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

                                  FORM 10-KSB
                    ANNUAL REPORT UNDER SECTION 13 OR 15(d)
                                     OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended September 30, 2003

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

         For the transition period from ___________ to ________________

                       Commission File Number: 000-49690

                        McKENZIE BAY INTERNATIONAL, LTD.
                 (Name of small Business Issuer in Its Charter)

                                    Delaware
                        (State or Other Jurisdiction of
                   Incorporation or Organization)  51-0386871
                      (I.R.S. Employer Identification No.)

                            975 Spaulding Avenue SE
                             Grand Rapids, Michigan
                    (Address of Principal Executive Offices)
                                     49546
                                   (Zip Code)

                                 (616) 940-3800
                (Issuer's Telephone Number, Including Area Code)

      Securities registered pursuant to Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $0.001 Par Value

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.  Yes   No _X_

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.   -

The issuer's revenues for the fiscal year ended September 30, 2003 were $0.

On April 15, 2004, the aggregate market value of the voting and non-voting
common equity held by non-affiliates of the issuer was approximately $32,141,239
computed by reference to the price at which the common equity was sold.

On April 15, 2004, the issuer had outstanding 25,663,575 shares of Common Stock,
$0.001 par value.

Transitional small Business Disclosure Format (check one): Yes   No [X]

                                     PART I

ITEM 1.         DESCRIPTION OF BUSINESS.

Recent Development

On April 6, 2004, we entered into a Standby Equity Distribution Agreement with
Cornell Capital Partners, LP under which Cornell has agreed, subject to our
satisfaction of the conditions described below, to purchase from us, from time
to time, our common stock for a price of up to $15,000,000.  The price per share
is to be an amount equal to 99% of the lowest volume weighted average price
("VWAP") of our common stock as quoted by Bloomberg, LP during the five
consecutive trading days after we give notice to Cornell of a sale of our shares
to Cornell.  We may require Cornell to purchase shares having a price of up to
$625,000 upon giving notice not less than six trading days prior to the date of
the anticipated purchase.  Prior to any purchase shares by Cornell, we must have
satisfied each of the following conditions:

- Our common stock shall have been authorized for quotation on a principal
  market such as the OTC Bulletin Board, the NASDAQsm all Cap Market, the
  American Stock Exchange or similar market;

- We must have deposited the shares of common stock being sold with Cornell's
  counsel under an Escrow Agreement;

- We must file a registration statement with the SEC in order to register the
  shares under the Securities Act of 1933 and the registration statement must
  have been declared effective by the SEC;

- We must have obtained any permits required for the offer and sale of the
  shares and certain other securities from any state where securities will be
  sold or have available an exemption therefrom;

- We must have filed in a timely manner all reports, notices and other documents
  we are required  to file under the Securities Exchange Act of 1934;

- Our transfer agent must meet certain eligibility requirements; and

- We must pay certain fees as set forth below.

Although there is no time limit in which we must satisfy the conditions, there
can be no assurance that we will be able to satisfy each of them.  In addition,
based upon certain positions of the Division of Corporation Finance of the SEC,
we anticipate that it may be difficult or impossible to register the shares
prior to their purchase by Cornell.

<PAGE>1

If the conditions are satisfied, Cornell's obligation to make purchases under
the agreement will terminate 24 months after the date on which the SEC first
declares effective our registration statement relating to the shares to be
purchased by Cornell.

Under the agreement with Cornell, we have agreed to pay the following

- $15,000 to Cornell's legal counsel for acting as an Escrow Agent in the amount
  of and an additional $500 upon each purchase by Cornell;

- A payment to Cornell of 5% of each of its purchases;

- 119,984 shares of our common stock as of the date of the Standby Equity
  Distribution Agreement and an equal number of shares on the date the
  Registration Statement is effective, equal in total to $540,000.00; and

- A due diligence fee of 2,500.

We have also entered into a Registration Rights Agreement with Cornell under
which we have agreed to file a registration statement with the SEC and cause the
registration statement to be declared effective by the SEC prior to the first
sale of shares to Cornell.  We have agreed to maintain the registration
statement's effectiveness until Cornell has sold all of its shares included in
the registration statement.

We have entered into a Placement Agent Agreement with Spencer Clarke, LLC under
which Spencer Clarke agreed to review the terms of the Standby Equity
Distribution Agreement and advise us with respect to the terms.  Spencer
Clarke's fee for these services was $10,000 which we satisfied by the issuance
to Spencer Clarke of 4,444 shares of our common stock.  We will also pay Spencer
Clarke for its services as a placement agent in introducing us to Cornell an
amount equal to 10% of the gross proceeds of each purchase of our shares advance
of which $25,000 has been paid and the balance shall be paid at the time or
times that Cornell purchases shares from us and we will issue to Spencer Clarke
warrants to purchase shares of our common stock in an amount equal to 10% of the
number of shares sold to Cornell.

Background

Prior to July 2003, we intended to primarily engage in the development of our
Lac Dore vanadium deposit in Chibougamau, Quebec.  Based upon a market study,
undertaken as part of the feasibility study by SNC-Lavalin, dated April 2002, we
believe that successful introduction of new vanadium-based bulk-energy storage
devices (large batteries) could generate increased demand for vanadium, which
may make exploitation of the Lac Dore deposit economically feasible.  To date,
however, the limited sales growth of vanadium batteries has not generated the
demand for vanadium which we anticipated. We cannot forecast when, if ever, any
meaningful increase in sales for vanadium based batteries may occur.  Except for
research and development work on our vanadium refining technology, we have
deferred engaging in any material developmental or operational activities in
connection with the deposit.  In order to retain full rights to the mining
claims in the deposit, we must perform and/or fund certain exploration and
development-related work as specified by applicable regulations or we must pay a
total of approximately $38,000 per year.


<PAGE>2

Because of our belief in the growing interest in alternative energy generation
devices, we have altered our business plan in July 2003 to concentrate on wind
powered alternative energy systems.

We do not have the capital to further fund or develop any of our proposed
business activities.  Although we have been and are currently seeking funding,
there can be no assurance that we will receive adequate funding, if any, or that
the terms of any such funding will not be unfavorable to us.  Other than our
agreement with Cornell, which is subject to conditions we may not be able to
satisfy, we have not received any commitment for funding. Our ability to engage
in the business activities described below is dependant upon our acquisition of
significant funds.

We are in a developmental stage and have never realized any meaningful revenues.
Our independent auditor has stated in its report dated December 23, 2003 that we
have suffered recurring losses and have a deficiency in assets that raise
substantial doubt about our ability to continue as a going concern.

We were incorporated in Delaware on August 17, 1998.

Unless the context in this Annual Report otherwise requires, all references in
this Annual Report to "our," "us" and "we" refer to McKenzie Bay International,
Ltd. and its subsidiaries.

Wind Powered Alternative Energy Systems

Acquisition of Dermond Inc.

On February 12, 2002, we acquired all of the outstanding shares of common stock
of Dermond Inc., a Canadian corporation formed in 1996 from Jacquelin Dery and
Laurent Mondou.  Dermond owned the technology referred to as the Dermond Wind
Turbine.  The technology relates to improvements to the Darrieus style vertical
axis wind turbine, a generator assembly to produce electricity and a self-
erecting structure for the wind turbine. The purchase price consisted of:

- The issuance  to each of the sellers of 50,000 shares of our common stock;

- The payment to each of the sellers of CDN$25,000.

In connection with the purchase, we entered into an employment agreement and
royalty agreement with each of the sellers.  Pursuant to the employment
agreements, the sellers are employed as Vice Presidents of Dermond until
February 12, 2007, subject to additional periods of one year each unless a party
gives requisite notice of termination.  Each of the employees is entitled to
receive an annual salary of CDN $65,000 (approximately $49,000 U.S. on March 31,
2004) which will increase to CDN $85,000 (approximately $64,000 U.S. on March
31, 2004 )  upon our first sale of a Dermond Wind Generator.  As of March 31,
2004, we were approximately CDN $16,400 (approximately $12,375 US on March 31,
2004) in arrears in the payment of salaries to each of Messrs. Dery and Mondou.

<PAGE>3

Pursuant to the royalty agreements, we will pay each of the sellers a royalty of
1.25% of the net receipts received by us from sales of the Dermond Wind
Generator utilizing the technology developed by Dermond.  In the event that a
Dermond Wind Generator is leased rather than sold, the royalty payable to each
of the sellers will be 1.25% of the net lease payment received by us. In the
event of the resale or re-lease of the same wind generator, the sellers shall
each be entitled to a further such royalty of 1.25%.  In the event a Dermond
Wind Generator is leased, each of the sellers may elect to receive the royalty
in a lump sum upon execution of the lease agreement and payment of the first
lease payment.  The lump sum royalty will be 1.25% of the then present value of
the lease. The royalties will be payable to the sellers on all Dermond Wind
Generator sold or leased during the 10-year period commencing with the first
sales or lease transaction of a Dermond Wind Generator.

Wind Turbine Technology

Differential heating of the earth's surface by the sun causes large air masses
to move continuously about the surface of the earth. The masses move with such
velocity that they possess significant amounts of kinetic energy. Wind turbines
have been used to convert the kinetic energy of the moving air mass to
electricity.

According to the American Wind Energy Association, horizontal axis wind turbines
dominate the wind turbine market and are used in more than 95% of wind
generating applications around the world.  Power production size of horizontal
axis wind turbines generally ranges from approximately 1 kilowatt ("kW") to
approximately four megawatts ("MW").

The predominant aerodynamic principal employed by wind turbine technologies for
operation is lift.  As wind attempts to pass by the wind turbine, its blade
design causes the wind to accelerate over one surface of the blade, creating a
low pressure area on that surface which tends to pull the blade in its
direction.  Typical wind turbine blade design varies the lift-pulling action
over the blade surface causing rotation, the basis for wind power functionality.

Several natural factors affect a wind turbine's production of electricity,
including temperature, wind direction consistency and wind speed, the most
important turbine performance criteria.  Typically, at the same location, wind
speeds will be greater as the height from ground level increases.  Configured in
single to multi-blade propellers, horizontal axis wind turbine design requires
the turbines to be elevated into the air to allow propeller rotation.  Vertical
axis wind turbine designs have historically been primarily ground mounted.
Horizontal axis wind turbines' dominance of the market today is based on
superior performance from their ability to access higher velocity winds at
elevation.  A horizontal axis wind turbine, however, must incorporate a "yaw"
mechanism, which generally consists of an electric motor that turns the
propeller section into the direction of the wind to adjust to shifts in wind
direction.

<PAGE>4

French inventor Georges Jean Marie Darrieus filed the first patent for a modern
type of vertical axis wind turbine in France in 1925 and in the United States in
1931.  His name is synonymous with the majority of vertical axis wind turbine
designs of today which are referred to as "Darrieus" style.  Vertical axis wind
turbines are very difficult to mount high on a tower to capture the higher level
winds. Accordingly, they are usually forced to accept the lower, more turbulent
winds and produce less in possibly more damaging winds.

At the onset of the Arab oil embargo in 1973, the U.S. Atomic Energy Commission,
a predecessor to the current Department of Energy, asked Sandia National
Laboratories, a national United States laboratory devoted to engineering
research and development, to investigate and develop alternative energy sources.
Sandia's engineers began to look into the feasibility of developing an efficient
wind turbine that industry could manufacture.  National Research Council Canada
shared its development work with Sandia and a North American effort to develop
the Darrieus technology began.

In the late 1970's, five companies, including FloWind Corporation, began
production, commercialization and installation of modern Darrieus wind turbines,
culminating in a fleet of nearly 900 vertical axis wind turbines, primarily
located in the Altamont and Tehachapi passes of California, and India.  All of
the vertical axis wind turbine commercial enterprises have since ceased
production.  We are not aware of the reasons why production ceased.

Potential Wind Turbine Markets

Approximately 6,868 MW of new wind power capacity was installed worldwide in
2002, increasing generating capacity by 28% and increasing total wind power
installation to over 31,000 MW, enough to power 7.5 million average American
homes.  Global wind power capacity quadrupled over the five-year period from
1998 to 2002, growing from 7,600 MW to more than 31,000 MW. Wind is the world's
fastest-growing energy source, with installed generating capacity increasing by
an average of 32% annually during that five-year period. Approximately 93% of
the additional wind power capacity installed in 2002 was in Europe and the
United States, and worldwide, 90% of capacity is in those two regions.
Substantially all of the wind energy described above is sold to utilities
providing electricity to their customers.  In addition to adding supply to a
utility grid, which is the primary market for wind generated electricity, we
believe that supplying power to off-grid communities and urban, commercial rate
paying buildings may constitute potential market opportunities for wind
generated power.

The factual data under this sub caption was compiled by the American Wind Energy
Association and European Wind Energy Association.

There can be no assurance that our wind turbines, if built, will achieve a
meaningful amount of commercial acceptance, if any, in any of the potential
markets. Off-Grid (Islands & Remote Access) The prohibitive cost of connecting
small, remote communities to a utility grid or, in the case of islands, the lack
of a typical power generation resource such as coal or nuclear energy, causes
thousands of locations worldwide to be dependent upon diesel and gasoline
powered generators for electricity.  The fuel, operating and maintenance
expenses for these generators are extremely high, causing electricity generating
costs to be significantly greater than in urban "in-grid" locations.

<PAGE>5

A document titled "Le Developpement de l'Energie Eolienne au Quebec" ("the
development of wind energy in Quebec") dated April 30, 1998, was presented by
Hydro-Quebec at a Quebec Government public hearing on the future of wind energy
in May 1998.  Hydro-Quebec estimated at that time that the potential world
wind/diesel (wind generated electricity with diesel generator backup) market
outside Canada was estimated at 25,000 MW, with 11,400 MW of existing diesel
installations and 13,000 MW to come.

Wind turbines have been introduced to off-grid communities in various locations
around the world.  We believe the following sites constitute viable off-grid
markets;

- Thousands of island and remote mining, logging and other off
  grid locations;
- More than 200 Canadian communities;
- Approximately 250 off-grid communities in Alaska.
- Urban User Market

We believe that vertical axis wind turbines have the potential to provide
building owners, real estate developers, property managers and other users in
urban locations a means to reduce the overall cost of electricity. Based upon
information compiled by the U.S. Department of Energy, commercial retail rate
users in the U. S. alone consume more than 1.4 million MW of electricity
annually.

We further believe that vertical axis wind turbines may provide a cost-effective
and efficient alternative power supply in commercial buildings, schools,
multistory residential dwellings, light industrial businesses and off-grid
areas.  In addition, we believe that vertical axis wind turbines may also be
suitable for peak shaving and load leveling applications.


 Proposed Products DWT(sm)

Subject to obtaining sufficient funds, we intend to contract with others for the
manufacture of prototype vertical axis wind turbines which we refer to as
Dermond Wind Turbine or DWT. The DWT has been designed to utilize the following
technology which we have included in our patent application which may result in
the following:

- Simplification of installation by reducing the number of onsite elevated
  assembly steps;

- Improvement in quality of workmanship by allowing more "in factory"
  assembly;

- Reduction in overall cost of installation; and

- Relative ease of installation where certain assembly equipment may be
  unavailable.

<PAGE>6

The DWT is presently in the design stage and no prototypes have been built.
Accordingly, there can be no assurance that the technology will work as expected
or that any DWT will perform to the extent that we anticipate or will be
commercially viable.  We initially intend to obtain two prototypes in 100 kW
configurations during the summer and early fall of 2004.  If the prototypes meet
our expectations and we obtain the requisite funding, we intend to have DWTs
manufactured for commercial introduction. The "wind cage," or blade rotating
space, will be approximately 40 feet high and 56 feet wide and is expected to
weigh approximately 6,000 pounds.  We selected the 100 kW size because the
configuration meets our initial market focus on the urban, remote, limited
access and extreme climatic environment markets.  If we are successful in
marketing 100 kW DWTs, we intend to develop DWTs having increased electrical
output. We believe that we will require funds of approximately $1.2 million to
complete the design stage of the DWT and to obtain two prototypes.  If we are
able to obtain the funds, we intend to utilize them as follows:

USE REQUIRED FUNDS ANTICIPATED TIME PERIOD FOR USE OF FUNDS

Design Completion               $600,000        2 months
Prototype Construction          $300,000        2 months
Installation and Testing        $300,000        3 months
Marketing and Working Capital   $200,000        2 months

We have received conditional commitments from Canadian governmental agencies for
$330,000 in non-refundable grants and loans of $590,000.  Because we do not know
if we can satisfy the conditions, we do not know if we will receive any of the
funds.  We have received no commitments for the balance of the requisite funds
and there can be no assurance that we will be successful in obtaining those
funds.  The amount in the table for Marketing and Working Capital will only
satisfy our initial requirements.  If we do not obtain all of the requisite
funds, we will not be able to produce or sell any DWTs.

WindStorsm

We have begun development of an energy system which is intended to integrate and
manage DWTs and other electricity generating sources with an energy storage
device. We refer to the system as the "WindStor."  As is the case with the DWT,
because WindStor is presently in the design stage and no prototypes have been
built, there can be no assurance that the technology will work as expected or
that any WindStor will perform to the extent that we anticipate or will be
commercially viable.

<PAGE>7

WindStor is an electricity management system which will use the Dermond Vertical
Axis Wind Turbine to generate electricity.  This electricity will be used by the
customer as generated or stored in a vanadium-based battery.  WindStor's
proprietary "system integrator" will be programmed to distribute electricity to
the customer's facility from the lowest cost source at each moment (i.e. from
the wind turbine, from the battery or from the utility), to provide to the
customer the least costly source of electricity.

WindStor is being designed to constantly monitor electricity demand and supply.
We anticipate that because of the monitoring, WindStor will be able to provide
for instant shifting from one power source to another, such as the Vertical Axis
Wind Turbine, a battery and either the grid or a backup diesel generator, in
order to select the lowest cost source of electricity available at any moment in
time and to immediately switch to battery power if other means of power are
interrupted from the supply source.

We believe that WindStor can provide a higher quality, lower cost and
environmentally friendly alternative electricity source than is presently
available for off-grid electricity users dependent upon diesel and gasoline
generators.  For urban users, WindStor is planned to provide a means for
providing a system to store relatively low cost electricity and access that
electricity to offset "near peak," "peak" and "demand" charges by grid provided
power companies.

The cost to complete design of WindStor is part of the DWT financing described
above. If we do not obtain all of the requisite funds, we will not be able to
produce or sell any WindStors.

In December 2003, we entered into an agreement with Clark County School District
to install an anemometer at a high school in Las Vegas, Nevada to collect wind
data to finalize an equipment configuration and prepare a long term pricing
structure.  We intend to install the anemometer in April 2004 and we expect that
the evaluation period will end in October, 2004.  After the evaluation period,
we have agreed to install a DWT at our expense for further evaluation.
Irrespective of the results and price structure, Clark County School District is
under no obligation to purchase or lease any products from us.  Since November
2003, we have entered into similar arrangements with others with respect to two
additional locations.


<PAGE>8

Production

If we are able to reach the production stage, we intend to have all DWTs and
WindStors manufactured for us by others.  We believe that the necessary parts
and components are readily available from numerous suppliers.  We further
believe that there are numerous manufacturing companies that will be able to
manufacture the products for us at reasonable prices.

Marketing

We intend to market the DWTs and WindStors primarily through non-exclusive
independent marketing agents.  Four companies in the United States have entered
into agreements with us that provide for a payment to them in the event that one
or more WindStors are sold or leased through their efforts. The payment will
consist of 5% of the capitalized lease cost payable within 60 days of
installation of a system or 5% of the gross sales price of a system, exclusive
of taxes and transportation, payable within 60 days of installation of the
system.

Each of the four companies has represented to us that it has expertise in the
sale and promotion of energy products.

        Competition

We are not aware of any organization marketing wind turbines or electricity
management systems such as the WindStor for the urban, commercial-retail rate
user market.  Existing alternatives to grid supplied electricity include solar,
micro-turbine and diesel generators.  These devices are typically used only as
minor contributors to location demand or as a standby electricity source in the
event of a grid power outage.

Atlantic Orient Corporation, Northern Power Systems and Vergnet offer smaller
sized (less than 100 kW) wind turbines in hybrid diesel/wind systems.

Atlantic Orient Corporation has been designing and installing 10 kW and 50 kW
wind-diesel systems for more than 10 years. Atlantic recently installed a system
in Wales, Alaska and has previously installed systems in Russia and Africa. Five
of its turbines are being used in conjunction with two diesel generators to pump
oil in a very remote and cold region in Siberia. Atlantic is designing a turbine
called, WindLite, to run with any phase power backup and which can either charge
DC batteries or be installed with an inverter to change DC to AC power.

Northern Power Systems has been in the wind turbine business for nearly 25 years
and has expertise with in electrical energy systems employing a wide range of
technologies including wind, photovoltaic (solar energy), and diesel-hybrid
power.  Northern has developed, in conjunction with NASA, a 100 kW turbine
synchronous variable speed generator capable of operating under extreme climatic
conditions and installed a prototype in Graniteville, Vermont in 2000. Northern
Power offers a wide range of products, including the NorthWind series, which was
developed for the U.S. Department of Energy.

<PAGE>9

French firm Vergnet, over a period of 20 years, has been developing new hybrid
wind/diesel/lead-acid battery systems to provide self-sufficient electricity
production for remote sites. Vergnet is currently operating a wind/diesel power
plant consisting of twenty-five, 60 kW wind turbines in Guadeloupe.  Vergnet has
installed wind turbines of 15 kW in polar environments and 50 kW in many other
places.  The off-grid market attracts a variety of alternative electricity
generating technologies.  Manufacturers of wind turbines, micro-generators,
biomass and fuel cells have installed prototypes in off-grid locations.  We
believe diesel generators will continue to be the preferred primary off-grid
electricity generating source for the foreseeable future, with alternative
energy devices and systems only being used to improve power and cost
performance, not replacing diesel generators.

Substantially all manufacturers and developers of products that will compete
with our products have substantially greater resources than we do.  Intense
competitive pressures could have a material adverse effect on our proposed
business.

Companies with substantially greater expertise and resources than those
available to us may develop or market new, similar or virtually identical
products that directly compete with us.  Competitors may also develop
technologies or products that render our products less marketable or obsolete.
If we are unable to continually enhance and improve our products, we may be
unable to compete with others.  We may not be able to successfully enhance or
improve any product or develop or acquire new products, because of our limited
resources.

Intellectual Property

In January 2003, we filed a patent application in Canada, Japan and with the
European Union, which include, among other countries, France, Germany, Spain and
the United Kingdom.  In September 2003, we filed a patent application in the
United States and we expect to file patent applications in additional countries.
The claims in the patent applications are for:

-  A wind system of the type having a rotating shaft perpendicular to the
   ground;

-  A blade attachment structure for a windmill;

-  A blade for a windmill;

-  A generator assembly for a windmill to produce electricity;

-  A self erecting structure for a windmill;

and
-  A method for erecting a self-contained windmill.

We believe that that the claims in the applications represent potential
improvements to the Darrieus style vertical axis wind turbines.  The potential
improvements are in the following areas:

<PAGE>10

- Blade Assembly

The improvements relate to a rotating shaft perpendicular to the ground,
comprising three blades positioned in a pre-strained triangular rigid
configuration.  The potential benefit is allowing the blades to adopt a true
troposkein (turning rope) shape at targeted speed, believed to improve vertical
axis wind turbine performance.

- Blade Attachment Structure

The improvements relate to the attachment of the blades to the rotating shaft
using a set of securing elements having a tri-dimensional, triangular
configuration designed to maintain a constant troposkein shape.  The potential
benefit is the minimizing of the dynamic stress on the turning blades which may
result in cost savings in the fabrication process and could contribute to
extended blade life.

- Integrated Direct Drive Generator

The improvements relate to reduction of mechanical losses in geared transmission
between the turbine and the generator. The potential benefit is the absence of a
speed-increasing device and its replacement by an integrated generator providing
for a reduction of the friction between mechanical parts which may increase
electrical output and reduce wear.

- Self-Erecting Design

The improvements relate to a method for fabrication of a self-erecting wind
turbine which may make wind turbines easier to erect.

By letter of January 20, 2004 from the Canadian Intellectual Property Office, we
were advised that each of the claims in our patent application was "indefinite"
and did not comply with certain relevant provisions of the Canadian Patent Act.
We must reply to the letter not later than July 20, 2004.  We intend to respond
to the letter and to amend our application to the extent necessary.

We have not received a response from any other patent agency.

There can be no assurance that any patent will be issued, or if issued, that it
will include any meaningful claims.  Furthermore the validity of issued patents
are frequently challenged by others.  One or more patent applications may have
been filed by others previous to our filing which encompass the same or similar
claims.  If we do not receive a patent which provides adequate protection for
us, we may not be able to manufacture our proposed products in our intended
manner.

Because of our limited resources, we may be unable to protect a patent or to
challenge others who may infringe upon a patent.  Because many holders of
patents in the alternate energy industry have substantially greater resources
than we do and patent litigation is very expensive, we may not have the
resources necessary to challenge successfully the validity of patents held by
others or withstand claims of infringement or challenges to any patent we may
obtain.  Even if we prevail, the cost and management distraction of litigation
could have a material adverse effect on us.

<PAGE>11

Because wind turbines and their related manufacturing processes are covered by a
large number of patents and patent applications, infringement actions may be
instituted against us if we use or are suspected of using technology, processes
or other subject matter that is claimed under patents of others.  An adverse
outcome in any future patent dispute could subject us to significant liabilities
to third parties, require disputed rights to be licensed or require us to cease
using the infringed technology.

If trade secrets and other means of protection upon which we may rely may not
adequately protect us, our intellectual property may become available to others.
Although we may rely on trade secrets, copyright law, employee and third party
nondisclosure agreements and other protective measures to protect some of our
intellectual property, these measures may not provide meaningful protection to
us.

The laws of many foreign countries do not protect intellectual property rights
to the same extent as do the laws of the United States, if at all.

Research & Development

During the fiscal year ended September 30, 2003 we expended approximately
$165,000 on research and development related to DWTs and WindStor.  The
expenditures consisted primarily of engineering for the DWT and the system
integrator. The foregoing amount does not include amounts expended for vanadium
refining technology.  During the fiscal year ended September 30, 2002, we made
no expenditures on research and development related to DWTs and WindStor.

        Regulation

Overview

We propose to own and operate wind powered electric generating facilities to be
located on the property of our prospective customers.  Certain prospective
customers would be end-users (retail consumers) of electricity, such as
privately-owned commercial office buildings, schools, and government buildings,
who would purchase electricity from us.  Each of these types of customers
involves its own regulatory issues.

The electric industry in the United States is governed by both federal and state
law and regulation, with the federal government having jurisdiction over the
sale and transmission of electric power at wholesale in interstate commerce, and
the states having jurisdiction over the siting of electric generating and
transmission facilities and the sale of electricity at retail.

The federal government regulates the wholesale and transmission business through
the Federal Energy Regulatory Commission ("FERC"), which draws its jurisdiction
from the Federal Power Act ("FPA"), and from other legislation such as the
Public Utility Regulatory Policies Act of 1978 ("PURPA") and the Energy Policy
Act of 1992.  FERC has comprehensive and plenary jurisdiction over the rates and
terms for sales of power at wholesale, and over the organization, governance and
financing of the companies engaged in such sales.  The industry is also subject
to self-governance as to operating standards through regional reliability
councils, and, increasingly, to governance of the operation of interconnected
utility and non-utility operations and wholesale markets through Independent
System Operators, all of which are in turn subject to the plenary jurisdiction
of FERC.

<PAGE>12

The States regulate electric power that is generated or sold at retail in their
state in accordance with individual state laws which can vary widely in material
respects, and which, with a few exceptions such as Nebraska, which has no state
regulatory agency with such jurisdiction, grant plenary jurisdiction over
electric utility operations to a single public service commission or commerce
commission.

Interstate holding companies engaged, through subsidiaries, in the electric
utility business are subject to regulation under the Public Utility Holding
Company Act of 1935 ("PUHCA"). These companies, unless specifically exempted,
are required to submit reports to the SEC providing detailed information
concerning the organization, financial structure, and operations of the holding
company and its subsidiaries. Holding companies are subject to SEC regulations
on matters such as structure of their utility systems, transactions among
companies that are part of the holding company utility system, acquisitions,
business combinations, the issue and sale of securities, and financing
transactions.  For purposes of PUHCA, an "electric utility company" means "any
company which owns or operates facilities used for the generation, transmission,
or distribution of electric energy for sale, other than sale to tenants or
employees of the company operating such facilities for their own use and not for
resale."

Federal Regulation

PURPA and Qualifying small Power Production Facility Status

Under PURPA and the regulations of FERC implementing PURPA, a wind-powered
generating facility with a generating capacity less than 30 MW, including all
such facilities owned or operated by the same person within one mile of each
other, no more than 50% of which is owned in the aggregate by electric
utilities, electric utility holding companies, or subsidiaries of either, is
deemed to be a Qualifying small Power Production Facility ("QF").  Certain non-
burdensome filing requirements are required to confirm this status with respect
to each such facility. We believe that our ownership of facilities in foreign
countries such as Canada that might be deemed to be electric utilities were they
located in the U.S. will likely fall under a special Foreign Utility Company
exception to PUHCA that will not make us an electric utility holding company in
the United States for QF ownership purposes.

A QF is automatically exempt from regulation by FERC with respect to any sales
of electricity it may make at wholesale.  In addition, its owners and operators
are automatically exempt from all provisions of PUHCA with respect to their
ownership of the QF and any other QFs they may own.  Moreover, a QF is exempt
from the laws of the states which otherwise regulate the ownership, rates and
terms of sales, corporate governance, and financing of electric utilities.
Finally, a QF, and its customers have certain rights under FERC regulations,
including the right to require an electric utility to interconnect it with the
utility's electric system, the right to purchase firm power service, back-up
power, and supplementary power from an interconnected electric utility at
reasonable and non-discriminatory rates, and the right to require an electric
utility to purchase electric power generated by the QF at the cost the utility
would have incurred in generating or purchasing the same power elsewhere.

<PAGE>13

State regulatory agencies are required by PURPA to enact regulations and take
other measures to implement FERC's regulations under PURPA, and most have done
so. While these rights are frequently threatened in a number of states by
utilities that attempt to undermine their effectiveness through the state
regulatory process, FERC has not failed to uphold them when required.  There
have for many years been attempts in Congress to repeal PURPA, but in each case,
the only repeal that has received serious consideration is the possible repeal
of the PURPA requirement that utilities must purchase QF power.  This particular
right under PURPA has become largely irrelevant in any event since the passage
of the Energy Policy Act of 1992, which mandated open access to the nation's
utility grid for QFs and other non-utility power producers.

WindStor is not intended to consist solely of a wind turbine generator, but also
to include a battery for the storage of power, and in some cases a generating
set fueled with diesel fuel or natural gas.  In addition, the system is designed
in many applications to be interconnected with a utility grid.  Generation and
sale of electricity from a fossil-fuel-fired generator is not eligible for QF
status, and the exemptions from regulation attendant thereto, unless the
generator is a Qualifying Cogeneration Facility as defined by FERC regulations
under PURPA.  A Qualifying Cogeneration Facility is one that produces both
electricity and useful thermal energy from the same fuel source, and meets
certain specified standards for fuel efficiency and balance of electric and
thermal output, as well as the ownership requirements for QFs generally.

Moreover, if the battery element of the WindStor system is ever charged with
power from (1) a non-QF generator or (2) the electric utility grid, rather than
solely from the generation of a wind turbine QF, the sales of power from the
battery, and the owners and operators thereof, would to that extent not qualify
for QF exemptions under PURPA.  Finally, the electrical distribution system
within the customer's application and site, if owned or operated by us, might
not qualify as part of a QF to the extent that they are used to transmit non-QF
power.  On the other hand, there is substantial precedent to support the
proposition that we can lease and/or operate a non-QF generating facility owned
by another person without threat of regulation, provided that it does not sell
the power produced by such facilities, except under the direction of the lessee
or owner.

We intend to structure our WindStor ownership and operating template in order to
secure QF status for all of the elements that we may own and operate where power
is being sold either at wholesale or at retail. We may consider a combination of
ownership and power sales, leases, equipment sales, customer ownership and
operating contracts which divide QF and non-QF elements of any particular
WindStor application.  Although those structures are within current practice in
the industry and are FERC precedent, we cannot predict the outcome.

<PAGE>14

Exempt Wholesale Generators

In the event that a WindStor facility were unable to qualify for QF status
because of ownership by electric utilities or utility holding companies, or a
particular element (such as a non-cogeneration diesel generating set) would not
qualify, we as owner/operator could qualify for exemption from PUHCA and
lightened regulation by FERC, if, and only if, the facility or element of the
WindStor system were owned by a special purpose subsidiary operated solely for
sales of electricity at wholesale, and can demonstrate to FERC that it does not
have the power to exclude any competitors from the market.  Such an exemption is
available to an Exempt Wholesale Generator ("EWG"), as defined by PUHCA and
certified by FERC.  EWG status is gained by application to and subjection to
limited regulation by FERC.  Although EWGs are deemed to be electric utilities
subject to FERC jurisdiction, FERC provides for a lightened regulatory regime
for EWGs.  Among other things, an EWG is required to file a rate schedule with
FERC (although the rate schedule permits the EWG to sell power at negotiated
rates), to report its power sales on a quarterly basis, and to obtain FERC
approval for any transfer of ownership of either the EWG or any upstream owner.

Interconnection

The FPA, as amended by the Energy Policy Act of 1992, and FERC regulations
thereunder, require electric utilities to interconnect with sellers of power at
wholesale.  The process of obtaining a new interconnection for a new generating
facility to operate in parallel with a utility's system can be onerous, time-
consuming, and expensive.  FERC has recently published new regulations that
would simplify and standardize this process for small-scale generators, and
WindStor facilities may benefit from those regulations in those limited
circumstances where a particular application would require utility
interconnection in order to serve a wholesale customer.

State Regulation

With few exceptions, state regulatory agencies generally have the jurisdiction,
among other things, to approve the site selection of new electric generating
facilities, and to permit or disapprove the sale of electric power to end-users
(retail sales). Just as importantly, these agencies have plenary jurisdiction
over a utility's rates and terms for service to retail customers, including the
rates and terms for interconnection including the facilities needed for
interconnection, for firm power service, for supplementary power service (power
needed on a firm basis in addition to the power a customer generates for
itself), and for back-up power service (extra power a customer may need from
time to time in the event of an outage of its own generation).  In some states,
the agency determines whether a customer may terminate its utility service in
order to meet its needs with self-generated power, or power from a non-utility
third party such as us, and whether the customer must pay a special charge for
the right to "go off the grid" partially or completely. All of these may have
important, and possibly materially adverse, implications for us.

<PAGE>15

In most of our anticipated commercial retail applications, the WindStor system
would supply part but never all of a customer's power requirements.  We expect
to sell a portion of the customer's power requirements to the customer, rather
than selling or leasing the system to the customer.  The remainder of the
customer's power requirements would be supplied by a local electric utility.

The first issue in any state will be whether a Certificate of Public Convenience
and Necessity ("CPCN") is required to be obtained from the regulatory agency
before construction may begin.  In most states, a CPCN is not required for the
construction and operation of small-scale generating facilities with generating
capacity less than 1 MW, which would include most WindStor systems we anticipate
installing.  Where a CPCN is required, it typically entails a lengthy and
expensive application process, possibly including an environmental impact
evaluation.

The next critical issue, which will necessarily be resolved in the course of a
CPCN application where one is required, is whether and under what circumstances
a sale of power to an end user at retail will be permitted at all.  QF status,
as described above, gives a QF no right to sell power at retail.  If the state
permits such sales, however, a QF is legally exempt by FERC regulations under
PURPA from most burdensome utility-type regulation by the state regulatory
authority.  Accordingly, if the state permits a QF to make retail sales, the
state will be pre-empted by PURPA from regulating the FRS rates for sales of
retail power, or its corporate governance or financial organization.  The extent
to which a state honors such federal preemption, however, is subject to varying
practice.  Where a CPCN is required, for instance, the conditions of a CPCN
often impose certain obligations that can have the same effect as some level of
utility-type regulation such as restrictions on the amount of financing that can
be obtained, on any future transfer of ownership of the facility, on the ability
of the facility's owners to engage in other businesses in the State, and certain
periodic reporting requirements.

In Florida, for example, a third party such as us is not permitted to make
retail sales from a generating facility located on the customer's property, or
to have any contract (such as a lease or an operations and maintenance
agreement) with the end user, the price of which is based on the output of the
generating facility.  Thus such "inside-the-fence" generating facilities in
Florida are either owned entirely by the electric consumer, or leased to the
consumer with a rental payment that is the same whether or not the facility ever
generates electricity.  Similar or more stringent restrictions are found in
Kansas, North Carolina, Georgia, Virginia, Louisiana as well as other states.
Only about 20 states to date have restructured their electric utility regulatory
regimes to permit relatively unrestricted sales of power to end-users by non-
utility generators.  In a number of others, existing state law and regulation
have been interpreted by the courts to permit such sales to a limited number of
customers on the grounds that a sale to a limited number of end-users is not
deemed to be a prohibited "sale to the public."

<PAGE>16

Finally, the state regulatory authority determines what physical interconnection
requirements a utility may impose on a customer who wishes to install self-
generation in parallel with the utility's grid regardless of any ownership and
operating arrangements between the customer and us, what charges a utility may
impose on a retail customer for such interconnection, and what charges,
penalties or other restrictions the utility may impose on the customer for
permanently reducing its purchased power load from the utility. Charges imposed
by a state regulatory authority may make the installation of self-generation
uneconomical for some customers.  A few states such as New York have published
standardized interconnection requirements for small-scale generators, which
attempt to reduce the burden and cost of the interconnection process, and we and
our customers may benefit from such rules where they apply.  QFs and their
"host" customers have the benefit of PURPA's prohibition against unreasonable or
discriminatory rates and charges for these services and for supplementary and
back-up power service, but exercising those rights in particular cases may be
costly and time-consuming.

Extraction and Refining of Vanadium

Acquisition of Lac Dore Mining Inc.

On February 1, 1999, we acquired all of the outstanding equity securities of Lac
Dore Mining Inc., a Canadian corporation formed on August 23, 1996.  Lac Dore
Mining Inc. is a development stage mining and refining company that holds 443
contiguous mining claims for the Lac Dore vanadium/titanium deposit. The
deposit, which has never been in production, is located in the Rinfret and
Lemoine townships, approximately 43 miles from Chibougamau, Quebec, Canada.  At
the time we acquired Lac Dore Mining Inc., we intended, subject to obtaining
sufficient funds, to build a mine and refinery at Lac Dore for the extraction
and production of high-purity vanadium compounds.

As more fully described above, we have deferred engaging in any material
developmental or operational activities in connection with the deposit.  Even if
we determine to commence operational activities, we will not be able to do so
unless we are able to obtain funding to the extent described below.

When we first acquired an interest in the Lac Dore deposit, SOQUEM INC. owned 21
claims covering a portion of the deposit. SOQUEM is a division of SGF Mineral
Inc., which is a subsidiary of Societe Generale de Financement du Quebec, a
corporation owned by the Quebec government.  In accordance with an option and
joint venture agreement between SOQUEM and Lac Dore Mining Inc., SOQUEM
transferred an undivided interest in the 21 claims to Lac Dore Mining Inc. in
exchange for 1,000,000 shares of our common stock and warrants to purchase a
like number of shares.  SOQUEM did not exercise these warrants and the warrants
have expired.

<PAGE>17

In order to maintain our claims, we are obligated to expend varying amounts of
capital (a complicated formula combining the type of exploration work executed
and the claims on or near to which the work is conducted) or pay approximately
CDN $50,000 per year in claim renewal fees.  In the event we fail to fulfill our
obligations, we will lose our claims.

We granted SOQUEM an option to purchase a 20% undivided interest in the Lac Dore
project if SOQUEM funded 20% of the capital expenditures for the Lac Dore
project. The option was to expire 60 days after we delivered to SOQUEM a
"bankable" feasibility study for the Lac Dore project, which we did not do.
SOQUEM had the right to receive back a 50% interest in its original 21 claims.
On April 17, 2003, SOQUEM relinquished any rights it had relating to the
deposits in exchange for 250,000 shares of our common stock.

We have undertaken certain preliminary developmental activities since we
acquired the mining claims for which we expended approximately $6,000,000.

        Properties and Uses of Vanadium

Vanadium is a metallic element found in several minerals. Its natural structural
strength makes it useful in industrial and consumer applications, primarily as
an alloying agent for iron, steel and aluminum. Vanadium can act as a carbide
stabilizer, improving the strength and toughness, as well as the rust-
resistance, of steel. Vanadium's high melting point and high creep resistance
(resistance to shear crystals and deformation, resisted with vanadium as an
alloy in steel products) make it useful in a number of applications, including
components for nuclear reactors, aerospace material and aluminum and titanium
alloys.

Processed vanadium comes in varying types or "grades." Grades having less than
99.6% vanadium content are known as metallurgical-grade vanadium. Processed
vanadium with grades above that level are known as chemical or high-purity
vanadium.

According to Roskill, a metals industry periodical and recognized information
resource, more than 90% of world-wide vanadium production is in the form of
vanadium pentoxide and approximately 85% of annual vanadium pentoxide production
is in the form of metallurgical-grade vanadium pentoxide used for the production
of ferro-vanadium, a steel-vanadium pentoxide alloy. Vanadium pentoxide is a
strengthening agent and various amounts are added to steel depending on the
hardness and strength required. Vanadium pentoxide also is used in various
commercial applications, including ceramics, as a catalyst to produce certain
vitamins, for screening ultraviolet rays in glass and other materials, in dyeing
and printing of fabrics and in the production of sulphuric acid.

<PAGE>18

A developing application for high-purity vanadium compounds is energy storage
devices such as batteries. Batteries using vanadium may have the potential to
provide electricity from several configurations and for applications ranging
from powering cellular telephones to providing back-up power to electrical
grids. Although production of vanadium batteries has begun, the markets for
these batteries are in the early stages of development and there can be no
assurance that the markets will develop to the extent that the demand for high-
purity vanadium will significantly increase.

Vanadium Supply

Vanadium is produced through the mining and processing of ores, concentrates,
slag and petroleum residues. Five countries currently produce vanadium compounds
in commercial quantities: South Africa, the United States, Russia, China and
Australia. Vanadium production has historically positively correlated to the
worldwide economy, especially in those industries that are significant consumers
of steel, such as construction and automobile and appliance manufacturing.

South Africa is the single largest producer of vanadium and has traditionally
been the leading exporter of vanadium slag and vanadium pentoxide. United States
production of vanadium has focused on implementing recovery processes on
industrial waste, such as vanadium-bearing ferro-phosphorus slag, iron slag, fly
ash, petroleum residues and spent catalysts. Based on information available to
us, there are eight United States firms that either are currently recovering and
producing or have at one time recovered and produced vanadium and vanadium
compounds as well as vanadium-bearing chemicals.

Lac Dore Deposit Feasibility Study

A feasibility study is a comprehensive study of the economic potential of a
mining project. The study includes deposit geology, mining reserves, processing
methodology, waste material handling, equipment requirements, infrastructure
needs, environmental studies, market analysis, capital needs and projected
investment returns.  The feasibility study which began in March 2001 was
conducted by SNC Lavalin Inc., an engineering firm headquartered in Montreal,
Quebec.  We funded $1.17 million of the cost of the study and the balance of
the cost of $1.1 million was funded by federal and provincial agencies in
Canada in the form of loans and grants. Reference is made to Note 5 to Notes to
Consolidated Financial Statements included elsewhere in this Annual Report for
a description of the terms of the Canadian funding.

The feasibility study was based upon producing a high-purity vanadium material
to be used in an electrolyte solution that would serve as the energy storage
material for a battery being developed by Sumitomo Electric Industries Ltd.
called the vanadium redox battery.  We provided a sample of vanadium material
extracted from our deposit to Sumitomo for analysis. Sumitomo confirmed that the
vanadium material sample was acceptable for use in its vanadium redox battery,
although Sumitomo has not purchased or agreed to purchase any vanadium material
from us.  We believe that the economic viability of the deposit is dependant
upon, among other things, substantial production and sales by others of vanadium
redox batteries.  We do not believe that any vanadium redox batteries are
presently being produced or sold.

<PAGE>19

SNC Lavalin Inc. completed the feasibility study in April 2002. Although the
analysis of the data considered during a feasibility study is subject to a
number of interpretations and the study involves a number of subjective
decisions, we have been encouraged by the results of the feasibility study. The
feasibility study, however, is not a "bankable" study for purposes of the
agreement with SOQUEM because we have not secured contracts for the sale of the
high-purity vanadium compounds that may be produced at Lac Dore.

The feasibility study concluded that analysis of the Lac Dore project would be
economically feasible if we could sell vanadium electrolyte for a beginning
price of approximately $2.35 per liter, declining over time to approximately
$1.50 per liter.  We are not aware of any market for vanadium electrolyte and
there can be no assurance that a market will ever exist or that the price per
liter will be within the parameters set out in the feasibility study.

The feasibility study estimated that the initial capital cost of the Lac Dore
project would be approximately $260 million. Since the feasibility study was
completed, however, we have added other high-purity vanadium products to the
expected production mix necessitating a change in the equipment that would be
required at Lac Dore. The change in equipment would increase the initial capital
cost by approximately $20 million.  The feasibility study also concluded that
the Lac Dore project would incur annual operating costs of $50 million and would
incur substantial operating losses during the first two years of production.

Competition

According to Roskill, the largest producer of vanadium-bearing ore is Anglo
American plc, through its Highveld vanadium deposit located in South Africa.
Highveld is the largest known vanadium deposit in the world.  Anglo American has
produced vanadium electrolyte for a vanadium redox battery installation. Because
of Anglo American's significantly greater technical and financial resources,
Anglo American may have the ability to improve and price its electrolyte at
prices with which we could not compete. We believe that the only other
significant ore-producing vanadium deposit is Windimurra, owned by Xstrata AG,
located in Australia. Another company currently producing high-purity vanadium
products in commercial quantities is Strategic Minerals Corporation. Based in
the United States, Strategic Minerals Corporation has operations in Hot Springs,
Arkansas and South Africa

The most common method of recovering vanadium from industrial waste involves
steel slag, which is a by-product of steel production. Steel slag contains
vanadium pentoxide, which is removed and converted to different forms of
vanadium product. Currently, there are two South African producers and one
Australian producer, each owned by Xstrata AG, which recover vanadium
exclusively in this manner. Vanadium also is recovered from direct conversion of
ore and can be recovered from power plant ashes, residues and spent catalysts. A
number of companies recover vanadium using these methods.

<PAGE>20

If we begin development and commercialization of our Lac Dore deposit, we will
compete with other larger, more established mining companies with significantly
greater technical and financial resources. In addition, vanadium is an
accessible commodity product and other competitors could enter the market and
effectively compete with us.

Research, Development and Exploration

If we begin development and commercialization of our Lac Dore deposit, our
success will depend, in substantial part, on our ability to respond quickly to
changing technology, market demands and the needs of its future customers.  We
have committed significant resources to research, development and exploration
activities. Our recent research, development and exploration expenditures have
primarily related to completion of the feasibility study and the development of
proprietary processes in connection with our laboratory-scale pilot plant. Our
research, development and exploration expenses related to Lac Dore were
approximately $915,000, $2.1 million and $1.0 million for the fiscal years ended
September 30, 2003, 2002 and 2001, respectively.

We intend to continue the development of vanadium refining technologies at a
cost of approximately $1.4 million.  A portion of the cost includes the
operating costs associated with a sample product unit constructed by SGS
Lakefield Research, at their facility in Lakefield, Ontario Canada, to produce
customer samples of various vanadium chemicals and continue research and
development on additional possible products. We may receive approximately
$400,000 in loans from Canadian governmental sources.  As is the case with our
other proposed business activities, unless we can obtain sufficient capital we
will not be able to proceed with our research and development program.

         Governmental and Environmental Regulations

Impact Assessment Process

The Lac Dore project is subject to the environmental and social impact
assessment and review procedures under the Quebec Environment Quality Act, the
James Bay and Northern Quebec Agreement and the Canadian Environmental
Assessment Act. These acts are administered by separate provincial and federal
governmental agencies that have the separate authority to approve or require
changes to a company's impact assessment.  Notwithstanding this separate
authority, these federal and provincial governmental agencies generally attempt
to coordinate their review and approval procedures.

In May 1999, Groupe-conseil Entraco filed a project notice with the Quebec
Environment Ministry on our behalf. In June 2000, the Ministry issued its
guidelines (which state the nature, size and scope of the impact assessment) in
accordance with the Quebec Environment Quality Act. The Ministry's guidelines
are valid for a period of three years.

<PAGE>21

An additional project notice was issued during Summer 2002 under the Quebec
Environment Quality Act for equipment located within the territory of the
Domaine du Roy Regional municipality. This additional project notice is covered
by the Ministry's guidelines issued in June 2000.

The review processes undertaken by each provincial and federal governmental
agency are extensive and approval of our impact assessment by each agency could
take up to 18 months. If approved, we will receive a certificate of
authorization. Although we believe that we will ultimately receive a certificate
of authorization, we cannot accurately predict how long the governmental-
approval process will take. In addition, it is common for a certificate of
authorization to be conditioned on the application meeting certain additional
requirements. The Lac Dore project also must comply with the Canadian Fisheries
Act; the Guide for the Administration of Fish Habitats from Fisheries and Oceans
Canada; and the Liquid Effluent from Metal Mining Regulation.

We filed the Lac Dore Environmental Impact Study with the provincial Quebec
Environment Ministry and Canadian federal Fisheries and Oceans Canada bodies on
June 25, 2003.

        Quebec Mining Act

Any future mining at the Lac Dore deposit must comply with the provisions of the
Quebec Mining Act and Guideline No. 19 applicable to the mining industry. Under
the Quebec Mining Act, the operator of Lac Dore must file a mining site
rehabilitation plan with the Natural Resources Ministry. This rehabilitation
plan discusses how the operator intends to rehabilitate the property following
its intended use of the property and includes an estimate of the costs involved
in the rehabilitation. If the rehabilitation plan for Lac Dore is approved by
the Natural Resources Ministry, we will be required to put in trust an amount
equal to 70% of the estimated costs to rehabilitate the site.

In addition, we must obtain three types of mining rights from the Natural
Resources Ministry:

- Mining rights for all mining facilities, with mandatory land surveys;

- Rights of the surface estate; and

- Rights for facilities other than those required for mining purposes (for
example, lease for storage of explosives, buildings not related to mining).

Finally, the operator of Lac Dore must obtain permits and distribution rights-
of-way from the Natural Resources Ministry for the construction of the access
roads and power lines.

<PAGE>22

Other Requirements

We will be required to comply with other provisions of the Quebec Environment
Quality Act, including standards related to protection of the soil and water and
air quality. Vanadium is considered an "unconventional" contaminant for purposes
of the Act. Accordingly, the acceptable standards for vanadium criteria are not
set forth in the Quebec Environment Quality Act, but instead are determined in
the discretion of the Quebec Environment Minister.

The feasibility study estimated that, once Lac Dore is operational, the annual
cost of complying with provincial and federal governmental and environmental
regulations will be in the approximate range of $80,000 to $240,000.  The
amounts are based on Bank of Canada inflation calculator and current exchange
rate, rounded up to next even thousand.

Employees

On March 31, 2004, we had 7 full time employees and 3 part time employees.
Subject to obtaining sufficient capital, we intend to hire a controller, an
administrative assistant, a project manager, two engineers and a bookkeeper.  We
believe that such personnel will be readily available at reasonable rates of
compensation.

FORWARD LOOKING STATEMENTS AND CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN
OUR COMMON STOCK

This Annual Report contains statements which, to the extent they are not
recitations of historical fact, constitute forward-looking statements within the
meaning of federal securities law. The words believe, estimate, anticipate,
project, intend, expect, plan, outlook, scheduled, forecast and similar
expressions are intended to identify forward-looking statements.  Statements and
assumptions with respect to future revenues, income and cash flows, program
performance, the outcome of litigation, environmental remediation cost estimates
and planned dispositions of assets are examples of forward-looking statements.
Numerous factors, including potentially the risk factors described in this
section and elsewhere in this Annual Report, could affect our forward-looking
statements and actual performance.

An investment in our common stock involves very substantial risks. Investors
should consider carefully the following information about these risks, together
with the financial and other information, including risks, described elsewhere
in this Annual Report. If any of these risks actually occur, our business,
financial condition and results of operations would likely suffer materially.

BECAUSE WE HAVE NO OPERATING HISTORY, THERE IS NO BASIS ON WHICH YOU CAN
EVALUATE OUR PROPOSED BUSINESS AND PROSPECTS.  We are in the development stage
and have no operating history related to our proposed business activities.
Prospective investors customarily consider a company's operating history as a
factor in determining whether to make an investment.  Prospective investors who
decide to purchase our shares may decide not to purchase the shares if they had
an operating history to review.

<PAGE>23

WE HAVE HAD LOSSES SINCE INCEPTION AND EXPECT LOSSES TO CONTINUE FOR THE
FORESEEABLE FUTURE.  We incurred net losses of $3,692,392, $5,970,574 and
$4,933,244 during the fiscal years ended September 30, 2003, 2002 and 2001,
respectively.  Since our inception through September 30, 2003, we have incurred
aggregate net losses of $18,378,745.  Any future operations may not be
sufficient to generate the revenues necessary to reach profitability.

BECAUSE OF OUR LIMITED CAPITAL, UNLESS WE OBTAIN SUBSTANTIAL ADDITIONAL CAPITAL
WE MAY NOT HAVE SUFFICIENT CAPITAL TO ENGAGE IN OUR PROPOSED BUSINESS ACTIVITIES
OR TO CONTINUE AS A GOING CONCERN.

We do not have adequate capital to further fund or develop our proposed business
activities.  Although we have been and are currently seeking funding, there can
be no assurance we will obtain adequate funding, if any, or that the terms of
any such funding will not be unfavorable to us.  We have not received any
unconditional commitment for funding. Our ability to engage in the business
activities described below is dependant upon our acquisition of significant
funds.

In order for us to engage in continuous improvement and marketing of DWTs and
WindStor energy systems, we will require additional capital of approximately $6
million (excluding $900,000 in grant and loan funding anticipated from Federal,
Provincial and local financial sources in Canada).  In order for us to proceed
with the exploitation of the Lac Dore deposits, we will require additional
capital of at least $330 million.  There can be no assurance that our capital
estimates are not too low.

Neither we nor our subsidiaries will be able to continue development and
administrative functions for more than a few months unless substantial
additional funding becomes available.

The auditor's report on our consolidated financial statements for the year ended
September 30, 2003 states that the Company suffered recurring losses and has a
deficiency in assets that raise substantial doubt about the our ability to
continue as a going concern.

ALTHOUGH WE INTEND TO OBTAIN ADDITIONAL CAPITAL PRIMARILY THROUGH THE SALE OF
EQUITY SECURITIES TO BE ISSUED BY US, WE CANNOT ASSURE YOU THAT ADDITIONAL
FINANCING WILL BE AVAILABLE ON TERMS NOT UNFAVORABLE TO US, IF AT ALL.
Historically, it has proven difficult and very often impossible for development
stage companies to obtain adequate financing on any terms.

IF WE RAISE ADDITIONAL FUNDS THROUGH THE ISSUANCE OF OUR EQUITY SECURITIES, THE
PERCENTAGE OWNERSHIP OF OUR STOCKHOLDERS WILL BE REDUCED AND STOCKHOLDERS MAY
EXPERIENCE DILUTION WHICH COULD SUBSTANTIALLY DIMINISH THE VALUE OF THEIR COMMON
STOCK.    One of the factors which generally affects the market price of
publicly traded equity securities is the number of shares outstanding in
relationship to assets, net worth, earnings or anticipated earnings and other
financial items.  If a public market is sustained for our shares, a material
amount of dilution can be expected to cause the market price of our shares to
decline.  Furthermore, the public perception of future dilution can have the
same effect even if the actual dilution does not occur.

<PAGE>24

WE MAY HAVE INCURRED SIGNIFICANT CONTINGENT LIABILITIES THROUGH OFFERS AND SALES
OF OUR EQUITY SECURITIES.  During the period of October 1, 2002 to March 31,
2004, we issued 2,463,507 shares of our common stock.  1,597,115 shares of our
common stock were issued at prices ranging from $0.77 per share to $2.50 per
share.  The weighted average price per share was $0.95. During the same period,
we also exchanged shares for debt owed by us, issuing 541,392 shares for the
equivalent of approximately $0.70 per share, issued 75,000 shares in exchange
for services for an equivalent of approximately $0.93 per share, and sold
options and warrants to purchase an aggregate of 10,975,252 shares of our common
stock at exercise prices ranging from $1.00 to $3.00 per share.  We also sold
250,000 shares in exchange for a 20% option held by SOQUEM Inc. for the Lac Dore
deposit.  Because we may not have complied with applicable securities laws in
connection with the offer and sale of securities during the period, as well as
prior periods,  we could incur civil, administrative and criminal liabilities
and we could be required to refund the purchase price, plus interest.

IF WE VIOLATED CERTAIN SECURITIES LAWS, WE MAY NOT NOW BE ABLE TO PRIVATELY
OFFER OUR EQUITY SECURITIES FOR SALE.  Any offering of our equity securities in
or from the United States must be registered with the SEC or be exempt from
registration.  If our prior offers and sales were not exempt from registration,
it is likely that they would be deemed integrated with future offerings unless
we do not offer equity securities for at least six months.  In the event of such
integration, we would only be permitted to offer and sell equity securities
after we file a registration statement with the SEC and the registration
statement has become effective.  The registration process is both expensive and
can be expected to take at least several months and would substantially hinder
our efforts to obtain funds.

BECAUSE OUR PROPRIETARY TECHNOLOGIES PROCESSES MAY PROVE INEFFECTIVE OR
UNFEASIBLE, WE ARE UNABLE TO DETERMINE IF OUR ENGINEERING AND TEST RESULTS CAN
BE DUPLICATED IN COMMERCIAL PRODUCTION.  We intend to rely heavily on the
success of our proprietary technologies. We have conducted and plan to continue
to conduct limited laboratory and practical testing of the technologies.  If our
proprietary technologies ultimately prove ineffective or unfeasible, we may not
be able to engage in commercial production of our products or we may become
liable to our customers in amounts that we will be unable to sustain.

WE HAVE NOT BEEN ISSUED ANY PATENTS AND WILL NOT FILE FOR PATENTS ON CERTAIN
CAPABILITIES AND PROCESSES THAT WE CONSIDER INTELLECTUAL PROPERTY. In the
absence of patent protection, similar technology could be developed
independently by a third party which could materially harm us. Alternatively, if
we successfully established a commercially viable position in any market, third
parties may independently develop similar technology which could undercut our
market position, particularly if the third party has greater experience and
resources than do we. In addition, any measures that we may take to protect our
technology may prove inadequate, which could result in the eventual use of our
proprietary technology by competitors.


<PAGE>25

If our proprietary technologies are successful, current and new competitors
could enter the market(s). The success of these technologies would generate
greater interest, which would likely lead to increased competition. Increased
competition would lessen the benefits we may derive from our proprietary
processes.

IF WE FAIL TO OBTAIN NEEDED GOVERNMENTAL APPROVALS OR ENCOUNTER SIGNIFICANT
DELAYS IN OBTAINING OR RENEWING GOVERNMENTAL PERMITS OR APPROVALS, WE MAY NOT BE
ABLE TO ENGAGE IN OUR PROPOSED BUSINESS ACTIVITIES. Although we have not
experienced difficulty in obtaining governmental approvals that we have needed
to date, obtaining further necessary permits and approvals could be a complex
and time-consuming process involving numerous local, state, provincial and
federal agencies. The duration and success of each permit and/or approval effort
may be contingent on many variables not within our control, such as new permit
requirements or a change in governmental policy or government leadership. There
can be no assurance that governmental permits and/or approvals will be issued
and/or retained or be issued without conditions that could materially harm our
business operations.

Compliance with laws and regulations may require significant capital outlays or
delays, which may negatively affect operations or may cause material changes or
delays in our intended operations. Further, new or different standards
(environmental or otherwise) imposed by governmental authorities in the future
could materially harm our business operations.

In addition, governmental regulations may negatively impact us indirectly. For
instance, wind turbine site locations and products using high-purity vanadium
may become subject to new regulations. These regulations may curb the market
appeal for our products if the regulations make the purchase or use of such
products so expensive or complex that other products gain a competitive
advantage because they are not subject to such regulatory constraints and are
therefore less expensive or less burdensome to purchase or use. It is difficult
to predict whether new governmental regulations will arise and what form these
regulations will take.

BECAUSE THERE HAS NOT BEEN AN ACTIVE TRADING MARKET FOR OUR COMMON STOCK, AN
INVESTMENT IN THE STOCK IS LESS LIQUID AND INVOLVES INHERENTLY MORE RISK THAN
ARE SECURITIES THAT ARE ACTIVELY TRADED.  Our common stock is listed for trading
on the National Quotation Bureau's "Pink Sheets". Trading in our stock must be
done on a manual basis which involves time delays in executing orders. Unlike
securities listed on an exchange or quoted for trading on Nasdaq, a client order
to purchase or sell shares of our common stock is not protected by "order
handling rules" of the SEC. These order handling rules seek to prevent market
makers from trading ahead of client limit orders and also require market makers
to display limit orders that are priced more favorably than the inside market to
ensure that client trades are executed within the inside bid and offer for the
security.

<PAGE>26

THE ABILITY TO SELL SHARES OF OUR COMMON STOCK IN A PUBLIC MARKET MAY BE
SIGNIFICANTLY IMPAIRED BY THE SEC'S PENNY STOCK RULES. The penny stock rules
require a broker-dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure document that
provides information about penny stocks and the risks in the penny stock market.
The broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules generally require that prior to a transaction in a penny
stock the broker-dealer make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for a
stock that becomes subject to the penny stock rules. In addition the burdens
imposed upon broker dealers by the rules may discourage broker dealers from
effecting transactions in our common stock, which could severely limit its
liquidity.

BECAUSE OF THE CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK BY A SMALL NUMBER
OF STOCKHOLDERS, IT IS UNLIKELY THAT ANY OTHER HOLDER OF COMMON STOCK WILL BE
ABLE TO AFFECT OUR MANAGEMENT OR DIRECTION.  On March 31, 2004, our directors,
officers and certain of their affiliates may be deemed to beneficially own
approximately 55 % of our outstanding common stock.  Accordingly, if these
stockholders act together as a group, they would most likely be able to control
the outcome of stockholder votes, including votes concerning the election of
directors, the adoption or amendment of provisions in our certificate of
incorporation and bylaws and the approval of significant corporate transactions.
The existence of ownership concentrated in a few persons may have the effect of
delaying or preventing a change in management or voting control.

CERTAIN STOCKHOLDERS HAVE THE RIGHT TO REQUIRE US TO REPURCHASE THEIR SHARES FOR
A MAXIMUM AMOUNT OF APPROXIMATELY $252,000 WHICH COULD MATERIALLY, ADVERSELY
AFFECT OUR FINANCIAL POSITION.  The existence of the repurchase rights may,
among other things, also impair our ability to obtain funds.

BECAUSE NONE OF OUR OFFICERS HAS HAD ANY PRIOR EXPERIENCE IN OUR PROPOSED
BUSINESS ACTIVITIES, THEIR JUDGMENT MAY NOT BE SOUND.


<PAGE>27

BECAUSE WE ARE IN ARREARS IN THE PAYMENT OF SALARIES TO OUR EXECUTIVE OFFICERS
AND EMPLOYEES OF OUR SUBSIDIARIES, ANY OR ALL OF THEM MAY RESIGN AND WE MAY BE
LIABLE FOR ADDITIONAL PAYMENTS IN WHICH CASE WE COULD BE MATERIALLY ADVERSELY
AFFECTED. Our employment agreements with our executive officers provide that if
we breach any provision of a respective agreement and the breach is not cured by
us within 15 days after receipt of written notice of the breach, the officer
shall be entitled to receive his base salary for a period of three years and all
other rights and benefits the employee may have under our senior executive
benefit, bonus and/or stock option plans and programs shall be determined in
accordance with the terms and conditions of such plans and programs.  In
addition, any of our executive officers may voluntarily terminate his employment
with us at any time on at least 30 days prior written notice to us and shall
then be entitled to receive his base salary until the date his employment
terminates and certain other benefits.

BECAUSE OUR BUSINESS PLAN IS HEAVILY DEPENDENT ON THE SUCCESS OF NEW AND UNTRIED
PRODUCTS SUCCESSFULLY ENTERING THE MARKET PLACE, WE CAN NOT BE SURE THAT THEY
WILL PERFORM AS WE ANTICIPATE.

ALTHOUGH WE PLAN ON MAINTAINING COMMERCIAL INSURANCE TO REDUCE SOME OPERATING
HAZARD RISKS, SUCH INSURANCE MAY NOT BE AVAILABLE TO US AT ECONOMICALLY FEASIBLE
RATES, IF AT ALL.

TECHNOLOGICAL ADVANCES BY OTHERS COULD MAKE OUR PRODUCTS OBSOLETE.

BECAUSE WE PLAN TO RELY ON INDEPENDENT THIRD-PARTY MANUFACTURERS TO FABRICATE
THE DWT AND WINDSTOR PRODUCTS, SUPPLIER CAPACITY, SHORTAGES IN NECESSARY RAW
MATERIALS, WORK STOPPAGES AND TRANSPORTATION PROBLEMS COULD MATERIALLY,
ADVERSELY AFFECT OUR BUSINESS.  Any delay in initiating production at third-
party facilities, any inability to have new products manufactured at these
facilities or any failure to meet our customers' demands could damage our
relationships with our customers and may decrease our sales.

RECENTLY ENACTED AND PROPOSED CHANGES IN SECURITIES LAWS AND REGULATIONS HAVE
AND WILL CONTINUE TO INCREASE OUR ACCOUNTING AND LEGAL COSTS.  The Sarbanes-
Oxley Act of 2002 that became law in July 2002 required changes in some of our
corporate governance practices. The Act and rules promulgated by the SEC have
increased our legal and financial compliance costs and made some activities more
difficult, time consuming and more costly.

ITEM 2.         DESCRIPTION OF PROPERTY.

Location of and Access to the Lac Dore Deposit

The Lac Dore deposit is located approximately 70 kilometers southeast of the
city of Chibougamau, in the Rinfret and Lemoine townships of northern Quebec.
The deposit is approximately five kilometers south of Chibougamau Lake, which is
in a low, flat ground area, 380 meters above sea level. The deposit is
accessible by road from national highway 167, which is paved and links
Chibougamau to the Lac St-Jean area. At kilometer 200 on national highway 167,
approximately 32 kilometers south of Chibougamau, forest road 210, a dirt road,
leads approximately 35 kilometers east to the deposit and the main exploration
workings. The area has been clear-cut of wood, and, accordingly, provides good
access by four wheel drive vehicles to the various outcrops of the deposits.

<PAGE>28

The Chibougamau/Chapais area has a well-developed infrastructure to support
mining projects, including transportation, a well-trained labor force, service
and maintenance industries and an airport.  Lac Dore is approximately 35
kilometers from Hydro-Quebec's Chibougamau electricity substation.

History of Exploration and Geology at Lac Dore

Lac Dore is expected to be an open-pit mine. The deposit has never been in
commercial production. All activity on the deposit to date has been exploration.
A chronology of work on Lac Dore follows:

Historical Deposit Work at Lac Dore

In 1954, the Lac Dore deposit was discovered by an airborne geophysical magnetic
survey. The property was first staked and owned by Dominion GULF Company.
Between 1966 and 1975, the Ministere des Richesses Naturelles du Quebec (the
"Quebec Ministry") staked the property and conducted a series of tests for
vanadium content.  In 1977, SOQUEM took over the exploration activities at Lac
Dore from the Quebec Ministry. SOQUEM subsequently carried out detailed
geological mapping, geophysical surveys and a drilling program. In 1983, SOQUEM
reduced the claimed area to 21 claims by allowing its other claims to expire.

Lac Dore Mining Inc. Activities

Beginning in 1996, Lac Dore Mining Inc. began to acquire claims covering
portions of the Lac Dore deposit. In 1997, Lac Dore Mining Inc. purchased 21
claims over a five kilometer strike length of the Lac Dore deposit from SOQUEM.
Lac Dore Mining Inc. currently owns 443 claims. The total cost for acquiring the
443 claims was approximately $113,000, 1,350,000 shares of our common stock and
warrants to purchase 1,000,000 shares of our common stock at CDN $2.00 per
share.

In 1998, Cambior inc., an international mining company, acquired an option from
Lac Dore Mining Inc. to receive a 60% interest in Lac Dore in exchange for
funding 60% of the costs related to developing the deposit. In 1999, Cambior did
extensive verification and audit work at Lac Dore. In 2000, Cambior terminated
its work on the Lac Dore deposit and its option expired.

In April 2001, Lac Dore Mining Inc. engaged SNC-Lavalin Inc. to carry out a
feasibility study of the Lac Dore deposit. SNC-Lavalin reviewed the existing
data, validated the database and drilled additional test holes, all with respect
to the 21 claims acquired from SOQUEM. SNC-Lavalin also organized its own
database and resource block model. In April 2002, SNC-Lavalin completed the
feasibility study and issued its report. SNC-Lavalin estimated that the portion
of the deposit covered by the 21 claims consists of 102 million tons of in-place
mineralized material at 35% magnetite, 17.4% ilmenite and 0.5% vanadium
pentoxide.

<PAGE>29

Topography & Geology

The topography was carved by glaciers more than 10,000 years ago. The deposit,
which is hosted in plutonic rocks, outcrops in a series of west-southwest
rolling hills, some 100 to 150 meters higher in elevation.

There is little dirt or cover on the bedrock in the deposit area, making
geological mapping easier. Vegetation is bushy, typical of harvested forest, and
the rocky surface is rugged.

The Lac Dore property hosts a large deposit containing titanium, a type of
deposit also found in South Africa and other parts of the world, with
Precambrian shield rocks. The deposit is made up of a stratified series of
magnetite beds with ilmenite and amalgamated vanadium, known to outcrop over 17
kilometers on the south shore of Lake Chibougamau and also the north shore, some
25 kilometers away, on either side of the Chibougamau anticline.

Claims

Lac Dore Mining Inc. acquired its 443 claims in Lac Dore by purchasing claims
from third parties and staking claims for itself. We believe that Lac Dore
Mining Inc. has satisfactory title to its claims in accordance with industry
standards and applicable laws and regulations.

A claim is an area of land and/or water "claimed" by a prospector or mining
organization for the purpose of exploring the claim for a certain length of time
and subject to certain conditions as set out by a particular province in Canada.
The claim is staked out physically or by computerized map designation and
recorded in an appropriate provincial claims office. The size of a claim is 40
acres (16.2 hectares).

The claim is the only valid exploration right in Quebec for all kinds of mineral
substances in the public domain.  Each claim gives the holder an exclusive right
to search for mineral substances, except sand, gravel, clay and other loose
deposits, on the land subjected to the claim. The claim also guarantees the
holder's right to obtain an extraction right upon the discovery of a mineral
deposit.

The term of a claim is two years from the day the claim is registered, and a
claim can be renewed indefinitely providing the holder meets all the conditions
set out in the Quebec Mining Act, including the obligation to invest a minimum
amount in exploration work determined by regulation. The act includes provisions
to allow any amount disbursed to perform work in excess of the prescribed
requirements to be applied to subsequent terms of the claim.  The claim holder
may renew title for rolling two-year periods.  To renew a claim, a holder must
submit a renewal application no later than 15 days after a claim expires and pay
the required fees. Renewal costs depend on the date that an application is
received, the title location and surface area and the value of the work
performed on the property during the claim period.

<PAGE>30

In order to maintain our claims, we are obligated to expend varying amounts of
capital (a complicated formula combining the type of exploration work executed
and the claims on or near to which the work is conducted) or pay approximately
CDN $50,000 per year in claim renewal fees. Eligibility of work-related expenses
are defined by regulations and excess value of work can be used to renew claims
within a 3.2 kilometers square area where work was not performed and/or for
future renewal.

Lac Dore is located south of the 52nd parallel, which has different claim
renewal costs than properties located north of that point. Area size also
determines claim cost. Cost of claim renewal ranges from CDN $22 up to $330, per
claim, if more than 100 hectares and depending upon renewal date payment. Work
values must be at least CDN $500 to $3,600, per claim, depending upon hectares
claimed and the location of the claims. The cost of claim renewal also can vary
widely depending on the amount and location of work done on and near a subject
claim.

Our principal executive office which consists of approximately 400 square feet
is located at 975 Spaulding Avenue SE, Grand Rapids, Michigan 49546.  The office
is leased at a monthly rental of $225.  The lease is month-to-month.  We do not
maintain any other offices outside of home offices, for which no rental is
currently paid by us.  We believe our employees and proposed future operations
are and will be located in areas in which additional office space can be
obtained, if needed, at reasonable rates.  We do not expect to lease or
otherwise acquire any additional facilities during the foreseeable future.


ITEM 3. LEGAL PROCEEDINGS.

We are not a party to any pending legal proceeding that primarily involves a
claim for damages and the amount involved in such proceeding, exclusive of
interest and costs, exceeds 10% of our current assets nor is any of our property
the subject of such a pending legal proceeding.  We are not aware of any such
proceeding that a governmental authority is contemplating.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matter was submitted during the quarter ended September 30, 2003 to a vote of
our security holders through the solicitation of proxies or otherwise.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Our common stock is principally traded in the over-the-counter market.  The
trading market is limited and sporadic and should not be considered to
constitute an established trading market.  The following table sets forth the
range of high and low bid prices for the common stock for the fiscal quarters
indicated.  The common stock is listed in the "Pink Sheets." The following
quotations were obtained from BarChart.com.

<PAGE>31

All quotes reflect inter-dealer prices without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.


                              2003                             2002
Quarter Ended             Low       High                   Low     High
                         -----    -------                -------  ------
December 31             $ 0.57      1.65                 $ 1.10  $ 1.85
March 31                  0.93      1.70                   1.05    2.45
June 30                   0.71      1.10                   2.00    3.30
September 30              0.75      2.25                   1.20    2.43


On March 31, 2004, our common stock was held of record by approximately 320
holders.

We have never paid dividends on our common stock and do not anticipate paying
cash dividends in the foreseeable future.  We intend to retain any earnings for
the operation and expansion of our business.   Other than financial ability, we
have no legal, contractual or corporate constraints against the payment of
dividends.

The following information relates to equity securities we sold during the fiscal
year ended September 30, 2003 that were not registered under the securities Act
of 1933.

- From October 1, 2002 to April 30, 2003 we sold 660,438 shares of common stock
to forty-two private investors upon exercise of outstanding warrants for
approximately $547,000.

- During November 2002, we sold 125,000 shares and warrants to purchase a like
number of shares at $2.00 per share to three private investors for approximately
$100,000.

- On November 1, 2002, we granted options to purchase 250,000 shares of common
stock to a new employee in exchange for services to be rendered to us.  The
options are exercisable until November 1, 2009 in varying quantities, based upon
milestone achievements, and at varying prices ranging form $1 to $1.30 per
share.

- During December 2002, we sold 98,100 shares and warrants to purchase a like
number of shares at $2.00 per share to five private investors for approximately
$86,614.

- On December 9, 2002, we granted options to purchase 200,000 shares of common
stock to four of our directors in exchange for prior period services.  The
options are exercisable until September 30, 2007 at $1.00 per share.

<PAGE>32

- On December 9, 2002, we granted options to purchase 310,417 shares of common
stock to six of our directors in exchange for services rendered to us.  The
options are exercisable until September 30, 2012 at $1.00 per share.

- On December 9, 2002, we granted options to purchase 150,000 shares of common
stock to three employees in exchange for services rendered.  The options are
exercisable until September 30, 2007 at $1.00 per share.

- On January 1, 2003, we granted options to purchase 1,000 shares of common
stock to a private investor in exchange for services.  The options are
exercisable until January 1, 2005 at $2.00 per share.

- On January 6, 2003, we granted options to purchase 250,000 shares of common
stock to a new employee in exchange for services to be rendered.  The options
are exercisable until January 6, 2010 in varying quantities, based upon
milestone achievements, at varying prices ranging $1 to $1.30 per share.

- On February 11, 2003, we granted options to purchase 175,000 shares of common
stock to the five directors of the McKenzie Bay Resources Ltd in exchange for
services rendered.  The options are exercisable until February 10, 2113 at $1.50
per share.

- On February 14, 2003, we sold 7,937 shares of common stock and warrants for
the purchase of a like number of shares, and options for the purchase of 7,500
shares to a private investor, for approximately $10,000. The warrants and
options are exercisable until February 14, 2005 at $2.00 per share.

- On February 14, 2003, we issued 5,492 shares of common stock to an account
creditor in exchange for cancellation of indebtedness of approximately $7,168.

- On February 18, 2003 and July 1, 2003, we issued an aggregate of 71,551 shares
of common stock to two individuals in exchange for the cancellation of their
right to require us to repurchase an aggregate of 40,000 shares of our common
stock from them at $2.75 per share.

- On April 4, 2003, we issued options to purchase 300,000 shares of common stock
to a consultant in exchange for services to be rendered to us.  The options are
exercisable until April 13, 2013 in varying quantities, based upon milestone
achievements, at $1.00 per share.

- On April 17, 2003, we issued 250,000 shares of common stock to SOQUEM Inc. in
exchange for the option to purchase a 20% undivided interest in our Lac Dore
deposits then held by SOQUEM.

- On May 14, 2003, we issued 20,000 shares of common stock at the direction of
Larson, Harms and Bibeau, P.C. in exchange for legal services provided to us
which we valued at approximately $17,100.  Reference is made to the response to
Item 12 of this Annual Report.

<PAGE>33

- On July 3, 2003, we issued 75,000 shares of common stock to one individual in
exchange for investor-relations services provided to us which we valued at
approximately $70,000.

- On August 15, 2003, we sold options to 32 private investors to purchase
476,200 shares of common stock for approximately $23,400.  The options are
exercisable until August 15, 2005 at $1.00 per share.

- On August 15, 2003, we issued options to three private investors to purchase
7,776,500 shares of common stock for an approximate value of $527,700, comprised
of the cancellation of the investors' right to require us to repurchase an
aggregate of shares 537,237 of our common stock from them at prices ranging from
$.61 to $3.25  per share, the cancellation of warrants expiring on November 28,
2003 and September 28, 2004 for the purchase of 595,239 shares at prices ranging
from $1.43 to $3.00 per share and a note receivable for $9,350.  Options for the
purchase of 137,500 shares are exercisable until August 15, 2005 and the balance
until August 15, 2008, at $1.00 per share.

- On August 15, 2003, we issued 515,900 shares of common stock to two creditors
in exchange for the release of indebtedness of approximately $356,400.

- On August 20, 2003, we sold 109,000 shares of common stock and warrants to
acquire 54,500 shares of common stock to a private investor for approximately
$99,190.  The warrants are exercisable until August 19, 2005 at $2.41 per share.

There were no principal underwriters in connection with any of the foregoing
transactions.

We claimed exemption from registration provisions of the Securities Act of 1933
pursuant to Section 4(2) thereof and/or Rule 506 thereunder. Although we
believed that the transactions did not involve a public offering and that each
purchaser either received adequate information about us or had access, through
employment or other relationships, to such information, the exemptions may not
have been available to us.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

Development of WindStor

We anticipate that, with adequate funding, we can complete engineering and
development of the DWT and WindStor, construct and install prototypes of each
and, assuming successful operation of the prototypes, begin commercial
installations of WindStor in 2004.

<PAGE>34

We believe that we will require additional funds of approximately $1.2 million
to complete development and construct, install and test the DWT and WindStor and
begin a marketing program.  We have received conditional commitments from
Canadian governmental agencies for an additional $330,000 in non-refundable
grants and loans of $590,000.  Because we do not know if we can satisfy the
conditions, we do not know if we will receive any of the additional funds.  We
have received no commitments for the balance of the requisite funds and there
can be no assurance that we will be successful in obtaining those funds.  If we
do not obtain all of the requisite funds, we will not be able to produce or sell
any DWTs.

We intend to retain ownership of the WindStor installations and sell the
electricity generated by DWTs to WindStor users.  We believe, with successful
testing of WindStor, that WindStor installations will provide adequate cash flow
to allow for debt to be a component of each installation's financial structure.
We will, however, require significant amounts of funds in order to install
WindStor and for general and administrative expenses.  If we are successful in
obtaining funds to be utilized in connection with WindStor, we intend to
allocate them as follows:

DWT & WindStor marketing                             $5,700,000

DWT Prototype design, construction and installation   1,200,000

Operating requirements                                9,000,000
                                                     ----------
TOTAL                                               $15,900,000
                                                    ===========

Four entities have expressed interested in commercial installations of WindStor.
Prior to any installation of WindStor, we and each prospective customer must be
satisfied that adequate wind power exists at the respective location to provide
sufficient electricity production from a DWT to create an economically feasible
WindStor facility.  While wind testing is being conducted, zoning, permitting
and site location issues will be addressed.  If wind power is sufficient, all
regulatory issues are resolved, site plans are approved, we are able to obtain
adequate financial resources, we successfully obtain working prototypes and
pricing terms are agreed upon by prospective customers, we intend to begin to
install WindStor.

<PAGE>35

Development of Lac Dore Mining Inc.

If funding becomes available during the fiscal year ending September 30, 2004,
we intend to continue research and development of the vanadium recovery and
refining technology developed for McKenzie Bay during the feasibility study of
the Lac Dore deposit.  The next planned step is operation of a Sample Product
Unit (SPU) planned for construction by SGS Lakefield Research at their
facilities in Lakefield, Ontario, Canada.  This facility would be used to
advance vanadium refining processes and produce and provide small samples of
high-purity vanadium chemicals to potential customers.

The planned cost to operate the SPU is $1 million over a 16-month period.
Although grants and/or loans may be available to us for part of the cost, we
have not assumed or relied upon their availability.

If results from the SPU project are successful and demand for the chemicals
provided to potential customers of Lac Dore Mining Inc. are sufficient to
warrant additional development, we intend to build a larger production facility,
called the Development Production Pilot Plant (DPPP).  If feasible and also
largely dependent upon adequate funding being available, this project would take
place after the end of the fiscal year ending September 30, 2004.  The cost to
build the DPPP has been estimated to be approximately $10 million.

Our plans for Lac Dore are dependent upon a number of events coming together
successfully, including, but not limited to, an adequate demand for high-purity
vanadium, our ability to raise between $280 and $350 million to build and
operate the mine and refinery, our ability to find and hire management and
employees to operate the mine and refinery and successful permitting of the mine
and refinery to be built and operated.  At a minimum, we believe contemplation
of the building of Lac Dore is several years into the future.

Cash Requirements for 2004 Fiscal Year Administrative Costs

To date our activities have been funded primarily through the sale of equity
securities and financial assistance from Canadian governmental agencies in the
form of loans and grants.  As noted above, we must obtain substantial additional
capital to engage in our proposed businesses.

Our cash requirements for administrative costs for the fiscal year ending
September 30, 2004 (including direct support of subsidiary operations) follows:

       Use                       Amount
--------------------          -----------
Employee salaries               $600,000
Professional costs
(includes consultants,
outside accountants,
independent auditors
and legal counsel)            $1,400,000
General administrative
(includes lease
obligations, travel and
other administrative costs)     $450,000

<PAGE>36

Neither we nor our subsidiaries will be able to continue development and
administrative functions for more than a few months unless substantial
additional funding becomes available.

In its report dated December 23, 2003, the Company's independent auditors state
that the Company has suffered recurring losses and has a deficiency in assets
that raise substantial doubt about the Company's ability to continue as a going
concern.

We cannot be sure that we will be able to obtain adequate financing from outside
sources to fund our proposed operations.  If we are unable to obtain the
necessary funding, we will not be able to continue to operate.

Additional Employees

We will need to add a number of employees to DERMOND in anticipation of
successful DWT and WindStor prototype testing.  Additions include, project
managers, mechanical, aeronautic and electrical engineers and administrative
personnel.  McKenzie Bay intends to add administrative personnel, including a
controller.

ITEM 7.         FINANCIAL STATEMENTS.

Our Consolidated Financial Statements and related notes begin on Page F-1 of
this Annual Report.



                                                                      PAGE NO.

Report of Independent Auditor's........................................F-1

Financial Statements

CONSOLIDATED BALANCE SHEETS............................................F-2
SEPTEMBER 30, 2003 and 2002

CONSOLIDATED STATEMENT OF
CHANGES IN STOCKHOLDERS' EQUITY
FROM INCEPTION TO SEPTEMBER 30, 2003............... .................F-3-4

CONSOLIDATED STATEMENT OF LOSS
YEARS ENDED SEPTEMBER 30, 2003 and 2002................................F-5

CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2003 and 2002................................F-6

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003..................................................F-7-23

==============================================================================



                        MCKENZIE BAY INTERNATIONAL LTD.
                         (A development-stage company)

                       CONSOLIDATED FINANCIAL STATEMENTS

                SEPTEMBER 30, 2003 INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of McKenzie Bay International Ltd.
and Subsidiaries

We have audited the accompanying consolidated balance sheet of McKenzie Bay
International Ltd. and subsidiaries (the "Company"), a development-stage
company, as at September 30, 2003 and the consolidated statements of changes in
stockholders' equity (deficit), loss and cash flows for the year then ended, and
for the period from August 23, 1996 (date of inception) to September 30, 2003.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.  The financial statements of the Company for the period from
inception on August 23, 1996 to September 30, 2002 were audited by other
auditors, whose reports expressed unqualified opinions on those statements and
included an explanatory paragraph regarding matters that raised substantial
doubt about the Company's ability to continue as a going concern.  The financial
statements of the Company as of September 30, 2002 and for the year then ended,
were audited by other auditors who expressed an unqualified opinion on those
statements and included explanatory paragraphs in their report dated November
30, 2002 (except as to note 16 as of April 3, 2003), regarding matters that
raised doubt about the Company's ability to continue as a going concern and
regarding their audit of adjustments to restate the 2001 financial statements.
The other auditors' reports have been furnished to us, and our opinion, insofar
as it relates to the amounts included for such prior periods, is based solely on
the reports of such other auditors.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America.  Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audit and the reports of
other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audit and the reports of other auditors, these
consolidated financial statements present fairly, in all material respects, the
financial position of the Company as at September 30, 2003, and the results of
its operations and cash flows for the year then ended, and for the period from
August 23, 1996 (date of inception) to September 30, 2003, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.  The Company is a development stage
enterprise engaged in a vanadium/titanium deposit with the development of wind
turbine technology and a diamond mine.  As discussed in Note 2 to the financial
statements, the Company has suffered recurring losses and has a deficiency in
assets that raise substantial doubt about its ability to continue as a going
concern.  Management's plans in regard to these matters are also described in
Note 2.  The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.


/s/ Delotte & Touche LLP
--------------------------
    Delotte & Touche LLP

Rouyn-Noranda, Canada
December 23, 2003
(April 6, 2004 as to note 17)


<page>F-1




               MCKENZIE BAY INTERNATIONAL LTD. and subsidiaries
                         (A development-stage company)

                          CONSOLIDATED BALANCE SHEETS
                          SEPTEMBER 30, 2003 and 2002
                         (Amounts stated in US dollars)

                              ASSETS

                                                   2003              2002
                                              -----------        -----------
Current:
    Cash and cash equivalents                 $   49,208         $    45,325
    Marketable securities                              -              83,501
    Accounts receivable                          262,979             186,961
    Inventories                                        -              19,562
    Prepaid expenses and deposits                145,441             172,057
                                              -----------        -----------
Total current assets                             457,628             507,406
Reclamation cash bond (note 3)                   338,685             338,685
Property and equipment (note 4)                   76,263              84,577
Goodwill (note 2)                                      -             146,972
                                              -----------        -----------
Total assets                                     872,576           1,077,640
                                              ===========        ===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current:
    Bank indebtedness (note 10)               $   83,463         $    47,441
    Accounts payable and accrued liabilities   2,162,934             583,378
    Current portion of long-term debt (note 5)    32,945              36,156
                                              -----------        -----------
Total current liabilities                      2,279,342             666,975

Long-term and other liabilities:
Long-term debt (note 5)                        1,074,651             888,304
Redeemable capital stock (note 6)                252,175                   -
Reclamation and closure liabilities (note 3)     250,000             250,000
                                              -----------        -----------
Total long-term and other liabilities          1,576,826           1,138,304

Redeemable capital stock (note 6)                      -           1,481,854

Stockholders' equity (deficit):
 Capital stock (note 6)
   75,000,000 common stock authorized, at
   $0.001 par value 25,229,958 common stock
   issued and outstanding (2002,23,177,640)       23,649              21,607
 Additional paid in capital (note 6)          16,781,788          13,618,367
 Accumulated deficit                         (19,564,758)        (15,872,366)
 Accumulated other comprehensive income(loss)   (224,271)             22,899
                                              -----------        -----------
Total stockholders' deficit                   (2,983,592)         (2,209,493)
Contingency (note 10)
Commitments (note 11)

Total liabilities and stockholders' deficit   $  872,576         $ 1,077,640
                                              ===========         ==========

                            (See accompanying notes)

<page>F-2


                MCKENZIE BAY INTERNATIONAL LTD. and subsidiaries
                         (A development-stage company)

           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                   (Deficit)
                      FROM INCEPTION TO SEPTEMBER 30, 2003
                         (Amounts stated in US dollars)

<table>

                                    <c>                    <c>                         <c>
                                                                         Accumulated
                                                                           other           Total
                                                 Additional               comprehensive  stockholders'
                                       Common     paid in   Accumulated      income        equity
                                       stock      capital     deficit        (loss)       (deficit)
                                     ----------  ---------  -----------  -------------- -------------

Common shares issued for cash        $     200   $   7,097  $        -              -    $    7,297
Common shares issued in exchange of
   exploration claims and services          50       1,774           -              -         1,824
Net loss for the year                        -           -      (7,116)             -        (7,116)
Change in foreign currency
  translation adjustment                     -           -           -             12            12
                                     ----------  ---------  -----------  --------------- ------------
Balance, September 30, 1996                250       8,871      (7,116)            12         2,017

Common shares issued for cash            5,150     748,534           -              -       753,684
Common shares issued in exchange of
   exploration claims and services       2,804     114,159           -              -       116,963
Net loss for the year                        -           -    (816,944)             -      (816,944)
Change in foreign currency
   translation adjustment                    -           -           -           (473)         (473)
                                     ----------  ---------  -----------  --------------- -------------
Balance, September 30, 1997              8,204     871,564    (824,060)          (461)       55,247

Common shares issued for cash              517     440,277           -              -       440,794
Common shares issued in exchange of
   exploration claims and services       1,105      43,719           -              -        44,824
Net loss for the year                        -           -    (519,123)             -      (519,123)
Change in foreign currency
  translation adjustment                     -           -           -         (3,557)       (3,557)
                                     ----------  ---------  -----------  --------------- -------------
Balance, September 30, 1998              9,826   1,355,560  (1,343,183)        (4,018)       18,185

Common shares issued for cash            1,756     381,685           -              -       383,441
Common shares issued in exchange of
   exploration claims and services       1,245   1,337,925           -              -     1,339,170
Net loss for the year                        -           -  (1,608,740)             -    (1,608,740)
Change in foreign currency
   translation adjustment                    -           -           -            257           257
                                     ----------  ---------  ------------  -------------- -------------
Balance, September 30, 1999             12,827   3,075,170  (2,951,923)        (3,761)      132,313

Common shares issued for cash            1,734   1,054,409           -              -     1,056,143
Common shares issued for services           42      20,958           -              -        21,000
Net loss for the year                        -           -    (830,612)             -      (830,612)
Issuance of redeemable capital stock         -           -    (640,075)             -      (640,075)
Change in foreign currency
  translation adjustment                     -           -           -           (938)         (938)
                                    -----------  ---------  ------------  -------------- -------------
Balance, September 30, 2000             14,603   4,150,537  (4,422,610)        (4,699)     (262,169)

<page>F-3

Issuance of redeemable capital stock         -           -    (545,938)             -      (545,938)
Issuance of other capital stock          4,390   4,940,158           -              -     4,944,548
Purchase of common stock for treasury      (79)   (145,174)          -              -      (145,253)
Net loss for the year                        -           -  (4,933,244)             -    (4,933,244)
Change in foreign currency
  translation adjustment                     -           -           -        (12,833)      (12,833)
Unrealized holding loss on marketable
securities                                   -           -           -       (371,735)     (371,735)
Expiry of redemption rights                  -      12,000           -              -        12,000
Stock options                                -     902,585           -              -       902,585
                                    -----------  ---------  -------------  ------------- -------------
Balance as at September 30, 2001        18,914   9,860,106  (9,901,792)      (389,267)     (412,039)

Issuance of capital stock                2,696   2,856,002           -              -     2,858,698
Purchase of common stock for treasury       (3)     (4,366)          -              -        (4,369)
Net loss for the year                        -           -  (5,970,574)             -    (5,970,574)
Change in foreign currency
   translation adjustment                    -           -           -         40,431        40,431
Reclassification to the consolidated
   statement of loss of the holding
    loss on marketable securities            -           -           -        371,735       371,735
Expiry of redemption rights                  -     439,659           -              -       439,659
Stock options                                -     466,966           -              -       466,966
                                    -----------  ---------  -------------  ------------- -------------
Balance as at September 30, 2002        21,607  13,618,367 (15,872,366)        22,899    (2,209,493)

Issuance of capital stock                2,052   1,668,592           -              -     1,670,644
Purchase of common stock for treasury      (10)    (11,290)          -              -       (11,300)
Net loss for the year                        -           -  (3,692,392)             -    (3,692,392)
Change in foreign currency
   translation adjustment                    -           -           -       (247,170)     (247,170)
Expiry of redemption rights                  -     514,471           -              -       514,471
Stock options                                -     991,648           -              -       991,648
                                    -----------  ---------  -------------  ------------- -------------
Balance as at September 30, 2003    $   23,649 $16,781,788 $(19,564,758)    $(224,271)  $(2,983,592)
                                    ==========  ========== ==============  ============= ============

                            (See accompanying notes)

</table>

<page>F-4

                MCKENZIE BAY INTERNATIONAL LTD. and subsidiaries
                         (A development-stage company)

                         CONSOLIDATED STATEMENT OF LOSS
                    YEARS ENDED SEPTEMBER 30, 2003 and 2002
                         (Amounts stated in US dollars)

  <table>
  
                                                  <c>            <c>              <c>
                                                                                    Cumulative
                                                                                   from inception
                                                                                    on August 23,
                                                         2003          2002             1996
                                                      ----------    ----------     ---------------
Revenue                                               $        -    $   12,825     $        12,825


Expenses:
 Research, development and exploration (note 7)        1,139,471     2,586,476           7,703,272
 General administration                                  295,642       572,672           1,152,935
 Reorganization costs                                          -             -             102,914
 Wages and benefits                                      205,134       456,821           1,145,994
 Management wages and benefits                           797,493       525,648           2,352,800
 Professional fees                                       832,886       314,027           1,574,961
 Advertising, promotion and travel                       155,512       262,179             823,601
 Amortization                                             18,360        21,070             388,842
 Interest and bank charges                                50,906       108,896             159,802
 Interest on long-term debt                               21,182        22,358              90,174
                                                      ----------    ----------      --------------
                                                       3,516,586     4,870,147          15,495,295
                                                      ----------    ----------      --------------

Loss before the following:                            (3,516,586)   (4,857,322)        (15,482,470)
Write-down of assets                                           -             -          (1,626,821)
Write-off of incorporation and
 reorganization costs                                          -       (49,137)            (49,137)
Write-down of marketable securities                      (32,731)   (1,071,483)         (1,104,214)
Gain (loss) on sale of marketable securities                 140      (138,168)           (138,028)
Interest income                                            3,757         4,536              27,897
                                                      ----------    ----------      --------------
Net loss before mining taxes and cumulative
  effect of change in accounting principle
   for SFAS 142                                       (3,545,420)   (6,111,574)        (18,372,773)
Current mining tax recovery (note 9)                           -       141,000             141,000
                                                      ----------    ----------      --------------
Net loss before cumulative effect of change
  in accounting principle for SFAS 142             $  (3,545,420)  $(5,970,574)     $  (18,231,773)
                                                      ----------    ----------      --------------
Cumulative effect of change in accounting
  principle for SFAS 142 (note 2)                  $    (146,972)            -            (146,972)
                                                      ----------    ----------      --------------
Net loss                                           $  (3,692,392)  $(5,970,574)     $  (18,378,745)
                                                      ----------    ----------      --------------
Comprehensive loss (note 13)                       $  (3,939,562)  $(5,558,408)     $  (18,603,016)
                                                      ==========    ==========      ==============
Basic and diluted loss per share:
Net loss before cumulative effect of change
  in accounting principle for SFAS 142             $       (0.14)  $     (0.29)
Cumulative effect of change in accounting principle        (0.01)            -
                                                      -----------   -----------
Net loss                                           $       (0.15)  $     (0.29)
                                                      ===========   ===========

Weighted average shares outstanding                   24,186,803    20,940,128
                                                      ==========    ==========

                         (See accompanying notes)

</table>
<page>F-5

                MCKENZIE BAY INTERNATIONAL LTD. and subsidiaries
                         (A development-stage company)
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                    YEARS ENDED SEPTEMBER 30, 2003 and 2002
                         (Amounts stated in US dollars)
<table>

                                                     <c>            <c>           <c>

                                                                                    Cumulative
                                                                                  from inception
                                                                                    on August 23,
                                                         2003          2002             1996
                                                      ----------    ----------     ---------------
Cash flows from (used in) operating activities:
  Net loss                                         $  (3,692,392)  $(5,970,574)     $  (18,378,745)
  Items not affecting cash:
    Cumulative effect of change in accounting principle  146,972             -             146,972
    Amortization                                          18,360        21,070             388,842
    Expenses settled through issuance of common stock    362,992     1,442,670           1,805,662
    Capitalized interest on convertible notes payable          -         2,571               2,571
    Reclamation and closure costs (note 3)                     -             -             250,000
    Write-down of assets                                       -             -           1,626,821
    Write-down of marketable securities                   32,731     1,071,483           1,104,214
    Write-off of incorporation and reorganization costs        -        49,137              49,137
    Loss on sale of marketable securities                   (140)      138,168             138,028
    Stock-based compensation                             353,278       416,278           1,672,141
  Net change in non-cash working capital related to
      operations:
    Accounts receivable                                  (51,452)      (69,811)           (205,616)
    Inventories                                           19,562       (19,562)                  -
    Prepaid expenses and deposits                         26,616       (76,926)            (94,957)
    Accounts payable and accrued liabilities           1,446,532      (189,066)          2,136,202
                                                     -----------    -----------     --------------
                                                      (1,336,941)   (3,184,562)         (9,358,728)
                                                     -----------    -----------     ---------------
Financing activities:
  Issuance of notes payable                              350,000             -             350,000
  Increase of bank indebtedness                           29,755        47,411              77,196
  Increase in convertible notes payable                        -             -              23,055
  Issuance of long-term debt                                   -             -             137,435
  Repayment of long-term debt                            (36,156)      (32,794)           (104,490)
  Receipt of repayable government assistance (note 5)     71,272       855,359             926,631
  Proceeds from sale of common stock                     847,653     1,265,402          11,877,657
  Proceeds on sale of options                             33,160             -              33,160
  Redemption of redeemable capital stock                       -       (37,500)            (37,500)
  Purchase of common stock for treasury                        -        (4,369)           (149,622)
                                                    ------------    -----------     --------------
                                                       1,295,684     2,093,539          13,133,522
                                                    ------------    -----------     --------------
Investing activities:
  Purchase of marketable securities                            -             -          (1,767,835)
  Proceeds-sale of marketable securities                  50,910       474,683             525,593
  Purchase of reclamation cash bond (note 3)                   -             -            (338,685)
  Purchase of property and equipment                      (9,273)       (1,666)         (2,058,006)
  Incorporation and reorganization costs                       -             -             (81,769)
 Acquisition of business net of cash acquired (note 8)         -       (31,286)            (31,286)
                                                    ------------    -----------      -------------
                                                          41,537       441,731          (3,751,988)
Effect of foreign currency
    exchange rate changes on cash and equivalents          3,503        40,431              26,402
                                                    ------------    -----------      -------------
Net increase (decrease) in cash and cash
    equivalents                                            3,883      (608,861)             49,208
Cash and cash equivalents, beginning of period            45,325       654,186                   -
                                                    ------------    -----------      -------------
Cash and cash equivalents, end of period             $    49,208    $   45,325        $     49,208
                                                    ============    ===========      =============
Supplemental non-cash financing activities:
Issuance of common stock in lieu of requiring
  the Company to repurchase redeemable capital stock $   110,000    $        -        $    110,000
Issuance of options in lieu of requiring Company
  to repurchase redeemable capital stock                 605,210             -             605,210

Issuance of common stock in lieu of payment of notes
  payable and accrued interest                           356,424             -             356,424
Conversion of notes payable into capital stock                 -        25,626              25,626
                                                    ------------    -----------      -------------
                                                    $  1,071,634    $   25,626        $  1,097,260
                                                    ============    ===========      =============

                          (See accompanying notes)

<page>F-6
</table>

                MCKENZIE BAY INTERNATIONAL LTD. and subsidiaries

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2003
         (Amounts stated in US dollars unless indicated otherwise)

1. Nature of operations

   The Company is a development stage company with no operations.  The Company
   has interests in a vanadium/titanium deposit, with wind turbine technology
   and a diamond mine.  The Company was incorporated in Delaware on August 17,
   1998 under the name Decker Organic Systems, Inc.

2. Accounting policies

   The accompanying consolidated financial statements have been prepared in
   accordance with United States generally accepted accounting principles ("US
   GAAP") and reflect the following significant accounting policies:

   [a] Basis of presentation

       The financial statements of the Company have been prepared on the basis
       of the Company continuing as a going concern, which contemplates the
       realization of assets and the payment of liabilities in the ordinary
       course of business. Should the Company be unable to continue as a going
       concern, it may be unable to realize the carrying value of its assets and
       to meet its liabilities as they become due.

       The Company suffered recurring losses and has a deficiency in assets that
       raise substantial doubt about our ability to continue as a going
       concern. The Company's continued existence is dependent upon its ability
       to raise additional capital and generate profits. Although management
       believes that it will be successful at raising additional capital in the
       short-term and will have profitable operations in the long-term, it is
       unable to disclose firm commitments as of the date of these financial
       statements.

       As discussed in note 6, the Company may be required to repurchase shares,
       at the option of the holders, for an amount of $252,175.

       The accompanying financial statements do not include any adjustments
       relating to the recoverability and classification of recorded assets and
       classification of liabilities that might be necessary should the Company
       be unable to continue as a going concern.

   [b] Consolidation

       These consolidated financial statements include the activities of the
       Company and its wholly-owned subsidiaries, McKenzie Bay Resources Ltd.,
       Great Western Diamond Company, Experts Conseils Dermond Inc. and a 62.5%
       interest in Ptarmigan Energie Inc.  All intercompany balances and
       transactions have been eliminated in consolidation.

<page>F-7

   [c] Foreign currency translation

       The translation to US dollars for consolidation purposes is performed
       using the current rate method whereby balance sheet accounts are
       converted at exchange rates in effect at the balance sheet date and
       revenue and expense accounts are translated at the weighted-average
       exchange rate during the period.  The gains and losses resulting from
       such translation are included as a foreign currency translation
       adjustment in stockholders' equity (deficit).  For statutory and other
       reporting purposes, the Company's wholly and partially owned
       subsidiaries, McKenzie Bay Resources Ltd., Experts Conseils Dermond Inc.
       and Ptarmigan Energie Inc. prepare financial statements in Canadian
       dollars.

   [d] Cash and cash equivalents

       Cash and cash equivalents includes those short-term investments which, at
       the date of acquisition, have an original term to maturity of three
       months or less.

   [e] Marketable securities

       The Company invests in marketable securities with maturities greater than
       three months.  The securities are classified as available-for- sale
       securities and reported at fair market value with unrealized gains and
       losses excluded from earnings and recorded to accumulated other
       comprehensive loss.

   [f] Inventories

       Inventories are valued at the lower of average cost and net realizable
       value.

   [g] Use of estimates

       The preparation of financial statements in conformity with generally
       accepted accounting principles requires management to make estimates and
       assumptions that affect the reported amounts of assets and liabilities
       and disclosure of contingent assets and liabilities at the date of the
       financial statements and the reported amount of revenues and expenses
       during the fiscal period. Financial statements items that require
       significant estimates from management are the useful life of long-lived
       assets for amortization purposes, carrying value of goodwill and
       sufficiency of reclamation and closure liabilities.  Actual results could
       differ from such estimates.

   [h] Exploration and development expenditures

       Costs related to the exploration and development of resource properties
       are expensed as incurred.  Amounts are reduced by grants and other
       related revenues.

<page>F-9

   [i] Research and development

       Research and development expenditures are charged to earnings as incurred
       and amounted to $629,078 and $0 in the years ended September 31, 2003 and
       2002, respectively.

   [j] Property and equipment

       Property and equipment are recorded at cost and are being amortized over
       their estimated useful lives using the declining balance method at the
       following annual rates:

                         Equipment under capital lease  20%
                         Furniture and fixtures         20%
                         Computer                      30%
                         Office equipment              20%


   [k] Impairment for long-lived assets

       The Company evaluates the carrying value of long-lived assets and other
       intangible assets, excluding goodwill, based upon current and anticipated
       undiscounted cash flows, and recognizes an impairment when such estimated
       cash flows will be less than the carrying value of the asset. Measurement
       of the amount of impairment, if any, is based upon the difference between
       carrying value and fair value.

   [l] Income and mining taxes

       The Company accounts for income and mining taxes under the asset and
       liability method.  Under this method, deferred tax assets and liabilities
       are recognized for the future tax consequences attributable to
       differences between the financial statement carrying amounts of existing
       assets and liabilities and their respective tax bases.  Deferred tax
       assets and liabilities are measured using enacted tax rates expected to
       apply to taxable income in the years in which those temporary differences
       are expected to be recovered or settled.  The effect on deferred tax
       assets and liabilities of a change in tax rates is recognized in income
       in the period that includes the enactment date.  A valuation allowance is
       set up when it is more likely than not that a deferred tax asset will not
       be recovered.

   [m] Loss per common share

       Basic earnings (loss) per share is computed by dividing net loss (the
       numerator) by the weighted-average number of outstanding common shares
       (the denominator) for the period.  The computation of diluted earnings
       (loss) per share includes the same numerator, but the denominator is
       increased to include the number of additional common shares that would
       have been outstanding if potentially dilutive common shares had been
       issued (such as the common share equivalents for stock options).  Fully
       diluted loss per share has not been presented as it is anti-dilutive.


<page>F-10


   [n] Comprehensive loss

       In addition to net loss, comprehensive loss includes foreign currency
       translation adjustment and unrealized holding loss on marketable
       securities.

   [o] Stock-based compensation plan

       (i) The Company has stock-based compensation plans which are described in
       note 6.  The Company uses the fair value method of accounting for all
       stock options granted to non-employees in accordance with the provisions
       of SFAS 123 and the intrinsic value method for those granted to employees
       in conformity with Accounting Principles Board Opinion No. 25 and its
       related interpretation and allowed by SFAS 123.  Under the fair value
       based method, compensation cost attributable to awards is measured at the
       date of the grant and recognized over the vesting period in operating
       expense as it is the case under the intrinsic value method when exercise
       price is lower than the current market price at the date of the grant.
       No compensation cost is recorded for all other stock-based employee
       compensation awards and consideration paid by employees on the exercise
       of stock options is recorded as capital stock.

       (ii) Fair value disclosure

SFAS 123 encourages but does not require companies to include in compensation
cost the fair value of stock options granted to employees.  A company that does
not adopt the fair-value method must disclose the cost of stock compensation
awards, at their fair value, on the date the award is granted.  This fair value
was estimated using the Black-Scholes model with assumptions of a 2 to 10 years
expected term, 113% to 130% volatility, interest rates ranging from 1.49% to
4.03% and an expected dividend yield of 0%.  Had the compensation cost for stock
options issued to employees, officers and directors been determined based on the
fair value at the grant date consistent with SFAS No. 123, the Company's net
loss and loss per share would have been as follows:

                                        2003               2002
                                     ---------           ----------
Net loss                            (3,692,392)         (5,970,574)
                                     ---------           ----------
Pro forma                           (4,603,974)         (6,728,768)
                                     ---------           ----------

                                        2003               2002
                                     ---------           ----------
Net loss per share:
As reported                              (0.15)              (0.29)
                                     ---------           ----------
Pro forma                                (0.19)              (0.32)
                                     ---------           ----------

<page>F-11

The Company used the Black-Scholes option pricing model to determine the fair
value of grants made in the period ended September 30, 2003 and 2002,
respectively.

                                       2003                2002
                                     ---------           ----------
Stock based compensation
expense as reported                    290,091             125,269
                                     ---------           ----------

Stock based compensation
expense if fair value was used.      1,201,673             883,463
                                     ---------           ----------


   [p] Goodwill and other intangible assets

       Effective October 1, 2002 the Company adopted SFAS 141, "Business
       Combinations, "and SFAS 142, "Goodwill and Other Intangible Assets".
       SFAS 141 was issued by the FASB in June 2001. SFAS 141 requires that the
       purchase method of accounting be used for all business combinations
       completed after June 30, 2001.  SFAS 141 also specifies the types of
       acquired intangible assets that are required to be recognized and
       reported separately from goodwill and those acquired intangible assets
       that are required to be included in goodwill.  The Company's adoption of
       this standard did not have any effect on our accounting for prior
       business combinations.

       SFAS 142 requires that goodwill no longer be amortized, but instead be
       tested for impairment at least annually.  SFAS 142 requires recognized
       intangible assets to be amortized over their respective estimated useful
       lives and reviewed for impairment in accordance with SFAS 144,
       "Accounting for the Impairment or Disposal of Long-Lived Assets".  Any
       recognized intangible assets determined to have an indefinite useful life
       are not amortized, but instead tested for impairment in accordance with
       the standard until its life is determined to no longer be indefinite.

       The Company has completed its SFAS 142 transitional impairment review and
       determined that the goodwill ("excess cost of investment over net assets
       acquired") of $146,972 associated with the fiscal 2002 acquisitions of
       DERMOND INC. should be reduced to $0.  The fair value of the reporting
       unit (DERMOND INC.) was determined using the present value of expected
       future cash flows and other valuation measures.

       The $146,972 non-cash charge is reflected as a cumulative effect of an
       accounting change in the accompanying Consolidated Statements of Loss for
       the year ended September 30, 2003.  In accordance with SFAS 142 and SFAS
       3, "Reporting Accounting Changes in Interim Financial Statements" ("SFAS
       3"), when a transitional impairment loss for goodwill (cumulative effect
       type accounting change) is measured in other than the first interim
       reporting period, it shall be recognized in the first interim period
       irrespective of the period in which it is measured.  The impact on the
       three-month period ended December 31, 2002 is as follows:

<page>F-12

        Three months ended December 31, 2002

                               Net income (loss)       Basic loss per share
                              ------------------       ---------------------
Reported net income                 $(1,097,801)                    $(0.05)
Less:  Impairment charge               (146,972)                     (0.01)
                              ------------------       ---------------------
Adjusted net loss                   $(1,244,773)                    $(0.06)
                             ===================       =====================

   [q] New accounting pronouncements

       In November 2002, the Financial Accounting Standards Board ("FASB")
       issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
       Requirements for Guarantees, Including Indirect Guarantees of
       Indebtedness of Others" (FIN 45). FIN 45 requires that upon issuance of a
       guarantee, a guarantor must recognize a liability for the fair value of
       an obligation assumed under a guarantee. FIN 45 also requires additional
       disclosures by a guarantor in its interim and annual financial statements
       about the obligations associated with guarantees issued. The recognition
       provisions of FIN 45 are effective for any guarantees issued or modified
       after December 31, 2002. The disclosure requirements are effective for
       interim and annual financial statements for periods ending after December
       15, 2002.  The adoption of FIN 45 had no impact on the Company's
       financial position, results of operations or cash flows.

       In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock
       Based Compensation-Transition and Disclosure." SFAS No. 148 amends SFAS
       No. 123, "Accounting for Stock Based Compensation," to provide
       alternative methods of transition for a voluntary change to the fair
       value based method of accounting for stock-based employee compensation.
       In addition, this Statement amends the disclosure requirements of
       Statement 123 to require prominent disclosures in both annual and interim
       financial statements about the method of accounting for stock-based
       employee compensation and the effect of the method used on reported
       results.  The Company has adopted the requirements of the Statement.

       In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
       Variable Interest Entities" (FIN 46). FIN 46 requires a variable interest
       entity to be consolidated by a company if that company is subject to a
       majority of the risk of loss from the variable interest entity's
       activities or entitled to receive a majority of the entity's residual
       returns or both. FIN 46 also requires disclosures about variable interest
       entities that a company is not required to consolidate but in which it
       has a significant variable interest. The consolidation requirements of
       FIN 46 apply immediately to variable interest entities created after
       January 31, 2003. In addition, FIN 46, as amended in December 2003 (FIN
       46R), will be effective by public entities for periods ending after March
       15, 2004. The adoption of this interpretation and its revision will not
       have a material impact on the Company's financial position or results of
       operations.

<page>F-13

   [q] New accounting pronouncements (continued)

       In October 2001, the Financial Accounting Standards Board issued
       "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
       144), which is effective for fiscal years beginning after December 15,
       2001.  SFAS 144 addresses accounting and reporting for the impairment or
       disposal of long-lived assets.  This statement superseded SFAS 121,
       "Accounting for the Impairment of Long-Lived Assets to be Disposed Of".
       The Company's adoption of SFAS 144 on October 1, 2002 did not have a
       material effect on its consolidated financial statements.

       In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
       Financial Instruments with Characteristics of Both Liabilities and
       Equity", which is effective for financial instruments entered into or
       modified after May 31, 2003, and otherwise is effective at the beginning
       of the first interim period beginning after June 15, 2003, to address the
       balance sheet classification of certain financial instruments that have
       characteristics of both liabilities and equity.  As a result of the
       adoption of SFAS 150, the Company has reclassified the balance of its
       Redeemable Capital Stock at September 30, 2003.  SFAS 150 does not permit
       the restatement of prior years balances of reclassified financial
       instruments.  Accordingly, the balances of the Company's Redeemable
       Capital Stock have not been reclassified.

       In July 2001, the Financial Accounting Standards Board finalized SFAS
       143, Accounting for Asset Retirement Obligations ("ARO"), which requires
       the recognition of a liability for an asset retirement obligation in the
       period in which it is incurred.  Retirement obligations associated with
       long-lived assets included within the scope of SFAS 143 are those for
       which there is a legal obligation to settle under existing or enacted
       law, statute, written or oral contract, or by legal construction under
       the doctrine of promissory estoppel.  Retirement obligations are included
       in the scope of the standard only if the legal obligation exists in
       connection with or as a result of the permanent retirement, abandonment
       or sale of a long-lived asset.  When the liability is initially recorded,
       the carrying amount of the related long-lived asset is correspondingly
       increased.  Over time, the liability is accreted to its future value.
       The corresponding amount capitalized at inception is depreciated over the
       useful life of the asset.  The liability must be revalued each period
       based on current market prices.  SFAS 143 is effective for fiscal years
       beginning after June 15, 2002.  The Company has adopted the requirements
       of the statement.

3. Reclamation cash bond

   The Company was required to post a cash bond with the State of Colorado,
   Department of Natural Resources to cover future site reclamation and
   closure liabilities associated with the Kelsey Lake mine.  A liability
   for the estimated restoration costs of $250,000 ($250,000 in 2002) has
   been accrued in these financial statements.

<page>F-14

4. Property and equipment

   The details of property and equipment are as follows:

                                                         2003         2002
                                      Accumulated      Net Book     Net Book
                        Cost          Amortization      Value        Value
                      ----------     -------------    ----------  -------------
Equipment under
capital lease       $  137,435         $    73,435    $   64,000    $    80,000
Furniture and
fixtures                 7,865               4,366         3,499          3,348
Computer                11,333               2,811         8,522            970
Office equipment           639                 397           242            259
                      ----------     -------------    ----------  -------------
                    $  157,272         $    81,009    $   76,263    $    84,577
                      =========       ============    ==========   ============
5. Long-term debt

   The Company received financial assistance from the government of Canada and
   the province of Quebec in connection with the completion of a feasibility
   study of the Vanadium deposits at Lac Dore, Quebec and a test pilot project
   for the refining of Vanadium.  These financial assistance packages have been
   recorded as liabilities in the financial statements.

                                                         2003          2002
                                                      ---------   ------------
Province of Quebec unsecured financial
assistance, non-interest bearing,
repayable in scheduled payments over 4
years after the second year of production
of the mine.  This assistance is
forgivable if, after 24 months following the
release of the feasibility study, a
decision is made not to begin production            $    665,190   $ 570,240

Government of Canada unsecured financial
assistance, non-interest bearing,
repayable in quarterly payments of
CDN$62,500 commencing October 1, 2004                    369,550     285,119

Government of Canada unsecured financial
assistance, non-interest bearing, repayable
in two equal annual payments,
commencing January 1, 2005                                39,911           -

Obligation under capital lease, payable
in monthly blended installments of $3,444,
interest at 10%, due July, 2004                           32,945      69,101
                                                     -----------   ------------
                                                       1,107,596     924,460

Less current portion                                      32,945      36,156
                                                     -----------   ------------
                                                     $ 1,074,651   $ 888,304
                                                     ===========   ============
<page>F-15

The Company has provided equipment subject to the lease agreement above as
collateral for amounts owing.

        Future minimum lease payments required under the lease are as follows:

                                 2004    $34,443
                                 2005          -
                                         -------
                                          34,443
Less amount representing interest          1,498
                                         -------
                                         $32,945
                                         =======
6. Capital stock

Authorized - 75,000,000 common stock, par value $0.001 per share


<table>

                                <c>                         <c>
Issued -
                                           Common    Paid in   Stock
                               Shares      stock     capital  options   Total
                              ---------   --------  -------- -------- ----------
Balance, September 30, 2002  23,177,640    $21,689 $13,767,907     - $13,789,596
Common stock issued for:
 Expenses and accounts
  payable settled through
  issuance of common stock      937,943        938     822,053     -     822,991
 Cash                           453,337        453     295,414     -     295,867
 Exercise of warrants           661,038        661     551,125     -     551,786
 Stock options, compensation          -          -     353,278     -     353,278
 Stock options, in lieu of
  redemption rights                   -          -     605,210     -     605,210
 Stock options, cash                  -          -      33,160     -      33,160
 Expiry of redemption rights          -          -     514,471     -     514,471
                             ----------   --------  ----------  ----  ----------
 Balance, September 30, 2003 25,229,958     23,741  16,942,618     -  16,966,359
 Less treasury stock at cost    (92,000)       (92)   (160,830)    -    (160,922)
                             ----------   --------  ----------  ----  ----------
 Balance, September 30, 2003 25,137,958    $23,649 $16,781,788  $  - $16,805,437
                             ==========   ========  ==========  ==== ===========

<page>F-16

</table>

Share-based incentive plans

At September 30, 2003, the Company had three stock-based incentive plans each
being limited so that options to acquire no more than 2,500,000 shares per plan
in the aggregate may be outstanding at any one time.

(i)     Under the 2001 Employee Incentive Stock Option Plan, options may be
granted at an exercise price equal to the market price on the date of the grant.
All options expire no later than ten years from the grant date.  In the event an
option is granted to an employee who owns 10% or more of the voting power of
stock of the Company, the purchase price of each share shall be 110% of the fair
market value on the date of grant and the expiration date of option shall be no
more than five years after the date of grant of such option.

(ii)    Under the 2001 Employee non-qualified Stock Option Plan, options may be
granted to employees or certain non-employees at an exercise price as determined
by the administrator of the plan on the date of the grant, all options expire
ten years after the date of grant.

(iii)   Under the 2001 Directors non-qualified Stock Option Plan, options to
purchase common shares of the Company may be granted to directors of the Company
or certain non-employees for terms up to ten years at an exercise price as
determined by the administrator on the date of the grant.

The following table contains information with respect to all options
granted by the Company:

                                                        Weighted average
                                                        exercise price
                                        Shares             US$/share
                                     ------------       ----------------

Options outstanding,
September 30, 2001                     2,410,000               1.02
   Granted                               950,000               1.25
   Expired                               (25,000)              0.64
Options outstanding,
September 30, 2002                     3,335,000               1.09
   Granted                             9,896,617               1.03
   Expired                              (100,000)              1.50
                                     ------------       ----------------
Options outstanding,
September 30, 2003                    13,131,617               1.04
                                     ===========        ================

<page>F-17


The following table contains information with respect to all options granted by
the Company at September 30, 2003:

                   Outstanding options             Exercisable options
                  ---------------------          ------------------------
                                  Weighted                         Weighted
                        Average   average                           average
                          life     price                             price
                Shares  (years)  US$/share           Shares       US$/share
              --------  -------  ----------          ---------    ----------
$0.74         300,000      3.96      0.74                    -            -
$1.00      11,121,917      5.26      1.00           10,431,917         1.00
$1.25         476,200      1.88      1.25              476,200         1.25
$1.30-$1.50 1,175,000      6.94      1.38              775,000         1.42
$2.00-$3.00    58,500      0.49      2.85               58,500         2.85
           ----------  --------  ----------         ----------    ----------
           13,131,617                               11,741,617
           ==========                               ==========
        As at September 30, 2003, the following are outstanding:

   [a] Stock warrants

                                                            Number
                                                         of warrants
                                                        ------------
Outstanding, September 30, 2001                           3,544,030
Issued during the year                                      145,000
Exercised during the year                                  (969,935)
Outstanding, September 30, 2002                            2,719,095
Issued during the year                                       446,762
Exercised during the year                                  (661,038)
Expired during the quarter                               (1,552,200)
                                                        ------------
Outstanding, September 30, 2003                             952,619
                                                        ============

       The warrants outstanding at September 30, 2003 can be exercised at prices
       ranging from US $1.48 to US $3.00.  The expiry dates on the warrants
       range from November 29, 2003 to August 19, 2005.

       During 2003, the Company agreed to a cashless exercise of certain
       outstanding warrants for shares of the Company's common stock which would
       have expired in February 2003.  The Company agreed to a cashless exercise
       of the warrants, in effect accepting shares issuable upon exercise as
       payment for the exercise.  As a result, 15,000 shares of common stock
       were issued in exchange for warrants for 75,000 shares based on an
       exercise price of $1.28 per share and an exchange price of $1.60 per
       share.  The exchange price of $1.60 per share was set on a date when the
       quoted market price of a share of common stock was the same.


<page>F-18


   [b] Treasury stock

       During the year, the Company repurchased 10,000 (2,500 in 2002) common
       shares for treasury at a cost of $11,300 in settlement of an account
       receivable ($4,369 in cash in 2002).

   [c] Redeemable capital stock

       i)      81,700 common shares of the Company have certain rights attached
       permitting the holder to require the Company to repurchase these shares.
       Pertaining to subscription agreements, if stockholders decide to exercise
       their rights, the Company would be obligated to pay, as at September 30,
       2003 or gradually over the next two years a maximum amount of $252,175.
       This right requires a repurchase at prices increasing in time from $2.50
       to $3.25.


7. Mineral properties and exploration expenditures

   The Company's expenditures, net of grant  revenues received on vanadium and
   diamond exploration are as follows:

                                        2003            2002
                                     ---------       ---------

                                      $510,393      $2,586,476

        The Lac Dore Vanadium/Titanium Project is located in the Province of
        Quebec, Canada.

        The Kelsey Lake Diamond Mine is located on the Colorado, USA and
        Wyoming, USA border.

        At September 30, 2003, the accumulated expenditures incurred by the
        Company on mineral properties and exploration expenditures totaled
        $7,074,194 (2002 - $6,563,801).

8. Experts Conseils Dermond Inc.

   On February 12, 2002, the Company entered into an agreement to purchase all
   the issued and outstanding common stock of Experts Conseils Dermond Inc.
   (Dermond), a Canadian corporation, which owns technology known as the Dermond
   Wind Generator.  As consideration for the common stock of Dermond, the
   Company paid cash of CDN$50,000 (US$31,369), issued 100,000 of its common
   stock and agreed to provide employment contracts and royalty agreements to
   the existing shareholders of Dermond.

<page>F-19

   The acquisition of Dermond was accounted for using the purchase method
   whereby the results of its operations were consolidated since the date of
   acquisition.

The net assets acquired were:
             Cash                           $       83
             Accounts receivable                32,712
             Computer                              606
             Goodwill (see note 2)             146,972
             Accounts payable and
             accrued liabilities               (24,004)
                                           -----------
                                            $  156,369
                                           ===========
Consideration for the purchase consisted of:
             Cash                           $   31,369
             Issuance of common stock          125,000
                                           -----------
                                            $  156,369
                                           ===========


9. Income and mining taxes

   As the Company operates in a specialized industry and in several tax
   jurisdictions, its income is subject to various rates of taxation.  Major
   items causing the Company's income tax rate to differ from the federal income
   tax rate of 34% to which are subject the majority of its operations, were as
   follows:

                                                       2003              2002
                                                   ----------        -----------
Loss before taxes and cumulative
effect of change in accounting
principle for SFAS 142                            $(3,545,420)      $(6,111,574)
                                                   ----------        -----------
Computed "expected" tax recovery                   (1,205,443)       (2,086,882)
Increase (reduction) in income taxes
resulting from:
  Resource allowance deduction                         39,246            56,966
  Earnings in foreign jurisdiction
   taxed at different rates                           (50,381)         (249,614)
  Tax benefits of losses not recognized             1,214,804         1,583,361
  Tax loss realized on intercompany transaction             -           566,637
  Non-deductible expenses (stock options)               1,774           129,532
                                                    ---------         ----------
                                                            -                 -
Income taxes                                                -                 -
Mining duties                                               -          (141,000)
                                                    ---------         ----------
Total income and mining tax recovery                $       -       $  (141,000)


<page>F-20

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets are presented below:

As at September 30,                                   2003             2002
                                                   ---------         --------
Deferred tax assets:

 Loss carried forward and
 exploration expenditures                         $4,193,360       $ 2,959,192
 Capital loss carried forward                        518,074           516,521
 Others                                              126,399           111,414
                                                   ---------         ---------
Total gross deferred tax assets                    4,837,833         3,587,127
Less valuation allowance                          (4,837,833)       (3,587,127)
                                                   ---------         ---------
Net deferred tax assets                           $        -       $         -



The Company and certain subsidiaries have accumulated the following losses and
credits for income tax purposes, which may be carried forward to reduce taxable
income and taxes payable in future years.



                                                                     Expiring
                                                     Amounts           dates
                                                  ------------    ------------
Non-capital loss carried forward
 for Canadian subsidiaries                        $ 1,667,960      2004 to 2010
Non-capital loss carried forward for the Company    2,905,840      2019 to 2023
Capital loss carried forward for the Company        1,213,289          2008
Pool of deductible exploration expenditures         6,713,837       Unlimited
                                                  ============    =============
10. Contingency

    As a result of exploration work performed at the Lac Dore Vanadium/Titanium
    Project, the Company has a potential environmental liability in the range of
    $15,000 to $30,000.  This liability will not be incurred if the project goes
    into production.  As management believes that the project will go into
    production, the amount has not been accrued in the financial statements.

    Bank indebtedness and other loans

    The bank indebtedness of a subsidiary company, Great Western Diamond
    Company, carries interest at 8% per annum and is secured by the assets of
    Great Western Diamond Company.

    The bank indebtedness of a subsidiary company, Experts Conseils Dermond
    Inc., carries interest at 7.5% per annum and is secured by an assignment of
    the subsidiary's refundable research and development tax credit.

<page>F-21

    In addition to the above, the assets of Great Western Diamond Company have
    been pledged to secure certain of the accounts payable of Great Western
    Diamond Company.

    In the normal course of business, the Company and its subsidiaries are
    parties to various legal claims, actions and complaints and various other
    risks. It is not possible to predict with certainty whether or not the
    Company and its subsidiaries will ultimately be successful in any of these
    legal matters or, if not, what the impact might be. However, the Company's
    management does not expect that the results in any of these legal
    proceedings will have a material adverse effect on the Company's results of
    operations, financial position or cash flows.

11. Commitments

    The Company has provided a 50% lien on the reclamation bond on deposit with
    the state of Colorado with payment being made in the event that the Great
    Western Diamond Company is sold and the deposit returned.

    Royalty Agreements

    The Company has entered into agreements with third parties to make royalty
    payments based on production from the Kelsey Lake mine and a royalty of 2.5%
    of Dermond wind turbine sales.

12. Financial instruments

    Financial instruments include cash and cash equivalent, accounts receivable,
    accounts payable and accrued liabilities, all of which are carried at cost
    which approximates fair value because of the near-term maturity of those
    instruments.  As at September 30, 2003, fair value of repayable government
    assistance could not be determined because no equivalent market exists for
    such loans, therefore these loans have been carried at cost.

13. Comprehensive loss

                                                                 Cumulative
                                                               From inception
                                                               on August 23,
                            2003              2002                  1996
                      ---------------     ---------------     -----------------
Net loss               $(3,692,392)       $  (5,970,574)       $  (18,378,745)
Unrealized holding
loss on marketable
securities                       -              371,735                     -
Foreign currency
translation adjustment    (247,170)              40,431              (224,271)
                      ---------------     ---------------     -----------------
Comprehensive loss     $(3,939,562)       $  (5,558,408)       $  (18,603,016)
                      ===============     ===============     =================


<page>F-22

14.     Net basic and diluted loss per common share
                                                2003                    2002
                                             -----------            -----------
Net loss                                  $ (3,692,392)        $    (5,970,574)
                                             -----------            -----------
Total weighted average
number of common
shares and equivalent                       24,186,803              20,940,128
                                            ------------            -----------
Net loss per common share                 $      (0.15)        $         (0.29)
                                            ============            ===========

15. Related party transactions

    The Company has retained a law firm to perform legal services for which
    Company has incurred total expenditure of $125,086 for the year ended
    September 30, 2003.  A director for the Company is a partner in that law
    firm.  The transactions were valued at the exchange amount, which is the
    amount of consideration agreed to by the related parties.  As of September
    30, 2003, an amount of $60,294 resulting from these transactions is included
    in accounts payable and accrued liabilities.  On May 15, 2003, the Company's
    Board of Directors approved the cancellation of $17,100 of the amount
    outstanding at March 30, 2003, in exchange for the issuance of 20,000 of
    common stock shares to certain principals in the law firm, including the
    Company's director.

16. Comparative figures

    Certain figures from the prior year have been reclassified for comparison
    purposes only.

17. Subsequent event

    On April 6, 2004 the Company entered into a Standby Equity Distribution
    Agreement with Cornell Capital Partners, L.P. Under the agreement and
    subject to its terms and conditions, which the Company may not be able to
    satisfy, the Company may require Cornell Capital Partners, L.P to purchase
    newly issued common shares from the Company, to a maximum market value of
    $15 million, over a 24-month period, less certain fees and expenses.

<page>F-23


ITEM 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE.

The disclosure called for by paragraph (a) of Item 304 of Regulation S-B has
been previously reported as that term is defined in Rule 12b-2 under the
Exchange Act.  No disclosure called for by paragraph (b) of such Item was
required.

ITEM 8A.   CONTROLS AND PROCEDURES.

We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our periodic filings with the SEC is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily is required
to use its judgment in evaluating the cost-benefit relationship of possible
controls and procedures.  We have performed an evaluation of the effectiveness
of the design and operation of our disclosure controls and procedures within 90
days of the date of this Annual Report. The evaluation was performed by our
Chief Executive Officer and Chief Financial Officer.  Based on their evaluation,
they believe that our disclosure controls and procedures were effective.

There have been no significant changes in our internal controls over financial
reporting during the most recently completed fiscal quarter that materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.

<PAGE>37

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

I.

(a)     Directors and Executive Officers

The following are our directors and executive officers.  Each director holds
office until the next annual meeting of shareholders and until the director's
successor is elected and qualified or until the director's resignation or
removal.  Each executive officer hold offices for the term for which such
officer is elected or appointed and until a successor is elected or appointed
and qualified or until such officer's resignation or removal.

      NAME             AGE                   POSITIONS
------------------    -----     ------------------------------------------------
Gary L. Westerholm      59      President, Chief Executive Officer and director
Gregory N. Bakeman      48      Treasurer, Chief Financial Officer and director
John W. Sawarin         69      Secretary, Vice President-Product Marketing and
                                director
Rocco J. Martino        49      Director
Stephen D. McCormick    58      Director
Donald C. Harms         62      Director
Doris F. Galvin         49      Director

Gary L. Westerholm has been a director and our President and Chief Executive
Officer since 1999.  Mr. Westerholm is also President and Chief Executive
Officer of McKenzie Bay International Ltd and a director of three of our other
subsidiaries.  Mr. Westerholm's term as an executive officer expires in March
2006.

Gregory N. Bakeman has been a director since 2000 and has served as Chief
Financial Officer since February 2001 and Treasurer since December 2001.  Mr.
Bakeman is also Chief Financial Officer of each of our subsidiaries and a
director of four of our subsidiaries.  From 1999 to 2000, Mr. Bakeman served as
Chief Financial Officer of Micro-C Technologies, Inc., a manufacturer of
computer chip production equipment.  From 1997 to 1999, Mr. Bakeman was a Vice
President in the Investment Banking Department of First of Michigan Corporation
(a Fahnestock & Co. wholly owned subsidiary).  Mr. Bakeman's term as an
executive officer expires in March 2006.

John W. Sawarin has been a director since 1999 and has served as Secretary since
1999 and Vice President-Product Marketing since January 2003.  Mr. Sawarin
previously served as Treasurer from 1999 to March 2002.  From 1996 to 1998, Mr.
Sawarin was a self employed consultant. Mr. Sawarin's term as an executive
officer expires in March 2006.

<PAGE>38

Rocco J. Martino has been a director since 1999.  Since 1989, Mr. Martino, a
certified public accountant, has been a partner with LaSalle Capital Group Inc.,
a private equity group that pursues the acquisition of small to middle-market
companies, principally in the manufacturing and niche-distribution sectors.

Stephen D. McCormick has been a director since July 26, 2002.  Since 1997, Mr.
McCormick has served as President of McCormick Incorporated, a holding company
that owns businesses involved in the construction industry.  Since 1987, Mr.
McCormick has served as Executive Vice President of Northern Improvement
Company, a company focused on road building and movement of earth materials, and
Vice President of McCormick Construction Equipment Company, both subsidiaries of
McCormick Incorporated.

Donald C. Harms has been a director since November 12, 2002.  Since 1973, Mr.
Harms has been a principal of Larson, Harms & Bibeau, P.C., a law firm located
in Farmington Hills, Michigan.  Mr. Harms has served as our outside general
counsel since April 1999.

Doris F. Galvin has been a director since February 2004.  Ms. Galvin is self
employed as a consultant.  From 1979 to 2002, Ms. Galvin was employed by CMS
Energy, holding numerous positions in with that company, including Vice
President & Treasurer, and leaving the company as Senior Vice President-Global
Development.  CMS Energy is a utility holding company.

(b)     Significant Employees

Dermond Inc.

Jacquelin Dery - President, Director.  Mr. Dery, age 63, has been an executive
officer and director of Dermond since 1996. He is a Professional Engineer,
educated at Ecole Polytechnique, University of Montreal, with a degree in
Electrical Engineering.  In 1996 he co-formed Dermond to improve existing
Vertical Axis Wind Turbine technology to fulfill the specific needs of isolated
diesel driven electrical grids. From 1974-1996 he worked for Hydro-Quebec, where
he; was responsible for overall management of a $140,000,000 project to build a
new 70 MW diesel driven  power plant; provided technical direction over
conceptual engineering, detail engineering, installation and testing of a $28
million project for a new type of 4 MW, vertical axis Wind power generator; and
provided direction of a technical study aimed at replacing a 10 MW emergency
diesel power plant in the Gentilly nuclear facility.  Prior to joining Hydro-
Quebec, from 1971-1974 he worked for Sonatrach, Skikda, Algeria where he
implemented a maintenance management system in a newly built Natural Gas
Liquefaction plant.  From 1968-1971, he worked for the Atomic Energy Of Canada
Ltd, Whiteshell Nuclear Research Establishment, Pinawa, Manitoba, Canada, where
he performed conceptual studies and direction of detail engineering for
installing experimental research loops at the Nuclear Research Establishment,
including in-core nuclear reactor experimental loops.  Mr. Dery is a Member of
"Ordre des Ingenieurs du Quebec."  On March 31, 2004, Dermond was approximately
$12,375 US in arrears in the payment of Mr. Dery's salary.

<PAGE>39

Laurent B. Mondou - Vice President, Director.  Mr. Mondou, age 64, has been an
executive officer and director of Dermond since 1996.  He is a Professional
Engineer, educated at Ecole Polytechnique, University of Montreal with a degree
in Civil Engineering, and ecole des Hautes Etudes Commerciales, University of
Montreal, Montreal, Quebec, Canada where he has a degree in Business
Administration.  In 1996 he co-formed Dermond.  From 1995-1996 and 1990-1991, he
worked for Kamyr Enterprises Inc. where he prepared market studies, a 3-year
strategic plan, project proposals and was the contact for senior executives in
pulp and paper industries and government authorities.  From 1993 to 1994, he
worked for gestion Lehoux et Tremblay inc. where he provided engineering for
revamping power and pulp and paper plants, prepared studies on cogeneration
plants and gave construction expertise.  From 1991 to 1992 he worked for Arno
Electric Ltd. where he developed a mechanical and piping division for industrial
sectors, including aluminum, pulp and paper, hydraulic power, electrical
substations and cogeneration.  From 1989 to 1990, he worked for Dominion Bridge
where he developed a mechanical and piping division for industrial sectors
including aluminum, pulp and paper, hydraulic power, electrical substations,
cogeneration, refinery and metallurgy.  From 1974 to 1989, he worked for BG
Checo International Ltd. where he lead business development for industrial
projects such as petro-chemistry, pulp and paper, metallurgy and oil rigs.
From 1963-1973 he provided construction management on industrial projects for
SNC Inc.  Mr. Mondou is a Member of "Ordre des Ingenieurs du Quebec."  On March
31, 2004, Dermond was approximately $12,375 US in arrears in the payment of Mr.
Mondou's salary.

        Lac Dore Mining Inc.

Michel Garon - General Manager.  Mr. Garon, age 52, has been a General Manager
of Lac Dore since November 2002.  Mr. Garon's career has been in mining,
performing a variety of management functions for more than 20-years.  From 1995
until joining Lac Dore Inc. in November 2002, Mr. Garon was General Manager for
Noranda's Matagami Mine, in charge of two underground mining operations (annual
operating budget - $35MM), including a concentrator and all the ancillary
services.  He was also responsible for the construction and development of a new
underground operation (investment - $85 MM).  He was Vice President of smelting
operations for the Brunswick Mining and smelting Corporation Ltd in New
Brunswick, Manager of the Opemiska Division of Minnova Inc. including three
underground mines, a concentrator and all the ancillary services, and was
superintendent of several operations from 1981 - 1987.  Mr. Garon has a Master
in Applied Sciences, ecole Polytechnique of Montreal, 1976 and Bachelor in
Applied Sciences, Mining Engineering, ecole Polytechnique of Montreal, 1975.  On
March 31, 2004, Lac Dore Mining Inc. was approximately $58,000 US in arrears in
the payment of Mr. Garon's salary.

<PAGE>40

Jan Mracek - Director of Technology.  Mr. Mracek, age 47, has been Director of
technology of Lac Dore since January 2003.  Mr. Mracek is a Metallurgist with 22
years of experience in hydrometallurgy, in both research and plant operations.
Mr. Mracek was responsible for technical research, design and commissioning of
new technologies, including the development of an innovative vanadium recovery
and refining process for McKenzie Bay.  In operations, he focused on new
technologies and improved plant performance. His responsibilities have included
process selection, development and design; preparation of P&IDs and flow sheets;
vendors evaluation; and selection of process equipment.  Mr. Mracek has worked
as a Metallurgist for SNC-Lavalin Engineers & Contractors Inc., Toronto, Ontario
and Rustenburg Base Metals Refiners (Pty) Ltd., Rustenburg, South Africa; Plant
Superintendent, Rhombus Vanadium (Pty) Ltd., Rustenburg, South Africa; Technical
Development Manager, Hydrometallurgical Plant Bruntal, Bruntal, Czech Republic,
and  Researcher to Head of Metals Productions Department, Research Institute of
Metals, Panenske Brezany, Czech Republic.  Mr. Mracek has a PhD, Physical
Metallurgy, Institute of Chemical Technology, Prague, Czech Republic, 1987 and
MSc, Chemical Technology and Metallurgy, Institute of Chemical Technology,
Prague, Czech Republic, 1980.  On March 31, 2004, Lac Dore Mining Inc. was
approximately $58,000 US in arrears in the payment of Mr. Mracek's salary.

(c)           Family Relationships

There are no family relationships among our directors, executive officers, or
persons nominated or chosen by us to become directors or executive officers.

(d)     Involvement in Certain Legal Proceedings

None of the following events occurred during the past five years that is
material to an evaluation of the ability or integrity of any director, person
nominated to become a director, executive officer, promoter or control person:

-       Any bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time;

-       Any conviction in a criminal proceeding or being subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses);

-       Being subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; or

-       Being found by a court of competent jurisdiction (in a civil action),
the SEC or the Commodity Futures Trading Commission to have violated a federal
or state securities or commodities law, and the judgment has not been reversed,
suspended, or vacated.

<PAGE>41

(e)     Audit Committee Financial Expert

Not applicable.

(f)     Identification of the Audit Committee

Not applicable.

II. Section 16(a) Beneficial Ownership Reporting Compliance

Based solely upon a review of any Forms 3 and 4 and amendments thereto furnished
to us under Rule 16a-3(a) under the Exchange Act during and with respect to our
most recent fiscal year and any Forms 5 and amendments thereto furnished to us
with respect to our most recent fiscal year, and any written representations
referred to in subparagraph (b)(2)(i) of Item 405 of Regulation S-B, other than
as set forth below no person who at any time during the fiscal year ended
September 30, 2003 was a director, officer, or to our knowledge a beneficial
owner of more than 10% of any class of our equity securities registered pursuant
to Section 12 of the Exchange Act, failed to file on a timely basis, as
disclosed in the above Forms, reports required by Section 16(a) of the Exchange
Act during the most recent fiscal year or prior fiscal years.

NAME                NUMBER OF LATE REPORTS        NUMBER OF TRANSACTIONS
                                              NOT REPORTED ON A TIMELY BASIS
Steven D. McCormick          1                                 3

To the best of our knowledge, all reports required to be filed with respect to
our fiscal year ended September 30, 2003 have been filed and all late reports
and required reports not filed with respect to prior periods have been disclosed
by us in a prior Annual Report on Form 10-KSB.

        III. Code of Ethics

We have adopted a code of ethics that applies to all of our officers, including
our principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions. Any
shareholder or interested party may request a copy of the code of ethics.  Such
request must be made by contacting Richard Kaiser at (757) 306-6090 or by email
at: yes@yesinternational.com.


<PAGE>42


ITEM 10.        EXECUTIVE COMPENSATION.

Summary Compensation Table

The following table discloses all plan and non-plan compensation awarded to,
earned by, or paid to the following for all services rendered in all capacities
to us and our subsidiaries: (a) all individuals serving as our chief executive
officer (CEO) or acting in a similar capacity during the  fiscal year ended
September 30, 2003, regardless of compensation level and (b) our four most
highly compensated executive officers other than the CEO who were serving as
executive officers at September 30, 2003 and whose total annual salary and
bonus, as so determined, was in excess  of $100,000; (c) up to two additional
individuals for whom disclosure would have been provided pursuant to (b) of this
paragraph but for the fact that the individual was not serving as an executive
officer of us at September 30, 2003 and whose total annual salary and bonus, as
so determined, was in excess of $100,000 (the "Named Executive Officers"):


                                                            Long Term
                                                           Compensation
                                                           ------------
                                       Annual                 Awards
                                     Compensation

Name and Principal Position     Fiscal Year     Salary      Securities
                                                       Underlying Options/SARs
                                                      (shares of (common stock)
--------------------------------------------------------------------------------
Gary L. Westerholm,
President and CEO                2003          $115,500    200,000 shares
                                 2002          $102,262    200,000 shares
                                 2001           $28,571    430,000 shares
Gregory N. Bakeman,
Treasurer and CFO                2003          $110,250    200,000 shares
                                 2002           $89,282     50,000 shares
                                 2001           $21,429    155,000 shares


During the fiscal year ended September 30, 2003, we did not adjust or amend the
exercise price of stock options or SARs previously awarded to any of the Named
Executive Officers, whether through amendment, cancellation or replacement
grants, or any other means.

Option/SAR Grants Table

The following table provides certain information concerning individual grants of
stock options (whether or not in tandem with SARs), and freestanding SARs
(including options and SARs that subsequently have been transferred) made during
the fiscal year ended September 30, 2003 to each of the Named Executive
Officers:

<PAGE>43

           Option/SAR Grants in Fiscal Year Ended September 30, 2003
                               Individual Grants

Name                   Number of       % of Total
                       Securities     Options/SARs
                       Underlying        Granted  to
                     Options/SARs      Employees in  Exercise or
                  Granted (shares of     Fiscal      Base Price     Expiration
                     common stock)        Year          ($/Sh)          Date
------------------  --------------  ---------------  ----------    ------------
Gary L. Westerholm      100,000                         $1.00        9/30/07
                         50,000         18.6%           $1.00        9/30/12
                         50,000                         $1.50        2/10/13



Gregory N. Bakeman      100,000                         $1.00        9/30/07
                         50,000         18.6%           $1.00        9/30/12
                         50,000                         $1.50        2/10/13





Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values

The following table provides certain information concerning each exercise of
stock options (or tandem SARs) and freestanding SARs during the fiscal year
ended September 30, 2003 by each of the Named Executive Officers and the fiscal
year-end value of unexercised options and SARs:

Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values

<table>

                <c>                   <c>                    <c>
Name              Shares   Value      Number of Securities
                 Acquired Realized  Underlying Unexercised  Value of Unexercised
                    on       ($)     Options/SARs at FY-End     In-the Money
                 Exercise            (shares of common stock)  Options/SARs
                                                                 at FY-End
                                  Exercisable/Unexercisable  Exercisable/Unexercisable
--------------------------------------------------------------------------------
Gary L. Westerholm  -0-     -0-     863,500/66,500          $669,465/$25,935
Gregory N. Bakeman  -0-     -0-     455,000/0               $350,900/0

</table>

An option in considered "in the money" for purposes of this table if its
exercise price was lower than the market value of our common stock as of
September 30, 2003 ($1.88 per share).

Long-Term Incentive Plans - Awards in Last Fiscal Year

<PAGE>44

We made no awards to a Named Executive Officer in the fiscal year ended
September 30, 2003 under any Long-Term Incentive Plans other than as set forth
in the Option/SAR Grants Table above.

Compensation of Directors

At the beginning of each of our fiscal years, each of our directors receives a
10-year option for the purchase of 50,000 shares of our common stock,
exercisable at the fair market value of the shares on the first trading day of
October in each year.  A director who has or will serve on the Board of
Directors for less than an entire fiscal year will be granted an option to
purchase a pro-rata number of shares.  The options are fully vested upon grant.

We have no other arrangements pursuant to which any of our directors were
compensated during the fiscal year ended September 30, 2003 or are expected to
be compensated in the future for any service provided as a director.

In February 2004, we extended the termination date from March 14, 2004 to
September 15, 2008 of options to purchase an aggregate of 300,000 shares of our
common stock previously granted to Gary L. Westerholm, Gregory N. Bakeman, John
W. Sawarin and Rocco J. Martino.  The options are exercisable at $1.00 per
share.

Employment Contracts and Termination of Employment, and Change in Control
Arrangements.

On March 21, 2003, we entered into an employment agreement with each of Messrs.
Westerholm, Bakeman and Sawarin pursuant to which they will serve as executive
officers and receive annual base compensation of $121,000, $115,500 and $93,500,
respectively.  We have agreed to review the compensation annually during the
last month of each fiscal year and to grant increases in compensation which will
be effective on the first day of the immediately following calendar year, based
upon the respective employee's performance, scope of responsibility assumed,
compensation paid to similar employees in similar companies and such other
factors as may guide us in setting reasonable compensation.  In September 2003,
we did not review the compensation because of our financial condition.  Unless
sooner terminated as provided for in the agreements, the terms of employment
continue until April 1, 2006, provided, however, that such terms shall
automatically be extended for additional periods of twelve months each unless we
give notice, not less than three months prior to the expiration of the term,
including any extensions, of the termination of the employment effective as of
the next succeeding anniversary date of the expiration of the term or any
extension. Each employee has the right to participate in all senior executive
benefit, bonus and/or stock option plans we maintain and are available to our
senior executive officers generally.  In the event of the termination of an
employee's employment as a result of disability, we will pay him an amount equal
to his base annual salary less any credit for sick pay or other benefits
received by him deriving from any private medical insurance or other similar

<PAGE>45

arrangements entered into by us.  Any of the employees may voluntarily terminate
his employment with us at any time on at least 30 days prior written notice to
us and shall then be entitled to receive his base salary until the date his
employment terminates and certain other benefits.  If there should be (a) a sale
of substantially all our assets; (b) a merger, amalgamation or consolidation of
us to form a new entity; or (c) a change in control of us and as a result an
employee's employment is terminated but the acquirer or the new entity, as the
case may be, offers the employee employment on terms and conditions that are
essentially the same or better than those provided under his respective
employment agreement, if the employee refuses that offer, the employee will not
be entitled to any compensation under his employment agreement.  If, however,
upon any of such three events the employee is not offered employment by the
acquirer or new entity, then the employee shall be entitled to receive his
annual salary for a period of three years from the termination and any accrued
but unpaid vacation pay.  All other benefits the employee may have under the
senior executive benefit bonus and/or stock option plans and programs of the
employer shall be determined in accordance with the terms and conditions of such
plans and programs.  If we breach any provision of an employee's employment
agreement and such breach is not cured by us within 15 days after receipt of
written notice of the breach, the employee shall be entitled to receive his base
salary for a period of three years and all other rights and benefits the
employee may have under our senior executive benefit, bonus and/or stock option
plans and programs shall be determined in accordance with the terms and
conditions of such plans and programs.  We are in breach of each of the
employment agreements because we have not paid the required salaries.  As of
March 31, 2004, we were in arrears in salary payments under the employment
agreements in the amounts of approximately $81,000, $72,000 and $54,500,
respectively.   We have not received written notice of the breaches from any of
our executive officers.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS.

Equity Securities Authorized for Issuance With Respect to Compensation Plans

The following table provides certain information as of September 30, 2003 with
respect to compensation plans (including individual compensation arrangements)
under which our equity securities are authorized for issuance:.


<PAGE>46

Plan Category   Number of shares       Weighted average      Number of shares
                of common stock to    exercise price of      of common stock
                be issued upon       outstanding options,  remaining available
                exercise of          warrants and rights   for future issuance
                outstanding                                other than securities
                options, warrants                          to be issued upon
                and rights                                  exercise of the
                                                           outstanding options,
                                                           warrants and rights
                                                           disclosed elsewhere
                                                           in this table. (1)

-------------   ---------------    -------------------   ----------------------
Equity
compensation
plans approved
by security
holders            3,420,417              $1.13                 4,079,583
Equity
compensation
plans not
approved by
security holders
(2)(3)              700,000               $1.00                     -0-


(1) We have three stockholder-approved equity compensation plans, each of which
provides for a maximum of 2,500,000 shares of common stock which may be issued
upon exercise of  options that have and may be granted under adjustment as
described in the plans.

(2) Prior the adoption of the shareholder approved equity compensation plans, we
granted options to various individuals who provided services to us (including
services as employees and/or directors) as partial payment for those services.

(3) The figures in this row include options for the purchase of an aggregate of
150,000 shares of common stock granted to our directors.  These options were not
considered granted under the stockholder-approved 2001 Directors Non-Qualified
Stock Option Plan because the vesting schedules for these options varied from
the terms of the plan.

Other than as set forth above, we do not have any compensation plan under which
equity securities are authorized for issuance that was adopted without the
approval of our security holders.

<PAGE>47

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information as of March 31, 2004 with
respect to any person (including any "group") who is known to us to be the
beneficial owner of more than 5% of any class of our common stock and as to each
class of our equity securities beneficially owned by our directors and directors
and officers as a group:

Name and                        Shares of Common Stock        Approximate
Address of Beneficial Owner    Beneficially Owned (1)(2)    Percent of Class
---------------------------   -------------------------     ----------------

Gary L. Westerholm
3362 Moraine Drive
Brighton, Michigan 48114        5,213,200 shares (3)               19.6 %

John W. Sawarin
143 Windsor Ave.
London, ONT  Canada  N6C 2A1    2,394,600 shares (4)                9.1 %

Stephen D. and
Karen A. McCormick
PO Box 1254
Bismarck, ND  58502             9,720,048 shares (5)               30.6 %

SOQUEM, INC.
1000, route de l'Eglise,
bureau 500
Sainte-Foy Quebec Canada
G1V 3V9                         1,520,123 shares                    6.0 %

Gregory N. Bakeman
975 Spaulding Avenue SE
Grand Rapids, Michigan 49546      568,700 shares (6)                2.2 %

Rocco J. Martino
1468 Gary Wood Drive
Bass Ridge, Illinois 60527        834,698 shares (7)                3.2 %

Donald C. Harms
37899 Twelve Mile Road
Farmington Hills, Michigan 48331  149,918 shares (8)                 (9)

Doris F. Galvin
19495 Sibley Road
Chelsea, MI 48118                   2,000 shares                     (9)

John A. Popp
PO Box 2917
Midland, MI  48640              1,445,430 shares  (10)              5.7 %

Officers and directors
 as a group (7 persons)        18,946,664 shares  (11)             54.7 %

(1) Unless otherwise noted below, we believe that all persons named in the table
have sole voting and investment power with respect to all shares of common stock
beneficially owned by them.

<PAGE>48

(2) For purposes hereof, a person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from the date
hereof upon the exercise of warrants or options or the conversion of convertible
securities. Each beneficial owner's percentage ownership is determined by
assuming that any such warrants, options or convertible securities that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from the date hereof, have been exercised.

(3) Includes (a) 200,000 shares owned by Mr. Westerholm's spouse, (b) 87,500
shares owned by Mr. Westerholm's son who resides in his household, (c)
3,957,700 shares held by the Westerholm Family Living Trust as to which Mr.
Westerholm and his spouse are co-trustees and (d) 963,500 shares that can be
acquired by Mr. Westerholm upon exercise of options and warrants.  Does not
include 66,500 shares that can be acquired by Mr. Westerholm upon exercise of
options and warrants that are not exercisable within 60 days of the date hereof.

(4) Includes (a) 754,600 shares owned by Mr. Sawarin's spouse, (b) 780,000
shares that can be acquired by Mr. Sawarin upon exercise of options, and (c)
60,000 shares that can be acquired by Mr. Sawarin's spouse upon exercise of
options.

(5) Includes (a) 2,535,018 shares owned jointly by Mr. McCormick and his spouse,
(b) 938,063 shares owned by a company of which Mr. McCormick is an affiliate and
(c) 6,216,667 shares that can be acquired by Mr. McCormick upon exercise of
options.

(6) Includes (a) 500 shares owned by Mr. Bakeman's spouse, (b) 700 shares owned
by Mr. Bakeman's minor children, and (c) 555,000 shares that can be acquired by
Mr. Bakeman upon exercise of options.

(7) Represents (a) 560,055 shares owned by Martino Investment Partners, the
general partners of which are Mr. Martino and his spouse, (b) 230,000 shares
that can be acquired upon exercise of options and (c) 44,643 shares that can be
acquired upon exercise of warrants.

(8) Represents (a)55,168 shares owned by Harms Family Living Trust, the sole
beneficiaries and co-trustees of which are Mr. Harms and his spouse and (b)
93,970 shares that can be acquired upon exercise of options.

<PAGE>49

(9) Less than 1%.

(10) Represents (a) an aggregate of 106,140 shares held by Mr. Popp and his
Individual Retirement Accounts. (b) 19,990 shares owned by Mr. Popp's spouse,
(c) 928,600 shares owned by MAP Mechanical Contractors, Inc. of which Mr. Popp
is an affiliate, (d) 175,100 shares owned by MAP Mechanical Contractors, Inc.
Profit Sharing Plan and (e) 215,600 shares owned by MAP Mechanical Contractors,
Inc. Pension Plan.

(11) See notes above.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

On September 6, 2001, we entered into an agreement with Roberts Construction
Company whereby Roberts proposed to purchase the Kelsey Lake diamond mine, which
is owned by one of our subsidiaries.  Roberts is a subsidiary of McCormick
Incorporated.  Stephen D. McCormick, one of our directors, is President and a
shareholder of McCormick Incorporated.  At the time of entering into the
agreement, however, Mr. McCormick was not one of our directors.  The agreement
provided that Roberts was required to pay all operating costs and certain
liabilities relating to the Kelsey Lake diamond mine, which would be applied to
the purchase price of the mine if the transaction was completed.  Roberts was
entitled to reimbursement of the costs and payments if the transaction was not
completed.  In March 2002, Roberts informed us that it was terminating the
agreement and would not complete the purchase.  Accordingly, we reimbursed
Roberts for the costs and liabilities it incurred by issuing 952,317 shares of
common stock to Roberts Construction and 101,471 shares of common stock to Mr.
McCormick.

We previously granted SOQUEM an option to purchase a 20% undivided interest in
the Lac Dore project.  On Aril 17, 2003, SOQUEM relinquished any
rights it had relating to the deposits in exchange for 250,000 shares of our
common stock.

We have retained the law firm of Larson, Harms & Bibeau, P.C. to perform certain
legal services for us and expect to continue to do so in the future.  Since
October 1, 2002, we have incurred legal fees and expenses with such firm of
approximately $160,000.  Donald C. Harms, one of our a directors, is a principal
of Larson, Harms & Bibeau, P.C.  On May 15, 2003, we issued 20,000 shares of our
common stock in consideration of the forgiveness of $17,100 we owed to Larson,
Harms & Bibeau, P.C.  At the direction pf Larson, Harms & Bibeau, P.C., 10,000
of the shares were issued to a trust the sole beneficiaries and co-trustees of
which are Mr. Harms and his spouse.  At the time of the issuance, the market
value of our common stock was $.95 per share.

<PAGE>50

Other than as otherwise described in Items 10 and 12 of this Annual Report,
during the last two years there have been no transactions, or are there any
proposed transactions, to which we were or are to be a party, in which any of
the following persons had or is to have a direct or indirect material interest
and the amount involved in the transaction or a series of similar transactions
does not exceed $60,000

- Any of our directors or executive officers;

- Any nominee for election as a director;

- Any security holder named in Item 11 of this Annual Report; and

- Any member of the immediate family (including spouse, parents, children,
  siblings, and in-laws) of any of the above persons.

ITEM 13.        EXHIBITS AND REPORTS ON FORM 8-K.

 (a)    Exhibits

Exhibit
Number                             Description


2.1             Share Purchase Agreement between McKenzie Bay International,
                Ltd. and Jacquelin Dery, Laurent Mondou and Experts Conseils
                Dermond Inc. of February 12, 2002.  Previously filed as an
                exhibit to Amendment No. 2 to our registration statement on Form
                10-SB and hereby incorporated by reference.


3.1             Certificate of Incorporation, as amended.  Previously filed as
                an exhibit to our registration statement on Form 10-SB and
                hereby incorporated by reference.

3.2             Bylaws.  Previously filed as an exhibit to our registration
                statement on Form 10-SB and hereby incorporated by reference.

4.1             See Exhibits 3.1 and 3.2.

4.3             Specimen Stock Certificate.  Previously filed as an exhibit to
                our Annual Report on Form 10-KSB for the fiscal year ended
                September 30, 2002 and hereby incorporated by reference.

4.4             Form of Warrant.  Previously filed as an exhibit to our Annual
                Report on Form 10-KSB for the fiscal year ended September 30,
                2002, and hereby incorporated by reference.

<PAGE>51

4.5             Form of Subscription Agreement.  Previously filed as an exhibit
                to our Annual Report on Form 10-KSB for the fiscal year ended
                September 30, 2002 and hereby incorporated by reference.

10.1            Employment Agreement between Experts Conseils Dermond Inc. and
                Jacquelin Dery, dated February 12, 2002.*  Previously filed as
                an exhibit to our Annual Report on Form 10-KSB for the fiscal
                year ended September 30, 2002 and hereby incorporated by
                reference.

10.2            Royalty Agreement between McKenzie Bay International, Ltd. and
                Jacquelin Dery as of February 12, 2002.*  Previously filed as an
                exhibit to our Annual Report on Form 10-KSB for the fiscal year
                ended September 30, 2002 and hereby incorporated by reference.

10.3            Employment Agreement between Experts Conseils Dermond Inc. and
                Lauren Mondou, dated February 12, 2002.*  Previously filed as an
                exhibit to our Annual Report on Form 10-KSB for the fiscal year
                ended September 30, 2002 and hereby incorporated by reference.

10.4            Royalty Agreement between McKenzie Bay International, Ltd. and
                Lauren Mondou as of February 12, 2002.*  Previously filed as an
                exhibit to our Annual Report on Form 10-KSB for the fiscal year
                ended September 30, 2002, and incorporated herein by reference.

10.5            Employment Agreement between McKenzie Bay Resources, Ltd. and
                Michel Garon, dated November 1, 2002.*  Previously filed as an
                exhibit to our Annual Report on Form 10-KSB for the fiscal year
                ended September 30, 2002 and hereby incorporated by reference.

10.6            2001 Employee Non-qualified Stock Option Plan.*  Previously
                filed as an exhibit to our Annual Report on Form 10-KSB for the
                fiscal year ended September 30, 2002 and hereby incorporated by
                reference.

10.7            Amended 2001 Directors Non-qualified Stock Option Plan.*
                Previously filed as an exhibit to  Amendment No. 1 to our Annual
                Report on Form 10-KSB for the fiscal year ended September 30,
                2002 and hereby incorporated by reference.

10.8            2001 Employee Incentive Stock Option Plan.*  Previously filed as
                an exhibit to our Annual Report on Form 10-KSB for the fiscal
                year ended September 30, 2002, and incorporated herein by
                reference.

<PAGE>52

10.9            Agreement dated April 17, 2003 between McKenzie Bay Resources
                Ltd. and SOQUEM Inc. terminating prior agreements. ++

10.10           Employment Agreement dated March 21, 2003 between Gary L.
                Westerholm and McKenzie Bay International, Ltd. * ++

10.11           Employment Agreement dated March 21, 2003 between Gregory N.
                Bakeman and McKenzie Bay International, Ltd. * ++

10.12           Employment Agreement dated March 21, 2003 between John W.
                Sawarin and McKenzie Bay International, Ltd. * ++

10.13           Consulting Agreement as of February 15, 2003 between McKenzie
                Bay Resources, Inc.(now known as Lac Dore Mining Inc.) and
                Savanco, (Pty) Ltd, incorporated.  ++

10.14           Agreement of August 19, 2003 between McKenzie Bay International,
                Ltd. Resources, Inc. and Yes International Inc. ++

10.15           Standby Equity Distribution Agreement Agreement as of April 6,
                2004 between Cornell Capital Partners, LP and McKenzie Bay
                International Ltd. ++

10.16           Registration Rights Agreement as of April 6, 2004 between
                Cornell Capital Partners, LP and McKenzie Bay International Ltd.
                ++

10.17           Placement Agent Agreement as of April 6, 2004 between McKenzie
                Bay International Ltd. and Spencer Clarke LLC.  ++

10.18           Escrow Agreement  as April 6, 2004 between McKenzie Bay
                International Ltd., and Butler Gonzalez LLP. ++

14.1            Code of Ethics. ++

<PAGE>53

21.1            Subsidiaries. ++

31.1            Rule 13a-14(a) Certification of Gary L. Westerholm. ++

31.2            Rule 13a-14(a) Certification of Gregory N. Bakeman. ++

32.1            Certification Pursuant to 18 U.S.C. Section 1350 of Gary L.
                Westerholm. ++

32.2            Certification Pursuant to 18 U.S.C. Section 1350 of Gregory N.
                Bakeman. ++

99.1            Lac Dore Feasibility Study - Executive Summary.  Previously
                filed as an exhibit to Amendment No. 2 to our registration
                statement on Form 10- SB and hereby incorporated by reference.

*       Management contract or compensatory plan or arrangement.
++      Filed herewith.

(b)     Reports on Form 8-K

We filed the following Current Reports on Form 8-K during the quarter ended
September 30, 2003:

Date of Report                       Item(s) Reported

July 9, 2003                               5 and 7
July 9, 2003                               7 and 9
July 24, 2003                              5 and 7
August 18, 2003                            5 and 7
September 3, 2003                          5 and 7
September 8, 2003                          5 and 7
September 29, 2003                         5 and 7

ITEM 14.        PRINCIPAL ACCOUNTANT FEE AND SERVICES.

Not applicable.

<PAGE>54


SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


Date:  April_16, 2004   MCKENZIE BAY INTERNATIONAL, LTD.

By:     /s/ Gary L. Westerholm
        -------------------
        Gary L. Westerholm
        President and Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

Signature                         Title                        Date
------------------    ---------------------------      ------------------

/s/Gary L. Westerholm
------------------
Gary L. Westerholm     President, Chief Executive         April 16, 2004
                         Officer and Director
                     (Principal Executive Officer)

/s/Gregory N. Bakeman
-----------------
Gregory N. Bakeman    Treasurer, Chief Financial          April 16, 2004
                      Officer and Director
                     (Principal Financial and
                            Accounting Officer)

John W. Sawarin              Director

Rocco J. Martino             Director

/s/Stephen D. McCormick
--------------------
Stephen D. McCormick         Director                     April 16, 2004


/s/Donald C. Harms
----------------
Donald C. Harms              Director                     April 16, 2004


/s/ Doris F. Galvin
---------------
Doris F. Galvin              Director                     April 16, 2004


<PAGE>56