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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-QSB (Mark One) [X]
    
    Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934.
 For the quarterly period ended February 29, 2004 [ ]
    
    Transition report under Section 13 or 15(d) of the Exchange Act.
 For the transition period from  to Commission file number: 0-29392 CALAIS RESOURCES, INC.  British Columbia(State or other jurisdiction of
incorporation or organization)
    
    (IRS Employer
Identification No.)
 8400 East Crescent Parkway, Suite 675
Greenwood Village, CO 80111 
  (720) 529-9500 
  Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]  No [X] The number of shares outstanding of the registrants Common Stock, no par
value, was 20,018,453 at February 29, 2004. Transitional Small Business Disclosure Format (check one):
Yes [ ]  No [X]




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Calais Resources, Inc. TABLE OF CONTENTS FORM 10-QSB Part I: Financial InformationItem 1: Interim Financial StatementsInterim Consolidated Balance Sheet as of February 29, 2004 (unaudited)Interim Consolidated Statements of Operations and Deficit for the Three and Nine Months
Ended February 29, 2004 and 2003 (unaudited)Interim Consolidated Statements of Cash Flows for the Nine Months Ended February 29, 2004 and 2003 (unaudited)Notes to Interim Consolidated Financial Statements (unaudited)Item 2: Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3: Controls and ProceduresPart II: Other InformationItem 1: Legal ProceedingsItem 2: Changes in Securities and Use of ProceedsItem 3: Defaults upon Senior SecuritiesItem 4: Submission of Matters to a Vote of Security HoldersItem 5: Other InformationItem 6: Exhibits and Reports on Form 8-KSignaturesSettlement Agreement and General Mutual ReleasesPurchase Option AgreementExtension of Purchase AgreementCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to 18 U.S.C. Section 1350
  2




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Part I: Financial Information In this quarterly report, all references to $ or Cdn$ in the Condensed
Financial Statements and elsewhere herein are references to Canadian dollars,
the principal currency in which our financial statements are maintained.
References to US$ are references to United States dollars. The Government of
Canada permits a floating exchange rate to determine the value of the Canadian
Dollar against the U.S. Dollar (US$). Our annual report on Form 20-F for the year ended May 31, 2003, contains a
significant amount of information regarding the conversion between Cdn$ and US$
at Item 3.A(3). The following table sets forth the range of high and low rates of exchange
for the Canadian Dollar to the U.S. Dollar for each month in the current fiscal
year ended March 31, 2004. For purposes of this table, the rate of exchange means the noon buying
rate in New York City for cable transfers in foreign currencies as certified
for customs purposes by the Federal Reserve Bank of New York. The table sets
forth the number of Canadian Dollars required under that formula to buy one
U.S. Dollar. The average rate means the average of the exchange rates on the
last day of each month during the period. The rate of exchange on March 31,
2004 was Cdn$.76, meaning that at that date Cdn$.76 would purchase US$1.00, or
US$1.31 would purchase Cdn$1.00. Month ended
    
    High
    
    LowMarch 31, 2004
    
    $
    1.35
    
    
    $
    1.31February 29, 2004
    
    $
    1.34
    
    
    $
    1.31January 31, 2004
    
    $
    1.33
    
    
    $
    1.27December 31, 2003
    
    $
    1.33
    
    
    $
    1.26November 30, 2003
    
    $
    1.33
    
    
    $
    1.29October 31, 2003
    
    $
    1.35
    
    
    $
    1.30September 30, 2003
    
    $
    1.38
    
    
    $
    1.33August 31, 2003
    
    $
    1.41
    
    
    $
    1.38July 31, 2003
    
    $
    1.41
    
    
    $
    1.33June 30, 2003
    
    $
    1.38
    
    
    $
    1.33May 31, 2003
    
    $
    1.44
    
    
    $
    1.34
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Item 1: Interim Consolidated Financial Statements See financial statements immediately following the signature page. 4




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Item 2: Managements Discussion and Analysis of Financial Condition and
Results of Operations The statements contained in this Report onForm 10-QSB(including in this
managements discussion and analysis and elsewhere herein) that are not purely
historical are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding our expectations, hopes, intentions or
strategies regarding the future. We have based these forward-looking statements
largely on our current expectations and projections about future events and
financial trends affecting our business. These forward-looking statements are
subject to risks, uncertainties and assumptions including, among other things,
the factors discussed in our annual report onForm 20-Ffor the year ended May
31, 2003 under ITEM #3, Key Information, Risk Factors and factors described
in documents that we may furnish from time to time to the Securities and
Exchange Commission. The words believe, may, will, estimate, continue, anticipate,
intend, expect, and similar words are intended to identify forward-looking
statements. In light of these risks and uncertainties, the forward-looking
information, events and circumstances discussed in this report might not occur.
Our actual results and performance could differ substantially from those
anticipated in our forward-looking statements. All forward-looking statements included in this document are based on
information available to us on the date hereof, and we undertake no obligation
to update any such forward-looking statements. It is important to note that
our actual results could differ materially from those in such forward-looking
statements. General Discussion Our consolidated financial statements have been prepared in accordance
with generally accepted accounting principles as applied in Canada. There are
several differences in determining expenses and net loss between Canadian GAAP
and US GAAP. Revenues remain the same at nil under both Canadian and US GAAP.
The information as at February 29, 2004 and for the nine months ended February
29, 2004 and February 28, 2003 is as follows: US GAAP, nine mos ended Feb.29
    
    Cdn GAAP, nine mos ended Feb. 292004
    
    2003
    
    2004
    
    2003Revenues
    
    Cdn$0
    
    Cdn$0
    
    Cdn$0
    
    Cdn$0Net Loss
    
    Cdn$(4,783,920)
    
    Cdn$(1,133,306)
    
    Cdn$(3,320,271)
    
    Cdn$(547,073)Net Loss per share
    
    Cdn$(0.30)
    
    Cdn$(0.11)
    
    Cdn$(0.21)
    
    Cdn$(0.05)
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US GAAP, as at
    
    Cdn GAAP, as atFebruary 29, 2004
    
    May 31, 2003
    
    February 29, 2004
    
    May 31, 2003Total Assets
    
    Cdn$  6,404,966
    
    Cdn$     378,147
    
    Cdn$20,540,862
    
    Cdn$13,584,699Total Liabilities
    
    Cdn$11,804,981
    
    Cdn$  8,515,075
    
    Cdn$11,372,062
    
    Cdn$  8,042,886Shareholders
Equity (Deficit)
    
    Cdn$(5,400,015)
    
    Cdn$(8,136,928)
    
    Cdn$  9,168,800
    
    Cdn$  5,541,813
 The primary reasons for the increase in loss under US GAAP over Canadian
GAAP are the following:  
    
    exploration expenditures are capitalized under Canadian GAAP, but
expensed under US GAAP. This resulted in expenses under US GAAP (but
not under Canadian GAAP) of Cdn$929,344 during the first nine months of
fiscal 2004 as compared to expenses of Cdn$465,056 in the same period
of fiscal 2003.
    
    stock based compensation to employees for variable and fixed based
plans are recognized under US GAAP, but not under Canadian GAAP. This
resulted in an expense under US GAAP (but not under Canadian GAAP) of
Cdn$573,575 during the first nine months of fiscal 2004 as compared to
stock-based compensation expenses of Cdn$160,012 under Canadian GAAP
in the same period of fiscal 2003.
    
    the fair value of the debenture conversion option is being expensed
under Canadian GAAP while no expense for beneficial conversion option
is recognized under US GAAP. This resulted in expenses under Canadian
GAAP (but not under US GAAP) of Cdn$39,270 during the first nine months
of fiscal 2004 as compared to expenses of Cdn$38,835 in the same period
of fiscal 2003. These differences are explained in much greater detail in note 10 to the
consolidated financial statements included in this report. Summary We are in the business of acquiring and exploring properties potentially
valuable for precious metals such as gold and silver, with the aim of bringing
them to a stage where they can be exploited for a profit. At that stage, our
operations would to some extent be dependent on the world market prices of any
mineral produced. We do not have any mineral interests with mineral reserves
(as that term is defined under SEC Guide 7 for use in the United States) or
with any production of minerals. Operations on the properties in which we hold
mineral interests are exploratory searches for commercially producible
deposits. We are dependent on investment capital and loans to finance our
activities. As noted above and in more detail below, our working 6




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capital has increased since May 31, 2003, but has decreased from
Cdn$5,170,000 at August 31, 2003 to Cdn$1,130,000 at February 29, 2004. We
cannot offer any assurance that we will be able to obtain the necessary
financing to continue our operations. Nearly all of our activities are directed to exploration programs and our
corporate administration and regulatory compliance. Yearly and quarterly
variations in expenditures on our mineral projects generally reflect increases
or decreases in specific exploration costs based on previous results and our
decisions regarding the allocation of exploration expenditures between
projects. Results of Operations The following table sets forth, for the periods indicated, statement of
operations data. The table and the discussion below should be read in
conjunction with the interim consolidated financial statements and the notes
thereto appearing elsewhere in this report. Nine Months Ended February 29,2004
    
    2003
    
    2004
    
    2003US GAAP, Cdn$
    
    Canadian GAAP, Cdn$Operating revenues
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Operating expenses
    
    
    (4,789,252
    )
    
    
    (1,134,836
    )
    
    
    (3,325,603
    )
    
    
    (548,603
    )Other income
    
    
    5,332
    
    
    
    1,530
    
    
    
    5,332
    
    
    
    1,530Net loss
    
    
    (4,783,920
    )
    
    
    (1,133,306
    )
    
    
    (3,320,271
    )
    
    
    (547,073
    )Net loss per share
    
    
    (0.34
    )
    
    
    (0.09
    )
    
    
    (0.21
    )
    
    
    (0.05
    )Weighted avg shares
    
    
    16,082,509
    
    
    
    10,717,829
    
    
    
    16,082,509
    
    
    
    10,717,829
 Revenues We have not received any operating revenues and we do not expect to
receive any operating revenues until, if ever, we produce minerals for sale
from any of our properties or we enter into business arrangements with third
parties by which those third parties pay us a management or other fee. At the
present time we are not anticipating any mineral production during the
remaining months of our 2004 fiscal year (which ends May 31, 2004) or any other
operating revenues. We also do not expect to commence mineral production
during our 2005 fiscal year or receive any operating revenues during that
period from our Caribou Colorado property mineral interests or our mineral
interests in Nevada. During our 2005 fiscal year we will attempt to commence a
small placer operation on our Panama properties if we can obtain the necessary
financing to do so. Even if we are able to commence that operation (which is
required by our agreements for that property), it is not expected to be
significant enough to generate profits, but rather (if successful) may serve as
a method to generate revenue to continue further placer and initial hard rock
explorations. We do receive revenues from funds on deposit (interest) and foreign
currency gains (or losses) which result from changes in the exchange rate
between the Canadian dollar and the United States dollar. We do not expect
these sources of revenues to be significant. 7




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Operating Expenses Our operating expenses increased during the nine months ended February 29,
2004 as compared to the same period of the previous year. The principal reason
for the increase in expenses derived from the fact that we increased our
operations as a result of funds made available to us in August 2003. During the nine months ended February 29, 2004, our most significant
expense increase was bank charges and interest, which amounted to Cdn$2,201,190
for the nine months ended February 29, 2004 as compared to Cdn$510,907 during
the same period of the prior year. These costs increased more than four times,
mostly as a result of the expensing of the fair value attributed to the
8,181,818 shares of stock given to Broadway Mortgage as a loan origination fee
for the August $4,500,000 million loan. The value of the shares given as a
loan origination fee was valued by Calais at US$0.55 per share, based on the
market price of the Companys common stock at the time of the agreement, for a
total loan origination fee of US$4,500,000. The loan origination fee is being
amortized over the 24 month term of the loan, reflecting monthly interest and
bank charges of US$187,500 per month that was not present in the prior period. For US GAAP purposes, a significant contributor to our net losses were our
mineral interest exploration expenditures of Cdn$929,344 during the nine months
ended February 29, 2004, as compared to Cdn$160,012 during the same period of
the prior year. We have used our funds to explore our mineral projects and
increase the information available about the mineralization, especially the
Caribou interests in Colorado. We anticipate continuing to spend funds on
exploration work to the extent we have sufficient capital to do so. These
expenses are capitalized for purposes of Canadian GAAP but not for the purposes
of US GAAP. Many of our other expenses increased during the first three quarters of
fiscal 2004 because we were more active during that period:  
    
    refinancing our loan with Peak National Bank;  
    
    general financing costs;  
    
    commencing drilling operations;  
    
    opening a corporate office in the Denver, Colorado area and hiring additional staff;  
    
    bringing many of our general and administrative operations and
reporting requirements up to date; and  
    
    payment in the form of bonus stock, of wages to our employees and
directors of Cdn$497,250. In addition, under US GAAP, we recognized significant additional expenses
that were not recognized under Canadian GAAP, which lead to significantly
greater operating losses and net losses under US GAAP than under Canadian GAAP.
These included: 8




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
    
    Cdn$929,344 expense recognized under US GAAP (but not Canadian
GAAP) for exploration expenditures on our mineral projects. These
expenses were capitalized under Canadian GAAP. During the same period
of our 2003 fiscal year, we recognized an expense of Cdn$465,056 under
US GAAP in this category, reflecting significantly less mineral
exploration activity because we had less funds available to us.  
    
    Cdn$573,575 expense recognized under US GAAP (but not Canadian
GAAP) for stock-based compensation expense. We follow the settlement
method under Canadian GAAP and, as a result, do not record an expense
when we award equity compensation to our directors and employees.
During the first two quarters of our 2003 fiscal year, we recognized an
expense recovery of Cdn$77,131 under US GAAP in this category, but
because of variable stock compensation costs in the third quarter,
recognized an expense of Cdn$160,012 for the nine month period. Mineral exploration expenditures increased because we have more funds
available as a result of the funds made available by the August financing. We
are continuously looking for additional financing necessary to meet our
exploration plans and operational needs. Our professional fees increased by more than five times during the first
three quarters of fiscal 2004 as compared to the same period of fiscal 2003
because of increased indirect costs in connection with the June refinancing of
debt, the August financing, and the need to comply with our reporting
obligations in the United States and Canada. We anticipate that our
professional fees will continue to increase because of our increased activity
and because we are now subject to increased filing obligations with the United
States Securities and Exchange Commission inasmuch as we are no longer
considered to be a foreign private issuer under the Securities Exchange Act
of 1934, as amended. Net Loss As a result of our nominal revenues and increasing expenses as described
above, we expect to continue to recognize net losses for the foreseeable
future. Liquidity and Capital Resources The following table sets forth, as at the dates indicated, balance sheet
and cash flow data. The table and the discussion below should be read in
conjunction with the condensed consolidated financial statements and the notes
thereto appearing elsewhere in this report. As at2/29/2004
    
    5/31/2003
    
    2/29/2004
    
    5/31/2003US GAAP, Cdn$
    
    Canadian GAAP, Cdn$Total assets
    
    
    6,404,966
    
    
    
    378,147
    
    
    
    20,540,362
    
    
    
    13,584,699Total liabilities
    
    
    11,804,981
    
    
    
    8,515,075
    
    
    
    11,372,062
    
    
    
    8,042,866Working capital (deficit)
    
    
    1,129,961
    
    
    
    (3,134,669
    )
    
    
    1,129,961
    
    
    
    (3,134,669
    )
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As at2/29/2004
    
    5/31/2003
    
    2/29/2004
    
    5/31/2003US GAAP, Cdn$
    
    Canadian GAAP, Cdn$Shareholders Equity
(Deficit)
    
    
    (5,400,015
    )
    
    
    (8,136,928
    )
    
    
    9,168,800
    
    
    
    5,541,813
 For the nine months ended February 29,2004
    
    2003
    
    2004
    
    2003US GAAP, Cdn$
    
    Canadian GAAP, Cdn$Cash flow provided by
(used in)Operations
    
    
    (2,547,184
    )
    
    
    (258,820
    )
    
    
    (1,632,577
    )
    
    
    (12,790
    )Financing
    
    
    2,653,294
    
    
    
    260,692
    
    
    
    2,860,880
    
    
    
    270,091Investing
    
    
    (95,486
    )
    
    
    0
    
    
    
    (1,010,093
    )
    
    
    (246,030
    )Increase in cash during
period
    
    
    210,624
    
    
    
    1,872
    
    
    
    218,210
    
    
    
    11,271
 Working Capital At February 29, 2004, our working capital (current assets less current
liabilities) was significantly greater than at our last fiscal year end
entirely due to the completion of the August financing. At February 29, 2004,
our working capital decreased by about Cdn$1,700,000 as compared to August 31,
2003, because of increased expenditures made possible by the August financing.
These included expenditures for exploration of our mineral projects as well as
increased general and administrative expenses. We anticipate that our working
capital will continue to decrease until, if ever, we obtain additional
financing or our operations become profitable. Since we have no current plans
to achieve any significant production of our mineral resources, we will be
dependent on our remaining working capital and additional financing for the
foreseeable future. On August 1, 2003, we completed a financing with the Broadway Mortgage
Group (Broadway) who loaned US$4,500,000 to us and took a security interest
in the Caribou property to collateralize our repayment obligation. We also
issued 8,181,818 shares of our common stock to Broadway as a loan origination
fee valued at US$0.55 per share. Matt Witt, formerly associated with Broadway
and one of the persons who acquired a portion of Broadways interest, is now
our chief financial officer and was appointed to that position as a result of
the transaction. Broadway agreed that if our common stock price exceeded
US$3.00 per share, Broadway would sell up to 1,500,000 shares of the original
8,181,818 shares for our benefit to repay the loan in full. Broadway will only
be able to sell the shares to the extent that a registration statement for the
sale is effective or an exemption from registration is available. The
US$4,500,000 loan to us (bearing interest at 12.9% and due July 31, 2005 or
upon the sale of 1,500,000 shares of common stock by Broadway if the stock
price reaches US$3.00) was used for the following: Prepayment of two-years interest to the lender
    
    US$
    1,161,000Repayment of remaining amounts due to bank
    
    US$
    1,080,000Repayment of interim mortgage due to Thomas S. Hendricks for
funds he advanced
    
    US$
    587,680
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Repayment of trade payables
    
    US$
    700,000Repayment of accrued compensation
    
    US$
    223,822Financing costs
    
    US$
    95,000
 As a result, following the financing and the use of proceeds as described
above, we had US$652,498 remaining for working capital, which we have used and
plan to continue to use for exploration of our Caribou and Panamanian
properties and for general and administrative purposes. To secure the loan, we pledged our entire interest in the Caribou
properties as collateral. There are no financial covenants with respect to the
loan. In general, we expect that our working capital will continue to decrease
over time as we continue to use our capital and cash flows from revenues for
operations, mineral exploration and other expenses. We expect that our
subsequent quarters in fiscal 2004 will show greater decreases in our available
working capital because of our increased rate of expenditure due to increased
mineral exploration activity and general and administrative operations
anticipated as described above under Results of Operations. We continually monitor our working capital situation compared to our
operating activites and corporate requirements, and we will seek additional
financing, as needed, to maintain our planned operating activities. We have
not commenced any definitive discussions with prospective financing sources,
however, and there can be no assurance that financing will be available when
needed, on reasonable terms, if at all. The Company is actively pursuing various options with potential lenders
and investors which, if accepted, will in managements view, enable the
Company to achieve its business plans. No agreements with potential lenders
or investors have been reached yet and there can be no assurance that such
agreements will be reached. The ability of the Company to continue as a going concern and to realize
the carrying value of its assets and discharge its liabilities when due is
dependent on the successful completion of the actions taken or planned, which
management believes will mitigate the adverse conditions and events which
raise doubt about the validity of the going concern assumption used in
preparing these financial statements. As is common with companies with
negative cash flows and losses, there is no certainty that these and other
strategies will be sufficient to permit the Company to continue beyond the
expenditure of the financial resources we currently have remaining. The financial statements do not reflect adjustments that would be
necessary if the going concern assumption were not appropriate. If the
going concern basis was not appropriate for these financial statements, then
adjustments would be necessary in the carrying value of assets and liabilities,
the reported revenues and expenses, and the balance sheet classifications used. Capital Resources Under Canadian GAAP, we capitalize substantially all of our mineral
exploration expenditures. Under Statement of Financial Accounting Standards
No. 144 (SFAS 144; 11




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Accounting for the Impairment or Disposal of Long-Lived Assets) adopted
in the United States, we are required to review all of our long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review
for recoverability, we must estimate the future cash flows expected to result
from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, we must measure an impairment loss equal
to the excess of the carrying amount over the fair value of the assets. Furthermore, SFAS 144 requires that all mineral exploration costs be
expensed as incurred until commercially minable deposits are determined to
exist within a particular property as cash flows cannot be reasonably estimated
prior to such determination. Accordingly, the principal difference between US GAAP and Canadian GAAP is
that we have expensed all of our mineral exploration expenditures under US GAAP
while we have capitalized them under Canadian GAAP. Whereas our balance sheet
under Canadian GAAP reflects a book value of our mineral interests at February
29, 2004 of Cdn$14,135,896 (Cdn$13,206,552 at May 31, 2003), the book value of
those same assets under US GAAP at those dates is Cdn$0. The other principal component of capital resources as reflected on our
balance sheet is our current assets. These increased under both US GAAP and
Canadian GAAP (since there were no adjustments) due entirely to the financing
completed in August 2003 as described above. Since August 2003, we have been
expending our current assets for our operations (including mineral
exploration), and our working capital has decreased by approximately
Cdn$4,404,000 since August 31, 2003. We have pledged our mineral and property interests in our Caribou project
to collateralize repayment of the US$4,500,000 loan that we received in August
2003. To the extent we are unable to repay the loan when due and if we are
unable to extend the loan at that time, the holders of the mortgage will be
entitled to foreclose on the property and take title to and possession of our
most significant asset. Cash Flows Under Canadian GAAP, cash flows relating to mineral property exploration
expenditures are reported as investing activities. These expenditures amounted
to Cdn$914,607 for the three quarters ended February 29, 2004 as compared to
Cdn$246,030 for the same period of our prior fiscal year. For U.S. GAAP
purposes, these costs are characterized as operating activities. In addition, under U.S. GAAP financing activities would include financing
through the Companys bank indedtedness which is not included under Canadian
GAAP. In summary, however, our use of cash in operating activities increased
under both Canadian and US GAAP during the nine months ended February 29, 2004
as compared to the same period of the prior year. Our increased operations
during that period were financed by the funds made available by the August
financing discussed above. The August financing also accounts for the 12




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increase in cash flow from financing activities during the three quarters
ended February 29, 2004, as compared to the same period of the prior year. Critical Accounting Policies In addition to SFAS 144 (discussed above), the material accounting
policies that we believe are the most critical to an investors understanding
of our financial results and condition and require complex management judgment
have been expanded and are discussed below. The Companys discussion and analysis of its financial condition and
results of operations, including the discussion on liquidity and capital
resources, are based on its consolidated financial statements that have been
prepared in accordance with Canadian generally accepted accounting principles.
The preparation of these financial statements requires management to make
estimates and judgments that affect reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, management re-evaluates its estimates and
judgments, particularly those related to the determination of the impairment of
long-lived assets. Management bases its estimates and judgments on historical
experience, contractual arrangements and commitments and on various other
assumptions that it believes are reasonable in the circumstances. Changes in
these estimates and judgments will impact the amounts recognized in the
consolidated financial statements, and the impact may be material. Management
believes the following critical accounting policies require more significant
estimates and judgments in the preparation of the consolidated financial
statements. The consolidated financial statements have been prepared on the going
concern basis, which assumes the realization of assets and liquidation of
liabilities in the normal course of operations. If the Company was not to
continue as a going concern, it would likely not be able to realize on its
assets at values comparable to the carrying value or the fair value estimates
reflected in the balances set out in the preparation of the consolidated
financial statements. As described elsewhere in this report, at February 29,
2004, there were certain conditions that currently exist which raise
substantial doubt about the validity of this assumption. The Company
anticipates the need to raise additional capital to accomplish its budgeted
expenditures. These private placements are not assured. Failure to raise
additional funds may result in the Company being unable to complete its planned
programs to comply with its obligations relating to its various mining
interests, curtailing operations or writing down its assets. For Canadian GAAP purposes, the Company capitalizes exploration costs
incurred as property, plant and equipment pursuant to EIC-126 and related
guidance. There are opposing views that exploration costs should be
considered to be intangible assets and should be expensed as incurred until
such time as probable and provable mineral reserves are established. If the
Company were to adopt the opposing view that exploration costs were intangible
assets, these assets would be written off completely and the recording of
mineral interests of the Company under Canadian GAAP would be identical to the
treatment applied to mineral interests currently applied under US GAAP. The recoverability of the capitalized mineral interest costs includes
considerations primarily of managements plans for the exploration and holding
of our mineral interests and expectations with respect to the property,
potential mineralization, costs to recovery, commodity prices and the potential
for third party agreements. Certain of these factors are beyond the Companys
control. Other factors, 13




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such as managements plans and expectations, while supporting continued
capitalization at this time may change and that change may be material to the
financial statements. In the event a mineral interest proves not to have
sufficient recoverable resources, or if removal of the resources is not
economically feasible once the resources have been proven, the mineral interest
may become impaired and the impairment may be material to the financial
statements. Recent Accounting Pronouncements In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The provisions of SFAS No.
143 are effective for fiscal years beginning after June 15, 2002. The adoption
of this statement did not have a material impact on our financial position or
results of operations. The CICA has issued Section 3110, Asset Retirement Obligations. Section
3110 establishes standards for the recognition, measurement and disclosure of
liabilities for asset retirement obligations and the associated asset
retirement costs. An asset retirement obligation is a legal obligation
associated with the retirement of a tangible long-lived asset that an entity is
required to settle as a result of an existing or enacted law, statute,
ordinance, or written or oral contract or by legal construction of a contract
under the doctrine of promissory estoppel. Section 3110 should be applied for
fiscal years beginning on or after January 1, 2004. Earlier application is
encouraged. The Company does not believe the adoption of this statement did
not have a material impact on our financial position or results of operations. In December 2002, the FASB approved Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation
- Transition and
Disclosure - an amendment of FASB Statement No. 123. This amends Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123) to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. This Statement also amends the disclosure requirements
to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. It is effective for
financial statements for fiscal years ending after December 15, 2002. We will
continue to account for stock based compensation using the methods detailed in
the stock-based compensation accounting policy note to the consolidated
financial statements. Section 3870, Accounting for Stock-based Compensation and Other
Stock-based Payments was amended to require public enterprises to adopt the
fair value based method for purposes of recognition and measurement in fiscal
years commencing on or after January 1, 2004. Public enterprises, which had
not previously adopted the fair value based method for purposes of recognition
and measurement, must apply the method to awards granted on or after January 1,
2002 with or without restatement. Because Section 3870 previously applied to
certain other types of awards (non-employee awards, and employee awards that
settle net for cash, other assets or equity instruments, or direct awards of
stock), the real effect of this amendment is to require companies to expense
employee stock options. The Company will adopt this statement effective June
1, 2004, without restatement, which 14




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will result in an adjustment to opening retained earnings and share
capital at June 1, 2004. The company has not yet quantified the impact of this
restatement. The provisions of FASB Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity, are
effective for financial instruments entered into or modified after May 31,
2003, and otherwise are effective at the beginning of the first interim period
beginning after June 15, 2003. This Statement is to be implemented by
reporting the cumulative effect of a change in an accounting principle for
financial instruments created before May 15, 2003 and still existing at the
beginning of the interim period of adoption. Restatement is not permitted.
This Statement may impact Calais if the existing convertible debentures are
modified as contemplated and described in Item 5  Other Information. FASB Interpretation No. 46, Consolidation of Variable Interest Entities,
as amended, applies for certain entities in the first fiscal year or interim
period ending after December 15, 2003 and for all other entities in the first
fiscal year or interim period ending after December 15, 2004 to enterprises
that hold a variable interest in variable interest entities created before
February 1, 2003. We do not expect a material change as a result of adopting
this Interpretation. 
 Item 3: Controls and Procedures As required by Rule 13a-15 under the Securities Exchange Act of 1934,
within the 90 days prior to the filing date of this report, we carried out an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures. This evaluation was carried out under the supervision
and with the participation of our principal executive officer as well as our
principal financial officer, who concluded that our disclosure controls and
procedures are effective. There have been no significant changes in our
internal controls or in other factors, which could significantly affect
internal controls subsequent to the date we carried out our evaluation. Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in our reports
filed or submitted under the Securities Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities
and Exchange Commissions rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Exchange
Act is accumulated and communicated to management, including our principal
executive officer and our principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. 
 PART II
OTHER INFORMATION 
 Item 1: Legal Proceedings None. 
 Item 2: Changes in Securities and Small Business Issuer Purchases of Equity
Securities 15




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(a) The instruments defining the rights of the holders of any class of
registered securities have not been materially modified. (b) The rights evidenced by any class of registered securities have not
been materially limited or qualified by the issuance or modification of any
other class of securities. (c) The following sets forth the information required by Item 701 of
Regulation S-B: 1. Issuance to Accredited Investors 1.a. In November 2003, Calais received US$93,600 from Paul Scutt, an
accredited investor, in exchange for the issuance to him of 80,000 shares of
restricted Calais common stock and 80,000 warrants (exercisable at US$1.50
through November 1, 2004, and US$2.00 thereafter through October 31, 2005). (i) The transaction was effective November 2003. (ii) No underwriters were involved in the transaction. The only person who
received securities from us in this transaction was Mr. Scutt. (iii) The securities were sold for cash, and Calais received US$93,600. (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933. We did not engage in any public advertising or general
solicitation in connection with this transaction. We provided Mr. Scutt with
disclosure of all aspects of our business as he requested. Based on our
investigation, we believe that the accredited investor obtained all information
regarding Calais Resources he requested, received answers to all questions he
posed, and otherwise understood the risks of accepting our securities. (v) There are no conversion rights or exchange rights associated with the
shares. The warrants are exercisable as described above (vi) We received US$93,600 from the issuance of the shares and used the
funds provided for working capital purposes. 1.b. In November 2003, Calais issued 25,000 shares of its restricted
common stock to Patrick McLeery, an accredited investor, for consulting
services for a one year period. (i) The transaction was effective November 2003. (ii) No underwriters were involved in the transaction. The only person who
received securities from us in this transaction was Mr. McLeery. 16




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(iii) The securities were not sold for cash, but rather as partial
consideration for the conveyance to Calais of mineral property. (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933. We did not engage in any public advertising or general
solicitation in connection with this transaction. We provided Mr. McLeery with
disclosure of all aspects of our business as he requested. Based on our
investigation, we believe that the accredited investor obtained all information
regarding Calais Resources he requested, received answers to all questions he
posed, and otherwise understood the risks of accepting our securities. (v) There are no conversion rights or exchange rights associated with the
shares. (vi) We received no cash proceeds from the issuance of the shares and,
therefore, cannot report any use of proceeds. 1.c. On February 12, 2004, we issued 2,000 shares of our restricted common
stock to Dirk Larsen as partial consideration for acquisition of mineral
properties in Boulder County, Colorado (valued at $4,900). (i) The transaction was effective February 12, 2004. (ii) No underwriters were involved in the transaction. The only person
who received securities was Mr. Larsen. (iii) The securities were not sold for cash, but were sold in partial
consideration for the acquisition of mineral properties. (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933. We did not engage in any public advertising or general
solicitation in connection with this transaction. We provided Mr. Larsen with
disclosure of all aspects of our business as he requested. Based on our
investigation, we believe that the accredited investor obtained all information
regarding Calais Resources he requested, received answers to all questions he
posed, and otherwise understood the risks of accepting our securities. (v) There are no conversion rights associated with the shares. (vi) We received no cash from the sale of the shares and, therefore, there
is no use of proceeds. 2. Employee and Director Stock Bonuses 2.a. In December 2003 (but effective upon their acceptance and, when
required, filing of the appropriate Forms), Calais issued 215,750 shares of its
restricted common stock to certain 17




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employees as stock bonuses, which transactions were not deemed to be sales
for the purposes of the Securities Act of 1933. (i) The transactions were approved by the Board of Directors on December
13, 2003, but are only effective upon acceptance by the employees, consultants,
and directors, and (when required) filing of the appropriate individual reports
under the Securities Exchange Act of 1934. (ii) No underwriters were involved in the transaction. The only person who
received securities from us in this transaction were seven employees,
directors, and consultants. (iii) The securities were not sold, but rather were granted as stock
bonuses. (iv) The issuance of the shares was not considered to be a sale since it
was intended to compensate for past services. We did not engage in any public
advertising or general solicitation in connection with this transaction. We
provided the directors, employees, and consultants with disclosure of all
aspects of our business as he requested. Based on our investigation, we believe
that the recipients obtained all information regarding Calais Resources they
requested, received answers to all questions they posed, and otherwise
understood the risks of accepting our securities. (v) There are no conversion rights or exchange rights associated with the
shares. (vi) We received no cash proceeds from the issuance of the shares and,
therefore, cannot report any use of proceeds. 3. August 2003 financing 3.a. On August 1, 2003, we completed a financing with a lender (Broadway)
who loaned US$4,500,000 to us and took a security interest in the Caribou
property to collateralize our repayment obligation. We also issued 8,181,818
shares of our common stock to the lender as a loan origination fee valued at
US$0.55 per share. (i) The transaction was effective August 1, 2003. (ii) No underwriters were involved in the transaction. The only entity who
received securities from us in this transaction was Broadway who distributed
the securities to six accredited investors. (iii) The securities were not sold for cash. The securities were issued to
Broadway as a financing fee in connection with their making the US$4,500,000
loan. (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933. We did not engage in any public advertising or general
solicitation in connection with this transaction. We provided Broadway and the
accredited investors with disclosure of all aspects of our business as they
requested. Based on our investigation, we believe that Broadway and the
accredited investors obtained all information regarding Calais Resources they
requested, received answers to all 18




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questions they posed, and otherwise understood the risks of accepting our
securities in exchange for services to be provided. (v) There are no conversion rights or exchange rights associated with the
shares. (vi) We received no proceeds from the issuance of the shares and,
therefore, we have no use of proceeds. 4. Option Exercises 4.a. On August 29, 2003, Thomas S. Hendricks, president and chairman of
the board of directors of Calais Resources, exercised an option to acquire
100,000 shares of common stock for the payment of Cdn$45,000 (Cdn$0.45 per
share). On October 24, 2003, Arthur Daher, secretary and a member of the board
of directors of Calais Resources, exercised an option to acquire 50,000 shares
of common stock for the payment of Cdn$22,500 (Cdn$0.45 per share). In both
cases, the options had been outstanding for more than two years. (i) The transactions were effective August 29, 2003 (in the case of Mr.
Hendricks) and October 24, 2003 (in the case of Mr. Daher). (ii) No underwriters were involved in the transaction. (iii) The securities were sold for cash payment of the option exercise
price (in both cases, Cdn$0.45 per share). (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933 inasmuch as both of the persons acquiring shares
pursuant to option exercise were executive officers and directors of Calais
Resources. We did not engage in any public advertising or general solicitation
in connection with this transaction. (v) There are no conversion rights or exchange rights associated with the
shares. (vi) We received Cdn$67,500 from the issuance of the shares and the funds
were used for working capital purposes. 4.b. During the first quarter (ended August 31, 2003), three holders
exercised options to acquire 90,000 shares of common stock for the payment of
Cdn$0.45 per share. In all cases, the options had been outstanding for more
than two years. (i) The transactions were effective in August 2003. (ii) No underwriters were involved in the transaction. (iii) The securities were sold for cash payment of the option exercise
price (in all cases, Cdn$0.45 per share). 19




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(iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933 inasmuch as both of the persons acquiring shares
pursuant to option exercise were executive officers and directors of Calais
Resources. We did not engage in any public advertising or general solicitation
in connection with this transaction. (v) There are no conversion rights or exchange rights associated with the
shares. (vi) We received Cdn$40,500 from the issuance of the shares and the funds
were used for working capital purposes. 4.c. During the second quarter (ended November 30, 2003), five holders
exercised options to acquire 150,000 shares of common stock for the payment of
Cdn$0.45 per share. In all cases, the options had been outstanding for more
than two years. (i) The transactions were effective during the quarter ended November 30,
2003. (ii) No underwriters were involved in the transaction. (iii) The securities were sold for cash payment of the option exercise
price (in all cases, Cdn$0.45 per share). (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933 inasmuch as the persons acquiring shares pursuant to
option exercise were executive officers and directors of Calais Resources or
were accredited investors. We did not engage in any public advertising or
general solicitation in connection with this transaction. (v) There are no conversion rights or exchange rights associated with the
shares. (vi) We received Cdn$67,500 from the issuance of the shares and the funds
were used for working capital purposes. 4.d. During the third quarter (ended February 29, 2004), Thomas Patton,
formerly a director of Calais, exercised options to acquire 100,000 shares of
common stock for the payment of Cdn$0.45 per share. In all cases, the options
had been outstanding for more than two years. (i) The transactions were effective during January 2004. (ii) No underwriters were involved in the transaction. (iii) The securities were sold for cash payment of the option exercise
price (in all cases, Cdn$0.45 per share). 20




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(iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933 inasmuch as Mr. Patton was formerly a director of Calais
Resources and is an accredited investor. We did not engage in any public
advertising or general solicitation in connection with this transaction. (v) There are no conversion rights or exchange rights associated with the
shares. (vi) We received Cdn$45,000 from the issuance of the shares and the funds
were used for working capital purposes. 5. Option Grants 5.a. On August 11, 2003, we granted an option to purchase 1,000,000 shares
of our common stock to Matthew C. Witt in connection with his agreement to
become Calais Resources chief financial officer. Of these options, 500,000
are exercisable at US$3.00 per share, and the remaining are exercisable at
US$5.00 per share, in both cases through August 11, 2013, subject to Mr. Witt
entering into an appropriate option agreement. The following sets forth the
information required by Item 701 in connection with that transaction: (i) The transaction was effective August 11, 2003. We issued options to
acquire 1,000,000 shares of common stock. (ii) No underwriters were involved in the transaction. The only entity who
received securities from us in this transaction was Mr. Witt. (iii) The securities were not sold for cash. The securities were issued to
Mr. Witt as part of the consideration for him becoming employed by Calais
Resources as its chief financial officer. (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933. We did not engage in any public advertising or general
solicitation in connection with this transaction. Mr. Witt was one of the
accredited investors involved in the August financing discussed above, and we
believe that he obtained all information regarding Calais Resources that he
requested, received answers to all questions he posed, and otherwise understood
the risks of accepting our securities in exchange for services to be provided. (v) There are no conversion rights or exchange rights associated with the
option. Subject to Mr. Witt entering into an option agreement as described
above, the option is exercisable to purchase shares of our common stock until
August 11, 2013 at US$3.00 per share (for 500,000 shares) and US$5.00 per share
(for 500,000 shares). (vi) We received no proceeds from the issuance of these options and,
therefore, we have no use of proceeds. 5.b. Effective August 11, 2003, we granted an option to purchase 100,000
shares of our common stock to Robert Akright, vice president of the Company,
exercisable through August 11, 21




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2013 at US$.32 per share, subject to Mr. Akright entering into an
appropriate option agreement. The following sets forth the information required
by Item 701 in connection with that transaction: (i) The transaction was effective August 11, 2003. We issued options to
acquire 100,000 shares of common stock. (ii) No underwriters were involved in the transaction. The only entity who
received securities from us in this transaction was Mr. Akright. (iii) The securities were not sold for cash. The securities were issued to
Mr. Akright as part of the consideration for his continuing employment as
Calais vice president. (iv) The issuance of the shares was accomplished pursuant to the
exemptions from registration contained in Sections 4(2) and 4(6) of the
Securities Act of 1933. We did not engage in any public advertising or general
solicitation in connection with this transaction. Mr. Akright has been vice
president of the Company for more than the past three years, and at the time of
the grant was a director of the Company. We believe that he obtained all
information regarding Calais Resources that he requested, received answers to
all questions he posed, and otherwise understood the risks of accepting our
securities in exchange for services to be provided. (v) There are no conversion rights or exchange rights associated with the
option. The option is exercisable to purchase shares of our common stock until
August 11, 2013 at US$.32 per share. (vi) We received no proceeds from the issuance of these options and,
therefore, we have no use of proceeds. (d) No information is required pursuant to Rule 463 adopted under the
Securities Act of 1933. (e) We did not make any repurchases of any securities during the period
included in this report. Consequently there is no disclosure required under
Item 703 of Regulation S-B. 
 Item 3: Defaults Upon Senior Securities (a) There has been no default upon senior securities except the default on
amounts due to Peak National Bank, which default was cured in June 2003. We
repaid the loan in full (US$1,080,000 at May 31, 2003) with funds received from
the August 2003 financing. (b) There are no arrearages in the payment of any dividends; nor has there
been any other material delinquency with respect to any class of preferred
stock which is registered or which ranks prior to any class of registered
securities, or with respect to any class of preferred stock of any significant
subsidiary. 
 Item 4: Submission of Matters to a Vote of Security Holders 22




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Our annual general meeting of shareholders was held on Thursday, December
18, 2003 at which meeting Thomas S. Hendricks, Melvin Martin, and Art Daher
were re-elected as directors of the Company, and the shareholders approved the
appointment of KPMG LLP as the Companys independent accountants. As permitted
by British Columbia law and procedure, the votes were accomplished upon a show
of hands at the meeting with no shareholder dissenting or calling for a ballot
vote. 
 Item 5: Other Information Our management have continued to evaluate title to its mining properties
in Nevada and has continued discussions with the parties who precede the
Company in title to those properties. While our documentary review has not
added any clarity to the issues discussed in the Form 20-F, based on
discussions with our predecessors in title, we continue to believe that we will
ultimately be able to acquire good title to the properties. On March 8, 2004, we entered into an agreement with Marlowe Harvey and his
related entities by which Calais and Mr. Harvey resolved a number of issues
that have arisen between them, some of which have been previously discussed in
Calais Form 20-F and other reports. Under the agreement,  
    
    Mr. Harvey and Calais agreed on a more precise definition of
Calais right (which expires August 31, 2011) to repurchase the
interest of Aardvark Agencies, Inc. (AAI) in the Caribou properties,
including the price payable for the reacquisition (a total of
Cdn$747,728 which is included in the debentures in our financial
statements) and AAIs right to convert that debenture before it is
paid;  
    
    Further defining Calais right to borrow against, enter in and upon
those properties, construct buildings and mines on those properties,
and remove and sell minerals from those properties for Calais own
account;  
    
    Mr. Harvey and his related companies have agreed to assign their
interests in the Manhattan project to Calais and agreed to assist
Calais in obtaining (not later than December 31, 2005) the entire
right, title and interest in the Manhattan project from all parties.
Mr. Harvey and his related companies have not formally made this
assignment yet. Upon receipt of the initial assignment, Calais will
pay one of Mr. Harveys affiliated companies 250,000 shares of Calais
restricted stock. Calais agreed to undertake certain drilling
obligations after receiving good title, and to issue 2,500,000 shares
of common stock to Argus Resources, Inc., one of Mr. Harveys
affiliated companies if Calais identifies gold or gold equivalent
mineral resources (as determined in accordance with Canadian standards)
exceeding 2,000,000 ounces.  
    
    Mr. Harvey and his related persons agreed to comply with their
shareholder filing obligations in the United States and Canada (if any)
not later than April 30, 2004. Mr. Harvey has also returned a stock
option agreement to Calais which defines the option to acquire 82,500 shares of Calais common stock granted to him in November 2002 23




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which he continues to hold. That option expires (unless exercised) on
November 15, 2004, and has an exercise price of US$0.80 per share.  
    
    Calais agreed to propose to its shareholders at its next
shareholder meeting that the conversion price of the debentures be
repriced from Cdn$1.23 to US$.55.  
    
    Calais agreed to retain Mr. Harvey as a consultant for one year at
US$3,000 per month. To facilitate the settlement, Thomas S. Hendricks agreed to transfer to Mr.
Harvey a debenture he holds for Cdn$984,000 that Mrs. Harvey assigned to him in
2000. In addition, Calais, Mr. Harvey, and his related entities entered into
mutual releases. Calais has previously announced that it does not intend to
expend any significant exploration dollars on the Manhattan property until such
time as it has received further assurances as to title. 
 Item 6: Exhibits and Reports on Form 8-K (a) Exhibits.  10.1
    
    Settlement Agreement and General Mutual Releases between
Calais Resources, Inc., Marlowe Harvey, and others, dated March 8,
200410.2
    
    Purchase Option Agreement between Calais Resources, Inc. and
Golden Cycle of Panama, Inc. and Panama Mining of Golden Cycle,
Inc., dated February 28, 200310.3
    
    Extension of Purchase Option Agreement and Partial
Acknowledgement of Performance, dated January 31, 2004, relating to
Exhibit 10.231.
    
    Certification pursuant to Sarbanes-Oxley Section 30232.
    
    Certification pursuant to 18 U.S.C. Section 1350 (b) Reports on Form 8-K Calais has filed the following reports on Form 8-K during the period
included within this report: Dated (filed)
    
    Items included
    
    DescriptionFeb. 19, 2004
(Feb. 19, 2004)
    
    5, 7, and 12
    
    describing the further results of a
disclosure review by the BCSC and a
press release attached as an exhibit.Jan. 19, 2004
(Jan. 20, 2004)
    
    5, 7 and 12
    
    describing the results of a disclosure
review by the BCSC and a press release
attached as an exhibit
 24




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Dated (filed)
    
    Items included
    
    DescriptionOct. 20, 2003
(Oct. 27, 2004)
    
    7 and 12
    
    This reported the release of our
Canadian financial statements, and
included copies of those financial
statements and the related
managements discussion and analysis
as an exhibit.
 25




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SIGNATURES Pursuant to the requirements 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, in the City of Greenwood Village,
County of Arapahoe, State of Colorado, on the 13th day of April, 2004. Calais Resources, Inc.
(Registrant) By
    
    /s/ Thomas S. HendricksThomas S. Hendricks,President, Chief Executive Officer and Director
 By
    
    /s/ Matthew C. WittMatthew C. Witt,Chief Accounting Officer and Chief Financial Officer
 26




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Interim Consolidated Financial Statements ofCALAIS RESOURCES INC.Nine months ended February 29, 2004(Unaudited)




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CALAIS RESOURCES INC. Interim Consolidated Balance Sheet
(Expressed in Canadian Dollars) February 29, 2004 and May 31, 2003 February 29,
    
    May 31,2004
    
    2003(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    210,624
    
    
    $
    Accounts receivable, net of allowance for
doubtful accounts of $nil
    
    
    708
    
    
    
    Deferred and prepaid financing fees (Note
3)
    
    
    1,295,048
    
    
    
    Assets held for sale
    
    
    283,301
    
    
    
    283,3011,789,681
    
    
    
    283,301Deferred and prepaid financing fees (Note 3)
    
    
    4,448,794
    
    
    
    Mineral interests (Note 4)
    
    
    14,135,896
    
    
    
    13,206,552Capital assets
    
    
    166,491
    
    
    
    94,846$
    20,540,862
    
    
    $
    13,584,699Liabilities and Shareholders EquityCurrent liabilities:Bank indebtedness
    
    $
    
    
    
    $
    7,586Accounts payable and accrued liabilities
    
    
    305,403
    
    
    
    974,816Advances from shareholders
    
    
    342,781
    
    
    
    697,573Current portion of long term debt (Note 5)
    
    
    11,536
    
    
    
    1,642,200Note payable
    
    
    
    
    
    
    95,795659,720
    
    
    
    3,417,970Long term debt (Note 5)
    
    
    6,076,070
    
    
    
    Debentures (Note 6)
    
    
    4,636,272
    
    
    
    4,624,916Shareholders equity:Capital stock (Note 7)
    
    
    30,404,738
    
    
    
    23,457,480Deficit
    
    
    (21,235,938
    )
    
    
    (17,915,667
    )9,168,800
    
    
    
    5,541,813$
    20,540,862
    
    
    $
    13,584,699
 Approved by the Directors: Thomas Hendricks Director Art Daher, Director F-1




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CALAIS RESOURCES INC. Interim Consolidated Statements of Operations and Deficit
(Expressed in Canadian Dollars) (Unaudited) Three
    
    Three
    
    Nine
    
    Ninemonths
    
    months
    
    months
    
    monthsended
    
    ended
    
    ended
    
    endedFebruary 29
    
    February 28
    
    February 29
    
    February 282004
    
    2003
    
    2004
    
    2003Revenue
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Expenses (income):Accounting
    
    
    86,166
    
    
    
    
    
    
    
    118,198
    
    
    
    426Advertising
    
    
    9,763
    
    
    
    
    
    
    
    23,409
    
    
    
    273Amortization
    
    
    5,742
    
    
    
    1,358
    
    
    
    14,004
    
    
    
    4,075Automotive
    
    
    20,456
    
    
    
    
    
    
    
    20,456
    
    
    
    Bank charges and interest
    
    
    783,934
    
    
    
    68,614
    
    
    
    2,201,190
    
    
    
    510,907Foreign exchange loss
(gain)
    
    
    130,623
    
    
    
    (126,000
    )
    
    
    (169,906
    )
    
    
    (129,764
    )Freight and postage
    
    
    4,189
    
    
    
    548
    
    
    
    8,102
    
    
    
    3,051Gain on settlement of debts
    
    
    (45,105
    )
    
    
    
    
    
    
    (129,141
    )
    
    
    Insurance and licenses
    
    
    931
    
    
    
    
    
    
    
    10,568
    
    
    
    451Office and miscellaneous
    
    
    13,706
    
    
    
    1,518
    
    
    
    28,276
    
    
    
    13,021Professional fees
    
    
    152,577
    
    
    
    13,199
    
    
    
    321,440
    
    
    
    63,973Public relations
    
    
    
    
    
    
    808
    
    
    
    278
    
    
    
    2,400Rent
    
    
    6,644
    
    
    
    3,000
    
    
    
    11,762
    
    
    
    10,503Telephone and utilities
    
    
    23,311
    
    
    
    6,554
    
    
    
    39,463
    
    
    
    18,941Transfer agent fees
    
    
    2,223
    
    
    
    
    
    
    
    6,575
    
    
    
    3,939Travel
    
    
    83,663
    
    
    
    
    
    
    
    118,080
    
    
    
    1,618Wages and consulting fees
    
    
    602,109
    
    
    
    36,900
    
    
    
    702,849
    
    
    
    44,7891,880,932
    
    
    
    6,499
    
    
    
    3,325,603
    
    
    
    548,603Loss from operations
    
    
    (1,880,932
    )
    
    
    (6,499
    )
    
    
    (3,325,603
    )
    
    
    (548,603
    )Other income:Miscellaneous
    
    
    71
    
    
    
    5
    
    
    
    5,332
    
    
    
    1,530Net loss for the period
    
    
    (1,880,861
    )
    
    
    (6,494
    )
    
    
    (3,320,271
    )
    
    
    (547,073
    )Deficit, beginning of period
    
    
    (19,355,077
    )
    
    
    (17,864,387
    )
    
    
    (17,915,667
    )
    
    
    (17,323,808
    )Deficit, end of period
    
    $
    (21,235,938
    )
    
    $
    (17,870,881
    )
    
    $
    (21,235,938
    )
    
    $
    (17,870,881
    )Net loss per share, basic and diluted
    
    $
    (0.09
    )
    
    $
    (0.00
    )
    
    $
    (0.21
    )
    
    $
    (0.05
    )Weighted average common shares, basic and diluted
    
    
    19,689,725
    
    
    
    10,914,218
    
    
    
    16,082,509
    
    
    
    10,717,829
 F-2




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##### Table of Contents



CALAIS RESOURCES INC. Interim Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars) (Unaudited) Nine months ended
    
    Nine months endedFebruary 29
    
    February 282004
    
    2003Cash flows provided by (used in):Operations:Loss for the period
    
    $
    (3,320,271
    )
    
    $
    (547,073
    )Items not involving cash:Accretion interest expense
    
    
    39,270
    
    
    
    38,835Amortization
    
    
    14,004
    
    
    
    4,075Amortization of deferred and prepaid
financing fees
    
    
    2,350,858
    
    
    
    Shares issued for services
    
    
    520,235
    
    
    
    143,234Warrants issued (cancelled) for
services
    
    
    (205,645
    )
    
    
    205,645Gain on settlement of debts
    
    
    (129,141
    )
    
    
    Loss on settlement of accounts payable
and accrued liabilities with issuance
of shares
    
    
    
    
    
    
    1,911Foreign exchange gain
    
    
    (169,906
    )
    
    
    (129,764
    )Change in non-cash operating working capital:Restricted cash
    
    
    
    
    
    
    67,415Accounts receivable
    
    
    (708
    )
    
    
    Accounts payable, accrued liabilities
and foreign exchange adjustments
    
    
    (731,273
    )
    
    
    202,932(1,632,577
    )
    
    
    (12,790
    )Financing:Repayment of bank loans
    
    
    (1,642,200
    )
    
    
    Interim loan proceeds
    
    
    700,000
    
    
    
    Repayment of interim loan
    
    
    (700,000
    )
    
    
    Long term debt proceeds
    
    
    4,634,055
    
    
    
    Advances from (to) shareholders
    
    
    (354,792
    )
    
    
    83,861Debentures repaid
    
    
    (27,914
    )
    
    
    Issue of capital stock
    
    
    347,526
    
    
    
    90,021Note payable
    
    
    (95,795
    )
    
    
    96,2092,860,880
    
    
    
    270,091Investing:Mineral interests
    
    
    (914,607
    )
    
    
    (246,030
    )Additions to capital assets
    
    
    (95,486
    )
    
    
    (1,010,093
    )
    
    
    (246,030
    )Increase in cash
    
    
    218,210
    
    
    
    11,271Bank indebtedness, beginning of period
    
    
    (7,586
    )
    
    
    (9,399
    )Cash, end of period
    
    $
    210,624
    
    
    $
    1,872Supplementary cash flow information:Interest paid
    
    $
    54,987
    
    
    $
    104,447Income taxes paid
    
    
    
    
    
    
    Non-cash transactions:Common shares issued for financing fee
    
    
    6,280,242
    
    
    
    Amortization capitalized to mineral interests
    
    
    9,837
    
    
    
    20,521Common shares issued to settle accounts
payable and accrued liabilities
    
    
    
    
    
    
    38,800Common shares issued for mineral interests
    
    
    4,900
    
    
    
    82,000Accrued costs capitalized to mineral interests
    
    
    
    
    
    
    116,505
 F-3




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##### Table of Contents



CALAIS RESOURCES INC.
Notes to Interim Consolidated Financial Statements
Expressed in Canadian Dollars Nine months ended February 29, 2004
(Unaudited)  1.
    
    General and future operations:Calais Resources Inc. (the Company) was
incorporated under the laws of the Province of
British Columbia on December 30, 1986. The
Company is currently in the process of exploring
various mineral interests to determine whether
these interests contain ore reserves that are
economically recoverable. The recoverability of
the amounts shown for the mineral interests and
related deferred costs is dependent upon the
existence of economically recoverable reserves,
the ability of the Company to obtain necessary
financing to complete exploration and upon
future profitable production.These interim consolidated financial statements
have been prepared on a going concern basis in
accordance with Canadian generally accepted
accounting principles. The going concern basis
of presentation assumes that the Company will
continue in operation for the foreseeable future
and be able to realize its assets and discharge
its liabilities and commitments in the normal
course of business. There is doubt about the
appropriateness of the use of the going concern
assumption because the Company has experienced
losses and negative cash flow from operations
over a number of years and the Company has
significant immediate commitments to spend funds
on exploration.The Company is actively pursuing various
additional options with potential lenders and
investors which, if accepted, will in
managements view, enable the Company to achieve
its business plans. No agreements with
potential lenders or investors have been reached
yet and there can be no assurance that such
agreements will be reached.The ability of the Company to continue as a
going concern and to realize the carrying value
of its assets and discharge its liabilities when
due is dependent on the successful completion of
the actions taken or planned, which management
believes will mitigate the adverse conditions
and events which raise doubt about the validity
of the going concern assumption used in
preparing these financial statements. As is
common with companies with negative cash flows
and losses, there is no certainty that these and
other strategies will be sufficient to permit
the Company to continue beyond February 28,
2005.The financial statements do not reflect
adjustments that would be necessary if the
going concern assumption were not appropriate.
If the going concern basis was not
appropriate for these financial statements, then
adjustments would be necessary in the carrying
value of assets and liabilities, the reported
revenues and expenses, and the balance sheet
classifications used. F-4




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##### Table of Contents



2.
    
    Significant accounting policies:(a)
    
    Basis of consolidation:These financial statements include the accounts of the Company and its wholly-owned subsidiaries, Calais International Inc., Calais Resources Nevada Inc., and Calais
Resources Colorado Inc. All material inter-company transactions and balances have been eliminated.(b)
    
    Basis of presentation:The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B, and, therefore,
do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and changes in stockholders
equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Readers of these financial statements should
read the annual audited financial statements of the Company filed on Form 20-F in conjunction herewith. Operating results for the nine months ended February 29, 2004 are
not necessarily indicative of the results that can be expected for the year ended May 31, 2004.(c)
    
    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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the year. Significant areas requiring the use of management estimates relate to the determination of the net recoverable value of assets,
including inventory obsolescence provisions, asset impairment and provisions for contingencies. Actual results could differ from those estimates.(d)
    
    Cash equivalents:Cash equivalents consist of short-term deposits with terms to maturity of ninety days or less when acquired.(e)
    
    Financial instruments:The Companys financial instruments consist of cash and cash equivalents, bank indebtedness, accounts receivable, accounts payable and accrued liabilities, note payable,
bank loans, debentures and advances from shareholders. Unless otherwise noted, it is managements opinion that the Company is not exposed to significant interest,
currency or credit risks arising from these financial instruments except for foreign exchange risk on its bank loans (Note 5). The fair values of these financial
instruments approximate their carrying values, unless otherwise noted.(f)
    
    Mineral interests: F-5




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##### Table of Contents



The Company is engaged in the acquisition and exploration of mineral properties. All acquisition, exploration and related direct overhead expenditures are deferred and
will be depleted over the estimated life of the property. The estimated life of a mineral interest depends on whether the mineral interest contains economically
recoverable reserves that can be brought into production. The costs relating to a mineral interest abandoned are written off when the decision to abandon is made.The total amount recorded for mineral interests and deferred exploration expenditures represents costs incurred to date and does not reflect present or future values.Proceeds from disposition of mineral interests are normally credited to the capitalized costs with no gain or loss being recognized unless the sale is significant to the
capitalized property costs. For such significant dispositions, a gain or loss would be recognized.In March 2000, the Accounting Standards Board of the Canadian Institute of Chartered Accountants (CICA) issued Accounting Guideline No. 11 entitled Enterprises in the
Development Stage  (AcG 11). The guideline addresses three distinct issues: (i) capitalization of costs/expenditures, (ii) impairment and (iii) disclosure. Prior to
its issuance, development stage entities were exempt from following certain aspects of Canadian GAAP. AcG 11 requires that all companies account for transactions based
on the underlying characteristics of the transaction rather than the maturity of the enterprise. In addition, AcG 11 requires specific disclosure of information by
development stage companies.In March 2002, the Emerging Issues Committee of the CICA issued EIC-126  Accounting by Mining Enterprises for Exploration Costs which interprets how AcG 11 affects
mining companies with respect to the deferral of exploration costs. EIC-126 refers to CICA Handbook Section 3061 Property, Plant and Equipment, paragraph .21, which
states that for a mining property, the cost of the asset includes exploration costs if the enterprise considers that such costs have the characteristics of property,
plant and equipment. EIC-126 then states that a mining enterprise that has not established mineral reserves objectively, and therefore does not have a basis for
preparing a projection of the estimated cash flow from the property is not precluded from considering the exploration costs to have the characteristics of property, plant
and equipment. EIC-126 also sets forth the Committees consensus that a mining enterprise in the development stage is not required to consider the conditions in AcG-11
regarding impairment in determining whether exploration costs may be initially capitalized. With respect to impairment of capitalized exploration costs, EIC-126 sets
forth the Committees consensus that that a mining enterprise in the development stage that has not established mineral reserves objectively, and therefore does not have
a basis for preparing a projection of the estimated cash flow from the property is not obliged to conclude that capitalized costs have been impaired.However, such an enterprise should consider the conditions set forth in AcG-11 and CICA Handbook Section 3061 in determining whether subsequent write-down of capitalized
exploration costs related to mining properties is required. F-6




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##### Table of Contents



The Company considers that exploration costs have the characteristics of property, plant and equipment, and, accordingly, defers such costs. Furthermore, pursuant to
EIC-126, deferred exploration costs would not automatically be subject to regular assessment of recoverability, unless conditions, such as those discussed in AcG 11
exist.AcG 11 also provides guidance on measuring impairment of when pre-operating costs have been deferred. While this guidance is applicable, the Company does not believe its
application will result in impairment.(g)
    
    Foreign currency:Monetary items denominated in foreign currency are translated to Canadian dollars at exchange rates in effect at the balance sheet date and non-monetary items are
translated at rates of exchange in effect when the assets were acquired or obligations incurred. Revenues and expenses are translated at rates in effect at the time of
the transactions. Foreign exchange gains and losses are included in income.(h)
    
    Net loss per share:Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted loss per share is computed using the
weighted average number of common shares and potentially dilutive common shares outstanding during the period. As the Company has a net loss in all periods presented,
basic and diluted net loss per share are the same.(i)
    
    Stock-based compensation:The Company has no formal stock-based compensation plans. Prior to June 1, 2002 the Company applied the settlement method for all stock-based compensation awards. Under
the settlement method, no compensation expense is recognized for these plans when stock or stock options are issued to employees. Consideration paid by employees on the
exercise of stock options is credited to common shares. For consideration paid to an employee for the repurchase of stock options, the excess of the consideration paid
over the carrying amount of the stock option cancelled is charged to retained earnings.Effective June 1, 2002, the Company adopted new CICA section 3870, Stock-Based Compensation and Other Stock-Based Payments. This section establishes standards for the
recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services. The standard requires the
fair value based method of account for certain, but not all, stock-based transactions. The standard permits, and the Company has elected, for stock option grants to
employees and directors to continue to be accounted for using the settlement method.The fair value of options granted to employees in the nine months ended February 29, 2004 was $1.17 (nine months ended February 28, 2003  $0.31) per share.Pro forma net loss and pro forma net loss per share after consideration of fair market value of share options granted is as follows: F-7




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##### Table of Contents



Three months
    
    Three months
    
    Nine months
    
    Nine monthsended
    
    ended
    
    ended
    
    endedFebruary 29,
    
    February 28,
    
    February 29,
    
    February 28,2004
    
    2003
    
    2004
    
    2003Net loss, as reported
    
    $
    (1,880,861
    )
    
    $
    (6,494
    )
    
    $
    (3,320,271
    )
    
    $
    (547,073
    )Add:Stock-based employee
compensation expense
included in net
loss, net of related
tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deduct:Total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of tax
    
    
    
    
    
    
    
    
    
    
    (1,288,200
    )
    
    
    (25,375
    )Pro forma loss
    
    $
    (1,880,861
    )
    
    $
    (6,494
    )
    
    $
    (4,608,471
    )
    
    $
    (572,448
    )Pro forma loss per share, basic and
diluted
    
    $
    (0.09
    )
    
    $
    (0.00
    )
    
    $
    (0.29
    )
    
    $
    (0.05
    )
 Stock-based compensation is calculated based upon the following weighted average assumptions: Three months
    
    Three months
    
    Nine months
    
    Nine monthsended
    
    ended
    
    ended
    
    endedFebruary 29,
    
    February 28,
    
    February 28,
    
    February 28,2004
    
    2003
    
    2004
    
    2003Expected life of options
    
    
    
    
    
    
    
    
    
    4.7 years
    
    2.0 yearsExpected stock price volatility
    
    
    
    
    
    
    
    
    
    
    298
    %
    
    
    329
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    0
    %
    
    
    0
    %Risk free interest rate
    
    
    
    
    
    
    
    
    
    
    4.83
    %
    
    
    3.55
    %
 F-8




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##### Table of Contents



3.
    
    Deferred and prepaid financing fees February 29,2004
    
    May 31, 2003(Unaudited)Deferred and prepaid financing fees consist of the following:Deferred financing fee
    
    $
    6,280,242
    
    
    $
    Prepaid interest (Note 5(b))
    
    
    1,814,458
    
    
    
    8,094,700
    
    
    
    Less: Accumulated amortization
    
    
    (2,350,858
    )
    
    
    5,743,842
    
    
    
    Less: Current portion
    
    
    (1,295,048
    )
    
    
    $
    4,448,794
    
    
    $
    
  Deferred and prepaid financing fees is being amortized on a straight line basis over two years, the term of the related debt.4.
    
    Mineral Interests February 29,2004
    
    May 31, 2003(Unaudited)Nevada U.S.A.
    
    $
    3,608,796
    
    
    $
    3,449,004Colorado, U.S.A.
    
    
    9,989,069
    
    
    
    9,466,230Panama, Central America
    
    
    538,031
    
    
    
    291,318$
    14,135,896
    
    
    $
    13,206,552
  Title to mineral interests involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristics of
many mineral interests. The Company has investigated title to all of its mineral interests and, to the best of its knowledge, title to all of its mineral interests are in good standing, except for the Nevada interests as described below. All of
the interests in are located outside Canada. The Company is therefore relying on title opinions by legal counsel who are basing such opinions on the laws of the respective country.(a)
    
    Nevada, U.S.A.: F-9




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##### Table of Contents



In December 1994, the Company paid US$1,176,000 to a then director for a 51% interest in various properties in Nevada known as the Manhattan project. The Company also agreed to acknowledge the 5% net smelter return royalty on certain claims in
that project to the previous director. It appears that the director owned no interest in these properties at that time, although he believes that he had and still has rights to acquire interests in those properties. We are attempting to determine
title to these properties. In October 2003 we received some title information relating to these properties which consist of 28 patented mining claims and 147 unpatented mining claims. Certain of these claims overlie other claims. Based on the
preliminary research done to date, the claims appear to be owned of record by one or more of the following (collectively, the Manhattan Parties): - Argus Resources, Inc. (a Nevada corporation affiliated with Marlowe Harvey who advises the Company that he and his spouse indirectly owns approximately 26% of the outstanding Argus Resources stock), - Nevada Manhattan Mines, Inc. (a publicly-held Nevada corporation which appears not to have filed any reports with the Securities and Exchange Commission since April 10, 2000), - White Cap Mines, Inc. (a Nevada corporation owned by Marlowe Harvey), and - an individual named Anthony Selig of Las Vegas, Nevada and various entities owned by Mr. Selig. Based on a preliminary review of the documents, it appears that Calais has at best a right to acquire the properties.  The Company entered into an agreement and settlement dated September 7, 2000 with Nevada Manhattan Mining Incorporated (NMMI) to settle and purchase its interest in the property (the NMMI Settlement) in which the Company agreed to make four
annual payments of US$75,000. During the term of the agreement the Company has agreed to pay NMMI a 2% net smelter return royalty. The Company can purchase the entire NMMI interest and royalty for US$7.5 million, payable over 30 years. The total
amount payable would be reduced by any production royalties paid.In March 2004, we entered into a settlement agreement with the Manhattan Parties by which they agreed to convey all of their interests in the Manhattan project to Calais. The Manhattan Parties also agreed to convey, help to convey, or cause
others to convey the Manhattan project to Calais so that Calais will receive title to the entire right, title and interest (a 100% interest) in the Manhattan project. The Manhattan Parties agreed to complete this by December 31, 2005. Calais
agreed to issue 250,000 shares to the Manhattan Parties upon accomplishment of the transference of marketable title, and an additional 2,500,000 shares should Calais work on the property establish at least 2,000,000 ounces of Indicated or Measured
Mineral Resources as determined by a Qualified Person in accordance with Canadian standards. Calais agreed to perform certain exploration work upon the receipt of marketable title.Calais has continued to maintain those properties for several years by paying property taxes on the patented mining claims, the assessment work obligations on the unpatented claims and has made the required annual payments to NMMI under the NMMI
Settlement agreement.(b)
    
    Colorado, U.S.A.: F-10




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##### Table of Contents



Included in the Colorado mineral interests is a 100% working interest in the Consolidated Caribou-Cross-Comstock-Panadora district mine area which the Company acquired in 1997 for US $4,000,000 in stock, cash and final property payments. After
acquisition of 100% working interest the seller retains a 2% net smelter royalty interest in the property. The Company has the right to buy-back half of the net smelter royalty (1%) for US $750,000. During 2000, the Company acquired 100%
ownership of 10 patented claims that are continuations of the historic Boulder County and Cardinal vein systems. The Colorado mineral interests contain a well-documented mineral resource (determined in accordance with Canadian Standards) of
424,500 ounces of gold and 11,725,000 ounces of silver.As a result of agreements entered into in 2000 to provide financing to Calais, Aardvark Agencies, Inc. (AAI) owns a portion of the Caribou property. The parties clarified the earlier agreements in March 2004, and as a result Calais may
repurchase (through August 31, 2011) by repaying the Cdn$747,728 debenture (included in the debentures described in Note 6) that AAI holds (subject to the holders right to convert the debenture into Calais common stock in accordance with the terms
of the debenture). During the period of time that Aardvark owns the property, Calais may enter upon the property, explore for minerals, use the Aardvark properties as collateral, and produce any minerals found for Calais own account. If Calais
fails to exercise the option to reacquire the properties by August 31, 2011, the parties have agreed to extend the purchase option an additional ten years if Calais also extends the debenture held by Aardvark during the same period.(c)
    
    Panama, Central America:Pursuant to an agreement dated October 6, 2000, the Company received an option to purchase a 40,000 acre mineral concession in an historic gold producing district of Panama with Panama Mining of Golden Cycle of Panama Incorporated (PMGC). The
Company acquired concessions to 61,000 acres in the eastern Veraguas district of Panama in 2001 through a five-year lease agreement with PMGC and a related company, Golden Cycle of Panama, Inc. (GCP). The prior agreements were cancelled in a new
agreement the Company entered into on February 28, 2003 entitled a Purchase Option Agreement. As consideration for the Purchase Option Agreement, we paid the following: - 200,000 shares of stock issued to the two owners of PMGC and GCP (including 100,000 shares initially issued in 2000), - US$10,000 paid to the two owners; and - assumed US$15,750 of the sellers payables to third parties. F-11




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##### Table of Contents



The Company is committed to perform certain work on the properties. As a result of an extension agreement entered into on January 31, 2004, we have an obligation to complete a $250,000 exploration program for lode deposits by September 25, 2004,
and an additional $250,000 program to explore for placer gold deposits and install a pilot placer operation. We also hired a shareholder of the sellers, Herbert Hendricks, to oversee the project, and we have been paying him US$3,500 per month to do
so. Herbert Hendricks is the brother of our president, Thomas Hendricks, but they do not share the same home, they make independent business decisions, and are not otherwise affiliated.To exercise the option and acquire the lode prospect or the placer prospect, the Company must commence production of gold from the respective prospect. The terms of acquisition for the two prospects are different: - to acquire the lode prospect, the Company must pay the sellers a royalty equal to 2% net smelter return from all lode minerals produced from the properties until the sellers have received a total of US$5,000,000. At that time, the Company will
have acquired the properties and the net smelter return will be terminated. Alternatively, prior to August 28, 2004, Calais may purchase the properties from the sellers for a $2,500,000 cash payment and a continuing 0.5% net smelter return. - to acquire the placer prospect, the Company must pay the sellers a royalty equal to 6% of the gross revenues from placer mineral production until the sellers have received a total of US$5,000,000. Thereafter, the royalty will be reduced to 1%
for the life of the placer production.  In the Purchase Option Agreement, the Company agreed to keep all properties in good and clean standard, to pay all taxes, and to comply with other governmental requirements. In the extension agreement, the sellers warranted that they had taken all
necessary steps to properly register, document or record the Purchase Option Agreement and that they will take such steps with respect to the extension. If the Company defaults on its obligations, the Purchase Option Agreement gives the sellers
the right to provide 30 days notice of our right to cure the default and, if the Company fails to cure the default or contests the default, the agreement will be terminated.5.
    
    Bank loans:The loan balances are as follows: February 29,
    
    May 312004
    
    2003(Unaudited)Peak National Bank, US $1,200,000 loan (a)
    
    $
    
    
    
    $
    1,642,200Broadway Mortgage LLC, US $4,500,000 mortgage (b)
    
    
    6,025,950
    
    
    
    Finance contracts (c)
    
    
    61,656
    
    
    
    6,087,606
    
    
    
    1,642,200Less: current portion
    
    
    11,536
    
    
    
    (1,642,200
    )$
    6,076,070
    
    
    $
    
 F-12




---



##### Table of Contents



(a)
    
    Peak National Bank:Loan payable with interest only payments at 10.5% per annum. Principal of US $1,200,000 due in full on December 16, 2002; secured by deed of trust over mineral properties. At May 31, 2003 the Company was in
default with respect to this loan and, as a result, the bank had the
option to increase the interest rate on the loan to 24% per
annum.
During the period the Company reached an agreement with the bank, and paid all arrears interest and a US $120,000 principal repayment. As a result of this payment the due date of the loan was extended to December
16, 2003 and the bank waived its right to the 24% interest rate.During August 2003, the balance outstanding on the loan of US $1,080,000 plus accrued interest was repaid in full.(b)
    
    Broadway Mortgage LLC:In August 2003, the Company obtained US $4,500,000 in financing by way of a first mortgage on the Colorado, U.S.A. mineral interests. The total amount includes two years prepaid interest at a rate of 12.9% per
annum or approximately US $1,161,000 providing net cash funding to the Company of approximately US $3,339,000.  The net cash proceeds of US $3,339,000 were used as follows: Repayment of remaining bank loan (Note 5(a))
    
    
    $US1,080,000Repayment of interim mortgage (Note 8)
    
    
    588,000Repayment of trade payables
    
    
    700,000Working capital
    
    
    876,000Financing costs
    
    
    95,000$US3,339,000
  As consideration for this financing, the Company also issued 8,181,818 shares of stock valued at the fair value of common shares on the date of agreement requiring the issuance of vested common shares of US $0.55 per share for a total financing fee
of US $4,500,000 (or $6,280,242). 1,500,000 of these shares are to be placed in escrow by the lender and are to be used to satisfy the debt if and when the Companys average share price reaches US $3.00 per share. The loan, if not repaid from the
sale of escrowed shares, is due in full on July 31, 2005.(c)
    
    Finance ContractsFinance contracts payable in monthly instalments of US $971 plus interest at 4.48% to 5.75%; secured by specific equipment.6.
    
    Debentures: February 29,
    
    May 31,2004
    
    2003(Unaudited)Debentures payable, without interest, due May 2011, convertible to common
shares at an conversion price of $1.23 per share at holders
discretion; unsecured
    
    $
    5,069,191
    
    
    $
    5,097,105Less: Cumulative accretion remaining
    
    
    (432,919
    )
    
    
    (472,189
    )$
    4,636,272
    
    
    $
    4,624,916
 F-13




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##### Table of Contents



Accretion expense to the face value of the debenture debt of
$39,270 (February 28, 2003 - $38,835) has been included in interest and bank charges for the period.
All debentures are held by companies or persons related to a shareholder and director. It is not practicable to determine the fair value of the debentures and advances from shareholders due to their related party nature and the absence of a
secondary market for such instruments.In a March 2004 agreement, the Company agreed to present to its shareholders the question of whether the conversion price of the debentures should be repriced from Cdn$1.23 to US$0.55. If approved by the disinterested shareholders of the Company,
the repricing will be effective immediately. Calais has not yet scheduled the meeting, and any proxy solicitation for such meeting will be done in accordance with applicable US and Canadian law. If the shareholders approve the repricing of the
Conversion price of the debentures, an additional beneficial conversion feature may arise.7.
    
    Share capital:  (a)
    
    Authorized: 100,000,000 Common shares without par value(b)
    
    Issued and outstanding shares: Numberof shares
    
    AmountBalance, May 31, 2003
    
    
    11,193,385
    
    
    $
    23,457,480Issued for services
    
    
    245,750
    
    
    
    558,515Issued for cash
    
    
    80,000
    
    
    
    124,741Issued for acquisition of mineral
interests
    
    
    2,000
    
    
    
    4,900Cancelled warrants previously
issued for services
    
    
    
    
    
    
    (205,645
    )Cancelled shares previously issued
for services
    
    
    (87,000
    )
    
    
    (38,280
    )Issued on exercise of warrants
    
    
    62,500
    
    
    
    69,785Issued on exercise of options
    
    
    340,000
    
    
    
    153,000Issued for financing fee (Note 5(b))
    
    
    8,181,818
    
    
    
    6,280,242Balance, February 29, 2004
    
    
    20,018,453
    
    
    $
    30,404,738
  Included in issued and outstanding capital stock are 150,000 contingently cancelable shares that are held in escrow and may not be traded without regulatory approval and 1,500,000 shares held in escrow to repay bank loans (Note
5(b)).During the period, the Company settled an advisory services agreement with a financial consulting firm and cancelled 87,000 shares and 486,303 warrants that had previously been issued for the services.(c)
    
    Stock options: F-14




---



##### Table of Contents



Weightedaverageexercise priceDate
    
    Number
    
    per shareIssued and outstanding, May 31, 2003
    
    
    981,500
    
    $
    CDN 0.54Exercised in the period
    
    
    (340,000
    )
    
    CDN (0.45)Expired in the period
    
    
    (509,000
    )
    
    CDN (0.49)Issued in the period- to a director
    
    
    100,000
    
    $
    US 0.32- to an employee
    
    
    500,000
    
    $
    US 3.00- to an employee
    
    
    500,000
    
    $
    US 5.00Balance, February 29, 2004
    
    
    1,232,500
    
    $
    CDN  4.48
 F-15




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##### Table of Contents



Options outstanding and exercisable at February 29, 2004 are as follows: WeightedExercise
    
    
    
    
    
    averageprice
    
    
    
    
    
    remainingNumber
    
    per share
    
    Expiry date
    
    contractual lifeDirector options
    
    
    82,500
    
    
    $CDN1.26
    
    November 2004
    
    0.8 yearsDirector options
    
    
    50,000
    
    
    $CDN0.45
    
    August 2005
    
    1.5 yearsDirector options
    
    
    100,000
    
    
    $   US0.32
    
    August 2008
    
    4.5 yearsEmployee options
    
    
    500,000
    
    
    $   US3.00
    
    August 2013
    
    9.5 yearsEmployee options
    
    
    500,000
    
    
    $   US5.00
    
    August 2013
    
    9.5 years1,232,500
    
    
    
    
    
    
    
    
    
    
    8.2 years
  (d)
    
    Warrants: Weightedaverageexercise priceNumber
    
    per shareIssued and outstanding, May 31, 2003
    
    
    548,803
    
    
    US $0.81Exercised in the period
    
    
    (62,500
    )
    
    US (0.80)Cancelled in the period
(Note 7(b))
    
    
    (486,303
    )
    
    US (0.81)Issued in the period
    
    
    80,000
    
    
    US  1.50Balance, February 29, 2004
    
    
    80,000
    
    
    US $1.50
  Warrants outstanding at February 29, 2004 are as follows: WeightedaverageExercise
    
    
    
    
    
    remainingprice per
    
    Expiry
    
    contractualNumber
    
    warrant
    
    date
    
    life80,000
    
    US $1.50
    
    October 2005
    
    1.7 years(i)
  (i)
    
    In accordance with the warrant agreement, the exercise price increases to US $2.00 per share if warrants are not exercised before November 1, 2004.  8.
    
    Related party transactions:The Company paid a director $nil (nine months ended
February 28, 2003 - $9,000) for office rent.This transaction is in the normal course of operations and is measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.During the period a director obtained a personal mortgage in the amount of US $587,680 and lent the funds to the company in order to assist the company to meet certain obligations (the interim
loan). Prepaid interest and fees of US $87,680 were withheld, providing net cash funding of US $500,000 to the Company. The interim loan was repaid by the Company during the period upon
receipt of the bank loan proceeds described in Note 5(b). F-16




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##### Table of Contents



Subsequent to the period end, as described in Note 4(b), on March 8, 2004, the Company entered into an agreement with the Marlowe and Judy Harvey and their affiliated companies (the Harvey
Parties) by which Calais and the Harvey Parties resolved a number of issues that have arisen between them some of which have been previously discussed in Calais Form 20-F and other reports. Under
the agreement: - the Harvey Parties and Calais agreed on a more precise definition of Calais right (which expires August 31, 2011) to repurchase the interest of AAI in the Caribou properties, including the price
payable for the reacquisition (a total of Cdn$747,728 which is included in the debentures in Note 6) and AAIs right to convert that debenture before it is paid;

 - further defining Calais right to borrow against, enter in and upon those properties, construct buildings and mines on those properties, and remove and sell minerals from those properties for
Calais own account; - the Harvey Parties have agreed to assign their interests in the Manhattan project to Calais and agreed to help to convey, or cause others to convey the Manhattan project to Calais so that Calais
will receive title to the entire right, title and interest (a 100% interest) in the Manhattan project (no later than December 31, 2005) from the Manhattan Parties. The Manhattan Parties have not
formally made this assignment yet. Upon receipt of the initial assignment, Calais will pay Argus Resources, Inc. 250,000 shares of Calais restricted stock. Calais agreed to undertake certain
drilling obligations after receiving good title, and to issue the greater of 5% of the then outstanding or 2,500,000 shares of common stock to Argus Resources, Inc., if Calais identifies gold or
gold equivalent mineral resources (as determined in accordance with Canadian standards) exceeding 2,000,000 ounces. - the Harvey Parties agreed to comply with their shareholder filing obligations in the United States and Canada (if any) not later than April 30, 2004. Mr. Harvey has also returned a stock option
agreement to Calais which defines the option to acquire 82,500 shares of Calais common stock granted to him in November 2002 which he continues to hold. That option expires on November 15, 2004,
and has an exercise price of US$0.80 per share (see Note 7(c)). - Calais agreed to propose to its shareholders at its next shareholder meeting that the conversion price of the debentures be repriced from Cdn$1.23 to US$.55. - Calais agreed to retain Mr. Harvey as a consultant for one year at US$3,000 per month. In addition, Calais, and the Harvey Parties entered into mutual releases. Calais has previously announced that it does not intend to expend any significant exploration dollars on the Manhattan
property until such time as it has received further assurances as to title. F-17




---



##### Table of Contents



9. Contingency: A verbal claim has been made, against the Company, for past wages and expenses by a former employee and director of the Company in the amount of US
$544,700. According to a letter, recently discovered by the Company, from the former director and employee, he acknowledged that the purpose of the his
employment agreement, is solely for the purpose of personal mortgage financing and that the terms are not to be enforced by me or my estate. The
former director and employee also stated that I personally undertake to not deposit or draw against [any remuneration payments made under the agreement]
until we do a private placement. At that time the Company cheque or cheques would be deposited and an equivalent or increased cheque immediately written
back to Calais as part of the private settlement. As a result, the Company disputes the validity of the verbal claim and believes it is without merit;
accordingly, any actual liability is undeterminable at this time. The settlement amount, if any, will be recorded in the period the claim is settled. 10. Reconciliation with United States Generally Accepted Accounting Principles: Generally accepted accounting principles (GAAP) and practices in the United States of America (U.S. GAAP) differ in certain respects from Canadian
GAAP. Differences which may materially affect these consolidated financial statements are:  (a)
    Mineral interest exploration expenditures:Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets in
the U.S. requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for recoverability, the Company is to estimate the future
cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is measured, equal to the
excess of the carrying amount over the fair value of the assets. SFAS 144 requires mineral property exploration costs to be expensed as
incurred until commercially minable deposits are determined to exist within a particular property as cash flows cannot be reasonably
estimated prior to such determination.Accordingly, for all periods presented, the Company has expensed exploration costs incurred for U.S. GAAP purposes. Once proved and
probable reserves are established, capitalization of related costs would commence. This is significantly different from the accounting
policy under Canadian GAAP, as detailed in the mineral interests significant accounting policy note.
Under U.S. GAAP, additional exploration costs for mineral interests that would be written off are as follows: February 29
    
    May 312004
    
    2003(Unaudited)Mineral exploration costs
    
    $
    929,344
    
    
    $
    496,681
 F-18




---



##### Table of Contents



b)
    Stock-based compensation: Statement of Financial Accounting Standards No. 123 (SFAS 123) requires that stock-based compensation be accounted for based on a fair
value methodology, although it allows the effects to be disclosed in the notes to the financial statements rather than in the statement
of operations for employee awards. SFAS 123 allows an entity to continue to measure compensation costs for employee stock-based
compensation plans using the intrinsic value based method of accounting as prescribed by APB Opinion No. 25 (APB 25) and related
interpretations. The Company has elected to measure compensation cost for those employee plans using APB 25. As such, compensation
expense under fixed plans is recorded only if the market value of the underlying stock at the date of granting exceeds the exercise
price. If the exercise price of a fixed option award is reduced, the award is accounted for as a variable award from the date of
modification to the final measurement date upon which the award is exercised, is forfeited, or expires unexercised. Compensation cost
is adjusted in subsequent periods up to the measurement date for changes in the quoted market price. The Company follows the settlement
method under Canadian GAAP and as a result no compensation expense is recognized for employee awards. Compensation expense recognized for employee fixed and variable awards after applying the intrinsic value method and the fair value of
non-employee awards for the nine month period ended February 29, 2004 would be $573,575 (nine month period ended February 28, 2003 -
$160,012) under U.S. GAAP. Pro forma net loss and pro forma net loss per share after consideration of fair market value of share options granted under US GAAP is
as follows: Three months
    
    Three months
    
    Nine months
    
    Nine monthsended
    
    ended
    
    ended
    
    endedFebruary 29, 2004
    
    February 28, 2003
    
    February 29, 2004
    
    February 28, 2003Net loss under US GAAP
    
    $
    (2,092,069
    )
    
    $
    (391,550
    )
    
    $
    (4,783,920
    )
    
    $
    (1,133,306
    )Add:Stock based employee compensation expense
included in net loss, net of related tax
effects
    
    
    
    
    
    
    237,143
    
    
    
    573,575
    
    
    
    160,012Deduct:Total stock based employee compensation
expense determined under fair value based
method for all awards, net of tax
    
    
    
    
    
    
    
    
    
    
    (1,288,200
    )
    
    
    (25,375
    )Pro forma loss under US GAAP
    
    $
    (2,092,069
    )
    
    $
    (154,407
    )
    
    $
    (5,498,545
    )
    
    $
    (998,669
    )Pro forma loss per share,
basic and diluted
    
    $
    (0.11
    )
    
    $
    (0.01
    )
    
    $
    (0.34
    )
    
    $
    (0.09
    )
 F-19




---



##### Table of Contents



Stock based compensation is calculated based upon the following weighted average assumptions: Three months
    
    Three months
    
    Nine months
    
    Nine monthsended
    
    ended
    
    ended
    
    endedFebruary 29, 2004
    
    February 28, 2003
    
    February 29, 2004
    
    February 28, 2003Expected life of options
    
    
    
    
    
    
    
    
    
    4.7 years
    
    2.0 yearsExpected stock price
volatility
    
    
    
    
    
    
    
    
    
    
    298
    %
    
    
    329
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    0
    %
    
    
    0
    %Risk free interest rate
    
    
    
    
    
    
    
    
    
    
    4.83
    %
    
    
    3.55
    %
  (c)
    
    The Company has 150,000 common shares held in escrow. The release of the shares is contingent on certain conditions. Compensation
under U.S. GAAP, if any, is recognized when the contingency is resolved and the shares are released from escrow based upon value of the
shares as they become releasable. As at February 29, 2004, no shares are releasable from escrow. No similar compensation expense would
be recognized under Canadian GAAP.The Company has 1,500,000 common shares held in escrow related to the financing described in Note 5(b). The release of these shares
will not result in compensation under US or Canadian GAAP.Under Canadian and U.S. GAAP, the 150,000 escrowed shares have been excluded from the weighted average number of common shares
outstanding for purposes of the loss per share calculation.(d)
    
    Fair value conversion option:Under Canadian GAAP a fair value conversion option is recorded for all convertible debentures. Under U.S. GAAP, a beneficial conversion
option is only recorded if the option is in the money at the date of the transaction. No beneficial conversion option exists with
respect to the Companys outstanding indebtedness at February 29, 2004.(e)
    
    Under Canadian GAAP, future tax assets and liabilities are recorded at substantially enacted tax rates. Under U.S. GAAP, deferred tax
assets and liabilities are recorded at enacted tax rates. Recording Canadian deferred tax assets and liabilities at enacted tax rates
would not change recorded net assets or shareholders equity under U.S. GAAP.(f)
    
    Under Canadian GAAP, accounting for asset retirement obligations is not effective until year ends commencing on or after January 1,
2004. Under US GAAP, accounting for asset retirement obligations became effective for the Company in the current period. The Company
has determined that its financial statements are not materially impacted by adopting the standards for asset retirement obligations
under US GAAP and there would be no material difference if Canadian GAAP was early adopted. F-20




---



##### Table of Contents



(g)
    
    The following table presents the consolidated balance sheet, statement of operations and deficit, and cash flows under U.S. GAAP: February 29
    
    May 312004
    
    2003Balance Sheet
    
    (Unaudited)Total assets under Canadian GAAP
    
    $
    20,540,862
    
    
    $
    13,584,699Adjustments to mineral interest exploration
expenditures (a)
    
    
    (14,135,896
    )
    
    
    (13,206,552
    )Total assets under U.S. GAAP
    
    $
    6,404,966
    
    
    $
    378,147Total liabilities under Canadian GAAP
    
    $
    11,372,062
    
    
    $
    8,042,886Canadian
GAAP - fair value conversion option (d)
    
    
    432,919
    
    
    
    472,189Total liabilities under U.S. GAAP
    
    
    11,804,981
    
    
    
    8,515,075Share capital, Canadian GAAP
    
    
    30,404,738
    
    
    
    23,457,480Gain on sale of subsidiary
    
    
    (430,000
    )
    
    
    (430,000
    )Stock-based compensation (b)
    
    
    838,407
    
    
    
    264,832Fair value conversion option (d)
    
    
    (575,173
    )
    
    
    (575,173
    )Share capital, U.S. GAAP
    
    
    30,237,972
    
    
    
    22,717,139Accumulated deficit, U.S. GAAP
    
    
    (35,637,987
    )
    
    
    (30,854,067
    )Shareholders deficiency, U.S. GAAP
    
    
    (5,400,015
    )
    
    
    (8,136,928
    )Shareholders deficiency and liabilities under U.S. GAAP
    
    $
    6,404,966
    
    
    $
    378,147
 Statement of Operations and Deficit Cumulative
    
    Three months
    
    Three months
    
    Nine months
    
    Nine months endedfrom inception to
    
    ended
    
    ended
    
    ended
    
    endedFebruary 29,
    
    February 29,
    
    February 28,
    
    February 29,
    
    February 28,2004
    
    2004
    
    2003
    
    2004
    
    2003Net loss under Canadian GAAP
    
    $
    (21,235,938
    )
    
    $
    (1,880,861
    )
    
    $
    (6,494
    )
    
    $
    (3,320,271
    )
    
    $
    (547,073
    )Adjustments:Mineral interest exploration expenditures
    
    
    (14,135,896
    )
    
    
    (224,298
    )
    
    
    (160,858
    )
    
    
    (929,344
    )
    
    
    (465,056
    )Gain on sale of subsidiary
    
    
    430,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    (838,407
    )
    
    
    
    
    
    
    (237,143
    )
    
    
    (573,575
    )
    
    
    (160,012
    )Fair value conversion option
    
    
    142,254
    
    
    
    13,090
    
    
    
    12,945
    
    
    
    39,270
    
    
    
    38,835Net loss, being comprehensive loss, under
U.S. GAAP
    
    
    (35,637,987
    )
    
    
    (2,092,069
    )
    
    
    (391,550
    )
    
    
    (4,783,920
    )
    
    
    (1,133,306
    )Accumulated opening deficit under U.S.
GAAP
    
    
    
    
    
    
    (33,545,918
    )
    
    
    (30,603,227
    )
    
    
    (30,854,067
    )
    
    
    (29,861,471
    )Ending deficit, U.S. GAAP
    
    $
    (35,637,987
    )
    
    $
    (35,637,987
    )
    
    $
    (30,994,777
    )
    
    $
    (35,637,987
    )
    
    $
    (30,994,777
    )Net loss per share, basic and diluted,
U.S. GAAP
    
    
    
    
    
    $
    (0.11
    )
    
    $
    (0.04
    )
    
    $
    (0.30
    )
    
    $
    (0.11
    )
 F-21




---



##### Table of Contents



(g)
    
    Statement of cash flows:For Canadian GAAP, cash flows relating to mineral interest exploration expenditures are reported as investing
activities. For U.S. GAAP purposes, these costs would be characterized as operating activities. Under U.S.
GAAP financing activities would include financing through the Companys bank indebtedness. Accordingly, the
effect of these differences on the statements of cash flows are summarized as follows: NineNine

    
    monthsmonths ended
    
    endedFebruary 29
    
    February 282004
    
    2003Cash used in operations under Canadian GAAP
    
    $
    (1,632,577
    )
    
    $
    (12,790
    )Adjustment for mineral exploration costs
    
    
    (914,607
    )
    
    
    (246,030
    )Cash used in operations under U.S. GAAP
    
    
    (2,547,184
    )
    
    
    (258,820
    )Cash used in investing activities under Canadian GAAP
    
    
    (1,010,093
    )
    
    
    (246,030
    )Adjustment for mineral exploration costs
    
    
    914,607
    
    
    
    246,030Cash used in investing activities under U.S. GAAP
    
    
    (95,486
    )
    
    
    Cash provided by financing activities under Canadian GAAP
    
    
    2,860,880
    
    
    
    270,091Decrease in bank indebtedness
    
    
    (7,586
    )
    
    
    (9,399
    )Cash provided by financing activities under U.S. GAAP
    
    
    2,853,294
    
    
    
    260,692Increase in cash under Canadian GAAP
    
    
    218,210
    
    
    
    11,271Bank indebtedness repayment
    
    
    (7,586
    )
    
    
    (9,399
    )Increase in cash under U.S. GAAP
    
    
    210,624
    
    
    
    1,872Cash, beginning of period, U.S. GAAP
    
    
    
    
    
    
    Cash, end of period, U.S. GAAP
    
    $
    210,624
    
    
    $
    1,872
  (h)
    
    Development stage enterprise:The Company meets the definition of a Development stage enterprises under FAS No. 7. The following additional
disclosures would be required under U.S. GAAP. Consolidated statements of operations and deficit (U.S. GAAP) Cumulativefrom inceptionDec 30, 1986to February 29, 2004Operating, exploration and administrative expenses
    
    $
    (27,593,772
    )Loss on disposition of subsidiary
    
    
    (12,107,072
    )Other income
    
    
    4,062,857Net loss for the period since inception to February 29, 2004
    
    $
    (35,637,987
    )
 F-22




---



##### Table of Contents



Consolidated statements of cash flows: Cumulativefrom inceptionDec 30, 1986to February 29, 2004Operating activities
    
    $
    (12,828,944
    )Financing activities
    
    
    18,800,565Investing activities
    
    
    (5,760,997
    )Net cash inflows from inception to February 29, 2004
    
    $
    210,624
 F-23




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##### Table of Contents



Additional shareholders equity disclosures required under FAS No. 7 would include: DeficitCommon shares
    
    accumulatedNumber
    
    Amount
    
    since inceptionBalance at inception
    
    
    
    
    
    $
    Issued for cash:December 1986
    
    
    1
    
    
    
    1January 1987
    
    
    80,000
    
    
    
    100,000April 1987
    
    
    150,000
    
    
    
    7,500Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    $
    (108,647
    )Balance, May 31, 1987
    
    
    230,001
    
    
    
    107,501
    
    
    
    (108,647
    )Issued for cash:September 1987
    
    
    11,600
    
    
    
    14,500March 1988
    
    
    100,000
    
    
    
    150,000Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (42,412
    )Balance, May 31, 1988
    
    
    341,601
    
    
    
    272,001
    
    
    
    (151,059
    )Issued for cash:August 1988
    
    
    31,000
    
    
    
    54,250Issued upon exercise of warrants:August 1988
    
    
    20,000
    
    
    
    40,000March 1989
    
    
    5,000
    
    
    
    10,000Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (185,968
    )Balance, May 31, 1989
    
    
    397,601
    
    
    
    376,251
    
    
    
    (337,027
    )Issued for cash:July 1989
    
    
    40,000
    
    
    
    136,000Issued upon exercise of options:August 1989
    
    
    20,000
    
    
    
    75,000Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (54,515
    )Balance, May 31, 1990
    
    
    457,601
    
    
    
    587,251
    
    
    
    (391,542
    )Acquisition of Cinsonix Limited:July 1989
    
    
    1,000,000
    
    
    
    750,000Issued for finders fee
    
    
    30,000
    
    
    
    90,000Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (1,179,904
    )Balance, May 31, 1991
    
    
    1,487,601
    
    
    
    1,427,251
    
    
    
    (1,571,446
    )Issued for mineral properties:April 1992
    
    
    50,000
    
    
    
    20,000Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (71,702
    )Balance, May 31, 1992
    
    
    1,537,601
    
    
    
    1,447,251
    
    
    
    (1,643,148
    )Issued for cash:July 1992
    
    
    1,000,000
    
    
    
    150,000March 1993
    
    
    600,000
    
    
    
    132,000Issued for debt settlement:August 1992
    
    
    115,468
    
    
    
    23,094Issued for finders fee
    
    
    30,000
    
    
    
    26,100Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (118,136
    )
 F-24




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##### Table of Contents



DeficitCommon shares
    
    accumulatedNumber
    
    Amount
    
    since inceptionBalance, May 31, 1993
    
    
    3,283,069
    
    
    $
    1,778,445
    
    
    $
    (1,761,284
    )Issued for mineral properties Oct. 1993
    
    
    50,000
    
    
    
    30,500Issued for exercise of warrants:June 1993
    
    
    1,000,000
    
    
    
    150,000September 1993
    
    
    145,000
    
    
    
    31,900Issued for cash:January 1994
    
    
    170,000
    
    
    
    102,000Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (329,175
    )Balance, May 31, 1994
    
    
    4,648,069
    
    
    
    2,092,845
    
    
    
    (2,090,459
    )Issued for cash:November 1994
    
    
    200,000
    
    
    
    150,000Issued for exercise of warrants:October 1994
    
    
    205,000
    
    
    
    55,000December 1994
    
    
    40,000
    
    
    
    10,400January 1995
    
    
    215,000
    
    
    
    55,900May 1995
    
    
    3,000
    
    
    
    2,250Disposition of Cinsonix Limited
    
    
    (905,209
    )
    
    
    (430,001
    )Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (231,833
    )Balance, May 31, 1995
    
    
    4,405,860
    
    
    
    1,936,394
    
    
    
    (2,322,292
    )Issued for cash:June 1995
    
    
    700,000
    
    
    
    700,000December 1995
    
    
    209,200
    
    
    
    796,142April 1996
    
    
    285,750
    
    
    
    1,091,565May 1996
    
    
    359,300
    
    
    
    1,372,526Issued for mineral properties:June 1995
    
    
    100,000
    
    
    
    300,000Issued upon exercise of warrants:June 1995
    
    
    81,500
    
    
    
    61,125August 1995
    
    
    141,500
    
    
    
    97,635September 1995
    
    
    8,000
    
    
    
    6,800October 1995
    
    
    73,500
    
    
    
    66,215November 1995
    
    
    300,000
    
    
    
    300,000April 1996
    
    
    43,500
    
    
    
    36,975May 1996
    
    
    36,500
    
    
    
    31,025Issued for finders fee:May 1996
    
    
    4,364
    
    
    
    Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (2,149,041
    )Balance, May 31, 1996
    
    
    6,748,974
    
    
    
    6,796,402
    
    
    
    (4,471,333
    )Issued for cash:September 1996
    
    
    199,820
    
    
    
    2,038,163Issued for finders fee:September 1996
    
    
    5,962Issued upon exercise of options:August 1996
    
    
    10,000
    
    
    
    13,000September 1996
    
    
    3,000
    
    
    
    3,900December 1996
    
    
    1,000
    
    
    
    1,300January 1997
    
    
    1,000
    
    
    
    1,300February 1997
    
    
    7,000
    
    
    
    16,520March 1997
    
    
    500
    
    
    
    650April 1997
    
    
    75,900
    
    
    
    98,670May 1997
    
    
    81,000
    
    
    
    105,300Issued upon exercise of warrants:June 1996
    
    
    27,500
    
    
    
    23,375February 1997
    
    
    285,750
    
    
    
    1,428,750March 1997
    
    
    222,700
    
    
    
    1,113,500
 F-25




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##### Table of Contents



DeficitCommon shares
    
    accumulatedNumber
    
    Amount
    
    since inceptionNet loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (2,928,560
    )Balance, May 31, 1997
    
    
    7,670,106
    
    
    
    11,640,830
    
    
    
    (7,399,893
    )Issued for October 1997
    
    
    537,200
    
    
    
    2,686,000Issued upon exercise of options:July 1997
    
    
    1,400
    
    
    
    1,820August 1997
    
    
    1,000
    
    
    
    1,300September 1997
    
    
    7,000
    
    
    
    9,100October 1997
    
    
    39,562
    
    
    
    61,823May 1998
    
    
    207,000
    
    
    
    60,030Issued for mineral properties:February 1998
    
    
    11,250
    
    
    
    97,538March 1998
    
    
    619,000
    
    
    
    3,683,050Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (10,779,708
    )Balance, May 31, 1998
    
    
    9,093,518
    
    
    
    18,241,491
    
    
    
    (18,179,601
    )Returned to Treasury:July 1998
    
    
    (22,039
    )
    
    
    Issued upon exercise of options:March 1999
    
    
    25,000
    
    
    
    33,500Issued for debt settlement:January 1999
    
    
    180,125
    
    
    
    270,188Issued for mineral properties:November 1998
    
    
    80,364
    
    
    
    478,166March 1999
    
    
    288,750
    
    
    
    2,503,462March 1999
    
    
    10,000
    
    
    
    59,500Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (7,158,555
    )Balance, May 31, 1999
    
    
    9,655,718
    
    
    
    21,586,307
    
    
    
    (25,338,156
    )Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (2,275,487
    )Balance, May 31, 2000
    
    
    9,655,718
    
    
    
    21,586,307
    
    
    
    (27,613,643
    )Issued under settlement of services:August 2000
    
    
    100,000
    
    
    
    45,000Issued under exercise of options:January 2001
    
    
    100,000
    
    
    
    15,000Stock-based compensation
    
    
    
    
    
    
    183,079Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (1,063,927
    )Balance, May 31, 2001
    
    
    9,855,718
    
    
    
    21,829,386
    
    
    
    (28,677,570
    )Issued for debt settlement:October 2001
    
    
    250,000
    
    
    
    75,000Issued under settlement of services:October 2001
    
    
    471,000
    
    
    
    141,300Issued for mineral properties:October 2001
    
    
    100,000
    
    
    
    30,000Stock-based compensation
    
    
    
    
    
    
    125,917Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (1,183,901
    )
 F-26




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##### Table of Contents



DeficitCommon shares
    
    accumulatedNumber
    
    Amount
    
    since inceptionBalance, May 31, 2002
    
    
    10,676,718
    
    
    
    22,201,603
    
    
    
    (29,861,471
    )Issued for debt settlement:June 2002 and August 2002
    
    
    67,500
    
    
    
    38,800Issued under settlement of services:October 2002 and January 2003
    
    
    261,667
    
    
    
    143,234Issued for mineral properties:February 2003
    
    
    100,000
    
    
    
    82,000Issued under exercise of options:January 2003
    
    
    25,000
    
    
    
    11,250Issued for cash
October 2002
    
    
    62,500
    
    
    
    78,771Warrants issued under settlement of services:October 2002
    
    
    
    
    
    
    205,645Stock based compensation
    
    
    
    
    
    
    (44,164
    )Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (992,596
    )Balance, May 31, 2003
    
    
    11,193,385
    
    
    
    22,717,139
    
    
    
    (30,854,067
    )Issued under exercise of warrants:August 2003
    
    
    62,500
    
    
    
    69,785Issued under exercise of options:July 2003, August 2003, October 2003 and January 2004
    
    
    340,000
    
    
    
    153,000Issued for financing:August 2003
    
    
    8,181,818
    
    
    
    6,280,242Issued for services:November 2003 and December 2003
    
    
    245,750
    
    
    
    558,515Issued for cash:November 2003
    
    
    80,000
    
    
    
    124,741Issued for mineral properties:December 2003
    
    
    2,000
    
    
    
    4,900Cancelled warrants previously issued for services:January 2004
    
    
    
    
    
    
    (205,645
    )Cancelled shares previously issued
for services:January 2004
    
    
    (87,000
    )
    
    
    (38,280
    )Stock based compensation
    
    
    
    
    
    
    573,575Net loss for period under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (4,783,920
    )Balance, November 30, 2003
    
    
    20,018,453
    
    
    $
    30,237,972
    
    
    $
    (35,637,987
    )
 All of the above transactions have been included on a post-consolidation basis. F-27




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##### Table of Contents



EXHIBIT INDEX No.
    
    Description10.1
    
    Settlement Agreement and General Mutual Releases between
Calais Resources, Inc., Marlowe Harvey, and others, dated March 8,
200410.2
    
    Purchase Option Agreement between Calais Resources, Inc. and
Golden Cycle of Panama, Inc. and Panama Mining of Golden Cycle,
Inc., dated February 28, 200310.3
    
    Extension of Purchase Option Agreement and Partial
Acknowledgement of Performance, dated January 31, 2004, relating to
Exhibit 10.231.1
    
    Certification pursuant to Sarbanes-Oxley Section 30231.2
    
    Certification pursuant to Sarbanes-Oxley Section 30232.
    
    Certification pursuant to 18 U.S.C.
Section 1350