Director Compensation for Last Fiscal Year

The Directors receive $500 for each board meeting and $300 for each committee meeting.  During 2004 we deferred $10,600 in board compensation.

Independent Contractor Agreements

Consulting Agreement with Richard Walters

We entered into an Independent Contractor Agreement dated June 30, 2003 for a term of four months with Richard R. Walters, as a consultant. The Agreement was renewed on October 1, 2003 through September 30, 2004.  On November 12, 2004 and again on November 7, 2005, the Agreement was renewed retroactively to October 1, 2004 and October 1, 2005, respectively, by our Board of Directors for an additional one year period under the original terms. The services provided by Mr. Walters include serving as our President and Chief Operating Officer and such other executive management functions as shall be requested by the Board of Directors.  The Agreement renews each year on the anniversary date for a one year term, pending board approval.  Either party may terminate the Agreement upon 15 days written notice. As consideration for performance of the services, we agreed to pay Mr. Walters a fee of $175 per day worked, pro rated for each partial day worked.  Mr. Walters is not an employee.

Mr. Walters is entitled to reimbursement for his expenses, with any expense greater than $1,000 being subject to prior approval by the Compensation Committee.  We may accrue and defer the payment of the fees and/or expenses from time to time until the Compensation Committee determines we have sufficient funds to make payment.  Due to limited cash resources between July 1, 2004 and October 1, 2005, we accrued but did not pay Mr. Walters amounts payable under his contract.  No benefits are provided to Mr. Walters by us other than the compensation for his services.

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Consulting Agreement with Becky Corigliano

We entered into an Independent Contractor Agreement, effective November 1, 2003, with Becky Corigliano as a consultant.  Her consulting services initially were limited to treasurer and corporate secretary functions.  As part of those services, she was the Secretary, Treasurer and Acting Chief Financial Officer.  On March 4, 2004, she became the Chief Financial Officer.  On November 12, 2004 and again on November 7, 2005, the Agreement was renewed retroactively to November 1, 2004 and November 1, 2005, respectively, by the Board of Directors for an additional one year period under the original terms.  The initial term of this Agreement is for a period of one year from the effective date. Either party may terminate the Agreement upon 15 days written notice. As consideration for the performance of the services, we will pay Ms. Corigliano a fee of $150 per day worked, prorated for each partial day worked. We also guarantee a minimum of 10 full days work per month, a minimum monthly payment of $1,500.  Consulting fees shall be accrued only if we at a future date do not have sufficient funds to make payment to Ms. Corigliano.  Thereafter, payment would be subject to the discretion of the Board of Directors.  Ms. Corigliano also will be reimbursed for reasonable expenses previously approved by us.  As additional compensation for the services, we issued 50,000 shares of common stock to Ms. Corigliano in 2003. Ms. Corigliano received an additional 67,103 shares of common stock subsequent to February 26, 2004 as a result of her designation as Chief Financial Officer. The shares issued to her were treasury shares held by us. The shares are subject to the restricted securities requirements of the Securities Act of 1933.  No benefits are provided to Ms. Corigliano by us other than the accrued compensation for her services. Ms. Corigliano is not an employee.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial ownership of shares of our common stock as of  December 29, 2005 by:

-

each person who is known by us to beneficially own more than 5% of our issued and outstanding shares of common stock;

-

our named executive officers;

-

our directors; and

-

all of our executive officers and directors as a group.

(1)

Calculated based on 16,833,420 shares of common stock issued and outstanding as of December 29, 2005.

(2)

Includes 5,000 shares of common stock acquirable upon exercise of vested options exercisable before March 3, 2014.

(3)

Includes 50,000 shares of common stock acquirable upon exercise of vested options exercisable December 31, 2014.

(4)

Includes shares of common stock acquirable upon exercise of vested options exercisable described in footnotes (2) and (3), above.

(5)

RAB Special Situations (Master) Fund Limited is organized under the laws of the Cayman Islands.  The shareholder holds 6% convertible debentures in the principal amount of $1,000,000 convertible into 5,000,000 common stock at $0.20 per share and Class A Warrants exercisable to acquire 2,500,000 shares of common stock at $0.30 per share before November 20, 2008.  The 6% convertible debentures and the Class A Warrants contain provisions that limit the selling shareholder’s beneficial ownership in the class of common stock of Little Squaw to 9.99%.  See, information related to selling shareholders above.

(6)

Includes  1,881,875 shares of common stock and  200,000 shares of common stock acquirable upon exercise of Warrants.

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We have no knowledge of any other arrangements, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of our company.

We are not, to the best of our knowledge, directly or indirectly owned or controlled by another corporation or foreign government.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Related Transactions

On January 21, 2005, we separately had related party transactions with William Orchow, a director, Wilbur G. Hallauer and another shareholder in which these parties advanced an aggregate amount of $100,000 to us for operating capital purposes.  The advances were evidenced by six month promissory notes payable on demand with accrued interest at 6% per annum.  We had the right, any time prior to their maturity date on July 20, 2005, and without notice, to convert the Notes into restricted shares of our common stock and warrants.  The initial conversion rate was $0.30 per share and included one warrant per share initially at $0.45.  The exercise price of the warrants escalated to $0.55 and $0.75 in the second and third year from the date of issue.  No payable demand was made, and the notes matured on July 20, 2005, where upon we requested of all note holders an extension of the term of the notes.  All parties to the notes agreed to extend the term of the Notes for an indefinite period until we had the financial resources to repay them.  In connection with the agreement to extend the term of the Notes the parties also agreed that the interest rate on the notes would increase from 6% to 12%. At September 30, 2005, we had accrued $3,000 of interest related to the Notes, which was subsequently paid.  On October 18, 2005 a principal payment of $25,000 plus interest due was paid on one of the convertible promissory notes in the amount of $50,000 leaving a total balance due of $75,000.  On December 20, 2005, the remaining balance of $75,000 and two months interest was paid on the convertible promissory notes.

Equity Compensation Plan Information

At a special meeting of shareholders originally convened December 19, 2003, then adjourned until January 23, 2004, the shareholders voted to adopt the Little Squaw Gold Mining Company 2003 Share Incentive Plan.  The Plan permits the grant of nonqualified stock options, incentive stock options and shares of common stock to participants of the Plan.  The purpose of the Plan is to promote our success and enhance the value of our assets by linking the personal interests of the participants to those of our shareholders, by providing participants with an incentive for outstanding performance.  Pursuant to the terms of the Plan, 1,200,000 shares authorized but unissued common stock were reserved for issue.  Options granted to participants under the Plan must be exercised no later than the tenth employment anniversary of the participant.  Eligible participants in the Plan include our employees, directors and consultants.

In November 2005 our Board of Directors ratified changes to the Plan that brought it into compliance with new IRS laws (principally Code 409A) that require companies to recognize the fair market value of stock options and other share based payments awarded to employees and associates as compensation expense.  The new law becomes effective for us on January 1, 2006.  Any new shares issued under our Plan will be based on their then current market price or higher.  The Plan is now referred to as the Restated 2003 Share Incentive Plan.

During 2004, 620,000 shares of common stock and options to purchase common stock were issued under the original Plan.  No shares have been issued under the restated Plan.

As of December 29, 2005, securities authorized for issuance under our original 2003 Share Incentive Plan, approved by the shareholders, as equity compensation were as follows:

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DESCRIPTION OF SECURITIES

Little Squaw Gold Mining Company is authorized to issue 200,000,000 shares of common stock, $0.10 par value, and 10,000,000 shares of preferred stock,  no par value.  

Common Stock

Each holder of our common stock is entitled to one vote per share in the election of directors and on all other matters submitted to the vote of shareholders. No holder of our common stock may cumulate votes in voting for our directors.

Subject to the rights of the holders of any our preferred stock that may be outstanding from time to time, each share of our common stock will have an equal and ratable right to receive dividends as may be declared by the our board of directors out of funds legally available for the payment of dividends, and, in the event of liquidation, dissolution or winding up of our corporation, will be entitled to share equally and ratably in the assets available for distribution to our shareholders.  No holder of our common stock will have any preemptive right to subscribe for any of our securities.

Our common stock is quoted on the NASD Over-the-Counter Bulletin Board under the trading symbol “LITS.OB.”

Preferred Stock

Our directors are authorized by our Articles of Incorporation to issue, by resolution and without any action by our shareholders, up to 10,000,000  shares of preferred stock, no par value , in one or more series, and our directors may establish the designations, dividend rights, dividend rate, conversion rights, voting rights, terms of redemption, liquidation preference, sinking fund terms and all other preferences and rights of any series of preferred stock, including rights that could adversely affect the voting power of the holders of our common stock.

One of the effects of undesignated preferred stock may be to enable the board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of our management. The issuance of shares of preferred stock pursuant to the board of directors’ authority described above may adversely affect the rights of holders of common stock. For example, preferred stock issued by us may rank prior to the common stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of common stock. Accordingly, the issuance of shares of preferred stock may discourage bids for the common stock at a premium or may otherwise adversely affect the market price of the common stock.  As of the date of this filing, the directors have not designated any such preferred shares and therefore, no preferred shares are issued or outstanding.

Transfer Agent

The transfer agent and registrar for the our common stock is Columbia Stock Transfer Company, 1602 E. Seltice Way, Suite A PMB#303, Post Falls, ID  83854, U.S.A. Phone: (208) 664-3544; Fax: (208) 777-8998.

THE SEC’S POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Our bylaws provide that directors and officers shall be indemnified by us to the fullest extent authorized by the Alaska Corporations Code Section 490, against all expenses and liabilities reasonably incurred in connection with services for us or on our behalf.  The bylaws also authorize the board of directors to indemnify any other person who we have the power to indemnify under Alaska law, and indemnification for such a person may be greater or different from that provided in the bylaws.

To the extent that indemnification for liabilities arising under the Securities Act may be permitted for our directors, officers and controlling persons, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

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DESCRIPTION OF THE BUSINESS

Overview

We, Little Squaw Gold Mining Company, are engaged in the business of acquiring and exploring mineral properties throughout the Americas, primarily those containing gold and associated base and precious metals. We are incorporated under the laws of the State of Alaska on March 26, 1959.  Our executive offices are located at 3412 S. Lincoln Dr., Spokane, WA 99203, and our phone number there is (509) 624-5831.  

At this time our only property is an exploration stage property in Alaska referred to as the Chandalar property.  The Chandalar property is located approximately 190 air miles NNW of Fairbanks, Alaska, and 48 miles NE of Coldfoot, in the Chandalar mining district.  The center of the district is approximately 70 miles north of the Arctic Circle.  We own in fee 426.5 acres of patented federal mining claims consisting of 21 lode claims, one placer claim and one mill site.  We control an additional  9,566.5 acres of unpatented State of Alaska mining claims consisting of  90 claims.  State mining claims provide exploration and mining rights to both lode and placer mineral deposits.  The claims are contiguous, comprising a block covering  9,993 acres, and are being maintained by us specifically for the possible development of placer and lode gold deposits.  

Map 1 Location of the Chandalar mining district showing principal mines and prospects.

We do not intend to conduct mining operations on our own account at this time.  Rather we plan to undertake cost efficient and effective exploration activities to discover mineralization and potentially mineral reserves, which may upgrade the value of our properties and then joint venture or sell properties to qualified major mining companies.  We intend to focus our activities only on projects that are primarily gold deposits.  

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We are an exploration stage company, and none of the properties that we own or control contain any known ore reserves or mineralized material under the definition of ore reserves within SEC Industry Guide 7.  Although there is a history of past lode and placer production on our Chandalar property, the property is at an early stage of exploration, and the probability that ore reserves that meet SEC guidelines will be discovered on an individual prospect at Chandalar is slight. A great deal of further work is required on our properties before a final determination as to the economic and legal feasibility of a mining venture can be made. There is no assurance that a commercially viable deposit will be proven or probable through the exploration efforts by us at Chandalar.  We cannot assure you that funds expended on our properties will be successful in leading to the delineation of ore reserves that meet the criteria established under SEC guidelines.

Our initial focus is on exploration of our Chandalar property.  The arctic climate limits exploration activities to a summer field season that generally starts in early May and lasts until freeze up in mid-September. There are many operating mines located elsewhere within North America that are located above the Arctic Circle.  Management believes year-round operations at Chandalar are feasible should an exploitable deposit of gold be proven through seasonal exploration and development.

Our Planned Exploration for  2006

To the extent funds are available in  2006 we intend to:

·

Explore the Chandalar property and to find and then acquire additional gold exploration properties of merit.  

·

Complete the seasonal exploration program on the Chandalar property that was recommended by our geologic consultant, focusing on drilling and further exploring the high-grade gold-quartz vein targets that have been identified to date and their associated low-grade aureoles.  Exploration of the potentially significant placer deposits at Chandalar will be a secondary priority.  We intend to  finance this exploration by the sales of our securities.   

·

Acquire additional gold exploration properties in Alaska and elsewhere in the Americas that will allow us to conduct field operations year round.

·

Support state and federal industrial development projects that could bring power and a road into Chandalar.

We currently do not have sufficient capital to complete these planned activities.  Our ability to complete the planned exploration activities for 2006 will be dependent on our ability to raise sufficient capital during the next  six months.  If we are unable to raise sufficient capital, we plan to scale back some or all of these activities and allocate our resources to maintaining our property interests and meeting minimal operating expenses.

Our Property and Projects

Our principal asset is ownership of the Chandalar property, which controls most of a historic mining district known as the Chandalar mining district. It consists of contiguous patented federal mining claims and unpatented State of Alaska mining claims totaling 9,993 acres (15.6 square miles). The patented ground holds the most important of the presently known gold-bearing structures. The Chandalar property is currently at the exploration stage.  The Chandalar district has a history of prior production, but there is no current production, except for some small-scale placer operations by an independent miner, Mr. Delbert Ackels, on inlier claims of our claim block (Map 2).  

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Map 2   Our mining claims in the Chandalar mining district.

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During 2004 we contracted the services of an independent geological consulting company, Pacific Rim Geological Consultants, Inc., of Fairbanks Alaska to review and analyze previous work done on Chandalar. The report was commissioned in February and completed in May, and is titled “Gold Deposits of the Chandalar Mining District, Northern Alaska: An information Review and Recommendations”.  Pacific Rim concluded that the gold mineralization at Chandalar is mesothermal (formed at moderate to high temperatures and moderate to high pressures by deposition from hydrothermal fluids), and largely because of that the property is believed to have multi-million ounce gold discovery potential.  Pacific Rim recommended an initial exploration program to better assess the gold lodes and the placer gold deposits at a cost of about $1.4 million.  

Information contained in this registration statement related to our Chandalar property is derived from the report entitled “Gold Deposits of the Chandalar Mining District, Northern Alaska: An information Review and Recommendations”, by Pacific Rim Geological Consultants, Inc.  The full text of this report  is available for review on our web site: www.littlesquawgold.com.

A preliminary field program to follow up on the work recommended by Pacific Rim was completed in two phases during the 2004 summer field season by James C. Barker, a Certified Professional Geologist licensed to practice in Alaska and under contract to us.  Mr. Barker was one of the two co-authors of the Pacific Rim report.  The 2004 field work and subsequent data analyses and reporting was completed at a cost of about $77,000. A detailed technical description of the activity and results are contained in a December 20, 2004 report by Mr. Barker titled “Summary of Field Investigations 2004”.

The first phase of the exploration program ended a twenty year hiatus of hard rock exploration on the property and involved a photo geologic lineament study, expansion of the claim block to catch outlying vein showings and reconnaissance sampling.  The lineament study identified fifty-nine sites thought to be favorable for discovery of mineralization. The second phase of the 2004 season’s program identified six new gold-bearing quartz veins, bringing the total number of known gold-bearing quartz veins and quartz vein swarms on the Chandalar property to more than  28.  

Mr. Barker was again retained to carry out a surface exploration program during the 2005 summer field season. This program was of a more modest nature than previously because of lack of funds, lasting only the month of July. In all, 189 exploratory samples of stream sediments, soils and rock chip were taken, and a series of ten prospect maps  were upgraded. The results of his work are currently being compiled into a technical report expected to be completed soon.

Depending on our ability to obtain financing we have plans to continue methodical exploration by using geochemical and geophysical surveys over the extensively soil covered terrain, and continue building a suite of exploration drill targets.  

History of Property

Gold was discovered in the Chandalar district in 1904, and over the years various operators have produced about 85,000 ounces of gold mainly from placer deposits, but also from high-grade gold-quartz veins.  We were incorporated in 1959 for the purpose of acquiring the gold mining properties of the Chandalar mining district.  Our operations during the 1960's resulted in the development of a mining camp, a mill, several airstrips, and development of a small amount of ore reserves in underground workings.

In 1972 and 1976, all of the lode mining claims in the Chandalar district were acquired by us except for seven 40-acre unpatented state claims. In 1978, we acquired all of the placer mining claims in the Chandalar district.  During 2003, we purchased the seven 40-acre unpatented state mining claims in exchange for 350,000 shares of our common stock.  In September of 2003 we staked 55 state unpatented mining claims, in 2004 we staked another eight unpatented state mining claims, and in 2005 we staked one more unpatented state mining claim, thereby increasing the total size of our Chandalar property to 9,993 acres (15.6 square miles).

During the 1970's and early 1980’s the lode and placer properties were leased to various parties for exploration and development and gold production. The quartz lodes were last worked from 1970 to 1983, when 9,039 ounces of gold were recovered from the milling of 11,819 tons averaging 1.02 ounces of gold per ton (oz/t Au). The material was extracted from surface and underground workings on three of four mineralized quartz structures lying mostly on the patented federal mining claims owned by us. Recorded placer gold production of the Chandalar district is 76,270 ounces of 845 fine gold.  Our lessees produced 15,735.5 ounces of that total amount of placer gold between 1979 and 1999.  The unpatented claims are located on property that was formerly all owned by the federal government; however, as of 1991, title to all of the properties had been transferred to the State of Alaska, and by that date we had converted all previously held unpatented federal mining claims into unpatented state mining claims.

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In November of 1989 and May of 1990 we entered into a ten year mining lease with Gold Dust Mines, Inc. for all our placer mining interests located on the Big Creek, St. Mary's Creek, Little Squaw Creek, Big Squaw Creek, and Tobin Creek.  The lease provided for annual advance rentals of $7,500 per creek drainage mined plus an 8 percent royalty from placer gold production.  During 1998 and 1999, Gold Dust’s placer mining lease was limited to Big Creek. There was no mining conducted in 2000, 2001, 2002 or 2003.  Since 1999, however, Gold Dust failed to pay the $7,500 annual lease fee on the creek drainage it mined and failed to make the annual rental payments on the state mining claims it was mining on, as required by the mining lease, in all a sum of $32,380. A portion of the 1999 production royalties owed to us in the amount of eleven ounces of gold nuggets was also not paid. In February 2000, the owners of Gold Dust, Mr. & Mrs. Delbert Ackels (guarantors of Gold Dust’s obligations to us) declared a Chapter 7 bankruptcy, which the court discharged in May of 2000. Our mining lease with Gold Dust was the sole asset of Gold Dust.

During the spring of 1990, Gold Dust Mines, Inc. (the lessee) transported about $2.6 million in capital equipment to our Chandalar mining claims over the winter haul road from Coldfoot, located on the Alaska pipeline highway.  This machinery included a large gravity-type alluvial mineral treatment plant (an IHC-Holland wash plant) together with a Bucyrus-Erie dragline, two big Caterpillar tractors, front end loaders, a churn drill and other large pieces of placer gold mining equipment.  During the last part of the 1993 season, Gold Dust Mines moved its placer operations to the Big Creek and St. Mary's Creek drainages.  In 1994, placer mining operations were concentrated on the St. Mary's Creek drainage. During 1995, placer mining operations were conducted on the St. Mary's Creek and Big Creek Drainages. During 1996, a lease amendment was entered into between us, as lessor, and Gold Dust Mines, as lessee, wherein Little Squaw Creek, Big Squaw Creek and Tobin Creek drainages were excluded from the lease. During 1996 to 1999, these placer mining operations were conducted only on the St. Mary’s Creek and Big Creek drainages.

During 1988, a consulting mining engineer was hired to compile historical information on the entire placer and lode district.  His comprehensive report was completed in January 1990, and is available for review by interested persons.  A few conclusions from his report are referred to in this section.  The long term potential for the Chandalar mining district lies in the development of the gold quartz lodes that will initially require a substantial drilling exploration commitment.

In the late summer of 1997, a placer mining lease was executed by us with Day Creek Mining Company, Inc., an Alaskan corporation.  The lease included the placer mining claims only for the Tobin Creek, Big Squaw Creek and Little Squaw Creek drainages. It did not include the Big Creek and St. Mary’s Creek drainages. The lessee was to have performed minimum exploratory drilling during each year of the lease. Only a minimum amount of drilling was performed the first year, with some good results down stream from the Mello Bench on Little Squaw Creek.  Due to lack of financing, the lessee could not comply with the drilling requirements in 1998, and the lease was terminated by us giving a declaration of forfeiture to the lessees in February of 1999. Lessee has not contested the declaration of forfeiture.

We allowed some of our state mining claims on Big Creek and Little Squaw Creek to lapse in 2000 for lack of funds to pay the State of Alaska annual rental fees required to maintain them. The individual who had owned Gold Dust Mines, Inc. (Mr. Ackels) continued to do the annual assessment work on the remaining claims on behalf of us through the year 2002.  In July of 2003, Mr. Ackels located state mining claims on his own behalf in the areas previously vacated by us.  Mr. Ackels’ claims are now inliers to our mining claim block, and he conducts seasonal placer mining operations on those claims, including a significant operation on Big Creek during 2005 which, pending a survey of claim corners, may have encroach on one of our claims. We intend to maintain and, and if needed, defend our claimholder rights.

We did not accomplish any physical work on our Chandalar property during 2003 other than the location of additional state mining claims. All of our state mining claims were maintained in good standing by carrying forward and applying to the 2003/2004 annual state mandated assessment work requirements the value in excess of the minimum annual labor requirements built up from previous years. Dollar value in excess of the required annual amount can be carried forward as a credit for up to four years.

During 2004 we staked additional claims at Chandalar and completed a two phase summer field program, which was conducted by a certified professional geologist who is an independent consultant and licensed to practice in the State of Alaska.  The objective of the field program was to assess the validity of historic records, refine known drilling targets and identify new drilling targets.  Several prospects of previously unevaluated or unknown gold mineralization were found as described below in this document.

During 2005 we staked another claim, and completed a modest prospecting and geologic mapping program, which was limited by our lack of funds.

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Total recorded production from the Chandalar mining district is about 85,000 oz gold, although actual historic production was probably much greater than the recorded production.  Recorded lode gold production from high-grade gold-quartz vein-shear zone deposits is 7,692 oz from the Mikado and Little Squaw Mines combined, and 1,347 oz from the Summit Mine.  A total of 75,636 ounces of gold have came from placer deposits in the Chandalar district.  Most of the placer production was derived from the Big Creek and Little Squaw Creek drainages, with some additional production from the Tobin Creek drainage.

Location and Access

The Chandalar mining District lies north of the Arctic Circle at a latitude of about 67°30'.  The district is about 190 air miles north of Fairbanks and 48 air miles east-northeast of Coldfoot, an important road traffic service center on the Dalton Highway.  The Dalton Highway, which parallels the Trans Alaska Pipeline, is a major highway link to the Prudhoe Bay oil fields on Alaska’s North Slope.

Access to Chandalar is either by aircraft from Fairbanks, or overland during the winter season via a 55-mile-long trail from Coldfoot to Chandalar Lake and then by unimproved road to Tobin Creek on our property.  Multi-engine cargo aircraft can land at the state maintained 4,700 foot airfield at Chandalar Lake or at our 3,700 foot Squaw Lake airstrip.

The Chandalar district is situated in the foothill terrain on the south flank of the Brooks Range where elevations range from 1,900 feet in the lower valleys to just over 5,000 feet on the surrounding mountain peaks. The region has undergone glaciation due to multiple ice advances originating from the north and while no glacial ice remains, the surficial land features of the area reflect abundant evidence of past glaciation.  The district is characterized by deeply incised creek valleys that are actively down-cutting the terrain.  The steep hill slopes are shingled with frost-fractured slabby slide rock, which is the product of arctic climate mass wasting and erosion.  Consequently, bedrock exposure is mostly limited to ridge crests and a few locations in creek bottoms. Vegetation is limited to the peripheral areas at lower elevations where there are relatively continuous spruce forests in the larger river valleys.  The higher elevations are characterized by artic tundra.

Snow melt generally occurs toward the end of May followed by an intensive, though short, 90-day growing season with 24 hours of daylight and daytime temperatures that range from 60-80° Fahrenheit.  Freezing temperatures return in late August and freeze-up typically occurs by early October.  Winter temperatures, particularly in the lower elevations, can drop to -50° F or colder for extended periods.  Annual precipitation is 15-20 inches, coming mostly in late summer as rain and as snow during the first half of the winter. Winter snow accumulations are modest. The area is essentially an arctic desert.

Mining Claims  

At Chandalar, we currently own in fee twenty-one 20-acre patented federal lode claims, one 15-acre patented federal placer claim, and one 5-acre patented federal mill site.  In addition, we hold twenty-six 40-acre unpatented State of Alaska claims lying largely within sixty-four 160 acre unpatented state claims.  The mining claims were located to cover most known gold bearing zones within an area approximately five miles by five miles.  The total land position amounts to  9,993 acres (15.6 square miles) consisting of 426.5 acres of patented claims and 9,566.5 acres of unpatented claims.  The claims are contiguous and form a single block that comprises our only mining property at this time.  

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Map 3 -  Mines and prospects of the Chandalar mining district.

Holders of State of Alaska unpatented mining claims are required to complete a minimum amount of annual labor on each claim and to additionally pay an annual rental on them.  In the case of a claim block or group where the claims are adjacent, the total amount of required annual labor is determined by multiplying the number of claims by the amount required for an individual claim, and the excess value of labor expended on any one or more of the claims can be applied to the labor requirements on the other claims within the block or grouping.  The amount of required annual labor work varies with the size and type of mining claim and the amount of annual rental payable varies with the size, type and age of the claim. Labor expenses in excess of the annual requirement can be carried forward as a credit for up to four years.  However in the case of our Chandalar property, we have chosen to carry forward any excess value credit separately for each of our two types of state claims. Also, the holder of a state mining claim may make a cash payment to the state equal to the value of labor required in lieu of doing the assessment work.

The annual labor requirement for our Chandalar holdings is $100 per 40-acre claim and $400 per 160-acre claim. Currently, the combined annual labor requirement for our claims is $28,200.

In the 2003/2004 assessment year, which ended on August 31, 2004, we spent $46,970 on work that qualified for annual labor requirements. Our combined excess value credit for the two types of claims was  $54,595, with $14,400 expiring on September 1, 2005, $18,425 expiring on September 1, 2006, and $5,073 expiring on September 1, 2008.

In the 2004/2005 assessment year, which ended on August 31, 2005, we spent $73,072 on work that qualified for annual labor requirements. Our combined excess value credit  for the two types of claims was  $88,067, with $18,425 expiring on September 1, 2006, $5,073 expiring on September 1, 2008, and $64,569 expiring on September 1, 2009.

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The annual rental fee for our unpatented state mining claims is $130 for the 40-acre claims and $100 for the 160-acre claims. The total annual rental obligation for the Chandalar property is currently $ 9,780, and the rental fees are fully paid through November 30,  2006.  

The total current annual combined holding fees for our Chandalar property is $ 37,980.  Our private property (patented mining claims) does not lie within any borough and is not subject to any property tax levies.

Our former management hold a mineral production royalty reservation on portions of the Chandalar property.  It is a 2% royalty defined as a gross product royalty on placer gold mining and as a net smelter return on lode mining production.  All of the patented federal mining claims are subject to this royalty as are 19 of the 90 unpatented state mining claims.  The royalty is applicable to about 1,185 acres of the 9,993 acre property.  We have an option agreement to purchase the royalty for a one time cash payment of $250,000.  The option terminates on June 23, 2013, if not exercised on or before that date.

Geology and Previous Exploration and Development

Lode gold occurs at Chandalar as high-grade, low-sulfidation quartz veins within large northwest trending shear zones in Paleozoic schists.  To date more than 30 gold-bearing quartz veins or swarms of gold-bearing quartz veins have been identified on the property.  The quartz veins are classified as being mesothermal of metamorphic orogenic origin.  Mesothermal vein systems commonly have great vertical range, and at Chandalar the vertical extent of the gold mineralization is known to be in excess of 1,500 feet.  The gold-bearing quartz veins are typically one to six feet thick, with exceptional thicknesses of up to twelve feet in parts of the Mikado mine.  Portions of some of the veins where they display a ribbon appearance are very rich and locally contain “bonanza” grades of gold (i.e. grades greater than 1.0 oz Au per ton).   Some of the veins are known to be more than a thousand feet long, and occur intermittently along laterally extensive shear zones; the Mikado shear for example, has been identified over a strike length of six miles. A thick blanket of frozen soil, rock scree and talus and landslides covers an estimated 80% to 90% of the property, largely concealing the gold-quartz veins making their exploration and discovery challenging.

Our patented lode mining claims contain the most important gold-bearing structures in the district, as far as is now known.  Although high-grade gold showings in the Chandalar district have long been recognized in published literature, exploration and development work necessary to establish the extent of mineralization has never been accomplished.  The principal evaluation work done in the past on the lode deposits was done on the Mikado, Summit, Little Squaw, and Eneveloe-Bonanza Mines by lessees in the late 1970’s early 1980’s.  Each of these mines has been minimally developed by several hundred feet of underground workings aggregating almost 2,000 feet in all.  Limited surface work in the past within the district established the existence of gold-bearing zones on other prospects similar to the veins found at these mines.  Sufficient development work has never been accomplished on any of the veins and gold-bearing zones to define  the presence of ore reserves that meet SEC criteria.

Drilling of the veins by previous operators is either extremely limited or, in most cases, non-existent.  A low-grade gold aureole commonly occurs around the high-grade gold-quartz veins where chloritically and sericitically altered rocks contain stockworks of quartz veinlets.  These aureoles, which extend outwards as much as 100 feet, have never been tested for low-grade bulk tonnage mining potential.  We have identified several targets that may host high-grade gold-quartz vein deposits within low-grade bulk tonnage deposits, and substantial drilling and engineering work will be required to determine if such potential deposits exist in commercially viable quantities.

2004 Field Program

During the 2004 summer field season we conducted a two phase reconnaissance surface and underground sampling program on the Chandalar property. A deep soil sampling technique developed by us was employed to identify gold anomalies that may reflect hidden gold-quartz veins.  The highlight of the first phase was the re-discovery of the historic Pioneer prospect.  The Pioneer quartz vein is partially exposed in some old trenches and prospect pits. The Pioneer prospect, which is associated with a major shear zone at least three miles long, contains very high-grade gold values of unknown extent.  A channel sample across the vein assayed 2.30 ounces of gold per ton over a width of 2.5 feet.  

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During the second phase of the 2004 program two previously unknown prospects containing six gold-quartz veins were discovered. The Table on page 34 corresponding to Map 3 contains some summary gold assay information for each of the 28 prospects on our Chandalar property, plus five historic mine sites.  As exploration progresses, we expect to find additional gold-quartz veins and mineralized structures under the extensive soil and landslide debris covering the property.

The 2004 summer field program was augmented by a structural geology study of the Chandalar district using existing high altitude aerial photography. The study was done by BlueMap Geomatics Ltd. located in Vancouver, British Columbia. The gold bearing quartz veins on the property occur within large shear zones or faults that form lineaments, and major structural intersections may be a controlling factor in the emplacement of the gold mineralization. BlueMap Geomatics identified numerous pronounced linears that they interpreted to represent deep-seated faults. This work was useful in defining sites for follow up exploration in 2005 that resulted in new prospects (Rock Glacier and Prospector East.)

A summary description of the principal mines and prospects examined during the 2004 summer field season is represented in the Table on page 34. The samples described in the paragraphs below and in the prospect descriptions and in the Table were collected by us unless otherwise indicated.  The samples typically consist of five to seven pounds of rock fragments collected on the surface or on the dumps of old workings or from within old prospect pits.  Each sample consists of between twelve and twenty dollar size rock chips or fragments. The sampled material is primarily of vein quartz or rocks containing quartz veinlets.  The samples were assayed by ALS Chemex USA Inc. in Sparks, Nevada using fire assays with a gravimetric finish for gold.  (ALS Chemex operates under ISO certification and is a global provider of assays to mineral exploration and mining companies.) The samples are preliminary and strictly of a reconnaissance nature.  In many cases the samples were not taken across the full width of the quartz veins, and therefore the samples do not represent a quantitative measurement of the gold content of the veins, nor should they be interpreted to indicate that mineralization is present in a quantity and grade that would represent an economically viable ore deposit.  Substantial additional sampling and geological and engineering work would have to be completed to confirm the presence of proven and probable reserves that meet SEC standards, and no assurance can be given that any such reserves will eventually be defined.  Soil samples taken by us and reported below are strictly of a reconnaissance nature.  The soil samples were taken by hammering a hollow steel pipe (split set rock bolt) about five feet into the ground. Then material from the last one to two feet inside the pipe was collected and submitted to ALS Chemex for geochemical analysis using atomic adsorption methods.  

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TABLE OF THE MINES AND PROSPECTS OF OUR  HOLDINGS IN THE CHANDALAR MINING DISTRICT

Values shown in this column include only samples collected by us in 2004 as channel samples or representative chip samples.   Assays performed by ALS Chemex

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Summary of Prospects

Set forth below is a summary of our material prospects.

Little Squaw Vein: This gold-quartz vein is partially explored by trenches and two short tunnels decades old. According to records in our possession, previous operators defined an existing shoot of mineralized material containing approximately 2,000 tons at a grade of 1.55 oz Au/t. A  reconnaissance sample taken by us from a quartz vein exposed in one of the trenches assayed 5.24 oz Au/t. Channel sampling by us in a tunnel below that trench yielded 19.98 oz Au/t over 3.54 feet of true width. This sample run includes a 0.84 foot interval of “ribbon quartz” that assays 89.12 oz Au/t with 15.85 oz Au/t. Another channel sample of this ribbon quartz taken ten feet farther along in the tunnel assayed 5.16 oz Au/t over 0.85 feet. The ribbon quartz derives its appearance from lenticular seams of dark colored iron sulfides and mica minerals within white quartz.  We have concluded that the previously defined shoot of mineralized material is open to expansion by drilling, and we believe that previous operators may have underestimated the gold grade of the shoot because of technical difficulties in properly sampling zones within the quartz vein that contain wires and nuggets of native gold.

Crystal Prospect:  In 1909 four tons of ore were extracted from an 8-foot-deep shaft driven into an 8-foot-wide quartz vein that was processed in a crude (three-stamp) mill.  Historic records in our possession show that the four tons assayed 47.08 oz Au/t.  The location of the Crystal Prospect was uncertain until we re-discovered it this year.  The old shaft and associated trenches are completely sloughed in, but a set of veins can be traced over a strike length of at least 400 feet.  Thick soil cover hampered efforts to find the limits of the veins.  The main quartz vein is at least 5-to-6 feet thick, and a channel sample taken by us of  a 0.67-foot-thick footwall portion of ribbon quartz assayed 3.64 oz Au/t. The Crystal vein appears to be very similar to the Little Squaw vein located along strike projection 1.5 miles away, but a correlation cannot be established because the intervening area is entirely covered.  Extensive dozer trenching and soil sampling is planned to define the lateral extensions and possible linkage of these veins.

McLellan Prospect: This area contains a swarm of 5 previously unreported quartz veins that are poorly exposed,  that we have traced for a distance of at least 1,000 feet along strike.  Ribbon quartz has so far been found associated with two of the veins. The ribbon quartz characteristically weathers recessively because of the effect of decomposing sulfide minerals, and it is typically not exposed without trenching.  A reconnaissance sample  of this material gathered from the surface by us assayed 1.10 oz Au/t.  The McLellan Prospect is located about 1,500 feet from the Crystal Prospect, and we believe that it may be a faulted offset of the Crystal vein.  Follow-up soil sampling and trenching is planned at the McLellan Prospect.

Pioneer Prospect:  The Pioneer quartz vein, which saw limited development in the early 1900’s, is partially exposed in old trenches and prospect pits.  The Pioneer prospect contains very high-grade gold values of undetermined extent, but it is associated with a major shear zone that is at least three miles long.  A channel sample collected by us across the vein assayed 2.30 oz Au/t over a width of 2.5 feet, and another channel sample of a 3-foot-wide quartz vein taken 35 feet along strike from the first channel sample assayed 0.82 oz Au/t.  Six anomalous soil samples taken by us from a depth of 4 to 5 feet along the soil covered projections of the vein average 0.260 parts per million (ppm) gold and are interpreted to indicate the possible presence of  a buried vein extending outward from both ends of the trench, suggesting a possible vein strike length in excess of 1,500 feet with at least 150 feet of vertical relief exposed.  Additional soil sampling and dozer trenching are planned to further define drilling targets at the Pioneer prospect.

Prospector East Prospect: Mineralization detected at this prospect is unusual for the Chandalar district because the prospect is characterized by high silver values relative to gold.  It is located on north side of the property in low hills where few other veins have been found, probably because of thick soil cover.  Two  reconnaissance samples collected by us from the dump of an old caved tunnel assayed 23.8 oz Ag/t, 0.08 oz Au/t and 11.7 % Pb, and the other sample assayed 5.5 oz Ag/t, 0.09 oz Au/t and 2.2% Pb.  The vein appears to be about 3 feet thick and is exposed in some old prospect pits over a strike length of 400 feet.  So far, we have not been able to collect channel samples directly from the vein.  The results of the dump samples can only be interpreted as an indication that important mineralization is present.  Highly anomalous values in bismuth, silver and lead, along with the absence of zinc give this prospect a very distinct geochemical signature, which may be indicative of district scale metal zoning.  Follow up trenching and soil sampling are planned.

Rock Glacier Prospect: A jumbled mass of ice bound soil, cobbles and boulders exceeding a million tons contains abundant rubble of vein quartz fragments that are  highly anomalous in gold.   Assays of eleven rock chip reconnaissance samples taken by us that were collected randomly of numerous quartz cobbles and boulders average 2.71 ppm gold, and the average geochemical assay of three the soil samples taken by us of material binding the slide material is 0.48 ppm gold.  The rock glacier originates in a large meadow about a thousand feet up a mountainside.  Soil samples taken in this source area show strong gold anomalies indicating buried mineralized quartz veins.  An extensive soil sampling program is planned in this area, and geophysical techniques, such as ground magnetics and induced potential, may be useful to trace the veins below the thick cover.

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Uranus Prospect: A series of previously unreported and closely spaced gold-quartz veins was found high on a ridge opposite the Rock Glacier Prospect.  Random chips of decomposed mineralized quartz are strewn in discrete streaks over the ground. A reconnaissance sample of this material taken by us assayed 1.47 oz Au/t.  The mineralized zone is of unknown width as there is no exposed bedrock, making this prospect especially intriguing for further exploration.

Big Tobin Prospect: Soil sampling has revealed an important set of mineralized shears in the Big Tobin area.  They are important because they strike northeast in contrast to all other known mineralized structures, and they trend directly toward the Mikado gold deposit about 1,000 feet away.  The projected structural intersection is a target that merits additional follow-up work.

Mikado Mine: Records in our possession indicate that this mine has produced about 10,000 tons at an average grade of one ounce of gold per ton. Twenty-five-year-old mining engineering records show that significant un-mined mineralized material remains in the portion of the mine that was previously developed but that is now caved in.  The previously mined vein carried extraordinary grades in some places.  Two reconnaissance rock samples collected by us gathered from the mine dump in 2004 assayed 23.28 oz Au/t with 5.24 oz Ag/t and 1.57 oz Au/t with 0.83 oz Ag/t.  Our consulting geologists have concluded that there are at least two shoots of strongly mineralized material which are open to extension at depth, and we intend to test these possible extensions by drilling during the 2006 field program.

Our Chandalar mining claims cover all or major portions of three main drainages and lesser parts of a fourth drainage that radiate from the areas in which the gold-bearing quartz veins and associated shear zones are located. They include most of the areas where placer mining operations occurred in the past, as well as substantial portions of these drainages that have never been mined.  The placer gold deposits in the Chandalar district are characterized by high-grade concentrations of native gold that occur in multiple horizons in second and third order streams in the vicinity of auriferous quartz lodes.  At least 76,000 ounces of gold are known to have been produced from four placer deposits at Chandalar, with recovery of some nuggets, the largest of which was 10.6 ounces according to records in our possession.  The placer gold deposits were exploited by both open-cut and underground drift mining methods limited to unconsolidated but frozen gravels.  Limited drilling by previous operators indicates that certain areas on the property, especially along Little Squaw and Big Squaw Creeks have potential for the discovery of significant quantities of placer gold.  Substantial drilling and engineering work will be required to determine if such potential deposits exist in commercially viable quantities.

Progress was made during the 2004 and 2005 summer field seasons in defining geological features helpful in planning future drilling campaigns.  The discovery of hydrothermal alteration haloes that envelop locations of strong gold mineralization within the major shear zones may be significant.  We are methodically building a considerable suite of substantive drilling targets on the Chandalar property.  The drill targets include both high-grade underground deposits and targets for lower-grade deposits amenable to surface bulk methods, as well as for significant placer gold deposits.  We do not currently have sufficient funds to undertake such drilling programs, and there is no assurance any efforts by us to raise those funds during the next six months will be successful.

Risks Related to the Chandalar Project

Competition

There is aggressive competition within the minerals industry to discover and acquire properties considered to have commercial potential.  We compete for the opportunity to participate in promising exploration projects with other entities, many of which have greater resources than us.  In addition, we compete with others in efforts to obtain financing to acquire, explore and develop mineral properties.

Employees

We have no employees. We have always relied on contracting our management and administrative personnel needs.  Two part-time consultants provide management services for us under contracts that will expire on January 31, 2006, when they are scheduled for renewal reviews by the Compensation Committee of our board of directors..

Regulation

Our activities in the United States are subject to various federal, state, and local laws and regulations governing prospecting, development, production, labor standards, occupational health and mine safety, control of toxic substances, and other matters involving environmental protection and taxation.  It is possible that future changes in these laws or regulations could have a significant impact on our business, causing those activities to be economically reevaluated at that time.

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Environmental Risks

Minerals exploration and mining are subject to potential risks and liabilities associated with pollution of the environment and the disposal of waste products occurring as a result of mineral exploration and production. Insurance against environmental risk (including potential liability for pollution or other hazards as a result of the disposal of waste products occurring from exploration and production) is not generally  available  to us (or  to  other  companies  in  the  minerals  industry)  at  a reasonable price.  To the extent that we become subject to environmental liabilities, the remediation of any such liabilities would reduce funds otherwise available to us and could have a material adverse effect on  our financial condition.  Laws and regulations intended to ensure the protection of the environment are constantly changing, and are generally becoming more restrictive.

Our Chandalar property contains an inactive small mining mill site withl tailings impoundments, last used in 1983. A December 19, 1990 letter from the Alaska Department of Environmental Conservation (“Alaska D.E.C.”) to the Division of Mining of the Department of Natural Resources (“Alaska D.N.R.”) states: ”Our samples indicate the tailings impoundments meet Alaska D.E.C. standards requirements and are acceptable for abandonment and reclamation.” The Alaska DNR conveyed acknowledgement of receipt of this report to us in a letter dated December 24, 1990.  We subsequently reclaimed the tailings impoundments, and expect that no further remedial action will be required. Concerning a related matter, the Alaska D.E.C. has identified a small area of low-level mercury contamination in a graveled staging area next to the mill and has designated it to be a medium priority assessment site in its state contaminated sites database. We have accrued a $50,000 expense liability to execute a remediation plan proposed by us and approved by the Alaska D.E.C. (See note 6 to our audited consolidated financial statements in our 10KSB/A for the year ended December 31, 2004). Other than this minor mercury contamination, we know of no matters of concern to the Alaska D.E.C. regarding our and our predecessors’ exploration and production activities on the properties.

Title to Properties

Our only mining property (Chandalar) lies on Alaska state land, except for the patented mining claims owned by us. The major portion of our property consists of State of Alaska unpatented mining claims. The validity of unpatented state mining claims is often uncertain, and such validity is subject to contest. Unpatented mining claims are unique property interests and are generally considered subject to greater title risk than patented mining claims, which are real property interests that are owned in fee simple.  An important part of our property is patented federal mining claims held in fee simple.

The State of Alaska requires locators and holders of unpatented state mining claims to complete annual assessment work and to pay an annual cash rental on the claims in order to keep the claimant’s title to the mining rights in good standing. We are not in default of any annual assessment work filing or annual claim rental payment.

State of Alaska unpatented mining claims are subject to a title reservation of 3% net profits royalty for all mineral production on net mining income of $100,000 or more.

Our management has done a title chain search of the Company’s patented federal mining claims.  They believe we are the owner of the private property, and that the property is free and clear of liens and other third party claims except for a 2% mineral production royalty held by former management.

We have attempted to acquire and maintain satisfactory title to our undeveloped Chandalar mining property, but we do not normally obtain title opinions on our properties in the ordinary course of business, with the attendant risk that title to some or all segments our properties, particularly title to the State of Alaska unpatented mining claims, may be defective.

Alaska Taxes Pertaining to Mining

Alaska has tax and regulatory policies that are widely viewed by the mining industry as offering one of the most favorable environments for new mines development in the United States. The mining taxation regime in Alaska has been stable for many years. There is discussion of taxation issues in the legislature but no changes have been proposed that would significantly alter the current state mining taxation structure. Although management has no reason to believe that new mining taxation laws which could adversely impact our Chandalar property will materialize, such event could and may happen in the future.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

General

During 2004 and the first nine months ended September 30, 2005, we focused on advancing exploration of the Chandalar property through surface prospecting and geologic mapping and sampling methods. No drilling or underground exploration work was involved.  In 2004, Pacific Rim Geological Consulting Inc. of Fairbanks, Alaska completed a comprehensive independent technical report on the Chandalar property.  Pacific Rim reviewed all of Little Squaw’s extensive data on the Chandalar property that we built up over the years, which includes data from various operators dating back to the early 1900’s. They concluded the gold mineralization is of the mesothermal type, and the property has multi-million ounce gold discovery potential.  Pacific Rim recommended additional exploration, some of which was completed in two phases during the 2004 summer field season by an independent certified professional geologist, James C. Barker, under contract to us.  The summer field program was augmented by a structural geology study of the Chandalar district using existing high altitude aerial photography. BlueMap Geomatics identified numerous pronounced linears that it interpreted to represent deep-seated faults. This work  has been useful in defining targets for future exploration.

The objective of the 2004 exploration field program was to assess the validity of historic records, refine known drilling targets and identify new drilling targets.  Several prospects of previously unevaluated or unknown gold mineralization were found, including six previously unknown gold-bearing quartz veins.  During the 2004 summer field program we conducted a reconnaissance surface and underground sampling program of numerous gold-bearing veins on the property.  We also conducted a soil geochemical sampling program using a deep penetrating sampling technique we developed to identify gold anomalies that may reflect hidden gold-quartz veins.  Two previously unknown prospects containing six gold-quartz veins were discovered as a result of the field work, bringing the total number of known gold-bearing quartz veins and vein swarms on the property to more than 28.  We expect to find more mineralized structures as exploration progresses because more than 80% of the property is covered by soil and landslide debris.

During the first quarter of 2005, we had planned to conduct the seasonal exploration program on the Chandalar property that was recommended by our geologic consultant, James C. Barker.  His proposed program was budgeted at $1.4 million.  We expected to raise sufficient capital to hire Mr. Barker and other qualified independent geologic consultants to complete a two phase program, which would have included infrastructure repairs, geological field work, taking 600 rock and 4,000 soil samples, and doing ground-based and aerial geophysics surveys, aerial topographic surveys, and 5,000 feet of reverse air circulation drilling.

The planned 2005 summer program was to have been conducted in two staged phases as follows:

·

PHASE I would be geological investigations primarily to pin-point proposed drill sites throughout the district.  This work would consist of various exploration activities, including the use of targeted soil sampling grids and ground and aerial geophysics.  

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PHASE II would be a reverse circulation drill program of 5,000 feet or more.  

Phase I geophysical and geochemical surveys were anticipated to better define the fault structures, initially defined by BlueMap Geomatics, that host mineralized quartz veins. A technical assessment was then expected to be made of locations where drilling was thought to be warranted during phase II.  Several sites where old drill holes indicate the downward extensions of quartz vein gold mineralization were targeted for verification drilling.  The wide-spread occurrences of gold mineralization in large, through-going structures, at least four of which have a mining history, was reasoned to justify the work proposed in Phases I and II.

We were unable to obtain the financing required to undertake this phased exploration program due to unfavorable stock market conditions for the mining sector in early 2005.  Instead, we undertook a modest surface exploration of the Chandalar property during the month of July 2005. A small field crew concentrated work on ten of the gold quartz vein prospects, where geologic maps were produced of each and 189 rock, soil and stream sediment samples were taken for analysis. Importantly, their geologic reconnaissance found a close special association between many of the gold bearing quartz veins and intrusive bodies of mafic igneous rock masses (greenstones). Our geologists believe there may be a genetic link between the greenstones and the gold mineralization that can be used as an exploration tool.

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We also retained the services of a licensed consulting geologist, Melvin Klohn, during the 2005 field season to review our extensive Chandalar property data and make a comprehensive week-long visit to site. Mr. Klohn examined most of the significant gold prospects on the property and said that he found the gold bearing quartz veins to be very similar to the important category of gold deposits often called “lode gold” or greenstone gold, which are major contributors to world gold production.  He noted the district’s prospects are aligned along a series of sub-parallel structural belts in a structural pattern similar to that of the famous Red Lake district in Ontario, Canada. He concluded that the Chandalar property presents a unique and appealing gold exploration opportunity.  This most recent technical report by Mr. Klohn report is posted on our Web site at www.littlesquawgold.com.

Our work during the 2005 summer field season investigated old reports of quartz vein showings at the Pallasgreen and Drumlummon prospects.  These sites had not been evaluated since their discovery by prospectors early in the 1900s.  At the Pallasgreen, mineralization was found along a multiple quartz vein system for approximately 400 feet.  Soil samples geochemically anomalous in gold and an extensive “iron bleed” zone are indicative of mineralization in this area. The iron bleed, or ferricrete, is considered to be caused by ground water dissolution of buried metallic sulfides and re-participation of the metal ions in the surface hydrologic bleed zone. Additionally, gold in soil values were found about 4,000 feet westward along strike, which will be further evaluated in 2006 as a possible extension of the Pallasgreen veins.  Anomalous soil and rock results were also found in the Drumlummon area and in an unnamed site of vein quartz north of the Pallasgreen.  An additional 160-acre state mining claim was located to include this area in our property holding.

In 2005, we also completed further prospect definition work at the Pioneer, Crystal and Uranus sites, which established proposed drill targets at each.  

Pre-drilling prospect mapping was also initiated during the 2005 field season at the Little Squaw, Eneveloe, Grubstake West, Rock Glacier and Summit areas.  Little Squaw quartz vein rubble was traced about 2,500 feet eastward from the known exposures, and geologic mapping indicates that at least two mineralized quartz veins continue in that direction.  The two Summit quartz veins were projected about 2,000 feet westward where they are believed to be partially covered by active accumulations of slide rock.  Nevertheless, stream sediment sampling together with deep penetration soil sampling results from sites along and below its projection were highly anomalous in gold.

During the nine month period ended September 30, 2005, we raised $141,975 net of offering costs, and $100,000 from the issuance of convertible promissory notes.  Subsequent to September 30, 2005, we raised an additional  $1,175,000 in financing.  See “Liquidity and Capital Resources,” below.  We anticipate that we will need to raise an additional $2,000,000 during the next six months to fund our plans for the year ending December 31, 2006.  We cannot guarantee that we will successfully raise the additional financing on terms acceptable to us, if at all.

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Plans

The planned 2006 seasonal exploration program for the Chandalar property is very similar to Mr. Barker's Phase I and Phase II project plan for 2005.  However, the quantity of proposed drilling in Phase II has been increased from 5,000 feet or more to 10,000 feet or more, and the project's projected cost is now approximately $1.7 million dollars as shown in the table below.  The table combines Phase I and Phase II budgets, which are not contingent on each other.

Proposed 2006 Chandalar Exploration Program Budget

We plan to begin the program during the second quarter of 2006, and expect to complete it in late 2006, assuming adequate funding has been made available.

Currently we do not have sufficient cash to conduct the intended 2006 seasonal exploration program on the Chandalar property.  We anticipate that we will need to raise an additional $2,000,000 during the next six months to fund our plans  through the year ending December 31,  2006. We intend to raise sufficient financing through debt and/or equity financing. However, there can be no assurance that we will be successful in our plans to raise capital or complete the 2006 field exploration program on the Chandalar property. There is no assurance that should exploration proceed according to the recommended program, it will lead to the discovery and delineation of ore reserves that will conform to the criteria specified in SEC Industry Guide 7. Our contingency plan should no further funding be achieved, is to carry out a reduced scale exploration program at Chandalar that deletes Phase II (drilling). Such a down-sized program would involve expanding Phase I.  Geochemical soil sample surveys around known prospects, geophysical surveys of the quartz veins using ground magnetics, and seismic applications on the buried placer gold channels would be expanded.

Liquidity and Capital Resources

On September 30, 2005 we had total liabilities of $244,427, and total assets of $427,388.  This compares to total liabilities of $87,792 and total assets of about $367,560 on December 31, 2004.  As of September 30, 2005, our liabilities consist of $100,000 of convertible notes due to a director and two shareholders, $3,000 accrued interest, $50,000 for environmental clean up, $11,129 in outstanding accounts payable and $80,298 accounts payable – to officers and directors for services (related parties).  As of September 30, 2005, we had current assets of $96,430, including cash of $81,643; current liabilities of $194,427; and working capital deficit of $97,997.

Our principal source of liquidity during the year ended December 31, 2004 and the nine month period ended September 30, 2005, has been through debt and equity financing.  Financing activities provided cash of $ 288,313 during the year ended December 31, 2004 and $241,875 during the nine months ended September 30, 2005.  We used cash in operating activities of $ 346,915 during the year ended December 31, 2004, and $190,001 during the nine month period ended September 30, 2005.

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On September 23, 2005, we engaged an exclusive placement agent to assist us with raising financing.  On November 21, 2005, we raised $1,000,000 in the private placement of 6% Convertible Debentures in the principal amount of $1,000,000 and 2,500,000 Class A Warrants issued to one institutional investor.  We paid an aggregate placement fee of $100,000 in connection with this private placement, for net proceeds of approximately $900,000.  We also incurred approximately $ 6,500 in expenses in connection with the financing.  

On October 17, 2005, we finished a private placement of our securities from which we netted $175,000 in the fourth quarter.

We are currently attempting to raise additional capital to fund our planned 2006 seasonal exploration program at the Chandalar property and for general corporate and working capital requirements.  

We are an exploration stage company and have incurred losses since our inception.  We have no recurring source of revenue and our ability to continue as a going concern is dependant on our ability to raise capital to fund our planned exploration and working capital requirements. Our plans for the continuation of our company as a going concern include financing our operations through sales of its common stock and/or debt and the eventual profitable development of its mining properties. Our financial statements do not contain any adjustments, which might be necessary, if we were unable to continue as a going concern.

Private Placement Offering

On August 12, 2005 our Board of Directors authorized a direct private placement offering of 1,200,000 units at $0.25 per Unit.  Each unit consists of one share of common stock, and a three-year full share purchase warrant exercisable at $0.30, $0.35 and $0.40 in the respective successive years. During the nine months ended September 30, 2005, we sold a total of 500,000 units for proceeds of $125,000.  Additionally, 700,000 units were sold during the fourth quarter of 2005 for proceeds of $175,000.  No fees or commissions were paid, and net proceeds to us were $300,000.  We used the proceeds of the offering for working capital and to retire all debt.

On November 21, 2005, we closed a private placement of 6% Convertible Debentures in the principal amount of one million United States dollars (US$1,000,000) and 2,500,000 Class A Warrants to raise one million dollars ($1,000,000).  The placement was made to one institutional investor outside the United States.  The Debentures are convertible into shares of Common Stock, $0.10 par value, at US$0.20 per share, subject to certain adjustments, and each Warrant is exercisable to acquire one share of common stock at an exercise price of US$0.30 per share until November 21, 2008.  The 6% convertible debentures and the Class A Warrants contain provisions that limit the selling shareholder’s beneficial ownership in the class of common stock of Little Squaw to 9.99%.  Under the terms of a Placement Agent Agreement, we paid an agent, a U.S. registered broker-dealer, a placement agent fee  an amount equal to  ten percent (10%) ($100,000) of the aggregate gross proceeds of the Placement.  The agent also received Warrants to purchase common shares equal to ten percent (10%) (500,000 Warrants) of the total number of common shares (or common stock equivalents) sold by us in the Placement.  The terms, conditions and exercise price of the warrants to be issued to the agent shall be economically equivalent to the terms, conditions and exercise price of the securities issued by us in a placement.  We also agreed to grant the agent the same registration rights granted to investors in a placement, if any, and reimburse the agent for all expenses incurred by it in the performance of the agent’s obligations, including but not limited to the fees and expenses of our counsel and accountants and the cost of qualifying the placement, and the sale of the securities, in various states or obtaining an exemption from state registration requirements.  We will reimburse the agent for actual expenses, including but not limited to accounting, legal and professional fees, incurred by the agent in connection with the Placement, not to exceed one-half percent (0.5%) of the gross offering proceeds.  

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Contractual Obligations

We had no contractual obligations as of September 30, 2005.

41

Inflation

We do not believe that inflation has had a significant impact on our consolidated results of operations or financial condition.

Critical Accounting Policies

Critical accounting principles upon which our financial status depends are those requiring estimates of the recoverability of the carrying value of our mining assets and expenses and disclosure associated with accounting for stock based compensation.  Additionally, estimates of our environmental liabilities are considered critical due to the assumptions and estimates inherent in accruals of such liabilities, including uncertainties relating to specific reclamation and remediation methods and costs and the application and changing of environmental laws, regulations and interpretations by regulatory authorities.

MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Our common stock is quoted  on the OTC Bulletin Board which is sponsored by the National Association of Securities Dealers (NASD). The OTC Bulletin Board is a network of security dealers who buy and sell stock. The dealers are connected by a computer network which provides information on current “bids” and “asks” as well as volume information.  The OTC Bulletin Board is not considered a “national exchange.”  

Our Common stock is traded on the NASDAQ Over The Counter Bulletin Board under the symbol “LITS”.  The following table shows the high and low bid information for the Common stock for each quarter since January 1, 2003.  The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

Fiscal Year               

High Closing

Low Closing

2003

First Quarter

$0.13

$0.06

Second Quarter

$0.15

$0.08

Third Quarter

$0.90

$0.12

Fourth Quarter

$0.75

$0.45

2004

First Quarter

$0.75

$0.51

Second Quarter

$0.72

$0.37

Third Quarter

$0.47

$0.28

Fourth Quarter

$0.55

$0.35

2005

First Quarter

$0.50

$0.34

Second Quarter

$0.45

$0.30

Third Quarter

$0.33

$0.23

The above quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions.

As of December 23, 2005, the closing bid quotation for our common stock was $0.30 per share as quoted by the NASD OTCBB.

HOLDERS OF RECORD

As of December 29, 2005 there were 3,366 shareholders of record of our common stock and approximately 858 additional shareholders whose shares are held through brokerage firms or other institutions.

42

TRANSFER AGENT AND REGISTRAR

Our registrar and transfer agent for our common shares is  Columbia Stock Transfer Company, 1602 E. Seltice Way, Suite A PMB#303, Post Falls, ID  83854, U.S.A. Phone: (208) 664-3544; Fax: (208) 777-8998.

USE OF PROCEEDS

We will not receive any proceeds from the sale of shares by the selling shareholders.  

LEGAL MATTERS

The law firm of Payne, Hamlin, Coffin & Brooke has acted as our counsel by providing an opinion on the validity of the securities.

EXPERTS

The financial statements as of December 31, 2004 and 2003, included in this prospectus and elsewhere in the registration statement have been audited by DeCoria, Maichel & Teague P.S., independent registered public accounting firm, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in auditing and accounting in giving said reports.

The information contained in the report titled “Gold Deposits of the Chandalar Mining District, Northern Alaska: An information Review and Recommendations” was prepared by Pacific Rim Geological Consultants, Inc., of Fairbanks Alaska.  

The information contained the report titled “Summary of Field Investigations 2004” was prepared by James C. Barker, a Certified Professional Geologist licensed to practice in Alaska.  

The information contained in the report titled “Interim Summary Report: Little Squaw Gold Mining Company, Properties in the Chandalar Mining district, Alaska”  was prepared by Melvin Klohn, a geologist licensed to practice in the state of Washington.

The information contained in the report titled “Structural and Lithological Features Observed From Air Photo Mosaic” was prepared by BlueMap Geomatics Ltd., of Vancouver British Columbia.

EXPERTS AND CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING  AND FINANCIAL DISCLOSURE

LeMaster & Daniels PLLC (“Former Accountant”), Spokane, Washington, served as our independent auditors from the year ending 1972 through the year ending 2002.  On December 19, 2003 our shareholders ratified our director’s selection of the Spokane, Washington professional services firm of DeCoria Maichel & Teague P.S. to be our independent public accountants for the fiscal year 2003.  Our financial statements included in this prospectus have been audited DeCoria Maichel & Teague P.S. (“New Accountant”), independent certified public accountants, as stated in its report appearing elsewhere herein, and are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.

No adverse opinion or disclaimer of opinion was issued during the past two years by the Former Accountant, and no opinion of the Former Accountant was qualified or modified as to uncertainty, audit scope or accounting principles.

The change in auditors was recommended by our Board of Directors.

During the two most recent fiscal years and the interim period preceding such dismissal, we are not aware of any disagreements with the Former Accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of the Former Accountant, would have caused it to make references to the subject matter of the disagreement(s) in connection with its report.

43

We are not aware of any reportable events (as defined in Item 304 (a) (1) (B) of Regulation S-B) that have occurred during the two most recent fiscal years and the interim period preceding the dismissal of the Former Accountant.

During the two most recent fiscal years and the interim period preceding the appointment of the New Accountant, we have not consulted the New Accountant regarding either:

·

The application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our financial statements, and neither a written report nor oral advice was provided to us that we considered an important factor in reaching a decision as to the accounting or financial reporting issue; or

·

Any matter that was either the subject of a disagreement or event (as defined in Regulation S-B, Item 304(a)(1)(B)).

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the informational requirements of the Exchange Act and, accordingly, file current and periodic reports, proxy statements and other information with the SEC.  We have also filed a registration statement on Form SB-2 under the Securities Act, as amended, in connection with this offering. This prospectus, which is part of the registration statement, does not contain all of the information contained in the registration statement. For further information with respect to us and the shares of common stock offered hereby, reference is made to such registration statement, including the exhibits thereto, which may be read, without charge, and copied at the public reference facilities maintained by the SEC at One Station Place, 100 F Street, NE, Washington, D.C. 20549.  The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC maintains a site on the World Wide Web at http://www.sec.gov that contains current and periodic reports, proxy statements and other information regarding registrants that filed electronically with the SEC.  Statements contained in this prospectus as to the intent of any contract or other document referred to are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to this registration statement, each such statement being qualified in all respects by such reference.

________________

44

AUDITED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Little Squaw Gold Mining Company

We have audited the accompanying balance sheets of Little Squaw Gold Mining Company, (An Exploration Stage Company) (“the Company”) as of December 31, 2004 and 2003, and the related statements of operations, stockholders’ equity (deficit) and cash flows for the years then ended and from the date of inception on March 26, 1959 through December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Little Squaw Gold Mining Company as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended and from the date of inception on March 26, 1959 through December 31, 2004 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company's operating losses raise substantial doubt about its ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

DeCoria, Maichel & Teague P.S.

March 2, 2005

F-1

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Balance Sheets

December 31, 2004 and 2003

2004

2003

ASSETS

Current assets:

Cash

$         32,855

$

98,834

Prepaid expenses

           6,198

             6,252

Total current assets

39,053

105,086

Plant, equipment, and mining claims:

Other equipment, net of depreciation

4,441

Mining and mineral properties

321,041

318,597

Other assets

             3,025

Total assets

$

       367,560

$

       423,683

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$           5,020

$         22,360

Accounts payable – related parties

          32,772

Total current liabilities

37,792

22,360

Long-term liabilities:

Accrued remediation costs

50,000

36,000

Convertible accrued compensation - Walters LITS

82,437

Convertible success award - Walters LITS

           88,750

Total long-term liabilities

50,000

207,187

Total liabilities

           87,792

         229,547

Stockholders' equity

Preferred stock; no par value, 10,000,000

shares authorized;  no shares issued or outstanding

Common stock; $0.10 par value, 200,000,000 and 12,000,000

shares authorized, respectively; 15,364,117 and 11,998,636

issued and outstanding, respectively

1,536,411

1,199,863

Additional paid-in capital

752,458

454,880

Deficit accumulated during the development stage

     (2,009,101)

     (1,455,923)

279,768

198,820

Less treasury stock, 0 and 117,103 shares,

at cost, respectively

            (4,684)

Total stockholders’ equity

         279,768

         194,136

Total liabilities and stockholders' equity

$

       367,560

$

       423,683

The accompanying notes are an integral part of these financial statements.

F-2

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Statements of Operations

From Inception

Years Ended

(March 26, 1959)

December 31,

Through

2004

2003

December 31, 2004

Revenue:

Royalties, net

$

398,752

Lease and rental

99,330

Gold sales and other

$

$

              5,799

              31,441

                5,799

            529,523

Expenses:

Other costs of operations

$

4,904

$

8,030

Management fees and salaries

$

70,525

10,575

952,057

Directors' fees – cash

17,200

82,975

Directors' fees – share based

143,200

143,200

Professional services

236,082

164,418

678,577

Other general and administrative expense

53,824

11,329

214,218

Mineral property maintenance

8,097

4,820

12,917

Office supplies and other expense

10,344

15,388

238,549

Depreciation

493

5,248

Reclamation and miscellaneous

14,000

16,000

115,102

Loss on partnership venture

53,402

Equipment repairs

              25,170

            553,765

            227,434

         2,529,445

Other (income) expense:

Interest expense

315

36,301

Interest income

                  (587)

                  (178)

             (27,122)

Total other (income) expense

                  (587)

                   137

                9,179

Net loss

$

           553,178

$

          221,772

$

       2,009,101

Net loss per common share – basic       

$                 0.04

$                0.02

$               0.32

Weighted average common

  shares outstanding-basic                 

        14,811,488

         9,898,792

        6,233,587

The accompanying notes are an integral part of these financial statements.

F-3

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Statements of Changes in Stockholders' Equity (Deficit)

From Inception (March 26, 1959) Through December 31, 2004

Deficit

Accumulated

Additional

During the

Shares Issued for

Basis of Assignment of Amount

Common stock

Paid-in

Development

Treasury

Year

Transaction

Cash

Non-cash Consideration

     for Non-cash Consideration  

Shares

Par Value

   Capital    

    Stage   

Stock

Total

1959

Issuance of shares

X

441,300

$

44,130

Net loss

$

(428)

$

43,702

1960

Issuance of shares

X

433,780

43,378

Net loss

(769)

42,609

1961

Issuance of shares

X

306,620

30,662

Issuance of shares

X

25,010

2,501

$

5,002

Net loss

(12,642)

25,523

1962

Issuance of shares

X

111,239

11,124

Issuance of shares

X

248,870

24,887

49,773

Issuance of shares

Mining leases

Par value of stock issued

600,000

60,000

Net loss

(5,078)

140,706

1963

Issuance of shares

X

223,061

22,306

Issuance of shares

X

27,000

2,700

5,400

Sale of option

110

Net loss

(5,995)

24,521

1964

Net loss

(8,913)

(8,913)

1965

Issuance of shares

X

19,167

1,917

3,833

Issuance of shares

Salaries

Price per share issued for cash

during period

19,980

1,998

3,996

Net loss

(9,239)

2,505

1966

Issuance of shares

X

29,970

2,997

Issuance of shares

X

5,200

520

520

Net loss

(7,119)

(3,082)

1967

Issuance of shares

X

3,700

370

740

Issuance of shares

Engineering and

management fees

Par value of stock issued

24,420

2,442

Issuance of shares

Accounting fees

2,030

203

406

Net loss

(5,577)

(1,416)

1968

Issuance of shares

X

64,856

6,486

12,971

Issuance of shares

Salaries

Price per share issued for

19,980

1,998

3,996

Issuance of shares

Directors’ fees

cash during period

30,000

3,000

6,000

Net loss

(7,322)

27,129

The accompanying notes are an integral part of these financial statements.

F-4

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Statements of Changes in Stockholders' Equity (Deficit)

From Inception (March 26, 1959) Through December 31, 2004

Deficit

Accumulated

Additional

During the

Shares Issued for

Basis of Assignment of Amount

Common stock

Paid-in

Development

Treasury

Year

Transaction

Cash

Non-cash Consideration

     for Non-cash Consideration  

Shares

Par Value

   Capital    

    Stage   

Stock

Total

1969

Issuance of shares

X

12,760

$

1,276

$

2,552

Issuance of shares

X

338,040

33,804

85,432

Issuance of shares

Salaries

Approximate price per share

24,000

2,400

4,800

Issuance of shares

Consideration for

issued for cash during period

co-signatures

50,004

5,000

10,001

Net income

$

2,272

$

147,537

1970

Issuance of shares

X

1,000

100

400

Issuance of shares

Salaries

Price per share issued for cash in

prior period

1,500

150

300

Issuance of shares

Salaries

Price per share issued for cash in

current period

444

44

178

Net loss

(8,880)

(7,708)

1971

Issuance of shares

X

13,000

1,300

1,500

Issuance of shares

Purchase of assets of

Chandalar Mining &

Milling Co.

Par value of stock issued

336,003

33,600

Net loss

(2,270)

34,130

1972

Issuance of shares

Purchase of assets of

Chandalar Mining &

Milling Co.

Par value of stock issued

413,997

41,400

Issuance of shares

Additional exploratory

and development

costs through

payment of

Chandalar Mining &

Milling Co. liabilities

Dollar value of liabilities paid

55,657

5,566

15,805

Receipt of treasury stock

in satisfaction

tof accounts receivable

and investment in

Chandalar Mining &

Milling Co.

(125,688)

(12,569)

(977)

$

(13,546)

Issuance of shares

Mining claims

Par value of stock issued

2,240,000

224,000

13,527

Net loss

(65,175)

208,031

1973

Net loss

(16,161)

(16,161)

1974

Net loss

(13,365)

(13,365)

The accompanying notes are an integral part of these financial statements.

F-5

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Statements of Changes in Stockholders' Equity (Deficit)

From Inception (March 26, 1959) Through December 31, 2004

Deficit

Accumulated

Additional

During the

Shares Issued for

Basis of Assignment of Amount

Common stock

Paid-in

Development

Treasury

Year

Transaction

Cash

Non-cash Consideration

     for Non-cash Consideration  

Shares

Par Value

   Capital    

    Stage   

Stock

Total

1975

Net loss

$

(15,439)

$

(15,439)

1976

Net loss

(5,845)

(5,845)

1977

Issuance of shares

Purchase of assets of

Mikado Gold Mines

Par value of stock issued

1,100,100

$

110,010

Net loss

(15,822)

94,188

1978

Issuance of shares

Mining claims

Par value of stock issued

400,000

40,000

Issuance of shares

Directors' fees

40,000

4,000

$

3,200

Issuance of shares

Management fees,

notes payable, and

Approximate market price per share

accrued interest

109,524

10,952

8,762

Net loss

(39,144)

27,770

1979

Net loss

(18,388)

(18,388)

1980

Net loss

(34,025)

(34,025)

1981

Net loss

(32,107)

(32,107)

1982

Issuance of shares

Directors' fees

Approximate market price per share

40,000

4,000

20,000

Net loss

(70,165)

(46,165)

1983

Net loss

(10,416)

(10,416)

1984

Net loss

(63,030)

(63,030)

1985

Issuance of shares

Directors' fees

Approximate market price per share

40,000

4,000

12,000

Net loss

(78,829)

(62,829)

1986

Issuance of shares

X

44,444

4,444

5,556

Net loss

(32,681)

(22,681)

1987

Issuance of shares

Officer salary

166,000

16,600

18,500

Issuance of stock

option

Legal fees

Approximate market price per share

12,360

Issuable shares

Directors' fees

4,095

Issuance of stock

option

Equipment

Value of equipment

60,000

Net loss

(48,057)

63,498

The accompanying notes are an integral part of these financial statements.

F-6

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Statements of Changes in Stockholders' Equity (Deficit)

From Inception (March 26, 1959) Through December 31, 2004

Deficit

Accumulated

Additional

During the

Shares Issued for

Basis of Assignment of Amount

Common stock

Paid-in

Development

Treasury

Year

Transaction

Cash

Non-cash Consideration

     for Non-cash Consideration  

Shares

Par Value

   Capital    

    Stage   

Stock

Total

1988

Issuance of shares

Officer salary

194,444

$

19,444

$

(1,944)

Issuance of stock option

Legal fees

Approximate market price per share

6,200

Issuable shares

Directors' fees

1,080

Issuance of shares

Settlement of stock

option

Approximate market price when option

was granted

58,860

5,886

(5,886)

Issuance of shares

Settlement of stock

right

Approximate market price when

right was granted

19,500

1,950

(1,950)

Net loss

$

(46,961)

$

(22,181)

1989

Issuance of shares

Settlement of stock

option

Approximate market price when option

was granted

68,888

6,889

(6,889)

Issuance of shares

Settlement of stock

right

Approximate market price when right

was granted

12,000

1,200

(1,200)

Net loss

(59,008)

(59,008)

1990

Net loss

(37,651)

(37,651)

1991

Issuance of shares

Directors' fees

Approximate market price per share

24,000

2,400

Purchase of 20,000

treasury shares

X

$

(1,500)

Net loss

(42,175)

(41,275)

1992

Purchase of 32,000

treasury shares

X

(1,680)

Net loss

(41,705)

(43,385)

1993

Net loss

(71,011)

(71,011)

1994

Issuance of stock

option

Officer compensation

Approximate market price per share

6,250

Net loss

(43,793)

(37,543)

1995

Issuance of shares

Officer compensation

Approximate market price per share

153,846

15,385

4,615

Purchase of 65,000

treasury shares

X

(4,975)

Net loss

(30,728)

(15,703)

1996

Net loss

(39,963)

(39,963)

The accompanying notes are an integral part of these financial statements.

F-7

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Statements of Changes in Stockholders' Equity (Deficit)

From Inception (March 26, 1959) Through December 31, 2004

Deficit

Accumulated

Additional

During the

Shares Issued for

Basis of Assignment of Amount

Common stock

Paid-in

Development

Treasury

Year

Transaction

Cash

Non-cash Consideration

     for Non-cash Consideration  

Shares

Par Value

   Capital    

    Stage   

Stock

Total

1997

Expiration of stock option

$

(6,250)

$

(6,250)

Net loss

$

(31,828)

(31,828)

1998

Net loss

(30,681)

(30,681)

1999

Net loss

(57,812)

(57,812)

2000

Net loss

(37,528)

(37,528)

2001

Net loss

         (20,007)

        (20,007)

Balances, December 31, 2001

8,468,506

$

846,850

351,237

(1,221,460)

$

(8,174)

(31,547)

2002

Net loss

         (12,691)

       (12,691)

Balances, December 31, 2002

8,468,506

846,850

351,237

(1,234,151)

(8,174)

(44,238)

2003

Issuance of shares and warrants

Conversion of related

party debts

Fair value of shares issued

1,930,130

193,013

19,323

212,336

Issuance of shares and warrants

To reimburse payment of

professional service fees

Fair value of shares issued

150,000

15,000

15,000

Issuance of shares and warrants

X

1,100,000

110,000

80,310

190,310

Issuance of treasury shares (50,000)

Officer signing bonus

Fair value of shares issued

4,010

3,490

7,500

Issuance of shares and warrants

Mining claims

Fair value of shares issued

350,000

35,000

35,000

Net loss

      (221,772)

      (221,772)

Balances, December 31, 2003

11,998,636

1,199,863

454,880

(1,455,923)

(4,684)

194,136

2004

Issuance of shares and warrants

Conversion of related

party debts

Fair value of shares issued

824,370

82,437

82,437

Issuance of shares and warrants

Success award

Fair value of shares issued

887,500

88,750

88,750

Issuance of shares through warrant

  exercise ($0.20)

X

1,090,000

109,000

109,000

218,000

The accompanying notes are an integral part of these financial statements.

F-8

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Statements of Changes in Stockholders' Equity

From Inception (March 26, 1959) Through December 31, 2004

Deficit

Accumulated

Additional

During the

Shares Issued for

Basis of Assignment of Amount

Common stock

Paid-in

Development

Treasury

Year

Transaction

Cash

Non-cash Consideration

      for Non-cash Consideration  

Shares

Par Value

    Capital    

     Stage     

Stock

Total

Issuance of shares through warrant

  exercise of ($0.40)                 X

173,611

17,361

52,952

70,313

Issuance of treasury shares (67,103)

Officer promotion

Fair value of shares issued

2,026

4,684

6,710

Issuance of stock options

Directors compensation

Intrinsic method

59,200

59,200

Issuance of shares

Directors compensation

Fair value of shares issued

300,000

30,000

54,000

84,000

Issuance of shares

Professional services

Fair value of shares issued

90,000

9,000

20,400

29,400

Net loss

      (553,178)

     (553,178)

Balance, December 31, 2004

 15,364,117

$

   1,536,411

$

      752,458

$

  (2,009,101)

$

                0

$

     279,768

The accompanying notes are an integral part of these financial statements.

F-9

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Statements of Cash Flows

From Inception

(March 26, 1959)

Year Ended

Through

December 31,

December 31,

2004

2003

2004

Cash flows from operating activities:

Net loss

Net loss

$

(553,178)

$

(221,772)

$

(2,009,101)

Adjustments to reconcile net loss to net cash

used in operating activities:

Depreciation

493

5,741

Common stock, warrants, and options

issued for salaries and fees

179,310

22,500

386,594

Change in:

Prepaid expenses

54

(6,252)

(6,198)

Accounts receivable, related party

421

Gold inventory

(3,025)

4,904

(3,025)

Accounts payable, other

(17,341)

22,360

5,019

Accounts payable, related party

32,772

52,772

Accrued compensation, related party

255,450

Accrued payroll taxes

19,323

Convertible success award, Walters LITS

88,750

88,750

Accrued remediation costs

              14,000

              16,000

              50,000

Net cash used - operating activities

           (346,915)

             (73,089)

        (1,154,675)

Cash flows from investing activities:

Receipts attributable to unrecovered

promotional, exploratory, and development

costs

626,942

Proceeds from the sale of equipment

60,000

Additions to property, plant, equipment, and

unrecovered promotional, exploratory, and

development costs

               (7,377)

             (19,597)

           (370,342)

Net cash - investing activities

               (7,377)

             (19,597)

             316,600

Cash flows from financing activities:

Issuance of common stock, net of offering costs

288,313

190,310

879,104

Acquisitions of treasury stock

               (8,174)

Net cash - financing activities

            288,313

            190,310

            870,930

Net increase in cash

(65,979)

97,624

32,855

Cash, beginning of year

              98,834

                1,210

                       0

Cash, end of year

$

            32,855

$

            98,834

$

            32,855

Supplemental disclosures of cash flow information:

Non-cash investing activities:

Mining claims purchased - common stock

$            35,000

$             35,000

Non-cash financing activities:

Related party liability

converted to common stock

$            88,750

$           212,336

$          301,086

Cash paid for interest

$                   15

$                  315

The accompanying notes are an integral part of these financial statements.

F-10

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Notes to Financial Statements

1.  

ORGANIZATION AND DESCRIPTION OF BUSINESS

Little Squaw Gold Mining Company was incorporated in the state of Alaska on March 26, 1959. The Company was formed to develop and mine patented and unpatented mining properties in Alaska. In prior years, the Company engaged in limited mining operations on its properties and leased certain placer mining claims to a lessee/operator. During 2003, the Company significantly restructured its management with individuals committed to actively developing the Company’s mining properties. The Company’s primary industry segment is mining.

The Company has incurred losses since its inception and has no recurring source of revenue. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern.  Management's plans for the continuation of the Company as a going concern include financing the Company's operations through sales of its common stock and the eventual profitable development of its mining properties. There are no assurances, however, with respect to the future success of these plans. The financial statements do not contain any adjustments, which might be necessary, if the Company is unable to continue as a going concern.

Unless otherwise indicated, amounts provided in these notes to the financial statements pertain to continuing operations.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Exploration Stage Enterprise

The Company's financial statements are prepared using the accrual method of accounting and according to the provisions of Statement of Financial Accounting Standards No. 7, “Accounting for Development Stage Enterprises,” as it devotes substantially all of its efforts to acquiring and exploring mining interests that will eventually provide sufficient net profits to sustain the Company’s existence. Until such interests are engaged in commercial production, the Company will continue to prepare its financial statements and related disclosures in accordance with entities in the exploration stage.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures.  Significant estimates used in preparing these financial statements include those assumed in estimating the recoverability of the cost of mining claims, accrued remediation costs, and deferred tax assets and related valuation allowances.  Actual results could differ from those estimates.

Cash and Cash Equivalents

For the purpose of the balance sheet and statement of cash flows, the Company considers all highly liquid investments purchased, with an original maturity of three months or less, to be a cash equivalent.  

F-11

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Notes to Financial Statements

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

Plant, Equipment, and Accumulated Depreciation

Plant and equipment are stated at cost, cost is determined by cash paid or shares of the Company’s common stock issued.  The mine, mill buildings and equipment are located on the Company’s unpatented state mining claims located in the Chandalar mining district of Alaska.  All such assets are fully depreciated.  A small amount of office equipment is located at Company offices in Spokane, Washington.  Depreciation is expensed monthly on the equipment.

Income Taxes

Income taxes are recognized in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," whereby deferred income tax liabilities or assets at the end of each period are determined using the tax rate expected to be in effect when the taxes are actually paid or recovered. A valuation allowance is recognized on deferred tax assets when it is more likely than not that some or all of these deferred tax assets will not be realized.

Net Loss Per Share

Statement of Financial Accounting Standards No. 128, “Earnings per Share,” requires dual presentation of basic earnings per share (“EPS”) and diluted EPS on the face of all income statements issued after December 15, 1997, for all entities with complex capital structures. Basic EPS is computed as net income divided by the weighted average number of common shares outstanding for the period.  Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities.  At December 31, 2004 and 2003, the effect of the Company’s outstanding options and common stock equivalents would have been anti-dilutive.  Accordingly, only basic EPS is presented.

Mining and Mineral Properties

Cost of acquiring and developing mineral properties are capitalized by the project area.  Costs to maintain mineral rights and leases are expensed as incurred.  Exploration costs are expensed in the period in which they occur.  When a property reaches the production stage, the related capitalized costs are amortized using the units-of-production method on the basis of periodic estimates of ore reserves.  Mineral properties are periodically assessed for impairment of value, and any subsequent losses are charged to operations at the time of impairment.  If a property is abandoned or sold, its capitalized costs are charged to operations.

Reclassifications

Certain reclassifications have been made to conform to prior year’s data to the current presentation.  These reclassifications have no effect on the results of reported operations or stockholders' equity as previously reported.

Fair Values of Financial Instruments

The carrying amounts of financial instruments, including cash and cash equivalents, prepaid expenses and accounts payable approximated their fair values as of December 31, 2004 and 2003. Related party liabilities approximated their fair values based upon the terms of payment at December 31, 2004.

F-12

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Notes to Financial Statements

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

Reclamation and Remediation

The Company’s operations have been, and are subject to, standards for mine reclamation that have been established by various governmental agencies. In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, Accounting for Asset Retirement Obligations.  SFAS 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which the Company incurs a legal obligation for the retirement of tangible long-lived assets.  A corresponding asset is also recorded and depreciated over the life of the asset.  After the initial measurement of the asset retirement obligation, the liability will be adjusted at the end of each reporting period to reflect changes in the estimated future cash flows underlying the obligation.  Determination of any amounts recognized upon adoption is based upon numerous estimates and assumptions, including future retirement costs, future inflation rates and the credit-adjusted risk-free interest rates.

Remediation liabilities on non operating properties are recognized according to the provisions of Statement of Position 96-1.

The Company accrues costs associated with environmental remediation obligations when it is probable that such costs will be incurred and they are reasonably estimable.  Such costs are based on management’s estimate of amounts expected to be incurred when the remediation work is performed.

New Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards, or Statement, No. 123 (revised 2004), Share-Based Payment ("Statement 123(R)"), which is a revision of FASB Statement No.  123, Accounting for Stock-Based Compensation ("Statement 123").  Statement 123(R) supersedes Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123.  Statement 123(R) requires that all share-based payments to employees, including grants of employee stock options, be recognized in the income statement based on their fair values.  Pro forma disclosure is no longer an option.  Statement 123(R) is effective for small business issuers at the beginning of the first interim or annual period beginning after December 15, 2005.

As permitted by Statement 123, management currently accounts for share-based payments to employees using APB 25's intrinsic value method.  Management expects to adopt Statement 123(R) on January 1, 2006 using the modified prospective method and is unable to estimate stock-based compensation expense to be recorded in 2006.

Stock-based Compensation:  At December 31, 2004 and 2003, the Company had a stock plan for key employees and non-employee directors, which is more fully described in Note 5. The Company accounts for stock options as prescribed by Accounting Principles Board Opinion No. 25 and disclose pro forma information as provided by Statement 123, “Accounting for Stock Based Compensation.”

Pro forma net loss presented below was determined as if the Company had accounted  for their  employee  stock  options  under  the fair  value  method  of Statement  123.  The fair value of these options was estimated at the date of grant using an option pricing model.  Such models require the input of highly subjective assumptions including the expected volatility of the stock price which may be difficult to estimate for small business issuers traded on micro-cap stock exchanges. The pro forma net loss presented below considers the stock-based employee compensation expense already recognized in accordance with APB 25.  The affect of Statement 123 stock option expense on basic loss per share is nil.

F-13

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Notes to Financial Statements

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

New Accounting Pronouncements, Continued:

December 31, 2004

Net loss as reported

$

553,178

Statement 123 stock option expense

            58,400

Pro forma net loss

$

        611,578

If the Company accounted for its employee stock options under Statement 123, compensation expense would have been $117,600 for the year ended December 31, 2004.

The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:

       December 31,

       2004       

Risk-free interest rate

3.50%

Expected stock price volatility

80.00%

Expected dividend yield

---

In December 2004 the FASB issued SFAS 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions” (“SFAS 153”). The amendments made by SFAS 153 are based on the principle that exchanges of nonmonetary assets should be based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. The statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005 with earlier adoption permitted. The provisions of this statement shall be applied prospectively. The Company’s adoption of SFAS 153 is not expected to have a material impact on the Company’s results of operations, financial position or cash flows.

3.

MINING AND MINERAL PROPERTIES

Mining Claims

In May 1972, the Company acquired certain patented and unpatented mining claims located in the Chandalar Gold Mining District of Alaska (“the Chandalar District"), from a corporation and various individuals.  Under the terms of the acquisition agreement, the Company issued 2,240,000 shares and transferred certain placer mining equipment in exchange for the claims.  Effective January 1, 1974, management assigned a value of $224,000 to the claims, based on the par value of the common stock issued as any other basis for assigning value was not determinable.  In April 1978, the Company acquired certain other patented and unpatented mining claims located in the Chandalar District from a partnership, a member of which was a former officer and director of the Company.  In exchange for the mining claims, the Company issued 400,000 shares of its previously unissued common stock. In connection with the purchase, the partnership retained a 2% Net Smelter Return (“NSR”) royalty on the claims.  Management assigned a value of $40,000 to the claims, based on the par value of the common stock issued, as any other basis for assigning values was not determinable. The aforementioned claims (“the Chandalar claims”) consist in the aggregate of twenty-one 20-acre patented lode claims, one 15-acre patented placer claim, one 5-acre patented mill site, and nineteen 40-acre unpatented state claims.

F-14

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Notes to Financial Statements

3.

MINING AND MINERAL PROPERTIES, CONTINUED:

During 2003, in connection with a Debt and Stock Purchase Agreement, the Company purchased seven unpatented claims from Walters LITS, LLC, ("Walters LITS") a related party entity (See Note 4). The claims are located in the Chandalar District and were purchased in exchange for 350,000 shares of the Company’s restricted common stock and 175,000 stock purchase warrants exercisable at $0.20 per share. In addition to the Company's purchase of the claims it was also assigned an option to purchase the 2% NSR royalty on the claims upon a $250,000 payment to the royalty holder (See Note 4).  Management assigned a value of $35,000 to the claims based upon their estimate of the value of the claims and stock exchanged at the time of the sale. In 2003, there were fifty-five 160 acre unpatented Alaska State mining claims.  In addition, during 2004, the Company staked eight unpatented Alaska State mining claims of 160 acres each in the Chandalar District.  None of the claims staked in 2003 and 2004 are subject to the 2% NSR.

At December 31, 2004 and 2003, the Company’s mining properties were as follows:

2004

2003

Chandalar claims

$

264,000

$

264,000

2003 purchased claims

35,000

35,000

Unpatented state claims staked

        22,041

         19,597

Total

$

     321,041

$

     318,597

Buildings and Equipment

Located on the Company’s patented mining property in the Chandalar District are certain mining and milling buildings and other mining equipment that have long since been fully depreciated and have no value. Accordingly, the Company has removed their cost basis and the associated accumulated depreciation from its financial statements.

4.

CONVERSION OF RELATED PARTY DEBTS

Debt and Stock Purchase Agreement

On June 20, 2003, Eskil Anderson, the Company’s president, Ellamae Anderson, a director (and Eskil Anderson’s spouse), and Hollis H. Barnett, the Company’s secretary and a director, collectively entered into a Debt and Stock Purchase Agreement (“the Agreement”) with Walters LITS, a Washington limited liability company managed by Richard R. Walters, the Company’s current president and successor to Mr. Anderson. The Agreement provided for, among other things including Mr. and Mrs. Anderson’s and Mr. Barnett’s sale of their personal holdings in the Company’s common stock, the sale of certain obligations due Mr. and Mrs. Anderson and Mr. Barnett from the Company for prior management and legal services rendered. The Agreement also provided for the sale of 7 unpatented mining claims in the Chandalar District to Walters LITS, for $35,000, and granted the Company a option to purchase a 2% NSR royalty on any precious metals production from the Chandalar claims. The option extends for a period of 10 years and is exercisable upon a payment of $250,000 to Mr. Anderson on behalf of a partnership (See Note 3).

F-15

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Notes to Financial Statements

4.

CONVERSION OF RELATED PARTY DEBTS, CONTINUED:

Conversion of Related Party Debts to Common Stock

At a special meeting of the board of directors held June 24, 2003, Mr. and Mrs. Anderson, Mr. Barnett and two remaining directors resigned their respective management and board of director positions. Concurrent with their resignations, Mr. Walters was appointed as the Company’s president and director and two other directors were also appointed. On June 30, 2003, another special meeting of the board of directors took place and two additional directors were appointed. During the special meeting held June 30, 2003, the Company’s directors agreed to convert the related party liabilities purchased by Walters LITS consisting of $255,450 due Mr. and Mrs. Anderson for accumulated prior management services and $20,000 due Mr. Barnett for past legal services, into 2,754,500 shares of the Company’s unissued common stock and 1,377,250 warrants to purchase the Company’s common stock at $0.20 per share.  As a result during 2003, the Company issued 1,930,130 shares of common stock and warrants to purchase 965,065 shares of common stock for $0.20 per share to Walters LITS and extinguished $193,013 of related party debt plus related accrued payroll taxes of $19,323. At December 31, 2003 the remaining unconverted related party debt was $82,437.  This debt was converted in 2004 into 824,370 shares of restricted common stock and warrants to purchase 412,185 shares common stock at $0.20 per share.  All of those warrants expired on May 18, 2004 without being exercised under the mandatory exercise provision of the warrant agreement.

5.

STOCKHOLDERS’ EQUITY:

At December 31, 2003, the Company had one class of $0.10 par value common stock outstanding with 12,000,000 shares available for issue. At a special meeting of shareholders originally convened December 19, 2003, then adjourned to January 23, 2004, (due to the absence of a voting majority necessary to ratify certain proposals), the shareholders voted to increase the Company’s authorized shares of common stock to 200,000,000 and to create a class of preferred stock with 10,000,000 shares authorized for issue.

Common Stock Issued to Reimburse Related Parties

During 2003, 150,000 shares of the Company’s restricted common stock and 75,000 stock purchase warrants exercisable at $0.20 per share were issued to reimburse Richard R. Walters, the Company’s president, and another shareholder for $15,000 of legal fees incurred by them on the Company’s behalf.

Common Stock Issued as a Success Award

At the June 30, 2003 special board of directors meeting, the directors resolved to issue Walters LITS 887,500 shares of the Company’s restricted common stock and warrants to purchase 443,750 shares of common stock for $0.20 per share as consideration for its success in negotiating the Debt and Stock Purchase Agreement and the Royalty Purchase Option Agreement with the Company’s prior management. In connection with the issue, the Company recognized $88,750 of expense and an equal amount of corresponding liability in its 2003 financial statements based on management’s estimate of the value of the stock and warrants it agreed to issue.  In 2004, the shares and warrants were issued and the liability was extinguished.  All of the warrants related to this transaction expired on May 18, 2004 under the mandatory exercise provision of the warrant agreement without being exercised.

F-16

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Notes to Financial Statements

5.

STOCKHOLDERS’ EQUITY, CONTINUED:

Common Stock Issued to Officer

On March 4, 2004, the Company issued Becky Corigliano 67,103 shares of the Company’s restricted common stock from its treasury following her appointment as Chief Financial Officer. In connection with the issue, the Company recognized $6,710 of compensation expense in its 2004 financial statements based on management’s estimate of the value of the stock issued.

Common Stock Issued to Directors

On December 31, 2004, the Company issued each of its six independent directors 50,000 shares of the Company’s restricted common stock under the 2003 Share Incentive Plan.  As a result the Company recognized $150,000 share based expense for director’s fees estimated by the fair value of the shares issued.

Common Stock and Options Issued to Consultants

On October 25, 2004, the Company issued 60,000 shares of the Company’s restricted common stock to Sussex Avenue Partners, LLC for consulting services relating to management advisement, strategic planning and marketing in connection with its business, together with advisory and consulting related to shareholder management and public relations.  The Company issued an additional 30,000 shares of restricted common stock to Sussex Avenue Partners, LLC on December 13, 2004.  The expense of $29,400 was recorded in connection with the issuance based on the estimate value of the shares issued.

F-17

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Notes to Financial Statements

5.

STOCKHOLDERS’ EQUITY, CONTINUED:

Private Placement

In August 2003, the Company offered restricted shares of its common stock and common stock purchase warrants for sale, in a private placement, to certain accredited investors.  The offering, which was exempt from registration under the Securities Act of 1933 ("the Act") pursuant to Section 4(2) of the Act and Rule 506 of Regulation D, resulted in the sale of 1,100,000 units for $0.20 per unit, or $220,000. Each unit consisted of one share of the Company’s common stock and one common stock purchase warrant to purchase one share of the Company’s restricted common stock for $0.45 within 24 months of the unit purchase date. Net proceeds received by the Company, after underwriter commissions and legal expenses, were $190,310.

Stock Warrants

At December 31, 2004, the Company had two types of stock purchase warrants outstanding.

The first type were issued in connection with the Company’s private placement of its common stock, and are exercisable at $0.45 per share ("$0.45 warrants") and expire on September 19, 2005.  At December 31, 2003, there were 1,210,000 of the $0.45 warrants issued, 173,611 were exercised and 1,036,389 were outstanding at December 31, 2004.

The second type of warrants were issued in connection with the purchase of mining claims; conversion of related party debts; reimbursing related parties for expenses incurred by them on the Company's behalf; and in connection with a success award granted certain related parties (See Note 3 and 4). The warrants are exercisable at $0.20 per share ("$0.20 warrants").  The $0.20 warrants are exercisable on or before January 23, 2007, notwithstanding the mandatory exercise provision of the warrant agreement.  The mandatory exercise provision requires the holder of the warrants to exercise them within 15 days following any consecutive 21 trading day period during which the sales price of the Company's common stock (as quoted on the NASDAQ Over the Counter Bulletin Board) exceeds $0.25 per share.  As of December 31, 2003, 1,215,065 of the $0.20 warrants were issued, 1,090,000 were exercised and the remaining 125,065 have expired.

The following is a summary of warrants:

F-18

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Notes to Financial Statements

5.

STOCKHOLDERS’ EQUITY, CONTINUED:

2003 Share Incentive Plan:

At a special meeting of shareholders originally convened December 19, 2003, then adjourned until January 23, 2004, the shareholders voted to adopt the Little Squaw Gold Mining Company 2003 Share Incentive Plan (“the Plan”). The Plan permits the grant of nonqualified stock options, incentive stock options and shares of common stock to participants of the Plan. The purpose of the Plan is to promote the success of the Company and enhance the value by linking the personal interests of the participants to those of the Company’s shareholders, by providing participants with an incentive for outstanding performance. Pursuant to the terms of the Plan, 1,200,000 shares of the Company’s authorized but unissued common stock were reserved for issue.  Options granted to participants under the Plan must be exercised no later than the tenth employment anniversary of the participant.   Eligible participants in the Plan include the Company’s employees, directors and consultants. During 2004, 620,000 shares of common stock and options to purchase common stock were issued under the Plan.

The following is a summary of options:

F-19

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Notes to Financial Statements

6.

REMEDIATION LIABILITY

In 1990, the Alaska Department of Environmental Conservation (“Alaska DEC”) notified the Company that soil samples taken from a gravel pad adjacent to the Company’s Tobin Creek mill site contained elevated levels of mercury. In response to the notification, the Company engaged a professional mining engineer to evaluate the cost and procedure of remediating the affects of the possible contamination at the site. In 1994, the engineer evaluated the contamination and determined it to consist of approximately 200 cubic yards of earthen material and estimated a cost of approximately $25,000 to remediate the site. In 2000, the site was listed in the Alaska DEC’s contaminated sites database as a “medium” priority contaminated site. During 2003, the Company’s management reviewed its estimate of the cost that would be ultimately required to fulfill its remediation obligations at the site and determined that its accrual for remediation should be adjusted, based upon estimated general and administrative costs that would be included in the remediation effort and the affect of inflation on the 1994 cost estimate and increased the accrual to $36,000.  During 2004, management updated its estimate of undiscounted cash costs to remediate the site, and increased the accrual for remediation costs to $50,000 at December 31, 2004.  The Company's remediation cost accrual is classified as a non-current liability, as management believes its remediation activities will not occur during the upcoming year.

The Company’s management believes that the Company is currently in substantial compliance with environmental regulatory requirements and that its accrued environmental remediation costs are representative of management’s estimate of costs required to fulfill its obligations.  Such costs are accrued at the time the expenditure becomes probable and the costs can reasonably be estimated.  The Company recognizes, however, that in some cases future environmental expenditures cannot be reliably determined due to the uncertainty of specific remediation methods, conflicts between regulating agencies relating to remediation methods and environmental law interpretations, and changes in environmental laws and regulations.  Any changes to the Company’s remediation plans as a result of these factors could have an adverse affect on the Company’s operations.  The range of possible losses in excess of the amounts accrued cannot be reasonably estimated at this time.

7.

INCOME TAXES

At December 31, 2004 and 2003, the Company had deferred tax assets which were fully reserved by valuation allowances.  The deferred tax assets were calculated based on an expected future tax rate of 15%.  Following are the components of such assets and allowances at December 31, 2004 and 2003:

2004

2003

Deferred tax assets arising from:

Unrecovered promotional, exploratory, and

development costs

$

56,000

$

56,000

Net operating loss carryforwards

      121,000

         38,000

177,000

94,000

Less valuation allowance

     (177,000)

       (94,000)

Net deferred tax assets

$

                0

$

               0

At December 31, 2004 and 2003, the Company had federal tax-basis net operating loss carryforwards totaling approximately $803,000 and $250,000, respectively, which will expire in various amounts from 2004 through 2023.  

The tax basis net operating loss carryforwards prior to 2004 have been reduced by the effects of the provisions of Internal Revenue Code section 382 regarding changes in ownership and the statutory expiration of certain prior years' net operating loss carry forwards.  Changes in the deferred tax asset valuation allowance for 2004 and 2003 relate only to corresponding changes in deferred tax assets for those years.

F-20

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Notes to Financial Statements

8.

SUBSEQUENT EVENTS

Convertible Promissory Notes

Subsequent to year-end the Company issued three convertible promissory notes (“the Notes”) in order to finance the Company until it is able to raise additional capital.  Two of the Notes were to shareholders for $25,000 and $50,000, respectively, and one of the Notes was to a director for $25,000.  The Notes are dated January 21, 2005, and are payable on demand, or if no demand is made, on July 20, 2005.  The Notes accrue interest at 6% per annum and interest only payments are due on the unpaid balances on the quarterly anniversary dates with the first payment due on April 21, 2005.  

The Company has the right to, at any time prior to the maturity date and without notice to convert the Notes into restricted shares of the Company’s common stock and warrants.  The conversion rate is $0.30 per share and includes one warrant per share initially at $0.45.  The exercise price of the warrants escalates to $0.55 and $0.75 in the second and third year from the date of issuance.

Placement Agent Agreement

On March 1, 2005 the Company entered into a Placement Agent Agreement, (“the Agreement”) with a broker-dealer to act as a placement agent for the Company, with respect to the sale of 9,166,666 units of the Company’s securities. The Company intends to offer to prospective investors an aggregate of two million seven hundred fifty thousand dollars (U.S. $2,750,000) of its shares of common stock and warrants as a unit at U.S. $0.30 per unit.  The units will consist of one share of common stock of the Company and one warrant entitling the holder of the common stock to acquire one additional share of common stock of the Company at U.S. $0.45 per share for the period of one year from the date of issue of the common shares to the holder.  The exercise price for the warrants will increase to U.S. $0.55 for the period of the second year from the date of issue and further increase to U.S. $0.75 for the period of the third year from the date of issue.  The Company reserves the right to use the closing date for the offering or date of last sale as the “issue date” for the exercise periods for the warrants. The private placement will be offered on a best efforts basis and the Company ultimately may not be successful in selling its securities. The securities that may be sold are subject to registration rights to the purchasing investors with liquidated damage penalties accruing to the Company in the event it is unable to effect a registration statement within a certain time period. Funds received from the private placement will be used to develop the Company’s Alaska gold property.

F-21

INDEX TO INTERIM FINANCIAL STATEMENTS

PART I – FINANCIAL INFORMATION

Item 1:  Financial Statements

Balance Sheets, September 30, 2005 and December 31, 2004

F-23

Statements of Operations for the three and nine month periods ended September 30, 2005 and 2004 and

from the date of inception on March 26, 1959 through September 30, 2005

F-24

Statements of Cash Flows for the nine months ended September 30, 2005 and 2004 and from the

date of inception on March 26, 1959 through September 30, 2005

F-25

Notes to Financial Statements

F-26

F-22

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Balance Sheets

September 30, 2005 and December 31, 2004

(unaudited)

September 30,

December 31,

2005

2004

ASSETS

Current assets:

Cash

$

81,643

$

32,855

Prepaid expenses

11,787

6,198

Other receivable

             3,000

Total current assets

96,430

39,053

Plant, equipment, and mining claims:

Other equipment, net of depreciation

3,806

4,441

Mining and mineral properties

321,041

321,041

Other assets

            6,111

            3,025

Total assets

$

       427,388

$

       367,560

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

11,129

$

5,020

Accounts payable – related parties

80,298

32,772

Accrued interest

3,000

Notes payable

        100,000

Total current liabilities

        194,427

           37,792

Long-term liabilities:

Accrued remediation costs

          50,000

           50,000

Total liabilities

        244,427

           87,792

Stockholders' equity:

Preferred stock; no par value, 10,000,000

shares authorized; no shares issued or outstanding

Common stock; $0.10 par value, 200,000,000

shares authorized; 16,133,420 and 15,364,117

issued and outstanding, respectively

1,613,342

1,536,411

Additional paid-in capital

862,708

752,458

Deficit accumulated during the development stage

    (2,293,089)

    (2,009,101)

Total stockholders’ equity

        182,961

        279,768

Total liabilities and stockholders' equity

$

       427,388

$

       367,560

The accompanying notes are an integral part of these financial statements.

F-23

Little Squaw Gold Mining Company

(A Development Stage Company)

Statements of Operations

(unaudited)

 From Inception

(March 26, 1959)

Three Months Ended

Nine Months Ended

Through

September 30,

September 30,

September 30,

2005

2004

2005

2004

2005

Revenue:

Royalties, net

$     398,752

Lease and rental

99,330

Gold sales and other

                   -

                   -

                    -

                 -

         31,441

                   -

                   -

                    -

                 -

       529,523

Expenses:

Other costs of operations

8,030

Management fees and salaries

$        13,500

$         15,825

$        48,050

$         49,225

1,000,107

Directors' fees

3,900

6,900

10,900

18,700

263,043

Professional services

51,578

62,996

166,371

193,613

818,980

Other general and administrative

expense

18,838

18,062

41,829

31,083

256,047

Mineral property maintenance

1,947

2,024

5,212

6,464

18,129

Office supplies and other expense

2,226

1,993

5,104

9,200

243,654

Depreciation

211

212

635

282

5,882

Reclamation and miscellaneous

115,102

Loss on partnership venture

53,402

Equipment repairs

          25,170

          92,200

        108,012

        278,101

        308,567

     2,807,546

Other (income) expense:

Interest expense

3,000

6,055

42,356

Interest income

(59)

 (151)

(168)

 (527)

        (27,290)

Total other (income) expense

2,941

 (151)

5,887

 (527)

         15,066

Net loss

$

        95,141

$

       107,861

$

       283,988

$

       308,040   

$  2,293,089

Net loss per common share

$

              Nil

$

             Nil

$

             Nil

$

              Nil

$             Nil

Weighted average common

shares outstanding-basic

   15,835,594

   14,974,117

   15,573,728

   14,564,747

     6,633,063

The accompanying notes are an integral part of these financial statements.

F-24

Little Squaw Gold Mining Company

(An Exploration Stage Company)

Statements of Cash Flows (unaudited)

From Inception

(March 26, 1959)

Nine Months Ended

Through

September 30,

September 30,

2005

2004

2005

Cash flows from operating activities:

Net loss

Net loss

$

(283,988)

$

(308,040)

$

(2,293,089)

Adjustments to reconcile net loss to net cash

used in operating activities:

Depreciation

635

282

6,376

Common stock, warrants, and options

issued for salaries and fees

45,306

11,910

431,900

Change in:

Prepaid expenses

(5,589)

(2,544)

(11,787)

Gold inventory

(3,025)

(3,025)

Other receivable

(3,000)

(3,000)

Accounts payable, other

6,109

21,988

11,128

Accounts payable, related party

47,526

100,298

Accrued compensation, related party

255,450

Accrued payroll taxes

19,323

Accrued interest

3,000

3,000

Convertible success award, Walters LITS

88,750

Accrued remediation costs

               50,000

Net cash used - operating activities

           (190,001)

           (279,429)

       (1,344,676)

Cash flows from investing activities:

Receipts attributable to unrecovered

promotional, exploratory, and development costs

626,942

Proceeds from the sale of equipment

60,000

Additions to property, plant, equipment, and

unrecovered promotional, exploratory, and

development costs

               (3,086)

               (4,934)

           (373,428)

Net cash used - investing activities

               (3,086)

               (4,934)

            313,514

Cash flows from financing activities:

Issuance of common stock, net of offering costs

141,875

288,313

1,020,979

    Proceeds from notes payable

100,000

100,000

Acquisitions of treasury stock

               (8,174)

Net cash provided - financing activities

            241,875

            288,313

         1,112,805

Net increase in cash

48,788

3,950

81,643

Cash, beginning of period

              32,855

              98,834

                       0

Cash, end of period

$

            81,643

$

          102,784

$

            81,643

Supplemental disclosures of cash flow information:

Non-cash investing activities:

Mining claims purchased - common stock

$

            35,000

$

            35,000

Non-cash financing activities:

Related party liabilities compensation

converted to common stock

$

            88,750

$

          301,086

The accompanying notes are an integral part of these financial statements.

F-25

Little Squaw Gold Mining Company

Notes to Financial Statements (Unaudited)

1.

BASIS OF PRESENTATION:

The unaudited financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information, as well as the instructions to Form 10-QSB.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  In the opinion of the Company’s management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the interim financial statements have been included.  Operating results for the three-month and nine-month periods ended September 30, 2005 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2005.  

For further information refer to the financial statements and footnotes thereto in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2004.

Net Loss Per Share

Statement of Financial Accounting Standards No. 128, “Earnings per Share,” requires dual presentation of basic earnings per share (“EPS”) and diluted EPS on the face of all income statements issued after December 15, 1997, for all entities with complex capital structures. Basic EPS is computed as net income divided by the weighted average number of common shares outstanding for the period.  Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities.  For the periods ended September 30, 2005 and 2004, the effect of the Company’s outstanding options and common stock equivalents would have been anti-dilutive. Accordingly, only basic EPS is presented.

2.

2003 SHARE INCENTIVE PLAN:

During the third quarter of 2005, the Company did not issue any stock options.  The Company’s 2003 Share Incentive Plan (the “Plan) permits the granting of nonqualified stock options, incentive stock options and shares of common stock to employees, directors and consultants.  In November 2005 our Board of Directors ratified changes to the Plan that brought it into compliance with new IRS laws (principally Code 409A) that require companies to recognize the fair market value of stock options and other share based payments awarded to employees and associates as compensation expense.  The new law becomes effective for our Company on January 1, 2006.  Any new shares issued under our Plan will be based on their then current market price or higher.  The Plan is now referred to as the Restated 2003 Share Incentive Plan.

3.

STOCKHOLDERS’ EQUITY:

Common Stock

On July 1, 2005 the Company issued 31,400 shares of common stock to Strata Partners, LLC as reimbursement for $5,338 of expenses incurred on the Company’s behalf in the process of obtaining financing.

Stock Warrants

Warrants were issued in connection with a private placement of the Company’s common stock during 2004, and were exercisable at $0.45 per share ("$0.45 warrants") and expired on September 19, 2005.  On May 18, 2005, directors consented to authorize the Company to reduce the warrant exercise price to $0.25 through June 24, 2005.  As a result, 75,000 warrants were exercised during June of 2005.  There were no warrants exercised in the third quarter and, at September 30, 2005 all outstanding warrants expired, except for the warrants issued in connection with the private placement described below in Item 2.

F-26

Little Squaw Gold Mining Company

Notes to Financial Statements (Unaudited)

4.

RELATED PARTY TRANSACTIONS:

In January of 2005 the Company issued three convertible promissory notes (“the Notes”) in order to provide working capital for the Company until it is able to raise additional capital.  Two of the Notes were to shareholders for $25,000 and $50,000, respectively, and one of the Notes was to a director for $25,000.  The Notes are dated January 21, 2005, and were payable on demand, or if no demand was made, on July 20, 2005.  

The Company has the right, any time prior to the maturity date and without notice, to convert the Notes into restricted shares of the Company’s common stock and warrants.  The initial conversion rate is $0.30 per share and includes one warrant per share initially at $0.45.  The exercise price of the warrants escalates to $0.55 and $0.75 in the second and third year from the date of issuance.  On July 20, 2005, all parties to the notes agreed to extend the term of the Notes to an indefinite period until the Company has the financial resources to repay them. In connection with the agreement to extend the term of the Notes the parties also agreed that the interest rate on the notes would increase from 6% to 12%. At September 30, 2005, the Company had accrued $3,000 of interest related to the Notes.

On October 18, 2005 a principal payment of $25,000 was paid on one of the convertible promissory notes in the amount of $50,000 leaving a total balance due of $75,000.  On December 20, 2005, the remaining $75,000 was paid in full.

F-27

LITTLE SQUAW GOLD MINING COMPANY

10,431,400 Shares of Common Stock

PROSPECTUS

______________________, 2006

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Other Expenses of Issuance and Distribution.

Item 14.  Indemnification of Directors and Officers

Pursuant to our bylaws, we are required to indemnify all of our officers and directors for such expenses and liabilities, in such manner, under such circumstances to such extent as permitted by the Alaska Corporations Code, as now enacted or hereafter amended.  Unless otherwise approved by our board of directors, we shall not indemnify any of our employees who are not otherwise entitled to indemnification pursuant to our bylaws.

Alaska law permits a corporation, under specified circumstances, to indemnify its directors, officers, employees or agents against expenses (including attorney’s fees), judgments, fines and amounts paid in settlements actually and reasonably incurred by them in connection with any action, suit or proceeding brought by third parties by reason of the fact that they were or are directors, officers, employees or agents of the corporation, if such directors, officers, employees or agents acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reason to believe their conduct was unlawful.  In a derivative action, that is, one by or in the right of the corporation, indemnification may be made only for expenses actually and reasonably incurred by directors, officers, employees or agents in connection with the defense or settlement of an action or suit, and only with respect to a matter as to which they shall have acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made if such person shall have been adjudged liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine upon application that the defendant directors, officers, employees or agents are fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.

Our Articles of Incorporation and Bylaws also contain provisions stating that no director shall be liable to our company or any of our shareholders for monetary damages for breach of fiduciary duty as a director, except with respect to (1) a breach of the director’s duty of loyalty to the corporation or its shareholders, (2) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) liability under the Alaska Corporations Code (for unlawful payment of dividends, or unlawful stock purchases or redemptions) or (4) a transaction  from which the director derived an improper personal benefit.  The intention of the foregoing provisions is to eliminate the liability of our directors to  our shareholders to the fullest extent permitted by the Alaska Corporations Code.

Item 15.  Recent Sales of Unregistered Securities

During the past three years, we have offered and sold the following securities in unregistered transactions pursuant to exemptions under the Securities Act of 1933, as amended.

On November 21, 2005, the Company closed a private placement to raise one million dollars ($1,000,000).  We issued 6% Convertible Debentures in the principal amount of One Million United States Dollars (US$1,000,000) and 2,500,000 Class A Warrants to one institutional investor, who was a non-U.S. person outside the United States.  The securities were issued in an “off-shore transaction” in reliance upon an exception from registration available under Rule 905 of Regulation S of the Securities Act of 1933, as amended.  The Debentures are convertible into shares of Common Stock, $0.10 par value, at US$0.20 per share, subject to certain adjustments, and each Warrant is exercisable to acquire one share of common stock at an exercise price of US$0.30 per share until November 21, 2008.  The 6% convertible debentures and the Class A Warrants contain provisions that limit the selling

i

shareholder’s beneficial ownership in the class of common stock of Little Squaw to 9.99%.  In connection with the placement, the Company issued a placement agent 500,000 Class A Warrants under the terms of a Placement Agent Agreement.  The warrants were issued to the agent in reliance upon Section 4(2) of the Securities Act.

On August 12, 2005 the Company’s Board of Directors authorized a direct private placement offering of 1,200,000 units at $0.25 per Unit.  Each unit consists of one common share of the Company, and a three-year full share purchase warrant exercisable at $0.30, $0.35 and $0.40 in the respective successive years.  During the quarter ended September 30, 2005, the Company sold a total of  500,000 units for proceeds of $125,000. The remaining 700,000 units were sold to during the fourth quarter of 2005, for proceeds of $175,000.   Five accredited investors (as such term is defined in Rule 501(a) of Regulation D) participated in the offering.  No fees or commissions were paid, and net proceeds to the Company were $300,000.  The Company issued the units in private placement transactions solely to “accredited investors” (as defined in Rule 501(a) of Regulation D under the Securities Act).  The Company issued the units in reliance upon the safe harbor from registration available under Rule 506 of Regulation D of the Securities Act.

On July 1, 2005, the Company issued 31,400 shares of its common stock to Strata Partners, LLC as reimbursement for expenses incurred under the terms of a Placement Agent Agreement that terminated July 1, 2005.  The  shares were issued to the agent in reliance upon Section 4(2) of the Securities Act.

On May 18, 2005, the Company’s Board of Directors authorized a reduction of the exercise price of warrants, expiring on September 19, 2005, previously issued by the Company in a private placement from $0.45 per share to $0.25 through June 24, 2005.  As a result of the price reduction 75,000 warrants were exercised during the second quarter ended June 30, 2005, yielding net cash proceeds of $16,875.  The warrants were exercised by two accredited investors (as such term is defined in Rule 501(a) of Regulation D) in reliance upon the safe harbor from registration available under Rule 506 of Regulation D of the Securities Act.

On May 13, 2005 the Company, by resolution of its Board of Directors, issued 112,903 restricted common shares to Mr. James Duff, for his services as Chairman of the Board of Directors and in connection with working with the Company’s management in attempts to finance the Company. Mr. Duff’s value of services was determined by the other directors to be $35,000, and the shares were issued on the basis of their current market price of $0.31 per share. The shares were issued under the Company’s 2003 Share Incentive Plan and in reliance upon Section 4(2) of the Securities Act.

On February 14, 2005, the Company issued 30,000 restricted common shares to Sussex Avenue Partners, LLC of Carlsbad, CA as partial and final payment for consulting services performed under a Consulting Agreement dated October 19, 2004. The shares were issued under in reliance upon Section 4(2) of the Securities Act.

On January 6, 2005, the Company issued 20,000 restricted common shares to Mr. Terry Swanger in partial fulfillment of payment for consulting services by  Swanger Eriksen and Associates as provided for in a Letter Agreement dated October 14, 2004. The consulting services were related to the development and implementation of a marketing plan to introduce the Company to U.S. markets.  The Letter Agreement was terminated on February 28, 2005. The shares were issued under in reliance upon Section 4(2) of the Securities Act.

On December 31, 2004, the Company issued 50,000 common shares and 50,000 options to purchase shares of common stock to its six non-executive, independent directors pursuant to its 2003 Share Incentive Plan (the “Plan”), as approved by its shareholders. The Plan permits the granting of nonqualified stock options, incentive stock options and shares of common stock to employees, directors and consultants.  In each case the options are exercisable for a ten year period from the date of issuance at an exercise price of $0.22 per share.  The options were valued using the average closing price of the last five trading days of 2004 at a 45% discount.  The shares and options were issued to the following directors: