignity due everyone.  For the communities in which we live and work we are committed to observe sound environmental business practices and to act as concerned and responsible neighbors, reflecting all aspects of good citizenship.


For our shareholders we are committed to pursuing sound growth and earnings objectives and to exercising prudence in the use of our assets and resources.  For our suppliers and partners we are committed to fair competition and the sense of responsibility required of a good customer and teammate.


2.

PROMOTE A POSITIVE WORK ENVIRONMENT


All employees want and deserve a workplace where they feel respected, satisfied, and appreciated.  We respect cultural diversity and will not tolerate harassment or discrimination of any kind -- especially involving race, color, religion, gender, age, national origin, disability, and veteran or marital status.


Providing an environment that supports honesty, integrity, respect, trust, responsibility, and citizenship permits us the opportunity to achieve excellence in our workplace.  While everyone who works for the Company must contribute to the creation and maintenance of such an environment, including our executives and management personnel, which have a responsibility for fostering a work environment that is free and open and will bring out the best in all of us.  Supervisors should not place subordinates in a position that could cause them to deviate from acceptable ethical behavior.


3.

PROTECT YOURSELF, YOUR FELLOW EMPLOYEES, AND THE WORLD WE LIVE IN


We are committed to providing a drug-free, safe and healthy work environment, and to observing environmentally sound business practices. We will strive, at a minimum, to do no harm and where possible, to make the communities in which we work a better place to live.  Each of us is responsible for compliance with environmental, health and safety laws and regulations.




4.

KEEP ACCURATE AND COMPLETE RECORDS


We will maintain accurate and complete Company records. Transactions between the Company and outside individuals and organizations will be accurately entered in our books in accordance with generally accepted accounting practices and principles.  The Company will not tolerate anyone misrepresenting facts or falsifying records.  It will not be tolerated and will result in disciplinary action.


5.

OBEY THE LAW


We will conduct our business in accordance with all applicable laws and regulations.  Compliance with the law does not comprise our entire ethical responsibility.  Rather, it is a minimum, absolutely essential condition for performance of our duties. In conducting business, we shall:


A.

Strictly Adhere To All Antitrust Laws


Officers, directors and employees must strictly adhere to all antitrust laws where the Company is operating.  Such laws exist in the United States and in many other countries where the Company may conduct business.  These laws prohibit practices in restraint of trade such as price fixing and boycotting suppliers or customers. They also bar pricing intended to run a competitor out of business; disparaging, misrepresenting, or harassing a competitor; stealing trade secrets; bribery; and kickbacks.


B.

Strictly Comply With All Securities Laws


In our role as a publicly owned company, we must always be alert to and comply with the security laws and regulations of the United States and other countries where the Company engages in business.


I.

Do Not Engage In Speculative Or Insider Trading


Federal law and Company policy prohibits officers, directors and employees, directly or indirectly through their families or others, from purchasing or selling company stock while in the possession of material, non-public information concerning the Company. This same prohibition applies to trading in the stock of other publicly held companies on the basis of material, non-public information. To avoid even the appearance of impropriety, Company policy also prohibits officers, directors and employees from trading options on the open market in Company stock under any circumstances.




2



Material, non-public information is any information that could reasonably be expected to affect the price of a stock.  If an officer, director or employee is considering buying or selling a stock because of inside information they possess, they should assume that such information is material.  It is also important for the officer, director or employee to keep in mind that if any trade they make becomes the subject of an investigation by the government, the trade will be viewed after-the-fact with the benefit of hindsight.  Consequently, officers, directors and employees should always carefully   consider how their trades would look from this perspective.  


Two simple rules can help protect you in this area: (1) do not use non-public information for personal gain and (2) do not pass along such information to someone else who has no need to know.


This guidance also applies to the securities of other companies for which you receive information in the course of your employment at The Company.


II.

Be Timely And Accurate In All Public Reports


As a public company, the Company must be fair and accurate in all reports filed with the United States Securities and Exchange Commission.  Officers, directors and management of The Company are responsible for ensuring that all reports are filed in a timely manner and that they fairly present the financial condition and operating results of the Company.


Securities laws are vigorously enforced.  Violations may result in severe penalties including forced sales of parts of the business and significant fines against the Company.  There may also be sanctions against individual employees including substantial fines and prison sentences.


The principal executive officer and principal financial Officer will certify to the accuracy of reports filed with the SEC in accordance with the Sarbanes-Oxley Act of 2002.  Officers and directors who knowingly or willingly make false certifications may be subject to criminal penalties or sanctions including fines and imprisonment.




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6.

AVOID CONFLICTS OF INTEREST


Our officers, directors and employees have an obligation to give their complete loyalty to the best interests of the Company.  They should avoid any action that may involve, or may appear to involve, a material conflict of interest with the Company.  Officers, directors and employees should not have any material financial or other business relationships with suppliers, customers or competitors that might impair, or even appear to impair, the independence of any judgment they may need to make on behalf of the Company.


Here Are Some Ways A Conflict Of Interest Could Arise:


·

Employment by a competitor, or potential competitor, regardless of the nature of the employment, while employed by the Company.


·

Acceptance of gifts, payment, or services from those seeking to do business with the Company.


·

Placement of business with a firm owned or controlled by an officer, director or employee or his/her family.

      

·

Ownership of, or substantial interest in, a company that is a competitor, client or supplier.

      

·

Acting as a consultant to the Company customer, client or supplier.


Officers, directors and employees are under a continuing obligation to disclose any situation that presents the possibility of a conflict or disparity of interest between the officer, director or employee and the Company.  Disclosure of any potential conflict is the key to remaining in full compliance with this policy.


7.

COMPETE ETHICALLY AND FAIRLY FOR BUSINESS OPPORTUNITIES


We must comply with the laws and regulations that pertain to the acquisition of goods and services.  We will compete fairly and ethically for all business opportunities.  In circumstances where there is reason to believe that the release or receipt of non-public information is unauthorized, do not attempt to obtain and do not accept such information from any source.


If you are involved in Company transactions, you must be certain that all statements, communications, and representations are accurate and truthful.




4



8.

AVOID ILLEGAL AND QUESTIONABLE GIFTS OR FAVORS


The sale and marketing of our products and services should always be free from even the perception that favorable treatment was sought, received, or given in exchange for the furnishing or receipt of business courtesies.  Officers, directors and employees of the Company will neither give nor accept business courtesies that constitute, or could be reasonably perceived as constituting, unfair business inducements or that would violate law, regulation or policies of the Company, or could cause embarrassment to or reflect negatively on the Company's reputation.


9.

MAINTAIN THE INTEGRITY OF CONSULTANTS, AGENTS, AND REPRESENTATIVES


Business integrity is a key standard for the selection and retention of those who represent the Company. Agents, representatives and consultants must certify their willingness to comply with the Company’s policies and procedures and must never be retained to circumvent our values and principles.  Paying bribes or kickbacks, engaging in industrial espionage, obtaining the proprietary data of a third party without authority, or gaining inside information or influence are just a few examples of what could give us an unfair competitive advantage and could result in violations of law.


10.

PROTECT PROPRIETARY INFORMATION


Proprietary Company information may not be disclosed to anyone without proper authorization. Keep proprietary documents protected and secure. In the course of normal business activities, suppliers, customers and competitors may sometimes divulge to you information that is proprietary to their business.  Respect these confidences.


11.

OBTAIN AND USE COMPANY ASSETS WISELY


Personal use of Company property must always be in accordance with corporate policy.  Proper use of Company property, information resources, material, facilities and equipment is your responsibility.  Use and maintain these assets with the utmost care and respect, guarding against waste and abuse, and never borrow or remove Company property without management's permission.


12.

FOLLOW THE LAW AND USE COMMON SENSE IN POLITICAL CONTRIBUTIONS AND ACTIVITIES


The Company encourages its employees to become involved in civic affairs and to participate in the political process.  Employees must understand, however, that their involvement and participation must be on an individual basis, on their own time and at their own expense.  In the United States, federal law prohibits corporations from donating corporate funds, goods, or services, directly or indirectly, to candidates for federal offices-- this includes employees’ work time. Local and state laws also govern political contributions and activities as they apply to their respective jurisdictions.



5




13.

BOARD COMMITTEES .


The Company shall establish an Audit Committee empowered to enforce this CODE OF ETHICS.  The Audit Committee will report to the Board of Directors at least once each year regarding the general effectiveness of the Company's Code OF ETHICS, the Company’s controls and reporting procedures and the Company’s business conduct.


14.

DISCIPLINARY MEASURES.


The Company shall consistently enforce its CODE OF ETHICS and Business Conduct through appropriate means of discipline.  Violations of the Code shall be promptly reported to the Audit Committee.  Pursuant to procedures adopted by it, the Audit Committee shall determine whether violations of the Code have occurred and, if so, shall determine the disciplinary measures to be taken against any employee or agent of the Company who has so violated the Code.


The disciplinary measures, which may be invoked at the discretion of the Audit Committee, include, but are not limited to, counseling, oral or written reprimands, warnings, probation or suspension without pay, demotions, reductions in salary, termination of employment and restitution.


Persons subject to disciplinary measures shall include, in addition to the violator, others involved in the wrongdoing such as: (i) persons who fail to use reasonable care to detect a violation; (ii) persons who if requested to divulge information withhold material information regarding a violation; and (iii) supervisors who approve or condone the violations or attempt to retaliate against employees or agents for reporting violations or violators.



6


Exhibit 4.19


NONE OF THE SECURITIES TO WHICH THIS PRIVATE PLACEMENT SUBSCRIPTION AGREEMENT (THE “SUBSCRIPTION AGREEMENT”) RELATES HAVE BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED HEREIN) EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.


PRIVATE PLACEMENT SUBSCRIPTION AGREEMENT
(United States Accredited Subscribers Only)


TO:

TOMBSTONE EXPLORATION CORPORATION (the “Company”)

250 BLAIRGOWRIE PLACE

NANAIMO, B.C. V9T 4P5 CANADA


Purchase of Shares


1.

Subscription


1.1

The undersigned, namely, ___________________________________________, (the “Subscriber”) hereby irrevocably subscribes for and agrees to purchase from the Company, on the basis of the representations and warranties and subject to the terms and conditions set forth herein, 800,000 common shares in the capital of the Company (the “Shares”) at the price of US$0.10 per Share (such subscription and agreement to purchase being the “Subscription”) for the total purchase price of $800,000 (the “Subscription Proceeds”) which is tendered herewith, on the basis of the representations and warranties and subject to the terms and conditions set forth herein.


1.2

Subject to the terms hereof, the Subscription will be effective upon its acceptance by the Company. The Subscriber acknowledges that the offering of the Shares contemplated hereby is part a private placement of Shares having an aggregate subscription level of US$800,000 (the “Offering”). The Offering is not subject to any minimum aggregate subscription level.


2.

Payment


2.1

The Subscription Proceeds must accompany this Subscription and shall be paid by certified check or bank draft drawn on a U.S. national bank made payable and delivered to the Company. Alternatively, the Subscription Proceeds may be wired to the Company to the wiring instructions that are provided in this Subscription Agreement.


2.2

The Subscriber acknowledges and agrees that this Subscription Agreement, the Subscription Proceeds and any other documents delivered in connection herewith will be held on behalf of the Company. In the event that this Subscription Agreement is not accepted by the Company for whatever reason, which the Company expressly reserves the right to do, within 30 days of the delivery of an executed Subscription Agreement by the Subscriber, this Subscription Agreement, the Subscription Proceeds (without interest thereon) and any other documents delivered in connection herewith will be returned to the Subscriber at the address of the Subscriber as set forth in this Subscription Agreement.


2.3

Where the Subscription Proceeds are paid to the Company, the Company is entitled to treat such Subscription Proceeds as an interest free loan to the Company until such time as the Subscription is accepted and the certificates representing the Shares have been issued to the Subscriber.

      




3.      

Questionnaire and Undertaking and Direction

 

3.1

The Subscriber must complete, sign and return to the Company the following documents:


(a)      

two (2) executed copies of this Subscription Agreement; and


(b)      

a Prospective Investor Suitability Questionnaire in the form attached as Appendix 1 (the “Questionnaire”).


3.2  

The Subscriber shall complete, sign and return to the Company as soon as possible, on request by the Company, any documents, questionnaires, notices and undertakings as may be required by regulatory authorities, stock exchanges and applicable law.

 

4.      

Closing


4.1

Closing of the offering (the “Offering”) of the Shares (the “Closing”) shall occur on April 26, 2007, or on such other date as may be determined by the Company (the “Closing Date”).

 

5.      

Acknowledgements of Subscriber

 

5.1      

The Subscriber acknowledges and agrees that:

 

 

(a)

the Shares have not been registered under the 1933 Act, or under any state securities or “blue sky” laws of any state of the United States, and are being offered only in a transaction not involving   any public offering within the meaning of the 1933 Act, and, unless so registered, may not be offered or   sold in the United States or to U.S. Persons (as defined herein), except pursuant to an effective registration   statement under the 1933 Act, or pursuant to an exemption from, or in a transaction not subject to, the   registration requirements of the 1933 Act, and in each case only in accordance with applicable state   securities laws;


(b)

the Company will refuse to register any transfer of the Shares not made in accordance with the provisions of Regulation S, pursuant to an effective registration statement under the 1933 Act or pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of   the 1933 Act;


(c)

the Company has not undertaken, and will have no obligation, to register any of the Shares under the 1933 Act;


(d)

the decision to execute this Subscription Agreement and purchase the Shares agreed to be purchased hereunder has not been based upon any oral or written representation as to fact or otherwise made by or on behalf of the Company and such decision is based entirely upon a review of information (the “Company Information”) which has been provided by the Company to the Subscriber. If the Company has presented a business plan or any other type of corporate profile to the Subscriber, the Subscriber acknowledges that the business plan, the corporate profile and any projections or predictions contained in any such documents may not be achieved or be achievable;


(e)

the Subscriber and the Subscriber's advisor(s) have had a reasonable opportunity to ask questions of and receive answers from the Company regarding the Offering, and to obtain additional information, to the extent possessed or obtainable without unreasonable effort or expense, necessary to verify the accuracy of the information contained in the Company Information, or any business plan,   corporate profile or any other document provided to the Subscriber;




2



(f)

the books and records of the Company were available upon reasonable notice for inspection, subject to certain confidentiality restrictions, by the Subscriber during reasonable business hours at its principal place of business and that all documents, records and books pertaining to this Offering have been made available for inspection by the Subscriber, the Subscriber's attorney and/or advisor(s);


(g)

by execution hereof the Subscriber has waived the need for the Company to communicate its acceptance of the purchase of the Shares pursuant to this Subscription Agreement;


(h)

the Company is entitled to rely on the representations and warranties and the statements and answers of the Subscriber contained in this Subscription Agreement and in the Questionnaire, and the Subscriber will hold harmless the Company from any loss or damage it may suffer as a result of the Subscriber's failure to correctly complete this Subscription Agreement or the Questionnaire;


(i)

the Subscriber will indemnify and hold harmless the Company and, where applicable, its respective directors, officers, employees, agents, advisors and shareholders from and against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all fees, costs and expenses whatsoever reasonably incurred in investigating, preparing or defending against any claim, lawsuit, administrative proceeding or investigation whether commenced or threatened) arising out of or   based upon any representation or warranty of the Subscriber contained herein, the Questionnaire or in any other document furnished by the Subscriber to the Company in connection herewith, being untrue in any material respect or any breach or failure by the Subscriber to comply with any covenant or agreement made by the Subscriber to the Company in connection therewith;


(j)

the issuance and sale of the Shares to the Subscriber will not be completed if it would be unlawful or if, in the discretion of the Company acting reasonably, it is not in the best interests of the Company;


(k)

the Subscriber has been advised to consult its own legal, tax and other advisors with respect to the merits and risks of an investment in the Shares and with respect to applicable resale restrictions and it is solely responsible (and the Company is in any way responsible) for compliance with   applicable resale restrictions;


(l)

the Shares are not listed on any stock exchange or automated dealer quotation system and no representation has been made to the Subscriber that any of the Shares will become listed on any stock exchange or automated dealer quotation system, except that currently certain market makers make market in shares of the Company on the National Association of Securities Dealers Inc.'s OTC Bulletin Board;

 

(m)

neither the SEC nor any other securities commission or similar regulatory authority has reviewed or passed on the merits of the Shares;

 

(n)

no documents in connection with this Offering have been reviewed by the SEC or any state securities administrators;

 

 (o)

there is no government or other insurance covering any of the Shares; and


(p)

this Subscription Agreement is not enforceable by the Subscriber unless it has been accepted by the Company, and the Subscriber acknowledges and agrees that the Company reserves the right to reject any Subscription for any reason.




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6.      

Representations, Warranties and Covenants of the Subscriber

 

6.1

The Subscriber hereby represents and warrants to and covenants with the Company (which representations, warranties and covenants shall survive the Closing) that:


(a)

the Subscriber is resident in the United States;


(b)

the Subscriber has received and carefully read this Subscription Agreement;


(c)

the Subscriber has the legal capacity and competence to enter into and execute this Subscription Agreement and to take all actions required pursuant hereto and, if the Subscriber is a corporation, it is duly incorporated and validly subsisting under the laws of its jurisdiction of incorporation and all necessary approvals by its directors, shareholders and others have been obtained to authorize execution and performance of this Subscription Agreement on behalf of the Subscriber;


(d)

the Subscriber (i) has adequate net worth and means of providing for its current financial needs and possible personal contingencies, (ii) has no need for liquidity in this investment, and (iii) is able to bear the economic risks of an investment in the Shares for an indefinite period of time, and can afford the complete loss of such investment;


(e)

the Subscriber is aware that an investment in the Company is speculative and involves certain risks, including the possible loss of the investment;


(f)

the entering into of this Subscription Agreement and the transactions contemplated hereby do not result in the violation of any of the terms and provisions of any law applicable to, or, if applicable, the constating documents of, the Subscriber, or of any agreement, written or oral, to which the Subscriber may be a party or by which the Subscriber is or may be bound;


(g)

the Subscriber has duly executed and delivered this Subscription Agreement and it constitutes a valid and binding agreement of the Subscriber enforceable against the Subscriber;


(h)

the Subscriber has the requisite knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the investment in the Shares and the Company, and the Subscriber is providing evidence of such knowledge and experience in these matters through the information requested in the Questionnaire;


(i)

the Subscriber understands and agrees that the Company and others will rely upon the truth and accuracy of the acknowledgements, representations and agreements contained in this Subscription Agreement, and agrees that if any of such acknowledgements, representations and agreements are no longer   accurate or have been breached, the Subscriber shall promptly notify the Company;


(j)

All information contained in the Questionnaire is complete and accurate and may be relied upon by the Company, and the Subscriber will notify the Company immediately of any material   change in any such information occurring prior to the closing of the purchase of the Shares;


(k)

the Subscriber is purchasing the Shares for its own account for investment purposes only and not for the account of any other person and not for distribution, assignment or resale to others, and no other person has a direct or indirect beneficial interest is such Shares, and the Subscriber has not subdivided his interest in the Shares with any other person;


(l)

the Subscriber is not an underwriter of, or dealer in, the common shares of the Company, nor is the Subscriber participating, pursuant to a contractual agreement or otherwise, in the distribution of the Shares;



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(m)

the Subscriber has made an independent examination and investigation of an investment in the Shares and the Company and has depended on the advice of its legal and financial advisors and agrees that the Company will not be responsible in anyway whatsoever for the Subscriber's decision to invest in the Shares and the Company;


(n)

if the Subscriber is acquiring the Shares as a fiduciary or agent for one or more investor accounts, the investor accounts for which the Subscriber acts as a fiduciary or agent satisfy the definition of an “Accredited Investor”, as the term is defined under Regulation D of the 1933 Act;


(o)

if the Subscriber is acquiring the Shares as a fiduciary or agent for one or more investor accounts, the Subscriber has sole investment discretion with respect to each such account, and the Subscriber has full power to make the foregoing acknowledgements, representations and agreements on behalf of such account;


(p)

the Subscriber is not aware of any advertisement of any of the Shares and is not acquiring the Shares as a result of any form of general solicitation or general advertising including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio or television, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising; and


(q)

no person has made to the Subscriber any written or oral representations:


 

(i)

that any person will resell or repurchase any of the Shares;


(ii)

that any person will refund the purchase price of any of the Shares;


(iii)

as to the future price or value of any of the Shares; or


(iv)

that any of the Shares will be listed and posted for trading on any stock exchange or automated dealer quotation system or that application has been made to list and post any of the Shares of the Company on any stock exchange or automated dealer quotation system.

 

6.2

In this Subscription Agreement, the term “U.S. Person” shall have the meaning ascribed thereto in Regulation S and for the purpose of the Subscription includes any person in the United States.

  

   

7.

Acknowledgement and Waiver

 

7.1      

The Subscriber has acknowledged that the decision to purchase the Shares was solely made on the basis of publicly available information. The Subscriber hereby waives, to the fullest extent permitted by law, any rights of withdrawal, rescission or compensation for damages to which the Subscriber might be entitled in connection with the distribution of any of the Shares.

 

8.

Representations and Warranties will be Relied Upon by the Company

 

8.1      

The Subscriber acknowledges that the representations and warranties contained herein are made by it with the intention that they may be relied upon by the Company and its legal counsel in determining the Subscriber's eligibility to purchase the Shares under applicable securities legislation, or (if applicable) the eligibility of others on whose behalf it is contracting hereunder to purchase the Shares under applicable securities legislation.

  

The Subscriber further agrees that by accepting delivery of the certificates representing the Shares on the Closing Date, it will be representing and warranting that the representations and warranties contained herein are true and correct as at the Closing Date with the same force and effect as if they had been made by the Subscriber at the Closing Date and that they will survive the purchase by the Subscriber of Shares and will continue in full force and effect notwithstanding any subsequent disposition by the Subscriber of such Shares.



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9.

Resale Restrictions

 

9.1      

The Subscriber acknowledges that any resale of the Shares will be subject to resale restrictions contained in the securities legislation applicable to each Subscriber or proposed transferee. The Subscriber acknowledges that the Shares have not been registered under the 1933 Act of the securities laws of any state of the United States and that the Company does not intend to register same under the 1933 Act, or the securities laws of any such state and has no obligation to do so. The Shares may not be offered or sold in the United States unless registered in accordance with federal securities laws and all applicable state securities laws or exemptions from such registration requirements are available.

 

10

Legending and Registration of Subject Shares

 

10.1      

The Subscriber hereby acknowledges that that upon the issuance thereof, and until such time as the same is no longer required under the applicable securities laws and regulations, the certificates representing any of the Shares will bear a legend in substantially the following form:


“NONE OF THE SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT OR PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.”


The Subscriber hereby acknowledges and agrees to the Company making a notation on its records or giving instructions to the registrar and transfer agent of the Company in order to implement the restrictions on transfer set forth and described in this Subscription Agreement.


11.

Costs

 

11.1      

The Subscriber acknowledges and agrees that all costs and expenses incurred by the Subscriber (including any fees and disbursements of any special counsel retained by the Subscriber) relating to the purchase of the Shares shall be borne by the Subscriber.

  

  

11.2

The Subscriber hereby acknowledges and agrees to the Company making a notation on its records or giving instructions to the registrar and transfer agent of the Company in order to implement the restrictions on transfer set forth and described in this Subscription Agreement.


12.

Governing Law

 

12.1      

This Subscription Agreement is governed by the laws of the State of California and the federal laws of the United States of America applicable therein. The Subscriber, in its personal or corporate capacity and, if applicable, on behalf of each beneficial purchaser for whom it is acting, irrevocably agrees to the jurisdiction of the State of California.


13.

Survival 
   

13.1

This Subscription Agreement, including without limitation the representations, warranties and covenants contained herein, shall survive and continue in full force and effect and be binding upon the parties hereto notwithstanding the completion of the purchase of the Shares by the Subscriber pursuant hereto.  

    

14.

Assignment 

    

14.1 

This Subscription Agreement is not transferable or assignable. 



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15.

Severability  

   

15.1 

The invalidity or unenforceability of any particular provision of this Subscription Agreement shall not affect or limit the validity or enforceability of the remaining provisions of this Subscription Agreement.  

   

16.

Entire Agreement 

   

   

16.1 

Except as expressly provided in this Subscription Agreement and in the agreements, instruments and other documents contemplated or provided for herein, this Subscription Agreement contains the entire agreement between the parties with respect to the sale of the Shares and there are no other terms, conditions, representations or warranties, whether expressed, implied, oral or written, by statute or common law, by the Company or by anyone else. 



17.

Notices 

  

   

17.1

All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Subscriber shall be directed to the address on the signature page of this Subscription Agreement and notices to the Company shall be directed to it at the address written above.


18.

Counterparts and Electronic Means

 

18.1      

This Subscription Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall constitute an original and all of which together shall constitute one instrument. Delivery of an executed copy of this Agreement by electronic facsimile transmission or other means of electronic communication capable of producing a printed copy will be deemed to be execution and delivery of this Agreement as of the date hereinafter set forth.


IN WITNESS WHEREOF, the Subscriber has duly executed this Subscription Agreement as of the date hereinafter set forth.


DELIVERY AND REGISTRATION INSTRUCTIONS


1.      

Delivery - please deliver the Share certificates to:

 

 _________________________________________________________________

 

 _________________________________________________________________ 

 

   

2.      

Registration - registration of the certificates which are to be delivered at closing should be made as follows:

        _________________________________________________________________

 

(name)

        _________________________________________________________________

 

(address)

   

3.      

The undersigned hereby acknowledges that he or she will deliver to the Company all such additional completed forms in respect of the Subscriber's purchase of the Shares as may be required for filing with the appropriate securities commissions and regulatory authorities.

 




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_________________________________________________________________
(Name of Subscriber – Please type or print)

_________________________________________________________________
(Signature and, if applicable, Office)

_________________________________________________________________
(Address of Subscriber)

_________________________________________________________________
(City, State, and Zip Code of Subscriber)

United States of America
_________________________________________________________________
(Country of Subscriber)

_________________________________________________________________
(Fax Number and email address)


ACCEPTANCE


The above-mentioned Subscription Agreement in respect of the Shares is hereby accepted by Tombstone Exploration Corporation.


DATED at Vancouver, B.C., Canada, the 26 th day of April, 2007.



Tombstone Exploration Corporation




___________________________________________

Title:

Authorized Signatory



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APPENDIX 1


ACCREDITED INVESTOR QUESTIONNAIRE


All capitalized terms herein, unless otherwise defined, have the meanings ascribed thereto in the Subscription Agreement.


This Questionnaire is for use by each Subscriber who is a US person (as that term is defined Regulation S of the United States Securities Act of 1933 (the “1933 Act”)) and has indicated an interest in purchasing Shares of TOMBSTONE EXPLORATION CORPORATION (the “Company”). The purpose of this Questionnaire is to assure the Company that each Subscriber will meet the standards imposed by the 1933 Act and the appropriate exemptions of applicable state securities laws. The Company will rely on the information contained in this Questionnaire for the purposes of such determination. The Shares will not be registered under the 1933 Act in reliance upon the exemption from registration afforded by Section 3(b) and/or Section 4(2) and Regulation D of the 1933 Act. This Questionnaire is not an offer of the Shares or any other securities of the Company in any state other than those specifically authorized by the Company.


All information contained in this Questionnaire will be treated as confidential. However, by signing and returning this Questionnaire, each Subscriber agrees that, if necessary, this Questionnaire may be presented to such parties as the Company deems appropriate to establish the availability, under the 1933 Act or applicable state securities law, of exemption from registration in connection with the sale of the Shares hereunder.


The Subscriber covenants, represents and warrants to the Company that it satisfies one or more of the categories of “Accredited Investors”, as defined by Regulation D promulgated under the 1933 Act, as indicated below: (Please initial in the space provide those categories, if any, of an “Accredited Investor” which the Subscriber satisfies)


______ Category 1 

An organization described in Section 501(c)(3) of the United States Internal Revenue Code,

  

a corporation, a Massachusetts or similar business trust or partnership, not formed for the specific

  

purpose of acquiring the Shares, with total assets in excess of US $5,000,000; 

______ Category 2 

A natural person whose individual net worth, or joint net worth with that person's spouse, on the

  

date of purchase exceeds US $1,000,000; 

______ Category 3 

A natural person who had an individual income in excess of US $200,000 in each of the two most

  

recent years or joint income with that person's spouse in excess of US $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; 

______ Category 4 

A “bank” as defined under Section (3)(a)(2) of the 1933 Act or savings and loan association or other institution as defined in Section 3(a)(5)(A) of the 1933 Act acting in its individual or fiduciary capacity; a broker dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934 (United States); an insurance company as defined in Section 2(13) of the 1933 Act; an investment company registered under the Investment Company Act of 1940 (United States) or a business development company as defined in Section 2(a)(48) of such Act; a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958 (United States); a plan with total assets in excess of $5,000,000 established and maintained by a state, a political subdivision thereof, or an agency or instrumentality of a state or a political subdivision thereof, for the benefit of its employees; an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 (United States) whose investment decisions are made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000, or, if a self- directed plan, whose investment decisions are made solely by persons that are accredited investors; 

______ Category 5 

A private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940 (United States); 

______ Category 6 

A director or executive officer of the Company; 







______ Category 7 

A trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Shares, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) under the 1933 Act; 

______ Category 8 

An entity in which all of the equity owners satisfy the requirements of one or more of the foregoing categories; 

  

 


Note that prospective Subscribers claiming to satisfy one of the above categories of Accredited Investor may be required to supply the Company with a balance sheet, prior years' federal income tax returns or other appropriate documentation to verify and substantiate the Subscriber's status as an Accredited Investor.


If the Subscriber is an entity which initialed Category 8 in reliance upon the Accredited Investor categories above, state the name, address, total personal income from all sources for the previous calendar year, and the net worth (exclusive of home, home furnishings and personal automobiles) for each equity owner of the said entity:



 

 


The Subscriber hereby certifies that the information contained in this Questionnaire is complete and accurate and the Subscriber will notify the Company promptly of any change in any such information. If this Questionnaire is being completed on behalf of a corporation, partnership, trust or estate, the person executing on behalf of the Subscriber represents that it has the authority to execute and deliver this Questionnaire on behalf of such entity.


IN WITNESS WHEREOF, the undersigned has executed this Questionnaire as of April 26, 2007.  

      

If a Corporation, Partnership or Other Entity: 

  

  

If an Individual: 

  

  

  

  

  

  
____________________________________________
Print or Type Name of Entity 

  

  

_____________________________________________
Signature 

  

  

  

  

  

  
____________________________________________
Signature of Authorized Signatory 

  

  

_____________________________________________
Print or Type Name 

  

  

  

  

  

  
____________________________________________
Type of Entity

 

 

_____________________________________________
Social Security/Tax I.D. Number

 

 

 

 

 






Exhibit 4.20


EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”), effective as of May 1, 2007, is entered into by and between Alan M. Brown (“Employee”), and Tombstone Exploration Corporation, a Canadian Corporation (“Company”).

RECITALS

WHEREAS , the Employee has been serving as President, Chief Executive Officer and Chief Financial Officer of the Company and the parties hereto desire for the Employee to continue serving in such capacity; and

WHEREAS , no formal document exists governing the relationship between the Company and the Employee, and the Company and Employee desire by the execution of this Agreement to create a document memorializing the terms and conditions of the Employee’s service with the Company; and

WHEREAS , the Company has granted Employee, by unanimous written consent of the Board of Directors effective as of even date herewith, 5,000,000 shares of the Company’s Common Stock, no par value, (the “Issued Stock”) as bonus consideration for past services and for services hereunder.

NOW, THEREFORE , in consideration of the mutual agreements hereinafter set forth, Employee and the Company have agreed and do hereby agree as follows:

AGREEMENT

1. Duties. The Company hereby agrees to continue to employ and engage Employee as President, Chief Executive Officer and Chief Financial Officer of the Company, and Employee hereby accepts and agrees to such hiring, engagement, and employment. Employee agrees to perform any and all duties and to assume any and all responsibilities that may be assigned to him from time to time by the or Board of Directors of the Company or may be required by the Bylaws, Articles of Incorporation or other governing document of the Company. During the duration of his employment, Employee will devote sufficient time, energy, and skill to the performance of his duties for the Company and for the benefit of the Company. Employee shall render such services to the Company and perform his duties at such place or places in as the Company shall require in accordance with its best interests, needs, business and opportunities. Employee will also exercise due diligence and care in the performance of Employee’s duties to the Company under this Agreement. Employee is freely permitted to engage in any other endeavors, pursue other investments and/or business opportunities, including but not limited to Employee’s status as a licensed real estate broker.

2. Employment Period. Employee’s employment with the Company shall be for an initial term of five (5) years (the “Initial Term”), commencing on the date hereof and shall continue thereafter until ended in accordance with this Agreement. After the Initial Term, Employee’s employment will be “at will,” meaning that either Employee or the Company will be entitled to terminate the employment at any time and for any reason, with or without cause prior to the expiration of this Agreement. Any contrary representations which may have been made to Employee are superseded by this Agreement. The “at will” nature of the employment after the Initial Term may only be changed in an express written agreement signed by Employee and a duly authorized officer of the Company.



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3. Compensation.

(a) Base Salary. The Company shall pay Employee, and Employee agrees to accept from the Company in full payment for Employee’s services and promises to the Company (specifically including the covenants set forth in Sections 5 and 9), a base salary at the rate of $10,000 per month during the duration of Employee’s employment (“Base Salary”), payable in equal monthly installments or otherwise in accordance with the Company’s normal pay practices as the same may be altered from time to time by Company.

(b) Bonus. At the discretion of the Board of Directors, and subject to the satisfaction of such conditions or performance criteria as may be established from time to time at the sole discretion of the Board of Directors, Employee may, from time to time, receive a bonus. This bonus may consist of, without limitation, either equity interests of the Company or cash.

(c) Withholding Taxes. All forms of compensation paid or payable to Employee whether set forth in this Agreement or otherwise are subject to reduction to reflect applicable withholding and payroll taxes.

(d) Reimbursement for Business Expenses. Employee shall receive reasonable and customary reimbursement for business expenses incurred on behalf of the Company; provided, however, that Employee shall provide appropriate receipts and documentation for any such expenses.

(e) Vacation. Employee shall be entitled to vacation on the terms and subject to the conditions established by the Board of Directors of the Company.

(f) Health Care Benefits. In addition to Employee’s Base Salary during the duration of the Employee’s employment, Company shall pay $2,000 per month on behalf of Employee for health care benefits.

4. Issued Stock; Transferability. The Issued Stock and the rights and privileges conferred in whole or in part hereby may not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise), and the Company shall have no obligation to transfer such shares, unless registered under the Securities Act of 1933, as amended (the “Act”) or, in the opinion of counsel to the Company, such transaction is in compliance with or exempt from the registration and prospectus requirements of the Act. The Employee shall pay all costs incurred by the Company in such a transaction, including but not limited to legal fees and costs. The Issued Stock shall not be subject to levy and execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of the Issued Stock, or any right or privilege conferred hereby, contrary to the provisions of this Agreement, or upon the levy or execution, attachment or similar process on the Issued Stock or the rights and privileges conferred under this Agreement, the Company shall have the right to buy back the Issued Stock, in whole or in part, in the manner described in Section 6. Each certificate or other documentation evidencing the ownership of any shares of Issued Stock to be imprinted with a legend in substantially the following form:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE REOFFERED, SOLD, TRANSFERRED, PLEDGED, OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT AND THE STATE SECURITIES ACT OR BLUE SKY ACT OF ANY STATE HAVING JURISDICTION THEREOF, OR (B) AN OPINION OF COUNSEL, REASONABLY SATISFACTORY IN FORM, SCOPE AND SUBSTANCE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR THE SECURITIES ACT OR BLUE SKY ACT OF ANY STATE HAVING JURISDICTION WITH RESPECT THERETO. ADDITIONALLY, THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO AN OPTION TO REPURCHASE IN FAVOR OF THE COMPANY AS DESCRIBED IN THAT CERTAIN EMPLOYMENT AGREEMENT DATED MAY 1, 2007.



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The certificate may also bear additional inscriptions that the Company, in its sole and absolute discretion, otherwise deems are required by federal, state, foreign or local securities laws. All shares of Issued Stock shall be subject to such stop-transfer orders and other restrictions as the Company may deem advisable under the rules, regulations, and other requirements of the US Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed, and any applicable federal or state securities law, and the Company may cause a legend or legends to be put on any certificates evidencing such shares to make appropriate reference to such restrictions.

5. Restrictions on the Issued Stock. The Issued Stock is subject to all restrictions in this Agreement. By acceptance of the Issued Stock, the Employee agrees that the Issued Stock will be held for investment and will not be held with a view to their distribution, as that term is used in the Act, unless in the opinion of counsel to the Company, such distribution is in compliance with or exempt from the registration and prospectus requirements of that Act. As a condition of this Agreement, the Company may require the Employee to confirm any factual matters reasonably requested by counsel for the Company.

THE EMPLOYEE UNDERSTANDS THAT THE ISSUED STOCK WILL NOT BE REGISTERED AT THE TIME THIS AGREEMENT UNDER THE SECURITIES ACT. THE EMPLOYEE REPRESENTS THAT IT IS EXPERIENCED IN EVALUATING COMPANIES SUCH AS THE COMPANY, HAS SUCH KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS AS TO BE CAPABLE OF EVALUATING THE MERITS AND RISKS OF ITS INVESTMENT, AND HAS THE ABILITY TO SUFFER THE TOTAL LOSS OF THE INVESTMENT. THE EMPLOYEE FURTHER REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO ASK QUESTIONS OF AND RECEIVE ANSWERS FROM THE COMPANY CONCERNING THE TERMS AND CONDITIONS OF THE ISSUED STOCK, THE COMMON STOCK, AND THE BUSINESS OF THE COMPANY, AND TO OBTAIN ADDITIONAL INFORMATION TO SUCH EMPLOYEE’S SATISFACTION. THE EMPLOYEE FURTHER REPRESENTS THAT IT IS AN “ACCREDITED INVESTOR” WITHIN THE MEANING OF REGULATION D UNDER THE ACT, AS PRESENTLY IN EFFECT.

6. Resignation; Termination for Cause; Other Terminations.

(a) Resignation. Employee shall have the right to terminate this Agreement at any time upon thirty (30) days prior written notice to the Company of any such termination. In the event that such resignation is for Good Reason (as that term is defined below), all of Employee’s rights and all of the Company’s obligations hereunder shall terminate effective on the date of Employee’s resignation and Employee shall be entitled to receive the unpaid portion of the Base Salary earned up to the date of such termination and all benefits payable to Employee as a result of such termination under the terms of the Company’s employee benefit plans. In the event Employee shall resign for other than Good Reason, Employee’s obligations and the Company’s rights under Sections 5, 6, 7, 8, 9 and 10 shall survive the termination of this Agreement for a period of one (1) year, and the Issued Stock will be subject to the Option to Repurchase as set forth below. The Employee may terminate the Employee’s employment with the Company at any time for “Good Reason”, if any of the following have occurred without the Employees consent:

(i) the material reduction of the Employee’s authority, duties and responsibilities, or the assignment to the Employee of duties materially inconsistent with the Employee’s position or positions with the Company and its subsidiaries, except that the Company shall have thirty (30) days from the date on which the Employee gives the notice thereof to cure such event or condition and, if the Company does so, such event or condition shall not constitute Good Reason hereunder;

(ii) a reduction of the Annual Salary of the Employee, except that a reduction of the Employee’s Base Salary shall not constitute Good Reason for termination if (i) the Company cures such reduction no later than thirty (30) days from the date on which the Employee gives the Company notice that the reduction constitutes Good Reason for termination hereunder; or (ii) such reduction is made in connection with a reduction in compensation of not more than ten percent (10%) of the Employee’s Base Salary and such reduction is made generally applicable to all senior management employees of the Company;



3





(iii) the failure by the Company to obtain an agreement in form and substance reasonably satisfactory to the Employee from any successor to the business of the Company to assume and agree to perform this Agreement;

(iv) the Company’s material and willful breach of this Agreement, except that the Company shall have thirty (30) days from the date on which the Employee gives the notice thereof to cure such event or condition and, if the Company does so, such event or condition shall not constitute Good Reason hereunder;

(v) a requirement by the Company that Employee’s work location be moved more than fifty (50) miles of the Company’s principal place of business in Arizona; or

(vi) the occurrence of a change of control, which for purposes of this Agreement shall mean the sale to an independent third party or group of independent third parties of either (i) more than fifty percent (50%) of the issued and outstanding equity securities of the Company and the voting power under normal circumstances to elect a majority of the Company’s Board of Directors (whether by merger, consolidation, sale or transfer of the Company’s equity securities); or (ii) all or substantially all of the Company’s assets determined on a consolidated basis.

(b) Termination for Cause. The Company may terminate Employee’s employment at any time for Cause (as defined below) with thirty (30) days written notice and opportunity to cure the violation. Such opportunity to cure will only be available if the violation is contained in one of the following paragraphs (contained below in this Subsection 6(b)): (iv), (viii), (ix), (x) (xi). If Employee’s employment is terminated pursuant to this Subsection 6(b), all of Employee’s rights and all of the Company’s obligations hereunder shall immediately terminate. As used in this section, “for Cause” shall mean any of the following:

(i) Willfully damaging the Company’s property, business, reputation or goodwill;

(ii) Committing a felony;

(iii) Death, theft, dishonesty, fraud or embezzlement;

(iv) Using alcohol, narcotics or other controlled substances to the extent that it prevents the Employee from efficiently performing services for the Company;

(v) Willfully injuring any other employee of the Company;

(vi) Willfully injuring any person in the course of performance of services for the Company;

(vii) Disclosing to a competitor or other unauthorized persons confidential or proprietary information or secrets of the Company;

 

(viii) Soliciting business on behalf of a competitor or a potential competitor;

(ix) Sexually harassing any other employee of the Company or committing any act which otherwise creates an offensive work environment for other employees of the Company;



4




(x) Failing to comply with any provision of the Company’s policy manual as it applies to Employee; or

(xi) Breaching this Agreement.

The Company shall not be limited to termination as a remedy for any improper or illegal act of Employee, but may also seek damages, injunction or such other remedy as it may deem appropriate under the circumstances. This shall include without limitation the option by the Company, in its sole and absolute discretion, to repurchase the Issued Stock, in whole or in part, for an amount of $.001 per share (the “Option to Repurchase”), immediately upon the termination of the Employee’s employment with the Company for Cause, or the Employee’s resignation without Good Reason; provided, however, that the Issued Stock subject to the Option to Repurchase shall be reduced by one-fourth for each month of Employee’s completed employment with the Company, beginning the date hereof and continuing hereafter. Upon the termination of the Employee for Cause, Employee’s obligations and the Company’s rights under Sections 7, 8, 9, 10, 11 and 12 shall survive the termination of this Agreement for a period of one (1) year

(c) Termination Without Cause. The Company may terminate Employee’s employment at any time without Cause pursuant to written notice provided to Employee not less than thirty (30) days in advance of such termination date. If Employee’s employment is terminated pursuant to this Section 6(c), all of Employee’s rights and all of the Company’s obligations hereunder shall immediately terminate. Notwithstanding a termination of this Agreement pursuant to this Section 6(c), Employee’s obligations and the Company’s rights under Sections 5, 6, 7, 8, 9 and 10 shall survive the termination of this Agreement for a period of one (1) year; provided, however, that in the event of a termination without Cause, the non-competition provision in subsection 7(b) below shall continue so long as the Company continues to pay Employee’s full wages after such termination.

7. Non-solicitation; Non-competition.

(a) Employee agrees that he will not at any time during the Employee’s employment or the Restriction Period (“Restriction Period” shall mean the one (1) year subsequent to the end of Employee’s employment by the Company for any reason, which ending of employment shall be referred to as the “Termination Date”), whether voluntarily or involuntarily, directly or indirectly for himself or any other person or entity solicit, interfere with or endeavor to entice away from Company or any of its affiliates any other employee of Company or any of its affiliates. Additionally, Employee agrees that during the Restriction Period any employment by Employee or any entity in which he has an interest, directly or indirectly (other than a publicly traded company in which he has less than a 1% interest) of any person who was in the employ of the Company or any of its affiliates within the preceding year, shall be a violation of this Section. For the purposes of this Agreement indirect interests shall include interests held by Employee’s family members or any partner in a partnership, limited liability company or other entity in which he has a 10% or greater ownership interest.

(b) Employee further agrees that he will not at any time during the Restriction Period, whether voluntarily or involuntarily, directly or indirectly, for himself or any other person or entity:



5




(i) engage, directly or indirectly (either as an employee, officer, director, partner, shareholder, consultant or independent contractor), in any business substantially similar to that carried on by the Company, or any of its affiliates, or in providing services or products or offering to provide products or services of the kind provided by the Company or any of its affiliates as of the Termination Date within those areas in the United States, US Territories, Mexico, Central America and the Caribbean (the “Non-Competition Area”) which the Company or any of its affiliates is doing business as of the Termination Date or in which, at the time of the Termination Date, the Company or any of its affiliates contemplates doing business, or, for those customers of the Company or any of its affiliates for whom the Company or any of its affiliates: (A) is engaged in providing services or products as of the Termination Date, or (B) has either provided services or products within the twenty four month (24) period prior to the Termination Date, or (C) has contacted at any time during the twelve (12) months prior to the Termination Date, for the purpose of offering to provide services or products (all of which are hereinafter referred to as the “Clients”);

(ii) Solicit or attempt to solicit those Clients for the purposes of providing or offering to provide any services or products of a type which the Company or any of its affiliates provides or contemplates providing as of the Termination Date, on behalf of those Clients, whether directly or through any other persons, partnerships, corporations, companies or other entities; or

(iii) Take any other action which would impair the value of the business or assets of the Company or any of its affiliates, including, without limitation, any action which would tend to disparage or diminish the reputation of the Company or any of its affiliates.

(c) If in any judicial proceeding, a court shall refuse to enforce this Agreement, whether because the time limit is too long or because the restrictions contained herein are more extensive (whether as to geographic area, scope of business or otherwise) than is necessary to protect the business and goodwill of the Company, it is expressly understood and agreed between the parties hereto that this Agreement is deemed modified to the extent necessary to permit this Agreement to be enforced in any such proceedings.

(d) If the Company or its successors in interest shall make application to a court of competent jurisdiction for injunctive relief, then the Restriction Period specified herein shall be tolled from the time of application for injunctive relief until the date of final adjudication of the claim for injunctive relief. Additionally, Employee waives, to the greatest extent permissible, any requirement that the Company post bond or other security as a precondition to an injunction, whether temporary or permanent.

(e) Employee agrees that compliance with this Section is necessary to protect the goodwill and other proprietary interests of the Company and that a breach of this Section will give rise to irreparable and continuing injury to the Company which is not adequately compensable in monetary damages or at law. Accordingly, Employee agrees that the Company, its successors and assigns may obtain injunctive relief against the breach or threatened breach of the foregoing provisions, in addition to any other legal remedies which may be available to it under this Agreement. Employee further acknowledges that in the event of his termination or expiration of employment with the Company, his knowledge, experience and capabilities are such that Employee can obtain employment in business activities which are of a different or noncompeting nature than those performed in the course of employment with the Company; and that the enforcement of a remedy hereunder by way of injunction will not prevent Employee from earning a reasonable livelihood.



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8. Accounting for Profits. Employee covenants and agrees that if he violates the provisions of Sections 7, 9, 11, or 12 the Company shall be entitled to an accounting and repayment of all profits, compensation, commissions, remuneration or other benefits that Employee has realized and/or may realize as a result of or in connection with any such violation. These remedies shall be in addition and not in limitation of any injunctive relief or other rights or remedies to which the Company is or may be entitled at law, in equity or under this Agreement.

9. Assignment of Proprietary Information. Except as may be required in the course of employment by the Company, Employee agrees that any and all Proprietary Information, as hereinafter defined, which Employee has made, conceived of, developed or originated, either individually or jointly with any other person or persons at any time during the period of employment by the Company, or during a period of five (5) years after termination or expiration of said employment, whether during working hours or any other time, which relate in any way to the business or the type of business now or hereafter engaged in or contemplated by the Company during the period of Employee’s employment or which result from or may be suggested by any work Employee does for the Company or at the Company’s request, shall be the property of the Company. As used herein, “Proprietary Information” shall mean any and all proprietary property including but not limited to all techniques, processes, devices, charts, manuals, payroll, and improvements thereto together with the names and identities of all clients and prospective clients, price lists, suppliers and all other information or materials which the Company may from time to time designate and treat as confidential and proprietary or as a trade secret.

Employee shall promptly disclose and assign such Proprietary Information to the Company’s representatives and do all such acts, and execute and deliver all such documents, as may be necessary to vest in the Company the title to all such Proprietary Information and enable the Company to properly prepare and prosecute any and all applications for patents, trademarks or copyrights thereon as well as all reissues, renewals and extensions thereof, so that the Company shall be the sole and absolute owner of all right, title and interest in said proprietary property. It is understood and agreed that the words “which relate in any way to the business or the type of business now or hereafter carried on or contemplated by the Company” shall properly cover any reasonable development or extension of the Company’s field of operation. These obligations shall continue beyond the termination or expiration of Employee’s employment with respect to inventions, discoveries and developments conceived or made by Employee during the period of employment and shall be binding on Employee’s assigns, executors, heirs, administrators and other legal representatives. Employee agrees that all correspondence, drawings, reports, ideas, blueprints, manuals, letters, notes, analyses, notebooks, reports, charts, programs, proposals or any other documents concerning the Company’s customers or products or processes, whether or not prepared by and in the course of employment, alone or in conjunction with others, is the property of the Company and upon termination or expiration of employment for any reason, Employee shall promptly return to the Company any such documents in his possession, custody or control.

10. Information and Testimony. Employee will, without expense to himself, give such true information and testimony under oath if requested, as may be requested of him by the Company relative to any Proprietary Information that is subject to disclosure to the Company under the terms hereof.

11. Proprietary Information. Employee agrees that he will not at any time during or after the termination or expiration of his employment, except as authorized or directed in writing by the Company, use for Employee’s own benefit, copy, reveal, divulge or make known in any manner to any person, firm or the Company the contents of any methods, inventions, systems, processes, concepts, techniques, and devices related to such matters used or developed by the Company, whether or not owned by the Company, or the methods, processes or manner of the creation and sale of products or services provided by, sold or leased by the Company, all sometimes referred to as “Trade Secrets,” as defined below.



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Employee further agrees that he will not at any time during or after the termination or expiration of said employment, except as authorized or directed in writing by the Company, sell, exchange or give away or otherwise dispose of any methods, inventions, systems, processes, concepts, techniques and devices related to the business now or hereafter owned and operated by the Company, whether the same shall or may have been originated, discovered or otherwise created by Employee. Employee further agrees not to reveal, divulge or make known to any person, firm or the Company the name of any of the Company’s clients, price lists, suppliers or any secret, trade secret or other Proprietary Information whatsoever in connection with the Company, its business or its clients or anything pertaining thereto.

Employee understands that if, either during employment or thereafter, he discloses to others, uses for his own benefit or for the benefit of any person or entity other than the Company, copies or makes notes of any such Trade Secrets, information or facilities, such conduct will constitute a breach of the confidence and trust bestowed upon Employee by the Company and will be a breach of this Agreement.

 

“Trade Secret” shall mean the whole or any portion of any formula, pattern, device, combination of devices, or compilation of information which is for use, or is used in the operation of the Company’s business and which provides the business an advantage, or an opportunity to obtain an advantage, over those who do not know or use it. Trade Secret includes any scientific, technical or commercial information, including any design, process, procedure, list of suppliers, list of customers, business code, sales or installation technique, or improvement thereof. For purposes of interpretation hereunder the following shall apply:

(a) Irrespective of novelty, invention, patentability, the state of the prior art, and the level of skill in the business, art, or field to which the subject matter pertains, when the owner thereof takes measures to prevent it from becoming available to persons other than those selected by the owner to have access thereto for limited purposes, a trade secret is considered to be secret, of value, for use or in use by the business, and of advantage to the business, or providing an opportunity to obtain an advantage, over those who do not know or use it.

(b) In addition, a “Trade Secret” shall include information (not readily compiled from publicly available sources) which has been made available to Employee during the course of his employment, including but not limited to the names, addresses, telephone number, qualifications, education, accomplishments, experience and resumes of all persons who have applied or been recruited for employment, for either or both permanent and temporary jobs, job order specifications and the particular characteristics and requirements of persons generally hired by the Company, as well as specific job listings from companies with whom the Company does, or attempts to do business, as well as mailing lists, computer runoffs, financial or other information not generally available to others, and all information defined as a trade secret by applicable Canadian Federal law.

(c) Employee further agrees that he is under no obligation to any former company which is in any way inconsistent with this Agreement or which imposes any restriction on behalf of the Company. The Employee also acknowledges that he has been instructed that during the term of employment by the Company, he is not to divulge to the Company, its employees or its consultants any confidential information obtained from any previous employers or any other person.

12. Return of Records. On termination of employment, Employee shall deliver all records, notes, data, memoranda, models, and equipment of any nature that are in Employee’s possession or under his control and that are the property of the Company or relate to the employment or to the business of the Company.

13. No Slander. Employee agrees not to in any way slander or injure the business reputation or goodwill of the Company, including, by way of illustration, through any contact with Clients, prospective clients, vendors, suppliers, employees or agents of the Company which could slander or injure the business reputation or goodwill of the Company.



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14. Waiver or Modification. No waiver or modification of this Agreement or of any covenant, condition, or limitation herein contained shall be valid unless in writing and duly executed by the party to be charged therewith. Furthermore, no evidence of any modification or waiver shall be offered or received as evidence in any proceeding, arbitration or litigation between the parties arising out of or affecting this Agreement or the rights or obligations of any party hereunder, unless such waiver or modification is in writing, duly executed as aforesaid. The provisions of this Section may not be waived except as herein set forth.

15. Choice of Law; Waiver of Jury Trial. This Agreement and the performance hereunder and all suits and special proceedings hereunder shall be construed in accordance with the laws of Canada. In any action, special proceeding or other proceeding that may be brought arising out of, in connection with, or by reason of this Agreement, the laws of Canada shall be applicable and shall govern to the exclusion of the law of any other forum, without regard to the jurisdiction in which the action or special proceeding may be instituted. All actions under this Agreement shall be taken in a court of competent jurisdiction within the Province of British Columbia in which the Company’s principal place of business is located and Employee hereby waives and agrees that he shall not assert that such forum is inconvenient.

EACH PARTY HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO DEMAND A TRIAL BY JURY FOR ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE RELATIONSHIP OF THE PARTIES. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING FROM ANY SOURCE, INCLUDING BUT NOT LIMITED TO THE CONSTITUTION OF THE UNITED STATES, THE CONSTITUTION OF ANY STATE, COMMON LAW OR ANY APPLICABLE STATUTE OR REGULATION. EACH PARTY HEREBY ACKNOWLEDGES THAT IT IS KNOWINGLY AND VOLUNTARILY WAIVING THE RIGHT TO DEMAND TRIAL BY JURY.

16. Binding Effect of Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors, assigns and legal representatives.

17. Life Insurance. Inasmuch as the services of Employee are important to the success or failure of the Company, the Company may, by its sole discretion, purchase disability insurance or insurance on the life of the Employee during the term hereof in such amounts as the Company shall determine appropriate. Such insurance shall be owned by the Company, the Company shall be the sole beneficiary, and all premiums therefor shall be paid by the Company. The Employee agrees to cooperate with the reasonable requirements of the Company and/or its insurance carriers as necessary to obtain such insurance, including submitting to any and all necessary medical examinations.

18. Invalid Provision. The invalidity or unenforceability of a particular provision of this Agreement shall not effect the other provisions hereto, and this Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted.

19. Costs of Enforcement. In the event either party initiates action to enforce his, her or its rights hereunder, the substantially prevailing party shall recover from the substantially non-prevailing party its reasonable expenses, court costs, including taxed and untaxed costs, and reasonable attorneys’ fees, whether suit be brought or not (jointly referred as to “Expenses”). As used herein, Expenses include expenses incurred in any appellate or bankruptcy proceeding. All such Expenses shall bear interest at the highest rate allowable under the laws of the Province of British Columbia from the date the substantially prevailing party pays such Expenses until the date the substantially non-prevailing party repays such Expenses. Expenses incurred in enforcing this Section shall be covered by this Section. For this purpose, the court is requested by the parties to award actual costs and attorneys’ fees incurred by the substantially prevailing party, it being the intention of the parties that the substantially prevailing party be completely reimbursed for all such costs and fees. The parties request that inquiry by the court as to the fees and costs shall be limited to a review of whether the fees charged and hourly rates for such fees are consistent with the fees and hourly rates routinely charged by the attorneys for the substantially prevailing party.



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20. Assignment. This Agreement shall be construed as a contract for personal services by Employee to the Company and shall not be assignable by Employee. This Agreement may be assigned by the Company.

21. Strict Construction. This Agreement was the joint, negotiated product of the parties. Therefore, neither party shall advance a position that any provision hereof should be more strictly construed against the other party on the basis that such other party prepared such provision.

22. Cumulative Rights. Unless otherwise provided herein, all rights, powers and privileges conferred upon the parties by law, this Agreement or otherwise shall be cumulative.

23. Waiver. No failure of any party to exercise any power given such party hereunder or to insist upon strict compliance by any party with its obligations hereunder, and no custom or practice of the parties in variance with the terms hereof shall constitute a waiver of the parties’ right to demand exact compliance with the terms hereof.

24. Survival. The provisions of this Agreement shall continue and survive the closing hereof unless or until there is a completion and fulfillment of all the conditions, covenants and warranties herein.

25. Time. Time is of the essence of this Agreement.

26. Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered by hand or when mailed by certified registered mail, return receipt requested, with postage prepaid to their current address or to such other address as they request in writing.

 

27. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which shall constitute the same instrument.

28. Singular/Plural Feminine/Masculine, Successors or Assigns. All references as used herein shall include male and female, singular and plural, and successors or assigns in the use of a corporation, partnership, individual or entity in any place or places herein in which the context may require or permit such substitution, substitutions or designations.

29. Complete Agreement. This written Agreement contains the sole and entire agreement between the parties as to the matters contained herein, and supersedes any and all other agreements between them. The parties acknowledge and agree that neither of them has made any representation with respect to such matters of this Agreement or any representations except as are specifically set forth herein, and each party acknowledges that he or it has relied on his or its own judgment in entering into this Agreement. The parties further acknowledge that statements or representations that may have been heretofore made by either of them to the other are void and of no effect and that neither of them has relied thereon in connection with his or its dealing with the other.

[SIGNATURE PAGE FOLLOWS]



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IN WITNESS WHEREOF , the parties have executed this Agreement as of the date first set forth above.

 

 

 

 

TOMBSTONE EXPLORATION CORPORATION

 

 

 

 

By:

 

 


 

ALAN M. BROWN

 

 

By:

 



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EXHIBIT 12.1

 

CERTIFICATE OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO 15 U.S.C. 78m(a) OR 78o(d)

(SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002)


I, Alan M. Brown, certify that:


(1)    I have reviewed this Annual Report on Form 20-F for the fiscal year ended December 31, 2006 of Tombstone Exploration Corporation;


(2)    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


(3)    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;


(4)    The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:

 

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)    Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)    Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and


(5)    The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):





(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and


(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

 

 

 

 

/s/  Alan M. Brown             

 

 

 

 

 

 

 

Alan M. Brown

Chief Executive Officer

July 17, 2007

 

 

 




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EXHIBIT 12.2

 

CERTIFICATE OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO 15 U.S.C. 78m(a) OR 78o(d)

(SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002)


I, Alan M. Brown, certify that:


(1)    I have reviewed this Annual Report on Form 20-F for the fiscal year ended December 31, 2006 of Tombstone Exploration Corporation;


(2)    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


(3)    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;


(4)    The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:

 

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)    Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)    Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and


(5)    The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):





(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and


(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

 

 

 

 

/s/ Alan M. Brown              

 

 

 

 

 

 

 

Alan M. Brown

Chief Financial Officer

July 17, 2007

 

 

 




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EXHIBIT 13.1


CERTIFICATE OF CHIEF EXECUTIVE OFFICER & CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)



I, Alan M. Brown, Chief Executive Officer and Chief Financial Officer of Tombstone Exploration Corporation (the “Company”), have executed this certification in connection with the filing with the Securities and Exchange Commission of the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2006 (the “Report”). The undersigned hereby certifies that:


 

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


 

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

 

 

 

/ s/  Alan M. Brown            

 

 

 

 

 

 

 

Alan M. Brown

Chief Executive Officer & Chief Financial Officer

July 17, 2007