Tombstone Exploration (TMBXF) 20-F/A 2007 FY Annual report (foreign) (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F/A

Amendment #1

  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 endedDecember 31, 2007

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

For the transition period from ____________ to ____________

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

Date of event requiring this shell company report __________________

For the transition period from ____________ to ____________

Commission file number: 0-29922

TOMBSTONE EXPLORATION CORPORATION

(Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant's name into English)

Canada

(Jurisdiction of incorporation or organization)

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

 (Address of principal executive offices)

Copy of communications to:

Luis Carrillo, Esq.

Carrillo Huettel, LLP

501 W. Broadway, Suite 800

San Diego, CA 92101

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

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

Title of Class	Name of exchange on which registered
Not Applicable	Not Applicable

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

Common Shares Without Par Value

(Title of Class)

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

Not Applicable

(Title of Class)

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

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

There were 36,645,865 Common Shares without par value issued and outstanding as at December 31, 2007.

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 X  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 financial statement item the registrant has elected to follow.

 X  ITEM 17     ITEM 18

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

  YES   X  NO

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

2

EXPLANATORY NOTE

The Company is filing this Amendment No. 1 on Form 20-F/A (“Amendment No. 1”) to its annual report on Form 20-F for the year ended December 31, 2007 filed with the Securities and Exchange Commission on July 15, 2008 (the “original filing”) to reflect the following amendments to the original filing:

1.

The cover page has been amended to indicate that the Company is not a shell company.

2.

Item 3.2.A has been amended to add loss from operations.

3.

Item 5. Has been amended to provide a more complete discussion regarding the Company’s financial conditions.

4.

Item 15. Management has undertaken to perform an assessment of internal controls over financial reporting; a complete discussion of the same has been included.

5.

The Company’s consolidated financial statements have been amended as follows:

a.

As a result, “Part I, Item 3.A. “Selected Financial Data,” Part I, Item 3.B “Capitalization and Indebtedness,” Item 5. A. “Operating Results,” Item 5.B. “Liquidity and Capital Resources,” Item 15. “Controls and Procedures,” and Part III, Item 18. “Financial Statements” contained in the original filing are amended and restated in their entirety in this Amendment No. 1.

Other than as set forth herein, the registrant has not modified or updated any other disclosures and has made no changes to the Items in the original filing. Accordingly, the registrant has omitted in this Amendment No. 1 all such unchanged information.

Other than as expressly set forth above, this Amendment No. 1 does not, and does not purport to, amend, update or restate the information in any part of the original filing or reflect any events that have occurred after the original filing was filed on July 15, 2008. The filing of this Amendment No. 1, and the inclusion of newly executed certifications, should not be understood to mean that any other statements contained in the original filing are true and complete as of any date subsequent to June 15, 2008. Accordingly, this Amendment No. 1 should be read in conjunction with the original filing and the registrant’s filings made with the Securities and Exchange Commission subsequent to the original filing, including any amendments to those filings.

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TABLE OF CONTENTS

			Page
Forward-Looking Statements			6
PART I
Financial Information And Accounting Principles			7
Item 1	Identity of Directors, Senior Management and Advisers		7
	A.	Directors and Senior Management	7
	B.	Advisers	8
	C.	Auditors	8
Item 2	Offer Statistics and Expected Timetable		8
Item 3	Key Information		8
	A.	Selected Financial Data	8
	B.	Capitalization and Indebtedness	9
	C.	Reasons for the Offer and Use of Proceeds	9
	D.	Risk Factors	9
Item 4	Information on our Company		14
	A.	History and Development of our Company	14
	B.	Business Overview	15
	C.	Organizational Structure	18
	D.	Property, Plant and Equipment	18
Item 5	Operating and Financial Review and Prospects		24
	A.	Operating Results	24
	B.	Liquidity and Capital Resources	25
	C.	Research and Development, Patents and Licenses, etc.	25
	D.	Trend Information	25
	E.	Off-Balance Sheet Arrangements	25
	F.	Tabular Disclosure of Contractual Obligations	26
Item 6	Directors, Senior Management and Employees		26
	A.	Directors and Senior Management	26
	B.	Compensation	26
	C.	Board Practices	27
	D.	Employees	27
	E.	Share Ownership	27
Item 7	Major Shareholders and Related Party Transactions		27
	A.	Major Shareholders	27
	B.	Related Party Transactions	28
	C.	Interests of Experts and Counsel	28
Item 8	Financial Information		28
	A.	Financial Statements and Other Financial Information	28
	B.	Significant Changes	28
Item 9	The Offer and Listing		28
Item 10	Additional Information		29
	A.	Share Capital	29
	B.	Articles of Incorporation and By-laws	29
	C.	Material Contracts	32
	D.	Exchange Controls	34
	E.	Taxation	34
	F.	Dividends and Paying Agents	38
	G.	Statement by Experts	38
	H.	Documents on Display	38
	I.	Subsidiary Information	38
Item 11	Quantitative and Qualitative Disclosures About Market Risk		39
Item 12	Description of Securities Other than Equity Securities		39

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PART II			39
Item 13	Defaults, Dividend Arrearages and Delinquencies		39
Item 14	Material Modifications to the Rights of Security Holders and Use of Proceeds		39
Item 15	Controls and Procedures		39
Item 16	[Reserved]		40
	A.	Audit Committee Financial Expert	40
	B.	Code of Ethics	40
	C.	Principal Accountant Fees and Services	40
	D.	Exemptions from the Listing Standards for Audit Committees.	41
	E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers.	41
PART III			41
Item 17	Financial Statements		41
Item 18	Not Applicable		41
Item 19	Exhibits		41
SIGNATURE			43

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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 entit led “Risk Factors”. Although our company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause actual results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, prospective investors should not place undue reliance on forward-looking statements. The forward-looking statements in this Report speak only as to the date hereof. Our company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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

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

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PART I

FINANCIAL INFORMATION AND ACCOUNTING PRINCIPLES

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

The financial statements of Tombstone Exploration Corporation for the years ended December 31, 2007 and December 31, 2006, have been reported on by Moore & Associates, Chartered Accountants, Suite 109, 2675 South Jones Blvd., Las Vegas, Nevada.

ITEM 1.

Identity of Directors, Senior Management and Advisers

A.

Directors and Senior Management

The Directors and the senior management of our company as of July 1, 2008 are as follows:

Name	Business Address	Function	Since
Alan Brown	1515 Red Top Rd. P.O. Box 1280, Tombstone, AZ. 85638	As President, Chief Executive Officer and Director, Mr. Brown is responsible for the development of our strategic direction and the management and supervision of our overall business.	April 12, 2000

Mr. Alan Brown - Mr. Brown is sole officer and director of the Company. Prior to his work with the Company Mr. Brown spent many years advising clients on tax planning and structure.

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

B.      

Advisers

Our legal counsel is Carrillo Huettel, LLP, with a business address at 501 W. Broadway, San Diego, California, 92101.

Consultants and other experts:

Francisco P. Montecinos

VP of Exploration

Francisco has worked as an exploration geologist for over 40 years in some 20 countries including Chile, the United States, Mexico, Central and South America countries and few of the Caribbean island countries, as well. 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 multinational mining companies including Glencairn Gold Corp., Montana Gold Corp., TVX and Intrepid Minerals Corp. in volcanic-hosted precious metals exploration. In addition, he has worked for major mining companies such as Codelco (Anaconda Mining Co.), Noranda, Homestake Mining Co., and MAPCO in porphyry copper, uranium and polymetallic deposits exploration and mining, open pit and underground. He has degrees from the University of Chile, M.S.-Science Geology, and University of California-Berkeley, Volcanology & Ore Deposits graduate studies. He has also completed st udies at numerous other universities including Colorado School of Mines and Harvard University.

Scott Davis

A member of the 5th generation of a mining family in Tombstone, Arizona, Mr. Davis has been exposed to the various aspects of mining all of his life.  He has over ten years experience in underground mining and worked as the cyanide recovery plant supervisor for PBR Minerals for another three years.  He has also built, or assisted in building, various small mills and plants.  He has worked for State of Maine Mining Company assisting in the manufacturing of Merrill Crowe Cyanide precipitation plants.  Holding a Associate’s Degree as an Environmental Facilities Technician, he has studied electrical controls, HVAC, and mechanical engineering. In addition, Mr. Davis has another 15 years of experience working with heavy equipment and has held numerous supervisory positions in the construction industry. 

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C.      

Auditors

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

ITEM 2.

Offer Statistics and Expected Timetable

Not Applicable.

ITEM 3.

Key Information

A.

Selected Financial Data

The following tables set forth the data of our fiscal years ended December 31, 2007 and 2006. 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 (Restated)		December 31, 2007 (Restated)
OPERATING DATA:
Revenue	$	0	$	0
Gross Profit		0		0
Net Income (Loss)		(4,277,579)		(3,213,209)
Income (Loss) per share		(1.02)		(0.11)
BALANCE SHEET DATA:
Cash	$	42,981	$	252,718
Total Assets		1,419,203		338,344
Current Liabilities		49,149		122,199
Total Liabilities		49,149		122,199
Shareholders Equity		1,370,054		216,145

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	2007	2006	2005	2004	2003
End ($)	0.98200	0.8547	0.8577	0.8308	0.7738
Average ($)	1.07465	0.8849	0.8255	0.7683	0.7135
High ($)	1.18730	0.8547	0.8751	0.8493	0.7738
Low ($)	0.90570	0.9091	0.7853	0.7159	0.6349

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

Through	June2007	May 2007	April 2007	March 2007	February 2007	January 2007
High for the month ($)	0.9557	0.8981	0.8633	0.8467	0.8437	0.8457
Low for the month ($)	0.9294	0.9347	0.9036	0.8673	0.8632	0.8584

Exchange rates are based upon the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. The noon rate of exchange on July 1, 2008 as reported by the Federal Reserve Bank of New York for the conversion of one Canadian dollar into U.S. dollars was $1.0220.

B.

Capitalization and Indebtedness

Our authorized capital consists of an unlimited number of Common Shares without par value. As of July 14, 2008, we had 34,110,684 Common Shares issued and outstanding.

The table below sets forth our total indebtedness in United States dollars and capitalization as of December 31, 2007. You should read this table in conjunction with the audited financial statements and accompanying notes, included herein.

As at December 31, 2007

Liabilities
Current, unsecured	$	122,199
Long term, unsecured		nil
Shareholders’ Equity
Common stock	$	11,250,850
Paid in Capital		4,994,842
Accumulated Deficit		(8,538,759)
Accumulated Deficit during Exploration Stage		(7,490,788)

C.      

Reasons for the Offer and Use of Proceeds

Not applicable.

D.

Risk Factors

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

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

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

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Risks Associated with Mining

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

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

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

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

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

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

10

Mineral prices are subject to dramatic and unpredictable fluctuations.

The market price of precious metals and other minerals is volatile and has fluctuated widely, particularly in recent years. The prices of various metals are affected by numerous factors beyond our control, including international economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates and global or regional consumption patterns, speculative activities and increased production due to improved mining and production methods. The supply of and demand for metals are affected by various factors, including political events, economic conditions and production casts in major mineral producing regions. Variations in the market prices of metals may impact on our ability to raise funding to continue exploration of our properties. In addition, any significant fluctuations in metal prices will impact on our decision to accelerate or reduce our exploration activities. If the price of precious metals and other minerals should drop significa ntly, 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 properties.

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

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

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

Risks Related To Our Company

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

We have not generated any operating revenues for the last five years and we will, in all likelihood, continue to incur operating expenses without revenues until our mining properties are fully developed and in commercial production. We had cash in the amount of $252,718 as of December 31, 2007. As a result, we need to generate significant revenues from our operations or obtain financing. We cannot assure that we will be able to successfully explore and develop our mining properties or assure that viable reserves exist on the properties for extraction. These circumstances raise substantial doubt about our ability to continue as a going concern. It is unlikely that we will generate any funds internally until we discover commercially viable quantities of precious metals and other minerals. If we are unable to generate revenue from our business in the next twelve months, we may be forced to delay, scale back, or eliminate our exploration activities. If any of these actions wer e to become necessary, we may not be able to continue to explore our properties or operate our business and if either of those events happen, then there is a substantial risk our business would fail.

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

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

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

Because we have not generated any revenue from our business and we cannot anticipate when we will be able to generate revenue from our business, we will need to raise additional funds for the further exploration and future development of our mining claims and to respond to unanticipated requirements or 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 indefinit e 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 OTC BB), when the public market is depressed. The issuance of additional shares will cause our existing shareholders to experience dilution of their ownership interests.

12

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

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

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

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

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

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

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

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

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

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

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

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

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Low-Priced Stocks Subject to Greater Disclosure Requirements.

The Securities and Exchange Commission adopted rules (“Penny Stock Rules”) that regulate broker-dealer practices in connection with transactions in penny stocks. The Common Shares of the Company may fall within the Commission's definition of a penny stock. The closing price of the Company's shares on July 12, 2007 was $0.30. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current prices and volume information with respect to transactions in such securities is provided by the exchange or system). The Penny Stock Rules require a broker-dealer, prior to effecting a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the Securities and Exchange Commission that provides information about penny stocks and the nature and level of risks in the penn y 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 Pe nny Stock Rules, shareholders may find it more difficult to sell their shares.

ITEM 4.

Information on the Company

A.

History and Development of the Company

Historical Overview

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

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

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

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

In November 2003, the Company ceased all operations. From that time until January 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 1, 2006, the Company began negotiations with Redhawk for the acquisition of several mining and mineral right claims located in the State of Arizona. On November 27, 2006, the Company and Redhawk, pursuant to the terms and conditions of the Agreement, finalized the transaction, which closed on December 4, 2006.

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

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

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

Present Operations of our Company

The primary focus of operations will be to generate revenue from the production of silver, gold and barium as well as additional base minerals such as copper, lead and zinc. Through expansion, we will acquire new properties, as well as integrate the extraction of precious metals, rare earth and other minerals. 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.

The significant potential for silver recovery will likely draw considerable interest from major silver producing companies, as well as precious metals mining concerns.  With the variety of the metals projected for extraction, the Company expects to attract major attention and support from the state, local and federal governments

The Company will initiate mineral extraction as soon as funding and permitting is 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 the Tombstone property have been initiated.  Relationships have already been established with refineries, assay companies and engineering firms supporting worldwide mineral processing operations.

We now control more mining acreage in the mineral rich 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. Accordingly, we have acquired the mineral rights to approximately 13,500 acres of historical mining land in the areas around Tombstone, Arizona. The Company is the largest land holder in the Tombstone mining district. Through expansion, Tombstone Exploration will acquire new properties, as well as integrate the extraction of precious and base metals. The goal is to produce metals and minerals below standard industry costs.

B.

Business Overview

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

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

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

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

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

Our primary natural resource property consists of approximately 9,000 acres of historical mining land southwest, south and southeast of Tombstone, Arizona (the “Tombstone Property”).

On June 25, 2008, we began our drilling program at the Tombstone Silver Project became operational. We engaged Layne Christensen Company (NASDAQ: LAYN) of Mission Woods, Kansas to conduct the 2008 drilling program. Layne Christensen's Mineral Exploration Division is one of the largest companies providing drilling services for geological assessment with over 150 drilling rigs worldwide.

The initial drilling program will focus on the exploration of DDH TEMC-101. DDH TEMC-101 was designed to intercept two major silver-bearing manganese oxide structures of historical production: in the district: Bonanza and Santa Ana mines. Records from these mines indicate that they have been highly productive operations for several decades, and mining took place only to the water level, estimated in late 1890s at 200 ft. Hole TEMC-101 is currently at 310 ft, just above the water table. Core exhibits great recovery over 90% due to the fact the Tombstone Exploration decided to core drill HQ with the triple tube technique in order to recover the maximum rock samples at the ore zones. Geology observed so far consists of Uncle Sam porphyry down to 75 ft and the Bisbee group down the depth indicated above. These two stratigraphic units are main host rock units along the Bisbee-Tombstone mineral belt.

Rock material is extremely fractured, showing significant rusty fractures and veinlets, carrying locally manganese oxides. At approximately 235 ft., trace pyrite coated with black sulfide is disseminated in the limestone, while at 310 ft strong manganese oxides veinlets are observed. Such veinlets are physically analogous to ore matter in the mines.

The Bonanza and Santa Ana structures are trending N30E and dipping to northwest quite steeply, some 65-70 degrees. The target zone is estimated at around 700 ft way below the water table in the sulfides horizon. However, due to the nature of ore occurrences in the Tombstone mining district, there exists high probability that DDH TEMC-101 may intercept blind mineralized structures on the down to main targets not detected on surface.

Next drill hole of this program is designed to target the same structures at 45 degrees angle some 30 ft closer towards the structures.

On May 1, 2008, we received confirmation of the high sample value of a select sample SA 35-0 that was received from ALS Chemex, a certified laboratory. Sample SA 35-0 (5 cm) was previously reported by Mountain States Research and Development International, a certified laboratory, as containing 971.40 opt silver (Ag), 0.335 opt gold (Au) and 17% lead (Pb). The pulp from the original sample was re-assayed and has been confirmed that this sample is high grade. TMBXF has contacted ALS Chemex and arranged to have this sample rerun to further confirm the Ag content. Sample SA 35-0 was collected from the Santa Ana mine. Additionally, a recently collected channel sample measuring 0.8 meters (2.6 feet) at the Merrimac mine assayed 36.75 opt Ag and 8.4% Pb. The Merrimac structure and the Santa Ana structures are on sub-parallel zones that are approximately 600 meters (2000 feet) apart. Five other samples ranged from 7.2 opt Ag to 11.1 opt Ag while another five samples assayed betwee n 3.4 opt Ag and 4.2 opt Ag.

Although the drilling program has begun as of the date of this report, we have not identified the existence of any commercially viable mineral deposits at the Tombstone Property. We are in the process of conducting prospecting and sampling as necessary.

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

The drill program will consist of twenty-three core holes drilled from fifteen distinct drill sites that are 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 will be HQ size and will be drilled using triple tube core technology to assure that the most complete core recovery is achieved. Drill hole spacing will be approximately 100 meters between drill hole sites. The four mineralized zones will be tested over strike lengths ranging from 200 meters to 500 meters.

Eight drill hole sites are planned to have two holes drilled at different angles along the same directions to intercept their targets at different depths. Seven sites will have one hole each. The length of the holes range from 125 meters to 320 meters and vary in inclination from 45° to 90°. The holes are designed to penetrate the target zones below the water level. All available historical data indicates that no mining in the program area was conducted below the water level.

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Revenues

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

Principal Market

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

Seasonality of our Business

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

Sources and Availability of Raw Materials

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

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

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

Competitive Conditions

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

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

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

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

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

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

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

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

Environmental Regulations

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

Governmental Regulations

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

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

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

C.      

Organizational Structure

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

D.      

Property, Plant and Equipment

Our principal executive office is located at 1515 Red Top Rd. P.O. Box 1280, Tombstone, AZ. 85638. We operate out of a mobile facility that is approximately 1,200 square feet and accommodates all operating needs.  The facility is equipped with five (5) offices, a reception area and a conference room.  We own the mobile facility, which is adequate for our current operations. 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.  

Our primary property consists of mineral rights to approximately 13,500 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 approximately 65 miles southeast of Tucson, AZ and is easily accessible by major highways and roads.  An overview map is shown below, followed by a detailed look at the magnitude of the property size compared to the city of Tombstone.  

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The Tombstone Project consists of the following claims:

Arizona Mining Claims Township 20 S Range 22E:

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

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

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

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

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

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

Subdivision Census Id / Block Group / Block / Suffix: Legal Description:	MINERAL RIGHTS 0021003010 PAT MINES TOMBSTONE MNG DIST MINERAL RIGHTS ONLY: MERRIMAC LODE MNG CLAIM MS #53 20.61 AC; CLIPPER LODE MNG CLAIM MS #120 13.41 AC; & RED TOP LODE MNG CLAIM MS #52 20.66 AC ALL IN SEC 16 20 22 TOTAL ACRES MINERAL RIGHTS 54.68 AC
Subdivision Census Id / Block Group / Block / Suffix: Legal Description:	MINERAL RIGHTS 0021003010 PAT MINES TOMBSTONE MNG DIST MAINE 18.33 AC LESS PCL 109-30-001J & TRIPLE X 15.27 AC SEC 16 20 22 MINERAL RIGHTS ONLY TOTAL 33.60 AC MINERAL RIGHTS ONLY 20P/AC
Subdivision Census Id / Block Group / Block / Suffix: Legal Description:	MINERAL RIGHTS 0021003010 PAT MINES TOMBSTONE MNG DIST MINERAL RIGHTS ONLY BROTHER JONATHAN LODE SEC 16 17.28 AC; LOWEL LODE MS #797 SEC 17 20.59 ACALL IN T20 R22 TOTAL ACRES MINDERAL RIGHTS 37.87 AC
Subdivision Census Id / Block Group / Block / Suffix: Legal Description:	MINERAL RIGHTS 0021003010 PAT MINE TOMBSTONE MNG DIST MINERAL RIGHTS ONLY MAY PAT MINE MS #317 SEC 16 20 22 TOTAL ACRES MINERAL RIGHTS 19.43 AC SITE VAL

Industry of Interest

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

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

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

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

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

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

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

The Tombstone Property

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

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

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

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

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

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

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

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

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

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

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

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

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

Stratigraphy

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

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

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

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

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

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

Description of Claims

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

Permitting

Preparation of the Arizona Department of Water Resources Notice of Intent to Drill and Abandon an Exploration/Specialty Well permit documents is complete.  

Development Strategy & Plan of Operations for the Next Twelve Months

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

1.

Property holdings and potential.

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

2.

Location

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

3.

Metal diversity

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

4.

Cost of development and operation

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

22

Historical product prices

23

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, 2007 and 2006 should be read in conjunction with our financial statements and related notes included in this Report. Our financial statements included in this Report were prepared in accordance with United States generally accepted accounting principles.

A.

Operating Results

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

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

For the years ended December 31, 2007 and 2006, we did not receive any revenue from various mining claims and properties.

24

During the year ended December 31, 2007 we had a net loss of $3,213,209 ($0.11 per share) compared to $4,277,579 ($1.02 per share) for the year ended December 31, 2006. The net loss for the year ended December 31, 2007 was attributed to $1,214,450 of general and administrative expenses, $500,000 of management fees, $555,648 of consulting expense, and an impairment of our mineral properties of $900,000.  The net loss for the year ended December 31, 2006 was attributed to stock-based compensation of $4,952,286 related to the fair value of the granting of 8,000,000 share purchase warrants, general and administrative expenses of $72,391, consulting services of $60,000, and were offset by gains on settlement of debt of $834,390 which was due in large part to the settlement of $951,000 of litigation claims with cash payment of $100,000,  

During the year ended December 31, 2007, we incurred $119,217 of professional fees compared with $25,792 for the year ended December 31, 2006.  The increase in professional fees is attributed to the fact that the Company incurred more professional fees related to the increased activity of share issuances and due diligence regarding the acquisition of the mineral properties.  

B.

Liquidity and Capital Resources

Since our incorporation, we have financed our operations almost exclusively through the sale of our common shares to investors. As we are now focusing on mining exploration with no producing resource properties, we do not generate operating income or cash flow from our business operations. Until a significant body of ore is found, our working capital requirements are not significant, and we expect to continue to finance operations through the sale of equity in fiscal 2008. 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, 2007, we had cash on hand of $252,718 compared with $42,981 as at December 31, 2006.  The increase in cash was attributed to the issuance of a private placement in October 2007 of 2,500,000 common shares at $0.20 per common share for net proceeds of $500,000; Liabilities consisted of accounts payable and related party payables totaling $122,199 compared with $49,149 as at December 31, 2006.

Authorized share capital consists of an unlimited number of voting common shares as of the date of filing of this filing, 36,970,865 common shares are issued and outstanding.

Application of Critical Accounting Policies

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

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

C.     

Research and Development, Patents and Licenses, etc.

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

D.     

Trend Information

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

E.     

Off-Balance Sheet Arrangements

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

25

F.     

Tabular Disclosure of Contractual Obligations

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

G.

Safe Harbor

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

ITEM 6.

Directors, Senior Management and Employees

A.

Directors and Senior Management

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

Name Office Held Age	Area of Experience and Functions in Our Company
Alan M. Brown CEO, CFO, Director & President 44	As President, Chief Executive Officer, Chief Financial Officer and director, Mr. Brown is responsible for the development of our strategic direction and the management and supervision of our overall business.

B.

Compensation

During the fiscal year ended December 31, 2007, the aggregate remuneration paid to directors in their capacity as directors of our company was $NIL. Consulting fees totaling $NIL worth of our securities were paid to directors and officers.

Executive Compensation

The following table provides a summary of compensation paid by us during the fiscal year ended December 31, 2007 to our chief executive officer who received a salary of $120,000:

SUMMARY COMPENSATION TABLE
Name and Principal Position	Year	Annual Compensation			Long Term Compensation		All other Compen- sation (2)
		Salary	Bonus	Other Annual Compen- sation	Securities Under Options/ SARs Granted	Shares or units subject to resale restrictions.
Alan M. Brown CEO and Director	2007 2006	$120,000(1) $60,000	NIL NIL	NIL NIL	NIL NIL	NIL NIL	$12,000

(1)

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

(2)

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

26

C.

Board Practices

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

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

D.     

Employees

As of July 14, 2008, we have twelve (12) employees. We do not have any relationship with any labor unions.

E.     

Share Ownership

There were 36,970,865 Common Shares issued and outstanding as of July 14, 2008. Of the shares issued and outstanding, our directors and officers owned the following Common Shares:

Name	Number of Common Shares Beneficially Owned as of July 14, 2008 (1) (2)	Percentage
Alan M. Brown	7,023,051	13.58%

(1)

Based on 36,970,865 Common Shares Issued and Outstanding as at July 14, 2008.

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

Stock Option Plan

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

ITEM 7.

Major Shareholders and Related Party Transactions

A.      Major Shareholders

The following table sets forth, as of July 1, 2008, the following are known to us to be the beneficial owner of more than five (5%) of our Common Shares:

Name of Shareholder	No. of Common Shares Owned	Percentage of Outstanding Common Shares(1)
Alan M. Brown	7,023,051	13.58%

(1)

Based on 36,970,865 Common Shares issued and outstanding as at July 14, 2008.

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

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

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

B.

Related Party Transactions

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

C.     

Interests of Experts and Counsel

Not Applicable

ITEM 8.

FINANCIAL INFORMATION

A.

Financial Statements And Other Financial Information

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

Legal Proceedings

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

Dividends

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

B.

Significant Changes

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

ITEM 9.

The Offer and Listing

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

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

Year	High	Low
2003	1.35	.15
2004	6.75	.39
2005	3.55	.20
2006	1.00	.12
2007	.75	.16

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Period	High	Low
First Quarter 2006	.56	.12
Second Quarter 2006	1.00	.14
Third Quarter 2006	.67	.19
Fourth Quarter 2006	.80	.28
First Quarter 2007	.75	.34
Second Quarter 2007	.55	.27
Third Quarter 2007	.34	.20
Fourth Quarter 2007	.45	.20

Month	High	Low
Jan. 2008	.32	.16
Feb. 2008	.35	.22
March 2008	.39	.26
April 2008	.26	.15
May 2008	.37	.20
Through June 13, 2008	.36	.28

The shares of the Company commenced trading on the NASD over the counter Bulletin Board on July 14, 1999.

Markets

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

ITEM 10.

Additional Information

A.

Share Capital

Not Applicable.

B.

Articles of Incorporation & By-Laws

Directors

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

(1)	Subject to the provisions of any unanimous shareholder agreement, the remuneration of the directors may from time to time be determined by the directors themselves, and such remuneration may be in addition to any reimbursement for travel and other expenses.
(2)	The directors may, at their discretion and subject to the provisions of any unanimous shareholder agreement or By-Laws or the CBCA, authorize the Company to borrow any sum of money or incur indebtedness for the purpose of the Company and may raise or secure the repayment of such sum of money in such manner and upon such terms and conditions as the directors think fit.
(3)	There are no provisions with respect to the retirement of a director or the non-retirement of a director under an age requirement.
(4)	A director is not required to hold a share in the capital of our Company as qualification for his office.

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

29

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 then votes cast at a meeting of the shareholders of our company or consented to in writing by each of our shareholders) of our company's shareholders in order to effect any of the following changes:

(1)

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

(2)

create new classes of shares;

(3)

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

(4)

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

(5)

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

(6)

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

(7)

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

(8)

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

(9)

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

(10)

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

30

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’s and meetings. Apart from the timing of when an AGM must be held and the percentage of shareholders required to call a AGM or EGM, there are generally no material differences between Canadian and United States law respecting AGMs and EGMs.

Rights to Own Securities

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

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

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

31

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

Change in Control

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

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

Ownership Threshold

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

Changes in the Capital of our Company

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

C.

Material Contracts

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

(1)

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

(2)

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

(3)

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

(4)

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

(5)

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

(6)

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

(7)

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

32

(8)

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

(9)

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

(10)

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

A summary of each financing transaction is set forth below:

(i)

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

(ii)

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

(iii)

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

(iv)

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

(11)

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

(12)

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

(13)

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

(14)

On October 10, 2007, the Company issued 2,500,000 units (each a "Unit") to 25 individuals/entities due to the closing of the Company's private placement at $0.20 per Unit for total gross proceeds of $500,000. Each Unit consists of one share of common stock of the Company and one-half of one share purchase warrant, with each whole warrant entitling the holder to purchase one additional share of common stock of the Company at $0.40 per warrant share for a period of three years. The Company believes that the issuances are exempt from registration under Regulation S promulgated under the Securities Act of 1933, as amended (the "Act"), as such securities were issued to the individuals/entities through an offshore transaction which was negotiated and consummated outside of the United States.

(15)

On December 31, 2007, the Company received an advance of $90,578 form a shareholder, this amount is non-interest bearing, unsecured and due upon demand.  

(16)

On June 27, 2008, the Company issued 2,000,000 units (each a "Unit") to 27 individuals/entities due to the closing of the Company's private placement at $0.20 per Unit for total gross proceeds of $400,000. Each Unit consists of one share of common stock of the Company and one-half of one share purchase warrant, with each whole warrant entitling the holder to purchase one additional share of common stock of the Company at $0.40 per warrant share for a period of three years. The Company believes that the issuances are exempt from registration under Regulation S promulgated under the Securities Act of 1933, as amended (the "Act"), as such securities were issued to the individuals/entities through an offshore transaction which was negotiated and consummated outside of the United States.

33

D.

Exchange Controls

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

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

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

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

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

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

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

E.     

 Taxation

Canadian Federal Income Taxation

We consider that the following summary fairly describes the principal Canadian federal income tax consequences applicable to a holder of our common shares who at all material times deals at arm’s length with our company, who holds all common shares as capital property, who is resident in the United States, who is not a resident of Canada and who does not use or hold, and is not deemed to use or hold, his common shares of our company in connection with carrying on a business in Canada (a “non-resident holder”). It is assumed that the common shares will at all material times be listed on a stock exchange that is prescribed for purposes of theIncomeTax 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 prosp ective 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.

34

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.

35

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 t rusts, 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.

36

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 los ses are deductible against ordinary income annually. In the case of individuals and other non-corporate taxpayers, capital losses that are not currently deductible may be carried forward to other years. In the case of corporations, capital losses that are not currently deductible are carried back to each of the three years preceding the loss year and forward to each of the five years succeeding the loss year.

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

Other Considerations for U.S. Holders

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

Foreign Personal Holding Company

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

37

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.

F.     

Dividends and Paying Agents

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

G.

Statement By Experts

The financial statements of our company as of December 31, 2007 and 2006 included in this report have been audited by Moore & Associates, Chartered Accountants, and Morgan & Company, Chartered Accountants, respectively, as stated in their reports appearing in this filing and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.  

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

H.

Documents On Display

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

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

I.     

Subsidiary Information

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

38

Item 11.

Quantitative And Qualitative Disclosures About Market Risk

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

Item 12.

Description Of Securities Other Than Equity Securities

Not Applicable.

PART II

Item 13          

Defaults, Dividend Arrearages and Delinquencies.

None

Item 14          

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

Not Applicable

Item 15          

Controls and Procedures

(1)    

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 sole Director, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2007.

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, Mr. Brown 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, 2007.

(2)    

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, 2007 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, 2007, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.

1.   The Company has restated its financial statements for the year ended December 31, 2007, to reflect the valuation of stock-based compensation for the issuance of stock purchase warrants, the fair value of common shares issued to settle debt and services, and revising the amortization expense relating to our capital assets purchased during the year.  Due to this material weakness, management has concluded that the controls over accounting for share based payments 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. A material weakness in the period-end financial reporting process could result in the Company not being able to meet its regulatory filing deadlines and, if not remediated, has the potential to cause a material misstatement or to miss a filing deadline in the future.

39

2.   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. This was evidenced by a significant number of adjustments noted resulting in the restatement of our financial statements for the year ended December 31, 2007.  

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

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, 2007 based on criteria established inInternal Control—Integrated Frameworkissued 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

(3)    Changes in Internal Controls.     During the period ended December 31, 2007, 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, 2007, the Company has 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]

A.     

Audit Committee Financial Expert

Not Applicable

B.     

Code of Ethics

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

C.     

Principal Accountant Fees and Services

The aggregate fees billed by the Company’s external auditors in each of the last two 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)
2006	$	7,500	$	0	$	0	$	0
2007	$	10,000	$	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.

40

(4) The aggregate fees billed for products and services other than as set out under the headings ‘‘Audit Fees’’, ‘‘Audit Related Fees’’ and ‘‘Tax Fees’’.

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

D.     

Exemptions from the Listing Standards for Audit Committees.

Not Applicable

E.     

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

Not Applicable

PART III

Item 17.

Financial Statements

Balance sheets of the Company as at December 31, 2007 and 2006, and the Statements of Operations and Stockholders Equity (Deficiency) and Cash Flows for each of the years ended December 31, 2007, and for the period from re-entry into the Development Stage January 1, 2006 to December 31, 2007.

Item 18.

Financial Statements

Not Applicable.

Item 19.

Exhibits

Exhibits Required by Form 20-F

Exhibit
Number	Description
1.	Articles of Incorporation and By-laws:
1.1	Certificate of Incorporation under the Canada Business Corporations Act dated October 30, 1997.*
1.2	Articles of Incorporation.*
1.3	By-Laws.*
1.4	Certificate of Name Change dated September 20, 2004.*
3.25	Code of Ethics.*
4.	Material Contracts
4.1	Agreement between the Company and Scott Doiron dated April 12, 2000.*
4.2	Agreement between the Company and Mediapros, LLC dated April 12, 2000.*
4.3	Lease Indenture Agreement dated March 15, 2000 between the Company and Firwood Land & Trading Company Limited.*
4.4	Asset Acquisition Agreement by and between the Company and VCL Shareholders dated October 15, 2001.*
4.5	Settlement Agreement with Cavio dated May 17, 2002.*

41

4.6	Purchase and Sale Agreement with Hawkeye Drilling dated March 25, 2003.*
4.7	Securities Purchase Agreement, together with Convertible Note, by and between the Company and Ken Pollinger dated July 28, 2006 in reliance upon the exemption from securities registration afforded by §4(2) of the Securities Act of 1933, as amended (the “Securities Act”).*
4.8	Securities Purchase Agreement, together with Convertible Note, by and between the Company and Tom Reid dated July 28, 2006 in reliance upon the exemption from securities registration afforded by §4(2) of the Securities Act.*
4.9	Securities Purchase Agreement, together with Convertible Note, by and between the Company and John Doria dated July 28, 2006 in reliance upon the exemption from securities registration afforded by §4(2) of the Securities Act.*
4.10	Securities Purchase Agreement, together with Convertible Note, by and between the Company and Clavca Investment Corp. dated July 28, 2006 in reliance upon the exemption from securities registration afforded by §4(2) of the Securities Act.*
4.11	Settlement Agreement with David Sams, Inc. dated August 4, 2006.*
4.12	Asset Acquisition Agreement between Pure Capital Incorporated and Redhawk Exploration and Mining, Inc. dated November 27, 2006.*
4.13	Escrow Agreement between Pure Capital Incorporated and Redhawk dated November 27, 2006.*
4.14	Common Stock Purchase Warrant by and between the Company and Alan M. Brown dated November 29, 2006.*
4.15	Business Development Agreement by and between the Company and Performance Capital Corporation, effective November 1, 2006.*
4.16	Convertible Promissory Note dated January 2007 by and between the Company and Performance Capital Corporation.*
4.17	Form of Stock Purchase Agreement for series of transactions that closed on December 20, 2006.  Please refer to the Form 6-K filed on February 8, 2007.*
4.18	Acquisition Agreement dated February 27, 2007 by and between the Company and Donald Heck.*
4.19	Form of Securities Purchase Agreement by and between the Company and Nicholas L. Scheidt dated May 2, 2007 for $50,000 of common stock at $0.10 per share in reliance upon the exemption from securities registration afforded by §4(2) of the Securities Act.*
4.20	Employment Agreement by and between the Company and Alan Brown dated May 31, 2007, effective as of May 1, 2007.*
4.21	Form of Subscription Agreement and Form of Warrant for Private Placement that closed in October 2007.*
4.22	Form of Subscription Agreement and Form of Warrant for Private Placement that closed in June 2008.*
99.1	National Instrument 43-101 Technical Report, Tombstone Silver Exploration Property, Cochise County, Arizona filed on May 8, 2008.*
12.1	Certification of Chief Executive Officer of the Company required by rule 13A-14(A) or rule 15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2	Certification of Chief Financial Officer of the Company required by rule 13A-14(A) or rule 15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Previously filed.

42

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 11th day of February, 2009

43

Tombstone Exploration Corporation

(An Exploration Stage Company)

December 31, 2007

Index

Report of Independent Auditor

F-1

Balance Sheets

F-2

Statements of Operations

F-3

Statements of Cash Flows

F-4

Statement of Stockholders’ Deficit

F-5

Notes to the Financial Statements

F-6

F-1

MOORE & ASSOCIATES, CHARTERED

           ACCOUNTANTS AND ADVISORS

PCAOB REGISTERED

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Tombstone Exploration Corporation

(An Exploration Stage Company)

We have audited the accompanying restated consolidated balance sheets of Tombstone Exploration Corporation (An Exploration Stage Company) as of December 31, 2007 and December 31, 2006, and the related restated consolidated statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2007 December 31, 2006 and from inception on January 1, 2006 through December 31, 2007. These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.  

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the restated consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tombstone Exploration Corporation (An Exploration Stage Company) as of December 31, 2007 and December 31, 2006, and the related restated consolidated statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2007 December 31, 2006 and from inception on January 1, 2006 through December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

The accompanying restated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company has an accumulated deficit of $16,029,547, which raises substantial doubt about its ability to continue as a going concern.  Management’s plans concerning these matters are also described in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Moore & Associates, Chartered

Moore & Associates, Chartered

Las Vegas, Nevada

February 3, 2009 Restated

6490 West Desert Inn Rd, Las Vegas, NV 89146 (702) 253-7499 Fax (702) 253-7501

F-2

Tombstone Exploration Corporation

(An Exploration Stage Company)

Balance Sheets

(expressed in U.S. dollars)

	December 31, 2007 $	December 31, 2006 $
	(Restated – Note 10)	(Restated – Note 10)
ASSETS
Current Assets
Cash	252,718	42,981
Prepaid Expense	–	476,222
Total Current Assets	252,718	519,203
Capital Assets (Note 4)	85,626	–
Mineral Properties	–	900,000
Total Assets	338,344	1,419,203
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts Payable	31,621	11,659
Due to Related Parties (Note 8)	90,578	37,490
Total Liabilities	122,199	49,149
Stockholders’ Equity
Common Stock Authorized: unlimited common shares, with no par value Issued and outstanding: 36,645,865 and 18,377,865 common shares, respectively	11,250,850	9,156,550
Additional Paid-In Capital (Note 6)	4,994,842	5,029,842
Accumulated Deficit	(8,538,759)	(8,538,759)
Accumulated Deficit During the Exploration Stage	(7,490,788)	(4,277,579)
Total Stockholders’ Equity	216,145	1,370,054
Total Liabilities and Stockholders’ Equity	338,344	1,419,203

Going Concern (Note 1)

Restatement (Note 10)

Subsequent Events (Note 11)

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

F-3

Tombstone Exploration Corporation

(An Exploration Stage Company)

Statements of Operations

(expressed in U.S. dollars)

	For the Year Ended December 31, 2007	For the Year Ended December 31, 2006	Accumulated from January 1, 2006 (Date of Inception) to December 31, 2007
	$	$	$
	(Restated – Note 10)	(Restated – Note 10)	(Restated – Note 10)
Revenue	–	–	–
Expenses
Consulting Services	555,648	60,000	615,648
Foreign Exchange Loss (Gain)	(79,659)	1,500	(78,159)
General and Administrative	1,214,450	72,391	1,286,841
Impairment of Mineral Properties (Note 3)	900,000	–	900,000
Management Fees	500,000	–	500,000
Professional Fees	119,217	25,792	145,009
Stock-Based Compensation (Note 5)	–	4,952,286	4,952,286
Total Expenses	3,209,656	5,111,969	8,321,625
Other Income (Expenses)
Gain (Loss) on Forgiveness of Debt (Note 6)	–	834,390	834,390
Interest Expense	(3,553)	–	(3,553)
Loss from Continuing Operations	(3,213,209)	(4,277,579)	(7,490,788)
Discontinued Operations	–	–	(8,538,759)
Net Loss	(3,213,209)	(4,277,579)	(16,029,547)
Net Loss Per Share – Basic and Diluted	(0.11)	(1.02)
Weighted Average Shares Outstanding	29,770,000	4,203,000

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

F-4

Tombstone Exploration Corporation

(An Exploration Stage Company)

Statements of Cash Flows

(expressed in U.S. dollars)

	For the Year Ended December 31, 2007	For the Year Ended December 31, 2006	Accumulated from January 1, 2006 (Date of Inception) to December 31, 2007
	$ (Restated – Note 10)	$ (Restated – Note 10)	$ (Restated – Note 10)
Operating Activities
Net Loss For The Year	(3,213,209)	(4,277,579)	(7,490,788)
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization Expense	21,402	–	21,402
Common stock issued for services	774,300	32,418	806,718
Common stock issued for management fees	500,000	–	500,000
Impairment of Mineral Properties	900,000	–	900,000
Gain on Forgiveness of Debt	–	(834,390)	(834,390)
Stock-Based Compensation	–	4,952,286	4,952,286
Changes in operating assets and liabilities:
Prepaid Expenses	76,222	–	76,222
Accounts Payable	19,962	(157,628)	(137,666)
Net Cash Used In Operating Activities	(921,323)	(284,893)	(1,206,216)
Investing Activities
Acquisition of Mineral Properties	–	(100,000)	(100,000)
Purchase of capital assets	(107,028)	–	(107,028)
Net Cash Used in Investing Activities	(107,028)	(100,000)	(207,028)
Financing Activities
Proceeds from issuance of common shares	885,000	100,000	985,000
Proceeds from related parties, net	353,088	327,758	680,846
Net Cash Provided By Financing Activities	1,238,088	427,758	1,665,846
Increase (Decrease) in Cash	209,737	42,865	252,602
Cash – Beginning of Period	42,981	116	116
Cash – End of Period	252,718	42,981	252,718
Supplemental Disclosures
Interest paid	–	–	–
Income tax paid	–	–	–
Non-Cash Investing and Financing Activities
Cancellation of common shares	(400,000)	(20,756)
Common shares issued to acquire mineral properties	–	800,000
Common shares issued to settle debt	300,000	300,378
Common shares issued for finders fees	35,000	–
Common shares issued for prepaid services	–	476,222

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

F-5

Tombstone Exploration Corporation.

Statement of Stockholders’ Equity

From January 1, 2006 to December 31, 2007

(expressed in U.S. dollars)

	Common Stock		Additional Paid-In Capital	Accumulated Deficit	Accumulated Deficit During the Exploration Stage	Total
	Shares	Par Value
	#	$	$	$	$	$
Balance – January 1, 2006 (Date of Inception)	1,568,324	7,468,288	56,800	(8,538,759)	–	(1,015,171)
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	–	–	–	–	(4,277,579)	(4,277,579)
Balance – December 31, 2006 (Restated – Note 10)	18,377,865	9,156,550	5,029,842	(8,538,759)	(4,277,579)	1,370,054
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	–	–	–	–	(3,213,209)	(3,213,209)
Balance – December 31, 2007 (Restated – Note 10)	36,645,865	11,250,850	4,994,842	(8,538,759)	(7,490,788)	216,145

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

F-6

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Financial Statements

(expressed in U.S. dollars)

1.

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 o perations.

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 Statement of Financial Accounting Standard (“SFAS”) No.7,Accounting and Reporting by Development Stage Enterprises.  

These 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, 2007, the Company had an accumulated deficit of $16,029,547. 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 financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classif ication 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.  

2.

Summary of Significant Accounting Policies

a)

Basis of Presentation

These 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 Company’s fiscal year-end is December 31.

b)

Use of Estimates

The preparation of these 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 financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the valuation of its mineral properties, and deferred income tax asset valuation allowances. The Company bases its estimates 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 expe rienced 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-7

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Financial Statements

(expressed in U.S. dollars)

2.

Summary of Significant Accounting Policies (continued)

c)

Basic and Diluted Net Income (Loss) Per Share

The Company computes net income (loss) per share in accordance with SFAS No. 128, "Earnings per Share". SFAS No. 128 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.

d)

Comprehensive Loss

SFAS No. 130, “Reporting Comprehensive Income,” establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at December 31, 2007 and 2006, the Company did not record any items relating to comprehensive loss.

e)

Financial Instruments

The fair value of financial instruments which include: cash, accounts payable, and amounts due to related parties were estimated to approximate their carrying value due to the immediate or relatively short maturity of these instruments.

f)

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 SFAS No. 52 “Foreign Currency Translation” 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 financials statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

g)

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, 2007, the Company had no cash equivalents.

h)

Capital Assets

Capital assets 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	20% declining balance
Property and Equipment	20% declining balance

i)

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.

F-8

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Financial Statements

(expressed in U.S. dollars)

2.

Summary of Significant Accounting Policies (continued)

j)

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 SFAS No. 109 “Accounting for Income Taxes” as of its inception. Pursuant to SFAS No. 109 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.

k)

Revenue Recognition

The Company will recognize revenue from referral fees in accordance with Securities and Exchange Commission Staff Bulletin No. 104 (“SAB 104”),“Revenue Recognition in Financial Statements”. Revenue will be recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is provided, and collectibility is assured. For the year ended December 31, 2007 and 2006, the Company did not record any revenues.

l)

Stock-Based Compensation

The Company records stock-based compensation in accordance with SFAS No. 123R “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.

m)

Recent Accounting Pronouncements

In March 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment to FASB Statement No. 133”.  SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.  It is effective for financial statements issued for fiscal years beginning aft er November 15, 2008, with early adoption encouraged.  The adoption of this statement is not expected to have a material effect on the Company's financial statements.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations”.  This statement replaces SFAS 141 and defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS 141R requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date. SFAS 141R also requires the acquirer to recognize contingent consideration at the acquisition date, measured at its fair value at that date. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's financial s tatements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements Liabilities –an Amendment of ARB No. 51”.  This statement amends ARB 51 to establish accounting and reporting standards for the Noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's financial statements.

F-9

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Financial Statements

(expressed in U.S. dollars)

2.

Summary of Significant Accounting Policies (continued)

m)

Recent Accounting Pronouncements (continued)

In February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115”.  This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities” applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provision of SFAS No. 157, “Fair Value Measurements”. The adoption of this statement is not expected to have a material effect on the Company's financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. The objective of SFAS 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007. The adoption of this statement is not expected to have a material effect on the Company's future reported financial position or results of operations.

n)

Recently Adopted Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R)”. This statement requires employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. The provisions of SFAS No. 158 are effective for employers with publicly traded equity securities as of the end of the fiscal year ending after De cember 15, 2006. The adoption of this statement did not have a material effect on the Company's future reported financial position or results of operations.

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,“Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statements No. 109”. FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing a two-step method of first evaluating whether a tax position has met a more likely than not recognition threshold and second, measuring that tax position to determine the amount of benefit to be recognized in the financial statements. FIN 48 provides guidance on the presentation of such positions within a classified statement of financial position as well as on derecognition, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of this statement did not have a material effect on the Company's future reported financial position or results of operations.

o)

Reclassification

Certain reclassifications have been made to the prior period’s financial statements to conform to the current period’s presentation.

F-10

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Financial Statements

(expressed in U.S. dollars)

3.

Mineral Properties

On November 27, 2006, the Company entered into an Asset Acquisition Agreement (the “Agreement”) with Redhawk Exploration and Mining, Inc. to acquire 100% interest in mineral claims located near Tombstone, Arizona.  Based on the terms in the Agreement, the Company acquired the mineral properties in exchange for fair value of $900,000, comprised of cash payment of $100,000 (paid) and the issuance of 8,000,000 common shares of the Company, with an agreed fair value of $0.10 per common share (issued).  During the year ended December 31, 2007, the Company impaired the $900,000 acquisition cost of the mineral properties as the Company cannot support the fair value of the mineral properties.  As at December 31, 2007, the mineral property claims and permits are in good standing.

4.

Capital Assets

			Net Book Value
	Cost $	Accumulated Amortization $	December 31, 2007 $	December 31, 2006 $
Furniture and Fixtures	69,585	13,913	55,672	–
Property and Equipment	37,443	7,489	29,954	–
	107,028	21,702	85,626	–

5.

Common Shares

a)

In November 2007, the Company cancelled 4,000,000 common shares of the Company with a fair value of $400,000 for the cancellation of the business development agreement signed in November 2006.  Refer to Note 5(i).  

b)

In November 2007, the Company issued 3,043,000 common shares of the Company with a fair value of $304,300 to settle debt of $300,000 and for consulting services valued at $4,300.  

c)

In October 2007, the Company issued 2,500,000 common shares of the Company at $0.20 per common share for gross proceeds of $500,000 in a private placement financing.  In addition, the Company issued 175,000 common shares of the Company valued at $35,000 as finders’ fees.  

d)

In June 2007, the Company issued 5,000,000 common shares of the Company at $0.10 per common share in accordance with the signed management agreement, with a fair value of $500,000 to the President of the Company as part of the management agreement.  

e)

In June 2007, the Company issued 1,700,000 common shares of the Company at $0.10 with a fair value of $170,000 to various consultants to satisfy consulting services and agreements valued at $170,000.  

f)

In May 2007, the Company issued 3,850,000 common shares of the Company to two investors at $0.10 per common share for proceeds of $385,000.  

g)

In March 2007, the Company issued 5,000,000 common shares of the Company at $0.10 per common share with a fair value of $500,000 to consultants for consulting services valued at $400,000 and fair value of professional fees valued at $100,000.  

h)

In March 2007, the Company issued 1,000,000 common shares of the Company with a fair value of $100,000 to consultants for consulting services valued at $100,000.  

f)

In November 2006, the Company issued 710,780 common shares of the Company at $0.10 per common share, or fair value of $71,078 to settle debt of $32,078, resulting in a loss on settlement of $39,000.  The fair value of the common shares was based on assigned values determined by management which is consistent with historical common share issuances of the Company.    

F-11

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Financial Statements

(expressed in U.S. dollars)

5.

Common Shares (continued)

g)

In November 2006, the Company issued 762,220 common shares of the Company at $0.10 per common share, or fair value of $76,222 to consultants for services with a fair value of $76,222.  As these services are to be performed in future fiscal periods, and the amount has been recorded as prepaid expenses.  Refer to Note 4.  

h)

In November 2006, the Company issued 8,000,000 common shares with a fair value of $0.10 per common share, or $800,000, to acquire mineral claims located near Tombstone, Arizona.  Refer to Note 3.

i)

In November 2006, the Company issued 4,000,000 common shares of the Company with a fair value of $400,000 as compensation for the business development agreement with a third-party consulting company for future business development concepts.  As at December 31, 2006, the amount has been recorded as prepaid expense.

j)

In October 2006, the Company cancelled 207,562 common shares of the Company with a fair value of $20,756.  

k)

In October 2006, the Company issued 2,240,000 common shares of the Company at $0.10 per common share, with a fair value of $224,000 to settle debt of $224,000.    

l)

In October 2006, the Company issued 1,000,000 common shares of the Company at $0.10 per common share for gross proceeds of $100,000.  

m)

In January 2006, the Company issued 304,103 common shares of the Company with a fair value of $30,410 to settle debt of $44,300 and professional fees of $15,000, resulting in a gain on settlement of $28,890.  

6.

Share Purchase Warrants

In October 2007, the Company issued 1,337,500 share purchase warrants as part of the private placement, as noted in Note 5(d) above.  Each warrant allows the warrant holder to purchase one additional common share of the Company at $0.40 per common share within three years of the signed private placement date.  As at December 31, 2007, no share purchase warrants have been exercised.

During the year ended December 31, 2007, the Company issued the following share purchase warrants:

		Number of Warrants		Exercise Price
Balance – December 31, 2006		8,000,000	$	0.10
	Issued	1,337,500	$	0.40
Balance – December 31, 2007		9,337,500	$	0.14

As at December 31, 2007, the following share purchase warrants were outstanding:

Number of Warrants		Exercise Price	Expiry Date
8,000,000	$	0.10	November 29, 2008
1,337,500	$	0.40	October 3, 2010
9,337,500

On September 12, 2008, the Company cancelled the 8,000,000 share purchase warrants that were issued to the President of the Company.  Refer to Note 11.  

F-12

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Financial Statements

(expressed in U.S. dollars)

7.

Gain (Loss) on Forgiveness of Debt

a)

In November 2006, the Company issued 710,780 common shares of the Company with a fair value of $71,078 to settle debt of $32,078, resulting in a loss on settlement of $39,000.  

b)

On August 3, 2006, the Company entered into a Release and Debt Settlement Agreement (the “Agreement”) with various creditors in relation to debt obligations owed by the Company.  Based on the Agreement, the Company settled $951,808 of contingent liabilities and accrued interest with a cash settlement of $100,000, resulting in a gain on settlement of $851,808.

c)

During the year ended December 31, 2006, the Company issued 277,180 common shares of the Company at $0.10 per common share or $27,718 to settle outstanding accounts payable of $44,300, resulting in a gain on settlement of $21,582.   

8.

Related Party Transactions

a)

As at December 31, 2007, the Company owes $90,578 (2006 - $37,490) to a shareholder of the Company for financing of day-to-day operations.  The amounts owing are unsecured, non-interest bearing, and due on demand.  

b)

In June 2007, the Company issued 5,000,000 common shares of the Company at $0.10 per common share, with a fair value of $500,000, to the President of the Company as part of the management agreement.  Refer to Note 11.  

c)

In November 2006, the Company issued 8,000,000 share purchase warrants to the President of the Company.  Each warrant allows the President of the Company to purchase one additional share of the Company at an exercise price of $0.10 per share over the next two years.  Refer to Note 6.  

9.

Income Taxes

The Company has adopted the provisions of SFAS 109,“Accounting for Income Taxes”. Pursuant to SFAS 109 the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefit of net operating losses have not been recognized in the financial statements because the Company cannot be assured that it is more likely than not that it will utilize the net operating losses carried forward in future years. The Company has $858,021 of net operating losses to carryforward to offset taxable income in future years which expire through fiscal 2027. For the years ended December 31, 2007 and 2006, the valuation allowance established against the deferred tax assets increased by $802,132 and $55,889, respectively.

The components of the net deferred tax asset at December 31, 2007 and 2006, the statutory tax rate, the effective tax rate and the amount of the valuation allowance are indicated below:

	December 31, 2007 $	December 31, 2006 $
Income (Loss) Before Taxes	(3,213,209)	(4,277,579)
Statutory rate	35%	35%
Computed expected tax recovery	(1,124,623)	(1,497,153)
Non-deductible expenses	322,491	1,441,264
Change in valuation allowance	802,132	55,889
Reported income taxes	–	–

F-13

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Financial Statements

(expressed in U.S. dollars)

9.

Income Taxes (continued)

	December 31, 2007 $	December 31, 2006 $
Deferred tax asset
- Cumulative net operating losses	858,021	55,889
- Less valuation allowance	(858,021)	(55,889)
Net deferred tax asset	–	–

The Company has incurred operating losses of $858,021 which, if unutilized, will expire through to 2027. Future tax benefits, which may arise as a result of these losses, have not been recognized in these financial statements, and have been offset by a valuation allowance. 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	55,889	2026
December 31, 2007	802,132	2027
	858,021

10.

Restatement

The Company has restated its financial statements as at and for the years ended December 31, 2007 and 2006. The financial statements have been restated to reflect the impairment of mineral property acquisition costs, allocation of operating expenses based on revision of inception date of the Company, the issuance of 8,000,000 share purchase warrants, and the issuance of common shares to settle debt and consulting services that were previously omitted.    

December 31, 2007

During the year ended December 31, 2007, the following adjustments were accounted for as part of the restatement of the audited financial statements:

·

Impairment of mineral properties based on the fact that the Company was unable to obtain a third-party valuation that indicated the valuation of the mineral properties.  This resulted in a decrease in total assets of $900,000 and an increase in net loss of $900,000;

·

Revision of the date of inception from March 2003 to January 2006 based on guidance from SFAS 7, which resulted in a reclassification of amounts incurred during this period to discontinued operations.  This resulted in a reclassification of $8,538,759 of accumulated deficit during the exploration stage to be reclassified as accumulated deficit on both the balance sheet, statement of operations, and statement of stockholders’ equity;  

·

Reclassification of cumulative translation adjustment of $78,159 into foreign exchange gain (loss).  This resulted in a decrease in cumulative translation adjustment, and a decrease in accumulated deficit during exploration stage of $78,159, and a decrease in net loss of $79,659;

·

Recording of the fair value of 5,000,000 common shares issued for consulting fees and professional fees with a fair value of $500,000.  This resulted in an increase to common shares of $500,000 and an increase in net loss of $500,000;

F-14

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Financial Statements

(expressed in U.S. dollars)

10.

Restatement (continued)

·

Recording of the fair value of 5,000,000 common shares issued for management fees with a fair value of $0.10 per common share or $500,000.  This resulted in an increase to common shares of $500,000 and an increase in net loss of $500,000;

·

Reclassification of the fair value of 175,000 common shares issued for finders’ fees of $35,000 from consulting expense to additional paid-in capital.  This resulted in a decrease in additional paid-in capital of $35,000 and a decrease in net loss of $35,000;

·

Revision of amortization expense of the Company’s capital assets to appropriate capital asset policy.  This resulted in a decrease in property and equipment of $10,700 and an increase in net loss of $10,700; and

·

Effects of the December 31, 2006 adjustments, as noted below.  

The effect of the restatement is to decrease total assets and total stockholders’ equity as at December 31, 2007 by $904,320, increase net loss for the year ended December 31, 2007 by $1,789,661, and increase accumulated deficit as at December 31, 2007 by $6,760,865.  

a)

Balance Sheet

	As at December 31, 2007
	As Reported	Adjustment	Restated
	$	$	$
Assets
Capital Assets	96,326	(10,700)	85,626
Mineral Properties	893,620	(893,620)	–
Total Assets	1,242,664	(904,320)	338,344
Stockholders’ Equity
Common Stock	10,254,188	996,662	11,250,850
Additional Paid-In Capital	56,800	4,938,042	4,994,842
Cumulative Translation Adjustment	78,159	(78,159)	–
Accumulated Deficit	–	(8,538,759)	(8,538,759)
Accumulated Deficit during Exploration Stage	(9,268,682)	1,777,894	(7,490,788)
Total Stockholders’ Equity	1,120,465	(904,320)	216,145
Total Liabilities and Stockholders’ Equity	1,242,664	(904,320)	338,344

b)

Statement of Operations

- Year Ended December 31, 2007

	For the Year Ended December 31, 2007
	As Reported	Adjustment	Restated
	$	$	$
Expenses
Consulting Expense	190,648	365,000	555,648
Foreign Exchange Loss (Gain)	–	(79,659)	(79,659)
General and Administrative	1,210,130	4,320	1,214,450
Impairment of Mineral Properties	–	900,000	900,000
Management Fees	–	500,000	500,000
Professional Fees	19,217	100,000	119,217
Total Expenses	1,419,995	1,789,661	3,209,656
Net Loss	(1,423,548)	(1,789,661)	(3,213,209)
Net Income (Loss) Per Share – Basic and Diluted	(0.07)	(0.04)	(0.11)

F-15

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Financial Statements

(expressed in U.S. dollars)

10.

Restatement (continued)

c)

Statement of Operations – Accumulated from Date of Inception

	Accumulated from January 1, 2006 (Date of Inception) to December 31, 2007
	As Reported	Adjustment	Restated
	$	$	$
Expenses
Consulting Services	2,541,905	(1,926,257)	615,648
Foreign Exchange Loss (Gain)	–	(78,159)	(78,159)
General and Administrative	1,495,350	(208,509)	1,286,841
Impairment of Mineral Properties	–	900,000	900,000
Management Fees	–	500,000	500,000
Professional Fees	218,605	(73,596)	145,009
Stock-Based Compensation	–	4,952,286	4,952,286
Total Expenses	4,255,860	4,065,765	8,321,625
Other Income (Expense)
Gain on Forgiveness of Debt	851,808	(17,418)	834,390
Impairment of Asset	(545,072)	545,072	–
Interest Expense	(539,492)	535,939	(3,553)
Loss from Continuing Operations	(4,488,616)	(3,002,172)	(7,490,788)
Discontinued Operations	(4,780,066)	(3,758,693)	(8,538,759)
Foreign Currency Translation Adjustment	78,159	(78,159)	–
Net Loss	(9,268,682)	(6,760,865)	(16,029,547)

d)

Statement of Cashflows – Year Ended December 31, 2007

	For the Year Ended December 31, 2007
	As Reported	Adjustment	Restated
	$	$	$
Operating Activities
Net Loss for the Year	(1,423,548)	(1,789,661)	(3,213,209)
Amortization Expense	10,702	10,700	21,402
Common stock issued to settle debt and services	325,000	449,300	774,300
Common stock issued for management fees	–	500,000	500,000
Impairment of Mineral Properties	–	900,000	900,000
Changes in operating assets and liabilities
Prepaid Expenses	–	76,222	76,222
Net Cash Provided By (Used In) Operating Activities	(1,067,884)	146,561	(921,323)
Investing Activities
Acquisition of Mineral Properties	(10,000)	10,000	–
Net Cash Used in Investing Activities	(117,028)	10,000	(107,028)
Financing Activities
Proceeds from issuance of common stock	889,300	(4,300)	885,000
Proceeds from related parties, net	409,310	(56,222)	353,088
Net Cash Provided by Financing Activities	1,298,610	(60,522)	1,238,088
Effect of Exchange Rate Changes on Cash	96,039	(96,039)	–

F-16

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Financial Statements

(expressed in U.S. dollars)

10.

Restatement (continued)

e)

Statement of Cashflows – Accumulated from Date of Inception

	Accumulated from January 1, 2006 (Date of Inception) to December 31, 2007
	As Reported	Adjustment	Restated
	$	$	$
Operating Activities
Net Loss for the Year	(4,488,616)	(3,002,172)	(7,490,788)
Amortization Expense	11,303	10,099	21,402
Common Stock Issued for Services	2,827,065	(2,020,347)	806,718
Common Stock Issued for Management Fees	–	500,000	500,000
Discontinued Operations	25,308	(25,308)	–
Impairment of Mineral Properties	546,474	353.526	900,000
Gain on Forgiveness of Debt	(851,808)	17,418	(834,390)
Stock-Based Compensation	–	4,952,286	4,952,286
Change in operating assets and liabilities
Accounts Receivable	31,508	(31,508)	–
Prepaid Expenses	–	76,222	76,222
Accounts Payable	65,687	(203,353)	(137,666)
Net Cash Used in Operating Activities	(1,833,079)	626,863	(1,206,216)
Investing Activities
Acquisition of Mineral Properties	(175,072)	75,072	(100,000)
Net Cash Used in Investing Activities	(282,100)	75,072	(207,028)
Financing Activities
Proceeds from Issuance of Common Shares	1,272,600	(287,600)	985,000
Proceeds from Related Parties, net	1,017,560	(336,714)	680,846
Net Cash Provided by Financing Activities	2,290,160	(624,314)	1,665,846
Effect of Exchange Rate on Changes in Cash	77,737	(77,737)	–

f)

Statement of Stockholders’ Equity

	Balance – December 31, 2007
	As Reported	Adjustment	Restated
	$	$	$
Common Stock	10,254,188	996,662	11,250,850
Additional Paid-In Capital	56,800	4,938,042	4,994,842
Other Comprehensive Income (Loss)	78,159	(78,159)	–
Accumulated Deficit	–	(8,538,759)	(8,538,759)
Accumulated Deficit during Exploration Stage	(9,268,682)	1,777,894	(7,490,788)

F-17

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Financial Statements

(expressed in U.S. dollars)

10.

Restatement (continued)

December 31, 2006

During the year ended December 31, 2006, the following adjustments were accounted for as part of the restatement of the audited financial statements:

·

Recording of the stock-based compensation expense, using the Black-Scholes Option Pricing Model, relating to the issuance of 8,000,000 share purchase warrants.  The effect of the adjustment resulted in an increase to additional paid-in capital of $4,952,286 and an increase in net loss of $4,952,286;

·

Revision of the date of inception from March 2003 to January 2006 based on guidance from SFAS 7, which resulted in a reclassification of amounts incurred during this period to discontinued operations.  This resulted in a reclassification of $8,538,759 of accumulated deficit during the exploration stage to be reclassified as accumulated deficit on both the balance sheet, statement of operations, and statement of stockholders’ equity;  

·

Reclassification of cumulative translation adjustment of $1,500 into foreign exchange gain (loss).  This resulted in an increase to cumulative translation adjustment, a increase in accumulated deficit during exploration stage of $1,500, and an increase in net loss of $1,500;

·

Recording of the cancellation of 207,563 common shares, resulting in a decrease of common shares of $207,56 and an increase in additional paid-in capital of $20,756;

·

Recording of the fair value of a business development agreement of $400,000 that was settled by the issuance of 4,000,000 common shares of the Company.  The effect of the adjustment resulted in an increase of prepaid expense of $400,000 and an increase in common shares of $400,000;

·

Settlement of $44,300 of outstanding debt by the issuance of 227,180 common shares with a fair value of $0.10 per common share, or $22,718.  The effect of the adjustment resulted in a decrease in common shares of $21,582 and an decrease in net income of $21,582 resulting from the gain on settlement on debt; and

·

Recording of the issuance of 1,473,000 common shares at $0.10 per common share or fair value of $147,300 to settle debt to related parties of $2,783, outstanding third-party debt of $29,295, and recording of prepaid consulting expenses of $76,222.  The effect of the adjustment increased prepaid expenses by $76,222, decrease amounts due to related parties of $32,078, increase net loss by $39,000 for the loss on settlement of debt, and increase common shares by $147,300.  

The effect of the restatement is to increase total assets and total liabilities and stockholders’ deficit as at December 31, 2006 by $476,222, increase loss from continuing operations, and net loss for the year ended December 31, 2006 and accumulated from January 1, 2006 (Date of Inception) to December 31, 2006 by $4,277,579 and to increase the net loss per share – basic and diluted for the year ended December 31, 2006 by $1.12.

F-18

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Financial Statements

(expressed in U.S. dollars)

10.

Restatement (continued)

a)

Balance Sheet

	As at December 31, 2006
	As Reported	Adjustment	Restated
	$	$	$
Assets
Prepaid Expenses	–	476,222	476,222
Total Assets	942,981	476,222	1,419,203
Liabilities
Due to Related Parties	69,568	(32,078)	37,490
Total Liabilities	81,227	(32,078)	49,149
Stockholders’ Equity
Common Stock	8,651,588	504,962	9,156,550
Additional Paid-In Capital	56,800	4,973,042	5,029,842
Cumulative Translation Adjustment	(1,500)	1,500	–
Accumulated Deficit	–	(8,538,759)	(8,538,759)
Accumulated Deficit during Exploration Stage	(7,845,134)	3,567,555	(4,277,579)
Total Stockholders’ Equity	861,754	508,300	1,370,054
Total Liabilities and Stockholders’ Equity	942,981	476,222	1,419,203

b)

Statement of Operations

	For the Year Ended December 31, 2006
	As Reported	Adjustment	Restated
	$	$	$
Operating Expenses
Foreign Exchange Loss (Gain)	–	1,500	1,500
Stock-Based Compensation	–	4,952,286	4,952,286
Total Operating Expenses	158,183	4,953,786	5,111,969
Other Income (Expense)
Gain on Forgiveness of Debt	851,808	(17,418)	834,390
Loss from Continuing Operations	693,625	(4,971,204)	(4,277,579)
Net Loss	693,625	(4,971,204)	(4,277,579)
Net Income (Loss) Per Share – Basic and Diluted	0.10	(1.12)	(1.02)

c)

Statement of Cashflows

	For the Year Ended December 31, 2006
	As Reported	Adjustment	Restated
	$	$	$
Operating Activities
Net Loss for the Year	693,625	(4,971,204)	(4,277,579)
Common Stock Issued to Settle Debt	–	32,418	32,418
Gain on Forgiveness of Debt	(851,808)	17,418	(834,390)
Stock-Based Compensation	–	4,952,286	4,952,286
Change in Operating Assets and Liabilities
Accounts Payable	(151,820)	(5,808)	(157,628)
Net Cashflows Used in Operating Activities	(310,003)	25,110	(284,893)
Financing Activities
Proceeds from Issuance of Common Stock	383,300	(283,300)	100,000
Proceeds from Related Parties, net	69,568	258,190	327,758
Net Cashflows Provided by Financing Activities	452,868	(25,110)	427,758

F-19

Tombstone Exploration Corporation

(An Exploration Stage Company)

Notes to the Financial Statements

(expressed in U.S. dollars)

10.

Restatement (continued)

d)

Statement of Stockholders’ Equity

	Balance – December 31, 2006
	As Reported	Adjustment	Restated
	$	$	$
Common Stock	8,651,588	504,962	9,156,550
Additional Paid-In Capital	56,800	4,973,042	5,029,842
Accumulated Deficit	–	(8,538,759)	(8,538,759)
Accumulated Deficit during Exploration Stage	(7,845,134)	3,567,555	(4,277,579)

11.

Subsequent Events

a)

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 consists of one common share of the Company and a share purchase warrant to purchase one-half of one common share of the Company at $0.40 per common share over a three year period from the closing date of the private placement. In addition, the Company issued 140,000 units at a fair value of $28,000 as finders’ fees for the private placement.

b)

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 consists of one common share of the Company and a share purchase warrant to purchase one-half of one common share of the Company at $0.40 per common share over a three-year period from the closing date of the private placement.

c)

In September 2008, the Company cancelled 8,000,000 common shares of the Company that was originally issued to the President of the Company as part of the management agreement signed in May 2007.  

F-20