##### 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 August 31, 2004 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.  British Columbia(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)
 8400 East Crescent Parkway, Suite 675Greenwood Village, CO 80111 
  (720) 529-9500  Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes x  No o The number of shares outstanding of the registrants Common Stock, no par
value, was 20,143,453 at August 31, 2004. Transitional Small Business Disclosure Format (check one):
Yes o  No x




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Calais Resources, Inc. TABLE OF CONTENTS FORM 10-QSB Part I: Financial Information
    3Item 1: Interim Financial Statements
    3Interim Consolidated Balance Sheet as of August 31, 2004 (unaudited)
    24Interim Consolidated Statements of Operations and Deficit for
the Three Months Ended August
31, 2004 and 2003 (unaudited)
    25Interim Consolidated Statements of Cash Flows for the Three
Months Ended August 31, 2004
and 2003 (unaudited)
    26Notes
to Interim Consolidated Financial Statements (unaudited)
    27Item 2: Managements Discussion and Analysis of Financial Condition and
Results of Operations
    4Item 3: Controls and Procedures
    14Part II: Other Information
    15Item 1: Legal Proceedings
    15Item 2: Unregistered Sale of Equity Securities and Use of Proceeds
    15Item 3: Defaults upon Senior Securities
    18Item 4: Submission of Matters to a
Vote of Security Holders
    19Item 5: Other Information
    19Item 6: Exhibits
    21Signatures
    22Restatement of Purchase Option AgreementCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification Pursuant to 18 U.S.C. Section 1350 by CEOCertification Pursuant to 18 U.S.C. Section 1350 by CFO
  2




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Part I: Financial Information In this quarterly report, all references to $ or Cdn$ in the Condensed
Financial Statements and elsewhere herein are references to Canadian dollars,
the principal currency in which our financial statements are maintained.
References to US$ are references to United States dollars. The Government of
Canada permits a floating exchange rate to determine the value of the Canadian
Dollar against the U.S. Dollar (US$). 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 May 31, 2005. 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 May 31, 2004
was Cdn$1.36, meaning that at that date Cdn$1.36 would purchase US$1.00, or
US$0.73 would purchase Cdn$1.00. Month ended
    
    High
    
    LowSeptember 30, 2004
    
    $
    1.30
    
    
    $
    1.26August 31, 2004
    
    $
    1.33
    
    
    $
    1.30July 31, 2004
    
    $
    1.33
    
    
    $
    1.31June 30, 2004
    
    $
    1.38
    
    
    $
    1.34May 31, 2004
    
    $
    1.40
    
    
    $
    1.36April 30, 2004
    
    $
    1.37
    
    
    $
    1.31March 31, 2004
    
    $
    1.35
    
    
    $
    1.31February 29, 2004
    
    $
    1.34
    
    
    $
    1.31January 31, 2004
    
    $
    1.33
    
    
    $
    1.27
 Year ended May 31
    
    Average
    
    High
    
    Low2004
    
    $
    1.34
    
    
    $
    1.41
    
    
    $
    1.252003
    
    $
    1.46
    
    
    $
    1.59
    
    
    $
    1.332002
    
    $
    1.57
    
    
    $
    1.60
    
    
    $
    1.522001
    
    $
    1.52
    
    
    $
    1.58
    
    
    $
    1.472000
    
    $
    1.47
    
    
    $
    1.51
    
    
    $
    1.441999
    
    $
    1.51
    
    
    $
    1.58
    
    
    $
    1.45
 
 Item 1: Interim Consolidated Financial Statements See financial statements immediately following the signature page which are, by
this reference, incorporated herein. 3




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Item 2: Managements Discussion and Analysis of Financial Condition and
Results of Operations The statements contained in this Report onForm 10-QSB(including in this
managements discussion and analysis and elsewhere herein) that are not purely
historical are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding our expectations, hopes, intentions or
strategies regarding the future. We have based these forward-looking statements
largely on our current expectations and projections about future events and
financial trends affecting our business. These forward-looking statements are
subject to risks, uncertainties and assumptions including, among other things,
the factors discussed in our annual report onForm 10-KSBfor the year ended
May 31, 2004 under ITEM #3, Key Information, Risk Factors and factors
described in documents that we may furnish from time to time to the Securities
and Exchange Commission. The words believe, may, will, estimate, continue, anticipate,
intend, expect, and similar words are intended to identify forward-looking
statements. In light of these risks and uncertainties, the forward-looking
information, events and circumstances discussed in this report might not occur.
Our actual results and performance could differ substantially from those
anticipated in our forward-looking statements. All forward-looking statements included in this document are based on
information available to us on the date hereof, and we undertake no obligation
to update any such forward-looking statements. It is important to note that
our actual results could differ materially from those in such forward-looking
statements. General Discussion Our consolidated financial statements have been prepared in accordance
with generally accepted accounting principles as applied in Canada. There are
several differences in determining expenses and net loss between Canadian GAAP
and US GAAP. Revenues remain the same at nil under both Canadian and US GAAP.
The information as at August 31, 2004 and for the three months ended August 31,
2004 and 2003 is as follows: US GAAP, three mos ended
Aug. 31
    
    Cdn GAAP, three mos ended Aug. 312004
    
    2003
    
    2004
    
    2003Revenues
    
    Cdn$
    
    
    
    Cdn$
    
    
    
    Cdn$
    
    
    
    Cdn$
    Net Loss
    
    Cdn$
    (1,712,821
    )
    
    Cdn$
    (1,940,381
    )
    
    Cdn$
    (4,680,906
    )
    
    Cdn$
    (445,266
    )Net Loss per share
    
    Cdn$
    (0.09
    )
    
    Cdn$
    (0.16
    )
    
    Cdn$
    (0.23
    )
    
    Cdn$
    (0.04
    )
 4




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US GAAP, as at
    
    Cdn GAAP, as atAugust 31, 2004
    
    May 31, 2004
    
    August 31, 2004
    
    May 31, 2004Total Assets
    
    Cdn$
    4,150,957
    
    
    Cdn$
    5,742,885
    
    
    Cdn$
    19,105,148
    
    
    Cdn$
    20,487,565Total Liabilities
    
    Cdn$
    12,423,194
    
    
    Cdn$
    12,405,599
    
    
    Cdn$
    12,016,603
    
    
    Cdn$
    11,985,770Shareholders
Equity (Deficit)
    
    Cdn$
    (8,272,237
    )
    
    Cdn$
    (6,662,714
    )
    
    Cdn$
    7,088,545
    
    
    Cdn$
    8,501,795
 The primary reasons for the difference in loss under US GAAP over Canadian
GAAP are the following:  
    
    exploration expenditures are capitalized under Canadian GAAP, but
expensed under US GAAP. This resulted in expenses under US GAAP (but
not under Canadian GAAP) of Cdn$209,511 during the first three months
of fiscal 2005 as compared to expenses of Cdn$357,370 in the same
period of fiscal 2004.
    
    stock based compensation to employees for variable plans (initiated
prior to 2002)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$nil during the first three months of fiscal 2005
as compared to stock-based compensation expenses of Cdn$1,150,835
under U.S. GAAP in the same period of fiscal 2004.
    
    Stock based compensation to employees under fixed plans are
recognized under Canadian GAAP, but not US GAAP, effective with the
quarter ended August 31, 2004. This resulted in an expense under
Canadian GAAP of $3,164,358 in the quarter ended August 31, 2004 as
compared to no expense under US GAAP.
    
    the fair value of the debenture conversion option is being expensed
under Canadian GAAP while no expense for beneficial conversion option
is recognized under US GAAP. This resulted in expenses under Canadian
GAAP (but not under US GAAP) of Cdn$13,238 during the first three
months of fiscal 2005 as compared to expenses of Cdn$13,090 in the same
period of fiscal 2004. These differences are explained in much greater detail in note 12 to the
consolidated financial statements included in this report. Summary We are in the business of acquiring and exploring properties potentially
valuable for precious metals such as gold and silver, with the aim of bringing
them to a stage where they can be exploited for a profit. At that stage, our
operations would to some extent be dependent on the world market prices of any
mineral produced. We do not have any mineral interests with mineral reserves
(as that term is defined under SEC Guide 7 for use in the United States) or
with any production of minerals. Operations on the properties in which we hold
mineral interests are exploratory searches for commercially producible
deposits. We are dependent on investment capital and loans to finance our
activities. As noted in more detail below, our working capital decreased since
during the last three months of our fiscal year ended May 31, 2004, and has
continued to decrease from Cdn$562,566 at May 31, 2004 to a working capital
deficit of Cdn$(6,183,661) at August 31, 2004. Working capital decreased as a
result of our expenditure of cash flow 5




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from operations and would have been a deficit in any event; however, our
working capital decreased by approximately Cdn$5.9 million as a result of
reclassifying the Broadway mortgage (which is due July 31, 2005) from long-term
debt to a current liability. We cannot offer any assurance that we will be
able to obtain the necessary financing to continue our operations or to repay
our debt when it is due. Nearly all of our activities are directed to exploration programs and our
corporate administration and regulatory compliance. Yearly and quarterly
variations in expenditures on our mineral projects generally reflect increases
or decreases in specific exploration costs based on previous results and our
decisions regarding the allocation of exploration expenditures between
projects. Results of Operations The following table sets forth, for the periods indicated, statement of
operations data. The table and the discussion below should be read in
conjunction with the interim consolidated financial statements and the notes
thereto appearing elsewhere in this report. Three Months Ended August 31,2004
    
    2003
    
    2004
    
    2003US GAAP, Cdn$
    
    Canadian GAAP, Cdn$Operating revenues
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Operating expenses
    
    
    1,712,821
    
    
    
    1,940,633
    
    
    
    4,680,906
    
    
    
    445,518Other income
    
    
    
    
    
    
    252
    
    
    
    
    
    
    
    252Net loss
    
    
    1,712,821
    
    
    
    1,940,381
    
    
    
    4,680,906
    
    
    
    445,266Net loss per share
    
    
    (0.09
    )
    
    
    (0.16
    )
    
    
    (0.23
    )
    
    
    (0.04
    )Weighted avg shares
    
    
    20,143,453
    
    
    
    11,909,724
    
    
    
    20,143,543
    
    
    
    11,909,724
 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 2005 fiscal year (which ends May 31, 2005) or any other
operating revenues. We have not determined whether we will be able to commence
mineral production during our 2006 fiscal year or receive any operating
revenues during that period from our Caribou Colorado property mineral
interests or our mineral interests in Nevada. We have determined not to
commence a small placer operation on our Panama prospect. We have completed
negotiations of the new agreements for our Panama prospect. The restated
agreement provides for Calais to abandon the placer prospect and to retain the
lode prospect, and to require certain expenditures and activities with respect
to the lode prospect. We have received a nominal amount of 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.
These sources of revenues have not in the past been significant, and we do not
expect them to be significant in the future. Operating Expenses 6




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Our operating expenses increased during the three months ended August 31,
2004 as compared to the same period of the previous year. The principal reason
for the increase in expenses derived from the fact that we increased our
operations as a result of funds made available to us in August 2003. During the three months ended August 31, 2004, our most significant
expense increase was wages and benefits which increased by Cdn$3,630,533 to
Cdn$3,637,755. This increase includes a bonus paid during the first quarter to
our president in the total amount of Cdn$3,493,533, of which Cdn$3,164,358 was
stock based compensation and the balance was a deferred cash bonus represented
by a convertible debenture. In addition, bank charges and interest also increased almost three times,
from Cdn$400,802 during the quarter ended August 31, 2003, to Cdn$1,037,306 for
the quarter ended August 31, 2004. The principal reason for the cost increase
during the current fiscal year is that the period includes three months
amortization of interest from the Broadway loan (incurred on August 1, 2003),
as compared to only one months interest in the same period of the prior fiscal
year. The Broadway loan consisted of US$4,500,000 provided by Broadway
Mortgage (previously an unaffiliated person). As consideration for the loan,
Calais issued 8,181,818 shares to Broadway as a loan origination fee which was
valued by Calais at US$0.55 per share, based on the market price of the
Companys common stock at the time of the agreement, for a total loan
origination fee of US$4,500,000. The loan origination fee is being amortized
over the 24 month term of the loan, reflecting monthly interest and bank
charges of US$187,500 per month that was not present during the first two
months of the prior period. For US GAAP purposes, a significant contributor to our net losses were our
mineral interest exploration expenditures of Cdn$209,511 during the three
months ended August 31, 2004, as compared to Cdn$357,370 during the same period
of the prior year. We have used our funds to explore our mineral projects and
increase the information available about the mineralization, especially the
Caribou interests in Colorado. We anticipate continuing to spend funds on
exploration work to the extent we have sufficient capital to do so. These
expenses are capitalized for purposes of Canadian GAAP but not for the purposes
of US GAAP. 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. 7




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As at8/31/2004
    
    5/31/2004
    
    8/31/2004
    
    5/31/2004US GAAP, Cdn$
    
    Canadian GAAP, Cdn$Total assets
    
    
    4,150,957
    
    
    
    5,742,885
    
    
    
    19,105,148
    
    
    
    20,487,565Total liabilities
    
    
    12,423,194
    
    
    
    12,405,599
    
    
    
    12,106,603
    
    
    
    11,985,770Working capital (deficit)
    
    
    (6,183,661
    )
    
    
    562,566
    
    
    
    (6,183,661
    )
    
    
    562,566Shareholders Equity
(Deficit)
    
    
    (8,272,237
    )
    
    
    (6,662,714
    )
    
    
    7,088,545
    
    
    
    8,501,795
 For the three months ended August 31,2004
    
    2003
    
    2004
    
    2003US GAAP, Cdn$
    
    Canadian GAAP, Cdn$Cash flow provided by
(used in)Operations
    
    
    (877,797
    )
    
    
    (1,244,466
    )
    
    
    (675,388
    )
    
    
    (887,096
    )Financing
    
    
    320,488
    
    
    
    2,741,067
    
    
    
    320,488
    
    
    
    2,748,653Investing
    
    
    (965
    )
    
    
    (11,305
    )
    
    
    (203,374
    )
    
    
    (368,675
    )Increase (decrease) in
cash during period
    
    
    (558,274
    )
    
    
    1,485,882
    
    
    
    (558,274
    )
    
    
    1,492,296
 Working Capital At August 31, 2004, our working capital (current assets less current
liabilities) was significantly less than at our last fiscal year end entirely
due to continuing expenditures and a lack of revenues or further significant
financing, and reflected a further decrease of approximately Cdn$5.9 million as
a result of reclassifying the Broadway loan (due July 31, 2005) from a
long-term to a current liability. At August 31, 2004, our working capital
decreased by Cdn$6,746,227 as compared to May 31, 2004, and would have been a
working capital deficit as a result of continuing cash expenditures, even
without the reclassification of the Broadway loan. Our expenditures continue
to include expenditures for exploration of our mineral projects as well as
increased general and administrative expenses, preparation for our annual
general meeting (scheduled for November 2004), expenses incurred in successful
negotiations to revise our agreements related to our Panama prospect, and
continuing work to clarify title to our Nevada prospects. We anticipate that our working capital will continue to decrease until, if
ever, we obtain additional financing or our operations become profitable.
Since we have no current plans to achieve any significant production of our
mineral resources, we will be dependent on our remaining working capital and
additional financing for the foreseeable future. On August 1, 2003, we completed a financing with the Broadway Mortgage
Group (Broadway) who loaned US$4,500,000 to us and took a security interest
in the Caribou property to collateralize our repayment obligation. This
financing remains the most significant financial event that has benefited us
during more than the past two fiscal years to the present time. 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 8




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1,500,000 shares of common stock by Broadway if the stock price reaches
US$3.00) was used for the following: Prepayment of two-years interest to the lender
    
    US$
    1,161,000Repayment of remaining amounts due to bank
    
    US$
    1,080,000Repayment of interim mortgage due to Thomas S. Hendricks for
funds he advanced
    
    US$
    587,680Repayment of trade payables
    
    US$
    700,000Repayment of accrued compensation
    
    US$
    223,822Financing costs
    
    US$
    95,000
 As a result, following the financing and the use of proceeds as described
above, we had US$652,498 remaining for working capital, which we have used and
plan to continue to use for exploration of our Caribou and Panamanian prospect
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. This loan is due on July 31, 2005. We do not currently have sufficient
funds to repay any portion of the loan. As described below, two creditors
under the loan have agreed to convert US$1,560,000 of the loan to equity
(which, when it is accomplished, will reduce our obligation under the loan).
There is no assurance that any of the other creditors will agree to exchange
any portion of the remaining loan for equity, or that the two creditors will
complete the transaction which we believe they have committed to accomplish. During our fiscal quarter ended August 31, 2004, we raised additional
funds from the sale of our restricted common stock and warrants. In May and
June, 2004, we approved the following three transactions (although the
documentation sent to Messrs. Ober, Garvey, Duffy, and Dufy has not been
received back as of this filing; the following disclosure assumes that the
documentation will be completed as agreed to in writing and as approved by the
Board):  1.
    
    Duane and Glenn Duffy, holders of a US$2,000,000 lien on the Caribou
prospect (as part of the Broadway mortgage) agreed to release US$1,677,390
of their first mortgage lien and credit to us US$117,390 in prepaid
interest in exchange for a US$1,560,000 private placement. The terms of
the private placement also contemplate that Messrs. Duffy will provide
US$1,560,000 through their purchase of 2,080,000 shares at US$.75. In
addition, when the transaction is completed, the investors will receive
two sets of warrants: one for 2,080,000 at US$1.25 exercisable through
December 31, 2005 and one for 2,080,000 shares at US$1.75 through December
31, 2006;2.
    
    Private placement by James Ober and Luke Garvey under the following
terms: US$75,000 to Calais (received on June 16, 2004) to buy 100,000
shares at US$.75. Two sets of warrants will accompany the private
placement: one for 100,000 shares at US$1.25 through December 31, 2005 and
one for 100,000 shares at US$1.75 through December 31, 2006.3.
    
    An investment by James Ober and Luke Garvey of US$166,000 with Calais
(received in June 2004), to be collateralized by the first mortgage on the
Caribou prospect in favor of the Broadway investors. The term of the
investment is 14 months and interest will be at a rate of 15% per annum.
There is a balloon date of July 31, 2005. In general, we expect that our working capital deficit will continue to
increase over time as we continue to use our capital for operations, mineral
exploration and other expenses. We expect that our 9




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subsequent quarters in fiscal 2004 will continue to reflect significant
working capital deficits unless we are able to refinance the Broadway loan on a
long-term basis, and unless we are able to obtain significant additional
financing to complete our intended operations and to pay for our administrative
obligations as described above under Results of Operations. We continually monitor our working capital situation compared to our
operating activities and corporate requirements, and we will seek additional
financing, as needed, to maintain our planned operating activities. We have
not commenced any definitive discussions with prospective financing sources,
however, and there can be no assurance that financing will be available when
needed, on reasonable terms, if at all. The Company is actively pursuing various options with potential lenders
and investors which, if accepted, will in managements view, enable the
Company to achieve its business plans. No agreements with potential lenders
or investors have been reached yet and there can be no assurance that such
agreements will be reached. The ability of the Company to continue as a going concern and to realize
the carrying value of its assets and discharge its liabilities when due is
dependent on the successful completion of the actions taken or planned, which
management believes will mitigate the adverse conditions and events which
raise doubt about the validity of the going concern assumption used in
preparing these financial statements. As is common with companies with
negative cash flows and losses, there is no certainty that these and other
strategies will be sufficient to permit the Company to continue beyond the
expenditure of the financial resources we currently have remaining. The financial statements do not reflect adjustments that would be
necessary if the going concern assumption were not appropriate. If the
going concern basis was not appropriate for these financial statements, then
adjustments would be necessary in the carrying value of assets and liabilities,
the reported revenues and expenses, and the balance sheet classifications used. Capital Resources Under Canadian GAAP, we capitalize substantially all of our mineral
exploration expenditures. Under Statement of Financial Accounting Standards
No. 144 (SFAS 144; Accounting for the Impairment or Disposal of Long-Lived
Assets) adopted in the United States, we are required to review all of our
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
performing the review for recoverability, we must estimate the future cash
flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, we
must measure an impairment loss equal to the excess of the carrying amount over
the fair value of the assets. Furthermore, SFAS 144 requires that all mineral exploration costs be
expensed as incurred until commercially mineable deposits are determined to
exist within a particular property as cash flows cannot be reasonably estimated
prior to such determination. Accordingly, the principal difference between US GAAP and Canadian GAAP is
that we have expensed all of our mineral exploration expenditures under US GAAP
while we have capitalized them under Canadian GAAP. Whereas our balance sheet
under Canadian GAAP reflects a book value of our mineral interests at August
31, 2004 of Cdn$14,954,191 (Cdn$14,744,680 at May 31, 2004), the book value of
those same assets under US GAAP at those dates is Cdn$0. 10




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The other principal component of capital resources as reflected on our
balance sheet is our current assets. These decreased under both US GAAP and
Canadian GAAP (since there were no adjustments) due primarily to expending our
current assets for our operations (including mineral exploration). As a result
of those continuing expenditures and the reclassification of long-term debt to
a current liability, our working capital decreased by Cdn$$6,746,227 since May
31, 2004. We have pledged our mineral and property interests in our Caribou project
to collateralize repayment of the US$4,500,000 loan that we received in August
2003. To the extent we are unable to repay the loan when due and if we are
unable to extend the loan at that time, the holders of the mortgage will be
entitled to foreclose on the property and take title to and possession of our
most significant asset. Cash Flows Under Canadian GAAP, cash flows relating to mineral property exploration
expenditures are reported as investing activities. These expenditures amounted
to Cdn$202,409 for the quarter ended August 31, 2004 as compared to Cdn$357,370
for the same period of our prior fiscal year. For U.S. GAAP purposes, these
costs are characterized as operating activities. In addition, under U.S. GAAP financing activities would include financing
through the Companys bank indedtedness which is not included under Canadian
GAAP. Our use of cash in operating activities decreased under both Canadian and
US GAAP during the three months ended August 31, 2004 as compared to the same
period of the prior year because we had significantly less cash to expend. Our
operations during fiscal 2004 and the first three months of 2005 have been
primarily financed by funds made available by the August financing (the
Broadway loan) discussed above, but those funds have been entirely expended
and the liability for that financing is now a current liability. Material Capital Commitments/Significant Uncertainties Tabular disclosure of contractual obligations as of August
31, 2004. Payment due by period (Canadian dollars (Cdn$))Less than 1
    
    
    
    
    
    
    
    
    
    More than 5Contractual obligations
    
    Total
    
    year
    
    1-3 years
    
    3-5 years
    
    yearsLong-term debt obligations
    
    $
    11,012,000
    
    
    $
    6,152,000
    
    
    $
    
    
    
    $
    
    
    
    $
    4,860,000Capital (Finance) lease
obligations
    
    $
    54,000
    
    
    $
    13,000
    
    
    $
    39,000
    
    
    $
    2,000
    
    
    $
    Operating lease obligations
    
    $
    0
    
    
    $
    0
    
    
    $
    
    
    
    $
    
    
    
    $
    Purchase obligations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Other long-term
liabilities reflected on
our balance sheet under
the GAAP of the primary
financial statement
    
    $
    343,000
    
    
    $
    343,000
    
    
    $
    
    
    
    $
    
    
    
    $
    Total
    
    $
    11,410,000
    
    
    $
    6,508,000
    
    
    $
    39,000
    
    
    $
    2,000
    
    
    $
    4,860,000
 11




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Material Contracts Calais material contracts described throughout this report can be
summarized as follows:  
    
    Loan to Calais from Messrs. Ober and Garvey;
    
    The Broadway mortgage loan to Calais from accredited investors;
    
    Royalty Agreements with Mr. Hendricks and others;
    
    Contractual rights with respect to the interest of Aardvark
Enterprises (an affiliate of Mr. Harvey) in the Caribou prospect;
    
    Acquisition of the Panama prospect and the newly executed
restatement thereof by which we retain rights only to the lode
prospect;
    
    Employment agreement with Matthew C. Witt;
    
    Mutual Release effective July 18, 2000, between Marlowe Harvey,
Aarvark Agencies, Inc., Calais Resources Colorado, Inc., Calais
Resources, Inc., on the one part, and Thomas S. Hendricks as amended by
the Settlement Agreement dated March 8, 2004;
    
    Convertible debentures dated May 11, 2001; and
    
    Convertible debenture payable to Mr. Hendricks. Capital Obligations. We are a party to a lease for temporary office trailer at the Caribou Mine
site at a cost of US$317.50 per month for approximately one and a half more
years There is a US$4,500,000 first mortgage lien taken on the Caribou prospect
as of August 4, 2003. This loan is due July 31, 2005. We also have outstanding debentures by which we are indebted to certain
affiliates in the total amount of Cdn$4,992,000 as explained in more detail in
note 7 of the financial statements to our Form 10-QSB. These debentures are
convertible into our common stock at the rate of Cdn$1.23 per share (on the
ten-year debentures) or US$0.85 (on the five-year debentures) and are not
repayable until May 2011 or July 2008, respectively. In accordance with our
obligations under a March 2004 agreement with Marlowe and Judy Harvey (the
owners of the vast majority of the outstanding debentures), Calais has agreed
to submit for shareholder approval a reduction on the conversion price of the
debentures from the existing Cdn$1.23 to US$0.55 for no additional
consideration from Mr. and Mrs. Harvey. We have an employment agreement with Matt Witt, our chief financial
officer through August 2005. This employment agreement provides for
compensation to Mr. Witt of US$130,000 annually. We had a contract with Panama Mining of Golden Cycle to spend US$250,000
on placer exploration or production, and an additional US$250,000 of hard rock
exploration per calendar year on our Panama prospect. Our obligation required
us to spend US$250,000 before the end of September 2004 or we will risk losing
our interest in the Panama concession. We believe that we complied with our
obligations with respect to the hard rock or lode claim. We have restructured
our arrangement for the Panama concession to focus our future exploration
efforts solely on the hard rock concessions and surrender the placer
concession. The new 10 year agreement requires that we expend at least $100,000
per year for hard rock exploration work and pay Panama Mining of Golden Cycle
$25,000 per year. We intend to expend approximately Cdn$10,000,000 for the exploration of
the Caribou prospect , the Manhattan prospect, and the Panama prospect in our
2005 fiscal year, subject to financing (the availability of which cannot be
assured). 12




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We will continue to incur significant expenses for compliance and general
and administrative expenses in addition to bank charges and interest expense. Critical Accounting Estimates 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 August 31,
2004, there were certain conditions that currently exist which raise
substantial doubt about the validity of this assumption. The Company
anticipates the need to raise additional 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 concession, curtailing
operations or writing down its assets. To the extent we are unable to repay
our loan of US$4,500,000, the holders will be entitled to foreclose on our
Caribou project, our most significant asset. For Canadian GAAP purposes, the Company capitalizes exploration costs
incurred. The recoverability of the capitalized costs includes considerations
primarily of managements exploration 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. For U.S. GAAP purposes, the Company expenses exploration costs as
incurred. For Canadian GAAP purposes, the Company capitalizes exploration costs
incurred as property, plant and equipment (tangible assets) pursuant to CICA
3061, EIC-126 and related guidance. Due to certain inconsistencies in the
CICA Handbook, there are opposing views that exploration costs should be
considered to be intangible assets. As intangible assets, they would be
amortized over the term of the mineral interest. In the United States, in
Abstract 04-2 the Emerging Issue Task Force reached a consensus that interests
in mineral properties are tangible assets. The Emerging Issues Committee in
Canada is currently reviewing the application of EITF 04-2 to Canadian GAAP. Effect of New Accounting Pronouncements 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 13




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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. As originally issued, FASB Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity,
would have been 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 except for mandatorily redeemable
financial instruments of a non-public entity. Statement 150 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 in the future if the existing
convertible debentures are modified. FASB Interpretation No. 46 (revised December 2003), Consolidation of
Variable Interest Entities, (FIN 46(R)) addresses how a business enterprise
should evaluate whether it has a controlling financial interest in an entity
through means other than voting rights and accordingly should consolidate the
entity. The interpretation effectively functions as a gateway through which
all consolidation evaluations must past (that is, FIN 46(R) must first be
applied to determine whether other consolidation literature applies). FIN
46(R) is effective for Calais which is a small business issuer no later than
the end of the first interim or annual period ending after December 15, 2004.
We do not expect a material change upon the adoption of FIN 46(R). CICA Section 3870, Stock-based compensation and other stock-based
payments, was amended to require public enterprises to adopt the fair value
based method for purposes of recognition and measurement in fiscal years
commencing after January 1, 2004. Public enterprises which had not previously
adopted the fair value based method for purposes of recognition and measurement
must apply the method to awards granted on or after January 1, 2002, with or
without restatement. Calais adopted this statement by adopting the new policy
on a retroactive basis without restatement of prior period comparative figures.
The net impact of prior income statement expense are charged through retained
earnings/deficit Because Section 3870 previously applied to certain other
types of awards (non-employee awards and employee awards that settle net for
cash, other assets or equity instruments, or direct awards of stock), the real
effect of this amendment is to require companies to expense employee stock
options. The adoption of Section 3870 this quarter increased our financial
statement deficit and increased contributed surplus by Cdn$1,314,000 under
Canadian GAAP reflecting the new standard. There was no net change in opening
equity. 
 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, 14




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##### Table of Contents



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. (c) The following sets forth the information required by Item 701 of
Regulation S-B for the period from May 31, 2004 through September 30, 2004:  1.
    
    Issuance to Accredited Investors 1.a In June 2004 we issued 100,000 shares of our common stock and two sets
of warrants (described below) to two accredited investors, James Ober and Luke
Garvey, in exchange for US$75,000. (The documentation from Ober and Garvey for
this transaction has not yet been returned to the company. The following
disclosure describes the transaction assuming that the documentation is
completed.) (i) The transaction was intended to be effective June 16, 2004. (ii) No underwriters were involved in the transaction. The only persons
who received securities from us in this transaction were Messrs. Ober and
Garvey. (iii) The securities were sold for cash, and (in June 2004) Calais
received US$75,000. (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 Messrs. Ober and
Garvey with disclosure of all aspects of our business as they requested. Based
on our investigation, we believe that 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. 15




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##### Table of Contents



(v) There are no conversion rights or exchange rights associated with the
shares. The warrants are exercisable as follows: Warrants to purchase 100,000
shares of our common stock are exercisable at US$1.25 through December 31,
2005, and warrants to purchase 100,000 shares of our common stock are
exercisable at US$1.75 through December 31, 2006. The warrants are only
exercisable provided there is an exemption from registration available at the
time of exercise, or if the exercise is registered under applicable securities
laws. (vi) We received US$75,000 from the issuance of the shares and used the
funds provided for working capital purposes. 1.b In June 2004, we received US$166,000 from two accredited investors,
Messrs. Ober and Garvey and intend to issue to them a promissory note in
exchange for their investment of that amount, and to collateralize the
repayment obligation by including itin the Broadway financing transaction.
The promissory note will bear interest at 15% per annum and will be due on July
31, 2005. Because this transaction is secured by real estate, we do not
believe that it involves the offer and sale of a security, and including this
transaction in this section does not constitute an admission that it does
involve an offer or sale of a security. The following disclosure assumes that
the documentation provided to Ober, Garvey, Duffy, and Duffy is returned to the
company as agreed to in writing and as approved by the board. (i) The transaction was effective June 16, 2004. (ii) No underwriters were involved in the transaction. The only persons
who received securities from us in this transaction were Messrs. Ober and
Garvey. (iii) The securities were sold for cash, and Calais received US$166,000. (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 Messrs. Ober and
Garvey with disclosure of all aspects of our business as they requested. Based
on our investigation, we believe that 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
promissory note. (v) There are no conversion rights or exchange rights associated with the
promissory note. (vi) We received US$166,000 from the issuance of the promissory note and
used the funds provided for working capital purposes. 1.c Messrs. Duane Duffy and Glenn Duffy, accredited investors and holders
of US$1,560,000 of long-term indebtedness (which was a part of the Broadway
transaction), have agreed to convert that debt to 2,080,000 shares of our
restricted common stock. In addition, the holders have agreed to allow
US$117,390 in prepaid interest to be credited to Calais. As part of this
transaction, Calais will issue to them 4,160,000 warrants as described in
paragraph 1(c)(v), below. When the transaction has been completed, this
indebtedness will remain outstanding, held by Broadway. Broadway will agree in
writing to cancel that 16




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indebtedness upon Calais written request. The cancellation of that
indebtedness will reduce our outstanding liabilities by that amount (less any
amounts resold to other accredited investors, including the Duffys as described
in paragraph 1(b), above). Although this transaction was intended to be
effective in May 2004, the documentation for the transaction has not been
completed and is still pending. The following disclosure assumes that the
documentation provided to Ober, Garvey, Duffy, and Duffy is returned to the
company as agreed to in writing and as approved by the board. (i) When the documentation is completed, the transaction is to be
effective May 26, 2004. (ii) No underwriters were involved in the transaction. The only persons
who received securities from us in this transaction were Mr. Duffy. (iii) The securities were sold for a return of indebtedness and credit to
Calais of prepaid, but unearned interest of US$117,390. (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. Duffy with
disclosure of all aspects of our business as he requested. Based on our
investigation, we believe that the accredited investors obtained all
information regarding Calais Resources he 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. Warrants to purchase 2,080,000 shares of our common stock are
exercisable at US$1.25 through December 31, 2005, and warrants to purchase
2,080,000 shares of our common stock are exercisable at US$1.75 through
December 31, 2006. The warrants are only exercisable provided there is an
exemption from registration available at the time of exercise, or if the
exercise is registered under applicable securities laws. (vi) We have not received any cash from this transaction, but have
received US$117,390 as a credit against interest expense. 1.d We issued 586,666 shares of our common stock and three sets of
warrants (described below) to two accredited investors, Duane and Glenn Duffy,
in exchange for US$440,000. (i) The transaction was effective May 26, 2004. (ii) No underwriters were involved in the transaction. The only person who
received securities from us in this transaction were Messrs. Duffy. (iii) The securities were sold for cash, and Calais received US$440,000. (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 Messrs. Duffy
with disclosure of all aspects of our business as they requested. Based on our
investigation, we believe that 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. (v) There are no conversion rights or exchange rights associated with the
shares. The warrants are exercisable as follows: Warrants to purchase 586,666
shares of our common stock are exercisable at US$1.25 through December 31,
2005; warrants to purchase 586,666 shares of our common stock are 17




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##### Table of Contents



exercisable at US$1.75 through December 31, 2006; and warrants to purchase
559,130 shares of our common stock are exercisable at US$3.00 through December
31, 2007. The warrants are only exercisable provided there is an exemption
from registration available at the time of exercise, or if the exercise is
registered under applicable securities laws. (vi) We received US$440,000 from the issuance of the shares and used the
funds provided for working capital purposes.  2.
    
    Employee and Director Stock Options 2.a. In July 2004 (after the end of our fiscal year, but effective upon
their acceptance and, when required, filing of the appropriate Forms which
occurred in July 2004), Calais issued an option to purchase 3,000,000 shares of
its restricted common stock to its president, Thomas S. Hendricks. We also
paid to Mr. Hendricks a US$250,000 bonus in the form of a $250,000 debenture
convertible into common stock at US$0.85 per share that vests at the rate of
US$50,000 per year (US$50,000 vested on July 8, 2004). The option is
exercisable and the debenture is convertible as described below. (i) The transaction was approved by the Board of Directors on July 8,
2004, but was only effective upon acceptance by Mr. Hendricks 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 was Mr. Hendricks. (iii) The securities were not sold to Mr. Hendricks, but rather were
granted to him. (iv) The issuance of the option and the grant of the debenture were 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 Mr. Hendricks with disclosure of
all aspects of our business as he requested. Based on our investigation, we
believe that he obtained all information regarding Calais Resources he
requested, received answers to all questions they posed, and otherwise
understood the risks of accepting our securities. (v) The options are exercisable by Mr. Hendricks for US$0.85 per share
through July 8, 2014. The US$250,000 debenture is convertible by Mr.
Hendricks at the rate of US$0.85 per share to the extent of the remaining
principal balance at the time of conversion. The options are only exercisable
provided there is an exemption from registration available at the time of
exercise, or if the exercise is registered under applicable securities laws. (vi) We received no cash proceeds from the issuance of the option or the
grant of the debenture and, therefore, cannot report any 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 18




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(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 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. Our annual general meeting of shareholders for the 2004 fiscal year is
scheduled to be held November 10, 2004. 
 Item 5: Other Information (a) 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 10-KSB, based on
discussions with our predecessors in title, we continue to believe that we will
ultimately be able to acquire good title to the properties. On March 8, 2004, we entered into an agreement with Marlowe Harvey, his
wife Judy Harvey, and several related entities by which Calais and Mr. and Mrs.
Harvey resolved a number of issues that have arisen between them, some of which
have been previously discussed in Calais Form 20-F and other reports. Under
the agreement,  
    
    Mr. Harvey and Calais agreed on a more precise definition of
Calais right (which expires August 31, 2011) to repurchase the
interest of Aardvark Agencies, Inc. (AAI) in the Caribou properties,
including the price payable for the reacquisition (a total of
Cdn$747,728 which is included in the debentures in our financial
statements) and AAIs right to convert that debenture before it is
paid;
    
    Further defining Calais right to borrow against, enter in and upon
those properties, construct buildings and mines on those properties,
and remove and sell minerals from those properties for Calais own
account;
    
    Mr. Harvey and his related entities agreed to assign their
interests in the Manhattan prospect to Calais and completed this
assignment in July 2004. In addition, Mr. Harvey and his related
entities also agreed to convey to Calais (not later than December 31,
2005) the entire right, title and interest in the Manhattan prospect
from all parties (marketable title). Mr. Harvey and his related
entities have not (to Calais knowledge) commenced the work 19




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necessary to obtain marketable title. Upon receipt of marketable
title, Calais will pay one of Mr. Harveys related entities 250,000
shares of Calais restricted stock. Calais agreed to undertake certain
drilling obligations after receiving good title, and to issue
2,500,000 shares of common stock to Argus Resources, Inc., one of Mr.
Harveys related entities, if Calais identifies gold or gold
equivalent mineral resources (as determined in accordance with
Canadian standards) exceeding 2,000,000 ounces.
    
    Mr. Harvey and his related entities agreed to comply with their
shareholder filing obligations in the United States and Canada (if any)
not later than April 30, 2004.
    
    Mr. Harvey also agreed to return a stock option agreement to Calais
which defines the option to acquire 82,500 shares of Calais common
stock granted to him in November 2002 which he continues to hold. That
option expires (unless exercised) on November 15, 2004, and has an
exercise price of US$0.80 per share. Mr. Harvey has not complied with
this obligation.
    
    Calais agreed to propose to its shareholders at its next
shareholder meeting that the conversion price of the debentures be
repriced from Cdn$1.23 to US$.55. This meeting is being held in
November 2004 and the repricing will be submitted to the shareholders
for consideration.
    
    Calais agreed to retain Mr. Harvey as a consultant for one year at
US$3,000 per month. Mr. Harvey resigned as a consultant as of June 1,
2004. To facilitate the settlement, Thomas S. Hendricks agreed to transfer to
Mr. Harvey a debenture he holds for Cdn$984,000 that Mrs. Harvey assigned to
him in 2000. Mr. Hendricks has executed the assignment of this debenture and
has delivered both the original debenture and the assignment to Calais to hold
pending Mrs. Harveys acceptance of that debenture in a manner that complies
with applicable securities laws. To date, Mrs. Harvey has refused to return to
Calais documents that Calais believes is necessary to show compliance with
securities laws, and Mrs. Harvey has not proposed any alternative procedure.
Consequently the debenture is still registered in Mr. Hendricks name and will
remain so registered until Mrs. Harvey provides Calais with sufficient evidence
of compliance with applicable securities laws. In addition, Calais, Mr. Harvey, and his related entities entered into
mutual releases. Calais has previously announced that it does not intend to
expend any significant exploration dollars on the Manhattan prospect until such
time as it has received further assurances as to title. At the present time, we have no evidence that Mr. Harvey or his related
entities have complied with their obligations under the settlement agreement
(other than tendering certain assignments to Calais of certain portions of the
Manhattan project), or that they have commenced doing the work necessary to
deliver marketable title to the Manhattan project, both as required by the
settlement agreement. Since then, Calais has received notification from an
attorney representing Mr. Harvey that Mr. Harvey may disagree with Calais
description of certain of Mr. Harveys obligations under the settlement
agreement, and that he is looking in to this matter on Mr. Harveys behalf. (b) Regulation S-B, Item 401(g) disclosure  changes in the
nomination process. Not applicable. 20




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Item 6: Exhibits  (a)
    
    Exhibits.  10.1
    
    Restatement of Purchase Option Agreement  Republic of Panama
Concessions dated October 6, 2004.31.1
    
    Certification pursuant to Sarbanes-Oxley Section 302 by CEO31.2
    
    Certification pursuant to Sarbanes-Oxley Section 302 by CFO32.1
    
    Certification pursuant to 18 U.S.C. Section 1350 by CEO32.2
    
    Certification pursuant to 18 U.S.C. Section 1350 by CFO 21




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SIGNATURES In accordance with the requirements of the Exchange Act, the registrant
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 14th day of October, 2004. Calais Resources, Inc.
(Registrant) By
    
    /s/ Thomas S. HendricksThomas S. Hendricks,President, Chief Executive Officer and DirectorBy
    
    /s/ Matthew C. WittMatthew C. Witt,Chief Accounting Officer and Chief Financial Officer
 22




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Interim Consolidated Financial Statements of  CALAIS RESOURCES INC.  Three months ended August 31, 2004
(Unaudited) 23




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CALAIS RESOURCES INC. 
 
 August 31, 2004 and May 31, 2004 August 31,
    
    May 31,2004
    
    2004(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    48,187
    
    
    $
    606,461Deferred and prepaid financing fees (Note 4)
    
    
    837,972
    
    
    
    1,066,508Prepaid expenses and deposits
    
    
    45,285
    
    
    
    39,350931,444
    
    
    
    1,712,319Deferred and prepaid financing fees (Note 4)
    
    
    2,878,631
    
    
    
    3,663,713Mineral interests (Note 5)
    
    
    14,954,191
    
    
    
    14,744,680Capital assets
    
    
    340,882
    
    
    
    366,853$
    19,105,148
    
    
    $
    20,487,565Liabilities and Shareholders EquityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    475,373
    
    
    $
    793,993Advances from shareholder
    
    
    343,431
    
    
    
    342,749Current portion of long-term debt (Note 6)
    
    
    6,164,631
    
    
    
    13,011Current portion of debentures (Note 7)
    
    
    131,670
    
    
    
    7,115,105
    
    
    
    1,149,753Long-term debt (Note 6)
    
    
    41,393
    
    
    
    6,186,655Debentures (Note 7)
    
    
    4,860,105
    
    
    
    4,649,362Shareholders equity:Share capital (Note 8)
    
    
    31,257,334
    
    
    
    31,154,036Contributed surplus
    
    
    4,477,933
    
    
    
    Deficit
    
    
    (28,646,722
    )
    
    
    (22,652,241
    )7,088,545
    
    
    
    8,501,795$
    19,105,148
    
    
    $
    20,487,565
 Approved by the Directors: /s/ Thomas Hendricks
    
    Director/s/ Art Daher
    
    Director
 24




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##### Table of Contents



CALAIS RESOURCES INC. 
 
 (Unaudited) Three months
    
    Three monthsended
    
    endedAugust 31
    
    August 312004
    
    2003Revenues
    
    $
    
    
    
    $
    Expenses (income):Advertising
    
    
    5,858
    
    
    
    5,994Amortization
    
    
    19,834
    
    
    
    6,344Bank charges and interest
    
    
    1,037,306
    
    
    
    400,802Filing fees
    
    
    6,082
    
    
    
    2,419Foreign exchange gain
    
    
    (209,699
    )
    
    
    (25,357
    )Gain on settlement of
debt
    
    
    
    
    
    
    (23,689
    )Insurance and licenses
    
    
    
    
    
    
    2,839Office and miscellaneous
    
    
    34,669
    
    
    
    5,593Professional fees
    
    
    116,034
    
    
    
    52,369Rent
    
    
    25,836
    
    
    
    Telephone and internet
    
    
    7,231
    
    
    
    7,568Transfer agent fees
    
    
    
    
    
    
    3,414Wages and benefits
    
    
    3,637,755
    
    
    
    7,2224,680,906
    
    
    
    445,518Loss before the undernoted
    
    
    (4,680,906
    )
    
    
    (445,518
    )Other income:Miscellaneous
    
    
    
    
    
    
    252Loss for the period
    
    
    (4,680,906
    )
    
    
    (445,266
    )Deficit, beginning of period
    
    
    (22,652,241
    )
    
    
    (17,915,667
    )Change in accounting policy (Note 3)
    
    
    (1,313,575
    )
    
    
    Deficit, end of period
    
    $
    (28,646,722
    )
    
    $
    (18,360,933
    )Net loss per share, basic and diluted
    
    $
    (0.23
    )
    
    $
    (0.04
    )Weighted average common shares, basic and diluted
    
    
    20,143,453
    
    
    
    11,909,724
 25




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CALAIS RESOURCES INC. 
 
 (Unaudited) Three months
    
    Three monthsended
    
    endedAugust 31
    
    August 312004
    
    2003Cash flows provided by (used in):Operations:Loss for the period
    
    $
    (4,680,906
    )
    
    $
    (445,266
    )Items not involving cash:Accretion interest
    
    
    13,238
    
    
    
    13,090Amortization of capital assets
    
    
    19,834
    
    
    
    6,344Amortization of deferred and prepaid financing
fees
    
    
    1,013,618
    
    
    
    339,271Gain on settlement of debt
    
    
    
    
    
    
    (23,689
    )Options issued for services
    
    
    3,164,358
    
    
    
    Debentures issued for services
    
    
    329,175
    
    
    
    Foreign exchange gain
    
    
    (209,699
    )
    
    
    (25,357
    )Change in non-cash operating working capital:Accounts receivable
    
    
    
    
    
    
    (3,099
    )Prepaid expenses and deposits
    
    
    (5,935
    )
    
    
    Accounts payable, accrued liabilities and foreign
exchange adjustments
    
    
    (319,071
    )
    
    
    (652,595
    )Note payable
    
    
    
    
    
    
    (95,795
    )(675,388
    )
    
    
    (887,096
    )Financing:Repayment of long-term debt
    
    
    (10,261
    )
    
    
    (1,642,200
    )Long-term debt proceeds
    
    
    226,769
    
    
    
    4,618,309Advances from (to) shareholders
    
    
    682
    
    
    
    (354,827
    )Debentures
    
    
    
    
    
    
    (27,914
    )Issue of capital stock
    
    
    103,298
    
    
    
    155,285320,488
    
    
    
    2,748,653Investing:Mineral interests
    
    
    (202,409
    )
    
    
    (357,370
    )Net additions to capital assets
    
    
    (965
    )
    
    
    (11,305
    )(203,374
    )
    
    
    (368,675
    )Increase (decrease) in cash
    
    
    (558,274
    )
    
    
    1,492,882Cash (bank overdraft), beginning of period
    
    
    606,461
    
    
    
    (7,586
    )Cash, end of period
    
    $
    48,187
    
    
    $
    1,485,296Supplementary cash flow informationInterest paid
    
    $
    2,254
    
    
    $
    48,441Income taxes paid
    
    
    
    
    
    
    Non-cash transactions:Common shares issued for financing fee
    
    
    
    
    
    
    6,280,242Amortization capitalized to mineral interests
    
    
    7,102
    
    
    
    
 26




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CALAIS RESOURCES INC. 
 
 Three months ended August 31, 2004
(Unaudited)  1.
    
    General and future operations:Calais Resources Inc. (the Company) was
incorporated under the laws of the Province of
British Columbia on December 30, 1986. The
Company is currently in the process of exploring
various mineral interests to determine whether
these interests contain ore reserves that are
economically recoverable. The recoverability of
the amounts shown for the mineral interests and
related deferred costs is dependent upon the
existence of economically recoverable reserves,
the ability of the Company to obtain necessary
financing to complete their exploration and upon
future profitable production.These interim consolidated financial statements
have been prepared on a going concern basis in
accordance with Canadian generally accepted
accounting principles. The going concern basis
of presentation assumes that the Company will
continue in operation for the foreseeable future
and be able to realize its assets and discharge
its liabilities and commitments in the normal
course of business. There is doubt about the
appropriateness of the use of the going concern
assumption because the Company has experienced
losses and negative cash flow from operations
over a number of years.The Company also has a significant loan totaling
US$4,500,000 which is due in July 2005. The
Company does not currently have the ability to
repay this loan. Failure to repay or
restructure the loan may result in foreclosure
on the Companys Colorado mineral interests.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 further 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, some of which are
described above, 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 August 31, 2005.The financial statements do not reflect
adjustments that would be necessary if the
going concern assumption were not appropriate.
If the going concern basis was not
appropriate for these financial statements, then
adjustments would be necessary in the carrying
value of assets and liabilities, the reported
revenues and expenses, and the balance sheet
classifications used. 27




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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 10K-SB in conjunction herewith. Operating results for the three months ended August
31, 2004 are not necessarily indicative of the results that can be expected for the year ended May 31,
2005.(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 the
valuation of assets held for resale, asset impairment and provisions for contingencies. Actual results
could differ from those estimates.(d)
    
    Cash equivalents:Cash equivalents consist of short-term deposits with terms to maturity of ninety days or less when acquired.(e)
    
    Financial instruments:The Companys financial instruments consist of cash and cash equivalents, accounts payable and accrued
liabilities, long-term debt, 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. The fair values of these financial instruments approximate their
carrying values, unless otherwise noted.(f)
    
    Mineral interests:The Company is engaged in the acquisition and exploration of mineral interests. All acquisition,
exploration and related direct overhead expenditures are deferred and will be depleted over the estimated
life of the interest. The estimated life of an interest depends on whether the interest contains
economically recoverable reserves that can be brought into production. The costs relating to an interest
abandoned are written off when the decision to abandon is made.The total amount recorded for mineral interests and deferred exploration expenditures represents costs
incurred to date and does not reflect present or future values. 28




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2.
    
    Significant accounting policies (continued):Proceeds from disposition of mineral interests are normally credited to the capitalized costs with no gain
or loss being recognized unless the sale is significant to the capitalized costs. For such significant
dispositions, a gain or loss would be recognized.In March 2000, the Accounting Standards Board of the Canadian Institute of Chartered Accountants (CICA) issued Accounting
Guideline No. 11 entitled Enterprises in the Development Stage  (AcG 11). The guideline addresses three distinct issues: (i)
capitalization of costs/expenditures, (ii) impairment and (iii) disclosure. Prior to its issuance, development stage entities
were exempt from following certain aspects of Canadian GAAP. AcG 11 requires that all companies account for transactions based
on the underlying characteristics of the transaction rather than the maturity of the enterprise. In addition, AcG 11 requires
disclosure of specific information by development stage companies.In March 2002, the Emerging Issues Committee of the CICA issued EIC-126  Accounting by Mining Enterprises for Exploration
Costs which interprets how AcG 11 affects mining companies with respect to the deferral of exploration costs. EIC-126 refers
to CICA Handbook Section 3061 Property, Plant and Equipment, paragraph .21, which states that for a mining property, the cost
of the asset includes exploration costs if the enterprise considers that such costs have the characteristics of property, plant
and equipment. EIC-126 then states that a mining enterprise that has not established mineral reserves objectively, and therefore
does not have a basis for preparing a projection of the estimated cash flow from the property is not precluded from considering
the exploration costs to have the characteristics of property, plant and equipment. EIC-126 also sets forth the Committees
consensus that a mining enterprise in the development stage is not required to consider the conditions in AcG 11 regarding
impairment in determining whether exploration costs may be initially capitalized. With respect to impairment of capitalized
exploration costs, EIC-126 sets forth the Committees consensus that a mining enterprise in the development stage that has not
established mineral reserves objectively, and therefore does not have a basis for preparing a projection of the estimated cash
flow from the property is not obliged to conclude that capitalized costs have been impaired. However, such an enterprise should
consider the conditions set forth in AcG 11 and CICA Handbook Section 3061 in determining whether subsequent write-down of
capitalized exploration costs related to mining properties is required.The Company considers that exploration costs have the characteristics of property, plant and equipment, and, accordingly, defers
such costs. Furthermore, pursuant to EIC-126, deferred exploration costs would not automatically be subject to regular assessment
of recoverability, unless conditions, such as those discussed in AcG 11 exist.AcG 11 also provides guidance on measuring impairment of pre-operating costs which have been deferred. While this guidance is
applicable, the Company does not believe its application will result in impairment.For Canadian GAAP purposes, the Company capitalizes exploration costs incurred as property, plant and equipment (tangible assets)
pursuant to CICA 3061, EIC-126 and related guidance. Due to certain inconsistencies in the CICA Handbook, there are opposing
views that exploration costs should be considered to be intangible assets. As intangible assets, they would be amortized over
the term of the interest. In the United States, in Abstract 04-2 the Emerging Issues Task Force reached a consensus that such
interests are tangible assets. The Emerging Issues Committee in Canada is currently reviewing the application of EITF 04-2 to
Canadian GAAP. 29




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(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 year. Diluted loss per share is computed using the weighted average number of common shares and
potentially dilutive common shares outstanding during the year. As the Company has a net loss in the
periods ending August 31, 2004 and 2003, basic and diluted net loss per share are the same.(i)
    
    Stock-based compensation:The Company has no formal stock-based compensation plans. Prior to June 1, 2002 the Company applied the
settlement method for all stock-based compensation awards. Under the settlement method, no compensation
expense is recognized for these plans when stock or stock options are issued to employees. Consideration
paid by employees on the exercise of stock options is credited to common shares. For consideration paid to
an employee for the repurchase of stock options, the excess of the consideration paid over the carrying
amount of the stock option cancelled is charged to retained earnings.Effective June 1, 2002, the Company adopted new CICA section 3870, Stock-Based Compensation and Other
Stock-Based Payments. This section establishes standards for the recognition, measurement and disclosure
of stock-based compensation and other stock-based payments made in exchange for goods and services. The
standard requires the fair value based method of accounting for certain, but not all, stock-based
transactions. Up until May 31, 2004, the standard permitted, and the Company previously elected, for stock
option grants to employees and directors to continue to be accounted for using the settlement method.
Effective June 1, 2004, the Company adopted the revisions to CICA 3870 which require all stock based
transactions to be accounted for using the fair value method of accounting (Note 3).3.
    
    Change in accounting policy:On June 1, 2004, the Company adopted the amendment to Section 3870 of the CICA Handbook Stock-Based Compensation and Other
Stock-Based Payments which requires stock-based transactions to employees and directors to be accounted for using the fair value
based method of accounting. Under the fair value based method, compensation cost is measured at fair value at the date of grant
and is expensed over the awards vesting period. The new recommendations have been applied retroactively without restatement,
which has increased opening deficit and contributed surplus at June 1, 2004 by $1,313,575. 30




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4.
    
    Deferred and prepaid financing fees: August 31, 2004
    
    May 31, 2004(Unaudited)Deferred and prepaid financing fees consist of
the following:Deferred financing fee
    
    $
    6,280,242
    
    
    $
    6,280,242Prepaid interest (Note 6(a))
    
    
    1,814,485
    
    
    
    1,814,4858,094,727
    
    
    
    8,094,727Less: Accumulated amortization
    
    
    (4,378,124
    )
    
    
    (3,364,506
    )3,716,603
    
    
    
    4,730,221Less: Current portion
    
    
    (837,972
    )
    
    
    (1,066,508
    )$
    2,878,631
    
    
    $
    3,663,713
  Deferred and prepaid financing fees is being amortized on a straight line basis over two years, the term of the
related debt.5.
    
    Mineral interests: August 31, 2004
    
    May 31, 2004(Unaudited)Nevada U.S.A.
    
    $
    3,676,436
    
    
    $
    3,641,243Colorado, U.S.A.
    
    
    10,712,097
    
    
    
    10,545,296Panama, Central America
    
    
    565,658
    
    
    
    558,141$
    14,954,191
    
    
    $
    14,744,680
  Title to mining interests involves certain inherent risks due to the difficulties of
determining the validity of certain claims as well as the potential for problems
arising from the frequently ambiguous conveyancing history characteristics of many
mining interests. The Company has investigated title to all of its mineral interests
and, to the best of its knowledge, title to all of its interests are in good standing
as described below. All of the interests in which the Company owns or 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. 31




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##### Table of Contents



(a)
    
    Nevada, U.S.A.:In December 1994, the Company paid US$1,176,000 to a then director,
for a 51% interest in various properties in Nevada known as the
Manhattan project. The Company also agreed to acknowledge any
applicable 5% net smelter return royalties on certain claims in that
project to the previous director. It appears that the director owned
no interest in these properties at that time, although he believes
that he had and still has rights to acquire interests in those
properties. The Company is attempting to determine title to these
properties. In October 2003 the Company received some title
information relating to these properties which consist of 28 patented
mining claims and 147 unpatented mining claims. In July 2004, Marlowe
and Judy Harvey and their affiliated companies (Argus Resources, Inc.,
White Cap Mines, Inc., and Moran Holdings, Inc.) conveyed their
respective interests in these properties to the Company. Certain of
these claims overlie other claims. Based on preliminary research done
to date, the claims appear to be owned of record by the Company (as a
result of the July 2004 assignments of title) and one or more of the
following (collectively the Manhattan Parties):  Nevada Manhattan Group, Inc. (formerly know as Nevada Manhattan
Mining, Inc., a publicly-held Nevada corporation which appears not to
have filed any reports with the Securities and Exchange Commission
since April 10, 2000 and is believed to be currently subject to an SEC
enforcement action as a result of its failure to file reports); andAn individual named Anthony Selig (Las Vegas, Nevada) and various
entities owned by Mr. Selig (the Selig Entities).  Based on a preliminary review of the documents, it appears that the
Company has at best a right to acquire the mineral interests.The Company entered into an agreement and settlement dated September
7, 2000 with Nevada Manhattan Group Inc. (NMMI) to settle and
purchase its interest in the property (the NMMI Settlement) in which
the Company agreed to make four annual payments of US$75,000. During
the term of the agreement the Company has agreed to pay NMMI a 2% net
smelter return royalty. The Company can purchase the entire NMMI
interest and royalty for US$7.5 million, payable over 30 years. The
total amount payable would be reduced by any production royalties
paid.Mr. Selig has denied any obligation to convey any portion of the
claims directly to Calais, but has admitted an obligation to convey
his interest in claims described in the 1997 agreement between Selig
and NMMI to NMMI. Selig is fully aware of the outcome of the
Calais/NMMI litigation, and he and his counsel have indicated a
willingness to tender the NMMI deed to the District Court in and for
Nye County if properly directed to do so. The Company believes that
the settlement of the NMMI litigation results in NMMI being obligated
to convey its interests in the prospects to Calais, subject to the
terms of the Settlement Agreement, including payment of royalties to
NMMI from production. The Company is currently unable to locate any
person with authority to act for NMMI; management is evaluating the
possible invocation of the jurisdiction of the District Court to
accept the Selig deed on behalf of the joint venture, and subject to
the terms of the recorded Settlement Agreement. 32




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##### Table of Contents



In March 2004, the Company entered into a settlement agreement (the
Harvey Settlement) by which Mr. Harvey and his related entities
agreed to convey all of their interests in the Manhattan project to
the Company. The Manhattan Parties also agreed to convey, help to
convey, or cause others to convey the Manhattan project to the Company
so that the Company will receive title to the entire right, title and
interest and marketable title (a 100% interest) in the Manhattan
project. The Manhattan Parties agreed to complete this by December
31, 2005. The Company agreed to issue 250,000 shares to the Manhattan
Parties upon accomplishment of the transference of marketable title,
and an additional 2,500,000 shares should the Companys work on the
property establish at least 2,000,000 ounces of Indicated or Measured
Mineral Resources as determined by a Qualified Person in accordance
with Canadian standards. The Company agreed to perform certain
exploration work upon the receipt of marketable title.The Company has continued to maintain those properties by paying
property taxes on the patented mining claims, the assessment work
obligations on the unpatented claims and has made the required annual
payments to NMMI under the NMMI Settlement agreement.(b)
    
    Colorado, U.S.A.:Included in the Colorado interests is a 100% working interest in the
Consolidated Caribou-Cross-Comstock-Panadora district mine area which
the Company acquired in 1997 for US $4,000,000 in stock, cash and
final property payments. After acquisition of 100% working interest
the seller retains a 2% net smelter royalty interest in the property.
The Company has the right to buy back half of the net smelter royalty
(1%) for US $750,000. The seller has not sold any of the issued
shares for this acquisition through August 31, 2004. 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 interests contain a well-documented mineral
resource of 424,500 ounces of gold and 11,725,000 ounces of silver.As a result of agreements entered into in 2000 to provide financing to
the Company, Aardvark Agencies, Inc. (AAI) owns a portion of the
Caribou property. The parties clarified the earlier agreements in
March 2004, and as a result the Company may repurchase (through August
31, 2011) by repaying the Cdn$747,728 debenture (included in the
debentures described in Note 7) that AAI holds (subject to the
holders right to convert the debenture into Company common stock in
accordance with the terms of the debenture). During the period of
time that Aardvark owns the property, the Company may enter upon the
property, explore for minerals, use the Aardvark properties as
collateral, and produce any minerals found for the Companys own
account. If the Company fails to exercise the option to reacquire the
property interest held by AAI by August 31, 2011, the parties have
agreed to extend the purchase option an additional ten years if the
Company also extends the debenture held by Aardvark during the same
period. 33




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(c)
    
    Panama, Central America:Pursuant to an agreement dated October 6, 2000, the Company received
an option to purchase a 40,000 acre mineral concession in an historic
gold producing district of Panama with Panama Mining of Golden Cycle
of Panama Incorporated (PMGC). The Company acquired concessions to
61,000 acres in the eastern Veraguas district of Panama in 2001
through a five-year lease agreement with PMGC and a related company,
Golden Cycle of Panama, Inc. (GCP). The prior agreements were
cancelled in a new agreement the Company entered into on February 28,
2003 entitled a Purchase Option Agreement. As consideration for the
Purchase Option Agreement, the Company paid the following: - 200,000 shares of stock issued to the two owners of PMGC and GCP
(including 100,000 shares initially issued in 2000), - US$10,000 paid to the two owners; and - assumed US$15,750 of the sellers payables to third parties.  The Company is committed to perform certain work on the properties
which include both a lode prospect and a placer prospect. As a result
of an extension agreement entered into on January 31, 2004, the
Company has an obligation to complete a $250,000 exploration program
for lode deposits by September 25, 2004, and an additional $250,000
program to explore for placer gold deposits and install a pilot placer
operation. The Company also hired a shareholder of the sellers,
Herbert Hendricks, to oversee the project, and has been paying him
US$3,500 per month to do so. Herbert Hendricks is the brother of our
president.To exercise the option and acquire the lode prospect or the placer
prospect, the Company must commence production of gold from the
respective prospect. The terms of acquisition for the two prospects
are different: - to acquire the lode prospect, the Company must pay the sellers a
royalty equal to 2% net smelter return from all lode minerals produced
from the properties until the sellers have received a total of
US$5,000,000. At that time, the Company will have acquired the
properties and the net smelter return will be terminated.
Alternatively, prior to August 28, 2004, Calais may purchase the
properties from the sellers for a $2,500,000 cash payment and a
continuing 0.5% net smelter return. - to acquire the placer prospect, the Company must pay the sellers a
royalty equal to 6% of the gross revenues from placer mineral
production until the sellers have received a total of US$5,000,000.
Thereafter, the royalty will be reduced to 1% for the life of the
placer production.  In the Purchase Option Agreement, the Company agreed to keep all
properties in good and clean standing, to pay all taxes, and to comply
with other governmental requirements. In the extension agreement, the
sellers warranted that they had taken all necessary steps to properly
register, document or record the Purchase Option Agreement and that
they will take such steps with respect to the extension. If the
Company defaults on its obligations, the Purchase Option Agreement
gives the sellers the right to provide 30 days notice of the Companys
right to cure the default and, if the Company fails to cure the
default or contests the default, the agreement will be terminated.Subsequent to the period end the Company completed a new agreement for
the Panama prospect. As part of the new agreement the Company
abandoned the placer prospect, reduced its annual requirement for
exploration expenditures on the lode prospect to $100,000 and agreed
to pay PMGC $25,000 per year. 34




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##### Table of Contents



6.
    
    Long-term debt:The loan balances are as follows: August 31, 2004
    
    May 31, 2004(Unaudited)Broadway Mortgage LLC, US $4,500,000 mortgage (a)
    
    $
    5,925,150
    
    
    $
    6,135,300Finance contracts (b)
    
    
    54,105
    
    
    
    64,366Note payable (c)
    
    
    226,769
    
    
    
    6,206,024
    
    
    
    6,199,666Less: current portion
    
    
    (6,164,631
    )
    
    
    (13,011
    )$
    41,393
    
    
    $
    6,186,655
  (a)
    
    Broadway Mortgage LLC:In August 2003, the Company obtained US $4,500,000 in financing by way of a first mortgage on the Colorado, U.S.A. mineral interests. The total amount
includes two years prepaid interest at a rate of 12.9% per annum or approximately US $1,161,000 providing net cash funding to the Company of approximately US
$3,339,000.  The net cash proceeds of US $3,339,000 were used as follows: Repayment of remaining bank loan (Note 6(a))
    
    $US
    1,080,000Repayment of interim mortgage (Note 10)
    
    
    588,000Repayment of trade payables
    
    
    700,000Working capital
    
    
    876,000Financing 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.(b)
    
    Finance Contracts:Finance contracts payable in monthly instalments of US $971 plus interest at 4.48% to 5.75%; secured by specific equipment.(c)
    
    Note payable:US $166,000 Note payable, with interest only at 15% per annum. The note is due in full on July 31, 2005. 35




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##### Table of Contents



7.
    
    Debentures: August 31, 2004
    
    May 31, 2004(Unaudited)Ten year 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
    
    
    $
    5,069,191Less: Cumulative accretion remaining
    
    
    (406,591
    )
    
    
    (419,829
    )4,662,600
    
    
    
    4,649,362Five year debenture payable in annual instalments of US $50,000 commencing July 8, 2004, without
interest, convertible to common shares at a conversion price of US $0.85 per share at holders
discretion; unsecured
    
    
    329,175
    
    
    
    4,991,775
    
    
    
    4,649,362Less: current portion
    
    
    (131,670
    )
    
    
    $
    4,860,105
    
    
    $
    4,649,362
  Accretion to the face value of the ten year debenture debt of
$13,238 (August 31, 2003 -  $13,090) has been included in interest and bank charges for the period.All debentures are held by companies or persons related to a shareholder or by a director. It is not practicable to determine the fair value of the debentures and
advances from shareholders due to their related party nature and the absence of a secondary market for such instruments.In a March 2004 agreement, the Company agreed to present to its shareholders the question of whether the conversion price of the ten year debentures should be
repriced from Cdn$1.23 to US$0.55. If approved by the shareholders of the Company, the repricing will be effective immediately. Calais has scheduled the meeting
for November 10, 2004, and any proxy solicitation for such meeting will be done in accordance with applicable US and Canadian law. If the shareholders approve the
repricing of the conversion price of the debentures, an additional beneficial conversion feature may arise.8.
    
    Share capital:  (a)
    
    Authorized: 100,000,000 Common shares without par value(b)
    
    Issued and outstanding shares: Numberof shares
    
    AmountBalance, May 31, 2004
    
    
    20,143,453
    
    
    $
    31,154,036Share subscription (i)
    
    
    
    
    
    
    103,298Balance, August 31, 2004
    
    
    20,143,453
    
    
    $
    31,257,334
 36




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##### Table of Contents



(i)
    
    During the period, the Company received US $ 75,000 ($103,298) for subscription of shares as part of a subscription agreement. This was in addition
to $584,848 that had been previously received. The share subscription has been approved by the Company and the participants; however, the Company has
not yet received all of the signed documentation relating to this transaction. Upon receipt of the signed documentation, the following transactions are
expected to be completed in accordance with the terms of subscription agreement:  a)
    
    the Company will issue 586,666 shares in satisfaction of the $584,848 proceeds previously received.b)
    
    the Company will issue 100,000 shares and 200,000 warrants exercisable at US$1.25 to US$1.75 per warrant in satisfaction of the US $75,000
proceeds received.c)
    
    the holders of US$1,560,000 of long-term debt described in Note 6(a) have agreed to convert that debt to 2,080,000 shares and the debt holder
will also allow US$117,390 in prepaid interest to be refunded to the Company. The Company, as part of the transaction, will issue 4,160,000
warrants exercisable at US$1.25 to US $1.75 per warrant.d)
    
    the Company will also issue a further 1,732,462 warrants to buy stock in the shares of the Company at prices ranging from US$0.75 to US$3.00.  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 6(a)).(c)
    
    Stock options: Weighted averageexercise priceDate
    
    Number
    
    per shareIssued and outstanding, May 31, 2004
    
    
    1,232,500
    
    
    CDN
    
    $
    4.48Issued in the period
- to a director
    
    
    3,000,000
    
    
    US
    
    
    0.85Balance, August 31, 2004
    
    
    4,232,500
    
    
    CDN
    
    $
    2.10
  Options outstanding at August 31, 2004 are as follows: Weighted averageExercise price
    
    
    
    
    
    remainingNumber
    
    per share
    
    Expiry date
    
    contractual lifeDirector options
    
    
    82,500
    
    
    $CDN
    1.26
    
    
    November 2004
    
    
    0.3 yearsDirector options
    
    
    50,000
    
    
    $CDN
    0.45
    
    
    August 2005
    
    
    1.0 yearsDirector options
    
    
    100,000
    
    
    $   US
    0.32
    
    
    August 2008
    
    
    4.0 yearsEmployee options
    
    
    500,000
    
    
    $   US
    3.00
    
    
    August 2013
    
    
    9.0 yearsEmployee options
    
    
    500,000
    
    
    $   US
    5.00
    
    
    August 2013
    
    
    9.0 yearsDirector options
    
    
    3,000,000
    
    
    $   US
    0.85
    
    
    July 2014
    
    
    9.9 years4,232,500
    
    
    
    
    
    
    
    
    
    
    
    9.3 years
 All outstanding options are exercisable when issued. 37




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##### Table of Contents



(d)
    
    Warrants: Weighted averageexercise priceNumber
    
    per shareIssued and outstanding, May 31, 2004 and August 31, 2004
    
    
    255,000
    
    
    US $1.60
  Warrants outstanding at August 31, 2004 are as follows: Exercise
    
    
    
    
    
    Weightedprice per
    
    Expiry
    
    average remainingNumber
    
    warrant
    
    date
    
    contractual life80,000
    
    
    US $
    1.50
    (i)
    
    October 2005
    
    
    1.2 years75,000
    
    
    US $
    1.50
    (ii)
    
    April 2006
    
    
    1.7 years50,000
    
    
    US $
    1.50
    
    
    April 2005
    
    
    0.7 years50,000
    
    
    US $
    2.00
    
    
    April 2006
    
    
    1.7 years255,000
    
    
    
    
    
    
    
    
    
    
    
    1.4 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.(ii)
    
    In accordance with the warrant agreement, the exercise price increases to US $2.00 per share if warrants are not
exercised before April 6, 2005.  9.
    
    Related party transactions:During the period, the Company paid, through the issuance of stock options and debentures, $3,493,533 (August 31,
2003 - nil) to a director for various services provided to the
Company.
These transactions are in the normal course of operations and are measured at the exchange amount, which is the
amount of consideration established and agreed to by the related parties.10.
    
    Contingency:The Company has stopped negotiating with a shareholder and former director of the Company for claims of past wages,
salary remuneration and expenses in the approximate amount of US $544,700 ($745,400 Cdn). Included in advances from
shareholders is $343,400 Cdn previously provided for this claim. With new documentation received, the Company
believes this claim is fully without merit and has denied the claim in full. The final outcome of the claim is
undeterminable. Accordingly, no additional provision has been recorded. Additional amounts or a reduction of the
claim, if any, will be recorded in the period the claim is finalized and/or settled.11.
    
    Commitments:The Company is committed under option and lease agreements to expend on exploration expenditures and property option
payments amounts as disclosed in Notes 5 (a), (b), and (c) in the form of cash and/or stock as detailed therein. 38




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##### Table of Contents



12.
    
    Reconciliation with United States Generally Accepted Accounting Principles:Generally accepted accounting principles (GAAP) and practices in the United States of America
(U.S. GAAP) differ in certain respects from Canadian GAAP. Differences which may materially
affect these consolidated financial statements are:  (a)
    
    Mineral interest exploration expenditures:Statement of Financial Accounting Standards No. 144 (SFAS 144),
Accounting for the Impairment or Disposal of Long-Lived Assets in the
U.S. requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. In performing the review for
recoverability, the Company is to estimate the future cash flows expected
to result from the use of the asset and its eventual disposition. If the
sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, an impairment loss
is measured, equal to the excess of the carrying amount over the fair
value of the assets. A common interpretation of SFAS 144 is that it
requires mineral interest exploration costs to be expensed as incurred
until commercially minable deposits are determined to exist within a
particular property as cash flows cannot be reasonably estimated prior to
such determination.Accordingly, for all periods presented, the Company has expensed
exploration costs incurred for U.S. GAAP purposes. Once proved and
probable reserves are established, capitalization of related costs would
commence. This is significantly different from the accounting policy
under Canadian GAAP, as detailed in the mineral interests significant
accounting policy note.Under U.S. GAAP, additional exploration costs for mineral interests that
would be written off are as follows: August 31, 2004
    
    May 31, 2004(Unaudited)Mineral exploration costs
    
    $
    209,511
    
    
    $
    1,538,128
 39




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##### 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 or 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. Effective
June 1, 2004 the Company follows the fair value method under Canadian GAAP and compensation expense is recognized for employee awards
(Note 3). The compensation expense for employee awards recognized under Canadian GAAP for the period ended August 31, 2004 was
$3,164,358 (August 31, 2003  nil).Compensation expense recognized for employee fixed and variable awards after applying the intrinsic value method and the fair value
of non-employee awards for the period ended August 31, 2004
would be nil (period ended August 31, 2003 - $1,150,385) 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 U.S. GAAP is as follows: Three months
    
    Three monthsended
    
    endedAugust 31, 2004
    
    August 31, 2003Net loss under U.S. GAAP
    
    $
    (1,712,821
    )
    
    $
    (1,940,381
    )Add:Stock-based employee compensation expense
included in net loss, net of related tax effects
    
    
    
    
    
    
    1,150,835Deduct:Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of tax
    
    
    (3,164,358
    )
    
    
    (1,288,200
    )Pro forma loss under U.S. GAAP
    
    $
    (4,877,179
    )
    
    $
    2,077,746Pro forma loss per share, basic and diluted
    
    $
    (0.24
    )
    
    $
    (0.17
    )
 40




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##### Table of Contents



Stock-based compensation is calculated
based upon the following weighted average
assumptions:  Three months
    
    Three monthsended
    
    endedAugust 31, 2004
    
    August 31, 2003Expected life of options
    
    
    5.0
    years
    
    
    4.7
    yearsExpected stock price volatility
    
    
    167
    %
    
    
    298
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Risk free interest rate
    
    
    3.00
    %
    
    
    4.83
    %
  (c)
    
    The Company has 150,000 common shares held in escrow. The release of the shares is contingent on certain performance 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 August 31, 2004, no shares are releasable from escrow. No similar
compensation expense would be recognized under Canadian GAAP. These shares are excluded from earnings per share calculations for both Canadian and U.S. GAAP.(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.(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)
    
    The following table presents the consolidated balance sheet, statement of operations and deficit, and cash flows under U.S. GAAP:  Balance Sheet August 31, 2004
    
    May 31, 2004(Unaudited)Total assets under Canadian GAAP
    
    $
    19,105,148
    
    
    $
    20,487,565Adjustments to mineral interest exploration
expenditures (a)
    
    
    (14,954,191
    )
    
    
    (14,744,680
    )Total assets under U.S. GAAP
    
    $
    4,150,957
    
    
    $
    5,742,885Total liabilities under Canadian GAAP
    
    $
    12,016,603
    
    
    $
    11,985,770Fair value conversion option not recognized under
U.S. GAAP(d)
    
    
    406,591
    
    
    
    419,829Total liabilities under U.S. GAAP
    
    
    12,423,194
    
    
    
    12,405,599Share capital, Canadian GAAP
    
    
    31,257,334
    
    
    
    31,154,036Stock-based compensation (b)
    
    
    973,044
    
    
    
    973,044Fair value conversion option (d)
    
    
    (575,173
    )
    
    
    (575,173
    )Share capital, U.S. GAAP
    
    
    31,655,205
    
    
    
    31,551,907
 41




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##### Table of Contents



August 31, 2004
    
    May 31, 2004(Unaudited)Contributed surplus, Canadian GAAP
    
    
    4,477,933
    
    
    
    Stock-based compensation, employee options (b)
    
    
    (4,477,933
    )
    
    
    Contributed surplus, U.S. GAAP
    
    
    
    
    
    
    Accumulated deficit, U.S. GAAP
    
    
    (39,927,442
    )
    
    
    (38,214,621
    )Shareholders deficiency, U.S. GAAP
    
    
    (8,272,237
    )
    
    
    (6,662,714
    )Shareholders deficiency and liabilities under U.S. GAAP
    
    $
    4,150,957
    
    
    $
    5,742,885
  Statement of Operations and Deficit Cumulative
    
    Three months
    
    Three monthsfrom
    
    ended
    
    endedInception to
    
    August 31,
    
    August 31,August 31, 2004
    
    2004
    
    2003Net loss under Canadian GAAP
    
    $
    (27,333,147
    )
    
    $
    (4,680,906
    )
    
    $
    (445,266
    )Adjustments:Mineral interest exploration
expenditures
    
    
    (14,954,191
    )
    
    
    (209,511
    )
    
    
    (357,370
    )Stock-based compensation
 variable plans
    
    
    (973,044
    )
    
    
    
    
    
    
    (1,150,835
    )Stock-based compensation
- employee options
    
    
    4,477,933
    
    
    
    3,164,358
    
    
    
    Fair value conversion option
    
    
    168,582
    
    
    
    13,238
    
    
    
    13,090Net loss, being comprehensive loss, under U.S. GAAP
    
    
    (39,927,442
    )
    
    
    (1,712,821
    )
    
    
    (1,940,381
    )Accumulated opening deficit under U.S. GAAP
    
    
    
    
    
    
    (38,214,621
    )
    
    
    (30,854,067
    )Ending deficit, U.S. GAAP
    
    $
    (39,927,442
    )
    
    $
    (39,927,442
    )
    
    $
    (32,794,448
    )Net loss per share, basic and diluted, U.S. GAAP
    
    
    
    
    
    $
    (0.09
    )
    
    $
    (0.16
    )
  (g)
    
    Statement of cash flows:For Canadian GAAP, cash flows relating to mineral interest exploration expenditures are reported as investing activities. For U.S. GAAP purposes, these costs would be characterized as operating activities. Under U.S.
GAAP financing activities would include financing through the Companys bank overdraft. Accordingly, the effect of these differences on the statements of cash flows are summarized as follows: Three months
    
    Three monthsended
    
    endedAugust 31, 2004
    
    August 31, 2003Cash provided by (used in) operations under Canadian GAAP
    
    $
    (675,388
    )
    
    $
    (887,096
    )Adjustment for mineral exploration costs
    
    
    (202,409
    )
    
    
    (357,370
    )Cash used in operations under U.S. GAAP
    
    
    (877,797
    )
    
    
    (1,244,466
    )Cash used in investments under Canadian GAAP
    
    
    (203,374
    )
    
    
    (368,675
    )Adjustment for mineral exploration costs
    
    
    202,409
    
    
    
    357,370Cash used in investments under U.S. GAAP
    
    
    (965
    )
    
    
    (11,305
    )Financing activities under Canadian GAAP
    
    
    320,488
    
    

    
    2,748,653
 42




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##### Table of Contents



Three months
    
    Three monthsended
    
    endedAugust 31, 2004
    
    August 31, 2003Decrease in bank overdraft
    
    
    
    
    
    
    (7,586
    )Financing activities under U.S. GAAP
    
    
    320,488
    
    
    
    2,741,067Increase (decrease) in cash under Canadian GAAP
    
    
    (558,274)
    
    
    
    1,492,296Additional bank overdraft repayment
    
    
    
    
    
    
    (7,586
    )Increase (decrease) in cash under U.S. GAAP
    
    
    (558,274
    )
    
    
    1,485,882Cash, beginning of year, U.S. GAAP
    
    
    606,461
    
    
    
    Cash, end of year, U.S. GAAP
    
    $
    48,187
    
    
    $
    1,485,296
  (h)
    
    Development stage enterprise:The Company meets the definition of a Development stage enterprises under FAS No. 7. The following additional disclosures would be required under U.S. GAAP.Consolidated statements of operations and deficit (U.S. GAAP) Cumulativefrom inceptionDec 30, 1986 toAugust 31, 2004Operating, exploration and administrative expenses
    
    $
    (31,453,227
    )Loss on disposition of subsidiary
    
    
    (12,537,072
    )Other income
    
    
    4,062,857Net loss for the period since inception to August 31, 2004
    
    $
    (39,927,442
    )
  Consolidated statements of cash flows: Cumulativefrom inceptionDec 30, 1986 toAugust 31, 2004Operating activities
    
    $
    (14,356,157
    )Investing activities
    
    
    (5,591,997
    )Financing activities
    
    
    19,996,341Net cash inflows from inception to August 31, 2004
    
    $
    48,147
 43




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##### Table of Contents



Additional shareholders equity disclosures required under FAS No. 7 would include: DeficitCommon shares
    
    accumulatedNumber
    
    Amount
    
    since inceptionBalance at inception
    
    
    
    
    
    $
    Issued for cash:December 1986
    
    
    1
    
    
    
    1January 1987
    
    
    80,000
    
    
    
    100,000April 1987
    
    
    150,000
    
    
    
    7,500Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    $
    (108,647
    )Balance, May 31, 1987
    
    
    230,001
    
    
    
    107,501
    
    
    
    (108,647
    )Issued for cash:September 1987
    
    
    11,600
    
    
    
    14,500March 1988
    
    
    100,000
    
    
    
    150,000Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (42,412
    )Balance, May 31, 1988
    
    
    341,601
    
    
    
    272,001
    
    
    
    (151,059
    )Issued for cash:August 1988
    
    
    31,000
    
    
    
    54,250Issued upon exercise of warrants:August 1988
    
    
    20,000
    
    
    
    40,000March 1989
    
    
    5,000
    
    
    
    10,000Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (185,968
    )Balance, May 31, 1989
    
    
    397,601
    
    
    
    376,251
    
    
    
    (337,027
    )Issued for cash:July 1989
    
    
    40,000
    
    
    
    136,000Issued upon exercise of options:August 1989
    
    
    20,000
    
    
    
    75,000Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (54,515
    )Balance, May 31, 1990
    
    
    457,601
    
    
    
    587,251
    
    
    
    391,542Acquisition of Cineonix Limited:July 1989
    
    
    1,000,000
    
    
    
    750,000Issued for finders fee
    
    
    30,000
    
    
    
    90,000Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (1,179,904
    )Balance, May 31, 1991
    
    
    1,487,601
    
    
    
    1,427,251
    
    
    
    (1,571,446
    )Issued for mineral interests:April 1992
    
    
    50,000
    
    
    
    20,000Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (71,702
    )Balance, May 31, 1992
    
    
    1,537,601
    
    
    
    1,447,251
    
    
    
    (1,643,148
    )Issued for cash:July 1992
    
    
    1,000,000
    
    
    
    150,000March 1993
    
    
    600,000
    
    
    
    132,000Issued for debt settlement:August 1992
    
    
    115,468
    
    
    
    23,094Issued for finders fee
    
    
    30,000
    
    
    
    26,100Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (118,136
    )
 44




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##### Table of Contents



DeficitCommon shares
    
    accumulatedNumber
    
    Amount
    
    since inceptionBalance, May 31, 1993
    
    
    3,283,069
    
    
    $
    1,778,445
    
    
    $
    (1,761,284
    )Issued for mineral interests Oct. 1993
    
    
    50,000
    
    
    
    30,500Issued for exercise of warrants:June 1993
    
    
    1,000,000
    
    
    
    150,000September 1993
    
    
    145,000
    
    
    
    31,900Issued for cash:January 1994
    
    
    170,000
    
    
    
    102,000Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (329,175
    )Balance, May 31, 1994
    
    
    4,648,069
    
    
    
    2,092,845
    
    
    
    (2,090,459
    )Issued for cash:November 1994
    
    
    200,000
    
    
    
    150,000Issued for exercise of warrants:October 1994
    
    
    205,000
    
    
    
    55,000December 1994
    
    
    40,000
    
    
    
    10,400January 1995
    
    
    215,000
    
    
    
    55,900May 1995
    
    
    3,000
    
    
    
    2,250Cancellation of shares
    
    
    (905,209
    )
    
    
    (1
    )Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (661,833
    )Balance, May 31, 1995
    
    
    4,405,860
    
    
    
    2,366,394
    
    
    
    (2,752,292
    )Issued for cash:June 1995
    
    
    700,000
    
    
    
    700,000December 1995
    
    
    209,200
    
    
    
    796,142April 1996
    
    
    285,750
    
    
    
    1,091,565May 1996
    
    
    359,300
    
    
    
    1,372,526Issued for mineral interests:June 1995
    
    
    100,000
    
    
    
    300,000Issued upon exercise of warrants:June 1995
    
    
    81,500
    
    
    
    61,125August 1995
    
    
    141,500
    
    
    
    97,635September 1995
    
    
    8,000
    
    
    
    6,800October 1995
    
    
    73,500
    
    
    
    66,215November 1995
    
    
    300,000
    
    
    
    300,000April 1996
    
    
    43,500
    
    
    
    36,975May 1996
    
    
    36,500
    
    
    
    31,025Issued for finders fee:May 1996
    
    
    4,364
    
    
    
    Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (2,149,041
    )Balance, May 31, 1996
    
    
    6,748,974
    
    
    
    7,226,402
    
    
    
    (4,901,333
    )Issued for cash:September 1996
    
    
    199,820
    
    
    
    2,038,163Issued for finders fee:September 1996
    
    
    5,962
    
    
    
    Issued upon exercise of options:August 1996
    
    
    10,000
    
    
    
    13,000September 1996
    
    
    3,000
    
    
    
    3,900December 1996
    
    
    1,000
    
    
    
    1,300January 1997
    
    
    1,000
    
    
    
    1,300February 1997
    
    
    7,000
    
    
    
    16,520March 1997
    
    
    500
    
    
    
    650April 1997
    
    
    75,900
    
    
    
    98,670May 1997
    
    
    81,000
    
    
    
    105,300Issued upon exercise of warrants:June 1996
    
    
    27,500
    
    
    
    23,375February 1997
    
    
    285,750
    
    
    
    1,428,750March 1997
    
    
    222,700
    
    
    
    1,113,500Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (2,928,560
    )
 45




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##### Table of Contents



DeficitCommon shares
    
    accumulatedNumber
    
    Amount
    
    since inceptionBalance, May 31, 1997
    
    
    7,670,106
    
    
    
    12,070,830
    
    
    
    (7,829,893
    )Issued for October 1997
    
    
    537,200
    
    
    
    2,686,000Issued upon exercise of options:July 1997
    
    
    1,400
    
    
    
    1,820August 1997
    
    
    1,000
    
    
    
    1,300September 1997
    
    
    7,000
    
    
    
    9,100October 1997
    
    
    39,562
    
    
    
    61,823May 1998
    
    
    207,000
    
    
    
    60,030Issued for mineral interests:February 1998
    
    
    11,250
    
    
    
    97,538March 1998
    
    
    619,000
    
    
    
    3,683,050Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (10,779,708
    )Balance, May 31, 1998
    
    
    9,093,518
    
    
    
    18,671,491
    
    
    
    (18,609,601
    )Returned to Treasury:July 1998
    
    
    (22,039
    )
    
    
    Issued upon exercise of options:March 1999
    
    
    25,000
    
    
    
    33,500Issued for debt settlement:January 1999
    
    
    180,125
    
    
    
    270,188Issued for mineral interests:November 1998
    
    
    80,364
    
    
    
    478,166March 1999
    
    
    288,750
    
    
    
    2,503,462March 1999
    
    
    10,000
    
    
    
    59,500Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (7,158,555
    )Balance, May 31, 1999
    
    
    9,655,718
    
    
    
    22,016,307
    
    
    
    (25,768,156
    )Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (2,275,487
    )Balance, May 31, 2000
    
    
    9,655,718
    
    
    
    22,016,307
    
    
    
    (28,043,643
    )Issued under settlement of services:August 2000
    
    
    100,000
    
    
    
    45,000Issued under exercise of options:January 2001
    
    
    100,000
    
    
    
    15,000Stock-based compensation
    
    
    
    
    
    
    183,079Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (1,063,927
    )Balance, May 31, 2001
    
    
    9,855,718
    
    
    
    22,259,386
    
    
    
    (29,107,570
    )Issued for debt settlement:October 2001
    
    
    250,000
    
    
    
    75,000Issued under settlement of services:October 2001
    
    
    471,000
    
    
    
    141,300Issued for mineral interests:October 2001
    
    
    100,000
    
    
    
    30,000Stock-based compensation
    
    
    
    
    
    
    125,917Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (1,183,901
    )
 46




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##### Table of Contents



DeficitCommon shares
    
    accumulatedNumber
    
    Amount
    
    since inceptionBalance, May 31, 2002
    
    
    10,676,718
    
    
    
    22,631,603
    
    
    
    (30,291,471
    )Issued for debt settlement:June 2002 and August 2002
    
    
    67,500
    
    
    
    38,800Issued under settlement of services:October 2002 and January 2003
    
    
    261,667
    
    
    
    143,234Issued for mineral interests:February 2003
    
    
    100,000
    
    
    
    82,000Issued under exercise of options:January 2003
    
    
    25,000
    
    
    
    11,250Issued for cashOctober 2002
    
    
    62,500
    
    
    
    78,771Warrants issued under settlement of services:October 2002
    
    
    
    
    
    
    205,645Stock based compensation
    
    
    
    
    
    
    90,473Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (1,127,233
    )Balance, May 31, 2003
    
    
    11,193,385
    
    
    
    23,281,776
    
    
    
    (31,418,704
    )Issued under exercise of warrants:August 2003
    
    
    62,500
    
    
    
    69,785Issued under exercise of options:July 2003, August 2003, October 2003 and
January 2004
    
    
    340,000
    
    
    
    153,000Issued for financing:August 2003
    
    
    8,181,818
    
    
    
    6,280,242Issued for services:November 2003 and
December 2003
    
    
    245,750
    
    
    
    558,515Issued for cashNovember 2003
    
    
    80,000
    
    
    
    124,741April 2004
    
    
    125,000
    
    
    
    164,450Subscription received
    
    
    
    
    
    
    584,848Issued for mineral properties:December 2003
    
    
    2,000
    
    
    
    4,900Cancelled shares previously issued for services:January 2004
    
    
    (87,000
    )
    
    
    (38,280
    )Cancelled
warrants previously issued
for services
    
    
    
    
    
    
    (205,645
    )Stock based compensation
    
    
    
    
    
    
    573,575Net loss for the year under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (6,795,917
    )Balance, May 31, 2004
    
    
    20,143,453
    
    
    
    31,551,907
    
    
    
    (38,214,621
    )Issued for cash:Subscription received
    
    
    
    
    
    
    103,298Net loss for the period under U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    (1,712,821
    )Balance, August 31, 2004
    
    
    20,143,453
    
    
    $
    31,655,205
    
    
    $
    (39,927,442
    )
 All of the above transactions have been included on a post-consolidation basis. 47




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##### Table of Contents



Exhibit Index  Exhibit No.
    
    Description10.1
    
    Restatement of Purchase Option Agreement  Republic of Panama Concessions dated October 6, 2004.31.1
    
    Certification pursuant to Sarbanes-Oxley Section 302 by CEO31.2
    
    Certification pursuant to Sarbanes-Oxley Section 302 by CFO32.1
    
    Certification pursuant to 18 U.S.C. Section 1350 by CEO32.2
    
    Certification pursuant to 18 U.S.C. Section 1350 by CFO