ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Management's discussion and analysis of financial condition, changes in financial condition and results of operations is provided as a supplement to the accompanying consolidated financial statements and notes to help provide an understanding of the Company's financial condition and results of operations.

Overview

We were formed as a mineral exploration company on January 21, 1998. We are engaged in the acquisition, exploration and development of mineral properties. We focus on gold and base minerals primarily located in the State of Michoacán, Mexico where we own exploration and exploitation concessions to approximately 37,000 contiguous acres of land (the "Solidaridad Property). Mineral exploration requires significant capital and our assets and resources are limited. We have never earned revenue from our operations and have relied on equity and debt financing to fund our operations to date.

We are considered an exploration stage company for accounting purposes because we have not demonstrated the existence of proven or probable reserves. In accordance with accounting principles generally accepted in the United States of America, all expenditures for exploration and evaluation of our properties have been expensed as incurred. Furthermore, unless our mineralized material is classified as proven or probable reserves, substantially all expenditures have been or will be expensed as incurred. Since substantially all of our expenditures to date have been expensed and we expect to expense significant expenditures during the fiscal year 2010, most of our investment in mining properties do not appear as an asset on our balance sheet.

Liquidity and Capital Resources

There is no assurance that commercially viable mineral deposits exist in sufficient amounts in our areas of exploration to justify exploitation. While we have determined the legal feasibility with respect to a small portion of the Solidaridad Property, further exploration will be required before a final evaluation as to the economic and legal feasibility of the entire Solidaridad Property we own can occur. Because we are still in our exploration stage, we have no revenues and have had only losses since our inception. Our plan of operations for the next 12 months is to continue the drilling program and begin a small exploitation program, provided that we receive sufficient funding to do so. We estimate that to begin producing 50 tons per day, we will need approximately $15 million. However, we have made no commitments for capital expenditures over the next 12 months. Our management estimates that approximately $1,800,000 will be required over the next 12 months to maintain our current status. This amount does not include any exploitation or any additional exploration. We estimate these expenses to include approximately $864,000 for salaries, outsourced labor and consulting services, $480,000 for professional services, including work undertaken by the independent accountant and legal fees, $72,000 for rent, maintenance, and utilities, $130,000 for permits and expenses required to maintain our mining rights, $114,000 for taxes and insurance, $120,000 for office expenses, and $20,000 for other miscellaneous expenses, including marketing and investor relations expenses.

Depending on market conditions and the options available to us, we may attempt to enter into a joint venture with an operating company or permit an operating company to undertake exploration work on the Solidaridad Property, or we may seek equity or debt financing (including borrowing from commercial lenders) or we may consider a sale of the Company or its assets.

We do not intend to hire any additional employees at this time. All of the work related to our business will be conducted by our current employees and independent contractors. To the extent we receive funding, this is likely to change.

All of the Company's plans are predicated on the Company's ability to raise sufficient capital to implement and complete such plan, which we cannot assure you will occur in a timely manner, on terms acceptable to the Company, or at all. If we are not able to obtain additional funding, we will not be able to continue our drilling program or execute a small exploitation program.

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Because the exploration phase of our business plan is essentially a research and development activity, the results of our exploration activities will have a significant effect on our future business model. This model can change substantially based upon our exploration activities, liquidity position or other factors. Accordingly, estimating expenditures is an imprecise process, made even more so by the unpredictable nature of our business plan. We believe it would, therefore, not be helpful to estimate beyond the next 12 months. Even these estimates are subject to change depending on our ability to raise additional capital and execute our business plan in accordance with our estimates.

To date, we have raised capital through the sale of shares of our common stock and sales of convertible promissory notes. For the quarter ended August 31, 2009, we raised an additional $330,000 in convertible promissory notes which can be converted into shares of common stock of the Company at the option of the holder or automatically under certain circumstances as described above in Note 3 to the Consolidated Financial Statements. At this time, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock or through sales of additional convertible promissory notes or otherwise to meet our obligations over the next 12 months.

We must obtain additional funding to continue our operations. There can be no guarantee that we will be able to obtain additional funding on terms that are favorable to the Company or at all. As an exploration stage company, the Company has no current ability to generate revenue and no plans to do so in the foreseeable future. Our assets consist of cash, prepaid expenses, nominal equipment and certain mineral property interests. There can be no assurance that we will obtain sufficient funding to continue operations, or if, we do receive funding, to generate revenues in the future or to operate profitably in the future. We have incurred net losses in each fiscal year since inception of our operations. These conditions raise substantial doubt about our ability to continue as a going concern.

As of the fiscal quarter ended August 31, 2009, we had total assets of $369,750 consisting of cash in the amount of $38,993 and various other assets of $330,757.

As of the fiscal quarter ended August 31, 2008, we had total assets of $912,077 consisting of cash in the amount of $658,971 and other various assets totaling $253,106.

Since we do not anticipate generating any revenue for the foreseeable future, we will have to continue to seek additional funding from outside sources. However, we are facing declining and volatile financial markets that may make it difficult to satisfy our need for additional capital to finance our plan of operations for fiscal 2010 through either debt or equity. As a result, we continue to seek appropriate opportunities that are likely to provide the Company with adequate fiscal resources to execute its plan of operations in the current fiscal year and beyond.

Because of the exploratory nature of our current business plan, we anticipate incurring operating losses for the foreseeable future. Our future financial results also are uncertain due to a number of factors, some of which are outside our control. These factors include, but are not limited to:

i. our ability to raise sufficient additional funding;

ii. the results of our proposed exploration programs on the Solidaridad Property; and

iii. assuming significant mineral deposits, our ability to be successful in commercially producing mineral deposits, find joint venture partners for the development of our property interests or find a purchaser for the property interests.

Financial Information for Comparative Three Month Periods Ending August 31, 2009 and 2008.

We did not earn any revenues and have had only losses since our inception, including during the three month periods ending in August 31, 2009 and 2008.

We incurred operating expenses in the amount of $765,688 and $3,366,382 during the quarters ended August 31, 2009 and 2008, respectively. We granted 250,000 shares of common stock in lieu of compensation valued at $75,000 during the quarter ended August 31, 2009 compared to grants of options and stock in lieu of compensation valued at $2,776,150 during the comparable period for 2008.

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The major expenses driving the remaining increase of $100,455 during the quarter ended August 31, 2009 compared to the comparable period for 2008 were increases in professional fees of $239,312 and salaries and related expenses, including directors and officers compensation of $107,069, offset by decreases in geology fees of $167,555 and other expenses such as office, maintenance, insurance and travel of $78,370.

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 resources that is material to investors.

Critical Account Policies and Estimate

The Company has determined from the significant accounting policies disclosed in Note 2 of the Company's financial statements, that the following disclosures are critical accounting policies:

Proven and Probable Reserves

The definition of proven and probable reserves is set forth in SEC Industry Guide 7. Proven reserves are reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established. Probable reserves are reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. In addition, reserves cannot be considered proven and probable until they are supported by a feasibility study, indicating that the reserves have had the requisite geologic, technical and economic work performed and are economically and legally extractable at the time of the reserve determination.

Mine Development Costs

Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, the removal of overburden to initially expose an ore body at open pit surface mines and the building of access ways, shafts, lateral access, drifts, ramps and other infrastructure at underground mines. Costs incurred before the mineralized material is classified as proven and probable reserves are expensed and classified as mine development costs.

Revenue Recognition Policy

Revenue will be recognized when the price is determinable, upon delivery and transfer of title to the customer and when there is a reasonable assurance of collection of the sales proceeds. The Company has not yet entered into any contractual obligation to deliver ore product or finished metals.