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, 2004

                  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
                                 Ada, Michigan
                    (Address of Principal Executive Offices)
                                     49301
                                   (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  __X__    No ____

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. \ X \

The issuer's revenues for the fiscal year ended September 30, 2004 were $0.

On January 7, 2005, the aggregate market value of the voting and non-voting
common equity held by non-affiliates of the issuer was approximately $19,451,428
computed by reference to the price at which the common equity was sold.

On January 7, 2005, the issuer had outstanding 26,578,239 shares of Common
Stock, $0.001 par value.

Transitional Small Business Disclosure Format (check one): Yes ______   No   X

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


                                     PART I

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.

Item 1.	Description of Business.

Recent Developments

On October 30, 2004, installation of our 100 kilowatt (kW) prototype vertical
axis wind turbine, which we refer to as Dermond Wind Turbine or DWT, was
completed at the Universite du Quebec en Abitibi-Temiscamingue, in Rouyn-
Noranda, Quebec Canada, our long term research and development site.  Over the
ensuing several months, installation of a battery and diesel generator are also
planned completing a WindStor test installation.  Rouyn-Noranda is the home of,
or near, several of our key engineering and specialty component manufacturing
companies.  The WindStor system will be donated to the Universitie at the
earliest of the end of our testing or May 31, 2015. We refer to other
electricity generating sources with an energy storage device to be utilized in
connection with DWT as "WindStor."

In January 2005, Jonathan Hintz became the President of WindStor Power Company.

In November 2004, Michel Garon became the Project Manger for Dermond Inc.
Because Lac Dore Mining Inc. has not begun development, Mr. Garon was not being
fully utilized in his role of General Manager.  In January 2005, Mr. Garon
became the President of Lac Dore Mining Inc. Approximately 57% of Mr. Garon's
salary, per his contract with us, will be payable by Dermond Inc., with the
remainder payable by Lac Dore Mining Inc.  If Lac Dore Mining Inc. begins
development, Mr. Garon may return to his former position.

In April 2004 we entered into a Standby Equity Distribution Agreement with
Cornell Capital Partners under which, subject to the conditions described below,
we may, at our discretion, periodically sell to Cornell Capital Partners shares
of our common stock for a total purchase price of up to $15 million. For each
share stock purchased under the Standby Equity Distribution Agreement, Cornell
Capital Partners will pay us 99% of, or a 1% discount from, the lowest volume
weighted average price of our common stock as quoted by Bloomberg, LP during the
five consecutive trading day period immediately following the respective dates
we give notice to Cornell Capital Partners of our intention to sell shares under
the Standby Equity Distribution Agreement. Because we have also agreed to allow
Cornell Capital Partners to retain 5% of the proceeds from our sale of shares to
Cornell Capital Partners, the net cash price to be paid by Cornell Capital
Partners to us will be 94% of the computed lowest volume weighted average price
with respect to each purchase.  We have also agreed to issue to Cornell Capital
Partners shares of our common stock having a market value, similarly determined,
of $540,000 which we satisfied by the issuance of 239,968 shares to Cornell
Capital Partners.  The issuance of the shares effectively reduces the per share
price we receive from Cornell Capital Partners.

<page>2

We were introduced to Cornell Capital Partners by Spencer Clarke LLC. We entered
into a Placement Agent Agreement with Spencer Clarke 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 have also agreed to pay Spencer Clarke for introducing us
to Cornell Capital Partners an amount equal to 10% of the gross proceeds of each
purchase of our shares by Cornell Capital Partners under the Standby Equity
Distribution Agreement of which $25,000 has been paid and the balance will be
paid at the time or times that Cornell Capital Partners purchases shares from
us. We will also 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
Capital Partners. The warrants are exercisable for a period of seven years.
Although the exercise price of the warrants has not yet been determined, it will
not be less than the weighted average price computed as described above.  After
giving effect to the 10% fee payable to Spencer Clarke, the net cash price we
will retain on purchases by Cornell Capital Partners, without regard to the
additional issuances of shares to Cornell Capital Partners and Spencer Clarke,
will be 84% of the computed lowest volume weighted average price with respect to
each purchase.  Based upon the number of shares actually purchased by Cornell
Capital Partners, under the described assumptions the effective discount from
such computed price could be as high as 18.48%.  If fewer shares are purchased,
the effective discount could be substantially higher.  For example, although
highly unlikely, if we sell only 1 million shares to Cornell Capital Partners,
the effective discount would be approximately 32%.  The foregoing percentages
do not give effect to the warrants that may be issued to Spencer Clarke, escrow
fees of $500 per purchase by Cornell Capital Partners or consulting fees payable
to Stone Street Advisors, LLC, as described below.

Cornell Capital Partners is not obligated to purchase any of our shares unless
our shares shall have been authorized for quotation on the Nasdaq National
Market, the Nasdaq SmallCap Market, the American Stock Exchange, the OTC
Bulletin Board or the New York Stock Exchange, whichever is at the time the
principal trading exchange or market for the shares.  Effective on December 22,
3004, our shares became authorized for quotation on the OTC Bulletin Board.

In accordance with our agreement with Cornell Capital Partners, we filed a
registration statement with the SEC under the Securities Act of 1933 to register
all of the shares Cornell Capital Partners and Spencer Clarke has and may
acquire under the Standby Equity Distribution Agreement and the warrants and to
maintain the registration statement's effectiveness until Cornell has sold all
of its shares included in the registration statement.  The registration
statement, which included 20,000,000 shares which may be purchased by Cornell
Capital Partners under the Standby Equity Distribution Agreement, was declared
effective by the SEC on November 15, 2004.  We have also agreed to register the
shares in various states to the extent that exemptions from registration are
available. We further agreed to bear the entire cost of and incident to such
registration which we have estimated to be approximately $125,500.  The expenses
we will pay do not include commissions, fees and discounts of underwriters,
brokers, dealers and agents. We have further agreed to indemnify Cornell Capital
Partners and Spencer Clarke and their controlling persons against certain
liabilities, including liabilities under the Securities Act of 1933.

<page>3

Unless we give Cornell Capital Partners 15 day's notice, we may not issue any
common or preferred stock for less than the bid price on the date of issuance or
issue or sell any security or instrument granting the holder the right to
acquire our common stock at a price per share less than the bid price on the
date of issuance.

Each of our executive officers and directors has agreed with Cornell Capital
Partners that until the termination of the Standby Equity Distribution
Agreement, he or she will not, without the prior written consent of Cornell
Capital Partners, issue, offer, agree or offer to sell, sell, grant an option
for the purchase or sale of, transfer, pledge, assign, hypothecate, distribute
or otherwise encumber or dispose of any of our securities except pursuant to
Rule 144.

Cornell Capital Partners was formed in February 2000 as a Delaware limited
partnership. Cornell Capital Partners is a domestic hedge fund in the business
of investing in and financing public companies. Cornell Capital Partners has
advised us that it does not intend to make a market in our shares or to
otherwise engage in stabilizing or other transactions intended to help support
our share price. Prospective investors should take these factors into
consideration before purchasing our common stock. Cornell Capital Partner's
business operations are conducted through its general partner, Yorkville
Advisors, LLC.

Pursuant to the Standby Equity Distribution Agreement, we may periodically sell
shares of our common stock to Cornell Capital Partners. The periodic sale of
shares is referred to as an advance. We may request an advance every seven
trading days. A closing will be held six trading days after such written notice
at which time we will deliver shares of common stock and Cornell Capital
Partners is required to pay the advance amount. In addition to written notice
and associated correspondence, each advance is subject to the certain conditions
which must be satisfied after the date of this prospectus. Although we expect
that each of the conditions will be satisfied, we cannot assure you of that. The
conditions are set forth in the Standby Equity Distribution Agreement which is
an exhibit to this Annual Report.

We are limited in our ability to request advances under the Standby Equity
Distribution Agreement by both the number of shares we have registered in our
registration statement and the number of shares we have authorized. For example,
at an assumed offering price of $2.00 per share, the gross proceeds would amount
to $15,000,000 under the Standby Equity Distribution through the sale of
7,500,000 shares we have registered for sale. However, if the actual weighted
average price at which we sell shares under the Standby Equity Distribution
Agreement is less than $0.73, we would have to register additional shares to
receive all the funds which would be available to us under the Standby Equity
Distribution Agreement. On the date of this Annual Report, we had 75 million
shares authorized for issuance under our Certificate of Incorporation, of which
44,612,110 were either outstanding or reserved for issuance upon exercise or
conversion of outstanding derivative securities or compensation plans.

<page>4

We may not request any advance from Cornell Capital Partners after the earliest
to occur of the following:

o   Cornell Capital Partners has paid us gross proceeds of $15 million;

o   The expiration of 24 months from the effective date of our registration
    statement;

o   A stop order is issued or there is a suspension in the effectiveness of our
    registration statement for an aggregate of fifty trading days, other than
    due to the acts of Cornell Capital Partners; or

o   We fail materially to comply with certain provisions of the Standby Equity
    Distribution Agreement and our failure is not cured within thirty days after
    receipt of written notice from Cornell Capital Partners, provided, however,
    that this termination provision does not apply to any period commencing upon
    our filing of a post-effective amendment to our registration statement and
    ending upon the date on which the post effective amendment is declared
    effective by the SEC.

In addition, Cornell Capital Partners is not obligated to purchase our shares
unless the following additional conditions are satisfied:

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

o   We must obtain any permits required for the offer and sale of the shares
    from any state where securities will be sold or have available an exemption
    therefrom and the sale and issuance of the shares shall be legally permitted
    by all laws and regulations to which we are subject;

o   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; and

o   Our transfer agent must meet certain eligibility requirements.

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.

The amount of any advance may not exceed $625,000 and we may not request an
advance within seven trading days of a prior advance. In addition, we may not
request advances if the shares to be issued in connection with such advances
would result in Cornell Capital Partners owning more than 9.9% of our then
outstanding common stock. Other than described above, the amount available under
the Standby Equity Distribution Agreement is not dependent upon the price or
volume of our common stock.

<page>5

We do not have any agreements with Cornell Capital Partners regarding the
distribution of the shares it purchases from us. Cornell Capital Partners has
advised us that it intends to promptly sell any shares it purchases from us
under the Standby Equity Distribution Agreement.

We cannot predict the actual number of shares that we will require Cornell
Capital Partners to purchase under the Standby Equity Distribution Agreement
primarily because the purchase price of the shares will fluctuate based on
prevailing market conditions. Nonetheless, we can estimate the number of shares
using certain assumptions. Assuming we issued the number of shares registered in
our registration statement at a recent price of $2.00 per share, we would issue
7,500,000 shares of common stock to Cornell Capital Partners for gross proceeds
of $15,000,000. If these shares had been issued on January 7, 2005, they would
have represented approximately 22% of our outstanding common stock. In addition,
we cannot predict the number of shares, if any, that Spencer Clarke may purchase
from us upon exercise of warrants.

There is no cap on the number of shares that can be issued under the Standby
Equity Distribution Agreement. Based upon our current capital needs and the
market price of our common stock, we presently have no intention of drawing down
the entire $15 million amount.  Accordingly, our estimate of the number of
shares that we will issue pursuant to the equity line is 10 million shares.  If
our circumstances change and we have no other source of financing, we may
ultimately have to draw down the entire $15 million assuming that we will  then
be in a  position  to satisfy all of the relevant conditions.

There is a large number of shares of common stock underlying the Standby Equity
Distribution Agreement that will be available for future sale and the sale of
these shares will cause dilution to our existing shareholders. The resale of
such shares can be expected to depress the market price of our shares.

There is an inverse relationship between our stock price and the number of
shares to be issued under the Standby Equity Distribution Agreement. If the
market price of our stock declines, we would be required to issue a greater
number of shares under the Standby Equity Distribution Agreement and warrants
for a given advance. This inverse relationship is demonstrated by the following
table, which shows the number of shares to be issued under the Standby Equity
Distribution Agreement at various assumed prices per share.

<page>6

Assumed Purchase Price:  $2.00	        $1.50      $1.00	  $0.50
Number of Shares (2)	7,500,000    10,000,000   15,000,000   30,000,000 (1)
Total Outstanding (3)   34,028,239   36,528,239   41,528,239   56,528,239
Percent Outstanding (4)	  22.0%	        27.3%       36.1%         53.0%
Net cash proceeds     $12,600,000    $12,600,000  $12,600,000  $12,600,000

____________________

(1)  In order for us to sell more than an aggregate of 22,244,412 shares
     pursuant to the Standby Equity Distribution Agreement and exercise of the
     warrants which may be issued to Spencer Clarke, we will be required to
     register the additional shares with the SEC.

(2)  Represents the number of shares of common stock to be issued to Cornell
     Capital Partners under the Standby Equity Distribution Agreement at the
     assumed prices set forth in the table, assuming sufficient authorized
     shares are then available.

(3)  Represents the total number of shares outstanding after the issuance of the
     shares to Cornell Capital Partners under the Standby Equity Distribution
     Agreement if the shares had been issued on the date of this prospectus.
     Does not include any shares which may be acquired by Spencer Clarke or
     others upon exercise of the warrants or conversion of promissory notes.

(4)  Represents the shares of common stock to be issued to Cornell Capital
     Partners as a percentage of the total number of shares outstanding based
     upon the assumptions described in Note (2) above.  Cornell Capital Partners
     is not obligated to purchase any shares from us to the extent that its
     holdings would exceed 9.9% of our then outstanding common stock.

The following table sets forth the effective price per share we will receive
from purchases made by Cornell Capital Partners under the Standby Equity
Distribution Agreement at various assumed prices per share.

The following table sets forth the effective price per share we will receive
from purchases made by Cornell Capital Partners under the Standby Equity
Distribution Agreement at various assumed prices per share.

Market Price (1) 	$2.00	    $1.50	 $1.00	     $0.50

Number of Shares (2)	7,575,758   10,101,010 	 15,151,515   30,303,030

Net cash to be
received from
Cornell Capital       $14,250,000  $14,250,000	$14,250,000  $14,250,000
Partners (3)

Placement Agent fee(4) $1,500,000   $1,500,000	 $1,500,000   $1,500,000

Net cash to be
received from
Cornell Capital
Partners after        $12,750,000  $12,750,000	$12,750,000  $12,750,000
deduction of
Placement Agent
Fee

<page>7

Net cash to be
received from
Cornell Capital
Partners after            84%	        84%	    84%	         84%
deduction of
Placement Agent
Fee as a percentage
of Market Price

Net cash to be
received from Cornell $12,750,000  $12,750,000	$12,750,000  $12,750,000
Capital Partners
after deduction of
Placement Agent
Fee and giving
effect to issuance of
additional shares (5)

Net cash to be
received from Cornell
Capital Partners after
deduction of Placement  81.52%	      82.16%	   82.81%	83.48%
Agent Fee and giving
effect to issuance
of additional shares
as a percentage of
Market Price (5)

Effective discount
from Market Price
after deduction of
Placement Agent Fee      $.37	        $.27	     $.17	  $.08
and giving effect
to issuance of
additional shares (5)

Effective discount
from Market Price
after deduction of
Placement Agent Fee    18.48%	       17.84%	    17.19%	 16.52%
and giving effect
to issuance of
additional shares
as a percentage of
Market Price (5)


(1)  The term "Market Price" as used in the table refers to the lowest volume
     weighted average price of our common stock as quoted by Bloomberg, LP
     during the five consecutive trading day period immediately following the
     date we give notice of our intention to sell shares.

(2)  Represents the number of shares of common stock to be issued to Cornell
     Capital Partners under the Standby Equity Distribution Agreement at the
     assumed prices set forth in the table, assuming sufficient authorized
     shares are then available.  Cornell Capital Partners is not obligated to
     purchase any shares from us to the extent that its holdings would exceed
     9.9% of our then outstanding common stock.

<page>8

(3)  Represents 94% of the Market Price.

(4)  Represents 10% of gross proceeds.

(5)  The additional shares refer to the issuance of 239,968 shares and 4,444
     shares described above.

The table does not give effect to the warrants that may be issued to Spencer
Clarke, escrow fees of $500 per advance or consulting fees payable to Stone
Street Advisors, LLC, as described below.

On January 10, 2005, we borrowed $1,000,000 from Cornell Capital Partners and
issued our promissory note to Cornell Capital Partners in that amount.  At the
same time, we placed 1,000,000 shares of common stock in escrow with an escrow
agent designated by Cornell Capital Partners.  At the same we deposited with the
escrow agent 19 requests for advances under the Standby Equity Distribution
Agreement, each in the amount of $50,000 and one such advance in the amount of
$75,479.45.  The escrow agent has agreed to release the requests to Cornell
Capital Partners every seven days beginning January 17, 2005.  Upon the release
of each request, the appropriate number of our shares held in escrow will be
issued to Cornell Capital Partners.

The promissory note issued to Cornell Capital Partners bears interest at the
annual rate of 12% and is payable on or before June 4, 2005.  Proceeds from the
sale of the shares issued to Cornell Capital Partners will be utilized in
payment of outstanding amounts under the promissory note.  In the event that
during the life of the promissory note, the proceeds from the sales of the
escrowed shares are insufficient to repay all amounts due, we will immediately
place in escrow such number of additional shares of our common stock of which
the proceeds of the sale of such shares shall be sufficient to repay all amounts
due under the promissory note.  There is no limit on the number of shares we may
be required to issue to Cornell Capital Partners to satisfy our obligation under
the promissory note.  Any decline in the market price of our shares will
increase the number of shares we would otherwise be required to issue to
Cornell.

On January 10, 2005, we entered into a consulting agreement with Stone Street
Advisors, LLC. under which Stone Street will provide advisory services to us
with regard to various types of financial arrangements, including, equity line
of credit financing, debt financing, other forms of direct investment in us and
general corporate matters.  The agreement with Stone Street provides that we
will pay an amount as agreed upon in the future.  We have paid Stone Street
$25,000 from the proceeds we have received from Cornell Capital Partners in
connection with the promissory note. If we engage in any more funding
transactions with Cornell Capital Partners outside of the scope of the Standby
Equity Distribution Agreement, we anticipate that we will compensate Stone
Street at a similar rate. The initial term of the agreement is a period of one
year.  Thereafter, unless previously terminated, and neither party has given
notice of termination, the agreement will be automatically renewed for
successive one year periods.  Either party may terminate the agreement without
cause by giving written notice of termination to the other party.  Stone Street
is an affiliate of and is under common control with Cornell Capital Partners.

Pursuant to the Standby Equity Distribution Agreement, each of our officers and
directors and SOQUEM INC. has agreed with Cornell Capital Partners that until
the termination of that Agreement, he, she or it will not without Cornell
Capital Partner's consent, sell, encumber or otherwise dispose of any securities
issued by us except pursuant to Rule 144 under the Securities Act of 1933.

Our registration statement also includes (a) 1,413,532 shares which may be
acquired upon conversion of promissory notes we issued in August and September
2004, (b) 1,620,300 shares which may be acquired upon exercise of warrants we
issued in connection with the promissory notes, and (c) 65,000 shares to be
issued to a creditor.

Background

Prior to July 2003, we intended to primarily engage in the exploration of our
Lac Dore vanadium deposit in Chibougamau, Quebec. Based upon a market study,
undertaken as part of a preliminary 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 relating to vanadium refining
technology, we have deferred engaging in any material exploratory or other
activities in connection with the deposit. We do not have the capital to further
fund any meaningful activities related to the deposit. In order to retain full
rights to the 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.

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

<page>9

We do not have the capital to further fund or develop any of our proposed
business activities related to wind powered alternative energy systems. 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 Capital
Partners, 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 the development stage with respect to wind powered alternative
energy systems.

We have never realized any meaningful revenues. As stated in the notes to our
consolidated financial statements, because we have suffered recurring losses and
a have a deficiency in assets and working capital, there is substantial doubt
about our ability to continue as a going concern.  Our auditors have referred to
in their report dated January 13,  2005.

We were incorporated in Delaware on August 17, 1998.


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 Inc. 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:

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

o  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 President and Vice President,
respectively, of Dermond Inc. 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 January 7, 2005) which will increase to CDN
$85,000 (approximately $64,000 U.S. on January 7, 2005)  upon our first sale of
a Dermond Wind Turbine.  As of January 7, 2005, we were approximately CDN
$11,200 (approximately $9,200) in arrears in the payment of salaries to each of
Messrs. Dery and Mondou.

<page>10

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 Turbine
utilizing the technology developed by Dermond Inc.  In the event that a Dermond
Wind Turbine 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
Turbine 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 Turbine
sold or leased during the 10-year period commencing with the first sales or
lease transaction of a Dermond Wind Turbine.

         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 principle
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"
mechani(sm), 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.

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.

<page>11

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 8,133 MW of new wind power capacity was installed worldwide in
2003, increasing generating capacity by approximately 26 % and increasing total
wind power installation to over 39,000 MW, enough to power 9 million average
American homes. Global wind power capacity rose approximately 301 % over the
five-year period ended in 2003, growing from 9,800 MW to almost 39,300 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 90% of the worldwide wind power capacity installed in 2003 was in
Europe and the United States.  India added 408 MW (5%), the largest single
addition outside the European and United States markets. The countries with the
most wind power capacity are Germany - by far the largest market, in spite of a
slight decline in the rate of new installations - followed by the United States,
Spain, India and Austria. A number of countries, including the Netherlands,
Italy, Japan, and the UK, now have several hundred megawatts installed and are
nearing the 1,000 MW mark

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.

<page>12

	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.

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;

o   Thousands of island and remote mining, logging and other off-grid
    locations;

o   More than 200 Canadian communities;

o   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:

<page>13

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

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

o  Reduction in overall cost of installation; and

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

A 100 kW DWT has recently been installed for testing purposes, although no
meaningful testing has yet to be completed.  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.  If the 100 kW
prototype meets our expectations and we obtain the requisite funding, we intend
to engineer and build a 200 kW prototype for a rooftop installation in 2005.  If
the 100 kW and 200kW prototypes perform as anticipated, and we have the
requisite funding, we intend to have DWTs manufactured for commercial
introduction.

The "wind cage," or blade rotating space, of a 100 kW DWT will be approximately
40 feet high and 56 feet wide and is expected to weigh approximately 6,000
pounds.  The 200 kW wind cage will be approximately 60 feet high and 76 feet
wide and is expected to weigh approximately 10,000 pounds.  We selected the 100
kW and 200 kW sizes because those configurations meet our initial market focus
on the urban, remote, limited access and extreme climatic environment markets.
If we are successful in marketing DWTs in the initial configurations, 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:

      	              	                              ANTICIPATED TIME
      USE                        REQUIRED FUNDS       PERIOD FOR USE OF FUNDS
----------------------------------------------------------------------------
Design & Engineering Completion	  $600,000	      5 months
Prototype Construction	          $300,000	      7 months
Installation and Commissioning	  $300,000	      7 months

We have received conditional commitments from Canadian governmental agencies for
$96,000 in non-refundable grants and loans of $36,500.  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.

<page>14

	WindStor(sm)

We are continuing the 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 "WindStor."  The DWT is an
integral part of WindStor and results of DWT testing will have a material affect
on the potential for WindStor.  Because WindStor components and systems are 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.

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 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 to provide to the customer
the least costly source of electricity.

WindStor is 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.

We have entered into agreements with certain potential users of WindStor
systems. The agreements allow for us to conduct wind testing of installation
sites for DWTs to determine whether WindStor could be economically viable. We
intend to utilize a third party to assistance us in determining wheather
WindStor can be economically viable at particular sites. Irrespective of the
results and price structure, none of the potential users is under any obligation
to purchase or lease any products from us.

<page>15

	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. 15 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 WindStor's installed cost payable within 60 days of
installation of a system, exclusive of taxes and transportation.  Certain of the
agents will also receive a 2% "carried equity interest" in each WindStor system
they sell.

Each of the agents 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 has been designing and installing 10 kW and 50 kW wind-diesel systems for
more than 10 years. Atlantic Orient 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>16

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 do we. 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 includes, 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:

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

    o   A blade attachment structure for a windmill;

    o   A blade for a windmill;

    o   A generator assembly for a windmill to produce electricity;

    o   A self erecting structure for a windmill; and

    o   A method for erecting a self-contained windmill.

<page>17

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:

o	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.

o	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.

o	Integrated Direct Drive Generator

The improvements relate to reduction of mechanical losses in geared trans-
mission 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.

o	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.
In May 2004, we amended and resubmitted our patent application responding to the
comments from the Canadian Intellectual Property Office.

<page>18

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.

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 and Development

During the fiscal years ended September 30, 2004 and September 30, 2003 we
expended approximately $867,000 and $257,000 ($522,000 and $171,000 net of non-
refundable grants), respectively, on research and development related to DWTs
and WindStor.  The expenditures consisted primarily of engineering for the DWT
and the system integrator. The foregoing amounts do not include amounts expended
for vanadium refining technology.

    Regulation of Power Projects

<page>19

        Overview - United States

We propose to own and operate wind powered electric generating facilities to be
located on the property of our prospective customers. Our principal prospective
customers would be end-users (retail consumers) of electricity, such as
commercial office buildings, schools, and government buildings, who would
purchase electricity from us.  While we do not intend to sell power from our
facilities to utilities or other re-sellers or into the open market (wholesale
sales), we may do so in specific applications.

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 construction of electric generating
and transmission facilities and the sale of electricity at retail.

The federal government regulates the electric wholesale and transmission
business in interstate commerce 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. The 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 wholesale power and electric transmission industry is also
subject to operating standards established by regional reliability councils,
and, increasingly, to governance of the operation of interconnected utility and
non-utility operations and wholesale markets through Independent System
Operators and Regional Transmission Organizations, all of which are in turn
subject to the plenary jurisdiction of the FERC.

The States regulate the sale of electric power at retail in their state in
accordance with individual state laws which can vary widely in material
respects.

Holding companies owning electric utility companies are, unless exempted by law
or regulation, subject to comprehensive and burdensome regulation under the
Public Utility Holding Company Act of 1935 ("PUHCA"). Unless they qualify for an
exemption or fall under a statutory exception, these companies and their direct
and indirect subsidiaries are not permitted to engage in a variety of
transactions, including financing transactions, without the authorization of the
SEC. 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 - United States

        PURPA and Qualifying Small Power Production Facility Status

<page>20

Under PURPA and the regulations of FERC implementing PURPA, a wind-powered
generating facility with a generating capacity of 80 MW or less (including all
such facilities owned or operated by the same person or its affiliates within
one mile of the facility) ) is deemed to be a Qualifying Small Power
Production Facility ("QF"), so long as no more than 50% of the equity interest
in such facility is owned by electric utilities, electric utility holding
companies, or subsidiaries of either. QFs are required by FERC to make certain
non-burdensome filings to confirm the facts supporting their status with respect
to each such facility.

QF status is not available for facilities located outside the United States and
certain of its Protectorates. At this time we do not own or operate any
facilities in any other countries that are generating any electric power for
sale.  If we were to do so in the future, we believe that we will be able to
take advantage of one or more exemptions or exceptions from PUHCA that will
allow us with respect to any such foreign operations: (1) to avoid SEC
regulation under PUHCA, and (2) to comply with the ownership restrictions under
PURPA and the regulations of the FERC there under with respect to any QFs we may
own and operate in the United States. There can be no certainty, however, that
such exceptions or exemptions will be applicable to the circumstances of any
particular project or business opportunity we may wish to pursue in such other
countries.

A QF with a generating capacity not greater than 30 MW 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. 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 has 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 amount of power from others.

State regulatory agencies are required by PURPA to implement FERC's regulations
under PURPA, and most have done so. Utilities and other interests have in the
past attempted to challenge or dilute the rights of QFs under PURPA, and in some
circumstances have succeeded in securing certain rulings of state regulatory
agencies that have had the result of making inside-the-fence generating business
models such as ours less attractive to customers or economically infeasible.
There have for many years been attempts in Congress to repeal PURPA, but in each
case, the only repeal that has received serious consideration has been the
possible repeal of the PURPA requirement that utilities must offer to purchase
QF power. This particular right under PURPA has become increasingly 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. We do not intend to sell power to utilities except in rare
circumstances, so that such a limited repeal, even if our contracts were not
"grandfathered" in repeal legislation, would not be of material consequence to
us as a whole. If repeal of PURPA were more broad, however, exemption from PUHCA
as a QF might no longer be available to us.

<page>21

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 may include a
generating set fueled with diesel fuel or natural gas. In addition, the system
could in some applications be interconnected with a utility grid. 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, any sales of power from the
battery, and the owners and operators of the battery, 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 it is used to transmit
non-QF power.

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 there is FERC precedent for the use of such
structures in QF-eligible applications, we cannot be certain that any particular
structure would qualify.  Moreover, in the event that any such facility owned by
us  were to lose QF status, we could be deemed to be a utility holding company
under PUHCA and the QF status of our other projects could be jeopardized.

     State Regulation

With few exceptions, state regulatory agencies generally have the jurisdiction,
among other things, to approve the construction 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 of retail customers including the facilities
needed for interconnection, rates and terms 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. Any or all of the regulations may have important, and possibly
materially adverse, implications for our business model and operations in
specific circumstances.

<page>22

In most of our anticipated commercial retail applications, the WindStor system
would supply part of a customer's power requirements, but not produce excess
power that would go on to the utility distribution or transmission system. We
expect to provide and sell a portion of the customer's power requirements to the
customer, rather than selling or leasing the WindStor system to the customer.
The remainder of the customer's power requirements would be supplied by a local
electric utility or other retail supplier, or by other customer-owned
generation.

The first issue in any state will be whether a Certificate of Public Convenience
and Necessity or similar authorization ("CPCN") is required to be obtained from
the state regulatory agency before construction of the WindStor system may
begin. In some 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 be larger than most WindStor systems we anticipate installing. Where
a CPCN is required, it may involve a lengthy and expensive application process,
possibly including an environmental impact evaluation and opposition by
interested parties or utilities.  We intend to require the prospective customer
to obtain such an authorization where required by law, and there can be no
certainty that potential customers will agree to undertake this process, or if
they do, that they will be successful.

The next critical issue is whether and under what circumstances a sale of power
to an end user at retail will be permitted by the state 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 QF's rates for sales of
retail power, or its corporate governance or financial organization. The extent
to which a state honors such federal preemption, however, may be subject to
varying practice. Where a CPCN is required, for instance, the conditions of a
CPCN may impose certain obligations that 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, as
well as certain periodic reporting requirements.

At this time, the State of New York permits the construction of small scale
wind turbines without a CPCN, and permits the sale of power from such turbines
to end users with no regulatory interference or limitation.  There can be no
certainty that these favorable conditions will continue in New York,  or that
other States will have or will maintain laws and regulations that are as
favorable to us in this respect when we wish to do business there.

<page>23

Finally, the state regulatory authority may determine or approve a utility's
determination as to the physical interconnection requirements a utility may
impose on a customer who wishes to install a WindStor system in parallel with
the utility's distribution and transmission, what charges a utility may impose
on a retail customer for interconnection with the utility's system when the
customer maintains a WindStor system, and what charges, penalties or other
restrictions the utility may impose on the customer for, among other things,
permanently reducing its purchased power requirement from the utility. Charges
imposed by a utility and authorized by a state regulatory authority may make
purchasing power from our WindStor system or our wind turbines uneconomical for
some customers or for all customers in some utility service territories or
states. New York State has 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 also 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. 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.

We have deferred engaging in any material exploratory or other 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.

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.

<page>24

We have undertaken certain preliminary exploratory 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.

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.

<page>25

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 Preliminary 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. Our preliminary 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 the
Notes to Consolidated Financial Statements included elsewhere in this prospectus
for a description of the terms of the Canadian funding.

The preliminary 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.

SNC Lavalin Inc. completed the preliminary feasibility study in April 2002.
Although the analysis of the data considered during such a 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 study. The preliminary
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 preliminary 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.

<page>26

The preliminary feasibility study estimated that the initial capital cost of the
Lac Dore project would be approximately $260 million. Since the 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 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.

We believe that the vanadium market is characterized by significant excess mine
capacity and above ground stocks of vanadium.  We further believe that the
Windimurra and possibly other mines are fully developed and could return to
production if prices rise above existing levels for a sustained period.  Any
owners or exploiters of sources of vanadium which are not part of the Lac Dore
deposit will be in competition with us if we are ever able to exploit the Lac
Dore deposit.

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.

If we begin exploration 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.

     Development, exploration and commercialization

If we begin exploration 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 prospective customers. We have committed
significant resources to preliminary exploratory activities. Our expenditures
have primarily related to completion of the preliminary feasibility study and
the development of proprietary processes in connection with our laboratory
tests. Our Research and Development expenses related to vanadium refining were
approximately $127,000 and $486,000 for fiscal years ended September 30, 2004
and 2003, respectively.  Exploration and mineral development related expenses
related to Lac Dore were approximately $90,000, and $507,000 for the fiscal
years ended September 30, 2004 and 2003, respectively.

<page>27

We intend to continue the development of vanadium refining technologies.  The
next phase of development has been planned at a cost of approximately $1 million
and is scheduled to begin in 2005. A portion of the cost includes the operating
costs associated with a sample product unit constructed by SGS Lakefield
Research at its facility in Lakefield, Ontario Canada to produce customer
samples of various vanadium chemicals and continue research and development on
additional possible products. As is the case with our other proposed business
activities, unless we can obtain sufficient capital we will not be able to
proceed.

      Governmental and Environmental Regulations

Impact Assessment Process

The Lac Dore project is subject to the environmental and social impact assessm
ent 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.

An additional project notice was issued during the Summer of 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.

<page>28

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:

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

 	o	Rights of the surface estate; and

 	o	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.

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 preliminary feasibility study estimated that if Lac Dore becomes
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.  These
amounts represent preliminary cost estimates and the actual costs may be
substantially greater.

Employees

On January 7, 2005, we had 8 employees.  Subject to obtaining sufficient
capital, we intend to hire corporate legal counsel, a controller, an
administrative assistant, project managers, two engineers and clerical staff.
We believe that such personnel will be readily available at reasonable rates of
compensation.

<page>29

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 substantial risks. You should
consider carefully the following information about these risks, together with
the financial and other information, including risks, contained elsewhere in
this Annual Report, before you decide whether to buy our common stock. If any of
the described events actually occur, our business, financial condition and
results of operations would likely suffer and the market price, if any, of our
common stock would decline. In such case, you may lose all or part of your
investment.

BECAUSE WE HAVE NO OPERATING HISTORY, THERE IS NO BASIS ON WHICH YOU CAN
EVALUATE OUR PROPOSED BUSINESS AND PROSPECTS. 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
have decided not to purchase the shares if they had an operating history to
review.

WE HAVE HAD LOSSES SINCE INCEPTION AND EXPECT LOSSES TO CONTINUE FOR THE
FORESEEABLE FUTURE. We incurred net losses of $3,378,113, $3,692,392 and
$5,970,574 during the fiscal years ended September 30, 2004, 2003 and 2002,
respectively.  Since our inception through September 30, 2004, we have incurred
aggregate net losses of $21,756,858. Any future operations may not be sufficient
to generate the revenues necessary to reach profitability.

UNLESS WE OBTAIN ADDITIONAL CAPITAL, WE WILL NOT BE ABLE TO PAY OUR AUDITORS FOR
THEIR SERVICES. If the auditors are not fully paid, they will likely refuse to
do any additional work necessary for to file certain periodic reports with the
SEC.  The timely filing of such reports is one of the conditions to the
obligation of Cornell Capital Partners to purchase our shares under the Standby
Equity Distribution Agreement.  In addition, if we fail to timely file the
requisite reports, we will have violated the reporting requirements of the
Securities Exchange Act of 1934.

<page>30

BECAUSE OF OUR LIMITED CAPITAL, UNLESS WE OBTAIN SUBSTANTIAL ADDITIONAL CAPITAL
WE MAY NOT HAVE SUFFICIENT CAPITAL TO ENGAGE IN OUR PROPOSED BUSINESS
ACTIVITIES. On September 30, 2004, We Had Current Assets Of $1,190,432 And
Current Liabilities Of $3,897,986. We do not have adequate capital to further
fund, develop or explore our proposed business activities.

There Can Be No Assurance That Cornell Capital Partners Will Comply Or That We
Will Be Able To Comply With The Terms Or Satisfy The Conditions Of The Standby
Equity Distribution Agreement Or That The Conditions To Cornell Capital
Partner's Obligations Will Be Satisfied. Furthermore there can be no assurance
that Cornell Capital Partners will have the financial resources to comply with
the Agreement. Furthermore, Cornell Capital Partners is not obligated to
purchase any shares from us to the extent that its holdings would exceed 9.9% of
our then outstanding common stock. Even if Cornell Capital Partners does
purchase the full amount of shares from us under the Standby Equity Distribution
Agreement and Spencer Clarke exercises all of the warrants that we may issue to
it, we will still require substantial additional capital to implement our
business plan.

There Can Be No Assurance That The Holders Of Convertible Promissory Notes
Aggregating Approximately $1,100,000 WILL CONVERT THE SHARES.  See Note 5 of
Notes to Consolidated Financial Statements.

In Order For Us To Begin To Engage In Continuous Improvement And Marketing Of
Dwts And Windstor Energy Systems, We Will Require Additional Capital Of
Approximately $7 Million. In order for us to engage in any material activities
in connection with the Lac Dore deposit, we will require additional capital of
at least $330 million. There can be no assurance that our preliminary estimate
is not too low.

Neither We Nor Our Subsidiaries Will Be Able To Continue Development,
Exploratory Or Administrative Functions For More Than A Few Months Unless
Substantial Additional Funding From Cornell Capital Partners Or Otherwise
Becomes Available. 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. Our
ability to engage in the business activities described below is dependant upon
our acquisition of significant funds.

BECAUSE OF OUR LIMITED CAPITAL, UNLESS WE OBTAIN SUBSTANTIAL ADDITIONAL CAPITAL
WE MAY NOT HAVE SUFFICIENT CAPITAL TO CONTINUE AS A GOING CONCERN.  As stated in
the notes to our consolidated financial statements, because we have suffered
recurring losses and a have a deficiency in assets and working capital, there is
substantial doubt about our ability to continue as a going concern.  Our
auditors have referred to that doubt in their report dated January 13, 2005.

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.  It is
difficult and very often impossible for development stage companies to obtain
adequate financing on any terms.

<page>31

IF WE RAISE ADDITIONAL FUNDS THROUGH THE ISSUANCE OF OUR EQUITY SECURITIES, THE
PERCENTAGE OWNERSHIP OF OUR STOCKHOLDERS WILL BE REDUCED, WE MAY UNDERGO A
CHANGE IN CONTROL 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.

WE MAY HAVE INCURRED SIGNIFICANT CONTINGENT LIABILITIES THROUGH OFFERS AND SALES
OF OUR EQUITY SECURITIES. Since September 30, 2003, we sold 1,088,297 shares of
our common stock for both cash and non cash consideration at prices ranging from
$0.82 to $2.50 per share. The weighted average price per share was $1.69. During
the same period, we sold convertible promissory notes, options and warrants
which permit the holders to obtain an aggregate of 3,356,756 shares of our
common stock at conversion or exercise prices ranging from $.75 to $3.00 per
share. If we did not comply 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.

<page>32

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 establish 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 we do. 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.

IF OUR PROPRIETARY TECHNOLOGIES ARE SUCCESSFUL, CURRENT AND NEW COMPETITORS
COULD ENTER THE MARKET(S) WHICH WOULD MATERIALLY DIMINISH THE VALUE OF OUR
TECHNOLOGIES. Any success of our technologies can be expected to generate
greater interest, which would likely lead to increased competition. Increased
competition would lessen the benefits we may derive from our proprietary
processes.  If other products enter the marketplace that are technologically
superior to our products, the then value, if any, of our products will be
diminished.

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. Obtaining 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. We are not able
to predict whether new governmental regulations will arise and, if so, what form
these regulations will take.

<page>33

BECAUSE WE HAVE ONLY ENGAGED IN THE PRELIMINARY EVALUATION PART OF THE
EXPLORATION STAGE FOR THE LAC DORE DEPOSIT, THERE CAN BE NO ASSURANCE THAT A
COMMERCIALLY VIABLE MINERAL DEPOSIT EXISTS ON ANY OR ALL OF THE PROPERTY.
Further exploration, for which we do not have the funds, will be required before
a final evaluation as to the economic and legal feasibility of the deposit is
determined.  Furthermore, if we ever make the determination, there can be no
assurance that it will be accurate.

OUR COMMON STOCK MAY BE ADVERSELY AFFECTED BY LIMITED TRADING VOLUME AND THE
MARKET PRICE MAY FLUCTUATE SIGNIFICANTLY, WHICH MAY NEGATIVELY AFFECT OUR
STOCKHOLDERS' ABILITY TO SELL THEIR SHARES. Prior to this offering, there has
been a limited public market for our common stock and there can be no assurance
that an active trading market will develop or be sustained. An absence of an
active trading market can be expected to adversely affect our stockholders'
ability to sell their shares. Our common stock has experienced, and is likely to
experience in the future, significant price and volume fluctuations, which could
adversely affect the market price without regard to our operating performance.
In addition, we believe that factors such as quarterly fluctuations in our
financial results and changes in the overall economy or the condition of the
financial markets could cause the price of our common stock to fluctuate
substantially. These fluctuations may also cause short sellers to enter the
market from time to time in the belief that our share price will decline. We
cannot predict whether the market for our shares will be stable or appreciate
over time.

BECAUSE OUR COMMON STOCK IS CONSIDERED TO BE A "PENNY STOCK," OUR STOCKHOLDERS'
ABILITY TO SELL THEIR SHARES 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 is or
becomes subject to the penny stock rules. In addition the burdens imposed upon
broker dealers by the penny stock rules may discourage broker dealers from
effecting transactions in our common stock, which could severely limit its
liquidity.

<page>34

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 January 7, 2005, our
directors, officers and certain of their affiliates were deemed to beneficially
own approximately 43.7% 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. Furthermore,
the interests of our controlling stockholders could conflict with those of our
other stockholders

BECAUSE CERTAIN STOCKHOLDERS HAVE THE RIGHT TO REQUIRE US TO REPURCHASE THEIR
SHARES IN THE AGGREGATE AMOUNT OF APPROXIMATELY $87,000, OUR FINANCIAL POSITION
COULD BE MATERIALLY, ADVERSELY AFFECTED. 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 AS IT RELATES TO THOSE ACTIVITIES MAY NOT BE
SOUND. Our proposed business activities are of a highly technical nature. The
success of technical businesses is generally determined in substantial part by
the prior experience of its executive personnel.

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. The aggregate arrearage on January 7, 2005 was approximately $343,000.
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.

BECAUSE EACH OF OUR EXECUTIVE OFFICERS MAY VOLUNTARILY TERMINATE HIS EMPLOYMENT
WITH US AT ANY TIME ON AT LEAST 30 DAYS PRIOR WRITTEN NOTICE TO US, WE CAN NOT
BE SURE IF ANY OF THEM WILL MAINTAIN THEIR POSITION WITH US FOR THE FORESEEABLE
FUTURE. In the event any of our executive officers terminate their employment
with us, we may not be able to find suitable replacements on similar terms, if
at all.

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. No determination can be made with reasonable
certainty until the products have been produced, installed and utilized in the
field in significant quantities.

<page>35

ALTHOUGH WE PLAN ON ACQUIRING AND MAINTAINING COMMERCIAL INSURANCE TO REDUCE
SOME OPERATING HAZARD RISKS, SUCH INSURANCE MAY NOT BE AVAILABLE TO US AT
ECONOMICALLY FEASIBLE RATES, IF AT ALL. In the absence of suitable insurance, we
may be exposed to claims and litigation which we will not be financially able to
defend or we may be subject to judgments which may be for amounts greater than
our ability to pay.

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.

WE HAVE BROAD DISCRETION IN THE APPLICATION OF PROCEEDS WHICH WE RECEIVE IN
CONNECTION WITH THE STANDBY EQUITY DISTRIBUTION AGREEMENT AND THE EXERCISE OF
THE WARRANTS, WHICH MAY INCREASE THE RISK THAT THE PROCEEDS WILL NOT BE APPLIED
EFFECTIVELY.  Because of the uncertainty of the timing of our receipt and the
amount, if any, of the proceeds, we have not definitively determined specific
uses for them. Accordingly, investors will be relying on our management's
judgment with only limited information about our specific intentions regarding
the use of proceeds. Our failure to apply the funds effectively could have a
material adverse effect on our business, results of operations and financial
condition.

FUTURE SALES BY OUR STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE AND OUR
ABILITY TO RAISE FUNDS IN FUTURE EQUITY OFFERINGS. We have registered an
aggregate of 25,343,244 shares of our common stock for public sale by certain of
selling stockholders.  Sales of our common stock in the public market, including
sales made by the selling stockholders, can be expected to lower the market
price of our common stock. Sales may also make it more difficult for us to sell
equity securities or equity-related securities in the future at a time and price
that our management deems acceptable or at all. Of the 14,962,637 shares held by
persons who are not our affiliates on January 7, 2005, in addition to the shares
registered with the SEC approximately 11,963,240 shares were freely tradable
without restriction or further registration under the Securities Act of 1933. In
addition, approximately 2,184,198 additional shares were then eligible to be
sold in accordance with Rule 144 under that Act and approximately 637,748 more
shares will be able to be sold within the ensuing twelve month period.

<page>36

ANTI TAKEOVER PROVISIONS COULD MAKE A THIRD PARTY ACQUISITION OF US DIFFICULT
WHICH MAY ADVERSELY AFFECT THE MARKET PRICE AND THE VOTING AND OTHER RIGHTS OF
THE HOLDERS OF OUR COMMON STOCK. Certain provisions of the Delaware General
Corporation Law may delay, discourage or prevent a change in control. The
provisions may discourage bids for our common stock at a premium over the market
price. Furthermore, the authorized but unissued shares of our common stock are
available for future issuance by us without our stockholders' approval. These
additional shares may be utilized for a variety of corporate purposes including
but not limited to future public or direct offerings to raise additional
capital, corporate acquisitions and employee incentive plans. The issuance of
such shares may also be used to deter a potential takeover of us that may
otherwise be beneficial to our stockholders. A takeover may be beneficial to
stockholders because, among other reasons, a potential suitor may offer
stockholders a premium for their shares above the then market price.

The existence of authorized but unissued and unreserved shares of preferred
stock may enable the Board of Directors to issue shares to persons friendly to
current management which would render more difficult or discourage an attempt to
obtain control of us by means of a proxy contest, tender offer, merger or
otherwise, and thereby protect the continuity of our management.

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.

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:

<page>37

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
preliminary 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 preliminary 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.

Topography and 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.

<page>38

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.

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.

<page>39

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, Ada, Michigan 49301. The office is leased
at a monthly rental of $225. The lease is month-to-month. Dermond Inc. has an
office at 31 rue du Terminus ouest, Rouyn-Noranda Quebec J9X 2P3 Canada.  This
office, which consists of approximately 400 square feet, is leased on a month-
to-month basis for approximately $480 per 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.


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, 2004 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.  All quotes reflect inter-dealer
prices without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.

<page>40


		          2004		   	   2003
----------------------------------------------------------------
Quarter Ended	      Low	High		Low	High
-------------       -------   --------         ------  -------
March 31 	     2.00       3.40		0.93   1.70
June 30	             1.25	2.35		0.71   1.10
September 30	     0.85	1.60		0.75   2.25

Quarter Ended 	        Low	High
-------------------------------------
December 31, 2003	$0.57 	$1.65
December 31, 2002	$1.10	$1.85

On January 7, 2005, our common stock was held of record by approximately 323
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, 2004 that were not registered under the Securities Act
of 1933.

      o   On October 1, 2003, we granted options to purchase 525,000 shares of
	  common stock to the then six directors of  McKenzie Bay International
	  Ltd., the five directors of Lac Dore Mining, Inc. and the four
	  directors of Dermond, Inc. in exchange for services rendered. The
	  options are exercisable until September 30, 2113 at $1.88 per share.

      o	  On October 24, 2003, we sold 89,286 shares of common stock and
	  warrants for the purchase of 44,643 shares to a private investor for
	  approximately $100,000. The warrants are exercisable until October 23,
	  2005 at $2.00 per share.

      o	  On November 7, 2003, we sold 43,000 shares of common stock and
	  warrants for the purchase of 21,500 shares to a private investor for
	  approximately $67,370. The warrants are exercisable until November 6,
	  2005 at $3.00 per share.

      o	  On December 11, 2003, we issued options to purchase 25,000 shares of
	  common stock to a consultant in exchange for services to be rendered
	  to us.  The options are exercisable until December 10, 2013 at $2.10
	  per share.

<page>41

      o   From January 1 until January 15, 2004, 6 investors exercised 185,600
	  warrants into common stock for approximately $302,200.

      o	  On January 5, 2004, we sold 21,460 shares of common stock and warrants
	  for the purchase of 10,730 shares to a private investor for
	  approximately $50,000. The warrants are exercisable until January 4,
	  2006 at $3.00 per share.

      o	  On January 10, 2004, we sold 10,000 shares of common stock and
	  warrants for the purchase of 5,000 shares to a private investor for
	  approximately $25,000. The warrants are exercisable until January 9,
	  2006 at $3.00 per share

      o	  From January 13 until March 15, 2004, three investors exercised
	  options for the purchase of an aggregate of 58,800 shares of common
	  stock by payment to us of approximately $61,000.

      o	  On March 19, 2004, we issued 3,043 shares of common stock to an
	  individual in exchange for the cancellation of his right to require us
	  to repurchase an aggregate of 10,000 shares of our common stock from
	  him at $3.00 per share.

      o	  On April 6, 2004, we issued 119,984 shares of common stock to Cornell
	  Capital Partners, LP for half of the commitment fee due in accordance
	  with the Standby Equity Distribution Agreement.  The shares were
	  valued at $270,000 calculated as of the date the agreement was signed.

      o	  On April 6, 2004, we issued 4,444 shares of common stock to Spencer
	  Clarke, LLC as a Placement Agent fee, in connection with the Standby
	  Equity Distribution Agreement.  The shares were valued at $10,000
	  calculated as of the date the Standby Equity Distribution Agreement
	  was signed.

      o	  On April 9, 2004, we sold 200,000 shares of common stock and warrants
	  for the purchase of 100,000 shares to a private investor for
	  approximately $260,000. The warrants are exercisable until April 8,
	  2006 at $2.25 per share.

      o	  On April 21, 2004, we sold 150,000 shares of common stock and warrants
	  for the purchase of 75,000 shares to a private investor for
	  approximately $193,500. The warrants are exercisable until April 20,
	  2006 at $2.25 per share.

      o   On April 29, 2004, three investors exercised warrants for the purchase
	  of an aggregate of 158,100 shares of common stock by payment to us of
	  approximately $316,200.

<page>42

      o	  On April 21, 2004, we sold 23,100 shares of common stock and warrants
	  for the purchase of 11,550 shares to a private investor for
	  approximately $30,030. The warrants are exercisable until April 20,
	  2006 at $1.75 per share.

      o	  On May 3, 2004, we issued 5,873 shares of common stock to an
	  individual in exchange for the cancellation of his right to require us
	  to repurchase an aggregate of 10,000 shares of our common stock from
	  him at $3.00 per share.

      o	  On August 13, 2004 we borrowed $500,000 from 13 lenders and issued 12%
	  promissory notes in that aggregate amount.  The promissory notes are
	  convertible into shares of the Company's common stock  at $.75 per
	  share and were originally payable on November 14, 2004 if not sooner
	  converted. We also issued warrants to the lenders for the purchase of
	  an aggregate of 750,000 shares of the registrant's common stock on or
	  before August 13, 2006 at $1.07 per share.  The lenders' rights of
	  conversion of the promissory notes commenced on November 15, 2004 and
	  expires ninety days thereafter.

      o   On September 7, 2004, we borrowed $593,750 from ten lenders.  The
	  terms of the loans and the issuance of warrants in connection with the
	  loans are substantially the same as those of the loans of August 13,
	  2004 except that the lenders received warrants for the purchase of
	  aggregate of 873,300 shares of our common stock on or before September
	  7, 2006 at $1.42 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 we can complete engineering and development of the DWT and
WindStor, construct and install prototypes of each and, assuming successful
operation of the prototypes and obtaining the requisite funding, begin
commercial installations of WindStor in 2005.

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 commercialization program.  If we obtain the requisite funding and
successfully development, construct, install and test the DWT prototypes and
WindStor systems, we plan to begin commercial introduction of our products in
2005.

<page>43

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                            $ 5,600,000
           DWT Prototype design, construction and installation   1,200,000
           Operating requirements	                       $ 8,200,000
	                                                       -----------
                           TOTAL	                       $15,000,000
                                                               ===========
Fourteen 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.

Development of Lac Dore Mining Inc.

If funding becomes available during the fiscal year ending September 30, 2005,
we intend to continue research and development of the vanadium recovery and
refining technology developed for us in connection with the preliminary
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, 2005.  The cost to
build the DPPP has been estimated to be approximately $10 million.

<page>44

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.

The activities of our WindStor and Lac Dore subsidiaries are independent of each
other. While both companies may benefit from the planned products of the other,
neither company's product commercialization is dependent upon the activities of
the other.

Cash Requirements for 2005 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.  In addition to development
activities, we will significantly expand the operating and administration
functions of the Company.  Consequently, the administrative requirements for the
Company will increase significantly.

Our anticipated cash requirements for administrative costs for the fiscal year
ending September 30, 2005 (including direct support of subsidiary operations)
are as follows:

       Use                                 Amount
----------------------------------------------------
Employee salaries	                 $2,321,000
Professional costs (includes consultants,
outside accountants, independent
auditors and legal counsel)              $1,276,000

General and administrative (includes
lease obligations, travel and other
administrative costs)                    $1,042,000


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.

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 Inc. 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.

<page>45

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, 2004 and 2004

CONSOLIDATED STATEMENT OF
CHANGES IN STOCKHOLDERS' EQUITY
FROM INCEPTION TO SEPTEMBER 30, 2004............... .................F-3-4

CONSOLIDATED STATEMENT OF LOSS
YEARS ENDED SEPTEMBER 30, 2004 and 2003..............................F-5

CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2004 and 2003............................ .F-6-7

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004................................................. .F-8-22

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


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

                       CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004


Report of Independent Registered Public Accounting Firm


Board of Directors and Stockholders
McKenzie Bay International, Ltd.
Grand Rapids, Michigan

We have audited the accompanying consolidated balance sheets of McKenzie Bay
International, Ltd. and subsidiaries (a development stage company) as of
September 30, 2004 and 2003, and the related consolidated statements of changes
in stockholders' equity (deficit), loss and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.  The financial statements of McKenzie Bay International, Ltd. for
the period from inception on August 23, 1996 through September 30, 2002, were
audited by other auditors who expressed an unqualified opinion on those
financial statements.  The financial statements for the period from inception on
August 23, 1996 through September 30, 2002 reflect total revenues, net loss and
comprehensive loss of $12,825, $14,686,353 and $14,663,454 respectively, of the
related totals.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of McKenzie Bay
International, Ltd. and subsidiaries as of September 30, 2004 and 2003, and the
results of its operations and its cash flows for the years then ended, 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 the development of wind powered alternative energy
systems.  As discussed in Note 2 to the financial statements, the Company has
incurred significant losses since inception, and has a working capital and
stockholders' deficit 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/ BDO Seidman, LLP

Grand Rapids, Michigan
January 12, 2005

<page>F-1
-----------------------------------------------------------------------


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

                          CONSOLIDATED BALANCE SHEETS
                          SEPTEMBER 30, 2004 and 2003
                        (Amounts stated in U.S. dollars)

                                    ASSETS

                                                           2004	        2003
						        ---------     --------
Current:
 Cash and cash equivalents	                       $ 562,250    $   49,208
 Refundable taxes and other receivables                  122,286       262,979
 Deferred charges		                          24,264             -
 Prepaid expenses and deposits		                 200,896       145,441
 Deferred issue and finance costs (notes 5 & 8)          359,724             -
                                                        --------      --------
Total current assets		                       1,245,156       457,628
Reclamation cash bond (note 3)		                 338,685       338,685
Property and equipment (note 4)		                  31,580        76,263
                                                        --------       -------
    Total assets	                               $1,615,421   $  872,576
	                                                =========     ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current:
 Bank indebtedness (note 15)	                       $  102,264       83,463
 Accounts payable and accrued liabilities (note 14)	2,380,916    2,162,934
 Convertible promissory notes, net of discount (note 5)	  643,944            -
 Current portion of long-term debt (note 6)		  219,740       32,945
                                                        ----------   ----------
 Total current liabilities		                3,346,864    2,279,342

Long-term liabilities:
 Long-term debt (note 6)		                1,084,763    1,074,651
 Reclamation and closure liabilities (note 3)		  350,000      250,000
 Redeemable common stock (note 7)		           86,775      252,175
                                                        ----------   ----------
 Total long-term liabilities		                1,521,538    1,576,826
                                                        ----------   ----------
Total liabilities		                        4,868,402    3,856,168
                                                        ----------   ----------
Commitments and Contingencies (note 15)

Stockholders' equity (deficit):
 Common stock - $0.001 par value (note 7):
  75,000,000 shares authorized,
  26,407,393 and 25,137,958 shares
  issued and outstanding		                   24,818       23,649
 Additional paid in capital		               20,133,739   16,781,788
 Deficit accumulated during the development stage     (23,020,986) (19,564,758)
 Accumulated other comprehensive income (loss)		 (390,552)    (224,271)
                                                      ------------ ------------
Total stockholders' deficit		               (3,252,981)  (2,983,592)
			                              ------------ ------------
Total liabilities and stockholders' deficit	     $	1,615,421  $	872,576
                                                      ============ ============

                            (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 ON AUGUST 23, 1996 TO SEPTEMBER 30, 2004
                         (Amounts stated in US dollars)

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

 Common shares issued for cash
 ($0.04 Wt. Avg./share)                200,000   $     200   $   7,097  $        -       $      -    $    7,297
 Common shares issued in exchange of
    exploration claims and services
    ($0.04 Wt. Avg./share)              50,000          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           250,000         250       8,871      (7,116)            12         2,017

 Common shares issued for cash
  ($0.15 Wt.Avg./share)              5,149,560       5,150     748,534           -              -       753,684
 Common shares issued in exchange of
    exploration claims and services
     ($0.04 Wt. Avg./share)          2,804,540       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         8,204,100       8,204     871,564    (824,060)          (461)       55,247

 Common shares issued for cash
  ($0.85 Wt.Avg/share)                 517,000         517     440,277           -              -       440,794
 Common shares issued in exchange of
    exploration claims and services
     ($0.04 Wt. Avg./share)          1,105,000       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         9,826,100       9,826   1,355,560  (1,343,183)        (4,018)       18,185

 Common shares issued for cash
  ($0.22 Wt.Avg./share)              1,755,744       1,756     381,685           -              -       383,441
 Common shares issued in exchange of
    exploration claims and services
    ($1.08 Wt. Avg./share)           1,245,000       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
------------------------------------ -----------  ----------  --------- ------------  ------------  -------------
<page>F-3

 Balance, September 30, 1999        12,826,844      12,827   3,075,170  (2,951,923)        (3,761)      132,313

 Issuance of redeemable common stock         -           -           -    (640,075)             -     (640,075)
 Common shares issued for cash
  ($0.61 Wt. Avg./share)             1,734,202       1,734   1,054,409           -              -     1,056,143
 Common shares issued for services
  ($0.50 Wt. Avg./share)                42,000          42      20,958           -              -        21,000
 Net loss for the year                       -           -           -    (830,612)             -      (830,612)
 Change in foreign currency
   translation adjustment                    -           -           -           -           (938)         (938)
------------------------------------ -----------  ----------  --------- ------------  ------------  -------------
 Balance, September 30, 2000        14,603,046      14,603   4,150,537  (4,422,610)        (4,699)     (262,169)

Issuance of redeemable common stock          -           -           -    (545,938)             -      (545,938)
Common shares issued for cash
   ($0.84 Wt. Avg/share)             5,734,801       4,241   4,809,951           -              -     4,814,192
Common shares issed for services
   ($0.88 Wt. Avg./share)              148,928         149     130,207           -              -       130,356
Purchase of common stock for treasury (79,000)         (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)
Expiration of redemption rights              -           -      12,000           -              -        12,000
Stock options issued for services            -           -      73,085           -              -        73,085
Stock options issued for compensation        -           -     829,500           -              -       829,500
------------------------------------ -----------  ----------  --------- ------------  ------------  -------------
Balance as at September 30, 2001    20,407,775      18,914   9,860,106  (9,901,792)      (389,267)     (412,039)

Common shares issued for cash
  ($0.00 Wt. Avg./share)                     -           5      56,920           -              -        56,925
Common shares issued for services
  ($0.92 Wt. Avg./share)             1,572,053       1,572   1,441,098           -              -     1,442,670
Common shares issued for business
  acquisition-DERMOND INC.
   ($1.25 Wt. Avg./share)              100,000         100     124,900           -              -       125,000
Common shares issued for conversion
  of note payable ($1.07 Wt.Avg/share)  23,877          24      25,602           -              -        25,626
Common shares issued for exercise of
  warrants ($0.64 Wt. Avg./share)       25,000          25      16,092           -              -        16,177
Common shares issued for exercise of
  warrants ($1.23 Wt. Avg./share)      969,935         970   1,191,390           -              -     1,192,360
Purchase of common stock for treasury   (3,000)         (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
Expiration of redemption rights              -           -     439,659           -              -       439,659
Stock options issued for services            -           -     341,696           -              -       341,696
Stock options issued for compensation        -           -     125,270           -              -       125,270
------------------------------------ -----------  ----------  --------- ------------  ------------  -------------
Balance as at September 30, 2002    23,095,640       21,607 13,618,367 (15,872,366)        22,899    (2,209,493)

Common shares issued for cash
 ($0.65 Wt. Avg./share)                453,337          453    295,414           -              -       295,867
Common shares issued for exercise of
 warrants ($0.83 Wt. Avg./share)       661,038          661    551,125           -              -       551,786
Common shares issued for services
 ($0.83 Wt. Avg./share)                937,943          938    822,053           -              -       822,991
Purchase of common stock for treasury  (10,000)         (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)
Expiration of redemption rights              -            -     514,471           -              -      514,471
Stock options issued for services            -            -      63,187           -              -       63,187
Stock options issued for compensation        -            -     290,091           -              -      290,091
Stock options issued for cash                -            -      33,160           -              -       33,160
Stock options issued in lieu of
  redemption rights                          -            -     605,210           -              -      605,120
------------------------------------ -----------  ----------  --------- ------------  ------------  -------------
Balance as at September 30, 2003     25,137,958      23,649  16,781,788 (19,564,758)      (224,271)  (2,983,592)

Common shares issued for cash
 ($1.35 Wt. Avg./share)                 561,457         561     757,940           -              -      758,501
Common shares issued for exercise of
 stock options ($1.04 Wt. Avg./share)    58,800          59      60,941           -              -       61,000
Common shares issued for exercise of
 warrant ($1.08 Wt. Avg./share)         343,700         344     618,056           -              -      618,400
Common shares issued for services
 ($1.97 Wt. Avg./share)                 205,478         205     404,975           -              -      405,180
Unpaid captial stock                    100,000           -           -           -              -            -
Net loss for the year                         -           -           -  (3,456,228)             -   (3,456,228)
Change in foreign currency
  translation adjustment                      -           -           -           -       (166,281)    (166,281)
Expiration of redemption rights               -           -     147,301           -              -      147,301
Stock options issued for services             -           -      87,180           -              -       87,180
Stock options issued for compensation         -           -     745,769           -              -      745,769
Value of warrants issued in connection
  with convertible debenture                  -           -     529,789           -              -      529,789
------------------------------------ -----------  ----------  --------- ------------  ------------  -------------
Balance, September 30, 2004          26,407,393      24,818 $20,133,739 $(23,020,986)   $ (390,552) $(3,252,981)
==================================== ===========  ========== =========== ===========  ============= =============
                            (See accompanying notes)
 <page>F-4
</table>


<table>
<caption>
<c>                                               
                    



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

                        CONSOLIDATED STATEMENTS OF LOSS
                    YEARS ENDED SEPTEMBER 30, 2004 and 2003
                        (Amounts stated in U.S. dollars)

                                                                      Cumulative
                                                                         from
                                                                       inception
                                                                      on August 23,
	                                        	                  1996
							              to September
	                                        2004         2003       30, 2004
Revenue					      --------  -  --------  --------------
                                             $       -   $        -   $     12,825

Expenses:
    Exploration (note 9)		       147,586	    565,984	 7,277,371
    Research and development, net 	       649,017	    656,834	 1,305,851
    General administration		       336,927	    295,642      1,489,862
    Reorganization costs		             -	          -        102,914
    Wages and benefits		                79,363      160,589      1,180,812
    Management wages and benefits            1,214,608      728,961      3,498,876
    Professional fees                          678,593      862,616      2,283,284
    Promotion and travel                       177,654      155,512      1,001,255
    Depreciation                                15,420	     18,360        404,262
    Interest and finance charges               183,969	     72,088        433.945
    Write-down of assets                             -            -     (1,626,821)
    Write-off of incorporation and
      reorganization costs                           -	          -        (49,137)
    Write-down of marketable securities	             -	    (32,731)    (1,104,214)
    Gain (loss) on sale of marketable securities     -	        140       (138,028)
    Gain on sale property and equipment		26,806            -         26,806
    Interest income                                103        3,757         28,000
                                            -----------  -----------   ------------
Loss before income and mining taxes and
    cumulative effect of change in
    accounting principle for SFAS 142	    (3,456,228)  (3,545,420)   (21,829,001)
Income and mining taxes recovery (note 10)           -            -        141,000
                                           ------------  -----------   -------------
Net loss before cumulative effect of
    change in accounting principle
    for SFAS 142	                   $(3,456,228)	$(3,545,420)  $(21,688,001)
                                           ------------ ------------  --------------
Cumulative effect of change in accounting
    principle for SFAS 142 (note 2)                  -	   (146,972)      (146,972)
                                           ------------ ------------  --------------
Net loss	                           $(3,456,228)	$(3,692,392)  $(21,834,973)
                                           ------------ ------------  --------------
Comprehensive loss (note 12)	           $(3,622,509) $(3,939,562)  $(22,225,525)
			                   ============ ============  ==============

Basic and diluted loss per share (note 13):
Net loss before cumulative effect of change
   in accounting principle for SFAS 142	   $     (0.13) $     (0.14)

Cumulative effect of change in
   accounting principle		                     -	      (0.01)
                                           ------------- ------------
Net loss	                           $     (0.13) $     (0.15)
                                           ============= ============

                            (See accompanying notes)

<page>F-5


               MCKENZIE BAY INTERNATIONAL, LTD. and subsidiaries
                         (A development-stage company)
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                    YEARS ENDED SEPTEMBER 30, 2004 and 2003
                        (Amounts stated in U.S. dollars)
                                   Cumulative
                                                                                         from
                                                                                       inception
                                                                                     on August 23,
                                                                                         1996
                                                                                     to September
                                                                2004         2003       30, 2004
	                                                     -----------  ---------  ---------------
Operating activities:
  Net loss 	                                           $ (3,456,228)  $(3,692,392) $(21,834,973)
  Items not affecting cash:
   Cumulative effect of change in accounting principle		      -	      146,972       146,972
   Depreciation		                                         15,420	       18,360       404,262
   Amortization of financing and warrants		         95,559	            -        95,559
   Expenses settled through issuance of common stock		125,180	      362,992	  1,930,842
   Capitalized interest on convertible notes payable		      -	            -	      2,571
   Reclamation and closure costs (note 3)		        100,000	            -	    350,000
   Write-down of assets		                                      -	    	    -	  1,626,821
   Write-down of marketable securities		                      -	       32,731	  1,104,214
   Write-off of incorporation and reorganization costs	              -		    -        49,137
   (Gain) Loss on sale of marketable securities		              -		 (140)	    138,028
   Gain on sale of property and equipment		        (26,806)   	    -	    (26,806)
   Stock-based payment		                                832,949	      353,278	  2,505,090
  Net change in non-cash working capital related to
     operations:
   Refundable taxes and other receivables		        129,168	      (51,452)	    (76,448)
   Deferred charges		                                (24,264)       19,562	    (24,264)
   Prepaid expenses and deposits		                (31,191)       26,616       (126,148)
   Accounts payable and accrued liabilities		        111,478	     1,446,532	   2,247,680
                                                             ------------   ------------ ------------
Net cash used in operating activities		             (2,128,736)    (1,336,941)	 (11,487,464)
	                                                     ------------   ------------ ------------
Investing activities:
  Purchase of marketable securities		                      -		     -	  (1,767,835)
  Proceeds on sale of property and equipment		        100,000		     -	     100,000
  Proceeds on sale of marketable securities		              -		 50,910	     525,593
  Purchase of reclamation cash bond (note 3)		              -		      -	    (338,685)
  Purchase of property and equipment		                (25,169)         (9,273)  (2,083,175)
  Incorporation and reorganization costs		              -		      -	     (81,769)
  Acquisition of business, net of cash acquired		              -		      -	     (31,286)
                                                             ------------   ------------ ------------
Net cash provided by (used by) investing activities		 74,831		 41,637	  (3,677,157)
                                                             ------------   ------------ ------------
<page>F-6

Financing activities:
 Issuance of notes payable	                           $	      -	   $    350,000	 $   350,000
 Increase of bank indebtedness 		                         14,630		 29,755	      91,826
 Proceeds from issuance of convertible promissory
    notes payable		                              1,098,450	              -    1,121,505
  Payment of financing fees		                       (100,000)	      -	    (100,000)
  Issuance of long-term debt		                              -		      -	     137,435
  Repayment of capital lease obligation		                (32,945)        (36,156)    (137,435)
  Receipt of repayable government assistance (note 6)		158,999		 71,272    1,085,630
  Proceeds from sale of common stock		              1,437,901	        847,653	  13,315,558
  Proceeds from sale of stock options		                      -		 33,160	      33,160
  Redemption of redeemable common stock 		              -		      -	     (37,500)
  Purchase of common stock for treasury		                      -		      -	    (149,622)
                                                             ------------   ------------ ------------
Net cash provided by (used by) financing activities	      2,577,035	      1,295,684	 (15,710,557)
                                                             ------------   ------------ ------------
Effect of foreign currency exchange rate
    changes on cash and equivalents		                (10,088)	  3,503       16,314
                                                             ------------   ------------ ------------
Net increase in cash and cash equivalents		        513,042		  3,883	     562,250
Cash and cash equivalents, beginning of period		         49,208		 45,325		   -
                                                             ------------   ------------ ------------
Cash and cash equivalents, end of period	           $    562,250	   $     49,208	 $   562,250
		                                             ============   ===========  =============
Supplemental information:
Cash paid for interest	                                   $	147,438	   $     32,972	 $   192,268
Issuance of common stock in lieu of payment of issue
    costs		                                        280,000	              -      280,000
Issuance of common stock in lieu of repurchasing
    redeemable common stock	                                 60,000	        110,000      170,000
Issuance of stock options in lieu of repurchasing
    redeemable common stock		                              -		605,210	     605,210
Issuance of common stock in lieu of payment
    of notes payable		                                      -	        356,424	     356,424
Conversion of notes payable into common stock		              -	              -	      25,626
Repurchase of common stock in settlement of
    accounts receivable		                                      -          11,300       11,300
	                                                     ------------   ------------ ------------
	                                                   $    487,438	   $  1,115,906	 $ 1,640,828
                                                             ============   ===========  =============
                            (See accompanying notes)

 </table>

 <page>F-7

               MCKENZIE BAY INTERNATIONAL, LTD. and subsidiaries

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2004
          (Amounts stated in U.S. dollars unless indicated otherwise)

 1.	Nature of operations

 	McKenzie Bay International, Ltd. and subsidiaries (Company) is a
	development stage company with no operations.  The Company's primary
	business activity is the development of wind powered alternative energy
	systems.

 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 has 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.  However, management believes that it will be
		successful at raising additional capital in the short-term and
		will have profitable operations in the long-term (see note 8).

 		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 financial statements include the activities of the Company
		and its wholly-owned subsidiaries, Lac Dore Mining Inc.
		(formerly McKenzie Bay Resources Ltd.), Great Western Diamond
		Company, DERMOND INC. (formerly Experts Conseils Dermond Inc.),
		WindStor Power Company and a 62.5% interest in Ptarmigan Energie
		Inc.  All intercompany balances and transactions have been
		eliminated in consolidation.
<page>F-8

        [c]	Foreign currency translation

 		For statutory and other reporting purposes, the Company's wholly
		and partially owned subsidiaries, Lac Dore Mining Inc., DERMOND
		INC. and Ptarmigan Energie Inc. prepare financial statements in
		Canadian dollars.  The translation to U.S. 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 (accumulated other
		comprehensive income).

 	[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 has invested 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 stockholders' equity (accumulated other
		comprehensive income).  There were no marketable securities
		investments at September 30, 2004 and 2003.

 	[f]	Use of estimates

 		The preparation of financial statements in conformity with US
		GAAP 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 statement items
		that require significant estimates from management include the
		useful life of long-lived assets for depreciation purposes,
		carrying value of goodwill and sufficiency of reclamation and
		closure liabilities.  Actual results could differ from such
		estimates.
<page>F-9

 	[g]	Exploration expenditures

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

 	[h]	Research and development

 		During fiscal 2004 and 2003, the Company expended $994,432 and
		$742,936 ($649,017 and $656,834 net of non-refundable grants),
		respectively, on research and development related to Lac Dore
		Mining Inc. and DERMOND INC.

 	[i]	Property and equipment

 		Property and equipment are recorded at cost and depreciated 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 equipment	        30%
 			Office equipment	        20%

 	[j]	Impairment of 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.

 	[k]	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 realized 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 realized.

 	<page>F-10

 	[l]	Loss per common share

 		Basic earnings (loss) per common 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).

 	[m]	Share based payment

 		i)	The Company has stock-based compensation plans which are
		described in note 7.  The Company uses the fair value method of
		accounting for all stock options and common shares issued to
		non-employees for services in accordance with the provisions of
		SFAS 123, and the intrinsic value method for stock options
		granted to employees, officers and directors in conformity with
		Accounting Principles Board Opinion No. 25 and its related
		interpretations, as allowed by SFAS 123.  Under the fair value
		method, compensation cost is measured at the date of the grant
		and recognized over the vesting period, as is the case under the
		intrinsic value method when the exercise price is lower than the
		current market price at the date of the grant.

 		ii)	Fair value disclosure

 Had the compensation cost for stock options issued to employees, officers and
 directors been determined based on the fair value method consistent with SFAS
 123, the Company's net loss and loss per share would have been as follows for
 fiscal 2004 and 2003:

                                       2004                  2003
 			        ----------------      -----------------
 Net loss, as reported	          $(3,456,228)          $(3,692,392)
 		                ----------------      -----------------
 Add:  Stock-based employee
 compensation expense included
 in reported net loss             $   745,769           $   290,091

 Deduct:  Total stock-based
 employee compensation expense
 determined under the fair value
 method for all awards, net of
 related tax effects               (1,974,173)           (1,201,673)
 				---------------      ------------------
 Pro forma net loss	          $(4,684,632)	        $(4,603,974)
 				===============      ==================
 Basic and diluted loss per share:
 As reported			 $      (0.13)          $     (0.15)
 Pro forma	                        (0.18)                (0.19)


<page>F-11

 The fair value of options was estimated as of the date of grant using the
 Black-Scholes option-pricing method with the following weighted average
 assumptions for fiscal 2004 and 2003:

 				        2004   2003
 			               -----  ------
 Risk-free interest rate                4.21%   3.41%
 Expected average life	                9.28    7.98
 Dividend yield		                   -       -
 Volatility		                 105%	118%
 Fair values of option grants per share	$1.63  $1.07

 	[n]	Goodwill and other intangible assets

 SFAS 142 requires that goodwill is no longer amortized, but instead is tested
 for impairment at least annually.  Upon adoption of SFAS 142 in fiscal 2003,
 the Company completed its transitional impairment review and determined that
 the goodwill ("excess cost of investment over net assets acquired") of $146,972
 associated with the fiscal 2002 acquisition 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.



 2.	Accounting policies (continued)

 	[o]	New accounting pronouncements

 		On December 16, 2004, the Financial Accounting Standards Board
		released FASB Statement No. 123 (revised 2004), Share-Based
		Payment.  These changes in accounting replace existing
		requirements under FASB Statement No. 123, Accounting for Stock-
		Based Compensation, and eliminate the ability to account for
		share-based compensation transactions using APB Opinion No. 25,
		Accounting for Stock Issued to Employees.  The compensation cost
		relating to share-based payment transactions will be measured
		based on the fair value of the equity or liability instruments
		issued.  This Statement does not change the accounting for
		similar transactions involving parties other than employees.
		Publicly traded companies must apply this Standard as of the
		beginning of the first interim or annual period that begins
		after June 15, 2005, while those that file as small business
		issuers must comply as of the beginning of the first interim or
		annual reporting period that begins after December 15, 2005.
		This Statement applies to all awards granted after the required
		effective date and to awards modified, repurchased, or cancelled
		after that date.  The cumulative effect of initially applying
		this Statement, if any, is recognized as of the required
		effective date.  The Company has not completed its evaluation of
		the impact of adopting FASB 123 (revised 2004) on its
		consolidated financial statements, but anticipates that more
		compensation costs will be recorded in the future if the use of
		options for employee and director compensation continues as in
		the past.
<page>F-12

 	[p]	Reclassification

 		Certain amounts from the prior year have been reclassified to
		conform to the current year presentation.

 3.	Reclamation cash bond

 	The Company has posted a cash bond with the State of Colorado,
	Department of Natural Resources in the amount of $338,685 to cover
	future site reclamation and closure liabilities associated Great West
	Diamond Company's Kelsey Lake mine.  A liability for the estimated
	restoration costs of $350,000 ($250,000 in 2003) has been accrued in the
	accompanying financial statements.  During the fiscal year ended
	September 30, 2004, the Company began reclamation activities at the
	Kelsey Lake mine.

 4.	Property and equipment

 	Property and equipment consists of the following:
<table>
<caption>

                                          <c>                      <c>
                                                               2004         2003
                                            Accumulated      Net Book     Net Book
                                   Cost     Depreciation       Value        Value
                                ---------- -------------    ----------  -------------
Equipment undercapital lease   $      -       $	      -     $	   -       $ 64,000
Furniture and fixtures             8,380          5,397        2,983	      3,499
Computer equipment                11,955          5,673        6,282	      8,522
Office equipment                  25,245          2,930       22,315	        242
                               ----------     -------------    ----------  -------------
                               $  45,580      $  14,000     $ 31,580    $    76,263
                                =========     ============   ==========   ============
</table>

 5.	Convertible promissory notes

 	On August 13, 2004, the Company borrowed $500,000 from 13 lenders and
	issued its 12% promissory notes in that aggregate amount.  The notes and
	interest are due and payable on the 14th day of November 2004.  If,
	however, a registration statement filed by the Company under the
	Securities Act of 1933 to register the shares which may be obtained by
	the lenders upon conversion of the notes has been declared effective by
	the Securities and Exchange Commission (SEC) by that date, the maturity
	date of the notes would be extended for a period of 90 days from the
	date the registration statement was declared effective and the lenders
	can convert the notes into a total of 666,667 shares of common stock
	during the 90 day period.  The Company also issued warrants to the
	lenders for the purchase of an aggregate of 750,000 shares of the
	Company's common stock on or before August 13, 2006 at $1.07 per share.
	Interest shall be paid upon the conversion of the promissory notes to
	shares or when the promissory notes are due.

 <page>F-13

 	On September 7, 2004, the Company borrowed $598,450 from ten lenders
	which were convertible into 746,867 shares of common stock.  The terms
	of the loans and the issuance of warrants in connection with the loans
	are substantially the same as those of the loans of August 13, 2004,
	except that lenders received warrants for the purchase of an aggregate
	amount of 873,300 shares of common stock on or before September 7, 2006,
	at $1.42 per share.

   	The 12% promissory notes and warrants were recorded at their relative
	fair values.  The fair value of the debt was determined to be $568,661.
	The fair value assigned to the warrants was determined using the Black
	Scholes option pricing model and $529,789 was recorded as a discount of
	the debt and as an increase in shareholders' equity.  The debt discount
	attributable to the warrants is being amortized as additional non-cash
	interest expense over the life of the debt using the effective interest
	method.  Total amortization recorded as interest expense for the period
	ended September 30, 2004 is $75,283 and the unamortized discount of the
	debt is $454,506.

 	As of September 30, 2004, the Company had not filed a registration
	statement under the Securities Act of 1933.  In accordance with EITF
	00-27, Application of Issue No. 98-5 to Certain Convertible Instruments,
	and EITF 98-5 Accounting for Convertible Securities with Beneficial
	Conversion Features or Contingently Adjustable Conversion Ratios, the
	Company has not recorded any amount to reflect the intrinsic value
	(market price of the stock less the effective conversion price) of the
	conversion feature.  The Company has calculated the intrinsic value of
	the conversion feature at the date the promissory notes were issued to
	be $568,661, after taking into account the fair value of the warrants.
	When the event takes place that would allow the 12% promissory notes to
	be converted into common stock, the Company will record additional
	interest expense and an increase to additional paid in capital, equal to
	the intrinsic value calculated at the date the promissory notes were
	issued.

 	The Company has incurred $100,000 of costs in connection with the
	issuance of the convertible promissory notes.  The Company has deferred
	these costs and is amortizing these costs on a basis that approximates
	the interest method over the expected term of the related debt.
	Accumulated amortization related to the deferred finance costs at
	September 30, 2004, was approximately $79,724.

 <page>F-14

 	The Company has pledged 100,000 shares of its common stock to secure one
	of the promissory notes in the face amount of $98,450.

 6.	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.

                                                         2004        2003
                                                      ---------   -----------
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              $  708,840   $ 665,190

Government of Canada unsecured financial
assistance, non-interest bearing,
repayable in quarterly payments of
CDN$62,500 commencing October 1, 2004                    395,778     369,550

Government of Canada unsecured financial
assistance, non-interest bearing, repayable
in two equal annual payments,
commencing January 1, 2005                                45,681      39,911

Government of Canada unsecured financial
assistance, non-interest bearing,
repayable in five annual payments of
1.5% of gross revenues of DERMOND INC., to
a maximum of CDN$150,000, over five
years beginning on November 1, 2005.  If
after five years the original amount is
not repaid, payments will continue for a
maximum of five additional years or until
the assistance is repaid if sooner.
No further payments will be required
after the second five years regardless of
the amount owing                                         110,478           -

 <page>F-15

Government of Canada unsecured financial
assistance, non-interest bearing, repayable
in four annual installments beginning on
April 1, 2007		                                  43,726	   -

Obligation under capital lease		                      -	      32,945
 			                            ------------- -----------
 			                               1,304,503   1,107,596
 Less: current portion	                                 219,740      32,945
 		                                    -------------  ----------
 		                                      $1,084,763  $1,074,651
                                                    ============= ===========


 6.	Long-term debt (continued)

Principal repayments on long term debt are as follows:

 	2005	             $  219,740
 	2006	                276,958
 	2007	                 66,171
 	2008	                 10,932
 	2009                    730,703
 		             -----------
 	2010 and thereafter  $1,304,503
 		             ===========

 7.
 Common stock

 Share-based incentive plans

At September 30, 2004, the Company had three share-based incentive plans each
being limited so that options to acquire no more than 2,500,000 common shares
per plan 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 common stock of the Company, the purchase price of each share shall be
 110% of the market price on the date of grant and the expiration date of the
 option shall be no more than five years from the date of grant of such option.
 As of September 30, 2004, options to purchase an aggregate of 425,000 common
 shares have been issued under this plan.

 <page>F-16

 (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.  The
 options expire ten years from the date of grant.  As of September 30, 2004,
 options to purchase an aggregate of 1,835,000 common shares have been issued
 under this plan.

 (iii)	Under the 2001 Directors Non-Qualified Stock Option Plan, options may be
 granted to directors of the Company or certain non-employees for terms of up to
 ten years at an exercise price as determined by the administrator on the date
 of the grant.  The options vest over three years.  As of September 30, 2004,
 options to purchase an aggregate of 1,330,417 common shares have been issued
 under this plan.


 The following table contains information with respect to all options, in
 addition to those granted under the preceding incentive plans issued by the
 Company:
 	                                                        Weighted average
	                                                        exercise price
	                                        Shares             US$/share
	                                     ------------       ----------------

	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
	   Granted                                660,000	       1.82
	   Exercised                              (58,800)             1.04
	   Expired                               (100,000)             1.00
	                                     ------------       ----------------
	Options outstanding,
	September 30, 2004                    13,632,817	       1.08
	                                     ===========        ================



<page>F-17

The following table contains information with respect to all options granted by
the Company at September 31, 2004:

                     Outstanding options             Exercisable options
                  ---------------------          ------------------------
                        Weighted  Weighted                         Weighted
                        Average   average                           average
                          life     price                             price
      Price     Shares   (years)  US$/share           Shares       US$/share
      ------   --------  -------  ----------          ---------    ----------

     $0.74	300,000	   2.95	  $ 0.74		      -	 $        -
      1.00   10,971,917     4.51    1.00	     10,391,917	       1.00
      1.25	467,400	    0.87    1.25		467,400	       1.25
  1.30-$1.50  1,285,000	    5.90    1.39		810,000	       1.42
     1.88	525,000	    9.01    1.88		525,000	       1.88
  2.00-3.00	 83,500	    3.84    2.63		 83,500	       2.63
 ----------- ------------ -------- ------           -------------   --------
 	     13,632,817                              12,277,817
 	     ===========                             ==========


At September 30, 2004, the following are outstanding:

 	[a]	Warrants for the purchase of common stock


 	                                                 Number
 	                                               of warrants


 		Outstanding, September 30, 2002	       2,719,095
 		Issued	                                 446,762
 		Exercised	                        (661,038)
 		Expired	                              (1,552,200)
 		--------------------------------------------------
 		Outstanding, September 30, 2003	         952,619
 		Issued	                               1,900,918
 		Exercised	                        (343,700)
 		Expired	                                (355,857)
 		-------------------------------------------------
 		Outstanding, September 30, 2004	        2,153,980
 		=================================================

 		The warrants outstanding at September 30, 2004, can be exercised
		at prices ranging from  $1.07 to $3.00.  The expiration dates on
		the warrants range from October 20, 2004 to September 8, 2006.
 <page>F-18

 	[b]	Treasury stock

 		During fiscal 2004, the Company canceled 92,000 of its treasury
		stock acquired at different times at an accumulated cost of
		$160,922.

 	[c]	Redeemable common stock

 		The Company has granted to the holders of an aggregate of 26,700
		outstanding common shares the right to require the Company to
		repurchase the shares at a price of $3.25 per share.  If the
		holders exercise their rights, the Company will be obligated to
		pay, as of September 30, 2004 or gradually over the next fiscal
		year, a maximum amount of $86,775.

  8.	Standby Equity Distribution Agreement

 		On April 6, 2004, the Company entered into a Standby Equity
		Distribution Agreement (Agreement) with Cornell Capital
		Partners, L.P.  Under the Agreement and subject to its terms and
		conditions, the Company may require Cornell Capital Partners,
		L.P. to purchase newly issued common shares from the Company,
		for a maximum total purchase price of $15 million over a 24-
		month period, less certain fees and expenses.  The amount of any
		advance (periodic sale of stock) may not exceed $625,000 and the
		Company may not request advances if the shares to be issued in
		connection with such advances would result in Cornell Capital
		Partners owning more than 9.9% of the Company's then outstanding
		common stock.  The Company incurred $280,000 in issue costs
		related to the signing of the Agreement.  These costs were
		settled through the issuance of 124,428 of common shares at
		$2.25 per share, which represented the volume weighted average
		trading price of the Company's shares on the signing date of the
		agreement.  These costs have been deferred and will be treated
		as a reduction to the proceeds from the shares issued under the
		Agreement.

 		In addition to the above issue costs, under the terms of the
		Agreement a further payment of $270,000 will be due on the
		fulfillment of the terms and conditions of the Agreement.

 9.	Mineral properties and exploration expenditures

 	The Company's expenditures for mineral properties and exploration
	activities, net of grant revenues received on Lac Dore Mining Inc.'s
	vanadium and Great West Diamond Company's diamond exploration, were
	$147,586 and $565,984 for fiscal years 2004 and 2003, respectively
	($7,277,371 from inception on August 23, 1996 to September 30, 2004).

 <page>F-19

 10.    Income and mining taxes

 	U.S. and Canada components of loss before income and mining taxes  and
	cumulative effect of change in accounting principle for SFAS 142 for
	fiscal 2004 and 2003 were:

 		                                2004          2003
 				               ------        ------
 	United States	                    $(2,130,512) $ (1,929,742)
 	Canada		                     (1,325,716)   (1,615,678)
 	Loss before income and mining taxes $(3,456,228) $ (3,545,420)

 	As the Company operates 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 U.S. federal income tax rate of 34%
	were as follows:


 		                                        2004           2003
		                                     ----------    -----------
Loss before taxes and cumulative
effect of change in accounting
principle for SFAS 142                              $(3,465,228)  $ (3,545,420)
                                                     ----------     -----------
Computed "expected" tax recovery                     (1,175,118)    (1,205,443)
Increase (reduction) in income taxes
resulting from:
  Resource allowance deduction                            8.088         39,246
  Earnings in foreign jurisdiction
   taxed at different rates                             (25,802)       (50,318)
  Tax benefits of losses not recognized                 994,066      1,214,804
  Non-deductible expenses (stock options and interest)  248,766          1,774
                                                       ---------     ----------
Total income and mining tax                           $      -     $         -
                                                      ==========     ==========



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

 		                                    2004           2003
 						-----------     ----------

 	Net operating loss carry forwards	$6,189,547      $5,429,216
 	Capital loss carry forward		   423,379	   423,379
 	Depreciation and amortization		   223,396	   263,130
 	Reclamation costs		           119,000	    85,000
 	Compensation - stock options		   294,480	    45,709
 	Accrued liabilities		             8,500	     8,500
 	                                         ----------   ------------
 	Total gross deferred tax assets		 7,258,302	 6,254,934
 	Less valuation allowance		(7,258,302)     (6,254,934)
 	                                        -----------   -------------
 	Net deferred tax assets	               $	-		-
                                               ============   =============

<page>F-20

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
 	                                       	-------------------------------
 Canadian net operating loss carry forwards    $2,595,465	  2005 to 2011
 U.S. net operating loss carry forwards		8,627,062	  2019 to 2024
 U.S. capital loss carry forwards		1,245,231	      2008
 Canadian exploration expenditures		6,887,211	   Unlimited

 11.	Financial instruments

Financial instruments include cash and cash equivalents, refundable taxes and
other receivables, accounts payable, accrued liabilities and convertible
promissory notes, all of which are carried at cost which approximates fair value
because of the near-term maturity of those instruments.  As of September 30,
2004, the fair value of repayable government assistance could not be determined
because no equivalent market exists for such loans.

 12.	Comprehensive loss
<table>
<caption>

                                         <c>                           <c>
                                                                        Cumulative
                                                                      From inception
                                                                       on August 23,
                                                                         1996 to
                                  2004                 2003          September 30,2004
                               ---------------     ---------------     -----------------
 Net loss	               $(3,456,228)	   $(3,692,392)	       $(21,834,973)
 Foreign currency translation
   adjustment		          (166,281)	      (247,170)		   (390,552)
                              ----------------    ----------------    -----------------
 Comprehensive loss	       $(3,622,509)	   $(3,939,562)	       $(22,225,525)
 	                      ================    ===============     =================

 </table>
 13.	Basic and diluted loss per common share
 						    2004		2003
 						------------       ------------
Net loss				      $ (3,456,228)	 $ (3,692,392)
                                               -------------      -------------
Total weighted average number of
common shares outstanding                       25,872,662         24,186,803
                                              ---------------     --------------
Net loss per common share		      $	     (0.13)	 $	(0.15)


The following outstanding common stock equivalents were excluded from the
computation of diluted net loss per share attributable to common stockholders as
they had an anti-dilutive effect:

<page>F-21
 						              2004	   2003
 							  -----------    --------
 	Shares issuable upon exercise of stock options	    13,632,817   13,131,617
 	Shares issuable upon exercise of warrants	     2,153,980      952,619
 	Shares issuable upon conversion of promissory notes  1,413,533	          -

 14.	Related party transactions

The Company has retained a law firm to perform legal services for which
the Company has incurred total expenditures of $112,474 in fiscal 2004
($125,086 in fiscal 2003).  A director of the Company is a partner in
that law firm.  At September 30, 2004 and 2003, $122,768 and $60,294
resulting from these legal services are included in accounts payable and
accrued liabilities, respectively.

The Company has issued 30,000 shares of its common stock (valued at
$42,000) to a director as compensation for services rendered to the
Company as a consultant in addition to the services rendered as a member
of the Board of Directors.



 15.	Commitments and Contingencies

The Company has provided to a creditor a 50% lien on the reclamation
bond on deposit with the state of Colorado with payment being made in
the event that Great Western Diamond Company is sold and the deposit
returned (see note 3).

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 accompanying financial
statements.

	Royalty Agreements

The Company has entered into a royalty agreement that will pay 2.5% of Dermond
wind turbine sales to the former owners (and current employees) of DERMOND INC.

Bank indebtedness and other loans

The bank indebtedness of a subsidiary company, Great Western Diamond Company in
the amount of $12,163 as of September 30, 2004 ($40,890 as of September 30,
2003), carries interest at 8% per annum and is secured by the assets of Great
Western Diamond Company.

The bank indebtedness of a subsidiary company, DERMOND INC. in the amount of
$90,101, as of September 30, 2004 ($42,572 as of September 30, 2003), carries
interest at 7.5% per annum and is secured by an assignment of the subsidiary's
refundable research and development tax credit.

In addition to the above, the assets of Great Western Diamond Company have been
pledged to secure certain accounts payable in the amount of $240,342 as of
September 30, 2004, 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.

<page>F-22

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.

(a) We maintain controls and procedures designed to ensure that information
required to be disclosed in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission. Based upon their evaluation of those controls and
procedures performed as the end of the period covered by this report, our chief
executive officer and the principal financial officer concluded that our
disclosure controls and procedures were adequate.

(b) There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
the evaluation of those controls by the chief executive officer and principal
financial officer.

Item 8B.  Other Information.

No information is required to be disclosed in a report on Form 8-K during the
fourth quarter of the year covered by this Form 10-KSB which has not been
reported.

                                    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.

<page>46

NAME	               AGE	      POSITIONS
-----------------------------------------------------------------------------
Gary L. Westerholm	60	President, Chief Executive Officer and director
Gregory N. Bakeman	49	Treasurer, Chief Financial Officer and director
John W. Sawarin	        70	Vice President-Product Marketing and director
John DiMora	        57	Director
Doris F. Galvin 	50	Director
Donald C. Harms	        63	Director and Secretary
Rocco J. Martino	50	Director
Stephen D. McCormick	59	Director
John Popp	        68	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 2001 and has served as Chief
Financial Officer since March 2001 and Treasurer since December 2001. Mr.
Bakeman is also Chief Financial Officer of and a director of each 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 (now part of Oppenheimer &
Co.). Mr. Bakeman's term as an executive officer expires in March 2006.

John W. Sawarin has been a director since 1999.  He has held the position of
Vice President-Product Marketing since January 2003. Mr. Sawarin previously
served as Treasurer from 1999 to March 2001 and Secretary from 1999 to June
2004.  Mr. Sawarin's term as an executive officer expires in March 2006.

John J. DiMora has been a director since May 2004.  For the past 15-years, Mr.
DiMora has been the owner and operating principal of a Keller Williams Realty
franchise with 22 offices and over 1650 agents operating in Michigan and
Northern Ohio.

Doris F. Galvin has been a director since February 2004. Since July 2004, Ms.
Galvin has been Senior Vice President- Corporate Development of Semco Energy,
Inc., a gas distribution company.  For approximately 2.5 years prior to that
time, Ms. Galvin was 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.

<page>47

Donald C. Harms has been a director since November 12, 2002 and Secretary since
June 2004. 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.

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, L.P.
or its predecessor, a private equity group.

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.

John A. Popp has been a director since May 2004.  In 1977, Mr. Popp established
MAP Mechanical Contractors, Inc. and was its president and chairman of the board
until 1999.  He remains its board chairman.

(b)  Significant Employees

Jacquelin Dery, age 64, has been an executive officer and director of Dermond
Inc. 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 Inc. 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 January 7, 2005,
Dermond Inc. was approximately $9,200 U.S. in arrears in the payment of Mr.
Dery's salary.

<page>48

Laurent B. Mondou, age 64, has been an executive officer and director of Dermond
Inc. 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 Inc. 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 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 January 7, 2005, Dermond Inc. was approximately $9,200 U.S. in
arrears in the payment of Mr. Mondou's salary.

Michel Garon, age 53, was the Project Manager of Lac Dore since November 2002.
In November 2004, Mr. Garon became the Project Manger for Dermond Inc. and in
January 2005, Mr. Garon became the President of Lac Dore Mining Inc. 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. as
General Manager in November 2002, Mr. Garon was General Manager for Noranda's
Matagami Mine, in charge of two underground mining operations (annual operating
budget - $35,000,000), including a concentrator and all the ancillary services.
He was also responsible for the construction and development of a new
underground operation (investment - $85,000,000). 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 In November
2004, Mr. Garon became the Project Manager of Dermond Inc. On January 7, 2005,
Lac Dore Mining Inc. and Dermond, Inc. were in arrears an aggregate of
approximately of $54,000 U.S. in the payment of Mr. Garon's salary.

<page>49

Jan Mracek, age 48, 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 January 7, 2005, Lac Dore Mining Inc. was
approximately $57,000 U.S. in arrears in the payment of Mr. Mracek's salary.

WindStor Power Co.

Jonathan C. Hintz, age 45, became the President of WindStor Power Company in
January 2005.  Prior to that time and since August 2004 he was a Senior
Project Manager of WindStor Power Company.  Mr. Hintz brings more than 15-years
of general and project management, engineering and quality control expertise
from highly technical environments to WindStor Power Co.  From 2003, until
joining WindStor Power Co., Mr. Hintz was Senior Systems Engineer with The
Benman Companies. From 1999 until 2003, Mr. Hintz was a Vice Presidents of
Technical Operations with Capricorn Diversified Systems and from 1993 until 1999
he was and Engineering Manager and Area Office Manager with Clover Technologies
(a wholly owned company of Americteh).  On January 7, 2005, WindStor Power Co.
was approximately $11,000 in arrears in the payment of Mr. Hintz'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:

o  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;

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

<page>50

o  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

o   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.

(e)	Audit Committee Financial Expert

Mr. Martino is an audit committee financial expert serving on the audit
committee of our Board of Directors. Mr. Martino is "independent" as that term
is used in Schedule 14A under the Securities Exchange Act of 1934.

(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, no person
who at any time during the fiscal year ended September 30, 2004 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 which failure has not been previously disclosed.

To the best of our knowledge, all reports required to be filed with respect to
our fiscal year ended September 30, 2004 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.

<page>51

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 without
charge.  Such request must be made by contacting Richard Kaiser at (757)
306-6090 or by email at: yes@yesinternational.com.


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, 2004, 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, 2004 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,              2004          $121,000    100,000 shares
President and CEO                2003          $115,500    200,000 shares
                                 2002          $102,262    200,000 shares

-------------------------------------------------------------------------------
Gregory N. Bakeman,              2004          $115,500    100,000 shares
Treasurer and CFO                2003          $110,250    200,000 shares
                                 2002           $89,282     50,000 shares


<page>52

The aggregate amount of any perquisites and other personal benefits, securities
or property paid or given by us to any of the Named Executive Officers in any of
the fiscal years was less than 10% of the total of annual salary of the
respective Named Executive Officer.

During the fiscal year ended September 30, 2004, we did not adjust or amend the
exercise price of stock options previously awarded to any of the Named Executive
Officers, whether through amendment, cancellation or replacement grants, or any
other means.

Option Grants Table

The following table provides certain information concerning individual grants of
stock options made during the fiscal year ended September 30, 2004 to each of
the Named Executive Officers:

            Option Grants in Fiscal Year Ended September 30, 2004
----------------------------------------------------------------------------
                             Individual Grants
----------------------------------------------------------------------------
Name                   Number of       % of Total
                       Securities       Options
                       Underlying      Granted to
                        Options       Employees in  Exercise or
                   Granted (shares of    Fiscal      Base Price     Expiration
                     common stock)        Year          ($/Sh)          Date
------------------  --------------  ---------------  ----------    ------------
Gary L. Westerholm      100,000          30.77%        $1.88        9/30/2014

--------------------------------------------------------------------------------

Gregory N. Bakeman      100,000          30.77%        $1.88        9/30/2014

We have never granted any stock appreciation rights to the Named Executive

Officers.

In December 2004 we granted an option for the purchase of 150,000 shares to each
of Messrs. Bakeman and Westerholm under our 2001 Employee Incentive Stock Option
Plan exercisable at  $1.22 and $1.35 per share, respectively.  One-third of the
option amount of shares became immediately exercisable when the options were
granted.  An additional one-third may be acquired on or after December 6, 2005
and the remaining shares may acquired on and after December 6, 2006.  Mr.
Bakeman's option expires on December 5, 2014 and Mr. Westerholm's option expires
on December 5, 2009.

We have never granted any stock appreciation rights to the Named Executive
Officers.

<page>53

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

The following table provides certain information concerning each exercise of
stock options and during the fiscal year ended September 30, 2004 by each of the
Named Executive Officers and the fiscal year-end value of unexercised options:

<table>

                <c>                   <c>                    <c>
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
--------------------------------------------------------------------------------------
Name              Shares   Value      Number of Shares of
                 Acquired Realized       Common Stock
                    on      ($)        Underlying Unexercised  Value of Unexercised
                 Exercise             Options at FY-End         In-the Money
                                       (shares of common stock)   Options
                                                                 at FY-End
                                  Exercisable/Unexercisable  Exercisable/Unexercisable
--------------------------------------------------------------------------------------
Gary L. Westerholm  -0-     -0-     1,030,000/0             $204,000/0
--------------------------------------------------------------------------------------
Gregory N. Bakeman  -0-     -0-       555,000/0             $106,500/0

</table>

An option is considered "in the money" for purposes of the table if its exercise
price was lower than $1.30, the market value of a share of our common stock on
September 30, 2004.

Long-Term Incentive Plans - Awards in Last Fiscal Year

We made no awards to a Named Executive Officer in the fiscal year ended
September 30, 2004 under any Long-Term Incentive Plans other than as set forth
in the Option 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, 2004 or, except as
otherwise set forth below, are expected to be compensated in the future for any
service provided as a director.

<page>54

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.

In November 2004, we granted options to our directors for the purchase of shares
of our common stock as follows:

NNAME                         	NUMBER OF SHARES
                               UNDERLYING OPTIONS
--------------------           ------------------
Gregory N. Bakeman	            100,000
John DiMora	                     25,000
Doris F. Galvin                      39,167
Donald C. Harms	                     50,000
Rocco J. Martino	             60,000
Stephen D. McCormick	             50,000
John Popp	                     25,000
John W. Sawarin	                     75,000
Gary L. Westerholm                  100,000

The options are exercisable at $1.35 a share and expire on September 30, 2014.

Beginning in December 2004, we will compensate each of the independent members
of our Board of Directors at the annual rate of $10,000 to accrue and to be paid
when the Board of Directors determines that there are sufficient funds.

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 December 2004, we
increased the annual base compensation of Messrs. Westerholm and Bakeman to
$225,000 and $200,000, respectively. 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

<page>55

sick pay or other benefits received by him deriving from any private medical
insurance or other similar arrangements entered into by us. Each 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. On January 7, 2005, we were in arrears in salary
payments under the employment agreements in the amounts of approximately
$87,000, $53,000 and $64,000, 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.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides certain information as of September 30, 2004 with
respect to compensation plans (including individual compensation arrangements)
under which our equity securities are authorized for issuance:

<page>56
<table>

                           <c>                 <c>                  <c>


Plan Category           Number of shares     Weighted average   Number of shares
                        of common stock      exercise price     of common stock
                        to be issued upon    of outstanding     remaining available
                        exercise of          options, warrants  for future issuance
                        outstanding options, and rights         other than securities
                        warrants and rights                     to be issued upon
                                                                exercise of the
                                                                outstanding options,
                                                                warrants and rights
                                                                disclosed elsewhere
                                                                in this table. (1)
---------------------  --------------------   ---------------  --------------------
Equity compensation
plans approved by	 3,420,417                $1.13              4,079,583
security holders

Equity compensation
plans not approved	   700,000                $1.00                    -0-
by security
holders (2)(3)

</table>

___________________________
(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.

<page>57

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.

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information as of January 7, 2005 with
respect to any person who is known to us to be the beneficial owner of more than
5% of our common stock, which is the only class of our outstanding voting
securities, and as to our common stock beneficially owned by our directors and
officers and directors as a group:

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

Gary L. Westerholm
3362 Moraine Drive
Brighton, Michigan 48114        5,479,700 (3)                      19.5%

John W. Sawarin
143 Windsor Ave.
London, ONT  Canada  N6C 2A1    2,469,600 (4)                       9.0 %

Stephen D. and
Karen A. McCormick
PO Box 1254
Bismarck, ND  58502             9,770,048 (5)                      29.9 %

SOQUEM, INC.
1000, route de l'Eglise,
bureau 500
Sainte-Foy Quebec Canada
G1V 3V9                         1,359,333                           5.8 %

Gregory N. Bakeman
975 Spaulding Avenue SE
Grand Rapids, Michigan 49546      718,700 (6)                       2.5 %

<page>58

Rocco J. Martino
1468 Gary Wood Drive
Bass Ridge, Illinois 60527        894,698 (7)                       3.3 %

Donald C. Harms
37899 Twelve Mile Road
Farmington Hills, Michigan 48331  198,918 (8)                        (9)

Doris F. Galvin
19495 Sibley Road
Chelsea, MI 48118                  71,167 (10)                       (9)

John A. Popp
PO Box 2917
Midland, MI  48640              1,285,930 (11)                       4.9 %

John DiMora (11)
17640 White Pine Court
Northville, MI 48167              549,468 (12)                       2.1 %

Officers and directors
 as a group (9 persons)        21,288,229 (13)                      59.0 %



_________________________
(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.

(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 or
converted.

(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) 1,180,000 shares that can be acquired by Mr.
Westerholm upon exercise of options and warrants. Does not include an aggregate
of 100,000 shares that can first be acquired by Mr. Westerholm upon exercise of
an option more than 60 days from the date of this Annual Report.

(4)	Includes (a) 754,600 shares owned by Mr. Sawarin's spouse, (b) 855,000
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.

<page>59

(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) 13,700 shares owned by Mr. Bakeman's spouse, (b) 700 shares
owned by Mr. Bakeman's minor children, and (c) 705,000 shares that can be
acquired by Mr. Bakeman upon exercise of options.  Does not include an aggregate
of 100,000 shares that can first be acquired by Mr. Bakeman upon exercise of an
option more than 60 days from the date of this Annual Report.

(7)	Represents (a) 560,055 shares owned by Martino Investment Partners,
L.P., general partners of which are Mr. Martino and his spouse, (b) 230,000
shares that can be acquired upon exercise of options and (c) 104,643 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.

(9)	Less than 1%.

(10)Includes 39,167 shares that can be acquired upon exercise of options.

(11) Represents (a) an aggregate of 405,440 shares held by Mr. Popp and his
Individual Retirement Accounts, (b) 19,990 shares owned by Mr. Popp's spouse,
(c) 328,900 shares owned by MAP Mechanical Contractors, Inc. of which Mr. Popp
is an affiliate, (d) 206,700 shares owned by MAP Mechanical Contractors, Inc.
Profit Sharing Plan, (e) 299,900 shares owned by MAP Mechanical Contractors,
Inc. Pension Plan and (f) 25,000 shares that can be acquired upon exercise of
options.

(12)Represents (a) 7,000 shares held by Mr. DiMora, (b) 75,000 shares held
jointly by Mr. DiMora and his spouse, (c) 292,735 shares held by DiMora and
Associates Inc. of which company Mr. DiMora is an affiliate, (d) 33,333 shares
of common stock which may be acquired upon conversion of a promissory note, (e)
37,500 shares which may be acquired upon exercise of warrants and (f) 103,900
shares that can be acquired upon exercise of options.

(13)See notes above.

<page>60

Item 12. Certain Relationships and Related Transactions.

We previously granted SOQUEM an option to purchase a 20% undivided interest in
the Lac Dore project if SOQUEM. 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 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. From
December 1, 2002 to December 1, 2004, we have incurred legal fees and expenses
with such firm of approximately $229,000.  Donald C. Harms, one of our
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 of 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.  We
intend to hire Donald C. Harms as our general counsel prior to April 2005
pursuant to a proposed three-year contract under which he will receive an annual
base salary of $175,000.  The other terms of the contract will be substantially
the same as those of the contracts with our three executive officers.  Upon Mr.
Harms' employment, he will also receive an option for the purchase of 150,000
shares similar to the option granted to Mr. Bakeman in December 2004 as
described above.  The per share  exercise price of Mr. Harms' option will be the
market value of our shares on the day that Mr. Harms' employment begins.

On April 29, 2004, companies which are affiliates of John Popp exercised
previously issued options for the purchase of 158,100 shares of our common stock
at $2.00 per share.

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

    o	Any of our directors or executive officers;

    o	Any nominee for election as a director;

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

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

<page>61

Item 13.  	Exhibits, List 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 incorporated herein by
	reference.

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

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

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 incorporated herein by reference.  Previously filed as an
	exhibit to our Quarterly Report on Form 10-QSB for the quarterly period
	year ended June 30, 2004 and incorporated herein by reference.

4.6	Promissory Note and Warrant issued on August 13, 2004, letter of August
	16, 2004 amending certain terms and "Debenture" setting forth certain
	terms. Previously filed as an exhibit to our Quarterly Report on Form
	10-QSB for the quarterly period ended June 30, 2004 and incorporated
	herein by reference.

<page>62

4.7	Promissory Note and Warrant issued on September 7, 2004 and "Debenture"
	setting forth certain terms.  Previously filed as an exhibit to our
	Quarterly Report on Form 10-QSB for the quarterly period ended June 30,
	2004 and incorporated herein 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 incorporated herein 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 incorporated herein 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 incorporated herein 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 incorporated herein 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 incorporated herein 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 incorporated herein
	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>63

10.9	Agreement dated April 17, 2003 between McKenzie Bay Resources Ltd. and
	SOQUEM Inc. terminating prior agreements.  Previously filed as an
	exhibit to our Annual Report on Form 10-KSB for the fiscal year ended
	September 30, 2003 and incorporated herein by reference.

10.10   Employment Agreement dated March 21, 2003 between Gary L. Westerholm and
	McKenzie Bay International, Ltd.  Previously filed as an exhibit to our
	Annual Report on Form 10-KSB for the fiscal year ended September 30,
	2003 and incorporated herein by reference.

10.11	Employment Agreement dated March 21, 2003 between Gregory N. Bakeman and
	McKenzie Bay International, Ltd.  Previously filed as an exhibit to our
	Annual Report on Form 10-KSB for the fiscal year ended September 30,
	2003 and incorporated herein by reference.

10.12	Employment Agreement dated March 21, 2003 between John W. Sawarin and
	McKenzie Bay International, Ltd.  Previously filed as an exhibit to our
	Annual Report on Form 10-KSB for the fiscal year ended September 30,
	2003 and incorporated herein by reference.

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.  Previously filed as an exhibit to our Annual Report
	on Form 10- KSB for the fiscal year ended September 30, 2003 and
	incorporated herein by reference.

10.14	Agreement of August 19, 2003 between McKenzie Bay International, Ltd.
	Resources, Inc. and Yes International Inc.  Previously filed as an
	exhibit to our Annual Report on Form 10-KSB for the fiscal year ended
	September 30, 2003 and incorporated herein by reference.

10.15	Standby Equity Distribution Agreement as of April 6, 2004 between
	Cornell Capital Partners, LP and McKenzie Bay International, Ltd.
	Previously filed as an exhibit to our Annual Report on Form 10-KSB for
	the fiscal year ended September 30, 2003 and incorporated herein by
	reference.

10.16	Registration Rights Agreement as of April 6, 2004 between Cornell
	Capital Partners, LP and McKenzie Bay International, Ltd. Previously
	filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal
	year ended September 30, 2003 and incorporated herein by reference.

10.17	Placement Agent Agreement as of April 6, 2004 between McKenzie Bay
	International, Ltd. and Spencer Clarke LLC.  Previously filed as an
	exhibit to our Annual Report on Form 10-KSB for the fiscal year ended
	September 30, 2003 and incorporated herein by reference.

<page>64

10.18	Escrow Agreement as of April 6, 2004 between McKenzie Bay International,
	Ltd., and Butler Gonzalez LLP.  Previously filed as an exhibit to our
	Annual Report on Form 10-KSB for the fiscal year ended September 30,
	2003 and incorporated herein by reference.

10.19	Agreement of June 2004 between Dermond Inc. and Universite du Quebec en
	Abitibi-Temiscamingue. Previously filed as an exhibit to Amendment No. 1
	to this registration statement and incorporated herein by reference

10.20	Promissory Note of January 10, 2005 payable to Cornell Capital Partners,
        LP. ++

10.21	Consulting Services Agreement of January 10, 2005 between McKenzie Bay
        International, Ltd. And Stone Street Advisors, LLC. ++

14.1	Code of Ethics.  Previously filed as an exhibit to our Annual Report on
	Form 10-KSB for the fiscal year ended September 30, 2003, and
	incorporated herein by reference.

16.1	Letter of February 21, 2003 from KPMG LLP.  Previously filed as an
	exhibit to our Current Report on Form 8-K dated February 17, 2003 and
	incorporated herein by reference.

16.2	Letter of August 18, 2004 from Deloitte & Touche LLP.  Previously filed
	as an exhibit to our Current Report on Form 8-K dated August 18, 2004
	and incorporated herein by reference.

21.1	Subsidiaries.  Previously filed as an exhibit to our Annual Report on
	Form 10-KSB for the fiscal year ended September 30, 2003 and
	incorporated herein by reference.

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

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

<page>65

(b)	Reports on Form 8-K

We filed the following Current Reports on Form 8-K during the quarter ended
September 30, 2004:

Date of Report	Item(s) Reported
--------------  ----------------
August 18, 2004	   4 and 7
August 20, 2004  	5
August 25, 2004	     8.01
November 1, 2001     8.01

Item 14.	Principal Accountant Fee and Services.

Audit Fees

The aggregate fees billed for our fiscal years ended September 30, 2004 and
September 30, 2003 for professional services rendered by the principal
accountants for the audit of our annual financial statements and review of
financial statements included in our Forms 10-QSB for services that are normally
provided by the accountants in connection with statutory and regulatory filings
or engagements for those fiscal years were $288,577 and $138,388, respectively.

Audit-Related Fees

No fees were billed in either of our fiscal years ended September 30, 2004 and
September 30, 2003 for assurance and related services by the principal
accountants that were reasonably related to the performance of the audit or
review of our financial statements and are not reported under the caption "Audit
Fees" above.

Tax Fees

The aggregate fees billed in each of in each of our fiscal years ended September
30, 2004 and September 30, 2003 for professional services rendered by the
principal accountants for tax compliance, tax advice, and tax planning were
$10,387 and $54,173, respectively. The nature of the services comprising those
fees were tax return preparation and preparation of previous period refund
claims.

All Other Fees

No fees were billed in either of our fiscal years ended September 30, 2004 and
September 30, 2003 for products and services provided by the principal
accountants, other than the services reported above in this Item 14.

<page>66

Audit Committee Administration of Engagement of Principal Accountants

Before we or any of our subsidiaries engage accountants to render audit or non-
audit services, the engagement must be (a) approved by our audit committee or
(b) the engagement to render the service is entered into pursuant to pre-
approval policies and procedures established by the audit committee, provided
the policies and procedures are detailed as to the particular service and the
audit committee is informed of each service and such policies and procedures do
not include delegation of the audit committee's responsibilities under the
Securities Exchange Act of 1934 to management or (c) with respect to the
provision of services other than audit, review or attest services the pre-
approval requirement is waived if (i)the aggregate amount of all such services
provided constitutes no more than five percent of the total amount of revenues
paid by the us to our accountants during the fiscal year in which the services
are provided; (ii) such services were not recognized by us at the time of the
engagement to be non-audit services; and (iii) such services are promptly
brought to the attention of the audit committee and approved prior to the
completion of the audit by the audit committee or by one or more members of the
audit committee who are members of the board of directors to whom authority to
grant such approvals has been delegated by the audit committee.

The policies and procedures utilized by the audit committee in connection with
the engagement of accountants consist of matters concerning the relationship
between us and our outside auditors, including recommending their appointment or
removal; reviewing the scope of their audit services and related fees, as well
as any other services being provided to the Company; and determining whether the
outside auditors are independent (based in part on the annual letter provided to
us pursuant to independence Standards Board Standard No. 1.


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:  January 13, 2005

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.

MCKENZIE BAY INTERNATIONAL, LTD.

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

<page>67

In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.

Signature                     Title                         Date


/s/Gary L. Westerholm
_____________________
Gary L. Westerholm       President, Chief Executive
                         Officer and Director           January 13, 2004
                         (Principal Executive Officer)

/s/Gregory N. Bakeman
_____________________
Gregory N. Bakeman       Treasurer, Chief Financial
                         Officer and Director
                         (Principal Financial
                         and Accounting Officer)        January 13, 2004


/s/John DiMora
______________
John DiMora                    Director                 January 13, 2004


/s/ Doris F. Galvin
__________________
Doris F. Galvin                Director                 January 13, 2004


/s/Donald C. Harms
__________________
Donald C. Harms                Director                 January 13, 2004


/s/Rocco J. Martino
___________________
Rocco J. Martino               Director                 January 13, 2004



_______________________
Stephen D. McCormick           Director


/s/John Popp
____________
John Popp                      Director                 January 13, 2004



__________________
John W. Sawarin                Director

<page>68