TOMBSTONE EXPLORATION CORP (Form: 20-F, Received: 07/19/2011 06:02:49)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

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

1934

X .

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

For the fiscal year ended December 31, 2010

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 __________________

Commission file number: 000-29922

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)

6529 East Freiss Dr., Scottsdale, AZ 85254

(Address of principal executive offices)

Copy of communications to:

Luis Carrillo, Esq.

Carrillo Huettel, LLP

3033 Fifth Avenue, Suite 400

San Diego, CA 92103

Telephone: (619) 546-6100

Facsimile: (619) 546-6060

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 77,620,904 Common Shares without par value issued and outstanding as at December 31, 2010.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. . YES X . 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

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. X . YES . NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). . 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 X .

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP X . International Financial Reporting Standards as issued by the International Accounting Standards Board . Other .

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 X . NO

TABLE OF CONTENTS


			Page
Forward-Looking Statements			5
PART I
Financial Information And Accounting Principles			6
Item 1	Identity of Directors, Senior Management and Advisers		6
Item 2	Offer Statistics and Expected Timetable		6
Item 3	Key Information		6
	A.	Selected Financial Data	6
	B.	Capitalization and Indebtedness	7
	C.	Reasons for the Offer and Use of Proceeds	7
	D.	Risk Factors	7
Item 4	Information on our Company		11
	A.	History and Development of our Company	11
	B.	Business Overview	12
	C.	Organizational Structure	20
	D.	Property, Plants and Equipment	20
Item 4A	Unresolved Staff Comments		25
Item 5	Operating and Financial Review and Prospects		25
	A.	Operating Results	25
	B.	Liquidity and Capital Resources	26
	C.	Research and Development, Patents and Licenses, etc.	26
	D.	Trend Information	26
	E.	Off-Balance Sheet Arrangements	26
	F.	Tabular Disclosure of Contractual Obligations	26
Item 6	Directors, Senior Management and Employees		26
	A.	Directors and Senior Management	26
	B.	Compensation	27
	C.	Board Practices	28
	D.	Employees	28
	E.	Share Ownership	29
Item 7	Major Shareholders and Related Party Transactions		29
	A.	Major Shareholders	29
	B.	Related Party Transactions	29
	C.	Interests of Experts and Counsel	29
Item 8	Financial Information		30
	A.	Consolidated Statements and Other Financial Information	30
	B.	Significant Changes	30
Item 9	The Offer and Listing		30
Item 10	Additional Information		30
	A.	Share Capital	30
	B.	Articles of Incorporation and By-laws	31
	C.	Material Contracts	33
	D.	Exchange Controls	34
	E.	Taxation	35
	F.	Dividends and Paying Agents	39
	G.	Statement by Experts	39
	H.	Documents on Display	39
	I.	Subsidiary Information	39
Item 11	Quantitative and Qualitative Disclosures About Market Risk		39
Item 12	Description of Securities Other than Equity Securities		39


PART II			40
Item 13	Defaults, Dividend Arrearages and Delinquencies		40
Item 14	Material Modifications to the Rights of Security Holders and Use of Proceeds		40
Item 15	Controls and Procedures		40
Item 16	[Reserved]		41
	A.	Audit Committee Financial Expert	41
	B.	Code of Ethics	41
	C.	Principal Accountant Fees and Services	41
	D.	Exemptions from the Listing Standards for Audit Committees	41
	E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	41
	F.	Changes in Registrant’s Certifying Accountant	41
PART III			42
Item 17	Financial Statements		42
Item 18	Not Applicable		42
Item 19	Exhibits		42
SIGNATURES			43

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 silver, 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 report, the terms “we”, “us”, “our”, “Tombstone”, “Tombstone Exploration”, and “TMBXF” mean Tombstone Exploration Corporation, unless otherwise indicated.

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 the Company for the years ended December 31, 2010 and December 31, 2009 have been audited by M&K CPAS, PLLC, 13831 Northwest Freeway, Suite 575 Houston, TX, 77040.

ITEM 1.

Identity of Directors, Senior Management and Advisers

Not Required.

ITEM 2.

Offer Statistics and Expected Timetable

Not Required.

ITEM 3.

Key Information

Selected Financial Data

The following tables set forth the data of our fiscal years ended December 31, 2006 to December 31, 2010. 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


	December 31, 2006 $ (unaudited)	December 31, 2007 $	December 31, 2008 $	December 31, 2009 $	December 31, 2010 $
OPERATING DATA:
Revenue	-	-	-	-	-
Gross Profit	-	-	-	-	-
Net Income (Loss)	(4,277,579)	(3,352,421)	(2,696,001)	(1,574,304)	(1,447,030)
Earnings (Loss) Per Share	(1.02)	(0.11)	(0.06)	(0.03)	(0.02)

BALANCE SHEET DATA:
Cash	42,981	239,971	8,625	1,525	779
Total Assets	1,419,203	332,835	83,774	62,604	24,433
Total Liabilities	49,149	270,971	365,411	414,045	281,100
Shareholders’ Equity (Deficit)	1,370,054	61,864	(281,637)	(351,441)	(256,667)

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	2010	2009	2008	2007	2006
End ($)	1.0009	0.9406	0.8166	0.98200	0.8547
Average ($)	1.0298	0.9097	1.0660	1.07465	0.8849
High ($)	1.0776	0.9807	1.0298	1.18730	0.8547
Low ($)	0.9960	0.7860	0.7688	0.90570	0.9091

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 8, 2011 as reported by the Federal Reserve Bank of New York for the conversion of one Canadian dollar into U.S. dollars was $0.9627.

Capitalization and Indebtedness

Not required.

Reasons for the Offer and Use of Proceeds

Not required.

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

Our mining property is in the exploration stage. There is no assurance that our property contains 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 claims 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 property will establish that commercially exploitable reserves of minerals exist on our mining claims. 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.

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.

Title to our resource properties may be challenged by third parties which could result in the loss of substantial amounts of money and resources and could cause our interests in our properties to expire or be forfeit.

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 claims 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 claims 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 claims 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 claims. In addition, any significant fluctuations in metal prices will impact 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.

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 claims.

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 claims are fully developed and in commercial production. 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 claims or assure that viable reserves exist on the claims 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 property or operate our business and if either of those events happen, then there is a substantial risk our business would fail.

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 property. We have no way to evaluate the likelihood of whether our mineral claims 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 claims. 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 claims, 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 expenses. We 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.

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 OTCBB), 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, 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.

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.

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 Company’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 are included on 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 14, 2011 was $0.08. 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

History and Development of the Company

History

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. In December, 1997, the Company changed its name to Four Crown Foods Inc. At the time, the Company was involved in the food and beverage retail business. Then in June, 2000, the Company changed its name to Universal Domains Incorporated and operated in the domain registration business upon the acquisition of the license rights to a domain registration agreement for the “.cc” internet registration domain.

In November 2003, the Company ceased all operations and in September, 2004, the Company changed its name to Pure Capital Incorporated, from that time until November 1, 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.

On November 27, 2006, the Company acquired full rights and title to certain mining and exploration claims located in the State of Arizona along with other equipment and property from Redhawk Exploration & Development, Inc., a Texas corporation.

Then on February 6, 2007, the Company changed its name to Tombstone Exploration Corporation to reflect its current operations in the mining and exploration industry. Since that time we have been operating in the mineral resource business and the primary focus of operations has been to generate revenue from the production of silver, gold and manganese as well as additional base minerals such as copper, lead and zinc. The goal is to produce metals and minerals at or below standard industry costs. The historical nature of mining activities of our present holdings and the acceptance of governmental agencies will enable easier startup here than in non-mining oriented locations.

Following identification of suitable areas during our drilling programs, which we anticipate will continue in the future, the Company may initiate mineral extraction if sufficient funding and permitting are secured. These efforts will provide an operating financial base from which to expand. Continuing geological research, testing and drilling is planned based on the initial geological report. This will assist in the identification of key target areas, as well as establish reserve categories.

Discussions with precious metal processing and consulting companies to assist in the design of the overall operation of our mining claims have been initiated. Relationships have already been established with refineries, assay companies and engineering firms supporting worldwide mineral processing operations.

Our acquired mineral rights, consisting of approximately 11,500 acres of historical mining land in the areas around Tombstone, Arizona, make the Company the largest land holder in the Tombstone mining district. The Tombstone mining district is one of 12 mining districts in Cochise County, Arizona. Copper, lead, zinc, silver, and gold were the principal metals produced from the different mines in the county. To the best of our knowledge, we now control more mining acreage in the Tombstone district than any other company. Management has structured and positioned the Company to capitalize on today's increasing demand and prices for precious metals and base metals such as copper, lead and zinc.

In addition to continuing to explore our current mineral rights, we will seek out and attempt to acquire new properties.

Business Overview

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.

Operations

The Company holds 100% of the mineral rights to approximately 11,500 acres in the historical western Tombstone silver mining district. The center of the property is Section 16, 2 miles southwest of the Tombstone town, Cochise County, Arizona. Section 16 comprises many of the historical silver producers in the district including: San Pedro group (Fox claims), State of Maine, Merrimac, Free Coinage, Chance, Bonanza, Santa Ana, Solstice, Annex 40 and 41 (Ace-in-the-Hole), Black Horse, the Joseph group, Mamie, Sailor, Randolph, and Groundhog. The total strike length extension of these structures is estimated to be in excess of 7,000 meters.

The Company has conducted several drilling programs on the Tombstone property, as described in greater detail below.

2007 Drilling Program

In early March 2007, we commenced our reverse circulation drill program. On or about March 21, 2007, we completed the first reverse circulation drill hole (RT-1) to a depth of 500 feet and intercepted silver/gold mineralization when it hit its target at the Tombstone property.

The 2007 Drill Program consisted of distinct drill sites that were designed to intercept extensions of the State of Maine mine, Merrimac zone, Bonanza-Solstice mines and the Ace-in-the-Hole-Black Horse mine sub-parallel trends. These zones are north-easterly trending. Core holes were HQ size and were drilled using triple tube core technology to assure that the most complete core recovery was achieved. Drill hole spacing was approximately 100 meters between drill hole sites. The four mineralized zones were tested over strike lengths ranging from 200 meters to 500 meters. All available historical data indicates that there were no historical mining activities conducted below the water level in the areas covered by the 2007 Drill Program.

Following the 2007 Drill Program, and in January 2008, the Company received assay results for 115 samples taken from its Tombstone Project property within T20S R22E Sections 16 and 17. It was determined that more detailed sampling would be required to further assess the Santa Ana Mine workings.

2008 Drill Program – Phase 1

On or about April 1, 2008, the Company began to conduct geological mapping and sampling that, combined with historical data, provided the basis for 2008 core drilling program.

On May 29, 2008, the Company engaged Layne Christensen Company (NASDAQ: LAYN) of Mission Woods, Kansas to conduct its 2008 drilling program, which commenced on June 17, 2008 and continued through September 2008.

On October 9, 2008, the Company announced the completion of its 2008 Drill Program which consisted of 2,593 feet of core drilling at its silver project in Tombstone. Six diamond drill holes (DDH) were drilled, TEMC 101,102,103,104,105 and 106, to test the extension of the mineralization zones of the Bonanza and Santa Ana structures, both of which possess historical data from within the mining district. Both structures exhibit open ends at the south and north, as well down dip.

Holes were drilled as HQ diameter and using triple-tube technology, yielding a recovery over 90% in most instances. RQD is estimated at 45%, average.

Five out of the six DD holes intersected the projected targets at different levels at the south, central and north of the structures, while DDH TEMC 101 provided a great deal of information regarding the Bonanza structure which seems to be bent in an opposite direction in depth. This particular piece of information has been physically confirmed in the Bonanza mine workings where the structure becoming sub-vertical at 200 feet approximately, and then switches the dip to east, rather than dipping west as observed at the upper sectors of the shafts.

The 2008 Drill Program revealed a new mineralized structural corridor between the State of Maine and Merrimac veins at the southern portion of the property. The corridor extends for over one mile, and locally exhibits 80-100' width with some feldspar porphyry dikes in between.

The results of this Phase 1 drill program have resulted in identifying a mineral zone that the Company’s management believes is a significant precious metals and base metals discovery. The Company intends an aggressive exploration and comprehensive drilling program.

Following the completion of the Phase 1 Drill Program in 2008, the Company received assay results from rock chip samples on its Tombstone properties. Outcrop samples taken from horizontal projections of mineralized structures away from historical mine workings indicate continuity of silver, gold, lead, zinc, copper and manganese minerals along these structural corridors through the property package. Samples from two structures were collected and taken to Copper States Analytical Lab in Prescott, Arizona for gold, silver, lead, zinc, copper and manganese assays.

2008 Technical Report

In May 2008, we filed our initial Technical Report regarding the Tombstone Property. SRK Consulting (“SRK”) of Tucson, Arizona completed the Technical Report. SRK is an independent, international consulting group, employing leading specialists in environmental science and mineral engineering. Its seamless integration of services, and global base, has made the company a significant international practice in due diligence, feasibility studies and confidential internal reviews. SRK's global experience and reputation for excellence is widely recognized among the major financial institutions and are repeatedly called upon to advise on and evaluate projects for all types of market transactions. Formed in 1974, SRK employs more than 600 professionals internationally in 31 permanent offices on 6 continents.

SRK made the following recommendations:

It is strongly recommended that an extended program of vertical and inclined core drilling be conducted at the Tombstone Property. Drilling would be aimed at determining mineralization grades and fissure vein characteristics such as horizontal and vertical extent, relationships to other veins, widths and depths below the water table. It would also provide geotechnical information, samples for bulk density measurements, and samples for preliminary metallurgical testing. It is difficult to say how many drill holes would be indicated. A program is suggested that would include a minimum of five 1000-foot core holes along existing mineralized structural zones to define depth potential below the water table. A program of twenty 500-ft drill holes (RC) can be used to explore along strike of mapped extensions to known structures.

Conduct additional inclined and vertical drilling for the following purposes:

Evaluate the width of structural targets such as dikes, fissures, and veins;

Confirm silver mineralization across the targets;

Evaluate potential mineralization below the water table in the target areas;

Provide fresh samples for mineralogical and metallurgical testing; and,

Conduct in-fill and/or extension drilling where necessary.

Any additional drilling should be by the core drilling methods with HQ size core. The drilling should include some oriented drillcore, targeting the northeast-trending fissures, to intercept the greatest possible thickness and depth of mineralized rock. Additional drilling should be directed toward evaluating mineralization below the water table.

The recommended drilling will provide additional structural and assay information to allow for possible delineation of mineralized zones, and will provide additional geotechnical information. Closer spaced drillhole definition of higher grade and thicker mineralization should be the goal.

Conduct down-hole surveys to measure drill-hole deviation, particularly for drill holes in excess of 100 m.

Devise a suitable numerical drill log that will allow inclusion of detailed lithology, alteration and mineralization information, in numeric form, in addition to assay data, to allow for digital drill logs.

Convert historical hard copy drill logs to digital format logs.

2009/2010 Drill Program - Phase II

In February 2009, the Company extracted six additional samples from the Tombstone property which were sent to Copper State Analytical for assay for Gold, Silver, Manganese, Copper, Lead and Zinc. Three of the samples were taken from the State of Maine Mine and three from Randolph Mine, both located on the Tombstone property. The Company suspended the 2009 Drill Program due to general economic factors leading to difficulty in obtaining the requisite financing to fund the program.

In April 2010, the Company resumed the 2009 Drill Program, with the two targets drilled and both having intersected mineralized zones. The Company utilized a portable x-ray diffraction (XRF) machine to get on-site reading of metal levels in the drill cuttings. The results helped the exploration team manage the drilling program. Tombstone's property is underlain by Uncle Sam porphyry and units of the Bisbee Group. Mineralized fissures strike consistently northeast, and many of the fissures exhibit consistent orientation for hundreds of feet along strike. Many fissures have parallel orientations, forming fissure sets. The main mines in this area occur along these northeast-striking fissures. The State of Maine mine occurs in fissures that cut both Bisbee sediments and Uncle Sam porphyry. These structural mineralized fissures are the primary focus of the current exploration program.

As of June 30, 2010, 4,080 feet of drilling has been completed. Samples have been submitted to a certified laboratory for analysis. Results are expected in a few weeks and additional samples will continue to be submitted. Also during this period, additional geologist investigation has been undertaken to further assess the potential for porphyry copper exploration targets on the Tombstone property. The Company has been in contact with geophysical contractors to develop a plan, budget and timeline for this phase of the project. Planning is ongoing and work may include geochemical surveys as well.

The Company has not conducted further drilling on the Tombstone Property since June 2010.

2010 Report on a Helicopter-Borne Z-Axis Tipper Electromagnetic (ZTEM) and Aero Magnetic Geophysical Survey

During June 29, 2010 to July 4, 2010, Geotech Ltd. carried out a helicopter-borne geophysical survey for the Company over the Tombstone project area. Principal geophysical sensors included a Z-Axis Tipper electromagnetic (ZTEM) system, and a caesium magnetometer. Ancillary equipment included a GPS navigation system and a radar altimeter. ZTEM was selected for its ability to achieve unparalleled resolution and depth of investigation. The system is well suited to imaging buried porphyry deposits and is capable of gathering data over 6,000 feet (1.25 miles) below ground surface.

The airborne ZTEM survey covered over 200 line miles and most of the Tombstone Mining District. A total of 373.5 line kilometers of geophysical data were acquired during the survey. In a ZTEM survey, a single vertical-dipole air-core receiver coil is flown over the survey area in a grid pattern, similar to regional airborne EM surveys. Two orthogonal, air-core horizontal axis coils are placed close to the survey site to measure the horizontal EM reference fields. Data from the three coils are used to obtain the Z/X and Z/Y Tipper (Vozoff, 1972) components at six frequencies in the 30 to 720 Hz band. The ZTEM was used to map geology using resistivity contrasts and magnetometer data were also collected to help map geology using magnetic susceptibility contrasts.

The crew was based in Tombstone, Arizona for the acquisition phase of the survey. Survey flying started on June 29, 2010 and was completed on July 4, 2010. Data quality control and quality assurance, and preliminary data processing were carried out on a daily basis during the acquisition phase of the project. Final reporting, data presentation and archiving were completed from the Aurora office of Geotech Ltd. in October, 2010. A quality control step consisted of re-examining all data in order to validate the preliminary data processing and to allow for final adjustments to the data. Attitude corrections were re-evaluated, and re-applied, on component by component, flight by flight, and frequency by frequency bases. Any remaining line to line system noise was removed by applying a mild additional levelling correction.

As a result of the survey, Geotech identified a number of conductive structures across the property that resemble known porphyry deposits and reported that the magnetic results also contained worthwhile information in support of exploration targets of interest. Based on the geophysical results obtained, Geotech recommended a more detailed interpretation of the available geophysical data, including Versatile Time-Domain Electromagnetic survey (VTEM), in conjunction with the geology, prior to ground follow up and drill testing.

In November 2010, upon review of the ZTEM data, at least four to five porphyry targets were identified on the Company's property, and there is still a very large land position to review. Of the targets that have been identified so far, two have precious metal (gold and silver) occurrences as "halos" around the properties, which are significant characteristics of porphyry systems. One identified structure has been compared by Geotech to the Mount Milligan deposits that were recently sold and have total measured and indicated resources of 417.1 million tons grading 0.21% copper, 0.41 g/t gold for 1,934 million pounds copper and 5.5 million ounces gold. Three of the identified targets have coincident magnetic and resistivity high which are very promising geophysical signatures. One target is adjacent to a porphyry system that is currently being drilled by a major international mining company. As of the date of this Report, the Company is continuing to work with the geophysical data acquired from the ZTEM survey of the Tombstone Project.

Summary of Exploration Activities

⁽¹⁾

Our budget for 2011 consists of the following expenses for a total of $1,255,000:

Direct Drilling Expenses: Drill Company Quote: $600,000; Sample, Assay: $25,000; Road Building and Reclamation: $25,000; Updated Geological Report and property mapping: $10,000; Work Truck for property: $10,000; Additional Geophysical work incl. IP and Gravity Survey: $100,000;

Management Expenses: $120,000;

Employee Expenses: $100,000;

Assay, Samples and Data Reporting: $30,000

Office, Travel, Misc. Expenses: $100,000

Professional Service Expenses: Legal, Accounting, Audits: $75,000

Permit Expenses: $60,000

⁽²⁾

We have raised approximately $600,000 as of July 18, 2011 and require additional capital for our proposed 2011 activities.

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 metal 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.

Local Resources

Tombstone, Arizona is the nearest town to the Tombstone Project. The U.S. Census Bureau reports a year-2000 population of 1,500 people. Services at Tombstone are marginally adequate to support the requirements of a mining exploration and development project, but other nearby towns (2000 U.S. Census Bureau populations: Wilcox, 3,733; Benson, 4,700; Bisbee, 6,100; and Sierra Vista, 37,775) have services such as drilling contractors, equipment rental and services, engineering services, and a labor force that are more able to support our drilling program. Sierra Vista is about 18 miles from the project area. The nearest large city, Tucson—located 70 miles northwest of Tombstone along Interstate 10—has a population of more than 485,000 (2000 Census) and has company, service, and contractor resources that may not be available locally. Other cities at a greater distance (Phoenix, Arizona; Las Cruces and Albuquerque, New Mexico) also are able to provide services to support exploration and mining in the area.

Surface water is scarce and groundwater supplies are somewhat limited. Walnut Gulch to the north is an ephemeral stream, as is the San Pedro River to the west. In 1882 a pipeline was constructed to bring drinking water to Tombstone from the Huachuca Mountains, 27 miles to the west. The town has municipal wells that supply the needs of the town population. Ranchers in outlying areas obtain domestic and stock water from private wells. Water supplies for development and mining would come from groundwater sources in the area. Arizona Department of Water Resources (ADWR) well records for the area indicate the water table is generally shallow, 200 to 400 feet below ground surface.

Telephone and electric power are available to the area, providing service to local ranchers and small service companies located outside of the town. Telephone service is provided by Qwest. Internet and television services also are available locally. Electric power is supplied through Sulphur Springs Valley Electric Cooperative, with 440V, three-phase lines nearby. One-ten and 220 power lines cross the property. Postal services are available by post offices boxes and ground delivery. UPS, DHL, and Federal Express also are available locally.

Gas and diesel stations are 2 miles from the property, and major fuel supply stations are 15 miles away in Sierra Vista. El Paso Gas has a gas line that crosses the northeast corner of Sec. 7, T20S-R22E. Section 7 is held by Arizona State Exploration Permit 08-111864. The Southern Pacific railroad line parallels the San Pedro River.

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 intensely competitive and there is not any assurance that even if commercial quantities of ore are discovered, a ready market will exist for sale of the 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.

The Company believes it can overcome this competition due to its location in a historical mining area, year-round working conditions and nearness to major population centers of Tucson and Phoenix, Arizona. 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. The Company 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.

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.

The Company holds 8 patented mining claims, 342 unpatented mining claims, and 9 state mineral exploration permits. All are current and valid as of the date of this Report. The unpatented claims and state exploration permits are administered by the BLM and State of Arizona, respectively, and have different requirements to maintain the claims/permits in good standing. To maintain unpatented claims in good standing, a claim holder must pay a $189-per-claim annual maintenance fee to the BLM, in lieu of annual assessment work, plus a $10.00-per-claim recording fee to Conchise County where the claims are located. [Note: Initial BLM claim fees and filing costs for new claims total $189 per claim; that total includes an initial $34.00 claim location fee, plus the annual maintenance fee of $180.00 and a processing fee of $15.00.] The BLM requires that all claims use an assessment year from September 1 through August 31. The fees for the current assessment year were paid by the Company upon filing; all claim assessment fees for the next year are due on August 31, 2011.

To maintain state mineral exploration permits in good standing, the permit holder must renew each permit annually (up to four times, for 5 years total) for a fee of $500.00 per application for renewal. A maximum of 640 acres or one whole section is allowed per application. Additionally, an initial rental fee of $2.00 per acre is due within thirty days upon notification of the intent to issue the permit. The $2.00 rental fee is for the first and second year of the permit. However, although the rent is prepaid for the second year, the permit must still be renewed for that year. Rental fees for years three thru five are $1.00 per acre per year and due annually when the permit is renewed. A bond (typically in the amount of $3,000 for a single permit or a blanket bond of $15,000 for five or more permits held by an individual or company) is also due within thirty days upon notification of the intent to issue the permit. Bond amounts may be increased during the life of the permit as determined by the Arizona State Land Department (“ASLD”) upon review of the proposed exploration activities as detailed in the Exploration Plan of Operation that must be submitted and approved by the ASLD prior to the startup of any exploration activities.

The state lands are covered by Arizona State Mineral Exploration Permits, which are administered by the ASLD. Permits to conduct drilling in Arizona are administered by the Arizona Department of Water Resources (ADWR). Permits to conduct exploration drilling on BLM lands require either a Notice of Intent or a Plan of Operations, depending upon the amount of new surface disturbance that is planned. A Notice of Intent is for planned surface activities that anticipate less than 5.0 acres of surface disturbance, and usually can be obtained within a 30 to 60 day time period. A Plan of Operations will be required if there is greater than 5.0 acres of new surface disturbance involved with the planned exploration work. A Plan of Operations can take several months to be approved, depending on the nature of the intended work, the level of reclamation bonding required, the need for archeological surveys, and other factors as may be determined by the BLM. No other permits are required for exploration drilling.

The Company has a Notice of Intent – Mineral Exploration Drilling AZA33591 to conduct drilling on BLM claims in Secs. 9 and 10, T20S-R22E. The permitted drilling was partially completed in 2007 with the drilling of holes TEM 1, TEM 2, and TEM 3. The Company also has received conditional approval, upon completion of archaeological and cultural resource surveys, to drill in Sec. 16, T20SR22E under Arizona State Exploration Permit 08-111868.

Quality Control Procedures (QA/QC)

The bagged and sealed sample splits from the RC drill holes are transported to a secure storage shed at the office site by Company employees. The dry samples are further reduced by crushing them to 3/4 inch-minus with a “chipmunk” jaw crusher and splitting the crushed sample with a riffle splitter. The crusher and the splitter are then both cleaned with a brush and compressed air after preparation of each sample. The sample splits for the laboratory are reduced to approximately 10 lbs or less prior to submission to the laboratory. The prepared samples are bagged, labeled, and sealed and taken to the analytical laboratory, Mountains States R&D International, Inc. (MSRDI), an Arizona certified assay laboratory, in Vail, Arizona for analyses by fire assay (gold and silver) and by atomic absorption (AA) (all other analyses). The splits that are not shipped for assay are reduced to approximately 1 lb to be retained for reference at the project site and they are stored in a secure steel shipping storage container.

Laboratory rejects are discarded during the process of reducing sample splits to approximately 1 lb samples for retention. The retained sample splits are derived from the original samples and kept in storage while another split is sent for analysis. The pulps are retained and stored in a locked onsite office building.

Samples collected from other locations in the project area (surface outcrops, mine dumps, trenches, and underground workings) are collected, bagged, labeled, sealed, logged, and transported. The samples are prepared for storage or for shipment to the analytical laboratory in the following manner: Dry samples are reduced by first crushing them to 3/4 inch-minus with a “chipmunk” jaw crusher and then splitting the crushed sample using a riffle splitter. The crusher and splitter are then both cleaned with a brush and compressed air after preparation of each sample. Wet samples are dried and then processed in the same manner. The prepared samples are bagged, labeled, and sealed and taken to MSRDI for analysis. The splits that are not shipped for assay are retained for reference at the project site in a secure storage container.

All sampling and sample preparation of coarse crushed (3/4 inch-minus) are conducted by the Company’s employees. Sample pulp preparation is conducted at MSRDI. All samples are shipped to MSRDI. All gold and silver analyses are obtained by fire assay. All other analyses (Cu, Pb, and Zn) are obtained by atomic absorption (AA) with standard digestion.

Samples collected from surface sites, trenches, underground workings, and the 2007 drilling program (prior to November 2007) did not include blanks, duplicates, reference standards, or other industry standard QA/QC procedures.

Quality control procedures began at the Tombstone Project approximately November 2007. Ten samples collected underground from the Santa Ana mine (NE¼ NE¼ Sec. 16, T20S-R22E) on October 30, 2007 were submitted to the laboratory (MSRDI) with blanks and reference standards. The reference samples were obtained from Minerals Exploration and Environmental Chemistry, Reno, Nevada. Blanks were prepared by crushing and bagging cinder blocks. Results received for these samples are used to assess the accuracy of the MSRDI analyses. Check samples on the order of 5 to 10 percent of the number of samples were sent to ALS Chemex, Reno, Nevada and from there were forwarded to their laboratory in Canada for analysis. The pulps that were returned from the primary laboratory were used as the check-sample materials.

Samples are stored at the Company office site in a secure storage container or in the Company laboratory, which is locked during nonworking hours.

As of the date of our Technical Report, April 18, 2008, SRK concluded that the sampling procedures were acceptable and within industry standards with the exception of initial sample preparation by the Company. Coarse crushed sample preparation onsite by the property owner is not common industry standard practice unless logistics and distance from the labs are a major factor. It may be acceptable going forward, if the newly implemented QA/QC procedures incorporate sufficient checks to demonstrate that the initial sample preparation imparts no contamination or bias.

Organizational Structure

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

Property, Plants and Equipment

Our principal executive office is located at 6529 Freiss Drive, Scottsdale, Arizona 85254. Additionally, we share this space with our wholly owned subsidiary, TEMC. Should we require additional space, we believe that such space can be secured on commercially reasonable terms by securing other mobile facilities.

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.

The Company has the mineral rights to approximately 11,500 acres of historical mining land southwest, south and southeast of Tombstone, Arizona. We control one of the largest mining properties in Arizona. The Tombstone Project is located on patented mining claims, unpatented mining claims and state lands administered by the ASLD. The property consists of four non-contiguous parcels situated in Sections 7 and 18, Township 20 South, Range 23 East; Sections 7–10 and 15–20, Township 20 South, Range 22 East; Sections 24–26 and 36, Township 20 South, Range 22 East; Sections 19, 30, and 31, Township 20 South, Range 23 East; and Sections 20 and 21, Township 21 South, Range 23 East. The largest parcel is in the western part of the mining district, on which are located many of the smaller historic mines with confirmed silver mineralization. The largest historic mines of the late 1800s and early 1900s are located principally to the east, in the central part of the district.

Acquisition of our Claims

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.

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 ASLD. 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.

On December 11, 2007, the Company applied for the additional exploration permits from the State of Arizona Land Department. The application encompassed approximately 2,730 acres in the Tombstone Mining District, principally the Bisbee Group sediments and metasediments that have been highly productive in both the Tombstone Mining District and in the Warren (Bisbee) Mining District, Arizona. This application was conditionally approved in February 2008.

The Company has continued to submit all necessary documentation to renew the BLM claims, leases and mineral rights for claims upon which the Company desires to conduct exploration and potential development activities.

Recent Acquisitions

On June 2, 2010, the Company announced that the ASLD approved five new exploration permits for the Company, encompassing five sections, totaling approximately 2,500 acres in the Tombstone Mining District that are surrounding the Company's current holdings. The rocks in these parcels are principally the Bisbee Group sediments and metasediments that have been highly productive in both the Tombstone Mining District and in the Bisbee (Warren) Mining District, Arizona.

On June 8, 2010, the Company announced that it acquired additional unpatented mining claims comprising 240 acres, to the south of its current holdings. The Company’s new holdings are located in an area that has potential for copper deposits.

On June 21, 2010, the Company closed an Exploration and Mining Lease and Option to Purchase agreement with Mountain Gold Exploration Inc., a Nevada corporation, and Lane A. Griffin and Associates, relating to the Eagleville property located in Mineral County, Nevada. Eagleville is located along the northeast boundary of the Walker Lane structural zone in the Regent-Rawhide Mining District, Mineral County, Nevada. Pursuant to the agreement, the Company has the right to lease the Eagleville property for a period of 10 years and an inclusive option to purchase the property after the 10 year period for an aggregate purchase price of $400,000 or to maintain the lease through its entirety for an aggregate lease amount of $375,000. As of the date of this Report, the Company has abandoned the Eagleville claims.

On March 31, 2011, the Company announced that it acquired 22 additional unpatented mining claims comprising 440 acres, immediately adjacent to the Company’s current holdings. The additional claims are northeast of the State of Maine property.

The map below details the Company’s holdings in the Tombstone district as of June, 2011, following the aforementioned acquisitions:

[TOMBSTONE20F123110001.JPG]

Our Properties


SUMMARY OF THE COMPANY’S MINING CLAIMS
Number / Type of Claims	Ownership / Interest in Property	Duration of Interest	Location	Acreage	Agreements / Royalties	Annual Fees / Maintenance / Permits
342 Unpatented Lode Claims	Fully controlled by the Company except 24 claims (Silver Bullet 5-14 and 31-34, staked over a Stock Raising Homestead Entry (SRHE)). Company has the right to enter for exploration purposes. No surface rights.	These claims are valid and each must be renewed each year.	U.S. federal lands administered by U.S. Bureau of Land Management (BLM).	6,840 acres	No royalty agreements on federal mining claims.	Annual maintenance fees for the claims, as follows: $189 / claim annual maintenance fee to the BLM, in lieu of annual assessment work, plus a $10.00 / claim recording fee to Cochise County, Arizona where the claims are located. To be paid by the Company.

8 Patented Lode Claims

Undivided 100 percent mineral interest in the claims as both the record mineral owner and the assessed mineral owner

No surface rights

Claims are valid as long as the Company continues to hold title.

Private Land

145.58 acres

1.5% net smelter revenue royalty, payable upon production.

None

9 State of Arizona Mineral Exploration Permits

Exclusive right to explore for and develop minerals on the lands.

State of Arizona is the record surface and mineral owner of land.

Company is the record permittee of the state lands.

These permits are valid and each must be renewed every three years.

Arizona state lands

5,760 acres

State mineral exploration permits, if converted to mining leases, will have royalties assigned to them by the State of Arizona.

Must be renewed each year, for up to 5 years, for a fee of $500.00 / permit. Additionally, an initial rental fee of $2.00 / acre is due within 30 days upon notification of the intent to issue the permit, for the 1st and 2nd year. Rental fees for the 3rd thru 5th years are $1.00/acre/year and due annually when the permit is renewed. A bond (typically $3,000 for a single permit or a blanket bond of $15,000 for 5 or more permits) is due within 30 days upon notification of the intent to issue the permit. To be paid by the Company.


THE COMPANY’S PATENTED MINING CLAIMS
CLAIM NAME	MINERAL SURVEY NO.	CLAIM ACREAGE
Maine	M.S. # 579	18.33
Merrimac	M.S. # 175	20.61
Clipper	M.S. # 273	13.41
Triple X	M.S. # 577	15.27
Brother Jonathan	M.S. # 578	17.28
Lowell	M.S. # 797	20.59
May	M.S. # 317	19.43
Red Top	M.S. # 190	20.66
TOTAL ACREAGE:		145.58

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 potential 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 up 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 have 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, have 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 of 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 mineralization, and 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 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. 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 wall rock alterations indicate 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. Most prominent structures are veins occupying N-NE trending fault zones and shears.

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. 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 mineral bearing fluids tend to pond or be trapped beneath impermeable rocks or clays associated with these faults.

The Company believes that there is potential to tie together the northeast-striking mineralized fissures into a deposit that would be amenable to underground or open pit mining and to extend the depths of mineralization to perhaps hundreds of feet beneath the water table; the exploration potential below the water table was minimally explored and/or mined in the past. District exploration potential includes a reported porphyry copper target in the region.

Stratigraphy

The rocks composing the Tombstone district range from pre-Cambrian to Quaternary in age. The oldest rock is finegrained, grayish Precambrian Pinal schist. It was intruded by granitic and porphyritic rocks also identified as Precambrian. Unconformably overlying the Precambrian rocks is a thick sequence of Paleozoic sedimentary rocks that change from mainly limestone to mainly sandstone and shale. The uppermost unit, the Naco limestone is an erosion surface unconformably overlain by the Mesozoic (Late Jurassic and Early Cretaceous) Bisbee group, a series of conglomerate, sandstone, quartzite, shale, and limestone with two or three lenses of soft, bluish-gray limestone.

The deposition of the Mesozoic sedimentary rocks was followed by a period of deformation and igneous activity. The two major intrusions were the Late Cretaceous Schieffelin granodiorite and the Uncle Sam porphyry, which were accompanied by dikes of granodiorite to dioritic composition. Silver deposits in the mining district have been recognized in association with the folding, faulting, igneous intrusions, and fissuring of this period. The main structural features associated with mineralization are north-south (dike) fissure, faults, anticlines and rolls, and northeast fissures. Most of the deposits are associated with at least two structural features, often at their intersection.

The Company’s target concept is initially seeking northeast-striking fissure-vein deposits that are projected to connect historic deposits and prospects along strike and to extend for a substantial depth beneath the water table. The horizontal and vertical extensions of the fissure veins are expected to be more definable by current exploration and mining methods.

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.

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.

Location

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

Metal diversity

Plan: A significant number of metals and minerals have already been identified on the Tombstone property including silver and gold. 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.

Cost of development and operation

Plan: The Company may establish a small production operation, subject to permitting, financing and sufficient resources, to begin silver and gold production with material from existing known sites. As drill targets identify key areas for drilling, the operation will be expanded to two large scale mill sites. The Company firmly believes from the sampling and historical production in the area, that a low cost / high profit operation will be developed.

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, 2010 and 2009 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.

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, 2010 Compared to Year Ended December 31, 2009

For the years ended December 31, 2010 and 2009, we did not receive any revenue from various mining claims and properties.

During the year ended December 31, 2010 we had a net loss of $1,447,031 and a loss per share of $0.02 per share compared to $1,574,304 and a loss per share of $0.03 per share for the year ended December 31, 2009. The net loss for the year ended December 31, 2010 was attributed to $257,673 of general and administrative expenses, $120,000 of management fees, $469,129 of consulting expense, professional fees of $61,513 and mineral property exploration costs of $7,943. Furthermore, the Company recorded a loss on settlement of debt of $444,361 relating to the settlement of outstanding obligations with the issuance of common shares, $57,388 loss on the fair value of the derivative liabilities, and $29,024 of losses due to the sale of assets and write-down of investments. Although the net loss of the Company was consistent to prior year, the Company had more non-cash losses in fiscal 2010 and less operating losses based on the fact that the Company had limited cash flows in fiscal 2010 and settled a larger number of obligations with non-cash issuances of common shares.

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 2011. 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, 2010, we had cash on hand of $779 compared with $1,525 as at December 31, 2009. Overall, the Company raised $275,000 in cash proceeds from the issuance of common shares and $250,000 in share subscriptions received and relied on additional cash inflows from related parties. Liabilities consisted of accounts payable and related party payables totaling $64,931 (2009 - $5,717), amounts due to related parties of $116,566 (2009 - $306,304), loan payable of $nil (2009 - $59,810), and fair value of derivative liability of $99,603 (2009 - $42,214). The overall decrease in liabilities is due to the fact that the Company settled a significant amount of amounts owing to related parties and outstanding accounts payable with the issuance of common shares.

During the year ended December 31, 2010, the Company issued 7,000,000 common shares for proceeds of $275,000, 4,240,000 common shares for services with a fair value of $335,260, and 7,093,372 common shares with a fair value of $689,555 to settle outstanding debt and related party balances.

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.

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.

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.

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.

Tabular Disclosure of Contractual Obligations

We do not have any contractual obligations and commitments as of December 31, 2010 that will require significant cash outlays in the future.

ITEM 6.

Directors, Senior Management and Employees

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:

The shares of the Company commenced trading on the Over the Counter Bulletin Board on July 14, 1999.

Markets

The Company's common shares are listed for trading on the Over the Counter Bulletin Board.

ITEM 10.

Additional Information

Share Capital

Not Applicable.

Articles of Incorporation & By-Laws

Directors

A director who is, in any way, directly or indirectly interested in a proposed contract or transaction, 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.

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 the 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 (7) and (8); 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.

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 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.

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 on 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.

Material Contracts

With the exception of the contracts listed below, or those described elsewhere in this Form 20-F or in the Company’s Form 6-K filings, we have not entered into any material contracts during the last twenty-four months other than those in the ordinary course of business.

(1)

On June 2, 2010, the Company announced that the ASLD approved five new exploration permits for the Company, encompassing five sections, totaling approximately 2,500 acres in the Tombstone Mining District that are surrounding the Company's current holdings.. The rocks in these parcels are principally the Bisbee Group sediments and metasediments.

(2)

(3)

On June 21, 2010, the Company closed an Exploration and Mining Lease and Option to Purchase Agreement with Mountain Gold Exploration Inc., a Nevada corporation, and Lane A. Griffin and Associates, relating to the Eagleville property located in Mineral County, Nevada. Eagleville is located along the northeast boundary of the Walker Lane structural zone in the Regent-Rawhide Mining District, Mineral County, Nevada. Pursuant to the agreement, the Company has the right to lease the Eagleville property for a period of 10 years and an inclusive option to purchase the property after the 10 year period for an aggregate purchase price of $400,000 or to maintain the lease through its entirety for an aggregate lease amount of $375,000. As of the date of this Report, the Company has abandoned the Eagleville claims.

(4)

On March 31, 2011, the Company announced that it acquired twenty-two (22) additional unpatented mining claims comprising 440 acres, immediately adjacent to the Company’s current holdings. The additional claims are northeast of the State of Maine property.

(5)

On May 18, 2011, the Company entered into a Director Service Agreement (the “Director Agreement”) with Laird Cagan (“Mr. Cagan”), pursuant to which Mr. Cagan shall serve as a member of the Company’s Board of Directors for a period of three (3) years in exchange for a total of three million (3,000,000) restricted shares of the Company’s Common Stock, which shall be issued in three (3) annual installments of one million (1,000,000) shares per installment.

(6)

On July 14, 2011, the Company closed twelve (12) Private Placement Subscription Agreements with various private investors for the aggregate sale of ten million (10,000,000) units (each a “Unit”) of the Company’s common stock at $0.05 per Unit, for total gross proceeds of $500,000. Each Unit consists of one share of common stock (a "Share") and one-half of one common share purchase warrant (each whole warrant share a "Warrant"). Each Warrant entitles the holder to purchase one common share (a "Warrant Share") at a price of $0.10 per share until July 14, 2014. Please refer to Exhibit 2.04 which is incorporated by reference herein.

(7)

On July 14, 2011, the Company closed a Private Placement Subscription Agreement with David J. Lies for the sale of two million (2,000,000) units (each a “Unit”) of the Company’s common stock at $0.05 per Unit, for total gross proceeds of $100,000. Each Unit consists of one share of common stock (a "Share") and one-half of one common share purchase warrant (each whole warrant share a "Warrant"). Each Warrant entitles the holder to purchase one common share (a "Warrant Share") at a price of $0.10 per share until July 14, 2014. Please refer to Exhibit 2.03 which is incorporated by reference herein.

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.

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.

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.

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:


	(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.

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.

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 of 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 Company. 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.

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.

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.

Statement By Experts

The financial statements of our Company as of December 31, 2010 and 2009 included in this report have been audited by, M&K CPAS, PLLC 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.

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.E., 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.

Subsidiary Information

We conduct all operations through Tombstone Exploration and Mining Corporation, a Nevada corporation and wholly owned subsidiary.

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 this 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

Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15 under the Exchange Act, our management, including Alan Brown, our Chief Executive Officer, Chief Financial Officer, and Director, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2010.

Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes 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 is required to apply its judgment in evaluating and implementing possible controls and procedures.

Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive officer and our chief financial officer. Based on that evaluation, we concluded that because of the material weaknesses in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of December 31, 2010.

Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2010 using the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of December 31, 2010, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.

Certain entity level controls establishing a “tone at the top” were considered material weaknesses. The Company has no audit committee and only two members of the Board of Directors, one of whom is also the President and Chief Financial Officer of the Company. A whistleblower policy is not necessary given the small size of the organization.

Due to the significant number and magnitude of adjustments identified during the year-end closing process, management has concluded that the controls over the period-end financial reporting process were not operating effectively. Specifically, controls were not effective to ensure that significant non-routine transactions, accounting estimates, and other adjustments were appropriately reviewed, analyzed, and monitored on a timely basis.

Management is currently evaluating remediation plans for the above control deficiencies.

Accordingly, the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal controls.

As a result of the material weaknesses described above, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2010 based on criteria established in Internal Control—Integrated Framework issued by COSO.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report

Changes in Internal Controls. During the period ended December 31, 2010, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

However, subsequent to the year ended December 31, 2010, the Company retained an outside consultant which specializes in Sarbanes-Oxley compliance. This consulting firm has assisted the Company in developing a system that should assist in rectifying the material weaknesses described herein.

Item 16.

[Reserved]

Audit Committee Financial Expert

Not Applicable.

Code of Ethics

The Company has a Code of Business Conduct and Ethics that was approved by the Company’s Board of Directors on June 1, 2007. Refer to Exhibit 11.01 for the Code of Business Conduct and Ethics.

Principal Accountant Fees and Services

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


Financial Year Ending		Audit Fees ⁽¹⁾		Audit Related Fees ⁽²⁾		Tax Fees ⁽³⁾		All Other Fees ⁽⁴⁾
2010	$	18,000	$	0	$	0	$	0
2009	$	10,250	$	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.

Exemptions from the Listing Standards for Audit Committees.

Not Applicable.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

Not Applicable.

Change in Registrant’s Certifying Accountant.

None.

PART III

Item 17.

Financial Statements

Balance sheets of the Company as at December 31, 2010 and 2009, and the Statements of Operations and Stockholders Equity (Deficiency) and Cash Flows for each of the years ended December 31, 2010, and for the period from re-entry into the Development Stage, January 1, 2006 to December 31, 2010.

Item 18.

Financial Statements

Not Applicable.

Item 19.

Exhibits

Exhibits Required by Form 20-F.


Exhibit
Number	Description of Exhibit	Filing
1.01	Certificate of Incorporation under the Canada Business Corporations Act dated October 30, 1997.	Incorporated herein by reference to our Annual Report on Form 20-F filed with the SEC on August 19, 2002.
1.02	Bylaws	Incorporated herein by reference to our Annual Report on Form 20-F filed with the SEC on August 19, 2002.
1.03	Certificate of Name Change dated June 5, 2000.	Incorporated herein by reference to our Annual Report on Form 20-F filed with the SEC on August 19, 2002.
1.04	Certificate of Name Change dated September 20, 2004	Incorporated herein by reference to our Annual Report on Form 20-F filed with the SEC on August 15, 2005.
1.05	Certificate of Name Change dated February 6, 2007.	Incorporated herein by reference to our Current Report on Form 6-K filed with the SEC on February 8, 2007.
2.01	Form of Securities Purchase Agreement	Incorporated herein by reference to our Annual Report on Form 20-F filed with the SEC on July 17, 2007.
2.02	Form of Subscription Agreement and Form of Warrant for Private Placement	Incorporated herein by reference to our Current Report on Form 6-K filed with the SEC on December 20, 2007.
2.03	Form of U.S. Private Placement Subscription Agreement	Incorporated herein by reference to our Current Report on Form 6-K filed with the SEC on February 3, 2010.
2.04	Form of Non-U.S. Private Placement Subscription Agreement and Common Stock Purchase Warrant	Incorporated herein by reference to our Current Report on Form 6-K filed with the SEC on July 15, 2011.
4.01	Employment Agreement by and between the Company and Alan Brown dated January 1, 2009.	Incorporated herein by reference to our Annual Report on Form 20-F filed with the SEC on July 10, 2009.
4.02	Consulting Agreement between the Company and Steve Radvak dated April 28, 2010.	Incorporated herein by reference to our Annual Report on Form 20-F filed with the SEC on July 16, 2010.
4.03	Stock Purchase Agreement between the Company and Eurogas, Inc. dated April 28, 2010.	Incorporated herein by reference to our Annual Report on Form 20-F filed with the SEC on July 16, 2010.
4.04	Exploration and Mining Lease and Option to Purchase Agreement by and between American Eagle Minerals Inc., Mountain Gold Exploration, Inc. and Lane A. Griffin and Associates dated May 27, 2010.	Incorporated herein by reference to our Current Report on Form 6-K filed with the SEC on July 14, 2010.
4.05	Director Service Agreement between the Company and Laird Cagan dated May 18, 2011.	Incorporated herein by reference to our Current Report on Form 6-K filed with the SEC on May 25, 2011.
8.01	Subsidiaries of the Company	Filed herewith.
11.01	Code of Ethics	Incorporated herein by reference to our Annual Report on Form 20-F filed with the SEC on August 10, 2007.
12.01	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.	Filed herewith.
12.02	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.	Filed herewith.
13.01	Certification of the 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	Filed herewith.

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 18th day of July, 20 11

Tombstone Exploration Corporation

(An Exploration Stage Company)

December 31, 2010


	Index

Report of Independent Registered Public Accounting Firm	F-1

Consolidated Balance Sheets	F-2

Consolidated Statements of Operations	F-3

Consolidated Statements of Cash Flows	F-4

Consolidated Statement of Stockholders’ Deficit	F-5

Notes to the Consolidated Financial Statements	F-6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Tombstone Exploration Corporation

(An Exploration Stage Company)

We have audited the accompanying consolidated balance sheets of Tombstone Exploration Corporation (An Exploration Stage Company) (the “Company”) as of December 31, 2010 and 2009 and the related statements of operations, stockholders' deficit and cash flows for the years ended December 31, 2010, 2009, and 2008 and for the period from January 1, 2007 to December 31, 2010. The period from January 1, 2006 (date of inception) to December 31, 2006 was audited by other auditors. 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit 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. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tombstone Exploration Corporation as of December 31, 2010 and 2009 and the results of its operations and cash flows for the periods described above in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses and negative cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that may result should the Company be unable to continue as a going concern. See note 1 to the financial statements for further information regarding this uncertainty.

/s/M&K CPAS, PLLC

www.mkacpas.com

Houston, Texas

July 15, 2011

F-1

Tombstone Exploration Corporation

(An Exploration Stage Company)

Consolidated Balance Sheets

(expressed in U.S. dollars)


	December 31, 2010 $	December 31, 2009 $

ASSETS

Current Assets

Cash	779	1,525
Other receivable	4,531	–

Total Current Assets	5,310	1,525

Property and Equipment	19,123	61,079

Total Assets	24,433	62,604


LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current Liabilities

Accounts Payable	53,252	5,717

Accrued Liabilities	11,679	–

Due to Related Parties	116,566	306,304

Loan Payable	–	59,810

Derivative Liability	99,603	42,214

Total Liabilities	281,100	414,045

Stockholders’ Deficit

Common Stock Authorized: unlimited common shares, with no par value Issued and outstanding: 77,620,905 and 59,287,533 common shares, respectively	16,323,655	15,023,850

Common Stock Subscribed	306,000	64,000

Additional Paid-In Capital	5,014,842	5,014,842

Accumulated Deficit	(8,538,759)	(8,538,759)

Accumulated Deficit During the Exploration Stage	(13,362,405)	(11,915,374)

Total Stockholders’ Deficit	(256,667)	(351,441)

Total Liabilities and Stockholders’ Deficit	24,433	62,604

(The accompanying notes are an integral part of these consolidated financial statements)

F-2

Tombstone Exploration Corporation

(An Exploration Stage Company)

Consolidated Statements of Operations

(expressed in U.S. dollars)


	For the Year Ended December 31, 2010	For the Year Ended December 31, 2009	For the Year Ended December 31, 2008	Accumulated from January 1, 2006 (Date of Inception) to December 31, 2010
	$	$	$	$

Revenue	–	–	–	–


Expenses

Accretion Expense	–	48,000	–	48,000
Consulting Services	469,129	917,876	1,193,774	3,193,919
General and Administrative	257,673	137,604	499,543	7,089,232
Impairment of Property and Equipment	–	–	–	8,033
Management Fees	120,000	120,000	112,987	860,000
Mineral Properties	7,943	49,423	355,721	1,323,087
Professional Fees	61,513	440,128	476,575	1,123,289

Total Expenses	941,318	1,713,031	2,638,600	13,645,560

Other Income (Expenses)

Gain (Loss) on Forgiveness of Debt	(444,361)	–	–	415,089
Gain (Loss) on Fair Value of Derivatives	(57,388)	138,727	(57,401)	(99,603)
Interest Expense	–	–	–	(3,307)
Loss on Sale of Assets	(12,678)	–	–	(12,678)
Write-off of Investment	(16,346)	–	–	(16,346)

Loss from Continuing Operations	(1,447,031)	(1,574,304)	(2,696,001)	(13,362,405)

Discontinued Operations	–	–	–	(8,538,759)

Net Loss	(1,447,031)	(1,574,304)	(2,696,001)	(21,901,164)

Net Loss Per Share – Basic and Diluted Net Loss Per Share – Basic and Diluted	(0.02)	(0.03)	(0.06)

Weighted Average Shares Outstanding	63,142,066	53,755,100	44,669,700

(The accompanying notes are an integral part of these consolidated financial statements)

F-3

Tombstone Exploration Corporation

(An Exploration Stage Company)

Consolidated Statements of Cash Flows

(expressed in U.S. dollars)

(The accompanying notes are an integral part of these consolidated financial statements)

F-5

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

(expressed in U.S. dollars)

Nature of Operations and Continuance of Business

Tombstone Exploration Corporation (the “Company”) was incorporated under the Canada Business Corporations Act on October 30, 1997 as 3430502 Canada Ltd. On December 4, 1997, the Company changed its name to Four Crown Foods Inc., with its principal operations focused on the food and beverage retail business. In April 2000, the Company upon acquisition of the license rights to a domain registration, the Company discontinued its operations in the food and beverage retail industry and formally changed its name to Universal Domains Incorporated on June 5, 2000. In 2001, the Company withdrew from the domain registration business and acquired 100% of the issued and outstanding common shares of VCL Communications Corp. (“VCL”), a teleconferencing services company that targeted clients throughout North America. In November 2003, given the Company’s liabilities and the lack of profitability, the Company ceased all operations.

On September 20, 2004, the Company focused its operations on the exploration, development, production, and acquisition of crude oil and natural gas properties, changing its name to Pure Capital Incorporated. On November 1, 2006, the Company commenced negotiations to acquire several mining and mineral right claims which was closed on December 4, 2006 where the Company acquired 100% of the mineral claims located in Tombstone, Arizona in exchange for $100,000 and the issuance of 8,000,000 common shares of the Company. Effectively, on February 6, 2007, the Company changed its name to Tombstone Exploration Corporation to better reflect the Company’s current business objective and strategies. The Company is an Exploration Stage Company, as defined by ASC 915, Development Stage Companies .

These consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has generated no revenues to date and has never paid any dividends and is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. As at December 31, 2010, the Company did not record any revenues, had a working capital deficit of $275,790 and an accumulated deficit of $21,901,164. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability to raise equity or debt financing, and the attainment of profitable operations from the Company's future business. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company’s plan of action over the next twelve months is to raise capital financing to conduct exploration and drilling on its mineral property claims held in Tombstone, Arizona as well as exploring for new mineral property claims in the United States.

Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars. The consolidated financial statements include the accounts of the Company and its subsidiary, Tombstone Mining and Exploration Corporation. All inter-company accounts and transactions have been eliminated. The Company’s fiscal year-end is December 31.

Use of Estimates

The preparation of these consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of long lived assets, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates, fair value of derivative and financial instruments, and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

F-6

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

(expressed in U.S. dollars)

Summary of Significant Accounting Policies (continued)

Cash and Cash Equivalents

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. As at December 31, 2010 and 2009, the Company had no cash equivalents.

Property and Equipment

Property and equipment are recorded at the lower of cost or net book value, and are amortized based on the following rates:


Asset Type		Amortization Method
Furniture and Fixtures		5 years straight-line
Equipment		5 years straight-line

Impairment of Long-Lived Assets

In accordance with ASC 360, Property Plant and Equipment , management tests long-lived assets to be held and used for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

Mineral Properties

The Company has been in the exploration stage since its formation on January 1, 2006 and has not yet realized any revenues from its planned operations. Mineral property acquisition and exploration costs are expensed as incurred. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs incurred to develop such property are capitalized. Such costs will be amortized using the units-of-production method over the estimated life of the probable reserve. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.

Stock-Based Compensation

The Company records stock-based compensation in accordance with ASC 718, Share-Based Payments , using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.

Revenue Recognition

The Company recognizes revenue from online advertising sales in accordance with Securities and Exchange Commission ASC 605, Revenue Recognition. The Company accounts for revenue as a principal using the guidance in ASC 605. Revenue consists of the sale of online advertising and is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the product is shipped, and collectibility is reasonably assured.

Income Taxes

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740, Accounting for Income Taxes, as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

F-7

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

(expressed in U.S. dollars)

Summary of Significant Accounting Policies (continued)

Comprehensive Loss

ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at December 31, 2010 and 2009, the Company has no items that represent comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.

Basic and Diluted Net Income (Loss) Per Share

The Company computes net income (loss) per share in accordance with ASC 260, Earning per Share . ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive.

Financial Instruments

Pursuant to ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments , an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 and 825 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 and 825 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. Level 3 financial instruments applicable to the Company include the fair value of the derivative liability. The value of this derivative liability was $99,603 and $42,214 as of December 31, 2010 and 2009, respectively.

The Company’s financial instruments consist principally of cash, accounts payable and accrued liabilities, amounts due to related parties, derivative liability, and notes payable to a related party. Pursuant to ASC 820 and 825, the fair value of our cash and cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

The Company’s operations are in Canada, which results in exposure to market risks from changes in foreign currency rates. The financial risk is the risk to the Company’s operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.

F-8

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

(expressed in U.S. dollars)

Summary of Significant Accounting Policies (continued)

Foreign Currency Translation

The Company’s functional and reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated in accordance with ASC 830 Foreign Currency Translation Matters, using the exchange rate prevailing at the balance sheet date. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

Recent Accounting Pronouncements

In January 2010, the FASB issued an amendment to ASC 820, Fair Value Measurements and Disclosure, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. The adoption of this standard did not have a significant impact on the Company’s financial statements.

In January 2010, the FASB issued an amendment to ASC 505, Equity, where entities that declare dividends to shareholders that may be paid in cash or shares at the election of the shareholders are considered to be a share issuance that is reflected prospectively in EPS, and is not accounted for as a stock dividend. This standard is effective for interim and annual periods ending on or after December 15, 2009 and is to be applied on a retrospective basis. The adoption of this standard did not have a significant impact on the Company’s financial statements.

In October 2009, the FASB issued an amendment to the accounting standards related to certain revenue arrangements that include software elements. This standard clarifies the existing accounting guidance such that tangible products that contain both software and non-software components that function together to deliver the product’s essential functionality, shall be excluded from the scope of the software revenue recognition accounting standards. Accordingly, sales of these products may fall within the scope of other revenue recognition standards or may now be within the scope of this standard and may require an allocation of the arrangement consideration for each element of the arrangement. The adoption of this standard did not have a significant impact on the Company’s financial statements.

In October 2009, FASB issued an amendment to the accounting standards related to the accounting for revenue in arrangements with multiple deliverables including how the arrangement consideration is allocated among delivered and undelivered items of the arrangement. Among the amendments, this standard eliminated the use of the residual method for allocating arrangement considerations and requires an entity to allocate the overall consideration to each deliverable based on an estimated selling price of each individual deliverable in the arrangement in the absence of having vendor-specific objective evidence or other third party evidence of fair value of the undelivered items. This standard also provides further guidance on how to determine a separate unit of accounting in a multiple-deliverable revenue arrangement and expands the disclosure requirements about the judgments made in applying the estimated selling price method and how those judgments affect the timing or amount of revenue recognition. The adoption of this standard did not have a significant impact on the Company’s financial statements.

In August 2009, FASB issued an amendment to the accounting standards related to the measurement of liabilities that are recognized or disclosed at fair value on a recurring basis. This standard clarifies how a company should measure the fair value of liabilities and that restrictions preventing the transfer of a liability should not be considered as a factor in the measurement of liabilities within the scope of this standard. This standard is effective for the Company on October 1, 2009. The adoption of this standard did not have a significant impact on the Company’s financial statements.

F-9

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

(expressed in U.S. dollars)

Property and Equipment


			Net Book Value
	Cost $	Accumulated Amortization $	December 31, 2010 $	December 31, 2009 $

Furniture and Fixtures	–	–	–	42,209
Equipment	48,747	29,624	19,123	18,870

	48,747	29,624	19,123	61,079

Other Receivables

As at December 31, 2010, the Company had $4,531 (2009 - $nil) of other receivables relating to miscellaneous receivables for equipment rental.

Common Shares

All common shares for non-cash purposes have been valued based on the end-of-day trading price of the Company’s common stock on the date of grant.

Year Ended December 31, 2010

On December 14, 2010, the Company issued 2,500,000 common shares at $0.03 per share for proceeds of $75,000.

On December 14, 2010, the Company issued 240,000 common shares with a fair value of $27,600 for consulting services.

On November 5, 2010, the Company issued 1,600,000 common shares with a fair value of $112,000 for consulting services.

On October 18, 2010, the Company issued 2,569,372 common shares with a fair value of $110,483 to settle debt of $64,234, resulting in a loss on settlement of $46,249.

On September 8, 2010, the Company issued 150,000 common shares with a fair value of $6,000 for consulting services.

On April 28, 2010, the Company issued 2,500,000 common shares at $0.04 per share for proceeds of $100,000.

On April 8, 2010, the Company issued 1,800,000 common shares with a fair value of $166,400 for consulting services.

On April 8, 2010, the Company issued 4,524,000 common shares with a fair value of $579,072 to settle debt of $180,960, resulting in a loss on settlement of $398,112.

On March 26, 2010, the Company issued 500,000 common shares at $0.05 per share for proceeds of $25,000.

On March 9, 2010, the Company issued 500,000 common shares at $0.05 per share for proceeds of $25,000.

On February 8, 2010, the Company issued 250,000 common shares with a fair value of $15,000 for consulting services.

On January 26, 2010, the Company issued 200,000 common shares with a fair value of $12,000 for consulting services.

On January 26, 2010, the Company issued 1,000,000 common shares at $0.05 per share for proceeds of $50,000.

Year Ended December 31, 2009

As at December 31, 2009, the Company authorized the issuance of 1,000,000 common shares with a fair value of $64,000 for consulting services.

F-10

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

(expressed in U.S. dollars)

Common Shares (continued)

On November 9, 2009, the Company issued 100,000 common shares with a fair value of $7,500 for professional consulting services and 500,000 common shares with a fair value of $37,500 for consulting services.

On November 9, 2009, the Company issued 833,334 common shares at $0.06 per share for proceeds of $50,000.

On September 18, 2009, the Company issued 1,410,000 common shares at $0.05 per share for proceeds of $70,500.

On August 12, 2009, the Company issued 500,000 common shares with a fair value of $43,500 for consulting services.

On July 21, 2009, the Company issued 500,000 common shares with a fair value of $43,500 for consulting services.

On June 12, 2009, the Company issued 1,500,000 common shares with a fair value of $130,500 for consulting services.

On April 16, 2009, the Company issued 500,000 common shares with a fair value of $40,000 for consulting services.

On April 14, 2009, the Company issued 1,000,000 common shares at $0.10 per share for proceeds of $100,000.

On March 19, 2009, the Company issued 500,000 common shares with a fair value of $39,500 for consulting services.

On March 19, 2009, the Company issued 833,334 common shares at $0.06 per share for proceeds of $50,000.

On February 17, 2009, the Company issued 350,000 common shares with a fair value of $78,750 for consulting services and 3,000,000 common shares with a fair value of $675,000 for investor relations.

On February 17, 2009, the Company issued 200,000 common shares for consulting services which were authorized during the year ended December 31, 2008 and recorded as common stock subscribed.

aa)

On February 12, 2009, the Company issued 5,250,000 common shares for consulting services which were authorized during the year ended December 31, 2008 and recorded as common stock subscribed.

Year Ended December 31, 2008

bb)

In November 2008, the Company issued 500,000 common shares of the Company for consulting services with a fair value of $40,000.

cc)

In October 2008, the Company authorized the issuance of 750,000 common shares of the Company for consulting services with a fair value of $75,000 and professional fees with a fair value of $37,500. These common shares were issued subsequent to year-end.

dd)

In September 2008, the Company issued 200,000 common shares of the Company for consulting services with a fair value of $32,000.

ee)

In August 2008, the Company issued 2,000,000 units in a private placement at $0.20 per unit for proceeds of $400,000. Each unit is comprised of one common share of the Company and one-half share purchase warrant, where each full share purchase warrant grants the warrant holder to purchase one additional common share of the Company at $0.40 per common share until August 31, 2011.

ff)

In July 2008, the Company authorized the issuance of 750,000 common shares of the Company for consulting services with a fair value of $180,000 and professional fees with a fair value of $90,000. These common shares were issued subsequent to year-end.

F-11

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

(expressed in U.S. dollars)

Common Shares (continued)

gg)

In June 2008, the Company issued 2,000,000 units in a private placement at $0.20 per unit for proceeds of $400,000. Each unit is comprised of one common share of the Company and one-half share purchase warrant, where each full share purchase warrant grants the warrant holder to purchase one additional common share of the Company at $0.40 per common share until June 30, 2011. In addition, the Company issued 140,000 units at $0.20 per unit for finders’ fees relating to the private placement.

hh)

In May 2008, the Company cancelled 4,000,000 common shares that were previously issued in January 2008.

ii)

In April 2008, the Company authorized the issuance of 750,000 common shares of the Company for consulting services with a fair value of $130,000 and professional fees with a fair value of $65,000. These common shares were issued subsequent to year-end.

jj)

In January 2008, the Company issued 200,000 common shares for website services with a fair value of $46,000.

kk)

In January 2008, the Company issued 250,000 common shares for consulting services with a fair value of $57,500.

ll)

In January 2008, the Company issued 4,000,000 common shares for consulting and professional services with a fair value of $1,040,000.

mm) In January 2008, the Company issued 75,000 common shares for website services with a fair value of $19,500.

nn)

In January 2008, the Company authorized the issuance of 3,000,000 common shares for consulting services and professional fees with a fair value of $520,000 and $260,000, respectively. These common shares were issued subsequent to year-end.

Share Purchase Warrants

In April 2010, the Company issued 2,500,000 share purchase warrants as part of a private placement of common shares. Each warrant is exercisable at $0.10 per share until April 28, 2013. The fair value of the warrants is $71,999 using the Black-Scholes option pricing model assuming a market price of $0.125 per share on the grant date, volatility of 146.80% useful life of 3 years, and no expected dividends.

The following table summarizes the continuity schedule for share purchase warrants:


	Number of Warrants	Exercise Price
Balance – December 31, 2007	9,337,500	$0.14
Issued	2,070,000	$0.40
Cancelled	(8,000,000)	$0.10
Balance – December 31, 2008 and 2009	3,407,500	$0.40
Issued	2,500,000	$0.10
Expired	(1,337,500)	$0.40
Balance – December 31, 2010	4,570,000	$0.24

As at December 31, 2010, the following share purchase warrants were outstanding:


Number of Warrants	Exercise Price	Expiry Date
1,070,000	$0.40	June 30, 2011
1,000,000	$0.40	August 31, 2011
2,500,000	$0.10	April 28, 2013

4,570,000

F-12

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

(expressed in U.S. dollars)

Related Party Transactions

As at December 31, 2010, the Company owed $116,566 (2009 - $306,304) to the President of the Company for financing of day-to-day operations. The amounts owing are unsecured, non-interest bearing, and due on demand.

Derivative Liability

The Company records the fair value of the reset provision of its exercise price of share purchase warrants in accordance with ASC 815, Derivatives and Hedging . The exercise price of the warrants is $0.40 per share until October 3, 2010, and he reset provision allows for the exercise price to be reset to a value equal to a future issuance of common shares, stock options, warrants, or other equity instrument if the issuance or exercise price is less than $0.40 per share. The fair value of the derivatives was calculated using a multi-nominal lattice model performed by an independent qualified business valuator. The fair value of the derivative liability is revalued on each balance sheet date with corresponding gains and losses recorded in the consolidated statement of operations. As at December 31, 2010 and 2009, the Company recorded a derivative liability of $99,603 and $42,214 respectively.

Income Taxes

The Company has $7,717,800 of net operating losses to carryforward to offset taxable income in future years which expire through fiscal 2028. For the years ended December 31, 2010 and 2009, the valuation allowance established against the deferred tax assets increased by $321,113, and $566,110, respectively.

The components of the net deferred tax asset at December 31, 2010 and 2009, the statutory tax rate, the effective tax rate and the amount of the valuation allowance are indicated below:


	2010 $	2009 $	2008 $
Income (Loss) Before Taxes	(1,447,031)	(1,574,304)	(2,696,001)
Statutory rate	34%	34%	34%

Computed expected tax recovery	(491,990)	(535,263)	(916,640)
Non-deductible expenses	170,877	(30,847)	25,400
Change in valuation allowance	321,113	566,110	891,240

Reported income taxes	–	–	–


	2010 $	2009 $
Deferred tax asset
- Cumulative net operating losses	2,643,148	2,322,035
- Less valuation allowance	(2,643,148)	(2,322,035)

Net deferred tax asset	–	–

The following table lists the fiscal year in which the loss was incurred and the expiration date of the operating:


		Expiration
	Net	Date of
	Loss	Operating
Period Incurred	$	Losses

December 31, 2006	159,600	2026
December 31, 2007	2,310,000	2027
December 31, 2008	2,638,800	2028
December 31, 2009	1,665,000	2029
December 31, 2010	944,400	2030

	7,717,800

F-13

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

(expressed in U.S. dollars)

10.

Subsequent Events

Since December 31, 2010, the Company has issued an aggregate of 16,000,000 shares for consulting services and as a result of total cash invested of $600,000. In addition, the Company issued 6,000,000 warrants to purchase shares of its common stock.

F-14


SUMMARY OF EXPLORATION HISTORY AND FUTURE EXPLORATION PLANS FOR TOMBSTONE PROPERTY
Year	Expenditures / Budget	Source of Funding	Exploration Activities	Persons Conducting Exploration and Qualifications
2007	$1.4 million	Private Placement Agreement with Eurogas, Inc. and other private investors	Geological prospecting R/C Drilling Program Completed 5000 feet of R/C drilling	Dennis Dalton Chief Geologist Mr. Dalton received a B.S. in Geology from the University of California Long Beach and a M.S. in Mining Engineering from McKay School of Mines at the University of Nevada. Dating back to 1976, Mr. Dalton has widespread experience in mining geology. Mr. Dalton was an environmental engineer prior.
2008	$1.2 million	Private Placement with Haywood Securities, Cannacord Capital and other private investors	Geological prospecting Assaying and evaluation of information Core Drill Program Completed 5000 feet of core drilling	Francisco P. Montecinos Former VP of Exploration Francisco has worked as an exploration geologist for over 40 years in some 20 countries. Of these, the last 25 years has been spent throughout North and Central America as project manager and regional exploration manager for a number of multi-national mining companies. He has degrees from and has also completed studies at numerous universities including Harvard, University of Chile, California-Berkeley and Colorado School of Mines.
2009	$500,000	Private Placements with private investors	Mapping of historical zones Reviewing core samples from prior years Reviewing historical data and drillings from prior years	Lane A. Griffin Mr. Griffin has more than 30 years experience as a geological consultant exploring for precious metals and uranium. He spent 4 years in the Army as an officer in the Corps of Engineers. He is currently the President of Diversified Development Company, the operator of the Lone Jack Gold Mine in Bellingham, Washington. He received a B.S. in Geology from Washington State University as well as a B.A. in Zoology and D.D.S. from the University of Washington.


Name, Office Held, Age	Area of Experience and Functions in Our Company
Alan M. Brown CEO, CFO, Director & President Age 44	As President, Chief Executive Officer, Chief Financial Officer, and a Director, Mr. Brown is responsible for the development of our strategic direction and the management and supervision of our overall business.
Steve Radvak, P.E. Vice President of Exploration & Director Age 51	As Vice President of Exploration and Director of the Company, Mr. Radvak is responsible for managing the exploration activities on the Tombstone Property.
Laird Q. Cagan Director Age 53	As a Director of the Company, Mr. Cagan is responsible for assisting the Company in the management of its exploration activities as well as raising capital for the Company to continue its operations.


SUMMARY COMPENSATION TABLE
Name and Principal Position	Year	Annual Compensation			Long Term Compensation		All other Compensation
Name and Principal Position	Year	Salary	Bonus	Other Annual Compen-sation	Securities Under Options/ SARs Granted	Shares or units subject to resale restrictions	All other Compensation
Alan M. Brown	2010	$120,000	NIL	NIL	NIL	NIL	NIL
President, CEO and Director	2009	$120,000	NIL	NIL	NIL	NIL	NIL
	2008	$120,000	NIL	NIL	NIL	NIL	NIL


Name	Number of Common Shares Beneficially Owned as of July 15, 2011	Percentage
Alan M. Brown	8,274,443	8.84%
Steve Radvak	1,000,000	1.07%
Laird Cagan	1,000,000	1.07%


Name of Shareholder	No. of Common Shares Owned	Percentage of Outstanding Common Shares
Alan M. Brown	8,274,443	8.84%
Tom Reid	6,240,000	6.67%


YEAR/PERIOD	HIGH	LOW
2007	.75	.16
First Quarter 2008	.43	.20
Second Quarter 2008	.48	.15
Third Quarter 2008	.43	.10
Fourth Quarter 2008	.19	.05
First Quarter 2009	.26	.06
Second Quarter 2009	.11	.05
Third Quarter 2009	.08	.05
Fourth Quarter 2009	.08	.04
First Quarter 2010	.11	.02
Second Quarter 2010	.16	.06
Third Quarter 2010	.09	.03
Fourth Quarter 2010	.14	.04
First Quarter 2011	.13	.06
Second Quarter 2011	.11	.03
July 1, 2011 – July 14, 2011	.08	.05


	Common Stock		Additional Paid-In Capital	Common Stock Subscribed	Accumulated Deficit	Accumulated Deficit During the Exploration Stage	Total
	Shares	Par Value	Additional Paid-In Capital	Common Stock Subscribed	Accumulated Deficit	Accumulated Deficit During the Exploration Stage	Total
	#	$	$	$	$	$	$
Balance – January 1, 2006 (Date of Inception)	1,568,324	7,468,288	56,800	–	(8,538,759)	–	(1,013,671)

Cancellation of common shares	(207,562)	(20,756)	20,756	–	–	–	–

Issuance of common shares for cash	1,000,000	100,000	–	–	–	–	100,000

Issuance of common shares for acquisition of mineral properties	8,000,000	800,000	–	–	–	–	800,000

Issuance of common shares for services	8,017,103	809,018	–	–	–	–	809,018

Issuance of share purchase warrants	–	–	4,952,286	–	–	–	4,952,286

Net loss for the year	–	–	–	–	–	(4,292,648)	(4,292,648)

Balance – December 31, 2006	18,377,865	9,156,550	5,029,842	–	(8,538,759)	(4,292,648)	1,354,985

Cancellation of common shares	(4,000,000)	(400,000)	–	–	–	–	(400,000)

Issuance of common shares for services	15,743,000	1,574,300	–	–	–	–	1,574,300

Issuance of common shares for cash at $0.10 per common share	3,850,000	385,000	–	–	–	–	385,000

Issuance of common shares for cash at $0.20 per common share	2,500,000	500,000	–	–	–	–	500,000

Issuance of common shares for finders fee	175,000	35,000	(35,000)	–	–	–	–

Net loss for the year	–	–	–	–	–	(3,352,421)	(3,352,421)

Balance – December 31, 2007	36,645,865	11,250,850	4,994,842	–	(8,538,759)	(7,645,069)	61,864

Issuance of common shares for services	1,025,000	149,000	–	–	–	–	149,000

Issuance of common shares for cash at $0.20 per common share	4,000,000	800,000	–	–	–	–	800,000

Issuance of common shares for finders’ fees	140,000	28,000	(28,000)	–	–	–	–

Common stock subscribed	–	–	–	1,403,500	–	–	1,403,500

Net loss for the year	–	–	–	–	–	(2,696,001)	(2,696,001)

Balance – December 31, 2008	41,810,865	12,227,850	4,966,842	1,403,500	(8,538,759)	(10,341,070)	(281,637)

Issuance of common shares for services	13,400,000	2,525,500	–	(1,403,500)	–	–	1,122,000

Issuance of common shares for cash	4,076,668	270,500	–	–	–	–	270,500

Common stock subscribed	–	–	–	64,000	–	–	64,000

Fair value of warrants issued	–	–	48,000	–	–	–	48,000

Net loss for the year	–	–	–	–	–	(1,574,304)	(1,574,304)

Balance – December 31, 2009	59,287,533	15,023,850	5,014,842	64,000	(8,538,759)	(11,915,374)	(351,441)

Issuance of common shares for services	4,240,000	335,250	–	(64,000)	–	–	271,250

Issuance of common shares for cash	7,000,000	275,000	–	–	–	–	275,000

Issuance of common shares to settle debt	7,093,372	689,555	–	–	–	–	689,555

Common stock subscribed	–	–	–	306,000	–	–	306,000

Net loss for the year	–	–	–	–	–	(1,447,031)	(1,447,031)

Balance – December 31, 2010	77,620,905	16,323,655	5,014,842	306,000	(8,538,759)	(13,362,405)	(256,667)