# SECURITIES AND
EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

# FORM 10-K

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

| | For
the fiscal year ended January 31, 2006
| | ------------------------------------------

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

| | For the transition period from ____________ to ____________
| | -----------------------------------------------------------

Commission file number:
0-21968

_________________

BRAZAURO RESOURCES
CORPORATION(formerly Jaguar Resources Corporation)(Exact Name of Registrant as Specified in Its Charter)

|British Columbia(State or Other Jurisdiction of 
Incorporation or Organization) | 76-0195574(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------- | ----------------------------------------------

800 Bering, Suite 208
Houston, TX 77057
(Address of Principal Executive
Offices, including Zip Code)

(713) 785-1278
(Registrants
Telephone Number, Including Area Code)

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

|Title of Each ClassNone | Name of Exchange on Which RegisteredNone
|----------------------- | ----------------------------------------

# Securities registered pursuant
to Section 12(g) of the Act:

Title of Each ClassCOMMON STOCK

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]

Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.       
Yes   [  ]    No  [X]

Indicate by check mark whether the
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 the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.     
Yes   [X]    No  [  ]

Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.   [X]

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act. (Check one):

|Large accelerated filer    [  ] | Accelerated filer    [  ] | Non-accelerated filer    [X]
|------------------------------- | ------------------------- | ----------------------------

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes   [  ]    No  [X]

As of July 29, 2005, the aggregate
market value of voting stock held by non-affiliates of the Registrant, based on the
closing price of the Common Stock of the Registrant quoted on the TSX Venture Exchange
was $88,202,856 (Canadian) or $71,961,211 (U.S.). For purposes of calculating this amount, only directors,
officers and beneficial owners of 5% or more of the capital stock of the Registrant have
been deemed affiliates.

Number
of shares of Registrants Common Stock outstanding as of April 17, 2006:   52,931,645

Documents incorporated
by reference:  Portions of Item 10 in an Amended Form 10-K, which is expected
to be filed by May 31, 2006, have been incorporated by reference into Part III
of this Annual Report on Form 10-K.

---

# BRAZAURO RESOURCES
CORPORATION
FORM 10-K 
TABLE OF CONTENTS



|           |  |                                                                                                                 |    |      |    | 
|---------- |  | --------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|           |  |                                                                                                                 |    | Page
|          
|PART I    
|Item 1.    |  | Business                                                                                                        |    |      | 1  | 
|Item 1A.   |  | Risk Factors                                                                                                    |    |      | 2  | 
|Item 1B.   |  | Unresolved Staff Comments                                                                                       |    |      | 3  | 
|Item 2.    |  | Properties                                                                                                      |    |      | 4  | 
|Item 3.    |  | Legal
    Proceedings                                                                                           |    |      | 8  | 
|Item 4.    |  | Submission of
    Matters to a Vote of Security Holders                                                         |    |      | 8  | 
|          
|PART II   
|Item 5.    |  | Market for
    Registrants Common Stock, Related Stockholder Matters and Issuer
Purchases of Equity Securities |    |      | 8  | 
|Item 6.    |  | Selected Consolidated Financial
    Information                                                                 |    |      | 19 | 
|Item 7.    |  | Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations                   |    |      | 20 | 
|Item 7A.   |  | Quantitative and
    Qualitative Disclosures About Market Risk                                                  |    |      | 25 | 
|Item 8.    |  | Financial
    Statements and Supplementary Data                                                                 |    |      | 25 | 
|Item 9.    |  | Changes In and
    Disagreements With Accountants on Accounting and Financial
    Disclosure                    |    |      | 25 | 
|Item 9A.   |  | Controls and
    Procedures                                                                                     |    |      | 25 | 
|PART III  
|Item 10.   |  | Directors and
    Executive Officers of the Registrant                                                          |    |      | 26 | 
|Item 11.   |  | Executive
    Compensation                                                                                      |    |      | 28 | 
|Item 12.   |  | Security Ownership
    of Certain Beneficial Owners and Management and Related
Stockholder Matters              |    |      | 30 | 
|Item 13.   |  | Certain
    Relationships and Related Transactions                                                              |    |      | 31 | 
|Item 14.   |  | Principal
    Accountant Fees and Services                                                                      |    |      | 32 | 
|          
|PART IV   
|Item 15.   |  | Exhibits and
    Financial Statement Schedules                                                                  |    |      | 33 | 
|Signatures |  |                                                                                                                 | 33



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# Item 1.   BUSINESS

# General Information

Brazauro
Resources Corporation (the Company) is engaged in the business of exploring
for and, if warranted, developing mineral properties and is concentrating its current
acquisition and exploration efforts on those properties which the Company believes have
large scale gold potential. The Company holds interests in properties located in the
Tapajós Gold District of Brazils northerly Pará State (collectively
the Properties).

The
Company has two wholly-owned subsidiaries; Brazauro Holdings (Brazil) Ltd., a British
Columbia corporation (Brazauro Holdings), and Star U.S. Inc., a Delaware corporation
(Star). Star in turn owns 100% of the stock of three corporations, Diamond
Exploration, Inc. and Continental Diamonds, Inc., both of which are Arkansas corporations
(DEI and CDI, respectively), and Diamond Operations, Inc., a
Delaware corporation (DOI). The Company and Brazauro Holdings own 98% and 2%,
respectively, of Jaguar Resources do Brasil Ltda., a Brazilian corporation. All references to the
Company herein include its subsidiaries unless otherwise noted. The Companys
Consolidated Financial Statements referred to herein also include its subsidiaries. The
Companys fiscal year ends January 31.

The
Companys principal office is located at 800 Bering, Suite 208, Houston,
Texas, U.S.A. 77057. The Company had three (3) full-time employees at January 31, 2006;
however, the Company retains consultants, independent contractors and part-time employees
on an as-needed basis in connection with its exploration and development activities.

The
Company was incorporated under the Company Act (British Columbia) on March 12, 1986. The
authorized capital of the Company consists of an unlimited amount of shares of common
stock without par value (the Common Stock), of which 52,931,645 shares were
issued and outstanding as of April 17, 2006. The Common Stock of the Company ranks equally
as to dividends, voting rights and participation in assets and is traded under the symbol
BZO on the TSX Venture Exchange.

Unless
otherwise stated herein, all monetary amounts are expressed in Canadian dollars. At April
17, 2006, the exchange rate for conversion to United States dollars was $1.00 (Canadian) =
U.S. $ 0.8732. Historical exchange rates for the last five years are set forth in Item 6
at page 19. The Companys Consolidated Financial Statements in Item 15 are prepared in
accordance with Canadian generally accepted accounting principles.

The
Company is subject to substantial risks with respect to exploration activities and will
seek additional capital during fiscal 2007 to conduct additional property exploration
activities and to fund general and administrative expenses. See Certain Risk
Factors and Managements Discussion and Analysis of Financial Condition
and Results of Operations.

# Operating History and
Development

The
Company became a public company in January 1988 when it undertook an initial public
offering of its Common Stock in British Columbia, Canada and became listed on the
Vancouver Stock Exchange, a predecessor to the TSX Venture Exchange. From inception and
prior to 1988 the Company had limited business activities and through 1993 explored and
abandoned several mineral properties. During fiscal 1993, the Company elected to pursue
prospects with the potential for commercial diamond production.

The
Company completed three acquisitions in fiscal 1993 consistent with its focus on diamond
exploration prospects, including acquisitions of the Arkansas Properties
(defined below). During fiscal 1995 through 2003, the Company completed additional
acquisitions in Arkansas and directly managed and funded exploration efforts on certain
Arkansas Properties. In fiscal 2003 the Company decided to cease exploration efforts in
Arkansas due to disappointing exploration results, and began to pursue mineral exploration
prospects, particularly gold prospects in South America.

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During
fiscal 2004 the Company acquired the mineral rights to two properties in Brazil, the
Tocantinzinho and Mamoal Properties, as described below. In fiscal 2005, the Company
extended its holdings in the Tocantinzinho Properties and conducted exploration
activities on both the Tocantinzinho and Mamoal  Properties. 
          Additionally, the Company acquired the Batalha Property, a gold prospect also
          located in Pará State, Brazil. During fiscal 2006, the Company conducted
          further exploration activities on the Tocantinzinho and Mamoal Properties. Based
          upon the disappointing exploration results at the Mamoal Property, the Company
          determined that it was likely further exploration activities would not be conducted at the
          project. Accordingly, the net capitalized costs related to the Mamoal Property
          totaling $906,535 were written off during the fourth quarter of fiscal 2006.

Upon acquisition of an exploration property, the Company typically performs geologic evaluation
and exploration efforts to determine if the project warrants further work including, but not
limited to geologic mapping and sampling, geophysical surveys, and drilling.  The
          Company will continue to pursue mineral exploration prospects, focusing on the
          Tapajós and on a worldwide basis as opportunities arise, subject to
          adequate acquisition and exploration funding.

Included
in the consolidated balance sheets at January 31, 2006 and 2005 are total assets of
approximately $4,698,000 and $2,939,000, respectively, related to the Companys
operations in Brazil. The mineral properties and deferred expenditures totaling
approximately $4,493,000 and $2,818,000 at January 31, 2006 and 2005, respectively, are
net capitalized costs related to the Companys Brazilian properties.

Since
its inception, the Company has no revenues from operations other than interest income on
invested cash balances and rental income from the Companys Diamond Recovery Plant
(the Plant) totaling $1,079,000. The rental income was received during the
three fiscal years ended January 31, 1999. In March 2003 the Company sold the Plant to a
third party for $350,000 (U.S.).

# Item 1A.  RISK FACTORS

The
Companys business plan to acquire additional exploration prospects, continue
exploration activities on its current projects, and, if warranted, undertake development
and mining operations is subject to numerous risks and uncertainties, including the
following:

Lack
of Proven Properties and Insufficient Exploration and Development Funds.   At this
point, all of the Companys exploration prospects and property interests
(collectively the Properties) are gold prospects in Brazil. While the Company
has sufficient funds to complete the exploration phase currently underway, additional
funds may be necessary in order for the Company to pursue further exploration on its
existing properties and to acquire and develop additional exploration prospects. Certain
of the Companys planned expenditures are discretionary and may be increased or
decreased based upon funds available to the Company.

As
of January 31, 2006, the Company had sufficient cash to fund general and administrative
expenses anticipated during fiscal 2007. As discussed above, the Company may be required
to raise additional capital for additional exploration activity on its existing properties
and acquisition of new exploration prospects during fiscal 2007. There can be no assurance
that additional funds can be raised. See Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations (hereinafter referred to
as MD & A).

Environmental
Laws.   The exploration programs conducted by the Company are subject to national, state
and/or local regulations regarding environmental considerations in the jurisdiction where
they are located. Most operations involving exploration or production activities are
subject to existing laws and regulations relating to exploration and mining procedures,
reclamation, safety precautions, employee health and safety, air quality standards,
pollution of stream and fresh water sources, odor, noise, dust, and other environmental
protection controls adopted by federal, state and local governmental authorities as well
as the rights of adjoining property owners. The Company may be required to prepare and
present to federal, state or local authorities data pertaining to the effect or impact
that any proposed exploration or production of minerals may have upon the environment. All
requirements imposed by any such authorities may be costly, time consuming, and may delay
commencement or continuation of exploration or production operations. However, at this
time, the Company is exploring its Properties and does not

2

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anticipate preparing environmental
impact statements or assessments until such time as the Company believes one or more of
its Properties will prove to be commercially feasible.

Limited
Exploration Prospects.  The Companys existing properties are all gold prospects
in Brazil. Accordingly, the Company does not have a diversified portfolio of exploration
prospects either geographically or by mineral targets. The Companys operations could
be significantly affected by changes in the market price of gold, as the economic
viability of the Companys projects is heavily dependent upon the market price of
gold. Additionally, the Companys projects are
subject to the laws of Brazil and can be negatively impacted by the existing laws and
regulations of that country, as they apply to mineral exploration, land ownership, royalty
interests and taxation, and by any potential changes of such laws and regulations.
Due to the Companys exploration activities in Brazil, the Company is also
subject to economic risks due to currency fluctuation and foreign exchange controls.

Title
to Properties.   The Company cannot guarantee title to all of its Properties as the
Properties may be subject to prior mineral rights applications with priorty, prior
unregistered agreements or transfers or native land
claims, and title may be affected by undetected defects. Certain of the mineral
rights held by the Company are held under applications for mineral rights and, until
final approval of such applications is received, the Companys rights to such
mineral rights may not materialize and the exact boundaries of the Companys
properties may be subject to adjustment.  The Company does not maintain
title insurance on its properties.

Limited
Market for Common Shares.  The liquidity of the common shares of the Company, or
ability of the shareholder to buy or sell the Companys common stock, may be significantly limited
for various unforeseeable periods. The average daily volume of the Companys shares traded on the
TSX Venture Exchange during fiscal 2006 was under 65,000 shares. The market price of
the Companys
shares has historically fluctuated in a large range, as disclosed in Item 5  Market
for Registrants Common Stock and Related Stockholder Matters on page 6. The price
of the Companys common shares may be affected by many factors, including adverse
change in the Companys business, a decline in gold price and general economic trends.

Insurance
Coverage.    Mineral exploration is subject to risks of human injury,
environmental and legal liability and loss of assets. The Company may elect not to have
insurance for certain risks because of the high premiums associated with insuring those
risks or, in some cases, insurance may not be available for certain risks. Occurrence of
events for which we are not insured could have a material adverse effect on our financial
position or results of operations.

Key
Executives.    The Company is dependent on the services of key executives,
including its Chairman, Mark E. Jones, III, its Director and retired President, Leendert
G. Krol, and its Vice President of Exploration, Stephen Zahony. All of the above
individuals have many years of background in the mining industry. The Company may not be
able to replace that experience and knowledge with other individuals.

Enforcement
of Judgements against the Company.  The Company is incorporated in the Province of
British Columbia, Canada. Certain of our directors and officers live in Canada, and most
of our assets are located in Brazil and Canada. As a result, it may be difficult for
investors to effect service of legal process within the United States upon directors and
officers who are not United States residents. Also, there is uncertainty as to the
enforceability in Canada, in original actions or for enforcement of judgments of U.S.
courts, of civil liabilities predicated upon U.S. federal or state securities laws.

# Item 1B.  UNRESOLVED STAFF COMMENTS

Not
applicable.

# SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS

Certain
statements in this Form 10-K under Item 1. Business, Item 2.
Properties, Item 3. Legal Proceedings, and Item 7. MD &
A and other factors may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or achievements
expressed or

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implied by such forward-looking
statements. Such factors include, among others, the following: general economic and
business conditions; competition; success of operating initiatives; the success of the
Companys exploration and development operations on its Properties; the Companys
ability to raise capital and the terms thereof; the acquisition of additional properties;
the continuity, experience and quality of the Companys management; changes in or
failure to comply with government regulations or the lack of government authorization to
continue the Companys projects; and other factors referenced in this Form 10-K. The
use in this Form 10-K of such words as believes, plans, anticipates,
expects, intends and similar expressions are intended to identify
forward-looking statements, but are not the exclusive means of identifying such
statements. The success of the Company is dependent on the efforts of the Company, its
employees and many other factors including, primarily, its ability to raise additional
capital and establishing the economic viability of its exploration Properties.

# Item 2.    PROPERTIES

Currently,
all of the Companys Properties are located in the Tapajós Gold District of
Brazils northerly Pará State. The general location of the Companys
Brazilian Properties is shown on the map provided below. The map is followed by a
description of the Companys rights and interests in each of the Properties,
including those Properties in the State of Arkansas where the Companys rights and
interests have expired.



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# Brazilian Properties

Tocantinzinho Properties

In August 2003 the Company entered
into an option to acquire exploration rights to a total of 28,275 hectares in the
Tapajós gold district in Para State, Brazil under an option agreement with two
individuals (herein referred to as optionors). The option agreement entitles
the Company to acquire a 100% interest in the exploration rights to such area (referred to
herein as the Tocantinzinho Properties) over a four-year period in
consideration for the staged payment of US$465,000, the staged issuance of 2,600,000
shares of the Company and the expenditure of $1,000,000 (U.S.) on exploration ($300,000
(U.S.) by July 31, 2004). The Company received approval for the acquisition from the TSX
Venture Exchange in August 2003 and made the initial payment required by the option
agreement to the optionors, consisting of 1,100,000 common shares of the Company and
$75,000 (U.S.). The Company made the second option payment, consisting of 200,000 common
shares of the Company and $30,000 (U.S.), in February 2004. In August 2004 and July 2005,
the Company made the third and fourth option payments, each consisting of 200,000 common
shares of the Company and $40,000 (U.S.).

As of January 31, 2006, the total
commitment remaining under the option agreement is as follows (all amounts are in U.S.
dollars): $130,000 and 200,000 common shares of the Company, and $150,000 and 700,000
common shares of the Company for the 2007 and 2008 fiscal years, respectively.

Additionally, the option agreement
requires the Company to assume all existing obligations of the optionors to
certain Brazilian residents in respect of the mineral rights to the Tocantinzinho Properties (the Underlying Agreements)
totaling $1,600,000 (U.S.) 
          over a four-year period. At January 31, 2006, the remaining payment commitments
          under the Underlying Agreements are as follows (all amounts are in U.S.
          dollars): $160,000 and $1,205,000 in fiscal years 2007 and 2008, respectively.
          The Company made payments totaling $35,000 (U.S.), $80,000 (U.S.) and $120,000
          (U.S.) in respect of the Underlying Agreements during fiscal 2004, 2005 and
          2006, respectively. One of the optionors entered into a consulting agreement
          with the Company for an 18-month period at a rate of $7,000 (U.S.) per month
          which expired during fiscal 2005. The payments under the option agreement, the
          Underlying Agreements and the consulting agreement are considered expenditures
          for purposes of meeting the required total and initial annual expenditures of
          $1,000,000 (U.S.) and $300,000 (U.S.), respectively, discussed above. During
          fiscal 2005 the Company completed the requirement under the option agreement to
          expend a total of $300,000 (U.S.) and met the requirement to expend $1,000,000
          (U.S.) on exploration. The Company has met its commitments under the
          option agreement to January 31, 2006, and the option agreement is cancelable by the Company without
          further obligations.

The optionors are entitled to a
sliding scale gross revenues royalty ranging from 2.5% for gold prices below $400 (U.S.)
per ounce to 3.5% for gold prices in excess of $500 (U.S.) per ounce.

The Company has received exploration licenses in respect of the central 4,000
hectare area of the Tocantinzinho Properties on which
it has been focusing its exploration efforts as well as for a 9,315 hectare area
forming the north eastern and eastern boundary of
the Tocantinzinho Properties.  Under the option agreement the Company also holds
rights to acquire two other applications for
exploration licenses filed with the regulatory authorities in Brazil:   one covering
4,275 hectares that lies to the south of the
central 4,000 hectare area and one (the Extension Area) covering 10,000
hectares that lies immediately to the east but continues
well south of the central 4,000 hectare area.  The mineralized zone discovered by
the Company (see Drilling and Exploration below)
on the Tocantinzinho Properties starts on the central 4,000 hectare area
and extends eastward beyond the boundary of the central
4,000 hectare area into the Extension Area.

At the end of fiscal 2006, as a
result of further title reviews by the Company, it came to the Companys attention
that a long dormant application for a mining license that covered the Extension Area had
never been processed by the Departamento Nacional de Produção Mineral
(DNPM) and was still valid.  According to advice from Brazilian counsel,
the dormant application carried paramount title to the Extension Area. The Company, through its subsidiary, Jaguar
Resources do Brasil Ltda., reached an agreement with the holder of such application to
acquire its rights to obtain a mining license over the Extension Area, subject to receipt
of confirmation from the DNPM of the

5

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granting of the mining license. In
the event the DNPM does not grant the mining license, the Companys rights to the
Extension Area will be in doubt. To date, the Company has made a payment of $150,000
(U.S.) to the holder of the application.

The Company is aware that another
entity has asserted that it holds prior mineral rights to areas of the Tocantinzinho
Properties, including areas of the mineralized zone discovered by the Company. The Company
is presently undertaking an extensive review of its title position and has found
inconsistencies in its title documentation relating to license boundaries. The Company is working with its Brazilian
counsel and the DNPM to resolve these inconsistencies. These inconsistencies may adversely affect the
Companys rights to a portion of the mineralized zone. The Company has been advised
of the laws governing these matters and considers that these inconsistencies should be resolved
such that the Company will retain rights to all of the mineralized zone. However, the
resolution of these inconsistencies will require the DNPM to concur with the
Companys interpretation of these laws. An adverse interpretation of Brazilian mining
laws may result in another party receiving rights to some portion of the
mineralized zone.

Under a separate agreement, the
Company holds exploration licenses for an additional 16,052 hectares adjacent to the
western border of the above central 4,000 hectares of the Tocantinzinho Properties. The Company has agreed to make
payments totaling $300,000 (U.S.) over a period of approximately four years to an
individual as a finders fee related to this 16,052 hectare property. As of January
31, 2006, the remaining commitment under this agreement is $215,000 (U.S.). This
additional property is not subject to the option agreement and therefore is not subject to
the royalty. The Company received an exploration license from the Brazilian regulatory
authority with respect to the additional 16,052 hectares in fiscal year 2005.

Mamoal Property

The Company entered into an option
agreement under which it may acquire the exploration license to the 10,000 hectare Mamoal
Property, located 30 kilometers southeast of the Companys Tocantinzinho Properties,
in December 2003. The Company has an option to earn 100% of the Mamoal Property by payment
of a total of $300,000 (U.S.) over three and one half years. The Company may terminate the
option agreement at any time without further obligation. 
          An initial $10,000 (U.S.) payment was made by the Company in December 2003, and
          the exploration research license has been transferred to Jaguar Resources do
          Brasil Ltda. During fiscal 2005 and 2006, the Company made payments under the
          option agreement totaling $25,000 (U.S.) and $45,000 (U.S.), respectively. The
          remaining option payments are as follows (all amounts are in U.S. dollars):
          $65,000 and $155,000 in fiscal years ending January 31, 2007 and 2008,
          respectively. The Company may acquire the Mamoal Property at any time by
          accelerating the option payments. The Company has received the exploration
          license from the Brazilian regulatory authority.

Batalha Property

In September, 2004 the Company
applied for an exploration license to the 9800 hectare Batalha Property, located in the
Tapajós gold province in northern Brazil. The property, host to a well known and
extensive garimpo or artisanal mine, lies at the western end of the
Tocantinzinho trend.

The Company has agreed to pay the
original holder of artisanal mining rights of Batalha, who controls over 1,700 hectares
lying within the exploration license and directly over the Batalha zone, the equivalent of
approximately $91,000 Canadian dollars in Brazilian reals over a 42 month period with a
buyout after 4 years of $250,000 (U.S.) (if the project is deemed economic by the Company)
and an additional sum based on the number of ounces of gold in the proven and probable (or
measured and indicated) categories at Batalha as set out in a pre-feasibility or
feasibility study. The per ounce payment amount ranges in a sliding scale from $1 (U.S.) per
ounce for the first one million ounces up to $10 (U.S.) per ounce for each ounce over four
million ounces. The 9,800 hectare exploration license lies over top of this area, covering
extensions to north, south and west. If after four years the Company, in its sole opinion,
has not found an economic ore body, the area and all collected data will be returned to
the vendor.

6

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Drilling and Exploration

The Company completed a diamond drill
program consisting of twenty holes (approximately 4000 meters) at the Tocantinzinho
Properties during fiscal 2005 in which 19 of 20 holes encountered mineralization. The
Company completed a follow-up fourteen-hole Phase III drilling program at the
Tocantinzinho Properties in the third quarter of fiscal 2006. A total of thirty four (34)
core holes have now been completed on the property. Drill results to date indicate an
extended strike length of mineralization of greater than 650 meters in length and confirm
the earlier reported intercepts of continuous lower grade mineralization with several
zones of high grade from 26.82 to 374.40 grams of gold per ton over widths of 2.5 to 0.85
meters. Additionally, the Company completed both a ground magnetic survey and
metallurgical testing of drill core samples of the Tocantinzinho Properties during fiscal
2005 and 2006 and was encouraged by the results.

In October, 2005 the Company reported
results of extensive fixed-wing airborne magnetic and radioactive surveys completed over
the Tocantinzinho and Mamoal Properties. These geophysical surveys have located several
significant additional magnetic low areas which will now be the subject of further
exploration and drilling.

In fiscal 2005 the Company carried
out a regional soil auger sampling program on its Mamoal Property, in conjunction with
channel-sampling of old pits and rock-chip sampling. At the Mamoal Property, core drilling
commenced in November 2005 and was completed in January 2006.

An extensive grid soil geochemical
survey was conducted at Mamoal during fiscal 2006. Hand-augered soil samples were
collected over two specific areas identified in previous soil sampling programs as being
gold   anomalous. One area is called Itapecoim, where 544 augered soil samples were
collected and chemically analyzed for gold in fiscal 2006. The second area is called Agua
Limpa, where 426 augered soil samples were collected in
fiscal 2006. Following the
geochemical results, seven core holes were drilled for a total of 1,342.7 meters, with
394 core samples assayed. The best intersection returned 0.30 meter at 6.49 grams Au per
tonne. The results of the above testing were not encouraging, and the Company may cease
exploration of this project or seek a joint venture partner.  Accordingly, the net
capitalized costs related to the Mamoal Property totaling $906,535 were written off
during the fourth quarter of fiscal 2006.

At the Companys Batalha
property a detailed geological survey was followed by an auger geochemical survey. These
programs were conducted between February and April 2006 and results are being reviewed and
analyzed at the present time.

The Company has signed a 3,000-meter
drilling contract for continued drilling at the Tocantinzinho Properties, and work has
commenced as of April 17, 2006. Detailed results of the above testing
at the Tocantinzinho Properties, including initial results of the April, 2006 drill
program, maps of the ground magnetic results and
mineralization found by the core drilling program, are located at the Companys
website, www.brazauroresources.com.

# Arkansas Properties

The Company maintained interests in
several Arkansas Properties during the period from fiscal 1993 through fiscal 2003. In
December 2002, based upon the cumulative exploration results obtained on the Arkansas
Properties, the Company made the decision to cease operations in Arkansas.

American Mine Property

Pursuant to an agreement dated
November 4, 1992, DEI was granted a permit to explore a mineral property located in Pike
County, Arkansas. The Companys Plant was located on this leased property. The
Company leased the property and conducted exploration activities during certain periods
from 1992 to 2002. The lease payment of $47,500 (U.S.) on the American Property, due
November 1, 2002, was not made by the Company.

In March 2003 the Company sold the
Plant to a third party for $350,000 (U.S.). In conjunction with the sale, the third party
paid the lessor of the American Mine Property $47,500 (U.S.) on behalf of the Company in
order to extend the Companys lease on the property through October 31, 2003. The
Company recorded a retirement

7

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obligation for leasehold reclamation
costs during fiscal year 2004 of approximately $150,000, representing the estimated costs
of the Companys obligation to restore the Arkansas properties to their original
condition prior to lease expiration and to perform reclamation activities as required by
Arkansas regulatory authorities. The Company allowed the lease to expire effective
November 1, 2003.

# Item 3.   LEGAL PROCEEDINGS

Except
as described in Note 11 of the Notes to the Companys Consolidated Financial
Statements incorporated by reference into Part II, Item 8 hereof, there are no material
pending legal proceedings to which the Company or any of its subsidiaries is a party or to
which any of their property is subject. The Company is involved from time to time in
claims arising in the normal course of business.

# Item 4.   SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS

None.

# Item 5.   MARKET FOR
REGISTRANTS COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES

The Companys
Common Stock is listed on the TSX Venture Exchange (the TSX) in British
Columbia, Canada under the symbol BZO (JRS through September 3,
2004). The Companys Common Stock is not traded  on an exchange or market in the
United States. The high and low sales prices (in Canadian dollars) as quoted on the TSX
for the below referenced quarterly periods were as follows:

|           | Price Range of Common Stock
Fiscal Year Ended January 31
|---------- | --------------------------------------------------------
|
|
|
|
|
|April 30   |                                                         
|July 31    |                                                         
|October 31 |                                                         
|January 31 |                                                         

The
closing price of the Companys Common Stock was $1.51 (Canadian) as of April 17, 2006
on the TSX Venture Exchange.

At
March 31, 2006, there were 196 holders of record of the Companys Common Stock
including 160 in the United States who collectively held 28,583,087 shares representing
54% of the total number of issued and outstanding shares. The Company believes it has in
excess of 300 beneficial owners of its Common Stock residing in the United States
and Canada based on the number of record holders and individual participants in security
position listings.

# Dividend Policy

The
Company has never declared or paid cash dividends on its Common Stock. The Company
presently intends to retain cash for the operation and development of its business and
does not anticipate paying cash dividends in the foreseeable future. A future
determination as to the payment of dividends will depend on a number

8

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of factors, including future
earnings, capital requirements, the financial condition and prospects of the Company and
such other factors as the Board of Directors of the Company deems relevant.

# Shares Subject to Options

In July 2001 the Company adopted the
2001 Stock Option Plan (the Plan) that authorized the issuance of up to
1,142,857 (8,000,000 prior to the November 2001 7-for-1 consolidation of the
Companys common shares) of common shares under the Plan. The shareholders approved
subsequent amendments to increase the authorized shares under the Plan, including the July
2005 amendment of the Plan to increase the number of shares reserved for issuance from
7,000,000 to 9,000,000. As of January 31, 2006, the Company has outstanding options to
purchase 7,954,643 common shares at prices from $0.18 to $2.00.

|Equity Compensation Plan Information
as of January 31, 2006
|-----------------------------------------------------------
|
|                                                           
|
|                                                           
|Equity compensation                                        
|plans approved by                                          
|security holders                                           
|                                                           
|Equity compensation                                        
|plans not approved by                                      
|security holders                                           
|                                                           
|Total                                                      
|                                                           

# Foreign Controls

The
Company is not aware of governmental laws, decrees or regulations in Canada restricting
the import or export of capital or affecting the remittance to the United States of
interest, dividends or other payments to non-resident holders of the Companys Common
Stock. However, the payment or crediting of interest or dividends to United States
residents may be subject to applicable withholding taxes at a rate prescribed by the
Income Tax Act (Canada) as modified by the provisions of the Canada-United States Income
Tax Act (Canada) and as further modified by the provisions of the Canada-United States
Income Tax Convention, 1980 (see Taxation below).

Except
as provided in the Investment Canada Act (the ICA), there are no limitations
under the laws of Canada, the Province of British Columbia or in the charter and
organizational documents of the Company on the right of nonresident or foreigner owners to
hold and/or vote the shares of the Company.

The
ICA applies when a non-Canadian individual or entity or controlled group of
entities as defined in the ICA proposes to make an investment to acquire control of a
Canadian business enterprise, either directly or indirectly, and by way of purchase of
voting shares of a corporation or of substantially all of the assets used in the Canadian
business enterprise. An investment in voting shares of a corporation is deemed to be an
acquisition of control where more than 50% of the voting shares are acquired. An
acquisition of less than one-third of the voting shares of a corporation is deemed not to
be an acquisition of control and an acquisition of between one-third and one-half of the
voting shares of a corporation is presumed to be an acquisition of control unless it can
be established that the acquisition does not in fact result in control of the corporation
by the investor.

An
investment to acquire control of a Canadian business enterprise, the gross assets of
which exceed certain thresholds, must be reviewed and approved under the ICA before
implementation. An investment to acquire

9

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control of a Canadian business
enterprise, the gross asset value of which falls below these threshold amounts, is one in
respect of which notification must be given under the ICA although approval is not
required prior to implementation of the investment. NAFTA Investors, (i.e.) investors who
are nationals, other than Canadian, as  defined in the North American Free Trade
Agreement, are not considered for the purposes of the ICA to be non-Canadian.

# Taxation

Dividends.
                     Generally, dividends paid by a Canadian corporation to
non-resident shareholders                     are, under the Income Tax Act (Canada) (the
ITA), subject to a                     withholding tax of 25%. However,
paragraph 2 of Article X of the Canada-United                     States Income Tax
Convention (1980) (the Treaty) provides for the                     following
maximum withholding tax rates:

| | a) |  | 10%
of the gross amount of the dividends if the beneficial owner of such
                    dividends is a U.S. resident company which owns at least 10% of the
voting stock                     of the corporation paying the dividends; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) |  | 15%
of the gross amount of the dividends in all other cases.
| | -- |  | ------------------------------------------------------------

Subject
to certain limitations and exceptions, U.S. resident shareholders of a Canadian
corporation may be entitled to a credit for all or a portion of such withholding taxes in
computing their U.S. federal and possibly their state income tax liability.

Dividends
paid by a Canadian corporation to shareholders resident in Canada will not be subject to
withholding tax. Any dividends received by a Canadian resident on shares of the Company
will be treated for tax purposes as dividends from a taxable Canadian corporation.
Accordingly, where a dividend is received by an individual resident in Canada, the
individual will be entitled to claim a federal dividend tax credit, equal to 16 2/3% of
the dividend. Where the dividend is received by a corporation resident in Canada, the
dividend will normally be free of tax under Part I of the ITA but may be subject to
refundable tax under Part IV of the ITA.

Disposition
of Capital Property. If shares of a Canadian public corporation held by a non-resident
shareholder constitute capital property to that shareholder, the disposition of such
shares will not be subject to tax under the ITA unless the shares
constitute taxable Canadian property to the vendor. Where a non-resident
shareholder or persons with whom the non-resident shareholder does not deal at arms
length have, at any time during the five year period immediately preceding the
disposition, owned not less than 25% of the issued shares of any class of the capital
stock of the public corporation, the shares so disposed of will constitute taxable
Canadian property. Under the ITA, a disposition of shares that constitute taxable
Canadian property will give rise to a capital gain (or a capital loss) equal to the amount
by which the proceeds of disposition of such shares, net of any cost of disposition,
exceeds (or is less than) the adjusted cost basis of such shares to that investor.
Generally, one-half of any capital gain realized by an investor on a disposition or
a deemed disposition of such a shares must be included in computing his Canadian income
for that year as a taxable capital gain. One-half of any capital loss realized by an
investor on a disposition or deemed disposition of such a share in a taxable year may
generally be deducted from his Canadian taxable capital gains for that year.

Any
gains realized by a non-resident shareholder from the disposition of shares which are
taxable Canadian property may be exempt from tax under the ITA by virtue of Article XIII
of the Treaty if, at the time of the disposition of the subject shares, the value thereof
was derived principally from something other than direct or indirect real property
interests situated in Canada.

Under
the ITA, the disposition of a share by an investor may occur or be deemed to occur in a
number of circumstances including on a sale or gift of such share or upon the death of
that investor.

The
initial adjusted cost base of a share to an investor will be the cost to him of that
share. Under the ITA, certain addition or reduction adjustments may be required to be made
to the cost base of a share. The adjusted cost base of each common share of a corporation
owned by an investor at any particular time will be the average adjusted cost base to him
of all common shares of that corporation owned at that time.

10

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Subject
to certain limitations and exceptions, U.S. resident shareholders of a Canadian
corporation may be entitled to a credit for all or a portion of any capital gain taxation
in computing their U.S. federal and possibly their state income tax liability.

In
general, the disposition by a shareholder resident in Canada of the capital stock in a
Canadian corporation will be subject to Canadian income taxation in the same manner as
rules described above relating to a disposition of share which constitutes taxable
Canadian property. A shareholder resident in Canada may, however, be entitled to a capital
gains exemption. The ITA provides, for residents of Canada, a cumulative lifetime
exemption from income tax of $100,000 of qualifying net capital gains.

Disposition
of Non-Capital Property. If the shares of a Canadian public corporation held by a
non-resident do not constitute capital property to that shareholder, any gains realized
from the disposition thereof will be fully taxable under the ITA if their disposition
arises in the course of a business carried on by the shareholder in Canada. Under the ITA,
a shareholder will be deemed to carry on business in Canada in respect of particular
shares if he offers them for sale in Canada through an agent, including the TSX Venture
Exchange. Under the Treaty, any business profits derived by a U.S. resident shareholder of
a Canadian public corporation from the disposition of the subject corporations
shares will only be taxable in Canada to the extent that such profits are attributable to
a permanent establishment of the shareholder in Canada.

The
foregoing discussion is a summary of certain tax considerations which may be relevant to
stockholders of the Company, but it is not intended as a substitute for personal tax
planning and professional tax advice.

# U.S. Federal Income Tax
Consequences

The
following is a summary of certain material U.S. federal income tax consequences to a U.S.
Holder (as defined below) arising from and relating to the acquisition, ownership, and
disposition of Common Stock.

This
summary is for general information purposes only and does not purport to be a complete
analysis or listing of all potential U.S. federal income tax consequences that may apply
to a U.S. Holder as a result of the acquisition, ownership, and disposition of Common
Stock. In addition, this summary does not take into account the individual facts and
circumstances of any particular U.S. Holder that may affect the U.S. federal income tax
consequences of the acquisition, ownership, and disposition of Common Stock. Accordingly,
this summary is not intended to be, and should not be construed as, legal or U.S. federal
income tax advice with respect to any U.S. Holder. Each U.S. Holder should consult its own
tax advisor regarding the U.S. federal income, U.S. state and local, and foreign tax
consequences of the acquisition, ownership, and disposition of Common Stock.

# Scope of this Summary

Authorities

This
summary is based on the Internal Revenue Code of 1986, as amended (the Code),
Treasury Regulations (whether final, temporary, or proposed), published rulings of the
Internal Revenue Service (the IRS), published administrative positions of the
IRS, the Convention Between Canada and the United States of America with Respect to Taxes
on Income and on Capital, signed September 26, 1980, as amended (the Canada-U.S. Tax
Convention), and U.S. court decisions that are applicable and, in each case, as in
effect and available, as of the date of this Annual Report. Any of the authorities on
which this summary is based could be changed in a material and adverse manner at any time,
and any such change could be applied on a retroactive basis. This summary does not discuss
the potential effects, whether adverse or beneficial, of any proposed legislation that, if
enacted, could be applied on a retroactive basis.

11

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U.S. Holders

For
purposes of this summary, a U.S. Holder is a beneficial owner of Common Stock
that, for U.S. federal income tax purposes, is (a) an individual who is a citizen or
resident of the U.S., (b) a corporation, or any other entity classified as a
corporation for U.S. federal income tax purposes, that is created or organized in or under
the laws of the U.S., any state in the U.S., or the District of Columbia, (c) an
estate if the income of such estate is subject to U.S. federal income tax regardless of
the source of such income, or (d) a trust if (i) such trust has validly elected
to be treated as a U.S. person for U.S. federal income tax purposes or (ii) a U.S.
court is able to exercise primary supervision over the administration of such trust and
one or more U.S. persons have the authority to control all substantial decisions of such
trust.

Non-U.S. Holders

For
purposes of this summary, a non-U.S. Holder is a beneficial owner of Common
Stock other than a U.S. Holder. This summary does not address the U.S. federal income tax
consequences of the acquisition, ownership, and disposition of Common Stock to non-U.S.
Holders. Accordingly, a non-U.S. Holder should consult its own tax advisor regarding the
U.S. federal income, U.S. state and local, and foreign tax consequences (including the
potential application of and operation of any income tax treaties) of the acquisition,
ownership, and disposition of Common Stock.

U.S. Holders Subject to
Special U.S. Federal Income Tax Rules Not Addressed

This
summary does not address the U.S. federal income tax consequences of the acquisition,
ownership, and disposition of Common Stock to U.S. Holders that are subject to special
provisions under the Code, including the following U.S. Holders: (a) U.S. Holders
that are tax-exempt organizations, qualified retirement plans, individual retirement
accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial
institutions, insurance companies, real estate investment trusts, or regulated investment
companies; (c) U.S. Holders that are dealers in securities or currencies or U.S.
Holders that are traders in securities that elect to apply a mark-to-market accounting
method; (d) U.S. Holders that have a functional currency other than the
U.S. dollar; (e) U.S. Holders that are liable for the alternative minimum tax under
the Code; (f) U.S. Holders that own Common Stock as part of a straddle, hedging
transaction, conversion transaction, constructive sale, or other arrangement involving
more than one position; (g) U.S. Holders that acquired Common Stock in connection
with the exercise of employee stock options or otherwise as compensation for services;
(h) U.S. Holders that hold Common Stock other than as a capital asset within the
meaning of Section 1221 of the Code; or (i) U.S. Holders that own (directly,
indirectly, or constructively) 10% or more of the total combined voting power of all
classes of shares of the Company entitled to vote. U.S. Holders that are subject to
special provisions under the Code, including U.S. Holders described immediately above,
should consult their own tax advisors regarding the U.S. federal income tax consequences
of the acquisition, ownership, and disposition of Common Stock.

If
an entity that is classified as a partnership for U.S. federal income tax purposes holds
Common Stock, the U.S. federal income tax consequences of the acquisition, ownership, and
disposition of Common Stock to such partnership and the partners of such partnership
generally will depend on the activities of the partnership and the status of such
partners. Partners of entities that are classified as partnerships for U.S. federal income
tax purposes should consult their own tax advisors regarding the U.S. federal income tax
consequences of the acquisition, ownership, and disposition of Common Stock.

Tax Consequences Other
than U.S. Federal Income Tax Consequences Not Addressed

This
summary does not address the U.S. state and local, U.S. federal estate and gift, or
foreign tax consequences to U.S. Holders of the acquisition, ownership, and disposition of
Common Stock. Each U.S. Holder should consult its own tax advisor regarding the U.S. state
and local, U.S. federal estate and gift, and foreign tax consequences of the acquisition,
ownership, and disposition of Common Stock.

12

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U.S. 
          Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition
          of Common Stock

Distributions on Common
Stock

| | General
Taxation of Distributions
| | ---------------------------------

Subject
to the passive foreign investment company rules discussed below, a U.S. Holder
that receives a distribution, including a constructive distribution, with respect to the
Common Stock will be required to include the amount of such distribution in gross income
as a dividend (without reduction for any Canadian income tax withheld from such
distribution) to the extent of the current or accumulated earnings and profits
of the Company. To the extent that a distribution exceeds the current and accumulated
earnings and profits of the Company, such distribution will be treated
(a) first, as a tax-free return of capital to the extent of a U.S. Holders tax
basis in the Common Stock and, (b) thereafter, as gain from the sale or exchange of
such Common Stock. (See Disposition of Common Stock below).

| | Reduced
Tax Rates for Certain Dividends
| | ---------------------------------------

For
taxable years beginning after December 31, 2002 and before January 1, 2009, a dividend
paid by the Company generally will be taxed at the preferential tax rates applicable to
long-term capital gains if (a) the Company is a qualified foreign
corporation (as defined below), (b) the U.S. Holder receiving such dividend is
an individual, estate, or trust, and (c) such dividend is paid on Common Stock that
have been held by such U.S. Holder for at least 61 days during the 121-day period
beginning 60 days before the ex-dividend date.

The
Company generally will be a qualified foreign corporation under
Section 1(h)(11) of the Code (a QFC) if (a) the Company is
incorporated in a possession of the U.S., (b) the Company is eligible for the
benefits of the Canada-U.S. Tax Convention, or (c) the Common Stock is readily
tradable on an established securities market in the U.S. However, even if the Company
satisfies one or more of such requirements, the Company will not be treated as a QFC if
the Company is a passive foreign investment company (as defined below) for the
taxable year during which the Company pays a dividend or for the preceding taxable year.
In 2003, the U.S. Department of the Treasury (the Treasury) and the IRS
announced that they intended to issue Treasury Regulations providing procedures for a
foreign corporation to certify that it is a QFC. Although these Treasury Regulations have
not yet been issued, the Treasury and the IRS have confirmed their intention to issue
these Treasury Regulations. It is expected that these Treasury Regulations will obligate
persons required to file information returns to report a dividend paid by a foreign
corporation as a dividend from a QFC if the foreign corporation has, among other things,
certified under penalties of perjury that the foreign corporation was not a passive
foreign investment company for the taxable year during which the foreign corporation
paid the dividend or for the preceding taxable year.

As
discussed below, the Company believes that it was a passive foreign investment
company for the taxable year ended January 31, 2006, and expects that it will be a
passive foreign investment company for the taxable year ending January 31,
2007. (See Additional Rules that May Apply to U.S. HoldersPassive Foreign
Investment Company below). Accordingly, the Company does not expect to be a QFC for
the taxable year ending January 31, 2007.

If
the Company is not a QFC, a dividend paid by the Company to a U.S. Holder, including a
U.S. Holder that is an individual, estate, or trust, generally will be taxed at ordinary
income tax rates (and not at the preferential tax rates applicable to long-term capital
gains). The dividend rules are complex, and each U.S. Holder should consult its own tax
advisor regarding the dividend rules.

| | Distributions
Paid in Foreign Currency
| | --------------------------------------

The
amount of a distribution received on the Common Stock in foreign currency generally will
be equal to the U.S. dollar value of such distribution based on the exchange rate
applicable on the date of receipt. A U.S. Holder that does not convert foreign currency
received as a distribution into U.S. dollars on the date of receipt generally will have a
tax basis in such foreign currency equal to the U.S. dollar value of such foreign currency
on the

13

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date of receipt. Such a U.S. Holder
generally will recognize ordinary income or loss on the subsequent sale or other taxable
disposition of such foreign currency (including an exchange for U.S. dollars).

| | Dividends
Received Deduction
| | ----------------------------

Dividends
received on the Common Stock generally will not be eligible for the dividends
received deduction. The availability of the dividends received deduction is subject
to complex limitations that are beyond the scope of this summary, and a U.S. Holder that
is a corporation should consult its own tax advisor regarding the dividends received
deduction.

Disposition of Common
Stock

A
U.S. Holder will recognize gain or loss on the sale or other taxable disposition of Common
Stock in an amount equal to the difference, if any, between (a) the amount of cash
plus the fair market value of any property received and (b) such U.S. Holders
adjusted tax basis in the Common Stock sold or otherwise disposed of. Subject to the
passive foreign investment company rules discussed below, any such gain or
loss generally will be capital gain or loss, which will be long-term capital gain or loss
if the Common Stock is held for more than one year.

Preferential
tax rates apply to long-term capital gains of a U.S. Holder that is an individual, estate,
or trust. There are currently no preferential tax rates for long-term capital gains of a
U.S. Holder that is a corporation. Deductions for capital losses are subject to
significant limitations under the Code.

Foreign Tax Credit

A
U.S. Holder that pays (whether directly or through withholding) Canadian income tax with
respect to dividends received on the Common Stock generally will be entitled, at the
election of such U.S. Holder, to receive either a deduction or a credit for such Canadian
income tax paid. Generally, a credit will reduce a U.S. Holders U.S. federal income
tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S.
Holders income subject to U.S. federal income tax. This election is made on a
year-by-year basis and applies to all foreign taxes paid (whether directly or through
withholding) by a U.S. Holder during a taxable year.

Complex
limitations apply to the foreign tax credit, including the general limitation that the
credit cannot exceed the proportionate share of a U.S. Holders U.S. federal income
tax liability that such U.S. Holders foreign source taxable income bears
to such U.S. Holders worldwide taxable income. In applying this limitation, a U.S.
Holders various items of income and deduction must be classified, under complex
rules, as either foreign source or U.S. source. In addition, this
limitation is calculated separately with respect to specific categories of income
(including passive income, high withholding tax interest,
financial services income, general income, and certain other
categories of income). Gain or loss recognized by a U.S. Holder on the sale or other
taxable disposition of Common Stock generally will be treated as U.S. source
for purposes of applying the foreign tax credit rules. Dividends received on the Common
Stock generally will be treated as foreign source and generally will be
categorized as passive income or, in the case of certain U.S. Holders,
financial services income for purposes of applying the foreign tax credit
rules. However, for taxable years beginning after December 31, 2006, the foreign tax
credit limitation categories are reduced to passive category income and
general category income (and the other categories of income, including
financial services income, are eliminated). The foreign tax credit rules are
complex, and each U.S. Holder should consult its own tax advisor regarding the foreign tax
credit rules.

Information Reporting;
Backup Withholding Tax

Payments
made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, or proceeds
arising from the sale or other taxable disposition of, Common Stock generally will be
subject to information reporting and backup withholding tax, at the rate of 28%, if a U.S.
Holder (a) fails to furnish such U.S. Holders correct U.S. taxpayer
identification number (generally on Form W-9), (b) furnishes an incorrect U.S.
taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has
previously failed to properly report items subject to backup withholding tax, or
(d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished
its

14

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correct U.S. taxpayer identification
number and that the IRS has not notified such U.S. Holder that it is subject to backup
withholding tax. However, U.S. Holders that are corporations generally are excluded from
these information reporting and backup withholding tax rules. Any amounts withheld under
the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holders
U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder
furnishes required information to the IRS. Each U.S. Holder should consult its own tax
advisor regarding the information reporting and backup withholding tax rules.

# Additional Rules that
May Apply to U.S. Holders

If
the Company is a controlled foreign corporation or a passive foreign
investment company (each as defined below), the preceding sections of this summary
may not describe the U.S. federal income tax consequences to a U.S. Holder of the
acquisition, ownership, and disposition of Common Stock.

Controlled Foreign
Corporation

The
Company generally will be a controlled foreign corporation under
Section 957(a) of the Code (a CFC) if more than 50% of the total voting
power or the total value of the outstanding shares of the Company is owned, directly or
indirectly, by citizens or residents of the U.S., domestic partnerships, domestic
corporations, domestic estates, or domestic trusts (each as defined in
Section 7701(a)(30) of the Code), each of which own, directly or indirectly, 10% or
more of the total voting power of the outstanding shares of the Company (a
10% Shareholder).

If
the Company is a CFC, a 10% Shareholder generally will be subject to current U.S.
federal income tax with respect to (a) such 10% Shareholders pro rata share of
the subpart F income (as defined in Section 952 of the Code) of the
Company and (b) such 10% Shareholders pro rata share of the earnings of
the Company invested in United States property (as defined in Section 956
of the Code). In addition, under Section 1248 of the Code, any gain recognized on the
sale or other taxable disposition of Common Stock by a U.S. Holder that was a
10% Shareholder at any time during the five-year period ending with such sale or
other taxable disposition generally will be treated as a dividend to the extent of the
earnings and profits of the Company that are attributable to such Common
Stock. If the Company is both a CFC and a passive foreign investment company
(as defined below), the Company generally will be treated as a CFC (and not as a
passive foreign investment company) with respect to any 10% Shareholder.

The
Company does not believe that it has previously been, or currently is, a CFC. However,
there can be no assurance that the Company will not be a CFC for the current or any
subsequent taxable year.

Passive Foreign
Investment Company

The
Company generally will be a passive foreign investment company under
Section 1297(a) of the Code (a PFIC) if, for a taxable year, (a) 75%
or more of the gross income of the Company for such taxable year is passive income or
(b) on average, 50% or more of the assets held by the Company either produce passive
income or are held for the production of passive income, based on the fair market value of
such assets (or on the adjusted tax basis of such assets, if the Company is not publicly
traded and either is a controlled foreign corporation or makes an election).
Passive income includes, for example, dividends, interest, certain rents and
royalties, certain gains from the sale of stock and securities, and certain gains from
commodities transactions. However, for transactions entered into after December 31, 2004,
active business gains arising from the sale or exchange of commodities by the Company
generally are excluded from passive income if substantially all of the
Companys commodities are (a) stock in trade of the Company or other property of a
kind that would properly be included in inventory of the Company, or property held by the
Company primarily for sale to customers in the ordinary course of business, (b) property
used in the trade or business of the Company that would be subject to the allowance for
depreciation under section 167 of the Code, or (c) supplies of a type regularly used or
consumed by the Company in the ordinary course of its trade or business.

15

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For
purposes of the PFIC income test and asset test described above, if the Company owns,
directly or indirectly, 25% or more of the total value of the outstanding shares of
another foreign corporation, the Company will be treated as if it (a) held a
proportionate share of the assets of such other foreign corporation and (b) received
directly a proportionate share of the income of such other foreign corporation. In
addition, for purposes of the PFIC income test and asset test described above,
passive income does not include any interest, dividends, rents, or royalties
that are received or accrued by the Company from a related person (as defined
in Section 954(d)(3) of the Code), to the extent such items are properly allocable to
the income of such related person that is not passive income.

The
Company believes that it was a PFIC for the taxable year ended January 31, 2006, and
expects that it will be a PFIC for the taxable year ending January 31, 2007. The
determination of whether the Company was, or will be, a PFIC for a taxable year depends,
in part, on the application of complex U.S. federal income tax rules, which are subject to
various interpretations. In addition, whether the Company will be a PFIC for the taxable
year ending January 31, 2007 and each subsequent taxable year depends on the assets and
income of the Company over the course of each such taxable year and, as a result, cannot
be predicted with certainty as of the date of this Annual Report. Accordingly, there can
be no assurance that the IRS will not challenge the determination made by the Company
concerning its PFIC status or that the Company was not, or will not be, a PFIC for any
taxable year.

| | Default
PFIC Rules Under Section 1291 of the Code
| | -------------------------------------------------

If
the Company is a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the
acquisition, ownership, and disposition of Common Stock will depend on whether such U.S.
Holder makes an election to treat the Company as a qualified electing fund or
QEF under Section 1295 of the Code (a QEF Election) or a
mark-to-market election under Section 1296
of the Code (a Mark-to-Market Election). A U.S. Holder that does not make
either a QEF Election or a Mark-to-Market Election will be referred to in this summary as
a Non-Electing U.S. Holder.

A
Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code
with respect to (a) any gain recognized on the sale or other taxable disposition of
Common Stock and (b) any excess distribution received on the Common Stock. A
distribution generally will be an excess distribution to the extent that such
distribution (together with all other distributions received in the current taxable year)
exceeds 125% of the average distributions received during the three preceding taxable
years (or during a U.S. Holders holding period for the Common Stock, if shorter).

Under
Section 1291 of the Code, any gain recognized on the sale or other taxable
disposition of Common Stock, and any excess distribution received on the Common Stock,
must be ratably allocated to each day in a Non-Electing U.S. Holders holding period
for the Common Stock. The amount of any such gain or excess distribution allocated to
prior years of such Non-Electing U.S. Holders holding period for the Common Stock
(other than years prior to the first taxable year of the Company beginning after December
31, 1986 for which the Company was not a PFIC) will be subject to U.S. federal income tax
at the highest tax rate applicable to ordinary income in each such prior year. A
Non-Electing U.S. Holder will be required to pay interest on the resulting tax liability
for each such prior year, calculated as if such tax liability had been due in each such
prior year. Such a Non-Electing U.S. Holder that is not a corporation must treat any such
interest paid as personal interest, which is not deductible. The amount of any
such gain or excess distribution allocated to the current year of such Non-Electing U.S.
Holders holding period for the Common Stock will be treated as ordinary income in
the current year, and no interest charge will be incurred with respect to the resulting
tax liability for the current year.

If
the Company is a PFIC for any taxable year during which a Non-Electing U.S. Holder holds
Common Stock, the Company will continue to be treated as a PFIC with respect to such
Non-Electing U.S. Holder, regardless of whether the Company ceases to be a PFIC in one or
more subsequent taxable years. A Non-Electing U.S. Holder may terminate this deemed PFIC
status by electing to recognize gain (which will be taxed under the rules of
Section 1291 of the Code discussed above) as if such Common Stock were sold on the
last day of the last taxable year for which the Company was a PFIC.

16

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| | QEF
Election
| | ------------

The
procedure for making a QEF Election, and the U.S. federal income tax consequences of
making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election
generally will be timely if it is made for the first year in a U.S.
Holders holding period for the Common Stock in which the Company is a PFIC. In this
case, a U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election
documents with such U.S. Holders U.S. federal income tax return for such first year.
However, if the Company was a PFIC in a prior year in a U.S. Holders holding period
for the Common Stock, then in order to be treated as making a timely QEF
Election, such U.S. Holder must elect to recognize gain (which will be taxed under the
rules of Section 1291 of the Code discussed above) as if the Common Stock were sold
on the qualification date for an amount equal to the fair market value of the Common Stock
on the qualification date. The qualification date is the first day of the
first taxable year in which the Company was a QEF with respect to such U.S. Holder. In
addition, under very limited circumstances, a U.S. Holder may make a retroactive QEF
Election if such U.S. Holder failed to file the QEF Election documents in a timely manner.

A
QEF Election will apply to the taxable year for which such QEF Election is made and to
all subsequent taxable years, unless such QEF Election is invalidated or terminated or
the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF
Election and, in a subsequent taxable year, the Company ceases to be a PFIC, the QEF
Election will remain in effect (although it will not be applicable) during those taxable
years in which the Company is not a PFIC. Accordingly, if the Company becomes a PFIC in
another subsequent taxable year, the QEF Election will be effective and the U.S. Holder
will be subject to the QEF rules described above during any such subsequent taxable year
in which the Company qualifies as a PFIC. In addition, the QEF Election will remain in
effect (although it will not be applicable) with respect to a U.S. Holder even after such
U.S. Holder disposes of all of  such U.S. Holders direct and
indirect interest in the Common Stock. Accordingly, if such U.S. Holder reacquires an
interest in the Company, such U.S. Holder will be subject to the QEF rules described
above for each taxable year in which the Company is a PFIC.

A
U.S. Holder that makes a timely QEF Election generally will not be subject to the rules of
Section 1291 of the Code discussed above. For example, a U.S. Holder that makes a
timely QEF Election generally will recognize capital gain or loss on the sale or other
taxable disposition of Common Stock.

However,
for each taxable year in which the Company is a PFIC, a U.S. Holder that makes a QEF
Election will be subject to U.S. federal income tax on such U.S. Holders pro rata
share of (a) the net capital gain of the Company, which will be taxed as long-term
capital gain to such U.S. Holder, and (b) and the ordinary earnings of the Company,
which will be taxed as ordinary income to such U.S. Holder. Generally, net capital
gain is the excess of (a) net long-term capital gain over (b) net
short-term capital loss, and ordinary earnings are the excess of
(a) earnings and profits over (b) net capital gain. A U.S. Holder
that makes a QEF Election will be subject to U.S. federal income tax on such amounts for
each taxable year in which the Company is a PFIC, regardless of whether such amounts are
actually distributed to such U.S. Holder by the Company. However, a U.S. Holder that makes
a QEF Election may, subject to certain limitations, elect to defer payment of current U.S.
federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is
not a corporation, any such interest paid will be treated as personal
interest, which is not deductible.

A
U.S. Holder that makes a QEF Election generally (a) may receive a tax-free
distribution from the Company to the extent that such distribution represents
earnings and profits of the Company that were previously included in income by
the U.S. Holder because of such QEF Election and (b) will adjust such U.S.
Holders tax basis in the Common Stock to reflect the amount included in income or
allowed as a tax-free distribution because of such QEF Election.

Each
U.S. Holder should consult its own tax advisor regarding the availability of, and
procedure for making, a QEF Election. U.S. Holders should be aware that there can be no
assurance that the Company will satisfy record keeping requirements that apply to a QEF,
or that the Company will supply U.S. Holders with information that such U.S. Holders
require to report under the QEF rules, in the event that the Company is a PFIC and a U.S.
Holder wishes to make a QEF Election.

17

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| | Mark-to-Market
Election
| | -----------------------

A
U.S. Holder may make a Mark-to-Market Election only if the Common Stock is marketable
stock. The Common Stock generally will be marketable stock if the Common Stock
is regularly traded on a qualified exchange or other market. For this purpose, a
qualified exchange or other market includes (a) a national securities
exchange that is registered with the Securities and Exchange Commission, (b) the
national market system established pursuant to section 11A of the Securities and Exchange
Act of 1934, or (c) a foreign securities exchange that is regulated or supervised by
a governmental authority of the country in which the market is located, provided that
(i) such foreign exchange has trading volume, listing, financial disclosure,
surveillance, and other requirements designed to prevent fraudulent and manipulative acts
and practices, remove impediments to and perfect the mechanism of a free, open, fair, and
orderly market, and protect investors (and the laws of the country in which the foreign
exchange is located and the rules of the foreign exchange ensure that such requirements
are actually enforced) and (ii) the rules of such foreign exchange effectively
promote active trading of listed stocks. If the Common Stock is traded on such a qualified
exchange or other market, the Common Stock generally will be regularly traded
for any calendar year during which the Common Stock is traded, other than in de minimis
quantities, on at least 15 days during each calendar quarter.

A
Mark-to-Market Election applies to the taxable year in which such Mark-to-Market Election
is made and to each subsequent taxable year, unless the Common Stock cease to be
marketable stock or the IRS consents to revocation of such election. Each U.S.
Holder should consult its own tax advisor regarding the availability of, and procedure for
making, a Mark-to-Market Election.

A
U.S. Holder that makes a Mark-to-Market Election generally will not be subject to the
rules of Section 1291 of the Code discussed above. However, if a U.S. Holder makes a
Mark-to-Market Election after the beginning of such U.S. Holders holding period for
the Common Stock and such U.S. Holder has not made a timely QEF Election, the rules of
Section 1291 of the Code discussed above will apply to certain dispositions of, and
distributions on, the Common Stock.

A
U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each
taxable year in which the Company is a PFIC, an amount equal to the excess, if any, of
(a) the fair market value of the Common Stock as of the close of such taxable year
over (b) such U.S. Holders adjusted tax basis in such Common Stock. A U.S.
Holder that makes a Mark-to-Market Election will be allowed a deduction in an amount equal
to the lesser of (a) the excess, if any, of (i) such U.S. Holders adjusted
tax basis in the Common Stock over (ii) the fair market value of such Common Stock as
of the close of such taxable year or (b) the excess, if any, of (i) the amount
included in ordinary income because of such Mark-to-Market Election for prior taxable
years over (ii) the amount allowed as a deduction because of such Mark-to-Market
Election for prior taxable years.

A
U.S. Holder that makes a Mark-to-Market Election generally will adjust such U.S.
Holders tax basis in the Common Stock to reflect the amount included in gross income
or allowed as a deduction because of such Mark-to-Market Election. In addition, upon a
sale or other taxable disposition of Common Stock, a U.S. Holder that makes a
Mark-to-Market Election will recognize ordinary income or loss (not to exceed the excess,
if any, of (a) the amount included in ordinary income because of such Mark-to-Market
Election for prior taxable years over (b) the amount allowed as a deduction because
of such Mark-to-Market Election for prior taxable years).

| | Other
PFIC Rules
| | ----------------

Under
Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that,
subject to certain exceptions, would cause a U.S. Holder that had not made a timely QEF
Election to recognize gain (but not loss) upon certain transfers of Common Stock that
would otherwise be tax-deferred (such as gifts and exchanges pursuant to tax-deferred
reorganizations under Section 368 of the Code). However, the specific U.S. federal income
tax consequences to a U.S. Holder may vary based on the manner in which Common Stock is
transferred.

18

---

Certain
additional adverse rules will apply with respect to a U.S. Holder if the Company is a
PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example under
Section 1298(b)(6) of the Code, a U.S. Holder that uses Common Stock as security for
a loan will, except as may be provided in Treasury Regulations, be treated as having made
a taxable disposition of such Common Stock.

The
PFIC rules are complex, and each U.S. Holder should consult its own tax advisor regarding
the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences
of the acquisition, ownership, and disposition of Common Stock.

# Recent Sales of
Unregistered Securities

For
a discussion of the recent sale of unregistered securities by the Company, see MD
& A  Liquidity and Capital Resources.

# Item 6.   SELECTED
CONSOLIDATED FINANCIAL INFORMATION

The
selected consolidated financial information set forth below for each of the five years
ended January 31, 2006 has been derived from the Consolidated Financial Statements of the
Company prepared in accordance with generally accepted accounting principles in Canada.
These principles are also in conformity, in all material respects, with generally accepted
accounting principles in the United States except as described in Note 15 of the Notes to
Consolidated Financial Statements. The selected consolidated financial information should
be read in conjunction with the MD & A discussion below and the Consolidated Financial
Statements and related notes thereto included on pages F-1 to F-23 herein.
References in this Annual Report on Form 10-K to Notes are intended to refer
to the Notes to the Consolidated Financial Statements included herein.

Since
its formation, the Companys activities have consisted primarily of acquiring
interests in mineral properties, exploration of those properties and acquiring financing
for such purposes. Consequently, the Selected Consolidated Financial Information may not
indicate the Companys future financial performance.

Selected Consolidated Financial
Information

|                                                                         | Fiscal Year Ended January 31
|------------------------------------------------------------------------ | ----------------------------
|                                                                         |                             
|
|                                                                         |                             
|(In Canadian dollars) 
(000's except for net loss per common share data)
|                                                                        
|Writedown and abandonment of properties, plant                           |                             
|and equipment                                                            |                             
|Net loss for the year                                                    |                             
|Basic and diluted net loss per common share                              |                             
|Weighted average common shares outstanding                               |                             
|Working capital (deficit)                                                |                             
|Total assets                                                             |                             
|Long-term debentures payable                                             |                             
|Deficit                                                                  |                             
|Total shareholders' equity (deficit)                                     |                             

19

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Selected Quarterly Financial
Information

|                                                                         | For the three months ended
|------------------------------------------------------------------------ | --------------------------
|                                                                         |                           
|
|                                                                         |                           
|(In Canadian dollars) 
(000's except for net loss per common share data)
|                                                                        
|Net loss for the quarter                                                 |                           
|Basic and diluted net loss per common share                              |                           
|Total assets                                                             |                           
|Working capital                                                          |                           
|Stockholders' equity                                                     |                           

# Exchange Rates

On
April 17, 2006, the noon buying rate in New York City for cable transfers in Canadian
dollars, as certified for customs purposes by the Federal Reserve Bank of New York, was
$1.00 (Canadian) = U.S. $0.8732. The following table sets forth, for each of the years
indicated, additional information with respect to the noon buying rate for $1.00
(Canadian). Such rates are set forth as U.S. dollars per Canadian. $1.00 and are based
upon the rates quoted by the Federal Reserve Bank of New York.

|Rate                                                                                                        | 2005 | 2004 | 2003  | 2002 | 2001 
|----------------------------------------------------------------------------------------------------------- | ---- | ---- | ----- | ---- | -----
|                                                                                                            |      |      |       |      |      
|Last Day                                                                                                    |      | 0    | .8579 | 0    | .8310
|Average(1)                                                                                                  |      | 0    | .8276 | 0    | .7745
|High                                                                                                        |      | 0    | .8690 | 0    | .8493
|Low                                                                                                         |      | 0    | .7872 | 0    | .7177
|(1) The average rate means the average of the exchange rates on
the last day of each month during the year.

|Item
7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|------- | -------------------------------------------------------------------------------------

Results of Operations.

For the Years Ended January 31, 2006,
2005 and 2004

The
Company is engaged in the business of exploring for and, if warranted, developing mineral
properties and is concentrating its current acquisition and exploration efforts on those
properties which the Company believes have large scale gold potential. The Company
has been focusing on properties located in the Tapajos Gold District of Brazils northerly
Para State (collectively the Properties).

The
Company has had no significant revenues from operations other than rental income related
to the Diamond Recovery Plant, totaling approximately $1,079,000 from inception through
March 2003, when the Plant was sold. None of its Properties have proven to be commercially
developable to date and as a result the Company has not generated any revenue from these
activities. The Companys existing Properties are gold prospects in Brazil, as
discussed in Note 4, which were acquired during fiscal 2004 and 2005. The Company
capitalizes expenditures associated with the direct acquisition, evaluation and
exploration of mineral properties. When an area is disproved or abandoned, the acquisition
costs and related deferred expenditures are written-off. The net capitalized cost of each
mineral property is periodically compared to managements estimation of the net
realizable value and a write-down is recorded if the net realizable value is less than the
cumulative net capitalized costs. As discussed below,

20

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based on the results of the testing
performed at the Mamoal Property, the net capitalized costs related to the Mamoal
Property totaling $906,535 were written off during the fourth quarter of fiscal 2006.

The
Companys mineral properties and deferred expenditures increased to $4,492,503 at
January 31, 2006 from $2,817,746 at January 31, 2005 as a result of acquisition costs
totaling $753,897 and exploration costs totaling $1,827,395 related to the activities on
the Companys Brazilian Properties as further described in Note 4, less the write-off
of the Mamoal Property costs totaling $906,535 as discussed above. The total increase
during fiscal 2005 in mineral properties and deferred expenditures of $2,103,463
represented the total of acquisition costs of $555,069 and exploration costs of $1,549,394
related to the activities on the Companys Brazilian Properties as further described
in Note 4. The increases were primarily due to the acquisition and exploration costs
totaling $1,827,112 and $1,943,729 during fiscal 2006 and 2005, respectively, related to
the Companys project at the Tocantinzinho Properties.

The
Company completed a diamond drill program consisting of twenty holes (approximately 4000
meters) at the Tocantinzinho Properties during fiscal 2005 in which 19 of 20 holes
encountered mineralization. The Company completed a follow-up fourteen-hole Phase III
drilling program at the Tocantinzinho Properties in the third quarter of fiscal 2006. A
total of thirty four (34) core holes have now been completed on the property. Drill
results to date indicate an extended strike length of mineralization of greater than 650
meters in length and confirm the earlier reported intercepts of continuous lower grade
mineralization with several zones of high grade from 26.82 to 374.40 grams of gold per ton
over widths of 2.5 to 0.85 meters. Additionally, the Company completed both a ground
magnetic survey and metallurgical testing of drill core samples of the Tocantinzinho
Properties during fiscal 2005 and 2006 and was encouraged by
the results.

In
October, 2005 the Company reported results of extensive fixed-wing airborne magnetic and
radioactive surveys completed over the Tocantinzinho and Mamoal Properties. These
geophysical surveys have located several significant additional magnetic low areas which
will now be the subject of further exploration and drilling.

In
fiscal 2005 the Company carried out a regional soil auger sampling program on its Mamoal
Property, in conjunction with channel-sampling of old pits and rock-chip sampling. At the
Mamoal Property, core drilling commenced in November 2005 and was completed in January
2006.

An
extensive grid soil geochemical survey was conducted at Mamoal during fiscal 2006.
Hand-augered soil samples were collected over two specific areas identified in previous
soil sampling programs as being gold anomalous. One area is called Itapecoim, where 544
augered soil samples were collected and chemically analyzed for gold in fiscal 2006. The
second area is called Agua Limpa, where 426 augered soil samples were collected in  fiscal 2006. Following the
geochemical results, seven core holes were drilled for a total of 1,342.7 meters, with
394 core samples assayed. The best intersection returned 0.30 meter at 6.49 grams Au per
tonne. The results of the above testing were not encouraging, and the Company may
cease exploration of this project or seek a joint venture partner.  Accordingly, the net capitalized
costs related to the Mamoal Property totaling $906,535 were written off during the fourth
quarter of fiscal 2006.

At
the Companys Batalha property a detailed geological survey was followed by an auger
geochemical survey. These programs were conducted between February and April 2006 and
results are being reviewed and analyzed at the present time.

The Company has signed a 3,000-meter drilling contract for continued drilling
at the Tocantinzinho Properties, and work has commenced as of April 17, 2006.
Detailed
results of the above testing at the Tocantinzinho Properties, including maps of the ground
magnetic results and mineralization found by the core drilling program, are located at the
Companys website, www.brazauroresources.com.

The
Company has not received any revenues from mining operations since inception. During the
years ended January 31, 2006 and 2005 the Companys revenues were comprised primarily
of interest income on proceeds received from prior financings and gains on sales of
equipment. The Companys revenues during fiscal 2004 were primarily comprised of the
gain from the sale of the Diamond Recovery Plant (the Plant). The Plant was
sold to a third party for $350,000 (U.S.) and was fully depreciated at disposal. As
discussed in Note 4, the Plant was located

21

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on the American Mine Property. The
Company recorded a retirement obligation for leasehold reclamation of approximately
$142,000 during fiscal 2004, which represents the estimated costs to return the leased
property to its original condition and to complete environmental reclamation as required
by the Arkansas regulatory authorities.

General
and administrative expenses totaled approximately $7,048,000 during fiscal 2006 as
compared to approximately $3,747,000 during fiscal 2005, representing an increase of
approximately $3,301,000 or 88%. Included in general and administrative expenses for
fiscal 2006 and 2005 was approximately $4,482,000 and $2,123,000, respectively, of stock
compensation expense recorded using the fair value method, which was an increase of
approximately $2,359,000 from fiscal 2005 to fiscal 2006. The remaining increase in
general and administrative expenses of approximately $942,000 was primarily related to the
increased activities surrounding the exploration program underway in Brazil during fiscal
2006. After excluding the effect of the stock compensation expense recorded in fiscal 2006
and 2005, in comparison to fiscal 2005, salaries in fiscal 2006 increased by approximately
$424,000 as additional personnel were added in Brazil, a vice president of exploration was
hired, and bonuses totaling approximately $270,000 were awarded to certain directors.
Consulting and professional fees related to the additional activity in the Brazilian
exploration program increased by approximately $302,000 during fiscal 2006 as compared to
fiscal 2005.

General
and administrative expenses increased by approximately $2,343,000, or 167%, from fiscal
2004 to fiscal 2005. As discussed above and in Note 8, the company recorded stock
compensation expense using the fair value method of approximately $2,123,000 during fiscal
2005 as compared to approximately $462,000 for fiscal 2004, an increase of approximately
$1,661,000. An additional increase in salaries from 2004 to 2005 of approximately $274,000, after
excluding the effects of the stock compensation expense discussed in the preceding
sentence, related to the addition of personnel in Brazil and an increase in salaries for
management and support staff related to the increase in exploration activity. Similarly,
the Company experienced an increase from 2004 to 2005 in entertainment, office expenses,
professional fees and promotional expenses totaling approximately $356,000 related to
increased activities in establishing offices in Brazil and increased communications with
investors as the exploration programs in Brazil were advanced.

Salaries,
professional and consulting fees totaling approximately $1,081,000 were incurred during
2004 as the Company commenced the evaluation of several mineral prospects, principally
gold prospects in Brazil. In  particular, the Company hired a new
president and retained the services of an exploration project manager and an
administrator for the Brazilian Properties during fiscal 2004.

The
Company anticipates that general and administrative expenses during fiscal 2007 will
increase from the level experienced in fiscal 2006 as the Company incurs additional
consulting and exploration expenditures related to the Brazilian Properties.

Financial Condition;
Liquidity and Capital Resources.

As
of January 31, 2006, the Company had working capital of $8,610,778 as compared to working
capital of $3,296,092 at January 31, 2005. At January 31, 2006, the Company had current
assets of $8,964,749, including $8,955,186 in cash and $9,563 in accounts receivable
compared to total current liabilities of $353,971.

In
the first quarter of fiscal 2002, the Company completed the issuance of $1,278,595
principal amount of 10% secured convertible debentures (the Debentures). The
Debentures were convertible into units at the rate of one unit for each $2.87 principal
amount of the Debentures until February 16, 2003. Each unit was to consist of one common
share of the Company and one share purchase warrant with an exercise price of $3.15,
exercisable through August 16, 2003. The conversion and share purchase warrant prices
above were adjusted to reflect the Companys seven for one share consolidation on
November 27, 2001.

On
February 11, 2003, the holders of the Debentures approved the amendment of the conversion
price of the units to $0.30 and the extension of the maturity date of the Debentures to
February 16, 2004. As amended, each of the 4,261,983 units would consist of one common
share of the Company and one share purchase warrant with an exercise price of $0.30,
exercisable through February 16, 2004. Additionally, the terms of the Debenture were
amended to include a mandatory conversion provision which will require conversion of all
Debentures and exercise

22

---

of all related warrants within 30
days after the closing price of the Companys common shares has exceeded $0.375 for
ten consecutive trading days.

Interest
at the rate of 10% was payable on conversion or maturity in cash, or at the election of
the Company, in common shares valued at the weighted average trading price of the common
shares of the Company for the ten trading days preceding the interest payment date. The
Debentures were secured by a general security interest in the Companys current and
future assets and by the stock of Star U.S., Inc. (Star), a wholly owned
subsidiary of the Company, and a wholly-owned subsidiary of Star.

During
fiscal 2004, several holders of the Debentures elected to convert a total of $197,000
principal amount and received 656,666 common shares and 656,666 common share purchase
warrants with exercise prices of $0.30. Additionally, during the third quarter of fiscal
2004, a director of the Company elected to convert $97,000 principal amount and received
323,333 common shares.

Effective
October 31, 2003 a total of $984,595 principal amount of Debentures were automatically
converted into 3,281,977 units of the Company in accordance with the February 11, 2003
amendments discussed in the third preceding paragraph. Each unit consisted of one common
share and one common share purchase warrant with an exercise price of $0.30. Additionally,
under the terms of the mandatory conversion provision, the expiration date of all warrants issued upon
conversion of the Debentures was established as December 1, 2003. During the fourth
quarter of fiscal 2004, the Company received a total of $937,593, representing the
exercise price of 3,125,311 warrants, and issued 3,125,311 common shares. A total of
813,332 common share warrants expired unused on December 1, 2003.

During
fiscal 2004, a total of $335,075 of interest accrued on the principal amounts converted in
fiscal 2004 was paid via the issuance of a total of 1,129,522 shares, representing the
conversion of the interest amounts at weighted average prices from $0.17 to $0.33 per
share.

The
Company received approximately $1,138,000 during fiscal 2002 representing subscriptions
for a private placement of the Companys common shares. A total of 5,691,376 units
were issued at a price of $0.20 per unit, each unit to consist of one common share and
one share purchase warrant with an exercise price of $0.25. The share purchase warrants
originally had an expiration date of January 29, 2003, and that date was extended during fiscal 2003 to January 29, 2004. A
total of 5,669,101 warrants were exercised in January 2004, and the Company received
total exercise proceeds of $1,417,275. A total of 22,275 warrants expired unused on
January 29, 2004.

In
September, 2002, the Company completed a private placement of 2,819,774 units at a price
of $0.20 per unit, each unit consisting of one common share and one share purchase warrant
with an exercise price of $0.25 per unit. The share purchase warrants had an expiration
date of September 18, 2004. The Company received a total of $563,955 during fiscal 2003
representing subscriptions for the private placement. During fiscal year 2005, all
2,819,774 common share warrants were exercised, and the Company received total exercise
proceeds of $704,943.

In
November 2004, the Company completed a private placement of 2,112,500 common shares of the
Company at a price of $0.85 per share and received proceeds totaling $1,795,625. In
consideration for assistance with the private placement, the Company paid finders
fees of $96,950 in cash and issued 113,000 share purchase warrants entitling the finders
to purchase 113,000 common shares of the Company at $1.05 per share until November 2,
2005. In fiscal 2006, the holders of the share purchase warrants elected to
exercise 113,000 warrants and the Company received proceeds of approximately $118,650.

In
December 2004, the Company completed a private placement of 2,150,000 common shares of the
Company at a price of $1.00 per share and received proceeds of $2,150,000.

During
August 2005 the Company closed a private placement of 5,000,000 units at $1.90 per unit
for gross proceeds of $9,500,000. The Company paid a brokerage commission on the placement
of $475,000. Each unit consists of one common share and one half of one share purchase
warrant. Each whole warrant will entitle the holder to purchase one additional share of
the Company at $3.80 for a period of one year. If the shares of the Company trade at $4.80
or higher on each trading day during a thirty day period, the exercise period of the
warrants

23

---

will accelerate and holders will
have a period of 30 days thereafter to exercise their warrants, failing which they will
expire. As of January 31, 2006, all of the 2,500,000 share purchase warrants are
outstanding.

During
fiscal 2006, 2005 and 2004 the Company received cash proceeds of $1,287,142, $477,577, and
$424,919 representing the exercise of 2,748,929, 1,638,571, and 1,884,376 stock options,
respectively, by officers, directors, employees and consultants at exercise prices from
$0.10 to $1.30.

All
financings described herein were private placements and were made pursuant to the private
placement laws of Canada and pursuant to the exemptions provided by Section 4(2) and
Regulation S under the United States Securities Act of 1933. The Debentures were offered
to a limited number of accredited investors in the United States and Canada pursuant to
Rule 506 of Regulation D and Regulation S.

The
Company has no properties that have proven to be commercially developable and has no
significant revenues from mining operations other than the rentals received from the
Plant and the proceeds from the sales of the Plant and related equipment. The rights and
interests in the Tocantinzinho, Mamoal and Batalha Properties in Brazil constitute the
Companys current mineral holdings. The Company cannot estimate with any degree of
certainty either the time or the amount of funds that will be required to acquire and
conduct additional exploration activities on new prospects. The Company intends to seek
additional equity financing during fiscal 2007, including the potential exercise of
outstanding options and warrants. The inability of the Company to raise further equity
financing will adversely affect the Companys business plan, including its ability
to acquire additional properties and perform exploration activities on existing
properties. If additional equity is not available, the Company may seek additional debt
financing or seek exploration partners to assist in funding acquisition or exploration
efforts. Historically, the Company has been able to successfully raise capital as
required for its business needs; however, no assurances are made by the Company that it
can continue to raise debt or equity capital for a number of reasons including its
history of losses and property writedowns, the fluctuation in the price of its common
stock, the number of shares outstanding and the
Companys limited and speculative asset base of exploration properties and
prospects.

Contractual Obligations

As of January 31, 2006, the Company
had no outstanding long-term debt, capital leases or other purchase obligations. The
Companys operating lease obligations as of January 31, 2006 are as follows (in U.S.
dollars):

|                            | Payments due by period
|--------------------------- | ----------------------
|                            |                       
|
|                           
|Operating Lease Obligations |                       
|Mineral Properties          |                       
|                           

Additionally, the Company has lease
payments required to maintain its current interests in its mineral properties. While these
payments are not fixed obligations since the Company can abandon the mineral properties at
any time without penalty or further payments, these payments are required in order to
maintain the Companys interests. The timing of all such payments is as follows (all
amounts are in U.S. dollars): $355,000 and 200,000 common shares of the Company for the
year ended January 31, 2007, and $2,010,000 and 700,000 common shares for the two years
ended January 31, 2009.

# Off-Balance Sheet Arrangements.

As of April 28, 2006, the Company has no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Companys financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources.

24

---

# Impact of Inflation.

As
the Company is not anticipating recording sales and revenues from operations in the short
term, a discussion of the effect of inflation and changing prices on its operations is not
relevant.

# Differences Between
Canadian and United States Generally Accepted Accounting Principles

At
the present stage of the Companys business development, there are no significant
differences between Canadian and United States generally accepted accounting principles
that impact the Consolidated Balance Sheets, the Consolidated Statements of Operations,
the Consolidated Statements of Shareholders Equity (Deficit) and the Consolidated
Statements of Cash Flows except for the capitalization of mineral properties and deferred
expenditures as discussed in Note 15 to Notes to Consolidated Financial Statements.

# Item 7A.   QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

None.

# Item 8.   FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA

The
Consolidated Financial Statements of the Company included as part of this Annual Report on
Form 10-K (F-1 to F-23) are incorporated by reference in response to this
Item 8. An index to the Consolidated Financial Statements is included in Item 14.

Item 9.   CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

# Item 9A.   CONTROLS AND
PROCEDURES.

| | (a) |  | Evaluation
of disclosure controls and procedures.
| | --- |  | -------------------------------------------------

| | The
term disclosure controls and procedures (defined in SEC rule 13a-15(e))
refers to the controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files under the
Securities Exchange Act of 1934 (the Exchange Act) is recorded, processed,
summarized and reported within required time  periods.
The Companys Chief Executive Officer, who also serves as the Companys
principal financial officer, has evaluated the effectiveness of the Companys
disclosure controls and procedures as of the end of the period covered by this annual
report, and he concluded that, as of such date, the Companys disclosure controls
and procedures were effective.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) |  | Changes
in internal controls.
| | --- |  | -----------------------------

| | There
were no changes in internal control over financial reporting that occurred during our
fiscal quarter ended January 31, 2006 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) |  | Internal
control over financial reporting.
| | --- |  | ------------------------------------------

| | Internal
control over financial reporting is defined as a process designed by, or under the
supervision of our Chief Executive and Financial Officer, and effected by our Board of
Directors, through our audit committee, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. These
include procedures that (i) pertain to maintenance in reasonable detail to accurately
reflect our transactions and disposition of assets; (ii) provide
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

25

---

| | reasonable
assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles and that receipts
and expenditures are being made only in accordance with authorizations of our management
and directors; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our assets that could have a
material effect on our financial statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We
are not required to report managements assessment of the effectiveness of our
internal controls over financial reporting, and we have not undertaken the kind of review
of such controls that we would have been required to undertake if we were required to
make such a report. However, we have noted certain deficiencies in our systems of
internal control, from our limited reviews of such controls in connection with our review
of disclosure controls and procedures above. These deficiencies include lack of
segregation of duties, lack of adequate documentation of our system of internal controls,
lack of formal accounting policy and procedures and related documentation, and lack of a
formal budgeting process. We have not instituted new internal control processes related
to these deficiencies, as has been characteristic of companies that have completed their
review of internal controls and have had to report on the effect of such review.
Accordingly, our internal control over financial reporting may be subject to control
deficiencies as a result of the identified deficiencies reported herein as well as any
that we have not identified.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Item 10.   DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANT

The
directors and executive officers of the Company, their ages and term of continuous service
are as follows:

|Name                      | Age | Position with
Registrant | Served As a Director 
and/ or Officer Since
|------------------------- | --- | ------------------------ | -------------------------------------------
|D. Harry W. Dobson        |     | 58                       |                                            
|Patrick L. Glazier        |     | 48                       |                                            
|Brian C. Irwin            |     | 66                       |                                            
|Mark E. Jones, III        |     | 66                       |                                            
|Leendert G. Krol          |     | 66                       |                                            
|Daniel B. Leonard         |     | 69                       |                                            
|Dr. Roger Howard Mitchell |     | 66                       |                                            
|Dr. Roger David Morton    |     | 70                       |                                            
|Stephen Zahony            |     | 64                       |                                            

D. Harry
W. Dobson.Mr. Dobson has served as the Chairman of Kirkland Lake Gold           Inc. for the past
five years.  Mr.
Dobson also serves as a director of Mountain Province Diamonds, Inc.

Patrick
L. Glazier.Mr. Glazier has served as the President of East Fraser Fiber Co. Ltd.
based in Prince George, British Columbia for the past five years.

Brian
C. Irwin.  For the past five years, Mr. Irwins principal occupation was been the practice of law as a
partner of DuMoulin Black in Vancouver, British Columbia, until his retirement in June
2005.

26

---

Mark
E. Jones, III. Mr. Jones has served as a Director of the Board of Crown Resources
Corporation since January 1987. Crown Resources Corporation, based in Denver, Colorado, is
publicly traded on the OTC Bulletin Board and is engaged in the exploration and
development of mineral properties, primarily gold. Mr. Jones served as the President of
the Company from 1986 to June 1990, from July 2001 to the March 2003, and from May 2005
until the present. Mr. Jones is also a director of Solitario Resources Corporation. In his
capacity as Chairman of the Board of Directors, Mr. Jones is the chief executive officer
and chief financial officer of the Company.

Leendert
G. Krol.Until his retirement in April 2001, Mr. Krol had spent 13 years with Newmont
Mining Corporation including the last 10 years, successively, as Director of Foreign
Operation, Vice President Exploration and Vice President International Exploration. Mr.
Krol served as the Companys president from March 2003 until May 2005.

Dan
Leonard.Mr. Leonard served as Senior Vice President of INVESCO for twenty-four
years until his retirement in January 1999. Mr. Leonard also serves as a Director of
Solitario Resources Corporation.

Dr. Roger
Howard Mitchell. For the past seven years, Dr. Mitchell has served as a
          Professor of Geology at Lakehead University, Thunder Bay, Ontario. Dr. Mitchell
          received his B.Sc. from the University of Manchester, 1964; M.Sc. from
          Manchester, 1966; Ph.D from McMaster University, 1969; and a D.Sc in 1978 from
          the University of Manchester. He was elected a Fellow of the Royal Society of
          Canada in 1994.

Dr. Roger
David Morton. For the past five years, Dr. Morton has been Professor
          Emeritus in Geology with the Department of Earth and Atmospheric Sciences at
the           University of Alberta. He also serves as Chairman of  the Board for Mindoro Resources Inc.,
and is President of Muskox Minerals Corp. He is a member of the Board of Directors of
Uruguay Mineral Resources and Black Swan Resources. Dr. Morton obtained his B.Sc. (Hons.
1st class) in Geology and his Ph.D. in Geology from the University of
Nottingham, England.

Mr. Stephen
G. Zahony. Prior to his employment with the Company, Mr. Zahony           worked as a
self-employed consultant. Mr. Zahony served as Chief Geologist for           Saudi
Arabian Mining Co. from March, 2000 to April, 2002. Mr. Zahony has a M.A.
          degree from Dartmouth College and has forty years of exploration and mining
          experience with a number of major and junior mining and exploration companies.

All
of the directors are residents of Canada except for Messrs. Jones, Krol and Leonard, who
reside in the United States, and Mr. Dobson, who resides in Monaco. Mr. Zahony resides in
the United States. All directors are elected annually by the shareholders and hold office
until the next Annual Meeting of Shareholders. Each officer of the Company holds office
at the pleasure of the Board of Directors. No director or officer of the Company has any
family relationship with any other officer or director of the Company.

Messrs.
Leonard, Mitchell and Morton are members of the Companys audit committee, all of
whom are independent directors under the rules of the Securities Exchange Act
of 1934, as amended. At the present time, the Company does not have an Audit Committee Financial Expert, although the
Company hopes to add such an individual to the audit committee if circumstances allow.
 Messrs. Jones, Mitchell and Morton are members of the Companys Environmental
Committee and Messrs. Morton and Jones serve as members of the Companys
Compensation Committee. Operating within the guidance provided by the Companys
Board of Directors, the Compensation Committees role is to assure that the Companys
executive compensation strategy is aligned with the interests of the shareholders, and
the Companys compensation structure will allow for fair and reasonable base salary
levels and the opportunity for executives to earn compensation that reflects both Company
and individual performance.

# Certain Significant
Employees or Consultants

The
Company has consulting relationships with other geologists and persons that are included
in its projects and properties from time to time, none of which are currently material to
the Company.

27

---

# Codes of Ethics.

Due to the limited number of officers of the Company, a formal code of ethics has not been
adopted by the Company.

# Item 11.   EXECUTIVE
COMPENSATION

# Officers

The Company
has no long-term incentive plans. However stock options are awarded from time-to-time in
the discretion of the Board of Directors and the Compensation Committee. The following
tables set forth all annual and long-term compensation for services in all capacities to
the Company and its subsidiaries for the three most recently completed financial years,
including information regarding stock option awards made under the Companys Stock
Option Plan.

|                                                                                                                                                                                                                                                 |  | Annual Compensation | Long Term Compensation |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------- | ---------------------- | -------
|
|
|                                                                                                                                                                                                                                                
|Mark E. Jones, III                                                                                                                                                                                                                               |  | 2006                |                        | 120,000
|Chairman                                                                                                                                                                                                                                         |  | 2005                |                        | 120,000
|                                                                                                                                                                                                                                                 |  | 2004                |                        | 65,000 
|                                                                                                                                                                                                                                                
|Leendert G. Krol                                                                                                                                                                                                                                 |  | 2006                |                        | 88,000 
|Leendert G. Krol                                                                                                                                                                                                                                 |  | 2005                |                        | 120,000
|President (1)                                                                                                                                                                                                                                    |  | 2004                |                        | 64,000 
|                                                                                                                                                                                                                                                
|Stephen G. Zahony                                                                                                                                                                                                                                |  | 2006                |                        | 85,333 
|Vice President(2)                                                                                                                                                                                                                                |  |                     |                        |        
|(1)             Mr. Krol began serving as the Companys President in March 2003 and retired
          in May 2005.  
(2)    Mr. Zahony began serving as the Companys Vice President
           Exploration in May 2005. 
(3)    Car allowance.

Option Grants During the Most
Recently Completed Fiscal Year

|                   |  |         |  |      |   |     
|------------------ |  | ------- |  | ---- | - | ----
|                  
|
|                  
|
|                  
|Mark E. Jones, III |  | 155,100 |  | 4.2  | % | 1.30
|                   |  | 500,390 |  | 13.5 | % | 2.00
|                  

28

---

|                                                                                                                            |  |         |  |      |   |     
|--------------------------------------------------------------------------------------------------------------------------- |  | ------- |  | ---- | - | ----
|                                                                                                                           
|
|                                                                                                                           
|
|                                                                                                                           
|                                                                                                                            |  |         |  |      |   |     
|Leendert G. Krol                                                                                                            |  | 155,100 |  | 4.2  | % | 1.30
|                                                                                                                            |  | 469,115 |  | 12.7 | % | 2.00
|                                                                                                                           
|Stephen G. Zahony                                                                                                           |  | 500,000 |  | 9.3  | % | 1.30
|                                                                                                                            |  | 156,373 |  | 4.2  | % | 2.00
|                                                                                                                           
|(1)    The options are subject to vesting requirements (25% on the date of grant and 12.5% on each quarter end thereafter).

|Option Exercises in Last Fiscal Year
|------------------------------------
|                                    
|
|                                    
|Mark E. Jones, III                  
|                                    
|                                    
|Leendert G. Krol                    
|                                    
|                                    
|Stephen G. Zahony                   
|                                    
|                                    

# Directors

During
fiscal 2006, in addition to the cash bonuses disclosed above for Mr. Jones and Mr. Krol,
Mr. Irwin received a bonus of $29,890. In April 2005, the Company entered into an
employment agreement with Mr. Zahony with a one year term and annual compensation of
US$120,000. Beginning July 1, 2005, the Company and Mr. Irwin entered into a consulting agreement
with a term of one year and a monthly fee of $5,000. In fiscal 2006, in addition to the
option awards to Mr. Jones, Mr. Krol and Mr. Zahony discussed above, Mr. Dobson, Mr.
Glazier, Mr. Irwin, Mr. Leonard, Mr. Mitchell and Mr. Morton received 600,000, 248,646,
206,873, 206,873, 165,098 and 165,098 options to purchase common stock, respectively, for
their services on the Board of Directors. The common share options granted during fiscal
2006 are subject to vesting requirements (25% on the date of grant and 12.5% on each
quarter end thereafter). Information regarding individual awards to directors is included
in the footnotes to Item 12. Security Ownership of Certain Beneficial Owners and
Management below. The Company maintains no pension, profit sharing, retirement
or other plan providing benefits to its officers and directors.

29

---

# Item 12.   SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The
following table sets forth, as of April 17, 2006, the number of Common Stock and the
corresponding percentage ownership of (i) each person who held of record, or was known by
the Company to own beneficially, more than five percent of the Companys Common
Stock, (ii) each director and executive officer of the Company, and (iii) all directors
and executive officers of the Company as a group. Unless otherwise indicated, the Company
believes the following persons have sole voting and investment power with respect to the
number of shares set forth opposite their names.

|Name and Address of Beneficial Owner            | Number of Shares | Percent of Class
|----------------------------------------------- | ---------------- | ----------------
|                                               
|Cede & Co.                                      |                  | 25,873,182      
|P.O. Box 20, Bowling Green Station              |                 
|New York, New York 10274                        |                 
|                                               
|CDS & Co.                                       |                  | 21,950,507      
|P. O. Box 1038, Station A, 25 The Esplanade     |                 
|Toronto, Ontario M5W 1G5                        |                 
|                                               
|D. Harry W. Dobson                              |                  | 600,000         
|                                               
|Patrick L. Glazier (3)                          |                  | 1,875,547       
|                                               
|Brian C. Irwin                                  |                  | 500,000         
|                                               
|Mark E. Jones, III                              |                  | 2,923,752       
|                                               
|Leendert G. Krol                                |                  | 1,500,000       
|                                               
|Daniel B. Leonard                               |                  | 1,479,124       
|                                               
|Dr. Roger Howard Mitchell                       |                  | 405,494         
|                                               
|Dr. Roger David Morton                          |                  | 405,428         
|                                               
|Stephen G. Zahony                               |                  | 500,000         
|                                               
|Officer and Directors of the Company as a group |                 
|(9 persons)                                     |                  | 9,089,345       

| | * |  | Less
than 1%.
| | - |  | -------------

| | (1) |  | It
is the  understanding  of the  Company  that all of these  shares  are held by the
 record  shareholder  in a  nominal, fiduciary,  trustee or similar capacity.  The
Company is unaware of the identities of the beneficial  owners of these shares,  with the
exception of shares held by the Company's officers or directors included in such share
positions.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) |  | A
director of the  Company.  Address is 800 Bering, Suite 208, Houston, TX 77057.
Includes  the following options to purchase common shares:
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------

|                  
|------------------
|
|                  
|D. Harry W. Dobson
|                  
|                  
|Patrick L. Glazier
|                  
|                  

30

---

|                         
|-------------------------
|
|                         
|                         
|                         
|                         
|                         
|                         
|                         
|Brian C. Irwin           
|                         
|                         
|                         
|                         
|                         
|Mark E. Jones, III       
|                         
|                         
|                         
|                         
|                         
|Leendert G. Krol         
|                         
|                         
|                         
|                         
|                         
|                         
|Daniel B. Leonard        
|                         
|                         
|                         
|                         
|                         
|Dr. Roger Howard Mitchell
|                         
|                         
|                         
|                         
|                         
|Dr. Roger David Morton   
|                         
|                         
|                         
|                         
|                         
|Stephen G. Zahony        
|                         
|                         

| | (3) |  | The
beneficial owner has sole ownership, with the exception of a total of 275,376 shares,
where ownership is shared.
| | --- |  | --------------------------------------------------------------------------------------------------------------------

# Item 13.   CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS

Amounts totaling $93,839 and $147,683 were paid by the Company
during fiscal 2006 and 2005, respectively, to a law firm in which Mr. Irwin was a partner
until his retirement in June 2005. In September, 2004, Mr. Jones, Mr. Glazier and Mr.
Leonard exercised warrants to purchase common shares at an exercise price of $0.25 per
share and received 286,200, 100,000, and 40,000 common shares, respectively.

31

---

# Item 14.   PRINCIPAL
ACCOUNTANT FEES AND SERVICES

Audit
and Tax Fees. The aggregate fees billed by the Corporations external auditors in
each of the last two fiscal years for audit fees are as follows:

|Financial Year
Ending | Audit Fees | Audit Related Fees | Tax Fees | All Other Fees
|--------------------- | ---------- | ------------------ | -------- | --------------
|                     
|January 31, 2005      |            | $22,170            |          | $     0       
|                     
|January 31, 2004      |            | $ 6,425            |          | $     0       
|                     

Audit
Committee.The Audit Committee makes recommendations concerning the engagement of
public accountants, reviews the scope and results of the audit engagement, considers the
range of audit and non-audit fees and reviews the adequacy of internal controls.

# Item 15.   EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES

(a)    
          Financial Statements and Schedules.

(1)       
          The following is a list of and index to the Consolidated Financial Statements
          filed as part of this Registration Statement:

BRAZURO RESOURCES CORPORATIONIndex to Consolidated Financial Statements

| | Page
| | ----

|Auditors Report  Morgan & Company | F-1
|----------------------------------- | ---

|Consolidated Financial Statements: | 
|---------------------------------- | 

|Consolidated Balance Sheets - January 31, 2005 and 2004 | F-2
|------------------------------------------------------- | ---

|Consolidated Statements of Operations for each of the
           years ended January 31, 2005, 2004 and 2003 | F-3
|------------------------------------------------------------------------------------------------------------ | ---

|Consolidated Statements of Shareholders Equity (Deficit)
           ended January 31, 2005, 2004 and 2003 | F-4
|---------------------------------------------------------------------------------------------------------- | ---

|Consolidated Statements of Cash Flows for each of the years
           years ended January 31, 2005, 2004 and 2003 | F-5
|------------------------------------------------------------------------------------------------------------------ | ---

|Notes to Consolidated Financial Statements | F-6
|------------------------------------------ | ---

(2)   
          All other schedules for which provision is made in the applicable accounting
          regulations of the Securities and Exchange Commission are either not required
          under the related instructions, are not applicable, or the information required
          thereby is set forth in the Companys Consolidated Financial Statements or
          the Notes thereto.

(3)             Exhibits
Filed as Part of this Annual Report.

See
Index to Exhibits.

32

---

# SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|May 16, 2006 | BRAZAURO RESOURCES CORPORATION(Registrant) 
By: /s/ Mark E. Jones, III 
MARK E. JONES, III 
Chief Executive Officer and Director
|------------ | --------------------------------------------------------------------------------------------------------------------------------

Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been signed
below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

Signature
    
    Title
    
    Date/s/ Mark E. Jones, III

Mark E Jones, III
    
    Chief Executive Officer and Director
    
    May 16, 2006/s/ D. Harry W. Dobson*

D. Harry W. Dobson*
    
    Director
    
    May 16, 2006/s/Patrick L. Glazier*

Patrick L. Glazier*
    
    Director
    
    May 16, 2006/s/ Brian C. Irwin*

Brian C. Irwin*
    
    Director
    
    May 16, 2006/s/ Leendert G. Krol*

Leendert G. Krol*
    
    Director
    
    May 16, 2006/s/ Daniel B. Leonard*

Daniel B. Leonard*
    
    Director
    
    May 16, 2006/s/ Dr. Roger Howard Mitchell*

Dr. Roger Howard Mitchell*
    
    Director
    
    May 16, 2006By  /s/ Mark E. Jones, III

Mark E. Jones, III
Attorney-in-fact
         For persons indicated *


33

---

# Index to Exhibits

|ExhibitNumber | Description
|------------- | -----------
|3.1           |            
|3.1.1         |            
|3.1.2         |            
|3.1.3         |            
|10.6          |            
|10.7          |            
|10.11         |            
|10.12         |            
|10.16         |            
|10.40         |            
|10.42         |            
|10.43         |            
|10.47         |            
|10.48         |            
|10.49         |            
|10.50         |            
|10.51         |            
|10.52         |            
|10.53         |            
|10.54         |            
|10.55         |            
|10.56         |            
|22            |            
|31.1          |            
|32            |            

__________________________________

|(a) |  | Filed
as an exhibit to Registration Statement on Form 10 as filed on June 23, 1993.
|--- |  | -----------------------------------------------------------------------------------

|(b) |  | Filed
as an exhibit to Form 8 Amendment No. 1 to Form 10 as filed on October 4, 1993.
|--- |  | -------------------------------------------------------------------------------------

|(c) |  | Filed
as an exhibit to Form 10-K for the fiscal year ended January 31, 1997 as filed on May 13,
1997.
|--- |  | -----------------------------------------------------------------------------------------------------

|(d) |  | Filed
as an exhibit to Form 10-K for the fiscal year ended January 31, 1998 as filed on April
29, 1998.
|--- |  | -------------------------------------------------------------------------------------------------------

|(e) |  | Filed
as an exhibit to Form 10-K for the fiscal year ended January 31, 2000 as filed on April
28, 2000.
|--- |  | -------------------------------------------------------------------------------------------------------

|(f) |  | Filed
as an exhibit to Form 10-Q for the fiscal quarter ended October 31, 2000 as filed on
December 13, 2000.
|--- |  | -------------------------------------------------------------------------------------------------------------

|(g) |  | Filed
as an exhibit to Form 10-K for the fiscal year ended January 31, 2001 as filed on April
27, 2001.
|--- |  | -------------------------------------------------------------------------------------------------------

|(h) |  | Filed
as an exhibit to Form 10-Q for the fiscal quarter ended October 31, 2001 as filed on
December 13, 2001.
|--- |  | -------------------------------------------------------------------------------------------------------------

|(i) |  | Filed
as an exhibit to Form 10-Q for the fiscal quarter ended April 30, 2003 as filed on June
16, 2003.
|--- |  | -------------------------------------------------------------------------------------------------------

|(j) |  | Filed
as an exhibit to Form 10-Q for the fiscal quarter ended July 31, 2003 as filed on
September 15, 2003.
|--- |  | -----------------------------------------------------------------------------------------------------------

|(k) |  | Filed
herewith.
|--- |  | ---------------

34

---



# AUDITORS REPORT

To the Shareholders of
Brazauro Resources Corporation (Formerly Jaguar Resources Corporation)

We have audited the consolidated
balance sheets of Brazauro Resources Corporation (formerly Jaguar Resources Corporation)
as at January 31, 2006 and 2005, and the consolidated statements of operations,
shareholders equity (deficit), and cash flows for the years ended January 31, 2006,
2005, and 2004. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, these consolidated
financial statements present fairly, in all material respects, the financial position of
the Company as at January 31, 2006 and 2005, and the results of its operations,
shareholders equity (deficit), and cash flows for the years ended January 31, 2006,
2005, and 2004, in accordance with Canadian generally accepted accounting principles.

|                                 |                                         
|-------------------------------- | ----------------------------------------
|Vancouver, Canada
April 25, 2006 | Morgan & Company
Chartered Accountants

# Comments by Auditors
for U.S. Readers on Canada-U.S. Reporting Differences

In the United States, reporting
standards for auditors require the addition of an explanatory paragraph (following
the opinion paragraph) when there is a change in accounting principles that has a material
effect on the comparability of the Companys consolidated financial statements, such as the change
described in Note 2 to the consolidated financial statements. Our report to the shareholders, dated
April 25, 2006, is expressed in accordance with Canadian reporting standards which do not
require a reference to such a change in accounting principles in the auditors report
when the change is properly accounted for and adequately disclosed in the consolidated financial
statements.

|                                 |                                         
|-------------------------------- | ----------------------------------------
|Vancouver, Canada
April 25, 2006 | Morgan & Company
Chartered Accountants



F-1

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)
Consolidated Balance Sheets

|                                                  |                       |                
|------------------------------------------------- | --------------------- | ---------------
|                                                  |                       |                
|                                                  | January 31, 2006      | January 31,2005
|                                                 
|                                                  | (In Canadian Dollars)
|Assets                                           
|Current assets:                                  
|Cash and cash equivalents                         | $8,955,186            | $3,557,214     
|Accounts receivable                               | 9,563                 | 31,543         
|Account receivable from a related party (Note 10) | -                     | 55,900         
|                                                  |                      
|Total current assets                              | 8,964,749             | 3,644,657      
|                                                  |                      
|Property and equipment, at cost:                 
|Mineral properties and deferred                  
|expenditures (Note 4)                             | 4,492,503             | 2,817,746      
|Equipment and other                               | 74,030                | 80,887         
|Accumulated depreciation                          | (39,534)              | (70,561)       
|                                                  |                      
|Total property and equipment, at cost             | 4,526,999             | 2,828,072      
|                                                  |                      
|                                                 
|Other assets                                      | 6,747                 | 8,874          
|                                                  |                      
|Total assets                                      | $13,498,495           | $6,481,603     
|                                                  |                      
|Liabilities and shareholders' equity             
|Current liabilities:                             
|Accounts payable and accrued liabilities          | $234,732              | $206,011       
|Asset retirement obligations (Note 4)             | 119,239               | 142,554        
|                                                  |                      
|Total current liabilities                         | 353,971               | 348,565        
|                                                  |                      
|                                                 
|Contingencies (Note 11)                          
|                                                 
|Shareholders' equity                             
|Common share capital, no par value:              
|Authorized shares - unlimited                    
|Issued and outstanding shares - 52,931,645       
|(44,869,716 at January 31, 2005) (Note 6)         | 53,432,703            | 41,536,205     
|Contributed surplus                               | 5,505,767             | 2,131,304      
|Deficit                                           | (45,793,946)          | (37,534,471)   
|                                                  |                      
|Total shareholders' equity                        | 13,144,524            | 6,133,038      
|                                                  |                      
|Total liabilities and shareholders' equity        | $13,498,495           | $6,481,603     
|                                                  |                      

|                                    |                                                          
|----------------------------------- | ---------------------------------------------------------
|Approved by the Board of Directors. |                                                          
|                                    | Director: Mark E. Jones, III
Director: Brian C. Irwin

See accompanying notes.

F-2

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)
Consolidated Statements of Operations

|                                                     |                        |              |             
|---------------------------------------------------- | ---------------------- | ------------ | ------------
|                                                     |                        |              |             
|                                                     | Year Ended January 31,
|                                                     | 2006                   | 2005         | 2004        
|                                                     |                       
|                                                     | (In Canadian Dollars) 
|Revenues:                                           
|Interest income                                      | $178,373               | $12,145      | $1,259      
|Gains on sales of plant and equipment                | 1,202                  | -            | 351,272     
|                                                     |                       
|                                                     | 179,575                | 12,145       | 352,531     
|                                                     |                       
|                                                    
|Expenses:                                           
|General and administrative (Note 12)                 | 7,048,172              | 3,747,476    | 1,404,649   
|Finance charges                                      | 21,452                 | 42,329       | 80,579      
|Write-down of mineral properties (Note 4)            | 906,535                | -            | -           
|Shares issued for interest expense                   | -                      | -            | 84,961      
|Foreign exchange translation (gains) losses          | 462,891                | (36,505)     | (18,252)    
|                                                     |                       
|                                                     | 8,439,050              | 3,753,300    | 1,551,937   
|                                                     |                       
|Net loss before provision for income taxes           | (8,259,475)            | (3,741,155)  | (1,199,406) 
|Provision for income taxes (Note 9)                  | -                      | -            | -           
|                                                     |                       
|Net loss for the year                                | $(8,259,475)           | $(3,741,155) | $(1,199,406)
|                                                     |                       
|                                                    
|Basic and diluted net loss per common share          | $(0.17)                | $(0.10)      | $(0.06)     
|                                                    
|Weighted-average number of common shares outstanding | 49,112,192             | 38,949,937   | 21,349,766  

See accompanying notes.

F-3

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)
Consolidated Statements of Shareholders Equity (Deficit)

(In Canadian Dollars)

|                                    |               |             |                    |               |                 
|----------------------------------- | ------------- | ----------- | ------------------ | ------------- | ----------------
|                                    |               |             |                    |               |                 
|                                    |               |             |                    |               | Total           
|                                    | Common Shares |             |                    | Shareholders'
|                                    | Number        | Amount      | ContributedSurplus | Deficit       | Equity (Deficit)
|                                    |              
|Balance at February 1, 2003         | 18,471,459    | $30,878,419 | $158,357           | $(32,593,910) | $(1,557,134)    
|Issued for conversion of           
|convertible debentures              | 4,261,976     | 1,278,595   | -                  | -             | 1,278,595       
|Issued for interest on convertible 
|debt                                | 1,129,522     | 335,075     | -                  | -             | 335,075         
|Issued for debt payment             | 107,126       | 20,917      | -                  | -             | 20,917          
|Issued for property acquisition     | 1,100,000     | 330,000     | -                  | -             | 330,000         
|Issued on exercise of warrants      | 8,794,412     | 2,354,868   | -                  | -             | 2,354,868       
|Stock-based compensation            | -             | -           | 461,881            | -             | 461,881         
|Issued on exercise of stock options | 1,884,376     | 621,925     | (197,006)          | -             | 424,919         
|Net loss for the year               | -             | -           | -                  | (1,199,406)   | (1,199,406)     
|                                    |              
|Balance at January 31, 2004         | 35,748,871    | 35,819,799  | 423,232            | (33,793,316)  | 2,449,715       
|Issued for cash, net of share issue
|cost                                | 4,262,500     | 3,848,675   | -                  | -             | 3,848,675       
|Issued for property acquisition     | 400,000       | 270,000     | -                  | -             | 270,000         
|Issued on exercise of warrants      | 2,819,774     | 704,943     | -                  | -             | 704,943         
|Stock-based compensation            | -             | -           | 2,123,283          | -             | 2,123,283       
|Issued on exercise of stock        
|options                             | 1,638,571     | 892,788     | (415,211)          | -             | 477,577         
|Net loss for the year               | -             | -           | -                  | (3,741,155)   | (3,741,155)     
|                                    |              
|Balance at January 31, 2005         | 44,869,716    | 41,536,205  | 2,131,304          | (37,534,471)  | 6,133,038       
|Issued for cash, net of share issue
|cost                                | 5,000,000     | 8,983,538   | -                  | -             | 8,983,538       
|Issued for property acquisition     | 200,000       | 400,000     | -                  | -             | 400,000         
|Issued on exercise of warrants      | 113,000       | 118,650     | -                  | -             | 118,650         
|Stock-based compensation            | -             | -           | 4,481,631          | -             | 4,481,631       
|Issued on exercise of stock        
|options                             | 2,748,929     | 2,394,310   | (1,107,168)        | -             | 1,287,142       
|Net loss for the year               | -             | -           | -                  | (8,259,475)   | (8,259,475)     
|                                    |              
|Balance at January 31, 2006         | 52,931,645    | $53,432,703 | $5,505,767         | $(45,793,946) | $13,144,524     
|                                    |              

See accompanying notes.

F-4

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)
Consolidated Statements of Cash Flows

|                                                      |                        |              |             
|----------------------------------------------------- | ---------------------- | ------------ | ------------
|                                                      |                        |              |             
|                                                      | Year ended January 31,
|                                                      | 2006                   | 2005         | 2004        
|                                                     
|                                                      |                        | Restated     | Restated    
|                                                      |                        | (Note 2)     | (Note 2)    
|                                                      | (In Canadian Dollars) 
|Operating activities                                 
|Net loss for the year                                 | $(8,259,475)           | $(3,741,155) | $(1,199,406)
|Adjustments to reconcile net loss to net cash used in
|operating activities:                                
|Depreciation                                          | 20,047                 | 7,089        | 18,277      
|Gains on sales of plant and equipment                 | (1,202)                | -            | (351,272)   
|Stock-based compensation                              | 4,481,631              | 2,123,283    | 461,881     
|Write-down of mineral properties                      | 906,535                | -            | -           
|Shares issued for interest expense                    | -                      | -            | 84,961      
|Other                                                 | 1,440                  | -            | -           
|Changes in non-cash operating working capital:       
|Accounts receivable                                   | 20,551                 | (30,037)     | 3,812       
|Account receivable from a related party               | 54,128                 | 44,712       | (81,168)    
|Accounts payable and accrued liabilities              | 65,906                 | (121,757)    | 121,865     
|                                                     
|Net cash used in operating activities                 | (2,710,439)            | (1,717,865)  | (941,050)   
|                                                      |                       
|Investing activities                                 
|Mineral properties acquisition and exploration        | (2,215,744)            | (1,712,961)  | (384,283)   
|Equipment and other                                   | (44,218)               | (12,099)     | -           
|Proceeds from sales of plant and equipment            | 1,202                  | -            | 521,978     
|                                                     
|Net cash provided by (used in) investing activities   | (2,258,760)            | (1,725,060)  | 137,695     
|                                                     
|                                                      |                       
|Financing activities                                 
|Proceeds from issuances of common shares and warrants | 10,389,330             | 5,031,195    | 2,779,784   
|                                                     
|Net cash provided by financing activities             | 10,389,330             | 5,031,195    | 2,779,784   
|Effect of exchange rate changes on cash               | (22,159)               | (13,592)     | (16,627)    
|                                                     
|Net increase in cash and cash equivalents             | 5,397,972              | 1,574,678    | 1,959,802   
|Cash and cash equivalents, beginning of year          | 3,557,214              | 1,982,536    | 22,734      
|                                                     
|Cash and cash equivalents, end of year                | $8,955,186             | $3,557,214   | $1,982,536  
|                                                     

See accompanying notes.

See Note 13 for supplemental cash
flow disclosure and non-cash investing and financing activities.

F-5

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)

# Notes to Consolidated
Financial Statements 
(In Canadian Dollars)

# January 31, 2006, 2005
and 2004

|1. |  | Operations
|-- |  | ----------

Brazauro Resources Corporation,
formerly Jaguar Resources Corporation, (the Company) was incorporated in 1986
in British Columbia, Canada, and has been engaged in the acquisition and exploration of
mineral properties with the potential for economically recoverable reserves. During fiscal
2006, 2005 and 2004 the Company pursued gold exploration opportunities that have large
scale potential, with prospects in South America as the primary focus. Prior to fiscal
2004, the Company had concentrated its efforts primarily on the acquisition and
exploration of mineral properties with the potential for economically recoverable
diamonds. See Note 4 for further discussion of the Companys mineral property
interests.

The nature of the Companys
operations results in significant expenditures for the acquisition and exploration of
properties. None of the Companys properties have economically recoverable reserves
or proven reserves at the current stage of exploration. The recoverability of the carrying
value of mineral properties and deferred expenditures is dependent upon a number of
factors including the existence of recoverable reserves, the ability of the Company to
obtain financing to renew leases and continue exploration and development and the
discovery of economically recoverable reserves.

|2. |  | Change
in Cash Flow Classification
|-- |  | ----------------------------------

In the Consolidated Statement of Cash
Flows for the year ended January 31, 2004, the classification of the proceeds of $521,978
from the Companys sale of its Diamond Recovery Plant was changed to disclose the
transaction as proceeds from investing activities as opposed to proceeds from financing
activities.

In the Consolidated Statements of
Cash Flows for the year ended January 31, 2005, the changes in non-cash working capital:
accounts payable and accrued liabilities was classified into operating and investing
components resulting in a classification of $120,502 of cash flow used in investing
activities as opposed to cash flow used in operating activities.

|3. |  | Significant
Accounting Policies
|-- |  | -------------------------------

The consolidated financial statements
are prepared in accordance with accounting principles generally accepted in Canada.
All amounts are in Canadian dollars unless noted otherwise.

# Principles of
Consolidation

The consolidated financial statements
include the accounts of the Company, its wholly owned subsidiary Brazauro Holdings
(Brazil) Ltd. (Brazauro Holdings), a Canadian corporation, its wholly owned
United States subsidiary, Star U.S. Inc. (Star) and the three wholly-owned
subsidiaries of Star, Diamond Operations, Inc. (DOI), Diamond Exploration,
Inc. (DEI) and Continental Diamonds, Inc. (CDI) from their
respective dates of acquisition. The Company and Brazauro Holdings own 90% and 10%,
respectively, of the common shares of Jaguar Resources do Brasil Ltda., a Brazilian
corporation. Significant intercompany balances and transactions have been eliminated.

# Translation of Foreign Currencies

The Companys
subsidiaries are integrated foreign operations.  Foreign currency transactions and
balances are translated into the reporting currency using the temporal method as
follows:

F-6

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)

# Notes to Consolidated
Financial Statements 
(In Canadian Dollars)

# January 31, 2006, 2005
and 2004

|3. |  | Significant
Accounting Policies (continued)
|-- |  | -------------------------------------------

|a) |  | Monetary
items are translated at the rates prevailing at the balance sheet date;
|-- |  | --------------------------------------------------------------------------------

|b) |  | Non-monetary
items are translated at historical rates;
|-- |  | ------------------------------------------------------

|c) |  | Revenues
and expenses are translated at the average rates in effect during           applicable
accounting periods, except depreciation, which is translated at           historical
rates;
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|d) |  | Gains
and losses on foreign currency translation are reflected in the           consolidated
statements of operations
|-- |  | ---------------------------------------------------------------------------------------------------------------------

# Cash and Cash Equivalents

Cash and cash equivalents includes
money market instruments with a maturity of three months or less.

# Fair Value of Financial
Instruments

As of January 31, 2006 and 2005, the
fair value of cash and cash equivalents, accounts receivable and accounts payable and
accrued liabilities including amounts due to and from related parties approximates
carrying values because of the short term of these instruments.

# Mineral Properties and
Deferred Expenditures

Direct acquisitions, evaluation and
exploration expenditures are capitalized, reduced by related sundry income, to be
amortized over the recoverable mineral reserves if a property is commercially developed.
When an area is disproved or abandoned, the acquisition costs and related deferred
expenditures are written off. Interest is capitalized on properties upon the commencement
of active evaluation and preproduction activities, if significant. During the three-year
period ended January 31, 2006, no interest was capitalized.

The net capitalized cost of each
mineral property is periodically compared to managements estimation of the net
realizable value and a write-down is recorded if the net realizable value is less than the
cumulative net capitalized costs.

# Other Property, Plant
and Equipment

Buildings, equipment and other are
depreciated on a straight-line basis over useful lives ranging from 2 to 25 years. The
diamond recovery plant (the Plant), sold during fiscal 2004, became fully
operational in April 1994 and was depreciated on a straight-line basis over its estimated
useful life of seven years.

# Long-Lived Assets

Long-lived assets include mineral
properties and deferred expenditures, and property and equipment. Long-lived assets are
tested for impairment whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable. Carrying amounts are written off to the extent
capitalized costs exceed the expected undiscounted net cash flows from their use and
eventual disposition proceeds.

# Asset Retirement
Obligations

The Company follows the
recommendations under Section 3110, Asset Retirement Obligations, of the Canadian
Institute of Chartered Accountants Handbook (Section 3110). These
recommendations require accounting for the estimated fair value of legal obligations to
reclaim and remediate mineral properties in the period incurred, at the net

F-7

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)

# Notes to Consolidated
Financial Statements 
(In Canadian Dollars)

# January 31, 2006, 2005
and 2004

|3. |  | Significant
Accounting Policies (continued)
|-- |  | -------------------------------------------

present value of the cash flows
required to settle the future obligations. The corresponding amount is capitalized to the
related asset and accounted for in accordance with the Companys accounting policies
for mineral properties and deferred expenditures. The liabilities are subject to
accretion over time for increases in the fair value of the liabilities.

The operations of the Company may in
the future be affected from time to time in varying degree by changes in environmental
regulations, including those for future removal and site restoration costs. Both the
likelihood of new regulations and their overall effect upon the Company vary greatly and
are not predictable. The Companys estimates of its ultimate asset retirement
obligations could change as a result of changes in regulations, the extent of
environmental remediation required, the means of reclamation or cost estimates. Changes in
estimates are accounted for prospectively from the period the estimate is revised.

Remediation and reclamation
expenditures are charged against earnings as incurred. At this stage of the Companys
exploration programs, remediation activities are performed immediately upon completion of
each phase of exploration activities.

# Income Taxes

The Company files a separate Canadian
income tax return. The Companys United States subsidiaries file a consolidated
United States income tax return. Income taxes are calculated using the liability method of
accounting. Temporary differences arising from the difference between the tax basis of an
asset or liability and its carrying amount on the balance sheet are used to calculate
future income tax liabilities or assets. The future income tax liabilities or assets are
measured using tax rates and laws expected to apply in the periods that the temporary
differences are expected to reverse. Valuation allowances are provided where net future
income tax assets are not more likely than not to be realized.

# Loss Per Common Share

Basic loss per share is calculated
using the weighted average number of shares issued and outstanding during the year. The
Company follows the treasury stock method in the calculation of diluted loss per share. No
shares were added to the weighted average number of common shares outstanding during the
years ended January 31, 2006, 2005, or 2004 for the dilutive effect of employee stock
options and warrants as they were all anti-dilutive.

# Stock Based Compensation

The Company uses the fair-value based
method to account for all stock-based payments to employees and non-employees granted
after February 1, 2002 by measuring the compensation cost of the stock-based payments
using the Black-Scholes option-pricing model. The fair value of the stock-based
compensation is recorded as a charge to net earnings based on the vesting period with a
credit to contributed surplus. Upon exercise of the stock options, consideration paid by
the option holder, together with the amount previously recognized in contributed surplus,
is recorded as an increase to share capital.

# Use of Estimates

The preparation of financial
statements in conformity with generally accepted accounting principles requires the
Companys management to make estimates and assumptions that affect the amounts
reported in the consolidated

F-8

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)

# Notes to Consolidated
Financial Statements 
(In Canadian Dollars)

# January 31, 2006, 2005
and 2004

|3. |  | Significant
Accounting Policies (continued)
|-- |  | -------------------------------------------

financial statements and related
notes to the consolidated financial statements. Actual results may differ from those
estimates.

# Comparative Amounts

Certain comparative amounts have been
reclassified to conform with presentation for the current year.

|4. |  | Mineral
Properties and Deferred Expenditures
|-- |  | --------------------------------------------

The Company cannot guarantee title to
all of its Properties as the Properties may be subject to prior mineral rights applications
with priority, prior unregistered agreements or transfers or native land claims, and
title may be affected by undetected defects.
Certain of the mineral rights held by the Company are held under applications for mineral
rights and, until final approval of such
applications is received, the Companys rights to such mineral rights may not materialize
and the exact boundaries of the Companys
properties may be subject to adjustment.  The Company does not maintain title insurance on its properties.

# Brazil Properties

Tocantinzinho Properties

In August 2003 the Company entered
into an option to acquire exploration rights to a total of 28,275 hectares in the
Tapajós gold district in Para State, Brazil under an option agreement with two
individuals (herein referred to as optionors). The option agreement entitles
the Company to acquire a 100% interest in the exploration rights to such area (referred to
herein as the Tocantinzinho Properties) over a four-year period in
consideration for the staged payment of US$465,000, the staged issuance of 2,600,000
shares of the Company and the expenditure of $1,000,000 (U.S.) on exploration ($300,000
(U.S.) by July 31, 2004). The Company received approval for the acquisition from the TSX
Venture Exchange in August 2003 and made the initial payment required by the option
agreement to the optionors, consisting of 1,100,000 common shares of the Company and
$75,000 (U.S.). The Company made the second option payment, consisting of 200,000 common
shares of the Company and $30,000 (U.S.), in February 2004. In August 2004 and July 2005,
the Company made the third and fourth option payments, each consisting of 200,000 common
shares of the Company and $40,000 (U.S.).

As of January 31, 2006, the total
commitment remaining under the option agreement is as follows (all amounts are in U.S.
dollars): $130,000 and 200,000 common shares of the Company, and $150,000 and 700,000
common shares of the Company for the 2007 and 2008 fiscal years, respectively.

Additionally, the option agreement
requires the Company to assume all existing obligations of the optionors to certain
Brazilian residents in respect of the mineral rights to the Tocantinzinho Properties (the
Underlying Agreements) totaling $1,600,000 (U.S.) over a four-year period. At
January 31, 2006, the remaining payment commitments under the Underlying Agreements are
as follows (all amounts are in U.S. dollars): $160,000 and $1,205,000 in fiscal years
2007 and 2008, respectively. The Company made payments totaling $35,000 (U.S.), $80,000
(U.S.) and $120,000 (U.S.) in respect of the Underlying Agreements during fiscal 2004,
2005 and 2006, respectively. One of the optionors entered into a consulting agreement
with the Company for an 18-month period at a rate of $7,000 (U.S.) per month which
expired during fiscal 2005. The payments under the option agreement, the Underlying
Agreements and the consulting agreement are considered expenditures for purposes of
meeting the required total and initial annual expenditures of $1,000,000 (U.S.) and
$300,000 (U.S.), respectively, discussed above. During fiscal 2005 the Company completed
the requirement under the option agreement to expend a total of

F-9

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)

# Notes to Consolidated
Financial Statements 
(In Canadian Dollars)

# January 31, 2006, 2005
and 2004

|4. |  | Mineral Properties
and Deferred Expenditures (continued)
|-- |  | --------------------------------------------------------

$300,000 (U.S.) and met the
requirement to expend $1,000,000 (U.S.) on exploration. The Company has met its
commitments under the option agreement at January 31, 2006, and the option agreement is
cancelable by the Company without further obligations.

The optionors are entitled to a
sliding scale gross revenues royalty ranging from 2.5% for gold prices below $400 (U.S.)
per ounce to 3.5% for gold prices in excess of $500 (U.S.) per ounce.

The Company has received exploration
licenses in respect of the central 4,000 hectare area of the Tocantinzinho Properties on which
it has been focusing its exploration efforts as well as for a 9,315 hectare
area forming the north eastern and eastern boundary of
the Tocantinzinho Properties.  Under the option agreement the Company also holds
rights to acquire two other applications for
exploration licenses filed with the regulatory authorities in Brazil:  one
covering 4,275 hectares that lies to the south of the
central 4,000 hectare area and one (the Extension Area) covering 10,000 hectares that
lies immediately to the east but continues
well south of the central 4,000 hectare area.  The mineralized zone discovered by the
Company on the Tocantinzinho Properties starts
on the central 4,000 hectare area and extends eastward beyond the boundary of the central
4,000 hectare area into the Extension Area.

At the end of fiscal 2006, as a
result of further title reviews by the Company, it came to the Companys attention
that a long dormant application for a mining license that covered the Extension Area had
never been processed by the Departamento Nacional de Produção Mineral
(DNPM) and was still valid.  According to advice from Brazilian counsel,
the dormant application carried paramount title to the Extension Area. The Company, through its subsidiary, Jaguar
Resources do Brasil Ltda., reached an agreement with the holder of such application to
acquire its rights to obtain a mining license over the Extension Area, subject to receipt
of confirmation from the DNPM of the granting of the mining license. In the event the DNPM
does not grant the mining license, the Companys rights to the Extension Area will be
in doubt. To date, the Company has made a payment of $150,000 (U.S.) to the holder of the
application.

The Company is aware that another
entity has asserted that it holds prior mineral rights to areas of the Tocantinzinho
Properties, including areas of the mineralized zone discovered by the Company. The Company
is presently undertaking an extensive review of its title position and has found
inconsistencies in its title documentation relating to license boundaries.
The Company is working with its Brazilian
counsel and the DNPM to resolve these inconsistencies. These inconsistencies may
adversely affect the
Companys rights to a portion of the mineralized zone. The Company has been advised
of the laws governing these matters and considers that these inconsistencies should be resolved
such that the Company will retain rights to all of the mineralized zone. However, the
resolution of these inconsistencies will require the DNPM to concur with the
Companys interpretation of these laws. An adverse interpretation of Brazilian mining
laws may result in another party receiving rights to some portion of the
mineralized zone.

Under a separate agreement, the
Company holds exploration permits for an additional 16,052 hectares adjacent to the
western border of the above Tocantinzinho Properties. The Company has agreed to make
payments totaling $300,000 (U.S.) over a period of approximately four years to an
individual as a finders fee related to this 16,000 hectare property. As of January
31, 2006, the remaining commitment under this agreement is $215,000 (U.S.). This additional property is not subject
to the option agreement and therefore is not subject to the royalty. The Company received
an exploration license from the Brazilian regulatory authority with respect to the
additional 16,052 hectares in fiscal year 2005.

F-10

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)

# Notes to Consolidated
Financial Statements 
(In Canadian Dollars)

# January 31, 2006, 2005
and 2004

|4. |  | Mineral Properties
and Deferred Expenditures (continued)
|-- |  | --------------------------------------------------------

Mamoal Property

The Company entered into an option
agreement under which it may acquire the exploration license to the 10,000 hectare Mamoal
Property, located 30 kilometers southeast of the Companys Tocantinzinho Properties,
in December 2003. The Company has an option to earn 100% of the Mamoal Property by payment
of a total of $300,000 (U.S.) over three and one half years. The Company may terminate the
option agreement at any time without further obligation. An initial $10,000 (U.S.) payment
was made by the Company in December 2003, and the exploration research license has been
transferred to Jaguar Resources do Brasil Ltda. During fiscal 2005 and 2006, the Company
made payments under the option agreement totaling $25,000 (U.S.) and $45,000 (U.S.),
respectively. The remaining option payments are as follows (all amounts are in U.S.
dollars): $65,000 and $155,000 in fiscal years ending January 31, 2007 and 2008,
respectively. The Company may acquire the Mamoal Property at any time by accelerating the
option payments. The Company has received the exploration license from the Brazilian
regulatory authority.

During fiscal 2005 and 2006, the
Company performed exploration activities at the Mamoal Property, including a regional soil
auger sampling program, in conjunction with channel-sampling of old pits and rock-chip
sampling. At the Mamoal Property, core drilling commenced in November 2005 and was
completed in January 2006. Additionally, an extensive grid soil geochemical survey was
conducted at Mamoal during fiscal 2006. The results of the above testing were not
encouraging, and the Company may cease exploration of this project or seek a joint
venture partner. Accordingly the net capitalized costs related to the Mamoal Property
totaling $906,535 were written off during the fourth quarter of fiscal 2006.

Batalha Property

In September, 2004 the Company
applied for an exploration license to the 9800 hectare Batalha Property, located in the
Tapajós gold province in northern Brazil. The property, host to a well known and
extensive garimpo or artisanal mine, lies at the western end of the
Tocantinzinho trend.

The Company has agreed to pay the
original holder of artisanal mining rights of Batalha, who controls over 1,700 hectares
lying within the exploration license and directly over the Batalha zone, the equivalent of
approximately $91,000 Canadian dollars in Brazilian reals over a 42 month period with a
buyout after 4 years of $250,000 (U.S.) (if the project is deemed economic by the Company)
and an additional sum based on the number of ounces of gold in the proven and probable (or
measured and indicated) categories at Batalha as set out in a pre-feasibility or
feasibility study. The per ounce payment amount ranges in a sliding scale from $1 (U.S.) per
ounce for the first one million ounces up to $10 (U.S.) per ounce for each ounce over four
million ounces. The 9,800 hectare exploration license lies over top of this area, covering
extensions to north, south and west. If after four years the Company, in its sole opinion,
has not found an economic ore body, the area and all collected data will be returned to
the vendor.

# Arkansas Properties

The Company maintained interests in
several Arkansas Properties during the period from fiscal 1993 through fiscal 2003. In
December 2002, based upon the cumulative exploration results obtained on the Arkansas
Properties, the Company made the decision to cease operations in Arkansas.

F-11

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)

# Notes to Consolidated
Financial Statements 
(In Canadian Dollars)

# January 31, 2006, 2005
and 2004

|4. |  | Mineral Properties
and Deferred Expenditures (continued)
|-- |  | --------------------------------------------------------

American Mine Property

Pursuant to an agreement dated
November 4, 1992, DEI was granted a permit to explore a mineral property located in Pike
County, Arkansas. The Companys Diamond Recovery Plant was located on this leased
property. The Company leased the property and conducted exploration activities during
certain periods from 1992 to 2002. The lease payment of $47,500 (U.S.) on the American
Property, due November 1, 2002, was not made by the Company.

In March 2003 the Company sold the
Plant to a third party for $350,000 (U.S.). In conjunction with the sale, the third party
paid the lessor of the American Mine Property $47,500 (U.S.) on behalf of the Company in
order to extend the Companys lease on the property through October 31, 2003. The
Company allowed the lease to expire effective November 1, 2003. The Plant was dismantled
by the third party and removed from the American Lease during fiscal 2004.

The Company recorded a reserve for
leasehold reclamation costs during the quarter ended April 30, 2003 of approximately
$70,000, representing the estimated costs of the Companys obligation to restore the
Arkansas properties to their original condition prior to lease expiration and to perform
reclamation activities as required by Arkansas regulatory authorities. The reserve for
leasehold reclamation was adjusted during the fourth quarter of fiscal 2004 to $142,554
representing the estimated net present value of the recognized asset retirement obligation
at January 31, 2005 based on a total future liability of $150,000. The Company expects to
complete the restoration during fiscal 2007. The Company used a credit adjusted risk free
rate of 3% to calculate the net present value of the asset retirement obligation.

Mineral properties and deferred
expenditures were as follows:

|                               | Balance at 
January 31 
   2005 | Additions  | Impaired 
 Write-Offs | Balance at   
January 31   
   2006
|------------------------------ | ------------------------------- | ---------- | --------------------- | -----------------------------------
|                              
|Brazilian Properties           |                                 |            |                       |                                    
|Tocantinzinho Properties:      |                                
|Acquisition costs              |                                 | $1,042,977 |                       | $   677,319                        
|Exploration costs:             |                                
|Drilling                       |                                 | 607,334    |                       | 430,923                            
|Field expenses                 |                                 | 701,236    |                       | 473,795                            
|Geological                     |                                 | 181,445    |                       | 160,494                            
|Assay                          |                                 | 111,870    |                       | 84,581                             
|                              
|Total exploration costs        |                                 | 1,601,885  |                       | 1,149,793                          
|                              
|Total Tocantinzinho Properties |                                 | 2,644,862  |                       | 1,827,112                          
|Mamoal Property:               |                                
|Acquisition costs              |                                 | 45,288     |                       | 63,348                             
|Exploration costs:             |                                
|Drilling                       |                                 |           |                       | 245,103                            
|Field expenses                 |                                 | 105,258    |                       | 332,244                            
|Geological                     |                                 | 10,901     |                       | 94,234                             
|Assay                          |                                 | 4,138      |                       | 6,021                              
|                              
|Total exploration costs        |                                 | 120,297    |                       | 677,602                            
|                              
|Total Mamoal Property          |                                 | 165,585    |                       | 740,950                            

F-12

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)

# Notes to Consolidated
Financial Statements 
(In Canadian Dollars)

# January 31, 2006, 2005
and 2004

|4. |  | Mineral Properties
and Deferred Expenditures (continued)
|-- |  | --------------------------------------------------------

|                        | Balance at 
January 31 
   2005 | Additions  | Impaired 
 Write-Offs | Balance at   
January 31   
   2006
|----------------------- | ------------------------------- | ---------- | --------------------- | -----------------------------------
|                       
|                        |                                 |            |                       |                                    
|Batalha Property        |                                
|Acquisition costs       |                                 | 7,299      |                       | 13,230                             
|Exploration costs       |                                 |           |                       |                                   
|                       
|                        |                                 | 7,299      |                       | 13,230                             
|                       
|Total acquisition costs |                                 | 1,095,564  |                       | 753,897                            
|Total exploration costs |                                 | 1,722,182  |                       | 1,827,395                          
|                       
|Total costs             |                                 | $2,817,746 |                       | $2,581,292                         
|                       

|                              
|------------------------------
|Brazilian Properties          
|Tocantinzinho Properties:     
|Acquisition costs             
|Exploration costs:            
|Drilling                      
|Field expenses                
|Geological                    
|Assay                         
|                              
|Total exploration costs       
|                              
|Total Tocantinzinho Properties
|Mamoal Property:              
|Acquisition costs             
|Exploration costs:            
|Field expenses                
|Geological                    
|Assay                         
|                              
|Total exploration costs       
|                              
|Total Mamoal Property         
|Batalha Property              
|Acquisition costs             
|Exploration costs             
|                              
|                              
|                              
|Total acquisition costs       
|Total exploration costs       
|                              
|Total costs                   
|                              

|5. |  | Debentures
|-- |  | ----------

In fiscal 2002, the Company completed
the issuance of $1,278,595 principal amount of 10% secured convertible debentures
(the Debentures). The Debentures were convertible into units at the rate of
one unit for each $2.87 principal amount of the Debentures until February 16, 2003. Each
unit was to consist of one common share of the Company and one share purchase warrant with
an exercise price of $3.15, exercisable through August 16, 2003. The conversion and share
purchase warrant prices above were adjusted to reflect the Companys seven for one
share consolidation on November 27, 2001.

F-13

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)

# Notes to Consolidated
Financial Statements 
(In Canadian Dollars)

# January 31, 2006, 2005
and 2004

|5. |  | Debentures
(continued)
|-- |  | ----------------------

On February 11, 2003, the holders of
the Debentures approved the amendment of the conversion price of the units to $0.30 and
the extension of the maturity date of the Debentures to February 16, 2004. As amended,
each of the 4,261,976 units consisted of one common share of the Company and one share
purchase warrant with an exercise price of $0.30, exercisable through February 16, 2004.
Additionally, the terms of the Debenture were amended to include a mandatory conversion
provision of all Debentures and exercise of all related warrants within 30 days after the
closing price of the Companys common shares exceeded $0.375 for ten consecutive
trading days.

Interest at the rate of 10% was
payable on conversion or maturity in cash, or at the election of the Company, in common
shares valued at the weighted average trading price of the common shares of the Company
for the ten trading days preceding the interest payment date. The Debentures were secured
by a general security interest in the Companys current and future assets and by the
stock of Star U.S., Inc. (Star), a wholly owned subsidiary of the Company, and
a wholly-owned subsidiary of Star.

During fiscal 2004, several holders
of the Debentures elected to convert a total of $197,000 principal amount and received
656,666 common shares and 656,666 common share purchase warrants with exercise prices of
$0.30. Additionally, during the third quarter of fiscal 2004, a director of the Company
elected to convert $97,000 principal amount and received 323,333 common shares.

Effective October 31, 2003 a total of
$984,595 principal amount of Debentures were automatically converted into 3,281,977 units
of the Company in accordance with the February 11, 2003 amendments discussed in the third
preceding paragraph. Each unit consisted of one common share and one common share purchase
warrant with exercise prices of $0.30. Additionally, under terms of the mandatory
conversion provision, the expiration date of all warrants issued upon conversion of the
Debentures was established as December 1, 2003. During the fourth quarter of fiscal 2004,
the Company received a total of $937,593, representing the exercise price of 3,125,311
warrants, and issued 3,125,311 common shares. A total of 813,332 common share warrants
expired unused on December 1, 2003.

During fiscal 2004, a total of
$335,075 of interest accrued on the principal amounts converted during fiscal 2004 was
paid via the issuance of a total of 1,129,522 shares, representing the conversion of the
interest amounts at weighted average prices from $0.17 to $0.33 per share.

|6. |  | Share
Capital
|-- |  | -------------

Effective September 8, 2004 the
Company increased its authorized capital from 100,000,000 common shares without par value
to an unlimited number of common shares without par value.

On January 29, 2002 the Company
completed a private placement of 5,691,376 units at a price of $0.20 per unit, each unit
to consist of one common share and one share purchase warrant with an exercise price of
$0.25 per unit. The share purchase warrants had an expiration date of January 29, 2003,
which was extended during fiscal 2003 to January 29, 2004. A total of 5,669,101 warrants
were exercised in January 2004, and the Company received total exercise proceeds of
$1,417,275. A total of 22,275 warrants expired unused on January 29, 2004.

On September 18, 2002, the Company
completed a private placement of 2,819,774 units at a price of $0.20 per unit, each unit
consisting of one common share and one share purchase warrant with an exercise price of
$0.25 per unit. The share purchase warrants had an expiration date of September 18, 2004.
The Company received a total of $563,955 during fiscal 2003 representing subscriptions
for the private placement. Included in that amount was a total of $85,240 representing
subscriptions for 426,200 units by three of the Companys directors. During fiscal
year 2005, all 2,819,774 common share warrants were exercised, and the Company received
total exercise proceeds of $704,943.

F-14

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)

# Notes to Consolidated
Financial Statements 
(In Canadian Dollars)

# January 31, 2006, 2005
and 2004

|6. |  | Share
Capital (continued)
|-- |  | -------------------------

In November 2004, the Company
completed a private placement of 2,112,500 common shares of the Company at a price of
$0.85 per share and received proceeds totaling $1,795,625. In consideration for assistance
with the private placement, the Company paid finders fees of $96,950 in cash and
issued 113,000 share purchase warrants entitling the finders to purchase 113,000 common
shares of the Company at $1.05 per share until November 2, 2005. In fiscal 2006, the
holders of the share purchase warrants elected to exercise all 113,000 warrants, and the
Company received total proceeds of $118,650. The fair value of the 113,000 warrants issued
to brokers related to the private placement in November 2004 was approximately $33,000 and
was calculated using the Black-Scholes model and the following assumptions: expected
dividend yield, 0%, expected volatility, 115%; risk-free interest rate, 2.9%. expected
life of warrant, 1 year.

In December 2004, the Company
completed a private placement of 2,150,000 common shares of the Company at a price of
$1.00 per share and received proceeds of $2,150,000.

During August 2005 the Company closed
a private placement of 5,000,000 units at $1.90 per unit for gross proceeds of $9,500,000.
The Company paid a brokerage commission on the placement of $475,000. Each unit consists
of one common share and one half of one share purchase warrant. Each whole warrant will
entitle the holder to purchase one additional share of the Company at $3.80 for a period
of one year. If the shares of the Company trade at $4.80 or higher on each trading day
during a thirty day period, the exercise period of the warrants will accelerate and
holders will have a period of 30 days thereafter to exercise their warrants, failing which
they will expire. As of January 31, 2006, all of the 2,500,000 share purchase warrants are
outstanding.

|7. |  | Stock
Option Plan
|-- |  | -----------------

The Company maintains a stock option
plan for its directors, officers and employees and may issue up to 9,000,000 options. In
July, 2005 the Companys shareholders approved an amendment to its stock option plan
to increase the number of shares reserved for issuance from 7,000,000 to 9,000,000. Under
the terms of the plan, the exercise price of each option equals the closing market price
of the Companys stock on the date of grant. Any consideration paid by the optionee
on the exercise of options is credited to share capital. Through July 2002 all options
were immediately vested and have a term of five years. The options granted subsequent to
July 2002 are subject to vesting requirements (25% on the date of grant and 12.5% on each
quarter end thereafter).

The activity in common stock option
grants outstanding for the prior three fiscal years is as follows:

|                         | 2006 | 2005      | 2004
|------------------------ | ---- | --------- | ----
|                        
|
|                        
|Outstanding, beginning   |      |           |     
|of year                  |      | 6,603,572 |     
|Granted                  |      | 4,100,000 |     
|Exercised                |      | 2,748,929 |     
|Expired                  |      |          |     
|                        
|Outstanding, end of year |      | 7,954,643 |     
|                        
|Exercisable, end of year |      | 5,847,143 |     
|                        

F-15

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)

# Notes to Consolidated
Financial Statements 
(In Canadian Dollars)

# January 31, 2006, 2005
and 2004

|7. |  | Stock
Option Plan (continued)
|-- |  | -----------------------------

The following table summarizes
information about stock options outstanding at January 31, 2006:

|Number of 
  Options  
Outstanding | Expiration date | Exercise price     | Number of 
    Options 
 Exercisable
|---------------------------------- | --------------- | ------------------ | ------------------------------------
|                                  
|47,143                             |                 | January 31, 2007   |                                     
|75,000                             |                 | September 26, 2007 |                                     
|92,018                             |                 | October 21, 2008   |                                     
|17,956                             |                 | November 26, 2008  |                                     
|450,000                            |                 | December 17, 2008  |                                     
|638,559                            |                 | June 11, 2009      |                                     
|2,160,340                          |                 | July 29, 2009      |                                     
|530,000                            |                 | November 19, 2009  |                                     
|100,000                            |                 | February 15, 2010  |                                     
|600,000                            |                 | March 22, 2010     |                                     
|343,627                            |                 | April 1, 2010      |                                     
|300,000                            |                 | May 31, 2010       |                                     
|2,000,000                          |                 | July 21, 2010      |                                     
|600,000                            |                 | August 4, 2010     |                                     
|Total           7,954,643          |                 |                    |                                     

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

Stock-based compensation related to
options granted to employees and non-employees increased the following expenses in the
consolidated financial statements of the Company in the three years ending January 31,
2006 are as follows:

|           | 2006 | 2005        | 2004
|---------- | ---- | ----------- | ----
|Consulting |      | $   291,334 |     
|Salary     |      | 4,190,297   |     
|           |     
|           |      | $4,481,631  |     
|           |     

These amounts have also been recorded
as contributed surplus on the balance sheet. As of January 31, 2006, the fair market value
of the total compensation cost related to nonvested stock options to be recognized upon
vesting totaled $2,660,099, of which $2,556,279 and $103,820 are expected to be recognized
in fiscal 2007 and 2008, respectively.

The fair value of each option granted
has been estimated as of the date of grant using the Black-Scholes option-pricing model
with the following assumptions:

|                            | 2006 | 2005          | 2004
|--------------------------- | ---- | ------------- | ----
|Expected dividend yield     |      | 0%            |     
|Expected volatility         |      | 141-150%      |     
|Risk-free interest rate     |      | 3.4 to 3.6%   |     
|Expected life               |      | 2 to 3 years  |     
|Weighted average fair value |     
|of options granted          |      | $        1.26 |     

F-16

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)

# Notes to Consolidated
Financial Statements 
(In Canadian Dollars)

# January 31, 2006, 2005
and 2004

|9. |  | Income
Taxes
|-- |  | ------------

A reconciliation of the combined
Canadian federal and provincial income taxes at statutory rates and the Companys
effective income tax expense (recovery) is as follows:

|                                   | Years ended January
|---------------------------------- | -------------------
|                                   |                    
|
|                                   |                    
|Statutory rates                    |                    
|Net loss for the year              |                    
|                                  
|Income tax at statutory rates      |                    
|Increase (decrease) in taxes from: |                    
|Non-deductible items               |                    
|Differences in foreign tax rates   |                    
|Effect of change in tax rate       |                    
|Benefit of losses not recognized   |                    
|                                   |                    
|Benefit of losses not recognized   |                    
|                                   |                    

Future income taxes reflect the net
effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. The
significant components of the Companys future tax assets as of January 31 are as
follows:

|                                          | January 31
|----------------------------------------- | ----------
|
|                                         
|Future income tax assets                  |           
|Operating loss carryforwards              |           
|Property and equipment                    |           
|Share issue cost                          |           
|Valuation allowance for future tax assets |           
|                                         
|                                          |           
|                                         

The Company has available losses for
income tax purposes of approximately $32 million, which may be carried forward and applied
against future taxable income when earned. Brazilian losses are offset by up to 30% of
fiscal profits. United States net operating losses may be limited if more than a 50%
ownership change has occurred with respect to any Company included in the consolidated
group. If an ownership change has occurred, such losses are limited on an annual basis to
the value of the respective Company on the date of change multiplied by the U.S. federal
long-term, tax-exempt rate in effect for the period. In addition, some U.S. net operating
losses may be subject to other limitations based on taxable income from wholly owned
subsidiaries on a stand-alone basis.

The losses expire as follows:

|     | Canada | United States | Brazil | Total  
|---- | ------ | ------------- | ------ | -------
|     |       
|
|    
|2007 |        | 383,000       |        | 267,000
|2008 |        | 231,000       |        | 278,000
|2009 |        | 134,000       |        | 23,000 
|2010 |        | 439,000       |        | 454,000

F-17

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)

# Notes to Consolidated
Financial Statements 
(In Canadian Dollars)

# January 31, 2006, 2005
and 2004

|9. |  | Income
Taxes (continued)
|-- |  | ------------------------

|                  | Canada | United States | Brazil | Total      
|----------------- | ------ | ------------- | ------ | -----------
|                  |       
|
|                 
|                  |        |               |        |            
|2011              |        | 273,000       |        | 151,000    
|2012              |        | 448,000       |        | 1,436,000  
|2013              |        |              |        | 4,488,000  
|From 2014 to 2022 |        | 816,000       |        | 16,944,000 
|Indefinitely      |        |              |        |           
|                  |       
|                  |        | $  2,724,000  |        | $24,041,000
|                  |       

At January 31, 2006, the Company has
incurred approximately $512,000 of exploration and development costs which may be deducted
against future Canadian taxable income subject to certain limitations.

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

Account receivable from a related
party at January 31, 2005 includes $55,900 receivable from the chairman of the Company
which was repaid during fiscal 2006. Amounts totaling $93,839, $147,683 and $121,957 were
paid by the Company during fiscal 2006, 2005 and 2004, respectively, to a law firm in
which a director was a partner until his retirement in June 2006. In January 2004, three
directors exercised warrants to purchase common stock at an exercise price of $0.25 per
share and acquired 477,750, 225,000 and 238,875 common shares, respectively. In September,
2004, three directors exercised warrants to purchase common shares at an exercise price of
$0.25 per share and received 286,200, 100,000, and 40,000 common shares, respectively.

|11. |  | Contingencies
|--- |  | -------------

Except as described below, there are
no material pending legal proceedings to which the Company or any of its subsidiaries is a
party or to which any of their property is subject.

On May 15, 1998, a legal action
styled James Cairns and Stewart Jackson vs. Texas Star Resources Corporation d/b/a
Diamond Star,Inc. was filed in the 215th Judicial District Court of
Harris County, Texas, Cause No. 9822760 wherein the Plaintiffs allege, among other
things, that the Company breached contractual agreements and committed fraud by not
timely releasing or causing to be released from an escrow account required by Canadian
law certain shares of the Company to which Plaintiffs allege that they were entitled to
receive in calendar 1995 and, as a result of the Companys alleged actions with
respect to the release of such shares, the Plaintiffs sought monetary damages for losses
in share value, attorneys fees, court costs, expenses, interest and exemplary
damages. Texas Star Resources Corporation was the name of the Company in 1998 and 1999.
In 1999, the litigation against the Company in Houston, Harris County, Texas, was
dismissed by the court with prejudice, leaving only the claims of James M. Cairns, Jr.
pending in British Columbia which is generally described below. The legal action in Texas
is similar to one filed against the Company in the Supreme Court of British Columbia,
Canada, in August 1996 styled Cause No. C96493; James M. Cairns, Jr. vs. Texas Star
ResourcesCorporation. In January 1993, the Plaintiffs were issued common
stock of the Company in escrow which shares were to be released based on exploration
expenditures by the  Company on certain of its properties
in Arkansas. The escrow requirements were imposed by the Vancouver Stock Exchange.
Plaintiffs requested that all of the shares be released in 1995. At that time the Company
believed that  of said shares when requested by the
Plaintiffs was inappropriate due to legal requirements and regulatory concerns. The shares
were subsequently released to the Plaintiffs. The Company intends to vigorously defend the
allegations of the Plaintiffs in the pending litigation for damages in British Columbia
and in Texas (if the case is appealed or refiled) and believes it has meritorious defenses
to such claims. No proceedings in the action in British

F-18

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)

# Notes to Consolidated
Financial Statements 
(In Canadian Dollars)

# January 31, 2006, 2005
and 2004

|11. |  | Contingencies (continued)
|--- |  | -------------------------

Columbia have been taken by the
Plaintiff since March 30, 2000. However, the Company cannot provide any assurances that it
will be successful, in whole or in part, with respect to its defense of the claims of the
Plaintiffs. If the Company is not successful, any judgment obtained by Plaintiffs could
have a material and adverse effect on its financial condition.

|12. |  | General
and Administrative Expenses
|--- |  | -----------------------------------

General and administrative expenses
consist of the following:

|                        | 2006 | 2005        | 2004
|----------------------- | ---- | ----------- | ----
|                        |     
|Consulting fees         |      | $   774,405 |     
|Depreciation expense    |      | 20,047      |     
|Entertainment           |      | 93,818      |     
|Insurance               |      | 26,761      |     
|Office expenses         |      | 202,726     |     
|Professional fees       |      | 267,842     |     
|Rent                    |      | 38,585      |     
|Repairs and maintenance |      | 31,523      |     
|Salaries and benefits   |      | 5,216,740   |     
|Shareholder relations   |      | 173,703     |     
|Travel                  |      | 202,022     |     
|Utilities               |      |            |     
|                        |     
|Total                   |      | $7,048,172  |     
|                        |     

|13. |  | Supplemental
Cash Flow and Non-Cash Investing and Financing Disclosure
|--- |  | ----------------------------------------------------------------------

|                                                       | 2006 | 2005        | 2004
|------------------------------------------------------ | ---- | ----------- | ----
|                                                       |     
|Supplemental cash flow disclosure:                     |      |             |     
|Interest paid in cash                                  |      | $          |     
|Income taxes paid                                      |      |            |     
|                                                       |     
|Non-cash investing activities:                         |     
|Shares issued for mineral properties                   |      | $400,000    |     
|                                                       |     
|Non-cash financing activities:                         |     
|Shares issued for debt                                 |      |            |     
|Shares issued for conversion of convertible debentures |      |            |     
|Shares issued for interest on convertible debentures   |      |            |     

|14. |  | Segment
Information
|--- |  | -------------------

The Company acquires and explores
mineral properties, and these activities are focused principally in North and South
America. Geographic segmentation of capital assets is provided in Note 4.

F-19

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)

# Notes to Consolidated
Financial Statements 
(In Canadian Dollars)

# January 31, 2006, 2005
and 2004

|15. |  | Differences
Between Canadian and United States Generally Accepted Accounting Principles (GAAP)
|--- |  | ------------------------------------------------------------------------------------------------

The consolidated financial statements
have been prepared in accordance with Canadian GAAP which differs in some respects from
United States GAAP. The material differences in respect to these financial statements
between Canadian and United States GAAP, and their effect on the Companys financial
statements, are summarized below.

Mineral Properties and
Deferred Expenditures

Under Canadian GAAP, companies have
the option to defer mineral exploration expenditures on prospective properties until such
time as it is determined that further work is not warranted, at which point property costs
would be written off. Under United States GAAP, all exploration expenditures are expensed
until an independent feasibility study has determined that the property is capable of
commercial production. At this stage, the Company has not yet identified economically
recoverable reserves on any of its properties. Accordingly, under United States GAAP, all
exploration costs incurred are expensed.

The significant differences in the
consolidated statements of loss relative to US GAAP were:

|                                                         | 2006 | 2005            | 2004
|-------------------------------------------------------- | ---- | --------------- | ----
|                                                         |     
|Net loss in accordance with Canadian GAAP                |      | $(8,259,475     | )   
|                                                         |     
|Deduct:                                                  |     
|Deferred exploration expenditures capitalized            |     
|during the period                                        |      | (1,149,793      | )   
|Add:                                                     |     
|Deferred exploration expenditures written off in         |     
|the period that would have been expensed                 |     
|in a prior period                                        |      | 120,297         |     
|                                                         |     
|                                                         |     
|Net loss in accordance with United States GAAP           |      | $(9,288,971     | )   
|                                                         |     
|                                                         |     
|Basic and diluted net loss per share (United States      |     
|GAAP)                                                    |      | $         (0.19 | )   
|                                                         |     
|                                                         |     
|Weighted average shares outstanding (United States GAAP) |      | 49,112,192      |     
|                                                         |     

The significant differences in the consolidated
balance sheet relative to US GAAP were:

|                                                         | 2006 | 2005        
|-------------------------------------------------------- | ---- | ------------
|                                                         |     
|Shareholders' equity - Canadian GAAP                     |      | $ 13,144,524
|Mineral properties and deferred exploration expenditures |      | (2,751,678  
|                                                         |     

F-20

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)

# Notes to Consolidated
Financial Statements 
(In Canadian Dollars)

# January 31, 2006, 2005
and 2004

|15. |  | Differences
Between Canadian and United States Generally Accepted Accounting Principles
(GAAP) (continued)
|--- |  | ------------------------------------------------------------------------------------------------------------

The significant differences in the consolidated
balance sheet relative to US GAAP were:

|                                          | 2006 | 2005        
|----------------------------------------- | ---- | ------------
|                                          |     
|                                          |      |             
|Shareholders' equity - United States GAAP |      | $ 10,392,846
|                                          |     

|                                                         | 2006 | 2005       
|-------------------------------------------------------- | ---- | -----------
|                                                         |     
|Mineral properties and deferred exploration expenditures |      |            
|- Canadian GAAP                                          |      | $ 4,492,503
|Mineral properties and deferred exploration expenditures |     
|expensed per United States GAAP                          |      | (2,751,678 
|                                                         |     
|                                                         |     
|Acquisition costs of mineral properties - United States  |     
|GAAP                                                     |      | $ 1,740,825
|                                                         |     

The significant differences in the
consolidated statement of cash flows relative to US GAAP were:

|                                                         | Years ended January 31,
|-------------------------------------------------------- | -----------------------
|
|                                                         |                        
|
|                                                        
|Net cash used in operations                              |                        
|Canadian GAAP                                            |                        
|Mineral properties and deferred exploration expenditures |                        
|                                                         |                        
|US GAAP                                                  |                        
|                                                         |                        
|                                                        
|Net cash provided by (used in) investing activities      |                        
|Canadian GAAP                                            |                        
|Mineral properties and deferred exploration expenditures |                        
|                                                         |                        
|US GAAP                                                  |                        
|                                                         |                        
|                                                        
|Net cash provided by financing activities                |                        
|Canadian GAAP and U.S. GAAP                              |                        
|                                                         |                        

Recent Accounting
Pronouncements

|a) |  | On
March 31, 2004, the Emerging Issues Task Force (EITF) issued EITF
                    04-2, Whether Mineral Rights are Tangible or Intangible Assets                    (EITF
04-2) which concluded that mineral interest conveyed by leases
                    should be considered tangible assets. On April 30, 2004, the
Financial                     Accounting Standards Board (FASB) issued
amended Statement of                     Financial Accounting Standards (SFAS)
141 and SFAS 142 to provide                     that certain mineral use rights are
considered tangible assets and that mineral                     use rights should be
accounted for based on their substance. The amendment was                     effective
for the first reporting period  beginning
after April 29, 2004, with                     early adoption permitted. The Company
adopted EITF No. 04-2 on February 1, 2004                     for purposes of the
Canadian GAAP to U.S. GAAP discussion above entitled Mineral Properties and
DeferredExpenditures.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-21

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)

# Notes to Consolidated
Financial Statements 
(In Canadian Dollars)

# January 31, 2006, 2005
and 2004

|15. |  | Differences
Between Canadian and United States Generally Accepted Accounting Principles
(GAAP) (continued)
|--- |  | ------------------------------------------------------------------------------------------------------------

|b) |  | On
March 31, 2004, the EITF issued EITF 04-3, Mining Assets                    Impairment
and Business Combinations (EITF 04-3) which
                    concluded that entities should generally include values in mining
properties                     beyond proven and probable reserves and the effects of
anticipated fluctuations                     in the future market price of minerals in
determining the fair value of mining                     assets. The Company adopted EITF
04-3 on February 1, 2004. The adoption of EITF                     04-3 had no impact on
the Canadian GAAP to U.S. GAAP discussion above entitled Mineral Properties and
Deferred Expenditures.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c) |  | In
November 2004, FASB issued SFAS 151, Inventory Costs. The Company
                    has determined that the adoption of SFAS 151 does not have an impact
on its                     results of operations or financial position.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|d) |  | In
December 2004, FASB issued SFAS 153, Exchanges of Non-monetary Assets
                     an amendment of Accounting Principles Board (APB)
Opinion No.                     29". The Company has determined that the adoption of
SFAS 153 does not have                     an impact on its results of operations and
financial position.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|e) |  | In
December 2004, FASB issued SFAS 123R(revised 2004), Share-Based
                    Payment. SFAS 123R establishes standards for the accounting for
                    transactions in which an entity exchanges its equity instruments for
goods or                     services. It also addresses transactions in which an entity
incurs liabilities                     in exchange for goods or services that are based
on the fair value of the                     entitys equity instruments or that may
be settled by the issuance of those                     equity instruments. SFAS 123R
focuses primarily on accounting for transactions                     in which an entity
obtains employee services in share-based payment                     transactions. SFAS
123R requires a public entity to measure the cost of employee
                    services received in exchange for an award of equity instruments
based on the                     grant-date fair value of the award (with limited
exceptions). That cost will be                     recognized over the period during
which an employee is required to provide                     service in exchange for the
award  the requisite service period (usually                     the vesting
period). SFAS 123R requires that the compensation cost relating to
                    share-based payment transactions be recognized in financial
statements. That                     cost will be measured based on the fair value of the
equity or liability                     instruments issued.  The adoption of the provisions
of SFAS 123R for the year ending January 31, 2006 had no material effect on the Companys
financial statements.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|f) |  | In
May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
                    Corrections (SFAS No. 154) which replaces APB No.
20,                     Accounting Changes (APB No. 20) and SFAS
No. 3,                     Reporting Accounting Changes in Interim Statements.
SFAS No. 154                     requires retrospective applications for changes in
accounting principle, unless                     it is impracticable to determine either
the cumulative effect or the                     period-specific effects of the change.
SFAS No. 154 brings forward without                     change the guidance in APB No. 20
for reporting the correction of an error in                     previously issued
financial statements and changes in accounting estimate.
SFAS                     No. 154 is effective for accounting changes and corrections of
errors made in                     fiscal years beginning after December 31, 2005. The
Company has not adopted SFAS                     No. 154 as of the date of the
consolidated financial statements and has not                     determined what effect,
if any, its adoption will have on the Companys                     consolidated
financial position or results of operations or cash flows.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|g) |  | In
February 2006, the FASB issued SFAS No. 155, Accounting for Certain
                    Hybrid Financial Instruments-an amendment of FASB Statements No. 133
and                     140"(SFAS No. 155). SFAS No. 155 applies to all
financial                     instruments acquired or issued after the beginning of the
first fiscal year that                     begins after September 15, 2006. The impact of
SFAS No. 155 will depend on the                     nature of the derivative instruments
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-22

---

# Brazauro Resources
Corporation
(formerly Jaguar Resources Corporation)

# Notes to Consolidated
Financial Statements 
(In Canadian Dollars)

# January 31, 2006, 2005
and 2004

|15. |  | Differences
Between Canadian and United States Generally Accepted Accounting Principles
(GAAP) (continued)
|--- |  | ------------------------------------------------------------------------------------------------------------

| | entered
into after the effective date. The                     Company has not determined the
effect, if any, the adoption of SFAS No. 155 will                     have on its
financial position, results of operations or cash flows.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|h) |  | In
March 2005, FASB issued Interpretation No. 47, Accounting for           Conditional
Asset Retirement Obligations (FIN 47), which           states that a
company must recognize a liability for the fair value of a legal           obligation to
perform asset retirement activities that are conditional on a           future event when
the amount can be reasonably estimated. FIN 47 clarifies that           conditional
obligations meet the definition of an asset retirement obligation in           SFAS 143,
Accounting for Asset Retirement Obligations, and therefore           should
be recognized if their fair value is reasonably estimable. FIN 47 is           effective
no later than the end of the first fiscal year ending after December           15, 2005.
The adoption of the provisions of FIN 47 for the year ending January           31, 2006
had no material effect on the Companys financial statements.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|i) |  | In
March 2005, EITF issued 04-6, Accounting for Stripping Costs in the
          Mining Industry, stating that post-production stripping costs are a component
of           mineral inventory costs subject to the provisions of the American Institute
of           Certified Public Accountants Accounting Research Bulletin No. 43,
          Restatement and Revision of Accounting Research Bulletins, Chapter 4,
          Inventory Pricing, (ARB No. 43). Based upon this
          statement, postproduction-stripping costs are considered as costs of the
          extracted minerals under a full absorption costing system and are recognized as
          a component of inventory to be recognized in costs of mineral sales in the same
          period as the revenue from the sale of the inventory. In addition,
          capitalization of such costs would be appropriate only to the extent inventory
          exists at the end of a reporting period. The provisions will be effective for
          financial statements issued for the first reporting period in fiscal years
          beginning after December 15, 2005, with early adoption permitted. The Company
          has determined that the adoption of EITF Issue 04-6 does not have an impact on
          its results of operations or financial position since the Company has not yet
          realized any revenues from mining operations.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-23