---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 20-F

[   ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
or 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended **December 31, 2005**

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to
_______________

[   ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this Shell Company report
______________________

Commission file number: **0-13548**

CUSAC GOLD MINES LTD.(Exact name of Registrant specified in its charter)

PROVINCE OF BRITISH COLUMBIA, CANADA(Jurisdiction of incorporation or organization)

911  470 Granville StreetVancouver, British
Columbia, Canada, V6C 1V5(Address of principal executive offices)

Securities registered or to be registered pursuant to Section
12(b) of the Act: **None**

Securities registered or to be registered pursuant to Section
12(g) of the Act: COMMON SHARES, NO PAR VALUE(Title of Class)

Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act: **None**

---

Indicate the number of outstanding shares of each of the
issuers classes of capital or common stock as of the close of the period
covered by the annual report: **51,300,133 common shares as of
December 31, 2005**

Indicate by check mark if the Registrant is a well known seasoned
  issuer as defined in Rule 405 of the Securities Act.Yes [   ]        No [X]

If this report is an annual or transition report, indicate by
  check mark if the Registrant is not required to file 
  reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
  1934Yes [   ]        No [X]

Indicate by check mark whether Registrant (1) has filed all reports
  required to be filed by Section 13 or 15(d) 
  of the Securities Exchange Act of 1934 during the preceding 12 months (or for
  such shorter period that 
  Registrant was required to file such reports), and (2) has been subject to such
  filing requirements for the past 
  90 days.
  Yes [X]        No [   ]

Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer or non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2 of
the Exchange Act.[   ] Large Accelerated
Filer           [  
] Accelerated
Filer              
 [X] Non-Accelerated Filer

Indicate by check mark which financial statement item Registrant
  has elected to follow:
  Item 17 [X]          Item 18 [  
  ]

If this is an annual report, indicate by check mark whether the
  Registrant is a shell company (as defined in 
  Rule 12b-2 of the Exchange Act):
  Yes [   ]         No [X]

- 2 -

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CUSAC GOLD MINES LTD.



FORM 20-F ANNUAL REPORT: AMENDMENT #1

TABLE OF CONTENTS

|GLOSSARY   | 4                                                                                      
|---------- | ---------------------------------------------------------------------------------------
|           |                                                                                        
|PART I     | 8                                                                                      
|           |                                                                                        
|           | ITEM 1. DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                                      
|           | ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE                                        
|           | ITEM 3. KEY INFORMATION                                                                
|           | ITEM 4. INFORMATION ON THE COMPANY                                                     
|           | ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                   
|           | ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                     
|           | ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                              
|           | ITEM 8. FINANCIAL INFORMATION                                                          
|           | ITEM 9. THE OFFER AND LISTING                                                          
|           | ITEM 10. ADDITIONAL INFORMATION                                                        
|           | ITEM 11. QUANTITATIVE AND DISCLOSURES ABOUT MARKET RISK                                
|           | ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                        
|           |                                                                                        
|PART II    | 48                                                                                     
|           |                                                                                        
|           | ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                               
|           | ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
      HOLDERS                
|           | ITEM 15. CONTROLS AND PROCEDURES                                                       
|           | ITEM 16. RESERVED                                                                      
|           | ITEM 16.A. AUDIT COMMITTEE FINANCIAL EXPERT                                            
|           | ITEM 16.B. CODE OF ETHICS                                                              
|           | ITEM 16.C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                      
|           | ITEM 16.D. EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT
      COMMITTEES             
|           | ITEM 16.E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER
      AND AFFILIATED PURCHASERS
|           |                                                                                        
|PART III   | 50                                                                                     
|           |                                                                                        
|           | ITEM 17. FINANCIAL STATEMENTS                                                          
|           | ITEM 18. FINANCIAL STATEMENTS                                                          
|           | ITEM 19. EXHIBITS                                                                      
|           |                                                                                        
|SIGNATURES | 51                                                                                     

- 3 -

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GLOSSARY

|Term                   | Definition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|---------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Act                    | Securities and Exchange Act of 1934                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Amended Permit         | Amended mining permit no. M-127 issued by the Ministry on
      June 13, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|American Bonanza       | American Bonanza Gold Corp., the resulting merged company
      between Taurus and the old American Bonanza Gold Corp.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|APBO                   | Accounting Principles Board Opinion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Bain Mine              | The underground openings and access to the Bain Vein for
      personnel, equipment, waste and ore movement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|BCA                    | Business Corporations Act(British Columbia)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|BCCA                   | Company Act(British Columbia)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Canadian Act           | Income Tax Act(Canada)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Canadian GAAP          | Canadian Generally Accepted Accounting Principles                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Cassiar Gold Camp      | All gold occurrences in the Cassiar mountain range in the
      vicinity of the former town of Cassiar, Table Mountain and Jade City.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|CICA                   | Canadian Institute of Chartered Accountants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|ClearFrame             | ClearFrame Solutions Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Code                   | Internal Revenue Code of 1986, as amended.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Common Share Units     | 3,749,225 common share units
        of the Company issued in connection with the Private Placement completed
        on May 31, 2006, as described elsewhere in this document, at $0.24 per
        Common Share Unit, each unit consisting of one common share and one common
        share purchase warrant exercisable within 12 months at $0.35 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Convertible Debentures | 813 convertible debentures of
        the Company issued in connection with the Private Placement completed
        on May 31, 2006, as described elsewhere in this document, priced at $3,750
        per Convertible Debenture, maturing in 18 months and bearing interest
        at a rate of 11% per annum paid semi-annually and are convertible into
        shares at $0.305 per share. The purchasers of the Convertible Debentures
        also received 6,147 warrants with each Debenture purchased. The warrants
        accompanying the Debenture are not exercisable until the Company obtains
        the approval of its shareholders for the Debenture warrants. Thereafter,
        each Debenture warrant entitles the holder to purchase a common share
        at $0.35 per share expiring May 31, 2007. If the shareholders do not approve
        the warrants accompanying the Debentures by the close of business on July
        30, 2006, the Debentures will bear interest at 15% per annum.
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|CRA                    | Canada Revenue Agency                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Cusac                  | Cusac Gold Mines Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Cusac Mill             | Cusacs Mill on the Property.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Cyprus                 | Cyprus Canada Inc., subsidiary of Cyprus Amax Minerals.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Demand                 | Demand Gold Ltd., formerly Demand Technologies, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|ECFZ                   | Erickson Creek Fault Zone                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|EIC                    | Emerging Issues Committee                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Employment Agreement   | Agreement dated January 1, 1988 made between Cusac and
      Guildford H. Brett, as amended.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Energold               | Energold Minerals, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Erickson               | Erickson Mining Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|FASB                   | Financial Accounting Standards Board                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

- 4 -

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|Term                 | Definition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Flow-Through Units   | 6,657,500 flow-through units
        of the Company issued in connection with the Private Placement, completed
        on May 31, 2006, as described elsewhere in this document, at $0.27 per
        Flow-Through Unit, each unit consisting of one flow-through share and
        one half of one common share purchase warrant exercisable within 12 months
        at $0.35.                                                                                                                                                                                                                      
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Gold Certificate     | A certificate evidencing the right of the holder of a
      Series A Convertible Preference Share in the capital of the Company,
      subject to the Articles of the Company, to receive from the Company upon
      presentation 0.0625% of one troy ounce of 0.995 fine gold.                                                                                                                                                                                                                                                                                                                      
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|ICA                  | Investment Canada Act                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Investor             | A person who acquires one or more common shares of the
      Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|IRS                  | Internal Revenue Service                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|LTIP                 | Long-term incentive plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Main Mine            | The underground openings and access to a number of Veins
      located on the north slope of a Table Mountain that were worked on during
      primarily the 1980s.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|MHG Vein             | Michelle High Grade Vein                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Mineral Reserve      | Economically mineable part of a Measured or Indicated
      Resource demonstrated by at least a comprehensive study of the viability
      of a mineral property that has advanced to a stage where the mining
      method, in the case of underground mining, or the pit configuration, in
      the case of an open pit, has been established, and where an effective
      method of mineral processing has been determined.                                                                                                                                                                      
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Mineral Resource     | Concentration or occurrence of natural, solid, inorganic
      or fossilized organic material in or on the earths crust in such form and
      quantity and of such a grade or quality that it has reasonable prospects
      for economic extraction. The location, quantity, grade, geological
      characteristics and continuity of a mineral resource are known, estimated
      or interpreted from specific geological evidence and knowledge. Mineral
      Resources are sub-divided, in order of increasing geological confidence,
      into Inferred, Indicated and Measured categories.
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Ministry             | BC Ministry of Energy and Mines                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|NSR                  | Net Smelter Royalties, a set percentage of metal, such as
      gold, that is processed from any mining that may occur on a claim. A 5%
      NSR would be considered very high and 0.5% NSR very low. Most NSR range
      between 1-3%.                                                                                                                                                                                                                                                                                                                                                             
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|OTCBB                | Over-The-Counter Bulletin Board                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Placer               | Gold and or other minerals found in and extractable from
      alluvial materials such as steam beds, gravels, sands, or other media
      found above bedrock.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Plan                 | Cusacs stock option plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Plaza                | Plaza Mining Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Prefeasibility Study | Preliminary feasibility study related to the East Bain
      Vein and the Rory Vein.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Private Placement    | Private Placement completed on May 31, 2006 issuing
      3,749,225 Common Share Units at $0.24 per Common Share Unit for proceeds
      of $899,814; 6,657,500 Flow-Through Units at $0.27 per Flow-Through Unit
      for proceeds of $1,797,525; and 813 Convertible Debentures at $3,750 per
      Convertible Debenture for proceeds of $3,048,750.                                                                                                                                                                                                                                             
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|PCPs                 | Pre-Existing Company Provisions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Property             | The Table Mountain gold property located in the Cassiar
      Mining District of the Liard Mining Division in Northern British Columbia.                                                                                                                                                                                                                                                                                                                                                                                                                                                              

- 5 -

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|Term                                       | Definition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Registrar                                  | Registrar of Companies (British
        Columbia)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|SAR                                        | Stock Appreciation Rights                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|2006 Share Option Plan                     | Cusacs 2006 stock option
        plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Spot Price                                 | On any Spot Price Determination
        Date, the London, England afternoon fixing price on such date, expressed
        in United States dollars, on the London gold bullion market as specified
        on Telerate page 405 for one troy ounce of 0.995 fine gold or if, in the
        opinion of the Companys bankers, such afternoon fixing price cannot
        be determined, an amount determined by the Companys bankers as the
        arithmetic mean of bid prices (expressed in United States dollars) for
        one troy ounce of 0.995 fine gold at or about 4:00 p.m. (London time)
        quoted to it by five institutions involved in the buying and selling of
        gold (disregarding the highest and lowest of such bid prices), or otherwise
        as determined by the Companys bankers using such other method as
        they may consider to have become customary or other otherwise to be appropriate
        for determining the price of gold in London, or if the price of gold in
        London cannot be determined, in the City of New York.
|                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Spot Price
           Determination Date   | Each of March 31, June 30, September
        30 and December 31, as the case may be, in each year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|SFAS                                       | Statement of Financial Accounting
        Standard                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Table Mountain Gold 
          Mine        | The totality of all the veins
        that have supplied ore to the Companys mill over the years that
        are located on claims that make up the Property. In the past, different
        companies operated some of the veins making up the present day Table Mountain
        Gold Mine as separate operations. Now that all of these claims are compiled
        into the Companys sole ownership, all the ore sources comprise one
        single mine. The Taurus II project, however, is not considered to be part
        of the Table Mountain Gold Mine, as that area has not historically provided
        ore to the mill and is not expected to as it is a potential open pit style
        gold mine.                                                                                                                                                                                                                                                                                                                                                                    
|                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Taurus                                     | International Taurus Resources
        Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Taurus Mining 
          Venture Agreement | Agreement made on or about January
        1995 between Cusac, and Cyprus regarding a portion of the Table Mountain
        Gold Property.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Taurus Project                             | Group of claims approximately
        15 square miles consisting of mineralized zones that straddle the boundary
        of claims held by Taurus; situated to the north of the Property.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Total                                      | Total Energold Corporation, a
        subsidiary of Total Compagnie Français des Petroles.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Transfer Agent                             | Pacific Corporate Trust Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Treaty                                     | Canada-United States Income Tax
        Convention (1980)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|US GAAP                                    | United Stated Generally Accepted
        Accounting Principles                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|VIEs                                       | Variable interest entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Warrant                                    | A common share purchase warrant
        of the Company comprised in the Common Share Units and the Flow-Through
        Units, each Warrant entitling the holder to acquire one common share of
        the Company at a price of $0.35 within 12 months of the Private Placement
        completed on May 31, 2006, as described elsewhere in this document.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. You can identify
these statements by forward-looking words such an anticipate, believe,
could, estimate, expect, intend, may, plan, potential, should,
will, and would or similar words. Forward-looking statements are not
guarantees of future performance and involve substantial risks and
uncertainties. You should read statements that contain these words carefully
because they discuss our future expectations, contain projections of our future
results of operations or of our financial position, or state other
forward-looking information. We believe that it is important to communicate our
future expectations to our shareholders. However, there may be events in the
future that we are not able to predict accurately or control. Therefore, these
statements should not be regarded as a representation by us that any of our
objectives or plans will be achieved or that any of our operating expectations
will be realized. Our revenues and results of operations are difficult to
forecast and could differ materially from those projected in the forward-looking
statements contained in this Annual Report.

The factors listed below in the section captioned Risk
Factors, as well as any cautionary language in this Annual Report, provide
examples of risks, uncertainties, and events that may cause our actual results
to differ materially from the expectations we describe in our forward-looking
statements. You should be aware that the occurrence of the events described in
these risk factors and elsewhere in this Annual Report could have a material
adverse effect on our business, results of operations and financial position.
The risk factors should not be considered to be complete; we undertake no
obligation to release publicly the results of any future revisions we may make
to forward-looking statements to reflect events after the date hereof, or to
reflect the occurrence of unanticipated events.

__________________________________

Unless otherwise indicated, all references to Cusac, the
Company, we, us, and our refer to Cusac Gold Mines Ltd. and its
subsidiaries. All dollar amounts set forth in this Annual Report are in Canadian
dollars, except where otherwise indicated.

- 7 -

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PART I

ITEM 1. DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

 Not Applicable 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

 Not Applicable 

ITEM 3. KEY INFORMATION

3.A.1. Selected Financial Data

The financial data found herein for the years ended December
31, 2005 to 2001 and elsewhere in this Annual Report are taken from our
financial statements, which have been prepared according to Canadian Generally
Accepted Accounting Principles (Canadian GAAP) and have been examined
by BDO Dunwoody LLP, independent chartered accountants.

You should read the attached Consolidated Financial Statements
and refer to Item 5: Operating and Financial Review and Prospects.

Below and in Note 15 to our Consolidated Financial Statements
provides descriptions of the principal differences between Canadian GAAP and
United States Generally Accepted Accounting Principles (US GAAP) as
they relate to us and reconciliation of US GAAP to our Consolidated Financial
Statements.

Unless otherwise indicated, all financial data presented below
is in Canadian dollars.

Table No. 3Selected Financial Data in accordance
with Canadian GAAP for Five Years Ended December 31, 2005

Year Ended2005
    
    
    2004
    (a)
    
    **2003(a) , (b)**
    
    
    2002(b)
    
    
    2001(b)Production Revenue
    
    
    
    
    -
    
    
    
    
    
    -Production Costs
    
    
    
    
    -
    
    
    -
    
    
    -Administration &
      Amortization
    $
    686,949
    
    $
    703,398
    
    $
    1,033,813
    
    $
    817,295
    
    $
    339,673Exploration Expense
    $
    949,945
    
    $
    1,120,152
    
    $
    446,176
    
    $
    330,668
    
    $
    174,404Future Income Taxes Recovery
    $
    (105,567
    )
    $
    (256,464
    )
    
    -
    
    
    -
    
    
    -Operating Loss
    $
    (1,636,894
    )
    $
    (1,823,550
    )
    $
    (1,479,989
    )
    $
    (1,155,963
    )
    $
    (514,077
    )Net Loss
    $
    (1,562,307
    )
    $
    (1,692,229
    )
    $
    (1,465,121
    )
    $
    (1,192,847
    )
    $
    (446,239
    )Loss per share
    $
    (0.03
    )
    $
    (0.04
    )
    $
    (0.04
    )
    $
    (0.04
    )
    $
    (0.02
    )Net Assets
    $
    1,578,281
    
    $
    2,070,627
    
    $
    3,121,004
    
    $
    2,321,253
    
    $
    1,852,767Total Assets
    $
    3,047,061
    
    $
    3,374,820
    
    $
    3,970,972
    
    $
    2,842,118
    
    $
    2,416,123Capital Stock
    $
    21,005,419
    
    $
    20,038,558
    
    $
    19,404,606
    
    $
    17,454,916
    
    $
    16,168,748


|(a) | As further discussed below and in the audited financial
      statements hereto, the Companys 2005 and 2004 results reflect the
      expensing of stock options in accordance with generally accepted
      accounting principles in Canada promulgated during
2002.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 8 -

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3.A.2. Differences Between Canadian and United States
Generally Accepted Accounting Principles

As discussed in the Summary of Significant Accounting Policies
to our consolidated financial statements, these consolidated financial
statements are prepared in accordance with Canadian GAAP. Differences in
Canadian GAAP and US GAAP as they pertain to these financial statements are
summarized as follows:

Accounting for Unrealized Losses on Long-term Investments

Canadian GAAP requires 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. 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 gains of $61,027 during 2005, described in Note 2 to our consolidated
financial statements are, in managements opinion, temporary.

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

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 2003, 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(R), Share-Based Payment SFAS No. 123(R)
requires the Company to measure all employee stock-based compensation awards
using a fair value method and record such expense in its consolidated financial
statements. In addition, SFAS No. 123(R) requires additional accounting related
to the income tax effects and additional disclosure regarding the cash flow
effects resulting from share-based payment arrangements. For public entities
that do not file as a small business issuer, SFAS No. 123(R) is effective for
the first interim or annual reporting period beginning after June 15, 2005.

Effective January 1, 2004, the Company adopted the Canadian
GAAP fair-value-based method for all stock-based awards granted on or after
January 1, 2004 and retroactively applied this method and restated all prior
period consolidated financial statements. The Company has also early adopted,
using modified prospective method as allowed under US GAAP, SFAS No. 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 No. 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.

SFAS No. 123, Accounting for Stock-Based Compensation,
requires the Company to record compensation to non-employees using the fair
value based method prescribed therein similar to accounting principles in effect
in Canadian GAAP for the years ended December 31, 2003.

- 9 -

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Other Stock Based Compensation

During 2005, the Company incurred costs of $63,275 relating to
  the issue of 453,824 common shares as compensation to agents in connection with
  the issuance of common share units of the Company. Under both Canadian and US
  GAAP, the value of these shares was charged to share capital as share issuance
  costs. Thus, the net effect on the Company’s share equity is $Nil.

In 2004, 226, 923 agent warrants were issued in connection with
  various private placements of the Company’s common stock during the year.
  Under Canadian GAAP, no value was assigned to these warrants granted to agents
  in connection with the private placements described in Note 7 to our consolidated
  financial statements. Under US GAAP, these 226,923 agent warrants were valued
  on the closing date of the private placement using the Black Scholes option
  pricing model with the following weighted average assumptions:

2004Risk-free rate
    3.06%Dividend yield
    Nil%Volatility factor of the
      expected market price of the Companys common shares
    89%Weighted average expected
      life of the options (months)
    12


The value of the warrants issued during 2004 was approximately
$11,126 which was charged against share capital as share issuance costs. The net
effect on the Companys shareholders equity is $Nil.

The agent warrants issued during the year ended December 31,
  2004 once exercised provide the agent with a unit which consists of one common
  share and warrants as outlined in Note 7 to our consolidated financial statements.
  The value of the additional warrants is not determinable and thus not measured
  until they are issued at which time the value will be charged against share
  capital as share issuance costs, such that the net effect will be $Nil on the
  Company’s shareholder’s equity.

Flow-through Shares

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 Emerging Issues Committee (“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 all the periods presented.

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.

- 10 -

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

Asset Retirement Obligation

The Company adopted Canadian Institute of Chartered Accountants
  (“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 obligation
  and increased their estimated costs to a total of approximately $705,000 (2004
  - $500,000). This change in estimate resulted in the recognition of additional
  asset retirement obligations and a corresponding capitalization to the resource
  property as at December 31, 2005 under US GAAP of $251,633 (2004 - $342,288),
  resulted in 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).

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

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

2005
    
    
    2004
    
    
    2003(Restated)Net loss per Canadian GAAP
    $
    (1,562,307
    )
    $
    (1,692,229
    )
    $
    (1,465,121
    )Adjustments related to:Stock based
      compensation
    
    -
    
    
    -
    
    
    8,025Loss on settlement of debt
    
    -
    
    
    -
    
    
    -Income tax recovery of
      flow through shares
    
    (105,567
    )
    
    (256,464
    )
    
    -Compensation expense on warrants andrenouncement of tax benefit
    
    -
    
    
    (50,199
    )
    
    -Asset retirement obligation
    
    -
    
    
    (342,288
    )
    
    -Accretion expense
    
      -
    
    
      -
    
    
    14,105Net loss per US GAAP
    
      (1,667,874
    )
    
      (2,341,180
    )
    
    (1,442,991
    )Unrealized gains (losses) on investments
    
    94,080
    
    
    30,960
    
    
    14,414Comprehensive loss per United States GAAP
    $
      (1,573,794
    )
    $
      (2,310,220
    )
    $
    (1,428,577
    )Loss per share per US GAAPBasic and diluted
    $
    (0.03
    )
    $
    (0.06
    )
    $
    (0.04
    )


- 11 -

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Shareholders equity per
      Canadian GAAP
    $
    1,578,281
    
    $
    2,070,627
    
    $
    3,121,004Adjustment related to:Asset retirement obligation
    
    
    
    
    -
    
    
    327,548Accumulated comprehensive loss - unrealizedloss on investments
    
    61,027
    
    
    (33,053
    )
    
    (64,013
    )Shareholders equity per US
      GAAP
    $
    1,639,307
    
    $
    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 U.S. GAAP.

3.A.3. Currency and Exchange Rates

The noon rate of exchange on June 26, 2006 as reported by the
  Bank of Canada, for the conversion of Canadian dollars into U.S. dollars was
  Cdn$1.1239 per U.S.$1.00 (Cdn.$1.00 equals $0.8898) .

Monthly High(1)
    Monthly Low(1)June 2006
    0.9060
    0.8857May 2006
    0.9065
    0.8869April 2006
    0.8937
    0.8496March 2006
    0.8811
    0.8513February 2006
    0.8773
    0.8610January 2006
    0.8730
    0.8479December 2005
    0.8672
    0.8508


(1)
    The high and low exchange rate in each month has been
      calculated using the average buy/sell rate of the Bank of
  Canada


The following table sets forth (i) the rate of exchange for the
Canadian dollar, expressed in U.S. dollars, in effect at the end of the periods
indicated, (ii) the average of exchange rates in effect on the last day of each
month during such periods, and (iii) the high and low exchange rates during such
periods, each based on the noon rate of exchange as reported by the Bank of
Canada for conversion of Canadian dollars into U.S. dollars.

Year Ended December 31,2005
    2004
    2003
    2002
    2001High
    0.8682
    $0.8537
    $0.7867
    $0.6583
    $0.6669Low
    0.7876
    $0.7141
    $0.7061
    $0.6231
    $0.6279Average
    0.8254
    $0.7683
    $0.7136
    $0.6369
    $0.6460Period End
    0.8598
    $0.8300
    $0.7738
    $0.6329
    $0.6279


3.B. Capitalization and Indebtedness

 Not Applicable 

3.C. Reasons for the Offer and Use of Proceeds

 Not Applicable 

3.D. Risk Factors

Risk of Non Compliance with Government Regulations.To the best of our knowledge, the Company has obtained all necessary
governmental permit approvals for development of its properties. If additional
approvals are necessary for any development in the future, the Company intends
to provide all the necessary information to regulatory

- 12 -

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authorities and adjust its development plans to enable it to
obtain any requisite approvals. In the event the Company is not able to obtain
the necessary approvals, the Companys development plans and operations could be
negatively impacted. The Company currently believes its operations throughout
comply with all governmental regulations, and it intends to comply with all
governmental regulations as it continues to explore, develop and, if possible,
exploit its properties.

Financial Uncertainty. The Companys objective is
to delineate economic bodies of gold mineralization on its properties. The
decision to go into full scale production and undertake additional exploration
and development programs and feasibility studies will involve consideration and
evaluation of several significant factors including, but not limited to: costs
of bringing proven reserves into production, including additional exploration
and development work, preparation of production feasibility studies;
availability and costs of financing; ongoing costs of production; market prices
for the metals to be produced; environmental compliance regulations and
restraints; and political climate, governmental regulation and control, or both.
There is no assurance that these factors will be favourable so that full scale
production and additional exploration will be economically feasible.

Uncertainty of Profitability.The Company has not
yet fully explored or developed all targets on its properties and has not had
net income from operations for the past three years. There can be no assurance
that the Company will become profitable in the future. At present the Companys
only established reserves occur on the Table Mountain Gold Property. There is no
assurance that these reserves shall be economically mined.

Going Concern Uncertainty.The Company is an
exploration stage company with no history of profitability. There can be no
assurance that the operations of the Company will be profitable in the future.
The Company has limited financial resources and will require additional
financing to further explore, develop, acquire and retain its property interests
and if financing is unavailable for any reason, the Company may become unable to
acquire and retain its mineral concessions and carry out its business plan.
These circumstances raise doubt about our ability to continue as a going
concern, as described in the comments by our independent auditor for U.S.
Readers on Canada  U.S. reporting difference on the December 31, 2005 and 2004
consolidated financial statements. The consolidated financial statements do not
include any adjustments that might result from the outcome of that uncertainty.

Potential Dilution of Shareholders Equity.It is
likely that to obtain necessary funds, the Company will have to sell additional
securities, including, but not limited to, its common shares or by other means,
the effect of which would result in a substantial dilution of the present equity
interests of the Companys shareholders.

Unknown Factors beyond the Control of the Company.The profitability of the Companys current operations is significantly
affected by the market price of gold. Market gold prices can fluctuate widely
and are affected by numerous factors beyond the Companys control, including;

- industrial and jewellery demand,
- expectations with respect to the rate of inflation,
- the strength of the US dollar (the currency in which the price of gold is
  generally quoted) and of other currencies,
- interest rates,
- central bank sales,
- forward sales by producers,
- global or regional political or economic events, and
- production costs in major gold-producing regions such as South Africa,
  South America and the former Soviet Union.

The potential profitability of mineral properties owned by the
Company is dependent upon many factors. For instance, world prices of and
markets for non-precious and precious metals and minerals are unpredictable,
highly volatile, potentially subject to governmental fixing, pegging, controls,
or any combination of these three, and

- 13 -

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respond to changes in domestic, international, political,
social and economic environments. Additionally, due to worldwide economic
uncertainty, the availability and cost of funds for production and other
expenses have become increasingly difficult, if not impossible, to project.
These changes and events may materially affect the financial performance of the
Company.

Competitiveness of Mining Industry.The mining
industry is intensely competitive. The Company competes with many major mining
companies that have substantially greater financial and operational resources.
Accordingly, there is a high degree of competition for desirable mining leases,
suitable prospects and funding.

Fluctuating Price and Demand of Gold and Base Metals.The demand for and supply of gold affects gold prices, but not
necessarily in the same manner as supply and demand may affect the prices of
other commodities. The supply of gold consists of a combination of new mine
production and existing stocks of bullion and fabricated gold held by
governments, public and private financial institutions, industrial organizations
and private individuals. As the amounts produced in any single year constitute a
very small portion of the total potential supply of gold, normal variations in
current production do not necessarily have a significant impact on the supply of
gold or on its price. There is a risk that the Company revenue from gold sales,
if any, may never rise above the cost of production and as such operations may
never become economical.

Some of the factors in gold market fluctuations include the
pricing and demand, producing costs and capacity of natural resource markets and
processing equipment, governmental regulations, land tenure, land use,
regulation concerning the importing and exporting of minerals, and environmental
protection regulations. The exact effect of these factors cannot be accurately
predicted, but the combination of these factors may result in the Company not
receiving an adequate return on invested capital to be profitable or viable.

Risk of Mining Operations.Mining operations
generally involve a high degree of risk. Hazards such as unusual or unexpected
geological formations, power outages, labour disruptions, flooding, explosions,
rock-bursts, cave-ins, landslides, inability to obtain suitable or adequate
machinery, equipment or labour, and other risks are involved. The Company may
become subject to liability for pollution, cave-ins, or hazards against which it
cannot adequately insure or which it may elect not to insure. Incurring any such
liability may have an adverse effect on the Companys financial position and
operations.

Nature of Business.The validity of mining claims
is often uncertain and may be contested. In accordance with mining industry
practice, the Company has surveyed the key claims of the known resources located
within its properties. However, the boundaries of some of the Companys mining
properties have not been surveyed, and, therefore, in accordance with the mining
laws of British Columbia, the precise location and area of these mining
properties may be in doubt and could be the subject of competing claims. Title
insurance is unavailable in Canada. The bulk of the Companys claims have been
held for at least 20 years, during which time there have been no disputes as per
the Companys knowledge. However, there is no assurance that these claims will
not be contested in the future.

Regulation of Mining Industry.Mining operations
are subject to federal, provincial and local laws relating to the protection of
the environment, including laws regulating removal of natural resources from the
ground and the discharge of materials into the environment. Milling operations
are also subject to federal, provincial, and local laws and regulations, which
seek to maintain health and safety standards by regulating the design and use of
mining methods and equipment. Various permits from government bodies are
required for mining operations to be conducted; no assurance can be given that
such permits will be received. No assurance can be given that environmental
standards imposed by federal, provincial, or local authorities will not be
changed or that any such changes would not have material adverse effects on the
Companys activities. Moreover, compliance with such laws may cause substantial
delays or require capital outlays in excess of those anticipated, thus causing
an adverse effect on the Company. Additionally, the Company may be subject to
liability for environmental damages, which it may elect not to insure against
due to prohibitive premium costs and other reasons. Operations may be affected
in varying degrees by government regulations with respect to restrictions on
production, price controls, export controls, income taxes, expropriation of
property, environmental legislation, and mine safety.

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The Companys primary interest is in the Table Mountain Gold
Property. The Company faces further significant risks regarding the current gold
mining project at Table Mountain, including:

The world price for precious and base metals is dependent upon
numerous economic, political, and social factors over which the Company has no
control. Inflationary changes in the next few years may cause the cost
projections or the projects to be insufficient and thereby render the project
unprofitable. Mining policies in British Columbia may interfere with the
extraction of the Companys resources.

Fluctuations of Currency.The Companys products
such as gold and base metals are traded in US dollars. It is subject to foreign
currency fluctuations and such fluctuations may materially affect the Companys
financial position and results. The Company does not engage in currency hedging
activities.

ITEM 4. INFORMATION ON THE COMPANY

4.A. History and Development of the Company

General

Cusac Gold Mines Ltd.s (the Company; Cusac),
principal place of business and registered and records office is Suite 911 - 470
Granville Street, Vancouver, British Columbia, V6C 1V5, telephone number (604)
682-2421 and facsimile number (604) 682-7576. The Companys website address is
www.cusac.com and e-mail address is info@cusac.com. The Companys contact person is Mr.
David H. Brett, Director, President and Chief Executive Officer of the Company.
The Companys fiscal year ends December 31.

The Company is engaged in the business of acquisition,
exploration, development and mining of precious metal resource properties. The
primary focus of the Company is the production of gold from operations at the
Table Mountain Gold Property (Table Mountain) located in the Cassiar Mining
District of the Liard Mining Division in Northern British Columbia.

The Common shares of the Company trades on the Toronto Stock
Exchange under the symbol CQC and the NASDAQ Over-The-Counter Bulletin Board
(OTCBB) under the symbol CUSIF. The Company was accepted for trading
on the OTCBB in July 1980. On August 20 1998, NASDAQ chose to delist the
Company's securities from trading for the sole reason that the price for the
Companys common stock had not maintained a bid price of US$1.00 in keeping with
a newly implemented rule. At the time of the determination, Cusac was and
remains in compliance with all other NASDAQ rules. The Companys common stock
continues to trade on the OTCBB. In addition, Cusac remains a reporting company
under the United States Securities and Exchange Commission rules and its common
stock continues to trade on the Toronto Stock Exchange.

Incorporation, Name Changes and Authorized Capital

The Company was incorporated pursuant to the laws of the
Province of British Columbia on November 19, 1965 as a limited company under the
name Glen Copper Mines Limited with an authorized capital of 3,000,000 shares
without nominal or par value with a maximum price of $1.00 by registration of
its Memorandum and Articles. On March 14, 1966, the Company converted itself
from a private company to a public company. On May 17, 1993, the Company
increased its authorized capital to 4,000,000 shares without nominal or par
value with a maximum price of $1.00. On January 18, 1974, the Company changed
its name to Cusac Industries Ltd. and reduced its authorized capital to
3,000,000 shares without par value. On May 9, 1978, the Company increased its
authorized capital to 10,000,000 shares without par value. On September 9, 1992,
the Company increased its authorized capital to 100,000,000 shares without par
value. On December 6, 1994, the Company amended its authorized capital to
consist of 105,000,000 shares divided into 100,000,000 common shares without par
value and 5,000,000 preference shares without par value. On July 17, 1995, the
Company changed its name to Cusac Gold Mines Ltd. and amended its authorized
capital to consist of 105,000,000 shares divided into 100,000,000 common shares
without par value and 5,000,000 preference shares without par value of which the
first series, consisting of 250,000 shares, is designated Series A convertible
Preference Shares.

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The Company has 51,300,133 common shares issued and 51,296,133
  common shares outstanding as of December 31, 2005.

4.B. Business Overview

As stated, the primary focus of the Company is the production
of gold from operations at the Table Mountain Gold Property located in the
Cassiar Mining District of the Liard Mining Division in Northern British
Columbia.

The Company first acquired mineral property interests and
conducted exploration activities in the Table Mountain area in 1978. In 1984,
the Company conveyed its interests in the Table Mountain Gold Property to a
predecessor of Energold Minerals, Inc. (Energold) that operated a mine
and established a mill at the site in exchange for a net profit interest in the
production. From 1984 until 1989, the Company received over $6.8 million from
its net profits interest in production from the Energold operations. Energold
ceased operations at Table Mountain in 1989/1990.

In January 1993, the Company acquired all of Energolds
property interests at Table Mountain, that included Energolds 300-ton per day
mill, various buildings at the site, sundry mining equipment, various vehicles,
substantial historical mining data and other capital goods in exchange for the
issuance of 2,032,229 shares of the Companys common stock at a deemed value of
$1.2 million. Since that acquisition, the Company has invested approximately $7
million in developing ore reserves and improving the mining facilities.

Cusac began mining on the Table Mountain Gold Property in
September of 1993. Mining operations continued until low grades and weak bullion
prices forced suspension of continuous operations in the fourth quarter of 1997.
Limited operations resumed in July of 1998 and continued until June of 1999.
Between April of 1994 and suspension of operations the Company produced
approximately 63,000 ounces of gold from the property.

As outlined below, peripheral portions of the Table Mountain
Gold Property have been subject to various option agreements.

In June of 1994, to fund further exploration on a portion of
the Table Mountain property, the Company granted Demand Gold Ltd. (formerly
Demand Technologies, Inc., hereinafter Demand), a British Columbia
corporation having certain officers and directors in common with the Company),
an Option to acquire a 50% interest in 30.2 square miles of the property.
Subsequent to December 31, 1997, the option expired.

In January of 1995, the Company entered into a Mining Venture
Agreement (the Taurus Mining Venture Agreement) with Cyprus Canada
Inc., a subsidiary of Cyprus Amax Minerals of Denver, Colorado (Cyprus)
regarding a northern portion of the Table Mountain Property consisting of a
group of claims comprising approximately 15 square miles of ground known as the
Taurus Project (the Taurus Project). The Taurus Project consists of
mineralized zones that straddle the boundary of claims held by International
Taurus Resources Inc. and Cusac.

Under the Taurus Mining Venture Agreement, Cyprus could earn a
50% interest in the Table Mountain Gold Property by spending $2 million over 3
years and a 70% interest by establishing commercial production. Cusac was to
receive payments of $320,000, of which $70,000 was received on signing and an
additional $30,000 was received on the anniversary date of the Taurus Mining
Venture Agreement. In August of 1996, after spending approximately $1 million,
Cyprus elected to withdraw from the Taurus Project.

In August of 1996, the Company entered into an option agreement
with Taurus regarding the same claims formerly under the Taurus Mining Venture
Agreement. The Company withdrew from this option agreement in 2000. In 2005,
Taurus merged with American Bonanza Gold Mining Inc. to form a new company with
the same name, and, accordingly, is the new tenure holder of the claims formerly
subject to the Taurus Mining Venture Agreement.

The core productive portion of the Table Mountain Property has
been fully controlled and 100% owned by the Company since 1993.

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Since 1997, the Company has suspended mine operations and has
entered into a care and maintenance mode with regards to the Table Mountain
Mine, except for a brief production run in 1999, due to the low gold prices in
the late 1990s and early 2000s and difficulty in raising capital. In recent
years the price of gold has increased and the Company has been able to raise
equity funding for exploration, as outlined in detail below. As of the date of
filing of this Annual Report, preparations for commercial production are
underway, as management has raised sufficient funds (see Recent Financing
below) to restart mining operations. As outlined below, the Company completed in
Q1 2005 an independent Preliminary Feasibility Study relating to gold reserves
at the Table Mountain Gold Property that indicates the economic viability of
recommencing operations and a requirement for CDN$3.7 million start-up funds.

Recent Financing

Subsequent to the end of 2005, the Company completed a private
placement on May 31, 2006 (the Private Placement) and issued: 3,749,225
common share units (the Common Share Units) at $0.24 per Common Share
Unit for proceeds of $899,814; 6,657,500 flow-through units (the
Flow-Through Units) at $0.27 per Flow-Through Unit for proceeds of
$1,797,525; and 813 convertible debentures (the Convertible Debentures)
at $3,750 per Convertible Debenture for proceeds of $3,048,750. The proceeds
from the Private Placement totalled $5,746,089.

The Common Share Units consist of one common share and one
warrant to purchase an additional common share for 12 months at $0.35 per common
share (a Warrant). The Flow-Through Units consist of one flow-through
share and one half of one Warrant. The Convertible Debentures bear interest at a
rate of 11% per annum (calculated and payable semi-annually), mature in 18
months, and are convertible into common shares at a price of $0.305 per share.
The purchasers of the Convertible Debentures also received 6,147 detachable
warrants with each Convertible Debenture purchased. The Company issued a total
of 4,997,511 detachable warrants in connection with the Convertible Debentures.
The warrants accompanying the Debentures are not exercisable until the Company
obtains the approval of its shareholders. Thereafter, each detachable warrant
entitles the holder to purchase a common share at $0.35 per share expiring May
31, 2007. If the shareholders do not approve the warrants accompanying the
Debentures by the close of business on July 30, 2006, the Debentures will bear
interest at 15% per annum. The Convertible Debentures are secured by a first
charge against all the assets of the Company. All shares issued pursuant to this
Private Placement together with any shares issuable on the conversion of
debentures and exercise of warrants have a hold period in Canada expiring
October 1, 2006.

In connection with the Private Placement, M Partners Inc. and
Oberon Securities, LLC were to be paid a cash commission and to receive brokers
warrants. M Partners Inc. was paid a cash commission of 7% and received brokers
warrants to purchase such number of common shares as is equal 7% of all the
units sold, at a price of $0.24 exercisable for a period of 18 months from
closing. The issuance of 101,548 warrants to Oberon Securities, LLC, each
warrant entitling Oberon Securities, LLC to purchase a common share of the
Company at a price of $0.305 per share exercisable for 18 months, is subject to
the approval of the Companys shareholders.

Proceeds from the Private Placement will be used for
exploration and development of the Table Mountain Property, and includes
$3,700,000 recommended by the Preliminary Feasibility Study for recommencement
of production at the Table Mountain Gold Mine.

Sources of Funding Requirements

Subsequent to the suspension of continuous mining activities at
Table Mountain Gold Property in 1998, the Companys operations have been
financed primarily through the sale of common shares and related party advances.
The Company anticipates that the funds raised in the May 31 Private Placement
described above will be sufficient to bring the Company to positive cash flow
from operations, possibly making the Company profitable. However, no assurances
can be given as factors such as mining conditions, delays due to government
regulation, difficulty obtaining staff and equipment, and other risks could
result in additional funding being required. The Company may need to obtain
additional funding to pursue its exploration and developmental activities during
the next fiscal year and there is no guarantee that these funds will be
available to the Company. See Item 3.D.Key Information  Risk Factors. The
Companys inability to raise additional capital to fund operations through the
remainder of this

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year and through the next fiscal year would have a detrimental
effect on the Companys viability and capability to pursue its operational
activities.

No assurance can be given that the proceeds of the private
offering of the Companys securities described above will provide sufficient
funds to undertake all of the Companys exploration and/or production activities
for the next twelve months. Failure to obtain such financing could be
detrimental to the success of the Companys operations.

4.C. Organizational structure

The Company has one inactive wholly-owned subsidiary, Gulf
Titanium Inc., incorporated pursuant to the laws of the State of Montana.

4.D. Property, Plant and Equipment

Office Space

The Company subleases its office space on a month-to-month
basis at 911 - 470 Granville Street, Vancouver, British Columbia, V6C 1V5
pursuant to an agreement with Equitable Real Estate. The monthly rental payment
is $2,872.99.

The Table Mountain Gold Property

Acquisition of Interest

The Table Mountain Gold Property (the Property)
consists of hard rock claims pertaining to bedrock and a few placer claims
pertaining to the sand, gravel and soil above the bedrock. The Property is
comprised of mostly contiguous mineral claims over approximately 14,000 hectares
(5,100 acres). Such mineral claims were acquired and assembled together by
staking, outright purchase or through option-to-purchase agreements. The Company
acquired the claims that make up the Property over a long period of time
starting in the 1970s. All of the claims that make up the Property are now owned
outright by the Company, with some claims subject to net smelter royalties
(NSR) or net profit interests. A list of the claims are as follows:

TENURE #
    CLAIM NAME
    REGISTERED OWNER
    EXPIRY DATE
    AREA221632
    Sun
    105981
    2008/JUN/30
    200.00221633
    Up
    105981
    2008/JUN/30
    125.00226156
    Red hill No. 5
    105981
    2008/JUN/30
    25.00226157
    Red hill No. 6
    105981
    2008/JUN/30
    25.00226193
    Jennie extension #4
    105981
    2008/JUN/30
    25.00226194
    Jennie extension #1
    105981
    2008/JUN/30
    25.00226195
    Jennie extension #2
    105981
    2008/JUN/30
    25.00226196
    Jennie extension #3
    105981
    2008/JUN/30
    25.00510750
    -
    105981
    2008/JUN/30
    1009.49510751
    -
    105981
    2008/JUN/30
    132.31510766
    -
    105981
    2008/JUN/30
    744.17510768
    Ole' 1-9
    105981
    2008/JUN/30
    148.81511229
    -
    105981
    2009/JUN/30
    496.46511346
    -
    105981
    2009/JUN/30
    430.59


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TENURE #
    CLAIM NAME
    REGISTERED OWNER
    EXPIRY DATE
    AREA511352
    Reder 1-10
    105981
    2008/JUN/30
    165.55511359
    -
    105981
    2008/JUN/30
    777.50511365
    -
    105981
    2008/JUN/30
    1407.70511368
    Grab 1-2
    105981
    2008/JUN/30
    33.10511371
    -
    105981
    2008/JUN/30
    265.06511380
    -
    105981
    2008/JUN/29
    1226.94511385
    -
    105981
    2008/JUN/30
    1243.581511387
    Tracker 1-20
    105981
    2008/JUN/30
    364.83511394
    Easter 1-25
    105981
    2008/JUN/30
    414.34514057
    -
    105981
    2008/JUN/30
    995.13514088
    -
    105981
    2008/JUN/30
    912.74514497
    -
    105981
    2008/JUN/30
    911.94514508
    -
    105981
    2008/JUN/30
    149.14514509
    -
    105981
    2008/JUN/30
    49.72514937
    -
    105981
    2008/JUN/30
    446.96514939
    -
    105981
    2008/JUN/30
    496.92514943
    -
    105981
    2008/JUN/30
    381.10514944
    -
    105981
    2008/JUN/30
    579.69514945
    -
    105981
    2008/JUN/30
    264.92517020
    NC3
    105981
    2008/JUN/30
    16.54517048
    Aurex
    105981
    2008/JUN/30
    33.08517063
    Argold
    105981
    2008/JUN/30
    33.10517075
    Olew
    105981
    2008/JUN/30
    16.54517092
    Olee
    105981
    2008/JUN/30
    99.22517109
    Watt
    105981
    2008/JUN/30
    33.12517124
    Amp
    105981
    2008/JUN/30
    33.11


The Company began staking claims on the Property in the 1970s.
In 1984, Total Energold Corporation (Total), a subsidiary of Total
Compagnie Français des Petroles, a major French Oil company, a company with
adjoining claims hosting a producing gold mine, entered into an agreement with
the Company to acquire a majority interest to the claims on the Property,
subject to a 40% Net Profits Interest. However, in 1992, after Total had been
shut down for a few years, the Company acquired all of Totals interests in the
Property in exchange for 2,032,229 common shares in the capital of the Company.
Consequently, the Company became the owner of 100% in the vast majority of the
claims that now make up the Property. A more detailed chronology of events
leading to the Companys ultimate ownership of the claims on the Property can be
found under the section History and Previous Work.

The Companys primary interest is in gold resources that are
typically in the mountains and not in the low-lying areas where placer mining
takes place. The Company is not interested in gold that may be contained in
gravel or loose material in creeks and drainages as these deposits are typically
difficult to quantify and hence challenging to ascertain the economic viability
of a given claim. Private individuals with small operations have been known to
work some of the placer claims that in some places overlap the Companys
hard-rock claims.

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Title

The Companys rights in the Property consist of full and
fractional mineral claims and Crown Grants. In British Columbia, Free Miners
Certificate holders may freely claim mineral rights, now done completely
through an online system, on areas open to staking under the Mineral Tenure
Act, subject to paying prescribed fees and performing a minimum amount of
work each year (or pay cash in lieu of such work).

The Companys hard rock mineral claims expire in 2008 and may
be renewed automatically provided that the regulatory minimum investment in
assessment work is duly filed with the appropriate provincial authorities each
year. Crown Grants are acquired as a fee simple interest in the minerals in
perpetuity granted to the holder. Once obtained, no further work or filings are
required to keep Crown Grants in good standing except for the payment of taxes.
Presently the Company has performed sufficient work such that the Property is in
good standing with the government until the year 2008. Work currently underway
will provide additional credits that the Company plans to apply, likely
extending the expiry dates of the claims several more years into the future.

Location

The Property is situated in northern British Columbia, 115 km
southwest of Watson Lake, Yukon Territory, and 120 km northeast of Dease Lake,
British Columbia (see Figure 1). The Table Mountain Gold Property is located in
the Cassiar Mining District of the Liard Mining Division of British Columbia
(see Figure 2).



Figure 1. Table Mountain Gold Property.

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Figure 2. Table Mountain Gold Property  Provincial Location
Map.

Accessibility, Climate, Infrastructure and
Physiography

Accessibility

The Property is accessible via Highway 37, a major access route
from British Columbia to the Yukon and Alaska, which is maintained and kept open
all year. The small town of Dease Lake, 120 km south of the Property, has an
airport with regularly scheduled air service. Watson Lake in the Yukon, which is
115 km northwest of the Property via Highway 37 and Alaska Highway, only has
charter air service available.

One can reach the Property either directly by car or first by
plane to Dease Lake or Whitehorse, Yukon followed by a drive on Highway 37 or
the Alaska Highway. The abandoned town of Cassiar is northwest of the Property
and the unincorporated settlement of Jade City is on Highway 37 at the road
entrance to Cusacs mines (the Cusac Mine) facilities. Numerous
secondary haul roads, accessible by two-wheel-drive vehicles, connect to all
parts of the Property from Highway 37. Four-wheel-drive and off-road vehicles
are required to access more remote areas of the Property where roads or trails
are in poor condition.

Climate

The climate is characterized by short warm summers and long
cold winters. Underground mining, which is most common, can be conducted year
round, and small open pit mining, which is less common, is conducted in the
summer months.

Infrastructure

Existing infrastructure on the Property is well able to support
the type of historic underground mining operations but, except for favourable
road access, no infrastructure is currently in place to support a large scale
open pit mining operation envisaged at the areas known as Taurus and Taurus II
(see Figure 3 for location of these areas). The

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Companys underground operational infrastructure is well
established with defined reserves outlined (see below) whereas the Propertys
open pit mining is considered exploratory in nature.

The mill on the Property (the Cusac Mill) was
constructed in 1986 and was last operated in 1999. The Company estimates that it
will need to spend $50,000 on repairs and maintenance to restart operations at
the Cusac Mill. According to its 2005 preliminary feasibility study on the
Property (the Prefeasibility Study), the Company estimated that
approximately $765,000 must be spent on infrastructure, before recommencing gold
production.

There are two tailings disposal facilities, one of which has
been partially reclaimed. Deposits of material from placer mining are present
along McDame Creek. In 2004, management of the Company estimated asset
retirement obligations totalling approximately $500,000 (consisting of estimated
annual payments of approximately $50,000 for a period of 10 years) based on its
understanding of the requirements to reclaim, decommission and clean up the
Table Mountain Mine. Subsequent to the end of the period, on June 13, 2005, the
BC Ministry of Energy and Mines (the Ministry) issued M-127, an amended
mining permit, (the Amended Permit) to the Company, whereby the Company must
complete, to the satisfaction of the Ministry, reclamation work in the order of
$705,000 when the Table Mountain Gold Mine closes. Under the Amended Permit, the
Company is required to pay a bond payment of an additional $150,000 per year by
December 31 of each year for three years and $140,556 in the fourth year, for an
aggregate total of $705,000. The Company obtained from the Ministry an extension
of time to June 1, 2006 to place the $150,000 required at December 31, 2005,
which was completed on time. The Amended Permit provides that the Company may
reduce the liability of the annual bond increase amount by performing required
reclamation work. Work permits are required on an as-needed basis in advance of
the work being conducted.

Physiography

Valleys on the Property are comprised of shallow lakes and
swamps with thick, stunted growths of pine and spruce. Treed areas on the
Property extend upland where they give way to open brush and alpine meadows.
Although the surrounding mountainous areas are rugged, much of the Property has
rolling topography. Placer workings extend from McDame Lake to McDame Creek for
about 20 km.

History and Previous Work

Chronology

In 1934, the first gold-bearing quartz veins were found in
Quartzrock Creek. Following this, numerous veins were discovered and many claims
were staked. The higher-grade portions of these veins were exploited by
small-scale mining over the next forty years. At one point, half-a-dozen
abandoned mill sites with capacities of less than 12 tons per day existed in the
area. Well-known individuals that played an important role in the early years
include John Vollaug, Hans Ericksen, J.R. Boulton, John Hope, F. Callison, Pete
Hamlin, and Fred and Guilford Brett. Cusacs interest in the area began with the
prospecting efforts of Fred and Guilford Brett who formed Glen Copper Mines
Ltd., which evolved into Cusac Industries Ltd., and in 1995, Cusac Gold Mines
Ltd. At present, the Companys mineral claims cover the entire Cassiar Gold
Camp.

In 1978, Agnes and Jennie Mining Company Limited and Nu-Energy
Development Corp., which later amalgamated to become Erickson Gold Mining
Corporation (Erickson), commenced the first large scale production from
the Jennie Vein in the Main Mine (see Figure 3 for the location of the various
veins on the Table Mountain Gold Property). In 1979 and 1980, Cusac conducted
work in the area of the Cusac Mine. During 1980, Plaza Mining Corporation
(Plaza) commenced open pit production from the eastern portion of the
Vollaug Vein. Between 1978 and 1984, development of the Main Mine (also known as
the Erickson Mine) was expanded to include workings on four main levels to
exploit the Jennie, Maura, Alison, and Bear Veins. Esso Resources Canada Limited
conducted exploration around the Main Mine in the early 1980s.

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Figure 3: Schematic Longitudinal Section of the Table
Mountain Gold Property.

Exploration around Quartzrock Creek by United Hearne Resources
Limited in the late 1970s lead to the commencement of production at the Taurus
Mine in 1981, which continued until 1988. At the same time, Sable Resources Ltd.
and Plaza Resources Ltd. developed underground workings on the east side of 88
Hill, which is in the area marked Taurus on Figure 3 and within the area
called Taurus Project on Figure 1 above.

In 1982, Cusac discovered and conducted minor work on several
veins at Pooley Creek. In 1983, Erickson commenced production from the Troutline
Mine at the eastern end of the Vollaug Vein and from various open pits along the
Vollaug Vein. In the following year, Cusac optioned its property to Erickson
(which had acquired Plaza in the previous year) and continued to expand its
property holdings.

In 1985, Total commenced production from the Eileen Vein (which
is part of the Cusac area on Figure 3 above) in the Cusac Mine and, in 1986,
discovered additional veins in the area. During 1988, Total started work on
level 10, a 2.5 km drift to access the Michelle High Grade Vein (also part of
the Cusac Mine)(the MHG Vein), which could not be accessed
from the Cusac Mine because of high water flows. Production from the Cusac Mine
and Main Mine ceased, with only minor production continuing on the Vollaug Vein.
Work on level 10 ceased in 1989 due to high costs and high water flows.

In 1991, as Total wished to divest itself of all North American
mineral assets, Cusac purchased all such assets, free and clear of any royalties
and re-opened the Cusac Mine. In 1993, Cusac commenced production on the Bain
Vein (the Bain Mine). During the development of the Cusac decline to
the MHG Vein, the Big Vein, both part of the Cusac Mine on Figure 3, was defined
and mined. Mining of the MHG Vein commenced in June 1995, and continued through
1997.

The Katherine Vein, also part of the Cusac Mine, was open pit
mined during 1995, and in early 1996, the level 10 development was extended by
250 metres. Additional mining was conducted on the Vollaug, Melissa, and Lily
Veins during 1996 and 1997, and surface mining was done on the Bear Vein during
1998.

In 1995, Cyprus entered into agreements with Taurus and the
Company on the Taurus Project, which resulted in the definition of an inferred
open pitable resource. In 1996, Cyprus withdrew from the Taurus Project, and the

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Company entered into an agreement with Taurus, under which
agreement the Company conducted additional work that defined an indicated
resource. In 1998, the Company optioned the claims and consolidated the entire
Cassiar Gold Camp under one operator. The Company completed reclamation of the
Taurus Mine site, but no further work was conducted, and the agreement was
subsequently terminated.

During 2002, Cusac conducted diamond drilling on the East Bain
Vein , located on strike of the Bain Vein on Figure 3, which confirmed the
existence of a gap with the West Bain Vein, but failed to extend the vein to the
east. In 2004, the Company spent approximately $1.2 million on exploration on
the Property, resulting in the discovery and definition of the Rory Vein (see
below for more details). In 2005, the Company began exploring another area of
the Property named Taurus II. Results of diamond drilling at Taurus II confirmed
the potential for an open pit gold operation.

Due to low gold prices and difficulty in raising capital, the
Company suspended mine operations in 1997 and entered into a care and
maintenance mode with regards to the Table Mountain Gold Mine, except for a
brief mill run in 1999.

As described above, partly due to significantly increased gold
prices, the Company completed a financing enabling the Company to recommence the
operation with the objective of producing gold again from the Property.

Production

The Cassiar Gold Camp is one of British Columbias major placer
districts with recorded production of about 74,500 oz of gold (2,317 kg) between
1874 and 1895 (Holland 1950). Minor placer production still continues today.

The first hard rock production occurred in 1934 when one ton of
rock, containing four ounces of gold, was shipped and exported. In 1939, 114 oz
(3.5 kg) of gold were recovered from 130 tons of rock taken from the Jennie
Vein. During the 1940s, 1950s and 1960s, a maximum of 100 tons of ore was mined
from the main deposits in the Cassiar Gold Camp (Diakow and Panteleyev
1981).

The largest producer in the camp, the Main Mine, was in
operation from 1979 until 1988. Approximately 150,000 oz (4,666 kg) of gold were
produced from the Jennie-Maura-Alison and Bear Vein systems (Glover 1998). The
Taurus Mine operated between 1981 and 1988, and it produced 35,000 oz (1,089 kg)
of gold (Trenaman 1997). A small amount of this production came from the Plaza
adit and open cuts on 88 Hill. The Vollaug Vein was mined from various open pits
and underground workings between 1980 and 1997. Approximately 50,000 oz (1,555
kg) of gold were produced from this structure (Glover 1998). Mining commenced on
the Eileen-Michelle-Lily Vein system in 1986, and continued until 1997, with
about 90,000 oz (2,799 kg) of gold produced (Glover 1998). Production from the
Bain Vein system spanned the period from 1993 to 1995, and totalled 24,000 oz
(746 kg) of gold (Glover 1998). Surface production from the Bear Vein in 1998
totalled about 1,000 oz (31 kg) of gold. Recorded production from the camp
totals about 423,500 oz (13,172 kg) of gold.

Silver production from various deposits on the Property
generally amount to 75% of gold production. See Table 1 for a summary of gold
production from major vein systems on the Property.

Mineral Resource and Reserve Estimates

Geological Environment

The Property contains numerous occurrences of gold-bearing
quartz veins, many of which have been mined underground. Numerous old surface
disturbances such as access roads, trenches, open pits, underground staging
areas, and drill sites occur throughout the property and have been reclaimed.
The Property is centered on a 15 km long, gold-bearing hydrothermal system that
developed along and adjacent to the northerly-trending Erickson Creek Fault Zone
(ECFZ). Vein systems extend outward from the ECFZ and are up to four
miles long. Most of the historic production on the Property has come from quartz
veins less than one mile from this fault.

- 24 -

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Faulting is an important geological factor in determining where
gold occurs on the Property, as faults provide openings in the ground for molten
rock containing minerals to come up closer to surface from deep in the earth to
form quartz veins and other formations. The faulting can be quite small, such
as a few feet, or large, such as several miles. Geologists theorize that gold is
deposited in quartz veins, rock fractures and other openings in rocks by hot
water circulating through these open spaces over many years. This geological
phenomenon, referred to as hydrothermal, is the process whereby waters from
surface or flowing underground through aquifers comes in contact with
superheated underground rocks called intrusions. The water becomes superheated
and then gets thrust into cracks and openings in the surrounding rocks. Gold and
other metal rich molecules, such as sulfur rich minerals like pyrite, is
transported in solution through the rock fractures and precipitated into porous
openings in the quartz or other rocks.

Gold mineralization on the Property appears as follows:

| | 1. | Type 1- Narrow (1-10 feet wide), high-grade gold
      in quartz veins typically mined from underground in small volumes;
    and                                 
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                   
| | 2. | Type 2- Wide (30-400 feet wide) zones of
      low-grade gold in altered greenstones and quartz mineralization typically
      mined from surface in high volumes.

Historic production from the Property has come from Type 1,
whereas Type 2 is the subject of more recent exploration only. Gold reserves on
the Property exist in high-grade quartz veins, whereas no low-grade reserves
have as been outlined. However, the Company is currently focusing most of its
exploration activity on the second type of mineralization, as deposits of this
type typically have larger size potential.

Exploration

The majority of exploration work conducted on the Property has
been carried out by the Company and previous owners over a period of many years.
This work includes geological mapping, geophysical surveys, soil sampling,
trenching, drilling, and underground drifting.

The Company was actively exploring the Property in the mid
1990s but scaled down efforts between 1998 and 2001 during a time of depressed
gold prices and difficult market conditions for raising exploration funds. Since
2001, the Company has increased exploration activity and spent $1.2 million in
2004. The 2004 exploration program was aimed at discovering high-grade vein
style gold mineralization as the Company sought to outline sufficient reserves
to recommence commercial production. These activities lead to the discovery and
delineation of the Rory Vein. An estimate of probable Mineral Reserves in the
Rory Vein to date is outlined below.

Exploration in 2005 focused on the Taurus II area of the
Property. Taurus II is an area with the potential for Type II veins described
above. Type II vein systems are more likely to be amenable to low-cost,
bulk-tonnage surface mining than the Type I veins typical of the underground
operation. Work during 2005 consisted of geological interpretation of historic
data and diamond drilling. The drilling resulted in a recommendation by
independent Geologist Dale Sketchley recommending further expenditures of $1.53
million. In June of 2006, the Company commenced work on these exploration
recommendations at Taurus II.

Mineral Reserves

East Bain Vein

In 2002, an exploration program was conducted to explore and
further define the East Bain Vein, which was discovered and defined by a
considerable amount of diamond drilling from 1989 to 1991. The 2002 exploration
program comprised eleven drill holes, four of which intersected the East Bain
Vein. Based on all the results to date, probable Mineral Reserves of 28,000 tons
grading 0.50 ounces of gold per ton have been outlined on the East Bain Vein.

Rory Vein

- 25 -

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In 2004, the Company discovered a new gold bearing vein on the
property called the Rory Vein. Diamond drilling during the year outlined a
probable Mineral Reserve of 16,000 tons grading 0.49 ounces of gold per ton.

Additional Technical Information

The Company has filed at www.sedar.com a number of in depth technical reports by
independent experts relating to the Table Mountain Property including detailed
geological and engineering discussions, which are available free of charge to
investors seeking additional information of a technical nature.

Planned Work Program

During 2004, the Company commenced an exploration program
pursuant to the recommendations of Dale A. Sketchley, P.Geo as outlined in his
geological report dated July 31, 2004. However, the first drill hole undertaken
under the program encountered a promising new gold bearing vein called the Rory
Vein, and the majority of the Companys 2004 exploration program focused on
exploring and defining this vein. The drill data resulting from this campaign
was used to calculate a Probable Reserve of 28,000 tons grading 0.50 ounces of
gold per ton, which helped provide the basis for a preliminary feasibility study
completed in 2005.

At the end of 2004, following the exploration season, the
Company decided to investigate the potential on the Table Mountain Property for
large scale, lower grade gold deposits amenable to open-pit mining methods. In
early 2005, the Companys staff geologists developed a plan and budget for a new
initiative at Table Mountain called Taurus II, comprising a three stage, $1.4
million program. Stage I involved a detailed compilation and computer modeling
of historical data to define drill targets. This stage was completed in the
second quarter of 2005. Stage II involved diamond drilling of the defined
targets, which was completed in the third quarter of 2005. Stage III involved
follow up diamond drilling, which is underway as at October 20, 2005.

The results of the Companys work at Taurus II have been
  encouraging and management has decided to focus the Companys efforts in
  this area (see Figure 1 above) for the balance of 2005 and 2006.

During early 2005, the Company engaged Dennis Bergen, P.Eng, an
independent qualified person under National Instrument 43-101, to complete and
publish the results of a preliminary feasibility study related to the East Bain
Vein and the Rory Vein (the Prefeasibility Study). Highlights of the
Prefeasibility Study are as follows:

- Ore currently outlined in the East Bain and Rory veins totals 44,000 tons
  of probable Mineral Reserves grading 0.49 ounce per ton, containing 21,360
  ounces of gold.
- Readers are advised that, although the Rory and East Bain veins are
  estimated to contain 21,360 ounces of gold, not all of this gold is
  recoverable for sale. The Prefeasibility Studys economic analysis assumes
  total gold sales of 19,820 ounces.
- The Company would net $2.5-million in cash from the project (projected to
  take 12 months) after deducting all operating costs and capital expenditures.
- The project would result in an annualized internal rate of return of 129
  per cent.
- Total cash costs (included all direct on-site operational and overhead
  costs) per ounce are estimated to be $256 (U.S.) per ounce and total
  production costs (includes amortization) are estimated to be $292 (U.S.),
  under the assumption that all capital costs of the project ($765,000) are
  amortized immediately.

The Prefeasibility Study is based on cut grades only (meaning
all drill core assays used in reserve calculations over two ounces per ton were
cut back to two ounces), assumes a gold price of $535 (Canadian), and does not
include previously announced Rory and East Bain inferred mineral resources of
3,369 tons grading 0.96 ounce per ton (cut). A sum of $3.7 -million is required
to finance capital expenditures and operating cost to bring the project to
positive cash flow.

- 26 -

---

Based on the positive findings of the Prefeasibility study, the
Company raised capital needed to place the Property back into production.
Preparation for production is presently under way.

There is no assurance that the specified amount of gold is
available, can be economically mined and the Company can receive any cash return
of the project.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

5.A. Results of Operations

During the year ended December 31, 2005, the Companys
expenditures have been financed through issuance of common shares. Equity
financing raised, net of share issuance costs, including flow-through shares,
during the year was $1,063,728, compared to $890,416 raised in 2004. No gold
production occurred during the period resulting in a net loss of $1,562,307 or
$0.03 per share, a decrease over last years loss of $1,692,229 or $0.04 per
share loss.

Year ended December 31, 2005 Compared to year ended
December 31, 2004

General and administrative costs were $662,056 during 2005
compared to $661,147 for 2004. General and administrative expenses include
office rent, legal and accounting fees, listing fees, shareholder communications
and non-cash employee and director incentive stock option expense that is
calculated based on Canadian generally accepted accounting principles. The
Companys assets totalled $3,047,061 at the end of 2005 compared to $3,374,820
at the end of 2004. The decrease in the book value of the Companys assets is
mainly attributable to a decrease in cash generated from equity financing
completed during the period.

Year ended December 31, 2004 Compared to year ended
December 31, 2003

General and administrative costs were $661,147 during 2004
compared to $991,710 for Fiscal 2003, a decrease of $330,563. General and
administrative expenses include office rent, legal and accounting fees, listing
fees, shareholder communications and non-cash employee and director incentive
stock options expense that is calculated based on Canadian generally accepted
accounting principles. The Companys assets totalled $3,374,820 at the end of
2004 compared to $3,970,972 at the end of 2003. The decreased book value of the
Companys assets is mainly attributable to a decrease in cash generated from
equity financing completed during the period.

Historical Results of Operation

In 2005, 2004 and 2003 no gold mining operations were carried
out. Revenues from the sale of gold concentrates during fiscal 1999 were
approximately $256,424, as compared to approximately $487,000 during fiscal
1998. The decrease is due to limited mining activity, which includes bulk sample
milling to keep the plant in operational condition.

No production costs were incurred for the last three fiscal
years as no gold mining operations were carried out. Production costs were
$124,581 during fiscal 1999 as compared to $487,033 during fiscal 1998. Although
the Company contemplated in fiscal 1998 to increase the through put rates, due
to low gold prices the Company did not under take extensive mining operations.
To keep the plant in operational condition and to expand exploration activity,
the Company worked only on the newly discovered extension of the Bear Vein with
a small crew. Cash costs per ounce of gold sold were $337 (US$227) per ounce
during fiscal 1998 as compared to $573 (US$417) in fiscal 1997. Cash costs
include mining, milling maintenance and on-site general and administrative
expenditures.

5.B. Liquidity and Capital Resources

At December 31, 2005 the Company had current assets of $539,088
  consisting of cash, receivables, flow-through share proceeds, and prepaid expenses,
  compared to $676,076 at the end of 2004. The decrease in current assets is attributable
  to depletion of cash through increased exploration expenditures.

- 27 -

---

Current liabilities at December 31, 2005 were $859,456,
compared to $961,905 for the end of 2004. The decrease is primarily attributable
to a decrease in accounts payable. The bank indebtedness represents an operating
line of credit used by the Company to pay expenses that are not exploration
expenses and therefore not payable from its flow-through share proceeds. The
decrease in accounts payable is attributable primarily to availability of cash.

Equity financing raised during 2005 was $1,063,728 (includes
$909,728 in flow-through financing) compared to $890,416 (includes $680,666 in
flow-through financing) raised during 2004. The increase in equity financing
year over year can be attributed to improved market conditions and the
prospective nature of the Taurus II Project. Also, as mentioned above, the
Company had engaged an underwriter to complete a $3,000,000 convertible
debenture financing in 2004 that was not completed in part due to the sudden and
unfortunate passing away of the lead investment advisor responsible for the
financing.

At December 31, 2005, the Company had a working capital
deficiency of $320,368 as compared to $285,829 at December 31, 2004, an increase
of $34,539. The increased deficiency is attributable to the failure of the above
described convertible debenture offering, combined with the Companys obligation
to expend all funds raised pursuant to flow-through share offerings completed
in 2003.

Recent Financing

Subsequent to the end of 2005, the Company completed a private
placement on May 31, 2006 (the Private Placement) and issued: 3,749,225
common share units (the Common Share Units) at $0.24 per Common Share
Unit for proceeds of $899,814; 6,657,500 flow-through units (the
Flow-Through Units) at $0.27 per Flow-Through Unit for proceeds of
$1,797,525; and 813 convertible debentures (the Convertible Debentures)
at $3,750 per Convertible Debenture for proceeds of $3,048,750. The proceeds
from the Private Placement totalled $5,746,089.

The Common Share Units consist of one common share and one
warrant to purchase an additional common share for 12 months at $0.35 per common
share (a Warrant). The Flow-Through Units consist of one flow-through
share and one half of one Warrant. The Convertible Debentures bear interest at a
rate of 11% per annum (calculated and payable semi-annually), mature in 18
months, and are convertible into common shares at a price of $0.305 per share.
The purchasers of the Convertible Debentures also received 6,147 detachable
warrants with each Convertible Debenture purchased. The Company issued a total
of 4,997,511 detachable warrants in connection with the Convertible Debentures.
The warrants accompanying the Debentures are not exercisable until the Company
obtains the approval of its shareholders. Thereafter, each detachable warrant
entitles the holder to purchase a common share at $0.35 per share expiring May
31, 2007. If the shareholders do not approve the warrants accompanying the
Debentures by the close of business on July 30, 2006, the Debentures will bear
interest at 15% per annum. The Convertible Debentures are secured by a first
charge against all the assets of the Company. All shares issued pursuant to this
Private Placement together with any shares issuable on the conversion of
debentures and exercise of warrants have a hold period in Canada expiring
October 1, 2006.

In connection with the Private Placement, M Partners Inc. and
Oberon Securities, LLC were to be paid a cash commission and to receive brokers
warrants. M Partners Inc. was paid a cash commission of 7% and received brokers
warrants to purchase such number of common shares as is equal 7% of all the
units sold, at a price of $0.24 exercisable for a period of 18 months from
closing. The issuance of 101,548 warrants to Oberon Securities, LLC, each
warrant entitling Oberon Securities, LLC to purchase a common share of the
Company at a price of $0.305 per share exercisable for 18 months, is subject to
the approval of the Companys shareholders.

Proceeds from the Private Placement will be used for
exploration and development of the Table Mountain Property, and includes
$3,700,000 recommended by the Preliminary Feasibility Study for recommencement
of production at the Table Mountain Gold Mine.

As at June 30, 2006, the Company had $3,632,615 cash on hand.

- 28 -

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Significant Changes To Accounting Policy During The Year

In response to regulatory and industry changes, the Company
changes its accounting policy from time to time to comply with applicable rules
and guidelines. During 2004, the Canadian Institute of Chartered Accountants
(CICA), introduced changes to its Generally Accepted Accounting Principles
(GAAP) that affect the Company, resulting in the following changes that
materially affect Companys audited financial statements for the year ended
December 31, 2005:

| | 1. | Stock Based Compensation. Effective January 1,
      2004, the fair value of stock options granted to the Companys employees
      and all others are now required to be expensed against earnings.
      Previously, only the fair value of options granted to consultants were
      expensed. The Company has retroactively adopted this new stock
      compensation policy which has caused the net loss of the Company to
      increase by $8,025 and $15,343 in 2003 and 2002 respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | 2. | Asset Retirement Obligations. Under Canadian GAAP,
      effective the Companys fiscal 2004 period and going forward, the Company
      is required to examine whether or not any asset on the balance sheet might
      reasonably be expected to cost the Company expenses to retire such asset
      from the Companys books. One asset that bears such examination is the
      Companys main resource property, the Table Mountain Property. Ongoing
      environmental reclamation may be required, leading to regular
      expenditures. In 2004, the Company had estimated that $50,000 per year in
      expenses would be required for a period of 10 years for a total of
      $500,000 to retire this asset. During 2005, the Company re-evaluated the
      accrual for asset retirement obligation and increased the estimated cost
      to a total of $705,000. This change in estimate resulted in the
      recognition of additional asset retirement obligations and a corresponding
      capitalization to the resource property at December 31, 2005, under US
      GAAP of $251,633, being the discounted present value of the approximated
      reclamation costs. The Net Present Value of these current and future
      expenditures is now reflected on the Companys balance sheet.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | 3. | Flow-Through Shares.In accordance with CICA
        Emerging Issue Committee No. 146 regarding the accounting of flow-through
        shares, as a result of the Company having sufficient temporary differences
        available to offset the renounced tax reduction, the Company has recognized
        $105,567 future income tax recovery related to the renouncement of tax
        reductions to shareholders for the year ended December 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

New U.S. Accounting Pronouncements

In February 2006, the 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.

Critical Accounting Policies

Our consolidated financial statements have been prepared in
accordance with accounting principle generally accepted in Canada. Differences
from United States accounting principles are disclosed in Note 15 in the Notes
to the Consolidated Financial Statements in Item 17 of this Annual Report on
Form 20F. Some accounting policies have a significant impact on the amount
reported in these financial statements. A summary of those significant
accounting policies can be found in the Summary of Significant Accounting
Policies in our consolidated financial statements. Note that our preparation of
this Annual Report on Form 20-F requires us to make estimates and assumptions
that affect the reported amount of assets and liabilities, disclosure of
contingent assets and liabilities at the date of our financial statements, and
the reported amounts of revenue and expenses during the reporting period. There
can be no assurance that actual results will not differ from those estimates. We
believe as explained below

- 29 -

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that our most critical accounting policies cover the following
areas: resource properties, long-term investments and stock-based
compensation.

Resource Properties

Our policy on resource properties determines the timing of our
recognition of certain exploration costs. 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.

Long Term Investments

Long-term investments, which consist primarily of investments
in public companies, are recorded at cost less write-downs, when in managements
opinion a permanent impairment in value has occurred. Management is required to
use professional judgement in determining whether long-term investments have
suffered permanent impairments in value.

Stock-Based Compensation

Effective January 1, 2004, the Company has retroactively adopted
  the new recommendations of the Canadian Institute of Chartered Accountant (“CICA”)
  Handbook Section 3870, “Stock-based compensation and other stock based
  payments”, which now requires companies to adopt the fair value based
  method for all stock-based awards granted on or after January 1, 2002. Previously
  the Company was only required to disclose the pro forma effect of stock options
  issued to employees and directors in the notes to the financial statements.
  The Company has retroactively applied this new accounting policy to prior years
  and restated the consolidated financial statements accordingly. The effect of
  the restatement was to increase the net loss for 2003 by $8,025 for options
  granted in that year, and to increase the accumulated deficit as of December
  31, 2003 by $23,368. Contributed surplus was restated for the corresponding
  effect of these restatements.

5.D. Trend Information

There are no trends known to management that are reasonably
likely to have material effect on the Companys net assets, revenue, or
liquidity.

5.E. Off Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

- 30 -

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5.F. Tabular Disclosure Of Contractual Obligations

Payments Due by Period ($s)Less than
    
    
    More thanContractual Obligations
    Total
    1
      year
    1-3 years
    3-5 years
    5
      yearsLong-Term Debt Obligations
      other thanCapital Lease Obligations
    -
    -
    -
    -
    -Capital Lease Obligations
    -
    -
    -
    -
    -Operating Lease Obligations
    -
    -
    -
    -
    -Purchase Obligations
    -
    -
    -
    -
    -Other Long-Term Liabilities reflected onthe Corporations Balance
      Sheet underCanadian GAAP, Asset RetirementObligation)
    705,000
    150,000
    300,000
    140,556
    NilTotal
    705,000(1)
    150,000
    300,000
    140,556
    Nil


|(1) | This total includes $114,444 that the Company paid into a
      bond for a M127 permit in 1992.
|--- | -----------------------------------------------------------------------------------------------

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6.A. Directors and Senior Management

The following list, as of December 31, 2005, provides the names
of the Directors and the senior management of the Company. The Directors have
served in their respective capacities since their election appointment and will
serve until the next Annual General Meeting of Shareholders or until a successor
is duly elected, unless the office is vacated in accordance with the Articles of
the Company. All Directors are residents of Canada. Senior Management serves at
the pleasure of the Board of Directors.

Table No. 6Directors and Senior Management as at
the Most Recently Completed Financial Year

Name, Municipality of Residence
      and Present Position Held
    Director or
      Officer Since
    Principal Occupation in Last Five
      YearsDavid H. Brett(1)President, CEO and a Director New Westminster, BC Canada
    1996
    Vice President of the Issuer from 1994-2005; Director of
      Consolidated Pacific Bay Minerals since 1995 (also was CEO from 1995-1999;
      President and Founder of Knexa Solutions Inc., a knowledge management
      software company, 1999 to 2005.Guilford H. Brett(1)Chairman and a Director North Vancouver, BC Canada
    1961
    Chairman and a Director of the Issuer; President and a
      Director of Consolidated Pacific Bay Minerals Ltd. since 1986; Director of
      Tone Resources Ltd. since 2002.Luard J. Manning(1)Director North Vancouver, BC Canada
    1991
    Director of the Issuer; Independent Mining Engineer.George Sanders Director
      Washington State, USA
    2005
    Director of the Issuer; Vice-President of Argentina
      Operations for Consolidated Pacific Bay Minerals Ltd. since September
      2004; Project Manager of Materials Testing and Consulting, Inc. from June
      2001 to December 15, 2004; Self-employed geological consultant in
      Argentina and the U.S. from October 1995 to June 2001.


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Name, Municipality of Residence
      and Present Position Held
    Director or
      Officer Since
    Principal Occupation in Last Five
      YearsLeanora Homrig CFO,
      Secretary/Treasurer North Vancouver, BC Canada
    2002
    CFO and Secretary/Treasurer of the Issuer; Officer of
      Consolidated Pacific Bay Minerals Ltd. since 1999.Lesley Hunt VP Explorations
      Dawson Creek, BC Canada
    2004
    Officer of the Issuer, B. Sc. Geol.


|(1) | Member of Audit Committee.
|--- | --------------------------

David H. Brett (President, CEO and Director):
David Brett is involved in the general management of the Company. He also
currently acts as a director of Consolidated Pacific Bay Minerals Ltd. Mr. Brett
holds a Masters Degree in Business Administration from Simon Fraser University,
BA from the University of British Columbia and took undergraduate courses in
geology at UBC. Mr. Brett formerly operated an exploration services company and
his business experience includes financing, planning and executing exploration
and mining operations. Mr. Brett devotes 90% of his time to the Companys
business.

Guilford H. Brett (Chairman of the Board and
Director): Guilford Brett directs and manages the affairs of the
Company. Mr. Brett is also the President and director of Consolidated Pacific
Bay Minerals Ltd. and Tone Resources Ltd. Mr. Brett holds a Bachelor of Arts
from the University of Washington. Self-taught in Geology, Mr. Brett has been
involved in overseeing all aspects of mine and exploration finance, planning and
execution for over 40 years. Mr. Brett devotes 30% of his time to the Companys
business.

Luard Manning (Director): Luard Manning holds a
Professional Engineering designation in British Columbia. Mr. Manning has
acquired direct experience in underground gold mining and operation over a 40
year career. Mr. Manning devotes 10% of his time to the Companys business.

George Sanders (Director): George Sanders has
acted as the Vice President, Argentina Operations for Consolidated Pacific Bay
Minerals Ltd. since September 2004. From June 2001 to December 15, 2004, Mr.
Sanders was Project Manager for Materials Testing and Consulting, Inc. Between
October 1995 and June 2001, Mr. Sanders was a self-employed geological
consultant in Argentina and the U.S. Mr. Sanders holds a Masters Degree in
Geology from the Colorado School of Mines. He is a member of the Association of
Professional Geoscientists and Engineers of British Columbia and is a Licensed
Engineering Geologist in the State of Washington. Mr. Sanders has worked for
subsidiaries of Gold Fields PLC in Chile and Nevada, and was Exploration Manager
for Canyon Resources in Argentina for 2 years. Mr. Saunders devotes 10% of his
time to the Companys business.

Leanora Homrig (CFO and Secretary/Treasurer):
Leanora Homrig has over 10 years experience managing public company regulatory
filing requirements and procedures. Ms. Homrig devotes 75% of her time to the
affairs of the Company.

Lesley Hunt (VP Exploration):Lesley Hunt has 20
years of exploration and mining experience, 15 years of which were spent
directly on the Companys Table Mountain Property. Mrs. Hunt oversees the
supervision, design and implementation of both its underground and surface
diamond drilling programs, geological mapping, geochemical and geophysical
programs, grade control, mining and recovery processes. She received her B.Sc in
Geology from Lakehead University of Ontario, Canada. Mrs. Hunt devotes 90% of
her time to the Companys business.

No Director and/or Senior Management had been the subject of
any order, judgment, or decree of any governmental agency or administrator or of
any court or competent jurisdiction, revoking or suspending for cause any
license, permit or other authority of such person or of any corporation of which
he is a Director and/or Senior Management,

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to engage in the securities business or in the sale of a
particular security or temporarily or permanently restraining or enjoining any
such person or any corporation of which he is an officer or director from
engaging in or continuing any conduct/practice/employment in connection with the
purchase or sale of securities, or convicting such person of any felony or
misdemeanour involving a security or any aspect of the securities business or of
theft or of any felony.

Except for David H. Bretts relationship as the brother of
Leanora B. Homrig and that Guilford Brett is the father of both, there are no
family relationships between any other Directors or Senior Management. There are
no arrangements or understandings with major shareholders, customers, suppliers
or others, pursuant to which any person referred to above was selected as a
Director or member of senior management.

6.B. Compensation

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) was included in accounts payable to
a director for remuneration.

During the most recently completed financial year the directors
of the Company did not receive fees for attendance of board meetings or other
cash compensation in their capacity as directors, except for Guilford Brett,
who, as part of a severance agreement finalized June 1, 2006, receives a fee of
$1,000 per month, retroactive to December 1, 2004. See Item 6.B.Directors,
Senior Management and EmployeesCompensation  Termination of Employment, Change
in Responsibilities and Employment Contracts. The Directors may be reimbursed
for actual expenses reasonably incurred in connection with the performance of
their duties as directors. Directors are also eligible to receive incentive
stock options to purchase common shares of the Company.

Table No. 6Summary Compensation Table

NEO Name and
      Principal Position (a)
    Year (b)
    Annual Compensation
    Long-Term Compensation
      Awards                                         
      PayoutsSalary ($)
      (c)
    Bonus ($)
      (d)
    Other Annual
      Compen- sation ($) (e)
    Securities Under
      Options/ SARs Granted (#)
      (f)
    Restricted Shares or
      Restricted Share Units ($) (g)
    LTIP Payouts
      ($) (h)
    All Other Compen-
      sation ($) (i)David H. Brett CEO & CFO
    2005 2004
    $90,000 $57,000
    Nil Nil
    Nil Nil
    300,000 Nil
    Nil Nil
    Nil Nil
    Nil NilLeanora Homrig CFO
    2005 2004
    Nil Nil
    Nil Nil
    $54,000 $54,000
    200,000 Nil
    Nil Nil
    Nil Nil
    Nil NilGuilford H. Brett Former
      CEO(1)
    2004 2003
    $90,000 $90,000
    Nil Nil
    Nil Nil
    Nil 750,000
    Nil Nil
    Nil Nil
    Nil Nil


|(1) | Mr. Brett resigned as chief executive officer of the
      Company on November 19, 2004.
|--- | ----------------------------------------------------------------------------------------

Long-term Incentive Plans

The Company does not have a long-term incentive plan
(LTIP) for its directors or officers and, accordingly, no LTIP awards
were made to either of David H. Brett or Guilford H. Brett in the most recently
completed financial year.

Options and Stock Appreciation Rights (SARs)

Shareholders of the Company and the regulatory authorities have
approved a Stock Option Plan through which shares are reserved from the Treasury
of the Company for issuance to Directors and Key Employees of the

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Company pursuant to Incentive Stock Option Agreements to be
entered into with them, all in accordance with the terms of the Stock Option
Plan. Options will be granted in order to provide an optionee with a form of
remuneration and an incentive to act in the best interests of the Company.

The following table sets out the aggregate options granted and
exercised by the Named Executive Officer during the most recently completed
financial year and the aggregate financial year-end value of unexercised
options:

Table No. 8Aggregated Option/ SAR Grants and
Exercises During The Most Recently Completed Financial Year And Financial
Year-End Options/ SAR Values

Name
    Securities Acquired
      on Exercise (#)
    Aggregate Value
      Realized ($)
    Unexercised Options/SARs at
      FY- End (#) Exercisable/
      Unexercisable
    Value of Unexercised in the
      Money Options/SARs at FY- End ($)
      Exercisable/ UnexercisableDavid H. Brett
      200,000
      $30,000
    370,000 /Nil
    Nil1ExercisableLeanora Homrig
    Nil
    N/A
    470,000 /Nil
    Nil1ExercisableGuilford H. Brett
    Nil
    N/A
    850,000 /Nil
    Nil1Exercisable


|(1) | The closing market price of the Companys common shares
      on December 31, 2005 was $0.15 per share. The exercise price of the
      options held by the Named Executive Officers is $0.36 per share as to
      740,000 options and $0.37 per share as to 450,000
  options.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table sets out information with respect to options
  and SARs exercised by non-executive directors during the most recently completed
  financial year and outstanding to the non-executive directors at the end of
  the most recently completed financial year.

Table No. 9
  Option/ SAR Grants to Non-Executive Directors
  During The Most Recently Completed Financial Year

NEO Name
      (a)
    Securities Acquired
      on Exercise (#) (b)
    Aggregate Value
      Realized ($) (c)
    Unexercised Options/SARs at
      FY- End (#) Exercisable/
      Unexercisable (d)
    Value of Unexercised in the
      Money Options/SARs at FY- End ($)
      Exercisable/ Unexercisable (e)Non-executive Directors as a group
    Nil
    N/A
    210,000 /Nil
    Nil1Exercisable


|(1) | The closing market price of the Companys common shares
      on December 31, 2005 was $0.15 per share. The exercise price of the
      options held by non-executive directors is $0.36 per share as to 40,000
      options, $0.37 per share as to 20,000 options, and $0.15 as to 150,000
      options.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table sets out information with respect to the
  number of securities to be issued or the number of securities remaining available
  for future issuance pursuant to equity compensation plans.

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Table No. 10 
  Securities Issued/Remaining Pursuant to Equity Compensation Plans
  During The Most Recently Completed Financial Year

Plan Category
    A Number of securities
      to be issued upon exercise of outstanding
      options, warrants and rights
    B Weighted-average
      exercise price of outstanding options, warrants
      and rights
    C Number of securities
      remaining available for future issuance under
      equity compensation plans (excluding securities
      reflected in column A)Equity compensation plans approved by securityholders
    2,935,000
    $0.25
    2,065,000Equity compensation plans not approved by
      securityholders
    N/A
    N/A
    N/ATotal
    2,935,000
    $0.25
    2,065,000


Termination of Employment, Change in Responsibilities and
Employment Contracts

The Company had an employment agreement dated January 1, 1988,
as amended (the Employment Agreement) with Guilford H. Brett that
expired on January 1, 2004 and automatically renewed thereafter on an annual
basis unless terminated by either of the parties in accordance with the
provisions of the Agreement. Under the Employment Agreement Guilford Brett is to
receive an annual salary of $90,000, subject to adjustment in accordance with
changes in the Consumer Price Index for Canada, together with a car allowance of
$600 per month.

Either the Company or Guilford Brett may terminate the
Employment Agreement on 12 months notice. In the event of any such termination
by the Company, the Company shall, at the expiration of such 12 month period,
pay to Guilford Brett an amount equal to 12 months remuneration at the then
current rate of remuneration.

In the event of a change of control of the Company, Guilford
Brett has the option, until the first anniversary of such change, to terminate
the Employment Agreement on 30 days notice. If he elects to terminate the
Employment Agreement, he is entitled to receive all money and benefits he would
have received under the Employment Agreement until its next anniversary,
together with 12 months remuneration at the level of remuneration being paid to
him at the date of termination. A change of control is deemed to occur:

| | (a) | at such time as an individual or group of individuals who
      appear to be acting in concert, other than Guilford Brett or a group to
      which he belongs, acquires 20% or more of the outstanding Common Shares of
      the Company; or
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                               
| | (b) | at such time as a majority of the Board of Directors of
      the Company is constituted by persons other than persons who are, as at
      January 1, 1988, members of the Board of Directors of the
  Company.                              

On November 19, 2004, Guilford H. Brett voluntarily resigned
  as Chief Executive Officer and assumed the role of Chairman of the Board of
  Directors. There was no change of control in the Company. Subsequent to the
  end of 2005, the Company reached a severance agreement with Guildford Brett
  whereby the Company paid him $150,000 in cash and the Company agreed to pay
  him $1,000 per month, retroactive to December 1, 2004, to compensate him for
  his role as the Chairman of the Board of Directors.

Management Contracts

The Company is not party to Management Contracts with anyone
other than Directors or Named Executive Officers of the Company.

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Indebtedness of directors and senior officers

None of the Directors or Senior Officers of the Company have
been indebted to the Company or its subsidiary during the financial year ended
December 31, 2005.

6.D. Number of Employees

As at December 31, 2005 the Company had no employees.

6.E. Share Ownership

The Company has an authorized capital of 100,000,000 common shares
  and 5,000,000 preference shares without par value. As at December 31 2005, 51,300,133
  common shares were issued and 51,296,133 common shares were outstanding.

The following table sets out the number of common shares and
options to purchase common shares in the capital of the Company beneficially
owned by the Directors and Senior Management as at December 31, 2005.

**Name**
    Number of
      Common Shares
    Options
    **Expiry Date**Number
    Exercise PriceDavid H. Brett President, CEO and
      Director
    297,000
    170,000
    $0.36
    July 28, 2006100,000
    $0.37
    November 14, 2006100,000(1)
    $0.15
    September 6, 2007**Guilford H. Brett** Chairman
      and Director
    480,552
    400,000
    $0.36
    July 28, 2006250,000
    $0.37
    November 14, 2006200,000
    $0.15
    September 6, 2007**Luard Manning** Director
    70,000
    40,000
    $0.36
    July 28, 200620,000
    $0.37
    November 14, 200650,000
    $0.15
    September 6, 2007Leanora Homrig CFO,
      Secretary/Treasurer
    100,000
    170,000
    $0.36
    July 28, 2006100,000
    $0.37
    November 14, 2006200,000
    $0.15
    September 6, 2007Total
    947,552
    1,800,000
    -
    -


|(1) | As at December 31, 2005, David H. Brett owned 370,000
      options. On September 6, 2005, the Company granted Mr. Brett 300,000
      options. 100,000 of which were exercised on September 14, 2005 and 100,000
      of which were exercised on October 21, 2005.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Stock Option Plan

The Company has a stock option plan (the Plan) for
directors, officers and employees that was approved by shareholders on June 28,
2002. There are restrictions on the number of common shares to be reserved for
individuals and insiders under the Plan. Options granted must be exercised no
later than ten years after the date of the grant or such lesser periods as
regulations require. The maximum number of Common Shares to be issued under the
Plan is 5,000,000 provided that the Company can not have at any given time more
than 10% 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.

Subsequent to the end of 2005, the Company proposed a new 10%
rolling share option plan (the 2006 Share Option Plan) which will allow
the Company to reserve for issue up to 10% of its outstanding shares from time
to time to issue upon exercise of options granted under the 2006 Share Option
Plan. The 2006 Share Option Plan is subject to Shareholder approval at the
Companys next special meeting of its shareholders to be held July 25, 2006.

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

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WeightedAverageNumber of
    
    
    ExerciseOptions
    
    
    PriceOutstanding at January 1,
      2003
    
    1,790,000
    
    $
    0.27Granted
    
    2,340,000
    
    
    0.36
    *Cancelled/expired
    
    (275,000
    )
    
    0.35Exercised
    
    (1,725,000
    )
    
    0.27Outstanding at December 31, 2003
    
    2,130,000
    
    
    0.36Granted
    
    50,000
    
    
    0.37
    *Exercised
    
    (20,000
    )
    
    0.25Outstanding at December 31, 2004
    
    2,160,000
    
    
    0.36Granted
    
    1,315,000
    
    
    0.15
    *Cancelled/expired
    
    (220,000
    )
    
    0.31Exercised
    
    (320,000
    )
    
    0.15Outstanding at December 31,
      2005
    
    2,935,000
    
    $
    0.25


*
    The weighted average fair value of options granted during
      2005 was $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 of the audited annual financial
statements.


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

Expiry Date
    Exercise Price
    NumberMay 27, 2006
    $0.15
    50,000July 28, 2006
    $0.36
    780,000July 28, 2006
    $0.15
    170,000November 14, 2006
    $0.37
    600,000November 14, 2006
    $0.15
    220,000June 29, 2007
    $0.15
    100,000September 6, 2007
    $0.15
    815,000December 23, 2007
    $0.15
    200,000Total
    
    2,935,000


ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

7.A. Major Shareholders

The Companys transfer agent is Pacific Corporate Trust Company
in Vancouver located at 10th Floor - 625 Howe Street, Vancouver, BC V6C 3B8 and
in Toronto, located at Pacific Corporate Trust Company, Box 56,1925 Commerce
Court West, Toronto, Ontario M5L 1B9. The Companys securities are recorded on
the books of its transfer agent in registered form. The majority of such shares
are, however, registered in the name of intermediaries such as brokerage houses
and clearinghouses on behalf of their respective clients. The Company does not
have

- 37 -

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knowledge of the beneficial owners thereof. To the best of its
knowledge, the Company is not directly nor indirectly owned or controlled by
another corporation(s) or by a foreign government.

To the knowledge of the directors and senior officers of the
Company, no persons or companies beneficially own, directly or indirectly,
equity shares carrying more than 5% of the voting rights attached to all of the
shares of the Company. There are no voting agreements or similar arrangements
(formal, informal, written, or oral) known to management to exist.

The transfer agent records indicate as of December 31 2005,
30,509,762 shares were registered in the names of 144 Canadian individuals,
companies and brokerage houses. This represents registered Canadian shareholders
holding 10.04% of the issued shares. There are 11 shareholders in foreign
countries other than the United States who hold 11,365 shares, representing
0.77% of issued shares. There are 1,279 shareholders of record in the United
States holding 20,759,406 shares, representing 89.19% of the issued shares. The
Company has no knowledge of the number of bearer (street form) shares held by
other United States residents. Similarly, the Company has no knowledge of the
number of Canadian and other shareholders who hold bearer shares, or whose
shares are in the combined number held by brokerage firms.

7.B. Related party transactions

Loans payable to directors bearing no interest, security or
fixed terms of repayment amounted to $19,361 (2004 - $11,925).

During the year 2005, the Company was loaned 750,000 shares of
ClearFrame Solutions Inc. (ClearFrame) bearing no interest, security or
fixed terms of repayment. In August 2005, the loaned shares were returned to the
directors after the ClearFrame shareholders meeting relating to the proposed
consolidation of capital.

Remuneration paid or payable to the officers and directors in
year 2005 amounted to $102,000 (2004 - $167,000; 2003 - $171,650. As at December
31, 2005, $13,720 (2004 - $71,795) is included in accounts payable to one
director for remuneration.

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.

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.

ITEM 8. FINANCIAL INFORMATION

Please refer to the Consolidated Audited Financial Statements
in the Appendix, which includes Auditors report, Consolidated Balance Sheets,
Consolidated Statements of Operations, Consolidated Statements of Cash Flows.
There are no legal proceedings currently pending.

No significant changes occurred since the date of the annual
financial statements included in the document.

ITEM 9. THE OFFER AND LISTING

9.A.4 Common Share Trading Information

The shares of the Company trade on the Toronto Stock Exchange
under the trading symbol CQC and also on the NASDAQ Over-The-Counter Bulletin
Board under the symbol CUSIF.

The Company has not distributed dividends on its common stock
in the past and does not expect to distribute dividends in the near future.

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The high and low sales prices of the common share price of the
  Company for the most recent six months and five fiscal years on the Toronto
  Stock Exchange and the OTCBB are:

TSX (CDN $)
    OTCBB (US $)Period
    High
    Low
    High
    LowMost Recent Six MonthsJune 2006
    $0.32
    $0.24
    $0.29
    $0.22May 2006
    $0.40
    $0.27
    $0.37
    $0.24April 2006
    $0.44
    $0.30
    $0.39
    $0.26March 2006
    $0.37
    $0.21
    $0.32
    $0.19February 2006
    $0.29
    $0.19
    $0.25
    $0.16January 2006
    $0.21
    $0.15
    $0.17
    $0.12For the Year Ending December 31,
      20054thQuarter
    $0.18
    $0.12
    $0.18
    $0.113rdQuarter
    $0.22
    $0.12
    $0.21
    $0.102ndQuarter
    $0.16
    $0.10
    $0.13
    $0.081stQuarter
    $0.17
    $0.14
    $0.14
    $0.11For the Year Ending December 31,
      20044thQuarter
    $0.24
    $0.16
    $0.19
    $0.133rdQuarter
    $0.34
    $0.21
    $0.26
    $0.172ndQuarter
    $0.39
    $0.24
    $0.32
    $0.171stQuarter
    $0.52
    $0.35
    $0.40
    $0.26For the Year Ending December 31,
      20034thQuarter
    $0.53
    $0.29
    $0.50
    $0.213rdQuarter
    $0.44
    $0.31
    $0.29
    $0.202ndQuarter
    $0.44
    $0.28
    $0.34
    $0.221stQuarter
    $0.73
    $0.32
    $0.43
    $0.20For the Year Ending December 31,
      20024thQuarter
    $0.52
    $0.32
    $0.36
    $0.163rdQuarter
    $0.43
    $0.27
    $0.28
    $0.142ndQuarter
    $0.44
    $0.16
    $0.30
    $0.091stQuarter
    $0.15
    $0.11
    $0.12
    $0.06For the Year Ending December 31,
      20014thQuarter
    $0.15
    $0.10
    $0.11
    $0.073rdQuarter
    $0.19
    $0.12
    $0.125
    $0.0752ndQuarter
    $0.19
    $0.12
    $0.135
    $0.0951stQuarter
    $0.10
    $0.17
    $0.09
    $0.065


ITEM 10. ADDITIONAL INFORMATION

10.A. Share Capital

 Not Applicable 

- 39 -

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10.B. Memorandum and Articles of Association

The Company was incorporated on November 19, 1965 pursuant to
the Company Act (British Columbia) (the BCCA). The Companys
Memorandum sets the authorized capital of the Company at 105,000,000 Common
Shares, without par value, 5,000,000 Preference Shares without par value
consisting of 250,000 shares designated as Series A Convertible Preference
Shares. Neither the Memorandum nor the Companys Articles specify or limit the
objects and purposes of the Company.

Adoption of New Charter Documents

In March 2004, the BCCA was replaced by the Business
Corporations Act (British Columbia) (the BCA). The BCA uses new forms and
terminology, most particularly a Memorandum is now called a Notice of
Articles. All companies currently incorporated under the BCCA must complete a
transition application to the Registrar of Companies (British Columbia) (the
Registrar) by March 29, 2006. The Company proposes to effect the mandatory
transition, which under the BCA can be authorized by the directors of the
Company. The Company will be taking steps to effect the transition and to bring
its charter documents into conformity with the BCA and to that end will file a
transition application and Notice of Articles, which replaces the Companys
Memorandum, with the Registrar. As at the date of filing of this Annual
Report, the directors of the Company have filed a transition application with
the Registrar. Copies of the Altered Notice of Articles and the New Articles
will be available for viewing at the Companys office at 911  470 Granville
Street, Vancouver, British Columbia, V6C 1V5.

Deletion of Pre-Existing Company Provisions

The regulations under the BCA effectively added certain
provisions, called Pre-Existing Company Provisions (PCPs), to every
pre-existing companys Notice of Articles. The PCPs provide that the number of
votes required to pass a special resolution (formerly also referred to as a
special resolution under the BCCA) or a special separate resolution is at least
three-quarters of the votes cast by shareholders present in person or by proxy
at the meeting. This is the majority that was required under the BCCA.

The BCA allows a special resolution to be passed by at least
two-thirds of the votes cast by shareholders present in person or by proxy at a
meeting. At the Annual and Special General Meeting of the Company held on July
27, 2005, shareholders of the Company approved a special resolution (by way of
three-quarters majority as required under the BCCA) to remove the PCPs in
connection with the adoption by the Company of a new form of Articles that
incorporates provisions permitted under the BCA. With such shareholder approval,
special resolutions will require a two-thirds majority vote, instead of a
three-quarters majority vote. Management believes that this will provide the
Company with greater flexibility for future corporate activities and is
consistent with companies in other jurisdictions. To take advantage of the
flexibility offered by the BCA, the board of directors of the Company will
remove the Pre-existing Company Provisions and alter its Notice of Articles
accordingly. Such amendment takes effect immediately on the date and time the
Notice of Alteration of the Articles is filed with the Registrar.

Proposed Alterations of Authorized Capital

Pursuant to the BCA, the Company is permitted to have an
unlimited number of shares as its authorized capital. The alteration of the
capital of the Company required approval by a special resolution of the
shareholders, being a resolution passed by a majority of not less than
three-quarters of the votes cast by the shareholders who, being entitled to do
so, voted in person or by proxy at the general meeting of a company.

At the Annual and Special General Meeting of the Company held
on July 27, 2005, shareholders approved the special resolutions to alter the
Notice of Articles of the Company such that the maximum number of shares that
the Company was authorized to issue would be eliminated and the Company would be
authorized to issue an unlimited number of common shares without par value. Such
amendment will take effect immediately on the date and time the Notice of
Alteration of the Articles is filed with the Registrar.

- 40 -

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Adoption of New Articles

The amendments to the Articles will principally reflect the
provisions of the BCA which modernize British Columbia corporate legislation.
The New Articles will not include a number of provisions in the existing
Articles that are now covered by the BCA to avoid the possibility of conflict or
the possibility of having to comply both with the statutory provision and a
corresponding but different provision in the Articles and include the use of the
new terminology adopted under the BCA. For example, members have become
shareholders and register of members has become central securities
register under the BCA.

The current Memorandum and Articles of the Company are attached
as exhibits to this Annual Report. The following is a summary of certain
provisions of the current Memorandum and Articles.

Securities Register

The Company maintains at Pacific Corporate Trust Company (the
Transfer Agent) a securities register in which the Transfer
Agent records the securities issued by the Company in registered form. The
Transfer Agent keeps information relating to a security holder that is entered
in the securities register for at least seven years after the security holder
ceases to be a security holder.

Powers of Directors

Approval and Voting. The Articles require any director
who is in any way directly interested in an existing or proposed contract or
transaction with the Company, to declare his or her interest, conflict or
potential conflict at a meeting of the Board of Directors. The interested
director may not vote in respect of the approval of any such contract or
transaction.

Remuneration and Expenses.A director or his firm may
act in a professional capacity for the Company and he or his firm is entitled to
remuneration for professional services as if he was not a director of the
Company. The Directors are entitled to the remuneration for acting as Directors,
if any, as the Directors may from time to time determine. Such remuneration may
be in addition to any salary or other remuneration paid to any officer or
employee of the Company as such, who is also a director. If any director
performs any professional or other services for the Company that in the opinion
of the Directors are outside the ordinary duties of a director, or if any
director is otherwise specially occupied in or about the Companys business, he
or she may be paid remuneration fixed by the Directors, or, at the option of
that director, fixed by ordinary resolution, and such remuneration may be either
in addition to, or in substitution for, any other remuneration that he or she
may be entitled to receive. The directors may pay a gratuity, pension or
allowance on retirement to any director who has held any salaried office or
position with the Company.

Borrowing.The Articles of the Company provide that
directors may, on behalf of the Company:

|(a) | borrow money in such manner and amount, on such security,
      from such sources and upon such terms and conditions as they think
    fit;                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                 
|(b) | issue bonds, debentures and other debt obligations either
      outright or as security for any liability or obligation of the Company or
      any other person; and                                                           
|    |                                                                                                                                                                                                                                 
|(c) | mortgage or charge, whether by way of specific or
      floating charge, or give other security on the undertaking, or on the
      whole or any part of the property and assets, of the Company, both present
      and future.

Retirement of Directors Under an Age Limit Requirement.
The Articles do not require that the Companys directors retire pursuant to an
age limit.

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Number of Shares Required for a Directors Qualification. There
is no requirement that a director hold any shares of the Company.

Rights, Preferences and Restrictions Attaching to Shares

Common Shares.The holders of Common Shares are entitled
to receive notice of, and attend and vote at, allmeetings of
shareholders of the Company. Each Common Share carries the right to one vote and
all the shares rank equally as to voting. The holders of Common Shares are
entitled to dividends, if and when declared by the Board of Directors. There are
no conversion rights, special liquidation rights, pre-emptive rights,
subscription rights, redemption or retraction rights attached to the Common
Shares. In the event of liquidation, dissolution or winding up of the Company,
the holders of Common Shares shall be entitled to receive, on a prorated basis,
all of the assets remaining after the Company has paid its liabilities. The
Company may, by resolution of the Board of Directors and in compliance with the
BCA, purchase any of its shares at the price and upon the terms specified in the
resolution.

Series A Convertible Preference Shares.The holders of
Series A Convertible Preference Shares are entitled to receive notice of, attend
and vote at any general meeting of the Company together with the holders of
Common Shares as a single class. The holders of Series A Convertible Preference
Shares are entitled to a quarterly preferential cumulative dividend in an amount
equal to 0.0625% of the Spot Price as determined on the Spot Price Determination
Date, accruing from the date of issuance of the Series A Convertible Preference
Share. Such dividends are to be paid on the specified payment dates of January
20, April 20, July 20 and October 20 in each year. The Company may satisfy the
payment of a quarterly dividend to a registered holder of a Series A Convertible
Preference Share by delivering a cheque in the amount of the dividend or, if the
holder so elects by tender to the Company of such uncancelled dividend cheque
not more than 30 days from its date, a certificate evidencing the right to
receive from the Company upon presentation, 0.0625% of one troy ounce of 0.995
fine gold (a Gold Certificate). No dividends will be declared on
Common Shares in the capital of the Company unless all quarterly dividends have
been declared or paid to holders of Series A Convertible Preference Shares.

The holders of Series A Convertible Preference Shares have the
right at any time to convert their shares into Common Shares of the Company
based on a prescribed conversion ratio. In the event of liquidation, dissolution
or winding up of the Company, the holders of Series A Convertible Preference
Shares will be entitled to receive, on a prorated basis with all preference
shares, the Liquidation Preference together with all accrued and unpaid
preferential dividends. Subject to the BCA, the Company may at any time purchase
any of its Series A Convertible Preference Shares for cancellation at the price
and upon the terms specified in a resolution.

Changes to Rights of Shareholders.The Company may
create, define and attach special rights and restrictions to any shares, or vary
or abrogate any special rights and restrictions attached to any shares by a
special resolution of the shareholders, consisting of not less than 75% of the
votes cast by shareholders present, or represented by proxy, at a general
meeting for which not less than 21 days notice specifying the intent to vote on
a special resolution have been given to the shareholders of the Company, and
filing a certified copy of it with the Registrar; provided, however, that no
right attached to any issued shares of any class may be prejudiced unless either
all holders of that class consent in writing or a consenting resolution is
passed by 75% of the holders of that class. The quorum for a class meeting shall
be one-third of the voting shares of that class.

General and Extraordinary Meetings

The Company must hold a general meeting of shareholders at
least once every calendar year at a time determined by the Board of Directors,
but not later than 13 months after the preceding annual general meeting. The
Board of Directors may convene an extraordinary general meeting at any time. The
Board of Directors must convene an extraordinary general meeting also upon
requisition by the Companys shareholders in accordance with the BCA. A
shareholders requisition for an extraordinary general meeting must state the
objects of the meeting requested and be signed by the requisitioning
shareholders and deposited at the registered office of the Company. All general
meetings of the Company must be held in British Columbia, or at a place out of
British Columbia approved by the Registrar.

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At least 21 days notice of a general meeting must be given to
the shareholders entitled to attend the general meeting, specifying the place,
day and hour of the meeting, and when special business is to be considered, the
general nature of that business. Only shareholders of record on the record date
fixed by the directors in accordance with the Act will be entitled to receive
notice of, and to attend and vote at, a general meeting.

No business shall be transacted at any general meeting unless
the requisite quorum is present at the commencement of the meeting. The quorum
for the transaction of business at a general meeting shall be two persons
present in person, or represented by proxy, and holding not less than five
percent of the shares entitled to vote at the meeting.

Foreign Ownership Limitations

The Companys Articles do not contain limitations prohibiting
non-residents, foreigners or any other group from holding or voting Common
Shares. See Item 10.D.Additional InformationExchange Controls, for a
description of certain restrictions that may apply under the Investment
Canada Act.

Change of Control

There are no provisions in the Companys Articles or charter
documents that would have the effect of delaying, deferring or preventing a
change in the control of the Company, or that would operate

Share Ownership Reporting Obligations

There are no provisions in the Companys Articles requiring
share ownership to be disclosed. Securities legislation in Canada requires that
shareholder ownership must be disclosed once a person owns beneficially or has
control or direction over greater than 10% of the issued Common Shares of the
Company. This threshold is higher than the 5% threshold under U.S. securities
legislation at which shareholders must report their share ownership.

Changes in Capital

There are no provisions in the Memorandum or Articles governing
changes in the capital of the Company that are more stringent than those
contained in the BCA.

10.C. Material Contracts

None.

10.D. Exchange Controls

Canada has no system of exchange controls. There are no
exchange restrictions on borrowings from foreign countries or on the remittance
of dividends, interest, royalties and similar payments, management fees, loan
repayments, settlement of trade debts, or the repatriation of capital. The
Investment Canada Act (the ICA) enacted on June 20, 1985, as
amended by the Canada-United States Free Trade Agreement Implementation Act
(Canada), requires the prior notification and, in certain cases, advance review
and approval by the Government of Canada of the acquisition by a non-Canadian
of control of a Canadian business, all as defined in the ICA. For the
purposes of the ICA, control can be acquired through the acquisition of all or
substantially all of the assets used in the Canadian business, or the direct or
indirect acquisition of interests in an entity that carries on a Canadian
business or which controls the entity, which carries on the Canadian business.
Under the ICA, control of a corporation is deemed to be acquired through the
acquisition of a majority of the voting shares of a corporation, and is presumed
to be acquired where more than one-third, but less than a majority, of the
voting shares of a corporation are acquired, unless it can be established that
the corporation is not controlled in fact through the ownership of voting
shares. Other rules apply with respect to the acquisition of non-corporate
entities.

To the best of the registrants knowledge, there are no
governmental laws, decrees or regulations in Canada relating to restriction on
the import/export of capital, or which affect the remittance of interest,
dividends, or other payments to non-resident holders of the Companys common
stock. Any such remittance to United States residents, however,

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is subject to a 15% withholding tax pursuant to Articles X, Xl,
and XII of the reciprocal Canada-United States Income Tax Convention. Except for
the ICA, there are no limitations under the laws of Canada, the Province of
British Columbia, or in the Charter or any other constituent documents of the
registrant on the rights of foreigners to hold and/or vote the shares of the
registrant. The provisions of the ICA provide legislative guidelines for
screening and evaluating new foreign investment in Canada. The purpose of the
legislation is to:

| | (a) | encourage investment in Canada that contributes to
      economic growth and employment;              
| | --- | ------------------------------------------------------------------------------------------------------
| |     |                                                                                                       
| | (b) | provide for the review of significant investments by
      Non-Canadians to ensure benefits to Canada.

All investments that meet the following criteria are subject to
a review:

| | (a) | direct acquisition of control of an existing Canadian
      business with assets in excess of five million dollars;                                                                                                                                      
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                          
| | (b) | indirect acquisition of an existing Canadian business
      having assets of fifty million dollars or more;                                                                                                                                              
| |     |                                                                                                                                                                                                                                                          
| | (c) | indirect acquisition of control of an existing Canadian
      business with assets of between five million and fifty million dollars
      where Canadian assets constitute over 50% of the total assets involved in
      the worldwide transaction; and
| |     |                                                                                                                                                                                                                                                          
| | (d) | investments in prescribed areas related to cultural
      heritage or national identity where the discretionary authority to review
      is exercised.                                                                                                  

The foregoing discussion of Canadian taxation and United States
taxation is of a general and summary nature only and is not intended to be, nor
should it be considered to be, legal or tax advice to any particular
shareholder. Accordingly, prospective investors should consult their own tax
advisors as to the tax consequences of receiving dividends from the Company or
disposing of their Common Stock.

10.E. Taxation

Canadian Taxation

The following discussion summarizes the principal Canadian
federal income tax considerations generally applicable to a person (an
Investor) who acquires one or more Common Shares of the Company, and
who at all material times for the purposes of the Income Tax Act (Canada) (the
Canadian Act) deals at arms length with the Corporation, holds all
Common Shares solely as capital property, is a non-resident of Canada, and does
not, and is not deemed to, use or hold any Common Shares in or in the course of
carrying on business in Canada. It is assumed that the Common Shares will at all
material time be listed on a stock exchange that is prescribed for the purposes
of the Canadian Act.

This summary is based on the current provisions of the Canadian
Act, including the regulations thereunder, and the Canada-United States Income
Tax Convention (1980) (the Treaty) as amended. This summary takes into
account all specific proposals to amend the Canadian Act and the regulations
thereunder publicly announced by the government of Canada to the date hereof and
the Corporations understanding of the current published administrative and
assessing practices of the Canada Revenue Agency (CRA). It is assumed
that all such amendments will be enacted substantially as currently proposed,
and that there will be no other material change to any such law or practice,
although no assurances can be given in these respects. This summary does not
take into account any provincial, territorial or foreign income tax law or
treaty other than the Treaty.

This summary is not, and is not to be construed as, tax
advice to any particular Investor. Each prospective and current Investor is
urged to obtain independent advice as to the Canadian income tax consequences of
an investment in Common Shares applicable to the Investors particular
circumstances.

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An Investor generally will not be subject to tax pursuant to
the Canadian Act on any capital gain realized by the Investor on a disposition
of a Common Share unless the Common Share is taxable Canadian property, and is
not treaty-protected property, of the Investor for purposes of the Canadian
Act. A Common Share that is disposed of by an Investor will not constitute
taxable Canadian property of the Investor provided that neither the Investor,
nor one or more persons with whom the Investor did not deal at arms length,
alone or together at any time in the 60 months immediately preceding the
disposition owned, or owned any right to acquire, 25% or more of the issued
shares of any class of the capital stock of the Corporation. The Common Share
will be a treaty-protected property of the Investor if, under the terms of an
applicable bilateral tax treaty, any gain realized by the Investor on
disposition of the share is exempt from Canadian income tax under Part I of the
Canadian Act. For example, pursuant to the Treaty, a Common Share of the
Corporation held by an Investor who is a resident of the United States for the
purposes of the Treaty will generally constitute treaty-protected property,
provided that the value of the Common Share is not derived principally from real
property (including resource properties) situated in Canada and that the
Investor does not have, and has not had within the 12-month period, preceding
the disposition, a permanent establishment, or a fixed base available to the
Investor in Canada.

An Investor whose Common Shares constitute taxable Canadian
property and are not treaty-protected property, and who disposes of one or more
Common Shares in a taxation year, will realize a capital gain (capital loss)
equal to the amount by which the proceeds of disposition therefor exceed (are
exceeded by) the adjusted cost base thereof to the Investor and the Investors
reasonable costs of disposition. The Investor will be required to include one
half of any such capital gain (taxable capital gain) in the Investors taxable
income earned in Canada for the taxation year and to pay Canadian income tax
accordingly. The Investor will be entitled to deduct one half of any such
capital loss (allowable capital loss) against taxable capital gains included in
the Investors taxable income earned in Canada in the taxation year and, to the
extent not so deductible, against taxable capital gains included in the
Investors taxable income earned in Canada in any of the three preceding
taxation years or in any subsequent taxation year.

Each Investor will be required to pay Canadian withholding tax
on the amount of any dividend, including any stock dividend, paid or credited or
deemed to be paid or credited by the Corporation to the Investor on a Common
Share. The rate of withholding tax is 25% of the gross amount of the dividend,
or such lesser rate as may be available under an applicable income tax treaty.
Pursuant to the Treaty, the rate of withholding tax applicable to a dividend
paid on a Common Share to an Investor who is a resident of the United States for
the purposes of the Treaty is 5% if the Investor is a company that owns at least
10% of the voting stock of the Corporation, and 15% in any other case, of the
gross amount of the dividend. The Corporation will be required to withhold any
such tax from the dividend, and remit the tax directly to CRA for the account of
the Investor.

United States Federal Income Tax Consequences

The following is a general discussion of all material United
States federal income tax consequences, under current law, generally applicable
to a U.S. Holder (as hereinafter defined) of common shares of the Corporation.
This discussion does not address individual consequences to persons subject to
special provisions of federal income tax law, such as those described below as
excluded from the definition of a U.S. Holder. In addition, this discussion does
not cover any state, local or foreign tax consequences. (See Canadian Federal
Income Tax Considerations above).

The following discussion is based upon the sections of the
Internal Revenue Code of 1986, as amended (the Code), Treasury
Regulations, published Internal Revenue Service (IRS) rulings,
published administrative positions of the IRS and court decisions that are
currently applicable, any or all of which could be materially and adversely
changed, possibly on a retroactive basis, at any time. This discussion does not
consider the potential effects, both adverse and beneficial, of any recently
proposed legislation which, if enacted, could be applied, possibly on a
retroactive basis, at any time. This discussion is for general information only
and it is not intended to be, nor should it be construed to be, legal or tax
advise to any holder or prospective holder of common shares of the Corporation
and no opinion or representation with respect to the United States federal
income tax consequences to any such holder or prospective holder is made.
Accordingly, holders and prospective holders of common shares of the Corporation
are urged to consult their own tax advisors about the federal, state, local, and
foreign tax consequences of purchasing, owning and disposing of common shares of
the Corporation.

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As used herein, a U.S. Holder means a holder of common shares
of the Corporation who is a citizen or individual resident of the United States,
a corporation or partnership created or organized in or under the laws of the
United States or of any political subdivision thereof or a trust whose income is
taxable in the United States irrespective of source. This summary does not
address the tax consequences to, and U.S. Holder does not include, persons
subject to specific provisions of federal income tax law, such as tax-exempt
organizations, qualified retirement plans, individual retirement accounts and
other tax-deferred accounts, financial institutions, insurance companies, real
estate investment trusts, regulated investment companies, broker-dealers,
non-resident alien individuals, persons or entities that have a functional
currency other than the U.S. dollar, shareholders who hold common shares as
part of a straddle, hedging or a conversion transaction, and shareholders who
acquired their common shares through the exercise of employee stock options or
otherwise as compensation for services. This summary is limited to U.S. Holders
who own common shares as capital assets. This summary does not address the
consequences to a person or entity holding an interest in a shareholder or the
consequences to a person of the ownership, exercise or disposition of any
options, warrants or other rights to acquire common shares.

U.S. Holders receiving dividend distributions (including
constructive dividends) with respect to common shares of the Corporation are
required to include in gross income for United States federal income tax
purposes the gross amount of such distributions equal to the U.S. dollar value
of such dividends on the date of receipt (based on the exchange rate on such
date) to the extent that the Corporation has current or accumulated earnings and
profits, without reduction for any Canadian income tax withheld from such
distributions. Such Canadian tax withheld may be credited, subject to certain
limitations, against the U.S. Holders federal income tax liability or,
alternatively, may be deducted in computing the U.S. Holders federal taxable
income by those who itemize deductions. (See more detailed discussion at
Foreign Tax Credit below). To the extent that distributions exceed current or
accumulated earnings and profits of the Corporation, they will be treated first
as a return of capital up to the U.S. Holders adjusted basis in the common
shares and thereafter as gain from the sale or exchange of the common shares.
Preferential tax rates for long-term capital gains are applicable to a U.S.
Holder which is an individual, estate or trust. There are currently no
preferential tax rates for long-term capital gains for a U.S. Holder which is a
corporation.

In the case of foreign currency received as a dividend that is
not converted by the recipient into U.S. dollars on the date of receipt, a U.S.
Holder will have a tax basis in the foreign currency equal to its U.S. dollar
value on the date of receipt. Generally any gain or loss recognized upon a
subsequent sale or other disposition of the foreign currency, including the
exchange for U.S. dollars, will be ordinary income or loss. However, an
individual whose realized gain does not exceed $200 will not recognize that
gain, to the extent that there are no expenses associated with the transaction
that meet the requirement for deductibility as a trade or business expense
(other than travel expenses in connection with a business trip) or as an expense
for the production of income.

Dividends paid on the common shares of the Corporation will not
generally be eligible for the dividends received deduction provided to
corporations receiving dividends from certain United States corporations. A U.S.
Holder which is a corporation may, under certain circumstances, be entitled to a
70% deduction of the United States source portion of dividends received from the
Corporation (unless the Corporation qualifies as a foreign personal holding
company or a passive foreign investment company, as defined below) if such
U.S. Holder owns shares representing at least 10% of the voting power and value
of the Corporation. The availability of this deduction is subject to several
complex limitations which are beyond the scope of this discussion.

Under current temporary Treasury Regulations, dividends paid on
the Corporations common shares, if any, generally will not be subject to
information reporting and generally will not be subject to U.S. backup
withholding tax. However, dividends paid, and the proceeds of a sale of the
Corporations common shares, in the U.S. through a U.S. or U.S. related paying
agent (including a broker) will be subject to U.S. information reporting
requirements and may also be subject to the 31% U.S. backup withholding tax,
unless the paying agent is furnished with a duly completed and signed Form W-9.
Any amounts withheld under the U.S. backup withholding tax rules will be allowed
as a refund or a credit against the U.S. Holders U.S. federal income tax
liability, provided the required information is furnished to the IRS.

A U.S. Holder who pays (or has withheld from distributions)
Canadian income tax with respect to the ownership of common shares of the
Corporation may be entitled, at the option of the U.S. Holder, to either receive
a deduction or

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a tax credit for such foreign tax paid or withheld. Generally,
it will be more advantageous to claim a credit because a credit reduces United
States federal income taxes on a dollar-for-dollar basis, while a deduction
merely reduces the taxpayers income subject to tax. This election is made on a
year-by-year basis and applies to all foreign taxes paid by (or withheld from)
the U.S. Holder during that year. There are significant and complex limitations
which apply to the credit, among which is the general limitation that the credit
cannot exceed the proportionate share of the U.S. Holders United States income
tax liability that the U.S. Holders foreign sources income bears to his or its
worldwide taxable income. In the determination of the application of this
limitation, the various items of income and deduction must be classified into
foreign and domestic sources. Complex rules govern this classification process.
In addition, this limitation is calculated separately with respect to specific
classes of income such as passive income, high withholding tax interest,
financial services income, shipping income, and certain other
classifications of income. Dividends distributed by the Corporation will
generally constitute passive income or, in the case of certain U.S. Holders,
financial services income for these purposes. The availability of the foreign
tax credit and the application of the limitations on the credit are fact
specific, and U.S. Holders of common shares of the Corporation should consult
their own tax advisors regarding their individual circumstances.

A U.S. Holder will recognize gain or loss upon the sale of
common shares of the Corporation equal to the difference, if any, between (i)
the amount of cash plus the fair market value of any property received, and (ii)
the shareholders tax basis in the common shares of the Corporation.
Preferential tax rates apply to long-term capital gains of U.S. Holders who are
individuals, estates or trusts. This gain or loss will be capital gain or loss
if the common shares are a capital asset in the hands of the U.S. Holder, which
will be long-term capital gain or loss if the common shares of the Corporation
are held for more than one year. Deductions for net capital loss may be carried
over to be used in later tax years until such net capital loss is thereby
exhausted. For U.S. Holders that are corporations (other than corporations
subject to Subchapter S of the Code), an unused net capital loss may be carried
back three years and carried forward five years from the loss year to be offset
against capital gains until such net capital loss is thereby exhausted.

In the following circumstances, the above sections of this
discussion may not describe the United States federal income tax consequences
resulting from the holding and disposition of common shares:

If 50% or more of the combined voting power or total value of
the Corporations outstanding shares are held, directly or indirectly, by
citizens or residents of the United States, United States domestic partnerships
or corporations, or estates or trusts other than foreign estates or trusts (as
defined by the Code Section 7701(a)(31)), and the Corporation is found to be
engaged primarily in the business of investing, reinvesting, or trading in
securities, commodities, or any interest therein, it is possible that the
Corporation may be treated as a foreign investment company as defined in
Section 1246 of the Code, causing all or part of any gain realized by a U.S.
Holder selling or exchanging common shares to be treated as ordinary income
rather than capital gain.

If more than 50% of the voting power of all classes of shares
or the total value of the shares of the Corporation is owned, directly or
indirectly, by citizens or residents of the United States, United States
domestic partnerships and corporations or estates or trusts other than foreign
estates or trusts, each of whom own 10% or more of the total combined voting
power of all classes of shares of the Corporation (United States
shareholder), the Corporation could be treated as a controlled foreign
corporation under Subpart F of the Code. This classification would effect many
complex results one of which is the inclusion of certain income of a CFC which
is subject to current U.S. tax. The United States generally taxes a United
States shareholder of a CFC currently on their pro rata shares of the Subpart F
income of the CFC. Such U.S. shareholders are generally treated as having
received a current distribution out of the CFCs Subpart F income and are also
subject to current U.S. tax on their pro rata shares of the CFCs earnings
invested in U.S. property. The foreign tax credit described above may reduce the
U.S. tax on these amounts. In addition, under Section 1248 of the Code, gain
from the sale or exchange of shares by a U.S. Holder of common shares of the
Corporation who is or was a United States shareholder at any time during the
five-year period ending with the sale or exchange is treated as ordinary income
to the extent of earnings and profits of the Corporation attributable to the
shares sold or exchanged. If a foreign corporation is both a PFIC and a CFC, the
foreign corporation generally will not be treated as a PFIC with respect to
United States shareholders of the CFC. This rule generally will be effective for
taxable years of United States shareholders beginning after 1997 and for taxable
years of foreign corporations ending with or within such taxable years of United
States shareholders. Special rules apply to United States shareholders who are
subject to the special taxation rules under Section 1291 discussed

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above with respect to a PFIC. Because of the complexity of
Subpart F, and because it is not clear that Subpart F would apply to U.S.
Holders of common shares of the Corporation, a more detailed review of these
rules is outside of the scope of this discussion.

10.H Documents on Display

Exhibits attached to this Annual Report are also available for
review at our head office located at 911  470 Granville Street, Vancouver,
British Columbia V6C 1V5 or you may request them by calling our office at
604-682-2421. Copies of our financial statements and other continuous disclosure
documents required under the British Columbia Securities Act are available for
viewing on the internet at www.SEDAR.com. Copies of our financial statements and
other continuous disclosure documents are also available for viewing at
www.sec.gov.

ITEM 11. QUANTITATIVE AND DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact the
financial position, results of operations, or cash flows of the Company due to
adverse changes in financial market prices, including interest rate risk,
foreign currency exchange rate risk, commodity price risk, and other relevant
market or price risks.

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 cash equivalents and flow through share
proceeds. As of December 31, 2005, the Company had approximately $62,000 (2004 -
$Nil) line of credit available for use.

At present the Company conducts substantially all of its
activities in Canada with the majority of transactions denominated in Canadian
dollars. The Companys management believes that fluctuations in interest rates
and currency exchange rates in the near term will not materially affect the
Companys consolidated operating results, financial position or cash flows as
the Company has limited risks related to interest rate and currency exchange
rate fluctuations.

As the Company is in a care and maintenance stage, it presently
has no activities related to derivative financial instruments, derivative
commodity instruments or hedging instruments.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES

 Not Applicable 

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 Not Applicable 

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
HOLDERS

There are no material modifications to instruments defining the
rights of holders of any class of registered securities and there is no general
or specific effect on the Companys securities.

ITEM 15. CONTROLS AND PROCEDURES

Based on their evaluation as of as at December 31, 2005 of this
Annual Report on Form 20-F, the Companys Chief Executive Officer and Officer
acting in the capacity of the Chief Financial Officer have concluded that the
Companys disclosure controls and procedures (as defined in Rules 13a-14(c) and
15-d14(c) under the Securities Exchange Act of 1934 (the Act)) are
effective to ensure that the information required to be disclosed by the

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Company in reports that it files or submits under the Act is
recorded, processed, summarized and communicated to them as appropriate to allow
timely decisions regarding required disclosure.

There were no significant changes in the Companys internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of the recent evaluation performed by the Companys Chief
Executive Officer and Officer acting in the capacity of the Chief Financial
Officer including any corrective actions with regard to significant deficiencies
and material weaknesses.

ITEM 16. RESERVED

ITEM 16.A. AUDIT COMMITTEE FINANCIAL EXPERT

The Registrants Board of Directors has determined that it does
not have an independent audit committee financial expert serving on its audit
committee. The Company plans to retain a financial expert to serve on the audit
committee upon commencement of commercial production. Management believes that
current board members have sufficient financial expertise to deal with
operations at their current small scale.

ITEM 16.B. CODE OF ETHICS

The Registrant has not adopted a code of ethics that applies to
the Chief Executive Officer and the Chief Financial Officer, as well as to all
other staff. The Company believes that the Chief Executive Officer and Chief
Financial Officer operate according to an acceptable but as yet undocumented
code of ethics. The Company plans to codify ethical guidelines for its senior
officers in the near future.

ITEM 16.C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

For the fiscal yearended December 31Principal Accountant Service(1)
    
    2005
    
    
    2004Audit Fees
    $
    58,300
    
    $
    31,300Tax Fees
    $
    0
    
    $
    6,300


A. Audit Fees

Audit fees were for professional services rendered by BDO Dunwoody
  LLP (“BDO”) for the audit of the Registrant’s annual financial
  statements and services provided in connection with statutory and regulatory
  filing or engagements.

B. Tax Fees

Tax fees were for tax compliance, tax advice and tax planning
professional services. These services consisted of tax compliance including the
review of tax returns, and tax planning and advisory services relating to common
forms of domestic and international taxation (i.e. income tax, capital tax,
goods and services tax, payroll tax and value added tax).

C. Pre-Approval Policies and Procedures

It is within the mandate of the Registrants Audit Committee to
approve all audit and non-audit related fees. The audit Committee has
pre-approved specifically identified non-audit related services, including tax
compliance, review of tax returns, documentation of processes and controls as
submitted to the Audit Committee from time to time. The auditors also present
the estimate for the annual audit related services the Committee from time to
time. The auditors also present the estimate for the annual audit related
services to the Committee for approval prior to undertaking the annual audit of
the financial statements.

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ITEM 16.D. EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEES

 Not Applicable 

ITEM 16.E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
AFFILIATED PURCHASERS

 Not Applicable 

PART III

ITEM 17. FINANCIAL STATEMENTS

See the Audited Financial Statements listed in Item 19 Exhibits
hereof and filed as part of this Annual Report. The Companys financial
statements are stated in Canadian Dollars and are prepared in accordance with
Canadian GAAP, the application of which, in the case of the Company, conforms in
material respects for the periods presented with United States GAAP, except as
discussed in the notes to the financial statements. This Annual Report on Form
20-F includes the Companys audited financial statements for the years ended
December 31, 2005 and 2004, including the following:

|1. | Independent Auditors Report of BDO Dunwoody LLP
        dated March 10, 2006.                                 
|-- | ---------------------------------------------------------------------------------------------------------------
|   |                                                                                                                
|2. | Comments by Auditors for U.S. Readers On Canada – U.S. Reporting
      Differences.                            
|   |                                                                                                                
|3. | Consolidated Balance Sheets for the years ended December
        31, 2005 and 2004.                            
|   |                                                                                                                
|4. | Consolidated Statements of Operations and Deficit for
        the years ended December 31, 2005, 2004 and 2003.
|   |                                                                                                                
|5. | Consolidated Statements of Cash Flows dated for the
        years ended December 31, 2005, 2004 and 2003.      
|   |                                                                                                                
|6. | Summary of Significant Accounting Policies.                                                                    
|   |                                                                                                                
|7. | Notes to Consolidated Financial Statements.                                                                    

ITEM 18. FINANCIAL STATEMENTS

 Not Applicable 

ITEM 19. EXHIBITS

The following financial statements, related schedules and
exhibits are included in this Form 20-F:

|EXHIBITNUMBER | DESCRIPTION OFEXHIBIT                                                                                                                                   
|------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|              |                                                                                                                                                         
|12.1          | Certification
        pursuant to Rule 13a-14(A)/15d-14(A) of the Chief Executive Officer                                                               
|              |                                                                                                                                                         
|12.2          | Certification
        pursuant to Rule 13a-14(A)/15d-14(A) of the Officer Acting in the Capacity
        of the Chief Financial Officer                 
|              |                                                                                                                                                         
|13.1          | Certification
        of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002                                      
|              |                                                                                                                                                         
|13.2          | Certification
        of Officer Acting in the Capacity of the Chief Financial Officer Pursuant
        to Section 906 of the Sarbanes-Oxley Act of 2002
|              |                                                                                                                                                         
|99.1          | Audited
        Financial Statements for the years ended December 31, 2005 and 2004                                                                     

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the Registrant certifies that it meets all of the
requirements for filing of Form 20-F and has duly caused this Annual Report to
be signed on its behalf by the undersigned, thereunto duly authorized.

| | **CUSAC GOLD MINES LTD.**
| | -------------------------
| | **(Registrant)**         
| |                          
| |                          
| | By:                      
| |                          
| |                          
| |                          
| |                          

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