##### Table of Contents



---

---

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 November 30, 2003

o 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.

(Exact name of small business issuer as specified in its charter)


|                                                                                |  |                                  
|------------------------------------------------------------------------------- |  | ---------------------------------
|British Columbia
(State or other jurisdiction of
incorporation or organization) |  | (IRS Employer
Identification No.)

8400 East Crescent Parkway, Suite 675
Greenwood Village, CO 80111

---

(Address of principal executive offices)


(720) 529-9500

---

(Issuers telephone number)


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  o     No  x


The number of shares outstanding of the registrants Common Stock, no par
value, was 19,677,703 at December 15, 2003.
Transitional Small Business Disclosure Format (check one):

Yes  x     No  o




---

---





---

TABLE OF CONTENTS



|                                                 |                                                                                               |                                                           |  |  |  |  |  | 
|------------------------------------------------ | --------------------------------------------------------------------------------------------- | --------------------------------------------------------- |  |  |  |  |  | 
|Part I: Financial Information                   
|                                                 | Item 1: Interim Consolidated Financial Statements                                            
|                                                 |                                                                                               | Interim Consolidated Balance Sheet                       
|                                                 |                                                                                               | Interim Consolidated Statements of Operations and Deficit
|                                                 |                                                                                               | Interim Consolidated Statements of Cash Flows            
|                                                 |                                                                                               | Notes to Interim Consolidated Financial Statements       
|                                                 | Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                 | Item 3: Controls and Procedures                                                              
|PART II OTHER INFORMATION                       
|                                                 | Item 1:Legal Proceedings                                                                     
|                                                 | Item 2: Changes in Securities and Small Business Issuer Purchases of Equity Securities       
|                                                 | Item 3: Defaults Upon Senior Securities                                                      
|                                                 | Item 4: Submission of Matters to a Vote of Security Holders                                  
|                                                 | Item 5: Other Information                                                                    
|                                                 | Item 6: Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                      
|INDEX TO EXHIBITS                               
|EX-31 Certification Pursuant to Section 302     
|EX-32 Certification Pursuant to 18 USC Sec. 1350



---



##### Table of Contents



Calais Resources, Inc.
TABLE OF CONTENTS
FORM 10-QSB

|           |  |                       |  |                                                                                               |                                                                                                                                     |  |  |  | 
|---------- |  | --------------------- |  | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Part I:    |  | Financial Information |  |                                                                                               |                                                                                                                                     | 
|           |  |                       |  | Item 1: Interim Financial Statements                                                          |                                                                                                                                     |  |  | 
|           |  |                       |  |                                                                                               | Interim Consolidated Balance Sheet as of November 30, 2003 (unaudited)                                                              |  |  |  | 
|           |  |                       |  |                                                                                               | Interim Consolidated Statements of Operations and
Deficit for the Three and Six Months Ended November 30, 2003 and 2002 (unaudited) |  |  |  | 
|           |  |                       |  |                                                                                               | Interim Consolidated Statements of Cash Flows for the Six Months Ended November 30,
2003 and 2002 (unaudited)                       |  |  |  | 
|           |  |                       |  |                                                                                               | Notes to Interim Consolidated Financial Statements (unaudited)                                                                      |  |  |  | 
|           |  |                       |  | Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                                                     |  |  | 
|           |  |                       |  | Item 3: Controls and Procedures                                                               |                                                                                                                                     |  |  | 
|Part II:   |  | Other Information     |  |                                                                                               |                                                                                                                                     | 
|           |  |                       |  | Item 1: Legal Proceedings                                                                     |                                                                                                                                     |  |  | 
|           |  |                       |  | Item 2: Changes in Securities and Use of Proceeds                                             |                                                                                                                                     |  |  | 
|           |  |                       |  | Item 3: Defaults upon Senior Securities                                                       |                                                                                                                                     |  |  | 
|           |  |                       |  | Item 4: Submission of Matters to a Vote of Security Holders                                   |                                                                                                                                     |  |  | 
|           |  |                       |  | Item 5: Other Information                                                                     |                                                                                                                                     |  |  | 
|           |  |                       |  | Item 6: Exhibits and Reports on Form 8-K                                                      |                                                                                                                                     |  |  | 
|Signatures

1



---



##### Table of Contents






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 December 31, 2003.

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 December 31,
2003 was Cdn$1.33, meaning that at that date Cdn$1.33 would purchase US$1.00,
or US$.752 would purchase Cdn$1.00.

|                   |  |  |  |  |  |      |      |     |  |   |      | 
|------------------ |  |  |  |  |  | ---- | ---- | --- |  | - | ---- | 
|Month ended        |  |  |  |  |  | High |      | Low
|                   |  |  |  |  |  |      |      |    
|December 31, 2003  |  |  |  |  |  | $    | 1.33 |     |  | $ | 1.26 | 
|November 30, 2003  |  |  |  |  |  | $    | 1.33 |     |  | $ | 1.29 | 
|October 31, 2003   |  |  |  |  |  | $    | 1.35 |     |  | $ | 1.30 | 
|September 30, 2003 |  |  |  |  |  | $    | 1.38 |     |  | $ | 1.33 | 
|August 31, 2003    |  |  |  |  |  | $    | 1.41 |     |  | $ | 1.38 | 
|July 31, 2003      |  |  |  |  |  | $    | 1.41 |     |  | $ | 1.33 | 
|June 30, 2003      |  |  |  |  |  | $    | 1.38 |     |  | $ | 1.33 | 
|May 31, 2003       |  |  |  |  |  | $    | 1.44 |     |  | $ | 1.34 | 

2



---



##### Table of Contents






Item 1: Interim Consolidated Financial Statements

Interim Consolidated Financial Statements of

CALAIS RESOURCES INC.

Six months ended November 30, 2003
(Unaudited)

3



---



##### Table of Contents






CALAIS RESOURCES INC.
Interim Consolidated Balance Sheet
(Expressed in Canadian Dollars)

November 30, 2003 and May 31, 2003

|                                             |                                                                     |   |              |             |         |   |            |             |  
|-------------------------------------------- | ------------------------------------------------------------------- | - | ------------ | ----------- | ------- | - | ---------- | ----------- | -
|                                             |                                                                     |   | November 30, |             | May 31,
|                                             |                                                                     |   | 2003         |             | 2003   
|                                             |                                                                     |   |              |             |        
|                                             |                                                                     |   | (Unaudited)  |             |         |   |           
|Assets                                       |                                                                     |   |              |             |         |   |            |            
|Current assets:                              |                                                                     |   |              |             |         |   |            |            
|                                             | Cash and cash equivalents                                           |   | $            | 866,168     |         |   | $          |            |  
|                                             | Accounts receivable, net of allowance for
doubtful accounts of $nil |   |              | 4,196       |         |   |            |            |  
|                                             | Deferred and prepaid financing fees (Note
3)                        |   |              | 1,456,793   |         |   |            |            |  
|                                             | Inventory                                                           |   |              | 283,301     |         |   |            | 283,301     |  
|                                             | Prepaid expenses                                                    |   |              | 2,150       |         |   |            |            |  
|                                             |                                                                     |   |              |             |         |   |            |            
|                                             |                                                                     |   | 2,612,608    |             |         |   | 283,301    |            
|Deferred and prepaid financing fees (Note 3) |                                                                     |   | 5,268,716    |             |         |   |           |            
|Mineral properties (Note 4)                  |                                                                     |   | 13,911,598   |             |         |   | 13,206,552 |            
|Capital assets                               |                                                                     |   | 92,971       |             |         |   | 94,846     |            
|                                             |                                                                     |   |              |             |         |   |            |             |  
|                                             |                                                                     | $ | 21,885,893   |             |         | $ | 13,584,699 |            
|                                             |                                                                     |   |              |             |         |   |            |             |  
|Liabilities and Shareholders Equity         |                                                                     |   |              |             |         |   |            |            
|Current liabilities:                         |                                                                     |   |              |             |         |   |            |            
|                                             | Bank overdraft                                                      |   | $            |            |         |   | $          | 7,586       |  
|                                             | Accounts payable and accrued liabilities                            |   |              | 224,511     |         |   |            | 974,816     |  
|                                             | Advances from shareholder                                           |   |              | 342,781     |         |   |            | 697,573     |  
|                                             | Current portion of bank loans (Note 5)                              |   |              |            |         |   |            | 1,642,200   |  
|                                             | Note payable                                                        |   |              |            |         |   |            | 95,795      |  
|                                             |                                                                     |   |              |             |         |   |            |            
|                                             |                                                                     |   | 567,292      |             |         |   | 3,417,970  |            
|Bank loans (Note 5)                          |                                                                     |   | 5,961,483    |             |         |   |           |            
|Debentures (Note 6)                          |                                                                     |   | 4,623,182    |             |         |   | 4,624,916  |            
|Shareholders equity:                        |                                                                     |   |              |             |         |   |            |            
|                                             | Capital stock (Note 7)                                              |   |              | 30,089,013  |         |   |            | 23,457,480  |  
|                                             | Deficit                                                             |   |              | (19,355,077 | )       |   |            | (17,915,667 | )
|                                             |                                                                     |   |              |             |         |   |            |            
|                                             |                                                                     |   | 10,733,936   |             |         |   | 5,541,813  |            
|                                             |                                                                     |   |              |             |         |   |            |            
|                                             |                                                                     | $ | 21,885,893   |             |         | $ | 13,584,699 |            
|                                             |                                                                     |   |              |             |         |   |            |             |  

Approved by the Directors:

|                        |         
|----------------------- | --------
|/s/
Thomas S. Hendricks | Director
|                       
|/s/ Art
Daher           | Director

4



---



##### Table of Contents






CALAIS RESOURCES INC.
Interim Consolidated Statements of Operations and Deficit
(Expressed in Canadian Dollars)

(Unaudited)

|                                                  |                            |   |             |           |             |   |             |         |             |   |             |           |   |   |             |         |  
|------------------------------------------------- | -------------------------- | - | ----------- | --------- | ----------- | - | ----------- | ------- | ----------- | - | ----------- | --------- | - | - | ----------- | ------- | -
|                                                  |                            |   | Three       |           | Three       |   | Six         |         | Six        
|                                                  |                            |   | months      |           | months      |   | months      |         | months     
|                                                  |                            |   | ended       |           | ended       |   | ended       |         | ended      
|                                                  |                            |   | November 30 |           | November 30 |   | November 30 |         | November 30
|                                                  |                            |   | 2003        |           | 2002        |   | 2003        |         | 2002       
|                                                  |                            |   |             |           |             |   |             |         |            
|Revenue                                           |                            | $ |            |           |             | $ |            |         |             | $ |            |           |   | $ |            |        
|Expenses (income):                                |                            |   |             |           |             |   |             |         |             |   |             |           |   |   |             |        
|                                                  | Accounting                 |   |             | 24,810    |             |   |             |        |             |   |             | 32,032    |   |   |             | 426     |  
|                                                  | Advertising                |   |             | 7,652     |             |   |             |        |             |   |             | 13,646    |   |   |             | 273     |  
|                                                  | Amortization               |   |             | 1,918     |             |   |             | 2,717   |             |   |             | 8,262     |   |   |             | 2,717   |  
|                                                  | Bank charges and interest  |   |             | 1,016,454 |             |   |             | 378,445 |             |   |             | 1,417,256 |   |   |             | 442,293 |  
|                                                  | Wages and consulting fees  |   |             | 100,740   |             |   |             | 7,889   |             |   |             | 100,740   |   |   |             | 7,889   |  
|                                                  | Foreign exchange gain      |   |             | (342,387  | )           |   |             | (2,778  | )           |   |             | (300,529  | ) |   |             | (3,764  | )
|                                                  | Freight and postage        |   |             | 2,840     |             |   |             | 1,281   |             |   |             | 3,913     |   |   |             | 2,503   |  
|                                                  | Gain on settlement of
debt |   |             | (60,347   | )           |   |             |        |             |   |             | (84,036   | ) |   |             |        |  
|                                                  | Insurance and licenses     |   |             | 6,798     |             |   |             | 57      |             |   |             | 9,637     |   |   |             | 451     |  
|                                                  | Office and miscellaneous   |   |             | 7,909     |             |   |             | 11,418  |             |   |             | 14,570    |   |   |             | 11,503  |  
|                                                  | Professional fees          |   |             | 116,494   |             |   |             | 35,251  |             |   |             | 168,863   |   |   |             | 50,774  |  
|                                                  | Public relations           |   |             |          |             |   |             | 1,420   |             |   |             | 278       |   |   |             | 1,592   |  
|                                                  | Rent                       |   |             | 5,118     |             |   |             | 7,503   |             |   |             | 5,118     |   |   |             | 7,503   |  
|                                                  | Telephone and utilities    |   |             | 8,584     |             |   |             | 5,781   |             |   |             | 16,152    |   |   |             | 12,387  |  
|                                                  | Transfer agent fees        |   |             | 938       |             |   |             | 2,750   |             |   |             | 4,352     |   |   |             | 3,939   |  
|                                                  | Travel                     |   |             | 34,417    |             |   |             | 1,618   |             |   |             | 34,417    |   |   |             | 1,618   |  
|                                                  |                            |   |             |           |             |   |             |         |             |   |             |           |   |   |             |        
|                                                  |                            |   | 931,938     |           |             |   | 453,352     |         |             |   | 1,444,671   |           |   |   | 542,104     |        
|                                                  |                            |   |             |           |             |   |             |         |             |   |             |           |   |   |             |        
|Loss before the undernoted                        |                            |   | (931,938    | )         |             |   | (453,352    | )       |             |   | (1,444,671  | )         |   |   | (542,104    | )      
|Other income:                                     |                            |   |             |           |             |   |             |         |             |   |             |           |   |   |             |        
|                                                  | Miscellaneous              |   |             | 5,009     |             |   |             | 682     |             |   |             | 5,261     |   |   |             | 1,525   |  
|                                                  |                            |   |             |           |             |   |             |         |             |   |             |           |   |   |             |        
|Net loss for the period                           |                            |   | (926,929    | )         |             |   | (452,670    | )       |             |   | (1,439,410  | )         |   |   | (540,579    | )      
|Deficit, beginning of period                      |                            |   | (18,428,148 | )         |             |   | (17,411,717 | )       |             |   | (17,915,667 | )         |   |   | (17,323,808 | )      
|                                                  |                            |   |             |           |             |   |             |         |             |   |             |           |   |   |             |        
|Deficit, end of period                            |                            | $ | (19,355,077 | )         |             | $ | (17,864,387 | )       |             | $ | (19,355,077 | )         |   | $ | (17,864,387 | )      
|                                                  |                            |   |             |           |             |   |             |         |             |   |             |           |   |   |             |        
|Net loss per share, basic and diluted             |                            | $ | (0.05       | )         |             | $ | (0.04       | )       |             | $ | (0.10       | )         |   | $ | (0.05       | )      
|                                                  |                            |   |             |           |             |   |             |         |             |   |             |           |   |   |             |        
|Weighted average common shares, basic and diluted |                            |   | 19,494,786  |           |             |   | 10,644,913  |         |             |   | 13,878,157  |           |   |   | 10,609,080  |        
|                                                  |                            |   |             |           |             |   |             |         |             |   |             |           |   |   |             |        

5



---



##### Table of Contents






CALAIS RESOURCES INC.
Interim Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)

(Unaudited)

|                                     |                                               |                                                                                        |            |                  |           |                  |          |          |         |  
|------------------------------------ | --------------------------------------------- | -------------------------------------------------------------------------------------- | ---------- | ---------------- | --------- | ---------------- | -------- | -------- | ------- | -
|                                     |                                               |                                                                                        |            | Six months ended |           | Six months ended
|                                     |                                               |                                                                                        |            | November 30      |           | November 30     
|                                     |                                               |                                                                                        |            | 2003             |           | 2002            
|                                     |                                               |                                                                                        |            |                  |           |                 
|Cash flows provided by (used in):    |                                               |                                                                                        |            |                  |           |                  |          |         
|Operations:                          |                                               |                                                                                        |            |                  |           |                  |          |         
|                                     | Loss for the period                           |                                                                                        | $          | (1,439,410       | )         |                  | $        | (540,579 | )      
|                                     | Items not involving cash:                     |                                                                                        |            |                  |           |                  |          |          |        
|                                     |                                               | Accretion interest expense                                                             |            |                  | 26,180    |                  |          |          | 25,890  |  
|                                     |                                               | Amortization                                                                           |            |                  | 8,262     |                  |          |          | 2,717   |  
|                                     |                                               | Amortization of deferred and prepaid
financing fees                                    |            |                  | 1,337,239 |                  |          |          |        |  
|                                     |                                               | Shares issued for services                                                             |            |                  | 48,765    |                  |          |          | 106,334 |  
|                                     |                                               | Warrants issued for services                                                           |            |                  |          |                  |          |          | 205,645 |  
|                                     |                                               | Gain on settlement of debt                                                             |            |                  | (84,036   | )                |          |          |        |  
|                                     |                                               | Loss on settlement of accounts payable
and accrued liabilities with issuance
of shares |            |                  |          |                  |          |          | 1,911   |  
|                                     |                                               | Foreign exchange gain                                                                  |            |                  | (300,529  | )                |          |          | (3,764  | )
|                                     | Change in non-cash operating working capital: |                                                                                        |            |                  |           |                  |          |          |        
|                                     |                                               | Restricted cash                                                                        |            |                  |          |                  |          |          | 67,415  |  
|                                     |                                               | Accounts receivable                                                                    |            |                  | (4,196    | )                |          |          |        |  
|                                     |                                               | Prepaid expenses                                                                       |            |                  | (2,150    | )                |          |          |        |  
|                                     |                                               | Accounts payable and accrued
liabilities                                               |            |                  | (770,718  | )                |          |          | 160,608 |  
|                                     |                                               |                                                                                        |            |                  |           |                  |          |          |        
|                                     |                                               |                                                                                        | (1,180,593 | )                |           |                  | 26,177   |         
|Financing:                           |                                               |                                                                                        |            |                  |           |                  |          |         
|                                     | Repayment of bank loans                       |                                                                                        |            | (1,642,200       | )         |                  |          |         |        
|                                     | Interim loan proceeds                         |                                                                                        |            | 587,680          |           |                  |          |         |        
|                                     | Repayment of interim loan                     |                                                                                        |            | (587,680         | )         |                  |          |         |        
|                                     | Bank loan proceeds                            |                                                                                        |            | 4,583,955        |           |                  |          |         |        
|                                     | Advances from (to) shareholders               |                                                                                        |            | (354,792         | )         |                  |          | 106,861  |        
|                                     | Debentures                                    |                                                                                        |            | (27,914          | )         |                  |          |         |        
|                                     | Issue of capital stock                        |                                                                                        |            | 302,526          |           |                  |          | 78,771   |        
|                                     | Note payable                                  |                                                                                        |            | (95,795          | )         |                  |          | 91,679   |        
|                                     |                                               |                                                                                        |            |                  |           |                  |          |          |        
|                                     |                                               |                                                                                        | 2,765,780  |                  |           |                  | 277,311  |         
|Investing:                           |                                               |                                                                                        |            |                  |           |                  |          |         
|                                     | Mineral properties                            |                                                                                        |            | (700,128         | )         |                  |          | (290,065 | )      
|                                     | Net additions to capital assets               |                                                                                        |            | (11,305          | )         |                  |          |         |        
|                                     |                                               |                                                                                        |            |                  |           |                  |          |          |        
|                                     |                                               |                                                                                        | (711,433   | )                |           |                  | (290,065 | )       
|                                     |                                               |                                                                                        |            |                  |           |                  |          |          |        
|Increase in cash                     |                                               |                                                                                        | 873,754    |                  |           |                  | 13,423   |         
|Bank overdraft, beginning of period  |                                               |                                                                                        | (7,586     | )                |           |                  | (9,399   | )       
|                                     |                                               |                                                                                        |            |                  |           |                  |          |          |        
|Cash, end of period                  |                                               | $                                                                                      | 866,168    |                  |           | $                | 4,024    |         
|                                     |                                               |                                                                                        |            |                  |           |                  |          |          |        
|Supplementary cash flow information: |                                               |                                                                                        |            |                  |           |                  |          |         
|                                     | Interest paid                                 |                                                                                        | $          | 61,351           |           |                  | $        | 99,094   |        
|                                     |                                               |                                                                                        |            |                  |           |                  |          |          |        
|                                     | Income taxes paid                             |                                                                                        |            |                 |           |                  |          |         |        
|                                     |                                               |                                                                                        |            |                  |           |                  |          |          |        
|                                     | Non-cash transactions:                        |                                                                                        |            |                  |           |                  |          |          |        
|                                     |                                               | Common shares issued for financing fee                                                 |            |                  | 6,280,242 |                  |          |          |        |  
|                                     |                                               |                                                                                        |            |                  |           |                  |          |          |        
|                                     |                                               | Amortization capitalized to mineral properties                                         |            |                  | 4,918     |                  |          |          | 14,133  |  
|                                     |                                               |                                                                                        |            |                  |           |                  |          |          |        
|                                     |                                               | Common shares issued to settle accounts
payable and accrued liabilities                |            |                  |          |                  |          |          | 38,800  |  
|                                     |                                               |                                                                                        |            |                  |           |                  |          |          |        

6



---



##### Table of Contents






CALAIS RESOURCES INC.Notes to Interim Consolidated Financial Statements
Expressed in Canadian Dollars

Six months ended November 30, 2003
(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 and developing
various mineral properties to determine whether these properties contain ore reserves that are
economically recoverable. The recoverability of the amounts shown for the mineral properties and
related deferred costs is dependent upon the existence of economically recoverable reserves, the
ability of the Company to obtain necessary financing to complete their development 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
(see Note 4(c)).
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 November
30, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

7



---



##### 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 six months ended November 30, 2003 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:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

8



---



##### Table of Contents





|    |  | The Companys financial instruments consist of cash and cash
equivalents, bank overdraft, 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 properties:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | The Company is engaged in the acquisition, exploration and
development 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 property depends on whether the property contains economically
recoverable reserves that can be brought into production. The costs
relating to a property abandoned are written off when the decision to
abandon is made.                                                                                  
|   
|    |  | The total amount recorded for mineral properties and deferred
exploration expenditures represents costs incurred to date and does
not reflect present or future values.                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | Proceeds from disposition of mineral properties 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.                                                                                                                                                                                                                                                                                                     
|   
|(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:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

9



---



##### Table of Contents





| |  |  | 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 six months ended November 30, 2003 was $1.17 (six months ended November 30, 2002  $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:                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                                                                                                                    |                   |   |              |       |          |   |            |       |            |   |            |       |   |   |          |       |  
|------------------------------------------------------------------------------------------------------------------- | ----------------- | - | ------------ | ----- | -------- | - | ---------- | ----- | ---------- | - | ---------- | ----- | - | - | -------- | ----- | -
|                                                                                                                    |                   |   |              |       |          |   | Three      |       |            |   |            |       |   |   |         
|                                                                                                                    |                   |   | Three months |       | months   |   | Six months |       | Six months
|                                                                                                                    |                   |   | ended        |       | ended    |   | ended      |       | ended     
|                                                                                                                    |                   |   | November     |       | November |   | November   |       | November  
|                                                                                                                    |                   |   | 30, 2003     |       | 30, 2002 |   | 30, 2003   |       | 30, 2002  
|Net loss, as reported                                                                                               |                   | $ | (926,929     | )     |          | $ | (452,670   | )     |            | $ | (1,439,410 | )     |   | $ | (540,579 | )    
|Add:                                                                                                                |                   |   |              |       |          |   |            |       |            |   |            |       |   |   |          |      
|Stock-based employee
compensation
expenses 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 |                   |   |             |       |          |   | (25,375    | )     |            |   | (1,288,200 | )     |   |   | (25,375  | )    
|                                                                                                                    |                   |   |              |       |          |   |            |       |            |   |            |       |   |   |          |      
|Pro forma loss                                                                                                      |                   | $ | (926,929     | )     |          | $ | (478,045   | )     |            | $ | (2,727,610 | )     |   | $ | (565,954 | )    
|                                                                                                                    |                   |   |              |       |          |   |            |       |            |   |            |       |   |   |          |      
|Pro forma loss per share,                                                                                           |                   |   |              |       |          |   |            |       |            |   |            |       |   |   |          |      
|                                                                                                                    | basic and diluted |   | $            | (0.05 | )        |   | $          | (0.04 | )          |   | $          | (0.20 | ) |   | $        | (0.05 | )
|                                                                                                                    |                   |   |              |       |          |   |            |       |            |   |            |       |   |   |          |      

10



---



##### Table of Contents



Stock-based compensation is calculated based upon the following weighted average assumptions:

|                                |  |              |   |          |  |              |              |            |  |           |      |   |  |  |      |  
|------------------------------- |  | ------------ | - | -------- |  | ------------ | ------------ | ---------- |  | --------- | ---- | - |  |  | ---- | -
|                                |  |              |   |          |  | Three        |              |            |  |           |      |   |  | 
|                                |  | Three months |   | months   |  | Six months   |              | Six months
|                                |  | ended        |   | ended    |  | ended        |              | ended     
|                                |  | November 30, |   | November |  | November 30, | November 30,
|                                |  | 2003         |   | 30, 2002 |  | 2003         |              | 2002      
|                                |  |              |   |          |  |              |              |           
|Expected life of options        |  |              |  |          |  | 2.0 years    |              | 4.7 years  |  | 2.0 years
|Expected stock price volatility |  |              |  |          |  |              | 329          | %          |  |           | 298  | % |  |  | 329  | %
|Expected dividend yield         |  |              |  |          |  |              | 0            | %          |  |           | 0    | % |  |  | 0    | %
|Risk free interest rate         |  |              |  |          |  |              | 3.55         | %          |  |           | 4.83 | % |  |  | 3.55 | %

11



---



##### Table of Contents





|3. |  | Deferred and prepaid financing fees
|-- |  | -----------------------------------

|                                                              |  |              |            |              |  |   |   | 
|------------------------------------------------------------- |  | ------------ | ---------- | ------------ |  | - | - | 
|                                                              |  | November 30, |            |              |  |  
|                                                              |  | 2003         |            | May 31, 2003
|                                                              |  | (Unaudited)  |            |             
|Deferred and prepaid financing fees consist of the following: |  |              |            |              |  |   |   | 
|Deferred financing fee                                        |  | $            | 6,280,242  |              |  | $ |  | 
|Prepaid interest (Note 5(b))                                  |  |              | 1,782,506  |              |  |   |  | 
|                                                              |  |              |            |              |  |   |   | 
|                                                              |  |              | 8,062,748  |              |  |   |  | 
|Less: Accumulated amortization                                |  |              | (1,337,239 | )            |  |   |  | 
|                                                              |  |              |            |              |  |   |   | 
|                                                              |  |              | 6,725,509  |              |  |   |  | 
|Less: Current portion                                         |  |              | (1,456,793 | )            |  |   |  | 
|                                                              |  |              |            |              |  |   |   | 
|                                                              |  | $            | 5,268,716  |              |  | $ |  | 
|                                                              |  |              |            |              |  |   |   | 



| |  | Deferred and prepaid financing fees is being amortized on a straight line basis over two years, the term of the related debt.
| |  | -----------------------------------------------------------------------------------------------------------------------------



|4. |  | Mineral Properties
|-- |  | ------------------

|                        |  |                   |            |              |  |   |            | 
|----------------------- |  | ----------------- | ---------- | ------------ |  | - | ---------- | 
|                        |  | November 30, 2003 |            | May 31, 2003
|                        |  | (Unaudited)       |            |             
|Nevada U.S.A.           |  | $                 | 3,596,272  |              |  | $ | 3,449,004  | 
|Colorado, U.S.A.        |  |                   | 9,927,856  |              |  |   | 9,466,230  | 
|Panama, Central America |  |                   | 387,470    |              |  |   | 291,318    | 
|                        |  |                   |            |              |  |   |            | 
|                        |  | $                 | 13,911,598 |              |  | $ | 13,206,552 | 
|                        |  |                   |            |              |  |   |            | 



|    |  | Title to mining properties 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 mining properties. The Company has investigated title to all of its mineral properties and, to the best of its knowledge,
title to all of its properties are in good standing, except for the Nevada properties as described below. All of the properties in which the Company has committed to earn an interest 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.:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

12



---



##### Table of Contents





|    |  | In December 1994, the Company acquired a 51% interest in certain patented and unpatented claims located in Nevada from a company controlled by directors for $1,176,000 US plus a 5% net smelter
royalty. The Company can also acquire a 100% interest in a further 89 claims in this property under this agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company entered into an agreement and settlement dated September 7, 2000 with Nevada Manhattan Mining Incorporated to settle and purchase Nevada Manhattan Mining Incorporateds 24.5%
interest in the property. The Company agreed and has made three of the four annual payments of US $75,000 each for a total of US $300,000 under this agreement. The Company cannot locate
Nevada Manhattan in order to make the fourth and final payment which is included in accounts payable and accrued liabilities. During the term of the agreement the Company has agreed to pay
Nevada Manhattan Mining Incorporated a 2% net smelter return royalty. The Company can purchase the entire Nevada Manhattan Mining Incorporated interest and royalty at any time over a
thirty-year period for US $7,500,000, which would include production royalties.
|   
|    |  | The Company also holds a 100% interest in 42 unpatented claims in the Manhattan Mining district by staking.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | The Company is in the process of investigating its title to the above properties. After a preliminary review of the title information, it appears that title of the above claims are owned by
companies controlled by directors of the Company or other individuals, although it appears that, based on agreements these titles should be conveyed to the Company. The Company has commenced
discussions in an effort to resolve the situation, the results of which are undeterminable at this time. Adjustments, if any, to the properties will be recorded when title to the properties
have been resolved.                                                                                                                                                                                                                                          
|   
|(b) |  | Colorado, U.S.A.:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | Included in the Colorado properties 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 properties contain a well-documented mineral resource of 424,500 ounces of gold and 11,725,000 ounces of silver.                                                                                                               
|   
|(c) |  | Panama, Central America:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | The Company owns hard rock mining concessions to 61,000 acres (24,686 hectares) in the eastern Veraguas District of Panama in Central America. The acquisition was made through a five-year
agreement with Panama Mining of Golden Cycle Incorporated, the seller. The Company issued 100,000 shares of stock to the seller. The Company is obligated to pay the seller a 2% net smelter
return on any hard rock mineral production. The Company can purchase the concessions from the seller at any time up to August 31, 2004 for US $2,500,000 (the early purchase). Upon
completion of the early purchase, the 2% net smelter return is reduced to 0.5%. The Company is obligated to pay the annual taxes and holding fees.                                                                                                                       

13



---



##### Table of Contents





|   |  | The Company is also obligated to pay the seller a 6% gross royalty (GSR) on all placer gold mining production to a maximum GSR fee of US $5,000,000. Upon the total payment under the GSR
reaching US $5,000,000, the GSR percentage is reduced to 1% for the balance of the life of placer production.                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company acquired additional hard rock mining concessions of 13,590 acres (5,500 hectares) in the above-mentioned location in 2003. The acquisition was made through a new ten-year
agreement with the seller, which replaces or amends the above-mentioned five-year agreement. Under this new agreement, the Company issued an additional 100,000 shares of stock, paid US
$10,000 in cash and assumed US $15,750 of payables from the seller. The Company is also required to spend US $500,000 on exploration by February 28, 2004, under the terms of this new
agreement. The Company has received verbal authorization to extend the February 28, 2004 deadline until December 31, 2004.
|  
|   |  | The company has spent approximately US $89,500 on this project to November 30, 2003 under the terms of the new agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|5. |  | Bank loans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | The loan balances are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                                                  |  |             |           |        |  |   |            |  
|------------------------------------------------- |  | ----------- | --------- | ------ |  | - | ---------- | -
|                                                  |  | November 30 |           | May 31
|                                                  |  | 2003        |           | 2003  
|                                                  |  |             |           |       
|                                                  |  | (Unaudited) |           |       
|Peak National Bank, US $1,200,000 loan (a)        |  | $           |          |        |  | $ | 1,642,200  |  
|Broadway Mortgage LLC, US $4,500,000 mortgage (b) |  |             | 5,961,483 |        |  |   |           |  
|                                                  |  |             |           |        |  |   |            |  
|                                                  |  |             | 5,961,483 |        |  |   | 1,642,200  |  
|Less: current portion                             |  |             |          |        |  |   | (1,642,200 | )
|                                                  |  |             |           |        |  |   |            |  
|                                                  |  | $           | 5,961,483 |        |  | $ |           |  
|                                                  |  |             |           |        |  |   |            |  



| | (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 interest rate on the loan was increased 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 agreement
the due date of the loan was extended to December 16, 2003 and the interest rate reduced to 10.5% from 24%.                                                
|
| |     |  | 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:                                                                                                                                                                                                                                                                                                          

14



---



##### Table of Contents





| |  |  | 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 properties. 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)) |  | $US | 1,080,000 |          
|Repayment of interim mortgage (Note 8)       |  |     | 588,000   |          
|Repayment of trade payables                  |  |     | 700,000   |          
|Working capital                              |  |     | 876,000   |          
|Financing costs                              |  |     | 95,000    |          
|                                             |  |     |           |          
|                                             |  |     | $US       | 3,339,000 | 
|                                             |  |     |           |          



| |  |  | 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.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | Debentures:
|-- |  | -----------

|                                                                                                                                                            |  |              |           |         |  |   |           |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | ------- |  | - | --------- | -
|                                                                                                                                                            |  | November 30, |           | May 31,
|                                                                                                                                                            |  | 2003         |           | 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 |         |  | $ | 5,097,105 |  
|Less: Cumulative accretion remaining                                                                                                                        |  |              | (446,009  | )       |  |   | (472,189  | )
|                                                                                                                                                            |  |              |           |         |  |   |           |  
|                                                                                                                                                            |  | $            | 4,623,182 |         |  | $ | 4,624,916 |  
|                                                                                                                                                            |  |              |           |         |  |   |           |  



| |  | Accretion expense to the face
value of the debt of $26,180 (November 30, 2002 - $25,890) 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.

15



---



##### Table of Contents





|7. |  | Share capital:
|-- |  | --------------



| | (a) |  | Authorized: 100,000,000 Common shares without par value
| | --- |  | -------------------------------------------------------
|
| | (b) |  | Issued and outstanding shares:                         

|                                     |  |           |            |        |  |   |            | 
|------------------------------------ |  | --------- | ---------- | ------ |  | - | ---------- | 
|                                     |  | Number    |            |       
|                                     |  | of shares |            | Amount
|                                     |  |           |            |       
|Balance, May 31, 2003                |  |           | 11,193,385 |        |  | $ | 23,457,480 | 
|Issued for services                  |  |           | 25,000     |        |  |   | 48,765     | 
|Issued for cash                      |  |           | 80,000     |        |  |   | 124,741    | 
|Issued on exercise of warrants       |  |           | 62,500     |        |  |   | 69,785     | 
|Issued
on exercise of options        |  |           | 240,000    |        |  |   | 108,000    | 
|Issued for financing fee (Note 5(b)) |  |           | 8,181,818  |        |  |   | 6,280,242  | 
|                                     |  |           |            |        |  |   |            | 
|Balance, November 30, 2003           |  |           | 19,782,703 |        |  | $ | 30,089,013 | 
|                                     |  |           |            |        |  |   |            | 



| |     |  | 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)).
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Subsequent to November 30, 2003, the Company issued 215,750 shares as compensation and recorded compensation expense of $497,250.                                                                                                         
|
| | (c) |  | Stock options:                                                                                                                                                                                                                            

|                                     |  |        |           |           |  |         |       |  
|------------------------------------ |  | ------ | --------- | --------- |  | ------- | ----- | -
|                                     |  |        |           | Weighted 
|                                     |  |        |           | average  
|                                     |  |        |           | exercise 
|                                     |  |        |           | price    
|Date                                 |  | Number |           | per share
|                                     |  |        |           |          
|Issued and outstanding, May 31, 2003 |  |        | 981,500   |           |  | $CDN    | 0.54  |  
|Exercised in the period              |  |        | (240,000  | )         |  | 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 | 5.00  |  
|                                     |  |        |           |           |  |         |       |  
|Balance, November 30, 2003           |  |        | 1,332,500 |           |  | $CDN    | 4.06  |  
|                                     |  |        |           |           |  |         |       |  



| |  | Options outstanding and exercisable at November 30, 2003 are as follows:
| |  | ------------------------------------------------------------------------

|                              |  |        |           |           |  |             |      |                  |  |               |  |           |  |           |  | 
|----------------------------- |  | ------ | --------- | --------- |  | ----------- | ---- | ---------------- |  | ------------- |  | --------- |  | --------- |  | 
|                              |  |        |           |           |  |             |      | Weighted        
|                              |  |        |           | Exercise  |  |             |      | average         
|                              |  |        |           | price     |  |             |      | remaining       
|                              |  | Number |           | per share |  | Expiry date |      | contractual life
|                              |  |        |           |           |  |             |      |                 
|Director options              |  |        | 82,500    |           |  | $CDN        | 1.26 |                  |  | November 2004 |  | 1.0 years
|Director and employee options |  |        | 150,000   |           |  | $CDN        | 0.45 |                  |  | August 2005   |  | 1.8 years
|Director options              |  |        | 100,000   |           |  | $    US     | 0.32 |                  |  | August 2008   |  | 4.8 years
|Employee options              |  |        | 500,000   |           |  | $    US     | 3.00 |                  |  | August 2013   |  | 9.8 years
|Employee options              |  |        | 500,000   |           |  | $    US     | 5.00 |                  |  | August 2013   |  | 9.8 years
|                              |  |        |           |           |  |             |      |                  |  |               |  |           |  |          
|                              |  |        | 1,332,500 |           |  |             |      |                  |  |               |  |           |  | 8.0 years
|                              |  |        |           |           |  |             |      |                  |  |               |  |           |  |          

16



---



##### Table of Contents





|(d) |  | Warrants:
|--- |  | ---------

|                                     |  |        |         |           |  |      |       |  
|------------------------------------ |  | ------ | ------- | --------- |  | ---- | ----- | -
|                                     |  |        |         | Weighted 
|                                     |  |        |         | average  
|                                     |  |        |         | exercise 
|                                     |  |        |         | price    
|                                     |  | Number |         | per share
|                                     |  |        |         |          
|Issued and outstanding, May 31, 2003 |  |        | 548,803 |           |  | US $ | 0.81  |  
|Exercised in the period              |  |        | (62,500 | )         |  | US   | (0.80 | )
|Issued in the period                 |  |        | 80,000  |           |  | US   | 1.50  |  
|                                     |  |        |         |           |  |      |       |  
|Balance, November 30, 2003           |  |        | 566,303 |           |  | US $ | 0.91  |  
|                                     |  |        |         |           |  |      |       |  



| |  | Warrants outstanding at November 30, 2003 are as follows:
| |  | ---------------------------------------------------------

|       |         |           |  |             |      |                  |  |              |  |  |           |     |           | 
|------ | ------- | --------- |  | ----------- | ---- | ---------------- |  | ------------ |  |  | --------- | --- | --------- | 
|       |         |           |  |             |      | Weighted        
|       |         | Exercise  |  |             |      | average         
|       |         | price per |  |             |      | remaining       
|Number |         | warrant   |  | Expiry date |      | contractual life
|       |         |           |  |             |      |                 
|       | 486,303 |           |  | US $        | 0.81 |                  |  | October 2004 |  |  | 0.9 years |    
|       | 80,000  |           |  | US $        | 1.50 |                  |  | October 2005 |  |  | 1.9 years | (i)
|       |         |           |  |             |      |                  |  |              |  |  |           |     |           | 
|       | 566,303 |           |  |             |      |                  |  |              |  |  |           |     | 1.0 years | 
|       |         |           |  |             |      |                  |  |              |  |  |           |     |           | 



| | (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
(November 30, 2002 - $6,000) 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 $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).

17



---



##### Table of Contents





|9. |  | Contingency:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company is negotiating with a shareholder and director of the Company for claims of past wages, salary remuneration and expenses in the approximate amount of US $544,700 ($708,110 Cdn). Included in advances from shareholders is $343,400 Cdn provided for this
claim. The claim is under negotiation, the outcome of which is undeterminable. Additional amounts, if any, will be recorded in the period the claim is settled or when the Companys obligation is otherwise determinable.

18



---



##### Table of Contents





|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 property exploration and development 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. United States
Securities and Exchange Commission staff have indicated that their interpretation of SFAS 144 requires mineral property
exploration and development 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 and development 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 properties significant
accounting policy note.
|
| |     |  | Under U.S. GAAP, additional exploration costs for mineral properties that would be written off are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                                          |  |             |         |        |  |   |         | 
|----------------------------------------- |  | ----------- | ------- | ------ |  | - | ------- | 
|                                          |  | November 30 |         | May 31
|                                          |  | 2003        |         | 2003  
|                                          |  |             |         |       
|                                          |  | (Unaudited) |         |       
|Mineral exploration and development costs |  | $           | 705,046 |        |  | $ | 496,681 | 
|                                          |  |             |         |        |  |   |         | 

19



---



##### 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 (recovery) recognized for employee fixed and variable awards after applying the intrinsic value method and
the fair value of non-employee awards for the period ended
November 30, 2003 would be $573,575 (November 30, 2002 - $(77,131))
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 |  | Six months |          | Six months  
|                                                                                                                    |  | ended        |            | ended        |  | ended      |          | ended       
|                                                                                                                    |  | November     |            | November     |  | November   |          | November 30,
|                                                                                                                    |  | 30, 2003     |            | 30, 2002     |  | 30, 2003   |          | 2002        
|Net loss under
US GAAP                                                                                              |  | $            | (751,470   | )            |  | $          | (194,979 | )            |  | $ | (2,691,851 | ) |  | $ | (741,756 | )
|Add:                                                                                                                |  |              |            |              |  |            |          |              |  |   |            |   |  |   |          |  
|Stock based employee
compensation
expense included in
net loss, net of
related tax effects                          |  |              | (577,260   | )            |  |            | (485,522 | )            |  |   | 573,575    |   |  |   | (77,131  | )
|Deduct:                                                                                                             |  |              |            |              |  |            |          |              |  |   |            |   |  |   |          |  
|Total stock based
employee
compensation
expense determined
under fair value based
method for all awards,
net of tax |  |              |           |              |  |            | (25,375  | )            |  |   | (1,288,200 | ) |  |   | (25,375  | )
|                                                                                                                    |  |              |            |              |  |            |          |              |  |   |            |   |  |   |          |  
|Pro forma loss under
US GAAP                                                                                        |  | $            | (1,328,730 | )            |  | $          | (705,876 | )            |  | $ | (3,406,476 | ) |  | $ | (844,262 | )
|                                                                                                                    |  |              |            |              |  |            |          |              |  |   |            |   |  |   |          |  
|Pro forma loss per
share,basic and
diluted                                                                          |  | $            | (0.07      | )            |  | $          | (0.07    | )            |  | $ | (0.25      | ) |  | $ | (0.08    | )
|                                                                                                                    |  |              |            |              |  |            |          |              |  |   |            |   |  |   |          |  

20



---



##### Table of Contents





| |  | Stock based compensation is calculated based upon the following weighted average assumptions:
| |  | ---------------------------------------------------------------------------------------------

|                                |  |              |   |              |  |              |      |              |  |           |      |   |  |  |      |  
|------------------------------- |  | ------------ | - | ------------ |  | ------------ | ---- | ------------ |  | --------- | ---- | - |  |  | ---- | -
|                                |  | Three months |   | Three months |  | Six months   |      | Six months  
|                                |  | ended        |   | ended        |  | ended        |      | ended       
|                                |  | November 30, |   | November 30, |  | November 30, |      | November 30,
|                                |  | 2003         |   | 2002         |  | 2003         |      | 2002        
|                                |  |              |   |              |  |              |      |             
|Expected life of options        |  |              |  |              |  | 2.0 years    |      | 4.7 years    |  | 2.0 years
|Expected stock price
volatility |  |              |  |              |  |              | 329  | %            |  |           | 298  | % |  |  | 329  | %
|Expected dividend yield         |  |              |  |              |  |              | 0    | %            |  |           | 0    | % |  |  | 0    | %
|Risk free interest rate         |  |              |  |              |  |              | 3.55 | %            |  |           | 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 November 30, 2003, 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 November 30, 2003.                                                                                                                                                       
|
| | (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.

21



---



##### Table of Contents





|(g) |  | The following table presents the consolidated balance sheet, statement of operations and deficit, and cash flows under U.S. GAAP:
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------

|                                                                             |  |             |             |        |  |   |             |  
|---------------------------------------------------------------------------- |  | ----------- | ----------- | ------ |  | - | ----------- | -
|                                                                             |  | November 30 |             | May 31
|                                                                             |  | 2003        |             | 2003  
|                                                                             |  |             |             |       
|                                                                             |  | (Unaudited) |             |        |  |  
|Balance Sheet                                                                |  |             |             |        |  |   |             |  
|Total assets under Canadian GAAP                                             |  | $           | 21,885,893  |        |  | $ | 13,584,699  |  
|Adjustments to mineral property exploration and
development expenditures (a) |  |             | (13,911,598 | )      |  |   | (13,206,552 | )
|                                                                             |  |             |             |        |  |   |             |  
|Total assets under U.S. GAAP                                                 |  | $           | 7,974,295   |        |  | $ | 378,147     |  
|                                                                             |  |             |             |        |  |   |             |  
|Total liabilities under Canadian GAAP                                        |  | $           | 11,151,957  |        |  | $ | 8,042,886   |  
|Canadian
GAAP - fair value conversion option (d)                             |  |             | 446,009     |        |  |   | 472,189     |  
|                                                                             |  |             |             |        |  |   |             |  
|Total liabilities under U.S. GAAP                                            |  |             | 11,597,966  |        |  |   | 8,515,075   |  
|Share capital, Canadian GAAP                                                 |  |             | 30,089,013  |        |  |   | 23,457,480  |  
|Gain on sale of subsidiary                                                   |  |             | (430,000    | )      |  |   | (430,000    | )
|Stock-based compensation (b)                                                 |  |             | 838,407     |        |  |   | 264,832     |  
|Fair value conversion option (d)                                             |  |             | (575,173    | )      |  |   | (575,173    | )
|                                                                             |  |             |             |        |  |   |             |  
|Share capital, U.S. GAAP                                                     |  |             | 29,922,247  |        |  |   | 22,717,139  |  
|Accumulated deficit, U.S. GAAP                                               |  |             | (33,545,918 | )      |  |   | (30,854,067 | )
|                                                                             |  |             |             |        |  |   |             |  
|Shareholders deficiency, U.S. GAAP                                          |  |             | (3,623,671  | )      |  |   | (8,136,928  | )
|                                                                             |  |             |             |        |  |   |             |  
|Shareholders deficiency and liabilities under U.S. GAAP                     |  | $           | 7,974,295   |        |  | $ | 378,147     |  
|                                                                             |  |             |             |        |  |   |             |  

Statement of Operations and Deficit

|                                                    |                                                           |   |                |             |              |   |              |          |              |   |              |          |   |   |             |          |   |   |             |          |  
|--------------------------------------------------- | --------------------------------------------------------- | - | -------------- | ----------- | ------------ | - | ------------ | -------- | ------------ | - | ------------ | -------- | - | - | ----------- | -------- | - | - | ----------- | -------- | -
|                                                    |                                                           |   | Cumulative     |             | Three        |   | Three        |          | Six          |   | Six         
|                                                    |                                                           |   | from inception |             | months       |   | months       |          | months       |   | months      
|                                                    |                                                           |   | to             |             | ended        |   | ended        |          | ended        |   | ended       
|                                                    |                                                           |   | November 30,   |             | November 30, |   | November 30, |          | November 30, |   | November 30,
|                                                    |                                                           |   | 2003           |             | 2003         |   | 2002         |          | 2003         |   | 2002        
|                                                    |                                                           |   |                |             |              |   |              |          |              |   |             
|Net loss under Canadian GAAP                        |                                                           | $ | (19,355,077    | )           |              | $ | (926,929     | )        |              | $ | (452,670     | )        |   | $ | (1,439,410  | )        |   | $ | (540,579    | )       
|Adjustments:                                        |                                                           |   |                |             |              |   |              |          |              |   |              |          |   |   |             |          |   |   |             |         
|                                                    | Mineral property exploration and
development expenditures |   |                | (13,911,598 | )            |   |              | (414,891 | )            |   |              | (240,776 | ) |   |             | (705,046 | ) |   |             | (304,198 | )
|                                                    | Gain on sale of subsidiary                                |   |                | 430,000     |              |   |              |         |              |   |              |         |   |   |             |         |   |   |             |         |  
|                                                    | Stock-based compensation                                  |   |                | (838,407    | )            |   |              | 577,260  |              |   |              | 485,522  |   |   |             | (573,575 | ) |   |             | 77,131   |  
|Fair value conversion option                        |                                                           |   | 129,164        |             |              |   | 13,090       |          |              |   | 12,945       |          |   |   | 26,180      |          |   |   | 25,890      |         
|                                                    |                                                           |   |                |             |              |   |              |          |              |   |              |          |   |   |             |          |   |   |             |         
|Net loss, being comprehensive loss, under
U.S. GAAP |                                                           |   | (33,545,918    | )           |              |   | (751,470     | )        |              |   | (194,979     | )        |   |   | (2,691,851  | )        |   |   | (741,756    | )       
|Accumulated opening deficit under U.S.
GAAP         |                                                           |   |               |             |              |   | (32,794,448  | )        |              |   | (30,408,248  | )        |   |   | (30,854,067 | )        |   |   | (29,861,471 | )       
|                                                    |                                                           |   |                |             |              |   |              |          |              |   |              |          |   |   |             |          |   |   |             |         
|Ending deficit, U.S. GAAP                           |                                                           | $ | (33,545,918    | )           |              | $ | (33,545,918  | )        |              | $ | (30,603,227  | )        |   | $ | (33,545,918 | )        |   | $ | (30,603,227 | )       
|                                                    |                                                           |   |                |             |              |   |              |          |              |   |              |          |   |   |             |          |   |   |             |         
|Net loss per share, basic and diluted,
U.S. GAAP    |                                                           |   |                |             |              | $ | (0.04        | )        |              | $ | (0.02        | )        |   | $ | (0.19       | )        |   | $ | (0.07       | )       
|                                                    |                                                           |   |                |             |              |   |              |          |              |   |              |          |   |   |             |          |   |   |             |         

22



---



##### Table of Contents





|(g) |  | Statement of cash flows:                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | For Canadian GAAP, cash flows relating to mineral property exploration and development 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 overdraft. Accordingly, the effect of these differences on the statements of cash
flows are summarized as follows:

|                                                                    |  |             |            |             |  |   |          |  
|------------------------------------------------------------------- |  | ----------- | ---------- | ----------- |  | - | -------- | -
|                                                                    |  | Six         |            | Six        
|                                                                    |  | months      |            | months     
|                                                                    |  | ended       |            | ended      
|                                                                    |  | November 30 |            | November 30
|                                                                    |  | 2003        |            | 2002       
|                                                                    |  |             |            |            
|Cash provided by (used in) operations under Canadian GAAP           |  | $           | (1,180,593 | )           |  | $ | 26,177   |  
|Adjustment for mineral exploration costs                            |  |             | (700,128   | )           |  |   | (290,065 | )
|                                                                    |  |             |            |             |  |   |          |  
|Cash used in operations under U.S. GAAP                             |  |             | (1,880,721 | )           |  |   | (263,888 | )
|Cash provided by (used in) investing activities under
Canadian GAAP |  |             | (711,433   | )           |  |   | (290,065 | )
|Adjustment for mineral exploration costs                            |  |             | 700,128    |             |  |   | 290,065  |  
|                                                                    |  |             |            |             |  |   |          |  
|Cash used in investing activities under U.S. GAAP                   |  |             | (11,305    | )           |  |   |         |  
|Financing activities under Canadian GAAP                            |  |             | 2,765,780  |             |  |   | 277,311  |  
|Decrease in bank overdraft                                          |  |             | (7,586     | )           |  |   | (9,399   | )
|                                                                    |  |             |            |             |  |   |          |  
|Financing activities under U.S. GAAP                                |  |             | 2,758,194  |             |  |   | 267,912  |  
|                                                                    |  |             |            |             |  |   |          |  
|Increase in cash under Canadian GAAP                                |  |             | 873,754    |             |  |   | 13,423   |  
|Additional bank overdraft repayment                                 |  |             | (7,586     | )           |  |   | (9,399   | )
|                                                                    |  |             |            |             |  |   |          |  
|Increase in cash under U.S. GAAP                                    |  |             | 866,168    |             |  |   | 4,024    |  
|Cash, beginning of period, U.S. GAAP                                |  |             |           |             |  |   |         |  
|                                                                    |  |             |            |             |  |   |          |  
|Cash, end of period, U.S. GAAP                                      |  | $           | 866,168    |             |  | $ | 4,024    |  
|                                                                    |  |             |            |             |  |   |          |  



|(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)                                                                                               

|                                                             |  |              |             |  
|------------------------------------------------------------ |  | ------------ | ----------- | -
|                                                             |  | Cumulative  
|                                                             |  | from        
|                                                             |  | inception   
|                                                             |  | Dec 30, 1986
|                                                             |  | to November 
|                                                             |  | 30, 2003    
|                                                             |  |             
|Operating, exploration and administrative expenses           |  | $            | (25,501,703 | )
|Loss on disposition of subsidiary                            |  |              | (12,107,072 | )
|Other income                                                 |  |              | 4,062,857   |  
|                                                             |  |              |             |  
|Net loss for the period since inception to November 30, 2003 |  | $            | (33,545,918 | )
|                                                             |  |              |             |  

23



---



##### Table of Contents





| |  | Consolidated statements of cash flows:
| |  | --------------------------------------

|                                                     |  |              |             |  
|---------------------------------------------------- |  | ------------ | ----------- | -
|                                                     |  | Cumulative  
|                                                     |  | from        
|                                                     |  | inception   
|                                                     |  | Dec 30, 1986
|                                                     |  | to November 
|                                                     |  | 30, 2003    
|                                                     |  |             
|Operating activities                                 |  | $            | (12,162,481 | )
|Financing activities                                 |  |              | 18,767,121  |  
|Investing activities                                 |  |              | (5,738,472  | )
|                                                     |  |              |             |  
|Net cash inflows from inception to November 30, 2003 |  | $            | 866,168     |  
|                                                     |  |              |             |  

24



---



##### Table of Contents





| |  | Additional shareholders equity disclosures required under FAS No. 7 would include:
| |  | -----------------------------------------------------------------------------------

|                                      |                                   |  |               |           |             |   |                 |         |  |   |            |   | 
|------------------------------------- | --------------------------------- |  | ------------- | --------- | ----------- | - | --------------- | ------- |  | - | ---------- | - | 
|                                      |                                   |  |               |           |             |   |                 |         |  |   | Deficit   
|                                      |                                   |  | Common shares |           | accumulated
|                                      |                                   |  | Number        |           | Amount      |   | since inception
|                                      |                                   |  |               |           |             |   |                
|Balance at inception                  |                                   |  |              |           |             | $ |                |         |  |   |            |  
|                                      | Issued for cash:                  |  |               |           |             |   |                 |         |  |   |            |   | 
|                                      | December 1986                     |  |               | 1         |             |   |                 | 1       |  |   |            |   | 
|                                      | January 1987                      |  |               | 80,000    |             |   |                 | 100,000 |  |   |            |   | 
|                                      | April 1987                        |  |               | 150,000   |             |   |                 | 7,500   |  |   |            |   | 
|Net 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    |             |   |                 | 14,500  |  |   |            |   | 
|                                      | March 1988                        |  |               | 100,000   |             |   |                 | 150,000 |  |   |            |   | 
|Net 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    |             |   |                 | 54,250  |  |   |            |   | 
|                                      | Issued upon exercise of warrants: |  |               |           |             |   |                 |         |  |   |            |   | 
|                                      | August 1988                       |  |               | 20,000    |             |   |                 | 40,000  |  |   |            |   | 
|                                      | March 1989                        |  |               | 5,000     |             |   |                 | 10,000  |  |   |            |   | 
|Net 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    |             |   |                 | 136,000 |  |   |            |   | 
|                                      | Issued upon exercise of options:  |  |               |           |             |   |                 |         |  |   |            |   | 
|                                      | August 1989                       |  |               | 20,000    |             |   |                 | 75,000  |  |   |            |   | 
|Net 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 |             |   |                 | 750,000 |  |   |            |   | 
|                                      | Issued for finders fee           |  |               | 30,000    |             |   |                 | 90,000  |  |   |            |   | 
|Net 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    |             |   |                 | 20,000  |  |   |            |   | 
|Net 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 |             |   |                 | 150,000 |  |   |            |   | 
|                                      | March 1993                        |  |               | 600,000   |             |   |                 | 132,000 |  |   |            |   | 
|                                      | Issued for debt settlement:       |  |               |           |             |   |                 |         |  |   |            |   | 
|                                      | August 1992                       |  |               | 115,468   |             |   |                 | 23,094  |  |   |            |   | 
|                                      | Issued for finders fee           |  |               | 30,000    |             |   |                 | 26,100  |  |   |            |   | 
|Net loss for the year under U.S. GAAP |                                   |  |              |           |             |   |                |         |  |   | (118,136   | )
|                                      |                                   |  |               |           |             |   |                 |         |  |   |            |  

25



---



##### Table of Contents



|                                      |                                         |  |               |           |             |   |                 |           |   |   |            |   | 
|------------------------------------- | --------------------------------------- |  | ------------- | --------- | ----------- | - | --------------- | --------- | - | - | ---------- | - | 
|                                      |                                         |  |               |           |             |   |                 |           |   |   | Deficit   
|                                      |                                         |  | Common shares |           | accumulated
|                                      |                                         |  | Number        |           | Amount      |   | since inception
|                                      |                                         |  |               |           |             |   |                
|Balance, May 31, 1993                 |                                         |  | 3,283,069     |           |             | $ | 1,778,445       |           |   | $ | (1,761,284 | )
|                                      | Issued for mineral properties Oct. 1993 |  |               | 50,000    |             |   |                 | 30,500    |   |   |            |   | 
|                                      | Issued for exercise of warrants:        |  |               |           |             |   |                 |           |   |   |            |   | 
|                                      | June 1993                               |  |               | 1,000,000 |             |   |                 | 150,000   |   |   |            |   | 
|                                      | September 1993                          |  |               | 145,000   |             |   |                 | 31,900    |   |   |            |   | 
|                                      | Issued for cash:                        |  |               |           |             |   |                 |           |   |   |            |   | 
|                                      | January 1994                            |  |               | 170,000   |             |   |                 | 102,000   |   |   |            |   | 
|Net 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   |             |   |                 | 150,000   |   |   |            |   | 
|                                      | Issued for exercise of warrants:        |  |               |           |             |   |                 |           |   |   |            |   | 
|                                      | October 1994                            |  |               | 205,000   |             |   |                 | 55,000    |   |   |            |   | 
|                                      | December 1994                           |  |               | 40,000    |             |   |                 | 10,400    |   |   |            |   | 
|                                      | January 1995                            |  |               | 215,000   |             |   |                 | 55,900    |   |   |            |   | 
|                                      | May 1995                                |  |               | 3,000     |             |   |                 | 2,250     |   |   |            |   | 
|                                      | Disposition 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   |             |   |                 | 700,000   |   |   |            |   | 
|                                      | December 1995                           |  |               | 209,200   |             |   |                 | 796,142   |   |   |            |   | 
|                                      | April 1996                              |  |               | 285,750   |             |   |                 | 1,091,565 |   |   |            |   | 
|                                      | May 1996                                |  |               | 359,300   |             |   |                 | 1,372,526 |   |   |            |   | 
|                                      | Issued for mineral properties:          |  |               |           |             |   |                 |           |   |   |            |   | 
|                                      | June 1995                               |  |               | 100,000   |             |   |                 | 300,000   |   |   |            |   | 
|                                      | Issued upon exercise of warrants:       |  |               |           |             |   |                 |           |   |   |            |   | 
|                                      | June 1995                               |  |               | 81,500    |             |   |                 | 61,125    |   |   |            |   | 
|                                      | August 1995                             |  |               | 141,500   |             |   |                 | 97,635    |   |   |            |   | 
|                                      | September 1995                          |  |               | 8,000     |             |   |                 | 6,800     |   |   |            |   | 
|                                      | October 1995                            |  |               | 73,500    |             |   |                 | 66,215    |   |   |            |   | 
|                                      | November 1995                           |  |               | 300,000   |             |   |                 | 300,000   |   |   |            |   | 
|                                      | April 1996                              |  |               | 43,500    |             |   |                 | 36,975    |   |   |            |   | 
|                                      | May 1996                                |  |               | 36,500    |             |   |                 | 31,025    |   |   |            |   | 
|                                      | Issued 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   |             |   |                 | 2,038,163 |   |   |            |   | 
|                                      | Issued for finders fee:                |  |               |           |             |   |                 |           |   |   |            |   | 
|                                      | September 1996                          |  |               | 5,962     |             |   |                 |           |   |   |            |   | 
|                                      | Issued upon exercise of options:        |  |               |           |             |   |                 |           |   |   |            |   | 
|                                      | August 1996                             |  |               | 10,000    |             |   |                 | 13,000    |   |   |            |   | 
|                                      | September 1996                          |  |               | 3,000     |             |   |                 | 3,900     |   |   |            |   | 
|                                      | December 1996                           |  |               | 1,000     |             |   |                 | 1,300     |   |   |            |   | 
|                                      | January 1997                            |  |               | 1,000     |             |   |                 | 1,300     |   |   |            |   | 
|                                      | February 1997                           |  |               | 7,000     |             |   |                 | 16,520    |   |   |            |   | 
|                                      | March 1997                              |  |               | 500       |             |   |                 | 650       |   |   |            |   | 
|                                      | April 1997                              |  |               | 75,900    |             |   |                 | 98,670    |   |   |            |   | 

26



---



##### Table of Contents



|                                      |                                      |  |               |         |             |  |                 |           |  |  |             |   | 
|------------------------------------- | ------------------------------------ |  | ------------- | ------- | ----------- |  | --------------- | --------- |  |  | ----------- | - | 
|                                      |                                      |  |               |         |             |  |                 |           |  |  | Deficit    
|                                      |                                      |  | Common shares |         | accumulated
|                                      |                                      |  | Number        |         | Amount      |  | since inception
|                                      |                                      |  |               |         |             |  |                
|                                      | May 1997                             |  |               | 81,000  |             |  |                 | 105,300   |  |  |             |   | 
|                                      | Issued upon exercise of warrants:    |  |               |         |             |  |                 |           |  |  |             |   | 
|                                      | June 1996                            |  |               | 27,500  |             |  |                 | 23,375    |  |  |             |   | 
|                                      | February 1997                        |  |               | 285,750 |             |  |                 | 1,428,750 |  |  |             |   | 
|                                      | March 1997                           |  |               | 222,700 |             |  |                 | 1,113,500 |  |  |             |   | 
|Net 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 |             |  |                 | 2,686,000 |  |  |             |   | 
|                                      | Issued upon exercise of options:     |  |               |         |             |  |                 |           |  |  |             |   | 
|                                      | July 1997                            |  |               | 1,400   |             |  |                 | 1,820     |  |  |             |   | 
|                                      | August 1997                          |  |               | 1,000   |             |  |                 | 1,300     |  |  |             |   | 
|                                      | September 1997                       |  |               | 7,000   |             |  |                 | 9,100     |  |  |             |   | 
|                                      | October 1997                         |  |               | 39,562  |             |  |                 | 61,823    |  |  |             |   | 
|                                      | May 1998                             |  |               | 207,000 |             |  |                 | 60,030    |  |  |             |   | 
|                                      | Issued for mineral properties:       |  |               |         |             |  |                 |           |  |  |             |   | 
|                                      | February 1998                        |  |               | 11,250  |             |  |                 | 97,538    |  |  |             |   | 
|                                      | March 1998                           |  |               | 619,000 |             |  |                 | 3,683,050 |  |  |             |   | 
|Net 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  |             |  |                 | 33,500    |  |  |             |   | 
|                                      | Issued for debt settlement:          |  |               |         |             |  |                 |           |  |  |             |   | 
|                                      | January 1999                         |  |               | 180,125 |             |  |                 | 270,188   |  |  |             |   | 
|                                      | Issued for mineral properties:       |  |               |         |             |  |                 |           |  |  |             |   | 
|                                      | November 1998                        |  |               | 80,364  |             |  |                 | 478,166   |  |  |             |   | 
|                                      | March 1999                           |  |               | 288,750 |             |  |                 | 2,503,462 |  |  |             |   | 
|                                      | March 1999                           |  |               | 10,000  |             |  |                 | 59,500    |  |  |             |   | 
|Net 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 |             |  |                 | 45,000    |  |  |             |   | 
|                                      | Issued under exercise of options:    |  |               |         |             |  |                 |           |  |  |             |   | 
|                                      | January 2001                         |  |               | 100,000 |             |  |                 | 15,000    |  |  |             |   | 
|                                      | Stock-based compensation             |  |               |        |             |  |                 | 183,079   |  |  |             |   | 
|Net 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 |             |  |                 | 75,000    |  |  |             |   | 
|                                      | Issued under settlement of services: |  |               |         |             |  |                 |           |  |  |             |   | 
|                                      | October 2001                         |  |               | 471,000 |             |  |                 | 141,300   |  |  |             |   | 
|                                      | Issued for mineral properties:       |  |               |         |             |  |                 |           |  |  |             |   | 
|                                      | October 2001                         |  |               | 100,000 |             |  |                 | 30,000    |  |  |             |   | 
|                                      | Stock-based compensation             |  |               |        |             |  |                 | 125,917   |  |  |             |   | 
|Net loss for the year under U.S. GAAP |                                      |  |              |         |             |  |                |           |  |  | (1,183,901  | )
|                                      |                                      |  |               |         |             |  |                 |           |  |  |             |  

27



---



##### Table of Contents



|                                      |                                               |  |               |           |             |   |                 |           |  |   |             |   | 
|------------------------------------- | --------------------------------------------- |  | ------------- | --------- | ----------- | - | --------------- | --------- |  | - | ----------- | - | 
|                                      |                                               |  |               |           |             |   |                 |           |  |   | Deficit    
|                                      |                                               |  | Common shares |           | accumulated
|                                      |                                               |  | Number        |           | Amount      |   | since inception
|                                      |                                               |  |               |           |             |   |                
|Balance, May 31, 2002                 |                                               |  | 10,676,718    |           |             |   | 22,201,603      |           |  |   | (29,861,471 | )
|                                      | Issued for debt settlement:                   |  |               |           |             |   |                 |           |  |   |             |   | 
|                                      | June 2002 and August 2002                     |  |               | 67,500    |             |   |                 | 38,800    |  |   |             |   | 
|                                      | Issued under settlement of services:          |  |               |           |             |   |                 |           |  |   |             |   | 
|                                      | October 2002 and January 2003                 |  |               | 261,667   |             |   |                 | 143,234   |  |   |             |   | 
|                                      | Issued for mineral properties:                |  |               |           |             |   |                 |           |  |   |             |   | 
|                                      | February 2003                                 |  |               | 100,000   |             |   |                 | 82,000    |  |   |             |   | 
|                                      | Issued under exercise of options:             |  |               |           |             |   |                 |           |  |   |             |   | 
|                                      | January 2003                                  |  |               | 25,000    |             |   |                 | 11,250    |  |   |             |   | 
|                                      | Issued for cash                               |  |               |           |             |   |                 |           |  |   |             |   | 
|                                      | October 2002                                  |  |               | 62,500    |             |   |                 | 78,771    |  |   |             |   | 
|                                      | Warrants issued under settlement of services: |  |               |           |             |   |                 |           |  |   |             |   | 
|                                      | October 2002                                  |  |               |          |             |   |                 | 205,645   |  |   |             |   | 
|Stock 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    |             |   |                 | 69,785    |  |   |             |   | 
|                                      | Issued under exercise of options:             |  |               |           |             |   |                 |           |  |   |             |   | 
|                                      | July 2003, August 2003 and October 2003       |  |               | 240,000   |             |   |                 | 108,000   |  |   |             |   | 
|                                      | Issued for financing:                         |  |               |           |             |   |                 |           |  |   |             |   | 
|                                      | August 2003                                   |  |               | 8,181,818 |             |   |                 | 6,280,242 |  |   |             |   | 
|                                      | Issued for services:                          |  |               |           |             |   |                 |           |  |   |             |   | 
|                                      | November 2003                                 |  |               | 25,000    |             |   |                 | 48,765    |  |   |             |   | 
|                                      | Issued for cash:                              |  |               |           |             |   |                 |           |  |   |             |   | 
|                                      | November 2003                                 |  |               | 80,000    |             |   |                 | 124,741   |  |   |             |   | 
|Stock based compensation              |                                               |  |              |           |             |   | 573,575         |           |  |   |             |  
|Net loss for period under U.S. GAAP   |                                               |  |              |           |             |   |                |           |  |   | (2,691,851  | )
|                                      |                                               |  |               |           |             |   |                 |           |  |   |             |  
|Balance, November 30, 2003            |                                               |  | 19,782,703    |           |             | $ | 29,922,247      |           |  | $ | (33,545,918 | )
|                                      |                                               |  |               |           |             |   |                 |           |  |   |             |  



| |  | All of the above transactions have been included on a post-consolidation basis.
| |  | -------------------------------------------------------------------------------

28



---



##### Table of Contents






Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations

The statements contained in this Report on Form 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 on Form 20-F for 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.

|                   |  |                                |  |                                 |  |                 |  |              
|------------------ |  | ------------------------------ |  | ------------------------------- |  | --------------- |  | -------------
|                   |  | US GAAP, six mos ended Nov. 30 |  | Cdn GAAP, six mos ended Nov. 30
|                   |  |                                |  |                                
|                   |  | 2003                           |  | 2002                            |  | 2003            |  | 2002         
|                   |  |                                |  |                                 |  |                 |  |              
|Revenues           |  | Cdn$0                          |  | Cdn$0                           |  | Cdn$0           |  | Cdn$0        
|Net Loss           |  | Cdn$(2,691,851)                |  | Cdn$(741,756)                   |  | Cdn$(1,439,410) |  | Cdn$(540,579)
|Net Loss per share |  | Cdn$(0.19)                     |  | Cdn$(0.07)                      |  | Cdn$(0.10)      |  | Cdn$(0.05)   

29



---



##### Table of Contents



|                               |  |                   |  |                 |  |                   |  |               
|------------------------------ |  | ----------------- |  | --------------- |  | ----------------- |  | --------------
|                               |  | US GAAP,
as at    |  | Cdn GAAP,
as at
|                               |  |                   |  |                
|                               |  | November 30, 2003 |  | May 31, 2003    |  | November 30, 2003 |  | May 31, 2003  
|                               |  |                   |  |                 |  |                   |  |               
|Total Assets                   |  | Cdn$7,974,295     |  | Cdn$378,147     |  | Cdn$21,885,893    |  | Cdn$13,584,699
|Total Liabilities              |  | Cdn$11,597,966    |  | Cdn$8,515,075   |  | Cdn$11,151,957    |  | Cdn$8,042,886 
|Shareholders
Equity (Deficit) |  | Cdn$(3,623,671)   |  | Cdn$(8,136,928) |  | Cdn$10,733,936    |  | Cdn$5,541,813 

The primary reasons for the increase in loss under US GAAP over Canadian
GAAP are the following:



| |  |  | exploration and development 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$705,046 during the
first six months of fiscal 2004 as compared to expenses of Cdn$304,198
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 six months of fiscal 2004 as compared to a
recovery of compensation expenses of Cdn$77,131 in the same period of
fiscal 2003.
|
| |  |  | the fair value of the debenture conversion option is being expensed
under Canadian GAAP. No beneficial conversion option is recognized
under US GAAP. This resulted in expenses under Canadian GAAP (but not
under US GAAP) of Cdn$26,180 during the first six months of fiscal 2004
as compared to expenses of Cdn$25,890 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 mineral properties with
the aim of participating in the development of them to a stage where they can
be exploited at 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 properties with mineral reserves or with any material production of
minerals. Operations on our properties are exploratory searches for
commercially producible deposits.

30



---



##### Table of Contents



Nearly all of our activities are directed to exploration and development
programs. Yearly and quarterly variations in individual property expenditures
generally reflect increases or decreases
in specific exploration and development 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.

|                     |  |                               |            |                     |  |      |            |      |  |  |            |   |  |  |            |  
|-------------------- |  | ----------------------------- | ---------- | ------------------- |  | ---- | ---------- | ---- |  |  | ---------- | - |  |  | ---------- | -
|                     |  | Six Months Ended November 30,
|                     |  |                              
|                     |  | 2003                          |            | 2002                |  | 2003 |            | 2002
|                     |  |                               |            |                     |  |      |            |     
|                     |  | US GAAP, Cdn$                 |            | Canadian GAAP, Cdn$
|                     |  |                               |            |                    
|Operating revenues   |  |                               | 0          |                     |  |      | 0          |      |  |  | 0          |   |  |  | 0          |  
|Operating (expenses) |  |                               | (2,686,590 | )                   |  |      | (743,281   | )    |  |  | (1,444,671 | ) |  |  | (542,104   | )
|Other income         |  |                               | 5,261      |                     |  |      | 1,525      |      |  |  | 5,261      |   |  |  | 1,525      |  
|Net (loss)           |  |                               | (2,691,851 | )                   |  |      | (741,756   | )    |  |  | (1,439,410 | ) |  |  | (540,579   | )
|Net (loss) per share |  |                               | (0.19      | )                   |  |      | (0.07      | )    |  |  | (0.10      | ) |  |  | (0.05      | )
|Weighted avg shares  |  |                               | 19,494,786 |                     |  |      | 10,644,913 |      |  |  | 13,878,157 |   |  |  | 10,609,080 |  

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 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.

Operating Expenses

Our operating expenses increased significantly during the six months ended
November 30, 2003 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 six months ended November 30, 2003, as in the first quarter,
however, our most significant expense increase were bank charges and interest,
which amounted to Cdn$1,417,256 for the six months ended November 30, 2003 as
compared to Cdn$442,293 during the same period of the prior year. These costs
increased almost four times because we had to finance our operations during
fiscal 2003 and the first two months of fiscal 2004 through the use of debt, in
part with high-

31



---



##### Table of Contents



interest rate credit cards during the prior period, but we also
had fewer funds borrowed during the prior periods, and we incurred significant
finance charges in connection with the August 2003 loan.
In addition, during the first quarter of fiscal 2004, our loan from Peak
National Bank was in default, and the default interest rate on that loan was
24% per annum.

Many of our other expenses increased during the first two 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; and         
|
| |  |  | bringing many of our general and administrative operations and
reporting requirements up to date.

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:



| |  |  | Cdn$705,046 expense recognized under US GAAP (but not Canadian
GAAP) for mineral property exploration and development expenditures.
These expenses were capitalized under Canadian GAAP. During the same
period of our 2003 fiscal year, we recognized an expense of Cdn$304,198
under US GAAP in this category, reflecting significantly less mineral
exploration and development activity.                      
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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.

Mineral exploration and development expenditures increased during the
first quarter, and will increase further in our third quarter, because we have
more funds available as a result of the funds made available by the August
financing, although we are looking for additional financing necessary to
complete our exploration and development plans.

Our professional fees increased by more than triple during the first two
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
further 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

32



---



##### Table of Contents



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 at        
|                               |  |              
|                               |  | 11/30/2003    |            | 5/31/2003           |  | 11/30/2003 |            | 5/31/2003
|                               |  |               |            |                     |  |            |            |          
|                               |  | US GAAP, Cdn$ |            | Canadian GAAP, Cdn$
|                               |  |               |            |                    
|Total assets                   |  |               | 7,974,295  |                     |  |            | 378,147    |           |  |  | 21,885,893 |  |  |  | 13,584,699 |  
|Total liabilities              |  |               | 11,597,966 |                     |  |            | 8,515,075  |           |  |  | 11,151,957 |  |  |  | 8,042,866  |  
|Working capital (deficit)      |  |               | 2,045,316  |                     |  |            | (3,134,669 | )         |  |  | 2,045,316  |  |  |  | (3,134,669 | )
|Shareholders Equity
(Deficit) |  |               | (3,623,671 | )                   |  |            | (8,136,928 | )         |  |  | 10,733,936 |  |  |  | 5,541,813  |  

|                                |  |                                       |            |                     |  |      |          |      |  |  |            |   |  |  |          |  
|------------------------------- |  | ------------------------------------- | ---------- | ------------------- |  | ---- | -------- | ---- |  |  | ---------- | - |  |  | -------- | -
|                                |  | For the six months ended November 30,
|                                |  |                                      
|                                |  | 2003                                  |            | 2002                |  | 2003 |          | 2002
|                                |  |                                       |            |                     |  |      |          |     
|                                |  | US GAAP, Cdn$                         |            | Canadian GAAP, Cdn$
|                                |  |                                       |            |                    
|Cash flow provided by
(used in) |  |                                       |            |                     |  |      |          |      |  |  |            |   |  |  |          |  
|Operations                      |  |                                       | (1,880,721 | )                   |  |      | (263,888 | )    |  |  | (1,180,593 | ) |  |  | 26,177   |  
|Financing                       |  |                                       | 2,758,194  |                     |  |      | 267,912  |      |  |  | 2,765,780  |   |  |  | 277,311  |  
|Investing                       |  |                                       | (11,305    | )                   |  |      | 0        |      |  |  | (711,433   | ) |  |  | (290,065 | )
|Increase in cash during
period  |  |                                       | 866,168    |                     |  |      | 4,024    |      |  |  | 873,754    |   |  |  | 13,243   |  

Working Capital

Our working capital and liquidity increased significantly during the six
months ended November 30, 2003 due to the financing completed in August 2003.
At November 30, 2003, 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 November 30, 2003,
our working capital decreased by about Cdn$800,000 as compared to August 31,
2003, because of increased expenditures made possible by the August financing.
These included expenditures for exploration and development of our mineral
properties 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

33



---



##### Table of Contents



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$ | 1,161,000
|Repayment of remaining amounts due to bank                                     | US$ | 1,080,000
|Repayment of interim mortgage due to Thomas S. Hendricks for
funds he advanced | US$ | 587,680  
|Repayment of trade payables                                                    | US$ | 700,000  
|Repayment of accrued compensation                                              | US$ | 223,822  
|Financing 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 decrease over time as
we continue to use our capital and cash flows from revenues for operations,
mineral exploration and development, 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 and development activity and general and administrative
operations anticipated as described above under Results of Operations.

We will continually monitor our working capital situation and may have to
seek additional financing from accredited investors or others in the near
future so that we will be able 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.

34



---



##### Table of Contents



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 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 and development expenditures. Under Statement of Financial
Accounting Standards No. 144 (SFAS 144; 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, the staff of the United States Securities and Exchange
Commission staff have indicated that their interpretation of SFAS 144 requires
that all mineral property exploration and development 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 and development
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 properties at November 30, 2003 of Cdn$13,911,598 (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 significantly under both
US GAAP and Canadian GAAP (since

35



---



##### Table of Contents



there were no adjustments) due entirely to the
financing completed in August 2003 as described above.

Cash Flows

Under Canadian GAAP, cash flows relating to mineral property exploration
and development expenditures are reported as investing activities. These
expenditures amounted to Cdn$700,128 for the two quarters ended November 30,
2003 as compared to Cdn$290,065 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 overdraft which is not included under Canadian GAAP.

In summary, however, our use of cash in operating activities increased
significantly under both Canadian and US GAAP during the quarter ended August
31, 2003 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
significant increase in cash flow from financing activities during the two
quarters ended November 30, 2003, 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 November 30,
2003, there were certain conditions that currently exist which raise
substantial doubt

36



---



##### Table of Contents



about the validity of this assumption. The Company
anticipates the need to raise additional private placement debt or equity funds
or through joint venture arrangements 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 Panamanian properties, curtailing operations or
writing down its assets.

For Canadian GAAP purposes, the Company capitalizes exploration costs
incurred. The recoverability of the capitalized costs includes considerations
primarily of managements exploration, development and holding plans and
expectations with respect to the property, potential mineralization, costs to
recovery, commodity prices and the potential for third party agreements on
development. Certain of these factors are beyond the Companys control. Other
factors, 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 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.

In April 2002 the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. FASB No. 4 required all gains or losses from the retirement of
debt to be classified as extraordinary items net of income taxes. The standard
requires that gains and losses from the retirement of debt be classified as
ordinary items unless they are unusual or infrequent or meet the specific
criteria for treatment as an extraordinary item. This statement is effective
January 1, 2003. The adoption of this statement did not have a material effect
on our financial position or results of operations.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This Statement addresses
financial accounting and reporting for costs associated with exit or disposal
activities. This Statement requires recognition of a liability for a cost
associated with an exit or disposal activity when the liability is incurred, as
opposed to when the entity commits to an exit plan. This statement is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002. As we have had no exit or disposal activities subsequent to December
31, 2002, the adoption of this statement has had no impact on our consolidated
financial statements.

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.

37



---



##### Table of Contents



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.

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

(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.

38



---



##### Table of Contents



(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.

(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.

39



---



##### Table of Contents



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. The warrants are exercisable as described above.

(vi)  We received no cash proceeds from the issuance of the shares and,
therefore, cannot report any 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 employees as stock bonuses, which
transactions were not deemed to be sales for the purposes of the Securities
Act of 1933 and which transactions have, as of the date hereof, not yet been
completed.

(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.

40



---



##### Table of Contents



(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 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.

41



---



##### Table of Contents



(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).

(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.

42



---



##### Table of Contents



(vi)  We received Cdn$67,500 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. 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, 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.

43



---



##### Table of Contents



(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

44



---



##### Table of Contents



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.




Item 6: Exhibits and Reports on Form 8-K



|(a) |  | Exhibits.                                               
|--- |  | --------------------------------------------------------
|   
|    |  | 31. Certification pursuant to Sarbanes-Oxley Section 302
|   
|    |  | 32. Certification pursuant to 18 U.S.C. Section 1350    
|   
|(b) |  | Reports on Form 8-K                                     

On October 27, 2003 we filed a report on Form 8-K reporting an event under
Items 7 (exhibits) and 12 (results of operation or financial condition) which
included copies of our Canadian GAAP financial statements and managements
discussion and analysis of those statements mailed to our security holders and
filed with Canadian regulatory authorities as required by Canadian law.

45



---



##### Table of Contents






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 16th day of January, 2004.

CALAIS RESOURCES, INC.
(Registrant)

|   |  |                                                
|-- |  | -----------------------------------------------
|By |  | /s/ Thomas S. Hendricks                        
|   | 
|   |  | Thomas S. Hendricks,                           
|   |  | President, Chief Executive Officer and Director

|   |  |                                                     
|-- |  | ----------------------------------------------------
|By |  | /s/ Matthew C. Witt                                 
|   | 
|   |  | Matthew C. Witt,                                    
|   |  | Chief Accounting Officer and Chief Financial Officer

46



---



##### Table of Contents






INDEX TO EXHIBITS



| |  | 31. Certification pursuant to Sarbanes-Oxley Section 302
| |  | --------------------------------------------------------
|
| |  | 32. Certification pursuant to 18 U.S.C. Section 1350