---



























|                                                                           | Contents                                  
|-------------------------------------------------------------------------- | ------------------------------------------
|Report of Independent Registered Public Accounting Firm                    | 2                                         
|Comments by Auditors for U.S. Readers on Canada-U.S. Reporting Differences | 3                                         
|Consolidated Financial Statements                                          |                                           
|                                                                           | Balance Sheets                            
|                                                                           | Statements of Operations and Deficit      
|                                                                           | Statements of Cash Flows                  
|                                                                           | Summary of Significant Accounting Policies
|                                                                           | Notes to the Financial Statements         

















---





Report of Independent Registered Public Accounting Firm







To The Shareholders of
Cusac Gold Mines Ltd.





We have audited the Consolidated Balance Sheets of Cusac Gold Mines Ltd. as at December 31, 2004 and 2003 and the Consolidated Statements of Operations and Deficit and Cash Flows for each of the years in the three-year period ended December 31, 2004.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with Canadian generally accepted auditing standards and with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatements.  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.



In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2004 and 2003 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2004 in accordance with Canadian generally accepted accounting principles.

/s/ BDO Dunwoody

Chartered Accountants



Vancouver, Canada
March 3, 2005 (except for Note 15, March 10, 2006)



2



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Comments by Auditors for U.S. Readers







The reporting standards of the Public Company Accounting Oversight Board (United States) ("PCAOB") for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by conditions and events that cast substantial doubt on the Company's ability to continue as a going concern, such as those described in the Summary of Significant Accounting Policies to the consolidated financial statements. PCAOB reporting standards also require the addition of an explanatory paragraph (following the opinion paragraph) when changes in an accounting policy, such as those involving 2002 and 2004 stock-based compensation, 2004 flow through shares and 2004 asset retirement obligations described in the Summary of Significant Accounting Policies, have a material effect on the consolidated financial statements.  Furthermore, the standards of PCAOB require the addition of an explanatory paragraph when financial statements disclosures are restated, such as those described in Note 15, which have a material effect on the financial statements. Our report to the shareholders dated March 3, 2005 (except for Note 15, March 10, 2006) is expressed in accordance with Canadian reporting standards which do not permit a reference to such events and conditions in the auditors' report when these are adequately disclosed in the financial statements.

/s/ BDO Dunwoody





Vancouver, Canada
March 3, 2005 (except for Note 15, March 10, 2006)



3







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Cusac Gold Mines Ltd.



|December 31                                    |  | 2004                | 2003               
|---------------------------------------------- |  | ------------------- | -------------------
|                                               |  |                     | (Restated) *       
|Assets                                         |  |                     |                    
|                                               |  |                     |                    
|Current                                        |  |                     |                    
|Cash and cash equivalents                      |  | $               375 | $          81,193  
|Receivables                                    |  | 15,836              | 7,362              
|Prepaid expenses                               |  | 10,717              | 19,922             
|Flow-through share proceeds (Note 9)           |  | 649,148             | 1,050,000          
|                                               |  |                     |                    
|                                               |  | 676,076             | 1,158,477          
|                                               |  |                     |                    
|Long-term investments and advances (Note 2)    |  | 408,877             | 498,786            
|Property, plant and equipment (Note 3)         |  | 78,298              | 102,140            
|Resource properties (Note 4)                   |  | 2,211,569           | 2,211,569          
|                                               |  |                     |                    
|                                               |  | $    3,374,820      | $      3,970,972   
|                                               |  |                     |                    
|Liabilities and Shareholders' Equity           |  |                     |                    
|                                               |  |                     |                    
|Liabilities                                    |  |                     |                    
|                                               |  |                     |                    
|Current                                        |  |                     |                    
|Bank indebtedness (Note 5)                     |  | $       307,516     | $             2,228
|Accounts payable and accrued liabilities       |  | 642,464             | 520,192            
|Loans from related parties (Note 6)            |  | 11,925              | -                  
|                                               |  |                     |                    
|                                               |  | 961,905             | 522,420            
|                                               |  |                     |                    
|Asset Retirement Obligations (Note 12)         |  | 342,288             | 327,548            
|                                               |  |                     |                    
|Shareholders' Equity                           |  |                     |                    
|Share capital (Note 7)                         |  |                     |                    
|Authorized                                     |  |                     |                    
|5,000,000 	preference shares, no par value     |  |                     |                    
|100,000,000 common shares, no par value issued |  |                     |                    
|                                               |  |                     |                    
|43,331,712 (2003 - 39,400,981) common shares   |  | 20,038,558          | 19,404,606         
|Contributed surplus (Note 8)                   |  | 998,192             | 990,292            
|Deficit                                        |  | (18,966,123)        | (17,273,894)       
|                                               |  |                     |                    
|                                               |  | 2,070,627           | 3,121,004          
|                                               |  |                     |                    
|                                               |  | $    3,374,820      | $      3,970,972   
|                                               |  |                     |                    

*See Note 8

Approved by the Board:



/s/ Guildford H. Brett



The accompanying summary of significant accounting policies and notes are an integral part of these consolidated financial statements.

4



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Cusac Gold Mines Ltd.



|For the years ended December 31                      | 2004                 | 2003                 | 2002               
|---------------------------------------------------- | -------------------- | -------------------- | -------------------
|                                                     |                      | (Restated)*          | (Restated)*        
|Expenses                                             |                      |                      |                    
|Administration including stock based compensation of |                      |                      |                    
|$7,900 (2003 - $628,625; 2002 - $361,667)            | $      661,147       | $      991,710       | $       813,229    
|Amortization of property, plant and equipment        | 42,251               | 42,103               | 4,066              
|Resource property acquisition                        | -                    | -                    | 8,000              
|Resource property exploration                        | 1,120,152            | 446,176              | 330,668            
|                                                     |                      |                      |                    
|Loss from operations                                 | (1,823,550)          | (1,479,989)          | (1,155,963)        
|                                                     |                      |                      |                    
|Other income (expenses)                              |                      |                      |                    
|Loss on sale of investments                          | -                    | -                    | (7,427)            
|Gain on equipment disposal                           | -                    | 12,662               | 1,605              
|Interest                                             | 10,167               | 2,206                | 3,938              
|Investment write-down (Note 2)                       | (135,310)            | -                    | (35,000)           
|                                                     |                      |                      |                    
|                                                     | (125,143)            | 14,868               | (36,884)           
|                                                     |                      |                      |                    
|Loss before income taxes                             | (1,948,693)          | (1,465,121)          | (1,192,847)        
|                                                     |                      |                      |                    
|Future income tax recovery(Note 9)                   | 256,464              | -                    | -                  
|                                                     |                      |                      |                    
|Net loss for the year                                | (1,692,229)          | (1,465,121)          | (1,192,847)        
|                                                     |                      |                      |                    
|Deficit,beginning of year                            | (17,273,894)         | (15,808,773)         | (14,615,926)       
|                                                     |                      |                      |                    
|Deficit, end of year                                 | $  (18,966,123)      | $  (17,273,894)      | $ (15,808,773)     
|                                                     |                      |                      |                    
|Loss per share - basic and diluted                   | $             (0.04) | $             (0.04) | $            (0.04)
|                                                     |                      |                      |                    
|Weighted average shares outstanding                  | 40,088,695           | 34,506,123           | 29,273,211         
|                                                     |                      |                      |                    



*See Note 8

























The accompanying summary of significant accounting policies and notes are an integral part of these consolidated financial statements.

5



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Cusac Gold Mines Ltd.



|For the years ended December 31                                                                                         | 2004                        | 2003                     | 2002                       
|----------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------------------------ | ---------------------------
|                                                                                                                        | (Restated)(1)               | (Restated) (1), (2)      | (Restated) (2)             
|Cash provided by (used in)                                                                                              |                             |                          |                            
|Operating activities                                                                                                    |                             |                          |                            
|Net loss for the year                                                                                                   | $      (1,692,229)          | $      (1,465,121)       | $      (1,192,847)         
|Items not involving cash                                                                                                |                             |                          |                            
|Acquisition of resource property interests for shares                                                                   | -                           | -                        | 8,000                      
|Accretion expense                                                                                                       | 14,740                      | 14,105                   | 13,498                     
|Amortization of property, plant and equipment                                                                           | 42,251                      | 42,103                   | 4,066                      
|Investment and advances write-down                                                                                      | 135,310                     | -                        | 35,000                     
|Future income tax recovery                                                                                              | (256,464)                   | -                        | -                          
|Gain on equipment disposal                                                                                              | -                           | (12,662)                 | (1,605)                    
|Loss on sale of investments                                                                                             | -                           | -                        | 7,427                      
|Stock-based compensation                                                                                                | 7,900                       | 628,625                  | 361,667                    
|Net change in                                                                                                           |                             |                          |                            
|Receivables                                                                                                             | (8,474)                     | 10,685                   | (14,249)                   
|Prepaid expenses                                                                                                        | 9,205                       | (12,557)                 | (6,289)                    
|Accounts payable and accrued liabilities                                                                                | 122,272                     | 5,573                    | 59,561                     
|                                                                                                                        | (1,625,489)                 | (789,249)                | (725,771)                  
|Financing activities                                                                                                    |                             |                          |                            
|Proceeds from (repayment of) related party loans                                                                        | 11,925                      | (6,246)                  | (47,317)                   
|Proceeds from flow through shares, net of share
       issuance costs                                                   | 680,666                     | 931,085                  | -                          
|Share capital and subscriptions received, net                                                                           | -                           | 338,332                  | 628,868                    
|Proceeds received from exercise of stock options                                                                        | 5,000                       | 485,368                  | 450,300                    
|Proceeds received from exercise of warrants                                                                             | 204,750                     | 194,905                  | 78,500                     
|Increase in (repayment of) bank overdraft                                                                               | 305,288                     | -                        | (7,007)                    
|                                                                                                                        | 1,207,629                   | 1,943,444                | 1,103,344                  
|Investing activities                                                                                                    |                             |                          |                            
|Acquisition of property, plant and equipment                                                                            | (18,409)                    | (126,124)                | (12,198)                   
|Proceeds on equipment disposal                                                                                          | -                           | 12,662                   | 1,605                      
|Advances to affiliated companies                                                                                        | (45,401)                    | (135,243)                | (192,335)                  
|Investment in affiliated and other companies                                                                            | -                           | -                        | (81,835)                   
|Net proceeds on disposal of investments                                                                                 | -                           | -                        | 57,893                     
|Increase in restricted cash                                                                                             | (720,000)                   | (1,050,000)              | -                          
|Decrease in restricted cash                                                                                             | 1,120,852                   | 75,000                   | -                          
|                                                                                                                        | 337,042                     | (1,223,705)              | (226,870)                  
|                                                                                                                        |                             |                          |                            
|(Decrease) increase in cash and cash equivalents                                                                        | (80,818)                    | (69,510)                 | 150,703                    
|                                                                                                                        |                             |                          |                            
|Cash and cash equivalents, beginning of year                                                                            | 81,193                      | 150,703                  | -                          
|                                                                                                                        |                             |                          |                            
|Cash and cash equivalents, end of year                                                                                  | $                       375 | $              81,193    | $           150,703        
|                                                                                                                        |                             |                          |                            
|Supplementary information                                                                                               |                             |                          |                            
|Interest paid                                                                                                           | $           22,203          | $           19,090       | $             12,316       
|Income taxes paid                                                                                                       | $                     -     | $                      - | $                         -
|                                                                                                                       
|The following transactions did not result in cash flows and have been excluded from financing and investing activities:
|Acquisition of mineral property interests for shares                                                                    | $                     -     | $                      - | $               8,000      
|Stock-based compensation (Note 8)                                                                                       | $             7,900         | $          628,625       | $           361,667        
|Asset retirement obligations (Note 12)                                                                                  | $         342,288           | $         327,548        | $           313,443        
|Settlement of debt with shares and warrants (Note 7)                                                                    | $                     -     | $                 -      | $             45,500       
|Renouncement of future income tax recovery                                                                              | $         256,464           | $                     -  | $                       -  
|Shares received as settlement of advances receivable                                                                    | $                     -     | $         120,000        | $                         -

1. See Note 15
2. See Note 8

The accompanying summary of significant accounting policies and notes are an integral part of these consolidated financial statements.

6



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Cusac Gold Mines Ltd.



December 31, 2004 and 2003





|Ability to Continue as a
Going Concern | While the consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, the Table Mountain Mine, being in a care and maintenance mode, the occurrence of significant losses in recent years and the Company's deficit raise substantial doubt about the validity of this assumption.  If the going concern assumption were not appropriate for these consolidated financial statements, then adjustments would be necessary to the carrying value of assets and liabilities, the reported net loss and the balance sheet classifications used.
|-------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                       | The Company's continued existence as a going concern is dependent upon its ability to continue to obtain adequate financing arrangements and to achieve profitable operations.  Management's plans in this regard are to diversify its resource property holdings and obtain sufficient equity or debt financing to enable the Company to continue its efforts towards the exploration and development of new mineral properties and recommence producing gold at the Table Mountain Mine when economically feasible.                                                                                     
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                       | While the Company is expending its best efforts to achieve the above plans, there is no assurance that any such activity will generate sufficient funds for operations.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Principles of Accounting               | The Company follows Canadian generally accepted accounting principles as set out below.  Differences from United States accounting principles are disclosed in Note 13 to these financial statements.                                                                                                                                                                                                                                                                                                                                                                                                     
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                       | All figures are reported in Canadian dollars.  Exchange ratios between the United States and Canadian dollar for each of the periods reported in these financial statements, with bracketed figures reflecting the average exchange rate for the year are:                                                                                                                                                                                                                                                                                                                                                
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                       | December 31, 2004  US $1 : CDN $1.2021  CDN $(1.3016)
December 31, 2003  US $1 : CDN $1.2946  CDN $(1.4010)
December 31, 2002  US $1 : CDN $1.5769  CDN $(1.5702)                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Principles of Consolidation            | These consolidated financial statements include the accounts of Cusac Gold Mines Ltd. and its inactive, wholly-owned subsidiary Gulf Titanium Inc.  All inter-company balances have been eliminated.                                                                                                                                                                                                                                                                                                                                                                                                      
|                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Cash and Cash Equivalents              | The Company considers cash and cash equivalents to include amounts held in banks and highly liquid investments with maturities at point of purchase of three months or less.  The Company places its cash and cash investments with institutions of high-credit worthiness.  At times, such investments may be in excess of federal insurance limits.                                                                                                                                                                                                                                                     

7



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Cusac Gold Mines Ltd



December 31, 2004 and 2003





|Property, Plant and Equipment   | Property, plant and equipment are recorded at cost.  Amortization is recorded over the estimated useful life of the property, plant and equipment on the straight-line basis as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                | Mine plant and buildings
Mine equipment
Office equipment
Automotive equipment
Leasehold improvements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Resource Properties             | Exploration costs pertaining to individual resource prospects are charged to income as incurred except for expenditures on specific properties having indications of the presence of a mineral resource with the potential of being developed into a mine.  In this case, acquisition, exploration and development costs relating to mineral properties are deferred until such time as it is determined that the costs are not likely to be recouped or mineral properties are brought into production, abandoned, or sold, at which time they are amortized on the unit of production basis over the estimated life of the property or written off to earnings.  Revenue incidental to exploration and development activities, including the proceeds on sales of partial properties, is credited against the cost of related properties.  Properties that include certain abandoned claims are carried at cost unless only minimal exploration costs were incurred on abandoned claims, in which case the cost of acquisition is apportioned and an appropriate amount is written off.  Inactive properties are carried at cost unless there is an abandonment of the Company's interest, at which time the cost is written off.  Gains or losses on partial sales of properties are reflected in the Consolidated Statement of Operations and Deficit in the period of sale.
|                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                | Where the Company enters into an option agreement for the acquisition of an interest in mining properties which provides for periodic payments, such amounts unpaid are not recorded as a liability since they are payable entirely at the Company's option.  As at December 31, 2004, the Company had no material option agreements outstanding that it was pursuing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Impairment of Long-lived Assets | The Company periodically evaluates the future recoverability of its long-lived assets.  Impairment losses or write-downs are measured as the difference between the carrying amount and the fair value of the asset and are recorded in the event the net book value of such assets are determined to be not recoverable based on the estimated undiscounted future cash flows attributable to these assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

8



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Cusac Gold Mines Ltd



December 31, 2004 and 2003

|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|---------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Future Income Taxes                | Income taxes are accounted for by the liability method.  Under this method, income taxes reflect the deferral of such taxes to future years.  The deferral is a result of temporary differences which arise when certain costs, principally amortization and deferred exploration, are claimed for tax purposes in different time periods than the related amounts are amortized in the accounts.                                                                                                                                                                                                                                                                    
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Long-term Investments and
Advances | Long term investments which consist primarily of investments in public companies are recorded at cost less write-downs, when in management's opinion an other-than-temporary impairment in value has occurred.  Fair value of the investment in shares is determined based on market prices and the fair value of the advances approximates book value.                                                                                                                                                                                                                                                                                                              
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Estimates and 
Assumptions         | The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could materially differ from those estimates.  The assets which required management to make significant estimates and assumptions in determining carrying value include long-term investments, property, plant and equipment and resource properties.
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Loss Per Share                     | Basic loss per share is calculated by dividing the net loss available to common shareholders by the weighted average number of shares outstanding during the year.  Diluted earnings per share reflects the potential dilution of securities that could share in earnings of an entity.  In a loss year, potentially dilutive common shares are excluded from the loss per share calculation as the effect would be anti-dilutive.  Basic and diluted loss per share are the same for the years presented.                                                                                                                                                           
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                   | For the years ended December 31, 2004, 2003 and 2002, potentially dilutive common shares (relating to options and warrants outstanding at year end) totaling 8,600,654 (2003 - 6,924,500; 2002 - 4,735,625) were not included in the computation of loss per share because their effect was anti-dilutive.                                                                                                                                                                                                                                                                                                                                                           
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Financial Instruments              | Financial instruments include cash and cash equivalents, receivables,  flow-through share proceeds, long-term investments and advances, bank indebtedness, accounts payable and accrued liabilities and loans from related parties.  It is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.  Unless otherwise noted, fair values approximate carrying values for these financial instruments.                                                                                                                                                                        
|                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

9



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Cusac Gold Mines Ltd



December 31, 2004 and 2003

|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Stock-Based Compensation | Effective January 1, 2004, the Company has retroactively adopted the new recommendations of the Canadian Institute of Chartered Accountant ("CICA") Handbook Section 3870, "Stock-based compensation and other stock based payments", which now requires companies to adopt the fair value based method for all stock-based awards granted on or after January 1, 2002.  Previously the Company was only required to disclose the pro forma effect of stock options issued to employees and directors in the notes to the financial statements. The Company has retroactively applied this new accounting policy to prior years and restated the consolidated financial statements accordingly. The effect of the restatement was to increase the net loss for 2002 by $15,343 for options granted in 2002, to increase the net loss for 2003 by $8,025 for options granted in that year, and to increase the accumulated deficit as of December 31, 2003 by $23,368 (Note 8).
Contributed surplus was restated for the corresponding effect of these restatements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Flow Through Shares      | Prior to March 19, 2004, the Company provided certain share subscribers with a flow through component for tax incentives available on qualifying Canadian exploration and development expenditures. Where the Company had sufficient available tax loss carryforward balances or other deductible temporary differences to offset future tax liabilities arising from the renunciation of the tax benefits of the expenditures, no future tax asset or liability adjustments were reported and no allocation was made to share capital or deferred costs for the tax component renounced to subscribers.
Effective March 19, 2004, the Canadian Institute of Chartered Accountants issued additional guidance on the accounting treatment of Canadian flow-through shares through its Emerging Issues Committee Abstract ("EIC") No. 146. All flow-through shares issued by the Company on or after March 19, 2004 are accounted for in accordance with this Abstract. The Abstract recommends that upon renunciation to the shareholders, the Company will reduce share capital and recognize a temporary future income tax liability for the amount of tax reduction renounced to the shareholders. In instances where the Company has sufficient available tax loss carryforwards or other deductible temporary differences available to offset the renounced tax deduction, the realization of the deductible temporary differences will be credited to income in the period of renunciation.
Proceeds received from the issuance of flow-through shares are restricted to be used only for resource property exploration expenditures within a two-year period. The portion of the proceeds received but not yet expensed at the end of the Company's fiscal year was disclosed separately as Flow-through Share Proceeds on the Consolidated Balance Sheets. Amounts of proceeds received in prior periods that were expensed during the fiscal year were recorded as Resource Property Exploration Qualified as Flow-through Expenditure on the Consolidated Statements of Cash Flows.



10



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Cusac Gold Mines Ltd



December 31, 2004 and 2003





|Asset Retirement Obligations | Effective January 1, 2004, the Company has retroactively adopted CICA 3110, "Asset Retirement Obligations".  The Company retroactively recorded the fair value of an asset retirement obligation as a liability in the period in which it incurred a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the assets.  The obligation was measured initially at fair value using present value methodology, and the resulting costs capitalized into the carrying amount of the related asset. In subsequent periods, the liability will be adjusted for any changes in the amount or timing of the underlying future cash flows.  Capitalized asset retirement costs are depreciated on the same basis as the related asset and the discount accretion of the liability is included in determining the results of operations.
|---------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11



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Cusac Gold Mines Ltd.



December 31, 2004 and 2003











Cusac Gold Mines Ltd. (the "Company") is in the business of exploring, developing and mining resource properties.  As at December 31, 2004, the Company's principal asset, the Table Mountain Mine, was non-producing and in a care and maintenance mode.  The recoverability of amounts shown for resource properties is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financing to recommence producing gold at the Table Mountain Mine as well as future profitable production or proceeds from the disposition of such properties.



2.       Long-term Investments and Advances





|                                                                                                                | 2004          | 2003
|--------------------------------------------------------------------------------------------------------------- | ------------- | ----
|                                                                                                                | No. of shares |     
|Investments                                                                                                     |               |     
|Consolidated Pacific Bay Minerals Ltd.,7% interest in common shares (2003 - 8%)                                 | 875,667       | $   
|ClearFrame Solutions Inc. (formerly Knexa Solutions Inc., 4% interest in common shares (2003 - 5%) and warrants | 2,935,091     |     
|                                                                                                                |               |     
|                                                                                                                |               |     
|Advances                                                                                                        |               |     
|ClearFrame Solutions Inc.                                                                                       |               |     
|Consolidated Pacific Bay Minerals Ltd.                                                                          |               |     
|                                                                                                                |               |     
|                                                                                                                |               | $   



The advances except as discussed below, are unsecured, non-interest bearing and without specific terms of repayment.  Consolidated Pacific Bay Minerals Ltd. has common directors with the Company. ClearFrame Solutions Inc. ("ClearFrame") had common directors during the year but as a result of a restructuring, as at December 31, 2004, ClearFrame and the Company had no common directors.



In 2004, ClearFrame issued to the Company and put in trust 1,500,000 common shares as collateral against the $75,000 of advances owing to the Company.  The shares were to be returned to ClearFrame when the Company receives repayment of the $75,000 of advances. To that end, the Company then issued options to the management and directors of ClearFrame to allow the option holders to purchase these 1,500,000 ClearFrame shares at $0.05 per share for a period from July 6, 2004 to March 5, 2005. Subsequent to December 31, 2004, the option holders exercised their options to purchase the ClearFrame shares for gross proceeds of $75,000.



In 2003, Consolidated Pacific Bay Minerals Ltd. issued 500,000 (2002 - Nil) common shares and ClearFrame issued 700,000 (2002 - Nil) common shares to the Company as repayment of advances totaling $50,000 and $70,000, respectively.  The share valuations approximated the trading price of the issuing companies' common shares on the date agreements were entered into to settle the debts.



12



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Cusac Gold Mines Ltd.



December 31, 2004 and 2003



2.       Long-term Investments and Advances - Continued



Subsequent to December 31, 2004, two directors of the Company, Messrs David and Guilford Brett, loaned 750,000 shares of ClearFrame to the Company so that the Company would be in a better position to oppose ClearFrame's declared intention to consolidate its capital on a 20 for 1 basis, as management of the Company felt that this action would have a very adverse affect its investment in ClearFrame.  The transfer of the 750,000 shares of ClearFrame to the Company increased the Company's holdings to in excess of 10% of ClearFrame's outstanding shares, which provided the Company, under the BC Company Act, the right to nominate directors to ClearFrame board of directors, which the Company contemplated doing to protect its investment.  The loaned shares were to be returned to the aforementioned directors after the ClearFrame shareholder's meeting relating to the proposed consolidation of capital.   The loan was structured as unsecured, non-interest bearing and with no fixed terms of repayment.



Aggregate cost and market value information with respect to long-term investments as at December 31, 2004 and 2003 are summarized as follows:





|                                   | 2004                     | 2003                   
|---------------------------------- | ------------------------ | -----------------------
|                                   |                          |                        
|Aggregate cost, net of write-downs | $          166,833       | $    302,144           
|                                   |                          |                        
|Aggregate market value             | $          133,780       | $          238,131     
|                                   |                          |                        
|Gross unrealized losses            | $            33,053      | $            64,013    
|                                   |                          |                        
|Gross unrealized gains             | $                      - | $                     -



During 2004, 2003 and 2002, the Company wrote down the value of its long-term investments and advances as follows:





|                                       | 2004                     | 2003                     | 2002               
|-------------------------------------- | ------------------------ | ------------------------ | -------------------
|Investments                            |                          |                          |                    
|Consolidated Pacific Bay Minerals Ltd. | $                      - | $                      - | $            35,000
|ClearFrame Solutions Inc.              | 135,310                  | -                        | -                  
|                                       |                          |                          |                    
|                                       | $         135,310        | $                      - | $            35,000

During 2004, management believed it prudent to write down the value of its investment in ClearFrame Solutions Inc. by $135,310 as the market value of these securities had been trading in a range significantly below the Company's cost for over one year.  In light of this and management's understanding of ClearFrame's financial position, management was of the opinion that the decline in value of the investment was permanent.

13



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Cusac Gold Mines Ltd.



December 31, 2004 and 2003





3.       Property, Plant and Equipment





|                           | 2004                                                                | 2003                   
|-------------------------- | ------------------------------------------------------------------- | -----------------------
|                           | ___________________________________________________________________
|                           | Cost                                                                | Accumulated Amotization
|Automotive
  equipment     | $   152,686                                                         | $     144,196          
|Leasehold
  Improvements   | 2,128                                                               | 2,128                  
|Mine plant and
  buildings | 515,265                                                             | 515,265                
|Mine equipment             | 1,344,771                                                           | 1,286,611              
|Office equipment           | 78,337                                                              | 66,689                 
|                           | ___________________________________________________________________
|                           | $ 2,093,187                                                         | $2,014,889             
|                           | ___________________________________________________________________



4.       Resource Properties





|                                     | 2004            | 2003           
|------------------------------------ | --------------- | ---------------
|British Columbia, Canada             |                 |                
|                                     |                 |                
|Table Mountain Mine                  |                 |                
|Cost of claims                       | $       773,402 | $       773,402
|Deferred exploration and development | 7,105,167       | 7,105,167      
|                                     |                 |                
|                                     | 7,878,569       | 7,878,569      
|                                     |                 |                
|Less:  accumulated amortization      | (3,550,000)     | (3,550,000)    
|accumulated write-downs              | (2,117,000)     | (2,117,000)    
|                                     |                 |                
|                                     | $     2,211,569 | $     2,211,569
|                                     |                 |                

Table Mountain Mine



The Table Mountain Mine property (the "Property") is located in the Cassiar district of British Columbia.  The Property consists of 152 (2003 - 159) full and fractional mineral claims and Crown Grants, with hard rock claims covering an area of approximately 12,346 hectares (2003 - 16,468) or 47.5 square miles (2003 - 63.6 square miles). During 2004 and subsequent to year end, the Company reviewed its land holdings and found that many of its claims were overlapping, and as such adjusted its holdings so that the total land mass covered has decreased slightly using fewer mineral claims.  In management's opinion, the recalculation of the total land mass covered has no impact on the property's estimated reserves and resources and, accordingly, no related costs were written off.



Included in deferred development costs is $114,444 (2003 - $114,444) on deposit with regulatory authorities to ensure costs of environmental reclamation charges are provided for.



Commitments and Contingencies:

14



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Cusac Gold Mines Ltd.



December 31, 2004 and 2003



4.       Resource Properties - Continued



Certain historically non-producing claims carry obligations for the Company to pay net smelter return royalties of 21/2% and a 10% net profits interest on production from these claims.



There is a lien against the Table Mountain Mine property in connection with unpaid taxes. The Company has provided collateral for the lien in the form of a letter of credit as outlined in Note 5.



Other



On July 29, 2004, the Company entered into an agreement to purchase two mineral claims in the Laird       mining division of British Columbia (Wildcat Properties) for 30,000 common shares of the Company which were issued subsequent to December 31, 2004.



5.       Bank Indebtedness



In 2004, the Company arranged a $57,000 letter of credit facility and a $300,000 line of credit with a bank bearing interest at prime (3.75% at December 31, 2004) per annum which is collateralized by the Company's cash and cash equivalents and flow through share proceeds.



6.       Loans From Related Parties



Loans payable to directors bearing no interest, security or fixed terms of repayment amounted to $11,925 (2003 - $Nil).



7.       Share Capital



a)  Issued common shares



|                                                                                                                                                                | 2004       | 2003         | 2002      
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ------------ | ----------
|                                                                                                                                                                | Number     |              | Number    
|                                                                                                                                                                | of Shares  | Amount       | of Shares 
|Balance, beginning of year                                                                                                                                      | 39,404,981 | $ 19,406,206 | 32,634,356
|                                                                                                                                                                |            |              |           
|Issued during the year for:                                                                                                                                     |            |              |           
|                                                                                                                                                                |            |              |           
|Cash (net of cash share issue costs of $39,334 (2003 - $118,915; 2002 - Nil)  and renouncement of future income tax recovery of $256,464 (2003 and 2002 - Nil)) | 3,377,231  | 424,202      | 3,990,000 
|Settlement of debt 
 (Note 7(d))                                                                                                                                | -          | -            | -         
|Warrants exercised                                                                                                                                              | 533,500    | 204,750      | 1,055,625 
|Options exercised                                                                                                                                               | 20,000     | 5,000        | 1,725,000 
|Property                                                                                                                                                        | -          | -            | -         
|Subscriptions received                                                                                                                                          | -          | -            | -         
|                                                                                                                                                                | 43,335,712 | 20,040,158   | 39,404,981
|Subscriptions received                                                                                                                                          | -          | -            | -         
|Less:    investment in
       Company shares                                                                                                                    | (4,000)    | (1,600)      | (4,000)   
|Balance, end of year                                                                                                                                            | 43,331,712 | $ 20,038,558 | 39,400,981

15



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Cusac Gold Mines Ltd.



December 31, 2004 and 2003





7.            Share Capital - Continued



On November 2, 2004, the Company issued 200,000 flow-through units by way of a private placement for proceeds of $60,000.  Each unit consisted of one common share and one Series A warrant entitling the holder to purchase one common share at an exercise price of $0.35 until July 15, 2005. At the same time, 100,000 flow-through common shares were issued by way of private placement for proceeds of $32,000.



On November 10, 2004, the Company issued 869,231 flow-through units by way of a private placement for proceeds of $226,000.  Each unit consisted of one common share and one Series A warrant entitling the holder to purchase one common share at an exercise price of $0.31 for a one-year period.



On November 10, 2004, the Company also issued 76,923 Series B independent agent warrants entitling the holder to purchase one unit at an exercise price of $0.26 for a one-year period in connection with the above noted private placement.  Each unit consists of one non-flow-through common share and one Series A warrant entitling the holder to purchase one non-flow-through common share at an exercise price of $0.31 for a one-year period.



On December 30, 2004, the Company issued 300,000 flow-through units by way of a private placement for proceeds of $78,000.  Each unit consisted of one common share and one Series A warrant entitling the holder to purchase one non-flow through common share at an exercise price of $0.31 for a one-year period.



On December 30, 2004, the Company issued 1,800,000 flow-through units by way of a private placement for proceeds of $324,000.  Each unit consisted of one common share and one half Series A warrant entitling the holder to purchase one non-flow through common share at an exercise price of $0.20 for one whole warrant (two half warrants) for a one-year period. The company incurred $39,344 in issuance costs associated with the above private placement.



On December 30, 2004, the Company also issued 108,000 common shares as a finance fee to an independent agent in connection with the above noted private placement. These shares were valued based on the trading price of the common shares on the date of the agreement. At the agreement date the market value of these shares was approximately $19,500. Additionally the Company issued 150,000 Series B agent warrants entitling the holder to purchase one unit at an exercise price of $0.18. Each unit consists of one common share and one half Series A warrant entitling the holder to purchase one common share at an exercise price of $0.20 for one whole warrant (two half warrants) for a one-year period.



Subsequent to December 31, 2004 the Company issued 200,000 units by way of a private placement for gross proceeds of $32,000. Each unit consisted of one common share and one Series A warrant entitling the holder to purchase one common share at an exercise price of $0.20 for a one-year period.



In March 2003, the Company issued 400,000 units by way of a private placement for proceeds of $148,000.  Each unit consisted of one common share and one warrant entitling the holder to purchase one common share at an exercise price of $0.42 for a one-year period.



In April 2003, the Company issued 60,000 units by way of a private placement for proceeds of $27,000.  Each unit consisted of one common share and one warrant entitling the holder to purchase one common share at an exercise price of $0.50 for a one-year period.

16



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Cusac Gold Mines Ltd.



December 31, 2004 and 2003





7.         Share Capital - Continued



In December 2003, the Company issued 3,000,000 flow-through units and 430,000 non-flow-through units by way of a private placement for gross proceeds of $1,218,700.  Each unit consisted of one common share and one warrant entitling the holder to purchase one common share at an exercise price of $0.47 for an eighteen month period. The company incurred $118,915 in share issuance costs associated with the above private placements.



In December 2003, the Company also issued 100,000 non-flow-through shares as a finance fee to an agent in connection with the above-noted private placements.  These shares were valued based on the trading price of the common shares on the date of agreement.  At the agreement date the market value of these shares was approximately $35,000.  Additionally, the Company issued 514,500 agent warrants, with each warrant entitling the holder to purchase one non-flow-through common share at an exercise price of $0.47 for an eighteen month period.



In October 2002, the Company issued 1,500,000 units by way of a private placement for proceeds of $525,000.  Each unit consisted of one common share and one warrant entitling the holder to purchase one common share at an exercise price of $0.40 for a one-year period.



In June 2002, the Company issued 200,000 units by way of a private placement for proceeds of $30,000.  Each unit consisted of one common share and one warrant entitling the holder to purchase one common share at an exercise price of $0.15 in the first year and $0.20 in the second year.



In August 2002, the Company issued 950,000 units by way of a private placement for proceeds of $143,500.  Each unit consisted of one common share and one warrant entitling the holder to purchase one common share at an exercise price of $0.15 and $0.17 in the first year and $0.20 in the second year.



b)  Warrants



The following table summarizes the number of fully exercisable warrants transactions during 2004, 2003 and 2002:



|                           | Number      | Weighted Average Exercise price
|-------------------------- | ----------- | -------------------------------
|                           |             |                                
|Balance, January 1, 2002   | 385,625     | $0.25                          
|                           |             |                                
|Issued                     | 2,900,000   | $0.29                          
|                           |             |                                
|Exercised                  | (340,000)   | $0.23                          
|                           |             |                                
|Balance, December 31, 2002 | 2,945,625   | $0.29                          
|                           |             |                                
|Issued                     | 4,404,500   | $0.47                          
|                           |             |                                
|Exercised                  | (1,055,625) | $0.18                          
|                           |             |                                
|Expired                    | (1,500,000) | $0.40                          
|                           |             |                                
|Balance, December 31, 2003 | 4,794,500   | $0.44                          

17





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Cusac Gold Mines Ltd.



December 31, 2004 and 2003





7.         Share Capital - Continued





|                              |           |      
|----------------------------- | --------- | -----
|Issued: Series A warrants     | 2,269,231 | $0.27
|Series B warrants             | 226,923   | $0.21
|                              |           |      
|Exercised (Series A warrants) | (533,500) | $0.38
|                              |           |      
|Expired  (Series A warrants)  | (316,500) | $0.20
|                              |           |      
|Balance, December 31, 2004    | 6,440,654 | $0.39





A summary of the warrants outstanding at December 31, 2004 is as follows:





|Type     | Number    | Exercise Price |  | Expiry Date       | 
|-------- | --------- | -------------- |  | ----------------- | 
|         |           |                |  |                   | 
|Series A | 3,944,500 | $0.47          |  | June 30, 2005     | 
|Series A | 200,000   | $0.35          |  | July 15, 2005     | 
|Series A | 869,231   | $0.31          |  | November 10, 2005 | 
|Series A | 300,000   | $0.31          |  | December 30, 2005 | 
|Series A | 900,000   | $0.20          |  | December 30, 2005 | 
|Series B | 76,923    | $0.26          |  | November 10, 2005 | 
|Series B | 150,000   | $0.18          |  | December 30, 2005 | 
|         |           |                |  |                   | 
|         | 6,440,654 |                |  |                   | 



c)   Stock Options



The Company has a Stock Option Plan ("the Plan") for directors, officers and employees. The maximum number of Common Shares to be issued under the Plan is 5,000,000 provided that the Company can not have at any given time more than 20% of its issued shares under option.  The number of shares reserved for issuance at any one time to any one person shall not exceed 5% of the outstanding shares issued. Options granted must be exercised no later than ten years after the date of the grant or such lesser periods as regulations require.



The following table summarizes the number of fully-exercisable stock option transactions and the weighted average exercise prices thereof:

18



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Cusac Gold Mines Ltd.



December 31, 2004 and 2003





7.            Share Capital - Continued





|                                 | Number of options | Weighted Average Exercise Price | 
|-------------------------------- | ----------------- | ------------------------------- | 
|                                 |                   |                                 | 
|Outstanding at December 31, 2001 | 1,310,000         | $0.25                           | 
|Granted                          | 2,450,000         | 0.25                            | 
|Exercised                        | (1,970,000)       | 0.24                            | 
|                                 |                   |                                 | 
|Outstanding at December 31, 2002 | 1,790,000         | 0.27                            | 
|Granted                          | 2,340,000         | 0.36                            | 
|Cancelled/expired                | (275,000)         | 0.35                            | 
|Exercised                        | (1,725,000)       | 0.27                            | 
|Outstanding at December 31, 2003 | 2,130,000         | 0.36                            | 
|Granted                          | 50,000            | 0.37                            | 
|Exercised                        | (20,000)          | 0.25                            | 
|                                 |                   |                                 | 
|Outstanding at December 31, 2004 | 2,160,000         | $0.36                           | 



*   The weighted average fair value of options granted during 2004 was $0.16 (2003 - $0.27, 2002 - $0.15) based on the Black-Scholes option pricing model using weighted average assumptions, as described in Note 8.



A summary of the common share options exercisable and outstanding at December 31, 2004 is as follows:





| | Number    | Exercise Price | Expiry Date      
| | --------- | -------------- | -----------------
| | 110,000   | $0.25          | May 22, 2005     
| | 50,000    | $0.37          | May 27, 2006     
| | 1,180,000 | $0.36          | July 28, 2006    
| | 820,000   | $0.37          | November 14, 2006
| |           |                |                  
| | 2,160,000 |                |                  



d)   Settlement of Debt



During the year ended December 31, 2002, 250,000 shares (valued at $45,500 based upon the trading price of the common shares on the date of the agreement) and 250,000 fully exercisable warrants with exercise prices of $0.17 and $0.19 in the first year and $0.20 in the second year were issued as settlement for amounts due for consulting services owed to directors totaling $45,500 (Note 10). During the years ending December 31, 2002 and December 31, 2003, 200,000 warrants were exercised, and during the year ending December 31, 2004, 50,000 warrants expired unexercised.



8.       Stock-Based Compensation



a)     Prior to the accounting change in 2004, the Company accounted for all stock-based compensation issued on or after January 1, 2002 to non-employees using the fair value based method and recognized no compensation expense for stock-based awards to employees. The effect of retroactively applying the fair value based method of stock-based compensation to options granted employees rather than the previously noted intrinsic method was to increase the

19



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Cusac Gold Mines Ltd.



December 31, 2004 and 2003





8.      Stock-Based Compensation - Continued



net loss for 2002 by $15,343 for options granted in 2002, to increase the net loss for 2003 by $8,025 for options granted in that year, and to increase the accumulated deficit as of December 31, 2003 by $23,368. The consolidated financial statements for the years ended December 31, 2003 and 2002 have been restated to give effect to such change in accounting policy.



b)     On May 27, 2004 the Company granted 50,000 options for consulting services, with an exercise price of $0.37 and a term of two years. On July 28, 2003, the Company granted 760,000 stock options to directors for consulting services, 710,000 stock options to certain consultants and 30,000 options to an employee. All of these options have an exercise price of $0.36 and a term of three years.  On November 14, 2003, the Company granted 370,000 stock options to directors for consulting services and 470,000 stock options to consultants, with an exercise price of $0.37.



c)     On May 22, 2002, the Company granted 120,000 stock options to directors and 1,380,000 stock options to certain consultants.  All of these options had an exercise price of $0.25 and a term of three years.  On August 22, 2002 and September 9, 2002, the Company granted 500,000 stock options and 450,000 stock options, respectively, with an exercise price of $0.26 for three years to consultants. All options granted during the year vested immediately. Compensation expense is determined using the Black-Scholes option pricing model.



Weighted average assumptions used in calculating compensation expense in respect of options granted to consultants and employees were as follows:





|                                                       |    | 2004  | 2003           | 2002          
|------------------------------------------------------ | -- | ----- | -------------- | --------------
|Risk-free rate                                         |    | 3.02% | 2.99% to 3.54% | 3.21% to 3.40%
|Dividend yield                                         |    | Nil%  | Nil%           | Nil%          
|Volatility factor of the expected market price         |    |       |               
|of the Company's common shares                         |    | 109%  | 127%           | 146%          
|Weighted average expected life of the options (months) | 24 | 36    | 12            



For the year ended December 31, 2004, the compensation cost for stock options granted totaled $7,900 (2003 - $628,625, 2002 - $361,667) which was included in administrative expenses and credited to contributed surplus.



9.       Income Taxes



The tax effects of the temporary differences that give rise to the Company's future tax assets and liabilities are as follows:



|                                                  | 2004       | 2003      
|------------------------------------------------- | ---------- | ----------
|Net operating and capital losses                  | $2,286,000 | $3,695,000
|Property, plant and equipment                     | 355,000    | 340,000   
|Mineral properties and deferred exploration costs | 515,000    | 771,000   
|Investments                                       | 56,000     | 7,300     



20



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Cusac Gold Mines Ltd.



December 31, 2004 and 2003





9.         Income Taxes - Continued





|Asset retirement obligations    | 59,000             | 65,000           
|------------------------------- | ------------------ | -----------------
|Undeducted financing costs      | 44,000             | 44,000           
|Valuation allowance             | (3,315,000)        | (4,922,300)      
|Future tax assets (liabilities) | $                - | $               -

The tax benefit of net operating losses carried forward and the associated valuation allowance were reduced by $1,632,000 (2003 - $Nil), representing the tax effect of losses which expired in the year.



The provision for income taxes differs from the amount established using the statutory income tax rate for British Columbia resident corporations not eligible for the small business deduction as follows:







|                                                     | 2004                   | 2003            | 2002             
|---------------------------------------------------- | ---------------------- | --------------- | -----------------
|Provision (benefit) at Canadian
      statutory rate | $           (689,000)  | $(514,000)      | $(438,000)       
|Permanent differences                                | 700                    | 4,700           | 160,000          
|Non-deductible stock option compensation             | 2,600                  | 221,000         | 130,000          
|Effect of reduction in statutory rate                | -                      | 253,000         | 750,000          
|Non-deductible flow through costs                    | 399,000                | -               | -                
|Non-deductible accretion expense                     | 5,300                  | 5,000           | 5,000            
|Increase (decrease) in
   valuation allowance        | 24,936                 | 30,300          | (607,000)        
|Future income tax recovery                           | $            (256,464) | $             - | $               -





The Company's future tax assets include approximately $44,000 (2003 - $44,000) related to deductions for share issue costs in excess of amounts deducted for financial reporting purposes.  If and when the valuation allowance related to these amounts is reversed, the Company will recognize this benefit as an adjustment to share capital as opposed to income tax expense in the Statement of Operations.



The Company has approximately $------3,725,000 (2003 - $4,375,000) of undeducted exploration and development costs which are available for deduction against future income for Canadian tax purposes.  In addition, the Company has non-capital losses of approximately $3,710,000 (2003 - $7,667,000) expiring in various amounts from 2005 to 2014 and allowable capital losses of approximately $2,705,000 (2003 - $2,705,000) which are available to offset against future capital gains.



The Company evaluates its valuation allowance requirements based on projected future operations.  When circumstances change and this causes a change in management's judgment about the recoverability of future tax assets, the impact of the change on the valuation allowance is reflected in current income.



During 2004, the Company renounced $720,000 (2003 - $1,050,000) of expenditures and recorded a future income tax recovery of $256,464 (2003 - Nil) in accordance with the accounting treatment of Canadian flow-through shares (EIC-146). The Company has a commitment to spend $649,148 (2003 - $1,050,000) on Canadian exploration expenditures prior to December 31, 2005.

21





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Cusac Gold Mines Ltd.



December 31, 2004 and 2003





10.     Related Party Transactions



Related party transactions not disclosed elsewhere in these financial statements include:



1. Remuneration paid or payable to directors and officers of the Company in 2004 amounted to $167,000 (2003 - $171,650; 2002 - $184,000).  As at December 31, 2004, $71,795 (2003 - $98,100) is included in accounts payable to a director for remuneration.  During 2002 $45,500 (2004 and 2003 - $Nil) in consulting fees were settled through the issuance of shares and warrants (Note 7(d)).
2. During 2004, the Company received $39,000 (2003 - $60,000; 2002 - $59,922) for rent and administrative services provided to companies with common directors.  These amounts are recorded as a reduction of administration expenses.
3. During 2004, a company controlled by the Company's President charged the Company $6,000 (2003 and 2002 - Nil) for web hosting services and Knowledge Management software licenses.



The above-noted transactions were in the normal course of business and were measured at the exchange value which was the amount of consideration established and agreed to by the related parties.



11.     Commitments



The Company is obligated to pay $7,500 per month in compensation to its president.



12.     Asset Retirement Obligations



The Company, in 2004 estimated its asset retirement obligations based on its understanding of the requirements to reclaim, decommission and clean up its Table Mountain Mine site.  The estimated costs have been reduced by estimated salvage value recoveries.  The Company estimated that annual payments of approximately $50,000 for a period of 10 years for a total of approximately $500,000 commencing immediately would be required to complete the retirement obligations.  In recording the estimated initial present value of the obligations, a discount factor of 4.5% (the credit-adjusted risk-free rate) was used.  The majority of the Company's retirement obligations related to the Table Mountain Mine were incurred when the Company initially commenced production in 1993, accordingly, amortization of the discount has been retroactively recalculated from 1993.  The asset portion of the retirement obligations was retroactively written off in 1997, the same time that the Company earlier recorded an impairment reserve on the Table Mountain Mine.



The effect of the retroactive restatement was to increase the net loss for 2003 and 2002 by $14,105 and $13,498, respectively, to increase the accumulated deficit as of January 1, 2002 by $299,945 and to increase liabilities and accumulated deficit at December 31, 2003 by $327,548.  As at December 31, 2004, the asset retirement liabilities accrued are $342,288.



The asset requirement obligation accrual required management to make significant estimates and assumptions.  Actual results could materially differ from these estimates.

22



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Cusac Gold Mines Ltd.



December 31, 2004 and 2003







13.	Differences Between Canadian and United States Generally Accepted Accounting Principles



As discussed in the Summary of Significant Accounting Policies, these consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles.



Differences in Canadian and United States accounting principles as they pertain to these financial statements are summarized as follows:



a)   Accounting for Unrealized Losses on Long-term Investments



Canadian generally accepted accounting principles ("Canadian GAAP") require long term investments to be recorded at cost and written down to reflect permanent impairments in value.  Writedowns are recorded in the Statement of Operations.  United States generally accepted accounting principles ("US GAAP") would require the Company's long-term investments (available-for-sale securities) to be recorded at fair value in accordance with Statement of Financial Accounting Standard ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities".  Unrealized gains and losses are recorded as other comprehensive income which is a separate component of shareholders' equity, except for declines in fair value that are determined to be other than temporary. These declines in value are charged to the Statement of Operations.  The gross unrealized losses described in Note 2 are, in management's opinion, temporary.



Writedowns recorded under Canadian GAAP reflect those that are believed to be permanent in nature.



b)    Settlement of debt



Under Canadian GAAP, no value was assigned to the 250,000 fully exercisable warrants granted to directors in connection with the issuance of 250,000 shares for the settlement of amounts due to directors for consulting services in 2002.



Under US GAAP, the warrants were valued on the date of the settlement agreement at $17,288 using the Black-Scholes option pricing model with the following assumptions:





|                                                        |      | 2002  
|------------------------------------------------------- | ---- | ------
|Risk-free rate                                          |      | 0.001%
|Dividend yield                                          |      | Nil%  
|Volatility factor of the expected market price          |     
|of the Company's common shares                          | 146%
|Weighted average expected life of the warrants (months) | 12  



23



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Cusac Gold Mines Ltd.



December 31, 2004 and 2003





13.     Differences Between Canadian and United States Generally Accepted Accounting Principles - Continued



c)   Stock option compensation



Under Canadian GAAP, prior to the accounting change in 2004 the Company accounted for all stock-based compensation issued on or after January 1, 2002 to non-employees using the fair value based method and recognized no compensation expense for stock-based awards to employees. The effect of retroactively applying the fair value based method of stock-based compensation to options granted to employees and restating the consolidated financial statements rather than the previously noted intrinsic method was to increase the net loss for 2002 by $15,343 for options granted in 2002, to increase the net loss for 2003 by $8,025 for options granted in that year, and to increase the accumulated deficit as of December 31, 2003 by $23,368.



On December 16, 2004, the Financial Accounting Standards Board ("FASB") issued ("SFAS") No. 123 (revised 2004), "Share-Based Payment." SFAS No. 123(R) requires the Company to measure all employee stock-based compensation awards using a fair value method and record such expense in its consolidated financial statements. In addition, SFAS No. 123(R) requires additional accounting related to the income tax effects and additional disclosure regarding the cash flow effects resulting from share-based payment arrangements. For public entities that do not file as a small business issuer, SFAS No. 123(R) is effective for the first interim or annual reporting period beginning after June 15, 2005.



Effective January 1, 2004, the Company adopted the Canadian GAAP fair-value-based method for all stock-based awards granted on or after January 1, 2004 and retroactively applied this method and restated all prior period consolidated financial statements. The Company has also early adopted, using modified prospective method as allowed under US GAAP, SFAS No. 123(R).  Accordingly, there is no difference between the financial position, results of operations, and cash flows under Canadian GAAP and US GAAP arising from the accounting of stock-based compensation for periods beginning after January 1, 2004.



Prior to January 1, 2004, under US GAAP, the Company applied Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees", and related Interpretation No. 44 in accounting for all stock options granted to employees and directors for director services.  Under APB 25, compensation expense is only recognized for stock options granted with exercise prices below the market price of the underlying common shares on the date of grant.  Stock options that have been modified to reduce the exercise price are accounted for as variable.



Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation", requires the Company to record compensation to "non-employees" using the fair value based method prescribed therein similar to accounting principles in effect in Canadian GAAP for the years ended December 31, 2003 and 2002.



d)   Under Canadian income tax regulations, a company is permitted to issue shares whereby the company agrees to incur qualifying expenditures and renounce the related income tax deductions to the investors.  The Company has accounted for the issuance of flow-through shares using the deferral method in accordance with EIC No. 146 under Canadian GAAP. At the time of issue, the funds received are recorded as share capital and upon renunciation to the shareholders, the Company reduces share capital and records a temporary future income tax

24



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Cusac Gold Mines Ltd.



December 31, 2004 and 2003





13.     Differences Between Canadian and United States Generally Accepted Accounting Principles - Continued



liability for the amount of tax reduction renounced to the shareholders. In instances where the Company has sufficient available tax loss carryforwards or other deductible temporary differences available to offset the renounced tax deduction, the realization of the deductible temporary differences is credited to income in the period of renunciation. As at December 31, 2004, the Company renounced $720,000 in expenses and recorded, under Canadian GAAP,  an income tax recovery of $256,464.



For US GAAP, the proceeds of the sale of flow-through shares should be allocated between the offering of shares and the sale of tax benefits. The allocation is calculated based on the difference between the quoted market value of the Company's shares and the proceeds received and a liability is recognized for this difference.  The liability is reversed upon renunciation and a deferred tax liability is recognized. The difference between the liability recognized at the time of issuance and the deferred tax liability will be included as income tax expenses.  As the flow-through units were sold for proceeds equal to the quoted market value of the Company's common shares, no liability was recognized for the all periods presented.



Also under US GAAP, as the flow-through units, which consisted of one flow-through share and one warrant, were issued to the Company's President and certain directors, compensation expense of $50,199 based on the fair value of the warrants and the renounced tax benefit should be recognized in the Statement of Operations.  The fair value of the warrants was calculated using the Black-Scholes option pricing model with the following assumptions:  risk free rate - 2.51%; dividend yield - Nil%; expected volatility of 96%; and weighted average expected life of 1 year.



For the purposes of accounting under Canadian GAAP, the Company has presented activities for both restricted and unrestricted cash in the Consolidated Statement of Cash Flows as follows:  The Company reflects the proceeds received from flow-through shares net of issuance costs as a cash inflow from financing activities.  As the related flow-through proceeds are restricted for Canadian exploration activities, these proceeds are then reflected as a cash outflow and an increase in restricted cash under investing activities, even in periods that such cash is not expended.  When eligible exploration expenses are incurred, they are reflected as a cash inflow and a decrease in restricted cash under investing activities.  These cash inflows under the investing activities, which correspond to the decreases in restricted cash, effectively offset the actual cash outflows of the exploration expenses reported in the same period on a separate line under operating activities.



e)     The Company adopted CICA 3110, "Asset Retirement Obligations" under Canadian GAAP effective January 1, 2004.  For US GAAP, the Company adopted SFAS No. 143, "Accounting for Asset Retirement Obligations" as at January 1, 2003.  At that time, the Company estimated that the costs of the reclamation of the Table Mountain Mine site would be covered by the bonds held by the Company for such purposes.  As a result, no asset retirement liability was accrued as at December 31, 2003.  During 2004, the Company received additional information regarding the required reclamation, decommission and clean-up activities and increased their estimated costs by approximately $500,000.  This change in estimate resulted in the recognition of additional asset retirement obligations and a corresponding capitalization to the resource property as at December 31, 2004 under US GAAP of $342,288, being the discounted present value of the approximated reclamation costs.  At the end of the year, the Company evaluated the future recoverability of its resource property and wrote down the carrying amount of the resource property by the full amount of the additional asset retirement obligations of $342,288.



25



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Cusac Gold Mines Ltd.



December 31, 2004 and 2003





13.     Differences Between Canadian and United States Generally Accepted Accounting Principles - Continued



f)     US GAAP requires the Company to present comprehensive income (loss) in accordance with SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and display of comprehensive income (loss), its components and accumulated balances.  Comprehensive income comprises net income (loss) and all charges to shareholders' equity except those resulting from investments by owners and distributions to owners.



The impact of the above on the financial statements is as follows:





|                                                                     | 2004                   | 2003                      | 2002                   
|-------------------------------------------------------------------- | ---------------------- | ------------------------- | -----------------------
|                                                                     |                        | (Restated)*               | (Restated)*            
|                                                                     |                        |                           |                        
|Net loss per Canadian GAAP                                           | $          (1,692,229) | $         (1,465,121)     | $          (1,192,847) 
|Adjustments related to:                                              |                        |                           |                        
|Stock based compensation (c)                                         | -                      | 8,025                     | 15,343                 
|Loss on settlement of debt (b)                                       | -                      | -                         | (17,288)               
|Flow through shares (d)                                              | (256,464)              | -                         | -                      
|Compensation expense on warrants and
renouncement of tax benefit (d) | (50,199)               | -                         | -                      
|Asset retirement obligation (e)                                      | (342,288)              | -                         | -                      
|Accretion expense                                                    | 14,740                 | 14,105                    | 13,498                 
|                                                                     |                        |                           |                        
|Net loss per US GAAP                                                 | (2,326,440)            | (1,442,991)               | (1,181,294)            
|Unrealized gains (losses) on investments (a), (e)                    | 30,960                 | 14,414                    | (64,267)               
|                                                                     |                        |                           |                        
|Comprehensive loss per United States GAAP                            | $          (2,295,480) | $          (1,428,577)    | $         (1,245,561)  
|                                                                     |                        |                           |                        
|Loss per share per US GAAP
Basic and diluted                         | $ (0.06)               | $                  (0.04) | $                (0.04)
|                                                                     |                        |                           |                        
|Shareholders' equity per Canadian GAAP                               | $            2,070,627 | $            3,121,004    | $          2,007,810   
|Adjustment related to:                                               |                        |                           |                        
|Asset retirement obligation                                          | -                      | 327,548                   | 313,443                
|Accumulated comprehensive loss -
unrealized loss on investments (a)  | (33,053)               | (64,013)                  | (78,427)               
|                                                                     |                        |                           |                        
|Shareholders' equity per US GAAP                                     | $            2,037,574 | $            3,384,539    | $          2,242,826   
|                                                                     |                        |                           |                        

* See Note 8



There were no differences between the cash provided by and used in operating, financing and investing activities under Canadian and US GAAP.



26



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Cusac Gold Mines Ltd.



December 31, 2004 and 2003





13.     Differences Between Canadian and United States Generally Accepted Accounting Principles - Continued



g)    In January 2003, the FASB issued FIN No. 46 (which was amended in December 2003 to become FIN No. 46R), "Consolidation of Variable Interest Entities, an Interpretation of ARB 51".  The primary objectives of FIN No. 46R are to provide guidance on the identification of entities for which control is achieved through means other than voting rights (variable interest entities or "VIEs") and how to determine when and which business enterprise should consolidate the VIE.  This new model for consolidation applied to an entity for which either:  (1) the equity investors do not have a controlling financial interest; or (2) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties.  In addition, FIN 46R requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures.  As amended in December 2003, the effective dates of FIN No. 46R for all non-small business issuers are as follows:  (a) for interests in special-purpose entities:  periods ended after December 15, 2003; (b) for all other VIEs, no later than the first reporting period ended after March 15, 2004.



The implementation of this new standard did not have a material effect on the Company's financial statements.



In December 2004, FASB issued SFAS No. 153 to amend Opinion 29 by eliminating the exception for non-monetary exchanges of similar productive assets and replaces it with general exception for exchanges of non-monetary assets that do not have commercial substance.  A non-monetary exchange is defined to have commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange



The implementation of the not yet adopted standard is not expected to have a material effect on the Company's financial statements.



14.      Comparative Figures



Certain of the comparative figures have been reclassified to conform with the current year's presentation.





15.      Restatement



Subsequent to the issuance of the December 31, 2004 financial statements, management undertook a review of the presentation of the cash proceeds received from flow-through shares in the Consolidated Statement of Cash Flows and determined that these amounts would be more appropriately presented in expanded detail to provide better reconciliation between the Consolidated Statements of Cash Flows and Note 7, Share Capital.  As described in the Summary of Significant Accounting Policies, proceeds received from the issuance of flow-through shares are restricted to be used only for resource property exploration expenditures within a two-year period.  As such, the portion of the proceeds received but not yet expensed at the end of the Company's fiscal year was required to be disclosed separately from cash as Flow-through Share Proceeds on the Consolidated Balance Sheets. Given the restrictive nature of the proceeds from flow-through shares, the Company has concluded that the most appropriate presentation is to reflect the increase and decrease in restrictive  cash as cash flows in  investing  activities  and  the  proceeds

27



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Cusac Gold Mines Ltd.



December 31, 2004 and 2003





15.     Restatement - Continued



from the issuance of flow-through shares, net of share issuance cost as cash inflows from financing activities in the Consolidated Statement of Cash Flow.  Consequently, the Company has restated its Consolidated Statement of Cash Flows for the years ended December 31, 2004 and 2003 to reflect these changes.



The following tables give effect to the restatement adjustments on the Company's Consolidated Statement of Cash Flow as at December 31, 2004 and 2003:





|As at and for the year ended December 31, 2004                     
|-------------------------------------------------------------------
|                                                                   
|                                                                   
|Resource property exploration qualified as flow-through expenditure
|Total cash used in operating activities                            
|Share capital and subscriptions received, net                      
|Proceeds from flow-through shares, net of share issuance costs     
|Proceeds received from exercise of stock options                   
|Proceeds received from exercise of warrants                        
|Total cash provided by financing activities                        
|Increase in restricted cash                                        
|Decrease in restricted cash                                        
|Total cash provided by (used in) investing activities              



No changes were made to the Consolidated Balance Sheets, Statements of Operations and Deficit, and the basic and diluted loss per common share as part of the restatement.





28



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Cusac Gold Mines Ltd.



December 31, 2004 and 2003





15.     Restatement - Continued





|As at and for the year ended December 31, 2003                     
|-------------------------------------------------------------------
|                                                                   
|                                                                   
|Resource property exploration qualified as flow-through expenditure
|Total cash used in operating activities                            
|Share capital and subscriptions received, net                      
|Proceeds from flow-through shares, net of share issuance costs     
|Proceeds received from exercise of stock options                   
|Proceeds received from exercise of warrants                        
|Total cash provided by financing activities                        
|Increase in restricted cash                                        
|Decrease in restricted cash                                        
|Total cash used in investing activities                            



No changes were made to the Consolidated Balance Sheets, Statements of Operations and Deficit, and the basic and diluted loss per common share as part of the restatement.







29