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Cusac Gold Mines Ltd.Consolidated Financial StatementsDecember 31, 2005 and 2004 
  (Stated in Canadian Dollars)











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Cusac Gold Mines Ltd.Consolidated Financial StatementsDecember 31, 2005 and 2004 
  (Stated in Canadian Dollars)





|Contents
|--------

| | Independent Auditors Report                                                     | 2      
| | -------------------------------------------------------------------------------- | -------
| |                                                                                  |        
| | Comments by Auditors for U.S. Readers on Canada-U.S.
      Reporting Differences | 3      
| |                                                                                  |        
| | Consolidated
      Financial Statements                                          |        
| |                                                                                  |        
| | Balance Sheets                                                                   | 4      
| |                                                                                  |        
| | Statements of Operations and Deficit                                             | 5      
| |                                                                                  |        
| | Statements of Cash Flows                                                         | 6      
| |                                                                                  |        
| | Summary of Significant Accounting Policies                                       | 7  11 
| |                                                                                  |        
| | Notes to the Financial Statements                                                | 12  28

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|                      | BDO Dunwoody LLP              | 600 Cathedral Place     
|--------------------- | ----------------------------- | ------------------------
|Chartered Accountants | 925 West Georgia Street      
|                      | Vancouver, BC, Canada V6C 3L2
|                      | Telephone: (604) 688-5421    
|                      | Facsimile: (604) 688-5132    
|                      |                               | E-mail: vancouver@bdo.ca
|                      |                               | www.bdo.ca              





|                            
|----------------------------
|Independent Auditors Report
|                            

To The Shareholders of Cusac Gold Mines Ltd.

We have audited the Consolidated Balance Sheets of Cusac Gold
Mines Ltd. as at December 31, 2005 and 2004 and the Consolidated Statements of
Operations and Deficit and Cash Flows for each of the years in the three-year
period ended December 31, 2005. 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 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 misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.

In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the Company as at
December 31, 2005 and 2004 and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2005 in
accordance with Canadian generally accepted accounting principles.

On March 10, 2006, we reported separately to the Shareholders
of Cusac Gold Mines Ltd. on financial statements for the same period prepared in
accordance with Canadian generally accepted accounting principles, excluding
Note 14, Differences Between Canadian and United States Generally Accepted
Accounting Principles, included in the accompanying financial statements.

/s/ BDO Dunwoody LLP

Chartered Accountants

Vancouver, Canada March 10, 2006

2

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|                      | BDO Dunwoody LLP              | 600 Cathedral Place     
|--------------------- | ----------------------------- | ------------------------
|Chartered Accountants | 925 West Georgia Street      
|                      | Vancouver, BC, Canada V6C 3L2
|                      | Telephone: (604) 688-5421    
|                      | Facsimile: (604) 688-5132    
|                      |                               | E-mail: vancouver@bdo.ca
|                      |                               | www.bdo.ca              

|                                     
|-------------------------------------
|Comments by Auditors for U.S. Readers
|On Canada-U.S. Reporting Differences 
|                                     

The reporting standards of the Public Company Accounting
Oversight Board (United States) 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. Public Company Accounting Oversight Board (United States) reporting
standards also require the addition of an explanatory paragraph (following the
opinion paragraph) when changes in an accounting policy, such as those involving
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. Our
report to the shareholders dated 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 LLP

Chartered Accountants

Vancouver, Canada March 10, 2006

3

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|                            
|----------------------------
|Cusac Gold Mines Ltd.       
|Consolidated Balance Sheets 
|(Stated in Canadian Dollars)

|December 31                                        |   | 2005        |   |   | 2004        |  
|-------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                   |   |             |   |   |             |  
|Assets                                             |   |             |   |   |             |  
|                                                   |   |             |   |   |             |  
|Current                                            |   |             |   |   |             |  
|Cash                                               | $ | 1,010       |   | $ | 375         |  
|Receivables                                        |   | 24,178      |   |   | 15,836      |  
|Prepaid expenses                                   |   | 6,781       |   |   | 10,717      |  
|Flow-through share proceeds (Note 9)               |   | 507,119     |   |   | 649,148     |  
|                                                   |   |             |   |   |             |  
|                                                   |   | 539,088     |   |   | 676,076     |  
|                                                   |   |             |   |   |             |  
|Long-term investments and advances (Note
      2)  |   | 228,896     |   |   | 408,877     |  
|Property, plant and equipment (Note 3)             |   | 67,508      |   |   | 78,298      |  
|Resource properties (Note 4)                       |   | 2,211,569   |   |   | 2,211,569   |  
|                                                   |   |             |   |   |             |  
|                                                   | $ | 3,047,061   |   | $ | 3,374,820   |  
|                                                   |   |             |   |   |             |  
|Liabilities and Shareholders' Equity               |   |             |   |   |             |  
|                                                   |   |             |   |   |             |  
|Liabilities                                        |   |             |   |   |             |  
|                                                   |   |             |   |   |             |  
|Current                                            |   |             |   |   |             |  
|Bank indebtedness (Note 5)                         | $ | 290,556     |   | $ | 307,516     |  
|Accounts payable and accrued
      liabilities     |   | 549,539     |   |   | 642,464     |  
|Loans from related parties (Note 6)                |   | 19,361      |   |   | 11,925      |  
|                                                   |   |             |   |   |             |  
|                                                   |   | 859,456     |   |   | 961,905     |  
|                                                   |   |             |   |   |             |  
|Asset retirement obligations (Note 12)             |   | 609,324     |   |   | 342,288     |  
|                                                   |   |             |   |   |             |  
|                                                   |   | 1,468,780   |   |   | 1,304,193   |  
|                                                   |   |             |   |   |             |  
|Shareholders' equity                               |   |             |   |   |             |  
|Share capital (Note 7)                             |   |             |   |   |             |  
|Authorized                                         |   |             |   |   |             |  
|5,000,000 preference shares, no par value          |   |             |   |   |             |  
|100,000,000 common
      shares, no par value      |   |             |   |   |             |  
|Issued                                             |   |             |   |   |             |  
|51,300,133 (2004 
      43,335,712) common shares |   | 21,005,419  |   |   | 20,038,558  |  
|Contributed surplus (Note 8)                       |   | 1,101,292   |   |   | 998,192     |  
|Deficit                                            |   | (20,528,430 | ) |   | (18,966,123 | )
|                                                   |   |             |   |   |             |  
|                                                   |   | 1,578,281   |   |   | 2,070,627   |  
|                                                   |   |             |   |   |             |  
|                                                   | $ | 3,047,061   |   | $ | 3,374,820   |  

Approved by the Board:

|/s/ Guildford H.
      Brett | Director | /s/
      David H. Brett | Director
|---------------------------- | -------- | ------------------------ | --------

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.                            
|Consolidated Statements of Operations and Deficit
|(Stated in Canadian Dollars)                     

|For the years ended December 31                         |   | 2005        |   |   | 2004        |   |   | 2003        |  
|------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                                        |   |             |   |   |             |   |   |             |  
|Expenses                                                |   |             |   |   |             |   |   |             |  
|Administration including stock based
      compensation |   |             |   |   |             |   |   |             |  
|of
      $103,100 (2004 - $7,900; 2003 - $628,625)      | $ | 662,056     |   | $ | 661,147     |   | $ | 991,710     |  
|Amortization of property, plant and
      equipment     |   | 24,893      |   |   | 42,251      |   |   | 42,103      |  
|Resource property
      exploration                     |   | 949,945     |   |   | 1,120,152   |   |   | 446,176     |  
|                                                        |   |             |   |   |             |   |   |             |  
|Loss from operations                                    |   | (1,636,894  | ) |   | (1,823,550  | ) |   | (1,479,989  | )
|                                                        |   |             |   |   |             |   |   |             |  
|Other income (expenses)                                 |   |             |   |   |             |   |   |             |  
|Loss on sale of investments                             |   | (20,000     | ) |   | -           |   |   | -           |  
|Gain on equipment
      disposal                        |   | 2,180       |   |   | -           |   |   | 12,662      |  
|Interest                                                |   | 8,594       |   |   | 10,167      |   |   | 2,206       |  
|Investment write-down
      (Note 2)                    |   | (21,754     | ) |   | (135,310    | ) |   | -           |  
|                                                        |   |             |   |   |             |   |   |             |  
|                                                        |   | (30,980     | ) |   | (125,143    | ) |   | 14,868      |  
|                                                        |   |             |   |   |             |   |   |             |  
|Loss before income taxes                                |   | (1,667,874  | ) |   | (1,948,693  | ) |   | (1,465,121  | )
|                                                        |   |             |   |   |             |   |   |             |  
|Future income tax recovery(Note 9)                      |   | 105,567     |   |   | 256,464     |   |   | -           |  
|                                                        |   |             |   |   |             |   |   |             |  
|Net loss for the year                                   |   | (1,562,307  | ) |   | (1,692,229  | ) |   | (1,465,121  | )
|                                                        |   |             |   |   |             |   |   |             |  
|Deficit,beginning of
      year                         |   | (18,966,123 | ) |   | (17,273,894 | ) |   | (15,808,773 | )
|                                                        |   |             |   |   |             |   |   |             |  
|Deficit, end of year                                    | $ | (20,528,430 | ) | $ | (18,966,123 | ) | $ | (17,273,894 | )
|                                                        |   |             |   |   |             |   |   |             |  
|Loss per share  basic and diluted                      | $ | (0.03       | ) | $ | (0.04       | ) | $ | (0.04       | )
|                                                        |   |             |   |   |             |   |   |             |  
|Weighted average shares outstanding                     |   | 45,582,619  |   |   | 40,088,695  |   |   | 34,506,123  |  

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.                
|Consolidated Statements of Cash Flows
|(Stated in Canadian Dollars)         

|For the years ended December 31                                                                                               |   | 2005       |   |   | 2004       |   |   | 2003       |  
|----------------------------------------------------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                                                                                              |   |            |   |   |            |   |   |            |  
|Cash provided by (used in)                                                                                                    |   |            |   |   |            |   |   |            |  
|Operating activities                                                                                                          |   |            |   |   |            |   |   |            |  
|Net loss for the year                                                                                                         | $ | (1,562,307 | ) | $ | (1,692,229 | ) | $ | (1,465,121 | )
|Items not involving cash                                                                                                      |   |            |   |   |            |   |   |            |  
|Acquisition of
      resource property interests for shares                                                                   |   | 8,700      |   |   | -          |   |   | -          |  
|Accretion expense (Note 12)                                                                                                   |   | 15,403     |   |   | 14,740     |   |   | 14,105     |  
|Asset retirement
      costs (Note 12)                                                                                        |   | 251,633    |   |   | -          |   |   | -          |  
|Amortization of property, plant
      and equipment                                                                           |   | 24,893     |   |   | 42,251     |   |   | 42,103     |  
|Investment and
      advances write-down                                                                                      |   | 21,754     |   |   | 135,310    |   |   | -          |  
|Future income tax recovery                                                                                                    |   | (105,567   | ) |   | (256,464   | ) |   | -          |  
|Gain on
      equipment disposal                                                                                              |   | (2,180     | ) |   | -          |   |   | (12,662    | )
|Loss on sale of investments                                                                                                   |   | 20,000     |   |   | -          |   |   | -          |  
|Stock-based
      compensation                                                                                                |   | 103,100    |   |   | 7,900      |   |   | 628,625    |  
|Net change in                                                                                                                 |   |            |   |   |            |   |   |            |  
|Receivables                                                                                                                   |   | (8,342     | ) |   | (8,474     | ) |   | 10,685     |  
|Prepaid expenses                                                                                                              |   | 3,936      |   |   | 9,205      |   |   | (12,557    | )
|Accounts payable
      and accrued liabilities                                                                                |   | (92,925    | ) |   | 122,272    |   |   | 5,573      |  
|                                                                                                                              |   |            |   |   |            |   |   |            |  
|                                                                                                                              |   | (1,321,902 | ) |   | (1,625,489 | ) |   | (789,249   | )
|Financing activities                                                                                                          |   |            |   |   |            |   |   |            |  
|Proceeds from
      (repayment of) related party loans                                                                        |   | 7,436      |   |   | 11,925     |   |   | (6,246     | )
|Proceeds from flow-through shares, net
      of share                                                                         |   |            |   |   |            |   |   |            |  
|issuance
      costs                                                                                                          |   | 909,728    |   |   | 680,666    |   |   | 931,085    |  
|Share capital and subscriptions
      received, net                                                                           |   | 32,000     |   |   | -          |   |   | 338,332    |  
|Proceeds received from
      exercise of stock options                                                                        |   | 42,000     |   |   | 5,000      |   |   | 485,368    |  
|Proceeds received from exercise of
      warrants                                                                             |   | 80,000     |   |   | 204,750    |   |   | 194,905    |  
|(Repayment of) increase
      in bank overdraft                                                                               |   | (16,960    | ) |   | 305,288    |   |   | -          |  
|                                                                                                                              |   |            |   |   |            |   |   |            |  
|                                                                                                                              |   | 1,054,204  |   |   | 1,207,629  |   |   | 1,943,444  |  
|Investing activities                                                                                                          |   |            |   |   |            |   |   |            |  
|Acquisition of
      property, plant and equipment                                                                            |   | (18,054    | ) |   | (18,409    | ) |   | (126,124   | )
|Proceeds on equipment disposal                                                                                                |   | 6,130      |   |   | -          |   |   | 12,662     |  
|Repayment from
      (advances to) affiliated companies                                                                       |   | 156,228    |   |   | (45,401    | ) |   | (135,243   | )
|Investment in affiliated and other
      companies                                                                            |   | (48,000    | ) |   | -          |   |   | -          |  
|Net proceeds on
      disposal of investments                                                                                 |   | 30,000     |   |   | -          |   |   | -          |  
|Increase in restricted cash                                                                                                   |   | (923,850   | ) |   | (720,000   | ) |   | (1,050,000 | )
|Decrease in restricted
      cash                                                                                             |   | 1,065,879  |   |   | 1,120,852  |   |   | 75,000     |  
|                                                                                                                              |   |            |   |   |            |   |   |            |  
|                                                                                                                              |   | 268,333    |   |   | 337,042    |   |   | (1,223,705 | )
|                                                                                                                              |   |            |   |   |            |   |   |            |  
|Increase (decrease) in
      cash                                                                                             |   | 635        |   |   | (80,818    | ) |   | (69,510    | )
|Cash, beginning of year                                                                                                       |   | 375        |   |   | 81,193     |   |   | 150,703    |  
|Cash, end of year                                                                                                             | $ | 1,010      |   | $ | 375        |   | $ | 81,193     |  
|                                                                                                                              |   |            |   |   |            |   |   |            |  
|Supplementary information                                                                                                     |   |            |   |   |            |   |   |            |  
|Interest paid                                                                                                                 | $ | 42,351     |   | $ | 22,203     |   | $ | 19,090     |  
|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 for shares (Note 4)                                                                     | $ | 8,700      |   | $ | -          |   | $ | -          |  
|Stock-based compensation (Note 8)                                                                                             | $ | 103,100    |   | $ | 7,900      |   | $ | 628,625    |  
|Asset retirement obligations
      (Note 12)                                                                                  | $ | 251,633    |   | $ | 342,288    |   | $ | 327,548    |  
|Renouncement of future income tax recovery                                                                                    | $ | 105,567    |   | $ | 256,464    |   | $ | -          |  
|Shares received as settlement of advances receivable                                                                          | $ | -          |   | $ | -          |   | $ | 120,000    |  

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.                     
|Summary of Significant Accounting Policies
|(Stated in Canadian Dollars)              
|                                          
|December 31,
      2005 and 2004          

These consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles (Canadian
GAAP) which, in the case of the Company, differ in certain respects from
generally accepted accounting principles in the United States (US GAAP) as
explained in Note 14. Details of significant accounting policies are as
follows:

| | Ability to Continue as aGoing
      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 recurring losses 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 gold production 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                             | 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, 2005    US $1 : CDN
      $1.1630    CDN $(1.2116)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                             | December 31, 2004    US $1 : CDN
      $1.2021    CDN $(1.3016)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                             | December 31, 2003    US $1 : CDN
      $1.2946    CDN $(1.4010)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | 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 intercompany balances have been
      eliminated.                                                                                                                                                                                                                                                                                                                                                                                                                               

7

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|                                          
|------------------------------------------
|Cusac Gold Mines Ltd.                     
|Summary of Significant Accounting Policies
|(Stated in Canadian Dollars)              
|                                          
|December 31, 2005
      and 2004          

| | 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 | - 10%            
| | ------------------------ | -----------------
| | Mine equipment           | - 30%            
| | Office equipment         | - 20% - 30%      
| | Automotive equipment     | - 30%            
| | Leasehold improvements   | - over lease term

| | 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, 2005, 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.                     
|Summary of Significant Accounting Policies
|(Stated in Canadian Dollars)              
|                                          
|December 31, 2005
      and 2004          

| | 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
      advances to and 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 Canadian 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 items which required
      management to make significant estimates and assumptions in determining
      carrying value include long-term investments, property, plant and
      equipment, resource properties and asset retirement obligations.
| |                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | 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, 2005, 2004 and 2003,
      potentially dilutive common shares (relating to options and warrants
      outstanding at year end) totaling 6,365,300 (2004  8,600,654; 2003 
      6,924,500) were not included in the computation of loss per share because
      their effect was anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Financial Instruments                    | Financial instruments include cash, 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

---

|                                          
|------------------------------------------
|Cusac Gold Mines Ltd.                     
|Summary of Significant Accounting Policies
|(Stated in Canadian Dollars)              
|                                          
|December 31, 2005
      and 2004          

| | Stock-Based Compensation | Effective January 1, 2004, the Company retroactively
      adopted the new recommendations of the Canadian Institute of Chartered
      Accountants (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 accounting policy to prior years and restated the consolidated
      financial statements accordingly. The effect of the restatement was 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 and is more-
      likely-than-not able to utilize these tax losses before expiring, 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 Canadian 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 the year were
      recorded as Increase in Restricted Cash and the amounts expensed during
      the fiscal year were recorded as Decrease in Restricted Cash on the
      Consolidated Statements of Cash Flows.                                                                                                                                                                                                                                                                                                                                                                                          

10

---

|                                          
|------------------------------------------
|Cusac Gold Mines Ltd.                     
|Summary of Significant Accounting Policies
|(Stated in Canadian Dollars)              
|                                          
|December 31, 2005
      and 2004          

| | Flow-through Shares -
      continued | The proceeds received from flow-through shares were
      recorded as Increase in Restricted Cash in the Consolidated Statements of
      Cash Flows. The amount spent in 2005 on resource property exploration was
      $1,065,879 (2004 - $1,120,152; 2003 - $75,000).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 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 were expensed. In subsequent
      periods, the liability will be adjusted for any changes in the amount or
      timing of the underlying future cash flows. Upward changes in the
      estimation of the underlying cash flows are discounted using the then
      current credit-adjusted risk-free rate. Downward changes in the estimation
      of the underlying cash flows are discounted using the initial
      credit-adjusted risk-free rate. Any change in estimates of asset
      retirement obligations is recorded in accordance with CICA 1506, Change
      in Accounting Estimates. The discount accretion of the liability is
      included in determining the results of operations.

11

---

|                                              
|----------------------------------------------
|Cusac Gold Mines Ltd.                         
|Notes to the Consolidated Financial Statements
|(Stated in Canadian Dollars)                  
|                                              
|December 31,
      2005 and 2004              

|1. | Nature of Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Cusac Gold Mines Ltd. (the Company) is in the business
      of exploring, developing and mining resource properties. As at December
      31, 2005, the Companys principal asset, the Table Mountain Property,
      included a past producing gold mine currently in a care and maintenance
      mode, as well as various separate exploration areas. 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 continue exploration and/or recommence
      producing gold at the Table Mountain Property as well as future profitable
      production or proceeds from the disposition of such properties.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|2. | Long-term Investments and
  Advances                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| |                                                       |  | 2005      |  |   | 2004    | 
| | ----------------------------------------------------- |  | --------- |  | - | ------- | 
| |                                                       |  | No. of    |  |   |         | 
| |                                                       |  | Shares    |  |   | Amount  | 
| |                                                       |  |           |  |   |         | 
| | Investments                                           |  |           |  |   |         | 
| | Consolidated Pacific Bay Minerals Ltd.,               |  |           |  |   |         | 
| | 6% interest in common shares
      (2004  7%)        |  | 1,275,667 |  | $ | 143,080 | 
| | ClearFrame Solutions Corp. (formerly
      ClearFrame |  |           |  |   |         | 
| | Solutions Inc.),                                      |  |           |  |   |         | 
| | 1% interest in common shares (2004  2%) and          |  |           |  |   |         | 
| | warrants                                              |  | 21,750    |  |   | -       | 
| |                                                       |  |           |  |   |         | 
| |                                                       |  |           |  |   | 143,080 | 
| | Advances                                              |  |           |  |   |         | 
| | ClearFrame Solutions Corp.
      (formerly ClearFrame |  |           |  |   |         | 
| | Solutions Inc.)                                       |  |           |  |   | -       | 
| | Consolidated Pacific Bay
      Minerals Ltd.          |  |           |  |   | 85,816  | 
| |                                                       |  |           |  |   |         | 
| |                                                       |  |           |  | $ | 228,896 | 

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 Corp. (formerly ClearFrame Solutions Inc.)
(ClearFrame) had common directors during 2004, but as a result of a
restructuring, as at December 31, 2005 and 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 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. During 2005, the option holders exercised their options
to purchase the ClearFrame shares for gross proceeds of $75,000 and the advances
were repaid.

During 2004, the Company was loaned
750,000 ClearFrame shares from two directors. The loan was structured as
unsecured, non-interest bearing and with no fixed terms of repayment. The two
directors of the Company 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

12

---

|                                              
|----------------------------------------------
|Cusac Gold Mines Ltd.                         
|Notes to the Consolidated Financial Statements
|(Stated in Canadian Dollars)                  
|                                              
|December 31, 2005
      and 2004              

|2. | Long-term Investments and Advances -
    Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | very adverse effect on its investment in ClearFrame. The
      transfer of the 750,000 shares 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s board of directors, which the Company
      contemplated doing to protect its investment. In August 2005, the loaned
      shares were returned to the aforementioned directors after the ClearFrame
      shareholders meeting relating to the proposed consolidation of
      capital.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | On March 5, 2005, the Company purchased 400,000 shares of
      Consolidated Pacific Bay Minerals Ltd. for $48,000 cash; and on October 5,
      2005, the Company sold 50,000 post-consolidation shares of ClearFrame for
      $30,000 cash proceeds.                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Aggregate cost and market value information with respect
      to long-term investments as at December 31, 2005 and 2004 are summarized
      as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |                                    |   | 2005    |  |   | 2004    | 
| | ---------------------------------- | - | ------- |  | - | ------- | 
| |                                    |   |         |  |   |         | 
| | Aggregate cost, net of write-downs | $ | 143,080 |  | $ | 166,833 | 
| |                                    |   |         |  |   |         | 
| | Aggregate market value             | $ | 204,107 |  | $ | 133,780 | 
| |                                    |   |         |  |   |         | 
| | Gross unrealized losses            | $ | -       |  | $ | 33,053  | 
| |                                    |   |         |  |   |         | 
| | Gross unrealized gains             | $ | 61,027  |  | $ | -       | 

During 2005 and 2004, the Company wrote
down the value of its long-term investments as follows:

| |                                                                       |   | 2005   |  |   | 2004    | 
| | --------------------------------------------------------------------- | - | ------ |  | - | ------- | 
| | Investments                                                           |   |        |  |   |         | 
| | ClearFrame Solutions Corp. (formerly
      ClearFrame Solutions Inc.) | $ | 21,754 |  | $ | 135,310 | 
| |                                                                       |   |        |  |   |         | 
| |                                                                       | $ | 21,754 |  | $ | 135,310 | 

During 2004, management believed it was
prudent to write down the value of its investment in ClearFrame 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 2005, ClearFrame proceeded with a
20 old shares for 1 new share consolidation of its capital, which management
believed seriously impaired the Companys ability to realize its costs for these
securities. During 2005, ClearFrame received a Cease Trade Order from the
British Columbia Securities Commission for failing to file certain documents
within the required time period. Upon revocation of the Cease Trade Order,
ClearFrames shares will remain suspended until they meet TSX Venture Exchange
requirements. Management believes that the Companys ability to liquidate its
investment in ClearFrame shares has been seriously impaired and there is an
other-than-temporary decline in value. As a result, the Company wrote off the
ClearFrame investment to $Nil as of December 31, 2005.

13

---

|                                              
|----------------------------------------------
|Cusac Gold Mines Ltd.                         
|Notes to the Consolidated Financial Statements
|(Stated in Canadian Dollars)                  
|                                              
|December 31, 2005
      and 2004              

|3. | Property, Plant and
Equipment
|-- | -----------------------------

2005
    
    
    
    
    
    
    
    
    2004Accumulated
    
    
    Net book
    
    
    
    
    
    Accumulated
    
    
    Net bookCost
    
    
    Amortization
    
    
    value
    
    
    Cost
    
    
    Amortization
    
    
    valueAutomotiveequipment
    $
    169,806
    
    $
    151,543
    
    $
    18,263
    
    $
    152,686
    
    $
    144,196
    
    $
    8,490Leaseholdimprovements
    
    2,128
    
    
    2,128
    
    
    -
    
    
    2,128
    
    
    2,128
    
    
    -Mine plant andbuildings
    
    515,265
    
    
    515,265
    
    
    -
    
    
    515,265
    
    
    515,265
    
    
    -Mine equipment
    
    1,336,709
    
    
    1,297,529
    
    
    39,180
    
    
    1,344,771
    
    
    1,286,611
    
    
    58,160Office equipment
    
    79,271
    
    
    69,206
    
    
    10,065
    
    
    78,337
    
    
    66,689
    
    
    11,648$
    2,103,179
    
    $
    2,035,671
    
    $
    67,508
    
    $
    2,093,187
    
    $
    2,014,889
    
    $
    78,298


|4. | Resource Properties
|-- | -------------------

| |                                            |   | 2005       |   |   | 2004       |  
| | ------------------------------------------ | - | ---------- | - | - | ---------- | -
| | 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 Property (the
Property) is located in the Cassiar district of British Columbia. The Property
consists of 152 (2004  152) full and fractional mineral claims and Crown
Grants, with hard rock claims covering an area of approximately 12,346 hectares
(2004 - 12,346) or 138 square kilometers (2004 - 123). During 2005 and
subsequent to year end, the Company reviewed its land holdings and increased its
holdings to cover additional areas prospective for economic mineralization.

14

---

|                                              
|----------------------------------------------
|Cusac Gold Mines Ltd.                         
|Notes to the Consolidated Financial Statements
|(Stated in Canadian Dollars)                  
|                                              
|December 31, 2005
      and 2004              

|4. | Resource Properties - Continued                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Table Mountain Mine - Continued                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Included in deferred development costs is $114,602 (2004
      - $114,444) on deposit with regulatory authorities to ensure costs of
      environmental reclamation charges are provided for.                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | On July 29, 2004, the Company purchased two mineral
      claims in the Laird mining division of British Columbia (Wildcat
      Properties) for 30,000 common shares of the Company. In January 2005, the
      agreement closed and the above mentioned shares were issued to the owner.
      During the year, the acquisition costs were expensed as resource property
      exploration expense on the Consolidated Statement of Operations.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | During 2005, the Company commenced a new exploration
      initiative within the Table Mountain Property called the Taurus II
      Project, which is prospective for open pit gold mining. Substantially all
      the Companys exploration expenditures in 2005 were related to the Taurus
      II Project.                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Commitments:                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | 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.                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | On June 13, 2005, the Ministry of Energy and Mines issued
      an Amended Permit approving Work System and Reclamation plan to the
      Company related to the Table Mountain Mine property. This permit requires
      the Company to deposit an additional $590,556 with the Minister of Finance
      for security, according to the following installment
  schedule:                                                                      

On
      or before
    
    AmountJune 1, 2006
    $
    150,000December 31, 2006
    
    150,000December 31, 2007
    
    150,000December 31, 2008
    
    140,556Total
    $
    590,556


|   | The amounts payable will be reduced by the Companys
      expenditures on infrastructure decommissioning and physical reclamation
      work related to mine closure.                                                                                                                                                                                                                                                                     
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                            
|5. | Bank Indebtedness                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | In 2005, the Company arranged a $57,000 (2004 - $57,000)
      letter of credit facility and a $350,000 (2004 - $300,000) line of credit
      with a bank bearing interest at prime (5.00% at December 31, 2005) per
      annum which is collateralized by the Companys cash and flow-through share
      proceeds. As of December 31, 2005, the Company had approximately $62,000
      (2004 - $Nil) line of credit available for use.

15

---

|                                              
|----------------------------------------------
|Cusac Gold Mines Ltd.                         
|Notes to the Consolidated Financial Statements
|(Stated in Canadian Dollars)                  
|                                              
|December 31, 2005
      and 2004              

|6. | Loans From Related Parties                                                                                                      
|-- | --------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                 
|   | Loans payable to directors bearing no interest, security
      or fixed terms of repayment amounted to $19,361 (2004 -
$11,925).
|   |                                                                                                                                 
|7. | Share Capital                                                                                                                   

| | a) | Issued common shares
| | -- | --------------------

2005
    
    
    2004
    
    
    2003Number
    
    
    
    
    
    Number
    
    
    
    
    
    Numberof
      Shares
    
    
    Amount
    
    
    of
      Shares
    
    
    Amount
    
    
    of
      Shares
    
    
    AmountBalance, beginning of year
    
    43,335,712
    
    $
    20,040,158
    
    
    39,404,981
    
    $
    19,406,206
    
    
    32,634,356
    
    $
    17,451,148Issued during the year for:Cash (net of share issuecosts of $77,397 (cash andcommon shares) (2004 $139,334; 2003  $118,915)and renouncement of futureincome tax recovery of$105,567 (2004 - $256,464and 2003 $Nil))
    
    7,114,421
    
    
    845,161
    
    
    3,377,231
    
    
    424,202
    
    
    3,990,000
    
    
    1,274,785Warrants exercised
    
    500,000
    
    
    80,000
    
    
    533,500
    
    
    204,750
    
    
    1,055,625
    
    
    194,905Options exercised
    
    320,000
    
    
    48,000
    
    
    20,000
    
    
    5,000
    
    
    1,725,000
    
    
    485,368Property
    
    30,000
    
    
    8,700
    
    
    -
    
    
    -
    
    
    -
    
    
    -51,300,133
    
    
    21,022,019
    
    
    43,335,712
    
    
    20,040,158
    
    
    39,404,981
    
    
    19,406,206Less: share subscriptionsreceivable
    
    -
    
    
    (15,000
    )
    
    -
    
    
    -
    
    
    -
    
    
    -Less: investment inCompany shares
    
    (4,000
    )
    
    (1,600
    )
    
    (4,000
    )
    
    (1,600
    )
    
    (4,000
    )
    
    (1,600
    )Balance, end of year
    
    51,296,133
    
    $
    21,005,419
    
    
    43,331,712
    
    $
    20,038,558
    
    
    39,400,981
    
    $
    19,404,606


On January 27, 2005, the Company
issued 30,000 common shares to purchase two mineral claims in the Laird mining
division of British Columbia (Wildcat Properties) (see Note 4). The shares were
valued based on the trading price of the common stock at the date of
issuance.

On February 28, 2005, 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.

On July 6, 2005, the Company issued
550,000 flow-through units by way of a private placement for proceeds of
$71,500. Each unit consisted of one common share and one-half of a Series A
warrant entitling the holder to purchase one common share at an exercise price
of $0.15 for a one-year period. The Company incurred $7,150 in share issuance
costs associated with the above private placement by issuing 55,000 common
shares to the agent.

On July 12, 2005, the Company issued
160,000 flow-through units by way of a private placement for proceeds of
$20,800. Each unit consisted of one common share and one-half of a Series A
warrant entitling the holder to purchase one common share at an exercise price
of $0.15 for a one-year period. The Company incurred $780 in share issuance
costs associated with the above private placement by issuing 6,000 common shares
to the agent.

16

---

|                                              
|----------------------------------------------
|Cusac Gold Mines Ltd.                         
|Notes to the Consolidated Financial Statements
|(Stated in Canadian Dollars)                  
|                                              
|December 31, 2005
      and 2004              

|7. | Share Capital - Continued
|-- | -------------------------

On August 3, 2005, the Company issued
961,538 flow-through units by way of a private placement for proceeds of
$125,000. Each unit consisted of one common share and one-half of a Series A
warrant entitling the holder to purchase one common share at an exercise price
of $0.15 for a one-year period. The Company incurred $12,500 in share issuance
costs associated with the above private placement by issuing 96,154 common
shares to the agent.

On August 5, 2005, the Company issued
2,137,308 flow-through units by way of a private placement for proceeds of
$277,850. Each unit consisted of one common share and one-half of a Series A
warrant entitling the holder to purchase one common share at an exercise price
of $0.15 for a one-year period. The Company incurred $17,145 in share issuance
costs associated with the above private placement by issuing 131,885 common
shares to the agent.

On August 19, 2005, the Company issued
192,308 flow-through units by way of a private placement for proceeds of
$25,000. Each unit consisted of one common share and one-half of a Series A
warrant entitling the holder to purchase one common share at an exercise price
of $0.15 for a one-year period. The Company incurred $2,500 in share issuance
costs associated with the above private placement by issuing 19,230 common
shares to the agent.

On December 2, 2005, the Company
issued 1,200,000 flow-through units by way of a private placement for proceeds
of $186,000. Each unit consisted of one common share and one-half of a Series A
warrant entitling the holder to purchase one common share at an exercise price
of $0.19 for a one-year period. The Company incurred $18,600 in share issuance
costs associated with the above private placement by issuing 120,000 common
shares to the agent.

On December 20, 2005, the Company
issued 1,259,443 flow-through units by way of a private placement for proceeds
of $226,700. Each unit consisted of one common share and one-half of a Series A
warrant entitling the holder to purchase one common share at an exercise price
of $0.24 for a one-year period. The Company incurred $4,600 in share issuance
costs associated with the above private placement by issuing 25,555 common
shares to the agent.

The Company received $9,000 of the
proceeds of the December 20, 2005 private placement and $6,000 of the proceeds
of exercised stock options subsequent to December 31, 2005. The amounts have
been shown above as a reduction of the carrying amount of share capital.

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 a 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.

17

---

|                                              
|----------------------------------------------
|Cusac Gold Mines Ltd.                         
|Notes to the Consolidated Financial Statements
|(Stated in Canadian Dollars)                  
|                                              
|December 31, 2005
      and 2004              

|7. | Share Capital - Continued
|-- | -------------------------

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 of a 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 share 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 of a 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.

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.

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 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.

18

---

|                                              
|----------------------------------------------
|Cusac Gold Mines Ltd.                         
|Notes to the Consolidated Financial Statements
|(Stated in Canadian Dollars)                  
|                                              
|December 31, 2005
      and 2004              

|7. | Share Capital -
Continued
|-- | -------------------------

| | b) | Warrants                                                                                                                
| | -- | ------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                         
| |    | The following table summarizes the number of fully
      exercisable warrants transactions during 2005, 2004 and
  2003:

| |                               | Number of   | Weighted-Average | 
| | ----------------------------- | ----------- | ---------------- | 
| |                               | Warrants    | Exercise price   | 
| |                               |             |                  | 
| | Balance, January 1, 2003      | 2,945,625   | $0.29            | 
| | Issued (Series A warrants)    | 4,404,500   | $0.47            | 
| | Exercised (Series A warrants) | (1,055,625) | $0.18            | 
| | Expired (Series A warrants)   | (1,500,000) | $0.40            | 
| |                               |             |                  | 
| | Balance, December 31, 2003    | 4,794,500   | $0.44            | 
| | Issued (Series A warrants)    | 2,269,231   | $0.27            | 
| | Issued (Series B warrants)    | 226,923     | $0.21            | 
| | Exercised (Series A warrants) | (533,500)   | $0.38            | 
| | Exercised (Series A warrants) | (316,500)   | $0.20            | 
| |                               |             |                  | 
| | Balance, December 31, 2004    | 6,440,654   | $0.39            | 
| | Issued (Series A warrants)    | 3,430,300   | $0.18            | 
| | Exercised (Series A warrants) | (500,000)   | $0.16            | 
| | Expired (Series A warrants)   | (5,713,731) | $0.41            | 
| | Expired (Series B warrants)   | (226,923)   | $0.21            | 
| |                               |             |                  | 
| | Balance, December 31, 2005    | 3,430,300   | $0.18            | 

On December 9, 2005, 900,000 warrants
were repriced from $0.20 to $0.16.

A summary of the warrants outstanding
at December 31, 2005 is as follows:

| | Type     | Number of Warrants | Exercise | Expiry Date      
| | -------- | ------------------ | -------- | -----------------
| |          |                    | Price    |                  
| |          |                    |          |                  
| | Series A | 200,000            | $0.20    | February 28, 2006
| | Series A | 275,000            | $0.15    | July 6, 2006     
| | Series A | 80,000             | $0.15    | July 12, 2006    
| | Series A | 480,770            | $0.15    | August 3, 2006   
| | Series A | 1,068,654          | $0.15    | August 5, 2006   
| | Series A | 96,154             | $0.15    | August 19, 2006  
| | Series A | 600,000            | $0.19    | December 2, 2006 
| | Series A | 629,722            | $0.24    | December 20, 2006
| |          |                    |          |                  
| |          | 3,430,300          |          |                  

Subsequent to December 31, 2005, a
total of 270,000 warrants were exercised to purchase 270,000 common shares of
the Company at $0.15 per share; 136,000 warrants were exercised to purchase
136,000 common shares at $0.20 per share; and 64,000 warrants exercisable at
$0.20 expired unexercised.

19

---

|                                              
|----------------------------------------------
|Cusac Gold Mines Ltd.                         
|Notes to the Consolidated Financial Statements
|(Stated in Canadian Dollars)                  
|                                              
|December 31, 2005
      and 2004              

|7. | Share Capital 
Continued
|-- | -------------------------

| | 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 cannot at
      any given time have 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:                                                                                                                                                                                                                                                                                                                                                                                                                                         

| |                                        | Number of   | Weighted-Average | 
| | -------------------------------------- | ----------- | ---------------- | 
| |                                        | Options     | Exercise Price   | 
| |                                        |             |                  | 
| | Outstanding at January 1,
      2003   | 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            | 
| | Granted                                | 1,315,000   | $0.15            | 
| | Cancelled/expired                      | (220,000)   | $0.31            | 
| | Exercised                              | (320,000)   | $0.15            | 
| |                                        |             |                  | 
| | Outstanding at December 31,
      2005 | 2,935,000   | $0.25            | 

The weighted-average fair value of
options granted during 2005 was approximately $0.06 (2004 -$0.16, 2003 - $0.27)
based on the Black-Scholes option pricing model using weighted-average
assumptions, as described in Note 8.

On June 29, 2005, 290,000 options were
repriced from $0.36 to $0.15, and 270,000 options were repriced from $0.37 to
$0.15.

20

---

|                                              
|----------------------------------------------
|Cusac Gold Mines Ltd.                         
|Notes to the Consolidated Financial Statements
|(Stated in Canadian Dollars)                  
|                                              
|December 31, 2005
      and 2004              

|7. | Share Capital - Continued
|-- | -------------------------

A summary of the common share options
exercisable and outstanding at December 31, 2005 is as follows:

Number of Options
    Exercise Price
    Expiry Date50,000
    $0.15
    May 27, 2006780,000
    $0.36
    July 28, 2006170,000
    $0.15
    July 28, 2006600,000
    $0.37
    November 14, 2006220,000
    $0.15
    November 14, 2006100,000
    $0.15
    June 29, 2007815,000
    $0.15
    September 6, 2007200,000
    $0.15
    December 23, 20072,935,000


Subsequent to December 31, 2005, on
February 8, 2006, 25,000 stock options were exercised for purchase of 25,000
common shares of the Company at $0.15 per share.

|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 to employees rather than the previously
      noted intrinsic method was 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 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 June 23, 2005, the Company granted 100,000 stock
      options to a consultant; on September 6, 2005, the Company granted 550,000
      stock options to directors for consulting services, and 465,000 stock
      options to certain consultants; and on December 23, 2005, the Company
      granted 200,000 stock options to a consultant. All of these options vested
      immediately, have an exercise price of $0.15 and a term of two
    years.                                                                                                                                                                                                                                                                                                                                                               

21

---

|                                              
|----------------------------------------------
|Cusac Gold Mines Ltd.                         
|Notes to the Consolidated Financial Statements
|(Stated in Canadian Dollars)                  
|                                              
|December 31, 2005
      and 2004              

|8. | Stock-Based Compensation -
  Continued
|-- | --------------------------------------

| | d) | On June 29, 2005, 290,000 options were repriced from
      $0.36 to $0.15, and 270,000 options were repriced from $0.37 to $0.15. As
      a result of the stock option repricing, $12,900 of additional stock based
      compensation expense was recorded in 2005.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                      
| | e) | On December 9, 2005, 900,000 warrants were repriced from
      $0.20 to $0.16. As a result of the warrant repricing, $10,300 of
      additional stock-based compensation expense was recorded in
2005.                                                              
| |    |                                                                                                                                                                                                                                                                      
| |    | Weighted-average assumptions used in calculating
      compensation expense in respect of options granted to consultants and
      employees were as follows:                                                                                                        

| |                                                             | 2005  | 2004  | 2003    
| | ----------------------------------------------------------- | ----- | ----- | --------
| |                                                             |       |       |         
| |                                                             |       |       | 2.99% to
| | Risk-free rate                                              | 3.11% | 3.02% | 3.54%   
| | Dividend yield                                              | Nil%  | Nil%  | Nil%    
| | Volatility factor of the
      expected market price of the |       |       |         
| | Companys common shares                                     | 77%   | 109%  | 127%    
| | Weighted average expected
      life of the options         |       |       |         
| | (months)                                                    | 24    | 24    | 36      

For the year ended December 31, 2005,
the compensation cost for stock options granted and repricings totaled $103,100
(2004 - $7,900, 2003  $628,625) 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:

2005
    
    
    2004Net operating and capital losses
    $
    2,167,000
    
    $
    2,286,000Property, plant and equipment
    
    348,000
    
    
    355,000Mineral properties and deferred exploration
      costs
    
    589,000
    
    
    515,000Investments
    
    52,000
    
    
    56,000Asset retirement obligations
    
    93,000
    
    
    59,000Undeducted financing costs
    
    50,000
    
    
    44,000Valuation allowance
    
    (3,299,000
    )
    
    (3,315,000
    )Future tax assets (liabilities)
    $
    -
    
    $
    -


The tax benefit of net operating losses
carried forward and the associated valuation allowance were reduced by $224,000
(2004 - $1,632,000), representing the tax effect of losses which expired during
the year.

22

---

|                                              
|----------------------------------------------
|Cusac Gold Mines Ltd.                         
|Notes to the Consolidated Financial Statements
|(Stated in Canadian Dollars)                  
|                                              
|December 31, 2005
      and 2004              

|9. | Income Taxes  Continued                                                                                                                                                                                                     
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                              
|   | 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:

| |                                          |   | 2005     |   |   | 2004     |   |   | 2003     |  
| | ---------------------------------------- | - | -------- | - | - | -------- | - | - | -------- | -
| |                                          |   |          |   |   |          |   |   |          |  
| | Benefit at Canadian                      |   |          |   |   |          |   |   |          |  
| | statutory rate                           | $ | (639,000 | ) | $ | (689,000 | ) | $ | (514,000 | )
| | Permanent differences                    |   | 9,000    |   |   | 700      |   |   | 4,700    |  
| | Non-deductible stock option compensation |   | 35,000   |   |   | 2,600    |   |   | 221,000  |  
| | Effect of reduction in statutory rate    |   | 51,000   |   |   | -        |   |   | 253,000  |  
| | Non-deductible flow-through costs        |   | 324,000  |   |   | 399,000  |   |   | -        |  
| | Non-deductible accretion expense         |   | 5,300    |   |   | 5,300    |   |   | 5,000    |  
| | Increase (decrease) in                   |   |          |   |   |          |   |   |          |  
| | valuation allowance                      |   | 109,133  |   |   | 24,936   |   |   | 30,300   |  
| | Future income tax recovery               | $ | (105,567 | ) | $ | (256,464 | ) | $ | -        |  

The Companys future tax assets include
approximately $50,000 (2004 - $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
$3,938,000 (2004 - $3,725,000) 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
$3,634,000 (2004 - $3,710,000) expiring in various amounts from 2006 to 2015 and
allowable capital losses of approximately $2,717,000 (2004 - $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 2005, the Company renounced
$302,831 (2004  $720,000) of expenditures and recorded a future income tax
recovery of $105,567 (2004  $256,464) in accordance with the accounting
treatment of Canadian flow-through shares. The Company has a commitment to spend
$507,119 (2004  $649,148) on Canadian exploration expenditures prior to
December 31, 2007.

|10. | Related Party Transactions                                                                     
|--- | -----------------------------------------------------------------------------------------------
|    |                                                                                                
|    | Related party transactions not disclosed elsewhere in
      these financial statements include:

| | a) | Remuneration paid or payable to directors and officers of
      the Company in 2005 amounted to $102,000 (2004 - $167,000; 2003 -
      $171,650). As at December 31, 2005, $13,720 (2004 - $71,795; 2003 -
      $98,100) was included in accounts payable to a director for
      remuneration.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                  
| | b) | During 2005, the Company received $54,600 (2004 -
      $39,000; 2003 - $60,000) for rent and administrative services provided to
      companies with common directors. These amounts were recorded as a
      reduction of administration expenses.                                            

23

---

|                                              
|----------------------------------------------
|Cusac Gold Mines Ltd.                         
|Notes to the Consolidated Financial Statements
|(Stated in Canadian Dollars)                  
|                                              
|December 31, 2005
      and 2004              

|10. | Related Party Transactions -
  Continued
|--- | ----------------------------------------

| | c) | During 2005, a company controlled by the Companys
      President charged the Company $Nil (2004 - $6,000; 2003  $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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | Commitments not disclosed elsewhere in these financial
      statements include:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Company is obligated to pay $7,500 per month in
      compensation to its president.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|12. | Asset Retirement Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Company 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 the estimated salvage value recoveries. The Company estimated
      that a total of approximately $705,000 (2004 - $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 5.0% (2004 - 4.5%) (the credit-adjusted risk-free rate)
      was used. The majority of the Companys asset 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 asset 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 by $14,105 and to increase liabilities and
      accumulated deficit at December 31, 2003 by $327,548. As at December 31,
      2005, the asset retirement liabilities accrued are $609,324 (2004 -
      $342,288). 2005 additions to the asset retirement obligations were
      expensed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The asset retirement obligations accrual required
      management to make significant estimates and assumptions. Actual results
      could materially differ from these estimates. The liability for accrued
      asset retirement obligations is comprised as
follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| | Balance, December 31, 2002               | $ | 313,443 | 
| | ---------------------------------------- | - | ------- | 
| | Accretion expense                        |   | 14,105  | 
| | Balance, December 31, 2003               |   | 327,548 | 
| | Accretion expense                        |   | 14,740  | 
| | Balance, December 31, 2004               |   | 342,288 | 
| | Liabilities incurred during the year (1) |   | 251,633 | 
| | Accretion expense                        |   | 15,403  | 
| | Balance, December 31, 2005               | $ | 609,324 | 

| | (1) Reflects estimated increase in estimated future asset retirement
      obligations based on new assumptions.
| | ----------------------------------------------------------------------------------------------------------------

24

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|                                              
|----------------------------------------------
|Cusac Gold Mines Ltd.                         
|Notes to the Consolidated Financial Statements
|(Stated in Canadian Dollars)                  
|                                              
|December 31, 2005
      and 2004              

|13. | Comparative Figures                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                         
|    | Certain of the comparative figures have been reclassified
      to conform with the current years presentation.                                                                                        
|    |                                                                                                                                                                                                         
|14. | 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) | 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 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.                                                                                                                                                                                                                                                               

25

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|                                              
|----------------------------------------------
|Cusac Gold Mines Ltd.                         
|Notes to the Consolidated Financial Statements
|(Stated in Canadian Dollars)                  
|                                              
|December 31, 2005
      and 2004              

|14. | Differences Between Canadian and United States
      Generally Accepted Accounting Principles -
Continued
|--- | ---------------------------------------------------------------------------------------------------------

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. 123R. 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 year ended December 31, 2003.

| | c) | 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 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, 2005, the Company renounced $302,831 (2004 - $720,000)
      in expenses and recorded, under Canadian GAAP, an income tax recovery of
      $105,567 (2004 - $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.                                                                                                                                                                                                                                                                                                                                                                         

26

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|                                              
|----------------------------------------------
|Cusac Gold Mines Ltd.                         
|Notes to the Consolidated Financial Statements
|(Stated in Canadian Dollars)                  
|                                              
|December 31, 2005
      and 2004              

|14. | Differences Between Canadian and United States
      Generally Accepted Accounting Principles -
Continued
|--- | ---------------------------------------------------------------------------------------------------------

| |    | Also under US GAAP, as the 2004 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | d) | 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 during 2005, the
      Company re- evaluated the accrual for asset retirement obligations and
      increased their estimated costs to a total of approximately $705,000 (2004
      - $500,000) (Note 12). 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, 2005 under both
      Canadian and US GAAP of $251,633 (2004 - $342,288), and an asset
      retirement obligation of $609,324 (2004 - $342,288), being the discounted
      present value of the approximated reclamation costs. At the end of 2005,
      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 $251,633 under
      both Canadian and US GAAP (2004 - $342,288 under US GAAP).
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | e) 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

27

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|                                              
|----------------------------------------------
|Cusac Gold Mines Ltd.                         
|Notes to the Consolidated Financial Statements
|(Stated in Canadian Dollars)                  
|                                              
|December 31, 2005
      and 2004              

|14. | Differences Between Canadian and United States
      Generally Accepted Accounting Principles -
Continued
|--- | ---------------------------------------------------------------------------------------------------------

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

| |                                                         |   | 2005       |   |   | 2004       |   |   | 2003       |  
| | ------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
| |                                                         |   |            |   |   |            |   |   |            |  
| | Net loss per Canadian GAAP                              | $ | (1,562,307 | ) | $ | (1,692,229 | ) | $ | (1,465,121 | )
| | Adjustments related to:                                 |   |            |   |   |            |   |   |            |  
| | Stock based
      compensation (b)                      |   | -          |   |   | -          |   |   | 8,025      |  
| | Income tax recovery of flow through
      shares (c)    |   | (105,567   | ) |   | (256,464   | ) |   | -          |  
| | Compensation
      expense on warrants and              |   |            |   |   |            |   |   |            |  
| | renouncement of tax benefit (c)                         |   | -          |   |   | (50,199    | ) |   | -          |  
| | Asset retirement
      obligation (d)                   |   | -          |   |   | (342,288   | ) |   | -          |  
| | Accretion expense                                       |   | -          |   |   | -          |   |   | 14,105     |  
| |                                                         |   |            |   |   |            |   |   |            |  
| | Net loss per US GAAP                                    |   | (1,667,874 | ) |   | (2,341,180 | ) |   | (1,442,991 | )
| | Unrealized gains (losses) on
      investments (a), (e) |   | 94,080     |   |   | 30,960     |   |   | 14,414     |  
| |                                                         |   |            |   |   |            |   |   |            |  
| | Comprehensive loss per United
      States GAAP         | $ | (1,573,794 | ) | $ | (2,310,220 | ) | $ | (1,428,577 | )
| |                                                         |   |            |   |   |            |   |   |            |  
| |                                                         |   |            |   |   |            |   |   |            |  
| | Loss per share per US GAAP                              |   |            |   |   |            |   |   |            |  
| | Basic and
      diluted                                 | $ | (0.03      | ) | $ | (0.06      | ) | $ | (0.04      | )
| |                                                         |   |            |   |   |            |   |   |            |  
| | Shareholders equity per
      Canadian GAAP            | $ | 1,578,281  |   | $ | 2,070,627  |   | $ | 3,121,004  |  
| | Adjustment related to:                                  |   |            |   |   |            |   |   |            |  
| | Asset retirement
      obligation                       |   | -          |   |   | -          |   |   | 327,548    |  
| | Accumulated comprehensive loss -                        |   |            |   |   |            |   |   |            |  
| | unrealized loss on
      investments (a)                |   | 61,027     |   |   | (33,053    | ) |   | (64,013    | )
| |                                                         |   |            |   |   |            |   |   |            |  
| | Shareholders equity per US
      GAAP                  | $ | 1,639,308  |   | $ | 2,037,574  |   | $ | 3,384,539  |  

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

| | f) | New accounting pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | In February 2006, FASB issued SFAS No. 155, Accounting
      for Certain Hybrid Financial Instruments  an Amendment of FASB Statements
      No. 133 and 140. Among other things, SFAS No. 155 permits the election of
      fair value remeasurement for certain hybrid financial instruments that
      would otherwise require bifurcation under Statement 133, Accounting for
      Derivative Instruments and Hedging Activities. These hybrid financial
      instruments would include both assets and liabilities SFAS No. 155 is
      effective for fiscal years beginning after September 15, 2006.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | The Company has not yet determined the effect of future
      implementation of these new standards on its consolidated financial
      statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                              

28

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