**FIRST POINT MINERALS CORP.**



**Consolidated Financial Statements**



December 31, 2005

*and*

December 31, 2004



*(Stated in Canadian Dollars)*





---

**D E  V I S S E R   G R A Y**
  CHARTERED  ACCOUNTANTS

401 - 905    West Pender Street
  Vancouver, BC Canada 
  V6C 1L6

Tel: (604) 687-5447
  Fax: (604) 687-6737



**AUDITORS’ REPORT**

To  the Shareholders of First Point Minerals Corp.,

We  have audited the consolidated balance sheets of First Point Minerals Corp. as  at December 31, 2005 and 2004 and the consolidated statements of operations and  deficit and cash flows, and the consolidated schedule of mineral property costs  for each of the years in the three year period ended December 31, 2005.  These financial statements are the  responsibility of the Company’s management.   Our responsibility is to express an opinion on these financial  statements based on our audits.

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

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

### 

### “De Visser Gray”

**CHARTERED ACCOUNTANTS**

Vancouver, British Columbia 
  April  28, 2006



COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA – U.S. REPORTING CONFLICT

In the United States,  reporting standards for auditors require the addition of an explanatory  paragraph (following the opinion paragraph) when the financial statements are  affected by significant uncertainties and contingencies such as those referred  to in note 1 to these financial statements.   Although we conducted our audits in accordance with both Canadian  generally accepted auditing standards and with the  standards of the Public Company Accounting Oversight Board (United States), our report to the  shareholders dated April 28, 2006 is expressed in accordance with Canadian  reporting standards which do not require a reference to such matters when the  uncertainties are disclosed in the financial statements.

### 

### “De Visser Gray”

**CHARTERED ACCOUNTANTS**

Vancouver, British Columbia 
  April 28, 2006



---

**FIRST POINT MINERALS CORP.**
  Consolidated Balance Sheets 
  As at December 31, *(Stated in Canadian Dollars)*

|                                           | 2005        |  | 2004       
|------------------------------------------ | ----------- |  | -----------
|                                           | $           |  | $          
|**A S S E T S******                       
|Current                                    |             |  |            
|Cash                                       | 167,326     |  | 57,392     
|Amounts receivable                         | 52,732      |  | 70,210     
|Prepaid expenses                           | 25,803      |  | 32,648     
|                                           |             |  |            
|                                           | 245,861     |  | 160,250    
|                                           |             |  |            
|Funds in trust (note 9)                    | -           |  | 61,866     
|Equipment (note 3)                         | 23,913      |  | 28,220     
|Investment (note 4)                        | 871,374     |  | 871,374    
|Mineral property costs (note 5)            | 3,889,773   |  | 3,373,494  
|                                           |             |  |            
|                                           | 5,030,921   |  | 4,495,204  
|                                           |             |  |            
|                                           |             |  |            
|**L I A B I LI T I E S**                  
|Current                                    |             |  |            
|Accounts payable and accrued liabilities   | 120,180     |  | 36,013     
|                                           |             |  |            
|                                           |             |  |            
|**S H A R E H O L D E R S’   E Q U I T Y**
|                                           |             |  |            
|Share capital (note 6 (a))                 | 11,023,104  |  | 10,251,550 
|Contributed surplus (note 6 (c))           | 383,520     |  | 318,028    
|Deficit                                    | (6,495,883) |  | (6,110,387)
|                                           |             |  |            
|                                           | 4,910,741   |  | 4,459,191  
|                                           |             |  |            
|Continuing operations (note 1)             | 5,030,921   |  | 4,495,204  
|                                           |             |  |            



|Approved  by the Board of Directors:
|------------------------------------
|                                    
|*“Peter M.D. Bradshaw”*             
|Peter  M.D. Bradshaw, Director      



****

See notes to the  consolidated financial statements









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**FIRST POINT MINERALS CORP.** 
  Consolidated  Statements of Operations and Deficit
  For  the Years Ended December 31,*(Stated in Canadian Dollars)*

|                                                            | 2005           |  | 2004        |  | 2003        
|----------------------------------------------------------- | -------------- |  | ----------- |  | ------------
|                                                            | $              |  | $           |  | $           
|**Expenses**                                                |                |  |             |  |             
|Accounting and audit                                        | 14,424         |  | 16,232      |  | 16,516      
|Amortization                                                | 7,235          |  | 8,816       |  | 7,996       
|Communication                                               | 3,010          |  | 4,378       |  | 4,299       
|Foreign exchange loss (gain)                                | (901)          |  | 15,138      |  | 13,479      
|General exploration                                         | 147,466        |  | 328,740     |  | 363,461     
|Insurance                                                   | 2,114          |  | 3,014       |  | 2,737       
|Management fees                                             | 46,075         |  | 90,492      |  | 30,800      
|Office and administration                                   | 10,681         |  | 10,412      |  | 5,941       
|Rent                                                        | 22,984         |  | 22,453      |  | 17,014      
|Stock-based compensation                                    | 61,399         |  | 39,331      |  | 278,697     
|Travel and promotion                                        | 33,265         |  | 71,717      |  | 56,000      
|Trust and filing fees                                       | 18,960         |  | 36,307      |  | 30,024      
|Wages                                                       | 46,531         |  | 87,910      |  | 38,969      
|                                                            |                |  |             |  |             
|**Net loss before other    items**                          | (413,243)      |  | (734,940)   |  | (865,933)   
|****                                                        |                |  |             |  |             
|**Other items:**                                            |                |  |             |  |             
|Interest                                                    | 2,705          |  | 20,887      |  | 15,837      
|Other Income                                                | 25,042         |  | -           |  | -           
|Loss on disposition of mineral property interest            | -              |  | (361,186)   |  | (20,200)    
|****                                                        |                |  |             |  |             
|**Net loss for the year**                                   | (385,496)      |  | (1,075,239) |  | (870,296)   
|**Deficit - beginning of the    year**                      | (6,110,387)    |  | (5,035,148) |  | (4,164,852) 
|**Deficit - end of the year**                               | (6,495,883)    |  | (6,110,387) |  | (5,035,148) 
|****                                                        |                |  |             |  |             
|**Loss per share (note 7)**                                 | $       (0.01) |  | $   (0.03)  |  | $     (0.04)
|**Weighted average number of    common shares outstanding** | 34,688,017     |  | 31,447,647  |  | 24,114,544  
|****                                                        |                |  |             |  |             









See notes to the consolidated financial  statements





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**FIRST POINT MINERALS CORP.**
Consolidated Statements of Cash Flows
For the Years Ended December 31,*(Stated in Canadian Dollars)*

|                                                   | 2005      |  | 2004        |  | 2003     
|-------------------------------------------------- | --------- |  | ----------- |  | ---------
|                                                   | $         |  | $           |  | $        
|**Cash provided by (used    for):**                |           |  |             |  |          
|                                                   |           |  |             |  |          
|**Operating activities**                           |           |  |             |  |          
|Net loss for the year                              | (385,496) |  | (1,075,239) |  | (870,296)
|Add items not involving cash:                      |           |  |             |  |          
|Amortization                                       | 7,235     |  | 8,816       |  | 7,996    
|Write-off of mineral    property costs             | -         |  | 361,186     |  | 20,200   
|Interest earned on funds    in trust               | (357)     |  | (620)       |  | (1,395)  
|Stock-based compensation                           | 61,399    |  | 39,331      |  | 278,697  
|                                                   |           |  |             |  |          
|                                                   | (317,219) |  | (666,526)   |  | (564,798)
|Changes in non-cash working    capital components: |           |  |             |  |          
|Accounts receivable                                | 17,478    |  | (47,172)    |  | 28,713   
|Prepaid expenses                                   | 6,845     |  | 923         |  | 736      
|Accounts payable and    accrued liabilities        | 84,167    |  | 19,229      |  | 9,687    
|                                                   |           |  |             |  |          
|                                                   | (208,729) |  | (693,546)   |  | (525,662)
|**Financing activities***                          |           |  |             |  |          
|Release of trust funds                             | 62,223    |  | -           |  | -        
|Cash proceeds from shares    issued                | 801,750   |  | 27,000      |  | 2,148,710
|Share issue costs                                  | (26,103)  |  | (586)       |  | (64,500) 
|                                                   | 837,870   |  | 26,414      |  | 2,084,210
|**Investing activities***                          |           |  |             |  |          
|Cash paid for shares of Aquila                     | -         |  | (88,623)    |  | -        
|Mineral property costs                             | (516,279) |  | (1,050,257) |  | (625,687)
|Purchase of equipment                              | (2,928)   |  | (5,950)     |  | (9,840)  
|                                                   |           |  |             |  |          
|                                                   | (519,207) |  | (1,144,830) |  | (635,527)
|                                                   |           |  |             |  |          
|**Net cash provided (used)    during the year**    | 109,934   |  | (1,811,962) |  | 923,021  
|**Cash - beginning of the    year**                | 57,392    |  | 1,869,354   |  | 946,333  
|****                                               |           |  |             |  |          
|**Cash - end of the year**                         | 167,326   |  | 57,392      |  | 1,869,354



****Supplemental  disclosure of non-cash financing and investing activities:***

- *During the current  year, the Company granted 141,657 agent’s warrants valued at $4,093 in  connection with two private placements completed during the year.  Refer to note 6.*

- *During the current year, the Company issued Nil (2004 –560,000, 2003 -15,000) common shares at an aggregate value of $Nil       (2004 - $110,900, 2003 - $4,800) in connection with mineral property acquisition agreements.*

- *During 2004, the Company received shares of a private  company at a deemed value of $775,450 in exchange for the Cedros property. Refer to note 5.*

- *During 2004, the Company received shares in a private company in the amount of $7,301 as settlement of a portion of the outstanding  balance due from the private company. Refer also to notes 4 and 5.*

See  notes to the consolidated financial statements



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**FIRST POINT MINERALS  CORPORATION** 
Consolidated Schedule of Mineral Property Costs*(Stated in Canadian Dollars)*

|                                 | Balance,
    December 31, 2003 |  | Expenditures |  | Disposition |  | Balance 
    December 31, 2004 |  | Expenditures |  | Balance,
    December 31, 2005
|-------------------------------- | ------------------------------ |  | ------------ |  | ----------- |  | ------------------------------ |  | ------------ |  | ------------------------------
|****                             | $                              |  | $            |  | $           |  | $                              |  | $            |  | $                             
|**HONDURAS**                     |                                |  |              |  |             |  |                                |  |              |  |                               
|**Cedros    Property**           |                                |  |              |  |             |  |                                |  |              |  |                               
|Acquisition                      | 136,953                        |  | -            |  | (136,953)   |  | -                              |  | -            |  | -                             
|Exploration                      |                                |  |              |  |             |  |                                |  |              |  |                               
|Assays                           | 1,409                          |  | -            |  | (1,409)     |  | -                              |  | -            |  | -                             
|Field office expenses            | 66,096                         |  | -            |  | (66,096)    |  | -                              |  | -            |  | -                             
|Geological & geophysical         | 362,031                        |  | -            |  | (362,031)   |  | -                              |  | -            |  | -                             
|Legal & accounting fees          | 3,404                          |  | -            |  | (3,404)     |  | -                              |  | -            |  | -                             
|Property taxes                   | 1,073                          |  | -            |  | (1,073)     |  | -                              |  | -            |  | -                             
|Travel & accommodation           | 61,226                         |  | -            |  | (61,226)    |  | -                              |  | -            |  | -                             
|Wages                            | 504,444                        |  | -            |  | (504,444)   |  | -                              |  | -            |  | -                             
|                                 | 1,136,636                      |  | -            |  | (1,136,636) |  | -                              |  | -            |  | -                             
|Acquisition                      | 164,661                        |  | 134,520      |  | -           |  | 299,181                        |  | 12,802       |  | 311,983                       
|Exploration                      |                                |  |              |  |             |  |                                |  |              |  |                               
|Assays                           | 89,760                         |  | -            |  | -           |  | 89,760                         |  | -            |  | 89,760                        
|Drilling and trenching           | 557,983                        |  | -            |  | -           |  | 557,983                        |  | -            |  | 557,983                       
|Field office expenses            | 166,285                        |  | 12,934       |  | -           |  | 179,219                        |  | 10,120       |  | 189,339                       
|Geological & geophysical         | 155,516                        |  | -            |  | -           |  | 155,516                        |  | -            |  | 155,516                       
|Environmental &    reclamation   | 724                            |  | 1,302        |  | -           |  | 2,026                          |  | -            |  | 2,026                         
|Legal & accounting fees          | 269                            |  | 3,208        |  | -           |  | 3,477                          |  | 2,186        |  | 5,663                         
|Property taxes                   | 1,582                          |  | 4,698        |  | -           |  | 6,280                          |  | 986          |  | 7,266                         
|Travel & accommodation           | 109,684                        |  | 1,435        |  | -           |  | 111,119                        |  | 1,115        |  | 112,234                       
|Wages                            | 727,130                        |  | 25,590       |  | -           |  | 752,720                        |  | 6,396        |  | 759,116                       
|                                 | 1,973,594                      |  | 183,687      |  | -           |  | 2,157,281                      |  | 33,605       |  | 2,190,886                     
|****                             |                                |  |              |  |             |  |                                |  |              |  |                               
|**Honduras****total**            | 3,110,230                      |  | 183,687      |  | (1,136,636) |  | 2,157,281                      |  | 33,605       |  | 2,190,886                     
|**NICARAGUA******                |                                |  |              |  |             |  |                                |  |              |  |                               
|**Rio Luna**                     |                                |  |              |  |             |  |                                |  |              |  |                               
|Acquisition                      | 31,425                         |  | 21,155       |  | -           |  | 52,580                         |  | -            |  | 52,580                        
|Exploration                      |                                |  |              |  |             |  |                                |  |              |  |                               
|Assays                           | 15,576                         |  | 30,745       |  | -           |  | 46,321                         |  | 31,355       |  | 77,676                        
|Drilling and trenching           | 9,631                          |  | 434,401      |  | -           |  | 444,032                        |  | -            |  | 444,032                       
|Field office expenses            | 55,455                         |  | 218,767      |  | -           |  | 274,222                        |  | 156,436      |  | 430,658                       
|Geological & geophysical         | 26,816                         |  | 44,589       |  | -           |  | 71,405                         |  | 7,884        |  | 79,289                        
|Environmental &    reclamation   | 8,729                          |  | 34           |  | -           |  | 8,763                          |  | -            |  | 8,763                         
|Legal & accounting fees          | 766                            |  | 4,930        |  | -           |  | 5,696                          |  | 21,424       |  | 27,120                        
|Property tax                     | 8,431                          |  | 10,476       |  | -           |  | 18,907                         |  | 1,090        |  | 19,997                        
|Travel & accommodation           | 21,969                         |  | 32,805       |  | -           |  | 54,774                         |  | 20,040       |  | 74,814                        
|Wages                            | 59,945                         |  | 179,568      |  | -           |  | 239,513                        |  | 171,219      |  | 410,732                       
|****                             | 238,743                        |  | 977,470      |  | -           |  | 1,216,213                      |  | 409,448      |  | 1,625,661                     
|****                             |                                |  |              |  |             |  |                                |  |              |  |                               
|**Other**                        |                                |  |              |  |             |  |                                |  |              |  |                               
|Exploration                      |                                |  |              |  |             |  |                                |  |              |  |                               
|Assays                           | -                              |  | -            |  | -           |  | -                              |  | 4,339        |  | 4,339                         
|Field office expenses            | -                              |  | -            |  | -           |  | -                              |  | 13,394       |  | 13,394                        
|Legal & accounting fees          | -                              |  | -            |  | -           |  | -                              |  | 13,647       |  | 13,647                        
|Travel & accommodation           | -                              |  | -            |  | -           |  | -                              |  | 9            |  | 9                             
|Wages                            | -                              |  | -            |  | -           |  | -                              |  | 41,837       |  | 41,837                        
|****                             | -                              |  | -            |  | -           |  | -                              |  | 73,226       |  | 73,226                        
|****                             |                                |  |              |  |             |  |                                |  |              |  |                               
|**Nicaragua****total**           | 238,743                        |  | 977,470      |  | -           |  | 1,216,213                      |  | 482,674      |  | 1,698,887                     
|**Total mineral property costs** | 3,348,973                      |  | 1,161,157    |  | (1,136,636) |  | 3,373,494                      |  | 516,279      |  | 3,889,773                     



See  notes to the consolidated financial statements



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**FIRST POINT MINERALS CORP.**
Notes to the Consolidated Financial Statements
December 31, 2005 and 2004*(Stated in Canadian Dollars)*



**1.      NATURE AND CONTINUANCE OF OPERATIONS**

The Company is incorporated under the *Business Corporations Act* (Alberta)  and is involved in the acquisition and exploration of property interests that  are considered potential sites of economic mineralization.  At the date of the financial statements, the  Company has not identified a known body of commercial grade ore on any of its  properties and the ability of the Company to recover the costs it has incurred  to date on these properties is dependent upon the Company being able to identify  a commercial ore body, to finance its exploration and development costs and to  resolve any environmental, regulatory, or other constraints which may hinder  the successful development of the property.

The Company does not generate cash flow from operations to fund its  exploration activities and has therefore relied principally upon the issuance  of securities for financing.  The Company  intends to continue relying upon the issuance of securities to finance its operations  and exploration activities to the extent such instruments are issuable under  terms acceptable to the Company.   Accordingly, the Company’s financial statements are presented on a going  concern basis, which assumes that the Company will continue to realize its  assets and discharge its liabilities in the normal course of operations.  If future financing is unavailable, the  Company may not be able to meet its ongoing obligations, in which case the  realizable values of its assets may decline materially from current estimates.



**2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**Basis of Accounting**

These consolidated financial statements are prepared in accordance with  generally accepted accounting principles (“GAAP”) in Canada.  As described in note 12, these principles  differ in certain respects from principles and practices generally accepted in  the United States.  Summarized below are those policies  considered particularly significant to the Company.  References to the Company included herein are  inclusive of the Canadian parent company and its consolidated subsidiaries.

**Deferred Mineral Property Costs**

Property acquisition costs and related direct exploration costs are  deferred until the properties are placed into production, sold or  abandoned.  These deferred costs will be  amortized on the units-of-production basis over the estimated useful life of  the properties following the commencement of production or written-off if the  properties are sold, allowed to lapse, or abandoned.

Cost includes the cash consideration paid and the fair market value of  any common shares issued on the acquisition of mineral properties.  Properties acquired under option agreements,  whereby payments are made at the sole discretion of the Company, are recorded  in the accounts at such time as the payments are made.  The recorded cost of mineral claims and  deferred exploration and development costs represent costs incurred and are not  intended to reflect present or future values.

The Company reviews capitalized costs on its property interests on a  periodic, or annual, basis and will recognize an impairment in value based upon  current exploration results and upon management’s assessment of the future  probability of profitable revenues from the property or from the sale of the  property.  Management’s assessment of the  property’s estimated current fair market value may also be based upon a review  of other property transactions that have occurred in the same geographic area  as that of the property under review.

Administrative costs, other than for those that are charged to deferred  mineral property costs, are expensed as incurred.

**Equipment**

Equipment consist of office furniture and  equipment and computer equipment, which are recorded at cost and amortized on  the declining-balance basis at rates of 20% and 30% per annum, respectively.****

**Translation of  Foreign Currency**

The accounts of foreign operations are translated into  Canadian dollars as follows:  monetary  assets and liabilities at the rates of exchange prevailing at the balance sheet  dates; other assets and liabilities at applicable historical exchange rates;  revenues and expenses at the average rate of exchange for the year, except for  non-monetary expenses which are recorded at the rates used for the translation  of the related assets.  Foreign exchange  translation gains and losses are included in current operations.

**Share Capital**

Common shares issued for non-monetary consideration  are recorded at their fair market value based upon the lower of the closing  price of the Company’s shares on the TSX Venture Exchange on the date of the  agreement to issue the shares and the date of share issuance.

Costs incurred to issue common shares are deducted  from share capital.

**Use of Estimates**

The preparation of financial statements in conformity  with generally accepted accounting principles requires management to make  estimates and assumptions that affect the reported amounts of assets and  liabilities at the date of the financial statements and the reported amounts of  revenues and expenses during the reporting period. Significant areas requiring  the use of management estimates relate to the continuing viability of mineral  property interests and the determination of reclamation obligations and rates  for amortization. Actual results could differ from these estimates.

**Financial  Instruments**

The carrying amounts of the Company’s financial  instruments, consisting largely of cash, amounts receivable and accounts  payable, approximate fair market values because of the limited terms of these  instruments. Fair value estimates are made at each balance sheet date, based on  relevant market information and information about the financial instruments.  Depending on the nature of the financial instrument, these estimates can be  subjective in nature and involve uncertainties in significant matters of  judgement and, therefore, are inherently imprecise. Changes in assumptions  could further significantly affect these estimates.

**Asset Retirement  Obligations**

The Company recognizes a liability for an asset  retirement obligation when it is determinable and calculates the liability  based upon undiscounted future payments to be made.  A corresponding amount is added to the  carrying amount of the related long-lived asset, and this amount is  subsequently allocated to expense over its expected life.  Adjustments will also be made in subsequent  periods to changes on asset retirement obligations due to changes in  estimates.  As at December 31, 2005, the  Company does not have any asset retirement obligations.

**Retirement of  Long-Lived Assets**

Long-lived assets are assessed for impairment when  events and circumstances warrant, when the carrying amounts of the assets  exceeds its estimated undiscounted net cash flow from use or its fair value, at  which time the impairment is charged to earnings.

**Stock-Based  Compensation**

The Company records  compensation associated with stock options granted to consultants, directors  and employees using a fair value measured basis and records the expense as the  options vest with the recipients.

The adoption of this  accounting policy for stock-based compensation has been applied prospectively  to all stock options granted subsequent to January 1, 2003.  Prior to 2003, the Company  followed the policy of disclosing on a pro-forma basis only the effect on  operations of accounting for stock options granted to employees and directors  on a fair value basis.

The proceeds received by the Company on the exercise of options are  credited to share capital.

**Income Taxes**

The Company accounts for and measures future tax assets and  liabilities in accordance with the asset and liability method.

Under this  method, future tax assets and liabilities are recognized for the future tax  consequences attributable to differences between the financial statement  carrying amounts of existing assets and liabilities and their respective tax  bases. Future tax assets and liabilities are measured using the enacted or  substantively-enacted tax rates expected to apply to taxable income in the  years in which those temporary differences are expected to be recovered or  settled. The effect on future tax assets and liabilities of a change in tax  rates is recognized in income in the period that includes the date of enactment  or substantive enactment of the change. When the future realization of income  tax assets does not meet the test of being more likely than not to occur, a  valuation allowance in the amount of the potential future benefit is taken and  no net asset is recognized.  Assuming the  Company’s operations remain at the exploration stage, such an allowance will  continue to apply fully for the foreseeable future  to all potential income tax assets.   Accordingly, the Company’s accounting policy for future income taxes  currently has no effect on the financial statements of any of the fiscal years  presented.



**3.      EQUIPMENT**

|                                 | 2005                                     |                                | 2004  
|-------------------------------- | ---------------------------------------- | ------------------------------ | ------
|Cost
      $                     | Accumulated
        Amortization
      $ | Net Book
        Value
      $ |       
|Computer equipment               | 37,548                                   | (30,511)                       | 7,037 
|Office furniture 
and  equipment | 77,082                                   | (60,206)                       | 16,876
|114,630                          | (90,717)                                 | 23,913                         |       



**4.      INVESTMENT**

The Company entered into an agreement (“the Shareholder’s Agreement”)  effective January 16, 2004 with a Michigan limited liability company, Menominee  River Exploration Co., LLC (“MREC”) and seven individuals, being the owners of  MREC (the “Initial US Investors”).   Pursuant to the terms of the Shareholder’s Agreement, MREC and the  Company agreed to vend their respective interests in the Back Forty project in Michigan and the Cedros Property in Honduras to a new company incorporated under the  provisions of the *Canada Business Corporations  Act*, Aquila Resources Corp. (“Aquila”).  In addition, First Point agreed to provide  management services to assist Aquila in  completing an Initial Public Offering and obtaining a listing on a Canadian  stock exchange.

In return for the foregoing undertakings, Aquila  agreed to issue 2,215,569 of its common shares to the Company.  A special escrow was established to hold  1,000,000 of the Aquila common shares pending the Honduran government recording  the transfer of title to the Cedros property to Aquila.  Concurrently, the Company also purchased  253,209 common shares of Aquila at $0.35 per share and the Initial US Investors  purchased 889,649 common shares of Aquila at  the same price.

During 2004 and 2005, Aquila completed several additional private placements, a  rights offering and issued shares to several creditors in settlement of  indebtedness (including 37,795 shares to the Company to settle indebtedness of  $7,301).  As a result of the foregoing  transactions, at December 31, 2005, the Company owned or was entitled to  receive an aggregate of 2,506,573 shares of Aquila, representing an ownership  interest in Aquila of approximately 15.3% .



**5.      MINERAL PROPERTIES**

**HONDURAS******

**Cedros Property**

At December 31, 2004, the Company held an option to acquire  a 100% interest in three mineral concessions and exploration permits in the  Cedros region.  During 2005, the Company  and the party (“the Optionor”) that had optioned these concessions to the  Company entered into an arrangement whereby the Optionor would surrender his  concessions to the Honduran government and the Company would immediately make  application for a new concession covering those portions of the surrendered  concessions considered to contain the mineralized zones.  The Optionor will receive the share issuances  and a royalty interest on production from the new concession to the same extent  as if the three original concessions had not been surrendered.  The Company’s obligations in this regard will  be to issue 225,000 shares when the government grants the Company the new  concession, and to pay a 2% Net Smelter Return (“NSR”) royalty on production,  which royalty can be purchased by the Company at any time for US$1,000,000.

Through December 31, 2004, the Company’s cumulative  expenditures on the Cedros property were $1,136,636.   As part of the Shareholders Agreement (see  note 4), the Company agreed to vend its interest in the Cedros  property to Aquila and to provide management  services to Aquila in return for 2,215,569 Aquila common shares valued at  $775,450 ($0.35 per share) and, accordingly, recorded a loss of $361,186 in  2004 on the disposal of the Cedros property.

**Cacamuya  Property**

The Company acquired an option in July 1999 to  purchase a 60% interest in the Cacamuya Property in southern Honduras from  Minera Battle Mountain Gold Company ("BMG").  BMG has subsequently become a wholly-owned  subsidiary of Newmont Gold Company.

To earn the 60% interest, the Company was required to  incur US$1,000,000 in exploration expenditures (US $1,135,625 incurred as at  December 31, 2004) and to issue 700,000 common shares, all of which had been  issued as at December 31, 2004.  The  Company now holds the 60% interest, subject to a 0.6% NSR interest that BMG  retained in the property.

The  Company has an option to earn the remaining 40% interest in this property from  a wholly-owned Honduran subsidiary of Breakwater Resources Ltd. by issuing  500,000 common shares at such time as the Honduran government enacts the  regulations to the new Honduran mining code and conveys title to the property  to the Company. Breakwater Resources Ltd. will retain a sliding scale royalty  of 0.4% of the gross sale proceeds starting at US$325 per ounce of gold and  rising to a maximum of 1.2% of the gross sale proceeds at US$400 per ounce of  gold for all gold production, and 0.4% of the gross sale proceeds starting at  US$5.25 per ounce of silver and rising to a maximum of 1.2% of the gross sale  proceeds at US$7.00 per ounce of silver for all silver production.

**NICARAGUA**

**Rio Luna Property**

In December 2002, the Company entered into an option agreement to  acquire a 100% interest in the Rio Luna Property in Nicaragua  from Novaterra Resources Inc. (“NRI”) and Inversiones de Terra Nova S.A.  (“Intersa”), a subsidiary of NRI.

To earn its interest, the Company was required to make a US$7,500  cash option payment to Intersa and incur US$10,000 in exploration and  development expenditures prior to the first anniversary of the option  agreement.  To keep the option in good  standing the Company was also required to make a cash payment to NRI of  US$7,500 and issue to NRI 15,000 common shares prior to or on the first  anniversary date of the agreement, pay a further US$10,000 prior to or on the  second anniversary date, and issue an additional 60,000 common shares of the  Company prior to or on the third anniversary date.

The exploration expenditure commitment having been met and all of  the cash payments and share issuances having been completed by December 31,  2004, the Company now holds a 100% interest in the Rio Luna property.

**Other Properties (Boaco  Viejo and Mesas de Cuapa)**

During 2005, the Nicaraguan government granted the Boaco Viejo  concession to the Company.  The Company  has filed an application for another concession (Mesas de Cuapa) in the same  area.  The expenditures on these two  properties in 2005 amounted to $73,226.

**EL SALVADOR****, HONDURAS, NICARAGUA**

**Exploration and Property  Option Agreement**

In February 2003, the Company entered into an exploration and  property option agreement with BHP Billiton World Exploration Inc. (“BHP  Billiton”) whereby the parties agreed to conduct a regional reconnaissance  exploration program in El Salvador,  Honduras and Nicaragua to  explore for copper-gold deposits, with the Company as operator of the  program.  The agreement provided, *inter alia*, that any copper-gold deposit  identified pursuant under the program, unless the copper constitutes more than  25% of the economic value of the deposit, would belong 100% to the Company, and  BHP Billiton would have no interest in such deposit.

The program was initiated in May 2003 and was  terminated by BHP Billiton, effective March 31, 2005.



**6.      SHARE CAPITAL**

a)       Authorized  share capital consists of an unlimited number of common shares without par  value and an unlimited  number of  first and second preferred shares.



|                                   | Number    of Common Shares |  | Capital
      Stock
    $ |  | Contributed
      Surplus
    $
|---------------------------------- | -------------------------- |  | ------------------------- |  | -------------------------------
|**Common shares:**                 |                            |  |                           |  |                                
|**Issued    at December 31, 2003** | 31,063,455                 |  | 10,114,236                |  | 278,697                        
|                                   |                            |  |                           |  |                                
|Warrants exercised                 | 90,000                     |  | 27,000                    |  | -                              
|Mineral property acquisition       | 560,000                    |  | 110,900                   |  | -                              
|Share issue costs                  | -                          |  | (586)                     |  |                                
|Stock-based compensation expense   | -                          |  | -                         |  | 39,331                         
|                                   |                            |  |                           |  |                                
|                                   | 650,000                    |  | 137,314                   |  | 39,331                         
|****                               |                            |  |                           |  |                                
|**Issued    at December 31, 2004** | 31,713,455                 |  | 10,251,550                |  | 318,028                        
|                                   |                            |  |                           |  |                                
|Private placements                 | 5,595,001                  |  | 801,750                   |  | -                              
|Share issue costs                  | -                          |  | (26,103)                  |  | -                              
|Finders’ fees                      | -                          |  | (4,093)                   |  | 4,093                          
|Stock-based compensation expense   | -                          |  | -                         |  | 61,399                         
|                                   |                            |  |                           |  |                                
|                                   | 5,595,001                  |  | 771,554                   |  | 65,492                         
|****                               |                            |  |                           |  |                                
|**Issued    at December 31, 2005** | 37,308,456                 |  | 11,023,104                |  | 383,520                        
|                                   |                            |  |                           |  |                                



b)      Summary  of warrants outstanding at December 31, 2005:

|**Type**             | **Number    Outstanding** | **** | **Exercise    Price
    $** | **** | **Expiry
    Date** 
|-------------------- | ------------------------- | ---- | --------------------------- | ---- | --------------------
|Finders”    warrants | 54,167                    |      | 0.20                        |      | April 28, 2007      
|                     | 87,500                    |      | 0.20                        |      | December    20, 2007
|                     | 141,667                   |      |                             |      |                     
|                     |                           |      |                             |      |                     
|Warrants             | 2,172,499                 |      | 0.20                        |      | April 28, 2007      
|                     | 625,000                   |      | 0.20                        |      | December 20, 2007   
|                     | 2,797,499                 |      |                             |      |                     



The value of $4,093 represented by  the warrants issued as finders’ fees during the year ended December 31, 2005  has been measured on a fair value basis utilizing the Black-Scholes option  pricing model, with the following assumptions:



|****                            | **2005**   
|------------------------------- | -----------
|**Description**                 | **2nd Qtr**
|                                |            
|Expected dividend yield         | 0%         
|Risk-free interest rate         | 3.5%       
|Expected stock price volatility | 87%        
|Expected life of warrants       | 2 years    
|Fair value of warrants          | $0.028     



c)      Stock  Options

Options to purchase common shares  have been granted to directors, employees and consultants of the Company at  exercise prices determined by their market value on the date of the grant.



|****                           |  | Weighted-Average Exercise Price |  | Number
      of Options |  | Weighted-Average Contractual    Remaining Life
|------------------------------ |  | ------------------------------- |  | ----------------------- |  | ----------------------------------------------
|                               |  |                                 |  |                         |  |                                               
|**Balance, December 31, 2003** |  | 0.40                            |  | 3,034,000               |  | 2.80                                          
|****                           |  |                                 |  |                         |  |                                               
|Granted                        |  | 0.22                            |  | 235,000                 |  |                                               
|Cancelled or expired           |  | 0.42                            |  | (989,000)               |  |                                               
|                               |  |                                 |  |                         |  |                                               
|**Balance, December 31, 2004** |  | 0.375                           |  | 2,280,000               |  | 2.87                                          
|****                           |  |                                 |  |                         |  |                                               
|Granted                        |  | 0.15                            |  | 1,295,000               |  |                                               
|Cancelled or expired           |  | 0.465                           |  | (370,000)               |  |                                               
|                               |  |                                 |  |                         |  |                                               
|**Balance, December 31, 2005** |  | 0.274                           |  | 3,205,000               |  | 3.23                                          



Summary of stock  options outstanding at December 31, 2005:

|Number Outstanding |  | Exercise Price
    $ |  | Expiry
    Date     
|------------------ |  | -------------------- |  | --------------------
|75,000             |  | 0.19                 |  | January 16, 2007    
|300,000            |  | 0.20                 |  | January    22, 2007 
|50,000             |  | 0.53                 |  | June    4, 2007     
|450,000            |  | 0.55                 |  | June    27, 2007    
|150,000            |  | 0.34                 |  | November    4, 2008 
|710,000            |  | 0.35                 |  | December    12, 2008
|175,000            |  | 0.20                 |  | April 15, 2009      
|1,295,000          |  | 0.15                 |  | October     26, 2009
|                   |  |                      |  |                     
|3,205,000          |  |                      |  |                     



The fair value of options reported  as compensation expense in the current year has been estimated using the  Black-Scholes Option Pricing Model and the following assumptions:

|****                            | **2004**    | **2005**   
|------------------------------- | ----------- | -----------
|**Description**                 | **1st Qtr** | **2nd Qtr**
|                                |             |            
|Expected dividend yield         | 0.0%        | 0.0%       
|Risk free interest rate         | 3.64%       | 3.78%      
|Expected stock price volatility | 132%        | 124%       
|Expected life of options        | 5 years     | 5 years    
|Vesting per quarter             | 25%         | 100%       

Based on the foregoing, stock-based  compensation expense of $61,399 was recorded during the current year (2004 -  $39,331).

Option pricing models require the  input of highly subjective assumptions, particularly as to the expected price  volatility of the stock.  Changes in  these assumptions can materially affect the fair value estimate and therefore it  is management’s view that the existing models do not necessarily provide a  single reliable measure of the fair value of the Company’s stock option grants.



**7.      LOSS PER SHARE**

Loss per share has been calculated using the  weighted-average number of common shares outstanding during the year.  Diluted loss per share has not been  calculated as it is anti-dilutive.



**8.      RELATED PARTY TRANSACTIONS**

During the year, the Company paid a private company  controlled by an officer an aggregate of $46,075  (2004 - $86,492) for administrative services.

All year-end balances are included within accounts payable and accrued liabilities  in these financial statements.



**9.      FUNDS IN TRUST******

In a previous year, the Company established a trust  account of which an officer would become the beneficiary under certain  conditions relating to a possible future loss of his employment with the  Company.  Effective January 1, 2005, the  officer agreed to accept a distribution of $9,000 per month from the trust as a  portion of his monthly salary, which arrangement continued until all funds held  in trust had been disbursed, and the trust was then wound up.



**10.     LEASE OBLIGATION**

The Company’s lease on its existing premises will expire on May 31,  2007.  The aggregate annual lease  obligation for the combined space is approximately as follows:

|**2006** | **2007**
|-------- | --------
|         |         
|$44,000  | $18,300 



**11.     INCOME TAXES**

The reconciliation of income tax provision computed at statutory  rates to the reported income tax provision is as follows:

|                                                                      | 2005      |  | 2004       
|--------------------------------------------------------------------- | --------- |  | -----------
|                                                                      | $         |  | $          
|Loss before income taxes for accounting purposes                      | (385,496) |  | (1,075,239)
|Adjustments for differences between accounting and    taxable income: |           |  |            
|Amortization                                                          | 7,235     |  | 8,816      
|Meals and entertainment                                               | 491       |  | 2          
|Stock-based compensation                                              | 61,399    |  | 39,331     
|Resource property costs written-off                                   | -         |  | 361,186    
|Unrealized foreign exchange (gains) losses                            | (901)     |  | 15,138     
|Share issue costs amortized over 5 years                              | (37,658)  |  | (85,627)   
|Consolidated income (loss) for tax purposes                           | (354,930) |  | (736,393)  
|Tax rate                                                              | 35.12%    |  | 35.12%     
|Expected tax expense (recovery) for the year                          | (124,652) |  | (258,621)  
|Reductions in tax (recovery) due to:                                  |           |  |            
|Valuation allowance                                                   | 124,652   |  | 258,621    
|Tax expense (recovery) for the year                                   | -         |  | -          



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 at December 31, 2005 are as follows:

|                                           | 2005      |  | 2004     
|------------------------------------------ | --------- |  | ---------
|                                           | $         |  | $        
|Non-capital loss carry-forwards            | 1,020,587 |  | 948,240  
|Resource property exploration expenditures | (619,425) |  | (438,108)
|Capital assets                             | 30,517    |  | 27,976   
|                                           | 431,679   |  | 538,108  
|Valuation allowance                        | (431,679) |  | (538,108)
|                                           | -         |  | -        

The Company has aggregate non-capital losses of approximately $2.9  million and $2.1 million in deductions in Honduras  and Nicaragua  available to reduce taxable income in future years, as necessary. The future  tax benefits, if any, resulting from the application of these losses have not  been reflected in these financial statements as it cannot be considered likely  that these amounts will be utilized.****



**12.     DIFFERENCES BETWEEN CANADIAN AND UNITED  STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)**

Under Canadian  GAAP applicable to junior mining exploration companies, mineral exploration  expenditures are deferred on prospective properties until such time as it is  determined that further exploration is not warranted, at which time the  property costs are written-off.  Under  U.S. GAAP, all exploration expenditures are expensed until an independent  feasibility study has determined that the property is capable of economic  commercial production. The following items (a) to (f) provide a summary of the  impact on these financial statements resulting from the application of U.S. accounting  principles to deferred property costs.

|                                                                                    | December 31,
|----------------------------------------------------------------------------------- | ------------
|                                                                                    | 2005        
|                                                                                    | $           
|a)  **Assets**                                                                      |             
|**Deferred Property Costs**                                                         |             
|Deferred    property costs following Canadian GAAP                                  | 3,889,773   
|Less    deferred property costs                                                     | (3,889,773) 
|Deferred    property costs following U.S. GAAP                                      | -           
|                                                                                    |             
|b)  **Operations**                                                                  |             
|Net loss    following Canadian GAAP                                                 | (385,496)   
|Deferred property costs    expensed under  U.S. GAAP                                | (516,279)   
|Deferred property costs    written-off under Canadian GAAP                          | -           
|Less: Acquisition of    investment under U.S. GAAP                                  | -           
|Net loss under U.S. GAAP                                                            | (901,775)   
|                                                                                    |             
|c)  **Deficit**                                                                     |             
|Closing deficit under Canadian GAAP                                                 | (6,495,883) 
|Adjustment to deficit for deferred    property costs written-off under    U.S. GAAP | (3,889,773) 
|Closing deficit under U.S. GAAP                                                     | (10,385,656)
|                                                                                    |             
|d)**Cash    Flows - Operating Activities**                                          |             
|Cash applied to operations under    Canadian GAAP                                   | (208,729)   
|Add net loss following Canadian GAAP                                                | 385,496     
|Less net loss following U.S. GAAP                                                   | (901,775)   
|Less deferred property costs written-off    under Canadian      GAAP                | -           
|Less: Acquisition of investment under    U.S. GAAP                                  | -           
|Add non-cash deferred property    expenditures under U.S.         GAAP              | -           
|Cash applied to operations under U.S.    GAAP                                       | (725,008)   
|                                                                                    |             
|e)**Cash    Flows - Investing Activities**                                          |             
|Cash applied under Canadian GAAP                                                    | (519,207)   
|Add cash property costs expensed under    U.S. GAAP                                 | 516,279     
|Cash received from (applied to) investing activities under  U.S. GAAP               | (2,928)     
|                                                                                    |             
|f)**Loss    per Share under U.S.    GAAP**                                          | $  (0.03)   

The Company considers that no other  financial statement line item differences exist in respect to a hypothetical  application of U.S. GAAP to these financial statements.



**13.      SUBSEQUENT EVENTS**

- The Company completed a non-brokered private  placement consisting of 11,619,288 units (“Units”) at a price of $0.14 per Unit,  for gross proceeds to the Company’s treasury of $1,626,700.  Each Unit was comprised of one common share  and one transferable share purchase warrant (a “Warrant”) to acquire one  additional common share at an exercise price of $0.20 for a period of 12 months  from closing.

- On March 16, 2006, 19,000 finders’ warrants  exercisable at $0.20 were exercised.

- 110,000 stock options were exercised to raise  aggregate proceeds of $36,500.

- 1,550,000 stock options were granted at an  exercise price of $0.37 per share of which 1,450,000 have an expiry date of  March 17, 2011 and 100,000 of which have an expiry date of April 19, 2011.

- Chris Mitchell  resigned as CFO of the Company, effective May 1, 2006, and Teresa Cheng was  appointed CFO.